Standing Committee’s report on Companies (Amendment) Bill, 2016- Analysis

Sr. No

Section/ Rule No.

Companies

Act, 2013

Bill, 2016

CLC Report

Standing

Committee on Finance Report

Remarks

1.

2 (6)

Explanation to section 2 (6) states: 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;

Explanation to section 2 (6) shall be substituted to read as:

‘Explanation.- For the purpose of this clause-

(a) the expression “significant influence” means control of atleast 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 phrase ‘significant influence’ to mean control of at least 20% of the total voting power, or control of or participation in taking business decisions under an agreement instead of total share capital as exists in the explanation.

a. the term “joint venture” to be defined in line with Ind AS- 28.

Proposed amendment incorporating ‘control of or participation in business decisions under an agreement’ may be retained in order to provide for various situations and instruments through which companies may exercise significant influence over other companies/entities.

The amendment of replacing total share capital with total voting capital is a welcome amendment. The earlier term was creating a lot of confusion due to its apparent conflict with the definition of significant influence in the Accounting Standards which uses ‘voting power’ as a criteria to determine ‘control’.

The existing definition of ‘associate company’ includes a joint venture company.

Meaning of joint venture has been specified in the definition of associates for the first time.

2.

2 (46)

“holding company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies

In clause (46), the following Explanation shall be inserted, namely:—

‘Explanation.—

For the purposes of this clause, the expression “company” includes any body corporate;’

The proposed amendment in Explanation to Clause 2(v) relating to clause (46) of the CA, 2013 on definition of “holding company” may be retained in order to ensure adequate disclosure in regard to transactions entered with overseas holding companies.

One line of interpretation is that holding company always included companies incorporated outside India by virtue of explanation (c) of Section 2 (87). However, some interpreted literally to the effect that since similar explanation is not provided under Section 2

(46), holding company will not include a body corporate.

By virtue of proposed insertion, the scope of the word ‘company’ has now become wider and includes a body corporate. The term ‘Company’ means a company incorporated under this Act or under any previous company law. The amendment would remove any ambiguity or interpretational difficulties that may arise in determining the status of a foreign company as a holding company to a Company.

Now, the amendment has cleared the confusion and foreign companies can also be the holding company of a company. Even an LLP will get covered within the ambit of a holding company of a company.

3.

2 (76)

“related party”, with reference to a company, means—

(i) a director or his relative;

(ii) a key managerial personnel or his relative;

(iii) a firm, in which a director, manager or his relative is a partner;

(iv) a private company in which a director or manager [or his relative] is a member or director;

(v) a public company in which a director or manager is a director [and holds] along with his relatives, more than two per cent. of its paid-up share capital;

(vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;

(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act:

Provided that nothing in sub-clauses (vi) and

(vii) shall apply to the advice, directions or instructions given in a professional capacity;

(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;

(ix) such other person as may be prescribed;

in clause (76), for sub-clause (viii), the following sub-clause shall be substituted, namely:—

“(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 a company;”;

“related party”, with reference to a company, means—

(i) a director or his relative;

(ii) a key managerial personnel or his relative;

(iii) a firm, in which a director, manager or his relative is a partner;

(iv) a private company in which a director or manager [or his relative] is a member or director;

(v) a public company in which a director or manager is a director [and holds] along with his relatives, more than two per cent. of its paid-up share capital;

(vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;

(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act:

Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity;

(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 a company;”

(ix) such other person as may be prescribed;

The word ‘company’ under clause (viii) to be substituted with the word ‘body corporate’ and should also include investing company or the venturer of a company under the purview of related party.

The Committee endorses the proposed amendment

It was noted that the existing definition resulted in the impression that companies incorporated outside India were excluded from the purview of related party of an Indian company and this was seriously affecting the compliance requirement of related parties under the Act.

The substitution of the word ‘company’ with ‘body corporate’ would remove any ambiguity or interpretational difficulties that may arise in determining the status of a foreign company as a related party to a Company.

However, this would be a more strict provision.

Also a new sub- clause has been inserted in the definition of related party to include any body corporate which is an investing company or the venture of a company.

Pertinent to note that the word ‘investing company’ shall actually be replaced with ‘investing body corporate’, otherwise it will create the same situation of excluding investing companies incorporated outside India. Similarly, definition of associate company does not provide an explanation similar to that provided under section 2 (87). Consequentially, associates that are not ‘companies’ technically remain outside the purview of related party.

4.

3

(1) A company may be formed for any lawful purpose by—

(a) seven or more persons, where the company to be formed is to be a public company;

(b) two or more persons, where the company to be formed is to be a private company; or

(c) one person, where the company to be formed is to be One Person Company that is to say, a private company, by subscribing their names or his name to a memorandum and complying with the requirements of this Act in respect of registration:

Provided that the memorandum of One Person Company shall indicate the name of the other person, with his prior written consent in the prescribed form, who shall, in the event of the subscriber’s death or his incapacity to contract become the member of the company and the written consent of such person shall also be filed with the Registrar at the time of incorporation of the One Person Company along with its memorandum and articles:

Provided further that such other person may withdraw his consent in such manner as may be prescribed:

Provided also that the member of One Person Company may at any time change the name of such other person by giving notice in such manner as may be prescribed:

Provided also that it shall be the duty of the member of One Person Company to intimate the company the change, if any, in the name of the other person nominated by him by indicating in the memorandum or otherwise within such time and in such manner as may be prescribed, and the company shall intimate the Registrar any such change within such time and in such manner as may be prescribed:

After section 3 of the principal Act, the following section shall be inserted, namely:—

“3A. If at any time the number of members of a company is reduced, in the case of 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.

The proposed amendment may accordingly be retained without any further modification.

The Committee do not see any merit in the suggestion for contingent exemption from liability for Directors, as the Companies Act 2013 contains adequate provisions for cases where all the directors in a company resign or vacate their office or where their number falls below the quorum fixed for a Board meeting.

Section 45 of the Companies Act 1956, prescribed the consequences of reduction in the number of members below statutory minimum.

However, no corresponding provision was there under the Act, 2013.

The proposed insertion seeks to provide for liability of members when the minimum number of members falls below the statutory minimum (seven or two in case of public or private company respectively) and such a situation continues for a period exceeding six months.

5.

4 (5) (i)

(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.

In sub-section (5), in clause (i), for the words “sixty days from the date of the application”, the words “twenty days from the date of approval or such other period as may be prescribed” shall be substituted

(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 twenty days from the date of approval or such other period as may be prescribed.

The Committee, therefore, recommended that the period of name reservation should be reduced from 60 days to 20 days from the date of approval, and simultaneously, the fees for such reservation be reduced to Rupees Five Hundred

Increasing the time limit for reserving the name of the company by the Registrar subsequent to its incorporation from the proposed 20 days to 60 days or a longer period as may be prescribed, the proposed clause may be modified accordingly .

To simplify and fast track the procedure for company registration in India, the Ministry of Corporate Affairs (MCA) has proposed amendment w.r.t reservation of name. Now, the proposed name will be reserved for a period of only 20 days from the date of approval instead of 60 days from the date of application. This amendment will call for the companies to get in rush along with MCA.

6.

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 authorised by the Board in this behalf.

In section 21 of the principal Act, for the words “an officer of the company”, the words “an officer or employee of the company” shall be substituted.

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 authorised by the Board in this behalf.

Accordingly, the Committee recommended an amendment to Section 21, to allow authorizations, on the signature of ‘any employee of the company duly authorised by the Board’

Proposed amendment provides adequate flexibility for authentication of documents proceedings etc. duly authorised by the Board, hence, the amendment may be retained without any change.

The scope has been widened also to include the employees of the company. Henceforth, employee of the Company is also eligible for authentication of documents, proceedings and contracts made by or on behalf of the company.

7.

42

(1) Without prejudice to the provisions of section 26, a company may, subject to the provisions of this section, make private placement through issue of a private placement offer letter.

(2) Subject to sub- section (1), the offer of securities or invitation to subscribe securities, shall be made to such number of persons not exceeding fifty or such higher number as may be prescribed, [excluding qualified institutional buyers and employees of the company being offered securities under a scheme of employees stock of clause (b) of sub-section (1) of section 62], in a financial year and on such conditions (including the form and manner of private placement) as may be prescribed. Explanation I.—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.

Explanation II. — For the purposes of this section, the expression—

(i) “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.

(ii) “private placement” means any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in this section.

(3) 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.

(4) Any offer or invitation not in compliance with the provisions of this section shall be treated as a public offer and all provisions of this Act, and the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992 shall be required to be complied with.

All monies payable towards subscription of securities under this section shall be paid through cheque or demand draft or other banking channels but not by cash.

(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 date of completion 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 per cent. 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 any 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) All offers covered under this section shall be made only to such persons whose names are recorded by the company prior to the invitation to subscribe,

and that such persons shall receive the offer by name, and that a complete record of such offers shall be kept by the company in such manner as may be prescribed and complete information about such offer shall be filed with the Registrar within a period of thirty days of circulation of relevant private placement offer letter.

(8) No company offering 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 offer.

(9) Whenever a company makes any allotment of securities under this section, it shall file with the Registrar a return of allotment in such manner as may be prescribed, including the complete list of all security-holders, with their full names, addresses, number of securities allotted and such other relevant information as may be prescribed.

(10) 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 involved in the offer or invitation or two crore rupees, whichever is higher, and the company shall also refund all monies to subscribers within a period of thirty days of the order imposing the penalty.

For section 42 of the principal Act, the following section shall be substituted, namely:—

’42. (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 recognised 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 alongwith subscription money paid either by cheque or demand draft or other banking channel and not by cash:

Provided that a company shall not utilise 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 per cent. 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 utilised for any 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 utilise 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 allotment in 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 place- ment 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 Securities and Exchange Board of India Act, 1992 shall be applicable.

The Committee felt that the requirement under Section 42 and Rule 14 with regard to preparation and filing of Private Placement Offer Letter (PPOL) should be done away with and Form PAS-4 should be discontinued.

In order to ensure that investor gets adequate information about the company which is making private placement, the disclosures made under Explanatory Statement referred to in Rule 13(2)(d) of Companies (Share Capital and Debenture) Rules, 2014, should be embodied in the Private Placement Application Form.

On sub-section (9) and (10)

Some companies may disguise public offers on private placement to escape compliance requirements, the prescribed penal liability for promoters may be retained in order to protect the interest of investors.

The section has been entirely re- written. The bar on the use of money is now only until return of allotment has been filed with the Registrar of Companies. It is curious to notice that the use of the money has been linked with filing of a document, for which the time allowed is as much as 60 days for allotment, and 15 days for filing the return. More often than not, the amount received in private placement is large, and companies cannot afford to keep the amount idle even for a day. The only relief in the private placement provisions seems to be that the amount of penalty for contravention has been limited to Rs 2 crores, which was earlier seemingly extending to the entire amount raised by private placement.

8.

92 (3)

An extract of the annual return in such form as may be prescribed shall form part of the Board’s report.

(ii) for sub-section (3), the following sub-section shall be substituted, namely:—

“(3) 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.”.

The Committee recommended that this requirement may be omitted, and instead the web address/link of the Annual Return filed by the company and hosted on its website, if any, should be provided in the Board’s Report and information with regard to shareholding pattern be provided as part of section 134 requirements.

The Committee find merit in the suggestion for a less cumbersome/onerous Annual Return to be filed by companies. Thus, as already agreed to by the Ministry and as recommended elsewhere, an abridged and simple form of annual return may be prescribed for small companies, one person companies and private companies (less than an annual sales turnover of say, Rs 100 crore). For other forms of companies as well, the annual return format should also be devised in a manner avoiding repetitive or superfluous information.

It is proposed to do away with MGT 9, the extract of annual return to form part of annual report. Instead , it is proposed that the annual return shall be uploaded on the website of the company and the board’s report shall have the web-link.

That is to say, unlisted companies, which are not mandatorily require to have a website, if does not have a website, are not required to place the annual return in the public domain.

9.

101 (1)

(1) A general meeting of a company may be called by giving not less than clear twenty-

one days’ notice either in writing or through electronic mode in such manner as may be prescribed: 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.

In section 101 of the principal Act, in sub-section (1), for the proviso, the following proviso shall be substituted namely:—

“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 ninty-five per cent. 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, not less than ninty-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 ninty-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.”

Endorsed the Ministry’s acceptance of the above suggestion to enable holding a general meeting of a company on a shorter notice.

This will bring in necessary flexibility in procedural matters.

Suggestion:

A general meeting of Companies having share capital may be called after giving shorter notice if consent thereto is accorded by majority of members in number entitled to vote and representing holding not less than 95% percent of such part of the paid-up share capital of the company entitled to vote thereat;

In case of Companies not having share capital a general meeting may be called after giving shorter notice if consent thereto is accorded by majority of members representing not less than 95% of the voting rights exercisable at the meeting.

The Bill, 2016 proposes to further classify kind of consent required for calling a meeting at a shorter notice on the basis of the type of meeting (AGM/EGM) and the kind of company (having share capital / not having share capital).

The pertinent problem faced while implementing the provision of calling a meeting at a shorter notice has yet not been tackled. There has been a consistent question mark on whether receiving the requisite consent of the members on the day of the meeting is a sufficient compliance of the provision or not. Since it would be in fact ridiculing to say that the company does not have sufficient time to call a meeting giving a full notice but it has to get the consent of members well in advance for calling a meeting at a sorter notice.

10.

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.

Explanation.—For the purposes of this sub- section, the word “subsidiary” shall include associate company and joint venture.

The following shall be substituted:

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 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.

The committee recommended that for the consolidation of accounts under the Accounting Standards and the Act, the reference to ‘associates’ and ‘joint ventures’ under Section 129 ought to be amplified/ clarified, to be in accordance with the applicable Accounting Standards.

In the absence of a statutory requirement of Consolidated Financial Statement in an overseas jurisdiction, it may be difficult to ensure compliance at a standard level. Hence there is no scope for any further exemption in the preparation and disclosure of Consolidated Financial Statements beyond that provided in clause 32 of the Bill.

The proposed amendment in sec 129 (3) is mere straightening of language.

The explanation below sec 129

(3) is getting merged into the section.

Also, proposed substituted sub- section seems to say that while an associate shall be included in the consolidated financial statement, however, the separate statement containing the salient features of the financial statement of only the subsidiaries are required to be attached with the financial statements.

11.

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:

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 further that the Central Government may prescribe the manner of circulation of financial statements of companies having such net worth and turnover as may be prescribed

The following shall be omitted:

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

**Provided that** 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 ninety-five per cent. of the members entitled to vote at the meeting 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 theprescribed 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 **further** also that the Central Government may prescribe the manner of circulation of financial statements of companies having such net worth and turnover as may be prescribed

The Committee suggested to provide clarity allowing financial statements to be circulated at a shorter period in accordance with the provision for shorter notice meeting under Section 101 be provided in Section 136.

Keeping in view the need to ensure protection of interests of minority shareholders, the suggestion made above by some stakeholders may be suitably incorporated in the Bill..

Suggestion of Stakeholders:

if copies of the documents referred to in Section 136(1) of the Act 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 holding not less than ninety-five percent of such part of the paid-up share capital of the company as gives a right to vote at the meeting

Amendment to sub-section (1) of section 136 shall provide that copies of audited financial statements and other documents can be sent at shorter notice if ninety five percent of members entitled to vote at the meeting agree for the same.

The requirements with respect to financial statements of foreign subsidiaries of a listed company subject to conditions shall also be rationalised.

12.

136 (1) Fourth Proviso

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.

The following provisos shall be substituted, namely:—

(a) place separate audited accounts in respect of each of its subsidiary on its website, if any;

‘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:

(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.

The Committee recommended that requirement should be limited to listed companies in view of their dispersed shareholding and the need for greater regulatory oversight as compared to unlisted companies.

The Committee also recommended that in such cases, where a CFS was statutorily required to be prepared as per the law of the jurisdiction in which the overseas subsidiary is established and is placed on the website in the statutory format, there should be no requirement for standalone financial statements of the step down subsidiaries to be placed on the website as per 4th proviso to Section 136(1) and included in the salient features that are required to be attached. There should be no exemption in other cases.

The Committee would further recommend in this regard that in order to facilitate “ease of doing business”, the Ministry should further amend clause 37 and exempt the companies from the requirement of uploading financial statements of foreign subsidiaries, in case such companies upload the consolidated financial statement on website of such foreign companies

13.

141 (3)

The following persons shall not be eligible for appointment as an auditor of a company, namely:—

(a) a body corporate other than a limited liability partnership registered under the Limited Liability Partnership Act, 2008;

(b) an officer or employee of the company;

(c) a person who is a partner, or who is in the employment, of an officer or employee of the company;

(d) a person who, or his relative or partner—

(i) is holding any security of or interest in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company:

Provided that the relative may hold security or interest in the company of face value not exceeding one thousand rupees or such sum as may be prescribed;

(ii) is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of such amount as may be prescribed;

or

(iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, for such amount as may be prescribed;

….

(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 specialised services as provided in section 144

The following explanation shall be inserted to clause (d) and clause (i) to be substituted –

(d) a person who, or his relative or partner—

(i) is holding any security of or interest in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company:

Provided that the relative may hold security or interest in the company of face value not exceeding one thousand rupees or such sum as may be prescribed;

(ii) is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of such amount as may be prescribed; or

(iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, for such amount as may be prescribed;

Explanation.—For the purposes of this clause, the term “relative” means the spouse of a person; and includes a parent, sibling or child of such person or of the spouse, financially dependent on such person, or who consults such person in taking decisions in relation to his investments;

(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 specialised services as provided in section 144

‘(i) 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.

The committee suggested that the term relative should be suitably modified.

The Committee are inclined to accept the suggestion for removal of the words “or who consults such person in taking decisions in relation to his investments”, as these words make the intended definition of ‘relative’ under clause 41 too broad and open- ended, leaving scope for mis- interpretation.

Instead, the words “institutionalized consultation in the usual course of business” may be substituted to bring greater clarity. The Committee are of the view that such phraseology in the main clause or explanations thereunder should be avoided, as it will only obfuscate the intent behind the law, leading to avoidable disputes and litigation. Necessary modifications may accordingly be made in the Bill.

The explanation w.r.t relative, seems in line with that prescribed under SEBI (PIT) Regulations, 2015 in case of immediate relative.

Further, evaluating whether the proposed appointee renders, directly or indirectly, services under Section 144 should not be restricted to only the date of appointment, but on a continual basis.

14.

160 (1)

A person who is not a retiring director in terms of section 152 shall, subject to the provisions of this Act ,be eligible for appointment to the office of a director at any general meeting, if he, or some member intending to propose him as a director, has, not less than fourteen days before the meeting, left at the registered office of the company, a notice in writing under his hand signifying his candidature as a director or, as the case may be, the intention of such member to propose him as a candidate for that office ,along with the deposit of one lakh rupees or such higher amount as may be prescribed which shall be refunded to such person or, as the case may be, to the member, if the person proposed gets elected as a director or gets more than twenty-five percent. Of total valid votes casted on show of hands or on poll on such resolution.

The following proviso shall be inserted:

“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.”

The Committee recommend that the suggestion made above with regard to clause 48 in case of companies not required to constitute Nomination and Remuneration Committee may be suitably incorporated in the Bill.

Stakeholder’s suggestion

“or a director recommended by the Board of Directors of the Company, in the case of a company not required to constitute Nomination & Remuneration Committee” should be included in the proviso at the end.”

15.

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.

The section shall be substituted to read as:

If any director draws or receives, directly or indirectly, by way of 15 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 of such lesser period as may be allowed by the company, and until such sum is refunded, hold it in trust for the company.

The Committee have commented upon the issue of managerial remuneration separately. The safeguards proposed in the Bill may be further strengthened accordingly to protect the interests of secured creditors, debenture holders etc.

16.

403

(1)Any document, required to be submitted, filed, registered or recorded, or any factor information required or authorised to be registered under this Act, shall be submitted, filed, registered or recorded within the time specified in the relevant provision on payment of such fee as may be prescribed:

Provided that any document, factor 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.

(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.

The section shall be amended to read as:

(1) Any document, required to be submitted, filed, registered or recorded, or any fact or information required or authorised to be registered under this Act, shall be submitted, filed, registered or recorded within the time specified in the relevant provision on payment of such fee as may be prescribed:

Provided that where any document, fact or information required to be submitted, filed, registered or recorded, as the case may be, under section 89, 92, 117, 121, 137 or 157 is not submitted, filed, registered or recorded, as the case may be, within the period provided in those sections, it may be submitted, filed, registered or recorded, as the case may be, within a period of two hundred and seventy days from the expiry of the period so provided in those sections, on payment of such additional fee as may be prescribed:

Provided further that where the document, fact or information, is not submitted, filed, registered or recorded, as the case may be,—

(a) in case of document, fact or information referred to in section 89, 92, 117, 121, 137 or 157, within the period of two hundred and seventy days as provided in the first proviso; or

(b) in any other case within the period 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 higher additional fee or additional fee, as may be prescribed: Provided also that where there is default on two or more occasions in submitting, filing, registering or recording of the document, fact or information under section 89, 92, 117, 121, 137 or 157, the provisions of the first and second provisos shall not apply, until the document, fact or information is submitted, filed, registered or recorded, as the case may be, with additional fee, without prejudice to any legal action or liability under this Act.

(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 relevant 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.

The Committee recommended to make necessary changes to bring clarity that the requirement of filing with additional fee for 270 days under first proviso to Section 403 is applicable only to the six sections

Additional fees to be enhanced substantially (by up to ten times of the current prescribed amount) to deter non- compliance, and if a company files a document within the original period, not including the period

allowed with additional fees. A separate requirement for additional fees for other than six sections to also be prescribed.

Rules to clarify that, irrespective of the delay, obtaining condonation of delay is not a pre-requisite to filing a document.

The Committee apprehend that the proposed amendments with regard to fee structure for delayed filing of documents may turn out to be a revenue mobilising proposal for the Ministry and the government, rather than a step towards ensuring timely compliance by companies and an up-to-date registry.

The Ministry, themselves, have stated in their reply that a low level of annual statutory filings have been reported currently as compared to previous years.

The Committee believes that enhanced fee may not actually deter non-compliance. It may thus be a fallacious assumption that the fee structure can be used to ensure statutory compliance. The Committee would rather suggest in this context that the compliance requirements may be made less onerous with a reasonable time period for all companies, and simultaneously, non-compliance within the stipulated period should invite strict penalty and prosecution.

In view of the Committee, only such an approach will ensure an up- to-date registry of companies.

The present approach of condonation of delay, late filing by payment of higher fee etc. may not really help achieve this objective, as borne out by the Ministry’s own experience in the matter.