India scaled 30 positions in the latest ease of doing business ranking by the World Bank, in its Doing Business 2018 report and become the top 100th country in terms of ease of doing business. Last year, India was on 130th position. For the first time ever India has jumped so high.
The Companies Amendment Act 2017 is another major step of Indian Government to remove the difficulties of Companies Act 2013 and facilitate the ease of doing business in India and promote the Start-ups in India.
The Central Government notified the Companies (Amendment) Act, 2017 (Amendment Act) on 3rd January, 2018. The provisions of this Amendment Act shall come into force on the date or dates as the Central Government may appoint by notification(s) in the Official Gazette.
The main objects of the Companies Amendment Act 2017 are as follows:
- Facilitate ease of doing business
- Addressing difficulties of Companies Act 2013
- To promote Start-ups
- Harmonisation with accounting standards, the Securities and Exchange Board of India Act, 1992 and the regulations made thereunder, and the Reserve Bank of India Act, 1934 and the regulations made thereunder
- Strengthen Corporate Governance
Here are the key changes in Companies Amendment Act, 2017:
- Name Reservation/Approval: The period for reservation of name is substituted from ‘60 days from the date of the application’ to ‘20 days from the date of approval’.
In case of an application for reservation of name or for change of its name by an existing company, the Registrar may reserve the name for a period of 60 days from the date of approval.
- Registered Office of Company: A Company shall have Registered Office within 30 days of incorporation instead of 15 days earlier. The time period for giving notice of change of situation of registered office is increased from 15 days to 30
- Deposit Insurance: The requirement to have deposit insurance under Section 73(2)(d) is omitted.
- Ratification of Auditors: The requirement of annual ratification of Auditor by members is omitted.
- Authentication of Documents: In addition to Director’s & KMP, any employee of the company can also authenticate company documents as authorized.
- ‘Self-Declaration’ to replace ‘Affidavit’: With reference to incorporation of a company, ‘affidavit’ has been replaced by “self-declaration” from the first subscribers to memorandum and first directors. This will ease the additional documentary burden and expedite the incorporation process.
- Annual General Meeting: Unlisted companies can hold their AGMs in any place in India provided that all the members of such company should give their consent in advance either in electronic mode or in writing.
- Extra Ordinary General Meeting: An extraordinary general meeting of the company, other than of the wholly owned subsidiary of a company incorporated outside India, can be held anywhere in India. Wholly owned subsidiary of company incorporated outside India can hold EGM at any place in the world.
- Disclosures to Registrar: Section 93 has been omitted which requires every listed company to file a return with the Registrar with respect to change in number of shares held by promoters and top ten shareholders of such company.
- Insider Trading: Section 194 and 195 of the Companies Act 2013 is omitted. Since SEBI Regulations are comprehensive and cover the provisions, sections relating to prohibition on forward dealings in securities of company and insider trading of securities by director or key managerial personnel are deleted.
- Managerial Remuneration: Section 197 of the Companies Act, 2013 required approval of the company in a general meeting for payment of managerial remuneration in excess of 11 percent of the net profits. The Amendment Act now requires that where a company has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, the prior approval of the bank or public financial institution concerned or the non-convertible debenture holders or other secured creditor, as the case may be, for such payment of managerial remuneration shall be obtained by the company before obtaining the approval in the general meeting.
- Issue of Shares at discount: Section 53 of the Companies Act, 2013 prohibited issuance of shares at a discount. The Amendment Act now allows companies to issue shares at a discount to its creditors when its debt is converted into shares in pursuance of any statutory resolution plan such as resolution plan under the Code or debt restructuring scheme.
- Private Placement: The Private Placement process is simplified by doing away with separate offer letter details to be kept by company and reducing number of filings to Registrar.
The Companies would be allowed to make offer of multiple security instruments simultaneously.
Return of allotment required to be filed within 15 days instead of 30 days
- Sweat Equity Shares: Section 54, in sub-section (1), clause (c) is omitted. Now newly incorporated company can also issue sweat equity shares of a class of shares already issued.
- Interim Dividend: 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.
- Number of Directorship: For reckoning the limit of directorships of twenty companies, the directorship in a dormant company shall not be included.
- Form DIR 11: Requirement of filing of form DIR 11 (Filing of a copy of resignation to ROC by director itself) is optional now.
- Loan to Director: Companies can advance a loan to any other person in whom director is interested subject to prior approval of the company by a special resolution. Further, loans extended to persons, including subsidiaries, falling within the restrictive purview of Section 185 should be used by the subsidiary for its principal business activity only, and not for further investment or grant of loan.
- Loan and Investment by Company: Restriction on subsidiary investment layers is removed. Loan and Investment by the Company, clarity is given by exempting employees from applicability. Exemption to be provided for loan, guarantee or security to its wholly owned subsidiary or joint venture Company or for acquisition of share in wholly owned subsidiary.
- Corporate Social Responsibility (CSR): Eligibility for doing CSR to be determined based on “Preceding Financial Year” instead of “three preceding financial year”.
- Late Fee for ROC filing: In case delay in filing documents, fact or information required to be submitted under section 92 (Annual Return) or 137 (copy of financial statement), after expiry of prescribed period a flat additional fee of Rs.100 per day shall be paid instead of slab wise additional fee.
The Companies Amendment Act 2017 help achieving better harmonisation with other statutes such as Reserve Bank of India Act, 1934 and regulations made thereunder and rectify inconsistencies with the Companies Act 2013. I really appreciate the Modi Government for addressing the various challenges faced by the business and strive hard for ease of doing business in India.
Sunil Kumar Gupta
Author, Business Expert & Philanthropist