The Companies Act, 2013 (Companies Act) which is still partially to be implemented has been recently amended and notified by the Companies (Amendment) Act, 2015. The amendments are primarily incorporated for ease of doing business, meet the corporate needs and for removal of inadvertent errors. The following are the key changes that have been incorporated in the new Companies Act:
Minimum Paid-Up Capital: The earlier requirement of minimum paid up capital for private companies was Rs 1,00,000/- and for public companies was Rs 5,00,000/-. The amendment has now omitted the requirement of minimum paid up capital for both private and public companies for the ease of doing business.
Common Seal: Section 9 of the Companies Act, required a company to mandatorily have a common seal. The said requirement has been done away with. Further, there are consequential changes incorporated in Section 12(3)(b), Section 22 (2)(a) and Section 46 of the Companies Act with regards to the Common Seal. The amendment now provides that the signature of the officers of the Company shall suffice for legally binding the Company.
Prosecution for Accepting Deposit from Public: A new Section 76A has been inserted which provides for severe punishment including criminal liability against the officer of the Company for violation of provisions of the Companies Act in relation to acceptance of deposits from general public.
Resolution and Agreements: Section 117 of the Companies Act has been amended by inserting a proviso after section 117(3)(g) in order to restrict the inspection or obtaining of copies of board resolutions under Section 399 with the intent to keep certain information confidential.
Declaration of Dividend: Section 123(1) has been amended by inserting the provision whereby a company cannot declare dividend unless the carried over previous losses and depreciation not provided in the previous year(s) are set off against profit of the Company to provide financial stability to the companies.
Reporting of the Fraud: Section 134(3)(ca) and Section 143(12) have been inserted with respect to reporting of the fraud by the board and auditors respectively to increase transparency and also cast a duty on them to report the fraud. Further, an amendment to Section 143(12) now seeks to restrict the auditors obligations and limits it to report only material frauds to the Central Government which will bring great relief to both corporates as well as auditors.
Loans to subsidiary company: Section 185 inter alia prohibits a company (A) from extending loans/ guarantees to another company (B) if the director of A is interested in B. Earlier the Rules and now this amendment clarifies that if B is a wholly owned subsidiary of A then this prohibition is waived. It further waives such a prohibition if A gives guarantee in respect of a loan taken by B from any bank or financial institution, where B is a subsidiary of A.
Related Party Transactions: Section 188 has been amended whereby the approval of shareholders can be by way of an ordinary resolution as compared to previously required special resolution for related party transactions. The amendment further provides that the requirement of passing ordinary 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.
Special Bench: Section 419(4) provides that the president shall, for disposal of any matter relating to rehabilitation, restructuring, reviving and winding-up of companies constitute one or more special benches consisting of three or more members, majority necessarily being of judicial members. This section has now been amended and the word "winding-up" now been deleted which means that winding up matters shall be heard by an two member bench instead of a three member bench. Amendment of this provision would help in deciding winding up cases promptly. Further, Section 435(1) and section 436(1)(a) have been amended to reduce the burden on special courts such that special courts shall now try offences which are punishable with imprisonment of two or more years. Simultaneously, an additional provision is inserted in sub clause (1) of section 435 for the purpose of allowing a magistrate to try offences resulting in minor violations of the Companies Act.
This amendments signify that government is continuing to examine the Companies Act, 2013 with the aim to improving and ease of doing business in India. The aforesaid amendments are substantive and welcome.
This update was released on 10 Jun 2015.
The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or email@example.com for any assistance.
Legal Update Team
MANSUKHLAL HIRALAL & COMPANY
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