The Companies (Amendment) Bill, 2014- Passed by Rajya Sabha

The Companies (Amendment) Bill, 2014

The brief details of the amendments are as under:

1. Requirement of minimum paid- up share capital for private and public companies is proposed to be omitted. (For ease of doing business)

In terms of section 2(68) and 2(71) of the Companies Act, 2013, private companies  and public companies are required to have minimum paid-up share capital of one lakh rupees and five lakh rupees respectively.

The proposed amendment omits the words “of one lakh rupees or such higher paid-up share capital" in clause 2(68) and “of five lakh rupees or such higher paid-up capital,” in Clause 2(71)(b).

2. Doing away with the requirement of filing a declaration by a company before commencement of business or exercising its borrowing powers as provided in section 11 of the Companies Act, 2013. 

Section 11 of the Principal Act which deals with the requirement for filing declaration by a company before commencement of business or exercising its borrowing powers.  Section 11 is proposed to be omitted.

3. The provisions with regard a company to have common seal are proposed to be made optional and consequential changes for authorization for execution of documents (For ease of doing business)

In terms of section 9 of the Companies Act, 2013, Every Body Corporate shall have perpetual succession and a common seal from the date of incorporation mentioned in the Certificate of Incorporation.

Provision for common seal appears in various section(s) including affixing on power of attorney [REFER SECTION 22] and on share certificate(s) [REFER SECTION 46].

Proposed amendment omits the words "and a common seal" in section 9.

In section 12 of the principal Act, in sub-section (3), for clause (b), the following clause shall be substituted, namely:—

"(b) have its name engraved in legible characters on its seal, if any;"

In section 22 (2),—

a.      for the words "under its common seal", the words "under its common seal, if any," shall be substituted;

b.      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.";

In section 22(3), the words ''and have the effect as if it were made under its common seal", shall be omitted.

In section 46 (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.

In section 223, in sub-section (4), in clause (a), for the words "by the seal", the words

"by the seal, if any," shall be substituted.

4. Specific punishment for deposits accepted under the new Act is proposed to be prescribed. This was left out in the Act inadvertently. (To remove an omission)

Sections 73 and Section 76 of the Companies Act 2013 do not have penal provisions.

Proposed amendments inserts following section 76A  after section 76:

“76A. Punishment for contravention of section 73 or section 76.—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 thereunder 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 thereunder or such further time as may be allowed by the Tribunal under section 73,—

(a) 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

(b) 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 wilfuly 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.”

5. Public inspection of Board resolutions filed in the Registry is proposed to be prohibited. (Representations by corporate)

Section 117 (3)(g) requires the copy of resolutions passed in pursuance of sub-section (3) of section 179 to be filed with the Registrar within thirty days of the passing of such resolutions.

Section 179 (3) lists the powers which the Board is required to exercise by means of resolutions passed at meetings of the Board such as to issue securities, including debentures, whether in or outside India, to borrow monies, to invest the funds of the company, to approve financial statement and the Board's report, to approve amalgamation, merger or reconstruction etc.

Proposed amendments provides for following amendments in section 117(3):

(i) in clause (g), the word ''and'' occurring at the end shall be omitted;

(ii) after clause (g), the following proviso shall be inserted, namely:—

"Provided that no person shall be entitled under section 399 to inspect or obtain copies of such resolutions; and”

6. Provision for writing off past losses/depreciation before declaring dividend for the year is proposed to be included. This was missed in the Act but included in the Rules.

Section 123 of the Companies Act, 2013 provides for declaration of dividend.

It does not contain the provision for writing off past losses as provided under section 205 of Companies Act, 1956.

Proposed amendment inserts the following proviso after third proviso in Section 123(1):

"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."

7. The Act provides for transferring equity shares for which unclaimed/unpaid dividend has been transferred to the IEPF. It is proposed to be rectified that such transfer of equity shares would be in case where the dividend remains unpaid or unclaimed for a continuous period of seven years.

Section 124 (6) of the Companies Act, 2013 provides that all shares in respect of which unpaid or unclaimed dividend has been transferred under sub-section (5) shall also be transferred by the company in the name of Investor Education and Protection Fund along with a statement containing such details as may be prescribed.

The following amendments are proposed in section 124(6):

1.       for the words, brackets and figure "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;

2.      after the proviso, the following explanation shall be inserted, namely:—

"Explanation. - For the removals of doubts it is hereby clarified 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.''

8. It is proposed to provide for prescribing the 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. (Representations by auditors).

Section 143 (12) of the Companies Act, 2013 provides that if an auditor of a company, in the course of the performance of his duties as auditor, has reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees of the company, he shall immediately report the matter to the Central Government within such time and in such manner as may be prescribed. However, no quantum or threshold has been prescribed under the Companies Act, 2013 or rules made thereunder for intimation of fraud to Central Government. It is now proposed in the Act that the thresholds shall be prescribed in the rules.

As per section 143 (14), the provisions of the section shall mutatis mutandis apply to-

(a) the cost accountant in practice conducting cost audit under section 148; or

(b) the company secretary in practice conducting secretarial audit under section 204.

The following amendments are proposed in section 134 and section 143:

In section 134 of the principal Act, in sub-section (3), after clause (c), the following clause shall be 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;"

In section 143 of the principal Act, for sub-section (12), the following sub-section  shall be substituted, namely:—

"(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."

9.   Section 185 prohibits loans to Directors. The exemptions to the section are provided in the Rules. These are proposed to be included in the Act as a matter of abundant caution.

Section 185 prohibits giving loan to directors, etc. It provides that, no company shall, directly or indirectly, advance any loan, including any loan represented by a book debt, to any of its directors or to any other person in whom the director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person.

Rule 10 of the Companies (meetings of Board and its powers) Rules, 2014 provides exemption to the section as follows:

185.(1) 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 is exempted from the requirements under this section; and

(2) 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 is exempted from the requirements under this section:

Provided that such loans made under sub-rule (1) and (2) are utilised by the subsidiary company for its principle business activities.

The following amendment is proposed:

In section 185 of the principal Act, in sub-section (1), in the proviso, after clause (b) the following clauses and proviso shall be 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 utilised by the subsidiary company for its principal business activities."

10. It is proposed to empower Audit Committee to give omnibus approvals for related party transactions on annual basis. (To align with SEBI policy and to increase ease of doing business)

As per the Clause 49 as amended vide SEBI circular CIR/CFD/POLICY CELL/7/2014 dated 15th September, 2014, Audit Committee may grant the omnibus approval to transactions with related parties subject to the fulfillment of certain conditions [refer Clause 49(VII)(D)]. However, there is no such provision under the Companies Act, 2013. Further,  section 177 (4) requires the Audit Committee to approve the transactions of the company with related parties or any subsequent modification therein.

The following amendment is proposed:

In section 177 of the principal Act, in sub-section (4), in clause (iv), the following proviso shall be 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;"

11 It is proposed to:

a.      replace '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) and

b.      exempt related party transactions between holding companies and wholly owned subsidiaries from the requirement of approval of non-related shareholders. No resolution required to be passed at general meeting. (Representation by Corporate)

First proviso to section 188 provides that no contract or arrangement, in the case of a company having a paid-up share capital of not less than such amount, or transactions not exceeding such sums, as may be prescribed, shall be entered into except with the prior approval of the company by a special resolution. It is proposed to replace 'special resolution' with 'ordinary resolution':

The following amendment is proposed:

In section 188 of the principal Act,

(a) in sub-section (1),—

(i) for the words "special resolution", at both the places where they occur, the word "resolution" shall be substituted;

(ii) after the third proviso, the following proviso shall be 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.";

(b) in sub-section (3), for the words "special resolution", the word " resolution" shall be substituted.

12. Bail restrictions to apply only for offence relating to fraud u/s 447.

This amendment relates to section 212 'Investigation into affairs of Company by Serious Fraud Investigation Office'.

The following amendments are proposed:

In section 212 of the principal Act, in sub-section (6), for the words, brackets and figures "the offences covered under sub-sections (5) and (6) of section 7, section 34, section 36, sub-section (1) of section 38, sub-section (5) of section 46, sub-section (7) of section 56, sub-section (10) of section 66, sub-section (5) of section 140, sub-section (4) of section 206, section 213, section 229, sub-section (1) of section 251, sub-section (3) of section 339 and section 448 which attract the punishment for fraud provided in section 447", the words and figures "offence covered under section 447" shall be substituted.

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

Section 419 (3) of the Companies Act, 2013 provides that the powers of the Tribunal shall be exercisable by Benches consisting of two Members out of whom one shall be a Judicial Member and the other shall be a Technical Member:

Section 419 (4), ibid, provides that the President shall, for the disposal of any case relating to rehabilitation, restructuring, reviving or winding up, of companies, constitute one or more Special Benches consisting of three or more Members, majority necessarily being of Judicial Members.

Proposed Amendment provides that in section 419 of the principal Act, in sub-section (4), the words "or winding up" shall be omitted.

Accordingly for winding up cases, section 419(3) would apply.

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

The amendment relates to section 436 which provides for the Offences triable by Special Courts.

436. (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973,-

(a) all offences under this Act shall be triable only by the Special Court established for the area in which the registered office of the company in relation to which the offence is committed or where there are more Special Courts than one for such area, by such one of them as may be specified in this behalf by the High Court concerned.

The following amendments are proposed:

In section 435 of the principal Act, in sub-section (1),—

1.       for the words "trial of offences under this Act", the words "trial of offences punishable under this Act with imprisonment of two years or more" shall be substituted;

2.      the following proviso shall be inserted, namely:—

"Provided that all other offences shall be tried, as the case may be, by a Metropolitan Magistrate or a Judicial Magistrate of the First Class having jurisdiction to try any offence under this Act or under any previous company law."

Amendment of section 436

In section 436 of the principal Act, in sub-section (1), in clause (a), for the words "all offences under this Act", the words, brackets and figures "all offences specified under sub-section (1) of section 435" shall be substituted.

15.    Rationalizing the procedure for laying draft notifications granting exemptions to various classes of companies.

Section 462 empowers Central Government to exempt certain class or classes of companies from complying with any of the provisions of Companies Act 2013.  In order to put in place a speedier process for approval of draft notifications for providing exemptions etc. from specific provisions of the Act to a class of companies, it is proposed to rationalize the procedure for laying draft notifications granting exemptions.

The following amendment is proposed:

In section 462, for sub-section (2), the following sub-sections shall be substituted,  namely:—

"(2) A copy of every notification proposed to be issued under sub-section (1), shall be laid in draft before each House of Parliament, while it is in Session, for a total period of thirty days, and if, both Houses agree in disapproving the issue of notification or both Houses agree in making any modification in the notification, the notification shall not be issued or, as the case may be, shall be issued only in such modified form as may be agreed upon by both the Houses.

(3) In reckoning any such period of thirty days as is referred to in sub-section (2), no account shall be taken of any period during which the House referred to in sub-section (2) is prorogued or adjourned for more than four consecutive days.

(4) The copies of every notification issued under this section shall, as soon as may be after it has been issued, be laid before each House of Parliament".