By Munmi Phukon & Smriti Wadehra (email@example.com)
The Ministry, on 7th May, 2018, has come out with certain changes in some of the Rules prescribed under the Companies Act, 2013. One of such changes has been made in the Companies (Appointment and Qualification of Directors) Rules, 2014. The amendment is being made under Rule 5 of the said Rules which pertains to qualification of independent directors (IDs) considering the enforcement of the changes in section 149(6)(d) brought by the Companies (Amendment) Act, 2017 w.e.f the aforesaid date. Read more
By Pammy Jaiswal (firstname.lastname@example.org),(email@example.com)
MCA vide its notification dated 7th May, 2018 has enforced another set of 28 sections of the Companies (Amendment) Act, 2017 (‘Amendment Act’). The notification has enforced sections primarily dealing with the definition of associate company, doing away with ratification of auditors, charge registration, delay in filing of returns along with additional fees, annual return, etc.
With the third set of enforcement notification, MCA has made corresponding changes in the following Companies Rules under the Companies Act, 2013 (‘Act, 2013’).
- Companies (Meeting of the Board and its Powers) Rules, 2014 (‘MBP Rules);
- Companies (Prospectus and Allotment of Securities) Rules, 2014 (‘PAS Rules’);
- Companies (Appointment and Qualification of Directors) Rules, 2014 (‘AQD Rules’);
- Companies (Audit and Auditors) Rules, 2014 (‘AA Rules’);
- Companies (Share Capital and Debenture) Rules, 2014 (‘SCD Rules’); and
- Companies (Specification of Definition and Details) Rules, 2014.
This write up compiles the changes brought in the following Companies Rules namely:
1. MBP Amendment Rules, 2018
Prior to Amendment
Nature of Amendment
Impact of the Amendment
|1.||Participation of directors through VC mode for restricted items||Section 173 of the Act, 2013 does not allow the participation of directors in board meetings for discussing certain matters in the nature of unpublished price sensitive information (‘UPSI’). Matters dealing with (i) the approval of annual financial statements; (ii) the approval of the Board’s report; (iii) the approval of the prospectus; and (iv) the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover are required to be approved in a duly convened board meeting without the participation of directors in video-conferencing mode.
|In view of streamlining the provisions of the Amendment Act, rule 4 of the MBP Rules have been amended to allow the participation of the directors through VC even for the restricted matters provided the directors physically present form the requisite quorum for the meeting.
|The intent of law for the bringing such amendment is to allow wider participation of directors and provide flexibility in terms of mode of participation.
The matters for which VC has now been enabled are matters in the nature of UPSI and therefore, the officer convening the meeting has to ensure that while using such mode of participation, confidentiality of the information is maintained.
|2.||Constitution of the Audit and the Nomination and Remuneration Committee||Section 177 and 178 of the Act, 2013 requires the certain classes of companies to constitute audit committee and nomination and remuneration committee with independent directors forming majority and one-half of the total strength respectively. The law requires for constituting such committees for every listed company which also includes private listed companies.
However, MCA vide its notification dated 5th July, 2017 had waived the requirement of appointing an independent director in certain public companies viz. JV companies, WoS and a dormant company.
|The requirement of constituting an audit committee and a nomination and remuneration committee shall be required for listed public companies only in addition to other classes of public companies.
|Private companies which have their debt securities listed have now been explicitly exempted from constituting audit committee and nomination and remuneration committee.
The amendment is a clarificatory change and allows the private listed companies to uphold their privacy. However, relevant terms of reference of an audit and nomination and remuneration committee will any ways be looked after by the board or any sub-committee so constituted.
|3.||Passing of prior special resolution in case of crossing limits laid under section 186||Section 186 of the Act, 2013 requires passing of prior special resolution in case the limits laid under the said section are exceeded (60% of the PUSC, free reserves and securities premium account or 100 of free reserves and securities premium account, whichever is more). It further requires to state the upper limit upto which loans, guarantee, security or investment shall be made by the company. The details of such loans, guarantee, security or investment so made is required to be disclosed in the financial statements as well.
|The amendment has done away with the requirement of obtaining prior special resolution for the said purposed in excess of the prescribed limits.
|No impact, only the language has been altered.|
2. SCD Amendment Rules, 2018
|Prior to amendment||Nature of amendment||Impact of amendment|
|1.||Issue of sweat equity shares
|The expression of ‘employees’ for the purpose of issue of sweat equity shares by unlisted companies meant a permanent employee of the company who had been working in or outside India, for atleast one year.
|The Amendment Act, 2017 omits the requirement for a period of one year to elapse after the commencement of the business for the issue of sweat equity shares.
The amendment in the rules is in line with the aforesaid change and does away with the condition for an permanent employee in or outside India to be working for atleast one year.
|In case of issue of sweat equity shares by unlisted companies they are required to comply with SHD Rules in this regard.
The issue of sweat equity shares can now be done to permanent employees working in or outside India, irrespective of their period of employment in the Company.
The amendment in the aforesaid rules is a reflex action pursuant to the enforcement of relevant section of the Amendment Act under the third phase (read our write-up here). The amendment under the MBP Rules is a welcome change and allows flexibility in business operations by a company.
– By Nikita Snehil ( firstname.lastname@example.org)
MCA vide its notification dated February 27, 2018 has amended the Companies (Accounts) Rules, 2014, as per which the following proviso shall be inserted in Rule 10 which deals with statement containing salient features of financial statements referred in 1st proviso to sub-section (1) of Section 136 –
“Provided that the Companies which are required to comply with Companies (Indian Accounting Standards) Rules, 2015 shall forward their statement in Form AOC-3A.”
Therefore, the introduction of Companies (Accounts) Amendment Rules, 2018 (‘Amended Rules’) will lead to the following:
|Financial to be submitted in form||Applicability|
|AOC-3||Companies to which Ind AS is not applicable for FY 2017-18|
|AOC-3A||Companies to which Ind AS is applicable for FY 2017-18|
The format of the said form has also been provided in the amended Rules, however, the e-version of the form is awaited.
Further, the format also specifically provides for the contents of the salient features of the Director’s Report which may be referred to by the companies furnishing the abridged financial statements in e-Form AOC-3A as a matter of good governance.
Issues draft rules on Section 89 and 90
CS Vinita Nair, email@example.com
Amendment to Section 89 and 90 is one of the key amendments proposed in Companies (Amendment) Act, 2017 (Amendment Act). While, the Amendment Act is being enforced in phases, stakeholders have been awaiting the draft rules in relation to Significant Beneficial Ownership (SBO). MCA on 15.02.2018 issued draft Companies (Beneficial Interest and Significant Beneficial Interest) Rules, 2018 which is open for public comments till 07.03.2018. Read more