Article by Karan Gandhi and Mukesh Arora1
2014 has been an exceptional year be it the elections, globalization and liberalization in the policies, new areas opening and widening of FDI sectors, significant governance related policies and perhaps a new approach to governance. To the corporate world, there have been a significant amount of changes to the applicable laws; specifically Companies Act, 2013, Delisting Regulations, Governance issues etc.
Companies Act 2013 is a complete enactment which introduced more transparency, governance, strict compliances, penalties etc. in the corporate India but in the interest of public and upon representations from various bodies, it was observed that there are some difficulties in enforcement of certain provisions. In order to overcome these difficulties, the Companies (Amendment) Bill, 2014 was passed in lower house of parliament on 17.12.2014.
The present article is to summarize the significant changes proposed to be introduced by the Companies (Amendment) Bill, 2014 passed in lower house on 17.12.2014.
In section 2 of the companies act, 2013
Amendment proposed in Section 2(68) and (71) of the Companies Act, 2013 : minimum paid up capital requirement of the Company to be removed in both private and public company.
Relaxation in having a common seal
In relation to the Section 9 of the Companies Act, 2013, Companies (Amendment) Bill, 2014 proposes to omit the words and a common seal which shall mean that it shall not be mandatory for a company to have a common seal.
Consequent change is proposed in the sections which are related to the common seal like Section 12 (3) (b) which provides that a company shall have its name engraved on the common seal is proposed top be substituted with a company shall have its name engraved on the common seal, if any.
Further U/s 22 (dealing with Execution of bills of exchange, etc) (2) (a), if any is proposed to be inserted after under its common seal and under subsection (b), the following proviso is proposed to be inserted:
'provided that in case a company does not have a common seal, the authorization under this sub-section shall be made by two directors or by a director and company secretary, where company appointed a company secretary.'
U/s 46 dealing with the Certificate of Shares, the word under the common seal is proposed to be substituted with under the common seal, if any, of the company or signed by two directors or by a director and a company secretary, wherever the company has appointed a company secretary.
Dispensation of the requirement of induction of the subscribed capital by the subscribers for the commencement of business by a company
The modification proposed u/s 11 (1) (a) provides to omit the words 'and the paid up share capital of the company is not less than 5 lakh rupees in case of a public company and not less than 1 lakh rupees in case of a private company'.
Which means that the minimum capital subscription for the private and public companies is proposed to be removed.
Section 76 of Companies Act, 2013 (Acceptance of deposit from public by certain Companies)
Amendment of section 76 by inserting section 76 A is proposed which provides severe punishment for violation of provision of Companies Act, 2013 in relation to acceptance of deposits from general public. This section is inserted in order to protect deposits/funds of innocent investors in the company. It provides the harsh fine and punishment to the company as well as the officer of the company who is in default. Further if it is proved that an officer of the company who intentionally contravenes the provision of the Act in order to deceive the company, shareholders, depositors, creditors or tax authorities; he would be liable to the prosecution under section 447.
Under Section 117 of Companies Act, 2013 (Resolution and agreements to be filed)
Amendment of section 117 by inserting provision after section 117 (3)(g) is proposed in order to restrict the inspection or obtaining of copies of resolution under section 3992 generally name of directors, article of association and memorandum of company are generally available to public therefore some information by the companies are kept secret in order to compete in the market and such strategic decision taken by companies does not fall in the ambit of this section and same has been given affect by way of addition in this section.
Declaration of dividend and unpaid dividend account (Section 123)
Amendment of section by inserting provision after third proviso under section 123(1) is proposed to provide security to the company from the losses incurred in previous year and further to provide financial stability to the Companies.
Amendment of sub-section (6) of section 124 of the said Act states that any dividend is claimed or paid during the said period of seven consecutive years, the share shall not be transferred to education and protection fund.
Under Section 134 of the Companies Act, 2013 (Financial statement of board, reports etc.)
Section 134(3)(ca) inserted which provides that; details in respect of frauds reported by auditors under sub section (12) of section 143 other than those which are reportable to central government. In section 134 sub section (3) after clause (c) additional clause is inserted. Amendment to this particular section has increase the transparency and also burden the duty on auditors to report the fraud.
Under Section 143 of Companies Act, 2013 (Powers and duties of Auditors and Auditing standards)
Amendment proposed under section 143 (12) shall increase the responsibility on auditor of the company. Amendment of this section has confined a duty upon auditor to inform matter of fraud to board of the company and board is under an obligation to provide same information through board report, it further increase the responsibility of the auditor as they are required to report to central government and public and cannot escape from liability by only disclosing matter in Auditor's report However, the amendment now seeks to restrict this reporting requirement to only material frauds, this would bring great relief to both corporate as well as auditors.
Under Section 177 of the Companies Act, 2013 (Audit Committee)
Amendment of this section proposes insertion of additional provision in section 177(4)(iv) for the purpose of removal of barrier for related party transaction by way of omnibus approval. If business is related to promoter group or related party, directly or indirectly cannot hinder free flow of business and if disclosure are made properly there shall be no interference in governance of business.
Under Section 185 of the companies act, 2013 (Loans to directors)
Amendment of the section proposes the insertion of additional provision after sub section(1) clause(b) which includes clause (c) and (d) and provides the exclusion to certain transaction including that between loan provided 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 any guarantee or security provided for any loan from a bank or financial institution by a holding Company for its subsidiary company.
Related party transaction
The proposed amendment to the provision of section 188 of Companies Act, 2013 to alter the approval of shareholders by way of special resolution to the approval of the shareholders accorded by way of ordinary resolution. The same shall result in the increased responsibility and accountability of the board. the proposed amendment further provides that requirement of passing ordinary resolution under the first proviso (i.e. the contract and arrangement entered into by the companies prescribed under the Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014) shall not be applicable for transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval.
Proposed amendment of section 212(6) of Companies Act, 2013 clarifies restriction on bail would apply only for offence relating to fraud under section 447 of Companies Act 2013.
Proposed amendment of section 223(4) (a) of Companies act, 2013 provides that inspector report of the company shall be authenticated whether or not having seal of the company. Such report shall be admissible in any legal proceedings as evidence in relation to any matter contained in report.
Proposed amendment of section 419(4) of Companies Act, 2013 provides the president shall, for disposal of any relating to rehabilitation, restructuring, revival of companies constitute one or more special benches consisting of three or more members, majority necessarily being of judicial members. Omission of word "winding up" of companies has put restriction on power of special benches, therefore as provided in 419(3) cases related to winding up of the company shall be heard by two members bench instead of three members bench. Amendment of this provision would help in deciding winding up cases promptly as small bench is required to deal with this particular matter.
Proposed amendment of section 435(1) and section 436(1) (a) of Companies Act, 2013 will reduce the burden on special courts as special courts to try only offences carrying imprisonment of two years or more. Therefore additional provision is inserted in sub clause (1) of section 435 of Companies act, 2013 for the purpose to let magistrate try petty offences resulting in minor violation of Act.
Companies (Amendment) Bill, 2014 has brought significant changes and removed various practical difficulties in law in relation to common seal, strength of benches in case of winding up of the company, responsibility of audit committee and related party transaction. whereas, these changes has removed various errors, but has raised many issues in relation to limit on disclosure of information to government by chartered accountant, provision in relation to meeting of the companies etc.
1. IVth year BBA. LLB Student from ITM, Law School Gurgaon, ITM University
2. Inspection, production and evidence of document kept by registrar(section 399 of Companies Act,2013
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.