The Ministry of Corporate Affairs vide its notification dated 7 May 2018 has notified following sections effective from 7 May 2018.
- Section 2 (6)- Associate Company
Section 2 (6) deals with the definition of “Associate Company”. The explanation part of the definition stands amended to include clarity in the definitions of ‘significant influence’ and ‘Joint Venture’.
- Section 2 (87) (iii)-Subsidiary Company
Section 2 (87)(iii) deals with the definition of Subsidiary Company.
In the definition of the subsidiary, the term shares are replaced with the term voting power
This Amendment of definitions of subsidiary company is to ensure that ‘equity share capital’ is the basis for deciding holding-subsidiary relationship rather than “both equity and preference share capital”
- Section 26- Matters to be Stated in Prospectus:
Section 26 (1) of the Companies Act 2013 is modified to empower SEBI to prescribe the contents of prospectus in consultation with MCA.The contents of prospectus issued by the public companies during a public offer to provide information/reports on financial information aligning to the SEBI regulations as specified by SEBI in consultation with MCA.Till the time SEBI specifies the information/ reports on financial information, the regulations made by it under the SEBI Act 1992, in respect of such financial information/ reports on financial information shall stand applicable.
Further, with the objective of reducing the size the prospectus, Clause(a), (b) and (d) of Section26(1) stands omitted. MCA and SEBI to chalk down the minimum disclosures to be included in the prospectus so that the regulatory objectives are achieved while achieving the end purpose of reduction in the size of the prospectus.
It is pertinent to note that the above amendment reduces the volumes of disclosures and eliminates repetition in offer documents addressing the major concerns of the stakeholders pertaining to lengthy offer document.
- Section 54- Issue of Sweat Equity Shares:
With the intention of encouraging start-ups and creating a positive environment for businesses, the condition of minimum one year of business operation for issuing Sweat Equity Shares has been done away with. Consequent upon this, a company can issue sweat equity at any time after its registration.
- Section 77- Duty to Register Charges, etc:
The new amendment provides for prescriptive powers to Reserve Bank of India (RBI)as the requirement of registering the charge with ROC shall not apply to such charges as may be prescribed after consultation with the RBI.
- Section 78- Application for Registration of Charge:
With an objective of providing relaxation so as to facilitate the ease of doing business. A clarificatory change is made providing that the person in whose favour charge is to be created may apply to Registrar for registration of charge upon failure by a company to register the charge within the period of Thirty days.
Earlier the charge holder could register the charge only in case the Company fails to do so within the period specified under Section 77 i.e, Three Hundred days.
- Section 89- Declaration in Respect of Beneficial Interest in any Share:
The immunity of Two Hundred and Seventy days beyond the due date prescribed in the respective sections is now deleted and will be subject to payment of additional fees under Section 403 and condonation of delay under Section 460 of the Companies Act, 2013 for non-filing of form MGT-6 within thirty days with Registrar of Companies.
- Section 117- Resolutions and Agreements to be filed:
Reduction in penalty from Rupees Five Lakh to Rupees One Lakh and from Rupees One Lakh to Rupees Fifty Thousand on non-filing of Form MGT-14. Henceforth if a company fails to file any resolution which is required to be filed as per the said section before the expiry of the period specified under section 403 i.e. within two hundred and seventy days from the date by which it should have been submitted, the company shall be punishable with a fine not less than Rupees One Lakh but which may extend to Rupees Twenty Five Lakh and every officer in default shall be punishable with fine not less than Rupees Fifty Thousand but which may extend to Rupees Five lakh.
In addition to this, exemption available for filing MGT-14 for resolutions passed under section 179(3)(f) for banking companies.
- Section 121-Report on Annual General Meeting:
The immunity of Two Hundred and Seventy days beyond the due date prescribed in the respective sections is proposed to be deleted and will be subject to payment of additional fees under Section 403 and condonation of delay under Section 460 of the Companies Act, 2013 for non-filing of Form MGT-15 within thirty days of the conclusion of the Annual General Meeting along with the fee with Registrar of Companies.
- Section 129-Financial Statement:
All body corporate which is a holding, subsidiary or an associate company of such company, a subsidiary of a holding company to which it is also a subsidiary, or an investing company or the joint ventures of the company (both Indian and Foreign) to prepare Consolidated Financial Statements (CFS) when one of the companies in the group directly or indirectly has a Controlling Financial Interest in the other companies.
- Section 137-Copy of Financial Statement to be Filed with Registrar:
The immunity of Two Hundred and Seventy days beyond the due date prescribed in the respective sections is deleted and will be subject to payment of additional fees under Section 403 and condonation of delay under Section 460 of the Companies Act, 2013 for non-filing of Form AOC-4 within thirty days of the conclusion of the Annual General Meeting along with the fee with Registrar of Companies.
- Section 139 – Appointment of Auditors:
The requirement of ratification of appointment of auditors at every AGM has been done away with.
- Section 149- Company to have Board of Directors:
A change has been made with respect to resident director. Now Section 149 requires a company to have at least one Director to have stayed in India for a total period of not less than one hundred and eighty-two days in the financial year and not the previous calendar year.
Further, the criteria for an independent director has also been changed with test of materiality for ascertaining pecuniary relationship with the independent director and that amount of securities shall not be viewed as pecuniary relationship. The same test has also been laid for the relatives of the director.
- Section 157- Company to Inform Director Identification Number to Registrar:
The immunity of Two Hundred and Seventy days beyond the due date prescribed in the respective sections is deleted and will be subject to payment of additional fees under Section 403 and condonation of delay under Section 460 of the Companies Act, 2013 for non-filing of Form DIR-3C within fifteen days with Registrar of Companies.
- Section 164- Appointment of Additional Director, Alternate Director and Nominee Director:
Disqualification of a director only at the time of non-compliance and a new director for six months to make the company compliant by way of an inserting a proviso for the section.
The period of pendency of appeal which usually exists need not be provided for during disqualification or conviction case.
- Section 167- Vacation of Office of Director
The change has been provided for it creates an inconsistent situation when read with the proviso to section 164(3), as these provided for a person to be appointed as a director if he has been convicted/disqualified by a court and an appeal is pending, though such consideration is not allowed in case the director has to vacate his office and an appeal has been preferred against such conviction and sentence, thus in case of requirement for vacation of office should not take place till the appeal has been disposed off.
- Section 168- Resignation of Directors
The proviso to Section 168 read with Rule 16 lays down requirement for a director to forward a copy of his resignation along with detailed reasons for the resignation to the Registrar within thirty days of resignation in form DIR-11. Many of the directors do not have digital signature and the directors who are willing to resign from the board but do not have a DSC are forced to take a DSC for the limited purpose of filing form DIR-11, which may not be useful for them thereafter, if they are not on the Board of any other companies. To address this issue intimation of resignation by director is now optional.
- Section 173- Meetings of Board
A proviso has been added is a critical change that when there is a meeting with physical presence, directors may participate through video conferencing or other audio-visual means on any matter specified under the first proviso.
- Section 177- Audit Committee
Only listed public companies to constitute an audit committee.
For related party transactions, other than those covered under section 188, the audit committee may give its recommendation to the Board in case of non-approval of any transaction.
Further, Flexibility is allowed to audit committees to ratify related party transactions entered in to with a director/officer of the company within 3 months from the date on which the transaction was entered into, subject to prescribing an upper limit on these transactions i.e. not exceeding one crore rupees. In case such transaction is not approved it shall be voidable at the option of the audit committee, and if such transaction is with a related party to any director or is authorised by any director, the director shall indemnify the company against the loss.
The requirement of obtaining audit committee approval for related party transactions, shall not apply to a transaction (other than a transaction referred to under section 188) between a holding company and its wholly owned subsidiary.
- Section 178- Nomination and Remuneration Committee and Stakeholders Relationship Committee
Only listed public companies to constitute a Nomination and Remuneration Committee.
Further, New evaluation process to be followed by the Nomination and Remuneration Committee.
The change substitutes the disclosure of the Nomination and Remuneration Policy in the board‘s report by web link of the same and salient features thereof.
- Section 185- Loan to Directors, etc.
The section provides that it may be allowed for companies to provide loan to any other person whom the director is interested by a special resolution. The loans provided to subsidiaries must only be for the purpose of its business only.
- Section 86- Loan and Investment by Company
The amendment provides that Loan cannot be extended to individuals who are in the employment of the company.
Further it extents relaxation of the requirement of passing special resolution, where loan/guarantee/security is provided by a company to its wholly owned subsidiary or a joint venture company or acquisition by subscription or otherwise shares company by the holding of its wholly owned subsidiary.
For companies incorporated outside India, the change in the law allows to be extended to investments in rights issues by companies.
- Section 403- Fee for Filing, etc
The immunity of 270 days beyond the due date prescribed in the respective sections is deleted and will be subject to payment of additional fees under Section 403 and condonation of delay under Section 460 of the Companies Act, 2013.
The intent is to deter non-compliance by companies by reducing filing fees to zero in case of filing within the time specified in respective sections and increase the additional for delays in filing of e-form.
The list of all notified sections is available in the below link