Note on Companies (Amendment) Bill, 2017

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1 Note on Companies (Amendment) Bill, 2017 By: G Usha, Practising Company Secretary cs.ushaganapathy@gmail.com, Contact: December 20, 2017 This article presents a Chapter-wise note on the major amendments proposed in the Companies (Amendment) Bill, 2017 as passed by the Lok Sabha on July 27, 2017 and by Rajya Sabha on December 19, Once the Bill receives the President s assent and is notified, the amendments will become effective. This note is an attempt to keep the readers abreast of the proposed changes. Readers are requested to note that for the sake of brevity, the note excludes amendments that do not alter the import of a particular provision and are mere paraphrasing, although an attempt has been made to mention them wherever deemed fit. Please note that all changes discussed herein will come into effect only when the Bill becomes an Act. Readers are invited to share their comments and suggestions, if any, with the author. In this note, the Act refers to the Companies Act, 2013; ROC refers to Registrar of Companies, AGM refers to Annual General Meeting, EGM refers to Extra-ordinary General Meeting and Board refers to the Board of Directors of a company. Major Changes A Bird s-eye View Relaxations proposed: Permitting more than one issue of securities under private placement at any time; Doing away with Central Government approval for payment of managerial remuneration beyond specified limits or in case of inadequacy or absence of profits; Relaxing restrictions on granting of loans to entities in which directors are interested; Making offences punishable with imprisonment or fine compoundable; Permitting conducting of AGM anywhere in India for unlisted companies if all members agree; Increasing time limit for filing satisfaction of charge up to 300 days; Relaxing restrictions on pecuniary relationship with independent directors. Provisions Tightened: Imposing substantially higher additional fees for delay in filing documents, without prejudice to legal action from the first day of delay, meaning the present immunity for a delay of up to 270 days will not be available; Mandating filing of return of allotment before utilization of money raised under private placement; Decreasing the period of reservation of name from 60 days to 20 days for new companies; Making offences relating to deposits non-compoundable; Companies (Amendment) Bill, 2017 Page 1 of 13 G Usha

2 1. Chapter I Preliminary (Definitions) i. Associate company Sec. 2(6): The term significant influence with respect to Associate Company will be amended to mean control of at least twenty per cent of total voting power, or control of or participation in business decisions under an agreement. The term Joint Venture will also be defined to mean a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. ii. Subsidiary company Sec. 2(87): Sub-clause (ii) of the definition of Subsidiary Company with respect to holding of share capital is amended to exercise or control of more than one-half of total voting power. Impact: Associate or Subsidiary relationship will be based on total voting power; not on total share capital. Holding Bodies Corporate will come under the definition of Holding Company. The revised definitions shall apply in respect of related party transactions, loans to directors as well as various disclosures and other provisions. Presently, the relationship of subsidiary or associate company is determined with respect to total share capital instead of the proposed criteria of total voting power. Total share capital refers to paid-up equity share capital and convertible preference share capital. After amendment, the definition under Sec. 2(89) with respect to total voting power will come into play total voting power, in relation to any matter, means the total number of votes which may be cast in regard to that matter on a poll at a meeting of a company if all the members thereof or their proxies having a right to vote on that matter are present at the meeting and cast their votes; hence, only those shares that have voting rights attached to them as provided in Sec. 47 and the Articles of the company will be reckoned for the above purpose. It is common in companies with private equity infusion that some shareholders enjoy more voting power vis-a-vis their holdings by virtue of agreements. For example, a person may be holding 10% of total share capital but may be entitled to more than 20% or more than 50% of total voting rights. In such cases, after amendment, the company will become an associate company or subsidiary company of the investor company, as the case may be. Hence, associate and subsidiary relationships will need to be re-examined by such companies. iii. Holding company Sec. 2(46): The term will be amended to include any body corporate as against only companies incorporated under the Act. iv. Related party Sec. 2(76): The definition will be expanded to include investing company or a venture company, meaning a body corporate whose investment in the company would result in the company becoming an associate company of the body corporate. v. Small company Sec. 2(85): The range of paid-up share capital and turnover for classification as Small Company is proposed to be increased. Rules must be prescribed to make it operative. vi. Other notable changes: a. Cost accountant will be defined to mean only Cost Accountants in Practice. b. It is proposed to exclude certain instruments from the definition of debentures those covered under Chapter IIID of the RBI Act, 1934 like derivatives, money market instruments, and others as may be notified by the Central Government. Companies (Amendment) Bill, 2017 Page 2 of 13 G Usha

3 c. With respect to financial year, both subsidiaries and associate companies of a company incorporated outside India can apply for a different period as a financial year. d. The definition of the term Interested Director will be deleted, as the definition is redundant. e. It is proposed to broaden the term Key Managerial Personnel to include such other officer not more than one level below the directors who is in whole time employment and designated as KMP by the Board. f. It is proposed to include the debit or credit balance of profit and loss account in the calculation of net worth. g. Institutions to be notified as Public Financial Institution shall be constituted under any Act except Companies Act. h. Turnover redefined to mean the gross amount of revenue recognised in the profit and loss account from the sale, supply, or distribution of goods or on account of services rendered, or both, by a company during a financial year. 2. Chapter II - Incorporation of Companies i. Members severally liable in certain cases (Sec. 3A): It is proposed to insert a new provision to restore the provision under Companies Act, 1956 with respect to members liability when the number of members falls below the statutory minimum. ii. Reservation of name (Sec. 4): The period of reservation of name is proposed to be brought down to 20 days from 60 days. For change of name, it is retained at 60 days. iii. Incorporation process (Sec. 7): In the spirit of ease of doing business, instead of affidavits, only a declaration will be required from subscribers and first directors. iv. Registered office (Sec. 12): New companies will be required have registered office within 30 days of incorporation as against 15 days. The time limit for filing of change in registered office to be extended to 30 days from 15 days. v. Authentication of documents (Sec. 21): An employee of a company may also be authorized to authenticate documents on behalf of the company. 3. Chapter III - Prospectus and Allotment i. Prospectus (Sec. 26): The contents of prospectus will be aligned with SEBI requirements. ii. Civil liability for misstatement in prospectus (Sec. 35): Director or promoter will not be liable if he proves, inter alia, that he had relied on a misleading statement from an expert. iii. Private placement (Sec. 42): a. Instead of private placement offer letter, a private placement offer-cum-application as prescribed shall be issued. b. Right of renunciation will be expressly disallowed under private placement to avoid any misuse of private placement process. A provision to this effect is More than one issue under private placement can be made. Time for filing return of allotment is proposed to be reduced to 15 days. Money cannot be utilized until return is filed. already present in rules no person other than the person so addressed in the application form shall be allowed to apply through such application form. c. Currently, no new offer or issue can be made under this Section without first completing or withdrawing the existing one. This restriction has posed problems in raising funds. After Companies (Amendment) Bill, 2017 Page 3 of 13 G Usha

4 amendment, more than one offer can be made to prescribed classes of persons subject to the maximum number prescribed. d. Money received shall not be utilized until return of allotment is filed. e. Time limit for filing return of allotment is proposed to be reduced to 15 days from 30 days. f. The requirement relating to filing of offer letter with ROC within 30 days of circulation will apparently be removed. 4. Chapter IV - Issue of Shares and Debentures i. Voting rights (Sec. 47) will be subject to restriction on voting rights of related parties under Sec. 188(1), for clarity. ii. Issue of shares at discount (Sec. 53): As an exception to prohibition on issue of shares at discount, a company will be able to issue shares at discount to its creditors when its debt is converted into shares in pursuance of any statutory resolution plan or debt restructuring scheme in accordance with RBI guidelines. iii. Sweat equity (Sec. 54): It is proposed that a company may issue sweat equity without waiting for completion of one year from the date of commencement of business. iv. Further issue of capital (Sec. 62): a. Rights offer letter may be sent through courier or any other mode having proof of delivery, among others. b. With respect to preferential offer under Sec. 62(1)(c), compliance with Sec. 42 Private Placement will be brought into the main text of the Act from Rules. 5. Chapter V - Deposits i. Requirements for raising deposits (Sec. 73): a. Amount to be deposited towards deposit repayment reserve account is proposed to be changed from 15% of deposits maturing during a financial year and the next following financial year, to 20% of deposits maturing during the following financial year. Such deposit should be made in a separate bank account on or before 30th April every year; b. Deposit insurance clause will be omitted; c. In case of default in repayment of deposits, the company will become eligible again after 5 years have elapsed from the date of making good the default. ii. Punishment for contravention under Section 76A with respect to deposits for an officer in default will be changed to imprisonment and fine, making the offence non-compoundable. iii. Time limit for repayment of deposits accepted before commencement of Act will be extended to three years from commencement of Act or expiry of deposit term, whichever is earlier. 6. Chapter VI - Registration of Charges i. Duty to register charges (Sec.77): Provisions relating to registration of charge may not apply to certain charges to be prescribed. ii. Application for registration (Sec. 78): It is clarified that a charge-holder will be able to apply for registration of charge in case a company fails to register within 30 days, instead of 300 days. iii. Satisfaction of charge (Sec. 82): Delay in filing satisfaction of charge beyond 30 days but before 300 days is proposed to be allowed on application to ROC on payment of additional fees. Companies (Amendment) Bill, 2017 Page 4 of 13 G Usha

5 7. Chapter VII Management and Administration i. Beneficial interest (Sec. 89): The term beneficial interest is proposed to be defined as: beneficial interest in a share includes, directly or indirectly, through any contract, arrangement or otherwise, the right or entitlement of a person alone or together with any other person to (i) exercise or cause to be exercised any or all of the rights attached to such share; or (ii) receive or participate in any dividend or other distribution in respect of such share. ii. Register of beneficial owners (Sec. 90): Declaration, register and returns with respect to significant beneficial owners are proposed to be mandated. The term significant beneficial owner refers to individuals, acting with other persons, holding beneficial interest of at least 25% (or as prescribed) of share capital or right to exercise significant influence or control; they will be required to furnish a declaration to the company; the company will also be required maintain registers and file returns with ROC in this respect. Companies are also empowered and mandated to give notice to any person who is believed to be a significant beneficial owner but in respect of whom the above declaration is not received, whether or not such a person is a member. iii. Annual return (Sec.92): a) Mentioning indebtedness of the company will not be required. b) Abridged form of Annual Return may be prescribed for OPC, small company and other classes of companies. c) Extract of annual return need not be given in the Board s Report; only a link to the website of the company, if any, in which it is displayed should be given in the Report. iv. Return of changes in promoters stake (Sec.93) (MGT-10) applicable to listed companies is proposed to be omitted. v. Place of registers (Sec.94) Advance intimation of special resolution to ROC is proposed to be done away with for shifting place of registers of members, debenture-holders and other security holders; some registers will not be available for inspection as may be prescribed. vi. Place of holding AGM and EGM: a) AGM of an unlisted company may be held anywhere in India if all members give consent in advance. (Sec. 96) b) EGM of a company, other than a wholly-owned subsidiary of a company incorporated outside India, shall be held within India. (Sec. 100) vii. Shorter notice for general meetings (Sec. 101): Presently, a general meeting may be called at a shorter notice if consent is given by 95% of members (in number). This is proposed to be amended to consent of 95% of members (in number) in case of AGM; and majority (in number) who are also holding 95% of paid-up capital with voting rights in case of EGM. viii. Postal ballot (Sec. 110): Companies that are required to give the facility of electronic voting will be able to transact the items, which are compulsorily to be transacted through postal AGM of unlisted companies may be held anywhere in India if all members give their consent. EGM may be held anywhere in India for all companies. EGM of whollyowned subsidiary of a company incorporated outside India may be held outside India. ballot, in a general meeting also. Hence, items of business like shifting of registered office outside local limits, variation in rights of shares, amendment of objects clause, etc. which are presently required to be compulsorily transacted through postal ballot in case of companies having more than Companies (Amendment) Bill, 2017 Page 5 of 13 G Usha

6 200 members, may also be transacted through general meeting by companies required to provide e- voting facility. ix. Filing of resolutions (Sec.117): It is proposed to reduce the minimum fine for default and to exclude banking companies from filing resolutions passed under Section 179(3) (f) (granting of loans, give security and guarantees). 8. Chapter VIII - Declaration of Dividend i. Declaration of dividend (Sec. 123): It is proposed to exclude unrealised gains, amounts representing changes in fair value of assets and liabilities while computing profits for the purpose of declaring dividend; ii. Declaration of Interim Dividend: Interim dividend may be declared even after the end of the financial year for which Interim Dividend may be declared even after the end of financial year but before AGM. the dividend is to be declared but before holding AGM for the said financial year out of the surplus in the profit and loss account or out of profits of the financial year for which such interim dividend is sought to be declared or out of profits generated in the financial year till the quarter preceding the date of declaration of the interim dividend. 9. Chapter IX - Accounts i. Reopening of accounts (Sec. 130): The period of reopening of previous financial statements will be restricted to eight financial years immediately preceding the current financial year, or such longer period as may be directed by Central Government under proviso to Sec. 128(5). ii. National Financial Reporting Authority (NFRA) (Sec. 132): Minimum penalty is proposed to be reduced with respect to professional misconduct. Provisions for constitution of National Financial Reporting Appellate Authority are proposed to be deleted and the appeals against orders of NFRA shall lie with National Company Law Appellate Tribunal (NCLAT). iii. Board report (Sec. 134): a. It is proposed that a CEO shall sign financial statements even if he is not a director. b. Instead of extract of annual return, web address, if any, where annual return is displayed will need to be given. c. Disclosures which form part of financial statements need not be repeated in annual report; d. Nomination and Remuneration policy and CSR policy need not be reproduced; only salient features and changes will need to be indicated. Web-link may be given. e. Abridged format of Board Report may be prescribed for OPCs and small company. iv. Corporate Social Responsibility (CSR) (Sec. 135): a. It is proposed that CSR provisions shall apply only if the conditions are met during the immediately preceding financial year. Presently, read with the Rules, by implication, CSR provisions apply if the conditions are met in any of the three preceding financial years. b. CSR committee shall consist of two or more directors if appointment of independent directors is not required for the company. c. Calculation of net profit for the purpose of CSR will be as per Rules and as per Section 198. Companies (Amendment) Bill, 2017 Page 6 of 13 G Usha

7 v. Filing of financial statements with ROC (Sec. 136): a. It is proposed that copies of audited financial statements may be sent on shorter notice if agreed to by majority of members holding 95% of share capital having voting rights. b. Only listed companies will be required to place subsidiaries audited accounts on their websites, if any. In the case of a subsidiary which has been incorporated in a country outside India, which is not required to get its financial statements audited under the laws of such country and which does not get such financial statements audited, it is sufficient compliance if the holding Indian company files such unaudited financial statement along with a declaration to this effect and where it is in a language other than English, along with a translated copy in English. c. All companies having subsidiaries shall provide a copy of audited or unaudited financial statements of the subsidiaries, as the case may be, to any member who asks for it. 10. Chapter X Audit and Auditors i. Appointment of auditors (Sec. 139): The Bill proposes to remove the requirement to place auditor s appointment for ratification every year at AGM. ii. It is proposed to reduce fine for failure to intimate resignation by auditor (Sec. 140). iii. Eligibility of auditor (Sec. 141): A person who provides any service mentioned in Sec. 144 to the company, its holding or subsidiary companies shall not be eligible to be appointed as auditor. iv. Audit report (Sec. 143): Auditors shall have access to accounts and records of both subsidiaries and associates of the company being audited. The reference to internal financial control system is proposed to be changed to internal financial controls with respect to financial statements. v. Punishment for contravention (Sec. 147): It is proposed to reduce the fine for contravention by auditor. The persons to whom the auditor shall be liable to pay damages if convicted for contravention of certain provisions is limited to statutory bodies, authorities, the company and its creditors and members and not to any others. In case of criminal liability of an audit firm, only those partners who defrauded or abetted or colluded shall be liable. 11. Chapter XII - Directors i. Resident director (Sec. 149): It is proposed that the period of stay of 182 days shall be calculated with respect to financial year instead of calendar year. For a newly incorporated company, the number of days of stay in India shall be calculated proportionately at the end of the financial year in which the company is incorporated. ii. Independent directors (Sec. 149): With respect to criteria for independent director, pecuniary relationship in the form of remuneration as such director and transactions not exceeding ten per cent of his total income or such amount as may be prescribed will be permitted. Pecuniary relationship with respect to the relatives of the independent director shall also be permitted within limits as may be prescribed. iii. DIN (Sec. 153): It is proposed that the Central Government may prescribe any other number to be treated as DIN. iv. Right of persons to stand for directorship (Sec. 160): Presently, It is proposed that the independent directors and their relatives be permitted to have pecuniary relationship with the company up to prescribed limits. deposit of a sum of Rs. 1 Lakh is needed to propose candidature of any person who is not a retiring director for directorship in a public company. It is proposed to remove the requirement for Companies (Amendment) Bill, 2017 Page 7 of 13 G Usha

8 appointment of independent directors and in case of persons recommended by the Nomination and Remuneration Committee, or if the company is not required to have such Committee, by the Board of the company. v. Alternate directors and filling of casual vacancy (Sec. 161): After amendment, an alternate director cannot be a person on the Board of the Company nor can be a person who is alternate to any other director on the Board. Provisions relating to filling of casual vacancy will be made applicable to all companies. A person appointed to fill casual vacancy shall hold office only up to the next General Meeting. vi. Disqualification of directors (Sec.164) a) It is proposed that a newly appointed director of a company which is in default of filing financial statements or annual returns for a continuous period of three financial years or which has defaulted in payments with respect to deposits, debentures, dividend, etc. and such default continues for more than a year, shall not suffer disqualification till 6 months from the date of his appointment. b) Disqualification arising due to conviction of the person in respect of an offence involving moral turpitude, or in respect of Sec.188 or due to an order disqualifying him as a director will continue to apply even if appeal or petition is filed against such conviction. vii. Number of directorships (Sec. 165): Dormant companies will not be reckoned for the purpose of limit on number of directorships of 20 companies. viii. Vacation of office (Sec. 167): a) Presently, if a director is convicted of an offence involving moral turpitude or becomes disqualified by the Tribunal, his office is immediately vacated even if he has filed an appeal. After amendment, his office will not be vacated till 30 days of Order; if an appeal is filed, till 7 days after the appeal is disposed of. b) Presently, the office of a director is vacated in all companies in which he is a director if he incurs disqualification under Section 164(2) with respect to default in filing of returns or repayment of money as mentioned above. After amendment, such office is vacated in all companies other than the company which is in default. ix. Resignation (Sec. 168): It will become optional for the director to file resignation with ROC. 12. Chapter XII Meetings of the Board and Its Powers i. Video conferencing (Sec. 173): Participation through video conferencing in restricted items including approval of financial statements will be permitted if there is quorum through physical presence of directors. ii. Audit Committee (Sec. 177): Applicability to listed companies is proposed to be modified to mean only listed public companies. Related party transactions other than those under Sec. 188 if not approved by Audit Committee should be approved by the Board after the committee makes its recommendations to the Board. Any related party transaction upto Rs. 1 crore entered into by a director or officer must either be approved by the audit committee or be ratified by it within 3 months, failing which it shall be voidable by the committee. In case such transaction is with a party related to the director or is authorised by a director, the director shall indemnify any loss to the company. In this respect, transactions between holding and wholly-owned subsidiaries will not be covered by the clause requiring approval of audit committee, unless they fall under Sec Companies (Amendment) Bill, 2017 Page 8 of 13 G Usha

9 iii. Nomination and Remuneration Committee (NRC) (Sec. 178): Applicability to listed companies is proposed to be modified to mean only listed public companies. The committee shall specify the methodology for evaluation of performance of the Board, Committees and Directors either by the Board or NRC or an external agency. iv. Increase in borrowing powers of Board (Sec. 180): Presently, approval in general meeting by special resolution is required to borrow beyond the aggregate of paid-up share capital and free reserves. After amendment, the threshold is increased to aggregate of paid-up share capital, free reserves and securities premium account. v. Interest of directors (Sec. 184): The exception to Section 184 will be broadened with the inclusion of body corporate: the section Increased borrowing limits under Sec. 180, certain relaxations with respect to Sections 184, 185, 186 and 188 are proposed. shall not apply to any contract or arrangement entered between two companies or between one or more companies and one or more bodies corporate where any of the directors of the one company or body corporate or two or more of them together holds or hold not more than two per cent of the paid-up share capital in the other company or the body corporate. Minimum penalty is removed in respect of contravention. vi. Loan to directors, etc. (Sec. 185): It is proposed that the prohibition shall apply only to loans to the directors of the company and its holding company and their partners, relatives and firms. As a breather to group companies, loans, guarantees, security, etc. will be allowed to be advanced to other entities like private companies, bodies corporate, etc. as specified in the Section in which directors are interested, after passing a special resolution in a general meeting and subject to the condition that the funds shall be used only for principal business activities. vii. Investments, loans and guarantees (Sec. 186): a) Loans to employees will not be reckoned for the purpose of computing the threshold limits for loans, guarantees and investments. b) Where aggregate of investments, loans, guarantees and security exceeds the threshold limits specified, prior approval by means of special resolution is required. However, this requirement will not be applicable to loans, guarantees, securities provided to wholly-owned subsidiary companies, JV companies, or investment in the securities of wholly-owned subsidiary companies. viii. Related party transactions (Sec. 188): It is proposed that restriction on voting rights of related parties with respect to a related party transaction shall not apply to those companies in which ninety per cent or more members, in number, are relatives of promoters or are related parties. This will resolve the situations in closely held public companies where passing of a resolution becomes difficult because most of the shareholders could be related parties with respect to the company and the transaction. ix. Forward trading and insider trading (Sec. 194 and Sec. 195): The provisions relating to prohibition on forward dealing in securities and on insider trading are removed in order to eliminate dual regulatory control of MCA and SEBI over such matters. Consequently, proviso to Section 458(1) will also be deleted. Companies (Amendment) Bill, 2017 Page 9 of 13 G Usha

10 13. Chapter XIII Managerial Remuneration i. Appointment of managing / whole-time director (Sec. 196): It is proposed that if special resolution has not been passed for appointment or continuation of appointment of a person who has attained 70 years of age as a managing/whole-time director or manager, the appointment may be made if votes cast in favour of the motion exceed the votes, if any, cast against the motion provided Central Government approval is obtained. Further, it is clarified that Central Government shall be required only if Part I of Schedule V is not met as against the entire Schedule V. ii. Managerial remuneration (Sec. 197): a. Currently, total managerial remuneration exceeding 11% of net profits needs Central Government approval. After amendment, only general meeting approval is required subject to provisions of Schedule V. b. In cases where the individual remuneration exceeds the specified limits, approval will be required in the form of a special resolution. Presently, only ordinary resolution is required. c. In case of inadequacy or absence of profits, a company need not go for Central Government approval but it should comply with the provisions of Schedule V. d. In case excess remuneration is paid to a director, it is proposed to mandate that he shall refund such sums within two years or such lesser time as may be allowed by the company and till such time shall hold it in trust for the company. e. It is proposed that a company need not go for Central No more Central Government approval for managerial remuneration beyond limits or in case of inadequacy of profits, after Amendment. Government approval for waiver of refund of such excess remuneration provided it is approved by the company by special resolution within two years from the date the sum becomes refundable. f. In case a company has defaulted in the payment of dues to any bank, financial institution or nonconvertible debenture holders or any secured creditor, their prior approval shall be obtained by the company before obtaining approval for waiver of refund or before approval for remuneration exceeding limits under the Section. g. The auditor of the company shall indicate in his audit report whether the remuneration paid to directors is in accordance with this section. h. On the commencement of the Amendment Act, all applications with the Central Government in respect of remuneration paid to directors under this Section shall abate. However, the company has to obtain the necessary approvals in the form of approval of shareholders and of the banks and financial institutions, as the case may be, within one year of commencement. i. Consequential amendments are made to Sec. 200 and Sec iii. Calculation of profits (Sec. 198): It is proposed that amounts representing unrealized gains, revaluation amount, etc. shall not be included. In case of investment companies, premium on shares or debentures issued or sold by them shall be allowed as credit. Excess of expenditure over income with respect to any year as long as it had not been deducted earlier shall be deducted. Companies (Amendment) Bill, 2017 Page 10 of 13 G Usha

11 14. Chapter XIV Investigations Investigation of ownership of company (Sec. 216) and Inspectors report (Sec. 223): It is proposed that the Central Government be empowered to appoint inspectors to investigate the true persons who are the beneficial owners of a company, among other things. Inspectors reports can only be obtained by members, creditors or persons whose interests are likely to be affected and not by anybody else. 15. Chapter XV Compromises, Arrangements and Amalgamations Purchase of minority shareholding (Sec. 236): The term transferor company is replaced by company whose shares are being transferred for the purpose of clarity. 16. Chapter XVII Registered Valuers Valuers (Sec. 247): As against the restriction on valuation of assets in which a valuer has direct or indirect interest or becomes interested during or after such valuation, the amendment proposes that he shall not have such interest three years prior to and after such valuation. 17. Chapter XXI Part I Companies Authorised to Register under the Act Companies capable of being registered (Sec. 366): Presently, it is only possible for a Part I company to be registered as a public company and only with seven or more members. It will be possible to register a company under this Part as a private limited company where it has less than seven members. (Sec. 366) For clarity, it is stated that an LLP on registering under the Act shall be deemed to be dissolved under the LLP Act. (Sec. 374) 18. Chapter XXII Companies Incorporated Outside India i. Application of Act to foreign companies (Sec. 379): It is clarified that Sections 380 to 386, 392 and 393 shall be applicable to all foreign companies, with power to exempt any class of companies given to Central Government. ii. CSR to apply to foreign companies: Section 135 on CSR is proposed to be made applicable to foreign companies (Sec. 384). iii. Application of Sec. 34 to 36 and Chapter XX (Sec. 391): Winding up provisions shall apply to a place of business for a foreign company only if it has not repaid or redeemed any securities it had issued for raising money and not otherwise. 19. Chapter XXIV Registration Offices and Fees Filing fees (Sec. 403): i. Additional fees of a minimum of Rs. 100 per day or a higher amount as may be prescribed for ii. iii. delay in filing annual return and financial statements shall apply after the amendment; In case of delay in filing documents under other sections, additional fee shall be as may be prescribed; Different additional fees may be prescribed for different classes of companies; Additional fees for delayed filing of documents set to increase substantially. Additional fees apply without prejudice to any legal action from the first day of delay and not after 270 days. Companies (Amendment) Bill, 2017 Page 11 of 13 G Usha

12 iv. In case of such default (delay) in filing documents on more than one occasion, the additional fee shall be at least twice the additional fee prescribed under the aforesaid cases. v. In all the above cases, the additional fee shall be payable without prejudice to any other legal action or liability under the Act i.e. no immunity for a delay up to 270 days as given currently. Hence, it becomes extremely important for companies to now gear up for higher compliance standards. It is recommended that the companies file all pending documents before the Amendment Bill is passed. 20. Chapter XXVI - Nidhis Nidhis (Sec. 406): It is proposed to redefine Nidhis as follows: "Nidhi" or "Mutual Benefit Society" means a company which the Central Government may, by notification in the Official Gazette, declare to be so. Thereby the Central Government is not restricted by any specific or restrictive definition and may declare appropriate companies to be Nidhis or Mutual Benefit Societies, and thereby preventing any interpretation issues. 21. Chapter XXVII - NCLT/NCLAT i. Qualification of members (Sec. 409 and Sec. 411): Changes with respect to qualification of technical members of NCLT and NCLAT are proposed. ii. NCLAT (Sec. 410): NCLAT shall also hear appeals against the orders of NFRA besides those of NCLT. iii. Selection committee (Sec. 412): The composition of the Selection Committee for recommendation on appointment of members of NCLT and NCLAT is proposed to be changed. The changes with respect to qualification of members and selection committee are mainly to carry out the directions of Supreme Court, in order that the independence of judiciary shall not be undermined. 22. Chapter XXVIII Special Courts Establishment of Special Courts (Sec. 435): It is proposed that offences punishable with imprisonment of two years or more alone are to be tried by a single judge holding office as Session Judge or Additional Session Judge, and in case of other offences by a Metropolitan Magistrate or a Judicial Magistrate of the First Class. Consequential amendments will be made to Sections 438 and Chapter XXIX Miscellaneous i. Compounding of offences (Sec. 441): Presently, offences which are punishable only with fine are compoundable. It is proposed that all offences, except those which are punishable with imprisonment only or with imprisonment and fine, shall be compoundable. Consequently, the following offences will become compoundable: i. Offences punishable with fine only ii. Offences punishable with imprisonment or fine iii. Offences punishable with imprisonment or fine or both ii. New Sections 446A and 446B: It is proposed to lay down the factors for determining the level of punishment for an offence and lesser penalties for small companies and OPCs in Sections 446A and 446B respectively. Companies (Amendment) Bill, 2017 Page 12 of 13 G Usha

13 iii. Punishment for fraud (Sec. 447): In case of fraud involving an amount less than Rs. 10 Lakhs or 1% of turnover of company, whichever is less, and does not involve public interest, the punishment shall be imprisonment or fine or both (compoundable); in all other cases, it shall be imprisonment and fine (non-compoundable). iv. Delegation of powers by Central Government (Sec. 458): As a consequential amendment, matters relating to forward dealing and insider trading are omitted. About the Note This is a small initiative to share the views on the Amendment Bill and to encourage discussion among the professional community. Views and suggestions are invited from the readers. Readers can send in their comments to cs.ushaganapathy@gmail.com. DISCLAIMER: The information given in this Note has been made on the basis of the provisions stated in the Companies (Amendment) Bill, 2017 as passed by Lok Sabha and Rajya Sabha, and the Companies Act, It is based on analysis and personal understanding and interpretation of applicable laws as on date. Although care has been taken to ensure accuracy of the information given here, the author expressly disclaims any financial or other responsibility arising due to any action taken by any person on the basis of this note. Companies (Amendment) Bill, 2017 Page 13 of 13 G Usha

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