Companies (Amendment) Bill introduced…..

[Mr. M. GOVINDARAJAN]

The provisions of the Companies Act, 2013 (‘Act’ for short) have not yet been implemented in full.  Many difficulties have been experienced by the business sectors, professionals etc.,   Now the Central Government introduced the Companies (Amendment) Bill, 2014 (‘Bill’ for short).

Section 2(68) of the Companies Act, 2013 defines the term ‘private company’ as a company having a minimum paid up share capital of one lakh rupees or such higher paid up share capital as may be prescribed.  Section 2(i) of the Bill is proposed to omit the words ‘of one lakh rupees or such higher paid up share capital’ in Section 2(68) of the Act.

Section 2(71) of the Act defines the term ‘public company’ as a company which-

1. is not a private company;
2. has a minimum paid up share capital of five lakh rupees or such higher paid up capital, as may be prescribed.

Section 2(ii) of the bill is proposed to omit the words ‘of five lakh rupees or such higher paid up capital’ in Section 2(71) of the Act.

Section 9 of the Act deals with the effect of registration of a company.  The said section provides that from the date of incorporation mentioned in the certificate of incorporation, such subscribers to the memorandum and all other persons, as may, from time to time, become members of the company, shall be a body corporate by the name contained in the memorandum, capable of exercising all the functions of an incorporated company under this Act and having perpetual succession and a common seal with power to acquire, hold and dispose of property, both movable and immovable, tangible and intangible, to contract and to sue and be sued, to the said name.  Section 3 of the bill proposes to omit the words ‘common seal’ in Section 9.

Section 11 of the Act deals with the commencement of the business etc., Section 11(1) provides that a company having a share capital not commence any business or exercise any borrowing powers unless-

1. a declaration is filed by a director in such form and verified in such manner as may be prescribed, with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him and the paid up share capital of the company is not less than five lakh rupees in case of a public company and not less than one lakh rupees in case of a private company on the date of making of this declaration;

Section 4 of the Bill proposes to omit the words and the paid up share capital of the company is not less than five lakh rupees in case of a public company and not less than one lakh rupees in case of a private company in Section 11(1)(a).

Section 12(3)(b) of the Act provides that every company shall have its name engraved in legible characters on its seal.  Section 5 of the bill proposes to substitute the words have its name engraved in legible characters on its seal, if any for the words have its name engraved in legible characters on its seal.

Section 22 of the Act deals with the execution of bills of exchange etc.,   Section 22(2) provides that a company may, by writing under its common seal, authorize any person, either generally or in respect of any specified matters, as its attorney to execute other deeds on its behalf in any place earlier in or outside India.  Section 6(1) (a) of the Bill proposes to substitute the words under its common seal, if any for the words under its common seal in Section 22(2).

Section 6(1)(b) of the Bill proposes to insert the proviso as ‘Provided that in case a company does not have a common seal, the authorization under this sub-section shall be made by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary.”

Section 22(3) of the Act provides that a deed signed by such an attorney on behalf of the company and under his seal shall bind the company and have the effect as if it were made under its common seal.  Section 6(1)(c) of the Bill proposes to omit the words and have the effect as if it were made under its common seal in Section 22(3).

Section 46 of the Act deals with the certificate of shares.  Section 46(1) of the Act provides that a certificate issued under the common seal of the company, specifying the shares held by any person, shall be prima facie evidence of the title of the person to such shares.  Section 7 of the bill proposes to substitute the words “issued under the common seal of the company”, the words “issued under the common seal, if any, of the company or signed by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary” for the words under the common seal of the company Section 46(1) of the Act.

Section 8 of the Bill proposes to insert a new Section 76A after 76 in the Act which reads as follows:

76A – Where a company accepts or invites or allows or causes any other person to accept or invite on its behalf any deposit in contravention of the manner or the conditions prescribed under Section 73 or section 76 or rules made thereunder or if a company fails to repay the deposit or part thereof or any interest due thereon within the time specified under Section 73 or section 76 or rules made there under or such further time as may be allowed by the Tribunal under Section 73,-

1. the company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with fine which shall not be less than one crore rupees but which may extend to ten crore rupees; and
2. every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years or with fine which shall not be less than twenty five lakh rupees but which may extend to two crore rupees, or with both;

Provided that if it is proved that the officer of the company who is in default, has contravened such provisions knowingly or willfully with the intention to deceive the company or its shareholders or depositors or creditors or tax authorities, he shall be liable for action under Section 447.

Section 117 of the Act deals with the resolutions and agreements to be filed.  Section 117(3)(g)  provides that the provisions of this section shall apply to resolutions passed in pursuance of Section 179(3).  Section 9 of the Bill proposes to omit the word ‘and’ in Section 117(3)(g) and proposes to insert a proviso to that Section as – Provided that no person shall be entitled under Section 399 to inspect or obtain copies of such resolutions; and.

Section 123 of the Act deals with the declaration of dividend.   Section 10 of the Bill proposes to insert the proviso after the third proviso as – Provided also that no company shall declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against the profit of the current year.

Section 124 of the Act deals with unpaid dividend account.  Section 124 (6) of the Act provides that all shares in respect of which unpaid or unclaimed dividend has been transferred under sub-section (5) shall also be transferred by the company in the name of Investor Education and Protection Fund along with a statement containing such details as may be prescribed.  Section 11 (i) of the Bill proposes to substitute the words ‘dividend has not been paid or claimed for seven consecutive years or more shall be’ for the words unpaid or unclaimed dividend has been transferred under sub-section (5) shall also be in Section 124(6).  Section 11(ii) of the Bill proposes to insert the Explanation after the proviso as –

Explanation – For the removals of doubts it is hereby clarified that in case any dividend is paid or claimed for any year during the said period of seven consecutive years, the share shall not be transferred to Investor Education and Protection Fund.

Section 12 of the Bill proposes to insert clause (ca) after clause (c) in sub-section (3) of Section 134,  as –

(ca) details in respect of frauds reported by auditors under sub-section (12) of section 143 other than those which are reportable to the Central Government.

Section 13 of the Bill proposes for the substitution of Section 143 (12) as –

(12) Notwithstanding anything contained in this section, if any auditor of a company in the course of the performance of his duties as an auditor, has reason to believe that an offence of fraud involving such amount or amounts as may be prescribed, is being or has been committed in the company by its officers or employees, the auditor shall report the matter to the Central Government within such time and in such manner as may be prescribed:

Provided that in case of a fraud involving lesser than the specified amount, the auditor shall report the matter to the audit committee constituted under Section 177 or to the Board in other cases within such time and in such manner as may be prescribed.

Provided further that the companies, whose auditors have reported frauds under this sub-section to the audit committee or the Board but not reported to the Central Government, shall disclose the details about such frauds in the Board’s report in such manner as may be prescribed.

Section 177 (4)(iv) of the Act provides that every audit committee shall act in accordance with the terms of reference specified in writing by the Board which shall inter alia include approval or any subsequent modification of transaction of the company with related parties.   Section 14 of the Bill proposes to inserted a proviso to this section as – Provided that the Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the company, subject to such conditions as may be prescribed.

Section 185 of the Act provides for loan to directors, etc.,  Section 15 of the Bill proposes to insert the following after Section 185 (1)(b) of the Act:

(c) any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company; or

(d)any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company:

Provided that the loan made under (c) and (d) are utilized by the subsidiary company for its principal business activities.

Section 16(i)  of the Bill proposes to substituted the word ‘resolution’ for the words ‘special resolutions’ in Section 188 (1) at both the places where they occur.

Section 16 (ii) of the Bill proposes to insert the following proviso after the third proviso in Section 188 as-

Provided also that the requirement of passing the resolution under first proviso shall not be applicable for transaction entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval.

Section 16(iii) of the Bill proposes to substitute the word ‘resolution’ for the words ‘special resolutions’ in Section 188 (3).

Section 17 of the Bill provides that in Section 212 of the Act, in sub-section (6) for the words, brackets and figures ‘the offences covered under sub-section (5) and (6) of section 7, section 34, section 36, sub-section (1) of section 38, sub-section (5) of section 46, sub-section (7) of section 56, sub-section (10) of section 66, sub-section (5) of section 140, sub-section (4) of section 206, section 213, section 229, sub-section (1) of section 251, sub-section (3) of section 339 and section 448 which attract the punishment for fraud provided in section 447’ the words and figures ‘offence covered under section 447’ shall be substituted.

Section 18 of the Bill proposes to substitute the words ‘by the seal, if any’ for the words ‘by the seal’ in Section 223 of the Act.

Section19 of the Bill proposes to omit the words ‘or winding up’ in Section 419 (4) of the Act.

Section 20(1) of the Bill proposes to substitute the words ‘trial of offences punishable under this Act with imprisonment of two years or more’ for the words ‘trial of offences under this Act’.

Section 20(ii) of the Bill proposes to insert the proviso in Section 435(1) of the Act as – Provided that all other offences shall be tried, as the case may be, by a Metropolitan Magistrate or a Judicial Magistrate of the First Class having jurisdiction to try any offence under this Act or under any previous company law.

Section 21 of the Bill proposes to substitute the words ‘all offences specified under sub-section(1) of section 435’ for the words ‘all offences under this Act’ in Section 436 (1)(a) of the Act.