Since the Companies Act 2013 (CA 2013) has been notified, it is undergoing various amendments and modifications. From time to time, Taxmantra always updates and reminds about such amendments. On 5^th June, 2015, MCA issued a notification regarding exemptions to private limited companies (other than private companies which is a subsidiary of a public company).   

Section 462 of CA 2013, empowers Central Government to exempt a class or classes of companies from provisions of this Act. The Central Government may in the public interest, by notification direct that any of the provisions of this Act,—

(a) shall not apply to such class or classes of companies; or

(b) shall apply to the class or classes of companies with such exceptions, modifications and adaptations as may be specified in the notification.

A copy of this notification, which pertains to exemptions to private limited companies (other than private companies which is a subsidiary of a public company) has been laid in draft before both Houses of Parliament. Though the notification issued is yet to be gazette but the same shall be effective from the date of its notification only i.e. 5th June, 2015.

Let us understand the Exemption, Modification and Adaptation (EMA) notified in the notification:

1. Exemptions from restrictions of giving loan to directors etc (applicable to certain class of private companies)

The provisions of Section 185 lay restrictions on loans given by a company to its directors or entities in which the directors are interested. It also lays down restrictions on guarantee or security given by a company in connection with any loan taken by the aforesaid directors and entities. The above restrictions will now no longer be applicable to the private companies which satisfies all the 3 conditions mentioned below:

a)      in whose share capital no other body corporate has invested any money;

b)      if the borrowings of such a company from banks or financial institutions or any body corporate is less than[lower of (i) 2 x paid up share capital or (ii) Rs 50 crores]; and

c)      such a company has no default in repayment of such borrowings subsisting at the time of making transactions under this section.

2. Section 2(76)(viii) shall not apply to a private company with respect to Section 188 dealing with Related Party Transactions

The definition of Related Party with reference to a company is mentioned in the Section 2 (76). As per Section 2(76)(viii), the “related party” means –

Any company that is— (A) a holding, subsidiary or an associate company of such company; or (B) a subsidiary of a holding company to which it is also a subsidiary.

Impact:Any related party transaction as specified in S 188, entered into by a private limited company with its following related parties will be outside the purview of the applicability of the provisions of S 188:

a. holding company

b. subsidiary company

c. associate company

d. other subsidiary of the holding company

3. Non applicability of provisions relating to Kinds of Share Capital & Voting Rights

Section 43 relating to Kinds of Share Capital i.e. Equity (with or without differential rights) and Preference shall not apply to Private Companies;

Section 47 dealing with provisions of Voting Rights of Equity & Preference Shareholders shall not apply to Private Companies;

Only if MOA or AOA of such Private Company so provides.

4. Relaxation in minimum time conditions relating to Rights Offer

Section 62(1)(a) relates offer issued by the company to its Equity Shareholders in order to increase its subscribed capital. Sub-clause (i) to the said section specifies that the offer shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined.

Note: Letter of offer shall be dispatched to all existing shareholders through registered post or speed post or through electronic mode at least 3 days before the opening of the issue.

Impact after issue of notification:

A private limited company if 90% of its members provide their consent in writing or in electronic mode can:

a) send notice of shorter period than 15 days as mentioned above

b) dispatch notice of a lesser period than 3 days as mentioned above.

5. Modification in condition pertaining to Issue of shares to employees under a scheme of employees’ stock option EMA

The Private Company, in case of issue of ESOPs shall obtain the approval of shareholders by way of Ordinary Resolution instead of Special Resolution.

6. Restrictions on purchase by company or giving of loans by it for purchase of its own shares removed for certain class of private companies

Removal of restrictions on purchase by company or giving of loans by it for purchase of its own shares for Private Companies that satisfies all the following conditions:

a) in whose share capital no other body corporate has invested any money;

b) if the borrowings of such a company from banks or financial institutions or any body corporate is less than[lower of (i) 2 x paid up share capital or (ii) Rs 50 crores]; and

c) such a company is not in default in repayment of such borrowings subsisting at the time of making transactions under this section.

7. Relaxation in conditions for Acceptance of Deposits from Members

A Private Company (Non-NBFC) is permitted to accept monies (whether secured or unsecured) from its members up to a maximum of 100% of aggregate of its paid up capital and free reserves (which does not include securities premium). This is however, subject to the condition of intimation of details to ROC in prescribed manner.

a) Acceptance of monies by a private company from its members is not excluded from the definition of deposits.

b) There is no mandatory minimum interest clause on such monies accepted. However, it has been clearly mandated by the aforesaid notification that the private companies, while complying with such exemptions provided shall ensure that the interests of their shareholders are protected.

c) Other prescribed conditions and procedures laid down in Chapter V Rules relating to Acceptance of Deposits is applicable.

d) Relevant modifications in the Chapter V Rules is awaited as a consequence of this amendment. Whether there would be further relaxation from the applicable Rules, shall only become clear once the revised Rules are communicated/notified by MCA.

8. Relaxation in various provisions pertaining to General meetings etc.

Private companies are now permitted to deal with the following provisions relating to general meetings in a manner provided in their AOA:

Notice(101); Explanatory Statement(102); Quorum(103); Chairman(104); Proxies(106); Voting by Show of Hands(107); Demand for Poll(109).

9. Exemption from filing certain resolutions passed at the Board Meetings

Private companies are now exempt from filing resolutions. Hence, private companies will no longer be required to file MGT-14 for prescribed matters taken up at its Board Meetings. It is to be noted that such companies are still required to file MGT-14 for other matters prescribed in Sec 117.

10. Number of Companies in which a PCA can act as Statutory Auditor

While reckoning the limit of 20 companies in which a person can be appointed as a Statutory Auditor, the following shall be excluded:

a)      OPCs

b)     Dormant Companies

c)      Small Companies

d)     Private companies having paid up share capital of less than Rs 100 crores.

11. Exemptions from the provisions and procedures relating to right of persons other than retiring directors to stand for directorship

In case of a private company, requirements of special notice of 14 days and deposit of Rs 1 lac in case of appointment of directors at a general meeting is now longer applicable. The private companies have been fully exempt from the provisions of Sec 160 of the Act.

12. Exemptions from the provisions of individual voting for appointment of 2 or more persons as directors at a general meeting

Section 162: At a general meeting of a company, for the appointment of two or more persons as directors of the company by a single resolution shall not be moved unless a proposal to move such a motion has first been agreed to at the meeting without any vote being cast against it.

Modification: In case of a private company, requirements of individual voting for appointment of 2 or more persons as directors at a general meeting is now longer applicable. The private companies have been fully exempt from the provisions of Sec 162 of the Act.

13. Exemptions from passing Special Resolution in certain cases

A private company is no longer required to seek approval of its members by way of a special resolution on the following matters besides being totally exempt from the provisions of Sec 180:

a)      selling, leasing or otherwise disposing whole or substantially the whole of undertaking of the company

b)      investing the compensation amount received by it as a result of any merger or amalgamation

c)      borrowing money in excess of its paid up capital and free reserves

d)      remitting or giving time for repayment of any debt due from a director

14.  Interested Director allowed to participate at the meeting of the Board where contracts and arrangement in terms of Sec 184(2) is being taken up and discussed

Every director of a company who is in any way directly or indirectly, concerned or interested in a contract or arrangement entered or proposed to be entered into as prescribed therein is required to:

a)      disclose the nature of his concern or interest at the meeting of the Board in which such contract or arrangement is discussed and

b)      shall be permitted to participate in such meeting.

Note: Such interested director may participate (but shall not be counted for the purpose of quorum.

15. Exemption from ban on voting at the general meeting in case of related party transactions

In case of a private limited company, the related party shareholder(s), with whom such company proposes to enter into a related party transaction and if such transaction requires approval by an ordinary resolution at a general meeting, can now vote at the general meeting.

The restriction to vote on a member being related party to vote on an ordinary resolution in case of a related party transaction is now no longer applicable in case of a private company.

16. Relaxations in provisions relating to appointment of Managerial Personnel (MP)

Private companies have been exempted from the requirement:

a)      of seeking approval from the Board or Members at a meeting for appointment of MP and also of the Central Government where such appointment/remuneration of MP is not in accordance with the provisions of Schedule V of the Act.

b)      that the notice convening the BM or GM considering such appointment shall include terms, conditions and other prescribed matters.

c)       of filing MR-1 for appointment of MP within 60 days with ROC.

The private companies, while complying with such exemptions provided by the aforesaid notification shall ensure that the interests of their shareholders are protected.

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