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Proposals of the Companies (Amendment) Bill 2016 as introduced in the Lok Sabha on 16th March, 2016.
April, 08th 2016
                                                                                       Corporate Laws & Corporate Governance Committee ICAI 


 
Proposals of the Companies (Amendment) Bill 2016 as introduced in the Lok Sabha on 16th March, 2016

The Companies Act 2013 was enacted to improve corporate governance and to further strengthen regulations for the companies, keeping in
view the changing economic environment as well as the growth of our economy. The Ministry of Corporate Affairs has notified 284 Sections of
the Act. However, there were difficulties in smooth implementation of the Companies Act 2013. The Ministry of Corporate Affairs has issued
various notifications, circulars, Removal of difficulty orders and amendment in Rules for resolving the issues and to help in smooth
implementation. Further, certain amendments were also brought through the Companies (Amendment) Act 2015.

While presenting the Companies (Amendment) Act 2015 to the Rajya Sabha, the Finance Minister mentioned that various queries were
received that are being addressed through issuance of Notifications/ Amendment in Rules and some of them have been addressed through
these amendments. However, these 16 amendments are not enough to cover everything. The Finance Minister stated that "a broad-based
committee will continue to go into this question for the next few months as to where the shoe pinches, and this may not be the last
amendments which we are bringing in."

Consequently, the Government of India constituted The Companies Law Committee in June 2015 for making recommendations on the issues
arising out of implementation of the Companies Act 2013. The Committee submitted its Report to the Government on 1st February 2016.

Based on the report of the Companies Law Committee and comments received from the stakeholders and Ministries/ Departments, it has been
decided by the Government to amend the Companies Act, 2013 and to bring out another Amendment Bill, 2016.

Through the Companies (Amendment) Bill 2016 which was introduced in the Lok Sabha on 16th March, 2016, around 100 amendments have
been proposed. The proposed changes are broadly aimed at addressing difficulties in implementation owing to stringency of compliance
requirements; facilitating ease of doing business in order to promote growth with employment; harmonisation with accounting standards, the
Securities and Exchange Board of India Act, 1992 and the regulations made thereunder, and the Reserve Bank of India Act, 1934 and the
regulations made thereunder; rectifying omissions and inconsistencies in the Act.

S. No    Section          Proposal in the Companies Provision  in      the                  Companies Remarks
                          Law Committee Report      (Amendment) Bill 2016

    1.   Section 2 (6)- The Committee recommended (i) in clause (6), for the Explanation, the An explanation has been
         Definition  of that the Explanation to Section following Explanation shall be substituted, added       for   significant
         Associate      2(6) should read as "For the namely:--                                      influence to mean control of

                                                                    1 
 
                                                                                            Corporate Laws & Corporate Governance Committee ICAI 


 
         company           purposes       of     this  clause,                                                   at least twenty per cent of
                           `significant    influence'  means     'Explanation.--For the purpose of this          total voting power instead of
                           control of at least twenty per cent   clause--                                        total share capital.
                           of the total voting power, or         (a) the expression "significant influence"
                           control of or participation in        means control of at least twenty per cent.      Further the definition of Joint
                           taking business decisions under       of total voting power, or control of or         Venture is also proposed
                           an agreement."                        participation in business decisions under an    now.
                                                                 agreement;
                         The Committee recommended               (b) the expression "joint venture" means a
                         that the term "joint venture" may       joint arrangement whereby the parties that
                         be assigned the same meaning as         have joint control of the arrangement have
                         under Indian Accounting Standard        rights to the net assets of the arrangement;'
                         (Ind AS) 28 as part of the
                         Explanation to Section 2(6) itself.
    2.   Section 2 (30)- The Committee felt that an              (iii) in clause (30), the following proviso
                                                                                                    The amendment has been
         Definition   of exception      be     made      for     shall be inserted, namely:--       proposed as phrase "any
         Debenture       instruments      covered     under      "Provided that--                   other    instrument     of    a
                         Chapter III D of the RBI Act,           (a) the instruments referred to in Chapter
                                                                                                    company evidencing a debt"
                         1934 in the term `debenture' as                                            appearing in the definition
                                                                 III-D of the Reserve Bank of India Act,
                         defined in Section 2 (30) of the        1934; and                          made it very broad and
                         Companies Act, 2013. In addition,       (b) such other instrument, as may be
                                                                                                    included,    by    implication,
                         an exception may also be made           prescribed by the Central Government in
                                                                                                    instruments like commercial
                         for deposits accepted by banking        consultation with Reserve Bank of India,
                                                                                                    papers and other money
                         companies, and flexibility be           issued by a company, shall not be treated
                                                                                                    market instruments, which
                         given to the Central Government,        as debenture;";                    were often used as an
                         in consultation with RBI and                                               important short-term fund
                         SEBI, as applicable, to carve out                                          raising source by eligible
                         other instruments from the                                                 companies; and were well
                         definition, as may be required.                                            regulated       under      RBI
                                                                                                    regulations.
    3.   Section 2 (41)- The Committee recommended (iv) in clause (41), in the first proviso, after The amendment has been
         Definition   of that the first proviso to Section the word "subsidiary", the words "or proposed as the NCLT should

                                                                        2 
 
                                                                                             Corporate Laws & Corporate Governance Committee ICAI 


 
         financial year      2(41) be expanded to also allow associate company" shall be inserted;              have similar powers (to allow
                             associates and joint ventures of a                                                 a different financial year) for
                             company incorporated outside                                                       associates and joint ventures
                             India to apply for a different                                                     of a company incorporated
                             financial year to the NCLT.                                                        outside India, since the
                                                                                                                financial     statements     of
                                                                                                                associates and joint ventures
                                                                                                                were      also    taken    into
                                                                                                                consideration       in      the
                                                                                                                preparation of `consolidated
                                                                                                                financial statements' (CFS), if
                                                                                                                required.
    4.   Section 2 (46)- The Committee recommended                (v) in clause (46), the following Explanation The amendment has been
         Definition   of that an Explanation (on the lines        shall be inserted, namely:--                  proposed to remove an
         Holding         of Explanation (c) to Section            'Explanation.--For the purposes of this anomaly which could lead to
         Company         2(87) to mean that expression            clause, the expression "company" includes uncertainties in ascertaining
                         "company" includes any body              any body corporate;';                         the status of a company, in
                         corporate) be included in Section                                                      case of a foreign holding
                         2 (46).                                                                                company;       and    also    in
                                                                                                                determining the applicability
                                                                                                                of the Act to such a
                                                                                                                company.
    5.   Section 2 (49)-     The Committee felt that in view of   clause (49) shall be omitted;                 The amendment has been
         Definition     of   the redundancy, the definition of                                                  proposed as the definition
         Interested          `interested director' may be                                                       was redundant
         Director            omitted
    6.   Section 2 (51)-     The Committee recommended to         in clause (51),--                            The amendment has been
         Definition of Key   allow the Boards of relevant         (a) in sub-clause (iv), the word "and" shall proposed to remove practical
         Managerial          companies to appoint any other       be omitted;                                  difficulty
         Personnel           person as KMP/ Whole time KMP        (b) for sub-clause (v), the following sub-
                                                                  clauses shall be substituted, namely:--
                                                                  "(v) such other officer, not more than one

                                                                         3 
 
                                                                                           Corporate Laws & Corporate Governance Committee ICAI 


 
                                                               level below the directors who is in whole-
                                                               time employment, designated as key
                                                               managerial personnel by the Board; and
                                                               (vi) such other officer as may be
                                                               prescribed;";
    7.   Section 2 (57)- The Committee recommended for (viii) in clause (57), for the words "and                 The amendment has been
         Definition of Net the phrase `debit or credit balance securities premium account", the words ",         proposed as the net worth of
         Worth             of the profit and loss account' to securities premium account and debit or            a     company reflects its
                           be included in the definition.      credit balance of profit and loss account,"       intrinsic value and it does not
                                                               shall be substituted;                             include the `debit or credit
                                                                                                                 balance of the profit and loss
                                                                                                                 account'
    8.   Section 2 (71)-                                        in clause (71), in sub-clause (a), after the     The amendment has been
         Definition    of                                       word "company;", the word "and" shall be         proposed        to      remove
         Public Company                                         inserted;                                        ambiguity
    9.   Section 2 (76)- The       Committee,      therefore,   (x) in clause (76), for sub-clause (viii), the   The amendment has been
         Definition    of recommended that Section 2 (76)       following sub-clause shall be substituted,       proposed as the term related
         Related Party    (viii) be amended to substitute       namely:--                                        party", as currently defined,
                          `company' with `body corporate'       "(viii) any body corporate which is--            used the word "company"
                          and should also include investing     (A) a holding, subsidiary or an associate        meaning thereby that those
                          company or the venturer of a          company of such company;                         entities       that       were
                          company in sub-clause (viii) (A)      (B) a subsidiary of a holding company to         incorporated in India would
                          thereof.    In    addition,     the   which it is also a subsidiary; or                come in the purview of the
                          Committee also felt that the fifth    (C) an investing company or the venturer of      definition.
                          and sixth Removal of Difficulty       a company;";
                          Orders of 2014, issued to plug                                                         This    resulted    in    the
                          unintentional    loopholes       be                                                    impression that companies
                          brought into the Act through an                                                        incorporated outside India
                          amendment.                                                                             (such as holding/ subsidiary/
                                                                                                                 associate / fellow subsidiary
                                                                                                                 of an Indian company) were
                                                                                                                 excluded from the purview of

                                                                       4 
 
                                                                                          Corporate Laws & Corporate Governance Committee ICAI 


 
                                                                                                              related party of an Indian
                                                                                                              company.
    10. Section 2 (85)- The Committee recommended the           (xi) in clause (85),--                        The amendment has been
        Definition   of replacement of the words "last          (a) in sub-clause (i), for the words "five proposed         to     remove
        Small Company   profit and loss account" with the       crore rupees", the words "ten crore rupees" inadvertent drafting error.
                        words "last audited profit and loss     shall be substituted;
                        account", to take care of what          (b) in sub-clause (ii),--                     Also, the thresholds have
                        seemed to be an inadvertent             (A) for the words "as per its last profit and been revised. The maximum
                        drafting      error.    It     also     loss account", the words "as per profit and paid up capital has now been
                        recommended the Removal of              loss account for the immediately preceding increased from Rs 5 crore to
                        Difficulty Order to be given effect     financial year" shall be substituted;         Rs 10 crore.
                        to through an amendment to the          (B) for the words "twenty crore rupees", the
                        Act itself.                             words "one hundred crore rupees" shall be The         maximum     turnover
                                                                substituted;                                  requirement has now been
                          Further, it was noted that a                                                        increased from Rs 20 crore to
                          review of the thresholds for small                                                  Rs 100 crore.
                          companies would be done by
                          MCA, at an appropriate time.
    11. Section 2 (87)- The Committee recommended               (xii) in clause (87),--                      The amendment has been
        Definition     of that the term "total share capital"   (a) in sub-clause (ii), for the words "total proposed in order to address
        Subsidiary        be replaced with the term `total      share capital", the words "total voting the practical problems
        Company           voting power', as equity share        power" shall be substituted;
                          capital should be the basis for
                          determining     holding/subsidiary
                          status. Consequential changes in
                          the Rules may also be required.
    12. Proviso        to The Committee felt that while the     (xii) in clause (87),--                   The amendment has been
        Section 2 (87)    proviso to Section 2(87) has not       (b) the proviso shall be omitted;        proposed       as     imposing
                          yet been notified, it was likely to   (c) in the Explanation, item (d) shall be restrictions on layers could be
                          have a substantial bearing on the     omitted;                                  construed as restrictive for
                          functioning, structuring and the                                                conduct of businesses.
                          ability of companies to raise funds




                                                                       5 
 
                                                                                         Corporate Laws & Corporate Governance Committee ICAI 


 
                        when so notified and hence
                        recommended that the proviso be
                        omitted.
    13. Section 2 (91)- The Committee recommended             (xiii) for clause (91), the following clause    The Institute of Chartered
        Definition   of that the definition of the term       shall be substituted, namely:--                 Accountants of India (ICAI)
        turnover        `turnover' be revised to read         '(91) "turnover" means the gross amount of      suggested that the definition
                        `"turnover" means the gross           revenue recognised in the profit and loss       of turnover should mean the
                        amount of revenue recognized in       account from the sale, supply, or               amount       of      revenue
                        the profit and loss account from      distribution of goods or on account of          recognised    as   per    the
                        the sale, supply or distribution of   services rendered, or both, by a company        applicable        Accounting
                        goods or on account of services       during a financial year;'.                      Standards followed by the
                        rendered, or both, by the                                                             company.
                        company during a financial year'.
    14. Section      3-                                       After section 3 of the principal Act, the       The amendment has been
        Formation    of                                       following section shall be inserted,            proposed to be made the
        company                                               namely:--                                       members liable in case the
                                                              "3A. If at any time the number of members       company has lesser number
                                                              of a company is reduced, in the case of a       of    members    than   as
                                                              public company, below seven, in the case of     prescribed.
                                                              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 cognisant 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 therefor.".

                                                                     6 
 
                                                                                         Corporate Laws & Corporate Governance Committee ICAI 


 
    15. Section    4- The Committee recommended for          In section 4 of the principal Act,--           The amendment has been
        Memorandum    a more liberal operational regime      (i) in sub-section (1), for clause (c), the proposed     for   smooth
                      for companies. To provide for          following clause shall be substituted, implementation.
                      this,        the        Committee      namely:--
                      recommended        that     Section    "(c) that the company may engage in any
                      4(1)(c) should be amended              lawful act or activity or business, or any act
                      appropriately, to allow companies      or activity or business to pursue any specific
                      the additional option to have a        object or objects, as per the law for the
                      generic object clause, i.e., "to       time being in force:
                      engage in any lawful act or
                      activity or business as per the law    Provided that in case a company proposes
                      for the time being in force" in the    to pursue any specific object or objects or
                      MOA.                                   restrict its objects, the Memorandum shall
                                                             state the said object or objects for which
                                                             the company is incorporated and any matter
                         The         Committee         also  considered       necessary in furtherance
                         recommended that the period of      thereof and in such case the company shall
                         name reservation should be          not pursue any act or activity or business,
                         reduced from 60 days to 20 days     other than specific objects stated in the
                         from the date of approval, and      Memorandum;";
                         simultaneously, the fees for such
                         reservation be reduced to Rupees (ii) in sub-section (5), in clause (i), for the
                         Five Hundred.                      words "sixty days from the date of the
                                                            application", the words "twenty days from
                                                            the date of approval or such other period as
                                                            may be prescribed" shall be substituted;

                                                             (iii) after sub-section (6), the following sub-
                                                             sections shall be inserted, namely:--
                                                             "(6A) A company may adopt the model
                                                             memorandum applicable to such a
                                                             company.

                                                                    7 
 
                                                                                           Corporate Laws & Corporate Governance Committee ICAI 


 
                                                                (6B) In case of any company, which is
                                                                registered after the commencement of the
                                                                Companies (Amendment) Act, 2016, in so
                                                                far as the registered memorandum of such
                                                                company does not exclude or modify the
                                                                contents in the model memorandum
                                                                applicable to such company, those contents
                                                                shall, so far as applicable, be the contents
                                                                of the Memorandum of that company in the
                                                                same manner and to the extent as if that
                                                                was contents of the duly registered
                                                                memorandum of the company.".
    16. Section       7- The Committee recommended              In section 7 of the principal Act, in sub-       The amendment has been
        Incorporation of that the requirements with             section (1), in item (c), for the words "an      proposed   for    removing
        company          respect to affidavits under Section    affidavit", the words "a declaration" shall be   additional     documentary
                         7(1)(c) could be replaced with         substituted.                                     burden,
                         self-declarations, as a wrong
                         declaration     carries   a    stiff
                         punishment under the Act.

                          Regarding     certification under
                          Section 7(1)(b), the Committee
                          further recommended that a
                          certificate by both the parties
                          stated therein ought to be
                          retained as an additional check at
                          the stage of incorporation of the
                          company.
    17. Section      12- The Committee recommended              In section 12 of the principal Act,--         The amendment has been
        Registered office that this sub-section may be          (i) in sub-section (1), for the words "on and proposed as the time was
        of the company    amended to provide for a              from the fifteenth day of its incorporation", insufficient
                          company to have its registered        the words " within thirty days of its

                                                                       8 
 
                                                                                           Corporate Laws & Corporate Governance Committee ICAI 


 
                           office within thirty days of its incorporation" shall be substituted;
                           incorporation.
                                                              (ii) in sub-section (4), for the words "within
                           The        Committee       further fifteen days", the words "within thirty days"
                           recommended that the time limit shall be substituted.
                           for     registering  change     in
                           registered office be increased to
                           thirty days.

    18. Section      21-   The Committee recommended an          In section 21 of the principal Act, for the The amendment has been
        Authentication     amendment to Section 21, to           words "an officer of the company", the proposed as practically it is
        of documents,      allow authorizations, on the          words "an officer or employee of the very difficult for only such top
        proceedings and    signature of `any employee of the     company" shall be substituted.              level persons to sign the
        contracts          company duly authorised by the                                                    documents, without providing
                           Board'                                                                            for any other employee to
                                                                                                             sign, even with a board
                                                                                                             resolution.
    19. Section    26- The Committee recommended                 In section 26 of the principal Act, in sub- The amendment has been
        Matters to be that Section 26(1) of the                  section (1),--                              proposed as with the detailed
        stated in the Companies Act, 2013 may be                 (i) after the words "signed and shall", the information,     the     offer
        prospectus     modified to empower SEBI to               following shall be inserted, namely:--      documents are becoming too
                       prescribe    the   contents in            "state such information and set out such long, too detailed, and
                       consultation with MCA.                    reports on financial information as may be repetitive as also too difficult
                                                                 specified by the Securities and Exchange to understand.
                           Further, MCA and SEBI may             Board in consultation with the Central
                           workout the minimum disclosures       Government:
                           to be included in the prospectus      Provided that until the Securities and
                           so that the regulatory objectives     Exchange Board specifies the information
                           of both the regulators are            and reports on financial information under
                           achieved while achieving the end      this sub-section, the regulations made by
                           purpose of reduction in the size of   the Securities and Exchange Board under
                           the prospectus.                       the Securities and Exchange Board of India

                                                                        9 
 
                                                                                           Corporate Laws & Corporate Governance Committee ICAI 


 
                                                                Act, 1992, in respect of such financial
                                                                information or reports on financial
                                                                information shall apply.";
                                                                (ii) the clauses (a) and (b) shall be omitted.
    20. Section 35- Civil The Committee recommended             In section 35 of the principal Act, in sub-      The amendment has been
        liability for mis- that it would be appropriate to      section (2), after clause (b), the following     proposed as directors could
        statement       in hold experts liable for statements   clause shall be inserted, namely:--              not rely on the statements
        prospectus         prepared by them, and which the      "(c) that, as regards every misleading           made by experts in a
                           directors relied upon (as long as    statement purported to be made by an             prospectus, as a defence for
                           such experts were identified in      expert or contained in what purports to be a     civil liability, although such
                           the prospectus).                     copy of or an extract from a report or           defence was available to
                                                                valuation of an expert, it was a correct and     them          under     Section
                                                                fair representation of the statement, or a       62(2)(d)(ii) of the Companies
                                                                correct copy of, or a correct and fair extract   Act, 1956.
                                                                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.".

    21. Section      42- Section 42 of the Act, in Section amended                                               The amendments have been
        Private          conjunction with Section 62, lays                                                       proposed for simplification of
        Placement        down the framework for private                                                          the    private     placement
                         placement of securities. Further,                                                       process by doing away with
                         while    Section   62    governs                                                        separate offer letter, by

                                                                       10 
 
                                                  Corporate Laws & Corporate Governance Committee ICAI 


 
    preferential allotment; Rule 13 of                               making filing of details or
    the Companies (Share Capital and                                 records of applicants to be
    Debentures) Rules, 2014, cross-                                  part of return of allotment
    refers to the procedure under                                    only, and reducing number of
    Section 42. A few of the issues                                  filings to Registrar
    raised were with regard to the
    compliance with some of the
    requirements provided under
    Section 42 of the Act, and Rule 14
    of Companies (Prospectus and
    Allotment of Securities) Rules,
    2014. These requirements, it was
    suggested, were cumbersome,
    time       consuming;       requiring
    elaborate,        sensitive      and
    significant     public   disclosures.
    Difficulties had been expressed
    with regard to the offer letter,
    opening of a separate account,
    time period for allotment of
    shares,      size     of    minimum
    investment, making of a fresh
    offer etc. The Committee noted
    that changes had been made in
    the current provisions to check
    the gross misuse of earlier
    provisions relating to private
    placement under the Companies
    Act, 1956, and felt that such
    requirements,        which      were
    procedural in nature and did not
    cause great difficulty, ought to be

                                            11 
 
                                                                                               Corporate Laws & Corporate Governance Committee ICAI 


 
                            retained.
    22. Section       47-                                           In section 47, in sub-section (1), for the       The amendment has been
        Voting Rights                                               words, figures and brackets "provisions of       proposed      to     include
                                                                    section 43 and sub-section (2) of section        provisions of Related Party
                                                                    50", the words, figures and brackets             transactions
                                                                    "provisions of section 43, sub-section (2) of
                                                                    section 50 and sub-section (1) of section
                                                                    188" shall be substituted
    23. Section       53-   The Committee recommended               In section 53 of the principal Act,--        The amendments have been
        Prohibition    on   that the word `discount', may           (i) in sub-section (2), for the words        proposed to remove the
        issue of shares     replace the words "discounted           "discounted price", the word "discount"      ambiguity and also the
        at a discount       price" in the provision.                shall be substituted;                        Companies Act 1956 allowed
                                                                    (ii) after sub-section (2), the following sub-
                                                                                                                 companies to issue shares at
                                                                    section shall be inserted, namely:--         a discount with the prior
                            The        Committee          further                                                approval of the Company
                            recommended that to enable              "(2A) Notwithstanding anything contained in Law Board (CLB) though this
                            restructuring of a distressed           sub-sections (1) and (2), a company may facility was hardly used.
                            company, when the debt of such          issue shares at a discount to its creditors
                            a company is converted into             when its debt is converted into shares in
                            shares in accordance with any           pursuance of any statutory resolution plan
                            debt    restructuring      guidelines   or debt restructuring scheme in accordance
                            specified by Reserve Bank of            with any guidelines or directions or
                            India         (Strategic        Debt    regulations specified by the Reserve Bank of
                            Restructuring Scheme issued by          India under the Reserve Bank of India Act,
                            RBI      vide     Circular     dated    1934 or the Banking (Regulation) Act,
                            8.06.2015), a company may issue         1949."
                            shares at a discount to a creditor
                            referred to in, and as per the
                            guidelines.




                                                                           12 
 
                                                                                           Corporate Laws & Corporate Governance Committee ICAI 


 
    24. Section       54-   The Committee recommended            In section 54, in sub-section (1), clause (c) The amendment has been
        Issue of sweat      that the facility to issue ESOPs     shall be omitted.                              proposed to facilitate start
        equity shares       may be given to start ups                                                           ups
    25. Section       62-   The Committee recommended            In section 62 of the principal Act,--          The amendment has been
        Further issue of    that any mode of delivery that       (i) in sub-section (1), in clause (c), for the proposed as Section 42 and
        share capital       would provide irrefutable/ certain   words "of a registered valuer subject to 62 are interlinked.
                            proof of delivery, be allowed.       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."
    26. Section       73- Keeping an amount not less than        In section 73 of the principal Act, in sub- The amendment has been
        Prohibition    on fifteen percent of the amount of       section (2),--                                 proposed as it would increase
        acceptance     of its deposits maturing during a         (i) for clause (c), the following clause shall the cost of borrowing for the
        deposits    from financial year and the next             be substituted, namely:--                      company as well as lock-up a
        public            financial year, deposited and kept     "(c) depositing, on or before the 30th day of high percentage of the
                          in a scheduled bank in a separate      April each year, such sum which shall not borrowed sums.
                          bank account to be called as the       be less than twenty per cent. of the amount
                          deposit     repayment      reserve     of its deposits maturing during the following
                          account.                               financial year and kept in a scheduled bank
                                                                 in a separate bank account to be called
                            The   Committee    recommended       deposit repayment reserve account;";

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                            that the requirement for the
                            amount to be deposited and kept
                            in a scheduled bank in a financial
                            year should be changed to not
                            less than twenty percent of the
                            amount of deposits maturing
                            during that financial year, which
                            would mitigate the difficulties of
                            companies, while continuing with
                            reasonable safeguards for the
                            depositors who have to receive
                            money on maturity of their
                            deposits.
    27. Section       73-   The Committee felt that the In section 73 of the principal Act, in sub- The amendment has been
        Prohibition    on   provisions of Section 73(2)(d) section (2),--                           proposed taking into account
        acceptance     of   with regard to providing deposit (ii) clause (d) shall be omitted;      the fact that at as on date
        deposits    from    insurance along with relevant                                           none    of   the    insurance
        public-             Rules be omitted.                                                       companies is offering such
        Requirement of                                                                              insurance products.
        Deposit
        insurance
        omitted
    28. Section       73-The Committee recommended            In section 73 of the principal Act, in sub-   The amendment has been
        Prohibition    onthat the prohibition on accepting    section (2),--                                proposed as imposing a
        acceptance     offurther deposits should apply         (iii) in clause (e), for the words "such     lifelong ban for a default
        deposits    from indefinitely only to a company       deposits;",    the   following  shall    be   anytime in the past would be
        public-          that had not rectified/made good     substituted, namely:--                        harsh.
                         earlier defaults. However, in case   "such deposits and where a default had
        Deposit can be a company had made good an             occurred, the company made good the
        accepted after 5 earlier default in the repayment     default and a period of five years had
        years of making of deposits and the payment of        lapsed since the date of making good the
        the default good interest due thereon, then it        default;".

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                            should be allowed to accept
                            further deposits after a period of
                            five years from the date it repaid
                            the earlier defaulting amounts
                            with full disclosures.
    29. Section     76A-    The Committee recommended            In section 76A of the principal Act, in clause The amendment has been
        Punishment for      that `minimum fine to be             (a), for the words "one crore rupees", the proposed      as     Penalty
        contravention of    modified to Rs 1 crore or twice      words "one crore rupees or twice the prescribed was very high
        Section 73 to 76    the amount of deposit accepted,      amount of deposit accepted by the
                            whichever is lower,      and the     company, whichever is lower" shall be
                            maximum amount to be as              substituted.
                            already provided
    30. Section 77- Duty    The Committee recommended            In section 77 of the principal Act, in sub-      The amendment has been
        to       register   that prescriptive powers may be      section (1), after the third proviso, the        proposed to       address the
        charges, etc        provided to allow certain liens or   following proviso shall be inserted,             practical problems in case of
                            securities or pledges to be          namely:--                                        transactions     by     NBFCs
                            exempted from filing.                "Provided also that this section shall not       engaged in financing of
                                                                 apply to such charges as may be prescribed       assets,         and         for
                                                                 in consultation with the Reserve Bank of         members/agents       of    the
                                                                 India."                                          Clearing Corporation, etc.
    31. Section      78- The Committee recommended               In section 78 of the principal Act, for the      Consequential amendment
        Application for that that similar time limits, as        words "register the charge within the period
        registration  of provided for under Section 77 for       specified in section 77", the words "register
        charge           registration of charge, may be          the charge within the period of thirty days
                         allowed                                 referred to in sub-section (1) of section 77"
                                                                 shall be substituted.
    32. Section      82- The Committee recommended               In section 82 of the principal Act, in sub-      The amendment has been
        Company       to that it would be in a company's         section (1),--                                   proposed as it would be in a
        report           interest to report satisfaction of      (i) the words "and the provisions of sub-        company's interest.
        satisfaction  of charges, there should not be any        section (1) of section 77 shall, as far as may
        charge           regulatory concern in allowing          be, apply to an intimation given under this
                         similar timelines as allowed for        section" shall be omitted;

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                           registering a charge                  (ii) the following proviso shall be inserted,
                                                                 namely:--
                                                                 "Provided that the Registrar may, on an
                                                                 application by the company or the charge
                                                                 holder, allow such intimation of payment or
                                                                 satisfaction to be made within a period of
                                                                 three hundred days of such payment or
                                                                 satisfaction on payment of such additional
                                                                 fees as may be prescribed."
    33. Section     89- The Committee recommended to             In section 89 of the principal Act, after sub-   The amendment has been
        Declaration  in amend the Act to provide a               section (9), the following sub-section shall     proposed as the existing
        respect      of definition of beneficial interest in     be inserted, namely:--                           provisions are considered
        beneficial      a share, and beneficial ownership        "(10) For the purposes of this section and       inadequate
        interest in any in a company. The existing               section 90, beneficial interest in a share
        share           definition       under         SEBI      includes, directly or indirectly, through any
                        Circular/Guidelines     and      the     contract, arrangement or otherwise, the
                        Prevention of Money Laundering           right or entitlement of a person alone or
                        Act may be used as a basis for           together with any other person to--
                        the definition in the Companies          (i) exercise or cause to be exercised any or
                        Act, 2013.                               all of the rights attached to such share; or
                                                                 (ii)receive or participate in any dividend or
                                                                 other distribution in respect of such share.
    34. Section       90- The Committee recommended the          Section amended                                  The amendment has been
        Investigation of following points:                                                                        proposed as the existing
        beneficial        a. Companies and individuals may                                                        provisions are considered
        ownership      of    be    obligated     to    obtain                                                     inadequate for the purpose of
        shares in certain    information     on     beneficial                                                    mandating a register of
        cases                ownership. In this regard,                                                           beneficial owners of the
                             companies         may         be                                                     company.
                             empowered          to       seek
                             information from members
                             and in case of failure to supply

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                            the     required    information,
                            apply sanctions in the form of
                            suspension of rights against
                            the beneficial interests subject
                            to adequate safeguards.
                        b. Companies would also be
                            mandated        to      maintain
                            registers of beneficial owners
                            and provide the information to
                            the registry (MCA21). Periodic
                            updating      may     also    be
                            mandated.       Data     privacy
                            concerns may be addressed by
                            making only part of the filed
                            information available to the
                            public.
                        c. Companies not complying with
                            the requirements may be
                            liable to fine and criminal
                            prosecution.
    35. Section     92- The Committee recommended              (i) in sub-section (1),--                          The amendment has been
        Annual Return   that the requirement for filing        (a) clause (c) shall be omitted;                   proposed as this requirement
                        extract of annual return may be        (b) in clause (j), the words "indicating their     was leading to duplication of
                        omitted, and instead the web           names,       addresses,        countries      of   information being reported to
                        address/link of the Annual Return      incorporation, registration and percentage         the shareholders under other
                        filed by the company and hosted        of shareholding held by them" shall be             provisions of the Act or
                        on its website, if any, should be      omitted;                                           mandated to be made
                        provided in the Board's Report         (c) after the proviso, the following proviso       available on the website of
                        and information with regard to         shall be inserted, namely:--                       the companies.
                        shareholding pattern be provided       "Provided     further     that   the     Central
                        as     part    of    section     134   Government may prescribe abridged form of
                        requirements.                          annual return for One Person Company and

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                                                             small company.";
                                                             (ii) for sub-section (3), the following sub-
                                                             section shall be substituted, namely:--
                                                             "(3) Every company shall place a copy of
                                                             the annual return on the website of the
                                                             company, if any, and the web-link of such
                                                             annual return shall be disclosed in the
                                                             Board's report."
    36. Section       93-    The Committee recommended Section 93 of the principal Act shall be The amendment has been
        Return to be         that the requirement be omitted omitted.                                     proposed as this requirement
        filed        with    altogether.                                                                  led to an increase in the
        Registrar in case                                                                                 amount of filings being made
        promoters' stake                                                                                  under the Act.
        changes
    37. Section       94-    The Committee recommended            In section 94 of the principal Act,--          The amendments have been
        Place of keeping     that the requirement of providing    (i) in sub-section (1), in the first proviso, proposed    to     provide
        and inspection       the Registrar with an advance        the words "and the Registrar has been flexibility.
        of      registers,   copy of a proposed special           given a copy of the proposed special
        returns etc.         resolution as required under         resolution in advance" shall be omitted;
                             Section 94(1) be done away with,     (ii) in sub-section (3), the following proviso
                             since it did not serve any           shall be inserted, namely:--
                             purpose, particularly because the    "Provided that particulars of the register or
                             special resolution was in any case   index or return as may be prescribed shall
                             to    be    filed  as    per   the   not be available for inspection under sub-
                             requirements        of     Section   section (2) or for taking extracts or copies
                             117(3)(a).                           under this sub-section.".

                             The Committee suggested that
                             such personal information, as
                             may be prescribed in the Rules,
                             may not be made available
                             publicly.

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    38. Section       96- The Committee recommended to         In section 96 of the principal Act, in sub- The amendment has been
        Annual General allow private limited companies         section (2), in the proviso, for the words    proposed with a view to ease
        meeting           and wholly owned subsidiaries of     "Provided that", the following shall be doing business.
                          unlisted companies to convene        substituted, namely:--
                          the AGMs at any place in India       "Provided that annual general meeting of an
                          provided approval of 100%            unlisted company may be held at any place
                          shareholders is obtained in          in India if consent is given in writing or by
                          advance with a view to ease          electronic mode by all the members in
                          doing business. This would           advance:
                          require amendment to Section
                          96(2) so that exemption can be
                          provided to such class of
                          companies.
    39. Section     100- The Committee recommended             In section 100 of the principal Act, in sub-   The amendment has been
        Calling        of that the explanation to Rule 18(3)   section (1), the following proviso shall be    proposed       to     provide
        Extraordinary     be deleted and an explanation be     inserted, namely:--                            relaxation for wholly owned
        general meeting incorporated at the end of Section     "Provided that an extraordinary general        subsidiaries of companies
                          100 mandating that EGM shall be      meeting of the company, other than of the      incorporated outside India
                          held only in India, as well as       wholly owned subsidiary of a company           and certain other cases.
                          provide for exemptions to wholly     incorporated outside India, shall be held at
                          owned subsidiaries of companies      a place within India."
                          incorporated outside India.
    40. Section     101-                                       In section 101 of the principal Act, in sub-
        Notice         of                                      section (1), for the proviso, the following
        meeting                                                proviso shall be substituted namely:--
                                                               "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

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                                                                                       Corporate Laws & Corporate Governance Committee ICAI 


 
                                                               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, not less than ninty-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."
    41. Section       110- The Committee decided to amend      In section 110 of the principal Act, in sub- The amendments have been
        Postal ballot      Section 110 of the Act, such that   section (1), the following proviso shall be    proposed    to  remove
                           Rule 22(16) of the Companies        inserted, namely:--                            repetition.
                           (Management and Administration)     "Provided that any item of business
                           Rules, 2014 would provide that if   required to be transacted by means of
                           a company is required to provide    postal ballot under clause (a), may be
                           for electronic voting, then the     transacted at a general meeting by a
                           same items could be covered in      company which is required to provide the
                           its General Meetings too.           facility to members to vote by electronic
                                                               means under section 108, in the manner
                                                               provided in that section."

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    42. Section     117-   The Committee recommended             In section 117 of the principal Act,--          The amendments have been
        Resolutions and    that while the filing requirement     (i) in sub-section (2),--                       proposed as the penalty was
        agreements to      ought to continue, MCA may            (a) for the words "not be less than five lakh   harsh and to maintain
        be filed           address      the    concerns    of    rupees", the words "not be less than one        confidentiality.
                           companies        by     adequately    lakh rupees" shall be substituted;
                           publicising the provisions in the     (b) for the words "one lakh rupees", the
                           MCA21      system     to   ensure     words "fifty thousand rupees" shall be
                           confidentiality of such filed         substituted;
                           information.                          (ii) in sub-section (3),--
                                                                 (a) clause (e) shall be omitted;
                         The Committee, recommended              (b) in clause (g), in the proviso, the word
                         that since Section 180 (1)              "and" shall be omitted and the following
                         required the passing of a special       proviso shall be inserted, namely:--
                         resolution, and that the filing         "Provided further that nothing contained in
                         requirements      were     triggered    this clause shall apply to a banking
                         under Section 117(3)(a) itself.         company in respect of a resolution passed
                         Since clause (e) of Section 117(3)      to grant loans, or give guarantee or provide
                         appeared to be repetitive, it was       security in respect of loans under clause (f)
                         recommended for deletion.               of sub-section (3) of section 179 in the
                         The Committee recommended               ordinary course of its business; and."
                         that providing such information
                         by banks may violate their
                         confidentiality obligations towards
                         their        customers,          and
                         recommended that an exemption
                         be considered for banks.
    43. Section     123- The Committee recommended               In section 123 of the principal Act, for sub-   The amendment has been
        Declaration   of that the provisions of section          section (3), the following sub-section shall    proposed as a measure of
        Dividend         123(3) be amended in such a way         be substituted, namely:--                       good corporate governance,
                         as to allow declaration of interim      "(3) The Board of Directors of a company        a company should not
                         dividend from out of the profits of     may declare interim dividend during any         declare interim dividend out
                         the    current    financial     year,   financial year or at any time during the        of the projected profits for

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                            generated till the date of             period from closure of financial year till the full year.
                            declaration, including brought         holding of the annual general meeting out
                            forward surplus in the Profit &        of the surplus in the profit and loss account
                            Loss Account, and the same could       or out of profits of the financial year for
                            be declared anytime up to              which such interim dividend is sought to be
                            convening of AGM for the said          declared or out of profits generated in the
                            financial year.                        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.".
    44. 129          (3)-   The Committee recommended              Where a company has one or more                  It has been proposed that
        Consolidation to    that that to ensure the same           subsidiaries or associate companies, it shall,   Consolidated        Financial
        be             in   treatment for the consolidation of     in addition to financial statements provided     Statements shall be prepared
        accordance with     accounts under the Accounting          under     sub-section     (2),   prepare    a    as the Standalone Financial
        applicable          Standards and the Act, the             consolidated financial statement of the          Statements are prepared and
        accounting          reference to `associates' and `joint   company and of all the subsidiaries and          in accordance with applicable
        standards           ventures' under Section 129            associate companies in the same form and         accounting standards
                            ought to be amplified/clarified, to    manner as that of its own and in
                            be in      accordance with the         accordance with applicable accounting
                            applicable Accounting Standards.       standards, which shall also be laid before
                                                                   the annual general meeting of the company
                                                                   along with the laying of its financial
                                                                   statement under sub-section (2):


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                                                                                              Corporate Laws & Corporate Governance Committee ICAI 


 
                                                                   Provided that the company shall also attach
                                                                   along with its financial statement, a
                                                                   separate statement containing the salient
                                                                   features of the financial statement of its
                                                                   subsidiary or subsidiaries in such form as
                                                                   may be prescribed:

                                                               Provided    further   that    the    Central
                                                               Government      may    provide    for    the
                                                               consolidation of accounts of companies in
                                                               such manner as may be prescribed."
    45. Section      130-   The Committee proposed that After the words "regulatory body or Enabling provisions have
        Opportunity of      that it would be appropriate if a authorities concerned", the words "or any been           provided       for
        being heard not     provision was specifically made in other person concerned" shall be inserted;   opportunity of being heard in
        available    with   the section enabling the Court/                                                 Section 130 for auditor/
        the auditor in      Tribunal to give notice to any                                                  Chartered Accountant of the
        case Reopening      other party/ person concerned.                                                  Company.
        of accounts on
        Court's/
        tribunal's Order
    46. Section      130-   The Committee recommended              No order shall be made under sub-section        Applicability of provisions of
        Books could be      that the applicability of provisions   (1) in respect of re-opening of books of        Section 130 for the re-
        reopened      for   of Section 130 for the re-opening      account relating to a period earlier than       opening       of     accounts
        any number of       of accounts could be restricted to     eight financial years immediately preceding     restricted to eight years
        years               eight years, unless a longer           the current financial year:                     unless an order has been
                            period is required through a           Provided that where a direction has been        given     by     the    Central
                            specific direction issued by           issued by the Central Government under the      Government for longer period
                            Central    Government,        under    proviso to sub-section (5) of section 128 for
                            Section 128(5).                        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."

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    47. Section    134-   The Committee recommended            (a) for sub-section (1), the following sub-      The amendments have been
        Financial         that in case of company does not     section shall be substituted, namely:--          proposed to avoid practical
        Statement,        have managing director, the CEO      "(1) The financial statement, including          difficulty and to repetition in
        Board's report,   to be mandated to sign the           consolidated financial statement, if any,        disclosure of information.
        etc.              financial statements.                shall be approved by the Board of Directors
                                                               before they are signed on behalf of the          Also clarity in language has
                          The         Committee        also    Board by the chairperson of the company          been proposed.
                          recommended that the web             where he is authorised by the Board or by
                          address/ link of the                 two directors out of which one shall be
                          Annual Return filed by the           managing director, if any, and the Chief
                          company and hosted on its            Executive Officer, the Chief Financial Officer
                          website, if any to be provided in    and the company secretary of the company,
                          the Board's Report                   wherever they are appointed, or in the case
                                                               of One Person Company, only by one
                          Repetition of disclosures in Board   director, for submission to the auditor for
                          Report may be avoided where          his report thereon.";
                          disclosure have been made in the     (b) in sub-section (3),--
                          Financial Statements.                (i) for clause (a), the following clause shall
                                                               be substituted, namely:--
                          For small companies, separate        "(a) the web address, if any, where annual
                          format of Board Report to be         return referred to in sub-section (3) of
                          prescribed.                          section 92 has been placed;";
                                                               (ii) in clause (p), for the words "annual
                                                               evaluation has been made by the Board of
                                                               its own performance and that of its
                                                               committees and individual directors", the
                                                               words       "annual    evaluation    of    the
                                                               performance of the Board, its Committees
                                                               and of individual directors has been made"
                                                               shall be substituted;
                                                               (iii) after clause (q), the following provisos
                                                               shall be inserted, namely:--

                                                                      24 
 
                                                                                          Corporate Laws & Corporate Governance Committee ICAI 


 
                                                               "Provided that where disclosures referred to
                                                               in this sub-section have been included in
                                                               the financial statements, such disclosures
                                                               shall be referred to instead of being
                                                               repeated in the Board's report:
                                                               Provided further that where the policy
                                                               referred to in clause (e) or clause (o) is
                                                               made available on company's website, if
                                                               any, it shall be sufficient compliance of the
                                                               requirements under such clauses if the
                                                               salient features of the policy and any
                                                               change therein are specified in brief in the
                                                               Board's report and the web-address is
                                                               indicated therein at which the complete
                                                               policy is available.";
                                                               (c) after sub-section (3), the following sub-
                                                               section shall be inserted, namely:--
                                                               "(3A) The Central Government may
                                                               prescribe an abridged Board's report, for
                                                               the purpose of compliance with this section
                                                               by a One Person Company or small
                                                               company."
    48. Section      135- The Committee recommended the        (i) in sub-section (1),--                        The amendments have been
        Corporate Social following:                            (a) for the words "any financial year", the      proposed    to   incorporate
        Responsibility    1. The words "any financial year"    words "the immediately preceding financial       suggestions of High Level
                             be replaced by the words          year" shall be substituted;                      Committee of CSR
                             `preceding financial year'        (b) the following proviso shall be inserted,
                          2. Composition        of      CSR    namely:--
                             Committee for companies not       "Provided that where a company is not
                             required       to       appoint   required to appoint an independent director
                             Independent     Directors   be    under sub-section (4) of section 149, it shall
                             prescribed as `having two or      have in its Corporate Social Responsibility

                                                                      25 
 
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                                more Directors'.                     Committee two or more directors.";
                            3. The Committee felt that it            (ii) in sub-section (3), in clause (a), for the
                                would be appropriate for the         words and figures "as specified in Schedule
                                said clause to be modified to        VII", the words and figures "in areas or
                                refer to subjects in Schedule        subject, specified in Schedule VII" shall be
                                VII within which CSR activities      substituted;
                                could be taken up by an              (iii) in sub-section (5), for the Explanation,
                                eligible company.                    the      following   Explanation shall be
                            4. The        High    Level      CSR     substituted, namely:--
                                Committee has recommended            'Explanation.--For the purposes of this
                                in para 4.16 of the report for       section "net profit" shall not include such
                                the term "average net profit"        sums as may be prescribed, and shall be
                                to be replaced with the words        calculated in accordance with the provisions
                                "net profit", to remove any          of section 198.'.
                                ambiguity. The Committee
                                also     agreed      with     the
                                recommendation.          Further,
                                prescriptive powers were also
                                recommended           to       be
                                introduced for specifying the
                                manner of calculation of `net
                                profits' of a foreign company,
                                through Rules, while referring
                                to Section 381.
    49. Section     136-    The Committee felt that it would         "Provided that if the copies of the               It has been proposed that
        Right          of   be     appropriate     that    clarity   documents are sent less than twenty-one           the Financial Statements can
        member        to    allowing financial statements to         days before the date of the meeting, they         be circulated at a shorter
        copies         of   be circulated at a shorter period        shall, notwithstanding that fact, be deemed       period, if it is agreed by
        audited financial   in accordance with the provision         to have been duly sent if it is so agreed by      ninety-five per cent. of the
        statements          for shorter notice meeting under         ninety-five per cent. of the members              members entitled to vote at
                            Section 101 be provided in               entitled to vote at the meeting:                  the meeting.
                            Section 136.




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    50. Section    136- The Committee recommended             Provided also that a listed company which        It has been proposed that
        Placing     the that requirement should be            has a subsidiary incorporated outside India      where foreign subsidiary is
        Financial       limited to listed companies in        (herein      referred    to     as    "foreign   not required to get its
        Statements   of view      of    their    dispersed    subsidiary")--                                   financial statement audited
        Foreign         shareholding and the need for         (a) where such foreign subsidiary is             under any law of the country
        Subsidiary      greater regulatory oversight as       statutorily required to prepare consolidated     of its incorporation and which
                        compared to unlisted companies.       financial statement under any law of the         does not get such financial
                        However, the Committee did not        country of its incorporation, the requirement    statement      audited,     the
                        agree to the suggestion that for      of this proviso shall be met if consolidated     holding       Indian     listed
                        listed companies, item (a) would      financial statement of such foreign              company may place such
                        apply only in respect of its Indian   subsidiary is placed on the website of the       unaudited financial statement
                        subsidiaries.     Further,      the   listed company;                                  on its website.
                        Committee      felt    that     the
                        requirements under item (b) of        (b) where such foreign subsidiary is not
                        the 4th proviso to Section 136        required to get its financial statement
                        ought to continue to be applicable    audited under any law of the country of its
                        to all companies, including           incorporation and which does not get such
                        unlisted companies.                   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.";
    51. 136          (2)-                                     Provided that every company having a             It has been proposed that
        Providing copies                                      subsidiary or subsidiaries shall provide a       that    the     accounts of
        of      financial                                     copy of separate audited or unaudited            subsidiaries companies may
        statements     to                                     financial statements, as the case may be, as     be provided to the member
        members                                               prepared in respect of each of its subsidiary    who asks for it.
                                                              to any member of the company who asks
                                                              for it.
    52. Section     137- Corresponding to proposal in 4th     Provided also that in the case of a              A foreign subsidiary company

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        Copy       of proviso to Section 136                    subsidiary which has been incorporated           whose accounts are not
        Financial                                               outside India (herein referred to as "foreign    required to be audited under
        Statements to                                           subsidiary"), which is not required to get its   the country of incorporation,
        be filed with                                           financial statement audited under any law        it has been proposed that the
        ROC                                                     of the country of its incorporation and which    holding company can even
                                                                does not get such financial statement            file unaudited statements to
                                                                audited, the requirements of the fourth          ROC with declaration.
                                                                proviso shall be met if the holding Indian
                                                                listed company files such unaudited
                                                                financial statement along with a declaration
                                                                to this effect and where such financial
                                                                statement is in a language other than
                                                                English, along with a translated copy of the
                                                                financial statement in English.'
    53. 1st proviso to      The Companies Law Committee 1st proviso to Section 139 (1) shall be                  The proposal here is that
        Section 139 (1)     felt that it would be advisable to omitted                                           auditor's appointment need
        with regard to      omit the provisions with respect                                                     not be ratified by the
        ratification  of    to ratification, as it defeats the                                                   shareholders at every AGM
        appointment of      objective of giving five year term
        auditor in every    to the auditors.          So the
        AGM by the          Committee proposes that the
        shareholders        provisions     with   respect    to
                            ratification of appointment of
                            auditor to be omitted.
    54. Section 140(3)-     The Committee recommended In sub section 140 (3), the words fifty                    It has been proposed that
        Minimum             that minimum fine may be thousand shall be replaced with fifty                       fines for auditor default
        Penalty for non     reduced to Rupees fifty thousand thousand rupees or the remuneration of the          linked with audit fees with
        filing         of   or the audit fees, whichever is auditor, whichever is less,                          minimum amount.
        Resignation by      less.
        auditor    linked                                                                                        As per the provision now, if
        to audit fees                                                                                            the auditor does not file
                                                                                                                 resignation within a period of

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                                                                                                            thirty days from the date of
                                                                                                            resignation, he shall be
                                                                                                            punishable       with      fine;
                                                                                                            minimum-        Rupees      fifty
                                                                                                            thousand      and    maximum
                                                                                                            Rupees five lakhs.
    55. Definition       of   The Committee proposed that for An Explanation has been added to Section Definition of relative w.r.t
        relative      w.r.t   the purpose of section 141(3) (d), 141 (3) (d)                                disqualification of auditors as
        disqualification      the term relative should be                                                   per Section 141(3) (d) is
        of auditors as        suitably modified.                 Explanation.--For the purposes of this being relaxed.
        per        Section                                       clause, the term "relative" means the
        141(3)(d)                                                spouse of a person; and includes a parent,
                                                                 sibling or child of such person or of the
                                                                 spouse, financially dependent on such
                                                                 person, or who consults such person in
                                                                 taking decisions in relation to his
                                                                 investments

    56. Section 141 (3)       The Committee noted that any       Section 141 (3) (i) provides that a person The amendment has been
        (i)- Clarity with     relaxation to section 141(3) (i)   who, directly or indirectly, renders any proposed        to provide
        regard           to   read with Section 144 would        service referred to in section 144 to the clarification.
        language of the       compromise independence of         company or its holding company or its
        section     which     auditors.                          subsidiary company.
        was very wide
        and enhancing         However, clarity needs to be Explanation.--For the purposes of this
        the                   provided by suitably amending clause, the term "directly or indirectly" shall
        disqualification      the clause.                   have the meaning assigned to it in the
        of auditors to                                      Explanation to section 144.
        even        totally
        unconnected
        entities


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    57. 1st Proviso to       The Committee recommends that The words subsidiaries shall be substituted       As of now the auditor of a
        Section 143 (1)-     this provision may be extended with its subsidiaries and associates.            holding company has a right
        Right of access      even to associate company,                                                      to access the books of
        by the auditor of    whose accounts are required to                                                  accounts     of     subsidiary
        a         holding    be consolidated.                                                                companies in connection to
        company to the                                                                                       the consolidation of accounts.
        accounts     and
        records of the                                                                                       This right has been extended
        associate                                                                                            to associates also by this
        company,                                                                                             proposal
        whose accounts
        are required to
        be consolidated


    58. Section 143 (3)      The Committee recommended            The words "internal financial controls It has been proposed that
        (i) Reporting on     that the reporting obligations of    system", the words "internal financial reporting    on    Internal
        Internal             auditors on internal financial       controls with reference to financial Financial Control Framework
        Financial Control    controls to be with reference to     statements"                            limited to reporting on
        Framework by         the financial statement                                                     Internal Financial Control
        the       auditors                                                                               with reference to financial
        limited         to                                                                               statements.
        financial
        statements
    59. Section 147 (2)-     The Committee recommended            after the words "five lakh rupees", the    It has been proposed that
        Punishment for       that under sub-section (2),          words "or four times the remuneration of   maximum          fine     for
        contravention by     minimum fine as specified may be     the auditor, whichever is less" shall be   contravention of section 139,
        auditors             retained and maximum fine may        inserted                                   143, 144 or 145 to be linked
                             extend to rupees five lakh or four                                              to audit fees or Rs 5 lakhs
                             times the audit fees, whichever is                                              whichever is less.
                             less


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    60. Section 147 (2)-      The Committee recommended       For the words "and with fine which shall not             It has been proposed that
        Punishment for        that under the proviso to sub-  be less than one lakh rupees but which may               minimum          fine      for
        contravention by      section (2), the minimum fine   extend to twenty-five lakh rupees", the                  contravention by the auditor
        auditors              should be rupees fifty thousand words "and with fine which shall not be less             knowingly or wilfully to be
        knowingly     or      and which may extend to rupees  than fifty thousand rupees but which may                 reduced from Rs 1 lakhs to
        willingly             twenty-five lakh or eight times extend to twenty-five lakh rupees or eight               Rs 50000 and maximum fine
                                                              times the remuneration of the auditor,
                              the audit fees, whichever is less.                                                       to be linked to audit fess
                                                              whichever is less" shall be substituted;
    61. Section 147 (3)-      The Committee proposes that the for the words "or to any other persons", the             In case of conviction, liability
        in    case       of   term `any other persons' in words "or to members or creditors of the                     of an auditor has been
        conviction    the     Section 147(3) to be replaced company" shall be substituted;                             proposed to be limited to
        auditor       was     with the phrase `shareholder or                                                          shareholder or creditor'
        liable to any         creditor'
        other person
    62. Section 147 (5)-      The Committee recommended               Provided that in case of criminal liability of   Provisions of Rule brought to
        Joint         and     that the Provisions with regard to      an audit firm, in respect of liability other     Act
        severally liability   liability of a partner not to be        than fine, the concerned partner or
        of audit firm         extended to the firm shall be           partners, who acted in a fraudulent manner
                              brought in the Act.                     or abetted or, as the case may be, colluded
                                                                      in any fraud shall only be liable
    63. Section   149-        The Committee recommended               In section 149 of the principal Act,--           It has been proposed to
        Company     to        that it would be more appropriate       (i) for sub-section (3), the following sub-      remove difficulties.
        have Board of         that the residence requirement is       section shall be substituted, namely:--
        Directors             for the current financial year.         "(3) Every company shall have at least one
                                                                      director who stays in India for a total period
                              The         Committee        further    of not less than one hundred and eighty-
                              recommended that, in view of the        two days during the
                              difficulties being faced, the test of   financial year:
                              materiality for the purpose of          Provided that in case of a newly
                              determining whether pecuniary           incorporated company the requirement
                              relationships could impact the          under     this   sub-section      shall  apply
                              independence of an individual to        proportionately at the end of the financial

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    be an independent director may year in which it is incorporated.";
    be introduced.                     (ii) in sub-section (6),--
                                       (a) in clause (c), for the words "pecuniary
    In this regard, the Committee felt relationship",     the     words   "pecuniary
    that the scope of the restriction relationship, other than remuneration as
    on "pecuniary relationship or such director or having transaction not
    transaction" entered into by a exceeding ten per cent. of his total income
    relative be made more specific by or such amount as may be prescribed,"
    clearly categorising the types of shall be substituted;
    transactions as provided under (b) for clause (d), the following clause shall
    Section 141(3)(d).                 be substituted, namely:--
                                       "(d) none of whose relatives--
                                       (i) is holding any security of or interest in
                                       the company, its holding, subsidiary or
                                       associate company during the two
                                       immediately preceding financial years or
                                       during the current financial year:
                                       Provided that the relative may hold security
                                       or interest in the company of face value not
                                       exceeding fifty lakh rupees or two per cent.
                                       of the paid-up capital of the company, its
                                       holding, subsidiary or associate company or
                                       such higher sum as may be prescribed;
                                       (ii) is indebted to the company, its holding,
                                       subsidiary or associate company or their
                                       promoters, or directors, in excess of such
                                       amount as may be prescribed during the
                                       two immediately preceding financial years
                                       or during the current financial year;
                                       (iii) has given a guarantee or provided any
                                       security in connection with the indebtedness
                                       of any third person to the company, its

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                         holding, subsidiary or associate company or
                         their promoters, or directors of such holding
                         company, for such amount as may be
                         prescribed during the two immediately
                         preceding financial years or during the
                         current financial year; or
                         (iv) has any other pecuniary transaction or
                         relationship with the company, or its
                         subsidiary, or its holding or associate
                         company amounting to two per cent. or
                         more of its gross turnover or total income
                         singly or in combination with the
                         transactions referred to in sub-clause (i), (ii)
                         or (iii);";
                         (c) in clause (e), in sub-clause (i), the
                         following proviso shall be inserted,
                         namely:--
                         "Provided that in case of a relative who is
                         an employee, the restriction under this
                         clause shall not apply for his employment
                         during preceding three financial years.".
    64. Section   152-   In section 152 of the principal Act,--           Consequential proposals due
        Appointment of   (a) in sub-section (3), after the word and to amendment proposed in
        directors        figures "section 154", the words and figures Section 153
                         "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.



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    65. Section      153-    The Committee considered and          In section 153 of the principal Act, the         Central Government may
        Application for      recommended that necessary            following proviso shall be inserted,             prescribe any identification
        allotment      of    flexibility may be provided in the    namely:--                                        number which shall be
        Director             Act to do away with the               "Provided that the Central Government may        treated        as     Director
        Identification       requirement of DIN or provide an      prescribe any identification number which        Identification Number
        Number               option to shift to AADHAAR or         shall be treated as Director Identification
                             any other universally accepted        Number for the purposes of this Act and in
                             identification number at a future     case any individual holds or acquires such
                             date.                                 identification number, the requirement of
                                                                   this section shall not apply or apply in such
                                                                   manner as may be prescribed."
    66. Section      160-    The Committee recommended             In section 160 of the principal Act, in sub-     To remove unreasonable
        Right of persons     that in case of appointment of        section (1), the following proviso shall be      requirement     as     the
        other        than    Independent     Directors  and        inserted, namely:--                              recommendations has been
        retiring directors   Directors recommended by the          "Provided that requirements of deposit of        made by Nomination and
        to stand for         Nomination and Remuneration           amount shall not apply in case of                Remuneration Committee
        directorship         Committee, the requirements of        appointment of an independent director or
                             Section 160 ought to be               a director recommended by the Nomination
                             dispensed with.                       and Remuneration Committee, if any,
                                                                   constituted under sub-section (1) of section
                                                                   178."
    67. Section    161-      The Committee recommended             In section 161 of the principal Act,--           To remove conflict of interest
        Appointment of       that there should be a prohibition    (i) in sub-section (2), after the words          and also ambiguity in the
        additional           in the Act for appointing a           "alternate directorship for any other director   calculation of quorum.
        director,            director of a company as an           in the company", the words "or holding
        alternate            alternate director in the same        directorship in the same company" shall be       To give right to the private
        director    and      company.                              inserted;                                        company
        nominee              The Committee was of the view         (ii) in sub-section (4),--
        director             that this right should be available   (a) the words "In the case of a public
                             to the Boards of private              company," shall be omitted;
                             companies as well.                    (b) after the words "meeting of the Board",
                                                                   the words "which shall be subsequently

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                                                                   approved by members in the immediate
                                                                   next general meeting" shall be inserted.




    68. Section      164-   The          Committee         also    In section 164 of the principal Act,--         Consequential amendment
        Disqualifications   recommended           that        a    (i) in sub-section (2), the following proviso
        for appointment     disqualification under Section         shall be inserted, namely:--
        of director         164(2) be only applicable to a         "Provided that where a person is appointed
                            person who was a director at the       as a director of a company which is in
                            time of the non-compliance, and        default of clause (a) or clause (b), he shall
                            in case of a continuing non-           not incur the disqualification for a period of
                            compliance, there should be a          six months from the date of his
                            period of six months' time allowed     appointment.";
                            for a new Director to make the         (ii) in sub-section (3), for the proviso, the
                            company compliant.                     following proviso shall be substituted,
                                                                   namely:--
                            The          Committee          also   "Provided that the disqualifications referred
                            recommended           that     such    to in clauses (d), (e) and (g) of sub-section
                            inconsistency be corrected and in      (1) shall continue to apply even if the
                            case of requirement for vacation       appeal or petition has been filed against the
                            of office of a Director, it should     order of conviction or disqualification."
                            not take effect until the appeals
                            are disposed off, while in case of
                            disqualification, it is not required
                            to provide for period of pendency
                            of appeal.




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    69. Section      165- The Committee recommended for        In section 165 of the principal Act, in sub-      The amendment has been
        Number         of excluding the directorship in a      section (1), the Explanation shall be             proposed as such companies
        directorships     dormant company for reckoning        renumbered as Explanation I and after             are inactive and having
                          the limit.                           Explanation I as so numbered, the following       insignificant transactions and
                                                               Explanation shall be inserted, namely:--          therefore not impacting on
                                                               "Explanation II.--For reckoning the limit of      the temporal resources of the
                                                               directorships of twenty companies, the            Director
                                                               directorship in a dormant company shall not
                                                               be included."
    70. Section       167- The Committee recommended           In section 167 of the principal Act, in sub-      The amendment has been
        Vacation        of that the vacancy of an office       section (1),--                                    proposed         to     remove
        office of director should be triggered only where a    (i) in clause (a), the following proviso shall    paradoxical situation, as the
                           disqualification is incurred in a   be inserted, namely:--                            office of all the directors in a
                           personal capacity and therefore,    "Provided      that    where      he     incurs   Board would become vacant
                           the scope of Section 167(1)(a)      disqualification under sub-section (2) of         where they are disqualified
                           should be limited to only           section 164, the office of the director shall     under Section 164(2), and a
                           disqualifications under Section     become vacant in all the companies,               new person could not be
                           164(1).                             other than the company which is in default        appointed as a director as
                                                               under that sub-section.";                         they would also attract such
                                                               (ii) in clause (f), for the proviso the           a disqualification.
                                                               following proviso shall be substituted,
                                                               namely,--
                                                               "Provided that the office shall not be
                                                               vacated by the director in case of orders
                                                               referred to in clauses (e) and (f)--
                                                               (i) for thirty days from the date of
                                                               conviction or order of disqualification;
                                                               (ii) where an appeal or petition is preferred
                                                               within thirty days as aforesaid against the
                                                               conviction resulting in sentence or order,
                                                               until expiry
                                                               of seven days from the date on which such

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                                                               appeal or petition is disposed of; or
                                                               (iii) where any further appeal or petition is
                                                               preferred against order or sentence within
                                                               seven days, until such further appeal or
                                                               petition is disposed of."

    71. Section    168- The Committee felt that it would       In section 168 of the principal Act, in sub- Flexibility has been provided
        Resignation of be appropriate if an option of          section (1), in the proviso, for the words, by the proposal.
        director        intimating such resignation to the     "director shall also forward", the words,
                        Registrar was given to the             "director may also forward" shall be
                        Director instead of making it          substituted.
                        mandatory. The requirement of
                        mandatory filing by the company
                        in the prescribed Form should
                        continue.      This    would    also
                        facilitate foreign Directors.
    72. Section    173- The Committee recommended              In section 173 of the principal Act, in sub-     The amendment has been
        Meetings     of that flexibility be provided to        section (2), after the first proviso, the        proposed as the requirement
        Board           allow participation of Directors       following proviso shall be inserted,             completely bars participation
                        through       video    conferencing,   namely:--                                        in these specified matters of
                        subject to such participation not      "Provided further that where there is            the Board meetings through
                        being counted for the purpose of       quorum in a meeting through physical             video conferencing, which
                        quorum. However, such Directors,       presence of directors, any other director        unnecessarily restricts wider
                        though not counted for the             may participate through video conferencing       participation even if the
                        purposes of quorum, may be             or other audio visual means in such meeting      necessary      quorum      as
                        entitled to sitting fees.              on any matter specified under the first          specified in Section 174 is
                                                               proviso."                                        physically present.
    73. Section   177- The Committee recommended               In section 177 of the principal Act,--           The       requirement      for
        Audit Committee that the existing requirement for      (i) in sub-section (1), for the words "every     constituting Audit Committee
                        the Audit Committee to pre             listed company", the words "every listed         is of listed public company
                        approve     all   related   party      public company" shall be substituted;            and not all listed companies.
                        transactions, subject to approval      (ii) in sub-section (4), in clause (iv), after

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    by Board or shareholders as the proviso, the following provisos shall be              Provisions with regard to
    required under Section 188 inserted, namely:--                                        approval of Related Party
    should continue.                     "Provided further that in case of                Transactions    by   Audit
                                         transaction, other than transactions referred    Committee     have    been
    For transactions not covered to in section 188, and where Audit                       incorporated
    under Section 188, the Audit Committee              does    not    approve     the
    Committee        may     give    its transaction,     it    shall     make      its
    recommendation to the Board in recommendations to the Board:
    case it is not approving a
    particular transaction.              Provided also that in case any transaction
                                         involving any amount not exceeding one
    The Committee observed that crore rupees is entered into by a director or
    subject to safeguards, it would be officer of the company without obtaining
    similar to the flexibility provided the approval of the Audit Committee and it
    under Section 188 to the Board is not ratified by the Audit Committee within
    and the shareholders. However, three months from the date of the
    concerns of possible misuse of transaction, such transaction shall be
    this flexibility would need to be voidable at the option of the Audit
    suitably addressed by prescribing Committee and if the transaction is with the
    an upper threshold of Rupees related party to any director or is
    One Crore on such transactions.      authorised by any other director, the
                                         director concerned shall indemnify the
    In addition, the Committee company against any loss incurred by it:
    recommended that, as provided Provided also that the provisions of this
    in the SEBI (Listing Obligations clause shall not apply to a transaction, other
    and Disclosure Requirements) than a transaction referred to in section
    Regulations, 2015 related party 188, between a holding company and its
    transactions between a holding wholly owned subsidiary company."
    company and its wholly owned
    subsidiaries need not require the
    approval of the Audit Committee
    for transactions not requiring

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                          Board approval under section
                          188, and Section 177 be
                          amended accordingly.
    74. Section      178- The Committee recommended            In section 178 of the principal Act,--             The       requirement      for
        Nomination and that the NRC should instead             (i) in sub-section (1), for the words "every       constituting Nomination and
        remuneration      `prescribe a methodology to carry    listed company", the words "every listed           remuneration committee and
        committee and out evaluation of performance of         public company" shall be substituted;              stakholders       relationship
        stakholders       individual Directors, Committee(s)   (ii) in sub-section (2), for the words "shall      committee is of listed public
        relationship      of the Board and the Board as a      carry out evaluation of every director's           company and not all listed
        committee         whole', and the Board should         performance", the words "shall specify the         companies.
                          carry    out    the    performance   manner for effective evaluation of
                          evaluation      as      per    the   performance of Board, its committees and           Disclosures can be made on
                          methodology either by itself, by     individual directors to be carried out either      the website.
                          the NRC or by an external party      by the Board, by the Nomination and
                          as laid down in the methodology.     Remuneration Committee or by an
                          The performance review by the        independent external agency and review its
                          Independent        Directors,   as   implementation and compliance" shall be
                          presently required in Schedule IV,   substituted;
                          may also form part of the            (iii) in sub-section (4), in clause (c), for the
                          methodology. Schedule IV may         proviso, the following proviso shall be
                          be amended accordingly. The          substituted , namely:--
                          provision may be reviewed after      "Provided that such policy shall be placed
                          three years.                         on the website of the company, if any, and
                                                               the salient features of the policy and
                                                               changes therein, if any, along with the web
                          The Committee felt that it would     address of the policy, if any, shall be
                          be sufficient for the company to     disclosed in the Board's report.";
                          place the remuneration policy on     (iv) in sub-section (8), in the proviso, for
                          the website of the company, if       the words "non-consideration of resolution
                          any, and to disclose only the        of any grievance", the words inability to
                          salient features of the policy in    resolve or consider any grievance" shall be
                          the Board's report along with the    substituted.

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                         web link/address.
    75. Section     180- The Committee recommended             In section 180 of the principal Act, in sub-     The amendment has been
        Restrictions on that `securities premium' be also      section (1), in item (c), for the words "paid-   proposed since securities
        powers of Board included for the purpose of            up share capital and free reserves", the         premium was a part of the
                         recognising the borrowing limits,     words "paid-up share capital, free reserves      capital of a company.
                         along with the company's paid-up      and     securities    premium"     shall   be
                         share capital and free reserves,      substituted.
                         since it was a part of the capital
                         of a company.
    76. Section     184- The        Committee       further    In section 184 of the principal Act,--           The amendment has been
        Disclosure    of recommended          that    `body    (i) in sub-section (4), the words "shall not     proposed     to       remove
        interest      by corporates' be included under the     be less than fifty thousand rupees but           implementation difficulty
        director         ambit of the provision of 184(5),     which" shall be omitted;
                         to align it to Section 184(2),        (ii) in sub-section (5), for clause (b), the
                         where the words `body corporate'      following clause shall be substituted,
                         have been used to evaluate the        namely:--
                         interest of a Director.               "(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."
    77. Section      185- The Committee recommended,           For section 185 of the principal Act, the        The amendment has been
        Loan           to that it may be considered to allow   following section shall be substituted,          proposed to remove difficulty
        directors, etc    companies to advance a loan to       namely:--                                        in genuine transactions
                          any other person in whom             '185. (1) No company shall, directly or
                          director is interested subject to    indirectly, advance any loan, including any
                          prior approval of the company by     loan represented by a book debt to, or give

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    a special resolution. Further,         any guarantee or provide any security in
    loans extended to persons,             connection with any loan taken by,--
    including   subsidiaries,    falling   (a) any director of company, or of a
    within the restrictive purview of      company which is its holding company or
    Section 185 should be used by          any partner or relative of any such director;
    the subsidiary for its principal       or
    business activity only, and not for    (b) any firm in which any such director or
    further investment or grant of         relative is a partner.
    loan.                                  (2) A company may advance any loan
                                           including any loan represented by a book
                                           debt, or give any guarantee or provide any
                                           security in connection with any loan taken
                                           by any person in whom any of the director
                                           of the company is interested, subject to the
                                           condition that--
                                           (a) a special resolution is passed by the
                                           company in general meeting:
                                           Provided that the explanatory statement to
                                           the notice for the relevant general meeting
                                           shall disclose the full particulars of the loans
                                           given, or guarantee given or security
                                           provided and the purpose for which the loan
                                           or guarantee or security is proposed to be
                                           utilised by the recipient of the loan or
                                           guarantee or security and any other
                                           relevant fact; and
                                           (b) the loans are utilised by the borrowing
                                           company for its principal business activities.
                                           Explanation.--For the purposes of this sub-
                                           section, the expression "any person in
                                           whom any of the director of the company is
                                           interested" means--

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    (a) any private company of which any such
    director is a director or member;
    (b) any body corporate at a general
    meeting of which not less than twenty-five
    per cent. of the total voting power may be
    exercised or controlled by any such director,
    or by two or more such directors, together;
    or
    (c) any body corporate, the Board of
    directors, managing director or manager,
    whereof is accustomed to act in accordance
    with the directions or instructions of the
    Board, or of any director or directors, of the
    lending company.
    (3) Nothing contained in sub-sections (1)
    and (2) shall apply to--
    (a) the giving of any loan to a managing or
    whole-time director--
    (i) as a part of the conditions of service
    extended by the company to all its
    employees; or
    (ii) pursuant to any scheme approved by
    the members by a special resolution; or
    (b) a company which in the ordinary course
    of its business provides loans or gives
    guarantees or securities for the due
    repayment of any loan and in respect of
    such loans an interest is charged at a rate
    not less than the rate of prevailing yield of
    one year, three year, five year or ten year
    Government security closest to the tenor of
    the loan; or

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                                                          (c) any loan made by a holding company to
                                                          its wholly owned subsidiary company or any
                                                          guarantee given or security provided by a
                                                          holding company in respect of any loan
                                                          made to its wholly owned subsidiary
                                                          company; or
                                                          (d) any guarantee given or security
                                                          provided by a holding company in respect of
                                                          loan made by any bank or financial
                                                          institution to its subsidiary company:
                                                          Provided that the loans made under clauses
                                                          (c) and (d) are utilised by the subsidiary
                                                          company for its principal business activities.
                                                          (4) If any loan is advanced or a guarantee
                                                          or security is given or provided or utilised in
                                                          contravention of the provisions of this
                                                          section, the company shall be punishable
                                                          with fine which shall not be less than five
                                                          lakh rupees but which may extend to
                                                          twenty-five lakh rupees, and the director or
                                                          the other person to whom any loan is
                                                          advanced or guarantee or security is given
                                                          or provided in connection with any loan
                                                          taken by him or the other person, shall be
                                                          punishable with imprisonment which may
                                                          extend to six months or with fine which
                                                          shall not be less than five lakh rupees but
                                                          which may extend to twenty-five lakh
                                                          rupees, or with both.'.
    78. Section   186- The      Committee    felt    that In section 186 of the principal Act,--          The amendment has been
        Loan       and sufficient safeguards have been (i) sub- section (1) shall be omitted;             proposed to address the core
        investment by built      into   the     oversight (ii) in sub-section (2), the following issue that there may be

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    company   mechanism of SEBI and Stock             Explanation shall be inserted, namely:--     several legitimate business
              Exchanges,           and          the   'Explanation.--For the purposes of this sub- justifications for use of a
              recommendations on Beneficial           section, the word "person" does not include     multi layered structure, and
              Ownership register requirements         any individual who is in the employment of      such restriction hampers the
              should dispel the regulatory            the company.';                                  ability of a company to
              concerns. Keeping this in mind,         (iii) for sub-section (3), the following sub-   structure its business.
              the Committee recommended               section shall be substituted, namely:--
              that the restrictions on layering as    '(3) Where the aggregate of the loans and       To align        the exemption
              contained in the section be             investment so far made, the amount for          provision        with    Section
              omitted.      Further,     `principal   which guarantee or security so far provided     372A(8) of       the Companies
              business' of an investment              to or in all other bodies corporate along       Act, 1956 in   this regard.
              company may be clarified in the         with the investment, loan, guarantee or
              Explanation below sub-section           security proposed to be made or given by
              (13) of Section 186 on the lines of     the Board, exceed the limits specified under
              RBI's stipulations.                     sub-section (2), no investment or loan shall
                                                      be made or guarantee shall be given or
              The Committee recommended for           security shall be provided unless previously
              the insertion of an `explanation' to    authorised by a special resolution passed in
              clarify the exclusion of employees      a general meeting:
              from the requirement of the sub-        Provided that where a loan or guarantee is
              section/clause.                         given or where a security has been provided
                                                      by a company to its wholly owned
              The         Committee           also    subsidiary company or a joint venture
              recommended that the Removal            company, or acquisition is made by a
              of Difficulty Order for Section         holding company, by way of subscription,
              186(11) with regard to Insurance        purchase or otherwise of, the securities of
              and Housing finance Companies,          its wholly owned subsidiary company, the
              etc. issued in January 2015,            requirement of this sub-section shall not
              subject to legal clarification, may     apply:
              be included in the sub-section          Provided further that the company shall
              itself through an amendment.            disclose the details of such loans or
              Language of Section 372A(8) of          guarantee or security or acquisition in the

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    the Companies Act, 1956 may be financial statement as provided under sub-
    used.                          section (4).
                                   (iv) for sub-section (11), the following sub-
                                   section shall be substituted, namely:--
                                   "(11) Nothing contained in this section shall
                                   apply--
                                   (a) to any loan made, any guarantee given
                                   or any security provided or any investment
                                   made by a banking company, or an
                                   insurance company, or a housing finance
                                   company in the ordinary course of its
                                   business, or a company established with the
                                   object of and engaged in the business of
                                   financing industrial enterprises, or of
                                   providing infrastructural facilities;
                                   (b) to any investment--
                                   (i) made by an investment company;
                                   (ii) made in shares allotted in pursuance of
                                   clause (a) of sub-section (1) of section 62
                                   or in shares allotted in pursuance of rights
                                   issues made by a body corporate;
                                   (iii) made, in respect of investment or
                                   lending activities, by a non-banking financial
                                   company registered under Chapter III-B of
                                   the Reserve Bank of India Act, 1934 and
                                   whose principal business is acquisition of
                                   securities.";
                                   (v) in the Explanation, in clause (a), after
                                   the words "other securities" the following
                                   shall be inserted, namely:--
                                   "and a company will be deemed to be
                                   principally engaged in the business of

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                                                                  acquisition of shares, debentures or other
                                                                  securities, if its assets in the form of
                                                                  investment in shares, debentures or other
                                                                  securities constitute not less than fifty per
                                                                  cent. of its total assets, or if its income
                                                                  derived      from     investment      business
                                                                  constitutes not less than fifty per cent. as a
                                                                  proportion of its gross income."
    79. Section     188- The Committee noted that the             In section 188 of the principal Act,--           The amendment has been
        Related    Party circular no. 30/2014 issued by the       (i) in sub-section (1), after second proviso,    proposed with a view to ease
        Transactions     MCA, clarifying requirements of          the following proviso shall be inserted,         of doing business
                         second proviso to Section 188(1)         namely:--
                         had been misinterpreted, and             "Provided also that nothing contained in the
                         hence, should be withdrawn.              second proviso shall apply to a company in
                         Further, as all parties in case of       which ninety per cent. or more members, in
                         joint ventures and closely held          number, are relatives of promoters or are
                         public companies may be related          related parties:";
                         parties, not allowing them to vote       (ii) in sub-section (3), for the words "shall
                         may be impractical and such              be voidable at the option of the Board", the
                         cases     may       be    specifically   words "shall be voidable at the option of the
                         excluded from the requirements           Board or, as the case may be, of the
                         of the second proviso.                   shareholders" shall be substituted.
    80. Section 194-     The Committee deliberated on the         Section 194 of the principal Act shall be        The amendment has been
                         issues involved and noted that           omitted.                                         proposed in view of the
                         SEBI          regulations         are                                                     practical difficulties
                         comprehensive in the matter (and
                         also apply to companies intending
                         to get listed), and in view of the
                         practical difficulties expressed by
                         stakeholders, sections 194 and
                         195 may be omitted from the Act.


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    81. Section 195-     The Committee deliberated on the Section 195 of the principal Act shall be          The amendment has been
                         issues involved and noted that omitted.                                             proposed in view of the
                         SEBI          regulations       are                                                 practical difficulties
                         comprehensive in the matter (and
                         also apply to companies intending
                         to get listed), and in view of the
                         practical difficulties expressed by
                         stakeholders, sections 194 and
                         195 may be omitted from the Act.
    82. Section     196-                                     In section 196, in sub-section (4), for the     For clarity
        Appointment of                                       words "specified in that Schedule", the
        managing                                             words "specified in Part I of that Schedule"
        director, whole-                                     shall be substituted.
        time director or
        manager
    83. Section     197- The Committee, recommended In section 197 of the principal Act,--                   The amendment has been
        Overall          that the Schedule may be (a) in sub-section (1),--                                  proposed to remove a
        maximum          amended to substitute the (i) in the first proviso, the words "with the             restrictive regime
        managerial       requirement to pass a special approval of the Central Government," shall
        remuneration     resolution by shareholders with be omitted;
        and managerial an ordinary resolution, in cases (ii) in the second proviso, after the words
        remuneration in where the managerial person was "general meeting,", the words "by a special
        case of absence not     a     promoter,     and    a resolution," shall be inserted;
        or inadequacy professional           with     domain (iii) after the second proviso, the following
        of profits.      knowledge / relevant experience; proviso shall be inserted, namely:--
                         and was not related to any "Provided also that, where any term loan of
                         director or promoter of the any bank or public financial institution is
                         company and did not hold more subsisting or the company has defaulted in
                         than two per cent of the paid-up payment of dues to non-convertible
                         equity share capital of the debenture holders or any other secured
                         company or its holding company. creditor, the prior approval of the bank or
                         In other cases, however, the public financial institution concerned or the

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    requirement for special resolution non-convertible debenture holders or other
    of the shareholders should be secured creditor, as the case may be, shall
    retained. The Committee further    be obtained by the company before
                                       obtaining the approval in the general
                                       meeting.";
                                       (b) in sub-section (3), the words "and if it is
                                       not able to comply with such provisions,
                                       with the previous approval of the Central
                                       Government" shall be omitted;
                                       (c) for sub-section (9), the following sub-
                                       section shall be substituted, namely:--
                                       "(9) If any director draws or receives,
                                       directly    or   indirectly,   by   way     of
                                       remuneration any such sums in excess of
                                       the limit prescribed by this section or
                                       without approval required under this
                                       section, he shall refund such sums to the
                                       company, within two years of such lesser
                                       period as may be allowed by the company,
                                       and until such sum is refunded, hold it in
                                       trust for the company.";
                                       (d) in sub-section (10),--
                                       (i) for the words "permitted by the Central
                                       Government", the words "approved by the
                                       company by special resolution within two
                                       years from the date the sum becomes
                                       refundable" shall be substituted;
                                       (ii) the following proviso shall be inserted,
                                       namely:--
                                       "Provided that where any term loan of any
                                       bank or public financial institution is
                                       subsisting or the company has defaulted in

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    payment of dues to non-convertible
    debenture holders or any other secured
    creditor, the prior approval of the bank or
    public financial institution concerned or the
    non-convertible debenture holders or other
    secured creditor, as the case may be, shall
    be obtained by the company before
    obtaining approval of such waiver.";
    (e) in sub-section (11), the words "and if
    such conditions are not being complied,
    the approval of the Central Government had
    been obtained" shall be omitted;
    (f) after sub-section (15), the following sub-
    sections shall be inserted, namely:--
    "(16) The auditor of the company shall, in
    his report under section 143, make a
    statement as to whether the remuneration
    paid by the company to its directors is in
    accordance with the provisions of this
    section, whether remuneration paid to any
    director is in excess of the limit laid down
    under this section and give such other
    details as may be prescribed.
    (17) On and from the commencement of
    the Companies (Amendment) Act, 2016,
    any application made to the Central
    Government under the provisions of this
    section [as it stood before such
    commencement], which is pending with that
    Government shall abate, and the company
    shall,    within     one     year    of   such
    commencement, obtain the approval in

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                                                             accordance with the provisions of this
                                                             section, as so amended.".




    84. Section     198- The Committee recommended,          In section 198 of the principal Act,--             Alignment with Section 186
        Calculation   of that specific provisions for such   (i) in sub-section (3), in clause (a), after the
        Net Profit       companies be incorporated in the    words "sold by the company", the words
                         Act.                                "unless the company is an investment
                                                             company as referred to in the Explanation
                                                             to section 186" shall be inserted;
                                                             (ii) in sub-section (4), in clause (l), the
                                                             words "which begins at or after the
                                                             commencement of this Act" shall be
                                                             omitted.
    85. Section      200-                                    In section 200 of the principal Act, the           The amendment has been
        Central                                              words "the Central Government or"                  proposed to remove a
        Government or                                        appearing at both the places shall be              restrictive regime
        company to fix                                       omitted.
        limit with regard
        to remuneration
    86. Section      201-                                    In section 201 of the principal Act,--         To remove ambiguity
        Forms of, and                                        (a) in sub-section (1), for the words "this
        procedure       in                                   Chapter", the word and figures "section
        relation       to,                                   196" shall be substituted;
        certain                                              (b) in sub-section (2), in clause (a), for the
        applications.                                        words "any of the sections aforesaid", the
                                                             word and figures "section 196" shall be
                                                             substituted.


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    87. Section     216-                                          In section 216 of the principal Act, in sub-   To align with the proposed
        Investigation of                                          section (1),--                                 provisions in earlier section
        ownership     of                                          (i) in clause (b), for the word "company",
        company                                                   the words "company; or" shall be
                                                                  substituted;
                                                                  (ii) after clause (b), the following clause
                                                                  shall be inserted, namely:--
                                                                  "(c) who have or had beneficial interest in
                                                                  shares of a company or who are or have
                                                                  been beneficial owners or significant
                                                                  beneficial owner of a company."
    88. Section     223-                                          In section 223 of the principal Act, in sub- The scope of providing
        Inspector's                                               section (3), after the words "may be         Inspector's Report has been
        report.                                                   obtained", the words "by members,            restricted    to    members,
                                                                  creditors or any other person whose interest creditors or any other person
                                                                  is likely to be affected" shall be inserted. whose interest is likely to be
                                                                                                               affected
    89. Section      236-   The Committee recommended             In section 236 of the principal Act, in sub- To clearly bring out the
        Voluntary           that the references to the phrase     sections (4), (5) and (6), for the words,    intention for not including
        winding up of       `transferor company' in Section       "transferor company", wherever they occur, amalgamations and mergers
        company, etc.,      236, may be modified to a             the words "company whose shares are within the ambit of this
        not    to    stop   `company whose shares are being       being transferred" shall be substituted.     provision
        investigation       transferred' or alternatively, an
        proceedings.        explanation be provided in the
                            provision clarifying that Section
                            236 only applies to the acquisition
                            of shares.




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    90. Section    247- The Committee deliberated on the        In section 247 of the principal Act, in sub-     The amendment has been
        Valuation    by matter and felt that a valuer           section (2), in clause (d), for the words        proposed as it was felt that it
        registered      ought to be disqualified for            "during or after the valuation of assets", the   was not fair to presume that
        valuers         valuing any asset, if he had any        words "during a period of three years prior      the     valuer    would      be
                        interest in such an asset, at any       to his appointment as valuer or three years      interested for an indefinite
                        time during three years prior to        after the valuation of assets was conducted      period after the completion of
                        his appointment, and three years        by him" shall be substituted.                    the valuation of the assets.
                        after his cessation as a valuer.

    91. Section     366-   The Committee recommended for        In section 366 of the principal Act, in sub-     The amendment has been
        Companies          amending Section 366(2) of the       section (2),--                                   proposed to allow registration
        capable of being   Act, to allow for such conversions   (i) for the words "seven or more members",       of such entities, consisting of
        registered         to companies from partnership        the words "two or more members"                  two or more members
                           firms, etc. with `two or more        shall be substituted;
                           members', provided that in case      (ii) in the proviso, after clause (vi), the
                           of less than seven members, the      following clause shall be inserted,
                           conversion would be to a private     namely:--
                           company.                             "(vii) a company with less than seven
                                                                members shall register as a private
                                                                company."
    92. Section     379-   The Committee felt that as was       Section 379 of the principal Act shall be        The amendment has been
        Application   of   clearly provided under Section       renumbered as sub-section (2) thereof            proposed to clarify the
        Act to foreign     591(1) of the Companies Act,         and before sub-section (2) as so                 position on the applicability
        companies          1956, it may be specifically         renumbered, the following sub-section shall      of the provisions of Chapter
                           provided that the remaining body     be inserted, namely:--                           XXII,     to   those      body
                           corporates as covered within the     "(1) Sections 380 to 386 (both inclusive)and     corporates that were covered
                           definition of foreign company,       sections 392 and 393 shall apply to all          within the definition of
                           would need to comply with the        foreign companies:                               Section 2(42), but did not fall
                           provisions of Chapter XXII, as       Provided that the Central Government may,        within the category indicated
                           applicable.   In   this   regard,    by Order published in the Official Gazette,      in Section 379 of the Act.
                           necessary amendment in Section       exempt any class of foreign companies,


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                            379 was also recommended with         specified in the Order, from any of the
                            respect to the threshold on           provisions of sections 380 to 386 and
                            transactions, etc. conducted by       sections 392 and 393 and a copy of every
                            such companies, to be prescribed      such order shall, as soon as may be after it
                            in the relevant Rules                 is made, be laid before both Houses of
                                                                  Parliament."

    93. Section      384-                                         In section 384 of the principal Act, in sub- Consequential amendment
        Debentures,                                               section (2), after the word and figures
        annual return,                                            "section 92", the words and figures "and
        registration    of                                        section 135" shall be inserted.
        charges, books
        of account and
        their inspection
    94. Section      403- The Committee recommended for           In section 403 of the principal Act,--       To provide a liberal regime
        Fee for filing, necessary changes to be made in           (i) in sub-section (1),for the first and for fees/ additional fees
        etc                the Act to bring clarity that the      second provisos, the following provisos
                           requirement     of    filing    with   shall be substituted, namely:--
                           additional fee for 270 days under      "Provided that where any document, fact or
                           first proviso to section 403 is        information required to be submitted, filed,
                           applicable only to the six sections.   registered or recorded, as the case may be,
                           Further, additional fees should be     under section 89, 92, 117, 121, 137 or 157
                           enhanced substantially (by up to       is not submitted, filed, registered or
                           10 times of current prescribed         recorded, as the case may be, within the
                           amount) to deter non-compliance,       period provided in those sections, it may be
                           and if a company files a               submitted, filed, registered or recorded, as
                           document within the original           the case may be, within a period of two
                           period, not including the period       hundred and seventy days from the expiry
                           allowed with additional fees,          of the period so provided in those sections,
                           should be reduced to zero. A           on payment of such additional fee as may
                           separate      requirement        for   be prescribed:
                           additional fees for the sections       Provided further that where the document,

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    other than six sections may also fact or information, is not submitted, filed,
    be prescribed.                    registered or recorded, as the case may
                                      be,--
    The Committee also felt that it (a) in case of document, fact or information
    may be clarified (in the Rules) referred to in section 89, 92, 117, 121, 137
    that, irrespective of the delay, or 157, within the period of two hundred
    obtaining condonation of delay is and seventy days as provided in the first
    not a pre-requisite to filing a proviso; or
    document. It is a separate (b) in any other case within the period in
    process under section 460 in the relevant section, it may, without
    respect of all belated filings.   prejudice to any other legal action or
                                      liability under this Act, be submitted, filed,
                                      registered or recorded, as the case may be,
                                      on payment of such higher additional fee or
                                      additional fee, as may be prescribed:
                                      Provided also that where there is default on
                                      two or more occasions in submitting, filing,
                                      registering or recording of the document,
                                      fact or information under section 89, 92,
                                      117, 121, 137 or 157, the provisions of the
                                      first and second provisos shall not apply,
                                      until the document, fact or information is
                                      submitted, filed, registered or recorded, as
                                      the case may be, with additional fee,
                                      without prejudice to any legal action or
                                      liability under this Act.";
                                      (ii) in sub-section (2), for the words "first
                                      proviso to that sub-section", the words
                                      "relevant section" shall be substituted.




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    95. Section-    406-    The Committee was of the view         For section 406 of the principal Act, the To relax        the   restrictive
        Power to modify     that since the nature of business     following section shall be substituted,         regime
        Act     in    its   of Nidhis were similar to those of    namely:--
        application    to   NBFCs, it was more appropriate        '406. (1) In this section, "Nidhi" or "Mutual
        Nidhis              to regulate them at a central level   Benefit Society" means a company
                            in the Ministry, or through one or    which the Central Government may, by
                            more Regional Directors.              notification in the Official Gazette, declare
                                                                  to be a Nidhi or Mutual Benefit Society, as
                                                                  the case may be.
                                                                  (2) The Central Government may, by
                                                                  notification in the Official Gazette, direct
                                                                  that any of the provisions of this Act
                                                                  specified in the notification--
                                                                  (a) shall not apply to any Nidhi or Mutual
                                                                  Benefit Society; or
                                                                  (b) shall apply to any Nidhi or Mutual
                                                                  Benefit Society with such exceptions,
                                                                  modifications and adaptations as may be
                                                                  specified in the notification.
                                                                  (3) A copy of every notification proposed to
                                                                  be issued under sub-section (2), shall be
                                                                  laid in draft before each House of
                                                                  Parliament, while it is in session, for a total
                                                                  period of thirty days, and if, both Houses
                                                                  agree in disapproving the issue of
                                                                  notification or both Houses agree in making
                                                                  any modification in the notification, the
                                                                  notification shall not be issued or, as the
                                                                  case may be, shall be issued only in such
                                                                  modified form as may be agreed upon by
                                                                  both the Houses.
                                                                  (4) In reckoning any such period of thirty

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                                                                                             Corporate Laws & Corporate Governance Committee ICAI 


 
                                                                 days as is referred to in sub-section (3), no
                                                                 account shall be taken of any period during
                                                                 which the House referred to in subsection
                                                                 (3) is prorogued or adjourned for more than
                                                                 four consecutive days.
                                                                 (5) The copies of every notification issued
                                                                 under this section shall, as soon as may be
                                                                 after it has been issued, be laid before each
                                                                 House of Parliament.'.
    96. Section      409-   The Committee felt that changes      In section 409 of the principal Act, in sub-
        Qualification of    in the Companies Act, 2013, in       section (3),--
        President     and   Sections 409(3)(a) & (e), 411(3)     (i) in clause (a), for the words "out of which
        Members        of   and 412(2), as directed by the       at least three years shall be in the
        Tribunal            Honourable     Supreme      Court,   pay scale of Joint Secretary to the
                            should be included in the Act.       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.".




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    97. Section      411-   The Committee felt that changes      section 411 of the principal Act, for sub-
        Qualifications of   in the Companies Act, 2013, in       section (3), the following sub-section shall
        Chairperson and     Sections 409(3)(a) & (e), 411(3)     be substituted, namely:--
        members        of   and 412(2), as directed by the       "(3) A technical member shall be a person
        Appellate           Honourable     Supreme      Court,   of proven ability, integrity and standing
        Tribunal            should be included in the Act.       having special knowledge and professional
                                                                 experience of not less than twenty-five
                                                                 years in industrial finance, industrial
                                                                 management, industrial reconstruction,
                                                                 investment and accountancy."
    98. Section     412-    The Committee felt that changes      In section 412 of the principal Act, for sub-
        Selection     of    in the Companies Act, 2013, in       section (2), the following sub-sections
        Members       of    Sections 409(3)(a) & (e), 411(3)     shall be substituted, namely:--
        Tribunal     and    and 412(2), as directed by the       "(2) The Members of the Tribunal and the
        Appellate           Honourable     Supreme      Court,   Technical Members of the Appellate
        Tribunal            should be included in the Act.       Tribunal shall be appointed on the
                                                                 recommendation of a Selection Committee
                                                                 consisting of--
                                                                 (a) Chief Justice of India or his nominee -
                                                                 Chairperson;
                                                                 (b) a senior Judge of the Supreme Court or
                                                                 Chief Justice of High Court - Member;
                                                                 (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."



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    99. Section     435- The Committee recommended the          For section 435 of the principal Act, the
        Establishment of early establishment/ designation       following shall be substituted,
        Special Courts   of the Special Courts. It may also     namely:--
                         be considered whether Special          "435.(1) The Central Government may, for
                         Courts at the subordinate level        the purpose of providing speedy trial of
                         may also be established, in            offences under this Act, by notification,
                         addition to the Sessions Judge or      establish or designate as many Special
                         Additional Sessions Judge.             Courts as may be necessary.
                                                                (2) A Special Court shall consist of--
                                                                (a) a single judge holding office as Session
                                                                Judge or Additional Session Judge, in case
                                                                of offences punishable under this Act with
                                                                imprisonment of two years or more; and
                                                                (b) a Metropolitan Magistrate or a Judicial
                                                                Magistrate of the First Class, in the case of
                                                                other offences, who shall be appointed by
                                                                the    Central    Government       with    the
                                                                concurrence of the Chief Justice of the High
                                                                Court within whose jurisdiction the judge to
                                                                be appointed is working."
    100 Section     438-   The Committee recommended the        In section 438 of the principal Act, for the
        Application   of   early establishment/ designation     words "deemed to be a Court of Session",
        Code          to   of the Special Courts. It may also   the words "deemed to be a Court of Session
        proceedings        be considered whether Special        or the court of Metropolitan Magistrate or a
        before Special     Courts at the subordinate level      Judicial Magistrate of the First Class, as the
        Court              may also be established, in          case may be," shall be substituted.
                           addition to the Sessions Judge or
                           Additional Sessions Judge.




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                                                                                         Corporate Laws & Corporate Governance Committee ICAI 


 
    101 Section      439- The Committee observed that          In section 439 of the principal Act, in sub- For bringing clarity
        Offences to be sub-section (2) does not have a         section (2), after the words "a shareholder",
        non-cognizable    provision for complaints to be       the words "or a member" shall be inserted.
                          filed by a person who is a
                          member of a company without
                          any share capital. Therefore, to
                          include such persons within the
                          ambit of Section 439, the words
                          `or member' should be inserted
                          after the term `shareholder' in
                          sub-section 2.
    102 Section      440-                                      In section 440 of the principal Act, for the
        Transitional                                           words "Court of Session", at both the
        provisions                                             places, the words "Court of Session or the
                                                               court of Metropolitan Magistrate or a
                                                               Judicial Magistrate of the First Class, as the
                                                               case may be" shall be substituted.
    103 Section      441- The Committee observed that as       In section 441 of the principal Act, in sub- Consequential change
        Compounding of per the scheme of the Act, most         section (1),for the words "with fine only",
        certain offences of the offences which are             the words "not being an offence punishable
                          punishable     with     fine    or   with imprisonment only, or punishable with
                          imprisonment     or    both    are   imprisonment and also with fine" shall be
                          technical / procedural in nature,    substituted.
                          and thus, for the leniency and
                          ease in administration of the Act,
                          the old provisions relating to
                          compounding may be re-instated.
                          Therefore, under sub-section (1),
                          the Tribunal should have the
                          power to compound offences
                          punishable with fine as well as
                          offences      punishable      with

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                                                                                       Corporate Laws & Corporate Governance Committee ICAI 


 
                         imprisonment or fine or both.
                         The Committee recommended,
                         that a consequential change in
                         Section 441(6) ought to be made
                         to refer to Special Courts, as well
                         as other courts with whose
                         permission the compounding may
                         be allowed.
    104 Section     446- The Committee observed that           After section 446 of the principal Act, the To provide a liberal regime
        Application   of small businesses need to be           following sections shall be inserted, for small businesses
        fines            encouraged by laying down a           namely:--
                         more liberal regime and wherever      "446A. The court or the Special Court, while
                         disproportionate punishments are      deciding     the    amount     of   fine    or
                         proposed these need to be             imprisonment under this Act, shall have due
                         reduced. Further, the Committee       regard to the following factors, namely:--
                         felt that the procedural and          (a) size of the company;
                         technical non-compliances should      (b) nature of business carried on by the
                         attract less stringent punishments    company;
                         as compared with violations for       (c) injury to public interest;
                         substantive requirements. The         (d) nature of the default; and
                         Committee noted that the Act          (e) repetition of the default.
                         provides a duration of up to 300      446B. Notwithstanding anything contained
                         days for companies to comply          in this Act, if a One Person Company or a
                         without the fear of prosecution in    small company fails to comply with the
                         as many as six major compliance       provisions of sub-section (5) of section 92,
                         requirements. The Committee has       clause (c) of sub-section (2) of section 117,
                         given its recommendations on the      sub-section (3) of section 137, such
                         suggestions received keeping          company and officer in default of such
                         these principles in mind but also     company shall be punishable with fine or
                         keeping in mind the requirement       imprisonment or fine and imprisonment, as
                         for improving the low compliance      the case may be, which shall not be more
                         levels, especially amongst private    than one-half of the fine or imprisonment or

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                                                                                       Corporate Laws & Corporate Governance Committee ICAI 


 
                         companies.                         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."
    105 Section 447-   The Committee observed that the      (i) after the words "guilty of fraud", the       It has been proposed that
        Punishment for provision has a potential of being   words "involving an amount of at least ten       punishment u/s 447 would be
        fraud          misused and may also have a          lakh rupees or one percent. of the turnover      attracted if any person is
                       negative impact on attracting        of the company, whichever is lower" shall        guilty of fraud involving an
                       professionals in the post of         be inserted;                                     amount of at least ten lakh
                       directors etc. and, therefore,       (ii) after the proviso, the following proviso    rupees or one percent of the
                       recommends that only frauds,         shall be inserted, namely:--                     turnover of the company,
                       which involve at least an amount     "Provided further that where the fraud           whichever is lower.
                       of rupees ten lakh or one percent    involves an amount less than ten lakh
                       of the turnover of the company,      rupees or one per cent. of the turnover of       If the fraud involves an
                       whichever is lower, may be           the company, whichever is lower, and does        amount less than that and
                       punishable under Section 447         not involve public interest, any person guilty   does not involve public
                       (and non-compoundable). Frauds       of such fraud shall be punishable with           interest, then there is no
                       below the limits, which do not       imprisonment for a term which may extend         minimum penalty prescribed.
                       involve public interest, may be      to five years or with fine which may extend
                       given a differential treatment and   to twenty lakh rupees or with both.".            Any person guilty of such
                       compoundable since the cost of                                                        fraud shall be punishable
                       prosecution may exceed the                                                            with imprisonment for a term
                       quantum involved.                                                                     which may extend to five
                                                                                                             years or with fine which may
                                                                                                             extend to twenty lakh rupees
                                                                                                             or with both




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