Whether Companies Amendment Act, 2017 Business Friendly????
Whether Companies Amendment Act,
2017 Business Friendly????
Helpful
in Ease of
Doing Business
SHORT SUMMARY:
India now ranks 130 out of 189
countries in the ease of doing business, moving up four places from last year’s
adjusted ranking of 134. India moved up nine spots in the criteria of starting
a business to 155 in 2016 from 164 last year.
Government of India in order the
achieve of “Ease Of Doing Business” and “boost to industrial sector and start
ups decide to revisit the Companies Act, 2013 and set up a Company Law
Committee in the month of June, 2015. The CLC was assigned a task to study and
provide solutions to the issues arising out of implementation of Companies Act,
2013. MCA place CLC report for public comments on its portal for few days.
Several suggestions received from stakeholders and professional bodies like
ICSI were consider before giving a shape to the Companies Amendment Act, 2017.
This is article no. 306 of the series of editorials written by the author on corporate
laws {Including Companies Act, 2013, SEBI, RBI Regulations, IBC, LLP Act, 2008 etc.}.
“In
the past year,
§
India
eliminated the paid-in minimum capital requirement and streamlined the process
for starting a business.
§
One
major relaxation Starting business has become easier in India as the
Ministry of Corporate Affairs (MCA) has introduced a new form SPICE through
which a new company can now be incorporated. The newly introduced form SPICE
will combine the procedure for getting Director Identification Number (DIN),
Name Approval Application and Incorporation Application into a single step.
More reforms are ongoing—in starting a
business and other areas measured by Doing Business—though the full effects are
yet to be felt,”.
Carrying forward the spirit of
enhancing ‘Ease Of Doing Business’
the Central Government has accepted mostly all the recommendation of the
Company Law Committee and represent the Companies Amendment Act, 2017.
Highlights of some Major
Relaxation under Companies Act, 2017 to make it - Business
Friendly
§ Apart from KMP and any officer of the Company, an employee
can also be authorized to authenticate documents on behalf of the Company.
§ It is allow issue of sweat equity shares at any time after
registration of the Company.
§ Simplification of process of Private Placement of Shares.
§ Granting of loans to
entities in which directors are interested after passing special resolution and
adhering to disclosure requirement
§ Right issue offer letter can be sent through courier or by
delivery through hand.
§ Requirement of deposit insurance omitted.
§ EGM of wholly owned subsidiary of a Company incorporated
outside India can be held outside India.
§ The requirement related to annual ratification of
appointment of auditor by members is omitted.
§ The requirement of consolidation the account of a Joint
Venture is omitted.
§ Section 194 and 195 omitted.
§ The approval of the Central Government shall not be
required at the time of payment of remuneration exceeding 11% of net profit of
the Company.
Objects of the Companies Amendment Act, 2017
ü Ease
of Doing Business
ü Simplification
of Compliances
ü Encouragement
for Startups
ü Strengthen
Corporate Governance Standard
ü Strict Action against defaulting Companies
Let’s See How the Companies Amendment Act,
2017 is helpful in ‘ease of doing business’ and what are the relaxation under Companies
Amendment Act, 2017.
A. Authentication of Documents:
Under CA, 2013 a document or proceeding requiring
authentication by a company; or contracts made by or on behalf of a company,
may be signed by any key managerial
personnel or an officer of the company duly authorised by the Board in
this behalf.
However as per Companies Amendment Act, 2017 Company by Board Resolution authorizes
any employee of the Company to sign documents and contract on behalf of the
Company.
Effect:
The amendment waters down ‘accountability’ enshrined in the existing provision
that requires any officer authorized by the Board to authenticate documents. It
could have been liberalized to employee. Allowing authentication of documents
by ‘any employee’ is reflection of ‘overstretched’ liberalization. The scope
has been widened also to include the employees of the company.
B. Fast
Track Incorporation:
Incorporation
process is likely be on fast track mode to enable promoters to form Companies
in 1 day. Major change is for MOA & AOA from physical to electronic mode.
This will definitely reduce the paper work and hectic signature process.
C.
Private Placement of Shares:
Section 42 Private Placement
of Shares has been completely substituted by new Section 42.
Relaxation given in
Section 42 of Companies Amendment Act, 2017:
§ The
requirement of clumsy offer letter has been replaced by Private Placement Offer
cum application form containing terms and conditions of Private Placement
offer.
§ Requirement
of filing of private placement of offer letter has been eliminated.
§ Return
of allotment required to be filed within 15 days instead of 30 days
§ Money
received under the private placement shall not be utilized unless the return of
allotment is filed with the ROC
D.
Issuance of Shares at discount:
As
per section 53(1) A Company shall not issue shares at discount.
However, Companies Amendment
Act, 2017 provide exception situation in which shares can be
issue at discount. A Company may issue
shares at a discount to its creditors when its debt is converted into shares in
pursuance of any statutory resolution plan or debt restructuring by the RBI
under the RBI Act, 1934 or the Banking (Regulation) Act, 1949.
E. Sweat
Equity Shares:
As
per CA, 2013 newly incorporated company eligible to issue sweat equity shares
only after 1 year of its incorporation.
However, Companies Amendment
Act, 2017 this clause has been removed. Now allows the newly
incorporated Companies to issue sweat equity shares of a class of shares
already issued, which is a welcome change. This would facilitate startups structuring and
building up promoter’s contribution.
F.
Dispatch of Notice of Right issue of Shares:
As per CA, 2013 Section
62(2) notice for right issue of shares can be circulated only through registered
post or speed post or through electronic mode.
However, Companies Amendment Act, 2017 Section
62(2) has been relaxed to include courier or other modes of
delivery capable of providing proof of delivery. It can be interpreted that
notice may be hand delivered subject to obtaining an acknowledgement from the
receiving shareholder.
G.
Deposit
Related Provisions:
§ Requirement
of deposit insurance is eliminated.
§ Life
time ban on a Company that defaulted in repayment of deposit accepted or
interested thereon under the CA, 2013 or under any previous Act is relaxed by
amending conditions of section 73(2)(d). Instead a five year cooling period has
been provided from the date the default is made good.
H.
Registration of Charge:
Earlier there was list of transaction on which
charge was required to create. With the enactment of the Companies Act, 2013,
tire list of charges requiring registration done away with. Thus, in the
absence of a specific list of charges to be registered, and the wide definition
of the word “charge”, ‘pledges’ and ‘liens’ were also required to be registered.
However, Companies Amendment Act, 2017
insert the proviso in section 77(1) “provided also that this section shall not
apply to such charges as may be prescribed in consultation with the Reserve
Bank of India”.
With the insertion of the 4th proviso to
section 77(1), a negative list is expected to be provided in consultation with
the Reserve Bank of India, on which creation of charge need not be required.
This might exclude registration of charges once again for pledges etc. as was
there in the erstwhile Act, 1956.
I.
Satisfaction of Charge:
In CA, 2013 A Company shall give intimation to the
Registrar in the prescribed form, of the payment or satisfaction in full of any
charge registered under this Chapter within a period of thirty days from the
date of such payment or satisfaction.
However, Companies Amendment Act, 2017 insert the proviso in section 82(1). As per proviso
the Registrar may, on an application by the company or the charge holder, allow
such intimation of payment or satisfaction to be made within a period of three
hundred days of such payment or satisfaction on payment of such additional fees
as may be prescribed.
The provisions pertaining to
registration of modification and satisfaction of charges erroneously omitted
the power of the Registrar to grant extension of time upto 300 days.
J.
Annual Return
However, Companies Amendment Act, 2017
insert the proviso in section 92(1). As per proviso Central Government may
prescribe abridge form of Annual Return for One Person Company and small
Company.
K.
Return to be filed with ROC for change in Stake:
The return of changes
in promoter’s stake & submission of advance copy of special resolution for
place of keeping register etc is omitted.
L.
Annual General Meeting:
Companies Amendment Act, 2017,
has allowed [1]unlisted
companies to hold their AGMs in any place in India provided that all the
members of such company should give their consent in advance either in
electronic mode or in writing.
This will save the time
and energy of many Companies in completing the formalities of holding meeting
at the registered office by traveling from various places.
M.
Extra Ordinary General Meeting:
Allowed wholly owned
subsidiaries of a company which are incorporated outside India to hold its EGM
anywhere in the world.
This is a welcome
change since the present provision of holding an EGM in India was never a Law,
neither present in the erstwhile Act nor in the Act, 2013. Rather the same had
been mistakenly/advertently mentioned in the Rules by way of an Explanation to
Rule 8(3)(ix) of Companies (Management and Administration) Rules, 2014. Also
the same was reiterated in the Secretarial Standard 2.
As per the above
clarification EGM of wholly own foreign subsidiary can be held outside India.
N.
Relaxation in the items restricted to be transact through only
Postal Ballot:
It is allowed such
items of business to be passed at a general meeting of a company which are
otherwise mandatorily required to be passed by postal ballot provided the
company is required to provide e-voting facility.
Clarity is provide that
if any business is required to be transacted by Postal Ballot, then it could
also be transacted at a general meeting having a facility of electronic voting.
This move will enable maximum shareholders to participate in the meeting and
discussions and then vote electronically and will also save the cost of
conducting postal ballot and general meeting.
O.
Resolution and agreement requires to be file with ROC:
There is exemption granted
to banking Companies from submitting Board resolution passed by it for granting
loans or giving guarantee or providing securities in its ordinary course of
business.
P.
Interim Dividend:
Companies Amendment Act,
2017 amend section 123(3) of Act, 2013 by adding clarification that
the provision of declaration of Interim Dividend by specifying that it can be
declared even after closure of financial year till holding of AGM and could not
be out of surplus in profit & Loss account or out of profit of that financial
year or out of profit generated till last quarter before declaration.
Q. Statutory Auditor:
As per first proviso of section 139 the company shall place
the matter relating to appointment of statutory auditor for Ratification by
members at every annual general meeting.
Companies Amendment Act, 2017. Ratification of
appointment of auditors in every General Meeting during his tenure is removed. As
it defeats the objective of giving five year term to the auditors. But this may
lead to depriving of shareholders right to appoint or reject the appointment of
auditor in every annual general meeting.
R. Resident
Director:
As per CA, 2013 section 149(3) every company shall have at
least one director who has stayed in India for a total period of not less than
one hundred and eighty-two days in the previous calendar year.
Companies Amendment Act,
2017
provides that in case of newly incorporate Company
the requirement under this sub-section shall apply proportionately at the end
of the financial year in which it is incorporated.
S. Deposit
of amount on appointment of Director:
Companies Amendment Act, 2017 In case of
appointment of ID and Directors recommended by the NRC the requirements of
Section 160 shall be dispensed off. Therefore, ID and director recommended by
NRC are exempted from the requirement of making a directorship election deposit.
T. Disqualification
of Directorship:
The disqualification of a
director on account of non filing of returns and repayment of deposits to be
operated after a gap of 6 months from the date of appointment. This will
provide a required window to directors to take step to recover from the non
compliances in the Company. The disqualification occurring due to court or
tribunal order for disqualification or conviction will continue to apply even
if appeal or petition is preferred.
U. No. of
Directorship:
As per 165(1) No person, after the commencement of this Act,
shall hold office as a director,
including any alternate directorship, in more than twenty
companies at the same time.
Companies Amendment Act, 2017 for reckoning the
limit of directorship of 20 Companies the directorship in a ‘Dormant Company’
shall not be included.
V. Filing
requirement of DIR-11:
As per 168(1) a director shall also forward a copy of his
resignation along with detailed reasons for the resignation to the Registrar
within thirty days of resignation in DIR-11.
Companies Amendment Act, 2017 The requirement
for forwarding of copy of resignation by the resigning director in e-form DIR
11 to the Registrar shall be optional.
This is a welcome change for those companies where the
resignation is with mutual consent unlike where there are management disputes.
In such companies, the directors still have an option to file DIR 11.
W. Participation
of Director through video conferencing:
As per first proviso of section 173(1) presence of director
through video conferencing was restricted in the Board Meeting in which
restricted items was agenda to discuss.
Companies Amendment Act, 2017 As per Amendment Act if in a Board Meeting physical
quorum of director is present, any other director may participate through video
conferencing or other audio visual means in such meeting on any matter
specified under the first proviso.
This also gives a relief to non-resident directors to
participate in the discussion and voting on important matters like approval of
financial statements etc without traveling to the place of meeting.
X. Audit and
Nomination Committee:
The Board of Directors of every listed company and such other
class or classes of companies, as may be prescribed, shall constitute an Audit
Committee.
Companies Amendment Act, 2017 The Board of
Directors of Every Public Listed
company and such other class or classes of companies, as may be prescribed,
shall constitute an Audit Committee.
This brings ease and relief to such private companies having
their debt securities listed as the companies were surely falling within the
meaning of listed but were not public. The requirement of the committee has now
been restricted to only public companies which are listed. Therefore, lot of
debt listed companies will be out of the preveiw of this section. This is also
in line with the SEBI (LODR) Regulations, 2015.
Y. Loan to
Director:
Companies Amendment Act, 2017, therefore, allowed
companies to advance a loan to any other person in whom director is interested
subject to prior approval of the company by a special resolution. Further,
loans extended to persons, including subsidiaries, falling within the
restrictive purview of Section 185 should be used by the subsidiary for its
principal business activity only, and not for further investment or grant of
loan.
After 01st April, 2014 Corporate are facing many
issues because of restriction under section 185. In Companies Amendment Act,
2017, section 185 completely substituted to relax norm to make this Act
Business Friendly. New section is beautifully worded.
Z.
Loan and Investment by the Company:
Restriction on subsidiary investment layers is removed. Loan
and Investment by the Company, clarity is given by exempting employees from
applicability. Exemption to be provided for loan, guarantee or security to its
WOS or joint venture Company or for acquisition of share in WOS.
AA.Related Party Transactions:
As per CA, 2013 no member of the company shall vote on such
resolution, to approve any contract or arrangement which may be entered into by
the company, if such member is a related party.
Addition of new provision under section 188(1) by Companies
Amendment Act, 2017 provided also that nothing contained in the second proviso
(mentioned above) shall apply to a company in which ninety percent or more
members, in number, are relatives of promoters or are related parties.
Company are also allowed to enter into contract or
arrangement with related party if 90% or more members, in number, are relatives
of promoters or are related parties. It is a welcome step to smooth the relative
party transactions.
BB.Insider Trading: Provisions
relating to forward dealing and Insider Trading are omitted. A rightful move by the government to grant relief to Companies in which public
money is not involved.
CC. Remuneration
to Managerial Personnel:
In CA, 2013
§
The company in general meeting may, with the
approval of the Central Government, authorize the payment of remuneration
exceeding eleven per cent. of the net profits of the company, subject to the
provisions of Schedule V.
§
Remuneration in case of no profit or adequate
profit requires approval of Central Government.
§
The company shall not waive the recovery of any
sum refundable to it under sub-section (9) unless permitted by the Central
Government
Companies Amendment Act, 2017 The word “with the
approval of Central Government” removed from every place under this section.
Benefits of this, No need approval of CG for payment of
remuneration more than 11% of net profit, ne need of CG approval for
remuneration in situation of no profit or inadequate profit and not need of CG
approval of recovery of any sum refundable from director.
This is also a welcome step and business friendly for the
business mans to get remuneration form Company without Central Government
Approval.
DD. Fee for
Filing:
Necessary changes made in the Companies Act to bring clarity
that the requirement of filing with additional fee for 270 days under first
proviso to Section 403 is applicable only to the six sections.
CONCLUSION:
The Companies Act, 2013 its rules, notifications
and clarifications issued thereunder are too fresh to have a sequel. However it
appears that government under the garb of ease of doing business is keen to
produce it.
(Author
– CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice
from Delhi and can be contacted at csdiveshgoyal@gmail.com). Disclaimer: The entire
contents of this document have been prepared on the basis of relevant
provisions and as per the information existing at the time of the preparation.
Although care has been taken to ensure the accuracy, completeness and
reliability of the information provided, I assume no responsibility therefore.
Users of this information are expected to refer to the relevant existing
provisions of applicable Laws. The user of the information agrees that the
information is not a professional advice and is subject to change without
notice. I assume no responsibility for the consequences of use of such
information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT,
SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION
WITH THE USE OF THE INFORMATION
SIR,Please tell me the Procedure for Appointment of a Foreign Director for 35% shareholding in the Company, and what Forms we have to File with the RBI?
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