The article is written by Pranay Bhattacharya, Maharashtra National Law University, Aurangabad.

The Companies (Amendment) Act, 2017 as well a recent ordinance promulgated on 2nd November 2018 saw landmark amendments and changes in the old provisions of the previous Companies Act, 2013. If you are interested in company law, you need to keep up with these. The actual number of amendments are higher, but I am collating the most impactful ones over here for a quick read.

Here are some of the key provisions amended in the Act through the 2017 amendment act which would have a broad effect on the corporate governance in India:

• Incorporation of Company (Section 5): Under the new amendment Act, in case the number of members falls below 2 in case of private company and 7 in case of public company and they continue to carry on the business for a period of 6 months or more; then the existing members would be liable for the whole debts of the company and can be sued for any default made thereon.

  

• Registered Office(Section 6): The company can register its office from the date of commencement or any changes required to be made in a previously registered office  can be made within 30 days under the new amendments Act (previously 15 days under the Companies Act,2013)

• Signing of Documents (Section 7): Any documents/ file which requires authentication can be signed by the company employees (authorized by the Board of Directors) on behalf of the company under the new amendments Act.

• ·Prospectus of the Company (Section 8): The new amendment states that the rules and regulations to be mentioned in the prospectus must be made according to the SEBI guidelines and not the Companies Act.

• Debentures and Issue of Shares (Section 12): As per the new RBI Act, 1934 or the Banking Regulation (Act), 1949 if any debt restructuring scheme or any debt is converted to shares, the company can sell those shares at a discounted price to its creditors.

• Declaration of Profits and Payment of Dividends (Section 32): Under the new amendment the company is exempted to declare notional and unrealized gain, changes /revaluation of assets, liability on assets etc. while making profit declaration and payment of dividends.

• Reports of Subsidiary (ies) (Section 38): Audited/ unaudited reports of the foreign subsidiary (ies) can be placed in the same audit report of the holding company. No separate audit report is required under the new amendment.

• Meetings of the Board (Section 56): Under the new amendment Act, the directors can participate in the key managerial decisions of the company by video-conferences and audio visuals, provided that sufficient quorum of board of directors are physically present.

• Granting Loans by Directors (Section 61): Now, the directors have power to approve and credit loans to any person, by the approval of a special resolution passed in the general assembly meeting, provided that the loans to be utilised for the “Principal Business Activity” (of the borrower)

• Managerial Remuneration (Section 67): The directors of the company are now allowed to receive “managerial remunerations” as per the recommendations made by the shareholders of the company (earlier it was as per Central governments norms and was capped at 11% of the net profits of the firm).

• Annual General Meeting (Section 26): The new amendment allows the unlisted companies to hold their meeting at any place in the country with the consent of all the members. But, the provision remains same for other companies; it is to be conducted either in the headquarters or any registered office. So, the new amendment gave more freedom to unlisted companies.

• Rights to Auditors (Section 40): The new amendment removed the provision of annual ratification of the auditors once they are appointed by the company for a period of 5 years.

• Repealing restrictions on Insider Trading (Section 64, 65): The directors can now deal in company securities and do insider trading of securities, as per the Securities Act, 1933

  

• Issue of Sweat Equity (Section 13): The new amendments also allow the companies to issue sweat equities within a period of one year from the date of commencement of the company.

After the last round of amendments made in the old provision by the new Companies Act, 2017, the Ministry of Corporate Affairs on 2nd November passed Companies (Amendment) Ordinance, 2018 to further amend the Act. Therefore, the Ministry of Corporate Affairs through the ordinance notified the companies to comply. Some of the major reforms made through the ordinance are:

• Commencement of the Business: The company cannot commence its business by any borrowing power, provided:

a) A declaration made by the directors of the company within 180 days from the date of commencement that every subscriber has paid the value of the shares;

b) The registered office of the company has been verified by the Registrar of Companies within 30 days of commencement

In case of the aforesaid default, the company will be liable to pay a sum of Rs 50,000 and the officers to a sum of Rs 1000 each day (not exceeding Rs 1 lakh). In addition to this the registrar has the option to remove the name of the company in such a case.

• De-clogging the National Company Law Tribunal (NCLT): The Central Government delegated NCLTs jurisdiction to the registrar of companies and the regional director (up to Rs/- 25 lakhs) for speedy trial of the corporate disputes.

Further, the foreign companies have the right to decide any financial year by getting an approval from the Central Government. Similarly, in case of conversion of public company to private company, approval of central government is required. Earlier, this authority was under the jurisdiction of NCLTs.

• Powers to Adjudicating Officers: The adjudicating officers will now have the additional powers of rectification of defaults in addition to imposing penalties. This has been done to ensure better administration and governance within the company.

• Double Penalty for Defaults: In case of similar nature of default is made by a member within a period of 3 years, double the amount of penalty will be imposed as compared to the first one.

• New provisions of Punishment to Directors: The ordinance promulgates financial penalty clause (removing imprisonment) in case of fraud, benefitting from the company’s funds, and formation of company for charitable purpose etc. These acts will now be considered as compoundable offences under the jurisdiction of regional directors from Rs/- 5 lakhs to Rs/- 25 lakhs. So, the punishment of imprisonment has been substituted for penalty.

• Declaration of Interest: If any member or director holds more than 25% of beneficial interest from the shares of the company, he/she is required to make a declaration. Failure to comply with it will lead to a fine of 1 lakh to 10 lakh rupees, or imprisonment for 1 year, or both.

• Remuneration of the Directors: The ordinance removes the provision of remuneration of Independent directors but he/she may be entitled to receive commission, reimbursement of expenses made for the company, indemnity and other services including sitting fees.

• Disqualification of Directorship: As per the new ordinance, a person cannot be a director of more than 20 companies, in case of any default contravening the provision will lead to termination of directorship.

• Fulfilling Corporate Social Responsibility (CSR) Obligations: As per the new ordinance, the companies have a duty to fulfill their Corporate Social Responsibility in compliance with the provisions of the Act and in case of failure, reasons have to be presented to the Board. Further the companies are required to open an “Unspent CSR Account” and deposit unutilized funds of that financial year towards fulfilling their CSR obligations.

CONCLUSION

The Amendment Acts are advancement towards a new model of futuristic Companies Act by removing uncertainties and inefficiencies of the old enactment. It has likewise adjusted the ineffective provisions of the Companies Act, 2013 in conformity to Security Act and RBI guidelines in the new Act. Therefore, we welcome this new model for advancement of corporate governance.

To learn more about Companies Act, Corporate Governance and SEBI Regulations with its practical application, click here.