In 2013, the erstwhile Companies Act, 1956 was replaced by the Companies Act, 2013 ("the Act") with the aim of ensuring a systemic move towards better regulation of corporate houses in India. However, in just over a year's time, the Act has received its first amendment rationalizing the existing provisions.The Companies (Amendment) Bill, 2014 was passed by the Lok Sabha on December 17, 2014 and the same was approved by the Rajya Sabha on May 13, 2015. The Bill has received the assent of the President and has been notified in the Official Gazetteon May 26, 2015.
In addition to the aforesaid, the Ministry of Corporate Affairs ("MCA") on May 29, 2015 issued a notificationamending certain provisions under the following Rules:
- Companies (Registration Offices and Fees) Rules, 2014.
- Companies (Share Capital and Debentures) Rules, 2014.
- Companies (Declaration and Payment of Dividend) Rules, 2014, and
- Companies (Incorporation) Rules, 2014.
Some of the key amendments include:
- The definition of a 'Private' as well as a 'Public' company has been amended. The minimum requirement of paid up capital being Rs. 1 lakh in case of a private company and Rs. 5 lakh in case of a public company has been eliminated. This is expected to encourage start-up companies as it shall reduce the entry costs and trim down the burden of maintaining the minimum capital amount.
- Under the Act all newly incorporated companies were required to file INC 21 and obtain certificate of commencement of business from the concerned ROC. The requirement of the said declaration by the directors has now been done away with, consequently implying that the registration of a company and the commencement of business operations shall now be a speedier process.
- The use of common seal has been made optional. The amendment now provides that incase a company does not have a common seal, any authorization may be done either by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary. The erstwhile provisions were archive and not commensurate with the modern times, the change is a huge relief and eases procedural norms under the Act.
- The Act did not prescribe punishment(s) for contraventions previously; however severe punishments have now been introduced for contravening the norms relating to acceptance of deposit. A new section, Section 76 A has been inserted which, inter alia, provides as below:
- The company would, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with a fine which would not be less than Rs 1 crore but which may extend to Rs 10 crore, and;
- The defaulting officers of the company would be punishable either with imprisonment which may extend upto 7 years or with a fine which should not be less than Rs 25 lakh but which may extend to Rs 2 crore, or with both;
- In cases where it has been proved that the defaulting officer has contravened such provisions knowingly or willfully with the intention to deceive the company or its shareholders or depositors or creditors or tax authorities, he would be held liable for action under Section 447 of the 2013 Act which deals with punishment for fraud.
This section has been introduced with the intent of protecting the investors. Going forward the companies are expected to adopt a more cautious approach because of the stringent punishments prescribed under the new provision.
- No person shall be entitled to inspect a board resolution filed with the ROC and also, no person shall be entitled to inspect or obtain copies of the resolutions. Prior to the amendment, certain resolutions were part of the public documents which was available for inspection. This move is to ensure the maintenance of confidentiality of the decisions made by the board of directors. Insofar as the question of ensuring ease in business is concerned, the utility of this move is questionable.
- A provision for setting off previous losses and depreciation against the profit of the current year before declaring dividend has been introduced in the Act and the same has been deleted from the Companies (Declaration and Payment of Dividend) Rules, 2014.
- The Act provides for transferring equity shares to the Investor Education and Protection Fund with unclaimed and unpaid dividends. The amendment provides that in case dividends are paid or claimed for any year during the period of seven consecutive years, the shares shall not be transferred to the Investor Education and Protection Fund. This is a clarificatory amendment and was much required.
- Provisions prescribing thresholds for reporting fraud to the Central Government and Audit Committee/ Board have been enabled which are as follows.
- The auditors are allowed to report the Central Government only in cases where the involved amount exceeds the prescribed amount. In case of a fraud involving an amount which is less than the specified amount, the auditor is required to report the matter to the audit committee (if constituted) or to the Board;
- Where the auditors have reported fraud to the audit committee or to the Board but not to the Central Government, the company should disclose the details about such fraud in the Board's report in the prescribed manner;
This categorization shall enable the Government to concentrate on important matters whilst the Audit Committee can oversee the remaining matters.
- The Audit Committee is now empowered to give omnibus approvals for related party transactions subject to the prescribed conditions.This is in line with clause 49 of the Listing Agreement.
- Section 185 shall not be applicable where loans are given to wholly owned subsidiaries and guarantees/securities on loans are taken from banks by subsidiaries.
- As per Section 188 of the Act, a company is required to pass a special resolution in case of related party transactions. However, this provision has been amended. The amendment provides that a company can now approve a related party transaction through a resolution, thus only a resolution and not a special resolution shall be required to approve related party transactions. Further, related party transactions between a holding and wholly owned subsidiary shall be exempted from the requirement of shareholders' approval provided the accounts of the wholly owned subsidiary are consolidated with the holding company and are placed before the shareholders at the general meeting for approval.
- The ROC was required to notify the company/directors about the removal of the name of a company from the register of companies where the subscribers to the memorandum did not pay the subscription. This provisionhas now been omitted. With the elimination of the minimum capital requirement this provision has also been removed from the Act.
- Winding up cases shall be taken up by a 2 member bench instead of a 3 member bench.
- Special courts shall now adjudicate only those offences which carry an imprisonment of two years or more. This move shall reduce the burden of Special courts.
- The procedure for presenting draft notifications, beforethe Parliamentfor exemptions and/orclarificationsand/or modifications of provisions of the Act has been simplified.
The Amendments are certainly a step in the right direction. A majority of the Amendments have been made to ensure greater speed and furthermore to ensure ease of doing business in India. Some key clarifications have also been included. As stated before, these Amendments rationalize the existing provisions however, if it is felt that the changes still do not fit the bill, we can expect further changes in the coming few days. In the words of the Minister for Corporate Affairs, Mr. Arun Jaitley "A broad-based committee will continue to go into this question for the next few months as to where the shoe pinches and this may not be the last amendments which we are bringing in."
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