In order to bring the Company Law of India, in line with the global standards, a significant legal reform took place when the Companies Act, 2013 was enacted. Accountability, corporate governance, disclosures, investor production, etc. were some of the significant changes introduced by the act in the Company Law of India.
In many areas, the Government faced implementation challenges. Therefore, in order to address these rising concerns, the Ministry of Corporate Affairs constituted a Companies Law Committee. More than 2000 observations were to be dealt by the committee. In spite of the enormity of the issues, the committee was able to prepare the report within six months, which was commendable.
Many of the suggestions which were advanced by the Committee were taken into consideration by the Government and subsequently, the Companies (Amendment) Bill, 2016 was introduced in the Lok Sabha, in the month March. After the joint consideration of the suggestions made by the Committee and other related developments, the Bill was re-introduced as, the Companies (Amendment) Bill, 2017, in Lok Sabha. It received President’s assent on January 3, 2018, and has been notified in the Official Gazette (the 2017 Amendment Act).
The 2017 Amendment Act seeks to resolve the difficulties in Implementation, harmonization with other statutes such as RBI Act, 1934, smoothen business transactions and normalize the inconsistencies of the 2013 Act.
List of Key Amendments
The key amendments that the act has introduced are as follows [Taxmann Corporate Laws]:
- Streamlining of Private Placement of Shares: All the stipulations in relation to private placement have been given a new and improved form. The 2017 Act proposes that Private placement should be only to ‘identified persons’. Further, to each class of identified persons, more than one issue of security can be made.
- Corporate Social Responsibility: As per the 2013 Act, eligibility for performing CSR was determined on the basis of preceding “three Financial Years”. This has been revised under the new Act. Now the determination is to be based on “Preceding Financial Year”. Two or more Directors shall be present in the CSR Committee of the company, which is not required to have an independent director.
- Managerial Remuneration: The provision has been proposed to remove the necessity of obtaining special resolution and Central Govt.’s approval for payment of managerial remuneration in a surplus of the prescribed limits.
- Annual Return: The 2017 Bill proposes to abolish the excerpt of annual return forming part of Board’s report and provide disclosure of web address/web-link of the annual return in Board’s report. It also proposes to omit requirement regarding disclosure of indebtedness and modify the requirement of disclosure of names, addresses, countries of incorporation, registration, and percentage of shareholding of Foreign Institutional Investors.
- E-Voting: Proviso to section 110 has been inserted which states that there is no requirement of postal ballot, where the company has provided the facility to vote through electronic means.
- Ease of Doing Business: In addition to Directors & Key Managerial Personnel, any employee can also authenticate documents & no Central Government approval for payment of remuneration in excess of 11% of net profits is required.
- Maintenance of Registered Office: Under the provisions of 2013 Act, a company was required to maintain its registered office within 15 days of incorporation. But under the new Act, the duration has been extended to 30 days.
- Prohibition of Loan and Guarantee: Section 185 has been completely overwritten under the new Act. The 2017 Act allows the companies to advance securities or loans or guarantees to any person in whom any of the Directors is interested in. This advancement is subject to special resolution and the borrower must utilize the loans for its principal business activities.
- Appointment of Auditors: Under the new Act, there is no need of annual ratification with respect to auditors’ appointment, by the members, when auditors have been appointed for five years.
- Board Report: The expanse of Board Report has been reduced under the new Act. According to the latest provisions, certain information can be provided on the website of the company and in Board report, only its reference is required. A proviso has been inserted to Section 134(3) which states that if disclosures, as required in Board report, are made in the financial statement, its reference in Board Report is sufficient. Its repetition is not required.
- Higher late fee for large Companies: If the Annual Return and Financial Statement, are not filed within the prescribed time with the Registrar, an additional fee of minimum Rs. 100 is payable per day. This additional fee depends upon the classes of the company.
- Partnership Firm into Private Company: Under the 2013 Act a partnership required 7 partners to convert into a company, under the new Act, this restriction has been reduced to two or more partners.
Expected Impact of the 2017 Amendment Act
The enactment of the 2017 Act is aimed to address the difficulties in implementation owing to strict compliance necessities, facilitate ease of doing business in order to promote growth with employment, harmonisation with accounting standards, the Securities and Exchange Board of India Act, 1992 and the regulations made thereunder, and the Reserve Bank of India Act, 1934 and the regulations made thereunder and rectify omissions and inconsistencies in the 2013 Act.
A Progressive Amendment
One of the foremost objectives of the Companies Amendment Act 2017 is to promote the ease of doing business in India. Therefore, in order to reap the benefits of the introduced amendments, it is required by the companies to take note of the changes made to the 2013 Act and implement them as effectively as possible.
As the Act has come into force recently, feedbacks from the corporate sector is yet to be received, but it can be said from the first view of the amendment that the proposed reform will put the Company Law of India in line with the global standards.