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REPORT OF THE COMPANIES LAW COMMITTEE

News and Press Release - Dated:- 2-2-2016 - New Delhi, the 1st February, 2016 To Honourable Union Minister of Finance, Corporate Affairs and I&B Sir, We have the privilege and honour to present the set up on 4th June 2015. to make recommendations to the Government on issues arising from the implementation of the Companies Act, 2013 as well as on the recommendations received from the Bankruptcy Law Reforms Committee, the High Level Committee on CSR, the Law Commission and other agencies. 2. T .....

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iding us an opportunity to present our views on the issues arising from implementation of the Companies Act, 2013 and related matters. Your sincerely (Shri Tapan Ray) Chairman (Ms. Reva Khetrapal) Member (Shri Y. M. Deosthalee) Member (Shri N. S. Vishwanathan) Member (Shri Manoj Fadnis) Member (Dr. A. S. Durga Prasad) Member (Shri Atul H. Mehta) Member (Shri Bharat Vasani) Member (Shri P. K. Nagpal) Member (Shri Amardeep S Bhatia) Member Convener BACKGROUND 1. INTRODUCTION 1.1 The enactment of t .....

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mittee on Finance examined the Bill twice, during which extensive public consultations were also held. 1.2 The notification of the provisions of the Companies Act, 2013 has been done in a phased manner, with 283 of the 470 provisions enforced by 1st April, 2014. Most of the remaining provisions are dependent on the establishment of the National Company Law Tribunal (Tribunal), which is likely in the next few months. 1.3 The Act introduced significant changes in the company law in India, especial .....

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tions that the Act needed further review. The Hon ble Minister of Corporate Affairs, at the time of consideration of the amendments in the Rajya Sabha in May 2015, also underscored some of these concerns and committed to constitute a Committee in which we have the representatives of the Company Secretary institute, the CA institute or some Chambers, plus somebody from the Department, a broad-based Committee, will be constituted to go into this whole question for the next few months as to where t .....

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High Level Committee on Corporate Social Responsibility, the Law Commission of India and other agencies. 1.6 The CLC consisted of a former judge of the Delhi High Court, representatives of the Institute of Chartered Accountants of India, the Institute of Cost Accountants of India, the Institute of Company Secretaries of India and the industry. The CLC co-opted representatives from RBI and SEBI as members. Copy of the constitution order of CLC is at Annexure I. 1.7 During the course of its delib .....

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.1 The CLC had its first meeting on 13th June, 2015. It had eight more meetings between July, 2015 and January, 2016. The CLC invited suggestions from the public on an online e-platform specifically created for this purpose, during the period 18th June, 2015 to 31st July, 2015. The Industry Chambers and Professional Institutes were requested to collate suggestions from their constituents, and submit these on the online platform after necessary vetting. The Secretary General of Supreme Court of I .....

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RC), and Insurance Regulatory Development Authority (IRDA) were also approached to give their suggestions to the Committee. 2.2 As part of this consultation process, over two thousand comments were received from industry chambers, professional bodies, companies and individuals. Of these 289, 196, 132, 113, 48 suggestions were received from Institute of Company Secretaries of India (ICSI), Confederation of Indian Industry (CII), Institute of Cost Accountants of India (ICoAI), Institute of Charter .....

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as convened by a member of the CLC, and consisted of subject-matter experts, industry representatives, lawyers, company secretaries, cost accountants, chartered accountants and investors representatives. The name of members were drawn up in consultation with industry chambers and based on inputs from professionals, etc. The groups were also given the option to co-opt additional members. Almost all groups co-opted members, and had several meetings to discuss the issues assigned to them. 2.4 The f .....

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Associates, (4) Mr. B. Renganathan, Executive Vice-President - IB Compliance, Edelweiss Financial Services Ltd. and (5) Mr. D. Bandyopadhyay, Registrar of Companies, Delhi & Haryana. 2.5 The second group convened by Mr. Manoj Fadnis, a member of the CLC and President of the Institute of Chartered Accountants of India, examined the issues relating to the raising of funds, such as prospectus and allotment of securities, acceptance of deposits by companies, share capital and debentures, declara .....

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Registrar of Companies, Mumbai. 2.6 The third group considered issues relating to accounts, audit and enforcement, including inspection, inquiry and investigation and NIDHIs. This group was convened by Mr. Y.M. Deosthalee, a member of the CLC and nominee of the Federation of Indian Chambers of Commerce and Industry (FICCI) in the Committee. The members of the group were (1) Mr. Jaimin Bhatt, President & CFO, Kotak Mahindra Bank Ltd., (2) Mr. P.R. Ramesh, Chairman, Deloitte, (3) Mr. S. Santha .....

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nnel. The group was convened by Mr. Bharat Vasani, a member of the CLC and nominee of the Confederation of Indian Industries in the Committee. The members of the group consisted of (1) Ms. Vijaya Sampath, (2) Mr. Amarjeet Chopra, Chairman, NACAS and former President, ICAI, (3) Dr. K. S. Ravichandran, Company Secretary, KSR & Co., (4) Mr. J.N. Gupta, Stakeholders Empowerment Services, (5) Ms. Zia Mody, AZB & Partners, (6) Mr. Benudhar Mishra, Joint Director, O/o, RD (NR), (7) Ms. Bina Cha .....

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anies, winding up companies, and winding up of unregistered companies. The members of the group were (1) Mr. Bahram Vakil, AZB & Partners, (2) Mr. Gyanendra Kumar / Mr. Cyril Shroff, Cyril Amarchand Mangaldas and (3) Mr. P.K. Malhotra, Secretary, Company Law Board. 2.9 The sixth group convened by Mrs. Reva Khetrapal, Judge (retd.), Delhi High Court studied the penalty provisions in the Companies Act, 2013. The members of the group were (1) Mr. Shardul Shroff, Managing Partner, M/s. Shardul A .....

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LC through the public consultation process. The groups were requested to keep in mind the following Guiding Principles/ Guidelines while examining the suggestions received from stakeholders:- a) Need to balance the interest of various stakeholders like companies, professionals, investors, regulators, etc. b) Need to simplify processes or doing away with unnecessary procedures. c) Need for greater transparency and disclosures in view of lesser regulatory interference and greater self-regulation. .....

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sulting businesses, practitioners and corporate law academics, on the principles involved as well as international practices in the areas of insolvency, raising of capital, penalties, related party transactions and other areas. 2.12 The CLC, based on the inputs made available by the groups, Vidhi and in-house inputs available with MCA and the professional institutions examined and analysed every relevant issue. The CLC also received representations from regulators and authorities, including the .....

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djustments required while the remaining are those that need to be addressed due to inconsistencies or genuine difficulties that businesses are facing. The Committee, while making the recommendations, kept in view the need to maintain balance between accepted good practices, regulatory concerns and mitigation of genuine difficulties being faced by stakeholders. 3. STRUCTURE AND OVERVIEW OF THE REPORT 3.1 The report is divided into two parts, namely Part I, dealing with the suggested amendments in .....

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port proposes specific amendments that need to be carried out, it may be noted that some amendments may also require consequential changes to the Act, which may be addressed at the stage of legislative drafting for ensuring consistency. 3.3 In relation to definitions of certain terms used in the Act, the Committee recommends changes/improvements to the following definitions among others: Associate Company, Debentures, Financial Year, Holding Company, Interested Director, Key managerial personnel .....

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exibility for carrying out business. 3.4 In so far as the chapters relating to raising of capital are concerned, the recommendations of the Committee are aimed at simplifying the disclosure regime, streamlining the private placement mechanism and synchronising the provisions of the Act with the regulations issued by other sectoral regulators. While the changes proposed in relation to these provisions are expected to help businesses in raising capital, they also take into account the interests of .....

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re that businesses do not misuse the provisions to pay out dividend out of the company s capital. The Committee has also suggested changes to the provisions relating to accounts and audit to improve transparency and the quality of information in relation to the financial position of the company. These recommendations also address ambiguities in relation to calculation of profits for determination of a company s corporate social responsibility obligations. 3.6 The Committee s recommendations on c .....

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nd concepts including independent directors, nomination and remuneration committee, audit committee, disclosure of interests, loans and investments, managerial remuneration, and insider trading. 3.7 The remaining recommendations proposing amendments to the Act deal with issues relating to compromises and arrangements, registered valuers, companies incorporated outside India, registration offices and fees, Nidhis, National Company Law Tribunal, Special Courts and Penalties. 3.8 The Committee has .....

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.3 to 3.12 of Part I of the report), excluding convertible notes raised by start-ups from the definition of deposits (paragraph 5.5 of Part II of the report), simplifying the procedure to convert an LLP into a company (paragraph 14.2 of Part II of the report), addressing concerns with regard to insider trading provisions (paragraph 12.23 of Part I of the report), allowing start-ups to raise deposits for its initial five years without any upper limits (paragraph 5.5 of Part I of the report), allo .....

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Nomination & Remuneration Committee (paragraph 12.9 of Part I and 12.3 of Part II of the report), doing away with the requirement for Government approval for managerial remuneration (paragraph 13.5 of Part I of the report), and increasing the limits with regard to sweat equity that can be issued by a company from 25% of paid up capital to 50% (paragraph 4.10 of Part II of the report). PART - I RECOMMENDATIONS PROPOSING AMENDMENTS TO THE ACT DEFINITIONS - Proposed Amendments in the Companies .....

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N AND PAYMENT OF DIVIDEND - Proposed Amendments in the Companies Act, 2013 ACCOUNTS OF COMPANIES - Proposed Amendments in the Companies Act, 2013 AUDIT AND AUDITORS - Proposed Amendments in the Companies Act, 2013 APPOINTMENT AND QUALIFICATIONS OF DIRECTORS - Proposed Amendments in the Companies Act, 2013 MEETINGS OF BOARD AND ITS POWERS - Proposed Amendments in the Companies Act, 2013 APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL - Proposed Amendments in the Companies Act, 2013 INSPECTIO .....

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Amendments in the Companies Act, 2013 COMPANIES INCORPORATED OUTSIDE INDIA - Proposed Amendments in the Companies Act, 2013 GOVERNMENT COMPANIES - Proposed Amendments in the Companies Act, 2013 REGISTRATION OFFICES AND FEES - Proposed Amendments in the Companies Act, 2013 COMPANIES TO FURNISH INFORMATION OR STATISTICS - Proposed Amendments in the Companies Act, 2013 NIDHIS - Proposed Amendments in the Companies Act, 2013 NATIONAL COMPANY LAW TRIBUNAL AND NATIONAL COMPANY LAW APPELLATE TRIBUNAL - .....

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ents in COMPANIES (INCORPORATION) RULES, 2014 Proposed Amendments in COMPANIES (PROSPECTUS AND ALLOTMENT OF SECURITIES) RULES, 2014 (PAS RULES) Proposed Amendments in COMPANIES (SHARE CAPITAL AND DEBENTURE) RULES, 2014 Proposed Amendments in COMPANIES (ACCEPTANCE OF DEPOSIT) RULES, 2014 Proposed Amendments in COMPANIES (REGISTRATION OF CHARGES) RULES, 2014 Proposed Amendments in COMPANIES (MANAGEMENT AND ADMINISTRATION) RULES, 2014 Proposed Amendments in COMPANIES (DECLARATION AND PAYMENT OF DIV .....

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ts in COMPANIES (REGISTRATION OF FOREIGN COMPANIES) RULES, 2014 Proposed Amendments in COMPANIES (REGISTRATION OFFICES AND FEES) RULES, 2014 Proposed Amendments in NIDHI RULES, 2014 Proposed Amendments in COMPANIES (MISCELLANEOUS) RULES, 2014 ANNEXURE I: COPY OF ORDER CONSTITUTING THE COMPANIES LAW COMMITTEE F. No. 2/19/2011-CL-V Ministry of Corporate Affairs Government of India A Wing, 5th Floor, Shastri Bhawan New Delhi - 110 001 Dated 04th June, 2015 ORDER Subject : - Constitution of Companie .....

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ccountants of India Member 6. Shri Bharat Vasani, Chief Legal Group General Counsel, Tata Sons Ltd, Industry nominee Member 7. Shri Y.M. Deosthalee, Chairman, L & T Finance Holdings, Industry nominee Member 8. Joint Secretary (Policy), Ministry of Corporate Affairs Member- Convener 2. The Committee may invite or co-opt subject matter experts relating to corporate law or any other subject matter, as well as experts from SEBI, RBI, C & AG as needed. The Committee may also invite any other .....

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conveyance and other allowances as per extant Government instructions, wherever the sponsoring agency is unable to bear their expenditure. Secretarial support to the Committee will be given by the Ministry of Corporate Affairs. 5. The Committee shall submit its recommendations within six months of its first meeting. (Alok Samantrai) Director, Inspection and Investigation Phone: 2338 9602 To The Members of the Committee Copy also to:- (i) PS to CAM (ii) Sr. PPS to Secretary (iii) PS to AS (iv) P .....

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IV -Share Capital and Debentures. (43 - 72) 140 7 147 Chapter V -Acceptance of Deposits by Companies. (73 - 76) 85 1 86 Chapter VI -Registration of Charges. (77 - 87) 25 4 29 Chapter VII -Management and Administration. (88 - 122) 176 2 178 Chapter VIII -Declaration and Payment of Dividend. (123 - 127) 12 0 12 Chapter IX -Accounts of Companies. (128 - 138) 254 5 259 Chapter X -Audit and Auditors. (139 - 148) 159 1 160 Chapter XI -Appointment and Qualifications of Directors. (149 - 172) 158 3 161 .....

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. (248 - 252) 0 0 0 Chapter XIX-Revival and Rehabilitation of Sick Companies. (253 - 269) 8 0 8 Chapter XX-Winding Up. (270 - 365) 5 0 5 Chapter XXI Companies Authorised to Register Under This Act & Winding Up of Unregistered Companies. (366 - 378) 14 0 14 Chapter XXII-Companies Incorporated Outside India. (379- 393) 19 1 20 Chapter XXIII-Government Companies. (394 - 395) 0 0 0 Chapter XXIV-Registration offices and fees. (396 - 404) 22 0 22 Chapter XXV-Companies to Furnish Information or Sta .....

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read as For the purposes of this clause, significant influence means control of at least twenty per cent of the total voting power, or control of or participation in taking business decisions under an agreement. b. Joint venture to be assigned the same meaning as under Indian Accounting Standard (Ind AS) 28, as part of the Explanation to Section 2(6) itself. (Para 1.3, 1.4) Section 2(28) Cost Accountant Provision to be amended to define cost accountant in practice. (Para 10.19) Section 2(30) Deb .....

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ide India to apply for a different financial year to the Tribunal. (Para 1.9) Section 2(46) Holding Company To add an explanation in Section 2(46) in line with explanation (c) to Section 2(87). (Para 1.11) Section 2(49) Interested director To omit Section 2(49). (Para 1.12) Section 2(51) Key managerial personnel To allow the Boards of relevant companies to appoint any other person as KMP/whole-time KMP (Para 13.10) Section 2(57) Net worth To include debit or credit balance of profit and loss acc .....

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with the words last audited profit and loss account . b. To incorporate the Companies (Removal of Difficulties) Order, 2015 into the Act. c. Review of the thresholds to be done by the MCA, at an appropriate time. (Para 1.21) Section 2(87) Subsidiary Company a. To replace the words total share capital with the words total voting power in Section 2(87) (ii), with consequential changes in the Rules to be also carried out. b. To omit the proviso in Section 2(87) dealing with restrictions on layers .....

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any lawful act or activity or business as per the law for the time being in force in the MOA. b. To amend Section 4(5)(i), to reduce the period of name reservation from sixty to twenty days from the date of approval, and simultaneously, the fees for such reservation to be reduced to Rupees Five Hundred. (Para 2.1, 2.2) Section 7(1) (c) Incorporation of companies The requirements with respect to affidavits under Section 7(1) (c) to be replaced with self-declarations. (Para 2.3) Section 12(1) and .....

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ra 2.6) New section Effect of number of members falling below minimum required a. To provide for consequences of number of members falling below the prescribed minimum i.e. fastening the continuing members with the liability for all the debts incurred by the company till the prescribed minimum is restored. b. Provision to be made for the maximum period of 6 months within which the default shall be made good, failing which the violation triggers. (Para 2.7) CHAPTER 3: PROSPECTUS AND ALLOTMENT OF .....

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elied upon. (Para 3.2) Section 42 Private placement a. Requirement under Section 42 and Rule made thereunder with regard to preparation and filing of the private placement offer letter and form PAS 4 to be discontinued. b. Disclosures mandated under Rule 13(2) (d) of the Companies (Share Capital and Debenture) Rules, 2014 to be embodied in the Private Placement Application Form. c. Important information presently provided in Form PAS-4 to be shifted as disclosure requirement under Rule 13(2) (d) .....

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es. e. Section 42(3) to be made explicit about the simultaneous offering of securities of different kinds, as currently prescribed in the Rules. f. To modify Section 42(7) to offer securities only to persons whose details as may be prescribed, are recorded by the company, prior to the invitation to subscribe, with no requirement to file it with the Registry. g. New Rule to be inserted to the effect that companies would initiate circulation of application form and collect monies only after the re .....

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mention (in the body of the resolution) that the offer of debentures being approved by the Board is through private placement under Section 42 and certain other minimum details to be provided in the Board resolution, as may be prescribed in the Rules. k. Private companies (who have been given exemption from Section 117(3) (g) through Section 462 notification) to be required to file board resolutions under Section 179(3) (c) or pass a special resolution. l. Section 42(1) to clearly provide that p .....

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ment unless such return of allotment is filed. o. Company to be mandated to get valuation done (in respect of equity and convertible securities), but the report of the valuer not to be required to be filed/ circulated. p. Section 62(1)(c) and Rule 13(3) requiring price of securities to be decided in advance to be modified and provisions allowing pricing as per a formula (on the lines of RBI regulation/FDI Policy) to be considered. q. For equity or mandatorily convertible securities, the minimum .....

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e allowed to issue shares at a discount pursuant to RBI s Strategic Debt Restructuring Scheme. (Para 4.1) Section 62 Further issue of share capital a. To allow any mode of delivery that would provide irrefutable/certain proof of delivery. b. Section 62(1)(c) and Rule 13(3) to be amended to allow pricing of convertible securities at the time of conversion as per a formula (on the lines of RBI regulation/FDI Policy). (Para 4.3, 3.11) CHAPTER 5: ACCEPTANCE OF DEPOSITS BY COMPANIES Section 73 Prohib .....

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e default was made good, with full disclosures. d. Exemptions to be provided to private companies engaged in the infrastructure sector from the upper limit. e. Limits with regard to raising of deposits from members for Start-ups which are private companies to be removed for the first five years from their incorporation by using Section 462 of the Act. (Para 5.1-5.5) Section 74 Repayment of deposits accepted before the commencement of this Act To bring Rule 19 of Companies (Acceptance of Deposits .....

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of charge Time limits, as provided for under Section 77 for registration of charge to be allowed for reporting satisfaction of charges under Section 82. (Para 6.3) CHAPTER 7: MANAGEMENT AND ADMINISTRATION Section 89 Declaration of beneficial interest Definition of beneficial interest in a share, to be provided as an Explanation. (Para 7.1, 7.2) New section Declaration of beneficial ownership etc. a. Definition to be provided for the beneficial ownership in a company. b. Companies and individuals .....

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ed by making only part of the filed information available to the public. d. Companies not complying with the requirements to be liable to fine and criminal prosecution. (Para 7.2) Section 92 Annual Return a. The Companies (Second) (Removal of Difficulties) Order, 2014, replacing the words paid up capital and turnover with the words paid up capital or turnover to be included in the Act by way of an amendment. b. Prescriptive powers for separate Annual Return format for small companies and OPCs, w .....

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irement to be omitted. (Para 7.6) Section 94 Place of keeping and inspection of registers, returns etc. Personal information in the register of members, as may be prescribed in the Rules, not to be made available publicly. (Para 7.7) Proviso to Section 94 (1) Place of keeping and inspection of registers, returns, etc. The requirement of providing the Registrar with an advance copy of a proposed special resolution as required under Section 94(1) to be done away with. (Para 7.8) Section 96 Annual .....

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extraordinary general meetings only. (Para 7.10) Section 100 and applicable rule Calling of extraordinary general meeting a. Explanation to Rule 18(3) Companies (Management and Administration) Rules, 2014 to be deleted and an explanation to be incorporated at the end of Section 100 mandating that EGMs shall be held only in India. b. Exemptions to be provided to wholly owned subsidiaries of companies incorporated outside India. (Para 7.11) Section 110 Postal Ballot Section 110 to be amended, suc .....

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ara 7.14, 7.16) CHAPTER 8: DECLARATION AND PAYMENT OF DIVIDEND Section 123 Declaration of dividend Section 123(3) be amended in such a way as to allow declaration of interim dividend from out of the profits of the current financial year, generated till the date of declaration, including brought forward surplus in the Profit & Loss Account, and the same could be declared anytime up to convening of AGM for the said financial year. (Para 8.3) CHAPTER 9: ACCOUNTS OF COMPANIES Section 129(3) read .....

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ntures under Section 129 to be amplified/clarified to be in accordance with the applicable Accounting Standards. (Para 9.3, 9.5) Section 130 Re-opening of accounts a. A provision to be included to enable the Court/Tribunal to give notice to any other party/person concerned in the matter, who has not been specifically referred to in the provisions. b. Applicability of provisions of Section 130 for the re-opening of accounts to be restricted to eight years, unless a longer period is required throu .....

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alient points of the CSR Policy, Remuneration Policy to be included in the Board s Report and the detailed documents/policies to be placed on the website of the company, if any, and web address or link of these documents/policies to be provided in the Board s report. Changes in the policies to be specifically highlighted in the salient points. d. Disclosures/ attachments with regard to loans or investments under Section 186 and particulars of contracts with related parties under Section 188 to b .....

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ructured. g. Board s Report to disclose compliance with regard to maintenance of cost records, where mandated. h. Disclosures of compliance under CARO 2015 to be provided in Section 134(3). (Para 9.10, 9.11, 9.12, 9.14, 10.20) Section 135 Corporate Social Responsibility a. Companies not required to appoint Independent Directors to have CSR Committee with two or more directors. b. The words any financial year to be replaced by the words preceding financial year . c. The inconsistency between Rule .....

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of calculation of net profits of a foreign company, through Rules, while referring to Section 381. (Para 9.16, 9.17, 9.18, 9.20, 9.21) Section 136 Right of member to copies of audited financial statement a. Financial statements to be allowed to be circulated at a shorter period as per requisite approval of shareholders. b. Requirements in item (a) of the 4th proviso to Section 136 (1) to be limited to listed companies. (Para 9.26, 9.27) CHAPTER 10: AUDIT AND AUDITORS Section 139 (1) Appointment .....

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he three years transition period would be counted from AGM to AGM, and not from the commencement of the Act. (Para 10.5) Section 141 Disqualifications of auditors a. For the purposes of Section 141(3)(d), the term relative to be suitably modified. b. Section 141(3)(i) to be amended to provide clarity on the restriction provided therein linked to the services prohibited under Section 144. (Para 10.8, 10.9) Section 143 Powers and duties of auditors and auditing standards First proviso to Section 1 .....

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g subsidiaries/associates requiring attention of shareholders, rather than the entire reporting requirements of section 143(3) of the Act. (Para 10.11, 10.12) Section 143(12) Reporting of fraud by auditor Form ADT-4, which specified the manner of reporting fraud, to be modified to allow an auditor to explain his comments. (Para 10.14) Section 147 Punishment for contravention a. Provisions of Rule 9 to be brought in the Act. b. Punishment under Section 147(2) and 147(3) to be aligned. (Para 10.17 .....

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oration. (Para 11.1) Section 149 (6) Independent Directors a. To introduce the test of materiality, for the purpose of determining whether pecuniary relationships could impact the independence of an individual for becoming an independent director. b. In Section 149(6)(d), the scope of the restriction on pecuniary relationship or transaction entered into by a relative to be made more specific by clearly categorizing the types of transactions as provided under Section 141(3)(d). c. In Section 149( .....

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rs to stand for directorships In case of appointment of Independent Directors and Directors recommended by the Nomination and Remuneration Committee, requirements of Section 160 to be dispensed with. (Para 11.7, 11.8) Section 161 (2) Appointment of additional, alternate and nominee directors Section to prohibit appointment of a director of a company as an alternate director in the same company. (Para 11.9) Section 161 (4) Casual vacancy Right to fill a casual vacancy to be made available to the .....

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on (3) of Section 164 and Section 167(1)(f) to be corrected and in case of requirement for vacation of office of a Director, it would not take effect until the appeals are disposed off, while in case of disqualification, provisions for pendency of appeal not to be provided. b. Disqualification under Section 164(2) to be only applicable to a person who was a director at the time of the non-compliance, and in case of a continuing non-compliance, a period of six months is to be allowed for a new Di .....

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173 (2) Participation through video-conferencing Flexibility to be provided to allow participation of Directors through video conferencing, subject to such participation not being counted for the purpose of quorum, but considered for the purpose of sitting fees. (Para 12.1) Section 174 (3) Interested directors: exemptions from Section 174(3) to private companies Exemption to be provided under Section 174(3) to enable participating interested Directors for the purposes of quorum, using Section 46 .....

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ring Board approval under Section 188 need not require the approval of the Audit Committee. d. A clarification to be issued, stating that dormant companies are exempt from the requirement to constitute Audit Committee. (Para 12.3, 12.4, 12.5, 12.6) Section 178 (4) Nomination and Remuneration Committee a. Amendment of Schedule IV, to enable the NRC to prescribe a methodology for the evaluation of performance of individual Directors, Committee(s) of the Board and the Board as a whole , and the Boa .....

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en, if required. (Para 12.9) Section 180 (1) (c) Restriction on Board Power To include securities premium for calculation of aggregate of paid up capital and free reserves. (Para 12.11) Section 184 (5) Disclosure of interest by directors To include body corporate (foreign company) in this provision, to align it to Section 184(2), where the words body corporate have been used to evaluate the interest of a director. (Para 12.13) Section 185 Loans to Directors, etc. a. Companies to be allowed to ad .....

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(1) Loan and Investment by company a. To remove restrictions on layering. b. Principal business of an investment company to be clarified in the explanation below sub-section (13) of Section 186 on the lines of RBI s stipulations. (Para 12.16) Section 186 (2) Loan and Investment by company a. Provisions of Rule 13(1) of the Companies (Meetings of Board and its Powers) Rules, 2013 relating to aggregation of loans and investments for the purpose of calculating the limits under Section 186(2) to be .....

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ance Companies, etc. issued in January 2015, subject to legal clarification, to be included in the sub-section itself through an amendment. (Para 12.21) Second proviso to Section 188 (1) Related Party Transactions a. MCA circular no. 30/2014 in relation to Section 188 (1) to be withdrawn. b. Related parties in case of joint ventures and closely held public companies where they are not allowed to vote, to be specifically excluded from the requirements of the second proviso. (Para 12.22) Section 1 .....

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ward losses of the years subsequent to the Companies (Amendment) Act, 1960. b. Specific provisions for investment companies, whose principal business is sale and purchase of investments, to be incorporated in the Act. (Para 13.8, 13.9) Section 203 read with Schedule V Appointment of key managerial personnel a. Board to be empowered to designate other whole time officers of the company as key managerial personnel and the definition of key managerial personnel in Section 2(51) to be accordingly mo .....

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4: INSPECTION, ENQUIRY AND INVESTIGATION Section 223 Inspection, Inquiry and Investigation Reports to be made available to the members of the company and other body corporate, and also to any other person, whose interests as a creditor of the company and other body corporate appear to the Central Government to be affected. (Para 14.1) CHAPTER 15: COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS Section 236 Purchase of Minority Shareholders References to the phrase transferor company in Section 236, t .....

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et, if he had any interest in such an asset, at any time during three years prior to his appointment, and three years after his cessation as a valuer. (Para 17.1, 17.2) CHAPTER 18: REMOVAL OF NAMES OF COMPANIES FROM THE REGISTER OF COMPANIES No amendments recommended. CHAPTER 19: COMPANIES AUTHORISED TO REGISTER UNDER THIS ACT Section 366 (2) Companies authorized to register under this Act. a. Provision to be amended to allow for conversions to companies from partnership firms, etc. with two or .....

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re shareholding, on the lines of Section 591(1) of the Companies Act, 1956. Amendment in Section 379 with respect to the threshold of transactions etc. conducted by such companies, to be prescribed in the relevant Rules. (Para 20.2) Section 384 Debentures, annual return, registration of charges, books of account and their inspection Provision to be amended to incorporate the provisions of Rule 3 of the CSR Policy Rules, 2014. (Para 9.19) CHAPTER 21: GOVERNMENT COMPANIES No amendments recommended .....

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with additional fees. A separate requirement for additional fees for other than six sections to also be prescribed. c. Rules to clarify that, irrespective of the delay, obtaining condonation of delay is not a pre-requisite to filing a document. (Para 22.2, 22.3) CHAPTER 23: COMPANIES TO FURNISH INFORMATION OR STATISTICS No amendments recommended. CHAPTER 24: NIDHIS Section 406 Nidhi Nidhis to be regulated at a central level in the Ministry, or through one or more Regional Directors. (Para 24.1) .....

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ional Sessions Judge. (Para 26.1) Section 439 (2) Establishment of Special Court The word shareholder to be replaced by the words shareholder or member . (Para 26.2) Section 441 Compounding of Offences a. Under sub-section (1), the Tribunal to have the power to compound offences punishable with fine as well as offences punishable with imprisonment or fine or both. b. Consequential change in Section 441(6) to be made to refer to Special Courts, as well as other courts with whose permission the co .....

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itted, filed, registered or recorded under the provisions of the Act even after a delay of two hundred and seventy days from the date on which it should have been filed, on a payment of additional fee as prescribed. b. The fees prescribed in Table A pursuant to Rule 12 of the Companies (Registration of Offices and Fees) Rules, 2014 to be halved for small companies and OPCs. c. Fees for timely filing may be reduced to zero and additional fees may be increased to up to 10 times of the current addi .....

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ion 184 Disclosure of interest by director Deletion of the minimum fine of Rupees Fifty Thousand. (Para 28.12) Schedule V Conditions to be fulfilled for the appointment of certain directors Revision of the disqualifying fine in Part I of Schedule V to Rupees Fifty Thousand in respect of conviction of offences under the Act to be done. (Para 28.13) Section 447 Punishment for fraud Provision to be amended to provide that frauds, which involve at least an amount of Rupees Ten Lakh or one percent of .....

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The term any other persons in sub-section (3) to be replaced with the phrase shareholder or creditor . b. Under sub-section (2), minimum fine as specified to be retained and maximum fine to extend to Rupees Five Lakh or four times the audit fees, whichever is less, and under the proviso to sub-section (2), the minimum fine to be Rupees Fifty Thousand, and which may extend to Rupees Twenty-Five Lakh or eight times the audit fees, whichever is less. (Para 28.18) Section 132 National Financial Repo .....

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) of Rupees One Thousand per day of default, not exceeding Rupees Twenty Lakh, commencing from the expiry of the time period within which the filings have to be made under the said sub-sections. Section 403 not to be applicable to such contraventions. b. Other contraventions under Section 42 to result in the company, its promoters and directors being punishable with penalty which is to extend to the amount involved in the offer or invitation, or Rupees Two Crore, whichever is lower. Refund of al .....

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s Punishments under Section 185 and 186 to be reduced. (Para 28.25, 28.26) CHAPTER 29: REVIVAL AND REHABILITATION AND WINDING UP Chapter XIX and XX Revival and Rehabilitation and Winding Up Appropriate amendments to the Act to be carried out at the time of enactment of the Bankruptcy Code or soon thereafter. (Para 29.2) PART II: RECOMMENDATIONS PROPOSING AMENDMENTS TO THE RULES PROVISION NATURE OF AMENDMENT CHAPTER 1: COMPANIES (SPECIFICATIONS OF DEFINITIONS DETAILS) RULES, 2014 Rule 2(1)(r) Tot .....

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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 .....

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uired. 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 comp .....

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d . 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 a .....

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onically. 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) CHAPTER 3: COMPANIES (PROSPECTUS AND ALLOTMENT OF SECURITIES) RULES, 2014 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 priv .....

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res 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 .....

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on. (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 consolidat .....

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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) CHAPTER 5: COMPANIES (ACCEPTANCE OF DEPOSIT) RULES, 2014 Rule 2(1)(c) Definition of Deposits - exclusions a. In Rule 2(1)(c)(x .....

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e 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 .....

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ars 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) CHAPTER 6: COMPANIES (REGISTRATION OF CHARGES) RULES, 2014 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) CHAPTER 7: COMP .....

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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 .....

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liday. (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) CHAPTER 8: THE COMPANIES (DECLARATION AND PAYMENT OF DIVIDEND) .....

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S) RULES, 2014 AND COMPANIES (CORPORATE SOCIAL RESPONSIBILITY POLICY) RULES, 2014 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) Disclosu .....

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ords 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. .....

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o ratify the appointment of an auditor. (Para 10.1) CHAPTER 11: THE COMPANIES (APPOINTMENT AND QUALIFICATION OF DIRECTORS) RULES, 2014 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 vacan .....

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rector. The change in status in Register of directors to get triggered only on filing DIR-12. (Para 11.9) CHAPTER 12: THE COMPANIES (MEETINGS OF BOARD AND ITS POWERS) RULES, 2014 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 summar .....

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m 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 em .....

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(Para 14.1, 14.2) CHAPTER 15: THE COMPANIES (REGISTRATION OF FOREIGN COMPANIES) RULES, 2014 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 .....

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