COMPANIES(AMENDMENT) ACT, 2017 CS.DESIKAN BALAJI ADVOCATE desikan.b@gmail.com +91 98840 61064
AMENDMENT IS MANDATORY FOR EVERY LAW No organic law can ever be framed with a provision specifically applicable to every question which may occur in practical administration. No foresight can anticipate nor any document of reasonable length contain express provisions for all possible questions - ABRAHAM LINCOLN
JINGLE ON DRAFTSMAN A popular English jingle once published in London Times enlivens this criticism: I am the Parliamentary draftsman; I compose the country's laws. Of half the litigation in the nation, I am undoubtedly the cause.
WHY THIS AMENDMENT? 1. Strengthening corporate governance standards, 2. Providing for strict action against defaulting companies and 3. Improving ease of doing business in the country.
SUBSIDIARY COMPANY 1 The company on which another company exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies shall be considered as holding. Now, the term total share capital has been substituted with words total voting rights in order to consider only equity share capital for the same.
ASSOCIATE COMPANY 2 To determine significant influence control at least 20% of total voting power shall be considered instead of total share capital. significant influence would mean control of at least 20% of the total voting power (instead of total share capital) or control or participation in business decision under an agreement. Is there any anomaly still in this section???
APPLICATION FOR ADOPTING DIFFERENT F.YR. 3 An associate foreign company of the company along with a holding and/or a subsidiary company will now be allowed to apply for exemption for following different FinancialYear
INTERESTED DIRECTOR 4 The definition of the term interested director has been omitted, since the was term used in section 174(3) of the Act, 2013 explanation to which made reference to a director within the meaning of section 184(2). Definition clause vs. Explanation???
RELATED PARTY 5 Any Company body corporate which is (A) a holding, subsidiary or an associate company of such company; (B) a subsidiary of a holding company to which it is also a subsidiary; or (C) an investing company or the venturer of the company. Explanation: A body corporate whose investment in the company would result in the company becoming an associate company of the body corporate. What is the effect of such Change????
CLARIFICATION-INVESTING COMPANY IS A RELATED PARTY Under the existing definition of the term related party given in section 2(76) of 2013 Act, associate company is a related party for the investor in that company. However, for the associate company itself, investor is not a related party. The 2017 Amendment Act fixes this anomaly and requires that both associate company and investor should be treated as related to each other.
TURNOVER 6 Means Gross amount of revenue recognized in the profit and loss account from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year Previously, aggregate value of the realisation of amount made from the sale, supply or distribution of goods or services being rendered or both. This change is specifically made to exclude????
MEMBERS BELOW STATUTORY MINIMUM 7 Fall of members below statutory minimum (Two in case of Private Limited and Seven in case of Public Limited) Carrying on business for more than Six months, after the reduction The members should be aware of the reduction and carry on the business. This leads of piercing of Corporate Veil
PRIVATE PLACEMENT 8 The board of directors are to identify the select group of persons to whom the private placement is to be made. The format of application form shall be prescribed. The private placement offer letter and application form shall not carry any right of renunciation. The company is not to utilise the money raised through private placement unless allotment has been made and return of allotment has been filed with the Registrar.
PRIVATE PLACEMENT 8 The return of allotment is required to be filed within 15 days of allotment. The requirement of filing the record of private placement with the Registrar within a period of thirty days of circulation of private placement offer letter has been omitted.
VOTING RIGHTS 9 Every member of a company limited by shares and holding equity share capital therein, shall have a right to vote on every resolution placed before the company This provision is subject to Sec.188
ISSUE OF SHARES AT DISCOUNT 10 Any share issued by a company at a discounted price shall be void Discount is replaced with Discounted price Provision to issue shares at a discount, subject to the same is issued to creditors when debt is converted into shares in the manner prescribed by RBI
DEPOSITS 11 Deposit insurance being omitted The changes in the provision relate to the change in the percentage (from 15% to 20%) of the amount of deposits maturing during the following financial year, to be kept in a separate bank account. Companies which had defaulted in repayment of deposits, can also accept deposits after a period of 5 years from the date of making good the default
CHARGE 12 The company shall file Form CHG -4 within 30 days. In case of delay, the company can file Form CHG-4 within 300 days from the date of payment/satisfaction, with payment of additional fees, as against requirement of condonation of delay. The Central Government in consultation with RBI may exempt charges to which section 77 shall not apply.
ANNUAL GENERAL MEETING 13 Annual general meeting of an unlisted company may be held at any place in India if consent is given in writing or by electronic mode by all the members in advance
EGM 14 An extraordinary general meeting of the company, other than of the wholly owned subsidiary of a company incorporated outside India, shall be held at a place within India. EGM can be called by giving a shorter notice, if majority in number of members entitled to vote and who represent not less than ninety-five per cent of such part of the paid-up share capital of the company
CLASS OF THE COMPANY EGM of a Company (a WOS of the Company incorporated outside India) EGM of a Company (not a WOS of the Company incorporated outside India) Requisition EGM of a Company AGM of the Listed Company AGM of the Unlisted Company PLACE OF THE MEETING Anywhere in the World i.e. In India or Outside India. Anywhere in India In local limits of the City, Town or Village where registered office of the company is Situated. In local limits of the City, Town or Village where registered office of the company is Situated. Anywhere in India if consent is given in writing or by electronic mode by all the members in advance
ANNUAL RETURN 15 Indebted clause in Annual return in omitted CG may specify a different format for OPC and Small Companies Annual return need not form part of the Board report. It may be hosted on the website, if any, and the link shall be provided in the Board report Annual Return needs to be filed within 60 days. There is no extended time period as under the earlier Sec 403. The fine shall apply
CSR 16 Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an Independent Director. Where a company is not required to appoint an independent director, it shall have in its Corporate Social Responsibility Committee, two or more directors
DIRECTORS 17 Requirement related to resident director eased i.e. stay in India for a total period of not less than 182 days during the financial year. Currently it is calculated in reference to previous calendar year; Central Government can provide any other number to be treated as DIN; Maximum number of directorship for any person will not include dormant company
DIRECTORS 17 Requirement of filing form DIR-11 (filing of a copy of resignation to ROC by director itself) made optional; Where a director incurs any of disqualifications under section 164 (2) due to default of filing of financial statements or annual return or repayment of deposits or pay interest or redemption of debentures or payment of interest thereon or payment of dividend, then he shall vacate office in all the companies other than the company which is in default.
DIRECTORS 17 Restriction on a person from being appointed as an alternate director if he is holding directorship in the same company. 161(4) is applicable for Private Companies also Deposit of One lakh is waived for few cases Directorship in a dormant company shall not be included in the limit of directorships of 20 companies.
AUDITORS 18 Annual ratification of appointment of auditors by members is proposed to be omitted. SPC & Associates, Chartered Accountants and DVAK & Co, Hyderabad NCLT Criminal liability in case of fraud proposed to be limited to partner(s) will not include firm Auditor of Holdco shall have the access to associate company including subsidiary co.
AUDITORS 18 If an auditor has been convicted for contravening the provisions of the section 139, section 143, section 144 or section 145 knowingly or will fully with the intention to deceive the company or its shareholders or creditors or tax authorities, he shall be liable to refund the remuneration received by him or her and pay for damages to the company, statutory bodies or authorities or to any other person members or creditors of the company for loss arising out of incorrect or misleading statements of particulars made in the audit report
VIDEO CONFERENCING 19 It is proposed to allow participation of directors on restricted items at Board meetings through video conferencing or other audio-visual means if there is quorum through physical presence of directors.
NOMINATION AND REMUNERATION COMMITTEE 20 It is proposed that instead of every listed company, every listed public company shall constitute a Nomination and Remuneration Committee
LOAN TO DIRECTORS, ETC 21 Sec 185 classifies loans to directors as 1. Prohibited - To Director of a company, of the holding company, partner or relative, Firm in which director is a partner 2.Restricted : To persons in whom the director is interested which requires Special Resolution with statement of the purpose of the loan and the loans are used by the borrowing company for its principal business activities
SEC.186 22 It also proposed to exclude employees from the ambit of this section. It is proposed that shareholders approval will not be required 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, by way of subscription, purchase or otherwise of, the securities of its wholly owned subsidiary company.
RELATED PARTY TRANSACTIONS 23 It is proposed that the requirement related to restriction on voting by relatives in the general meeting shall not apply to a company in which ninety per cent or more members in numbers, are relatives of promoters or are related parties.
PROHIBITION ON INSIDER TRADING OF SECURITIES[SEC.195] 24 This section is proposed to be omitted
MANAGERIAL PERSON - AGE 25 It is proposed that a person beyond the age of seventy years can be appointed as managing director or whole time director or manager even when such appointment has not been approved by special resolution provided that the resolution for such appointment is passed with votes cast in favour of the motion exceed the votes, if any, cast against the motion and the Central Government is satisfied, on an application made by the Board, that such appointment is most beneficial to the company, the appointment of the person who has attained the age of seventy years may be made.
MANAGERIAL REMUNERATION 26 The changes replace the requirement of Central Governments approval under section 197 with approval by shareholders. Approval of shareholders by special resolution shall be obtained for giving remuneration in excess of limits provided in second proviso to section 197(1). Approval of banks/public financial institutions/non-convertible debenture holders/secured creditors is required to be obtained in case of default before obtaining the approval of members in the general meeting.
ADDITIONAL FEES & COMPOUNDING 27 In case of delay in filing document, fact or information required to be submitted under section 92 (Annual Return) or 137 (Copy of financial statement to be filed with registrar), after expiry of the prescribed period then instead of slab wise additional fees, a flat additional fee as may be prescribed which shall not be less than Rs. 100 per day is required to be paid. Different amounts can be prescribed for different class of companies Tribunal can now also compound offences those punishable with fine or imprisonment. Currently, such offences can be compounded only by Special Court.
CHANGES RELATING TO START-UP & INCORPORATION 28 For company registration, instead of affidavits, declarations will be required[sec.7] Name registration shall be valid only for 20 days and not for 60 days[sec.4]
CHANGES RELATING TO START-UP & INCORPORATION 29 Sweat Equity Shares can be issued at any time. Presently, it can be issued only after one year from commencement of business.[sec.54] Partnership or LLP with 2 members (currently 7) can convert into a company.[sec.366]
DOING BUSINESS EASE IN INDIA 30 In addition to Directors & Key Managerial Personnel, any employee can authenticate documents Officers not more than one level below the directors who are in whole time employment, can be designated as KMP. This is an enabling provision. At the time of incorporation of the Company, declaration can be made by the instead of the Affidavit. A Company shall have registered office within 30 days of its incorporation.
THANK YOU Desikan Balaji Advocate desikan.b@gmail.com 98840 61064