Companies (Amendment) Bill, 2017

Practice Areas

The Companies (Amendment) Bill, 2017 was passed by the Lok Sabha on 27th July 2017 and now only the approval of Rajya Sabha along with the President’s Assent is pending to give it the stature of Companies (Amendment) Act, 2017.

The major amendments proposed in the New Bill include clarity on definitions for identifying associate companies, holding & subsidiary companies, related parties etc; aligning disclosure requirements in the prospectus with the regulations made by Securities and Exchange Board of India (SEBI), providing for maintenance of register of significant beneficial owners and filing of returns in this regard with the Registrar Of Companies (ROC), simplification of the private placement procedure, removal of requirement for annual ratification of auditor, rationalization of provisions related to loan to directors, omission of provisions relating to forward dealing and insider trading and doing away with the requirement of approval of the Central Government for managerial remuneration above prescribed limits.

Some of the Amendments are as follows:

  • S.2(76)(vii): Definition of “Related Party”: Instead of only a company, any body-corporate which is holding, subsidiary or an associate company of such company or a subsidiary of a holding company shall be considered as a related party.
    Further, a new sub-clause has been inserted in the definition of related party to include any investing company or the venturer of the company.
  • S.2(87): Definition of “Subsidiary Company”: A Company will be treated as subsidiary in case the holding company exercises or controls more than one-half of the total voting power either at its own or together with one or more of its subsidiary companies. Currently the Act provides for exercise or control of more than half of the total share capital (which includes equity + preference share capital).
    It would remove all the practical difficulties faced by companies as holding status would be based on ownership of the company (i.e. equity holding only).
    Also, during consolidation, the Accounting standards don’t recognize preference shareholders as the owners of the Company and hence the equity shareholder would show it as its subsidiary in its books of account and thus the change in definition is a welcome move.
  • S.47: Voting Right: Since a member who is a related party cannot vote on a resolution to be passed under section 188 of the Companies Act 2013, it is proposed to clarify that the right of every member holding equity shares to vote on all resolutions placed before the meeting would be subject to sub-section (1) of section 188 of the Act.
  • S.54 (1): Issue of Sweat Equity Shares: It is proposed to allow issue of sweat equity shares at any time after registration of the company. Currently such shares can be issued only after the expiry of one year from the date of commencement of business.
  • S.92: Annual Return: It is proposed to omit the requirement of MGT-9 i.e. extract of annual return to form part of the Board’s Report. Instead, the copy of annual return shall be uploaded on the website of the company, if any, and its link shall be disclosed in the Board’s report.
    The Central Government may prescribe abridged form of annual return for One Person Company (OPC), Small Company and such other class or classes of companies as may be prescribed.
    It is also proposed to omit the requirement related to disclosing indebtedness and details with respect to name, address, country of incorporation etc. of FII (Foreign Institutional Investors) in the annual return of the company.
    Time limit of 270 days within which annual return could be filed on payment of additional fee has been done away with. It is proposed that a company can file the annual return with ROC at any time on payment of prescribed additional fee.
  • S.101: Notice of Meeting: Post the amendment, general meeting may be held at a shorter notice if in case of an Annual General Meeting consent is given by not less than 95% of the members entitled to vote and in case of other general meetings consent is given by members holding not less than 95% of the total voting power exercisable at that meeting.
    In case 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, then his vote with respect to shorter notice shall only be counted for the purpose of the resolution on which he can vote.
    Currently for calling both AGM and EGM at shorter notice, consent of 95% of members entitled to vote at the meeting is required.
  • S.135: Corporate Social Responsibility: Eligibility criteria for the purpose of constituting the CSR Committee and incurring expenditure towards CSR is to be calculated based on immediately preceding financial year. Currently this eligibility is decided based on preceding three financial years.
    Eligibility criteria for the purpose of constituting the CSR Committee and incurring expenditure towards CSR is to be calculated based on immediately preceding financial year. Currently this eligibility is decided based on preceding three financial years.
    It also proposed to empower the Central Government to prescribe sums which shall not be included for calculating ‘net profit’ of a company under section 135.
  • S.178: Nomination and remuneration committee and Stakeholders Relationship Committee: It is proposed that, instead of every listed company, every listed public company shall constitute a Nomination and Remuneration Committee (‘NRC’).
    It is proposed that committee will specify methodology for effective evaluation of performance of Board and committees and individual directors either by the Board, NRC or an independent external agency and NRC can review the implementation of evaluation system.
    It is further proposed that instead of disclosing the policy in the Board’s report, such policy shall be placed on the website of the company, if any and only the salient features of the policy and the changes therein need to be disclosed in the Board’s report.
  • S.185: Loan to Directors: The amendment retains the prohibition on loans advances, etc., only on the directors of the company or its holding company or any partner of such director or any firm in which such director or relative is a partner.
    It however, allows a company to give loan or guarantee or provide security to any person in whom any of the directors is interested subject to passing of special resolution by the company and utilization of loans by the borrowing company for its principal business activities.
    This is a very welcome change and should open lending between group companies with common directors across the group.
  • S.188(1): Vote on a Related Party Transaction: The restriction on the eligibility of a related party to vote on a related party transaction (in which they are interested) shall not be applicable in cases wherein 90% or more members, in number, are relatives of Promoters or are related parties.
  • S.196: Appointment of Managing Director, Whole-time Director or Manager: It is proposed that a person beyond the age of 70 years can be appointed as managing director or whole time director or manager even when such appointment has not been approved by special resolution provided that the resolution for such appointment is passed with votes cast in favour of the motion exceed the votes, if any, cast against the motion and the Central Government is satisfied, on an application made by the Board, that such appointment is most beneficial to the company, the appointment of the person who has attained the age of 70 years may be made.
  • S.197: Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits: The amendment does away with requirement of obtaining approval of Central Government in case the total managerial remuneration exceeds 11% of the net profits of that company.
    Further, post the amendment, the Company needs to pass a special resolution for payment of managerial remuneration in excess of prescribed individual limits.
    It also seeks to provide that, before approval of shareholders prior approval of bank or public financial institution or non-convertible debenture holder or secured creditor shall be obtained where any term loan is subsisting.
    It also seeks to provide that, before approval of shareholders prior approval of bank or public financial institution or non-convertible debenture holder or secured creditor shall be obtained where any term loan is subsisting.
  • S.403: Fees for Filing: It brings more clarity with respect to late filings of documents under sections 89, 92, 117, 121, 137 and 157 and defaults in filings, consequences, etc.
    Document, fact or information required to be submitted under section 92 (Annual Return) or 137 (Copy of financial statement to be filed with registrar) may be submitted, after expiry of the period so provided in those sections, on payment of such additional fee as may be prescribed which shall not be less than Rs. 100 per day and different amounts may be prescribed for different classes of companies.
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