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GLIMPSES OF REPORT OF THE COMPANIES LAW COMMITTEE PART I

Corporate Laws / Banking / SEBI / LLP - By: - Mr. M. GOVINDARAJAN - Dated:- 5-2-2016 - The Companies Law Committee was constituted in June 2015 for examining and making recommendations on the issues arising out of implementation of the Companies Act, 2013. The Committee submitted its report to the Government on 01.02.2016. The Committee had extensive consultations with stakeholders before making its recommendations. More than 2000 suggestions were received during the consultation process. The Co .....

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incorporated outside India and offences/ penalties. CHAPTER I - PRELIMINARY Definitions The Committee proposes the following changes in the Definition part: Section 2(6) - Associate Company - The committee recommended that for the purposes of this section the term significant influence means a control of at least 20% of the total power or control of or participation in taking business decision under an agreement; The Committee recommended that the term joint venture may be assigned the same mea .....

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a company from the term deposit have been provided in the definition and therefore no change is required; Section 2(41) - Financial year - The Committee recommended that the first proviso to Section 2(41) be expanded to allow associates and joint ventures of a company incorporated outside India to apply for a different financial year to the NCLT; Section 2(46) - Holding Company - The Committee recommended that an explanation on lines of Explanation (c) to Section 2(87) to be included in this sec .....

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that Section 2(76)(viii) be amended to substitute company with body corporate and should also include investing company or the venture of a company in sub-clause (viii) (A) thereof. It also felt that the fifth and sixth Removal of Difficulty Orders of 2014 issued to plug unintentional loophole be brought into the Act through an amendment; Section 2(85) - Small Company - The Committee recommended the replacement of the words last profit and loss account with the words last audited profit and los .....

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iary status. The Committee also recommended to have changes in the Rules; Section 2(91) - Turnover - The Committee recommended to revise the definition as the gross amount of revenue recognized 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; CHAPTER II - INCORPORATION OF COMPANY Section 3 - Formation of Company - The Committee felt that suitable provisions should be made in the Act/ .....

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tely to allow companies the additional option to have a generic object clause i.e., to engage in any lawful ct or activity or business as per the law for the time being in force; Section 4(5)(1) - The Committee recommended that the period of name reservation should be reduced from 60 days to 20 days from the date of approval and simultaneously the fees for such reservation be reduced to ₹ 500/-; Section 7 - Incorporation of company - The Committee felt that the requirements of Section 7(1) .....

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imit for registering change in registered office be increased to 30 days; Section 21 - Authentication of documents, proceedings and contracts - The Committee recommended an amendment to this Section to allow authorization on the signature of any employee of the company duly authorized by the Board ; CHAPTER III - PROSPECTUS AND ALLOTMENT OF SECURITIES Section 26 - Matters to be stated in prospectus - The Committee recommended modifying Section 26(1) to empower SEBI to prescribe the contents in c .....

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d in the prospectus. An amendment in the proviso was recommended; Section 42 - Private Placement - The Committee felt that the requirement under Section 42 and Rule 14 with regard to preparation and filing of Private Placement Offer Letter should be done away with and Form PAS - 4 should be discontinued. In order to ensure that investor gets adequate information about the company which is making private placement, the disclosures made under Explanatory Statement referred to in Rule 13(2)(d) of C .....

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such cases; The Committee recommended that 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 could, at the same time keep open more than one issue of securities (that is, of equity share or preference share or debenture) in a year to such classes of investors as may be prescribed by Rules in order to provide greater flexibility in raising capital/loans while not compromising on regulatory concerns. Section 42(3) .....

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need not, however, be filed with the Registry. The said information, however, could be asked by ROC/Inspector during any of the proceedings under Chapter XIV of the Act. However, in order to ensure that companies are accountable and transparent during private placement process, a new rule may be inserted in Chapter 3 Rules to the effect that companies would initiate circulation of application form and collect monies only after the relevant resolution (i.e. Special resolution or the Board resolut .....

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ould be adequate in case the offer under Section 42 is for debentures up to the borrowing limits permissible for Board under section 180(1)(c) of the Act. This would also align the requirements with that of section 180(1)(c). It was, however, felt that the said Board resolution should clearly mention (in the body of the resolution) that offer of debentures being approved by Board is through private placement under Section 42 and certain other minimum details as may be prescribed in the rules be .....

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-3) within the prescribed timeline, and should be liable for penalties under Section 42 in case of non-compliance. Further, it could be provided in the Act/Rules that companies would not be allowed to utilize the monies raised through private placement unless such return of allotment is filed. The underlying objective is to ensure that private placement process is completed within a finite period of 90 days; The Committee recommended that Section 42(1) may clearly provide that provisions of Sect .....

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for regulatory purposes, as and when required. Further, Section 62(1)(c) and Rule 13(3) requiring price of securities to be decided in advance should be modified and provisions allowing pricing as per a formula (on the lines of RBI Regulation/FDI Policy) may be considered; The Committee felt that in case of equity or mandatorily convertible securities the minimum investment size can be twenty thousand rupees with no linkage to face value so that it can include premium amount as well. However, fo .....

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13 while making changes in Section 42/62 and rules made there under. CHAPTER IV - SHARE CAPITAL AND DEBENTURES Section 53(1) - Prohibition on issue of shares at discount - The Committee recommended that the word discount may replace the words discounted price ; The Committee felt that to enable restructuring of a distressed company, when the debt of such a company is converted into shares in accordance with any debt restructuring guidelines specified by Reserve Bank of India (Strategic Debt Rest .....

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positors, it would increase the cost of borrowing for the company as well as lock-up a high percentage of the borrowed sums. Accordingly, the requirement for the amount to be deposited and kept in a scheduled bank in a financial year should be changed to not less than twenty percent of the amount of deposits maturing during that financial year, which would mitigate the difficulties of companies, while continuing with reasonable safeguards for the depositors who have to receive money on maturity .....

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