The President of India and the Indian Parliament have approved the Companies (Amendment) Act, 2017 (Amendment Act), which amends the Companies Act, 2013 (Act). However, provisions of the Amendment Act shall come into force on such date as would be notified by the Central Government in the Official Gazette of India. The amendments to the Act are brought in with an aim to strengthen the corporate governance and enhance the ease of doing business in India.
Some of the key highlights of the Amendment Act are:
- The term “joint venture” is defined as a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. (amended explanation to clause 6 of section 2 of the Act)
- Definition of the term “related party” is broadened. (sub-clause (viii) of clause 76 of section 2 of the Act)
- Reference to inclusion of information and reports on financial information, in every prospectus issued by or on behalf of a public company, as may be specified by the Securities and Exchange Board of India (SEBI) in consultation with the Central Government, in order to align the same with SEBI regulations and avoid duplicity. (sub-section 1 of section 26 of the Act)
- Substituting the provisions related to private placement of securities of a company, thereby providing, inter alia, (i) the restriction on companies to utilise the capital raised through private placement unless the allotment has been made and the return of allotment has been filed with the relevant Registrar of Companies (RoC) within 15 (fifteen) days; (ii) the private placement offer letter and application form not to carry any right of renunciation; and (iii) omission of the requirement to file the record of the private placement with the RoC within a period of 30 (thirty) days of circulation of private placement offer letter. (section 42 of the Act)
- Prohibition on issuing shares at a “discount” (replacing erstwhile term “discounted price”) except for issue to company’s creditors when its debt is converted into shares pursuant to any statutory resolution plan or debt restructuring scheme in accordance with any guidelines or directions or regulations specified by the Reserve Bank of India. (section 53 of the Act)
- Substituting erstwhile section in relation to investigation of beneficial ownership of shares in certain cases, with a new section in relation to “register of significant beneficial owners in a company”. The new section, inter alia, provides (i) requirement of a declaration to the company by a significant beneficial owner and the company to maintain a register thereof; and (ii) whereby an individual/ person (other than the holding company) ultimately holds beneficial interest of 25% (twenty five percent) and above in shares of the company, the same shall make a declaration to the company, specifying the nature of the interest. (section 90 of the Act)
- Doing away with various filings such as (i) form MGT-10 with the RoC in the event of a change in the promoters’ stake (pursuant to omission of section 93 of the Act); and (ii) form MGT-14 for resolutions passed under clause (c) of sub-section 1 of section 180 of the Act (related to borrowing of monies).
- Insertion of a proviso to sub-section 2 of section 96 of the Act to provide that an annual general meeting of an unlisted company may be held at any place in India (and not restricted only to the city in which the registered office of the company is situated) if consent is given in writing or by electronic mode by all the members in advance.
- Insertion of a proviso to section 100 of the Act to provide that an extraordinary general meeting of a company which is a wholly owned subsidiary of a foreign company, can be held outside India.
- Amendment to provisions related to Corporate Social Responsibility (CSR) of a company, inter-alia, providing constitution of CSR committee with 2 (two) or more directors where a company is not required to appoint an independent director under sub-section 4 of section 149 of the Act and replacing the term “any financial year” as appearing in sub-section 1 of section 135 of the Act with “the immediately preceding financial year”.
- Modifications in relation to the status of resident directors (a director who stays in India for a total period of not less than 182 (one hundred and eighty two) days during ‘the financial year’ as opposed to the earlier requirement of ‘previous calendar year’) and independent directors of a company. The Amendment Act has also introduced the test of materiality to ascertain the pecuniary relationship of an independent director and the relatives of the director with the company, its holding or subsidiary or associate company. (section 149 of the Act)
- Requirement to acquire a Director Identification Number shall not be mandatory in case the individual holds such identification number, as may be prescribed by the Government under section 153 of the Act.
- Earlier it was mandatory, now it has become optional for a director who resigns, to forward a copy of his resignation (in form DIR-11) to the RoC. (sub-section 1 of section 168 of the Act)
- Amendment to sub-section 1 of section 177 and sub-section 1 of section 178 of the Act which now requires only ‘listed public companies’ (as opposed to ‘listed companies’ earlier) and such other prescribed class or classes of companies, to constitute an audit committee and nomination and remuneration committee respectively.
- Substitution of the provisions related to loans to directors which now provides, inter-alia, that (i) a company may be permitted to advance a loan to person in whom a director is interested subject to prior approval of the company by a special resolution; and (ii) loans extended to persons, including subsidiaries, falling within the restrictive purview of substituted section 185 of the Act should be used by the subsidiary for its principal business activity only. (section 185 of the Act)
- Amendment to sub-section 2 of section 186 of the Act to exclude the applicability of the same to the provision of a loan to or guarantee or security in connection with a loan to an employee of the company.
- Section 194 (Prohibition on forward dealings in securities of a company by director or key managerial personnel) and section 195 (Prohibition on insider trading of securities) of the Act have been omitted.
- Removing the requirement of obtaining approval of the Central Government under section 197 of the Act in relation to the managerial remuneration that is above the prescribed threshold and instead providing for such approval by the shareholders in a general meeting by way of a special resolution.
Along with the above mentioned highlights, the Amendment Act also amends various provisions in relation to the audit requirements of a company, and constitution and operation of the National Company Law Tribunal and brings into effect significant change to various provisions of the Act.
The full text of the Amendment Act can be accessed at: