Change is Constant

Insights – Change is Constant


The Companies Act, 2013 which came into effect on April 1, 2014 replaced the earlier Companies Act, 1956. On 27th July, 2017, the Lok Sabha passed the Companies Act (Amendment) Bill, 2016 with a view to replace the Companies Act, 2013. This has been proposed in order to remove several compliance and reporting challenges being faced by public and private companies alike. The Bill that was passed by the Lok Sabha now has to go to the Rajya Sabha for its approval.

What’s new now?

The Companies (Amendment) Bill, 2017 proposes to promote further ease of doing business by simplifying procedural and reporting requirements and aligning to the general accounting standards. To this end, the following broad amendments in sections of the Companies Act, 2013 have been proposed.

Significant changes to the definitions have been proposed with a view to remove ambiguity in their interpretation. Some of the key definitions are given below.

Basic definitions

DefinitionWhat the CA, 2013 act saysWhat the amendment rules, 2017 proposes
Associate companyControl of at least 20% total share capitalSignificant influence has been amended to include at least 20% of the voting power or control or participation in business decisions under an agreement
Holding companyCompany did not imply any body corporateCompany to include any body corporate
Public companyThe phrase and was not included in the definitionproposed to include the phrase and to ensure that both conditions have to be satisfied for a company to become a public company
Small companyPaid up capital: Rs. 50 lakhs - Rs. 5 Crores OR Turnover: Rs. 2 Crores - Rs. 20 Crores Paid up capital: Rs. 50 lakhs - Rs. 10 Crores OR Turnover: Rs. 2 Crores - Rs. 100 Crores
Subsidiary companyHolding company exercises or control more than one half of the total share capitalHolding company exercises or control more than one half of the total voting power either on its own or together with one or more of its subsidiary companies

Insights – Change is Constant

Procedural/reporting requirements
The Companies (Amendment) Rules, 2017 has a proposal to amend certain procedural requirements with the object of simplifying compliance. A few such proposed amendments:

  1. Reservation of name for incorporating a Company – Name approved by RoC shall be valid for 20 days as against 60 days.
  2. Incorporation of Company – Declaration by each subscriber will suffice instead of providing Affidavit.
  3. Registered office – Notification to RoC about address of registered office on incorporation and on shift within 30 days (instead of 15 days)
  4. Satisfaction of charge – timeline for filing satisfaction of Charge to RoC increased from 30 days to 300 days (on payment of additional fee).
  5. Annual Return – Proposed to omit extract of Annual Return (MGT-9) in the Board’s Report. Uploaded on Company Website, if any. Time limit of 270 days to be omitted. Instead, Company can file at any time on payment of additional filing fee.
  6. Reporting of Change in promoters stake – proposed to omit this requirement
  7. Place of keeping and inspection of registers & returns – It is proposed to omit filing special resolution to RoC to keep at place other than registered office It is proposed to not make available for inspection few returns & registers.
  1. Place of holding the AGM – Proposed to hold AGM of an unlisted company at any place in India, if written consent is given in advance by all members of the company.
  2. Consent for shorter notice of General meeting
    AGM: written consent or by electronic mode by not less than 95% of members entitled to vote.
    EGM: Majority in a number of members representing not less than 95% of paid up share capital or total voting power exercisable at the meeting.
  3. Postal ballot – Companies which are required to provide e- voting facility to also have the facility to transact through postal ballot.
  4. Resolutions & Agreements to be filed – proposed to omit time limit of 270 days for filing with RoC. They can be filed at any time on payment of additional filing fee.
  5. Appointment of Auditors – Proposed to omit the requirement for ratification of the appointment of auditors by members at every AGM.
  6. Casual vacancy of the Board – All companies shall appoint casual vacancy in the Board and get same subsequently approved in the immediate next general meeting.

Insights – Change is Constant

The Bill proposes some sweeping amendments in provisions relating to appointment, resignation and composition of the Board of Directors:

  1. The 182 day period for determining whether a director is resident in India shall be computed with reference to the financial year instead of the previous calendar year. For new companies, the 182 day period shall be proportionately calculated.
  2. In addition to DIN, a director may hold any other identification as may be prescribed by the Central government. Any other identification like PAN, Aadhar etc can be used as DIN to appoint a director.
  3. A director in a company cannot be appointed as an alternate director in the same company.
  4. A director appointed on a Company that has defaulted in filing annual returns or repayments of deposits/debentures, such director will incur disqualification only after 6 months from the date of his appointment.
  5. Directorship in a dormant company will not be counted for determining the limit of directorships of 20 companies.
  6. In case of default in filing annual returns or repayments of deposits/debentures, then, director shall vacate office in all other companies other than the company which is in default.
  7. Loan to directors – a completely new section is being proposed wherein there is complete restriction on providing loan to any director and director of holding company, or partner or relative of any such director. Certain transactions which are currently prohibited are proposed to be allowed.

Insights – Change is Constant

Other key amendments proposed
The above proposed amendments are a bird’s eye view of the many amendments proposed in the Companies (Amendment) Bill, 2017. There are other important amendments pertaining to related party transactions (Section 188) where in it is proposed to remove restrictions on voting by relatives in a general meeting where 90% or more members are relatives of promoters.

It is also proposed to make the ratification of the transaction being voidable at the option of law. With respect to loans and investments by company (Section 186), the amendments are proposed to keep employees outside the scope of the section. It is also proposed to do away the procedure of passing special resolution in general meeting if loan/security / guarantee is made by holding company to its wholly owned subsidiary. The Bill permits an Independent Director to have a pecuniary relationship, up to 10% of his total income, with the company.

Equity share capital will be the deciding consideration for establishing associate and subsidiary companies, and not both equity and preference share capital as provided now. Penal provisions have been moderated to provide for lower penalty for procedural defaults and on one person companies and small companies.

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The Bill amends provisions related to the qualifications of technical members, Selection Committee of the NCLT and the appellate tribunal. The proposed amendments removes the limits on the number of intermediary companies through which investments can be made in a company and the number of layers of subsidiaries a company can have.

Insights – Change is Constant

Amendments to the Act – need of the hour

The proposed Companies (Amendments) Bill, 2017 seems to be introduced at the appropriate time in order to plug the ambiguities and confusion that has arisen due to the piece meal introduction of the provisions of the Companies Act, 2013. The main objective is to make incorporation of companies easy. By providing clarity on definitions, doing away with the procedural and reporting requirements and relaxing the time lines for reporting (to prevent condonation of delay), the amendments seem to be pro companies and management. However, by doing away with limitation period, the government has allowed companies to file and report to RoC at any time but by paying an additional fee of Rs. 100 per day till the filing/reporting is done. Eitherways, the objective has been to ensure companies comply. It is a mixed bag of goodies.



It is the spirit and not the form of law that keeps justice alive

Earl Warren