25 Key Takeaways from Companies Amendment Bill 2017

Narendra Kumar

25 Jan, 2018

Key Amendments in Companies Act 2013 in 2017. In this article, we will discuss section by an amendment in Companies Amendment Bill 2017.

Why there was a need for such a massive amendment in Companies Bill 2017?

1. Ratification of Auditor [Section 139(1)]

As per Section 139(1), it is required that any matter which is relating to the appointment of the auditor should be placed in each Annual General Meeting^[1] (AGM) for ratification by the members, this requirement has been omitted.

1. Private Placement [Section 42]

It has been tried to simplify the procedure of private placement. As it has been provided that any private placement offer an application shall not be carrying any right of renunciation and the money received under the private placement shall not be utilized unless return of allotment is filed with the ROC, and the return is to be filed within 15 days of allotment earlier this time limit was 30 days.

1. Concept of Significant Beneficial Owner Introduced [Section 90]

Any person who whether singly or with any other person holds 25% shares in any company shall be regarded as an SBO i.e. “significant beneficial owner”. This SBO has to make a declaration regarding his nature of interest and influence. And according to Companies Amendment Bill 2017, every company shall be maintaining a register which shall contain details of SBO and shall also file periodic returns with the registrar.

1. Penal Provisions Rationalized

The penal provisions are rationalized as well as liabilities are reduced for procedural and technical defaults. Now two new sections have been inserted relating to factors that will determine the level of punishment and the penalties for one-person companies and small companies.

1. Loan to related parties [Section 185]

An all totally new section has been introduced which provides for categorizing loans into different types like prohibited, conditional and eligible.

Loans to Director of Produces Company or its holding are prohibited.

Conditional category shall include any person in whom such director is interested and which involves passing of a special resolution by the company in its general meeting along with the condition that if the borrower is the company then that loan shall be utilized for the principal business activity of the company.

1. Filing Fees [Section 403]

Additional filing fees of Rs.100 per day may be levied. Different amounts may be specified for a different form and different classes of companies. In case of default on two or more occasions in the submission of forms, higher fees of not less than Rs.200 per day may be levied.

1. Participation through Video Conferencing [Section 173(2)]

Now Directors are allowed to participate in Board meetings through video conferencing or other audiovisual means certain items which were earlier restricted provided there should be quorum through the physical presence of directors.

1. Name Approval [Section 4(5)]

The period for reservation of name is substituted from “60 days from the date of application” to “20 days from the date of approval”. In the case of an existing company, the Registrar may reserve the name for a period of 60 days from the date of approval.

1. Registered Office [Section 12(1) and 12(4)]

Earlier it was required that a company shall, on and from the fifteenth day of its incorporation, have a Registered Office (RO). This implied that it could not have an RO from the date of incorporation. The Amendment Bill corrects this and provides for a company to have an RO within 30 days of incorporation, and the time period for intimating the Registrar on change of RO through Form INC-22 has been increased from 15 days to 30 days.

1. Minimum Number of Members [New Section 3A]

The new section provides that if at any time the number of members falls below the minimum number prescribed in S.3(1) and the company carries on business for more than 6 months, every person who is a member at that time shall be severally liable for payment of the whole debts of the company contracted during that time, and maybe severally sued.

1. Consolidated Financial Statements [Section 129(3)]

1. The signing of the Financial Statement [Section 134(1)]

Earlier the CEO was required to sign the financial statements only if he was a Director of the company. After the amendment, According to the Companies Amendment Bill 2017, the CEO shall sign the financial statement irrespective of the fact that he is the Director or not.

1. Extract of Annual Return (Form MGT-9) [Section 134(3)(a)]

Form MGT-9 formed a part of the Board’s report. This form now does not have to be accompanied by the Board’s report and instead, a link to the annual return hosted on the website shall be provided in the Board’s report.

1. Performance Evaluation of Directors [Section 134(3)(p), 178(2) and Schedule IV]:

Various provisions pertaining to performance evaluation of directors have been aligned. Companies Amendment Bill 2017 and Amendment in Section 178(2) provides that the Nomination & Remuneration Committee shall specify the manner for effective evaluation of the performance of Board, its committees and individual directors which shall be carried out either by the Board, by the NRC or by an independent external agency.

1. Abridged Board Report for One Person Company (OPC) and Small Company [New Section 134(3A)]

The Central Government is empowered to prescribe an abridged Board’s Report for One Person Company and Small Company.

1. Corporate Social Responsibility [Section 135]

Earlier CSR provisions were applicable to only those companies that satisfied certain conditions related to net worth, turnover and net profit “in any financial year”. Now the words “any financial year” have been replaced by the words “immediately preceding financial year”.

1. Circulation of Annual Accounts to Members [Section 136(1)]

Section 136 has been amended for providing that the copies of audited financial statements and other documents may be sent at shorter notice if 95% of members entitled to vote at the meeting agree to the same.

1. ‘Self-declaration’ to replace ‘Affidavit’ [Section 7]

The earlier affidavit was required from each of the subscribers to the memorandum and from persons named as the first directors in the articles that they are not convicted of any offense etc. Now the word affidavit has been replaced with the declaration, thereby making the process of incorporation easier.

1. General Meetings [Section 100(1)]

Now an extraordinary general meeting (EGM) can be held outside India of a wholly-owned subsidiary of a company incorporated outside India.

1. Deposit of 1 Lakhs omitted [Section 160]

Earlier it was required that any person other than retiring director who is nominated as the director shall deposit Rs.1 Lakhs with the Company Registration which shall be refunded if the person nominated gets elected as a director or gets more than 25% of total valid votes cast. But now this requirement shall not be applicable in case of appointment of independent directors or directors nominated by nomination and remuneration committee.

1. Reporting of Change in Shareholding by Listed Company [Section 93]

All listed companies were required to file a return with the Registrar of Companies with respect to change in the number of shares held by promoters and the top ten shareholders of such company, within fifteen days of such change. Now, this information is also required to be submitted to SEBI/Stock Exchanges and hence this section has been omitted to avoid duplicity of reporting and reduce the compliance burden on companies.

1. Disclosure in Prospectus [Section 26]

Section26 has laid out a list of information which shall be included in the prospectus issued by public companies. This list has now been pruned to state that such information required by SEBI in consultation with the Central Government shall be specified.

1. Managerial Remuneration [Section 197]

Central Government (CG) approval was required for giving Managerial Remuneration above the prescribed limits this CG approval is now replaced by approval through a special resolution by shareholders in general meeting. Therefore, for public companies for payment of remuneration to MD even exceeding 11% of net profits now no CG approval is now required.

1. Definitions [Section 2]

The definition of Net worth has been amended to include debit or credit balance of profit and loss account in the calculation of net worth. Further, definitions like Associate Company, Cost accountant, Debenture, Financial year, Holding company, Key Managerial Personnel, Small Company and Turnover have now also been amended.

1. Deposits [Section 73]

Maintenance of Deposit Repayment Reserve for Public Deposits is proposed to be changed to 20% of the amounts maturing during the next year in place of 15%. The condition of deposit insurance for public deposits is removed permanently.