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THE COMPANIES (AMENDMENT) ACT, 2015
Many representations were received by the Government of India to amend the Companies Act, 2013 to promote ease of doing business in India. Keeping that in mind Government of India moved ahead to bring amendments to the 2013 Act and finally the Companies (Amendment) Act 2015 received the assent of the President of India on May 25, 2015.
The key amendments to the 2013 Act are as follows:
1. Requirement of Paid-up Capital:
Section 2 (68) of the 2013 Act, has been omitted from the New Amendment Act, which stated that in order to be incorporated a Private Company should have a paid-up capital of INR 1,00,000 and that for the Public Company should be INR 5,00,000. This means that the requirement of paid-up capital has been done away with. This amendment would reduce the registration cost for incorporation of new companies but at the same time this amendment might lead to formation of bogus companies as this requirement ensured the formation of such companies only which had the financial capacity and bona fide purpose.
Further with the removal of any such cap the Ministry of Corporate Affairs can regulate the minimum paid up capital of either of these two companies by way of amendment/ modification in the Chapter I rules.
2. Common Seal made optional (Sections 12, 22, 46, 223):
We know that Company is an artificial person, so it has a common seal as its signature. It is a signature of a Company which is used for any document which binds the Board of Directors of the Company. The Companies Law (Amendment) Act 2015 has made the requirement of the common seal optional.
After this amendment, if a company doesn’t have common seal the authorization given to any attorney to execute other deeds on its behalf under Section 22(2) or the issue of share certificate under Section 46(1) can be made by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary. It would also make it easier for the companies as many of the documents of late are in electronic form so a digital signature can be used in the place of a common seal.
3. Section 11 has been omitted:
As per section 11 of the 2013 Act before the commencement of business the Director of a Company having the required share capital [Section 2 (68)] was required to file with the Registrar of Company a declaration that every subscriber to the memorandum has paid the values of shares to be contributed by him/her and that the paid-up share capital of the Company is not less than the amount prescribed. But after the amendment no such declaration needs to be made and the companies can commence their business immediately after incorporation without waiting for payment to be made by the subscribers and subsequently making declaration to the Registrar.
4. Insertion of New Section 76A:
The New Amendment Act has inserted a new section 76A which provides punishment for contravention of Section 73 and Section 76 for the acceptance of deposits by the Companies or if a Company fails to repay deposits within the time specified.
As per the amendment:
- In addition to the payment of the amount of deposit or part thereof and the interest due, a company shall be punishable with a fine which shall not be less than one crore rupees but which may extend to ten crore rupees
- Every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years or with a fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees, or with both
5. Obtaining copies of Board of Directors:
As per the amendment under Section 117, no person shall be entitled under Section 399 to inspect or obtain copies of Board Resolution.
This would prevent the risk of breach of confidentiality as earlier the Board Resolution was open for public inspection as now no such inspection is allowed.
6. Declaration of Dividend:
One more proviso has been added to Section 123, as per that no Company shall declare dividend unless carried over previous losses and deprivation not provided in previous year or years are set off against profit of the Company for the current year.
This would ensure the financial strength of the company as well as help the company in managing its funds better as before paying the dividends of the current year the company would first pay off the previous year’s losses and deprivation.
7. Reporting by Auditors in respect of fraud:
Section 143 sub-section 12 has been amended and now it states that if an auditor of a Company in course of his performance of his duties as Auditor, has reason to believe that an offence of fraud has been committed by the officer or employee of the Company, it shall be his duty to report to the Central Government or Audit Committee of such fraud depending on the amount involved in the Fraud. All the instances of fraud have to be reported have frauds to audit Committee or Board of Central Government.
8. Audit Committee Empowered [S. 177(4)]:
Audit Committee has been empowered to give omnibus approval for related party transaction subject to conditions as may be prescribed.
The amendment to Section 177(4) appears to be in line with the provisions of Clause 49 of the Listing Agreement as regards omnibus approval of related party transactions by the audit committee constituted under the Board of the company, which has been recently amended. Earlier a prior approval of the Board of Directors was required for a company before entering into any related party contract on certain matters and if those matters exceeded the prescribed monetary thresholds, then prior approval of the company by a special resolution was required but now this requirement has been done away with and an ordinary resolution would serve the purpose.
9. Loan Guarantee:
Section 185 includes restrictions on loans by a company to a director or other interested persons / entities. However, the rules prescribed under Section 185 exempted any loans / guarantee / security by a holding company to its wholly owned subsidiary, and any guarantee or security by a holding company to a financial institution for loan availed by its subsidiary, provided the loan in each of these cases is utilised by the subsidiary for its principal business.
But now after the 2013 Amendment, loans can be given 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 but a proviso has been added which states that any such loan given should be utilized by the Subsidiary Company for its principal business activities only.
10. Amendment to section 435 of the 2013 Act:
Section 435 of the 2013 provides for the power of the Central Government to establish Special Courts for trial of offences but now by way of Amendment these Special Courts can try only those offences which are punishable with imprisonment of two years or more. All other offences are to be tried by a Metropolitan Magistrate or a Judicial Magistrate of the First Class.
The Government has made the Amendments to the 2013 Act to promote ease of doing business in India. These amendments would bring our corporate laws at par with the Global practice and would also help to remove the errors and shortcomings of the previous Act.
29 January 2016