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All you need to know about Companies (Amendment) Bill, 2017

Context:

  • The parliament has approved the Companies (Amendment) Bill, 2017.
  • The provisions of this Amendment Act shall come into force on the date or dates as the Central Government may appoint by notification(s) in the Official Gazette.

Background:

  • 2016: The Companies (Amendment) Bill, 2017, was introduced in Lok Sabha on 16 March, 2016 as The Companies (Amendment) Bill, 2016 was referred to the Standing Committee on Finance on 12 April, 2016.
  • The Committee after hearing the views of the representatives of the Chambers of Commerce and Industry as well as professional bodies adopted its report on 30th November, 2016.
  • The Government after considering the suggestions of the Committee and also the experience gained by it, gave notice of amendments as approved by the Cabinet to the Lok Sabha.
  • 2017: The Companies (Amendment) Bill, 2017 passed by Lok Sabha on July 27, 2017, received the assent of Rajya Sabha on December 19, 2017.
  • 2018: Finally the bill received the assent of the Hon’ble President of India on the 3rd January, 2018.

What are the provisions of Companies (Amendment) Bill, 2017?

The provisions of Companies (Amendment) Bill, 2017 are as follows:

93 amendments:

  • By this act 93 amendments been carried out in Companies Act, 2013 to provide relief to stakeholders and to provide more clarity on some of the provisions of Companies Act, 2013.

Bring major changes in the Companies Act, 2013:

  • The Companies (Amendment) Bill, 2017 seeks to bring about major changes in the Companies Act, 2013, was passed by Rajya Sabha.

Strengthen corporate sector:

  • The amendment seeks to strengthen corporate governance standards, initiate strict action against defaulting companies and help improve ease of doing business in the country.

Ease of doing business:

  • The bill is amongst the reforms that act towards targeted ease of doing business in India.
  • Wholly Owned Subsidiary (WOS) of foreign company can hold EGM outside India whereas Annual General meeting of unlisted company can be held anywhere in India.

Investments destination:

  • The government now strives to make India an attractive destination for investments.

Addressing the difficulties:

  • Addressing the difficulties, i.e. the stringent compliances that were there in the initial draft of the bill in 2013, have been now removed.
  • This bill now has made some practical changes keeping into account the problems faced by corporate and plugging loopholes.

 Disclosure requirements:

  • The Bill has aligned disclosure requirements in the prospectus with the regulations made by SEBI.

Penalties:

  • Stringent penalties in case of non-filing of balance sheet and annual return every year.

Harmonization between companies:

  • Government has brought in harmonization between companies act, SEBI, RBI rules and regulation.

Generation of jobs:

  • Employment generation is going to be boosted with contract business going to be biggest beneficiary.
  • The act aims to usher into corporate governance regime, plug the loopholes in forms of defaulters and allow foreign investors to look at India as a destination to do business.

Flexibility in penalties and the prosecution:

  • The penalties and the prosecution has been brought down as earlier they were too stringent and hence detrimental to business.

Restriction on valuers:

  • Section 247 of the Companies Act 2013 prohibits a registered valuer from undertaking valuation of assets in which he has a direct or indirect interest.
  • Amendments limit the prohibition to three years prior to a valuer’s appointment or three years after the valuation was conducted.

How is the amendment bill helpful to entrepreneurs?

  • Definition of small business is going to create changes.
  • The new Companies bill recognizes all sizes and types of companies existing.
  • There are less court appointments due to simplified compliances.
  • Self attestation has made great difference in saving time of businessmen as well as government.
  • Sweat Equity Shares can be issued at any time.
  • Relaxation has been given under Sec 185 (primarily deals with the subject of person to whom company cannot give loan) Sec 186 (enlists the exceptions and specifies the limits up to which a company can give loan), in company loans and deposits.

Key amendments:

Start- Ups
  • In case of Incorporation, name reserved by the Registrar of Companies shall be valid for 20 days instead of 60 days from the date of application, as currently provided.
  • Now, Sweat Equity shares can be issued at any time after the registration of the Company.
  • Currently, it can be issued after one year from the commencement of business.

 

Conversion into Company
  • In case of Change in name by an existing Company, name reserved by the ROC shall be valid for 60 days from the date of approval.
  • Partnership or LLP with 2 members (currently 7) can convert into Company.

 

Directors
  • Director would be resident director if he stays in India for a total period of not less than 182 days during the financial year. Currently, we calculate the 182 days in reference to the previous Calendar year.
  • Central Government can notify either the PAN Card or Aadhar Card as DIN (Director Identification Number).
  • Directorship in the dormant Company shall not be included in the limit of directorships of 20 Companies.
  • In addition to Directors & Key Managerial Personnel, any employee can also authenticate the documents.

 

AGM/EGM
  • Annual General Meeting of 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 EGM outside India.

 

Managerial Remuneration
  • No Central Government Approval is required for payment of remuneration in excess of 11% of net profits.

 

CSR
  • Eligibility for doing CSR has to be determined based on preceding “Financial Year” instead of “Three Preceding Financial Year”.

 

Auditors
  • Now, there is no requirement of annual ratification of appointment of auditors by members at every annual general meeting.

 

Registered Office
  • Company shall have Registered Office within 30 days of its Incorporation instead of current of 15 days as currently provided.
  • Notice of change of the situation of Registered Office, shall be given to the Registrar within 30 days instead of 15 days, as currently provided.

 

Loan to directors
  •  No Company can provide the Loan, guarantee or security in connection with the loan to any director, director of the holding Company or any partner or relative of any such director or any firm in which such director or relative is a partner.
  • Now, the Companies are permitted to give loans to following parties after passing the special resolution and adhering to disclosure requirements
  • (i) Any private company of which such director is a director or a member.
  • (ii) Anybody corporate in which not less than 25% of the total voting power is exercised or controlled by any such director, or by two or more such directors  together at a general meeting. Currently, these transactions are prohibited.
Definition of Associate Company
  • Change in term ‘significant influence’ in definition of Associate Company.
  • Currently, it provides for control at least 20% total share capital (Equity + Preference).
  • But, now Significant Influence means control of at least 20% of the voting power (Equity share capital) or participation in business decision.

 

What are the objections raised against the Companies (Amendment) Bill, 2017?

Objections have been raised against the following:

Proposal to give loans:

  • Proposal to give loans to directors and persons has been opposed, saying a company should not give loans to the director or to those of interest to a director.

Insider and forward trading:

  • The amendment to delete Section 195 and 196 has been opposed which provide for prohibition of insider and forward trading.
  • Insider and forward trading is barred under the SEBI law and therefore there was no need of this provision in the Act which would anyway is superseded by the SEBI law.
  • This provision should be part of the Act as SEBI does not have jurisdiction over unlisted companies and there could associate or subsidiary companies of listed companies, which can do insider or forward trading.

Proposal of a statutory body:

  • A statutory body for appointment of independent directors and provision of special resolution for their removal from the board has been proposed.

Reiteration of the government:

  • The bill is said to be a reappearance of the government to secure private capital and extend help to private corporates and big companies.

Conclusion

  • In name of control, the business should not be suffocated.
  • Corporate governance strengthened with government support ensures business to flourish in an enabling environment.
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