Highlights of Companies (Amendment) Act, 2015

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INTRODUCTION:

The Companies (Amendment) Bill 2015 was recently passed in Rajya Sabha on 13th May 2015 and in Lok Sabha on 17th December, 2014. The Bill received the assent of the president on 25th May, 2015 and was published in official Gazette of India on 26th May, 2015.

The Central Government has appointed May 29, 2015 as the date on which certain provisions of the said Act, shall come into force. The act will be called Companies (Amendment) Act, 2015. –

MAJOR AMENDMENTS MADE IN THE COMPANIES ACT, 2013:

  1. AMENDMENT IN SECTION 2 OF THE COMPANIES ACT, 2013:In section 2 of the Companies Act, 2013
    1. In clause (68), the words “of one lakh rupees or such higher paid-up share capital” shall be omitted ( No Minimum Capital Limit for Private Companies).
    2. In clause (71), in sub-clause (b), the words “of five lakh rupees or such higher paid-up capital,” shall be omitted ( No Minimum Capital Limit for Public  Companies).

    Implication: Minimum paid up capital requirement for public and private companies has been done  away with.

  2. OMISSION OF SECTION 11 OF THE COMPANIES ACT, 2013: No Need to file Form INC-21 (Commencement of Business) with Registrar of Companies.Implication: This amendment will not require the director to file declaration and the requirement to file verification of its registered office is also done away with.
  3. AMENDMENTS RELATED TO RELATED PARTY TRANSACTIONS:
    1. In sub-section (1) & (3) of the section 188 of the Companies Act, 2013 ,
      1. for the word “ Special Resolution “ the word “ Resolution” has been  Substituted.
      2. After the third provision , the following provision is inserted, Namely:
        “Provided also that the requirement of passing the resolution under first proviso shall not be applicable for transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval.”.
    2. In  Sub-section (4) of  section 177 of the companies Act, 2013, in Clause (iv), the following provision inserted Namely:“Provided that the Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the company subject to such conditions as may be prescribed;”Implication: Ordinary resolution  instead of special resolution for RPTs will make the approval process easier. Related Party Transactions(RPT) between holding company and its wholly owned subsidiary would no longer require members’ approval, even of the holding company. Omnibus approvals allowed  by the Audit Committee for RPTs
  4. AMENDMENTS RELATED TO  LOAN TO DIRECTOR:In Section 185 of the Companies Act, 2013, in Sub-section (1), after clause (b) The Following Clauses were inserted, Namely:

    “(c) any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company; or (d)any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company:

    Provided that the loans made under clauses (c) and (d) are utilized by the subsidiary company for its principal business activities.”

    Implication: The amendment for exemption u/s 185 for providing loans to wholly owned subsidiaries and guarantees/securities on loans taken from banks by subsidiaries were already there in the Rules to the Section. The purpose of the amendment might be to bring the exemption within the act itself.

  5. AMENDMENTS RELATED TO REPORTING OF FRAUD BY AUDITORS:
    1. In section 143 of the Companies Act, 2013, for Sub-section (12), the following Provision was substituted:“(12) Notwithstanding anything contained in this section, if an auditor of a company in the course of the performance of his duties as auditor, has reason to believe that an offence of fraud involving such amount or amounts as may be prescribed, is being or has been committed in the company by its officers or employees, the auditor shall report the matter to the Central Government within such time and in such manner as may be prescribed Provided that in case of a fraud involving lesser than the specified amount, the auditor shall report the matter to the audit committee constituted under section 177 or to the Board in other cases within such time and in such manner as may be prescribed Provided further that the companies, whose auditors have reported frauds under this sub-section to the audit committee or the Board but not reported to the Central Government, shall disclose the details about such frauds in the Board’s report in such manner as may be prescribed.”
    2. In  Sub-section (3) of section 134 of the Companies Act, 2013, after the clause (c) the following Provision inserted Namely:“(ca) details in respect of frauds reported by auditors under sub-section (12) of section 143 other than those which are reportable to the Central Government;”

    Implication : Provide a ‘material’ limit for reporting of frauds to the Central Government. The amendment gives way to such an interpretation and provides that only frauds above specified limits needs to be reported by the auditors to the Central Government. Frauds of a lesser in value as prescribed above only needs to be reported to the Audit Committee, if any or the Board.

  6. AMENDMENTS RELATED TO DIVIDEND:
    1. In section 123 of the principal Act, in sub-section (1), after the third proviso, the following proviso shall be inserted, namely:“Provided also that no company shall 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.”
    2. In section 124 of the principal Act, in sub-section (6), for the words, “unpaid or unclaimed dividend has been transferred under sub-section (5) shall also be”, the words “dividend has not been paid or claimed for seven consecutive years or more shall be” shall be substituted

    Implication: Writing off past losses/depreciation before declaring dividend for the year.

  7. AMENDMENTS RELATED TO ACCEPTANCE OF DEPOSITS: After section 76 of the Principle act, the following Provision is Inserted Namely“76A. Where a company accepts or invites or allows or causes any other person to accept or invite on its behalf any deposit in contravention of the manner or the conditions prescribed under section 73 or section 76 or rules made there under or if a company fails to repay the deposit or part thereof or any interest due thereon within the time specified under section 73 or section 76 or rules made there under or such further time as may be allowed by the Tribunal under section 73,
    1. the company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with fine which shall not be less than one crore rupees but which may extend to ten crore rupees; and
    2. every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years or with fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees, or with both:

    Provided that 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 under section 447.”

    Implication: Stringent punishments to deter companies from making defaults.

  8. MISCELLANEOUS AMENDMENTS- In section 117 of the principal Act, in sub-section (3, in clause (g), the word ‘‘and’’ occurring at the end is Omitted and continued with the following provision, namely: “Provided that no person shall be entitled under section 399 to inspect or obtain copies of such resolutions; and”.Implication: This amendment prohibits  public inspection of Board resolutions filed by companies in Form MGT-14 with the RoC.
  9. AMENDMENTS RELATED TO COMMON SEAL- Amendment in Section 9, 12, 22, 46 & 223 of the Companies Act, 2013:
    1. In section 9 of the Companies Act, 2013, the words “and a common seal” shall be omitted.
    2. In Sub-section (3)  Section 12 of the Companies Act, 2013 , Clause (b) is substituted namely; “(b) have its name engraved in legible characters on its seal, if any”
    3. In Sub-section (2) of Section 22 of the Companies Act, 2013
      1. “For the words “under its Common seal” is substituted with “under its Common seal, if any”
      2. The following proviso shall be inserted, namely :“Provided that in case a company does not have a common seal, the authorisation under this sub-section shall be made by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary.”
      3. In Sub-section (3), the words “and have the effect as if it were made under its common seal”, shall be omitted”
    4. In section 46 of the Companies Act, 2013, in sub-section (1), for the words “issued under the common seal of the company”, the words “issued under the common seal, if any, of the company or signed by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary” shall be substituted.
    5. In Clause (a) of sub-section (4) of Section 223 of the Companies Act, 2013, for the words “by the seal”, the words “by the seal, if any,” shall be substituted.

Implication: Removing the requirement of having a common seal by the company upon its incorporation. For the purpose of ease of doing business in the country, the requirement of having a common seal is being optional and a signature by its officers would suffice for legally binding the company.

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