The Companies (Amendment) Bill, 2016
The Finance Minister, Mr. Arun Jaitley on Wednesday, 16/03/2016 proposed fresh amendments to the Companies Act, 2013.
Key Highlights of the Bill are as under:
Notes on Clauses
Clause 1 of the Bill provides for the short title and commencement. It also seeks to empower Central Government to appoint date of commencement of the proposed legislation and different dates for different provision of the proposed legislation.
Clause 2 of the Bill seeks to amend section 2 of the Companies Act, 2013 (hereinafter referred to as ‘the Act’) for modifying the definitions of associate company, cost accountant, debentures, financial year, holding company, key managerial personnel, net worth, related party, small company, subsidiary company and turnover, and omit the definition of interested director.
Clause 3 of the Bill seeks to introduce new section 3A to provide for liability of members when the business is carried on for more than six months with members fewer than seven in case of public companies and fewer than two in case of private companies.
Clause 4 of the Bill seeks to amend sub-section (1) of section 4 of the Act to allow companies an unrestricted object clause, to engage in any lawful act or activity for the time being in force. It also proposes to amend sub-section (5) to modify the period of validity of a name reserved. The clause also seeks to insert new sub-sections (6A) and (6B) w.r.t. model memorandum.
Clause 5 of the Bill seeks to amend sub-section (1) of section 7 of the Act to replace requirement of affidavit from first subscribers and directors with declarations from them with reference to incorporation of company.
Clause 6 of the Bill seeks to amend sub-section (1) of section 12 of the Act to provide for a company to have its registered office withing thirty day from the date of incorporation. Further it also seeks to enhance the time limit provided under sub-section (4) of section 12 for registering change in registered office to thirty days.
Clause 7 of the Bill seeks to amend section 21 of the Act to allow authorisations on the signature of any employee of the company duly authorised by the Board, with respect to authentication of documents, proceedings and contracts, in addition to key managerial personnel and officers already provided in the section.
Clause 8 of the Bill seeks to amend sub-section (1) of section 26 of the Act to provide that contents of the prospectus with respect to information and reports on financial information shall be specified by SEBI in consultation with Central Government. The clause also provides for applicability of existing requirements on such matters specified by SEBI.
Clause 9 of the Bill seeks to amend section 35 of the Act to hold experts liable for statements made by them and provide a defence to the directors who relied upon such statements.
Clause 10 of the Bill seeks to substitute section 42 of the Act. The proposed provisions seek to simplify the requirements with reference to private placements such as doing away with separate offer letter, reduced number of filings, etc. This clause also seeks to modify penalty provisions for contravention of this section. It also seeks to provide for restrictions on utilisation of moneys raised through private placement unless allotment is made and return of allotment is filed with the registry.
Clause 11 of the Bill seeks to amend sub-section (1) of section 47 of the Act and seeks to provide that provisions of section 47 shall also be subject to sub-section (1) of section 188 of the Act.
Clause 12 of the Bill seeks to amend section 53 of the Act to replace the words “discounted price” with the word “discount” and also to allow companies to issue shares at discount to its creditors when debt is converted into shares in pursuance of any statutory resolution plan or debt restructuring scheme in accordance with guidelines or directions or regulations specified by Reserve Bank of India under the Banking Regulation Act, 1949, Reserve Bank of India Act 1934. Further issue of shares would continue to require approval of shareholders through a special resolution.
Clause 13 of the Bill seeks to amend section 54 of the Act to remove the restriction under clause (c) of sub-section (1) which requires company to make issue only after one year has elapsed from the date of commencement of its business.
Clause 14 of the Bill seeks to amend section 62 of the Act to provide wider modes of delivery with respect to despatch of notice of offer for rights issue and to provide for applicability of provisions of Chapter III in case of issue of securities under section 62(1)(c).
Clause 15 of the Bill seeks to amend section 73 of the Act to omit requirement relating to deposit insurance and provide that deposit repayment reserve shall not be less than twenty percent. of the amount of deposits maturing during the following financial year. This clause also seeks to provide for acceptance of deposits by companies, if the default is made good and five years have lapsed since then.
Clause 16 of the Bill seeks to amend section 74 of the Act to provide that deposits accepted under Companies Act, 1956 shall be repaid within 3 years from the commencement of the original section 74 of the Companies Act, 2013 or on or before expiry of the period for which deposits were accepted whichever is earlier.
Clause 17 of the Bill seeks to amend section 76A of the Act to provide that minimum fine for failure in repayment of deposits and interest thereon shall be rupees one crore or twice the amount of deposit accepted, whichever is lower.
Clause 18 of the Bill seeks to amend sub-section (1) of section 77 of the Act to provide that such section shall not apply to certain charges, as may be prescribed by Central Government in consultant with the Reserve Bank of India.
Clause 19 of the Bill seeks to amend section 78 of the Act to provide clarity that the person in whose favour the charge has been created can file the charge on the expiry of thirty days from creation of charge where a company fails to file so.
Clause 20 of the Bill seeks to amend sub-section (1) of section 82 of the Act to provide the timelines for filing of satisfaction of charge on the lines of timelines provided for registration of charge under section 77.
Clause 21 of the Bill seeks to amend section 89 of the Act to include the definition of “beneficial interest in a share”.
Clause 22 of the Bill seeks to replace section 90 of the Act to provide that a declaration is to be given to the company by 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 (to be called as significant beneficial owner). Further the significant beneficial owner shall while making the declaration specify the nature of interest and other particulars in prescribed manner and time to the company. It also seeks to empower the Central Government to specify class or classes or persons who shall not be required to make the said declaration. Further company shall maintain and keep available for inspection, by any member of the company, a register of significant beneficial owners. Further company shall file a return of significant beneficial owners of the company and changes therein with the Registrar. This clause also provides that company may give notice to any person whom the company knows or believes to be a significant beneficial owner of the company or who has knowledge of the identity of a significant beneficial owner or another person likely to have such knowledge or who has been a significant beneficial owner of the company at any time during the immediately preceding three years. Further, if the person fails to give information required by the notice, the company shall apply to the Tribunal within a period of fifteen days for an order. The Tribunal may make an order restricting the rights attached with the shares in question. If any person fails to make a declaration, he shall be punishable with fine. Similarly, where a company fails to maintain the register or file the return, the company and every officer of the company in default shall be punishable with fine.
Clause 23 of the Bill seeks to amend section 92 of the Act to omit the requirement of sub-section (3) with respect to extract of annual return forming as part of Board’s report and provide disclosure of web address/web-link of the annual return in Board’s report. It also seeks to omit requirement of clause (c) of sub-section (1) regarding disclosure of indebtedness, and modify clause (j) of that sub-section regarding disclosure of names, addresses, countries of incorporation, registration and percentage of shareholding of Foreign Institutional Investors. Further it also seeks to insert a new proviso in sub-section (1) to provide that Central Government may provide abridged form of Annual Return for one person companies and small companies.
Clause 24 of the Bill seeks to omit section 93 relating to return to be filed with respect to change in promoters’ and top 10 shareholders’ stake.
Clause 25 of the Bill seeks to amend section 94 of the Act to restrict inspection of certain personal information, which would be prescribed through Rules, in the register of members. It also seeks to do away with filing of special resolution in advance with Registrar of Companies for keeping of the registers and returns at a place other than the registered office of the company.
Clause 26 of the Bill seeks to amend section 96 of the Act to enable unlisted companies to convene Annual General Meeting at any place in India with the approval of all shareholders obtained in advance.
Clause 27 of the Bill seeks to amend section 100 of the Act to allow the wholly owned subsidiary of company incorporated outside India to hold its extra ordinary general meeting outside India.
Clause 28 of the Bill seeks to amend section 101 of the Act to provide that general meeting may be held at a shorter notice if in case of an Annual General Meeting consent is given by not less than ninety-five percent. of the members entitled to vote and in case of other general meetings consent is given by members holding not less than 95% of paid-up share capital.
Clause 29 of the Bill seeks to amend section 110 of the Act to provide that the company may transact an item, which is mandatorily required to be transacted through postal ballot, at a general meeting also where the facility of electronic voting is provided by the company.
Clause 30 of the Bill seeks to amend section 117 of the Act to reduce the minimum that can be imposed for non-compliance with the provisions of the section. It also seeks to provide exemption to banking companies from filing resolutions with respect to grant of loans, giving of guarantee or providing of security in respect of loans in the ordinary course of its business. The clause also seeks to omit clause (e) of sub-section (3) of the section as the requirement under the clause is already covered in clause (a).
Clause 31 of the Bill seeks to amend section 123 of the Act to provide clarity, to allow declaration of interim dividend for a financial year from the profits of the said year or from brought forward surplus in the profit and loss account. It also provides clarity that interim dividend can be declared during the period from closure of financial year till date of Annual General Meeting and in such case in addition to profits referred above, the profit generated upto quarter prior to declaration of dividend may be used.
Clause 32 of the Bill seeks to amend sub-section (3) of section 129 of the Act to provide that a company having subsidiary (ies) shall prepare Consolidated Financial Statements in the same form and manner as that of its own in accordance with applicable accounting standards. It also seeks to retain two earlier provisos.
Clause 33 of the Bill seeks to amend section 130 of the Act to provide that in addition to authorities already specified, any other person concerned shall be given notice before passing an order for re-opening of accounts. It also seeks to provide that order for reopening of accounts can be made upto eight years unless there is a specific direction under section 128(5) from the Central Government for longer period.
Clause 34 of the Bill seeks to amend section 132 of the Act to reduce the minimum fine under sub-section (4) in respect of professional or other misconduct from rupees ten lakhs to rupees five lakhs.
Clause 35 of the Bill seeks to amend section 134 of the Act to provide that the Chief executive officer shall sign financial statements irrespective of whether he is a director or not. It seeks to modify the disclosure requirements with respect to annual return and polices in respect of remuneration and CSR. It also seeks to empower Central Government to prescribe abridged Board’s report for small company and one person company.
Clause 36 of the Bill seeks to amend section 135 of the Act to allow composition of CSR committee with two or more directors in case the company is not required to appoint independent director under section 149. Further it also seeks to empower the Central Government to prescribe sums which shall not be included for calculating ‘net profit’ of a company under section 135. It also seeks to modify sub-section (3) of the section to refer to subjects in Schedule VII within which CSR activities could be taken up by an eligible company.
Clause 37 of 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 rationalise the requirements with respect to financial statements of foreign subsidiaries of a listed company subject to conditions.
Clause 38 of the Bill seeks to amend section 137 of the Act to enable filing of unaudited financial statements of foreign subsidiaries which is not required to get its accounts audited.
Clause 39 of the Bill seeks to amend section 139 of the Act to do away with the requirements of annual ratification by members with respect to appointment of auditors.
Clause 40 of the Bill seeks to amend section 140 of the Act to reduce the penalty with respect to failure to file resignation by auditor to fifty thousand rupees or the remuneration of auditors whichever is less.
Clause 41 of the Bill seeks to amend clause (d) of sub-section (3) of section 141 of the Act to insert an explanation to clarify the meaning of relative with reference to eligibility for appointment of auditors. It also seeks to amend clause (i) of sub-section (3) for harmonisation with section 144 in respect of providing of certain non-audit services.
Clause 42 of the Bill seeks to amend sub-section (1) of section 143 of the Act to cover associate companies along with subsidiary companies with respect to right of auditors to have access to accounts and records. It also seeks to provide that auditors shall report on internal financial control systems with reference to financial statements. It also seeks to amend sub-section (14) to replace cost accountant in practice with cost accountant.
Clause 43 of the Bill seeks to amend section 147 of the Act to revise quantum of fine. It also restricts the liability of auditor for damages to the shareholders or creditors of the company instead of any other person. It also seeks that in case of criminal liability of any audit firm the concerned partners only shall be liable.
Clause 44 of the Bill seeks to amend section 148 of the Act to substitute the words ‘cost accountant in practice’ with the words ‘cost accountant’ and also to substitute the words ‘Institute of Cost and Works Accountants of India’ with the words ‘Institute of Cost Accountants of India’.
Clause 45 of the Bill seeks to amend section 149 of the Act to provide for easier requirements with respect to appointment of resident director. It also seeks to specify limits with respect to pecuniary relationship of a director with respect to eligibility of a director to be appointed as an independent director. It also seeks to specify the scope of restriction on pecuniary relationship entered into by a relative.
Clause 46 seeks to amend sub-section (3) and (4) of section 152 of the Act to provide that in addition to Director Identification Number, a director may hold any other identification number prescribed by Central Government under section 153.
Clause 47 of the Bill seeks to amend section 153 of the Act to empower Central Government to recognise any other identification number to be treated as director identification number.
Clause 48 of the Bill seeks to amend section 160 of the Act to provide that the requirement of deposit of rupees one lakh with respect to nomination of directors shall not be applicable in case of appointment of independent directors or directors nominated by nomination and remuneration committee.
Clause 49 of the Bill seeks to amend section 161 of the Act to restrict a person from being appointed as an alternate director if he is holding directorship in the same company. It also seeks to enable the filling up of causal vacancy of the director by the board in case of private company as well. It also seeks to provide for approval in the next annual general meeting held.
Clause 50 of the Bill seeks to amend section 164 of the Act to provide that the disqualification for appointment of director, with respect to non-filing of financial statements or annual return or failure to repay the deposit by a company in which he is to be appointed, shall not apply for a period of six months from the date of his appointment. It proposes to modify proviso to sub-section (3) regarding certain disqualifications to continue to apply even if appeal or petition is filed.
Clause 51 of the Bill seeks to amend section 165 of the Act to exclude directorship in dormant companies from the limit of directorships of twenty companies.
Clause 52 of the Bill seeks to amend section 167 of the Act to provide that in case a director incurs any of disqualifications under section 164 (2), he shall vacate office in companies other than the company which is in default. It also seeks to amend section 167 with respect to appeal against conviction order.
Clause 53 of the Bill seeks to amend section 168 of the Act to provide that the requirement for forwarding of copy of resignation by director to the Registrar shall be optional.
Clause 54 of the Bill seeks to amend section 173 of the Act by inserting a proviso to allow participation of directors on certain items at Board meetings through video conferencing or other audio visual means if there is quorum through physical presence of directors.
Clause 55 of the Bill seeks to amend section 177 of the Act to substitute words listed companies with words public companies. This clause also seeks to insert a proviso to provide for ratification by audit committee of transactions involving amount not exceeding one crore rupees within 3 months of transaction, consequences of non-ratification, exemption from approval of audit committee to related party transactions between holding company and its wholly owned subsidiary, other than those covered under Section 188, etc.
Clause 56 of the Bill seeks to amend section 178 of the Act to substitute the words listed companies with the words listed public companies. It also seeks to provide that committee will specify methodology for effective evaluation of performance of Board and committees and individual directors either by the Board, nomination and remuneration committee or an independent external agency and for its review. This clause also seeks to provide that company shall place the remuneration policy on its website and will disclose salient features of such policy with web address in the Board’s report, etc.
Clause 57 of the Bill seeks to amend section 180 of the Act to include securities premium along with paid-up share capital and free reserves for calculation of upper limits on borrowing powers of the Board.
Clause 58 of the Bill seeks to amend section 184 of the Act to omit the cap of minimum penalty with respect to failure by directors to disclose interest. It also seeks to include body corporates under the ambit of sub-section (5) in certain cases.
Clause 59 of the Bill seeks to amend section 185 of the Act to limit the prohibition on loans, advances, etc., to directors of the company or its holding company or any partner of such director or any firm in which such director or relative is a partner. It also allows a company to give loan or guarantee or provide security to any person in whom any of the director is interested subject to passing of special resolution by the company and utilisation of loans by the borrowing company for its principal business activities.
Clause 60 of the Bill seeks to amend section 186 of the Act by deleting the restrictions on layers of investment companies. It also seeks to provide for aggregation of loan and investments so far made and guarantees so far provided, for the purpose of calculating the limits of loans and investments. It also provides to exclude employees from the word “person” used in sub-section (2). Further it also seeks to provide that requirement of passing a special resolution at general meeting shall not be necessary where a loan or guarantee is given or where a security has been provided by a company to its wholly owned subsidiary company or a joint venture company, or acquisition is made by a holding company of the securities of its wholly owned subsidiary company. Further it also seeks to clarify when the company will be deemed to be principally engaged in the business of acquisition of shares, debentures or other securities.
Clause 61 of the Bill seeks to amend section 188 of the Act to provide that second proviso to section 188 (1) shall not apply to a company in which ninety per cent. or more members in numbers are relatives of promoters or related parties. It also seeks to provide that non-ratification of transaction shall be voidable at the option of the Board or shareholders, as the case may be.
Clause 62 of the Bill seeks to omit section 194 of the Act relating to prohibition on forward dealings in securities of company by director or key managerial personnel.
Clause 63 of the Bill seeks to omit section 195 of the Act which provides for prohibition on insider trading of securities.
Clause 64 of the Bill seeks to amend section 196 of the Act to provide that approval of Central Government shall be required on matters in Part I of Schedule V.
Clause 65 of the Bill seeks to amend section 197 of the Act to do away with requirement of obtaining approval of Central Government and to require special resolution for payment of managerial remuneration in excess of prescribed limits. It also seeks to provide that prior approval of bank or public financial institution or non-convertible debenture holder or secured creditor shall be obtained where any term loan is subsisting, before approval of shareholders. It also requires auditor of the company in his report under section 143 to make a statement as to whether the remuneration paid by the company is accordance with the provisions of section 197.
Clause 66 of the Bill seeks to amend section 198 of the Act to provide that requirement of not giving credit for profits on sale of shares or debentures for calculation of profit shall not apply to investment companies.
Clause 67 of the Bill seeks to amend section 200 of the Act to omit the words “Central Government”. Clause 68 of the Bill seeks to amend section 201 of the Act as a consequential change to amendment made section 196.
Clause 69 of the Bill seeks to amend section 216 of the Act to provide that Central Government may appoint inspectors for determining true persons who have or had beneficial interest in shares of a company or who are or have been beneficial owners or significant beneficial owner of the company.
Clause 70 of the Bill seeks to amend section 223 of the Act to provide that copy of inspectors report shall be made available only to members, creditors or any other person whose interest is likely to be affected.
Clause 71 of the Bill seeks to amend section 236 of the Act to substitute the words ‘transferor company’ with the words ‘company whose shares are being transferred’ for providing clarity.
Clause 72 of the Bill seeks to amend section 247 of the Act to provide that registered valuer shall not undertake valuation of any asset in which he has direct or indirect interest three years before appointment as valuer or three years after valuation of assets.
Clause 73 of the Bill seeks to amend section 366 of the Act to allow conversions into companies from partnership firms, etc. with two or more members provided that in case of less than seven members the conversion would be into a private company.
Clause 74 of the Bill seeks to amend section 379 of the Act to bring clarity with respect to applicability of provisions of the Act to foreign companies.
Clause 75 of the Bill seeks to amend section 384 of the Act to bring clarity on applicability of section 135 to foreign companies.
Clause 76 of the Bill seeks to amend section 403 of Act to bring more clarity with respect to late filings of documents under sections 89, 92, 117, 121, 137 and 157 and defaults in filings, consequences, etc.
Clause 77 of the Bill seeks to substitute section 406 of the Act regarding a declaration of mutual benefit societies and with Nidhi companies.
Clause 78 of the Bill seeks to amend section 409 of the Act to provide for eligibility for technical members with Supreme Court directions with respect to constitution of National Company Law Tribunal.
Clause 79 of the Bill seeks to amend section 411 of the Act to provide for eligibility for technical members with Supreme Court directives with respect to qualifications of Technical Member of National Company Law Appellate Tribunal.
Clause 80 of the Bill seeks to amend section 412 of the Act to align with Supreme Court directions with respect to constitution of Selection Committee.
Clause 81 of the Bill seeks to amend section 435 of the Act to include appointment of Metropolitan Magistrate or a Judicial Magistrate of the First Class by Central Government in Special Court in case of offences punishable under the Act with imprisonment of not more than two years.
Clause 82 of the Bill seeks to amend section 438 of the Act as a consequence of amendments to section 435.
Clause 83 of the Bill seeks to amend section 439 of the Act to include member along with shareholders in respect of complaint with respect to taking cognizance of offences under the Act by the Court.
Clause 84 of the Bill seeks to amend section 440 of the Act to provide that till the time a Special Court is established, the trial of offences shall be continued with Court of Session or Court of Metropolitan Magistrate or a Judicial Magistrate of the First Class.
Clause 85 of the Bill seeks to amend section 441 of the Act to enable Tribunal to compound offences punishable with fine only or with fine or imprisonment or both.
Clause 86 of 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.
Clause 87 of the Bill seeks to amend section 447 of the Act to bring thresholds with respect to compounding provisions relating to fraud without imprisonment.
As introduced in Lok Sabha