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
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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
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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
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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
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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
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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.".
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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.
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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
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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
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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
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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
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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.
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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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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:--
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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
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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
(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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Corporate Laws & Corporate Governance Committee ICAI
(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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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Corporate Laws & Corporate Governance Committee ICAI
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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