The Government of India placed a Bill to amend the Companies Act, 2013 (the “2013 Act”), passed 3 years ago, proposing nearly 100 plus amendments companies act 2013, meant to be for the easiness of doing business. Maximum of the reforms proposed in the Bill is to implement the proposals of the Company Law Committee, which was appointed bye the in response to thousands of accusations that the 2013 Act was extremely restrictive and counter-productive.
The major amendments unsettled in the amendments in the Bill are:
Section 185 of the 2013 Act, one of the most desert sections preventing loans and guarantees by companies to entities in which directors are interested, will be narrowed down, to permit companies to given loans and provide guarantees on the basis of a shareholders’ resolution made by companies.
Universal object companies will be allowed.
– Wholly-owned subsidiaries of foreign companies will be authorized to call their extraordinary meetings outside India on a foreign soil.
the government of India’s control on managerial remuneration is intended to be completely dropped. Section 197, which places limits on managerial remuneration, will now require special resolution only if the limits placed under the law are exceeded.
Making Easiness to groundless compliances.
Section 93, which compelled the company to file changes in the shareholding of its promoters and top 10 shareholders, is recommended to be eliminated.
Sanctioning flexibility in place of calling company meetings: is proposed to be amended to permit unlisted companies to hold their annual general meetings (“AGMs”) anywhere in India if permitted in advance by all members. This will enable subsidiary companies and closely held companies to better manage their AGMs.
Regrettably, India has still not learned from the UK law, which does away with the formality of AGM for small companies completely. Also, there are no permissive provisions enabling companies to hold the AGMs also in the electronic mode.
section 100 is proposed to be amended to permit the calling of extraordinary general meetings (“EGMs”) at any place anywhere in the world, in the case of subsidiaries of foreign companies. Notably, the restriction on the place of calling the EGM was never there in corporate laws and was strangely inserted in the Rules made under the 2013 Act.
Commercial interest in the case of independent directors: As a condition of director independence, the existing language of seemed to disqualify a director based on any monetary interest. It is notable that SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 continue to use the words “material pecuniary interest”. The clause is now sought to be amended to provide that an independent director will not lose independence if such director has transactions amounting up to 10% of total income.
Pre-deposit of money in case of appointment of independent directors: Section 160 of the Act requires a pre-deposit of money in case of appointment of any director, other than a retiring director. an amendment is now endeavored to be entered waiving the deposit requirement in the case of independent directors.
Enabling board meetings by video conferencing: Once law understands technology (video conferencing (“VC”) or other audiovisual means), it is odd to expect that there are certain elements that cannot be accomplished by VC. Section 173(2) restricts the use of VC for certain restricted matters. This entire provision should have actually been deleted, as it was not serving any useful purpose. Instead, the Bill seeks to provide that if there is a physical quorum present at the venue of the meeting, then the remaining directors may participate by VC.section 173 is aimed to be amended to provide so there must be a minimum number of directors present at the venue of the meeting, for the other directors to participate by VC, in the case of such restricted matters.
loans, investments, guarantees, and securities
as suggested by the various stakeholder Section 185 was obviously one of the most unfruitful provisions of the 2013 Act, affecting companies and bankers both. Unlike its equivalent in the 1956 Act, section 185 prohibited the giving of loans, enabling loans by guarantees or securities in case of entities where the directors are interested.
The law is presently asked to be amended to produce that it shall be open for the company to pass a special resolution authorizing the giving of loans, guarantees or securities.
section 186 is recommended to be amended to authorize making of investments in subsidiary companies or joint venture companies.
Weaknesses of the Bill
Requiring Key Managerial Personnel (KMP) in companies a certain size: Among the questionable provisions of 2013 which have not been rectified by the Amendment Bill are the provisions of section 203, which requires every company of a certain size to have at least three levels of key managerial personnel. This has been one of the most unrealistic provisions of the 2013 Act, ordering companies to perfunctorily designate Chief Financial Officers and Company Secretaries in companies which have significant capital, but do not have a day-to-day business. There was a popular demand that either such companies may appoint the same person to look after numerous positions or the same person to look after several companies. However, nothing has been done to this section, although the definition of “key managerial personnel” in section 2(51) has been enlarged.
Difficulties in private placements: Another vital stress created by the 2013 Act was the extremely restrictive set of provisions pertaining to private placements. This over-ambitious scheme of regulation was a direct result of some incidents in the past. One of such provision needs every private placement to be passed through a separate bank account opened for this purpose, and a bar on the utilization of the money until allotment. While the Bill rewrites the entire section 42, it, in fact, bars the use of the money until the return of allotment has been filed with the Registrar of Companies. It is curious to notice that the use of the money has been linked with the filing of a document, for which the time allowed is as much as 60 days for allotment and 15 days for filing the return. More often than not, the amount received in the private placement is large, and companies cannot afford to keep the amount idle even for a day.
The only relief made in the private placement requirements seems to be that the amount of penalty for contravention has been limited to Rs 2 crores, which was earlier apparently spreading to the entire amount raised by private placement.
Amendment Bill Smoothing out the wrinkles left by the 2013 Act:
Several of the proposed amendments fill the gaps left by the 2013 Act.
Sec. 2 (57)
Definition of “net worth” in sec. 2 (57) will bring the credit balance in profit and loss account whereas the language as it currently stands seems to imply, rather very illogically, that the accumulated surplus and profit and loss account is not to be taken as a part of the net worth of the company.
– The definition of holding and subsidiary companies was profoundly complex in the 2013 Act, using “total share capital” (later defined as including equity and convertible shares) as the basis for consolidation. Accounting standards have consistently used voting power as the basis for identifying “control” and “significant influence”. The proposed amendments join the provisions of the Act with the accounting standards.
Section 2(87),Section 186(1)
Additionally, a provision enabling the Government to control the number of layers of subsidiaries has been completely dropped, both from section 2(87) as also in section 186(1) of the Act.
– The definition of “turnover” as now existing is a little bit confusing and can be interpreted to mean gross receipts. The definition has now been aligned with financial reporting of the companies.
– The provisions concerning the registration of modification and settlement of charges omitted the power of the Registrar to grant an extension of time up to 300 days. The amendments bill 2016 proposed to amend section 82 to correct this anomaly.
The approach of universal objectives companies:
As a milestone move, the Bill enables the creation of universal object companies. The concept of worldly object companies, present in several countries, conceives a company that can carry out any business that a natural person may do. The company is free to cut a negative list of businesses that the company may not want to do. Thereby, the doctrine of ultra vires gets a decent funeral, and the constitutional documents of companies become small and meaningful, instead of containing a big collection of unfair “objects” which the company may not even want to fight in foreseeable future.
Enabling the provisions for small companies:
in a very welcomed decision Small company concept is very widely used in global corporate law to include such companies for which most of the corporate law compliances requirements are completely or partially exempted.
The previous definition of the company law limits the scope of “small companies” to only companies having a turnover of Rs. 2 crores. Now The amount is being increased to Rs. 5 crores, while the limit of paid up capital still remains Rs. 50 lacs. The government is being given the power to notify a higher amount of turnover, going up to Rs. 100 crores, within which a company may still be treated as a small company.
Currently, the law does not give much statutory liberty to a small company. Hopefully, the central government may use its power of notifying exemptions to give more space to small companies under the law. This is much needed for encouraging start-ups to incorporate as companies and to stem the departure from the corporate form of the limited liability partnership form of business.
An abridged form of annual return is awaited to be announced in case of small companies. Furthermore, section 134 is queried to be amended to provide for an abridged form of financial statements in case of small companies.
Provisions regarding of banking companies
-Now Banks making advantage of corporate debt restructuring (CDR) and strategic debt restructuring (SDR) schemes often convert their loans into equity, and one common inevitable problem being faced was that the fair value of the equity share was less than its par value. . The provisions of section 53 are proposed to be amended to permit conversion of loans into equity at less than the par value.
Banks were facing restraints regarding extending loans based on guarantees and securities provided by associated companies. Section 185 is proposed to be amended to ease the provision.
Provisions easing business by overseas entities
In support of the “Make in India” policy of the central government, it is pretty appropriate that the Bill must have enabled foreign-owned businesses to form companies in India. Accordingly, there are several provisions to facilitate foreign-owned businesses.
– EGM of a wholly-owned subsidiary of a foreign company can be called anywhere in the world.
– The demand for a resident director provided in section 149 seeks to be amended to provide that in the case of newly incorporated companies the condition can be satisfied by incorporation, rather than before incorporation.
Adding new compliance requirements
Sections 89 and 90 are aimed to be amended to introduce new requirements in respect of a beneficial interest in shares.
While section 89, concerning to filing of beneficial interest in shares, is being extended to include a new, broad definition of “beneficial interest” (including either voting rights, or dividend rights, or any other right).
A new section 90 seeks to substitute the previous section, to require disclosure of ultimate beneficial ownership by an individual, who, singularly or through one or more entities, holds 25% or more the share capital of a company.
Note:Company amendments bill is not applicable for june 2016 exam so just read and relax.
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