Second Phase of Enforcement- 43 sections of Companies (Amendment) Act, 2017 comes to life!
By CorpLaw Services Division (firstname.lastname@example.org)
12th February, 2018
Subsequent to the notification dated 23rd January, 2018, enforcing Sections 1 and 4 of the Companies (Amendment) Act, 2017, (Amendment Act, 2017”) w.e.f. 26th January, 2018, the Ministry has now notified 43 sections thereof to be effective from 9th February, 2018 of which some sections are clarificatory in nature whereas some sections call for actionables on the part of companies.
The following table is a comprehensive table which captures the enforced 43 sections alongwith actionables, if any, on the part of companies.
|Section in Amendment Act, 2017||Original section||Pertains to||Amended Text||Remarks|
|Section 2 except clause (i) and (xiii)||Section 2||Definitions||Definitions have been amended except explanation of definition of significant influence, joint venture, and securities premium account.||The changes in the definitions has been separately covered in our another write up which can be found at: http://vinodkothari.com/corporate-laws/|
|Section 3||No provision in Act, 2013||Formation of Company||3A. If at any time the number of members of a company is reduced, in the case of a public company, below seven, in the case of a private company, below two, and the company carries on business for more than six months while the number of members is so reduced, every person who is a member of the company during the time that it so carries on business after those six months and is cognizant of the fact that it is carrying on business with less than seven members or two members, as the case may be, shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefore.||The Act, 2013 did not provide any provision for consequences in case of reduction of members below statutory limit. The Amendment Act, 2017 now provides that when the number of members falls below the statutory minimum requirement for a continuous period of 6 months, the members of the company shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued thereof.
This reinstates the provisions of the Companies Act, 1956.
|Section 7||Section 21||Authentication of documents, proceedings and contracts||For the words “an officer of the company”, the words “an officer or employee of the company” shall be substituted||The Board may now consider authorizing employees for authentication of documents and contracts.|
|Section 9||Section 35||Civil Liability for mis-statements in Prospectus||After section 35 (2) (b) following clause (c) is inserted stating:
that, as regards every misleading statement purported to be made by an expert or contained in what purports to be a copy of or an extract from a report or valuation of an expert, it was a correct and fair representation of the statement, or a correct copy of, or a correct and fair extract from, the report or valuation; and he had reasonable ground to believe and did up to the time of the issue of the prospectus believe, that the person making the statement was competent to make it and that the said person had given the consent required by sub-section (5) of section 26 to the issue of the prospectus and had not withdrawn that consent before delivery of a copy of the prospectus for registration or, to the defendant’s knowledge, before allotment thereunder.
|Section 35 of the Act, 2013 enlists persons who shall be liable to compensate persons who has sustained any loss or damage on account of subscribing securities by relying upon any statement made in the prospectus.
However, section 35(2) provides immunity to persons from paying compensation if:
· The consented director has withdrawn his consent before issue of prospectus.
· For persons without whose knowledge or consent the prospectus was issued and subsequently on becoming aware of the facts has withdrawn his consent.
This clause has now been replaced with provision of immunity to a person relying on an expert’s report/ statement. Since section 35(1)(e) also includes experts as one of the person who shall be liable for compensation i.e. if any person relied upon the expert’s competence for preparing statement, the expert shall be the only one liable to compensate. Therefore, the amendment proposes to provide immunity to all of the persons mentioned in sub-section (1) except the experts.
|Section 11||Section 47||Voting rights||In section 47, in sub-section (1), for the words, figures and brackets “provisions of section 43 and sub-section (2) of section 50”, the words, figures and brackets “provisions of section 43, sub-section (2) of section 50 and sub-section (1) of section 188” shall be substituted;||Section 47 of the Act, 2013 empowers voting power to every member holding share capital in the company. However, the powers bestowed upon the section is subjected to provisions of three sections broadly:
1. Section 43: In case shares are issued with differential rights the voting powers will be as per the provisions of the said section
2. Section 50: No voting rights can be given for uncalled shares even if the member has paid uncalled money in advance. The same shall over-ride this section
3. Section 188: No member of the company can vote on resolution for approval of any contract or arrangement if such member is a related party. The provisions of section 47 shall be subject to provisions of section 188(1).
The proposed amendment has no relevance for private companies, as the companies are already exempted from the provisions of sections 43, 47 and second proviso to section 188. Further, for other companies this is merely a removal of contradiction between two provisions of law.
|Section 12||Section 53||Prohibition on issue of shares at discount||(i) in sub-section (2), for the words “discounted price”, the word “discount” shall be substituted;
(ii) after sub-section (2), the following sub-section shall be inserted, namely:—
“(2A) Notwithstanding anything contained in sub-sections (1) and (2), a company may issue shares at a discount to its creditors when its debt is converted into shares in pursuance of any statutory resolution plan or debt restructuring scheme in accordance with any guidelines or directions or regulations specified by the Reserve Bank of India under the Reserve Bank of India Act, 1934 or the Banking (Regulation) Act, 1949.”
|The provisions of section 53 of the Act, 2013 prohibited issuance of any shares at a discounted price. However the word “discounted price” was very ambiguous for companies therefore to remove ambiguity the amendment act, 2017 has replaced the word with “discount”.
In case of restructuring of accounts, it was observed that borrowing companies were not able to come out of stress due to operational/ managerial inefficiencies and change of ownership is the only preferred option. It was prescribed that banks may at their discretion undertake “Strategic Debt Restructuring” by converting loan into equity shares as per RBI circular on SDR scheme dated 8th June, 2015.
The amendment has been introduced to align the provisions with the RBI circular.
|Section 14||Section 62||Further issue of share capital||(i) in sub-section (1), in clause (c), for the words “of a registered valuer subject to such conditions as may be prescribed”, the words and figures “of a registered valuer, subject to the compliance with the applicable provisions of Chapter III and any other conditions as may be prescribed” shall be substituted;
(ii) for sub-section (2), the following sub-section shall be substituted, namely:—
“(2) The notice referred to in sub-clause (i) of clause (a) of sub-section (1) shall be dispatched through registered post or speed post or through electronic mode or courier or any other mode having proof of delivery to all the existing shareholders at least three days before the opening of the issue.
|The change in clause (c) is clarificatory.
Further, the mode of sending notices under section 62 has been extended to include courier and any other mode of delivery which shall have proper proof of delivery.
|Section 17||Section 76A||Punishment for contravention of section 73 or section 76.||(a) in clause (a), for the words, “one crore rupees”, the words “one crore rupees or twice the amount of deposit accepted by the company, whichever is lower” shall be substituted
(b) in clause (b),— (i) for the words “seven years or with fine”, the words “seven years and with fine” shall be substituted; (ii) the words “or with both” shall be omitted
|The punishment for contravention of sections 73 and 76 has become more pain-staking as the fine has been increased to one crore or twice the amount of deposit, which is lower. Further, the offence has become non-compoundable as now the punishment shall include both fine and seven years of imprisonment.|
|Section 27||Section 100||Calling of Extra-Ordinary General Meeting.||Provided that an extraordinary general meeting of the company, other than of the wholly owned subsidiary of a company incorporated outside India, shall be held at a place within India.||EGM can only be conducted in India except:
1. Specified IFSC private company
2. Foreign Wholly owned subsidiary
|Section 28||Section 101||Notice of Meeting||Provided that a general meeting may be called after giving shorter notice than that specified in this sub-section if consent, in writing or by electronic mode, is accorded thereto—
(i) in the case of an annual general meeting, by not less than ninty-five per cent. of the members entitled to vote thereat; and
(ii) in the case of any other general meeting, by members of the company—
(a) holding, if the company has a share capital, majority in number of members entitled to vote and who represent not less than ninety-five per cent. of such part of the paid-up share capital of the company as gives a right to vote at the meeting; or
(b) having, if the company has no share capital, not less than ninty-five per cent. of the total voting power exercisable at that meeting:
Provided further that where any member of a company is entitled to vote only on some resolution or resolutions to be moved at a meeting and not on the others, those members shall be taken into account for the purposes of this sub-section in respect of the former resolution or resolutions and not in respect of the latter.
|The Amendment Act, 2017 has introduced different eligibility requirements of calling meeting on shorter notices for different types of general meetings. For calling EGM on shorter notice now the Company requires to fulfill dual condition i.e. approval of majority in number of members representing not less than 95% of the paid up share capital and in case of companies having no share capital then approval of members holding not less than 95% of the total voting power.
However, the amendment has not specified any timeline to obtain such an approval while SS-1 provides that the consent may be received on the day of the meeting itself.
|Section 29||Section 110||Postal Ballot||Provided that any item of business required to be transacted by means of postal ballot under clause (a), may be transacted at a general meeting by a company which is required to provide the facility to members to vote by electronic means under section 108, in the manner provided in that section.||Considering the intent of law on providing larger participation of the members, voting by postal ballot and by electronic means play same role. Therefore, the restriction on only a postal ballot was a redundant requirement for the companies providing electronic facility too. This will certainly help such companies in conduct of its business and also reduction of cost.|
|Section 32||Section 123||Declaration of Dividend||(a) in sub-section (1),— (i) in clause (a),—
(A) for the words “both; or”, the word “both:” shall be substituted;
(B) the following proviso shall be inserted, namely:— “Provided that in computing profits any amount representing unrealised gains, notional gains or revaluation of assets and any change in carrying amount of an asset or of a liability on measurement of the asset or the liability at fair value shall be excluded; or”;
(ii) in the second proviso, for the words “transferred by the company to the reserves”, the words “transferred by the company to the free reserves” shall be sustituted; (b) for sub-section (3), the following sub-section shall be substituted, namely:—
“(3) The Board of Directors of a company may declare interim dividend during any financial year or at any time during the period from closure of financial year till holding of the annual general meeting out of the surplus in the profit and loss account or out of profits of the financial year for which such interim dividend is sought to be declared or out of profits generated in the financial year till the quarter preceding the date of declaration of the interim dividend:
Provided that in case the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during immediately preceding three financial years
|The amendment in this section throws light on the following:
· Clarity on excluding artificial profits like unrealised gains, notional gains etc. for the purpose of calculating profit for the purpose of declaring dividend.
· Interim dividend can be declared for any financial year even after the closure of such financial year upto the holding of such F.Y.
Eg., interim dividend is declared in July- August for previous FY, the same may be declared out of profits till the quarter preceding the date of such declaration i.e. till June quarter.
Though such declaration of interim dividend will be welcomed by the shareholders, however, such declaration out of profits of the current FY does not seem to be logical from the view point of the company.
As of now, there seems to be no action on the said amendment, however, following things have to borne in mind while declaration of dividend:
· Calculation to exclude artificial profits;
· Companies enabled to declare interim dividend even after 31st March, 2018 till the date of ensuing AGM
|Section 34||Section 130||Re-opening of accounts on court’s or Tribunal’s orders||(i) in sub-section (1), in the proviso,—
(a) after the words “regulatory body or authorities concerned”, the words “or any other person concerned” shall be inserted;
(b) after the words “the body or authority concerned”, the words “or the other person concerned” shall be inserted;
(ii) after sub-section (2), the following sub-section shall be inserted, namely:—
“(3) No order shall be made under sub-section (1) in respect of re-opening of books of account relating to a period earlier than eight financial years immediately preceding the current financial year: Provided that where a direction has been issued by the Central Government under the proviso to sub-section (5) of section 128 for keeping of books of account for a period longer than eight years, the books of account may be ordered to be re-opened within such longer period.
|· Courts/ Tribunal shall have power to give notice to any persons, company or auditor and into consideration their representation before passing any order.
· Tribunal may order for re-opening of books of accounts for a period upto 8 F.Y immediately preceeding the F.Y unless Central Government has director otherwise in section 128(5)
|Section 35||Section 132||Constitution of National Financial Reporting Authority||(i) in sub-section (4), in clause (c), in sub-clause (A), in item (II), for the words “ten lakh rupees”, the words “five lakh rupees” shall be substituted;
(ii) in sub-section (5), for the words, brackets and figure “the Appellate Authority constituted under sub-section (6) in such manner as may be prescribed”, the words “the Appellate Tribunal in such manner and on payment of such fee as may be prescribed” shall be substituted;
|The amount of penalty that can be imposed by NFRA is reduced to Rs. 5 lakhs from 10 Lakhs.
Order of NFRA can be appealed in NCLAT.
However, the principal section is yet to get enforced.
|Section 38||Section 136||Right of Member to copies of audited financial statement||(i) in sub-section (1),—
(a) the words and figures “Without prejudice to the provisions of section 101,” shall be omitted;
(b) in the first proviso, for the words “Provided that”, the following shall be substituted, namely:—
“Provided that if the copies of the documents are sent less than twenty-one days before the date of the meeting, they shall, notwithstanding that fact, be deemed to have been duly sent if it is so agreed by members—
(a) holding, if the company has a share capital, majority in number entitled to vote and who represent not less than ninety-five per cent. of such part of the paid-up share capital of the company as gives a right to vote at the meeting; or
(b) having, if the company has no share capital, not less than ninety five per cent. of the total voting power exercisable at the meeting:
Provided further that”;
(c) in the second proviso, for the words “Provided further”, the words, “Provided also” shall be substituted;
(d) for the fourth proviso, the following provisos shall be substituted, namely:—
‘Provided also that every listed company having a subsidiary or subsidiaries shall place separate audited accounts in respect of each of subsidiary on its website, if any:
Provided also that a listed company which has a subsidiary incorporated outside India (herein referred to as “foreign subsidiary”)—
(a) where such foreign subsidiary is statutorily required to prepare consolidated financial statement under any law of the country of its incorporation, the requirement of this proviso shall be met if consolidated financial statement of such foreign subsidiary is placed on the website of the listed company;
(b) where such foreign subsidiary is not required to get its financial statement audited under any law of the country of its incorporation and which does not get such financial statement audited, the holding Indian listed company may place such unaudited financial statement on its website and where such financial statement is in a language other than English, a translated copy of the financial statement in English shall also be placed on the website.’;
(ii) in sub-section (2), the following proviso shall be inserted, namely:—
“Provided that every company having a subsidiary or subsidiaries shall provide a copy of separate audited or unaudited financial statements, as the case may be, as prepared in respect of each of its subsidiary to any member of the company who asks for it.”
|Sending copies of financial statements and other documents less than 21 days before date of meeting will be deemed to be duly sent if the same is agreed to by members in the same manner as provided in section 101 for shorter notice of EGM.
In case of listed companies having foreign subsidiary the following requirements shall apply-
o Placing of consolidated financial statements (CFS) on website where the laws of such foreign subsidiary requires preparation of CFS
o Placing of unaudited financial statements where preparation of audited financial statements is not required.
Providing of copies of audited/ unaudited financial statements to any members who asks for it in companies having subsidiary(ies).
The said amendment will have following actions :
|Section 41||Section 140||Removal, resignation of auditor and giving of special notice||In section 140 of the principal Act, in sub-section (3), for the words “fifty thousand rupees”, the words “fifty thousand rupees or the remuneration of the auditor, whichever is less,” shall be substituted||If the auditor resigns without filing of ADT-3 within 30 days of his resignation with the registrar or Comptroller or auditor general in case of government companies the minimum fine shall be Rs. 50,000 or remuneration of auditor whichever is less with a maximum fine of Rs. 5 lakhs.
Penalty has now been additionally linked to the remuneration of the auditor.
|Section 42||Section 141||Eligibility, qualifications and disqualifications of auditors||In section 141 of the principal Act, in sub-section (3), for clause (i), the following clause shall be substituted, namely:—
‘(i) a person who, directly or indirectly, renders any service referred to in section 144 to the company or its holding company or its subsidiary company.
Explanation.—For the purposes of this clause, the term “directly or indirectly” shall have the meaning assigned to it in the Explanation to section 144.’
|The Amendment Act provides clarity on the subject that any person whose subsidiary or associate company is engaged directly or indirectly rendering services mentioned in section 144 shall be ineligible for appointment as auditor.
The language has been straightened.
|Section 43||Section 143||Powers and duties of auditors and auditing standards||(i) in sub-section (1), in the proviso, for the words “its subsidiaries”, at both the places, the words “its subsidiaries and associate companies” shall be substituted;
(ii) in sub-section (3), in clause (i), for the words “internal financial controls system”, the words “internal financial controls with reference to financial statements” shall be substituted;
(iii) in sub-section (14), in clause (a), for the words “cost accountant in practice”, the words “cost accountant” shall be substituted.
|The consolidation of books of accounts is required in case of subsidiaries, associates, joint ventures and the right to access books of accounts were required to be provided to auditors of holding company. The existing provisions provide for only subsidiary which shall also include associate companies.
Further, the definition of associate companies includes joint ventures so they need not be specifically mentioned. Therefore, the auditor of the holding company shall have access to subsidiary, associate, and joint venture companies of such holding company.
Further, the Amendment Act has restricted the scope of responsibility of the auditors to only internal financial controls of financial statements.
|Section 44||Section 147||Punishment for contravention||(i) in sub-section (2),— (a) after the words “five lakh rupees”, the words “or four times the remuneration of the auditor, whichever is less” shall be inserted;
(b) in the proviso, for the words “and with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees”, the words “and with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees or eight times the remuneration of the auditor, whichever is less” shall be substituted;
(ii) in sub-section (3), in clause (ii), for the words “or to any other persons”, the words “or to members or creditors of the company” shall be substituted; (iii) in sub-section (5), the following proviso shall be inserted, namely:— “Provided that in case of criminal liability of an audit firm, in respect of liability other than fine, the concerned partner or partners, who acted in a fraudulent manner or abetted or, as the case may be, colluded in any fraud shall only be liable.”
|The maximum fine for non-compliance with the provisions of section 143, 144 and 145 has been increased to minimum 5 lakhs or four times the remuneration of the auditor whichever is less.
Intentional contravention of the provisions of these sections will attract a minimum fine of Rs. 50,000 and maximum may range from 25 lakhs to eight times the remuneration of auditor whichever is less.
The auditor will be personally liable to pay for damages of the members or creditors.
|Section 45||Section 148||Central Government to specify audit of items of cost in respect of certain companies||(i) in sub-section (3),— (a) for the words “Cost Accountant in practice”, the words “cost accountant” shall be substituted;
(b) in the Explanation, for the words “Institute of Cost and Works Accountants of India”, the words “Institute of Cost Accountants of India” shall be substituted; (ii) in sub-section (5), in the proviso, for the words “cost accountant in practice”, the words “cost accountant” shall be substituted.
|Amendment in this section is linked to the amendment proposed in the definition of cost accountant as per section 2(28) of the Act which provides :
“Cost Accountant” means a cost accountant as defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 and who holds a valid certificate of practice under sub-section (1) of section 6 of that Act.
It is clarificatory change and will have no significant impact.
|Section 47||Section 152||Appointment of directors||(a) in sub-section (3), after the word and figures “section 154”, the words and figures “or any other number as may be prescribed under section 153” shall be inserted;
(b) in sub-section (4), after the word “Number”, the words and figures “or such other number as may be prescribed under section 153” shall be inserted.
|The change is brought to align with the changes in section 153.|
|Section 48||Section 153||Application for allotment of Director identification number||Provided that the Central Government may prescribe any identification number which shall be treated as Director Identification Number for the purposes of this Act and in case any individual holds or acquires such identification number, the requirement of this section shall not apply or apply in such manner as may be prescribed.||The amendment is an enabling change which indicates that the Government may introduce any other number which is universally accepted and can be used as an alternative for DIN.|
|Section 50||160||Right of persons other than retiring directors to stand for directorship||In section 160 of the principal Act, in sub-section (1), the following proviso shall be inserted, namely:—
‘‘Provided that requirements of deposit of amount shall not apply in case of appointment of an independent director or a director recommended by the Nomination and Remuneration Committee, if any, constituted under sub-section (1) of section 178 or a director recommended by the Board of Directors of the Company, in the case of a company not required to constitute Nomination and Remuneration Committee.”
|The requirement to deposit amount has been done away with in the case of appointment of an independent director and directors recommended by NRC or by the Board, in case NRC is not required to be constituted by way of Amendment Act.|
|Section 51||161||Appointment of additional, alternate director and nominee director||In section 161 of the principal Act,— (i) in sub-section (2), after the words “alternate directorship for any other director in the company”, the words “or holding directorship in the same company” shall be inserted;
(ii) in sub-section (4),— (a) the words “In the case of a public company,” shall be omitted; (b) after the words “meeting of the Board”, the words “which shall be subsequently approved by members in the immediate next general meeting” shall be inserted.
|The restriction of holding alternate directorship has been extended to an existing director also.
Further, the appointment by the board of a director to fill up a casual vacancy shall subsequently be approved by the members in the general meeting. Also, this has been extended to private companies as well.
|Section 53||165||Number of directorships||In section 165 of the principal Act, in sub-section (1), the Explanation shall be renumbered as Explanation I and after Explanation I as so numbered, the following Explanation shall be inserted, namely:—
Explanation II.—For reckoning the limit of directorships of twenty companies, the directorship in a dormant company shall not be included.”.
|The Amendment Act have excluded dormant companies while ascertaining limit of twenty companies for calculating the no of directorships|
|Section 59||180||Restrictions on the powers of the Board||In section 180 of the principal Act, in sub-section (1), in clause (c), for the words “paid-up share capital and free reserves”, the words “paid-up share capital, free reserves and securities premium” shall be substituted.||The borrowings limits under Section 180 will include securities premium in addition to the paid-up share capital and free reserves as securities premium is also a part of the capital of the company.|
|Section 60||184||Disclosure of interest by director||In section 184 of the principal Act,—
(i) in sub-section (4), the words “shall not be less than fifty thousand rupees but which” shall be omitted;
(ii) in sub-section (5), for clause (b), the following clause shall be substituted, namely:— ”
(b) shall apply to any contract or arrangement entered into or to be entered into between two companies or between one or more companies and one or more bodies corporate where any of the directors of the one company or body corporate or two or more of them together holds or hold not more than two per cent. of the paid-up share capital in the other company or the body corporate.
|The minimum penalty under sub- section (4) has been removed. The fine likely to be imposed may extend to INR 1 Lakh.
Further, body corporates are included within the purview of this sub-section to align it with the provisions of section 184(2). The change is clarificatory.
|Section 63||188||Related Party Transactions||In section 188 of the principal Act,—
(i) in sub-section (1), after the second proviso, the following proviso shall be inserted, namely:—
“Provided also that nothing contained in the second proviso shall apply to a company in which ninety per cent. or more members, in number, are relatives of promoters or are related parties:”;
(ii) in sub-section (3), for the words “shall be voidable at the option of the Board”, the words “shall be voidable at the option of the Board or, as the case may be, of the shareholders” shall be substituted.
|The restriction on voting under section 188 had an impact on companies which are closely held companies or the JV companies formed through a partnership making the provision impractical to them.
There is a clarificatory change as in shareholders shall also have the power to avoid a contract/arrangement earlier not approved but was required to be approved by the shareholders.
|Section 64||194||Prohibition on forward dealings in securities of company by director or key managerial personnel||Section 194 of the principal Act shall be omitted||The provision relates to prohibition on forward dealings in securities of the company by director or key manager personnel, as these are covered under SEBI Regulations stands omitted as the section has no relevance.|
|Section 65||195||Prohibition on insider trading of securities||Section 195 of the principal Act shall be omitted||The provision related to insider trading are already covered under SEBI(Prohibitions of Insider Trading) Regulations, 2015.Further, the Section did not provide exemption to private and public companies which are not listed on any recognized stock exchange.|
|Section 72||Section 223||Inspector’s report.||In sub-section (3), after the words “may be obtained”, the words “by members, creditors or any other person whose interest is likely to be affected” shall be inserted.||The Amendment Act, 2017 clarifies that the copy of the report of the Inspector may be obtained by the members, creditors or any other person whose interest is likely to be affected. The same was absent from the provisions of the erstwhile Act and hence the Amendment Act, 2017 provides clarity on the same.|
|Section 73||Section 236||Purchase of minority shareholding||In sub-sections (4), (5) and (6), for the words,
“transferor company”, wherever they occur, the words “company whose shares are being transferred” shall be substituted
|Although there were several procedural clarifications awaited such as process to be followed for shares held in demat form, time limit for the closure of the offer etc., the Amendment Act, 2017 has just brought about a clarificatory change which only replaces the words “transferor company” to the words “company whose shares are being transferred”.|
|Section 74||Section 247||Valuation by registered valuers||In sub-section (2), in clause (d), for the words “during or after the valuation of assets”, the words “during a period of three years prior to his appointment as valuer or three years after the valuation of assets was conducted by him” shall be substituted.||There was a need of clarity on the time period for determining the interest of the valuer in the assets being valued, and hence, the Amendment Act, 2017 provides for a time frame of 3 years prior to the appointment of the valuer or 3 years post the valuation on the assets is done by him.
Further, the transitional exemption for the appointment of registered valuer has been extended till 30th September, 2018, as against 31st March, 2018, by virtue of Notification dated 9th February, 2018.
|Section 77||Section 379||Application of Act to foreign companies||Section 379 of the principal Act shall be renumbered as sub-section (2) thereof and before sub-section (2) as so renumbered, the following sub-section shall be inserted, namely:—
“(1) Sections 380 to 386 (both inclusive) and sections 392 and 393 shall apply to all foreign companies:
Provided that the Central Government may, by Order published in the Official Gazette, exempt any class of foreign companies, specified in the Order, from any of the provisions of sections 380 to 386 and sections 392 and 393 and a copy of every such Order shall, as soon as may be after it is made, be laid before both Houses of Parliament.
|The Amendment Act, 2017, extends the applicability of the following provisions to all foreign companies:
i. 380- Documents, etc., to be delivered to Registrar by foreign companies;
ii. 381- Accounts of foreign company;
iii. 382- Display of name, etc., of foreign company;
iv. 383- Service on foreign company
v. 384- Debentures, annual return, registration of charges, books of account and their inspection.
vi. 385- Fee for registration of documents.
vii. 386- Interpretation;
viii.392- Punishment for contravention.
ix. 393- Company’s failure to comply with provisions of this Chapter not to affect validity of contracts, etc.
Earlier the section was applicable to only those foreign companies whose paid up capital (equity or preference or both) to the extent of 50% held by Indian citizens Indian bodies corporate.
|Section 78||Section 384||Debentures, annual return, registration of charges, books of account and their inspection.||In sub-section (2), after the word and figures “section 92”, the words and figures “and section 135” shall be inserted.||Although the rules under Section 135 is applicable to a foreign company also, however, the Companies (Amendment) Act, 2017 more specifically extends the applicability of Section 135 to a foreign company which is merely a clarificatory change.|
|Section 79||Section 391||Application of sections 34 to 36 and Chapter XX||For sub-section (2), the following sub-section shall be substituted, namely:—
“(2) Subject to the provisions of section 376, the provisions of Chapter XX shall apply mutatis mutandis for closure of the place of business of a foreign company in India as if it were a company incorporated in India in case such foreign company has raised monies through offer or issue of securities under this Chapter which have not been repaid or redeemed.
|Section 391 to apply only to those foreign companies having pending repayment/ redemption of money raised through issue of securities
Such foreign companies will be required to follow sections 355, 376 and 377 of the Act, 2013 for closure of its place of business.
|Section 82||Section 409||Qualification of President and Members of Tribunal||In sub-section (3),—
(i) in clause (a), for the words “out of which at least three years shall be in the pay scale of Joint Secretary to the Government of India or equivalent or above in that service”, the words “and has been holding the rank of Secretary or Additional Secretary to the Government of India” shall be substituted;
(ii) for clause (e), the following clause shall be substituted, namely:—
“(e) is a person of proven ability, integrity and standing having special knowledge and professional experience of not less than fifteen years in industrial finance, industrial management, industrial reconstruction, investment and accountancy.”
|Technical Member is required to hold the rank of Secretary or additional Secretary to the GOI.
The Amendment Act removes the requirement of having specific knowledge and expertise in labour matters, revival, rehabilitation and winding up of companies.
|Section 84||Section 411||Qualifications of chairperson and Members of Appellate Tribunal||For sub-section (3), the following sub-section shall be substituted, namely:—
(3) A technical member shall be a person of proven ability, integrity and standing having special knowledge and professional experience of not less than twenty-five years in industrial finance, industrial management, industrial reconstruction, investment and accountancy.
|The Amendment Act removes the requirement of having specific knowledge and expertise in labour matters, revival, rehabilitation and winding up of companies|
|Section 85||Section 412||Selection of Members of Tribunal and Appellate Tribunal||For sub-section (2), the following sub-sections shall be substituted, namely:—
(2) The Members of the Tribunal and the Technical Members of the Appellate Tribunal shall be appointed on the recommendation of a Selection Committee consisting
(a) Chief Justice of India or his nominee—Chairperson;
(b) a senior Judge of the Supreme Court or Chief Justice of High Court—
(c) Secretary in the Ministry of Corporate Affairs—Member; and
(d) Secretary in the Ministry of Law and Justice—Member.
(2A) Where in a meeting of the Selection Committee, there is equality of votes on any matter, the Chairperson shall have a casting vote.
|Secretary, Department of Financial Services, MoF is removed from the list of members for the NCLT and NCLAT.
Chairperson of the Selection Committee to exercise a casting vote in case of deadlock.
|Section 90||Section 441||Compounding of certain offences.||In sub-section (1), for the words “with fine only”, the words “not being an offence punishable with imprisonment only, or punishable with imprisonment and also with fine” shall be substituted.||The Amendment Act clarifies that compounding of offences should be done only for-
i. Fine; or
ii. Fine or imprisonment
|Section 91||—||New sections inserted-
ii. 446B- Lesser
|446A. The court or the Special Court, while deciding the amount of fine or imprisonment under this Act, shall have due regard to the following factors, namely:—
(a) size of the company;
(b) nature of business carried on by the company;
(c) injury to public interest;
(d) nature of the default; and
(e) repetition of the default.
446B. Notwithstanding anything contained in this Act, if a One Person Company or a small company fails to comply with the provisions of sub-section (5) of section 92, sub-section (2) of section 117 or sub-section (3) of section 137, such company and officer in default of such company shall be punishable with fine or imprisonment or fine and imprisonment, as the case may be, which shall not be more than one-half of the fine or imprisonment or fine and imprisonment, as the case may be, of the minimum or maximum fine or imprisonment or fine and imprisonment, as the case may be, specified in such sections.
|Section 446A provides for various grounds for imposing fine or imprisonment.
Section 446B provides for imposing fine on OPCs and small companies and their officers in default in failure of the following:
i. Annual return
ii. Failure to file resolution or agreement u/s 102;
iii. File copy of financial statements u/s 137
|Section 92||Section 447||Punishment for fraud||(i) after the words “guilty of fraud”, the words “involving an amount of at least ten lakh rupees or one per cent. of the turnover of the company, whichever is lower”
shall be inserted;
(ii) after the proviso, the following proviso shall be inserted, namely:—
“Provided further that where the fraud involves an amount less than ten lakh rupees or one per cent. of the turnover of the company, whichever is lower, and does not involve public interest, any person guilty of such fraud shall be punishable with imprisonment for a term which may extend to five years or with fine which may extend to twenty lakh rupees or with both.”.
|The amendment has bifurcated the section into 2 parts, categorizing frauds into serious and non-serious.
Frauds of serious nature are non-compoundable and non-serious frauds are compoundable.
Public interest is a determining factor for term of imprisonment and quantum of fine
|Section 93||Section 458||Delegation by Central Government of its powers and functions.||Sub-section (1), the proviso shall be omitted||Since there is a separate set of regulation by SEBI on Insider Trading, Section 194 and 195 of the Companies Act, 2013 is proposed to be deleted.
Accordingly, the power to enforce the said sections is also deleted.
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