Companies Amendment Act 2017 An Analysis Companies Amendment

Companies (Amendment) Act, 2017 An Analysis

Companies (Amendment) Act, 2017 Important Dates � Passed by Lok Sabha on 27 th July 2017 �Passed by Rajya Sabha on 19 th December 2017 � President Assent received on 03 rd January 2018 � Ministry has notified most of the Sections in three tranches via notifications dated 23 rd January 2018, 09 th February 2018 and 07 th May 2018.

Definitions � Section 2(6) Associate Company [Amendment to explanation] Significant influence means control of at least twenty per cent of total VOTING POWER (instead of Share Capital), or of business decisions under an agreement. Joint venture means a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Term JV Clarified – Covers all partners of JV � Section 2(28) Cost Accountant means a cost accountant 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.

Definitions � Debenture: (New Proviso) Following shall not be treated as debenture 1. The instrument referred to in Chapter III-D of the Reserve Bank of India Act 1934; 1. Such other instrument, as may be prescribed by the Central Government in consultation with the Reserve Bank of India, issued by a company.

Definitions � Key Managerial Personnel: clause (51) V shall be substituted as (v) Such other Officer, not more than one level below the Directors who is in whole-time employment, designated as Key Managerial Personnel by the board. � Small Company: The upper limit of Capital extended 10. 00 Crore Rupees. The upper limit of turnover extended to 100. 00 Crore Rupees Turnover as per its last P & L A/c amended to immediately preceeding financial year

Definitions � Subsidiary Company: In Clause 87 (ii) for the words “total share capital” the words “total voting power” shall be substituted. � Turnover: Means the gross amount of revenue recognized in Profit and Loss Account from the sale, supply, or distribution of goods or on account of services rendered, or both, by a company during a financial year.

Reduction of members below minimum � Section 3 A (New Section) If any time the number of members of a company is reduced below the minimum prescribed and the company carries on business for more than six months while the number of members is so reduced, then every person who is a member of the company during that time, shall be severally liable for the payment for the whole debts of the company contracted during that time, and may be severally sued.

Reservation of Name � On application for name the Registrar may reserve the name for a period of 20 days from the date of approval or such other period as may be prescribed. � In case of application for reservation of name for change of its name by an existing company, the Registrar may reserve the name for a period of 60 days from the date of approval.

Changes to INC-9 Section 7 (1)(C) : INC-9 to be given as a Declaration rather than an Affidavit.

Registered Office � Section 12 (1): ―A company shall, within 30 days of its incorporation and at all times thereafter, have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it. � Section 12 (4): ―Notice of every change of the situation of the registered office, verified in the manner prescribed, after the date of incorporation of the company, shall be given to the Registrar within 30 days of the change, who shall record the same.

Private Placement � � � � Section 42 (Yet to be Notified) The Private Placement process is simplified by doing away with separate offer letter details to be kept by company and reducing number of filings to the Registrar. There is condensed format of private placement offer letter and application form likely to be introduced. The Companies would be allowed to make offer of multiple security instruments simultaneously. Restriction on utilization of subscription money before making actual allotment and additionally before filing the allotment return to the Registrar. Since contract is concluding on allotment and return filing is just a post conclusion compliance, there may be difficulty in compliance. The penalty provisions for raising of capital has been rationalized by linking it to the amount involved in the issue or Rs. 2. 00 Crores whichever is lower. Period for filing return of allotment has been reduced to 15 days.

Sweat Equity Shares � Section 54 (1) (C): The following clause is omitted. 54 (1) (c): Not less than one year has, at the date of such issue, elapsed since the date on which the company had commenced business.

Further Issue of Share Capital � Section 62(2): The notice giving the offer shall be dispatched through registered post or speed post or through electronic mode or COURIER or any other mode having proof of delivery to all existing shareholders at least three days before the opening of the issue.

Punishment for Contravention of Section 73 or Section 76 � Section 76 A (a) : The company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with fine which shall not be less than One Crore Rupees or twice the amount of deposit accepted by the company which ever is lower, but which may extend to 10 Crore Rupees.

Application for Registration of Charge � Section 78: Where a company fails to register the charge within a period of 30 days referred to in sub-section (1) of Section 77, the person in whose favour the charge is created may apply to the registrar for registration of charge along with the instrument created for the charge.

Satisfaction of Charge � Section 82: (Yet to be notified) Following proviso has beeen inserted to the Section. “Provided that the Registrar may, on an application by the company or the charge holder, allow such intimation of payment or satisfaction to be made within a period of 300 days of such payment or satisfaction on payment of such additional fees as may be prescribed. “

Annual Return � Section 92 (Yet to be Notified) 92 1(c) Details of indebtness is omitted. 92 1(j) Details of names, address, countries of incorporation of FIIs is omitted. New Provisio (Abridged Annula Return) Central Government may prescribe abridged form of Annual Return for “One Person Company, Small Company and such other class of companies as may be prescribed. ” Subsection 3 is substituted as follows (Placing of Annual Return in website. if any) Every company shall place a copy of the Annual Return on the website of the company, if any, and a web-link of such annual return shall be disclosed in the Boards Report. Promoters Stake Change Section 93 is omitted.

Annual General Meeting � Section 96: (New Proviso) Annual General Meeting of an unlisted company may be held at any place in India if consent is given in writing or by electronic mode is given in advance by all the members.

Extra ordinary General Meeting � Section 100: (New Proviso) An Extraordinary General Meeting of the company, other than of the wholly owned subsidiary of a company incorporated outside India, shall be held at a place within India. � Means wholly owned subsidiary of a company incorporated outside India may hold its EGM outside India.

Notice of Meeting � Section 101: A General Meeting may be called after giving shorter notice than that specified in this subsection If consent, in writing or by electronic mode, is accorded theretoi) In case of an Annual General Meeting, by not less than 95% of members entitled to vote thereat. ii) In Case of any other general meeting, by members of the company(a) holding, if the company has a share capital, majority in number of members entitled to vote and who represent not less than 95% of such part of the paid-up share capital of the company as gives a right to vote at the meeting; or (b) having, if the company has no share capital, not less than 95%. of the total voting power exercisable at that meeting:

Postal Ballot � Section 110: (New Proviso) Item required to be passed mandatorily by postal ballot may now be transacted at a general meeting, in case the company is mandatorily required to provide the facility of electronic voting.

Resolutions and Agreements to be filed � Section 117 (3) e Shall be omitted. (Resolutions passed by company according consent to the exercise by its board of directors of any of the powers under clause (a) and clause (c) of subsection (1) of section 180. � Section inserted 117 (3) g proviso the following shall be Provided further that nothing contained in this clause shall apply to a banking company in respect of a resolution passed to grant loans, or give guarantee or provide security in respect of loans under clause (f) of sub-section (3) of section 179 in the ordinary course of its business. ”

Consolidation of Financial Statements of Subsidiaries and Associates � Section 129(3) : Consolidated financial statement is to also include statements of Associate Companies along with that of subsidiaries.

Reopening of Accounts � Section 130(3): Reopening of books of accounts is limited to 8 financial years immediately preceding the current financial year. The order for reopening of accounts can be made upto 8 years unless there is a specific direction under 128 (5) from the Central Government for longer period.

Financial Statement, Board Report etc (Yet to be notified) � Section 134 (1) : CEO whether appointed as Director or not shall sign the Financial Statement. � Section 134 (3) (a) : The requirement of having extract of Annual Return in Form MGT-9 has been done away with by placing the copy of Annual Return on website of the company, if any, and a web link disclosed in the Boards Report. � Section 134 (3 A) : The Central Government is empowered to prescribe an abridged Boards Report for One person company and small company.

Corporate Social Responsibility (Yet to be Notified) � � � Section 135 (1) : For the words “any financial year”, the words “the immediately preceding financial year” shall be substituted Section 135 (Proviso) : Provided that where a company is not required to appoint an independent director under sub -section (4) of section 149, it shall have in its Corporate Social Responsibility committee two or more directors. Revised Explanation to Section 135 (5) : For the purpose of this section “Net Profit” shall not include such sums as may be prescribed, and shall be calculated in accordance with the provisions of section 198. ”

Auditors � � Section 139 (1) : First Proviso related to ratification of appointment of auditors in every General Meeting is omitted. Section 140 (3) : if Auditor has failed to file resignation in from ADT-3, he shall be punishable with fine which shall not be less than 50, 000 Rupees or the remuneration of the auditor, whichever is less but which may extend to 5 lakh rupees. Section 141 (3) I : A Person who directly or indirectly, renders any service referred to in section 144 (certain services not to be rendered by auditor) to the company or its holding company or its subsidiary company shall not be eligible for appointment as an auditor. Section 147: The maximum fine which can be imposed on an auditor for contravention of provisions under sections 139, 143, 144 or 145 has been increased to minimum 5 Lakh Rupees or 4 times the remuneration of auditor whichever is less. If the auditor contravenes the provisions intentionally, he has to pay fine which shall not be less than 50, 000 Rupees and not more than 25. 00 Lakhs or 8 times the remuneration of auditors which ever is less.

Directors � � Section 149 (3) : (Yet to be notified) Resident director should stay in India for the for 182 days during the Financial Year (Previously it was previous Calendar year) Section 152 : No person shall be appointed as a director of a company unless he has been allotted the DIN number or any other number as may be prescribed under section 153 Section 153: The central government may notify any other identification number as director identification number. (Can be PAN, AADHAR or any other identification No. which shall be accepted as DIN) Section 160 (1) : ( New Proviso ) Requirement of deposit of amount shall not apply in case of appoint of an independent director or a director recommended by the Nomination and Remuneration committee.

Directors � Section 161(2): A person cant be appointed as an alternate director if he is holding any alternate directorship for any other director in the company or holding directorship in the same company. � Section 161(4) : Any casual vacancy has to be approved in the immediate next General Meeting. The word “in the case of a public company” omitted.

Director Disqualification � Section 164 : (New Proviso) Where a person is appointed as a director of a company which is in default of clause (a) or (b) of section 164 he shall not incur the disqualification for a period of six months from the date of his appointment. � Section 165 (1): New Explanation II For Reckoning the limit of directorships of twenty companies, the directorship in a dormant company shall not be included.

Director Resignation � Section 168 (1) : DIR-11 is made optional or non-Mandatory.

Meeting of Board � Section 173 (2) : (New Proviso) Where there is quorum in a meeting through physical presence of directors, any other director may participate through video conferencing or other audio visual means in such meeting on any matter specified under the first proviso.

Audit Committe � Section 177 (4), (iv): (New Proviso) in case of a transaction, other than transactions referred to in Section 188, and where Audit Committee does not approve the transaction, it shall make its recommendations to the board. In case of any transaction involving an amount not exceeding One Crore Rupees is entered into by a director or officer of the company without obtaining approval of audit committee and it is not ratified by audit committee by three months from the date of transaction, such transaction shall be voidable at the option of audit committee and if the transaction is with the related party to any director or is authorised by any other director, the director concerned shall indemnify the company against any loss incurred by it:

Loan to Directors � Section 185: The companies are permitted to give loans to entities in which directors are interested after passing special resolution and adhering to disclosure requirements. Company has to pass a special resolution and explanatory statement to the notice should disclose all the facts and particulars. Loan should be used for its principal business activities Exempted Category Loan to MD/WTD as a part of service condition or scheme and loans by companies in their ordinary course of business by charging interest as per tenure and loan, guarantee or security to its WOS and guarantee or security by holding company to its subsidiary company with the condition to use if for its principal activity.

Appointment of MD/WTD/Manager � Section 196 (3)(a) : (New Proviso) Where no special resolution is passed but votes cast in favour of the motion exceed the votes, if any, cast against the motion and the central government is satisfied, on an application made by the board, that such appointment is most beneficial to the company, the appointment of the person who has attained the age of 70 years may be made.

Managerial Remuneration � � � Section 197 (1) Revised first Proviso No Central Government approval will be required for public companies for payment of remuneration to directors including MD, WTD and Manager even exceeding 11% of net profits. Only members approval is required for payment exceeding 11%, subject to compliance of Schedule V Approval of the central government would be needed only for variance to the conditions specified in part I of Schedule V for the appointment of abovementioned managerial persons. Section 197 (1) Revised Second Proviso: Members approval by Special Resolution for payment in excess of 5% / 10% / 1% / 3% as the case may be Section 197 (1) Third Proviso inserted: If default in payment to Bank or financial institution etc. prior approval to be obtained from them before obtaining the approval in the General Meeting.

Companies Capable of being Registered � Section 366 (2) (Yet to be notified) Any company formed whether before or after the commencement of this Act or any other Act and consisting of 2 or more members my register under this Act as an unlimited company, company limited by shares or as a company limited by guarantee. Company with less than seven members shall register as a private company.

Conversion to Company � Section 374 (New Proviso) Upon registration as a company under this part a Limited Liability Partnership incorporated under the LLP Act 2008 shall be deemed to have been dissolved under that Act without any further act or deed.

Fee for filing � Section 403 (Revised First and Second Proviso) Financial Statement (Section 137) & Annual Return (Section 92)can be filed with delayed filing fees of not less than Rs. 100/- per day. Different amount may be specified for different classes of companies. For other forms- Additional fees will be prescribed; Delayed filing fees will vary depending on number of defaults and nature of form to be filed. Incase of subsequent 2 or more defaults in submission of forms, higher fees my be prescribed, which shall not be less than twice the additional fee provided above.

Nidhi Company � Section 406 (1) (Yet to be Notified) Nidhi or Mutual Benefit society means a company which the central government may, by notification in the official Gazette, declare to be a Nidhi or Mutual Benefit Society, as the case may be.

Thank you M KRISHNA KUMAR Practising Company Secretary e-mail: mail@krishnakumar. org Web: www. krishnakumar. org Mobile: 9387100233 Office: 0487 - 2322055