India: Companies Act, 2013- Exemption/ Relaxations To Private Companies

The Government has notified several changes and relaxations in the applicability of the provisions of the Companies Act, 2013 ('the Act') to private companies vide notification dated June 5, 2015. The key changes are highlighted below:

a. Related Party Transactions

Definition of related party under Section 2(76)(viii) for the purpose of Section 188 has been relaxed to exclude a private company in respect of compliance of related party contracts with its holding, subsidiary or an associate company under Section 188 of the Companies Act, 2013.

In addition, Section 188 of the Companies Act imposes some restrictions on shareholders considered to be related parties. Related parties cannot vote at general shareholders' meetings regarding a resolution to approve any contract or arrangement between the company and the related party.

Pursuant to the notification, this restriction will not apply to private companies.

b. Kinds of Share Capital and Voting Rights

Private companies have now been exempted from application of Section 43 and Section 47 of the Act, which deals with kinds of share capital and voting rights, respectively, if memorandum or articles of the Company so provide. This means that private companies can now issue shares with differential rights with full flexibility to structuring their securities even without voting rights.

c. Rights issue

Section 62(1)(a)(i) of the Companies Act provides that time period for rights offer shall not be less than 15 days and not more 30 days. Private company can now reduce the time period of rights offer than that prescribed under Section 62(1)(a)(i), if the 90 (ninety) percent of the members of a private company have given their consent in writing or in electronic mode. Furthermore, the requirement of sending the notice 3 days prior to opening of the issue, by way of specified means, under rights issue is now exempted for private companies.

Section 62(1)(b) of the Companies Act provides that where a company intends to increase its share capital by the issue of further shares can do so by offering shares to employees under a scheme of employees' stock option (ESOP). Before the amendment, such further issue of shares by a company was to be done by passing a special resolution. Now, private companies can make further issues of shares under ESOP scheme only by passing of ordinary resolution.

d. Restrictions on purchase by company of its shares

Under Section67(1) of the Companies Act, a company was not allowed to buy its own shares unless it results in consequent reduction of share capital of the company. With the notification now exempting private companies from the application of Section 67, private companies can now buy its own shares without consequent reduction in share capital provided:

  1. no other body corporate has invested money in share capital of such private company;
  2. the borrowings of such private company from banks or financial institutions or anybody corporate is not equal to or more than twice its paid up share capital or fifty crore rupees, whichever is lower; and
  3. such private company is not in default in repayment of such borrowings subsisting at the time of making transactions under Section 67 of the Act.

However, there is ambiguity as to whether a private company can buy its own shares as there is no similar exemption provided to private companies under Section 66 (Reduction of Capital) and Section 68 (Buyback of Shares). In our view, the only objective achieved by this amendment is provision of financial assistance by a private company to purchase its own shares.

e. Acceptance of deposits from member

Section 73(2) allows acceptance of deposits by a company from its members with approval by way of ordinary resolution and subject to fulfilment of certain conditions prescribed under clauses (a) to (e) like issuance of circular including a statement showing financial position of the company, creation of a deposit repayment reserve account, obtaining deposit insurance, obtaining a certificate from the directors that the company has not defaulted in repayment of deposits accepted, etc.

Private companies have now been exempted from the conditions in clauses (a) to (e) of Section 73(2) in relation to deposits taken from members provided that the amount of deposit accepted by the private company does not exceed 100% of aggregate of paid-up capital and free reserves of such private company and the relevant filings with the Registrar of Companies has been made.

f. Management and Administration

Private companies have now been provided with an option to exclude the applicability of Sections 101 to 107 and Section 109 by providing for exclusions in its Articles of Association. Section 101 to 107 and Section 109 deals with procedure of conducting of general meetings by the companies, which are length of service of notice of meeting, explanatory statement, quorum, chairperson of the meetings, proxies, restriction on voting rights, voting by show of hands and demand for poll.

A private company was allowed to lay down its own procedure in respect of conduct of its general meetings under the Companies Act, 1956. Now the same position has been restored under the Companies Act, 2013.

g. Filing of board resolutions

All companies are required to file copies of board resolution under Section 117(3)(g) of the Act passed in relation to matters prescribed under section 179(3) of the Act. These matters were:

  • calls on shareholders in respect of money unpaid on their shares;
  • buy-back of securities;
  • issuance of securities, including debentures, whether in or outside India;
  • borrowing of monies;
  • investment of funds of the company;
  • granting of loans or giving guarantee or providing security in respect of loans;
  • approval of financial statement and the Board's report;
  • diversification of business of the company;
  • amalgamation, merger or reconstruction;
  • Takeover of a company or acquiring a controlling or substantial stake in another company;
  • Additional matters as may be prescribed.

Now, Section 117(3)(g) of the Act will not apply to private companies, hence, a private company will not be required to file copies of board resolution in relation to all of the matters mentioned above with the Registrar of Companies.

h. Number of company audits

For the purpose of limit on number of companies of which audits can be taken at a time by the auditor under Section 141(3)(g) of the Companies Act, which is 20, all one person companies, dormant companies, small companies, and private companies having a paid up share capital of less than INR 100 crores will be excluded.

i. Appointment of directors to be voted individually

Provisions of Section 162 which provided for the manner of appointing of two or more were to be voted individually will now not apply to private companies.

j. Restrictions on powers of Board

Section 180(1) of the Act which provided that board may exercise its power in relation to the following matters, only with the consent of members by way of special resolution:

  1. Sale, lease or disposal of the whole or substantially whole of the undertaking of the company;
  2. Investment of the amount of compensation received by the company as a result of merger or amalgamation in trust securities;
  3. Borrowing money exceeding the aggregate of the company's paid-up share capital and free reserves; and
  4. Remittance or granting time for the repayment of, any debt due from a director

Now, there is no need for a private company to pass special/ ordinary resolution for exercising powers under Section 180 of the Companies Act.

k. Interested Directors

Section 184(2) provided that directors of a company will refrain from participating in a board meeting for matters in which they are interested. Interested director in a private company can now participate in board meetings after disclosure of his interest.

l. Loans by private companies

A partial exemption from Section 185 has now been given to private companies giving a loan, providing a guarantee or offering a security in connection with a loan taken by director(s) or by any persons/ entities in which the director(s) have an interest.

There are 3 cumulative conditions for availing the exemption:

  1. There is no body corporate shareholder in the lending/ guaranteeing company;
  2. The lending company's aggregate borrowings from other bodies corporate or banks or financial institutions is limited to two times the paid-up share capital of the company or INR 50 crores whichever is lower;
  3. No default in repayment of such borrowings is pending by the lending company.

m. Appointment of managerial persons

Section 196(4) and (5) of the Act prescribes the procedure and approval requirements for appointment of managing director, manager or wholetime director and requires companies to comply with the provisions of Section 197 and Schedule V with respect to remuneration payable to such personnel. The provision requires board approval followed by approval of members in the next general meeting for appointment of such personnel and filing of return of appointment of such personnel within 60 days from the date of such appointment.

Private companies are now exempted from the above requirements.

Link: -

http://www.mca.gov.in/Ministry/pdf/Exe mptions_to_private_companies_0506201 5.pdf

[Source: Notification no. G.S.R 464(E) dated June 5, 2015]

Similarly, the MCA has issued following exemption/ relaxation notifications:

  • For Government companies, the MCA has issued Notification no G.S.R 463(E) dated June 5, 2015
  • For Nidhi companies, the MCA has issued Notification no G.S.R 465(E) dated June 5, 2015
  • For Not-for-Profit companies (also known as Section 8 companies), the MCA has issued Notification no. G.S.R 466(E) dated June 5, 2015.

Originally published on Lexology, August 18 2015.

© 2015, Vaish Associates, Advocates,
All rights reserved with Vaish Associates, Advocates, 10, Hailey Road, Flat No. 5-7, New Delhi-110001, India.

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Vinay Vaish, Partner, Vaish Associates Advocates
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.