In furtherance of the Government of India’s Ease of Doing Business initiatives, Ministry of Corporate Affairs (MCA) vide its Commencement Notification dated May 07, 2018 has notified 27 Sections of the Companies (Amendment) Act, 2017 which amended provisions of Companies Act, 2013. These Sections shall come into force with effect from 07th May 2018.
A list of the notified Sections together with the amendments is summarized below:
| SECTION NO. & TITLE | AMENDMENTS/CHANGES |
| Sec 2(6) – Definition of Associate Company | • Change in explanation of the term ‘significant influence’ under the definition of Associate Company to include control of ‘voting power’ instead of existing ‘share capital’.
• The term ‘Joint Venture’ has also been defined to mean “a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement”. • These changes impacts the compliances relating to consolidation of accounts and RPTs. |
| Sec 2(87) – Definition of Subsidiary Company | • The words ‘Total Share Capital’ is now substituted by ‘Total Voting Power’
• This amendment could ease the fund raising by companies and compliance with Accounting Standards because earlier Preference Shares were to be treated on par with Equity Shares apart from causing confusion in the consolidation. |
| Sec 26 – Matters to be stated in Prospectus | • The prospectus shall state such information and set out such reports on financial information as may be specified by SEBI in consultation with the Central Government.
• Until SEBI specifies the information and reports on financial information, the regulations made by it under the SEBI Act, 1992, in this regard shall apply. • As a result, MCA and SEBI may workout the minimum disclosures to be included in the prospectus so that the regulatory objectives of both the regulators are achieved while achieving the end purpose of reduction in the size of the prospectus |
| Sec 54 – Issue of sweat Equity Shares | • A company is now allowed to issue Sweat Equity Shares at any time after its incorporation.
• Prior to this, such Shares could be issued only after the expiry of 1 year from the date of commencement of business. |
| Sec 77 – Duty to register charges, etc. | • The requirement of registration of charges shall not apply to such charges as may be prescribed in consultation with the Reserve Bank of India.
• The scope of the word ‘Charge’ is too wide and in absence of specific list , ‘pledges’ and ‘liens’ were also required to be registered. However, the same were exempted from registration under the earlier regime. |
| Sec 117 – Resolutions and agreements to be filed | • The minimum fine for non-filing under this Section has been reduced from Rs. 5 Lakh to Rs. 1 Lakh for Company and from Rupees 1 Lakh to Rs. 50 Thousand for Officer in default.
• No need of filing e-form MGT-14 for resolutions passed by a Company according consent to the exercise by its Board of directors of any of the powers under clause (a) and clause (c) of sub-section (1) of Section 180. • Exemption is provided to Banking Companies from filing resolutions with respect to grant of loans, giving of guarantee or providing of security in respect of loans in the ordinary course of its business. This may keeping in view of the confidentiality obligations towards their customers. |
| Sec 129 – Financial statement | • The explanation providing that Subsidiary includes Associate Company and Joint Venture has been deleted.
• The requirement of consolidation of accounts of associate companies in addition to its subsidiaries in the same form and manner as that of its own in accordance with applicable accounting standards has been merged in the sub-section itself. • The Company shall also attach along with its financial statement, a separate statement containing the salient features of the Subsidiary and Associate Companies. |
| Sec 137 – Copy of Financial Statement to be filed with Registrar | • Unaudited financial statements of Foreign Subsidiary which is not required to get its accounts audited are allowed to be filed, along with a declaration to that effect by the Holding Company. |
| Sec 139 – Appointment of Auditors | • The requirement relating to ratification of appointment of auditors by members at every AGM has been done away with. |
| Sec 149 – Company to have Board of Directors | • The 182 days criteria for determining whether a Director is resident in India shall be computed with reference to the financial year. Currently, it is calculated with reference to previous calendar year.
• However, for a newly incorporated Company the above requirement shall apply proportionately at the end of the financial year in which it is incorporated. • Scope of the restriction on “pecuniary relationship or transaction” entered into by a relative have made more specific by clearly categorizing the types of transactions as provided under Section 141(3)(d). |
| Sec 164 – Disqualifications for appointment of Director | • When a Director is appointed in Company which is in default of filing of financial statements or annual return or repayment of deposits or pay interest or redemption of debentures or payment of interest thereon or payment of dividend then such director shall not incur the disqualification for a period of 6 months from the date of his appointment. |
| Sec 167 – Vacation of office of Director | • In case a director incurs any of disqualifications u/s 164(2) due to default of filing of financial statements or annual return or repayment of deposits or pay interest or redemption of debentures or payment of interest thereon or payment of dividend, then he shall vacate office in all the companies other than the company which is in default.
• The said change in because the section created a paradoxical situation where the office of all the directors in a Board would become vacant where they are disqualified under Section 164(2), and a new person could not be appointed as a director as they would also attract such a disqualification. • However, if an appeal is preferred against disqualification by such Director the vacation shall not take effect until such further appeal or petition is disposed of. |
| Sec 168 – Resignation of Director | • Optional filing of e-form DIR-11 w.r.t forwarding of copy of resignation by Director to the Registrar. |
| Sec 173 – Meetings of Board | • Directors are now allowed to participate on restricted items at Board meetings through video conferencing or other audio-visual means if there is quorum through physical presence of directors.
• This move is expected to provide relief to Directors to participate in discussion and voting in important matters like approval of financial statements etc, without traveling to the place of meeting. |
| Sec 177 – Audit Committee | • Related party transactions other than those prescribed u/s 188, if not approved by Audit committee, shall be decided by the Board of Directors based on the Audit Committee’s recommendations.
• In case any transaction involving any amount not exceeding Rs. 1.00 Crore is entered into by a Director or Officer of the Company without obtaining the approval of the Audit Committee and it is not ratified by the Audit Committee within 3 months from the date of the transaction, such transaction shall be voidable at the option of the Audit Committee. • If the transaction is with the related party to any Director or is authorised by any other Director, the Director concerned shall indemnify the company against any loss incurred by it. |
| Sec 185 – Loan to Directors, etc | Though the entire section is substituted, the major changes are as under:
• Advancing of loan, including any loan represented by a book debt to, or giving of any guarantee or providing any security in connection with any loan taken by following persons is completely restricted- (a) any director of Company, or of a Company which is its Holding Company or any Partner or relative of any such Director; or (b) any firm in which any such Director or relative is a Partner. • The Companies are permitted to give loans to entities in which Directors are interested after passing special resolution. • If the borrower is a Company then loan should be utilized for its principal business activities only. |
| Sec 186 – Loan and investment by Company | • Employees have been excluded from the purview of this section.
• Shareholders’ approval will not be required where a loan or guarantee is given or where a security has been provided by a Company to its Wholly Owned Subsidiary Company or a Joint Venture Company, or acquisition is made by a Holding Company, by way of subscription, purchase or otherwise of, the securities of its wholly owned Subsidiary Company. |
| Sec 403 (Part) – Fee for filing, etc. | • Additional fee of at least Rs. 100 per day will be levied in respect of delayed filing of Annual Return u/s 92 and Financial Statement u/s 139.
• For the forms other than the ones to be filed under the Section mentioned aforesaid additional fee will be prescribed afresh. |
Consequent to the above amendments in the Act, the MCA has also issued amendments to certain Rules which shall come into force from May 07, 2018:
| Rule | Amendment |
| Companies (Registration Office and fees) Second Amendment Rules, 2018 | • Registrar shall allow 15 days time for re-submission in case of reservation of a name through web service – Reserve Unique Name (RUN) for rectification of defects, if any.
• In case the due date of filings under Section 92 (Annual Return) or 137 (Annual Financial Statement) of the Companies Act, 2013 expires after June 30, 2018, the additional fee of Rs.100 per day shall become payable in respect of e-forms MGT-7, AOC-4, AOC-4 XBRL and AOC-4 CFS. • In all other cases where the belated annual returns or balance sheet/financial statement which were due to be filed whether under the Companies Act, 1956 (23AC, 23ACA, 23AC XBRL, 23ACA XBRL, 20B, 21A) or the Companies Act, 2013 (MGT-7, AOC-4, AOC-4 XBRL and AOC-4 CFS) additional fee as per the applicable slab for the period of delay up to 30th June 2018 plus Rs.100 per day w.e.f July 01, 2018 shall become payable. |
| Companies (Share Capital and Debentures) Second Amendment Rules, 2018 | • Prior to this amendment, only a permanent employee who has been working for at least last 1 year for the Company whether in India or outside India was eligible for Sweat Equity Shares has been done away with. Now, this has been done away with. |
| Companies (Audit and Auditors) Amendment Rules, 2018 | • Explanation and Proviso to Rule 3 have been amended and to bring it at par with amendment to Section 139 whereby the requirement of ratification of appointment of Statutory Auditors is no longer needed. |
| Companies (Meetings of Board and its Powers) Amendment Rules, 2018 | • Rules have been amended to bring it at par with amendment made to Section 117 & 186 of the Act. |
| Companies (Appointment and Qualification of Directors) Second Amendment Rules, 2018 | • Amendment has been made to bring it in line with the amendment made to definition of Independent Directors u/s 149 (6). |
| Companies (Prospectus and Allotment of Securities) Amendment Rules, 2018 | • Rule 4 relating to “Reports to be set out in Prospectus”, Rule 5 relating to “Other matters and reports to be stated in the Prospectus” and Rule 6 relating to “Period for which information to be provided in certain cases” have been omitted to bring in line with amendment to Section 26. |
(Author- CS Rahul Jain is partner with RANJ & Associates, Company Secretaries, Hyderabad)
Disclaimer: This material and the information contained herein is prepared by Corporate Updates Team of RANJ & Associates, Company Secretaries, Hyderabad. The above information is only indicative and solely for informational purpose and private circulation. RANJ & Associates, Company Secretaries intend to, but do not guarantee or promise that it is correct, complete / up to date. We expressly disclaim any liability to any person in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document.
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Any amendments relating to reporting of frauds by auditors?