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Introduction: The Companies (Amendment) Bill, 2016 was introduced in Lok Sabha on March 16, 2016. It seeks to amend the Companies Act, 2013.
Through this article an attempt has been made to analyze the effect of such proposed amendments.
| S. No | Section | Title | Provisions under Companies Act 2013 | Provisions under Companies Amendment Bill 2016 | Effect of Change |
| 1 | Explanation to 2(6) | significant influence | “significant influence” means control of at least twenty per cent. of total share capital, or of business decisions under an agreement; | “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; | After approval of bill the word ‘total share capital’ shall be substituted with the ‘total voting power’. Hence, if the investee company holds 20% of the voting rights i.e. shares having voting rights (equity), then only another Company would be the associate of investee Company. |
| 2 | Explanation to 2(6) | joint venture | New Insertion | “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; | This is a new explanation inserted, earlier, all JVs were falling under the category of Associate Company, now this explanation clearly defines what kind of JVs would fall under the definition of Associate Company, to avoid any ambiguity.Further, definition has been provided in accordance with AS-28. |
| 3 | 2(28) | Cost Accountant | “cost accountant” means a cost accountant as defined in clause (b) of subsection (1) of section 2 of the Cost and Works Accountants Act, 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;’; | Now it has been clarified that only those Cost Accountant would be covered under the definition, who are holding valid certificate of practice. |
| 4 | 2(30) | Debenture | New Proviso Insertion | “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 Reserve Bank of India, issued by a company, shall not be treated as debenture;”; |
Now, exemption is given to certain derivatives, securities and money market instrument as defined under Chapter III-D of RBI Act 1934. |
| 5 | first proviso to 2(41) | Financial Year | New Insertion | in clause (41), in the first proviso, after the word “subsidiary”, the words “or associate company” shall be inserted; | Now a Company which is an associate Company of a Company incorporated abroad, is also eligible to apply for following different financial year. |
| 6 | 2(46) | Holding Company | New Insertion | in clause (46), the following Explanation shall be inserted, namely:— ‘Explanation.—For the purposes of this clause, the expression “company” includes any body corporate;’; |
Earlier, body corporates were not covered under the definition of Holding Company. Hence, foreign Holding Companies were outside the ambit of the Companies Act. Now, with this amendment foreign Companies/body corporates would also be recognized as Holding Company as per Companies Act which will increase compliance burden. |
| 7 | 2(49) | Interested Director | “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; | clause (49) shall be omitted; | Now the definition of Interested Director has been omitted. However, the explanation is already provided under section 174 of the Act. |
| 8 | 2(51) | key managerial personnel | “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; |
in clause (51),— (a) in sub-clause (iv), the word “and” shall be omitted; (b) for sub-clause (v), the following sub-clauses shall be substituted, namely:— “(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;”; |
By this amendment the Board is given power to designate any other person also as KMP. However, such other person, should not be more than one level below the directors and should be in whole-time employment |
| 9 | 2(57) | Net Worth | “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; | in clause (57), for the words “and securities premium account”, the words “, securities premium account and debit or credit balance of profit and loss account,” shall be substituted; | Now debit or credit balance of profit and loss account,” shall also form part of Net Worth. |
| 10 | 2(71) | Public Company | “public company” means a company which— (a) is not a private company; (b) has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital, as may be prescribed: |
in clause (71), in sub-clause (a), after the word “company;”, the word “and” shall be inserted; |
The word and is inserted to avoid any ambiguity. Both conditions need to be satisfied. |
| 11 | 2(76) | Related Party | clause (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; |
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;”; |
Now, body corporates/ foreign Companies are also covered under this sub clause. Further, investing company or the venturer of a company is now also covered within the ambit of Related Party. |
| 12 | 2(85) | Small Company | 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 | in clause (85),— (a) in sub-clause (i), for the words “five crore rupees”, the words “ten crore rupees” shall be substituted; |
Paid-up share capital limit has been increased. However, no immediate effect of this amendment as at present the specified limit is 50 lakh. |
| 13 | 2(85) | Small Company | (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: |
in sub-clause (ii),— (A) for the words “as per its last profit and loss account”, the words “as per profit and loss account for the immediately preceding financial year” shall be substituted;(B) for the words “twenty crore rupees”, the words “one hundred crore rupees” shall be substituted; |
Now, it is clear that in every situation, for determining the status of small Company we need to consider profit and loss account for the immediately preceding financial year.Further, turnover Limit has been increased. However, no immediate effect of this amendment as at present the specified limit is 2 Crore. |
| 14 | 2(87) | Subsidiary Company | “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: Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed. |
in clause (87),— (a) in sub-clause (ii), for the words “total share capital”,the words “total voting power” shall be substituted; (b) the proviso shall be omitted; (c) in the Explanation, item (d) shall be omitted; |
Now, to determine the status of subsidiary, we need to consider the exercise or control of more than one-half of the total voting power instead of total share capital by the investee Company.Further, a welcome step is taken by omitting the provision, restricting the layers of subsidiary. |
| 15 | 2(91) | Turnover | “turnover” means the aggregate value of the realisation 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; | for clause (91), the following clause shall be substituted, namely:— ‘(91) “turnover” means the gross amount of revenue recognised 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;’ |
Earlier, the definition of Turnover was not clear, as it recognized the aggregate value of relization, which was quite different from actual sales/turnover.Now, the new definition is quite clear. |
(Author is a Company Secretary and Principal Partner of Virile Droit Consultants LLP and can be contacted @ [email protected]/08430645653)
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