Some of the major details vis-à-vis provisions of the Companies Act, 2013 and the amendments made to it under the Companies (Amendment) Act, 2017 are discussed below.
2(6): Associate company
*The Act defines ‘associate company’, in relation to another company, as a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company. ‘Significant influence’, under the Act, meant control of at least 20 per cent total share capital; now, ‘significant influence’ means control of at least 20 per cent of the voting power or control or participation in business decision under an agreement.
2(28): Cost Accountant
*Now, ‘cost accountant’ means as defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 and who holds a valid certificate of practice under sub-section (1) of section 6 of that Act;’; earlier, the phrase “and who holds a valid certificate of practice under sub-section (1) of section 6 of that Act” was not there in the Act.
2(46): Holding Company
*The Act defined ‘holding company’, in relation to one or more other companies, as a company of which such companies are subsidiary companies. Now, for the purpose of definition of the term ‘holding company’, the expression ‘company’ will include any body corporate.
2(76): Related Party
*Earlier the definition of ‘related party’ with reference to a company used the word ‘company’, and so therefore only those entities that were incorporated in India came in the purview of the definition. Now the phrase ‘body corporate’ is used and any ‘body corporate’ which is situated outside India shall fall under the definition of ‘related party’.
2(87): Subsidiary company
*A company will be treated as subsidiary now in case the holding company exercises or controls more than one-half of the total voting power either at its own or together with one or more of its subsidiary companies. Before the amendment, the Act provided for exercise or control of more than half of the total share capital.
*In case of incorporation, name reserved by the Registrar of Companies (RoC) shall be valid for 20 days from date of the approval or such other period as may be prescribed instead of 60 days from the date of application, as earlier provided.
Incorporation of company
*At the time of incorporation of the company, declaration by each subscriber will be required to be attached instead of just an affidavit, as provided earlier under the Act.
Registered office of company
*Under the Act, the company had to have a registered office on and from the fifteenth day of its incorporation but now it needs to have one within 30 days of its incorporation.
*Notice of every change of the situation of the registered office, shall be given to the Registrar within 30 days now instead of the 15 days provided earlier.
Issue of Sweat Equity Shares
*Sweat equity shares could be issued only after the expiry of one year from the date of commencement of business under the 2013 Act, but with the amendment, they can be issued at any time after registration of the company.
EASE OF DOING BUSINESS
Authentication of documents, proceedings and contracts
*Apart from Key Managerial Personnel (KMP) and any officer of the company, an employee can also be authorised to authenticate documents on behalf of the company now.
*Now, an annual general meeting (AGM) of an unlisted company can be held anywhere in India if the consent is given in writing or by electronic mode by all the members.
*Wholly owned Subsidiary of foreign Company can hold an extraordinary general meeting (EGM) outside India. But a company other than wholly owned subsidiary of a company incorporated outside India must hold EGM at a place within India.
Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits
*The approval of the Central Government shall not be required at the time of the payment of remuneration exceeding 11 per cent of the net profits of the company; earlier, this approval was required.
ISSUANCE OF SHARES
Prohibition on issue of shares at discount
*Companies are to be allowed to issue shares at a discount (the words ‘discounted price’ replaced with the word ‘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 any guidelines or directions or regulations specified by Reserve Bank of India under the Banking Regulation Act, 1949 or the Reserve Bank of India Act 1934.
Prohibition on acceptance of deposits from public
*An amount not less than 20 per cent of the amount of deposits, maturing during the following financial year, should be deposited on or before the 30th day of April each year and kept in a scheduled bank in a separate bank account to be called deposit repayment reserve account. Earlier, at least 15 per cent of such amount was required to be deposited and this was for amount of deposits maturing during a financial year and the financial year next following.
*The requirement of providing deposit insurance has been omitted.
*Companies which had defaulted in repayment of deposits, can now also accept deposits after a period of 5 years from the date of making good the default.
Company to have Board of Directors
*Requirement related to resident director has been eased i.e. “stay in India for a total period of not less than 182 days during the financial year”. Earlier, it was calculated in reference to previous calendar year.
Number of Directorship
*The directorship in a dormant company shall not be included in the limit of directorships of 20 companies.
Resignation of director
Requirement of filing form DIR-11 (filing of a copy of resignation to ROC by director itself) has been made optional.
Section 167- Vacation of office of director
*In case 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.
*The director will not vacate office in certain cases where an appeal is preferred.
Loan to directors, etc
A completely new section 185 has these key changes:
*There is complete restriction on providing loan, guarantee or security in connection with loan to any director, director of the holding company or any partner or relative of any such director or any firm in which any such director or relative in a partner.
*Loan to following parties is allowed subject to special resolution of shareholders and certain other prescribed conditions—
(i) any private company of which any such director is a director or member;
(ii) any body corporate at a general meeting of which not less than 25 per cent of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or
(iii) any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.
Earlier, transactions with aforesaid categories were prohibited.
*Current exemption provided under section 185(1) continues to remain except that when company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the rate of prevailing yield of one year, three year, five year or ten year Government security closest to the tenor of the loan. The rate of interest is clarified.
*Defaulting officer in the company to be penalised along with the company and director or the other person to whom any loan is advanced or guarantee or security is given.
Company to have Board of Directors
*It provides for various disqualifications for becoming an independent director, one of which is, such person having ‘pecuniary relationship’ with “the company, its holding, subsidiary or associate company, or their promoters, or directors”.
The amendment clarifies that this pecuniary relationship excludes the remuneration to such director or having transaction not exceeding 10 per cent of his total income or such amount as may be prescribed.
CORPORATE SOCIAL RESPONSIBILITY
*Eligibility criteria for the purpose of constituting the corporate social responsibility committee and incurring expenditure towards CSR is proposed to be calculated based on immediately preceding financial year, instead of the earlier basis of preceding three financial years.
*Further where a company is not required to appoint an independent director, it shall have in its Corporate Social Responsibility Committee two or more directors.
Appointment of Auditors
*Requirement related to ratification of appointment of auditors by members at every annual general meeting now omitted.
Removal, Resignation of Auditor and giving of special notice
*The fine in case of failure to file resignation by auditor in Form ADT-3 is reduced to fifty thousand rupees or the remuneration of auditor whichever is less.
Punishment for contravention
*The maximum fine which can be imposed on an auditor has been revised from rupees five lakh to rupees five lakh or four times the remuneration of the auditor, whichever is less. If the auditor has contravened provisions knowingly or willfully with the intention to deceive the company etc., the amount of fine has been changed to minimum of fifty thousand rupees but which may extend to twenty-five lakh rupees or eight times the remuneration of the auditor, whichever is less.
*The liability of auditor who is convicted of any default, to pay the damages to any person for loss arising out of incorrect or misleading statements made in the audit report, is restricted to only members and creditors of the company. Earlier, the auditor was liable to pay damages to any person concerned.
*Where criminal liability of an audit firm, in respect of liability other than fine, is concerned, the partner or partners concerned, who acted in a fraudulent manner or abetted or, as the case may be, colluded in any fraud shall only be liable. Earlier, the criminal liability was of the partner or partners concerned of the audit firm and the firm, jointly and severally.
*An abridged form of annual return for One Person Company (‘OPC’), Small Company and such other class or classes of companies has been prescribed.
*Earlier requirement of MGT-9 i.e. extract of annual return, which forms part of the Board’s Report, has been omitted. Instead, the copy of annual return shall be uploaded on the website of the company, if any, and its link shall be disclosed in the Board’s report.
Financial Statement, Board’s report, etc.
*Disclosures which have been provided in the financial statement shall not be required to be reproduced in the Board report again.
ADDITIONAL FEE, PENALTY and COMPOUNDING
Fee for Filings, etc.
*The document, fact or information required to be submitted under Section 92 (Annual Return) or 137 (Copy of financial statement to be filed with Registrar of Companies) may be submitted, after expiry of the period so provided in those sections, on payment of such additional fee as may be prescribed which shall not be less than Rs. 100 per day and different amounts may be prescribed for different classes of companies
*Where a company fails or commits any default to submit, file, register or record any document, fact or information before the expiry of the period specified in the relevant section, the company and the officers of the company who are in default, shall, without prejudice to the liability for the payment of fee and additional fee, be liable for the penalty or punishment provided under this Act for such failure or default.
Compounding of certain offences
National Company Law Tribunal can now compound offences punishable with fine only as well as offences punishable with fine or imprisonment. The provision has now been brought in line with section 621A of the 1956 Act. Earlier, under the Act, such offences could be compounded only by a Special Court.
Valuation by Registered Valuers
Restriction on appointment of a registered valuer has been diluted by providing that the registered valuer can be appointed for valuation of an asset in which he has a direct or indirect interest or he becomes so interested during a period of three years prior to appointment as valuer or three years after valuation of assets. Earlier, restriction on appointment of registered valuer for undertaking valuation of any assets in which he had a direct or indirect interest or became so interested was without any limitation on time.
INSIDER TRADING AND FORWARD DEALING
Section 194 on prohibition on Forward dealings in securities of company by director or key managerial personnel and Section 195 relating to prohibition on Insider trading of securities have been omitted.