Piyush Jain

The Parliament has passed Companies (Amendment) Bill, 2017 to strengthen corporate governance standards, initiate strict action against defaulting companies and help improve ease of doing business in the Country.

Key Features of the Bill are as follows:

Objects of a Company

Currently, the Companies Act, 2013 requires all companies to mention the objects for which the company is proposed to be incorporated in the Memorandum of Association (MOA).

Under the Companies Amendment Act, 2017, the MOA of a company could state that the company could engage in any lawful act or activity or business. Hence, small or privately held companies would be able to undertake a range of business activities without making changes to the MOA. However, if the MOA restricts the objects of a company to certain activities, then the company would be able to abide by the objects specified.

Company Annual Return

All companies are required to file an annual return with the Ministry of Corporate Affairs each year. The Companies Amendment Act, 2017 has proposed to provide an abridged form of annual return for One Person Company and small company. The abridged form of annual return will make annual compliance for a company simpler for small businesses.

The Companies Amendment Act, 2017 has also mandated that all companies place a copy of the annual return on the website of the company and provide the web link for the annual report in the Board’s report instead of attaching Form MGT-9 with its Board’s Report.

Penalty for Late Filing of Annual Return

The penalty for late filing of company annual return is set to significantly increase on the implementation of the Companies Amendment Act, 2017.

Under the Companies Amendment Act, 2017, the penalty for late filing of Annual Return or financial statements will be a minimum amount of Rs 100 per day of default. Further, the company would be liable for penal action. If a company defaults on filing the annual return or financial statements for two or more times, the penalty levied would be doubled.

Related Party Definition

Under the Companies Act 2013, a ‘related party’ in relation to a company includes:

1. A holding, subsidiary or an associate company of such company; or

2. A subsidiary of a holding company to which it is also a subsidiary.

Companies Amendment BIll, 2017 has proposed to make an investing company or the venture of a company a related party as well.

Also, the term “company” under section 2(76) (viii) is proposed to be substituted with “body corporate” so as to include the companies incorporated outside India related to the Indian company under the related party definition.

Loans to Directors

Under the Companies Act 2013, companies are not allowed to advance any loan to its directors or persons related to the Director. The Companies Amendment Act, 2017 has proposed to relax this restriction and allow companies to extend its Directors or related persons, after passing a special resolution.

To prevent abuse of this relaxation, an additional clause has also been introduced in the Companies Amendment Act, 2017 to punish Directors who use loans against conditions under which it was extended.

Key Managerial Personnel (KMP)

Now Companies can designate any other officer of the Company to be KMP.

The definition of KMP as given in section 2(51) has been extended to include any other officer of the company (i) who is not more than one level below the directors; (ii) who is in whole time employment; and (iii) has been designated by the Board as a KMP.

Annual General Meeting

The Companies Amendment Bill, 2017 has proposed to amend section 96 w hereafter Annual General Meeting (AGM) of unlisted company may be held at any place in India if consent is given in writing or by electronic mode by all the members in advance.

Extra-Ordinary General Meeting

Extra-Ordinary General Meeting (EGM), as provided under section 100, of wholly owned subsidiary of a company incorporated outside India can be held outside India.

EGM can be called at a shorter notice where consent is given by members holding not less than 95% of paid-up share capital in case the company is having share capital.

Ratification of Auditors

The requirement of ratification of appointment of auditors under section 139 at every AGM is omitted.

Managerial Remuneration

The provisions relating to Managerial Remuneration are being liberalized in the Bill. The requirement of Central Government approval is being replaced by the requirement of approval of the shareholders, secured creditors and non-convertible debenture holders, as the case maybe.

The Bill also mandates the requirement that the Statutory Auditor of the company to report in its Auditors Report on: (i) Compliance of the provisions of managerial remuneration and (ii) Whether remuneration paid to any director is in excess of the prescribed limits.

Clause by Clause analysis of the (Companies Amendment) Bill, 2017:

Provision
Before the Bill
After the Bill
Key Impact
Explanation to Section 2(6)
For the purposes of this clause, “significant influence” means control of at least twenty per cent of total share capital, or of business decisions under an agreement;
(a) the expression “significant influence” means control of at least Twenty per cent. of total voting power, or control of or participation in business decisions under an agreement.
(b) the expression “joint venture” means a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement;’;
The definition of joint ventures was nowhere defined in Companies Act, 2016, however it was used numerous times. So, the definition will remove the ambiguity.
Section 2 (28)
cost accountant means a cost accountant as defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 (23 of 1959)
“Cost Accountant” means a cost accountant as defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 and who holds a valid certificate of practice under sub-section (1) of section 6 of that Act;’;
It removes the ambiguity with the Section 148 of the act by clearly defining that for the purpose of this act cost accountant will be the person who is the member in practice.
Proviso to section 2 (30)
New proviso
“Provided that—
(a) the instruments referred to in Chapter III-D of the Reserve Bank of India Act, 1934; and
(b) such other instrument, as may be prescribed by the Central Government in consultation with the Reserve Bank of India, issued by a company, shall not be treated as debenture
Giving more clarity in the definition of debentures by excluding derivatives and money market instruments etc. to be treated as debentures and a scope has been provided to exclude any other instrument to be treated as debenture.
Proviso to Section 2 (41)
Provided that on an application made by a company or body corporate, which is a holding company or a subsidiary of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year
Provided that on an application made by a company or body corporate, which is a holding company or a subsidiary or associate company of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year
Associate Company of a company incorporated outside India may also apply for a different financial year to the NCLT by the amendment.
Explanation to Section 2 (46)
New Explanation
‘Explanation.—For the purposes of this clause, the expression “company”
includes any body corporate;
Companies incorporated outside India and having subsidiaries in India or vice versa are included in the definition.
Section 2 (49)
interested director” means a director who is in any way, whether by himself or through any of his relatives or firm, body corporate or other association of individuals in which he or any of his relatives is a partner, director or a member, interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into by or on behalf of a company
Omitted
Now only definition of interested director in the Companies Act, 2013 is in Section 184(2). It was recommended by many stakeholders to avoid the confusion between the clause and section 184(2).
Section 2 (51)
key managerial personnel”, in relation to a company, means—
(i) the Chief Executive Officer or the managing director or the manager;
(ii) the company secretary;
(iii) the whole-time director;
(iv) the Chief Financial Officer; and
(v) such other officer as may be prescribed;
key managerial personnel”, in relation to a company, means—
(i) the Chief Executive Officer or the managing director or the manager;
(ii) the company secretary;
(iii) the whole-time director;
(iv) the Chief Financial Officer; and
(v) such other officer, not more than one level below the directors who is in whole-time employment, designated as key managerial personnel by the Board; and
(vi) such other officer as may be prescribed
As per the recommendation of Company Law Committee, now a Company can designate any person one level below the Board as KMP.
Section 2 (57)
“net worth” means the aggregate value of the paid-up share capital and all reserves created out of the profits and securities premium account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation;
“net worth” means the aggregate value of the paid-up share capital and all reserves created out of the profits and securities premium account and debit or credit balance of profit and loss account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation;
It was the general error.
Section 2 (71)
“public company” means a company which—
(a) is not a private company;
(b) has a minimum paid-up share capital, as may be prescribed:
“public company” means a company which—
(a) is not a private company; and
(b) has a minimum paid-up share capital, as may be prescribed:
It was the general error.
Proviso to Section 2 (72)
Provided that no institution shall be so notified unless—
(A) it has been established or constituted by or under any Central or State Act; or
(B) not less than fifty-one per cent of the paid-up share capital is held or controlled by the Central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments;
Provided that no institution shall be so notified unless—
(A) it has been established or constituted by or under any Central or State Act other than this Act or the previous company law; or
(B) not less than fifty-one per cent of the paid-up share capital is held or controlled by the Central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments;
Section 2 (76)
viii) any company which is—
(A) a holding, subsidiary or an associate company of such company; or
(B) a subsidiary of a holding company to which it is also a subsidiary;
“(viii) any body corporate which is—
(A) a holding, subsidiary or an associate company of such company;
(B) a subsidiary of a holding company to which it is also a subsidiary;
or
(C) an investing company or the venturer of the company;”;
Explanation.—For the purpose of this clause, “the investing company or
the venturer of a company” means a body corporate whose investment in the company would result in the company becoming an associate company of the body corporate.
Substitution of the words ‘body corporate’ for the word ‘company’ in the definition of ‘related party’ has expanded the scope of related party, which now includes foreign company which is holding, subsidiary or an associate of Indian Company.
Further sister subsidiary in India or abroad would also be a related party.
It seems term ‘investing company’ would mean investor company which could be Indian or foreign and would be treated as related party.
Section 2 (85)
“small company” means a company, other than a public company,—
(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; and
(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees:
“small company” means a company, other than a public company,—
(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than Ten crore rupees; and
(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees:
Limits are revised.
Further a clerical error was revised.
Section 2 (87)
“subsidiary company” or “subsidiary”, in relation to any other company (that is to say the holding company), means a company in which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies:
“subsidiary company” or “subsidiary”, in relation to any other company (that is to say the holding company), means a company in which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total voting power either at its own or together with one or more of its subsidiary companies:
Earlier preference share capital and equity share capital of the company both combined were used to define a subsidiary company, now replacing the word total share capital with the word total voting power justifies the word subsidiary company.
Section 2 (91)
“turnover” means the aggregate value of the realization of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year
“turnover” means the gross amount of revenue recognized in the
profit and loss account from the sale, supply, or distribution of goods or on
account of services rendered, or both, by a company during a financial year
It gives the exact meaning of turnover
Section 3A
New provision
If at any time the number of members of a company is reduced, in the caseof a public company, below seven, in the case of a private company, below two, and the company carries on business for more than six months while the number of members is so reduced, every person who is a member of the company during the time that it so carries on business after those six months and is cognizant of the fact that it is carrying on business with less than seven members or two members, as the case may be, shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefor.
It was the provision which was in the Companies Act, 1956 but was not a part of Companies Act, 2013.
It is the provision to keep bring the liability on the existing members and aware them about the mandatory provision of minimum members in the Company.
Section 4 (5) (i)
Upon receipt of an application under sub-section (4), the Registrar may, on the basis of information and documents furnished along with the application, reserve the name for a period of sixty days from the date of the application.
Upon receipt of an application under sub-section (4), the Registrar may, on the basis of information and documents furnished along with the application, reserve the name for a period of twenty days from the date of approval or such other period as may be prescribed:
Provided that in case of an application for reservation of name or for change of its name by an existing company, the Registrar may reserve the name for a period of sixty days from the date of approval.
Now the promoters of the company need to file the incorporation documents within 20 days of approval instead of 60 days of application.
This provision is introduced keeping in mind that the incorporation process is now processed by the CRC.
Section 7 (1) (c)
an affidavit from each of the subscribers to the memorandum and from persons named as the first directors, if any, in the articles that he is not convicted of any offence in connection with the promotion, formation or management of any company, or that he has not been found guilty of any fraud or misfeasance or of any breach of duty to any company under this Act or any previous company law during the preceding five years and that all the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of his knowledge and belief;
a declaration from each of the subscribers to the memorandum and from persons named as the first directors, if any, in the articles that he is not convicted of any offence in connection with the promotion, formation or management of any company, or that he has not been found guilty of any fraud or misfeasance or of any breach of duty to any company under this Act or any previous company law during the preceding five years and that all the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of his knowledge and belief;
Now a declaration from each of the subscribers to the memorandum and from persons named as the first directors, if any, in the articles that he is not convicted of any offence in connection is to be filled along with the incorporation form.
Earlier affidavit was required to be filed which requires notarization.
It is in line with the ease of doing business.
Section 12 (1)
A company shall, on and from the fifteenth day of its incorporation and at all times thereafter, have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it.
A company shall, within thirty days of its incorporation and at all times thereafter, have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it.
The newly incorporated company shall have its registered office within 30 days of its incorporation instead of 15 days.
Section 12 (4)
Notice of every change of the situation of the registered office, verified in the manner prescribed, after the date of incorporation of the company, shall be given to the Registrar within fifteen days of the change, who shall record the same.
Notice of every change of the situation of the registered office, verified in the manner prescribed, after the date of incorporation of the company, shall be given to the Registrar within thirty days of the change, who shall record the same.
The time limit for reporting the change of its registered office has been relaxed from 15 days to 30 days.
Section 21
Save as otherwise provided in this Act,—
(a) a document or proceeding requiring authentication by a company; or
(b) contracts made by or on behalf of a company, may be signed by any key managerial personnel or an officer of the company duly authorized by the Board in this behalf.
Save as otherwise provided in this Act,—
(a) a document or proceeding requiring authentication by a company; or
(b) contracts made by or on behalf of a company,
may be signed by any key managerial personnel or an officer or employee of the company duly authorized by the Board in this behalf.
Employees of the Company along with an officer and KMP duly authorized by the Board may signed any document or company on behalf of the Company.
Section 26 (1)
Every prospectus issued by or on behalf of a public company either with reference to its formation or subsequently, or by or on behalf of any person who is or has been engaged or interested in the formation of a public company, shall be dated and signed and shall-
a) state the following information, namely:—
(i) names and addresses of the registered office of the company, company secretary, Chief Financial Officer, auditors, legal advisers, bankers, trustees, if any, underwriters and such other persons as may be prescribed;
(ii) dates of the opening and closing of the issue, and declaration about the issue of allotment letters and refunds within the prescribed time;
(iii) a statement by the Board of Directors about the separate bank account where all monies received out of the issue are to be transferred and disclosure of details of all monies including utilised and unutilised monies out of the previous issue in the prescribed manner;
(iv) details about underwriting of the issue;
(v) consent of the directors, auditors, bankers to the issue, expert’s opinion, if any, and of such other persons, as may be prescribed;
(vi) the authority for the issue and the details of the resolution passed therefor;
(vii) procedure and time schedule for allotment and issue of securities;
(viii) capital structure of the company in the prescribed manner;
(ix) main objects of public offer, terms of the present issue and such other particulars as may be prescribed;
(x) main objects and present business of the company and its location, schedule of implementation of the project;
(xi) particulars relating to
(A) management perception of risk factors specific to the project;
(B) gestation period of the project;
(C) extent of progress made in the project;
(D) deadlines for completion of the project; and
(E) any litigation or legal action pending or taken by a Government Department or a statutory body during the last five years immediately preceding the year of the issue of prospectus against the promoter of the company;
(xii) minimum subscription, amount payable by way of premium, issue of shares otherwise than on cash;
(xiii) details of directors including their appointments and remuneration, and such particulars of the nature and extent of their interests in the company as may be prescribed; and
(xiv) disclosures in such manner as may be prescribed about sources of promoter’s contribution;
(b) set out the following reports for the purposes of the financial information, namely:—
(i) reports by the auditors of the company with respect to its profits and losses and assets and liabilities and such other matters as may be prescribed;
(ii) reports relating to profits and losses for each of the five financial years immediately preceding the financial year of the issue of prospectus including such reports of its subsidiaries and in such manner as may be prescribed:
Provided that in case of a company with respect to which a period of five years has not elapsed from the date of incorporation, the prospectus shall set out in such manner as may be prescribed, the reports relating to profits and losses for each of the financial years immediately preceding the financial year of the issue of prospectus including such reports of its subsidiaries;
(iii) reports made in the prescribed manner by the auditors upon the profits and losses of the business of the company for each of the five financial years immediately preceding issue and assets and liabilities of its business on the last date to which the accounts of the business were made up, being a date not more than one hundred and eighty days before the issue of the prospectus:
Provided that in case of a company with respect to which a period of five years has not elapsed from the date of incorporation, the prospectus shall set out in the prescribed manner, the reports made by the auditors upon the profits and losses of the business of the company for all financial years from the date of its incorporation, and assets and liabilities of its business on the last date before the issue of prospectus; and
(iv) reports about the business or transaction to which the proceeds of the securities are to be applied directly or indirectly;
(c) make a declaration about the compliance of the provisions of this Act and a statement to the effect that nothing in the prospectus is contrary to the provisions of this Act, the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the rules and regulations made there under; and
(d) state such other matters and set out such other reports, as may be prescribed.
Every prospectus issued by or on behalf of a public company either with reference to its formation or subsequently, or by or on behalf of any person who is or has been engaged or interested in the formation of a public company, shall be dated and signed and shall state such information and set out such reports on financial information as maybe specified by the Securities and Exchange Board in consultation with the Central Government:
Provided that until the Securities and Exchange Board specifies the information and reports on financial information under this sub-section, the regulations made by the Securities and Exchange Board under the Securities and Exchange Board of India Act, 1992, in respect of such financial information or reports on financial information shall apply.
Clause a omitted
Clause b omitted
(c) make a declaration about the compliance of the provisions of this Act and a statement to the effect that nothing in the prospectus is contrary to the provisions of this Act, the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the rules and regulations made there under; and
Clause d omitted
The amendment is to align the requirement of prospectus with the SEBI Regulations.
It also states that until SEBI specifies the regulation under this section the current regulations made by SEBI (ICDR) Shall apply.
The amendment omits all the requirements as required by the Companies Act except a declaration about the Compliance of the Act, SCRA and SEBI.
Section 35 (c)
New clause introduced.
that, as regards every misleading statement purported to be made by an expert or contained in what purports to be a copy of or an extract from a report or valuation of an expert, it was a correct and fair representation of the statement, or a correct copy of, or a correct and fair extract from, the report or valuation; and he had reasonable ground to believe and did up to the time of the issue of the prospectus believe, that the person making the statement was competent to make it and that the said person had given the consent required by sub-section (5) of section 26 to the issue of the prospectus and had not withdrawn that consent before delivery of a copy of the prospectus for registration or, to the defendant’s knowledge, before allotment there under
The Clause is introduced to hold experts such as merchant banker etc. to be liable for their statement and provide a defense to directors or any other person who relied on the statement.
Section 42
Whole new Section for private placement is substituted.
(1) A company may, subject to the provisions of this section, make a private Placement of securities.
(2) A private placement shall be made only to a select group of persons who have been identified by the Board (herein referred to as “identified persons”), whose number shall not exceed fifty or such higher number as may be prescribed [excluding the qualified institutional buyers and employees of the company being offered securities under a scheme of employees stock option in terms of provisions of clause (b) of sub-section (1) of section 62], in a financial year subject to such conditions as may be prescribed.
(3) A company making private placement shall issue private placement offer and application in such form and manner as may be prescribed to identified persons, whose names and addresses are recorded by the company in such manner as may be prescribed:
Provided that the private placement offer and application shall not carry any right of renunciation.
Explanation I.—”private placement” means any offer or invitation to subscribe or issue of securities to a select group of persons by a company (other than by way of public offer) through private placement offer-cum-application, which satisfies the conditions specified in this section.
Explanation II.—”qualified institutional buyer” means the qualified institutional buyer as defined in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended from time to time, made under the Securities and Exchange Board of India Act, 1992.
Explanation III.—If a company, listed or unlisted, makes an offer to allot or invites subscription, or allots, or enters into an agreement to allot, securities to more than the prescribed number of persons, whether the payment for the securities has been received or not or whether the company intends to list its securities or not on any recognized stock exchange in or outside India, the same shall be deemed to be an offer to the public and shall accordingly be governed by the provisions of Part I of this Chapter.
(4) Every identified person willing to subscribe to the private placement issue shall apply in the private placement and application issued to such person along with subscription money paid either by cheque or demand draft or other banking channel and not by cash:
Provided that a company shall not utilize monies raised through private placement unless allotment is made and the return of allotment is filed with the Registrar in accordance with sub-section (8).
(5) No fresh offer or invitation under this section shall be made unless the allotments with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company:
Provided that, subject to the maximum number of identified persons under sub-section (2), a company may, at any time, make more than one issue of securities to such class of identified persons as may be prescribed.
(6) A company making an offer or invitation under this section shall allot its securities within sixty days from the date of receipt of the application money for such securities and if the company is not able to allot the securities within that period, it shall repay the application money to the subscribers within fifteen days from the expiry of sixty days and if the company fails to repay the application money within the aforesaid period, it shall be liable to repay that money with interest at the rate of twelve percent per annum from the expiry of the sixtieth day:
Provided that monies received on application under this section shall be kept in a separate bank account in a scheduled bank and shall not be utilized for an
y purpose other than—
(a) for adjustment against allotment of securities; or
(b) for the repayment of monies where the company is unable to allot securities.
(7) No company issuing securities under this section shall release any public advertisements or utilize any media, marketing or distribution channels or agents to inform the public at large about such an issue.
(8) A company making any allotment of securities under this section, shall file with the Registrar a return of allotment within fifteen days from the date of the allotmentin such manner as may be prescribed, including a complete list of all allottees, with their full names, addresses, number of securities allotted and such other relevant information as may be prescribed.
(9) If a company defaults in filing the return of allotment within the period prescribed under sub-section (8), the company, its promoters and directors shall be liable to a penalty for each default of one thousand rupees for each day during which such default continues but not exceeding twenty-five lakh rupees.
(10) Subject to sub-section (11), if a company makes an offer or accepts monies in contravention of this section, the company, its promoters and directors shall be liable for a penalty which may extend to the amount raised through the private placement or two crore rupees, whichever is lower, and the company shall also refund all monies with interest as specified in sub-section (6) to subscribers within a period of thirty days of the order imposing the penalty.
(11) Notwithstanding anything contained in sub-section (9) and sub-section (10),any private placement issue not made in compliance of the provisions of the sub-section (2) shall be deemed to be a public offer and all the provisions of this Act and the Securities Contracts (Regulation) Act, 1956 and the Securities and ExchangeBoard of India Act, 1992 shall be applicable.
The amendment seeks to simplify the procedure and filings of private placement.
The amendment also introduced very strict penal provisions for breaching of the Section keeping in view of the Sahara case.
Section 47 (1)
Subject to the provisions of section 43 and sub-section (2) of section 50
Subject to the provisions of section 43 and sub-section (2) of section 50 and sub-section (1) of section 188 shall be substituted.
The amendment is to bring the consistency with the Section 188 (1) and Section 47 (1).
Section 53 (2)
Any share issued by a company at a discounted price shall be void.
Any share issued by a company at a discount shall be void.
To remove the ambiguity, it recommended that the word ‘discount’, may replace the words “discounted price” in the provision. As the “discounted price” could be interpreted to mean a price lower than the market value of shares, and not lower than its nominal value.
Section 53 (2A)
New sub-section inserted.
Notwithstanding anything contained in sub-sections (1) and (2), a company may issue shares at a discount to its creditors when its debt is converted into shares in pursuance of any statutory resolution plan or debt restructuring scheme in accordance with any guidelines or directions or regulations specified by the Reserve Bank of India under the Reserve Bank of India Act, 1934 or the Banking (Regulation) Act, 1949.
A Company may issue shares at a discounted price to its creditors when its debt is converted into shares in accordance with any guidelines or directions or regulations specified by the Reserve Bank of India.
Further issue of shares would continue to require approval of shareholders through a special resolution.
Section 54 (1) (c)
not less than one year has, at the date of such issue, elapsed since the date on which the company had commenced business; and
Clause c is omitted
Now a company can issue sweat equity shares without the restriction of completing a year.
The amendment is to boost startups in the Country.
Section 62 (1) (c)
to any persons, if it is authorized by a special resolution, whether or not those persons include the persons referred to in clause (a) or clause (b), either for cash or for a consideration other than cash, if the price of such shares is determined by the valuation report of a registered valuer subject to such conditions as may be prescribed.
to any persons, if it is authorized by a special resolution, whether or not those persons include the persons referred to in clause (a) or clause (b), either for cash or for a consideration other than cash, if the price of such shares is determined by the valuation report of a registered valuer, subject to the compliance with the applicable provisions of Chapter III and any other conditions as may be prescribed
The amendment proposes to make applicable provisions of Chapter III applicable for issuing security under Section 62 (1) (c).
Section 62 (2)
The notice referred to in sub-clause (i) of clause (a) of sub-section (1) shall be dispatched through registered post or speed post or through electronic mode to all the existing shareholders at least three days before the opening of the issue
The notice referred to in sub-clause (i) of clause (a) of sub-section (1) shall be dispatched through registered post or speed post or through electronic mode or courier or any other mode having proof of delivery to all the existing shareholders at least three days before the opening of the issue.
Wider modes of delivery with respect to dispatch of notice of offer for rights issue have been included.
Section 73 (2) (c)
Depositing such sum which shall not be less than fifteen per cent of the amount of its deposits maturing during a financial year and the financial year next following, and kept in a scheduled bank in a separate bank account to be called as deposit repayment reserve account;
Depositing, on or before the thirtieth day of April each year, such sum which shall not be less than twenty per cent of the amount of its deposits maturing during the following financial year and kept in a scheduled bank in a separate bank account to be called deposit repayment reserve account.
The amendment proposes that Deposit repayment reserve shall not be less than twenty percent of the amount of deposits maturing during the following financial year.
Section 73 (2) (d)
providing such deposit insurance in such manner and to such extent as may be prescribed;
Omitted
The amendment proposes to omit the requirement of deposit insurance due to practical difficulties facing by the stakeholders for implementing the clause.
Section 73 (2) (d)
certifying that the company has not committed any default in the repayment of deposits accepted either before or after the commencement of this Act or payment of interest on such deposits; and
certifying that the company has not committed any default in the repayment of deposits accepted either before or after the commencement of this Act or payment of interest on such deposits and where a default had occurred, the company made good the default and a period of five years had lapsed since the date of making good the default; and
Earlier Companies who has committed any default in the repayment of deposits cannot issue the deposits.
The amendment relaxes the provision by making the requirement that a Company may issue deposits if it made the default good and a period of 5 years had lapsed since the date of making good the default.
Section 74 (1) (b)
repay within one year from such commencement or from the date on which such payments are due, whichever is earlier.
repay within three years from such commencement or on or before expiry of the period for which the deposits were accepted, whichever is earlier:
Provided that renewal of any such deposits shall be done in accordance with the provisions of Chapter V and the rules made there under
The amendments seeks that deposits accepted under Companies Act, 1956 shall be repaid within 3 years from the commencement of the original section 74 of the Companies Act, 2013 or on or before expiry of the period for which deposits were accepted whichever is earlier.
Section 76A (a)
the company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with fine which shall not be less than one crore rupees but which may extend to ten crore rupees; and
the company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with fine which shall not be less than one crore rupees or twice the amount of deposit accepted by the company, whichever is lower but which may extend to ten crore rupees; and
Minimum fine for failure in repayment of deposits and interest thereon shall be rupees one crore or twice the amount of deposit accepted, whichever is lower.
Section 76A (b)
every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years or with fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees, or with both
every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years and with fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees, or with both
Stricter penalty was imposed.
4th proviso to Section 77 (1)
New Proviso
Provided also that this section shall not apply to such charges as may be prescribed in consultation with the Reserve Bank of India.
The amendment gives power to central government in consultation with RBI to notify such charges(negative list) to which this section will not applicable.
Section 78 (1)
Where a company fails to register the charge within the period specified in section 77, without prejudice to its liability in respect of any offence under this Chapter, the person in whose favour the charge is created may apply to the Registrar for registration of the charge along with the instrument created for the charge, within such time and in such form and manner as may be prescribed and the Registrar may, on such application, within a period of fourteen days after giving notice to the company, unless the company itself registers the charge or shows sufficient cause why such charge should not be registered, allow such registration on payment of such fees, as may be prescribed
Where a company fails to register the charge within the period of thirty days referred to in sub-section (1) of section 77, without prejudice to its liability in respect of any offence under this Chapter, the person in whose favour the charge is created may apply to the Registrar for registration of the charge along with the instrument created for the charge, within such time and in such form and manner as may be prescribed and the Registrar may, on such application, within a period of fourteen days after giving notice to the company, unless the company itself registers the charge or shows sufficient cause why such charge should not be registered, allow such registration on payment of such fees, as may be prescribed.
The amendment is to provide a clarity that a person in whose favour the charge has been created can file the charge on the expiry of thirty days from creation of charge where a company fails to file so.
Section 82 (1)
A company shall give intimation to the Registrar in the prescribed form, of the payment or satisfaction in full of any charge registered under this Chapter within a period of thirty days from the date of such payment or satisfaction and the provisions of sub-section (1) of section 77 shall, as far as may be, apply to an intimation given under this section.
A company shall give intimation to the Registrar in the prescribed form, of the payment or satisfaction in full of any charge registered under this Chapter within a period of thirty days from the date of such payment or satisfaction and the provisions of sub-section (1) of section 77 shall, as far as may be, apply to an intimation given under this section.
Statutory timelines that are applied in case of registering the charges are ought to be removed in case of satisfaction of charge as the Committee felt that, as it would generally be in acompany’s interest to report satisfaction of charges and there should not be any statutory restrictions.
Proviso to Section 82 (1)
New proviso inserted.
Provided that the Registrar may, on an application by the company or the charge holder, allow such intimation of payment or satisfaction to be made within a period of three hundred days of such payment or satisfaction on payment of such additional fees as may be prescribed
It empowers the Central Government to charge additional fees for the forms filed beyond 30 days and also gives maximum timeline for filing the form within 300 days.
Section 89 (6)
Where any declaration under this section is made to a company, the company shall make a note of such declaration in the register concerned and shall file, within thirty days from the date of receipt of declaration by it, a return in the prescribed form with the Registrar in respect of such declaration with such fees or additional fees as may be prescribed, within the time specified under section 403.
Where any declaration under this section is made to a company, the company shall make a note of such declaration in the register concerned and shall file, within thirty days from the date of receipt of declaration by it, a return in the prescribed form with the Registrar in respect of such declaration with such fees or additional fees as may be prescribed, within the time specified under section 403.
Section 89 (7)
If a company, required to file a return under sub-section (6), fails to do so before the expiry of the time specified under the first proviso to sub-section (1) of section 403, the company and every officer of the company who is in default shall be punishable with fine which shall not be less than five hundred rupees but which may extend to one thousand rupees and where the failure is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the failure continues.
If a company, required to file a return under sub-section (6), fails to do so before the expiry of the time specified therein, the company and every officer of the company who is in default shall be punishable with fine which shall not be less than five hundred rupees but which may extend to one thousand rupees and where the failure is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the failure continues.
The amendment intends to bring a separate timeline for filing the Return of beneficial interest.
Section 89 (10)
New Sub-section.
For the purposes of this section and section 90, beneficial interest ina share includes, directly or indirectly, through any contract, arrangement or otherwise, the right or entitlement of a person alone or together with any other person to—
(i) exercise or cause to be exercised any or all of the rights attached to such share; or
(ii) receive or participate in any dividend or other distribution in respect of such share.”.
As per the recommendation of the Committee the amendment intends to include the definition of”beneficial interest in a share”.
Section 90
Where it appears to the Central Government that there are reasons so to do, it may appoint one or more competent persons to investigate and report as to beneficial ownership with regard to any share or class of shares and the provisions of section 216 shall, as far as may be, apply to such investigation as if it were an investigation ordered under that section
(1) Every individual, who acting alone or together, or through one or more persons or trust, including a trust and persons resident outside India, holds beneficial interests, of not less than twenty-five per cent. or such other percentage as may be prescribed, in shares of a company or the right to exercise, or the actual exercising of significant influence or control as defined in clause (27) of section 2, over the company (herein referred to as “significant beneficial owner”), shall make a declaration to the company, specifying the nature of his interest and other particulars, in such manner and within such period of acquisition of the beneficial interest or rights and any change thereof, as may be prescribed:
Provided that the Central Government may prescribe a class or classes of persons who shall not be required to make declaration under this sub-section.
(2) Every company shall maintain a register of the interest declared by individuals under sub-section (1) and changes therein which shall include the name of individual, his date of birth, address, details of ownership in thecompany and such other details as may be prescribed.
(3) The register maintained under sub-section (2) shall be open to inspection by any member of the company on payment of such fees as may be prescribed.
(4) Every company shall file a return of significant beneficial owners of the company and changes therein with the Registrar containing names, addresses and other details as may be prescribed within such time, in such form and manner as may be prescribed.
(5) A company shall give notice, in the prescribed manner, to any person (whether or not a member of the company) whom the company knows or has reasonable cause
to believe—
(a) to be a significant beneficial owner of the company;
(b) to be having knowledge of the identity of a significant beneficial owner
or another person likely to have such knowledge; or
(c) to have been a significant beneficial owner of the company at any time during the three years immediately preceding the date on which the notice is issued,and who is not registered as a significant beneficial owner with the company as required under this section.
(6) The information required by the notice under sub-section (5) shall be given by the concerned person within a period not exceeding thirty days of the date of the notice.
(7) The company shall,—
(a) where that person fails to give the company the information required by the notice within the time specified therein; or
(b) where the information given is not satisfactory, apply to the Tribunal within a period of fifteen days of the expiry of the period specified in the notice, for an order directing that the shares in question be subject to restrictions with regard to transfer of interest, suspension of all rights attached to the shares and such other matters as may be prescribed.
(8) On any application made under sub-section (7), the Tribunal may, after giving an opportunity of being heard to the parties concerned, make such order restricting the rights attached with the shares within a period of sixty days of receipt of application or such other period as may be prescribed.
(9) The company or the person aggrieved by the order of the Tribunal may make an application to the Tribunal for relaxation or lifting of the restrictions placed under sub-section (8).
(10) If any person fails to make a declaration as required under sub-section (1), he shall be punishable with fine which shall not be less than one lakh rupees but which may extend to ten lakh rupees and where the failure is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the failure continues(11) If a company, required to maintain register under sub-section (2) and file the information under sub-section (4), fails to do so or denies inspection as provided
therein, the company and every officer of the company who is in default shall be punishable with fine which shall not be less than ten lakh rupees but which may extend to fifty lakh rupees and where the failure is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the failure continues.
(12) If any person willfully furnishes any false or incorrect information or suppresses any material information of which he is aware in the declaration made under this section, he shall be liable to action under section 447.
As per the strict recommendation of the Company Law Committee the amendment seeks to replace section 90 of the Act to provide that a declaration is to be given to the company by every individual acting alone or together or through one or more person including a trust and persons resident outside India, who holds beneficial interest of not less than twenty-five per cent or other prescribed percentage in shares of a company or the right to exercise or the actual exercising of significant influence or control under clause (27) of section 2 of the Act (to be called as significant beneficial owner). Further the significant beneficial owner shall while making the declaration specify the nature of interest and other particulars in prescribed manner and time to the company. It also seeks to empower the Central Government to specify class or classes or persons who shall not be required to make the said declaration. Further company shall maintain and keep available for inspection, by any member of the company, a register of significant beneficial owners. Further company shall file a return of significant beneficial owners of the company and changes therein with the Registrar. This clause also provides that company may give notice to any person whom the company knows or believes to be a significant beneficial owner of the company or who has knowledge of the identity of a significant beneficial owner or another person likely to have such knowledge or who has been a significant beneficial owner of the company at any time during the immediately preceding three years. Further, if the person fails to give information required by the notice, the company shall apply to the Tribunal within a period of fifteen days for an order. The Tribunal may make an order restricting the rights attached with the shares in question. If any person fails to make a declaration, he shall be punishable with fine. Similarly, where a company fails to maintain the register or file the return, the company and every officer of the company in default shall be punishable with fine.
Section 92 (1)
Every company shall prepare a return (hereinafter referred to as the annual return) in the prescribed form containing the particulars as they stood on the close of the financial year regarding—
(a) its registered office, principal business activities, particulars of its holding, subsidiary and associate companies;
(b) its shares, debentures and other securities and shareholding pattern;
(c) its indebtedness;
(d) its members and debenture-holders along with changes therein since the close of the previous financial year;
(e) its promoters, directors, key managerial personnel along with changes therein since the close of the previous financial year;
(f) meetings of members or a class thereof, Board and its various committees along with attendance details;
(g) remuneration of directors and key managerial personnel;
(h) penalty or punishment imposed on the company, its directors or officers and details of compounding of offences and appeals made against such penalty or punishment;
(i) matters relating to certification of compliances, disclosures as may be prescribed;
(j) details, as may be prescribed, in respect of shares held by or on behalf of the Foreign Institutional Investors indicating their names, addresses, countries of incorporation, registration and percentage of shareholding held by them; and
(k) such other matters as may be prescribed,
and signed by a director and the company secretary, or where there is no company secretary, by a company secretary in practice:
Every company shall prepare a return (hereinafter referred to as the annual return) in the prescribed form containing the particulars as they stood on the close of the financial year regarding—
(a) its registered office, principal business activities, particulars of its holding, subsidiary and associate companies;
(b) its shares, debentures and other securities and shareholding pattern;
(c) its indebtedness;
(d) its members and debenture-holders along with changes therein since the close of the previous financial year;
(e) its promoters, directors, key managerial personnel along with changes therein since the close of the previous financial year;
(f) meetings of members or a class thereof, Board and its various committees along with attendance details;
(g) remuneration of directors and key managerial personnel;
(h) penalty or punishment imposed on the company, its directors or officers and details of compounding of offences and appeals made against such penalty or punishment;
(i) matters relating to certification of compliances, disclosures as may be prescribed;
(j) details, as may be prescribed, in respect of shares held by or on behalf of the Foreign Institutional Investors indicating their names, addresses, countries of incorporation, registration and percentage of shareholding held by them; and
(k) such other matters as may be prescribed,
and signed by a director and the company secretary, or where there is no company secretary, by a company secretary in practice:
Provisions regarding details of indebtness and Names, incorporation, registration and percentage of shareholding held by FIIs are not proposed to be omitted in the new bill.
2nd Proviso to Section 92 (1)
New Proviso inserted
Provided further that the Central Government may prescribe abridged form of annual return for One Person Company, small company and such other class or classes of companies as may be prescribed.
CG has proposed to introduce shorter version of annual returns to be filed by certain companies.
Section 92 (3)
An extract of the annual return in such form as may be prescribed shall form part of the Board’s report.
Every company shall place a copy of the annual return on the website of the company, if any, and the web-link of such annual return shall be disclosed in the Board’s report.
MGT-9 (extract of Annual Return) is proposed to be withdrawn by this amendment instead of the MGT-9 every Company need to place a copy of annual return on its website and the link shall be disclosed in Board’s Report.
Clarification is required from the ministry about the year of the annual return of which link need to be mentioned i.e. current FY or previous FY. As annual return i.e. MGT-7 is required to be filed within 60 days of AGM.
Section 92 (4)
Every company shall file with the Registrar a copy of the annual return, within sixty days from the date on which the annual general meeting is held or where no annual general meeting is held in any year within sixty days from the date on which the annual general meeting should have been held together with the statement specifying the reasons for not holding the annual general meeting, with such fees or additional fees as may be prescribed, within the time as specified, under section 403
Every company shall file with the Registrar a copy of the annual return, within sixty days from the date on which the annual general meeting is held or where no annual general meeting is held in any year within sixty days from the date on which the annual general meeting should have been held together with the statement specifying the reasons for not holding the annual general meeting, with such fees or additional fees as may be prescribed, within the time as specified, under section 403
Section 92 (5)
If a company fails to file its annual return under sub-section (4), before the expiry of the period specified under section 403 with additional fee, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakhs rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both
If a company fails to file its annual return under sub-section (4), before the expiry of the period specified therein, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakhs rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both
Section 93
Every listed company shall file a return in the prescribed form with the Registrar with respect to change in the number of shares held by promoters and top ten shareholders of such company, within fifteen days of such change.
Section Omitted
MGT-10 which was required to be filed with respect to changes in the shareholding position of promoters and top ten shareholders of the company, in each case, representing increase or decrease by two per cent or more of the paid-up share capital of the company will be obsolete.
The Provision met many criticism from the stakeholders as it has led increase in the amount of filings under the Act. The Committee also recommended the same.
Proviso to Section 94 (1)
Provided that such registers or copies of return may also be kept at any other place in India in which more than one-tenth of the total number of members entered in the register of members reside, if approved by a special resolution passed at a general meeting of the company and the Registrar has been given a copy of the proposed special resolution in advance
Provided that such registers or copies of return may also be kept at any other place in India in which more than one-tenth of the total number of members entered in the register of members reside, if approved by a special resolution passed at a general meeting of the company and the Registrar has been given a copy of the proposed special resolution in advance
As the Special Resolutions is to be filed in Section 117 the current duplication of filing the said Special Resolution did not serve any purpose.
Proviso to Section 94 (3)
New Proviso inserted.
Provided that such particulars of the register or index or return as may be prescribed shall not be available for inspection under sub-section (2) or for taking extracts or copies under this sub-section.
Many personal information as may be prescribed in the Rules, may not be made available publicly by the Company.
Proviso to Section 96 (2)
Provided that the Central Government may exempt any company from the provisions of this sub-section subject to such conditions as it may impose.
Provided that annual general meeting of an unlisted company may be held at any place in India if consent is given in writing or by electronic mode by all the members in advance:
Provided further that the Central Government may exempt any company from the provisions of this sub-section subject to such conditions as it may impose.
An unlisted Company can hold its AGM anywhere within India by taking the consent from all the members of the Company.
This amendment is proposed with a view to ease of doing business.
Proviso to Section 100 (1)
New Proviso inserted.
Provided that an extraordinary general meeting of the company, other than of the wholly owned subsidiary of a company incorporated outside India, shall be held at a place within India.
A Company which is the Wholly owned subsidiary of a Company incorporated outside India may hold its EGM Outside India.
Proviso to Section 101 (1)
Provided that a general meeting may be called after giving a shorter notice if consent is given in writing or by electronic mode by not less than ninety-five per cent of the members entitled to vote at such meeting.
Provided that a general meeting may be called after giving shorter notice than that specified in this sub-section if consent, in writing or by electronic mode, is accorded
thereto—
(i) in the case of an annual general meeting, by not less than ninety-five percent of the members entitled to vote thereat; and
(ii) in the case of any other general meeting, by members of the company—
(a) holding, if the company has a share capital, majority in number of members entitled to vote and who represent not less than ninety-five per cent of such part of the paid-up share capital of the company as gives a right to vote at the meeting; or
(b) having, if the company has no share capital, not less than ninety-five per cent of the total voting power exercisable at that meeting:
Provided further that where any member of a company is entitled to vote only on some resolution or resolutions to be moved at a meeting and not on the others, those members shall be taken into account for the purposes of this sub-section in respect of the former resolution or resolutions and not in respect of the latter.
Proviso to Section 110 (1)
New Proviso inserted.
Provided that any item of business required to be transacted by means of postal ballot under clause (a), may be transacted at a general meeting by a company which is required to provide the facility to members to vote by electronic means under section 108, in the manner provided in that section
Section 117 (1)
A copy of every resolution or any agreement, in respect of matters specified in sub-section (3) together with the explanatory statement under section 102, if any, annexed to the notice calling the meeting in which the resolution is proposed, shall be filed with the Registrar within thirty days of the passing or making thereof in such manner and with such fees as may be prescribed within the time specified under section 403
A copy of every resolution or any agreement, in respect of matters specified in sub-section (3) together with the explanatory statement under section 102, if any, annexed to the notice calling the meeting in which the resolution is proposed, shall be filed with the Registrar within thirty days of the passing or making thereof in such manner and with such fees as may be prescribed within the time specified under section 403
Section 117 (2)
If a company fails to file the resolution or the agreement under sub-section (1) before the expiry of the period specified under section 403 with additional fee, the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default, including liquidator of the company, if any, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
If a company fails to file the resolution or the agreement under sub-section (1) before the expiry of the period specified therein with additional fee, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default, including liquidator of the company, if any, shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees.
Minimum amount of penalty that can be imposed is reduced.
Section 117 (3) (e)
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;
Omitted
The clause proposes to omit clause (e) of sub-section (3) of the section as the requirement under the clause is already covered in clause (a).
Resolutions under Section 180 (a) & (c) are Special resolutions, therefore it has to be filed to ROC no matter the clause mandates it or not.
Proviso to Section 117 (3) (g)
Provided that no person shall be entitled under section 399 to inspect or obtain copies of such resolutions; and
Provided that no person shall be entitled under section 399 to inspect or obtain copies of such resolutions; and
Provided further that nothing contained in this clause shall apply to a banking company in respect of a resolution passed to grant loans, or give guarantee or provide security in respect of loans under clause (f) of sub-section (3) of section 179 in the ordinary course of its business; and
It seeks to provide exemption 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.
Section 121 (2)
The company shall file with the Registrar a copy of the report referred to in sub-section (1) within thirty days of the conclusion of the annual general meeting with such fees as may be prescribed, or with such additional fees as may be prescribed, within the time as specified, under section 403.
The company shall file with the Registrar a copy of the report referred to in sub-section (1) within thirty days of the conclusion of the annual general meeting with such fees as may be prescribed, or with such additional fees as may be prescribed, within the time as specified, under section 403.
Section 121 (3)
If the company fails to file the report under sub-section (2) before the expiry of the period specified under section 403 with additional fee, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees.
If the company fails to file the report under sub-section (2) before the expiry of the period specified therein, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees.
Section 123 (1) (a)
out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2), or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with the provisions of that sub-section and remaining undistributed, or out of both; or
out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2), or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with the provisions of that sub-section and remaining undistributed, or out of both
Provided that in computing profits any amount representing unrealized gains, national gains or revaluation of assets and any changes in carrying amount of an asset or of a liability on measurement of the asset or the liability at fair value shall be excluded; and;
Second proviso to Section 123 (1)
Provided further that where, owing to inadequacy or absence of profits in any financial year, any company proposes to declare dividend out of the accumulated profits earned by it in previous years and transferred by the company to the reserves, such declaration of dividend shall not be made except in accordance with such rules as may be prescribed in this behalf
Provided further that where, owing to inadequacy or absence of profits in any financial year, any company proposes to declare dividend out of the accumulated profits earned by it in previous years and transferred by the company to the free reserves, such declaration of dividend shall not be made except in accordance with such rules as may be prescribed in this behalf
Section 123 (3)
The Board of Directors of a company may declare interim dividend during any financial year out of the surplus in the profit and loss account and out of profits of the financial year in which such interim dividend is sought to be declared:
Provided that in case the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during the immediately preceding three financial years.
The Board of Directors of a company may declare interim dividend during any financial year or at any time during the period from closure of financial year till holding of the annual general meeting out of the surplus in the profit and loss account or out of profits of the financial year for which such interim dividend is sought to be declared or out of profits generated in the financial year till the quarter preceding the date of declaration of the interim dividend:
Provided that in case the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during immediately preceding three financial years.”.
The substitution seeks to amend section 123 of the Act to provide clarity, to allow declaration of interim dividend for a financial year from the profits of the said year or from brought forward surplus in the profit and loss account. It also provides clarity that interim dividend can be declared during the period from closure of financial year till date of Annual General Meeting and in such case in addition to profits referred above, the profit generated upto quarter prior to declaration of dividend may be used.
Section 129 (3)
Where a company has one or more subsidiaries, it shall, in addition to financial statements provided under sub-section (2), prepare a consolidated financial statement of the company and of all the subsidiaries in the same form and manner as that of its own which shall also be laid before the annual general meeting of the company along with the laying of its financial statement under sub-section (2):
Provided that the company shall also attach along with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiary or subsidiaries in such form as may be prescribed:
Provided further that the Central Government may provide for the consolidation of accounts of companies in such manner as may be prescribed.
Where a company has one or more subsidiaries or associate companies, it shall, in addition to financial statements provided under sub-section (2), prepare a consolidated financial statement of the company and of all the subsidiaries and associate companies in the same form and manner as that of its own and in accordance with applicable accounting standards, which shall also be laid before the annual general meeting of the company along with the laying of its financial statement under
sub-section (2):
Provided that the company shall also attach along with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiary or subsidiaries and associate company or companies in such form as may be prescribed:
Provided further that the Central Government may provide for the consolidation of accounts of companies in such manner as may be prescribed.
Proviso to Section 130
Provided that the court or the Tribunal, as the case may be, shall give notice to the Central Government, the Income-tax authorities, the Securities and Exchange Board or any other statutory regulatory body or authority concerned and shall take into consideration the representations, if any, made by that Government or the authorities, Securities and Exchange Board or the body or authority concerned before passing any order under this section.
(2) Without prejudice to the provisions contained in this Act the accounts so revised or re-cast under sub-section (1) shall be final.
Provided that the court or the Tribunal, as the case may be, shall give notice to the Central Government, the Income-tax authorities, the Securities and Exchange Board or any other statutory regulatory body or authority concerned or any other person concerned and shall take into consideration the representations, if any, made by that Government or the authorities, Securities and Exchange Board or the body or authority concerned or any other person concerned before passing any order under this section.
(2) Without prejudice to the provisions contained in this Act the accounts so revised or re-cast under sub-section (1) shall be final.
Section 130 (2)
New Sub-Section.
No order shall be made under sub-section (1) in respect of re-opening of books of account relating to a period earlier than eight financial years immediately preceding the current financial year:
Provided that where a direction has been issued by the Central Government under the proviso to sub-section (5) of section 128 for keeping of books of account for a period longer than eight years, the books of account may be ordered to be re-opened within such longer period.
It seeks to provide that order for reopening of accounts can be made upto eight years unless there is a specific direction under section 128 (5) from the Central Government for longer period.
Section 132 (4) (c) (A) (II)
(A) imposing penalty of—
(I) not less than one lakh rupees, but which may extend to five times of the fees received, in case of individuals; and
(II) not less than ten lakh rupees, but which may extend to ten times of the fees received, in case of firms;
(A) imposing penalty of—
(I) not less than one lakh rupees, but which may extend to five times of the fees received, in case of individuals; and
(II) not less than five lakh rupees, but which may extend to ten times of the fees received, in case of firms;
Minimum penalty that can be imposed by NFRA in case professional or other misconduct to firm is reduced from 10 lakhs to 5 lakhs.
Section 132 (5)
Any person aggrieved by any order of the National Financial Reporting Authority issued under clause (c) of sub-section (4), may prefer an appeal before the Appellate Authority constituted under sub-section (6) in such manner as may be prescribed.
Any person aggrieved by any order of the National Financial Reporting Authority issued under clause (c) of sub-section (4), may prefer an appeal before the Appellate Tribunal in such manner and on payment of such fee as may be prescribed.
Section 132 (6) (7) (8) (9)
(6) The Central Government may, by notification, constitute, with effect from such date as may be specified therein, an Appellate Authority consisting of a chairperson and not more then two other members, to be appointed by the Central Government, for hearing appeals arising out of the orders of the National Financial Reporting Authority.
(7) The qualifications for appointment of the chairperson and members of the Appellate Authority, the manner of selection, the terms and conditions of their service and the requirement of the supporting staff and procedure (including places of hearing the appeals, form and manner in which the appeals shall be filed) to be followed by the Appellate Authority shall be such as may be prescribed.
(8) The fee for filing the appeal shall be such as may be prescribed.
(9) The officer authorized by the Appellate Authority shall prepare in such form and at such time as may be prescribed its annual report giving a full account of its activities and forward a copy thereof to the Central Government and the Central Government shall cause the annual report to be laid before each House of Parliament.
Omitted
The Procedure related to constitution and procedures of NFRA may be delegated to ICAI as per the recommendation of Company Law Committee.
Section 134 (1)
The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board at least by the chairperson of the company where he is authorized by the Board or by two directors out of which one shall be managing director and the Chief Executive Officer, if he is a director in the company, the Chief Financial Officer and the company secretary of the company, wherever they are appointed, or in the case of a One Person Company, only by one director, for submission to the auditor for his report thereon.
The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board by the chairperson of the company where he is authorized by the Board or by two directors out of which one shall be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the company secretary of the company, wherever they are appointed, or in the case of One Person Company, only by one director, for submission to the auditor for his report thereon.
Chief executive officer shall sign financial statements irrespective of whether he is a director or not.
Section 134 (3) (a)
the extract of the annual return as provided under sub-section (3) of section 92
the web address, if any, where annual return referred to in sub-section (3) of section 92 has been placed.
Extract of Annual Return i.e. MGT-9 which is to be annexed with the Board’s Report is proposed to be withdrawn as per the recommendation of Committee. Instead of MGT-9 web link of the Annual Return shall be mentioned in Board’s Report.
Clarification is required from the ministry about the year of the annual report of which link need to be mentioned i.e. current FY or previous FY. As annual return i.e. MGT-7 is required to be filed within 60 days of AGM.
Section 134 (3) (a)
in case of a listed company and every other public company having such paid-up share capital as may be prescribed, a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors
in case of a listed company and every other public company having such paid-up share capital as may be prescribed, a statement indicating the manner in which formal annual evaluation of the performance of the Board, its Committees and of individual directors has been made
As per the current provisions of Section 178(2), the Nomination & Remuneration Committee (NRC) is required to carry out evaluation of every director’s performance. It is felt that, as Independent Directors are required to carry out review of performance of non-Independent Directors and the Board as a whole separately as per Schedule IV requirements, the Board is also required to carry out its evaluation (refer Section 134(3)(p)), carrying out another set of performance evaluations by the Nomination and Remuneration Committee is avoidable. The Committee recommended that the NRC should instead ‘prescribe a methodology to carry out evaluation of performance of individual Directors, Committee(s) of the Board and the Board as a whole’, and the Board should carry out the performance evaluation as per the methodology either by itself, by the NRC or by an external party as laid down in the methodology. The performance review by the Independent Directors, as presently required in Schedule IV, may also form part of the methodology. Schedule IV may be amended accordingly. The committee also recommended that the provision may be reviewed after three years.
Proviso to Section 134 (3)
New Proviso
Provided that where disclosures referred to in this sub-section have been included in the financial statements, such disclosures shall be referred to instead of being repeated in the Board’s report.
Provided further that where the policy referred to in clause (e) or clause (o) is made available on company’s website, if any, it shall be sufficient compliance of the requirements under such clauses if the salient features of the policy and any change therein are specified in brief in the Board’s report and the web-address is indicated therein at which the complete policy is available.
This is to avoid duplication and to make annual report more precise.
Section 134 (3A)
New Sub-section inserted.
The Central Government may prescribe an abridged Board’s report, for the purpose of compliance with this section by One Person Company or small company.
It seeks to empower Central Government to prescribe abridged Board’s report for small company and one person company.
Section 135 (1)
Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.
Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director
It seeks to make more clarity regarding the constitution of CSR Committee.
Proviso to Section 135 (1)
New Proviso
Provided that where a company is not required to appoint an independent director under sub-section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or more directors.
Rule 5(1) of CSR Policy Rules, 2014, allows unlisted companies, private companies, and foreign companies, to have the Committee with less than three directors, and without Independent Directors, where they were not required to be appointed. It is to align the provision with Rules.
Section 135 (3)(a)
formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII;
formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company in areas or subject, specified in Schedule VII;
The Committee suggests that the Schedule VII indicates broad areas, which have been further explained to be interpreted liberally in circular no. 21/2014 issued by MCA. The Committee felt that it would be appropriate for the said clause to be modified to refer to subjects in Schedule VII within which CSR activities could be taken up by an eligible company.
Explanation to Section 135
For the purposes of this section “average net profit” shall be calculated in accordance with the provisions of section 198.
For the purposes of this section “net profit” shall not include such sums as may be prescribed, and shall be calculated in accordance with the provisions of section 198.
The amendments seeks to remove ambiguity between the Constitution of the Committee and the spending of its CSR contribution as Rule 2(1)(f) of CSRP Rules, 2014, requires dividend income, etc. to be excluded while calculating the net profit for the purposes of CSR spending. This would lead to an incongruous situation, wherein companies which were not required to spend on CSR, would nevertheless, be required to constitute CSR Committees. Thus, the Committee recommended for this inconsistency to be removed by providing prescriptive powers to exclude certain sums from net profit in Section 135(1) itself.
Section 136 (1)
Without prejudice to the provisions of section 101, a copy of the financial statements, including consolidated financial statements, if any, auditor’s report and every other document required by law to be annexed or attached to the financial statements, which are to be laid before a company in its general meeting, shall be sent to every member of the company, to every trustee for the debenture-holder of any debentures issued by the company, and to all persons other than such member or trustee, being the person so entitled, not less than twenty-one days before the date of the meeting:
Without prejudice to the provisions of section 101, a copy of the financial statements, including consolidated financial statements, if any, auditor’s report and every other document required by law to be annexed or attached to the financial statements, which are to be laid before a company in its general meeting, shall be sent to every member of the company, to every trustee for the debenture-holder of any debentures issued by the company, and to all persons other than such member or trustee, being the person so entitled, not less than twenty-one days before the date of the meeting:
The Section is to specifically provide that the Financial Statement can be sent to members at the shorter period.
Earlier MCA has issued circular dated 21st July 2015, in which it had clarified that the shorter notice period would also apply to the circulation of annual accounts.
Proviso to Section 136 (1)
Provided that in the case of a listed company, the provisions of this sub-section shall be deemed to be complied with, if the copies of the documents are made available for inspection at its registered office during working hours for a period of twenty-one days before the date of the meeting and a statement containing the salient features of such documents in the prescribed form or copies of the documents, as the company may deem fit, is sent to every member of the company and to every trustee for the holders of any debentures issued by the company not less than twenty-one days before the date of the meeting unless the shareholders ask for full financial statements:
Provided that if the copies of the documents are sent less than twenty-one days before the date of the meeting, they shall, notwithstanding that fact, be deemed to have been duly sent if it is so agreed by members—
(a) holding, if the; has a share capital, majority in number entitled to vote and who represent not less than ninety-five per cent. of
such part of the paid-up share capital of the company as gives a right to vote at the meeting; or
(b) having, if the company has no share capital, not less than ninety five per cent. of the total voting power exercisable at the meeting:
It specifies the Conditions to be fulfilled for ending the annual accounts on shorter period.
Fourth proviso to Section 136 (1)
Provided also that every company having a subsidiary or subsidiaries shall,—
(a) place separate audited accounts in respect of each of its subsidiary on its website, if any;
(b) provide a copy of separate audited financial statements in respect of each of its subsidiary, to any shareholder of the company who asks for it.
Provided also that every listed company having a subsidiary or subsidiaries shall place separate audited accounts in respect of each of
subsidiary on its website, if any:
Provided also that a listed company which has a subsidiary incorporated outside India (herein referred to as “foreign subsidiary”)—
(a) where such foreign subsidiary is statutorily required to prepare consolidated financial statement under any law of the country of its incorporation, the requirement of this proviso shall be met if consolidated financial statement of such foreign subsidiary is placed on the website of the listed company;
(b) where such foreign subsidiary is not required to get its financial statement audited under any law of the country of its incorporation and which does not get such financial statement audited, the holding Indian listed company may place such unaudited financial statement on its website and where such financial statement is in a language other than English, a translated copy of the financial statement in English shall also be placed on the website.
Only Listed Company will place the accounts of its subsidiaries on its website rather than all companies.
It also specifies some clarity for the annual accounts of foreign subsidiaries.
Proviso to Section 136 (2)
New proviso inserted
Provided that every company having a subsidiary or subsidiaries shall provide a copy of separate audited or unaudited financial statements, as the case may be, as prepared in respect of each of its subsidiary to any member of the company who asks for it
Section 137 (1)
A copy of the financial statements, including consolidated financial statement, if any, along with all the documents which are required to be or attached to such financial statements under this Act, duly adopted at the annual general meeting of the company, shall be filed with the Registrar within thirty days of the date of annual general meeting in such manner, with such fees or additional fees as may be prescribed within the time specified under section 403:
A copy of the financial statements, including consolidated financial statement, if any, along with all the documents which are required to be or attached to such financial statements under this Act, duly adopted at the annual general meeting of the company, shall be filed with the Registrar within thirty days of the date of annual general meeting in such manner, with such fees or additional fees as may be prescribed within the time specified under section 403:
2ndProviso to Section 137 (1)
Provided further that financial statements adopted in the adjourned annual general meeting shall be filed with the Registrar within thirty days of the date of such adjourned annual general meeting with such fees or such additional fees as may be prescribed within the time specified under section 403:
Provided further that financial statements adopted in the adjourned annual general meeting shall be filed with the Registrar within thirty days of the date of such adjourned annual general meeting with such fees or such additional fees as may be prescribed within the time specified under section 403:
5th proviso to Section 137 (1)
New proviso inserted.
Provided also that in the case of a subsidiary which has been incorporated outside India (herein referred to as “foreign subsidiary”), which is not required to get its financial statement audited under any law of the country of its incorporation and which does not get such financial statement audited, the requirements of the fourth proviso shall be met if the holding Indian company files such unaudited financial statement along with a declaration to this effect and where such financial statement is in a language other than English, along with a translated copy of the financial statement in English.
It seeks to amend Section 137 of the Act to enable filing of unaudited financial statements of foreign subsidiaries which is not required to get its accounts audited.
Section 137 (2)
Where the annual general meeting of a company for any year has not been held, the financial statements along with the documents required to be attached under sub-section (1), duly signed along with the statement of facts and reasons for not holding the annual general meeting shall be filed with the Registrar within thirty days of the last date before which the annual general meeting should have been held and in such manner, with such fees or additional fees as may be prescribed within the time specified, under section 403.
Where the annual general meeting of a company for any year has not been held, the financial statements along with the documents required to be attached under sub-section (1), duly signed along with the statement of facts and reasons for not holding the annual general meeting shall be filed with the Registrar within thirty days of the last date before which the annual general meeting should have been held and in such manner, with such fees or additional fees as may be prescribed within the time specified, under section 403.
Section 137 (3)
If a company fails to file the copy of the financial statements under sub-section (1) or sub-section (2), as the case may be, before the expiry of the period specified in section 403, the company shall be punishable with fine of one thousand rupees for every day during which the failure continues but which shall not be more than ten lakh rupees, and the managing director and the Chief Financial Officer of the company, if any, and, in the absence of the managing director and the Chief Financial Officer, any other director who is charged by the Board with the responsibility of complying with the provisions of this section, and, in the absence of any such director, all the directors of the company, shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both.
If a company fails to file the copy of the financial statements under sub-section (1) or sub-section (2), as the case may be, before the expiry of the period specified therein, the company shall be punishable with fine of one thousand rupees for every day during which the failure continues but which shall not be more than ten lakh rupees, and the managing director and the Chief Financial Officer of the company, if any, and, in the absence of the managing director and the Chief Financial Officer, any other director who is charged by the Board with the responsibility of complying with the provisions of this section, and, in the absence of any such director, all the directors of the company, shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both.
1st Proviso to Section 139
Provided that the company shall place the matter relating to such appointment for ratification by members at every annual general meeting:
Omitted
The Committee felt that there is an inconsistency due to the two provisions, wherein removal would require a special resolution and approval of the Central Government while removal through non-ratification would need a resolution. The Committee felt that it would be advisable to omit the provisions with respect to ratification, as it defeats the objective of giving five year term to the auditors. This would also remove the inconsistency in the Act.
After the amendment only three ordinary items will be left instead of four as Section 139 of the Act is to do away with the requirements of annual ratification by members with respect to appointment of auditors.
Section 140 (3)
If the auditor does not comply with sub-section (2), he or it shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees.
If the auditor does not comply with sub-section (2), he or it shall be punishable with fine which shall not be less than fifty thousand rupees or the remuneration of the auditor but which may extend to five lakh rupees.
It seeks to amend section 140 of the Act to reduce the penalty with respect to failure to file resignation by auditor to fifty thousand rupees or the remuneration of auditors whichever is less.
Section 141 (3) (i)
any person whose subsidiary or associate company or any other form of entity, is engaged as on the date of appointment in consulting and specialized services as provided in section 144.
a person who, directly or indirectly, renders any service referred to in section 144 to the company or its holding company or its subsidiary company.
Explanation.—For the purposes of this clause, the term “directly or indirectly” shall have the meaning assigned to it in the Explanation to section 144.
It seeks to amend clause (i) of sub-section (3) for harmonization with section 144 in respect of providing of certain non-audit services.
Proviso to Section 143(1)
Provided that the auditor of a company which is a holding company shall also have the right of access to the records of all its subsidiaries in so far as it relates to the consolidation of its financial statements with that of its subsidiaries.
Provided that the auditor of a company which is a holding company shall also have the right of access to the records of all its subsidiaries and associate companies in so far as it relates to the consolidation of its financial statements with that of its subsidiaries and associate companies.
As the accounts of associate companies are to be consolidated with holding Company therefore committee recommended a change in the first proviso to Section 143 (1) to provide that the auditor of a holding company shall have a right of access to the accounts and records of the associate company.
Section 143 (3) (i)
The auditor’s report shall also state—
(i) whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls
The auditor’s report shall also state—
(i) whether the company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls
It was discussed by the committee that auditing internal financial control systems by auditors would be an onerous responsibility. It was also expressed that their responsibility should be limited to the auditing of the systems with respect to financial statements only, and that this cannot be compared with responsibility of directors (as specified in Section 134(5)(e)) which is wider and can be discharged as they have other resources like internal auditors, etc. who can be used for this purpose. In this regard, the Committee recommended that the reporting obligations of auditors should be with reference to the financial statements.
Section 143 (14) (a)
The provisions of this section shall mutatis mutandis apply to—
(a) the cost accountant in practice conducting cost audit under section 148;
The provisions of this section shall mutatis mutandis apply to—
(a) the cost accountant conducting cost audit under section 148;
To align with Section 148.
Section 147 (2)
if an auditor of a company contravenes any of the provisions of section 139, section 143, section 144 or section 145, the auditor shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees:
if an auditor of a company contravenes any of the provisions of section 139, section 143, section 144 or section 145, the auditor shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees or four times the remuneration of the auditor, whichever is less:
Proviso to Section 147 (2)
Provided that if an auditor has contravened such provisions knowingly or willfully with the intention to deceive the company or its shareholders or creditors or tax authorities, he shall be punishable with imprisonment for a term which may extend to one year and with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees.
Provided that if an auditor has contravened such provisions knowingly or willfully with the intention to deceive the company or its shareholders or creditors or tax authorities, he shall be punishable with imprisonment for a term which may extend to one year and with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees or eight times the remuneration of the auditor, whichever is less.
Section 147 (3) (ii)
Where an auditor has been convicted under sub-section (2), he shall be liable to—
(ii) pay for damages to the company, statutory bodies or authorities or to any other persons for loss arising out of incorrect or misleading statements of particulars made in his audit report.
Where an auditor has been convicted under sub-section (2), he shall be liable to—
(ii) pay for damages to the company, statutory bodies or authorities or to members or creditors of the company for loss arising out of incorrect or misleading statements of particulars made in his audit report.
It restricts the liability of auditor for damages to the shareholders or creditors of the company instead of any other person.
Proviso to Section 147 (5)
New Proviso.
Provided that in case of criminal liability of an audit firm, in respect of liability other than fine, the concerned partner or partners, who acted in a fraudulent manner or abetted or, as the case may be, colluded in any fraud shall only be liable
It seeks that in case of criminal liability of any audit firm the concerned partners only shall be liable.
Section 148 (3)
The audit under sub-section (2) shall be conducted by a Cost Accountant in practice who shall be appointed by the Board on such remuneration as may be determined by the members in such manner as may be prescribed:
The audit under sub-section (2) shall be conducted by a Cost Accountant who shall be appointed by the Board on such remuneration as may be determined by the members in such manner as may be prescribed:
Explanation to Section 148 (3)
For the purposes of this sub-section, the expression “cost auditing standards” mean such standards as are issued by the Institute of Cost and Works Accountants of India, constituted under the Cost and Works Accountants Act, 1959, with the approval of the Central Government.
For the purposes of this sub-section, the expression “cost auditing standards” mean such standards as are issued by the Institute of Cost Accountants of India, constituted under the Cost and Works Accountants Act, 1959, with the approval of the Central Government.
Proviso to Section 148 (5)
Provided that the report on the audit of cost records shall be submitted by the cost accountant in practice to the Board of Directors of the company
Provided that the report on the audit of cost records shall be submitted by the cost accountant to the Board of Directors of the company
To align with the definition of cost accountant as specified in Section 2(28).
Section 149 (3)
Every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days in the previous calendar year.
Every company shall have at least one director who stays in India for a total period of not less than one hundred and eighty-two days during the financial year:
Provided that in case of a newly incorporated company the requirement under this sub-section shall apply proportionately at the end of the financial year in which it is incorporated.
It provides easier requirements with respect to appointment of resident director.
Section 149 (6) (c)
who has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year;
who has or had no pecuniary relationship, other than remuneration as such director or having transaction not exceeding ten per cent. of his total income or such amount as may be prescribed, with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year;
The Committee observed that even minor pecuniary relationships are covered within this clause (c) even though such transactions may not compromise the independence of the directors, whereas, Regulation 16 of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 prohibits only ‘material’ pecuniary relationships for disqualifying appointment of persons as Independent Directors.
MCA has also issued clarification regarding the implication of pecuniary relationship.
By this amendment it seeks to specify limits with respect to pecuniary relationship of a director with respect to eligibility of a director to be appointed as an independent director.
Section 149 (6) (d)
none of whose relatives has or had pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors, amounting to two per cent. or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year;
none of whose relatives—
(i) is holding any security of or interest in the company, its holding, subsidiary or associate company during the two immediately preceding financial years or during the current financial year:
Provided that the relative may hold security or interest in the company of face value not exceeding fifty lakh rupees or two percent of the paid-up capital of the company, its holding, subsidiary or associate company or such higher sum as may be prescribed;
(ii) is indebted to the company, its holding, subsidiary or
associate company or their promoters, or directors, in excess of such amount as may be prescribed during the two immediately preceding financial years or during the current financial year;
(iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, its holding, subsidiary or associate company or their promoters, or directors of such holding company, for such amount as may be prescribed during the two immediately preceding financial years or during the current financial year; or
(iv) has any other pecuniary transaction or relationship with the company, or its subsidiary, or its holding or associate company amounting to two per cent. or more of its gross turnover or total income singly or in combination with the transactions referred to in sub-clause (i), (ii) or (iii);”;
As per the recommendation by the Committee pecuniary relationship or transaction” entered into by a relative is made more specific by clearly categorizing the types of transactions as provided under Section 141(3)(d).
Proviso to Section 149 (6) (e) (i)
New proviso inserted.
Provided that in case of a relative who is an employee, the restriction under this clause shall not apply for his employment during preceding three financial years
The committee felt that the restriction at the time of appointment should, be for relatives holding Board or KMP position similar to that contained in Section 141(3)(f). However, it would be possible to influence an Independent Director in case his relative is also working in the situations referred to in the section irrespective of the position he holds. This scope of restriction after appointment should, be retained as prescribed.
Section 152 (3)
No person shall be appointed as a director of a company unless he has been allotted the Director Identification Number under section 154.
No person shall be appointed as a director of a company unless he has been allotted the Director Identification Number under section 154″or any other number as may be prescribed under section 153.
The Change provides enabling provision to the Central Government to prescribe other number (Aadhar) for a person to have before he can be appointed as a Director.
Section 152 (4)
Every person proposed to be appointed as a director by the company in general meeting or otherwise, shall furnish his Director Identification Number and a declaration that he is not disqualified to become a director under this Act.
Every person proposed to be appointed as a director by the company in general meeting or otherwise, shall furnish his Director Identification Number or such other number as may be prescribed under section 153 and a declaration that he is not disqualified to become a director under this Act.
Proviso to Section 153
New Proviso
Provided that the Central Government may prescribe any identification number which shall be treated as Director Identification Number for the purposes of this Act and in case any individual holds or acquires such identification number, the requirement of this section shall not apply or apply in such manner as may be prescribed
The Change provides enabling provision to the Central Government to prescribe other number (Aadhar) for a person to have before he can be appointed as a Director.
Section 160 (1)
New Proviso
Provided that requirements of deposit of amount shall not apply in case of appointment of an independent director or a director recommended by the Nomination and Remuneration Committee, if any, constituted under sub-section (1) of section 178 or a director recommended by the Board of Directors of the Company, in the case of a company not required to constitute Nomination and Remuneration Committee.
The change relates to omission of the requirement of deposit money in case of appointment of an Independent Director and if a candidature is recommended by NRC.
A welcome Change, removes unnecessary requirement of compliance.
Section 161 (2)
The Board of Directors of a company may, if so authorised by its articles or by a resolution passed by the company in general meeting, appoint a person, not being a person holding any alternate directorship for any other director in the company, to act as an alternate director for a director during his absence for a period of not less than three months from India
The Board of Directors of a company may, if so authorised by its articles or by a resolution passed by the company in general meeting, appoint a person, not being a person holding any alternate directorship for any other director in the company or holding directorship in the same company, to act as an alternate director for a director during his absence for a period of not less than three months from India
Now a person already holding a position of Director in the Company cannot be appointed as alternate Director for the sake of conflict of interest and also ambiguity in the calculation of quorum.
Section 161 (4)
In the case of a public company, if the office of any director appointed by the company in general meeting is vacated before his term of office expires in the normal course, the resulting casual vacancy may, in default of and subject to any regulations in the articles of the company, be filled by the Board of Directors at a meeting of the Board:
Provided that any person so appointed shall hold office only up to the date up to which the director in whose place he is appointed would have held office if it had not been vacated.
In the case of a public company, if the office of any director appointed by the company in general meeting is vacated before his term of office expires in the normal course, the resulting casual vacancy may, in default of and subject to any regulations in the articles of the company, be filled by the Board of Directors at a meeting of the Board which shall be subsequently approved by members in the immediate next general meeting:
Provided that any person so appointed shall hold office only up to the date up to which the director in whose place he is appointed would have held office if it had not been vacated.
Both private and public companies are covered in the Section.
Members shall ratify the appointment of a director appointed by a Board in case of casual vacancy.
Proviso to Section 164 (2)
New Proviso inserted.
Provided that where a person is appointed as a director of a company which is in default of clause (a) or clause (b), he shall not incur the disqualification for a period of six months from the date of his appointment
Six months time limit is given to a new director appointed to make the default good.
Proviso to Section 164 (3)
Provided that the disqualifications referred to in clauses (d), (e) and (g) of sub-section (1) shall not take effect—
(i) for thirty days from the date of conviction or order of disqualification;
(ii) where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting in sentence or order, until expiry of seven days from the date on which such appeal or petition is disposed off; or
(iii) where any further appeal or petition is preferred against order or sentence within seven days, until such further appeal or petition is disposed off.
Provided that the disqualifications referred to in clauses (d), (e) and (g) of sub-section (1) shall continue to apply even if the appeal or petition has been filed against the order of conviction or disqualification.
The change has been provided for an inconsistent situation when read with the proviso to section 164(3), as these provided for a person to be appointed as a director if he has been convicted/disqualified by a court and an appeal is pending, though such consideration is not allowed in case the director has to vacate his office and an appeal has been preferred against such conviction and sentence, thus in case of disqualification it is not required to provide for a period for pendency of appeal.
Second Explanation to Section 165
New Explanation.
For reckoning the limit of directorships of twenty companies, the directorship in a dormant company shall not be included.
As the dormant company is inactive and having insignificant transactions it is proper and just to exclude dormant company for reckoning the limit of directorship.
Provision to Section 167 (1) (a)
New proviso
Provided that where he incurs disqualification under sub-section (2) of section 164, the office of the director shall become vacant in all the companies, other than the company which is in default under that sub-section.
The change provides section 167(1)(a) deals with vacation of office of a director, if he incurs any of the disqualifications referred to under section 164. Section 164(1) provides for disqualifications which are incurred by a director in his personal capacity such as being an undischarged bankrupt, of unsound mind, convicted of an offence etc., and Section 164(2) lists out disqualifications related to the company such as non-compliance of annual filing requirements, etc. It was observed that the existing provision of section 167(1)(a) created a paradoxical situation, as 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, thus in this regard vacancy in the office of a director is to be triggered when disqualification is incurred in personal capacity and in case of disqualification under section 164(2) the office of the director shall become vacant in all companies, other than the company which is in default under that sub-section.
Provision to Section 167 (1) (f)
Provided that the office shall be vacated by the director even if he has filed an appeal against the order of such court;
“Provided that the office shall not be vacated by the director in case of orders referred to in clauses (e) and (f)—
(i) for thirty days from the date of conviction or order of disqualification;
(ii) where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting in sentence or order, until expiry of seven days from the date on which such appeal or petition is disposed of; or
(iii) where any further appeal or petition is preferred against order or sentence within seven days, until such further appeal or petition is disposed of.”.
The change has been provided for it creates an inconsistent situation when read with the proviso to section 164(3), as these provided for a person to be appointed as a director if he has been convicted/disqualified by a court and an appeal is pending, though such consideration is not allowed in case the director has to vacate his office and an appeal has been preferred against such conviction and sentence, thus in case of requirement for vacation of office should not take place till the appeal has been disposed off.
Proviso to Section 168 (1)
Provided that a director shall also forward a copy of his resignation along with detailed reasons for the resignation to the Registrar within thirty days of resignation in such manner as may be prescribed
Provided that a director may also forward a copy of his resignation along with detailed reasons for the resignation to the Registrar within thirty days of resignation in such manner as may be prescribed
It is proposed to make filing of DIR-11 optional at the part of Director.
Second proviso to Section 173 (1)
New proviso
“Provided further that where there is quorum in a meeting through physical presence of directors, any other director may participate through video conferencing or other audio visual means in such meeting on any matter specified under the first proviso.”.
The previous requirement completely bars participation in these specified matters of the Board meetings through video conferencing, which unnecessarily restricts wider participation even if the necessary quorum as specified in Section 174 is physically present. Therefore, it was recommended that flexibility be provided to allow participation of Directors through video conferencing, subject to such participation not being counted for the purpose of quorum. However, such Directors, though not counted for the purposes of quorum, may be entitled to sitting fees.
Section 177 (1)
The Board of Directors of every listed company and such other class or classes of companies, as may be prescribed, shall constitute an Audit Committee.
The Board of Directors of every listed public company and such other class or classes of companies, as may be prescribed, shall constitute an Audit Committee.
Exemption is given to private Companies who have listed their Debt instruments as per SEBI Debt Listing Regulations.
Proviso to Section 177 (4) (iv)
New Provisos introduced.
“Provided further that in case of transaction, other than transactions referred to in section 188, and where Audit Committee does not approve the transaction, it shall make its recommendations to the Board:
Provided also that in case any transaction involving any amount not exceeding one crore rupees 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 three months from the date of the transaction, such
transaction shall be voidable at the option of the Audit Committee and if thetransaction is with the related party to any director or is authorized by any other director, the director concerned shall indemnify the company against any loss incurred by it:
Provided also that the provisions of this clause shall not apply to a transaction, other than a transaction referred to in section 188, between a holding company and its wholly owned subsidiary company.
To change in the provisions of this section are as follows:-
1. For related party transactions, other than those covered under section 188, the audit committee may give its recommendation to the Board in case of non-approval of any transaction.
2. Flexibility is allowed to audit committees to ratify related party transactions entered in to with a director/officer of the company within 3 months from the date on which the transaction was entered into, subject to prescribing an upper limit on these transactions i.e. not exceeding one crore rupees.
3. In case such transaction is not approved it shall be voidable at the option of the audit committee, and if such transaction is with a related party to any director or is authorized by any director, the director shall indemnify the company against the loss.
4. The requirement of obtaining audit committee approval for related party transactions, shall not apply to a transaction (other than a transaction referred to under section 188) between a holding company and its wholly owned subsidiary.
Section 178 (1)
The Board of Directors of every listed company and such other class or classes of companies, as may be prescribed shall constitute the Nomination and Remuneration
Committee consisting of three or more non-executive directors out of which not less than one-half shall be independent directors
The Board of Directors of every listed public company and such other class or classes of companies, as may be prescribed shall constitute the Nomination and Remuneration
Committee consisting of three or more non-executive directors out of which not less than one-half shall be independent directors
Exemption is given to private Companies who have listed their Debt instruments as per SEBI Debt Listing Regulations.
Section 178 (2)
The Nomination and Remuneration Committee shall identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, recommend to the Board their appointment and removal and shall carry out evaluation of every director’s performance.
The Nomination and Remuneration Committee shall identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, recommend to the Board their appointment and removal and shall specify the manner for effective evaluation of performance of Board, its committees and individual directors to be carried out either by the Board, by the Nomination and Remuneration Committee or by an independent external agency and review its implementation and compliance.
The change pertains to a new evaluation process to be followed by the Nomination and Remuneration Committee.
Section 178 (4)
Provided that such policy shall be disclosed in the Board’s report.
Provided that such policy shall be placed on the website of the company, if any, and the salient features of the policy and changes therein, if any, along with the web address of the policy, if any, shall be disclosed in the Board’s report.
The change substitutes the disclosure of the Nomination and Remuneration Policy in the board‘s report by web link of the same and salient features thereof.
179 (8)
Provided that non-consideration of resolution of any grievance by the Stakeholders Relationship Committee in good faith shall not constitute a contravention of this section.
Provided that inability to resolve or consider any grievance by the Stakeholders Relationship Committee in good faith shall not constitute a contravention of this section.
Section 180(1) (C)
to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary loans obtained from the company’s bankers in the ordinary course of business
to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital, free reserves and securities premium, apart from temporary loans obtained from the company’s bankers in the ordinary course of business
As Securities Premium is a part of the capital of a company hence, it is included for the purpose of ecognizing the borrowing limits, along with the company’s paid-up share capital and free reserves.
Section 184 (4) & (5)
(4) If a director of the company contravenes the provisions of sub section (1) or subsection (2), such director shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to one lakh rupees, or with both.
(5) Nothing in this section—
(a) shall be taken to prejudice the operation of any rule of law restricting a director of a company from having any concern or interest in any contract or arrangement with the company;
(b) shall apply to any contract or arrangement entered into or to be entered into between two companies where any of the directors of the one company or two or more of them together holds or hold not more than two per cent. of the paid-up share capital in the other company.
(4) If a director of the company contravenes the provisions of sub section (1) or subsection (2), such director shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to one lakh rupees, or with both.
(5) Nothing in this section—
(a) shall be taken to prejudice the operation of any rule of law restricting a director of a company from having any concern or interest in any contract or arrangement with the company;
(b) shall apply to any contract or arrangement entered into or to be entered into between two companies or between one or more companies and one or more bodies corporate where any of the directors of the one company or body corporate or two or more of them together holds or hold not more than two per cent. of the paid-up share capital in the other company or the body corporate
(4) The change relates to omission of minimum penalty for contravention of the provision of this section.
(5) The change includes body corporates within the purview of this sub-section to align it with the provisions of section 184(2).
Section 185
(1) Save as otherwise provided in this Act, no company shall, directly or indirectly, advance any loan, including any loan represented by a book debt, to any of its directors or to any other person in whom the director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person:
Provided that nothing contained in this sub-section shall apply to—
(a) the giving of any loan to a managing or whole-time director—
(i) as a part of the conditions of service extended by the company to all its employees; or
(ii) pursuant to any scheme approved by the members by a special resolution; or
(b) a company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the bank rate declared by the Reserve Bank of India.
1[(c) any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company; or
(d) any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company:
Provided that the loans made under clauses (c) and (d) are utilized by the subsidiary company for its principal business activities.]
Explanation.—For the purposes of this section, the expression “to any other person in whom director is interested” means—
(a) any director of the lending company, or of a company which is its holding company or any partner or relative of any such director;
(b) any firm in which any such director or relative is a partner;
5&6[(c) any private company of which any such director is a director or member;]
(d) any body corporate at a general meeting of which not less than twenty five per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or
(e) any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.
(2) If any loan is advanced or a guarantee or security is given or provided in contravention of the provisions of sub-section (1), the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, and the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person, shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both.]
No company shall, directly or indirectly, advance any loan, including any loan represented by a book debt to, or give any guarantee or provide any security in connection with any loan taken by,—
(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.
(2) A company may advance any loan including any loan represented by a book
debt, or give any guarantee or provide any security in connection with any loan taken
by any person in whom any of the director of the company is interested, subject to the
condition that—
(a) a special resolution is passed by the company in general meeting:
Provided that the explanatory statement to the notice for the relevant general meeting shall disclose the full particulars of the loans given, or guarantee given or security provided and the purpose for which the loan or guarantee or security is proposed to be utilized by the recipient of the loan or guarantee or security and any other relevant fact; and
(b) the loans are utilized by the borrowing company for its principal business activities.
Explanation.—For the purposes of this sub-section, the expression “any person in
whom any of the director of the company is interested” means—
(a) any private company of which any such director is a director or member;resolution; or
(b) a company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the rate of prevailing yield of one year, three year, five year or ten year Government security closest to the tenor of the loan; or
(c) any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company; or
(d) any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company:
Provided that the loans made under clauses (c) and (d) are utilized by the subsidiary company for its principal business activities.
(4) If any loan is advanced or a guarantee or security is given or provided or utilized in contravention of the provisions of this section,—
(i) the company shall be punishable with fine which shall not be less than
five lakh rupees but which may extend to twenty-five lakh rupees;
(ii) every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall
not be less than five lakh rupees but which may extend to twenty-five lakh
rupees; and
(iii) the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person, shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both.
The change provides that it may be considered to allow companies to advance a loan to any other person in whom director is interested subject to prior approval of the company by a special resolution. Further, loans extended to persons, including subsidiaries, falling within the restrictive purview of Section 185 should be used by the subsidiary for its principal business activity only, and not for further investment or grant of loan.
Explanation to Section 186 (2)
New Explanation
For the purposes of this sub-section, the word “person” does not include any individual who is in the employment of the company.
Committee recommended that Employees given loans as a part of conditions of service or pursuant to any approved scheme for all employees by the company, should not, unwittingly, be covered under this Section, as this Section was meant to cover inter-corporate loans. The Committee, therefore, recommended for the insertion of an ‘explanation’ to clarify the exclusion of employees from the requirement of the sub-section/clause.
Section 186 (3)
Where the giving of any loan or guarantee or providing any security or the acquisition under sub-section (2) exceeds the limits specified in that sub-section, prior approval by means of a special resolution passed at a general meeting shall be necessary.
Where the aggregate of the loans and investment so far made, the amount for which guarantee or security so far provided to or in all other bodies corporate along with the investment, loan, guarantee or security proposed to be made or given by the Board, exceed the limits specified under sub-section (2), no investment or loan shall be made or guarantee shall be given or security shall be provided unless previously authorized by a special resolution passed in a general meeting:
Provided that 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, the requirement of this sub-section shall not apply:
Provided further that the company shall disclose the details of such loans or guarantee or security or acquisition in the financial statement as provided under sub-section (4).”
The relaxation is given by waiving of the requirement of Passing Special Resolution in case of loan/guarantee/security by a Company to its wholly owned subsidiary, Joint venture Company or purchase of securities of its wholly owned subsidiary company.
Section 186 (11)
Nothing contained in this section, except sub-section (1), shall apply—
(a) to a loan made, guarantee given or security provided by a banking company or an insurance company or a housing finance company in the ordinary course of its business or a company engaged in the business of financing of companies or of providing infrastructural facilities;
(b) to any acquisition—
(i) made by a non-banking financial company registered under Chapter IIIB of the Reserve Bank of India Act, 1934 and whose principal business is acquisition of securities:
Provided that exemption to non-banking financial company shall be in respect of its investment and lending activities;
(ii) made by a company whose principal business is the acquisition of securities;
(iii) of shares allotted in pursuance of clause (a) of sub-section (1) of section 62.
(iv) made by a banking company or an insurance company or a housing finance company, making acquisition of securities in the ordinary course of its business.”
Nothing contained in this section, except sub-section (1), shall apply—
(a) to any loan made, any guarantee given or any security provided or any investment made by a banking company, or an insurance company, or a housing finance company in the ordinary course of its business, or a company established with the object of and engaged in the business of financing industrial enterprises, or of providing infrastructural facilities;
(b) to any investment—
(i) made by an investment company;
(ii) made in shares allotted in pursuance of clause (a) of sub-section (1) of section 62 or in shares allotted in pursuance of rights issues made by a body corporate;
(iii) made, in respect of investment or lending activities, by a non-banking financial company registered under Chapter III-B of the Reserve Bank of India Act, 1934 and whose principal business is acquisition of securities.
The change provides under this sub-section be extended to investments in rights issues made by body corporates (companies incorporated outside India).
Exemption is also extended to investment Company and Companies engaged in the business of financing industrial enterprises.
Explanation to Section 186
Explanation.—For the purposes of this section,—
(a) the expression “investment company” means a company whose principal business is the acquisition of shares, debentures or other securities;
(b) the expression “infrastructure facilities” means the facilities specified in Schedule VI.
Explanation.—For the purposes of this section,—
(a) the expression “investment company” means a company whose principal business is the acquisition of shares, debentures or other securities and a company will be deemed to be principally engaged in the business of acquisition of shares, debentures or other securities, if its assets in the form of investment in shares, debentures or other securities constitute not less than fifty per cent. of its total assets, or if its income derived from investment business constitutes not less than fifty per cent. as a proportion of its gross income;
(b) the expression “infrastructure facilities” means the facilities specified in Schedule VI.
More clarity is provided in the definition of investment company.
Third proviso to Section 188 (1)
New Proviso
Provided also that nothing contained in the second proviso shall apply to a company in which ninety per cent. or more members, in number, are relatives of promoters or are related parties
The amendment is as per the MCA clarification and the fact that it would be impractical for the closely held companies to pass a resolution if all the related parties are debarred from voting.
Section 188 (3)
Where any contract or arrangement is entered into by a director or any other employee, without obtaining the consent of the Board or approval by a resolution in the general meeting under sub-section (1) and if it is not ratified by the Board or, as the case may be, by the shareholders at a meeting within three months from the date on which such contract or arrangement was entered into, such contract or arrangement shall be voidable at the option of the Board and if the contract or arrangement is with a related party to any director, or is authorized by any other director, the directors concerned shall indemnify the company against any loss incurred by it.
Where any contract or arrangement is entered into by a director or any other employee, without obtaining the consent of the Board or approval by a resolution in the general meeting under sub-section (1) and if it is not ratified by the Board or, as the case may be, by the shareholders at a meeting within three months from the date on which such contract or arrangement was entered into, such contract or arrangement shall be voidable at the option of the Board or, as the case may be, of the shareholders and if the contract or arrangement is with a related party to any director, or is authorised by any other director, the directors concerned shall indemnify the company against any loss incurred by it.
Section 194
Prohibition on Forward Dealings in Securities of Company by Director or key Managerial Personnel.
Section Omitted
The SEBI regulations are comprehensive in the matter (and also apply to companies intending to get listed), and in view of the practical difficulties expressed by stakeholders, sections 194 and 195 are omitted from the Act.
Section 195
Prohibition on Insider Trading of Securities
Section Omitted
The Committee deliberated on the issues involved and noted that SEBI regulations are comprehensive in the matter (and also apply to companies intending to get listed), and in view of the practical difficulties expressed by stakeholders, sections 194 and 195 may be omitted from the Act.
Proviso to Section 196 (3) (a)
New proviso
Provided further that where no such special resolution is passed but votes cast in favour of the motion exceed the votes, if any, cast against the motion and the Central Government is satisfied, on an application made by the Board, that such appointment is most beneficial to the company, the appointment of the person who has attained the age of seventy years may be made.
Option has been provided to the Company, either go for Special Resolution or go for Ordinary Resolution and CG approval.
First Proviso to Section 197 (1)
Provided that the company in general meeting may, with the approval of the Central Government, authorize the payment of remuneration exceeding eleven per cent. of the net profits of the company, subject to the provisions of Schedule V
Provided that the company in general meeting may, with the approval of the Central Government, authorize the payment of remuneration exceeding eleven per cent. of the net profits of the company, subject to the provisions of Schedule V
Requirement of taking Central Government approval for payment of excess remuneration as prescribed in the Section has been done away with.
Second Proviso to Section 197 (1)
Provided further that, except with the approval of the company in general meeting,—
(i) the remuneration payable to any one managing director; or whole-time director or manager shall not exceed five per cent. of the net profits of the company and if there is more than one such director remuneration shall not exceed ten per cent. of the net profits to all such directors and manager taken together;
(ii) the remuneration payable to directors who are neither managing directors nor whole-time directors shall not exceed,—
(A) one per cent. of the net profits of the company, if there is a managing or whole-time director or manager;
(B) three per cent. of the net profits in any other case.
Provided further that, except with the approval of the company in general meeting by a special resolution,—
(i) the remuneration payable to any one managing director; or whole-time director or manager shall not exceed five per cent. of the net profits of the company and if there is more than one such director remuneration shall not exceed ten per cent. of the net profits to all such directors and manager taken together;
(ii) the remuneration payable to directors who are neither managing directors nor whole-time directors shall not exceed,—
(A) one per cent. of the net profits of the company, if there is a managing or whole-time director or manager;
(B) three per cent. of the net profits in any other case.
Special Resolution required for giving excess remuneration (sub limits) instead of Ordinary Resolution.
Third proviso to Section 197 (1)
New Proviso
Provided also that, where the company has defaulted in payment of dues to any bank or public financial institution or non-convertible
debenture holders or any other secured creditor, the prior approval of the bank or public financial institution concerned or the non-convertible debenture holders or other secured creditor, as the case may be, shall be obtained by the company before obtaining the approval in the general meeting.
Approval of banks/public financial institutions/non-convertible debenture holders/secured creditors is required to be obtained in case of default before obtaining the approval of members in the general meeting.
Section 197 (3)
Notwithstanding anything contained in sub-sections (1) and (2), but subject to the provisions of Schedule V, if, in any financial year, a company has no profits or its profits are inadequate, the company shall not pay to its directors, including any managing or whole time director or manager, by way of remuneration any sum exclusive of any fees payable to directors under sub-section (5) here under except in accordance with the provisions of Schedule V and if it is not able to comply with such provisions, with the previous approval of the Central Government.
Notwithstanding anything contained in sub-sections (1) and (2), but subject to the provisions of Schedule V, if, in any financial year, a company has no profits or its profits are inadequate, the company shall not pay to its directors, including any managing or whole time director or manager, by way of remuneration any sum exclusive of any fees payable to directors under sub-section (5) here under except in accordance with the provisions of Schedule V and if it is not able to comply with such provisions, with the previous approval of the Central Government.
Companies having no/inadequate profits are now no longer required to take Central Government approval to give excessive remuneration.
This is in line with ease of doing business policy.
Section 197 (9)
If any director draws or receives, directly or indirectly, by way of remuneration any such sums in excess of the limit prescribed by this section or without the prior sanction of the Central Government, where it is required, he shall refund such sums to the company and until such sum is refunded, hold it in trust for the company.
If any director draws or receives, directly or indirectly, by way of remuneration any such sums in excess of the limit prescribed by this section or without approval required under this section, he shall refund such sums to the company, within two years or such lesser period as may be allowed by the company, and until such sum is refunded, hold it in trust for the company.
As the approval of the Central Government being done away with the provision is amended respectively with inclusion of time limit for returning the excess remuneration to the Company.
Section 197 (10)
The company shall not waive the recovery of any sum refundable to it under sub-section (9) unless permitted by the Central Government.
The company shall not waive the recovery of any sum refundable to it under sub-section (9) unless approved by the company by special resolution within two years from the date the sum becomes refundable” shall be substituted.
As the approval of the Central Government being done away with the provision is amended respectively.
Proviso to Section 197 (10)
New Proviso
Provided that where the company has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, the prior approval of the bank or public financial institution concerned or the non-convertible debenture holders or other secured creditor, as the case may be, shall be obtained by the company before obtaining approval of such waiver.
Approval of banks/public financial institutions/non-convertible debenture holders/secured creditors is required to be obtained in case of default before obtaining the approval of members in the general meeting.
Section 197 (11)
In cases where Schedule V is applicable on grounds of no profits or inadequate profits, any provision relating to the remuneration of any director which purports to increase or has the effect of increasing the amount thereof, whether the provision be contained in the company’s memorandum or articles, or in an agreement entered into by it, or in any resolution passed by the company in general meeting or its Board, shall not have any effect unless such increase is in accordance with the conditions specified in that Schedule and if such conditions are not being complied, the approval of the Central Government had been obtained.
In cases where Schedule V is applicable on grounds of no profits or inadequate profits, any provision relating to the remuneration of any director which purports to increase or has the effect of increasing the amount thereof, whether the provision be contained in the company’s memorandum or articles, or in an agreement entered into by it, or in any resolution passed by the company in general meeting or its Board, shall not have any effect unless such increase is in accordance with the conditions specified in that Schedule and if such conditions are not being complied, the approval of the Central Government had been obtained.
The change does away with the requirement of obtaining approval of the Central Government.
Section 197 (16)
New Sub Section.
The auditor of the company shall, in his report under section 143, make a statement as to whether the remuneration paid by the company to its directors is in accordance with the provisions of this section, whether remuneration paid to any director is in excess of the limit laid down under this section and give such other details as may be prescribed.
It is stated in the auditor‘s report under section 143 with respect to remuneration paid by the company to its directors.
Section 197 (17)
New Sub Section.
On and from the commencement of the Companies (Amendment) Act, 2017, any application made to the Central Government under the provisions of this section as it stood before such commencement, which is pending with that Government shall abate, and the company shall, within one year of such commencement, obtain the approval in accordance with the provisions of this section, as so amended.
Transactional Provisions for applicability of the newly amended provisions.
Section 198 (3)(a),
In making the computation aforesaid, credit shall not be given for the following sums, namely:—
(a) profits, by way of premium on shares or debentures of the company, which are issued or sold by the company;
In making the computation aforesaid, credit shall not be given for the following sums, namely:—
(a) profits, by way of premium on shares or debentures of the company, which are issued or sold by the company unless the company is an investment company as referred to in clause (a) of the Explanation to section 186;
Section 198 (3) (f)
New clause inserted.
Any amount representing unrealized gains, notional gains or revaluation of assets.
Section 198 (4) (l)
In making the computation aforesaid, the following sums shall be deducted, namely:
(l) the excess of expenditure over income, which had arisen in computing the net profits in accordance with this section in any year which begins at or after the commencement of this Act, in so far as such excess has not been deducted in any subsequent year preceding the year in respect of which the net profits have to be ascertained
In making the computation aforesaid, the following sums shall be deducted, namely:
(l) the excess of expenditure over income, which had arisen in computing the net profits in accordance with this section in any year which begins at or after the commencement of this Act, in so far as such excess has not been deducted in any subsequent year preceding the year in respect of which the net profits have to be ascertained
Section 200
Notwithstanding anything contained in this Chapter, the Central Government or a company may, while according its approval under section 196, to any appointment or to any remuneration under section 197 in respect of cases where the company has inadequate or no profits, fix the remuneration within the limits specified in this Act, at such amount or percentage of profits of the company, as it may deem fit and while fixing the remuneration, the Central Government or the company shall have regard to—
Notwithstanding anything contained in this Chapter, the Central Government or a company may, while according its approval under section 196, to any appointment or to any remuneration under section 197 in respect of cases where the company has inadequate or no profits, fix the remuneration within the limits specified in this Act, at such amount or percentage of profits of the company, as it may deem fit and while fixing the remuneration, the Central Government or the company shall have regard to—
The amendment in this section is in consistent with the changes made in Section 197 (done away with the requirement of Central Government approval)
Section 201 (1)
Every application made to the Central Government under this Chapter shall be in such form as may be prescribed.
Every application made to the Central Government under section 196shall be in such form as may be prescribed.
In accordance with the amendments made in Section 196 & 197.
Section 201 (2)
Before any application is made by a company to the Central Government under any of the sections aforesaid, there shall be issued by or on behalf of the company a general notice to the members thereof, indicating the nature of the application proposed to be made.
Before any application is made by a company to the Central Government under any of the sections aforesaid, there shall be issued by or on behalf of the company a general notice to the members thereof, indicating the nature of the application proposed to be made.
In accordance with the amendments made in Section 196 & 197.
Section 216 (1)
Where it appears to the Central Government that there is a reason so to do, it may appoint one or more inspectors to investigate and report on matters relating to the company, and its membership for the purpose of determining the true persons—
(a) who are or have been financially interested in the success or failure, whether real or apparent, of the company; or
(b) who are or have been able to control or to materially influence the policy of the company.
Where it appears to the Central Government that there is a reason so to do, it may appoint one or more inspectors to investigate and report on matters relating to the company, and its membership for the purpose of determining the true persons—
(a) who are or have been financially interested in the success or failure, whether real or apparent, of the company; or
(b) who are or have been able to control or to materially influence the policy of the company; or
(c) who have or had beneficial interest in shares of a company or who are or have been beneficial owners or significant beneficial owner of a company
Many cases were reported to the ministry and SEBI regarding the actual ownership of the Company.
This amendment will give power to Central Government to investigate about the actual ownership of the Company.
Section 223 (3)
A copy of the report made under sub-section (1) may be obtained by making an application in this regard to the Central Government.
A copy of the report made under sub-section (1) may be obtained by members, creditors or any other person whose interest is likely to be affected by making an application in this regard to the Central Government.
As per earlier provision, any person can obtain a copy of the report referred to in Section 223. The concern were expressed that inquiry and inspection reports must not be made available by any person on application. It must be restrictive to only members, creditors or any other person whose interest is likely to be affected.
Section 236 (4), (5), (6)
(4)The majority shareholders shall deposit an amount equal to the value of shares to be acquired by them under sub-section (2) or sub-section (3), as the case may be, in a separate bank account to be operated by the transferor company for at least one year for payment to the minority shareholders and such amount shall be disbursed to the entitled shareholders within sixty days:
Provided that such disbursement shall continue to be made to the entitled shareholders for a period of one year, who for any reason had not been made disbursement within the said period of sixty days or if the disbursement have been made within the aforesaid period of sixty days, fail to receive or claim payment arising out of such disbursement.
(5) In the event of a purchase under this section, the transferor company shall act as a transfer agent for receiving and paying the price to the minority shareholders and for taking delivery of the shares and delivering such shares to the majority, as the case may be.
(6) In the absence of a physical delivery of shares by the shareholders within the time specified by the company, the share certificates shall be deemed to be cancelled, and the transferor company shall be authorized to issue shares in lieu of the cancelled shares and complete the transfer in accordance with law and make payment of the price out of deposit made under sub-section (4) by the majority in advance to the minority by despatch of such payment.
(4)The majority shareholders shall deposit an amount equal to the value of shares to be acquired by them under sub-section (2) or sub-section (3), as the case may be, in a separate bank account to be operated by the company whose shares are being transferred for at least one year for payment to the minority shareholders and such amount shall be disbursed to the entitled shareholders within sixty days:
Provided that such disbursement shall continue to be made to the entitled shareholders for a period of one year, who for any reason had not been made disbursement within the said period of sixty days or if the disbursement have been made within the aforesaid period of sixty days, fail to receive or claim payment arising out of such disbursement.
(5) In the event of a purchase under this section, the company whose shares are being transferred shall act as a transfer agent for receiving and paying the price to the minority shareholders and for taking delivery of the shares and delivering such shares to the majority, as the case may be.
(6) In the absence of a physical delivery of shares by the shareholders within the time specified by the company, the share certificates shall be deemed to be cancelled, and the company whose shares are being transferred shall be authorized to issue shares in lieu of the cancelled shares and complete the transfer in accordance with law and make payment of the price out of deposit made under sub-section (4) by the majority in advance to the minority by despatch of such payment.
Sections 236 (4), 236 (5) and 236 (6) made a reference to a “transferor company”, the term ‘transferor company’ has not been defined in the section itself. Use of the term ‘transferor company’ in the said Section 236 without providing for a context may ostensibly include even transfer of assets by a company, thereby including amalgamations and mergers within the ambit of this provision, which did not appear to be the intention.
Therefore, the Committee recommended the change.
Section 247 (2) (d)
(2) The valuer appointed under sub-section (1) shall,—
(d) not undertake valuation of any assets in which he has a direct or indirect interest or becomes so interested at any time during or after the valuation of assets.
(2) The valuer appointed under sub-section (1) shall,—
(d) not undertake valuation of any assets in which he has a direct or indirect interest or becomes so interested at any time during a period of three years prior to his appointment as valuer or three years after the valuation of assets was conducted by him.
Time period is prescribed to determine the interest of the valuer.
Section 366 (2)
With the exceptions and subject to the provisions contained in this section, any company formed, whether before or after the commencement of this Act, in pursuance of any Act of Parliament other than this Act or of any other law for the time being in force or being otherwise duly constituted according to law, and consisting of seven or more members, may at any time register under this Act as an unlimited company, or as a company limited by shares, or as a company limited by guarantee, in such manner as may be prescribed and the registration shall not be invalid by reason only that it has taken place with a view to the company’s being wound up:
With the exceptions and subject to the provisions contained in this section, any company formed, whether before or after the commencement of this Act, in pursuance of any Act of Parliament other than this Act or of any other law for the time being in force or being otherwise duly constituted according to law, and consisting of two or more members
shall be substituted, may at any time register under this Act as an unlimited company, or as a company limited by shares, or as a company limited by guarantee, in such manner as may be prescribed and the registration shall not be invalid by reason only that it has taken place with a view to the company’s being wound up:
Since various entities referred to in the Section (which can be registered under the Act) could be formed even with less than seven persons (OPC & Private Company), the restriction for the entities to consist of seven or more members is amended to allow registration of such entities, consisting of two or more members.
Clause VII of the Proviso to Section 366 (2)
New clause in the proviso inserted.
a company with less than seven members shall register as a private company.
As per the amendment made above.
Proviso to Section 374
Provided that upon registration as a company under this Part a limited liability partnership incorporated under the Limited Liability Partnership Act, 2008 shall be deemed to have been dissolved under that Act without any further act or deed
The change provides that upon registration as a company under Part I of Chapter XXI of Act, 2013 an LLP (incorporated under LLP Act, 2008) shall be deemed to have been dissolved under LLP Act, 2008 without any further act or deed.
Section 379
Where not less than fifty per cent. of the paid-up share capital, whether equity or preference or partly equity and partly preference, of a foreign company is held by one or more citizens of India or by one or more companies or bodies corporate incorporated in India, or by one or more citizens of India and one or more companies or bodies corporate incorporated in India, whether singly or in the aggregate, such company shall comply with the provisions of this Chapter and such other provisions of this Act as may be prescribed with regard to the business carried on by it in India as if it were a company incorporated in India.
1) Sections 380 to 386 (both inclusive)and sections 392 and 393 shall apply to all foreign companies:
Provided that the Central Government may, by Order published in the Official Gazette, exempt any class of foreign companies, specified in the Order, from any of the provisions of sections 380 to 386 and sections 392 and 393 and a copy of every such order shall, as soon as may be after it is made, be laid before both Houses of Parliament.
2)Where not less than fifty per cent. of the paid-up share capital, whether equity or preference or partly equity and partly preference, of a foreign company is held by one or more citizens of India or by one or more companies or bodies corporate incorporated in India, or by one or more citizens of India and one or more companies or bodies corporate incorporated in India, whether singly or in the aggregate, such company shall comply with the provisions of this Chapter and such other provisions of this Act as may be prescribed with regard to the business carried on by it in India as if it were a company incorporated in India.
It is to promote make in India initiative.
Section 384 (2)
The provisions of section 92 shall, subject to such exceptions, modifications and adaptations as may be made therein by rules made under this Act, apply to a foreign company as they apply to a company incorporated in India
The provisions of section 92and section 135 shall, subject to such exceptions, modifications and adaptations as may be made therein by rules made under this Act, apply to a foreign company as they apply to a company incorporated in India
This amendment is to bring align with CSR rules and the Act to bring reporting of CSR to the ambit of Foreign Company.
Section 391 (2)
The provisions of Chapter XX shall apply mutatis mutandis for closure of the place of business of a foreign company in India as if it were a company incorporated in India.
Subject to the provisions of section 376, the provisions of Chapter XX shall apply mutatis mutandis for closure of the place of business of a foreign company in India as if it were a company incorporated in India in case such foreign company has raised monies through offer or issue of securities under this Chapter which have not been repaid or redeemed.
It is to promote make in India initiative by making easier exit opportunity.
Provisos to Section 403 (1)
Provided that any document, fact or information may be submitted, filed, registered or recorded, after the time specified in relevant provision for such submission, filing, registering or recording, within a period of two hundred and seventy days from the date by which it should have been submitted, filed, registered or recorded, as the case may be, on payment of such additional fee as may be prescribed:
Provided further that any such document, fact or information may, without prejudice to any other legal action or liability under the Act, be also submitted, filed, registered or recorded, after the first time specified in first proviso on payment of fee and additional fee specified under this section.
Provided further that where the document, fact or information, as the case may be, in cases other than referred to in the first proviso, is not submitted, filed, registered or recorded, as the case may be, within the period provided in the relevant section,it may, without prejudice to any other legal action or liability
under this Act, be submitted, filed, registered or recorded as the case may be, on payment of such additional fee as may be prescribed and different fees may be prescribed for different classes of companies:
Provided also that where there is default on two or more occasions in submitting, filing, registering or recording of the document, fact or information, it may, without prejudice to any other legal action or liability under this Act, be submitted, filed, registered or recorded, as the case may be, on payment of a
higher additional fee, as may be prescribed and which shall not be lesser than twice the additional fee provided under the first or the second proviso as applicable
The change provides that the immunity of 270 days beyond the due date prescribed in the respective sections is proposed to be deleted.
This means that any filing beyond the statutory time specified in the respective sections of Act, 2013 will be subject to payment of additional fees under Section 403 and condonation of delay under Section 460 of Act, 2013.
The intent is to deter non-compliance by companies by reducing filing fees to zero in case of filing within the time specified in respectivesections and increase the additional for delays in filing of e-form.
Section 403 (2)
Where a company fails or commits any default to submit, file, register or record any document, fact or information under sub-section (1)before the expiry of the period specified in the first proviso to that sub-section with additional fee, the company and the officers of the company who are in default, shall, without prejudice to the liability for payment of fee and additional fee, be liable for the penalty or punishment provided under this Act for such failure or default.
Where a company fails or commits any default to submit, file, register or record any document, fact or information under sub-section (1) before the expiry of the period specified in the relevant section, the company and the officers of the company who are in default, shall, without prejudice to the liability for the payment of fee and additional fee, be liable for the penalty or punishment provided under this Act for such failure or default.
Consequent to the above amendment.
Section 406
(1) In this section, “Nidhi” means a company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings among st its members, receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with such rules as are prescribed by the Central Government for regulation of such class of companies.
(2) Save as otherwise expressly provided, the Central Government may, by notification, direct that any of the provisions of this Act shall not apply, or shall apply with such exceptions, modifications and adaptations as may be specified in that notification, to any Nidhi or Nidhis of any class or description as may be specified in that notification.
(3) A copy of every notification proposed to be issued under sub-section (2), shall be laid in draft before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in disapproving the issue of the notification or both Houses agree in making any modification in the notification, the notification shall not be issued or, asthe case may be, shall be issued only in such modified form as may be agreed upon by both the Houses.
406. (1) In this section, “Nidhi” or “Mutual Benefit Society” means a company which the Central Government may, by notification in the Official Gazette, declare to be a Nidhi or Mutual Benefit Society, as the case may be.
(2) The Central Government may, by notification in the Official Gazette, direct that any of the provisions of this Act specified in the notification—
(a) shall not apply to any Nidhi or Mutual Benefit Society; or
(b) shall apply to any Nidhi or Mutual Benefit Society with such exceptions, modifications and adaptations as may be specified in the notification.
(3) A copy of every notification proposed to be issued under sub-section (2), shall be laid in draft before each House of Parliament, while it is in session, for a total period of thirty days, and if, both Houses agree in disapproving the issue of notification or both Houses agree in making any modification in the notification, the notification shall not be issued or, as the case may be, shall be issued only in such modified form as may be agreed upon by both the Houses.
(4) In reckoning any such period of thirty days as is referred to in sub-section (3), no account shall be taken of any period during which the House referred to in subsection(3) is prorogued or adjourned for more than four consecutive days.
(5) The copies of every notification issued under this section shall, as soon as may be after it has been issued, be laid before each House of Parliament
The substitution of Section requires approval of Central Government before the declaration of a Company as Nidhi.
Section 409 (1)
A person shall not be qualified for appointment as a Technical Member unless he—
(a) has, for at least fifteen years been a member of the Indian Corporate Law Service or Indian Legal Service out of which at least three years shall be in the pay scale of Joint Secretary to the Government of India or equivalent or above in that service; or
(b)is, or has been, in practice as a chartered accountant for at least fifteen years; or
(c) is, or has been, in practice as a cost accountant for at least fifteen years; or
(d) is, or has been, in practice as a company secretary for at least fifteen years; or
(e) is a person of proven ability, integrity and standing having special knowledge and experience, of not less than fifteen years, in law, industrial finance, industrial management or administration, industrial reconstruction, investment, accountancy, labour matters, or such other disciplines related to management, conduct of affairs, revival, rehabilitation and winding up of companies; or
(f) is, or has been, for at least five years, a presiding officer of a Labour Court, Tribunal or National Tribunal constituted under the Industrial Disputes Act, 1947.
A person shall not be qualified for appointment as a Technical Member unless he—
(a) has, for at least fifteen years been a member of the Indian Corporate Law Service or Indian Legal Service and has been holding the rank of Secretary or Additional Secretary to the Government of India; or
(b)is, or has been, in practice as a chartered accountant for at least fifteen years; or
(c) is, or has been, in practice as a cost accountant for at least fifteen years; or
(d) is, or has been, in practice as a company secretary for at least fifteen years; or
(e) is a person of proven ability, integrity and standing having special knowledge and professional experience of not less than fifteen years in industrial finance, industrial management, industrial reconstruction, investment and accountancy.
(f) is, or has been, for at least five years, a presiding officer of a Labour Court, Tribunal or National Tribunal constituted under the Industrial Disputes Act, 1947.
The changes regarding the qualification of technical member of NCLT as directed by Hon’ble Supreme Court of India.
Section 410
The Central Government shall, by notification, constitute, with effect from such date as may be specified therein, an Appellate Tribunal to be known as the National Company Law Appellate Tribunal consisting of a chairperson and such number of Judicial and Technical Members, not exceeding eleven, as the Central Government may deem fit, to be appointed by it by notification, for hearing appeals against the orders of the Tribunal.
The Central Government shall, by notification, constitute, with effect from such date as may be specified therein, an Appellate Tribunal to be known as the National Company Law Appellate Tribunal consisting of a chairperson and such number of Judicial and Technical Members, not exceeding eleven, as the Central Government may deem fit, to be appointed by it by notification, for hearing appeals against the orders of the Tribunal or of the National Financial Reporting Authority.
The change provides that appeal against the orders of National Financial Reporting Authority shall also be heard by the NCLAT.
Section 411 (3)
A Technical Member shall be a person of proven ability, integrity and standing having special knowledge and experience, of not less than twenty-five years, in law, industrial finance, industrial management or administration, industrial reconstruction, investment, accountancy, labour matters, or such other disciplines related to management, conduct of affairs, revival, rehabilitation and winding up of companies.
A technical member shall be a person of proven ability, integrity and standing having special knowledge and professional experience of not less than twenty-five years in industrial finance, industrial management, industrial reconstruction, investment and accountancy
The changes regarding the qualification of technical member of NCLAT as directed by Hon’ble Supreme Court of India.
Section 412 (2)
The Members of the Tribunal and the Technical Members of the Appellate Tribunal shall be appointed on the recommendation of a Selection Committee consisting of—
(a) Chief Justice of India or his nominee—Chairperson;
(b) a senior Judge of the Supreme Court or a Chief Justice of High Court— Member;
(c) Secretary in the Ministry of Corporate Affairs—Member;
(d) Secretary in the Ministry of Law and Justice—Member; and
(e) Secretary in the Department of Financial Services in the Ministry of Finance— Member.
The Members of the Tribunal and the Technical Members of the Appellate Tribunal shall be appointed on the recommendation of a Selection Committee consisting of—
(a) Chief Justice of India or his nominee – Chairperson;
(b) a senior Judge of the Supreme Court or Chief Justice of High Court – Member;
(c) Secretary in the Ministry of Corporate Affairs – Member; and
(d) Secretary in the Ministry of Law and Justice – Member.
(2A) Where in a meeting of the Selection Committee, there is equality of votes on any matter, the Chairperson shall have a casting vote.
As per the instructions given by Supreme Court of India.
Section 435
(1) The Central Government may, for the purpose of providing speedy trial of offences punishable under this Act with imprisonment of two years or more, by notification, establish or designate as many Special Courts as may be necessary.
Provided that all other offences shall be tried, as the case may be, by a Metropolitan Magistrate or a Judicial Magistrate of the First Class having jurisdiction to try any offence under this Act or under any previous company law.
(2) A Special Court shall consist of a single judge who shall be appointed by the Central Government with the concurrence of the Chief Justice of the High Court within whose jurisdiction the judge to be appointed is working.
(3) A person shall not be qualified for appointment as a judge of a Special Court unless he is, immediately before such appointment, holding office of a Sessions Judge or an Additional Sessions Judge.
(1) The Central Government may, for the purpose of providing speedy trial of offences under this Act, by notification, establish or designate as many Special Courts as may be necessary.
(2) A Special Court shall consist of—
(a) a single judge holding office as Session Judge or Additional Session Judge, in case of offences punishable under this Act with imprisonment of two years or more; and
(b) a Metropolitan Magistrate or a Judicial Magistrate of the First Class, in he case of other offences, who shall be appointed by the Central Government with the concurrence of the Chief Justice of the High Court within whose jurisdiction the judge to be appointed is working.
Special Courts can be establish by Government in any matter whether the offence carrying imprisonment of two years or more or not.
Section 438
Save as otherwise provided in this Act, the provisions of the Code of Criminal Procedure, 1973 shall apply to the proceedings before a Special Court and for the purposes of the said provisions, the Special Court shall be deemed to be a Court of Session and the person conducting a prosecution before a Special Court shall be deemed to be a Public Prosecutor.
Save as otherwise provided in this Act, the provisions of the Code of Criminal Procedure, 1973 shall apply to the proceedings before a Special Court and for the purposes of the said provisions, the Special Court shall be deemed to be a deemed to be a Court of Session or the court of Metropolitan Magistrate or a Judicial Magistrate of the First Class, as the case may be and the person conducting a prosecution before a Special Court shall be deemed to be a Public Prosecutor.
As per the amendment made in Section 435.
Section 439 (2)
No court shall take cognizance of any offence under this Act which is alleged to have been committed by any company or any officer thereof, except on the complaint in writing of the Registrar, a shareholder of the company, or of a person authorized by the Central Government in that behalf:
No court shall take cognizance of any offence under this Act which is alleged to have been committed by any company or any officer thereof, except on the complaint in writing of the Registrar, a shareholder or a member of the company, or of a person authorized by the Central Government in that behalf:
The Change provide to file a complaint by a member of the Company without share Capital.
Section 440
Any offence committed under this Act, which is triable by a Special Court shall, until a Special Court is established, be tried by a Court of Session exercising jurisdiction over the area, notwithstanding anything contained in the Code of Criminal Procedure, 1973:
Provided that nothing contained in this section shall affect the powers of the High Court under section 407 of the Code to transfer any case or class of cases taken cognizance by a Court of Session under this section.
Any offence committed under this Act, which is triable by a Special Court shall, until a Special Court is established, be tried by a Court of Session or the court of Metropolitan Magistrate or a Judicial Magistrate of the First Class exercising jurisdiction over the area, notwithstanding anything contained in the Code of Criminal Procedure, 1973:
Provided that nothing contained in this section shall affect the powers of the High Court under section 407 of the Code to transfer any case or class of cases taken cognizance by a Court of Session or the court of Metropolitan Magistrate or a Judicial Magistrate of the First Class under this section.
As per the amendment made in Section 435.
Section 441 (1)
Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), any offence punishable under this Act (whether committed by a company or any officer thereof) with fine only, may, either before or after the institution of any prosecution, be compounded by
Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), any offence punishable under this Act (whether committed by a company or any officer thereof) with fine only not being an offence punishable with imprisonment only, or punishable with imprisonment and also with fine, may, either before or after the institution of any prosecution, be compounded by
Most of the offences under the Act which are punishable with fine or imprisonment or both are technical / procedural in nature, and thus, for the leniency and ease in administration of the Act. Therefore, under sub-section (1), the Tribunal shall have the power to compound offences punishable with fine as well as offences punishable with imprisonment or fine or both.
Section 446A
New Section
The court or the Special Court, while deciding the amount of fine or imprisonment under this Act, shall have due regard to the following factors, namely:—
(a) size of the company;
(b) nature of business carried on by the company;
(c) injury to public interest;
(d) nature of the default; and
(e) repetition of the default.
Section 446B
Notwithstanding anything contained in this Act, if a One Person Company or a small company fails to comply with the provisions of sub-section (5) of section 92, clause (c) of sub-section (2) of section 117, sub-section (3) of section 137, such company and officer in default of such company shall be punishable with fine or imprisonment or fine and imprisonment, as the case may be, which shall not be more than one-half of the fine or imprisonment or fine and imprisonment, as the case may be, of the minimum or maximum fine or imprisonment or fine and imprisonment, as the case may be, specified in such sections.
Relaxation given to small companies and OPC.
Section 447
Without prejudice to any liability including repayment of any debt under this Act or any other law for the time being in force, any person who is found to be guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud:
Without prejudice to any liability including repayment of any debt under this Act or any other law for the time being in force, any person who is found to be guilty of fraudinvolving an amount of at least ten lakh rupees or one percent. of the turnover of the company, whichever is lower, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud:
The amendment provides that offences less than Rs. 10/- Lakhs shall be compoundable.
Second Proviso to Section 447
New Proviso
Provided further that where the fraud involves an amount less than ten lakh rupees or one per cent. Of the turnover of the company, whichever is lower, and does not involve public interest, any person guilty of such fraud shall bepunishable with imprisonment for a term which may extend to five years or with fine which may extend to twenty lakh rupees or with both.
Proviso to Section 448 (1)
Provided that the powers to enforce the provisions contained in section 194 and section 195 relating to forward dealing and insider trading shall be delegated to Securities and Exchange Board for listed companies or the companies which intend to get their securities listed and in such case, any officer authorised by the Securities and Exchange Board shall have the power to file a complaint in the court of competent jurisdiction.
Omitted.
As the Section 194 and 195 are omitted the proviso too gets omitted.

(The author can be reached at piyushjain1908@gmail.com)

Author Bio

More Under Company Law

Posted Under

Category : Company Law (3564)
Type : Articles (15289)
Tags : Companies Act (2035) Companies Act 2013 (1807)

Leave a Reply

Your email address will not be published. Required fields are marked *