The Companies Act, 2013 was introduced as a complete enactment to the corporate India. It has the highlights of transparency, strict compliances, penalties, governance, disclosure norms and many more. Even with such features, it had to face criticism from various stakeholders.
Lack of clarity in several sections of the act and rules framed thereunder was the ground for such criticism. This consequently gave rise to uncertainty, ambiguity and contradictions within provisions of the Act.
While implementing the Act, various stakeholders and the corporate sector faced practical problems. Due to these issues, various representations were made to the MCA to clarify the various provisions of the Act.
After receiving repetitive complaints, MCA introduced the Companies (Amendment) Bill, 2014 in the Parliament. The said Bill was introduced in the lower house of the Parliament in December, 2014. With the clearance in the Lok Sabha, corporate sector were a bit relieved.
Now, the good news is that today the Bill got green signal from the High Court also.
Let us take a brief look on the proposed amendments:
- No minimum capital requirement of Rs.1lakh (in case of private company) or Rs. 5lakh (in case of public company)
- If the company does not have common seal, authority in favour of any person by two directors or one director and company secretary, if any, will bind the Company. Thus, no requirement of common seal.
- severe punishment for violation of provision of Companies Act, 2013 in relation to acceptance of deposits from general public.
- Board resolutions under Section 179 which are filed with RoC, will not be public document.
- Previous losses and depreciation will need to be set off out of current year profit before declaring dividend.
- If dividend is claimed and paid, shares in respect thereof should not be transferred to IEPF
- Frauds exceeding certain percentage need to be reported to Central Government. Other fraud of lesser amount need to be reported to audit committee/ board and details of frauds which are reported to audit committee/ board also need to be disclosed in directors’ report.
- Exemption for loan given to wholly owned subsidiary and security or guarantee provide on behalf of subsidiary is given 185 itself (earlier exemption was through rules, subordinated regulations)
- Empowering Audit Committee to give omnibus approvals for related party transactions on annual basis.
- Approval of shareholders under Section 188 (related party transactions) shall be replaced with ordinary resolution instead of special resolution.
- Bail restriction to apply only for offence relating to fraud u/s 447.
- Winding up cases to be heard by 2- member bench instead of 3.
Such amendments are still to be passed through the President to become the Act. Thus, for the implementation of these rules, we still have to wait for the President to sign it. These amendments are eagerly awaited by the corporate sectors so that the working becomes smooth. Though these amendments may be relieving but still many more amendments shall be lined up to provide relief to private companies from complying many stringent provisions of the Act.
As per ET report, the law will be reviewed further by an expert committee to be set up shortly to see where there is shortfall and thereafter to amend those parts. These amendments were necessity for ease of doing business. These small but major steps would support start-ups to stand on their own feet.
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