Companies (Amendment) Bill 2016 as introduced in Lok Sabha is now available

Total 87 amendments

Important amendments proposed include:

1.    Removal of requirement for ANNUAL RATIFICATION of appointment or continuance of auditor;

2.    Simplification of the private placement process by doing away with separate offer letter, by making filing of details or records of applicants to be part of return of allotment only, and reducing number of filings to Registrar;

3.    Allow unrestricted object clause in the Memorandum of Association dispensing with detailed listing of objects, self-declarations to replace affidavits from subscribers to memorandum and first directors;

4.    Provisions relating to forward dealing and insider trading to be omitted from the Act;

5.    Requirement of approval of the CG for Managerial remuneration above prescribed limits to be replaced by approval through special resolution by shareholders;

6.    Company may give loans to entities in which directors are interested after passing special resolution and adhering to disclosure requirement;

7.    Remove restrictions on layers of subsidiaries and investment companies;

8.    Allow for exempting class of foreign companies from registering and compliance regime under the Act;

9.    Align prescription for companies to have Audit Committee and Nomination and Remuneration Committee with that of Independent Directors;

10. Test of materiality to be introduced for pecuniary interest for testing independence of Independent Directors;

11. Provide for maintenance of register of significant beneficial owners by a company, and filing of returns in this regard to the Registrar;

12. Amend provisions relating to Corporate Social Responsibility to bring greater clarity.

Companies (Amendment) Bill 2016 as introduced in Lok Sabha is now available

To address difficulties in implementation

·         Name Reservation/approval- upon receipt of an application, the Registrar may reserve the name for a period of 20 days from the date of approval or such other period as may be prescribed earlier it was 60 days from the date of application.

·         Object Clause: By amendments to Clause (c) of Sub-Section (1) of Section 4, It is proposed that instead of specific objects in the Memorandum of Association of the Company, the Memorandum may state that the company may engage in any lawful act or activity or business, or any act or activity or business to pursue any specific object or objects, as per the law for the time being in force. Provided that in case a company proposes to pursue any specific objects or restrict its objects, the Memorandum shall state the said object or objects for which the company is incorporated and any matter considered necessary in furtherance thereof and in such case the company shall not pursue any act or activity or business, other than specific objects stated in the Memorandum.

·         Registered office of the company:

12(1): is proposed to provide for a company to have its registered office within the given period of incorporation of company. Further, the period of fifteen days is increased to thirty days. Therefore the company shall now have a registered office within 30 days if its incorporation, earlier it was from the fifteenth day of its incorporation, and at all times thereafter, have a registered office

12(4): Notice of every change of the situation of the registered office, verified in the manner prescribed, after the date of incorporation of the company, shall be given to the Registrar within 30 days of the change, who shall record the same, earlier it was 15 days.

·         Effect of number of members falling below the minimum requirement:

A New Section 3A is proposed to be inserted after section 3 as under:

“3A.If at any time the number of members of a company is reduced, in the case of a public company, below seven, in the case of a private company, below two, and the company carries on business for more than six months while the number of members is so reduced, every person who is a member of the company during the time that it so carries on business after those six months and is cognizant of the fact that it is carrying on business with less than seven members or two members, as the case may be, shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefore.".

·         Deposit Insurance - Section 73 (2)(d)

Considering the fact that none of the Insurance companies are offering insurance products for covering company deposit default risks, the requirement for deposit insurance is omitted.

·         Re-opening of accounts of companies- Section 130:

Accordingly, the following sub- section (3) has been inserted after sub-section (2) of the section 130 –

“(3) No order shall be made under sub-section (1) in respect of re-opening of books of account relating to a period earlier than eight financial years immediately preceding the current financial year:

Provided that where a direction has been issued by the Central Government under the proviso to sub-section (5) of section 128 for keeping of books of account for a period longer than eight years, the books of account may be ordered to be re-opened within such longer period."

·         Signing of financial statements- Section 134(1):

Since the appointment of a managing director is not mandatory for all companies, it is proposed to insert the words “if any”, after the words “managing director”

·         Performance evaluation of Directors- Sections 134 & 178:

Since, the performance evaluation was required to be carried out by different bodies in the Companies Act, 2013 the proposed amendment seeks to harmonize the same. It is proposed that the Nomination & Remuneration Committee shall specify the manner for effective evaluation of performance of Board, its committees and individual directors to be carried out either by the Board, by the Nomination and Remuneration Committee or by an independent external agency and review its implementation and compliance.

·         Corporate Social Responsibility –Section 135:

Definition of financial year:

It is proposed that the words “any financial year” be replaced by the words ‘preceding financial year’. This is as per the recommendations of the High Level CSR Committee.

CSR Committee constitution:

a new proviso is inserted in Section 135 (1) as below-

"Provided that where a company is not required to appoint an independent director under sub-section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or more directors."

CSR Activities:

for liberal interpretation and to bring more clarity, it is proposed that instead of providing that CSR policy has to indicate the activities to be undertaken by the company as specified in Schedule VII, it should indicate the activities to be undertaken in areas or subjects specified in Schedule VII.

Net Profit:

Central Government has been empowered to prescribe sums which shall not be included for calculating net profit of a company under Section 135.

·         Ratification of Auditors – Section 139(1):

to remove the inconsistency, the requirement related to annual ratification of auditors by members is proposed to be omitted.

·         Appointment of Independent Directors - Section 149(6)(e):

in clause (c) of Section 149 (6), for the words "pecuniary relationship", the words "pecuniary relationship, other than remuneration as such director or having transaction not exceeding ten per cent. of his total income or such amount as may be prescribed," has been substituted.

·         Calling of meeting at shorter notice - Section (101):

the Bill seeks to amend sub-section (1) of section 136 to provide that copies of audited financial statements and other documents can be sent at shorter notice if ninety five percent of members entitled to vote at the meeting agree for the same. It also seeks to rationalize the requirements with respect to financial statements of foreign subsidiaries of a listed company subject to conditions.

To facilitate ease of doing business

·         Annual Return:

It is proposed that web address link of annual return should be disclosed in Boards Report’s.

·         Disclosures under Board’s Report:

It is proposed that reference of the disclosure elsewhere be

given. This will reduce the burden of companies in preparing bulky Board’s Report and  reduce the paper work.

Similarly, it is also proposed if the policies of companies are uploaded on the websites, instead of providing the complete policy, only its salient features and web address be given.

·         Participation through video-conferencing:

It is proposed to allow participation of directors on certain items which are presently restricted at Board meetings through video conferencing or other audio visual means if there is quorum through physical presence of directors.

·         Others:

ü  The wholly owned subsidiary of company incorporated outside India is allowed to hold its extra ordinary general meeting outside India.

ü  It is proposed that the items required to be passed mandatorily by postal ballot may be transacted at a general meeting where the facility of electronic voting is provided by the company.

ü  With a view to facilitate ease of doing business and for reducing the burden of One Person Company and Small Company, it is proposed to empower the Central Government to prescribe an abridged Board’s Report instead of complete report.

ü  The Central Government is also proposed to be empowered to recognise any other universally accepted identification number as an identification document similar to director identification number.

ü  To address the difficulties being faced in genuine transactions due to the complete embargo on providing loans to subsidiaries with common directors, the companies are permitted give loans to entities in which directors are interested after passing special resolution and adhering to disclosure requirements. This would give big relief to the companies.

ü  The Amendment Bill also seeks to empower Central Government to prescribe abridged Board's report for small companies and one person companies.

ü  The Bill also proposes to provide abridged form of Annual Return for one person companies and small companies.

ü  The requirement of deposit of rupees one lakh with respect to nomination of directors u/s 160 shall not be applicable in case of appointment of independent directors or directors nominated by nomination and remuneration committee.

ü  Proposal for deleting the restrictions on layers of investment companies is inserted.

Harmonization

·         Disclosures in the prospectus:

Companies Act.2013 and the Securities and Exchange Board of India Act, 1992 and the regulations made there under are proposed to be aligned by omitting prescriptions in the Companies Act and allowing these prescriptions to be made by the Securities and Exchange Board of India in consultation with the Central Government;

ü  On the basis of regulatory concerns, and to identify the natural person controlling a corporate entity, it is proposed to define the term "beneficial interest in a share". Further, it is also being proposed that a declaration be given to the company by the significant beneficial owner: significant beneficial owner includes every individual acting alone or together or through one or more person including a trust and persons resident outside India, who holds beneficial interest of not less than twenty-five per cent or other prescribed percentage in shares of a company or the right to exercise or the actual exercising of significant influence or control under clause (27) of section 2 of the Act.

ü  Since SEBI regulations are comprehensive and cover the provisions, the omission of sections relating to prohibition on forward dealings in securities of company and insider trading of securities by director or key managerial personnel is proposed.

Rationalising Penal provisions

·         Penalties:

ü  The Bill seeks to amend section 76A, 132, 140, 147 and 180 etc. to reduce the quantum of fine in a move towards relaxing the severe penalties provided under the Act. The Bill seeks to insert two new sections with respect to factors for determining the level of punishment and for lesser penalties for one person companies and small companies:

ü  Section 76A provides for penal provisions with regard to defaulting company with respect to repayment of the amount of deposit and the interest due.

ü  It is proposed to relax the minimum penalty by linking this with the amount of deposits accepted, accordingly, the minimum fine proposed as Rupees One Crore, or twice the deposit accepted, whichever is lower. Maximum penalty remains unchanged.

ü  In case of professional or other misconduct on the part of the auditor, the NFRA has the power to make an order for imposing penalty, for individual auditors and for firm of auditors.

ü  The minimum penalty in case of individuals is one lakh and in case of firms, the minimum penalty is rupees ten lakh. The amendment is proposed to rationalize minimum fine on the firms to rupees five lakh.

             Managerial Remuneration –Section 197(11)

 The requirement of approval of the Central Government for Managerial remuneration    where conditions specified in schedule are not complied with, is proposed to be replaced by approval through special resolution by shareholders only.

Private Placement – Section 42:

The Private Placement process is proposed to be simplified by doing away with separate offer letter and reducing number of filings to Registrar.

For more updates, contact CS Neha Seth at 9871903449 or drop email at csnehaseth@gmail.com