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MEETINGS OF BOARD AND ITS POWERS - Proposed Amendments in the Companies Act 2013

News and Press Release - Dated:- 2-2-2016 - Participation through video-conferencing 12.1 The participation of directors, through video-conferencing, is governed by Section 173(2). The proviso to the sub-section also delegates the authority to prescribe matters that may not be dealt with through video conferencing to the Central Government. Accordingly, Rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014 specifies matters which shall not be dealt with in any meeting held throu .....

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not being counted for the purpose of quorum. However, such Directors, though not counted for the purposes of quorum, may be entitled to sitting fees. Interested directors: exemptions from section 174(3) to private companies 12.2 Private companies have been exempted from the prescription under Section 184(2) barring participation of interested directors in Board meetings. The Committee recommended that since Section 184(2) and Section 174(3) are related sections with respect to interested directo .....

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ittee including on whether it had independent approving powers or has to pre-approve and give its recommendations to the Board. The Committee observed that the Audit Committee has been specifically mandated to approve or modify all related party transactions. This has to be, however, read harmoniously with the provisions of Section 188, which entrust the Board and the shareholders with the responsibility of approving specified related party transactions. The Committee further observed that while .....

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rs involving conflicts of interest should also be referred to the Board only through the audit committee , and the provisions specifically requiring the prior approval of the Audit Committee under SEBI Regulations. Internationally also, the trend is to assign approval of such transactions to Committees consisting of disinterested members of the Board, etc. The Committee recommended that the existing requirement for the Audit Committee to pre approve all related party transactions, subject to app .....

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ved that subject to safeguards, it would be similar to the flexibility provided under Section 188 to the Board and the shareholders. However, concerns of possible misuse of this flexibility would need to be suitably addressed by prescribing an upper threshold of Rupees One Crore on such transactions. 12.5 In addition, the Committee recommended that, as provided in the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 related party transactions between a holding company and .....

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clarification be issued stating that dormant companies are exempt from the requirement to constitute Audit Committee. Nomination and Remuneration Committee 12.7 As per the current provisions of Section 178(2), the Nomination & Remuneration Committee (NRC) is required to carry out evaluation of every director s performance. It is felt that, as Independent Directors are required to carry out review of performance of non-Independent Directors and the Board as a whole separately as per Schedule .....

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lf, by the NRC or by an external party as laid down in the methodology. The performance review by the Independent Directors, as presently required in Schedule IV, may also form part of the methodology. Schedule IV may be amended accordingly. The provision may be reviewed after three years. 12.8 The proviso to Section 178(4) prescribes that the remuneration policy should be disclosed in the report of the Board. In this regard, the Committee felt that it would be sufficient for the company to plac .....

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2, if required. Filing of board resolutions 12.10 Section 179(3) read with Section 117 prescribe filing of board resolutions with the ROC in the prescribed form MGT 14. Section 117(3)(g) has already been amended to restrict availability of such documents for public inspection and provides that private companies are exempted from this filing requirement. The comments received in the public consultation process suggest that the requirements of filing MGT-14 need to be relaxed on account of confide .....

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d that securities premium be also included for the purpose of recognising the borrowing limits, along with the company s paid-up share capital and free reserves, since it was a part of the capital of a company. Prohibitions and restrictions regarding political contributions 12.12 The Committee deliberated on the recommendations made by Law Commission of India in its 255th Report for amending section 182 of the Act (Prohibitions and restrictions regarding political Contributions) to empower a lar .....

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a Director to disclose any change in his interest, instead of at the first Board meeting after such change, did not agree to the suggestion, as in its opinion it could lead to gaps and hence, might not be desirable. It also observed that the requirement for disclosure in body corporates under Section 184(2) of holdings by one or more Directors, was the same as in the Companies Act, 1956; and that the suggestion to change this provision due to difficulties in implementation was not acceptable. T .....

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sused in the past for siphoning of funds by controlling shareholders. The Committee noted that limited relaxation has already been provided to private companies not having other body corporates invested in them and therefore any further relaxation should be subject to greater safeguards. The Committee, therefore, recommended, that it may be considered to allow companies to advance a loan to any other person in whom director is interested subject to prior approval of the company by a special reso .....

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in mind further changes suggested to the provision, in the succeeding paragraphs dealing with other issues in Section 186. Loan and Investment by Company 12.16 The Committee felt that the layering restrictions on investment companies under Section 186(1) may become too obtrusive and impractical in the modern business world. Regulatory concerns arising out of earlier scams were also noted. The Committee noted that while companies that became a subsidiary of another investment company due to any c .....

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ip register requirements should dispel the regulatory concerns. Keeping this in mind, the Committee recommended that the restrictions on layering as contained in the section be omitted. Further, principal business of an investment company may be clarified in the Explanation below sub-section (13) of Section 186 on the lines of RBI s stipulations. 12.17 The Committee further recommended that the provisions of Rule 13(1) of the Companies (Meetings of Board and its Powers) Rules, 2013 relating to a .....

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or pursuant to any approved scheme for all employees by the company, should not, unwittingly, be covered under this Section, as this Section was meant to cover inter-corporate loans. The Committee, therefore, recommended for the insertion of an explanation to clarify the exclusion of employees from the requirement of the sub-section/clause. 12.19 The Committee also deliberated on the suggestion to exempt the application of Section 186, except sub-Section (1), to wholly owned subsidiaries and su .....

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ies to foreign entities. It felt that the company should be looking at the effective yield against the loan given by it and such yield, irrespective of whether a loan is given to a company incorporated outside India, should not be less than the prescribed rate under Section 186(7). 12.21 The Committee noted that while Section 186(11)(b)(iii) provides exemption to investment in shares allotted in pursuance to rights issues by Indian companies under Section 62(1)(a) of the Act, similar exemption b .....

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Section 372A(8) of the Companies Act, 1956 may be used. Related party transactions 12.22 The Committee noted that the circular no. 30/2014 issued by the MCA, clarifying requirements of second proviso to Section 188(1) had been misinterpreted, and hence, should be withdrawn. Further, as all parties in case of joint ventures and closely held public companies may be related parties, not allowing them to vote may be impractical and such cases may be specifically excluded from the requirements of the .....

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