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Companies (Amendment)Bill, 2014 as passed by the Lok Sabha

Bill No.185/2014 Dt.08.12.2014

Sri.Arun Jaitely, Minister of Corporate affairs

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Proposed Amendments deal with:

Minimum paid-up share capital [Sections 2(68),2(71),11] Common seal [Sections 9,12(3)

(b),22(2),22(3),46(1),223(4)] Related party transactions [Section 188(1)] Audit Committee –approval of RPTs [Section 177(4)(iv)] Fraud reporting by auditors [Sections 143(12) & 134(3)] Public inspection of board resolutions [Section 117(3)(g)] Restrictions on bail [Section 212(6)] NCLT bench strength for winding-up cases [Sec 419(4)] Offences triable by special courts [Sections 435,436] Set off past losses before declaring dividend [Section

123(1)] Loan/guarantee/security by holding co to WOS [Sec 185] Transfer of shares to IEPF [Section 124(6)] Specific punishment for violations related to deposits-

new section 76A

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Section 2(68)-Definition of Private Company

Proposed amendments to section 2(68) Minimum paid-up capital of Rs.1,00,000 proposed to be

omitted from section 2(68) OPC/Pvt Co can be formed with howsoever less paid-up

share capital unless Central Govt prescribes minimum paid-up share capital

Power of Central Govt to prescribe minimum paid-up share capital proposed to be retained

Fetter on Central Govt as regards not prescribing amount less than Rs.1,00,000-fetter proposed to be removed

Consequential amendment proposed to section 11(1)(a)

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Section 2(71)-Definition of Public Company

Proposed amendments to section 2(71)(b) Minimum paid-up capital of Rs.5,00,000 proposed to be

omitted from section 2(71)(b) Public Co can be formed with howsoever less paid-up

share capital unless Central Govt prescribes minimum paid-up share capital

Power of Central Govt to prescribe minimum paid-up share capital proposed to be retained

Fetter on Central Govt’s as regards not prescribing amount less than Rs.5,00,000-fetter proposed to be removed

Consequential amendment proposed to section 11(1)(a)

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Declaration under section 11(1)(a)

Proposed amendment References to minimum paid-up share capital of

Rs.5,00,000 for public co & of Rs.1,00,000 for pvt co proposed to be omitted from section 11(1)(a)

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Common seal [Section 9]

Common Seal termed by Supreme Court as “relic of the days when medieval barons, who could not read or write, used their rings to make a characteristic impress”-Pancharan Dhara v. Monmatha Nath Maity [2006] 69 SCL 401 (SC)

Section 9 at present makes it mandatory for a company to have a common seal from the date of incorporation

Proposed amendments– The words “and a common seal” proposed to be omitted from section 9 to

make it optional for a company to have a common seal– Consequential amendments proposed to sections 12(3)(b),22(2), 22(3),46(1)

and 223(4)– Words “if any” proposed to be added in sections 22(2),46(1) after the words

common seal consequent to making common seal optional. – Words “if any” added in sections 12(3)(b) &223(4) after the word ‘seal’– Sections 22(2),46(1) proposed to be amended to clarify how documents

(POA/share certificates) will be signed on co’s behalf if co opts not to have a common seal

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Section 12(3)(b)-Obligation to have name of co engraved on its common seal

Section 12(3)(b) as originally enacted– Section 12(3)(b) requires that every company shall

have its name engraved on its seal

Section 12(3)(b) after proposed amendments – every company shall have its name engraved on its

seal, if any– Words “if any” proposed to be added after the word

‘seal”– Since section 9 proposed to be amended to make

common seal optional, section 12(3)(b) to be amended to clarify that obligation to have name engraved will apply only if company opts to have a common seal

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Signing of POA on behalf of company [Section 22(2)/22(3)]

Existing provisions Section 22(2) required POA to be authorised under

common seal as common seal was mandatory

Proposed amendments (consequential to amendments proposed to making common seal optional)

If co. opts to have a common seal, POA to be authorised under common seal

If co. opts not to have common seal, POA to be signed by two directors. If company has a CS, it can be signed by CS and one director

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Signing of share certificates on behalf of company [Section 46(1)]

Existing provisions Section 46(1) required share certificates to be issued

under common seal as common seal was mandatory

Post amendment (consequential to amendments proposed making common seal optional)

If co. opts to have a common seal, share certificate to be issued under common seal

If co. opts not to have common seal, share certificate to be signed by two directors. If company has a CS, it can be signed by CS and one director

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Proposed New Section 76A-specific punishment for violation of provisions relating to deposits-I

Following offences proposed to be made punishable u/s76A: A company accepts or invites or allows or causes any 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 thereunder [Companies(Acceptance of Deposits)

Rules,2014] A company fails to repay deposit or part thereof or any interest

due thereon within the time specified in – section 73 or – section 76 or – rules made thereunder [Companies(Acceptance of Deposits)

Rules,2014] or– such further time as may be allowed by the NCLT under section 73

For punishments for above offences, see next slide

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Proposed New Section 76A-specific punishment for offences relating to deposits-II

Punishments proposed :– 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 Rs.1,00,00,000 but which may extend to Rs.10,00,00,000 [section 76A(a)];

– 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 Rs. 25,00,000 but which may extend to Rs.2,00,00,000, or with both. [section 76A(b)]

– If it is proved that the officer of the company who is in default has contravened such provisions knowingly or willfully with intention to deceive the company or its shareholders or depositors or creditors or tax authorities, he shall be liable for action under section 447[Proviso to section 76A]

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Section 117(3)(g)-Public inspection of board resolutions filed with ROC

Provisions– Section 117(3)(g) requires filing with ROC of board

resolutions passed u/s 179(3)

Proposed Amendment– New proviso to section 117(3)(g): “no person shall be

entitled under section 399 to inspect or obtain copies of such resolutions”

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Entire past losses to be set off against current profit before declaring dividends –Section 123

Present Position– Past losses/depreciation not provided in past years to

be set off against current profit before declaring dividends –Rule 3(5)

Proposed Amendment– Past losses/depreciation not provided in past years to

be set off against current profit before declaring dividends –New Fourth Proviso inserted to section 123(1)

Net effect after proposed amendment– Provisions presently in the Rules incorporated in the

Act itself as a matter of abundant caution. No net change in position

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Transfer of shares to IEPF-section 124(6) of the Companies Act,2013

Sub-section (6) of section 124 proposed to be amended by substituting the words “unpaid or unclaimed dividend has been transferred to the Investor Education and Protection Fund shall also be” with the words “dividend has not been paid or claimed for seven consecutive years or more”.

The purpose of the proposed amendment is to clarify that section 124(6) shall not apply where dividend has been paid or claimed by the investor in any of the 7 years before the year in which unpaid/unclaimed dividend is to be transferred to IEPF.

To make the position abundantly clear beyond doubts, a new Explanation proposed to be inserted to section 124(6) which clarifies that “in case any dividend is paid or claimed for any year during the said period of seven consecutive years, the share shall not be transferred to Investor Education and Protection Fund.”

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Fraud Reporting by auditors-Section 143(12)/Section 134(3)

Requirements of section 143(12) as originally enacted– Section 143(12) as originally enacted requires auditor to report

frauds against the co. by officers/employees of the co. to Central Government irrespective of amounts involved in the fraud.

Proposed Amendments – Section 143(12) proposed to be substituted & two new provisos

proposed to be inserted in section 143(12)– New clause (ca) proposed to be inserted in section 134(3)– The objective of these proposed amendments is to incorporate

enabling provisions to prescribe thresholds beyond which fraud shall be reported to the Central Govt

– Below the threshold, it will be reported to the Audit Committee).– Disclosures for frauds less than thresholds also to be made in the

Board’s Report

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Related Party transactions approval by Audit Committee u/s 177(4)(iv)

New proviso proposed to be added to section 177(4)(iv) to provide that empower audit committee to give omnibus approvals for RPTs on annual basis to align with SEBI policy and increase the ease of doing business

Clause 49(VII)(D) of Listing Agreement-SEBI policy regarding omnibus approvals of RPTs by Audit Committee

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Related Party approvals by non-related shareholders-simplification

The First & second provisos to section 188(1) proposed to be amended to replace ‘special resolution’ with ‘ordinary resolution’ for approval of related party transactions by non-related shareholders

New third proviso proposed to be inserted in section 188(1) to clarify that consent of non-related shareholders not required for transactions between a holding company and its wholly owned subsidiary (WOS) whose accounts are consolidated with the holding company and placed before the shareholders in general meeting for approval

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Exemption from section 185 for loans/guarantees/securities given by holding co to subsidiaries New clauses (c) and (d) inserted in proviso to section

185(1) to exempt the following from section 185 :– (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;

– (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

Loans made under clauses (c) and (d) are utilized by the subsidiary company for its principle business activities.

Net effect: Exemptions provided in Rules proposed to be incorporated into the Act itself. No net change.

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Exemptions from transactions of holding co with its WOS

New clause (c) proposed to be inserted in proviso to section 185(1) to exempt the following from prohibitions on loans etc in section 185 :– any loan made by a holding company to its wholly

owned subsidiary (WOS) company or – any guarantee given or security provided by a holding

company in respect of any loan made to its WOS New third proviso proposed to be inserted in section

188(1) to clarify that consent of non-related shareholders not required for transactions between a holding company and WOS whose accounts are consolidated with the holding company and placed before the shareholders in general meeting for approval

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Other amendments

Section 212(6) proposed to be amended to omit references to 14 offences and replace it with reference to offence of fraud u/s 447 so that bail restrictions apply only to offence of fraud

Section 419(4) as originally enacted provided for winding up matters to be heard by three-member benches of NCLT. Provision proposed to be amended to provide for winding up matters to be heard by 2-member benches

Sections 435 & 436 as originally enacted provided for trial of all offences under the 2013 Act by Special Courts. Provisions proposed to be amended to provide that Special Courts to try only offences carrying imprisonment of two years or more. (To let magistrate try minor violations)