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Proposed Amendments in the Companies Act 2013 - as per the report of the Companies Law Committee

News and Press Release - Dated:- 2-2-2016 - REPORT OF THE COMPANIES LAW COMMITTEE DEFINITIONS - Proposed Amendments in the Companies Act, 2013 INCORPORATION OF COMPANIES - Proposed Amendments in the Companies Act, 2013 PROSPECTUS AND ALLOTMENT OF SECURITIES - Proposed Amendments in the Companies Act, 2013 SHARE CAPITAL AND DEBENTURES - Proposed Amendments in the Companies Act, 2013 ACCEPTANCE OF DEPOSITS BY COMPANIES - Proposed Amendments in the Companies Act, 2013 REGISTRATION OF CHARGES - Prop .....

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Companies Act, 2013 APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL - Proposed Amendments in the Companies Act, 2013 INSPECTION, INQUIRY AND INVESTIGATION - Proposed Amendments in the Companies Act, 2013 COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS - Proposed Amendments in the Companies Act, 2013 PREVENTION OF OPPRESSION AND MISMANAGEMENT - Proposed Amendments in the Companies Act, 2013 REGISTERED VALUERS - Proposed Amendments in the Companies Act, 2013 REMOVAL OF NAMES OF COMPANIES FROM TH .....

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NIDHIS - Proposed Amendments in the Companies Act, 2013 NATIONAL COMPANY LAW TRIBUNAL AND NATIONAL COMPANY LAW APPELLATE TRIBUNAL - Proposed Amendments in the Companies Act, 2013 SPECIAL COURTS - Proposed Amendments in the Companies Act, 2013 MISCELLANEOUS - Proposed Amendments in the Companies Act, 2013 PENALTIES - Proposed Amendments in the Companies Act, 2013 REVIVAL & REHABILITATION, AND WINDING UP - Proposed Amendments in the Companies Act, 2013 RECOMMENDATIONS PROPOSING AMENDMENTS TO .....

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4) Section 2(28) Cost Accountant Provision to be amended to define cost accountant in practice. (Para 10.19) Section 2(30) Debenture a. Exception to be made for instruments covered under Chapter III D of the RBI Act. b. Exception to also be made for deposits accepted by banking companies, and flexibility to be given to the Central Government, in consultation with RBI and SEBI, as applicable, to carve out other instruments from the definition, as may be required. (Para 1.7) Section 2(41) Financia .....

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er person as KMP/whole-time KMP (Para 13.10) Section 2(57) Net worth To include debit or credit balance of profit and loss account in the definition of net worth. (Para 1.15) Section 2 (57A) Nominee director New definition to be inserted. (Para 11.6) Section 2(76) Related Party a. To amend Section 2(76) (viii) to substitute the word company with the word body corporate and to also include investing company or the venturer of a company. b. To bring the Companies (Removal of Difficulties) Fifth an .....

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tial changes in the Rules to be also carried out. b. To omit the proviso in Section 2(87) dealing with restrictions on layers of subsidiaries. (Para 1.23, 1.24) Section 2(91) Turnover To revise the definition of turnover as the gross amount of revenue recognised in the profit and loss account from the sale, supply, or distribution of goods or on account of services rendered, or both, by the company during a financial year. (Para 1.25) CHAPTER 2: INCORPORATION OF COMPANIES Section 4(1) (c) Memora .....

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irements with respect to affidavits under Section 7(1) (c) to be replaced with self-declarations. (Para 2.3) Section 12(1) and 12(4) Registered office of company a. Section 12(1) to be amended to provide for a company to have its registered office within thirty days of its incorporation. b. Section 12(4) to be amended so as to increase the time limit for registering change in registered office to thirty days. (Para 2.4, 2.5) Section 21 Authentication of documents, proceedings and contracts Secti .....

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which the default shall be made good, failing which the violation triggers. (Para 2.7) CHAPTER 3: PROSPECTUS AND ALLOTMENT OF SECURITIES Section 26 Matters to be stated in prospectus Section 26(1) to be modified to empower SEBI to prescribe the contents of a prospectus, in consultation with the MCA. MCA and SEBI to devise the minimum disclosures to be included in the prospectus to reduce the size of the prospectus. (Para 3.1) Section 35 Civil liability for misstatement in prospectus Provision to .....

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n Form. c. Important information presently provided in Form PAS-4 to be shifted as disclosure requirement under Rule 13(2) (d). In case of private placement of non-convertible debentures within the ceiling specified under Section 180(1) (c), the Board resolution under Section 179(3) (c) to provide for reasonable details about the proposed offer. d. Subject to the limit on the number of persons who could be made the offer of securities as prescribed under Section 42(2), a company to be allowed to .....

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o be inserted to the effect that companies would initiate circulation of application form and collect monies only after the resolution (i.e. Special resolution or the Board resolution) is filed with the Registry. h. Consequential change to be made to Rule 14(3) and form PAS-5 to be omitted. i. In case of non-convertible debentures, the proviso to Rule 14(2)(a) to be amended to prescribe that the relevant board resolution under Section 179(3)(c) would be adequate in case the offer under Section 4 .....

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ed to file board resolutions under Section 179(3) (c) or pass a special resolution. l. Section 42(1) to clearly provide that provisions of Section 42 and rules made thereunder shall also apply to offer of convertible securities referred to in Section 62(1) (c) read with Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014. m. Companies to be required to file return of allotment (PAS-3) within the prescribed timeline, and to be made liable for penalties under Section 42 in case of .....

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on the lines of RBI regulation/FDI Policy) to be considered. q. For equity or mandatorily convertible securities, the minimum investment size to be Rupees Twenty Thousand with no linkage to face value. For non-convertible preference shares or non-convertible debentures, the minimum investment size to be Rupees One Lakh with no linkage to face value. r. An accountable way of use of renunciation rights by shareholders to be prescribed. (Para 3.4-3.13) CHAPTER 4: SHARE CAPITAL AND DEBENTURES Sectio .....

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(on the lines of RBI regulation/FDI Policy). (Para 4.3, 3.11) CHAPTER 5: ACCEPTANCE OF DEPOSITS BY COMPANIES Section 73 Prohibition of acceptance of deposits from public a. In Section 73(2) (c), the requirement for the amount to be deposited and kept in a scheduled bank in a financial year to be not less than 20% of amount of deposits maturing during that financial year. b. Provisions of Section 73(2) (d) along with the relevant rules providing for deposit insurance to be omitted. c. Section 73( .....

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on 74 Repayment of deposits accepted before the commencement of this Act To bring Rule 19 of Companies (Acceptance of Deposits) Rules, 2014 into the Act. (Para 5.6) Section 76A Punishment for contravention of Section 73 or Section 76 Section 77 Duty to register charges, etc. Minimum fine to be modified to Rupees One Crore, or twice the amount of deposit accepted, whichever is lower, and the maximum amount to be as already provided. (Para 5.7) Section 77(3) to provide for prescriptive powers, to .....

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beneficial ownership etc. a. Definition to be provided for the beneficial ownership in a company. b. Companies and individuals to be obligated to obtain information on beneficial ownership and companies to be empowered to seek information from members and in case of failure to supply the required information, apply sanctions in the form of suspension of rights against the beneficial interests, subject to adequate safeguards. c. Companies to be mandated to maintain register of beneficial owners a .....

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ed in the Act by way of an amendment. b. Prescriptive powers for separate Annual Return format for small companies and OPCs, with lesser detail to be included in the Section. c. The requirement of attaching extract of the annual return to the Board s Report under Section 92(3) to be omitted. The web address/link of the Annual Return filed by the company and hosted on its website, if any, to be provided in the Board s Report. Information with regard to shareholding pattern to be provided as part .....

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ance copy of a proposed special resolution as required under Section 94(1) to be done away with. (Para 7.8) Section 96 Annual General meeting a. Private limited companies and wholly owned subsidiaries of unlisted companies to be allowed to convene AGMs at any place in India, provided approval of 100% shareholders is obtained in advance. b. Section 96(2) to be amended to provide for exemption to a class of companies. (Para 7.9) Proviso to Section 101 (1) Requirement of consent a. Requirement of c .....

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ned subsidiaries of companies incorporated outside India. (Para 7.11) Section 110 Postal Ballot Section 110 to be amended, such that Rule 22(16) of the Companies (Management and Administration) Rules, 2014 would provide that if a company is required to provide for electronic voting, then the mandatory items to be transacted through postal ballot could be transacted through e-voting in the general meetings. (Para 7.12) 117 Resolutions and agreements to be filed a. Clause (e) of Section 117(3) to .....

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ed anytime up to convening of AGM for the said financial year. (Para 8.3) CHAPTER 9: ACCOUNTS OF COMPANIES Section 129(3) read with Section 136 Consolidated Financial statement a. To provide that where a CFS was statutorily required to be prepared as per the law of the jurisdiction in which the overseas subsidiary is established and is placed on the website in the statutory format, there would be no requirement for standalone financial statements of the step down subsidiaries to be attached to t .....

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isions of Section 130 for the re-opening of accounts to be restricted to eight years, unless a longer period is required through a specific direction issued by the Central Government, under Section 128(5). (Para 9.7, 9.8) Section 134 Financial Statement, Board's Report, etc. a. In case of a company not having a managing director, the Chief Executive Officer to be mandated to sign the financial statements. The words if any , to be inserted after the words managing director in Section 134(1). .....

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with regard to loans or investments under Section 186 and particulars of contracts with related parties under Section 188 to be omitted if provided in the financial statements. Such matters to be discussed only in the main Report. Disclosure requirements under Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 to be pruned. e. For small companies, separate format for the Board s Report to be prescribed. f. Disclosures in the Director s Report, Financial Statements and t .....

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tors. b. The words any financial year to be replaced by the words preceding financial year . c. The inconsistency between Rule 2(1) (f) of CSRP Rules, 2014 and provisions of the Act to be removed by providing prescriptive powers to exclude certain income from net profit in Section 135(1) itself. d. Section 135 (3) (a) to be modified to refer to subjects in Schedule VII within which CSR activities could be taken up by an eligible company. e. The term average net profit in Section 135(5) to be rep .....

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ction 136 (1) to be limited to listed companies. (Para 9.26, 9.27) CHAPTER 10: AUDIT AND AUDITORS Section 139 (1) Appointment of Auditors a. Provisions relating to ratification to be omitted. b. Provision to make it explicit that if the auditor was unwilling to continue at any stage before completion of his five-year term, it would be treated as a case of resignation, and provisions of Section 139(8) for the filling up such casual vacancy arising due to resignation would apply. (Para 10.2, 10.3) .....

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der Section 144. (Para 10.8, 10.9) Section 143 Powers and duties of auditors and auditing standards First proviso to Section 143(1) to be amended to provide the auditor of a holding company a right of access to accounts and records of an associate company and joint venture. (Para 10.10) Section 143 (3) (i) Reporting on Internal Financial Control a. To provide for reporting obligations for auditors on internal financial controls to be with reference to the financial statement. b. Auditor to expre .....

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ion 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, 28.17 and 28.18) Section 148 Central Government to specify audit of items of cost The name of Institute of Cost and Works Accountants of India (ICWAI) to be corrected as Institute of Cost Accountants of India (ICAI). (Para 10.21) CHAPTER 11: APPOINTMENT AND QUALIFICATIONS OF DIRECTORS Section 149 (3) Residence requirement for Directors Provision to provide for the resid .....

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e made more specific by clearly categorizing the types of transactions as provided under Section 141(3)(d). c. In Section 149(6)(e)(i), the scope of the restriction to be modified. For the preceding years, the restriction is to be for relatives holding Board or KMP/one level below Board position similar to that contained in Section 141(3)(f). This scope of restriction after appointment is to be retained as provided. (Para 11.2-11.5) Definition Clause Nominee Director Definition of nominee direct .....

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or in the same company. (Para 11.9) Section 161 (4) Casual vacancy Right to fill a casual vacancy to be made available to the Boards of private companies as well. (Para 11.10) Section 165 Number of directorships Directorship in a dormant company to be excluded for reckoning the limit of directorships specified. (Para 11.12) Section 167 (1) (a) Disqualifications from appointment as, and vacation of office of director Scope of Section 167(1) (a) to be limited to only disqualifications under Sectio .....

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e 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 Director to make the company compliant. (Para 11.14, 11.15) Section 168 Resignation of director a. In the proviso to Section 168(1), director to be given an option for filing his resignation, instead of making it mandatory. b. Necessary flexibility to be provided in the Act to do away with the requirement of DIN or provide an option to shift to AADHAAR or any other universa .....

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to be provided under Section 174(3) to enable participating interested Directors for the purposes of quorum, using Section 462 of the Act. (Para 12.2) Section 177 (4) Audit Committee a. For transactions not covered under Section 188, the Audit Committee to give its recommendation to the Board in case it is not approving a particular transaction. b. Subject to safeguards, Audit Committee to allow ratification subject to an upper threshold of Rupees One Crore on such transactions. c. Section 177 .....

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gy for the evaluation of performance of individual Directors, Committee(s) of the Board and the Board as a whole , and the Board to carry out the performance evaluation as per the methodology approved by the Board. b. Companies to be allowed place the remuneration policy on its website, if any, and to disclose only the salient features of the policy, along with the web-link in the Board s report. (Para 12.7, 12.8) Section 177 and 178 Audit Committee With respect to private companies which have d .....

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sed to evaluate the interest of a director. (Para 12.13) Section 185 Loans to Directors, etc. a. Companies to be allowed to advance loans to any other person in whom the director is interested, subject to the prior approval of the company by a special resolution. b. Loans extended to persons, including subsidiaries, falling within the restrictive purview of Section 185 to be used by the subsidiary for its principal business activity only, and not for further investment or grant of loan. c. Inter .....

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s, 2013 relating to aggregation of loans and investments for the purpose of calculating the limits under Section 186(2) to be provided in the Act. b. An explanation to be inserted to clarify the exclusion of employees from the requirement of the sub-section/clause. (Para 12.17, 12.18) Section 186 (7) Loan and Investment by company The loan given to foreign entity should be at the effective yield which should not be less than the rate provided under Section 186 (7). (Para 12.20) Section 186 (11) .....

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they are not allowed to vote, to be specifically excluded from the requirements of the second proviso. (Para 12.22) Section 194 and 195 Prohibition on forward trading and insider trading of securities To be deleted. (Para 12.23) CHAPTER 13: APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL Section 197 Managerial remuneration The requirement for government approval to be omitted altogether, and necessary safeguards in the form of additional disclosures, audit, higher penalties, etc. may be pr .....

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f the company as key managerial personnel and the definition of key managerial personnel in Section 2(51) to be accordingly modified. b. A whole time key managerial personnel, holding necessary qualifications, to be allowed to hold more than one position in the same company at the same time. c. Companies to file information (similar to that for auditors) on the resignation of any of the KMPs in the Registry. d. The requirement under Schedule V for a foreign national to have stayed in India for a .....

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AND AMALGAMATIONS Section 236 Purchase of Minority Shareholders References to the phrase transferor company in Section 236, to be modified to a company whose shares are being transferred or alternatively, an explanation to be provided in the provision clarifying that Section 236 only applies to the acquisition of shares. (Para 15.1) CHAPTER 16: PREVENTION OF OPPRESSION AND MISMANAGEMENT No amendments recommended. CHAPTER 17: REGISTERED VALUERS Section 247 (2) (d) Registered Valuers a. Governmen .....

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ter under this Act. a. Provision to be amended to allow for conversions to companies from partnership firms, etc. with two or more members , provided that in case of less than seven members, the conversion would be to a private company. b. Changes in the Rules to be made to allow registration of partnership firms as companies. (Para 19.1, 19.2) CHAPTER 20: COMPANIES INCORPORATED OUTSIDE INDIA Section 379 Application of Act to Foreign Companies Clarity to be provided in respect of applicability o .....

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the provisions of Rule 3 of the CSR Policy Rules, 2014. (Para 9.19) CHAPTER 21: GOVERNMENT COMPANIES No amendments recommended. CHAPTER 22: REGISTRATION OFFICES AND FEES Section 403 (1) Fee for filing etc. a. Necessary changes to be made in the 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. b. Additional fees to be enhanced substantially (by up to ten times of the current prescribed a .....

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on 406 Nidhi Nidhis to be regulated at a central level in the Ministry, or through one or more Regional Directors. (Para 24.1) CHAPTER 25: NATIONAL COMPANY LAW TRIBUNAL AND NATIONAL COMPANY LAW APPELLATE TRIBUNAL Section 409, 411, 412 NCLT and NCLAT Sections 409(3)(a) & (e), 411(3) and 412(2), as directed by the Honourable Supreme Court, to be included in the Act. (Para 25.1) CHAPTER 26: SPECIAL COURTS Section 435 Establishment of Special Courts Early establishment/designation of the Special .....

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equential change in Section 441(6) to be made to refer to Special Courts, as well as other courts with whose permission the compounding may be allowed. (Para 26.3) CHAPTER 27: MISCELLANEOUS No amendments recommended. CHAPTER 28: PENALTIES Section 92 and 137 Annual Returns and Financial Statements Fines under sections 92(5) and 137(3) to be reduced to half for a prescribed class of companies. (Para 28.6) Section 403 Fee for filing a. Clarification to be issued under Note 3 of Table B, that on a c .....

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s. c. Fees for timely filing may be reduced to zero and additional fees may be increased to up to 10 times of the current additional fees with steep slabs after the first slab. Non-compliance should result in deprival of moratorium from prosecution as specified and levy of higher level of additional fees.. (Para 28.8, 28.9, 28.10) Section 177, 178 Audit Committee and Nomination & Remuneration Committee and Stakeholders Relationship Committee Punishment provided for officer in default under S .....

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or fraud Provision to be amended to provide that frauds, which involve at least an amount of Rupees Ten Lakh or one percent of the turnover of the company, whichever is lower, (and non-compoundable). Frauds involving amounts below such limits which do not involve public interest to be given a differential treatment and to be made compoundable. (Para 28.15) Section 441 Compounding of offences Under sub-section (1), the Tribunal to have the power to compound offences punishable with fine as well a .....

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