Regulatory Updates: Ministry of Corporate Affairs - Highlights of the Companies (Amendment) Bill, 2016

The Lok Sabha has passed the Companies (Amendment) Bill, 2017 on 27 July 2017.The Bill amends the Companies Act 2013 and the highlights are as follows: Section 2(6)- Definition of ‘associate company’ and ‘Joint Venture’

  • The Bill proposes amendment providing for change in explanation of the term ‘significant influence’. Significant influence is proposed to mean control of atleast 20% of the voting power or control of or participation in business decision under an agreement. Currently the Companies Act 2013 provides for control of at least 20% total share capital.
  • The Bill further defines the term ‘Joint Venture’ to mean a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.
  • The term Joint Ventureis used in the definition of Associate Company but the same is not defined in the Companies Act 2013.

Section 2(41)- Definition of ‘Financial year’

  • The Bill proposes that associate company of a company incorporated outside India can also apply to the Tribunal for a different financial year.

Section 4- Memorandum of Association - Reservation of Name

  • The Bill proposes that in case of incorporation, name reserved by the RoC shall be valid for 20 days from date of the approval or such other period as may be prescribed instead of 60 days from the date of application.
  • In case of change in name by an existing company, name reserved by the RoC shall be valid for 60 days from the date of approval.

Section 42- Private placement The entire section is proposed to be substituted, but major changes proposed are:

  • Return of allotment has to be filed within 15 days instead of 30 days.
  • Money received under the private placement shall not be utilized unless the return of allotment is filed with the ROC.
  • Private Placement offer letter shall not contain any right of renunciation.
  • For the delay in filing E-Form PAS 3- penalty for each default of one thousand rupees for each day during which such default continues but not exceeding twenty-five lakh rupees

Section 184- Disclosure of interest by directors

  • The Bill proposes to omit the minimum penalty with respect to failure by directors to disclose interest.
  • The Bill proposes to exempt body corporate where any director or two or more of them holds or hold not more than 2% of the paid-up share capital, from the applicability of the section 184.

Section 185- Loan to directors, etc.

  • Under the Companies Act 2013, companies are not allowed to advance any loan to its directors or persons related to the Director. The Bill proposes to relax this restriction and allow companies to extend its Directors or related persons, after passing a special resolution.
  • An additional clause has also been introduced to punish Directors who use loans against conditions under which it was extended.

Section 186- Loan and Investment by Company.

  • Sub-section (1) of the principal act has been omitted. Thereby the bill proposes to omit the restrictions on the layers of investment Companies.
  • The Bill also proposes to exclude employees from the ambit of this section.
  • The Bill also proposes that the shareholders’ approval will not be required where a loan or guarantee is given or where a security has been provided by a company to its wholly owned subsidiary company or a joint venture company, or acquisition is made by a holding company, by way of subscription, purchase or otherwise of, the securities of its wholly owned subsidiary company.

Section 188- Related Party Transaction

  • The bill proposes that the requirement related to the restriction on voting by relatives in the general meeting shall not apply to a company in which ninety per cent or more members in numbers are relatives of promoters or related parties.
  • The Bill Also provides that non -ratification of transactions shall be voidable at the option of the Board or shareholders, as the case may be.

Section 195- Prohibition on Insider trading of securities

  • The Bill proposes to remove the provisions related to this section.
  • It shall be regulated only under the SEBI (Prohibition of Insider Trading) Regulations, 2015.


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