Companies amendment bill 2014 (highlights)

Companies Amendment

Bill, 2014

M. BUHA & CO. C O M P A N Y S E C R E T A R I E S

201/B, Helix Complex,

Opp. Hotel Suray, Sayajigunj,

Vadodara-05.

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www.mbuha.com


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The Companies (Amendment) Bill 2014 was introduced in Lok Sabha by Shri. Arun Jaitley on 08th December 2014 and same been passed by Lok Sabha on 17th December 2014. But in order to get it enforced; it has yet to pass through Rajya Sabha then to get positive assent of Hon’ble president of India and (afterwards) it has to notified in Official Gazette of India for its valid enforcement.

Nomenclature:

‘the Bill’ shall means Companies (Amendment) Bill 2014;

‘CA, 2013’ shall means Companies Act, 2013;

‘CA, 1956’ shall means Companies Act, 1956;

‘CS’ shall means Company Secretary;

‘Auditor’ shall means Statutory, Secretarial or Cost Auditor of the Company;

‘Ministry’ shall means Ministry of Corporate Affairs

‘OPC’ shall means One Person Company;

‘RoC’ shall means Registrar of Companies;

‘MD’ shall means Managing Director;

‘WTD’ shall means Whole-time Director

Flow chart for law enforcement Lok Sabha approval Rajya Sabha approval President Assent Gazette Notification



Important Highlights of the Bill and its impact on incorporated Companies:

� Minimum paid-up capital criteria abolished:

Even under CA, 1956 it was specified that a private company can incorporate / shall continue to have minimum paid-up capital of Rs. 1 Lakh viz-a-viz a public company can incorporate / shall continue to have minimum paid-up capital of Rs. 5 Lakhs and the same provisions also bring up in the CA, 2013. The concept of OPC first time introduced in India and OPC be treated as Private Company under the CA, 2013 so it also governed by minimum paid-up capital criteria. Under the Bill it has been proposed to remove minimum paid-up capital criteria for both type of companies viz. private and public company.

� Common seal would become optional:

Under the CA, 1956 & 2013 it was mandated to have common seal with a Company upon its Incorporation but under the Bill it is proposed to remove the mandatory requirements of common seal.

Upon enforcement of the Amendment Act, 2014 wherever the reference of ‘Common Seal’ is provided shall be interpreted as ‘Common Seal, if any’. Major following sections got affected upon enforcement:

1. S.22(2): the company can authorize (in case a company does not have a common seal) any person as an attorney under the signature of two directors or a Director and CS if it has appointed CS, if any. After enforcement of the Bill, no documents under the common seal is required for such authorization.

2. S. 46: Share certificate shall not require to issue under the Common Seal. If the Company has Seal then it could be otherwise it should be signed by two directors or by a director and the CS, wherever the company has appointed a CS.

� Specific penalty will impose on violation of ‘Deposit’ provisions:

After S. 76 a new Section 76A introduced in the Bill. Presently under the CA, 2013 there is no specific penalty provided for any contravention of the provisions of Chapter V (Acceptance of Deposit) by a Company. Presently violation of S. 73 or S. 76 would attract general penalty / punishable u/s. 450 of the CA, 2013. But under the Bill it was specified that, if the Company accepts or invites or allows or causes any other person to accept or invite on



its behalf any deposit in contravention of the manner or the conditions prescribed under section 73 (acceptance of Deposit from Shareholders) or section 76 (acceptance of Deposit from Public) or rules made thereunder or if a company fails to repay the deposit or part thereof or any interest due thereon within the time specified under section 73 or section 76 or rules made thereunder or such further time as may be allowed by the Tribunal under section 73 :-

(a) the company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with fine which shall not be less than one crore rupees but which may extend to ten crore rupees; and (Minimum fine is one crore rupees)

(b) every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years or with fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees, or with both: (Minimum fine for officer who had made default is twenty-five lakh rupees)

Provided that if it is proved that the officer of the company who is in default, has contravened such provisions knowingly or wilfully with the intention to deceive the company or its shareholders or depositors or creditors or tax authorities, he shall be liable for action under section 447 (Fraud).

� Certain resolutions would not be available on public domain for inspection:

U/s. 179 of the CA, 2013; following resolutions of the Board shall require to file with RoC in form MGT-14:

1. To make calls from shareholders; 2. To authorize Buy-back; 3. To issue securities; 4. To borrow monies; 5. To invest funds of the Company; 6. To grant loans or give guarantee or provide security in respect of loans; 7. To approve financial statement and Board’s report; 8. To diversify the business of the Company; 9. To approve amalgamation, merger or reconstruction; 10. To take over a company; 11. To make political contribution; 12. To appoint or remove Key managerial personnel (KMP) and one level

below the KMP; 13. To appoint Internal Auditor and Secretarial Auditor; 14. To take note of disclosure of directors interest and shareholding; 15. To buy, sell investment constituting 5% or more paid-up capital and

free reserve of Investee Company; 16. To invite or accept or renew public deposit;



17. To approve quarterly, half yearly and annual financial statements or results.

Lots many industries had raised their concern about confidentiality of their internal transactions so Ministry has considered their representation and proposed under the Bill that foregoing enlisted resolutions would not be available on public domain for public inspection.

� Previous losses and depreciation shall be set-off before declaration of Dividend:

Under the CA, 1956 the provision for setting off carried forward losses and depreciation against the current year’s profit was there but inadvertently the same was missed by Ministry while drafting of CA, 2013. Now, again the said provision reintroduced in the Bill. Upon enforcement of the Bill; companies shall have to ensure that carried forward previous losses and depreciation not provided in previous year or years are set off against profit of the company for the current year then the Company could able to declare dividend.

� Reporting of fraud caused by officers or employees of the Company:

Due to Satyam scam and role played by its Auditors for hiding of the fact (fraud), S. 143 (12) was introduced first time under the CA, 2013. As per the proviso, an Auditor during the course of his/her/their audit identified any fraud caused to the Company by any of its officer or employee, shall inform to Board or Audit Committee, if any, and upon receipt of comment of Board or Audit Committee on the report of the Auditor the Auditor concern shall forward his report to Central Government. But no quantum amount of fraud mentioned in said section. But in the Bill, it is proposed that, any fraud identified by Auditors of the Company beyond certain sum as may be prescribed1 shall report to the Central Government but the amount involved in the fraud lesser than the amount prescribed above in that case the Auditor shall inform to Board or Audit Committee, if any, of the Company. Provided that if the Auditor has reported to Board or Audit Committee the fraud but not reported to the Central Government in that case the Board shall disclose the details about such frauds in the Board's report.

1 Yet not prescribed



� Additional exemptions provided in the provisions of Section 185 of the CA, 2013 (Loans to Directors etc.):

Erstwhile Section 195 of the CA, 1956 was applicable to only Public Company and Private Company which is subsidiary of Public Company but Section 185 of the CA, 2013 made applicable to all the Companies without any exclusion. U/s. 185 restriction imposed on the Company in respect of funding any loans or providing any guarantee or securities against loans given by any other party (directly or indirectly) to any Director of the Company or Firm in which such Director / his relatives are partner or to Private Company in which such director is director / member or any body corporate wherein such director has control beyond threshold as provided u/s. 185 except the loan provided by the Company in ordinary course of business or given to MD or WTD as a part of the conditions of his service. The Bill proposed following two more exemptions in addition to exemptions discussed above: 1. 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

2. 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 (1) and (2) are utilised by the subsidiary company for its principal business activities.

� Requirement of ‘Special Resolution’ u/s. 188 (Related Party Transactions) is removed from the section and replaced by the word ‘Resolution’ i.e. ‘Ordinary Resolution’. But requirement of passing the ‘resolution’ shall not be applicable for transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval.

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Thank You

Note: The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Companies amendment bill 2014 (highlights)

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