Blog Details

Author - Associate Debasmita Patra

After significant amendments being made in 2013, the Companies Act went on to experience another set of rounds of amendments, in 2015 and then in 2017. The Amendment in 2017 came with over 40 revisions which broadly seek to strengthen corporate governance standards, initiate strict action against defaulting companies, and help improve ease of doing business in the country. It was first passed by the Lok Sabha on July 27, 2017, and then by the Rajya Sabha on December 19, 2017. It finally received the assent of the President of India on January 3, 2018.

The main objectives of the Amendment are to:

1. Facilitate ease of doing business
2. Address difficulties in implementation while rectifying the omissions and inconsistencies of the Companies Act, 2013
3. And harmonize Company Law with accounting standards, Security and Exchange Board of India (SEBI) Act, 1992, and Reserve Bank of India (RBI) Act, 1934 and the regulations thereunder.

Some of the necessary changes made by the 2017 Amendment include the following:

1. Penalties are rationalized

Section 446A has been inserted relating to the factors for determining levels of punishment. This mandates that the quantum of penalty will be levied, taking into consideration the nature of the business carried on by the company, its size, injury to the public interest, and gravity of default. Section 446B provides for lesser penalties for One Person Companies (OPC) and small companies. Thus the penal provisions of small companies have been reduced to a certain extent as provided under several Sections 92(5), 117 (2) and 137 (3) of Companies Act 2013.

2. Loans to Directors

The newly added Section 185 relates to ‘Loans to directors, etc.’ and has been inserted by the Amendment to substitute the previous Section 185 of the Companies Act 2013. Now a company may advance any loan including one that is represented by a book debt or gives any guarantee or security related to a loan taken by any person with director’s interest. However, such loans are subject to conditions that:

• A special resolution is to be passed by the company in the general meeting.
• The borrowing company utilizes the loans for its principal business activities.

3. Independent Directors

Section 149(6) (d) has been amended to restrict the scope of pecuniary transactions entered by a relative. Such transactions have been further clearly categorized into types and sub-types. Moreover, the Amendment states that monetary relation will neither include remuneration received by an independent director nor any amount from the transaction that does not exceed 10% of his or her total income. Under Companies Act 2013, an individual is restricted from being appointed as an independent director in case his or her relative is a Key Manager-Personnel (KMP) or an employee of the company in any of the preceding three financial years. This restriction has been waived off in the 2017 Amendment.

4. Private Placement Process

The issuance of shares through private placement and the related provisions have been simplified in the 2017 Amendment. While the Companies Act 2013 stated that funds raised through private placement could not be used until the shares were allotted, now the utilization of such funds can be done on completing the requisite filings with the Registrar.

5. Deposits from the Public

A company is required to deposit a sum equivalent to 20% of the deposits maturing the following financial year in the deposit repayment reserve account, maintained by a scheduled bank by April 30 every year. Unlike under Companies Act 2013, companies need not provide deposit insurance anymore. Also, in case a company is in default as to the repayment of deposits accepted from the public, such company can again start accepting deposits on rectification of the default, while making sure a time period of at least five years has elapsed since the default was rectified.

6. Harmonizing with SEBI and RBI Guidelines

The 2017 Amendment works intending to realign the Companies Act with various rules and regulations of the RBI and SEBI as well. Sections 194 and 195 that dealt with insider trading and forward dealing have been omitted in the Amendment, considering the SEBI regulations are enough to cover all such frauds. Likewise, the definition of debenture has also been amended to allow RBI to disqualify certain instruments as ‘debentures.’

7. Annual Returns

The requirement by a company to disclose its indebtedness in the annual return has been waived in the 2017 Amendment. It has also proposed to provide an abridged form of annual return for One Person Companies and small companies, thereby making things simpler for small businesses. All companies have to mandatorily place a copy of the annual return on the company’s website and provide the link of the same in the Board’s report. Also, the penalty for late filing of the annual return has been significantly increased to a minimum amount of INR 100 per day of default. On defaulting or late filing the return for two or more times, the penalty levied will be doubled.

There are many other such changes made and improved under the Companies (Amendment) Act, 2017. It seeks to ensure smooth compliance of companies to regulations, better corporate governance, and also stronger compliance and investor protection.