Tag Archives: companies act 2013

companies 2nd amendment bill 2019

PIB press release dated 4th march, 2019

The Union Cabinet, chaired by the Prime Minister, Shri Narendra Modi has approved the Companies (Second Amendment) Bill, 2019 to amend the Companies Act, 2013.

The Bill would remove criminality under the Act in case of defaults which can be determined objectively and which, otherwise, lack the element of fraud or do not involve larger public interest.  This would also lead to further de-clogging of the criminal justice system in the country.  The Bill would also further ease of living for law abiding corporates.

Earlier, the Companies (Amendment) Act, 2015 amended certain provisions of the Act to remove difficulties faced in implementation of various provisions of the Act.

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differential voting rights

PIB press release dated 16th August, 2019

The Ministry of Corporate Affairs has amended the provisions relating to issue of shares with Differential Voting Rights (DVRs) provisions under the Companies Act with the objective of enabling promoters of Indian companies to retain control of their companies in their pursuit for growth and creation of long-term value for shareholders, even as they raise equity capital from global investors.

            The key change brought about through the amendments to the Companies (Share Capital & Debentures) Rules brings in an enhancement in the previously existing cap of 26% of the total post issue paid up equity share capital to a revised cap of 74% of total voting power in respect of shares with Differential Voting Rights of a company.

Another key change brought about is the removal of the earlier requirement of distributable profits for 3 years for a company to be eligible to issue shares with Differential Voting Rights.

            The above two initiatives have been taken by the Government in response to requests from innovative tech companies & startups and to strengthen the hands of Indian companies and their promoters who have lately been identified by deep pocketed investors worldwide for acquisition of controlling stake in them to gain access to the cutting edge innovation and technology development being undertaken by them.

The Government had noted that such Indian promoters have had to cede control of companies which have prospects of becoming Unicorns, due to the requirements of raising capital through issue of equity to foreign investors.

Alongside the above two changes, another major step taken is that the time period within which Employee Stock Options (ESOPs) can be issued by Startups recognized by the Department for Promotion of Industry & Internal Trade (DPIIT) to promoters or Directors holding more than 10% of equity shares, has been enhanced from 5 years to 10 years from the date of their incorporation.

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Committee to review offences

PIB press release dated 15th july, 2018 follows:

The Ministry of Corporate Affairs (MCA) has constituted a 10 Member Committee, headed by the Secretary of Ministry of Corporate Affairs, for review of the penal provisions in the Companies Act, 2013 may be setup to examine ‘de-criminalisation’ of certain offences.

The MCA seeks to review offences under the Companies Act, 2013 as some of the offences may be required to be decriminalised and handled in an in-house mechanism, where a penalty could be levied in instances of default. This would also allow the trial courts to pay more attention on offences of serious nature. Consequently, it has been decided that the existing compoundable offences in the Companies Act – 2013 viz. offences punishable with fine only or punishable with fine or imprisonment or both may be examined and a decision may be taken as to whether any of such offences may be considered as ‘civil wrongs’ or ‘defaults’ where a penalty by an adjudicating officer may be imposed in the first place and only consequent to further non-compliance of the order of such authority will it be categorised as an offence triable by a special court.

It is also required to be seen as to whether any non-compoundable offences viz. offence punishable with imprisonment only, or punishable with imprisonment and also with fineunder the Companies Act, 2013 may be made compoundable. The Committee shall submit its report within thirty days to the Central Government for consideration of its recommendations.

The terms of reference of the Committee are as follows:

  1. To examine the nature of all ‘acts’ categorised as compoundable offences viz. offences punishable with fine only or punishable with fine or imprisonment or both under the CA-13 and recommend if any of such ‘acts’ may be re-categorised as ‘acts’ which attract civil liabilities wherein the company and its ‘officers in default’ are liable for penalty;
  2. To review the provisions relating to non-compoundable offences and recommend whether any such provisions need to be re-categorised as compoundable offence;
  3. To examine the existing mechanism of levy of penalty under the CA-13 and suggest any improvements thereon;
  4. To lay down the broad contours of an in-house adjudicatory mechanism where penalty may be levied in a MCA21 system driven manner so that discretion is minimised;
  5. To take necessary steps in formulation of draft changes in the law;
  6. Any other matter which may be relevant in this regard.

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New MCA E-forms

MCA has released the much awaited new e-forms for filing the annual audited accounts and the annual return. These forms i.e. AOC-4 replaces forms 23ac & 23aca and MGT-7 replaces form 20B which was the annual return form under the old Companies Act, 1956. MCA has also given relaxation in additional fees penalty for companies upto 31/10/2015, vide its circular no. 10/2015 dated 13th July, 2015. The new e-forms are available on the MCA site.

Further in case of companies with paid up share capital of Rs.10 crores or more OR turnover of Rs.50 crores or more, the form MGT-7 should be accompanied with a certificate from the Practising Company Secretary in form MGT-8.

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Private companies allowed to accept monies from relatives of directors

Vide an amendment to the Companies (Acceptance of Deposits), Rules, 2014 dated 15th September, 2015, the Ministry of Corporate Affairs has now allowed private companies to accept loans from relatives of directors provided the relatives give a written declaration that the loans are being given from out of their own funds and not borrowed from someone else. The company is required to mention the details of such loans taken in the Annual Report. 

Earlier vide an amendment in June 2015, private companies were allowed to take loans from members not exceeding 100% of its paid up capital and free reserves. Here also the company is required to file particulars with the Registrar of Companies.

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XBRL Rules, 2015

Ministry of corporate affairs has released the Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Rules, 2015 superceding the 2011 Rules on the same subject.

The coverage of companies to be covered by XBRL rules is the same as in the 2011 Rules i.e.

(i) all companies listed with any Stock Exchange(s) in India and their lndian subsidiaries;

or (ii) all companies having paid up capital of rupees five crote or above;

(iii) all companies having turnover of rupees hundred crore or above; or

(iv) all companies which were hitherto covered under the Companies (Filing ot l)ocuments and Forms in Extensible Business Reporting Language) Rules, 2011:

New form specified for the purpose is AOC-4 XBRL

Companies in Banking, Insurance, Power Sector and Non Banking Financial Companies are exempted from filing documents under the XBRL Rules.

Cost Audit Report is also required to be filed in the XBRL Format in the appropriate form i.e. CRA-4.

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Certificate of commencement of business

Government has vide an amendment to the Companies Act, 2013 completely done away with the requirement of commencement of business certificate being required by a company after it is incorporated. This was a cumbersome procedure which hitherto in the Companies Act, 1956 was required to be obtained only by public limited companies but under the new Companies Act, 2013 was made mandatory even for private limited companies.

Necessary amendments has been carried out to the Act and also to the Rules thereof.

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Common Seal

The Ministry of Corporate Affairs has vide an amendment to the Companies Act, 2013 done away with the mandatory requirement of a common seal for a company. The Government has issued a Companies (Amendment) Bill, 2015 which has been notified on 26th May, 2015.

Section 9 of the Act has been amended to delete the requirement of having a common seal for a company.

However a company may if it desires keep a common seal. If it does have a common seal, then it should have its name engraved in the common seal in legible characters.

Section 22(2) of the Act has been amended to add a proviso that

where the company does not have a common seal, then the authorisation under this sub-section shall be made by two directors or by a director and company secretary, wherever the company has appointed a company secretary.

The authorisation mentioned in section 22(2) where the company does have a company seal, should be in writing and it can authorise any person generally or in respect of any specified matters, as its attorney to execute other deeds on its behalf either in India or outside India.

So if the company does have a common seal, then it has powers to empower any person in writing to execute the documents under the common seal of the company, but if the company does not have a common seal then only two directors of the company or one director and the company secretary where the company has appointed a company secretary can be so authorised.

So it makes sense for a company to have a common seal especially a large company with diverse operations whereas a small company having limited operations and more in the nature of family business can dispense with the requirement of a common seal.

This is an initiative of the government under the “ease of doing business” procedure in order to mitigate the hardships for companies operating in India.

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Remuneration of Private Bank NEDs

RBI has issued a circular on 1st June, 2015 wherein it has given guidelines on the compensation of non executive directors of private sector banks. Accordingly private sector banks can give profit related commission to its non executive directors upto a limit of Rs.10 lakhs per annum. It can also provide sitting fees as per the guidelines given in the Companies Act, 2013 and reimbursement of its expenses. However in case of remuneration of part time non executive Chairman, the private sector banks will have to take prior approval from the RBI.

The salient features of the guidelines are given below:

Annex

Guidelines on Compensation of Non-executive Directors (Except Part-time
Chairman) of Private Sector Banks

1. Compensation Policy

1.1 The Board of Directors, in consultation with its Remuneration Committee, should formulate and adopt a comprehensive compensation policy for the non-executive Directors (other than the part-time non-executive Chairman). While formulating the policy, the Board shall ensure compliance with the provisions of the Companies Act, 2013.

1.2 The Board may, at its discretion, provide for in the policy, payment of compensation in the form of profit related commission to the non-executive directors (other than the Part-time Chairman), subject to the bank making profits. Such compensation, however, shall not exceed Rs.1 million per annum for each director.

2. Sitting fees and reimbursement of expenses

2.1 In addition to the directors’ compensation mentioned in para 1.2 above, the bank may pay sitting fees to the non-executive directors and reimburse their expenses for participation in the Board and other meetings, subject to compliance with the provisions of the Companies Act, 2013.

3. Regulatory Approval / Supervisory Oversight

As hitherto, banks in private sector would be required to obtain prior approval of RBI for granting remuneration to the part-time non-executive Chairman under Section 10B(1A)(i) and 35B of the Banking Regulation Act, 1949. The compensation policies of banks would be subject to supervisory oversight including review under the Supervisory Review and Evaluation Process (SREP) under Pillar 2 of Basel II framework. Deficiencies would have the effect of increasing the risk profile of banks with attendant consequences, including a requirement of additional capital if the deficiencies are very significant.

4. Disclosure

Banks are required to make disclosure on remuneration paid to the directors on an annual basis at the minimum, in their Annual Financial Statements.

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Appointment of women director on listed company boards

SEBI has levied fines for listed companies which have not complied with the provisions of Companies Act, 2013 relating to mandatory appointment of women directors on their Boards by 31st March, 2015. The slab wise fines are as under:

1) For compliance between 1st April to 30th June, 2015, fine is Rs.50,000/-

2) For compliance between 1st July 2015 to 30th September 2015 fine is Rs.50,000/- plus Rs.1000/- per day upto the date of appointment;

3) For compliance after 1st October, 2015, Rs.142,000/- plus Rs.5000/- per day upto the date of appointment.

For non-compliances after 30th September, 2015 SEBI is free to initiate any other action against the company, their promoters, directors etc.

SEBI circular is available at http://www.sebi.gov.in/cms/sebi_data/attachdocs/1428497356451.pdf

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Share Application Moneys

MCA has issued notification on 31st March, 2015 amending the Companies (Acceptance of Deposits) Rules, 2014 to provide that share application moneys which were disclosed as such in the accounts for year ended 31st March, 2014 and pending allotment as on 31st March, 2015 should be either allotted before 1st  June, 2015 or returned therewith to the allottees before the said date.

Further every eligible company i.e. every company which is eligible to receive deposits should obtain credit rating for deposits accepted by it in the manner specified from the specified rating agencies and a copy of the rating report should be furnished to the MCA in form DPT-3. So additional compliance requirement for companies which accept deposits.

Further the requirement of having a deposit insurance has been postponed to 31st March, 2016 or till such deposit insurance product is available on the market whichever is earlier.

Copy of the MCA notification is given below.

Click to access Acceptance_Deposits_AmendmentRules_01042015.pdf

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Small company definition

Ministry of Corporate Affairs has brought in an amended definition of small company under the Companies Act, 2013.

Hitherto small company was a company which had a paid up share capital of upto Rs.50 lakhs or turnover of Rs.2 crores.

Now by the amendment, the “or” has been substituted with “and” so that a small company will now be a company which satisfies both clauses i.e. paid up share capital of upto Rs.50 lakhs and turnover of upto Rs.2 crores. Confusing!!

I frankly do not understand why they have brought in a definition of small company because the benefits of small company are only the following – (1) sec 2(40) they need not include cash flow statement (2) sec 92 annual return to be signed by a company secretary and if there is no company secretary by a director, which is a confusing section because the threshold limits for appointment of full time company secretary are above the small company limits. and (3) sec 173 they can hold only one Board meeting in each half of a calendar year.

Now they have amended definition to mean a small company as one which has both the elements i.e. paid up share capital and also turnover.
If there is no fundamentally huge difference between a small company and a normal company, then why complicate matters.

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Companies Amendment Bill 2014

http://pib.nic.in/newsite/PrintRelease.aspx?relid=112434

Companies (Amendment) Bill, 2014

The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, today approved the introduction of the Companies (Amendment) Bill, 2014 in Parliament to make certain amendments in the Companies Act, 2013.

The Companies Act, 2013 (Act) was notified on 29.8.2013. Out of 470 sections in the Act, 283 sections and 22 sets of Rules corresponding to such sections have so far been brought into force. In order to address some issues raised by stakeholders such as Chartered Accountants and professionals, following amendments in the Act have been proposed:

1. Omitting requirement for minimum paid up share capital, and consequential changes. (For ease of doing business)

2. Making common seal optional, and consequential changes for authorization for execution of documents. (For ease of doing business)

3. Prescribing specific punishment for deposits accepted under the new Act. This was left out in the Act inadvertently. (To remove an omission)

4. Prohibiting public inspection of Board resolutions filed in the Registry. (To meet corporate demand)

5. Including provision for writing off past losses/depreciation before declaring dividend for the year. This was missed in the Act but included in the Rules.

6. Rectifying the requirement of transferring equity shares for which unclaimed/unpaid dividend has been transferred to the IEPF even though subsequent dividend(s) has been claimed. (To meet corporate demand)

7. Enabling provisions to prescribe thresholds beyond which fraud shall be reported to the Central Government (below the threshold, it will be reported to the Audit Committee). Disclosures for the latter category also to be made in the Board’s Report. (Demand of auditors)

8. Exemption u/s 185 (Loans to Directors) provided for loans to wholly owned subsidiaries and guarantees/securities on loans taken from banks by subsidiaries. (This was provided under the Rules but being included in the Act as a matter of abundant caution).

9. Empowering Audit Committee to give omnibus approvals for related party transactions on annual basis. (Align with SEBI policy and increase ease of doing business)

10. Replacing ‘special resolution’ with ‘ordinary resolution’ for approval of related party transactions by non-related shareholders. (Meet problems faced by large stakeholders who are related parties)

11. Exempt related party transactions between holding companies and wholly owned subsidiaries from the requirement of approval of non-related shareholders. (corporate demand)

12. Bail restrictions to apply only for offence relating to fraud u/s 447. (Though earlier provision is mitigated, concession is made to Law Ministry & ED)

13. Winding Up cases to be heard by 2-member Bench instead of a 3-member Bench. (Removal of an inadvertent error)

14. Special Courts to try only offences carrying imprisonment of two years or more. (To let magistrate try minor violations).

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CLSS 2014 extended upto 31/12/2014

The Ministry of Corporate Affairs has vide its circular no. 44/2014 dated 14th November 2014 extended the Company Law Settlement Scheme upto 31st December, 2014. The Company Law Settlement Scheme is a one time opportunity for those companies who have not filed their mandatory annual documents like the audited financials, annual returns, compliance certificates and for auditors to file their appointments for the past years other than the current financial year. The belated filings can be done by paying only 25% of the additional filing fees. The company thereafter has to also file the form CLSS 2014 seeking immunity from prosecution from the government for its default in not filing the said forms/ documents within the stipulated time.

So, therefore, companies should avail of this opportunity and file the belated documents on or before 31st December, 2014.

Click to access General_Circular_44-2014.pdf

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Form ADT-1

Under the Companies Act, 2013 appointment or re-appointment of auditors at a general meeting is required to be intimated to the Government within 15 days of their appointment as such. Until recently, this was required to be done in a form ADT-1 but this form was available only in PDF format, not as a form. So the PDF filled form was required to be attached to form GNL-1 and thereafter filed at the portal of the ministry of corporate affairs.

With effect from 20th October, 2014, the ministry has made the form ADT-1 applicable as a form to be filed and uploaded at the portal. The form requires as an attachment, the appointment letter given to the auditors, their consent letter for appointment and the resolution appointing them as auditors.

All this is required to be attached to the form ADT-1 and filed within 15 days from the date of appointment. Also to be noted that hitherto under the Companies Act, 1956 the compliance regarding filing the erstwhile form 23B was required to be done by the Auditors themselves, now it is the company’s responsibility to file the same within the said period of 15 days.

The form ADT-1 is available at the MCA portal.

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