Exemption notification for Section 8 Company

MCA vide notification dated 5th June, 2015[1] (‘Principal Notification’) exempted Section 8 companies from complying with certain provisions of the Companies Act, 2013 (“Act, 2013”) subject to the condition that the company will ensure protection of shareholder’s interests. MCA vide notification dated June 13, 2017[2] (’Amendment Notification’) made certain amendments in the principal notification which has been analysed hereunder. The exceptions, modifications and adaptations shall be applicable to a section 8 company that has not defaulted in filing its financial statements under section 137 of the Act, 2013 or annual return under section 92 of the Act, 2013 with the Registrar.

 

Section No. Principal Notification Amendment Notification Analysis
149 Sub-section (l) of section 149

and the first proviso to subsection

(1).

Clause (b) and first proviso to sub-section (1) of section 149-

Shall not apply.

Section 149(1) of the Act, 2013-

 

Every company shall have a Board of Directors consisting of individuals as directors and shall have-

(a)   a minimum number of three directors in the case of a public company, two directors in the case of a private company, and one director in the case of a One Person Company; and

(b)   a maximum of fifteen directors:

 

Provided that a company may appoint more than fifteen directors after passing a special

Resolution

 

Earlier entire section 149(1) of the Act, 2013 along with first proviso to the said section was not applicable to a section 8 company.

 

After the substitution, only clause (b) and first proviso to section 149(1) shall not apply to a section 8 company.

 

A section 8 company shall have a minimum number of directors as required in case of private and public company.

Section 8 company can appoint more than fifteen directors on its Board without passing a special resolution.

 

In case of section 8 company, there is no maximum limit for number of directors unlike other types of companies.

 

Section 186(7) New insertion In sub-section (7), the following proviso shall be inserted, namely:-

 

Provided that nothing contained in this sub-section shall apply to a company in which twenty-six per cent or more of the paid-up share capital is held by the Central Government or one or more State Governments or both, in respect of loans provided by such company for funding Industrial Research and Development projects in furtherance of its objects as stated in its memorandum of association.

 

Section 186(7) of the Act, 2013 states-

 

(7) No loan shall be given under this section at a rate of interest lower than the prevailing yield of one year, three year, five year or ten year Government Security closest to the tenor of the loan.

 

The above sub-section shall not be applicable to a section 8 company in which 26% or more of the paid share capital is held by the Central Government or one or more State Governments or both.

 

Further, such company shall have given loan for funding Industrial Research and Development projects. The power of granting loan for the abovementioned purpose shall be given in Part B of the object clause (the objects which are necessary for furtherance of the main object) as stated in the MoA of the company.

 

Hence, a section 8 company can give loan at lower rate of interest.

 

 

 

[1] http://www.mca.gov.in/Ministry/pdf/Exemptions_to_Section8_companies_05062015.pdf

[2] http://www.mca.gov.in/Ministry/pdf/ExemptionSection8Companies_14062017.pdf

by  Trupti Upadhyay (trupti@vinodkothari.com)

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