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Proposed Amendments in the Companies Rules - as per the report of the Companies Law Committee

February 2, 2016
  • Contents






Rule 2(1)(r)

Total share capital

To be omitted. (Para 1.1)


Form INC-29

a. Option to use the integrated incorporation E-Form INC-29 in case name approval is separately obtained using INC-1 to be allowed.

b. Option of giving more than one name as alternatives to be permitted.

c. The number of allowed re-submissions to be increased from two to three times.

d. In point no. 6(e) of INC-29, wherein registration number of a company incorporated outside India is required to be specified, alpha-numeric registration numbers to be accepted.

e. In point no. 6(e) of INC-29, wherein the particulars of the authorized person of the company incorporated outside India are required to be specified, PAN or Passport number of the authorized person to be accepted. Also, the form to be enabled to accept the foreign address of the said authorized person in the field ‘present address of the authorized person’.

f. The facility for PAN, TAN and ESIC is to be enabled as part of the integrated application form, and incorporation form INC-7, available on the MCA21 portal. (Para 2.1, 2.2)

Rule 16

Removal of references to the word ‘partnership firm’.

References to the word ‘partnership firm’ in Rule no.16(2)(g) to be removed. (Para 2.4)

Removal of duplication of information in forms

a. Changes in the MCA21 system/E-Forms to be made to ensure that in case of a person holding DIN, the form requiring such information has to be prefilled and additional documentation would not be required.

b. Rule 16(1)(q) to be omitted along with Form INC-10. (Para 2.6, 2.7)

Rule 3(2)

Formation of one person company

To be suitably rephrased, to bring clarity. (Para 2.8)

Rule 25

Registered office of company

To be amended to make companies that have a website, for conducting online business or otherwise, to require to provide the registered office and other details as required in Section 12(3) on the landing/home page of the website(s). Similar changes to also be carried out for foreign companies in Rule 6 of Companies (Registration of Foreign Companies) Rules, 2014. (Para 2.9)

Rule 29

Alteration of memorandum

Change in memorandum to be allowed after defaults are made good. (Para 2.10)

Rule 28 and 30

Shifting of registered office

a. Explanatory note to be provided in both rules to the effect that ‘on completion of such inquiry, inspection or investigation as a consequence of which no prosecution is envisaged or no prosecution is pending, shifting of registered office shall be allowed’. In case of a pending prosecution, on submission of an undertaking that the company would not seek any change in jurisdiction on account of shift in office, such shifting is to be allowed.

b. Requirement of serving a copy of the notice to SEBI in Rule 30(6)(c) to be dispensed with. (Para 2.11, 2.12)

Rule 8

Undesirable names

Requirement in Rule 8(2) (a) (ii) to be changed and rule to be modified to read as ‘it includes the name of a ‘trade mark registered or a trade mark which is subject of an application for registration under the Trade Marks Act, 1999 and the rules framed thereunder’, unless the consent of the owner or applicant for registration, of the trade mark, as the case may be, has been obtained and produced by the promoters. (Para 2.13)

Rule 13

Signing of Memorandum and Articles

a. Rule to be suitably modified to allow typewritten subscriber sheets. Similar modifications to be carried out in Rule 13(2) with respect to entering of particulars of an illiterate subscriber electronically.

b. Rule 13(4) to be redrafted keeping in view that an LLP can also be a subscriber to the MOA. (Para 2.16, 2.17)



Rule 3(6)

Disclosures of Sources of Promoters’ Contribution

Section 26 to be modified to allow prescription powers to SEBI, consequential changes resulting from the same to result in omission/modification of the Rules and these requirements. (Para 3.1)


Rule 14

Private placement of securities

a. The private placement requirements to be changed in the Act. Consequential changes to Rules to be addressed in these Rules.

b. Exemption, as in the case of NBFCs, from the Rule 14 to be extended to PFIs. (Para 3.3, Para 3.4)




Rule 4(1)(g)

Shares with Differential voting Rights

A cooling off period of five years to be prescribed from the end of the financial year in which the default was made good for a company to be eligible to issue such shares again. (Para 4.1)


Form PAS-3

Issue of bonus shares

Clause 5(e) of Form PAS-3 to be modified to replace the words ‘special resolution’ with the word ‘resolution’. (Para 4.2)


Form PAS-3

Conversion of Loans into equity

Form PAS-3 to be appropriately modified so that genuine debt (including External Commercial Borrowings) converted into shares can be treated as allotment for cash. (Para 4.3)


Rule 15

Change in number of members of a Guarantee company

Appropriate modification in Rule 15 to be carried out to mandate notifying the increase in number of members of a guarantee company as part of an increase/alteration of capital. (Para 4.4)


Rule 18(7) (b)

Creation of Debenture Redemption Reserve

a. Rule to be modified to explicitly mention that companies be allowed to set aside DRR on a step down basis with reference to the redemption schedule for the next one year.

b. Proviso to be inserted that companies be allowed to appropriate any amount in excess of the DRR required for immediate redemption. (Para 4.6)


Rule 18(1)

Creation of Security for Debentures

a. Rule 18(1)(b) to be amended so as to enable issue of debentures secured by charge on the properties or assets of the company or entities that form part of consolidated balance sheet of the company or any other collateral security.

b. Rule 18(1)(d) to also enable creation of security for debentures in favour of the debenture trustee of movable property which could either be of the company or entities that form part of the consolidated balance sheet or any other collateral security. (Para 4.8)


New Rule

Perpetual Debentures

Enabling provision for the issue of perpetual debentures to be provided. (Para 4.9)


Rule 8(4)

Issue of sweat equity shares

Start-ups to be permitted to issue sweat equity shares beyond twenty-five percent and up to fifty percent of the paid up equity share capital. (Para 4.10)


Rule 12

Issue of employee stock options (ESOPs)

Rule to be relaxed to enable issuance of ESOPs to promoters who may be working as employees or employee directors or whole time directors. (Para 4.11)


Rule 13

Preferential Allotments

a. Rule 13(2)(h) to be amended, to consider providing for convertible instruments to be valued at the time of conversion. Formulation used in the FDI policy to be adopted.

b. Rule 13(2)(c) to be amended to allow preferential allotment of partly paid-up shares. (Para 4.12)




Rule 2(1)(c)

Definition of Deposits - exclusions

a. In Rule 2(1)(c)(xii) a), relaxation to be given for outstanding advances, such that they are not treated as deposits even after 365 days, if they are received in the ordinary course of business, as evidenced by a written contract and during normal business cycle, subject to disclosure of details of such outstanding amounts in the financial statements, and regulatory concerns.

b. Debentures compulsorily convertible into shares of the company within ten years to be excluded from the definition of deposit under Rule 2(1)(c)(ix).

c. Amounts directly received by a company from Alternate Investment Funds, Domestic Venture Capital Funds and Mutual Funds registered with SEBI, to be excluded from the definition of deposits.

d. To consider excluding unsecured debentures listed as per SEBI Regulations from the definition of deposits.

e. Convertible Notes, convertible into equity or repayable within 5 years from the date of issue, if issued to a person with a minimum investment size of ₹ 25 lakh brought in a single tranche, not to be treated as deposits. Safeguards to prevent misuse to be finalised in consultation with RBI. (Para 5.1-5.5)


Issues relating to Section 462 exemption vis-à-vis Deposits Rules

Exemptions given under Section 462 of the Act to override the Deposit Rules. Deposit Rules to be amended to align with exemptions/modifications for private companies. (Para 5.7)


Rule 4(1)

Advertisement/ Circular in the form of advertisement

Rule to be amended to provide that individual circulars to members of the company under Rule 4(1) not to be sent if an advertisement has been issued by a company for acceptance of deposits from public and also when the same is placed on the website of the company. (Para 5.8)




Filings of charge creation/modification by recognized ARCs

MCA21 system to be modified to allow filings of charge creation/modification by recognized ARCs on the assets of dormant companies. (Para 6.1)




Rule 3

Register of members, etc.

a. For the companies incorporated prior to 1 April 2014, the members’ particulars as available under the Companies Act, 1956 to be transferred to the Register of Members, and particulars as are required to be captured in Form MGT-1 in respect of all persons becoming members after 1 April 2014.

b. Incorporation of additional fields in the transfer form SH-4. (Para 7.1)


Rule 9(1)

Declaration in respect of beneficial interest in any share

Requirement of filing of Form MGT-4 and Form MGT-5 in duplicate to be done away and only scanned copies to be attached to Form MGT-6. (Para 7.4)


Rule 11(1)

Annual Return

a. Annual Return to be further simplified by avoiding asking for repetitive information which may be available in other documents filed with ROC

b. A simpler Annual Return form for OPCs and small companies to be prescribed. (Para 7.5)


Rule 11(2)

Annual Return

Company Secretaries in employment to be allowed to certify annual returns. (Para 7.6)


Rule 12

Form MGT-9 to be omitted after including pertinent information as a disclosure requirement under Section 134. (Para 7.7)


Rule 13

Return to be filed with Registrar in case promoters’ stake changes

Section 93 to be omitted and consequential changes in the Rules to be affected. (Para 7.8)


Rule 17(2)

Calling of extraordinary general meeting

Explanation to Rule 17(2) to be modified to allow holding of EGMs by requisition on a day which is not a national holiday. (Para 7.9)


Rule 22

Postal Ballot

a. Repeated provision from Rule 22(7) to be deleted.

b. Rule 22(14), which provides that the resolution shall be deemed to be passed on the date of a meeting, convened in that behalf, to be omitted from the rules. (Para 7.10)


Rule 25

Rule 25(1) (e) to be made consistent with Section 119, to enable the minutes book for general meetings to be maintained only at the registered office. (Para 7.11)




Section 123(1) and Rule 3

Declaration of dividend

a. The requirements of the Rule and the Section to be harmonized appropriately.

b. Rules to be amended to align Rule 3 with the provisions of the Act, to make it clear that in case a company declares dividend out of surplus i.e. accumulated credit balance of Profit and Loss account which has not been transferred to reserves, the provisions of the Act and Rule 3 would not be applicable. (Para 8.1, 8.2)




Rule 3(5)

Location of servers for keeping backup of books and papers

While the proviso with regard to maintenance of local servers to be retained, in case where free data access to all regulatory agencies of the country are allowed under a bilateral or multi-lateral treaty, data servers may be allowed to be kept in the specific countries with which such treaties have been entered into. (Para 9.1)


Rule 8(1)

Disclosures in the Director’s Report

Reporting requirements under Rule 8(1) to be reduced and to be captured to the extent feasible in the statement under Rule 5. (Para 9.4)


Rule 8(2)

Disclosure of Related Party Transactions (RPTs)

To omit Form AOC-2 and instead the Board’s Report to specifically discuss and refer to relevant disclosures. Consequential changes in the Rules to be made in order to give effect to these recommendations. (Para 9.6)


Rule 13

Companies required to appoint internal auditor

The words “a firm” to be replaced by “an entity”. (Para 9.7)


Form MGT-9 and Rule 12

Disclosure of remuneration of directors and KMP

MGT-9 requirements to be omitted and the threshold of Rupees Sixty Lakhs to be increased to ₹ 102 Lakhs per annum. Requirements under different Rules to be harmonized. (Para 9.8)


Rule 3(2)

Corporate Social Responsibility

A company which ceases to be covered under Section 135 (1) of the Act for a financial year not be required to spend on CSR for that particular year. (Para 9.11)


Rule 4(6)

CSR Activities

Expenditure on building CSR capacities in one financial year to be increased from 5% to 10%. (Para 9.12)


Differentiated treatment for implementing CSR policy

Differentiated treatment for implementing CSR policy to be allowed depending on the available funds for CSR expenditure to a company. (Para 9.13)




Rule 3(7)

Manner and procedure of selection and appointment of auditors

Removal of the requirement to ratify the appointment of an auditor. (Para 10.1)




Rule 4 and Schedule IV

Number of Independent Directors

a. Joint venture companies, wholly-owned subsidiaries, and dormant companies that fall within the purview of Section 455 of the Companies Act, 2013 to be excluded from the requirement of appointing an independent director.

b. Schedule IV of the Act to be amended to provide for filling up an intermittent vacancy of an Independent Director within three months in line with Rule 4 and SEBI Listing regulation. (Para 11.1, 11.2)


Schedule IV

Code for Independent Directors

Requirement for Independent Director to hold at least one meeting in a year without the presence of non-independent directors to be linked to the financial year. (Para 11.4)


Form DIR-11 and DIR-12

Resignation of directors

a. Professional can file DIR-11 on behalf of a foreign director.

b. Form DIR-11 is only an information by resigning director. The change in status in Register of directors to get triggered only on filing DIR-12. (Para 11.9)




Rule 3(12)(b)

Meetings of Board held through video conferencing

a. Video recording to be preserved only until the minutes of the meeting are irrefutably confirmed by each of the directors as required under Rule 3(12)(b) and signed by the chairman.

b. Recording requirement of the meetings to be limited only to the summary of decisions taken at the meeting in line with the MCA circular dated 20 May 2011.

(Para 12.1)


Rule 6

Committees of the Board

Prescribed thresholds for the setting up Audit Committee and Nomination and Remuneration Committee to be reviewed keeping in view the suggestions already made by SEBI. (Para 12.3)




Form DIR-12

Particulars of appointment of directors and the key managerial personnel and the changes among them

Form to be amended to restrict filing requirement pertaining to the return of appointment for managerial personnel. (Para 13.1)


Rule 5

Disclosure in Board’s Report

a. The specific part of Rule 5(1)(vii) related to unlisted companies to be deleted.

b. Ruled 5 to be pruned to exclude information prescribed under Rule 5(1) except Rule 5(1(i) and Rule 5(1)(iv).

c. The reporting requirement threshold of ₹ 60 Lakhs per annum for reporting of details of employees to be changed to the top ten employees in terms of remuneration and employees receiving remuneration beyond the threshold of ₹ 102 Lakhs per annum. (Para 13.2, 13.3)




New Rules

Conversion into companies

a. Necessary rules to be prescribed to facilitate easy conversion of forms of businesses other than LLPs into companies.

b. The process for conversion of an LLP into a company to be made simpler by doing away with requirement for filing some documents, etc. (Para 14.1, 14.2)




Companies incorporated outside India without a physical place of business in India

a. Rules to prescribe reporting of principal place of business from where the management/administration of business in India is being carried out. (Para 15.1)

b. Clarity to be provided that provisions with respect to charges will apply only on funds raised in India (Para 15.3)


New Rule and Form

Form FC-4

Annual Return of a Foreign Company

New Rule and Form along the lines of Form-52 of the Companies Act 1956 for the purpose of filing application for closure of liaison office/branch office/project office to be prescribed. (Para 15.2)

Disclosures needed to be made under Form FC-4 to be reviewed. (Para 15.4)




No amendments recommended.




No amendments recommended.




E-form for condonation of delay under Section 460 of the Act

A pro-forma application form to be designed for condonation of delay under Section 460. Consequent changes in Rules to be affected. (Para 18.2)

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