India: Corporate Laws

Registrar of Companies ("RoC") allows affixation of Digital Signature Certificate ("DSC") of any one of the Resigned Directors (who was an Authorized Signatory) to DIR- 12

In terms of the previous regulations issued by the Ministry of Corporate Affairs ("MCA"), DSC deactivated immediately upon filing of Form DIR-11 (Form for reporting the resignation by a director to RoC). This posed problems in cases where all the directors of the Company have resigned and new directors are proposed to be appointed. Based on several representations received by MCA, MCA has authorized RoC to permit any one of the resigned directors to use his DSC for filing Form DIR-12 (prescribed form for filing particulars of appointment of directors and the key managerial personnel and the changes among them) in relation to appointment of new director(s).

Notification of Company (Auditor's Report) Order (CARO) 2015 ("New CARO, 2015")

MCA vide its order dated April 10 2015 notified New CARO. Amongst other key amendments brought to the CARO 2003, the applicability of New CARO has been made limited with exemptions from applicability granted to (i) a One Person Company as defined under clause (62) of section 2 of the Companies Act, 2013 ("CA 2013") (ii) a small company as defined under clause (85) of section 2 of the CA 2013; and (iii) a private limited company with a paid up capital and reserves of not more than INR 5 million which does not have loan outstanding exceeding INR 2.5 million from any bank or financial institution and does not have a turnover exceeding INR 50 million at any point of time during the financial year New CARO would be applicable from financial year 2014- 2015. New CARO requires auditor to report whether there is an adequate internal control procedure for the sale of services in addition to report on adequacy of internal control for purchase of inventory, fixed assets and sale of goods.

MCA has notified the Secretarial Standards issued by the Institute of Company Secretaries of India ("ICSI")

The Secretarial standards issued by ICSI with the Government of India's ("GoI") approval have been notified by the MCA as well. The Secretarial Standards on meetings of board of directors ("SS-1") and Secretarial Standards on general meetings ("SS-2") issued by ICSI are required to be compulsorily complied by the Indian companies w.e.f. July 1, 2015. Under Section 118 (10) of the CA 2013, now the Indian companies would necessarily have to observe SS1 and SS2 with respect to general meetings and board meetings.

Key features of SS-1 are

  • The agenda setting out the business to be transacted at the meeting and notes on the agenda shall be made available to directors at least seven days before of the date of the meeting (unless articles of the company provide for a longer period).
  • The notice of a meeting shall be given even if the meeting is held on a predetermined date or interval. ).
  • Quorum shall be present not only at the time of commencement of meeting but also while transacting business. ).
  • The draft minutes shall be circulated to all the members of the board or committees for their comments within 15 days from date of conclusion of the meeting of the board or the committee. ).

Key features of SS-2 are:

  • If any director is unable to attend meeting, chairman shall explain such absence of the director in the meeting, to the members.
  • Chairman should explain the objective and implication of resolution before they are put to vote at meetings.
  • Extracts of meeting shall be given only after minutes have been duly signed.
  • Quorum has to be present throughout the meeting and not only at the commencement of meeting.
  • It lists out various requirements for filing and maintaining the minutes book.
  • Provisions relating to the notice of the general meeting have been prescribed.
  • Comprehensively lists out scenarios where postal ballot form shall be considered invalid.
  • Prohibits practice of distribution of gifts to members at meeting.
  • If a company fails to comply with these provisions then the company would be liable to pay penalties as stipulated by these standards.

GoI Constitutes High Level Committee for Monitoring Corporate Social Responsibility ("CSR") Implementation by Companies.

The GoI vide circular dated February 3, 2015 has constituted a High Level Committee for monitoring the progress of implementation of CSR policies by companies at their level and by the government under the provisions of section 135 of CA 2013 (prescribing CSR compliances by companies). The objective of the said committee is to suggest suitable methodologies, to recommend measures and to identify strategies to monitor compliance with CSR regulations. The committee shall have to submit its report within six months from the date of holding its first meeting. This has been done in order to re-emphasize the importance of adherence to CSR regulations by companies.

MCA Amends Norms for E-Voting Facility at General Meetings

MCA vide its notification dated March 19, 2015 substituted extant e-voting provisions by amending Companies (Management and Administration) Rules, 2014.

Amongst other amendments, following critical amendments have been brought in the said rules:

  • The term 'Agency' has been defined to mean National Securities Depository Limited ("NSDL"), Central Depository Services Limited ("CDSL") or any other entity approved by MCA;
  • A concept of 'remote e-voting' has been included in the definition of 'e-voting' which refers to a facility of casting votes by a member using electronic voting system from a place other than the venue of general meeting;
  • It is provided that the facility for remote e-voting would remain open for not less than 3 days and shall close at 5:00 pm on the date of general meeting.;
  • The term "Cut off date" for determining the eligibility to vote has been defined as a date not earlier than seven days before the date of holding the general meeting.
  • Voting has been made a basic right of the shareholders.
  • Mode of dispatch of notice of meeting under e-voting, procedure of e-voting and prohibition on withdrawal of resolutions made under the e-voting process are also provided for in the said amendment.

Amendments to CA 2013 vide Notification dated May 25, 2015 "Companies (Amendment) Act, 2015"

The key and the relevant highlights of the Companies (Amendment) Act, 2015 are as follows:

  • No minimum paid-up capital requirements for incorporating private as well as public companies in India: The minimum paid-up share capital requirement of INR 0.1 million (in case of a private company) and INR 0.5 million (in case of a public company) under CA 2013 has been done away with. Consequently, the definitions of private and public companies stand amended.
  • Requirement for affixing common seal have been done away with: CA 2013 required common seal to be affixed on certain documents. Now, the use of common seal has been made optional on the following documents:

    (i) Share certificates signed by two directors or one director and a company secretary of the company.
    (ii) Bills of exchange;
    (iii) Inspectors Report issued for a company under investigation;
    (iv) Documents executed by a company after its registration while exercising its right to hold or dispose of property, sue or being sued, etc.
  • Replacing 'special resolution' with 'resolution': For approval of related party transactions by the companies with a paid up capital of INR 100 million or more, requirement of special resolution has been done away with. Pursuant to the amendment, now only an ordinary resolution shall be sufficient. Further, any related party transactions between holding companies and wholly owned subsidiaries are now exempted from the requirement of obtaining shareholders' approval. Hence section 188 of the CA 2013 relating to related party transactions stands amended.

Exemptions Extended to Private Companies under CA 2013 vide MCA Notification dated June 5, 2015 ("Notification"):

The most relevant exemptions granted to the private companies under this notification are discussed hereinbelow. These exemptions and relaxations are applicable only to a private company which is not a subsidiary of public company.

1) Restrictions on Purchase of Own Shares
The Notification has exempted private companies from the applicability of the provisions of Section 67 of CA 2013 which earlier imposed restrictions on the companies including private companies to purchase its own shares unless the consequent reduction of capital is effected and sanctioned under the provisions of the CA 2013. This exemption can be availed subjected to the fulfilment of the following:

  • The company shall have no shareholder which is a body corporate;
  • Borrowings of the company from banks, financial institutions or body corporate should not exceed twice the amount of paid up share capital or INR 500 million, whichever is lower; and
  • There shall be no subsisting defaults in repayment of such borrowings at the time of

2) Issue of Shares with Differential Rights

The Notification provides that Section 43 and Section 47 of CA 2013 will not apply to a private company if the memorandum of association or the articles of association of such private company provides so. Section 43 of CA 2013 prescribes that a company is allowed to have only two kinds of share capital - equity shares (with or without differential rights to dividend, voting or otherwise) and preference share capital. Further, all companies are required to fulfil certain conditions to be eligible to issue equity shares with differential rights. Section 47 of the CA 2013 provides that the equity shareholders shall be entitled to vote on all resolutions, while preference shareholders are permitted to vote only on resolutions which would affect their rights or are in relation to winding up or reduction of capital of the Company.

3) Loans to Directors and Interested Entities

The Notification provides that Section 185 of the CA 2013 shall not apply to a private company. Section 185 prohibits companies from advancing loans to directors and to persons in whom directors are interested or give any guarantee or provide any security in connection with any loan taken by him or such other person, a few exceptions aside. This exemption can be availed subjected to the fulfilment of the following:

  • No body corporate shall have invested any money in the share capital of the company;
  • The borrowings of the company from banks, financial institutions or any body corporate shall not exceed twice the amount of paid-up share capital or INR 500 million – whichever is lower; and
  • There shall be no subsisting defaults in repayment of such borrowings at the time of making transaction.

4) Related Party Transactions

The Notification provides that, in relation to a private company, the entities specified in Section 2(76) (viii) of CA, 2013 (i.e., the Group Companies) would not be considered related parties for the purposes of Section 188 of CA 2013. As a result of this relaxation, private companies shall not be required to obtain the approval of the board or the shareholders, for the purpose of entering into a contract/ arrangement with a Group Company.

The Notification also exempts private companies from the ambit of the second proviso to Section 188(1) which shall now permit members of the company interested in the contract/ arrangement to vote on the resolution for authorizing the related party transaction.

5) Further Issue of Share Capital

The Notification introduces a new proviso to Section 62(1)(a)(i) of CA 2013 which provides that offer period for a rights issue should be for a minimum period of 15 days from the date of opening of the offer. The proviso states that if at least 90% of members of a private company give their consent in writing or in electronic mode, a period lesser than that specified for minimum offer period and period for dispatch of rights issue offer letter can be adopted in respect of the rights issue.

6) Participation of Interested Directors
The Notification provides an exemption with regards to section 184(2) of CA 2013 which requires interested directors to disclose his/ her interest at the board meeting in which the contract or arrangement is discussed and abstain from participation in discussions pertaining to such contract or arrangement. The exemption allows an interested director to participate in the board meeting after disclosing his/ her interest. This relaxation however, is subject to the director providing disclosures of his/her interests in the prescribed form before he/ she participates in the meeting.

7) Conduct of General Meetings

As per the Notification, the provisions of Sections 101 to 107 and Section 109 of CA 2013 which deal with the requirements of convening and conducting of general meetings by all companies, such as service of notice of general meeting, explanatory statement, quorum, chairperson of the meetings, appointment of proxies, restriction on voting rights, voting by show of hands and demand for poll shall not apply to private companies. Thus, the notification provides private companies with the flexibility to decide their own procedure for conducting general meetings by incorporating suitable provisions in their articles of association.

8) Filing of Board Resolutions with Authority

The Notification provides that Section 179(3) of CA 2013 which requires companies to file with the Registrar of Companies (RoC), copies of board resolutions passed in connection with certain matters dealt with under section 179(3) and the rules framed thereunder. These matters include : (i)making calls on shareholders in respect of money unpaid on their shares;(ii) authorizing buy-back of securities;(iii) issuance of securities including debentures, whether in or outside India;(iv) borrowing of monies;(v) investing the funds of the company;(v) granting loans or giving guarantee or providing security in respect of loans;(vi) approving financial statement and the Board's report;(vii) diversifying the business of the company;(viii)approving amalgamation, merger or reconstruction(ix)taking over a company or acquiring a controlling or substantial stake in another company;(x) additional matters as prescribed under Rule 8 of Companies (Meetings of Board and its Powers) Rules, 2014, shall not apply to a private company.

9) Appointment of Directors

The Notification exempts a private company from the applicability of Sections 160 and 162 of CA 2013 which prescribes certain processes to be followed by a person who intends to stand for directorship of the company. Further, Section 162 of CA 2013 prohibits companies from passing a single resolution for appointment of 2 or more directors unless such a motion has first been agreed to unanimously by all the shareholders, from which private Companies are now exempt. Therefore, the notification is a welcome move towards easing the operations of private companies. It may be observed that in many of the cases above, certain provisions of CA 2013 caused difficulties and delays in the operations of private companies. The Notification attempts to remove the same and is expected to succeed to a great extent.

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.

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