The Companies
(Amendment) Bill, 2017 with amendments over the Companies (Amendment) Bill,
2016 has been passed by the Lok Sabha in July, 2017. These changes suppressed
the relevant portion of the Companies Act, 2013.
The major
amendments proposed include simplification of the private placement process,
rationalization of provisions related to loan to directors, omission of
provisions relating to forward dealing and insider trading, doing away with the
requirement of approval of the Central Government for managerial remuneration
above prescribed limits, aligning disclosure requirements in the prospectus
with the regulations to be made by SEBI, providing for maintenance of register
of significant beneficial owners and filing of returns in this regard to the
ROC and removal of requirement for annual ratification of appointment or
continuance of auditor.
The bill has
total 93 Clauses by which 92 Amendments been carried out, includes Amendment of
Existing Sections, Insertion of New Sections, Substitution of Existing Section
with New Sections and Omission of Few Sections.
Overview of the Amendments
- The main object is to improve the ease of doing
business so that people who want to start a business – even an one-man company
(a startup) do not have to go through much formalities, disclosures or forms.
So, the idea is to make the law simple so that only lawyers do not benefit and
the companies also benefit.
- The major official amendments introduced include
continuing with the provisions relating to layers of subsidiaries, continuing
with the earlier provisions with respect of memorandum, making offence for
contravention of provisions relating to deposits as non-compoundable, requiring
attaching of financial statement of associate companies, stringent additional
fees of Rs 100 per day in case of delay in filing of annual return and
financial statement etc.
- The amendments proposed are expected to simplify
disclosures and compliance requirements for companies. One example is doing
away with requirement of Government approval for managerial remuneration and
replacing it with the approval to a special resolution by shareholders in
General Meeting; it is a good addition.
- The Bill has also suggested the simplification
of the format of the Board’s report and recommended avoidance of repetitive
information. Requirement of filing and extract of annual return as part of the
Board’s report has been removed. And exemption has been provided for uploading
individual financial statements of step-down foreign subsidiaries by a listed
holding company, where consolidated financial statements have been prepared by
foreign subsidiaries according to the laws of the relevant foreign country.
In the interest of transparency
and fairness, guiding principle for determination of penalties have been
introduced, such as the size of company, nature of business, injury of public
interests etc. To encourage startups, the Amendment Bill proposes several
incentives to startups and small companies. Pre-conditions for a company to be
considered small have been relaxed and so has the format of Board’s report,
annual return for one per cent companies or small companies. The fine for
non-filing of statutory and annual filings have been significantly reduced.
They have been provided more avenues to raise a funds which is also a good
thing for startups.
Effort has also been made to
harmonise Companies Act & SEBI Act to remove ambiguities. The amendments
are therefore doing away with dual requirements, especially in the context of
several separate prescriptions for prospectus and contents of the Board’s
report. Probation of prohibition on forward dealings and insider training has
been omitted since these are relevant for listed entities and already regulated
by SEBI so they have been omitted from Companies Act.
- Also, unlisted
companies will now be allowed to convene annual general meetings at any place
in India, not necessarily at the office. The Bill has empowered the Centre to
exempt any class of foreign companies from applicability of registration and
other requirements provided in the Act. The Bill attempts to address provisions
that were criticised on the grounds of being erroneous relaxing the
restrictions on number of layers of subsidiaries as a much-needed step towards
giving company greater freedom in the way they structure themselves. This
Amendment Bill will remove many ambiguities for the current law and streamline
its provision with others relevant laws.
- The Supreme
Court had nullified certain procedures to appoint technical members of NCLT. This Bill has modified the provision to
bring it in line with the Supreme Court decision, which is a good thing.
Conclusion
The developments so far represent
a pendulum swing. The Act itself was criticized to be too onerous and in many
ways complex to businesses. The CLC Report and the Amendment Bill sought to
mitigate some of the rigour by making the provisions more business friendly. It
is perhaps this tension between the somewhat opposing considerations that
resulted in the Amendment Bill being held up for longer than expected. The
Standing Committee report, the newer amendments proposed as well as the debates
in the Lok Sabha indicate grave concern on the part of the various
constituencies in whether the Amendment Bill will fail to act as a check and
balance against corporate malfeasance which will have an adverse impact on
investor protection. The complexities caused by further amendments to the
Amendment Bill itself is suggestive of this tendency. In the end, it might be
that the passage of the amendments will be the result of some form of
compromises among stakeholders, much like the Act itself represents.
As good corporate governance is
required in India, it is necessary to have proper regulation; freedom to grow,
freedom to invest, freedom to attract investment. The intention of this Bill to
improve the ease of doing business.
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