SKP Business Alert
11 April 2018
The Companies (Amendment) Bill, 2017
 
The enactment of the Companies Act, 2013 (the ‘Companies Act, 2013’ or the ‘Act’) was one of the most significant legal reforms in India in the recent past, that aimed at bringing the Indian company law in line with global standards. The Act introduced substantial changes in the company law in India, especially in relation to accountability, disclosures, investor protection and corporate governance. Given the extent and scope of changes, the stakeholders took some time to come to terms with the new regime and new provisions, and encountered some difficulties in the process. Several representations were made before the government on the practical challenges faced during implementation.
 
In view thereof, the Companies Law Committee, constituted by the Ministry of Corporate Affairs, proposed the Companies (Amendment) Bill, 2017 (the Bill) before the Lok Sabha, which was passed by the Lok Sabha and Rajya Sabha on 27 July 2017 and 19 December 2017, respectively. The same has also received the President’s assent on 3 January 2018. The Ministry of Corporate Affairs has notified certain sections with effect from 9 February 2018 and the remaining sections shall be notified in due course of time.   
 
The amendments under the Bill are broadly aimed at: 
  • Addressing difficulties in implementation owing to stringent compliance requirements;
  • Facilitating ease of doing business to promote growth with employment;  
  • Harmonization with accounting standards, the Securities and Exchange Board of India Act, 1992 and the regulations made thereunder, and the Reserve Bank of India Act, 1934 and the regulations made thereunder.
Highlights of Companies (Amendment) Bill, 2017 are:
 
Section Status Existing Provision Revised Provision as per
Companies (Amendment) Bill, 2017
2 (46) - Holding Company Notified Body corporates including companies incorporated outside are not considered as a Holding Company under the Companies Act, 2013. With respect to the definition of a holding company, the word ‘Body Corporates’ has been included in the meaning of the word ‘Company.’
 
Hence, a company incorporated outside/LLP holding more than 50% of the paid-up capital in the company shall be considered as a holding company.
2 (76)  Clause (viii) - Related Party Notified Body corporates, i.e. companies incorporated outside India were excluded from the purview of related party of a company. With the amendment, even the body corporate which is a holding/subsidiary company incorporated outside India shall be considered as a related party.
 
Furthermore, a company being an associate company of a body corporate shall also be considered as a related party.
54 - Issue of sweat
equity shares
To be notified For issue of sweat equity shares, there is a mandatory requirement that the company shall be older than a year. The amendment has done away with the provision of requirement of one-year-old company. Now, even newly incorporated companies can issue sweat equity shares. 
90 - Register of significant beneficial owners in a company To be notified Newly inserted Every individual holding not less than 25% or such other percentage as may be prescribed, in shares of a company or having significant influence or control over the company, shall make a declaration of his beneficial interest to the company.
 
Every company shall file a return of such significant beneficial owners of the company in such form as may be prescribed by the government in the meantime.
92 – Annual return To be notified Details of debt of the company shall be mentioned in the Form MGT-7, i.e. in the annual return. The amendment has done away with the requirement of providing details of debt in the annual return of the company.
To be notified Every company shall attach an extract of the annual return, i.e. Form MGT-9 to the Board’s report. The amendment has done away with the requirement of attaching MGT-9 to Board’s report. This will reduce documentation and carve out duplication of information to be provided as the same information shall be provided in the Form MGT-7, i.e. annual return of the company.
96 - Annual General Meeting (AGM) To be notified Every annual general meeting shall be held either at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situated. Relaxation has given for unlisted companies from holding its AGM at the registered office or another location within the city limits.
 
Hence, unlisted companies may hold the AGM at any place in India, if the consent of all members has been acquired in advance.
100 - Calling of extraordinary general meeting Notified Extraordinary general meeting of the company shall be held at a place within India. The amendment has benefited Wholly Owned Subsidiaries (WOSs) of foreign companies as they may hold the extraordinary general meeting outside India.
129 - Financial statement To be notified A company having one or more subsidiaries shall prepare a consolidated financial statement of the companies and all the subsidiaries in the same form and manner as that of its own. The provision has amended to carve out any confusion on whether to include associate companies. After the amendment, the concern gets addressed as the term ‘associate companies’ is inserted in addition to the subsidiaries.
 
Hence, companies having subsidiaries or associates shall prepare a consolidated financial statement of the company and all the subsidiaries and associates in the same form and manner as that of its own.
134 - Financial statement,  Board‘s report, etc. To be notified The financial statement shall be signed by:
  • At least two directors;
  • Chief Executive Officer, if he is a director in the company;
  • Chief Financial Officer, if appointed;
  • Company Secretary, if appointed.
The amendment has made signing the financials by the key managerial personnel mandatory, they being responsible for the overall management of the company.
 
Key managerial personnel shall mean:
  • Managing Director
  • Whole-time Director
  • Chief Executive Officer
  • Chief Financial Officer
  • Company Secretary
To be notified Form MGT-9, i.e. the extract of the annual return shall be attached to the Director’s report. The amendment has done away with the requirement to attach Form MGT- 9 to the Boards’ report.

Hence, a web address, if any, has to be provided where MGT-9 has been saved.
To be notified Newly inserted To reduce repetitive information in the Board’s reports, the provision has amended to refer disclosure/schedule number of the financial statement in Board’s report instead of repeating the same.
 
Furthermore, relaxation has been provided from attaching entire policies, if the same is available on the website of the company. Hence, it shall be sufficient to disclose salient features and changes, if any, of the policies, in the Board’s report. 
135 – Corporate Social Responsibility (CSR) To be notified Corporate Social Responsibility provisions shall be applicable if the net profit of the company is INR 50 million or more.
 
The company, to whom CSR provisions are applicable, shall spend at least 2% of the average net profits of the Company made during three immediately preceding financial years.
 
For this section, the average net profit shall be calculated in accordance with the provisions of Section 198 which is nothing but Profit Before Tax.
 
Hence, for CSR applicability Net Profits, i.e., Profit After Tax shall be considered and for CSR spending Profit Before Tax shall be considered.
To remove ambiguity, the term ‘average net profit’ has been replaced with the words ‘net profit.’ 
 
For the purposes of this section, net profit shall be calculated in accordance with the provisions of Section 198 which is nothing but the Profit Before Tax.
 
Hence, the CSR applicability and spending will be on Profit Before Tax shall be considered.
139 – Appointment of Auditors To be notified Statutory auditors shall be appointed for a period of five years, and the company shall place the matter relating to ratification of auditors appointment by members at every annual general meeting thereafter. As per the amendment, going forward, the resolution for ratification of auditors is not required to be placed in the Annual General Meeting.
141 - Eligibility, qualifications, and disqualifications of auditors Notified The auditors, whose subsidiary or associate company or any other form of entity, is engaged as on the date of appointment in consulting and specialized services as provided in Section 144, shall not be appointed as auditors of the company. 
 
Other services as mentioned under Section 144 are:
  1. Accounting and bookkeeping services
  2. Internal audit
  3. Design and implementation of any financial information system
  4. Actuarial services
  5. Investment advisory services
  6. Investment banking services
  7. Rendering of outsourced financial services
  8. Management services 
  9. Any other kind of services as may be prescribed
The amendment has stringent eligibility criteria for the appointment of auditors. Those auditors who are providing any other services as mentioned in Section 144 to the company or its holding company or its subsidiary company, shall not be appointed as the auditors of the company.
149 - Company to have Board of Directors To be notified Every company shall have at least one director who has been in India for a total period of not less than 182 days in the previous calendar year. To align the requirements of residency with that of the Income Tax Act, 1961, the resident director provision has been amended with a stay of 182 days during the financial year in place of the calendar year.
 
Furthermore, the provision shall proportionately apply in the case of newly incorporated company.
152 - Appointment of directors Notified No person shall be appointed as a director of a company unless he has been allotted the Director Identification Number (DIN) under Section 154. The phrase of the section has amended with “No person shall be appointed as a director of a company unless he has been allotted the Director Identification Number (DIN) under Section 154 or any other number as may be prescribed under Section 153.”
 
It is proposed that the central government may come out with a different type of identification number, similar to DIN (e.g., Aadhaar Card, PAN, etc.)
161 - Appointment of additional director, alternate director and nominee director Notified The current provision allows the appointment of an existing director as an alternate director of another director of the same company. The individual who is acting as a director and alternate director for some other director of the same company leads to a conflict of interest and also creates ambiguity in the calculation of quorum.
 
Hence, the provision has been amended, stating that an existing director of the company shall not be appointed as alternate director of another director of the company.
164 – Disqualifications for the appointment of a director To be notified The directors of a company, who have defaulted in annual filing for a period of three financial years, shall be disqualified to be the director for a period of five years.
 
Hence, if a new director has been appointed in such defaulted company, shall be disqualified from the date of his appointment.
The amendment has given relaxation to the new director who gets appointed in such defaulting companies.
 
Henceforth, the provision of disqualification shall not apply to such new director so appointed for a period of six months from the date of his appointment.
165 - Number of directorships Notified   A person can be appointed as a director in a maximum of 20 companies.  Since dormant companies are inactive and having insignificant transactions, they will not impact the temporal resources of the Director. Furthermore, to benefit a person to accept directorship in another company, an explanation has been added, i.e., for reckoning the limit of directorships of 20 companies, the directorship in a dormant company shall not be included.
 
Hence, relaxation has been provided by not including directorship in dormant for reckoning the limit of directorship.
167 - Vacation of office of director To be notified A director who incurs disqualification under the provision of the Act shall vacate the office of directorship in all the companies. The current section creates a paradoxical situation, as the office of all the directors in a Board would become vacant where they are disqualified under Section 164(2), and a new person could not be appointed as a director as they would also attract such a disqualification.
 
Hence, a provision was added stating the director who has incurred disqualification shall vacant his directorship in all companies except the company which is in default.
168 - Resignation of a director  To be notified It is mandatory for the resigning director to file Form DIR-11 with the Registrar within 30 days from the date of his resignation. The amendment has removed the mandatory filing of Form DIR-11 by resigning directors. Hence, it would be at the discretion of the resigning director.
173 - Meetings of Board To be notified The provision prohibits the following specified matter to be approved via video conference:
  • Approval of annual financial statements
  • Approval of the Board’s report;
  • Approval of the prospectus;
  • Approval of matters relating to amalgamation, merger, demerger, acquisition and takeover.
The amendment will carve out the ambiguity of meeting through video conferencing on specified matter, even though there is a quorum physically present.
 
Hence, meeting through video conferencing on specified matter is allowed, if the minimum requirement of a quorum are physically present.
180 - Restriction on powers of Board Notified The company shall require member approval to borrow money where the money to be borrowed, together with the money already borrowed by the company, exceeds an aggregate of its paid-up share capital and free reserves. Since securities premium is also a part of a company’s capital, it proposed to include the same for recognizing the borrowing limits.  
 
Hence, the approval of member’s shall be required, if borrowing exceeds an aggregate of its paid-up share capital, free reserves, and securities premium.

However, this provision is not applicable to private limited companies.
185 - Loan to directors To be notified The whole section is revised   The amendment has substituted the entire section. The key points are:
  • Granting of a loan, guarantee or security is categorized as prohibited, conditional and exempted. 
  • The section allows companies to advance loan to any person in whom the director is interested, subject to prior approval of the company by a special resolution and on the condition that the loan amount shall be utilized for the principal business activities.
  • Penalty/imprisonment have been revised for contravention under this section.
384 - Debentures, annual return registration of charges, books of account and their inspection of foreign companies, i.e., branch office and liaison office of the foreign company. Notified The provisions of Section 92, i.e., annual returns, shall apply to a foreign company as they apply to a company incorporated in India. The amendment has added Section 135 in the phrase of Section 384.
 
Hence, CSR provisions shall also apply to the foreign company.
403 - Fee for filing To be notified This section allows a company to file documents belatedly up to 270 days from the date on which such document becomes overdue for filing by paying an additional fee and without attracting liability for prosecution/penal action. The provision of additional fees for late filing of annual forms, i.e., Form AOC-4 and Form MGT-7 has revised to make the penalty stringent for non-filing of annual forms.
 
Hence, the filing of above forms after 30 days shall be done with additional fees of which shall not be less than INR 100 each day.
 
In case of continued default by non-filing of forms, the additional fees shall not be lesser than twice the additional fee provided in the section.

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