1 RECENT AMENDMENTS IN THE COMPANIES ACT,2013 By Nilesh A.Pradhan & Co. Practicing Company Secretary
NEED.. ACTION TAKEN Majority of Sections of the Companies Act,2013 were made applicable with effect from 1 st April,2014. The Act was lacking simplicity, clarity on some provisions. This had resulted in the operational inconvenience for corporate sector. In order to bring the clarity, simplicity in the Act Ministry of Corporate Affairs came out with various amendments in Rules and Sections through circulars and notifications. 2
POINTS COVERED Important Amendments made after 1 st April,2015 upto the date. Important Circulars/ Notifications issued after 1 st April,2015 upto the date. Important Circulars/ Notifications relating to the Private /Public companies compliances. Circulars/Notifications relating to Section 8 / Nidhi Companies have not been considered in detail for this presentation. 3
AMENDEMENDS 4
Date of Circular/Notificati on 29 th May,2015 Section/Rule/ Schedule of the Companies Act,2013 as Amended Exceptions/modificati ons/ Adaptations The Companies(Incorporation) Rules, 2014 1) Proviso to rule 12 inserted 2) Rule 24 omitted 3) Form INC-21 omitted 4) Forms INC-13 & INC-16 are substituted with new forms. Explanation This proviso means if any proposed Company needs approval of any regulator such as RBI, SEBI then such approval shall be obtained before pursuing such objects and declaration on their behalf is required to be submitted. Rule 24 related to Certificate of Commencement of business and Form Inc-21 for the same is deleted. Therefore Company need not obtain the certificate of commencement of business to start the Business. 5
Date of Circular/Notification 14 th December 2015 Section/Rule/ Schedule of the Companies Act,2013 Amended Exceptions/modifications/ Adaptations Companies (Audit and Auditors) Rules 2014 A statutory auditor shall report to the Board or Audit committee in case of any fraud which involves the amount of Rs. 1 crore and above within 2 days and shall also report the same to the Central Government within 15 days. Where the fraud involves amount less than Rs. 1 crore then the statutory auditor shall report the matter to the board within 2 days of his knowledge which shall also be disclosed in board s report. Explanation The provisions gives the power to the auditor for reporting the fraud in the Company to the respective authority. 6
Date of Circular/Not ification 14 th December 2015 Section/Rule/ Schedule of the Companies Act,2013 Amended Exceptions/m odifications/ Adaptations The Companies(Meetings of Board and its Powers) Rules,2014 1) All related party transactions shall require omnibus approval of audit committee subject to certain conditions which specify maximum value of transactions, extent and manner of disclosure to be made to audit committee, transactions which are not subject to such approval etc. The audit committee shall grant the approval considering the repetitiveness of the transactions and the approval shall also indicate the name, nature, duration and amount of the transaction. 2) Rule 10 related to Section 185 deleted. 3) The word special resolution is substituted with the word resolution in Rule 15, Sub-Rule (3) Explanation 1) The power is given to the audit committee for granting 7 omnibus approval for related party transactions which is valid for period of 1 year. 2) The Company can pass the ordinary resolution for getting the
Date of Circular/Notification 22 nd January 2016 Section/Rule/ Schedule of the Companies Act,2013 Amended Section 396 (1) and (2) Exceptions/modifications/ Adaptations Establishment of Central Registration Centre (CRC) for carrying out the function of disposal of application for reservation of name. Explanation CRC shall be established in Delhi which will process the applications for reservations of name. Processing of name proposed in INC- 29 shall be done by respective ROC. Only one resubmission is provided for Form INC- 29. 8
Date of Circular/Notifi cation 22 nd January 2016 Section/Rule/ Schedule of the Companies Act,2013 Amended Exceptions/modif ications/ Adaptations Explanation The Companies (Incorporation) Rules, 2014 1.Rule 8(2)(b)(ii), Rule 8(2) (b)(x), Rule 8(2)(b)(xvii), Rule 8(3) and Rule 8(4) are omitted. 2. Rule 9 is substituted with new Rule. 3. Form INC-1 is substituted with new form. The omission of these clauses implies that the company can be incorporated without showing the scope, scale of the activity and also the name of the company shall be considered desirable even if it is not in consonance of the principle object of the company. Further it also provides that abbreviated name of the company based on name of the promoter will be allowed and the proposed name based on name of relatives will no longer require any NOC or proof of relationship. 9 Three opportunities shall be granted for resubmission of documents for availability of name.
MAJOR RELAXATIONS TO PRIVATE COMPANIES BROUGHT BY NOTIFICATION ISSUED ON 5 TH JUNE,2015 10
Chapter /Section Number/Subsections in the Companies Act, 2013 Chapter I, sub-clause (viii) of clause (76) of Section 2. Exceptions/Modifications/Ad aptations Shall not apply with respect to section 188. Explanation: According to this exemption any Company which is :- A holding, subsidiary or an associate company of such company ; or A subsidiary of a holding company to which it is also a subsidiary shall not be considered as related party of a private company. Chapter IV, section 43 and Section 47. Shall not apply where memorandum or articles of association of the private company so provides Section 43 defines Kinds of capital and Section 47 state about the voting rights. This both sections shall not apply to private company if Memorandum & Articles of the Company so provides. 11
Chapter /Section Number/Sub-sections in the Companies Act, 2013 Exceptions/Modifications/ Adaptations Explanation: Chapter IV, sub-clause (i) of clause (a) of sub-section (l) and sub-section (2) of section 62. Shall apply with following modifications:- In clause (a), in sub-clause (i), the following proviso shall be inserted, namely:- Provided that notwithstanding anything contained in this sub-clause and sub-section (2) of this section, in case ninety percent of the members of a private company have given their consent in writing or in electronic mode, the periods lesser than those specified in the said sub-clause or subsection shall apply. According to this exemption in case ninety percent of the members of a private company have given their consent in writing or in electronic mode, the periods lesser than the period for which right offer shall be open can be reduced and also the period of dispatch of right offer letter can be reduced. 12
Chapter /Section Number/Sub-sections in the Companies Act, 2013 Exceptions/Modifications/A daptations Explanation: Chapter IV, clause (b) of subsection (1) of section 62. In clause (b), for the words "special resolution", the words ordinary resolution shall be substituted. According to this shares can be issued under ESOP Scheme can be issued by passing ordinary resolution. Chapter IV, section 67. Shall not apply to private companies - (a) in whose share capital no other body corporate has invested any money; (b) if the borrowings of such a company from banks or financial institutions or any Body corporate is less than twice its paid up share capital or fifty crore rupees, whichever is lower; and (c) such a company is not in default in repayment of such borrowings subsisting at the time of making transactions under this section. Section 67 state about restrictions on purchase by Company or giving loans by it for purchase of its shares. This section shall not apply if the mentioned conditions are satisfied. 13
Chapter /Section Number/Sub-sections in the Companies Act, 2013 Exceptions/Modifications/A daptations Explanation: Chapter V, clauses (a) to (e) of sub-section (2) of section 73. Shall not apply to a private company which accepts from its members monies not exceeding one hundred per cent of aggregate of the paid up share capital and free reserves, and such company shall file the details of monies so accepted to the Registrar in such manner as may be specified. The private Company which satisfies the conditions as mentioned is not required to comply with the different conditions while obtaining loan from its Member such as having fixed deposits, obtaining credit rating, providing insurance etc. 14
Chapter /Section Number/Sub-sections in the Companies Act, 2013 Exceptions/Modifications/ Adaptations Explanation: Chapter VII, sections 101 to 107 and section 109. Shall apply unless otherwise specified in respective sections or the articles of the company provide otherwise. Section 101: Notice of meeting Section 102: Explanatory Statement Section 103: Quorum of General meeting Section 104: Chairman of meetings Section 105 :Proxies Section 106 :Restrictions on voting rights Section 107 :Voting by show of hands Section 109: Demand for call Articles can have different provisions unless mentioned in this Section. 15
Chapter /Section Number/Sub-sections in the Companies Act, 2013 Exceptions/Modifications/ Adaptations Explanation: Chapter VII, clause (g) of sub-section (3) of section 117. Shall not apply. This gives exemption for filing of Form MGT-14 for the private companies for resolutions passed pursuant to provisions of Section 179, Sub-section(3) such as to borrow monies, to make calls on shareholders in respect of money unpaid on their shares etc. Chapter X, Clause (g) of subsection (3) of section 141 Shall apply with the modification that the words "other than one person companies, dormant companies, small companies and private companies having paid-up share capital less than One Hundred Crore rupees" shall be inserted after the words twenty companies", According to this provision one person companies, dormant companies, small companies and private companies having paid-up share capital less than one hundred crore rupees shall not be counted while considering the number of companies in which a person can act as auditor. 16
Chapter /Section Number/Sub-sections in the Companies Act, 2013 Exceptions/Modification s/adaptations Explanation: Chapter XI, section 160. Shall not apply. Provisions of Section 160 relating to sending notice by member for appointment of person as Director and depositing Rs. One Lakh for the same shall not apply. Chapter XI, section 162. Shall not apply. Provisions of Section 162 relating to appointment of two or more directors by separate resolution at the general meeting shall not apply. Chapter XII, section 180. Shall not apply. Provisions of Section 180 which restricts the power of the Board such as sell, lease of the undertaking, borrowing shall not apply. 17
Chapter /Section Number/Sub-sections in the Companies Act, 2013 Exceptions/Modification s/adaptations Explanation: Chapter XII, sub-section (2) of section 184. Shall apply with the exception that the interested director may participate in such meeting after disclosure of his interest. As per this relaxation interested director can participate in the Board Meeting and concerned agenda after disclosure of his interest in the contract/ arrangement. 18
Chapter /Section Number/Sub-sections in the Companies Act, 2013 Exceptions/Modifications /Adaptations Explanation: Chapter XII, section 185. Shall not apply to a private company - (a) in whose share capital no other body corporate has invested any money; (b) if the borrowings of such a company from banks or financial institutions or any Body corporate is less than twice of its paid up share capital or Fifty Crore Rupees, whichever is lower; and (c) such a company has no default in repayment of such borrowings subsisting at the time of making transactions under thissection. According to this a private Company which satisfies these conditions can give loan to its directors or any other entity in which the director is interested. 19
Chapter /Section Number/Sub-sections in the Companies Act, 2013 Exceptions/Modifications/ Adaptations Explanation: Chapter XII, second proviso to sub-section (l) of section 188. Shall not apply. According to this Section an interested member can vote on resolution, to approve any contract or arrangement which may be entered into by the company if such member is a related party. For example in case of husband wife company they can vote on any resolution if they are interested in the same Chapter XIII, sub-sections (4) and (5) of section 196. Shall not apply According to this provision a private Company is not required to comply with the requirement of schedule V of the Companies Act, 2013 while appointing the managerial personnel and is not required to file Form MR-1 for such appointment. 20
CLARIFICATIONS 21
Date Circular/Notification of 9 th April, 2015 Section for which clarification is given Clarification Explanation Clarification as to sub-section (7) of Section 186 Where effective rate of return on tax free bond is greater than prevailing rate of 1/3/5/10 year Government Securities closest to the tenor of the loan, there is no violation of sub-section (7) of Section 186. According to Section 372A(3) of Companies Act, 1956, where effective rate on tax free bonds is greater than prevailing bank rate, provisions of aforementioned Section are not violated. Accordingly, the Ministry has clarified the same with regard to Section 186(7) of CA, 2013. 22
Date of Circular/Notification 10 th April, 2015 Section on which clarification is given Schedule V of Companies Act, 2013. Clarification Where a managerial personnel of a listed company or it s subsidiary company receives a remuneration exceeding threshold limits with specific approval taken under the provisions of the Companies Act,1956 may continue to receive the same without approval of Central Government if part of tenure of such managerial personnel falls after 1 st April, 2014. Explanation This means if a managerial personnel was appointed under the provisions of the Companies Act,1956 by complying with the then applicable provisions and if under the Companies Act,2013 his appointment requires Central Government approval then also this appointment can be continued on same terms and conditions for remaining tenure without approval of the 23
Date Circular/Notification of 18 th June, 2015 Section on which clarification is given Section 74 Clarification The clarification state that Company may file application to the Company Law Board seeking extension of time in making repayment of deposits accepted by it before commencement of provisions of Section 74 of the Act. Explanation This allows the Company to make application to the Company Law Board for extension of time limit for repayment of deposits. 24
Date of Circular/Notification 21 st July, 2015 Section on which clarification is given Section 101(1), Section 136(1),Section 137(1) Clarification 1. If a general meeting has been called at a shorter notice, the company can also circulate the financial statements on shorter notice. 2. Where a company has a foreign subsidiary, which is not required to maintain audited accounts in its country of incorporation, then parent/holding Company of such company may place/file unaudited accounts to comply with the provisions of Section 136(1) & 137(1) of the Act. However, the holding company must submit unaudited statements of such subsidiary as far as possible in format mentioned in the Act. Explanation The clarification allowed the conveying of Annual General Meeting on the shorter notice consent. 25 It also removes difficulties in filing accounts of subsidiary.
Other General Amendments/ Clarifications 26
Date of Circular/Notification Notification dated 29 th May,2015 Section/Rule/ Schedule of the Companies Act,2013 Amended Exceptions/modifications/ Adaptations The Central Government has come out with following two rules : 1. The National Company Law Tribunal (Salary, Allowances and other Terms and Conditions of Service of President and other Members )Rules,2015. 2. The National Company Law Tribunal (Salary, Allowances and other Terms and Conditions of the Chairperson and other Members )Rules,2015 New Rules Introduced Explanation The above rules define provisions relating to salary, other allowances and other service terms and conditions of Chairperson, President & Members of NCLT 27
Date of Circular/Notification Notification dated 29 th May,2015 Section/Rule/ Schedule of the Companies Act,2013 Amended The Companies (Share Capital and Debentures) Second Amendment Rules, 2015 Exceptions/modifications/ Adaptations in rule 5, in sub-rule (3), clause (b) is substituted with new clause. Explanation The Company can issue share certificate without common seal provided share certificates are being signed by two Directors and a Company Secretary if applicable and available else a Director can sign in place of such Company Secretary. 28
Date of Circular/Notification Notification dated 29 th May,2015 Section/Rule/ Schedule of the Companies Act,2013 Amended Exceptions/modifications/ Adaptations Explanation the Companies (Registration Offices and Fees) Rules, 2014 in rule 15, the new proviso is inserted which state that no person is entitled to obtain copies or inspect the copies of resolution referred to in clause (g) of subsection (3) of Section 117 of the Act. Therefore public can not have access to the Form MGT-14 filed under above Section 29
Date of Circular/Notification Notifications dated 5 th June,2015 Section/Rule/ Schedule of the Companies Act,2013 Amended Various Sections Exceptions/modifications/ Adaptations The Central Government come out with total four notification for granting various exemptions to Private Company (Covered in previous slides ) Section 8 Company, Nidhi Company, Government Company. Explanation By this Notification various relaxations are provided to the Companies making the operations of these Companies simpler. 30
CLARIFICATIONS ON CSR PROVISIONS 31
The Ministry of Corporate Affairs issued FAQ on 12 th Janaury,2016 for various clarifications of CSR provisions some of which are as follows: The amount spent on CSR can not be claimed as business expenses. Computation of net profit for Section 135 is as per Section 198 of the Companies Act, 2013 which is primarily PROFIT BEFORE TAX. No tax exemptions have been extended to CSR expenses. The Board s Report of a Company qualifying under Section 135(1) pertaining to a financial year commencing on or after the 1 st day of April,2014 shall include an annual report on CSR. In case of foreign company, the balance-sheet filed under subcluase (b) of sub-section (1) of section 381 shall contain an Annexure regarding report on CSR. 32
Following activities would not qualify as CSR. The CSR projects or programs or activities that benefit only the employees of the Company and their families. One-off events such as marathons /awards/charitable contributions/advertisements/ sponsorship of TV progammes etc. Expenses incurred by Companies for fulfillment of any other Act/Statues of regulations (Such as Labour Laws) Contribution of any amount directly or indirectly to any political party. Activities undertaken by the Company in pursuance of normal course of business. The project or programmes or activities undertaken outside India. 33
Holding or subsidiary of a Company does not have to comply with Section 135(1) unless the holding or subsidiary itself fulfills the criteria. The Company has to actually spend the amount on CSR. Any excess amount spent cannot be carried forward to the subsequent years and adjusted against that year s CSR expenditure. The contribution to corpus of a Trust /Society/ Section 8 companies etc will qualify as CSR Expenses as long as : (a) Trust /Society/ Section 8 Company etc. is created exclusively for undertaking CSR activities or (b) Where the corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Act. 34
Questions & Answers 35
Thank You! For Nilesh A.Pradhan & Co. Nilesh A.Pradhan 9122-25662152/53 9122-25667226/7/8 info@napco.in 36