The President has given his assent to the Companies (Amendment) Act, 2015(“the Amendment Act”) and the same has been notified in the official gazette on 26th May, 2015.All sections of the amendment act have been made effective from 29th May, 2015 except the sections relating to Section 143 (related to 'fraud') and 177 (related to omnibus approval by audit committee) of the Companies Act, 2013 (‘2013 Act’). Ancillary amendments also issued in Companies (Registration Offices and Fees) Rules, Companies (Registration of Charges) Rules, Companies (Declaration and Payment of Dividend) Rules, Companies (Incorporation) Rules and Companies (Share Capital and Debentures) Rules.
With the object of easing the way business is done in India, the Amendment Act has introduced certain changes which are highlighted below:
- The Companies Act, 2013 (2013 Act)prescribed the minimum paid - up share capital of INR One Lakh for a private company INR Five Lakhs for a public company. The Amendment Act deleted the abovementioned numerical value as minimum paid up capital for a private and a public company. With the deletion of the minimum paid up capital threshold, it also empowers the Ministry of Corporate Affairs (“MCA”) to regulate the minimum paid up capital of either of these two companies by way of amendment/ modification in the Chapter I rules. MCA has not proposed any minimum paid up capital limit for the companies.
- The concept of Common Seal, which is a “relic” as far as global laws are concerned, has been done away with. Accordingly, Section 9 and other provisions of the Companies Act, 2013 has been amended. Since, use of Common Seal is now optional, if company doesn’t have common seal the authorization (or power of attorney) given to any attorney to execute other deeds on its behalf (in any place either in or outside India) under Section 22(2) or the issue of share certificate under Section 46(1) shall be made by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary.
- Section 11 of the 2013 Act has been deleted. By virtue of this deletion, companies can directly commence their business immediately upon incorporation without waiting to get their bank accounts opened and receiving the subscription monies and filing any declaration with the RoC.
- Board resolutions passed by the Directors under section 179 and rules thereto and filed with the Registrar of Companies shall not be available for inspection by any person.
- No company can declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against profit of the company for the current year. This provision was inserted in the Rules, without being part of the Act. So the gap, as regards the drafting has been rectified.
- All shares in respect of which dividend have not been paid or claimed for seven consecutive years or more shall be transferred by the company in the name of Investor Education and Protection Fund (IEPF) and in case any dividend is paid or claimed in any year during the said period of 7 years, the shares shall not be transferred to IEPF.
- The 2013 Act mandated that if the auditor(s) of a company has reason to believe that an offence of fraud has been committed against the company, by officers or employees, he must report the matter to the Central Government. The Amendment Act has amended this provision, which now requires that only those frauds which are above a prescribed monetary threshold must be reported to the Central Government by the auditor. Frauds below the threshold will be reported to the Board or the Audit Committee, if any.
- Companies must disclose details of such frauds in the Board’s report.
- The Amendment Act amended section 212(6) to impose restrictions on the grant of bail only in case of offences relating to fraud under section 447 of the 2013 Act.
- The 2013 Act mandated that a company cannot enter into any related party contract on certain matters without the consent of the Board of Directors and if those matters exceeded the prescribed monetary thresholds, then prior approval of the company by a special resolution was required. The requirement of obtaining approval by a special resolution has been amended with that of an ordinary resolution. This change needs to be mirrored by SEBI in clause 49 of the listing agreement.
- The Amendment Act also brought in the concept of exempting the transactions with wholly owned subsidiaries from the requirements of section 188(1) and by this move this section is been brought in line with the provisions of clause 49 of listing agreement.
- Loans can be made by a holding company to its wholly owned subsidiary company or it can give guarantee or provide security in respect of any loan made to its wholly owned subsidiary company. Also, any guarantee may be given or security may be provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company. However, these loans are to be utilized by the subsidiary company for its principal business activities.
- Winding up matters shall be heard by two member bench of NCLT, and not by three member bench.
- The Amendment Act has inserted a new provision vide section 76A which states that in case a company accepts, invites or allows another person to accept or invite on its behalf any deposit which is in contravention to the provisions specified in the Act or rules under it or fails to repay the deposit or any interest, either in part or whole, within the time specified in the Act, or further time allotted by a Tribunal, it shall be subject to certain penalties. If it is proved that the officer of the company, who is in default, has contravened such provisions knowingly or willfully with the intention to deceive the company or its shareholders or depositors or creditors or tax authorities, he shall be liable for action for fraud.
- The 2013 Act empowered the central government to establish or designate special courts for the purpose of providing speedy trial of offences under the Act. The Amendment Act has amended this provision to limit the constitution of such benches only for the trial of offences where punishment is imprisonment of two years or more. All other offences are to be tried by a metropolitan or first class judicial magistrate.
Government has brought changes in Companies Act, 2013 with a view to promote ease of doing business in India, aligning Indian corporate laws with global practices and rectifying drafting errors which were there at the time of enactment of Companies Act, 2013. These pro-active steps on part of the Government will go a long way to ease the doing of business in India.