The Company Law Committee constituted in June 2015 to make recommendations on the issues related to implementation of the Companies Act 2013 submitted its report to the Government in February 2016.

After extensive consultations with the stakeholders, the Committee has proposed changes in 78 sections of the Companies Act 2013 which would result in about 100 amendments to the Act. Further, 50 amendments to the Rules have also been proposed. The Committee has endeavoured to reconcile the competing interests of the various stakeholders keeping in mind the difficulties and challenges expressed by them and also being mindful of the Government’s objective of furthering ease of doing business, encouraging start-ups, and the need for harmonising various laws.

Some of the major changes suggested under Company Law Committee Report are highlighted below:

1. Private Companies, and subsidiaries of unlisted companies, to be permitted to hold their AGM anywhere in India. Currently, law requires meeting to be only in the city where registered office of the Company is situated.
2. Start-ups being the buzz word these days, the Committee have suggested that start-ups, being private limited companies, be allowed to accept deposits from members for 5 years from the date of incorporation.
3. The Committee also recommended that start-ups should be allowed to issue sweat equity shares beyond the current limit of 25% to 50% of the paid up equity share capital.
4. The Company Law Committee Report suggested easing out the present process of private placements, by reducing compliance burden.
5. Currently companies are restricted from making investments through more than two layers of investment subsidiaries. The Committee has suggested removal of restrictions on layering of subsidiaries.
6. The Committee in a forward looking context suggested “Universal Objects” for companies, eliminating the requirement for a long “Object Clause”, thereby aligning India with the rest of the world.
7. The Committee also recommended that requirement of annual ratification of appointment/continuance of Auditor should be removed.
8. The Company Law Committee suggested increased threshold limit for unlisted companies to comply with norms for the presence of Independent Directors, Audit Committee, and Nomination and Remuneration Committee.
9. The Committee suggested that Auditor should report on Internal Financial Controls with regard to financial statements.
10. A major change proposed by the Committee is reducing requirement for maintaining Deposit Repayment Reserve account from 15% each for last two years to 20% during the maturing year.
11. To keep and attract good managerial talent, the Committee recommended that Central Government permission in respect of Managerial remuneration be done away with.
12. The Company Law Committee Report proposed amending the definition of “Net Worth” to bring accumulated profits of the previous years under its ambit.
13. The Committee in another major action area, i.e; Section 185 of the Companies Act, 2013 which prohibits a company from lending to its directors or entities where directors are interested suggested that prohibition be removed and it should be made an approval-based section, whereby the company can lend after passing special resolution.
14. Another important change suggested by the Company Law Committee is that issue of ESOPs be allowed to promoters working as employees and directors.
15. Currently, the Companies Act, 2013 specifies that an Independent Director must not have any pecuniary relationship with the Company, its holding, subsidiary, or associate company or their promoters or directors, during the two immediately preceding financial years or during the current financial year. The Committee in its report suggested introducing a threshold for pecuniary relationships in relation to qualification for an independent director. Further, Section 149 of the Companies Act, 2013 restricted the appointment of an individual as an Independent Director in case his relative is/was a KMP or an employee in the company, its holding, subsidiary, or associate company during any of the preceding three financial years. The Company Law Committee in this regard has recommended that the purview of the restriction should be only with respect to relatives holding Board/KMP/one level below the Board prior to the appointment of such Independent Director. However, the Committee clarified that as it would be possible to influence an Independent Director in case his relative is also working  in  the  situations  referred  to  in  the  section irrespective of the position he holds, the scope of restriction after appointment of such Independent Directors should, therefore, be retained as originally prescribed.
16. The Committee also suggested that equity share capital should be the basis for deciding the holding-subsidiary relationship. The preference share capital should be excluded from the calculation.
17. Auditor will report on internal financial controls with regard to financial statements. Frauds less than Rs. 10 lakh could be compoundable offences.

If the Government goes ahead with sanctioning the proposal put forward by the Company Law Committee, India would definitely move forward in the global list of ease of doing business which would in turn give a boost to the GDP of the country.