Company Amendment Bill 2016

Owing to the drawbacks and numerous complaints filed against the company act 2013; the company law committee proposed a series of amendments in the act.

This led to the creation of the company amendment bill 2016 which was a more refined version of the 2013 act.

The major shortcomings of the 2013 act were that it was overly limiting and a hindrance to productiveness. The new amendments in the bill paved way for greater ease of business and flexibility.

Key amendments in the bill

Short title and commencement

1. This Act may be called the Companies (Amendment) Act, 2016.
2. It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint and different dates may be appointed for different provisions of this Act and any reference in any provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision.

Amendment of section 2

1. The expression "significant influence" means control of at least twenty per cent, of total voting power, or control of or participation in business decisions under an agreement
2. The expression "joint venture" means a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement

Insertion of new section 3A

• If at any time the number of members of a company is reduced, in the case of a public company, below seven, in the case of 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 cognizant 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 therefore.

AMENDMENT OF SECTION 4

• The following clause shall be substituted, namely: - that the company may engage in any lawful act or activity or business, or any act or activity or business to pursue any specific object or objects, as per the law for the time being in force.

Amendment of section 12

• For the words "on and from the fifteenth day of its incorporation", the words “within thirty days of its incorporation" shall be substituted.

Amendment of section 21

• In section 21 of the principal Act, for the words "an officer of the company", the words "an officer or employee of the company" shall be substituted.

Amendment of section 26

• After the words "signed and shall", the following shall be inserted, namely:— "state such information and set out such reports on financial information as may be specified by the Securities and Exchange Board in consultation with the Central Government.

Amendment of section 42

• Proposed changes related to private placement: - Return of allotment has to be filed within 15 days instead of 30 days.

Money received under the private placement shall not be utilized unless the return of allotment is filed with the RoC. Private Placement offer letter shall not contain any right of renunciation.

Amendment of section 53

• The following sub-section shall be inserted, namely:— "(2A) Notwithstanding anything contained in sub-sections (1) and (2), a company may issue shares at a discount to its creditors when its debt is converted into shares in pursuance of any statutory resolution plan or debt restructuring scheme in accordance with any guidelines or directions or regulations specified by the Reserve Bank of India under the Reserve Bank of India Act, 1934 or the Banking (Regulation) Act, 1949."

Amendment of section 62

• 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."

Amendment of section 73

• The following clause shall be substituted, namely: — "(c) depositing, on or before the 30th day of April each year, such sum which shall not be less than twenty per cent of the amount of its deposits maturing during the following financial year and kept in a scheduled bank in a separate bank account to be called deposit repayment reserve account.

Amendment of section 74

• The following clause shall be substituted, namely: — repay within three years from such commencement or on or before expiry of the period for which the deposits were accepted, whichever is earlier.

Amendment of section 89

• The following sub-section shall be inserted, namely:— "(10) For the purposes of this section and section 90, beneficial interest in a share includes, directly or indirectly, through any contract, arrangement or otherwise, the right or entitlement of a person alone or together with any other person to— (i) exercise or cause to be exercised any or all of the rights attached to such share; or (ii)receive or participate in any dividend or other distribution in respect of such share."

Amendment of section 90

• Every company shall maintain a register of the interest declared by individuals under sub-section (1) and changes therein which shall include the name of individual, his date of birth, address, details of ownership in the company and such other details as may be prescribed.

Amendment of section 92

• 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."

Amendment of section 96

• In sub-section (2), in the proviso, for the words "Provided that", the following shall be substituted, namely:— "Provided that annual general meeting of an unlisted company may be held at any place in India if consent is given in writing or by electronic mode by all the members in advance.

Amendment of section 100

• The following proviso shall be inserted, namely:— "Provided that an extraordinary general meeting of the company, other than of the wholly owned subsidiary of a company incorporated outside India, shall be held at a place within India."

Amendment of section 123

• The following sub-section shall be substituted, namely:— "(3) The Board of Directors of a company may declare interim dividend during any financial year or at any time during the period from closure of financial year till holding of the annual general meeting out of the surplus in the profit and loss account or out of profits of the financial year for which such interim dividend is sought to be declared or out of profits generated in the financial year till the quarter preceding the date of declaration of the interim dividend:

Amendment of section 129

• The following sub-section shall be substituted, namely:— "(3) Where a companyhas one or more subsidiaries or associate companies, it shall, in addition to financial statements provided under sub-section (2), prepare a consolidated financial statement of the company and of all the subsidiaries and associate companies in the same form and manner as that of its own and in accordance with applicable accounting 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):

Amendment of section134

• The following sub-section shall be substituted, namely:— "(1) The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board by the chairperson of the company where he is authorized by the Board or by two directors out of which one shall be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the company secretary of the company, wherever they are appointed, or in the case of One Person Company, only by one director, for submission to the auditor for his report thereon."

Amendment of section 135

• In section 135 of the principal Act, — (i) in sub-section (1), — (a) for the words "any financial year", the words "the immediately preceding financial year" shall be substituted;

Amendment of section 137

• After the fourth proviso, the following proviso shall be inserted, namely:— 'Provided also that in the case of a subsidiary which has been incorporated outside India (herein referred to as "foreign subsidiary"), which is not required to get its financial statement audited under any law of the country of its incorporation and which does not get such financial statement audited, the requirements of the fourth 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.'

Amendment of section 149

• For sub-section (3), the following sub-section shall be substituted, namely: — "(3) every company shall have at least one director who stays in India for a total period of not less than one hundred and eighty-two days during the financial year.

Amendment of section 153

• The following proviso shall be inserted, namely:— "Provided that the Central Government may prescribe any identification number which shall be treated as Director Identification Number for the purposes of this Act and in case any individual holds or acquires such identification number, the requirement of this section shall not apply or apply in such manner as may be prescribed."

Amendment of section 160

• The following proviso shall be inserted, namely: — "Provided that requirements of deposit of amount shall not apply in case of appointment of an independent director or a director recommended by the Nomination and Remuneration Committee, if any, constituted under sub-section (1) of section 178.”

Amendment of section 165

• The following Explanation shall be inserted, namely: — "Explanation II.—for reckoning the limit of directorships of twenty companies, the directorship in a dormant company shall not be included.”

Amendment of section 167

• In clause (a), the following proviso shall be inserted, namely:— "Provided that where he incurs disqualification under sub-section (2) of section 164, the office of the director shall become vacant in all the companies, other than the company which is in default under that sub-section.";

Amendment of section 177

• In sub-section (1), for the words "every listed company", the words "every listed public company" shall be substituted;

Amendment of section 178

• In sub-section (1), for the words "every listed company", the words "every listed public company" shall be substituted;

Amendment of section 185

• The following section shall be substituted, namely: — '185. (1) No company shall, directly or indirectly, advance any loan, including any loan represented by a book debt to, or give any guarantee or provide any security in connection with any loan taken by, — (a) any director of company, or of a company which is its holding company or any partner or relative of any such director; or (b) any firm in which any such director or relative is a partner.

Amendment of section186

• In section 186 of the principal Act, — (i) sub- section (1) shall be omitted; (ii) in sub-section (2), the following Explanation shall be inserted, namely: — 'Explanation.—for the purposes of this sub-section, the word "person" does not include any individual who is in the employment of the company.’

Amendment of section 188

• In sub-section (1), after second proviso, the following proviso shall be inserted, namely: — "Provided also that nothing contained in the second proviso shall apply to a company in which ninety per cent or more members, in number, are relatives of promoters or are related parties:".

Amendment of section 197

• In sub-section (1),— (i) in the first proviso, the words "with the approval of the Central Government," shall be omitted;

Amendment of section 366

• Section 366 of the Act to allow conversions into companies from partnership firms, etc. with two or more members provided that in case of less than seven members the conversion would be into a private company.

Amendment of section 403

• If a company fails to file the resolution or the agreement under sub-section (1) before the expiry of the period specified under section 403 with additional fee, 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 every officer of the company who is in default, including liquidator of the company, if any, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

Amendment of section 447

• After the words “guilty of fraud", the words "involving an amount of at least ten lakh rupees or one percent of the turnover of the company, whichever is lower" shall be inserted.