PART III – ANALYSIS OF COMPANIES (AMENDMENT) ACT, 2017

Posted on 13 Aug 2018

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PART III – ANALYSIS OF COMPANIES (AMENDMENT) ACT, 2017

ANALYSIS OF COMPANIES (AMENDMENT) ACT, 2017

PART III

IMPORTANT AMENDMENTS MADE TO PROVISIONS RELATING TO CHARGES, MANAGEMENT AND ADMINISTRATION, DIVIDEND AND ACCOUNTS OF COMPANIES

I. IMPORTANT AMENDMENTS MADE TO PROVISIONS RELATING TO CHARGES

Application for registration of charge (Section 78) – In effect from 7^th May, 2018

Position before the Amendment Act

Currently the charge holder can register the charge only in case the company fails to do within 300 (three hundred) days.

Position after the Amendment Act

The person in whose favour the charge has been created can file the charge on the expiry of 30 (thirty) days from creation of charge where a company fails to file so.

Reporting of Satisfaction of charge (Section 82) – In effect from 5^th July, 2018

Position before the Amendment Act

Companies had only 30 (thirty) days’ time to intimate the RoC for satisfaction of charge.

Position after the Amendment Act – As against requirement of condonation of delay, companies now get 300 (three hundred) days for intimation of satisfaction of charge albeit with additional fees.

II. IMPORTANT AMENDMENTS MADE TO PROVISIONS RELATING TO MANAGEMENT AND ADMINISTRATION

Declaration in respect of beneficial interest in any share (Section 89) – In effect from 7^th May, 2018 and 13^th June, 2018

Position before the Amendment Act

Return of beneficial interest declaration can be filed on payment of additional fee within 270 days from the date by which it should have been filed.

Position after the Amendment Act

The time limit of 270 days has been done away with and the return can be filed at any time on payment of prescribed additional fee.
For the purpose of declaration of beneficial interest, beneficial interest in a share includes, directly or indirectly, through any contract, arrangement or otherwise, the right or entitlement of a person alone or together with any other person to—
exercise or cause to be exercised any or all of the rights attached to such share; or
receive or participate in any dividend or other distribution in respect of such share.

Significant beneficial ownership and register of significant beneficial owners in a company (Section 90) – In effect from 13^th June, 2018

Complex structures and chains of corporate vehicles are used to hide the real owner behind the transactions made using these structures (benami shareholders). Realising this, the concept of ‘significant beneficial ownership’ is introduced, i.e. A declaration is to be given to the company by every individual acting alone or together or through one or more persons including a trust and persons resident outside India, who holds beneficial interest of not less than 10% or other prescribed percentage in shares of a company or the right to exercise or the actual exercising of significant influence or control under clause (27) of section 2 of the Act, but whose name is not entered in the register of members of a company as the holder of such shares.
The significant beneficial owner shall while making the declaration specify the nature of interest and other particulars in prescribed manner and time to the company.
The company shall maintain and keep available for inspection, by any member of the company, a register of significant beneficial owners.
The company shall file a return of significant beneficial owners of the company and changes therein with the Registrar.
The Company may give notice to any person whom the company knows or believes to be a significant beneficial owner of the company or who has knowledge of the identity of a significant beneficial owner or another person likely to have such knowledge or who has been a significant beneficial owner of the company at any time during the immediately preceding 3 (three) years.
Further, if the person fails to give information required by the notice, the company shall apply to the NCLT within a period of 15 days for an order. NCLT may make an order restricting the rights attached with the shares in question.
If any person wilfully furnishes any false or incorrect information or suppresses any material information of which he or she is aware in the declaration made under this section, that person will be liable to action under section 447 dealing with fraud.
Company to file periodic returns with the RoC.

Annual Return (Section 92) – Partially in effect from 7^th May, 2018

Position before the Amendment Act

Every company is required to prepare an annual return containing the particulars as they stood on the close of the financial year. One of the particulars to be disclosed in the annual return is the indebtedness of the company, and certain particulars relating to FIIS.
Section 92(3) of the 2013 Act has mandated the filing of an extract of the annual return (in Form MGT-9) as part of the board’s This requirement was leading to duplication of information being reported to the shareholders.
Annual Return had to filed within 270 days from the date of AGM.

Position after the Amendment Act

The Amendment Act, 2017 clarifies that a company is not required to state its indebtedness in the annual return.
Details relating to Foreign Institutional Investors (FII) such as their names, countries of incorporation, percentage of shareholding, etc. have also been omitted.
Every company should place a copy of the annual return on its website with web link to be disclosed in the board’s report.
Instead of filing of an extract of the annual return, the web address/link of the annual return filed by the company and hosted on its website, if any, should be provided in the board
Central Government may provide abridged form of Annual Return for one person companies and small companies (which facilitates ease of doing business and for reducing the burden of One Person Company and Small Company).
Time limit of 270 days within which annual return could be filed on payment of additional fee has been done away with. It is proposed that a company can file the annual return with ROC at any time on payment of prescribed additional fee.

Return to be filed with Registrar in case promoters’ stake changes (Section 93) – In effect from 13^th June, 2018

Position before the Amendment Act

Every listed company had to file a return with the RoC with respect to change in number of shares held by promoters and top 10 (ten) shareholders of such company.
This information is also required to be filed with Stock Exchanges/SEBI, which lead to duplication of reporting and an increase in the amount of filings being made under the Act.

Position after the Amendment Act

The amendment omits the requirement of section 93.

Place of keeping and inspection of registers, returns, etc. (Section 94) – In effect from 13^th June, 2018

Position before the Amendment Act

Registers required to be kept and maintained by a company under section 88 and copies of the annual return filed under section 92 had to be kept at the registered office of the company.

Provided that such registers or copies of return may also be kept at any other place in India in which more than 1/10^th of the total number of members entered in the register of members reside, if approved by a special resolution passed at a general meeting of the company and the RoC has been given a copy of the proposed special resolution in advance.

Position after the Amendment Act

No need to file a copy of special resolution in advance with the RoC, in respect of members approval for keeping register/returns at any other place in India then registered office.
Certain prescribed particulars in the return, register or index referred to in the section shall not be available for inspection or for taking extracts or copies.

Annual general meeting (‘AGM’) (Section 96) – In effect from 13^th June, 2018

Position before the Amendment Act

Every AGM had to be held either at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situated.

Position after the Amendment Act

AGM of unlisted company may be held at anyplace in India if consent is given is writing or by electronic mode by all the members in advance.

Calling of Extraordinary General Meeting (‘EGM’) – Section 100 – In effect from 9^th February, 2018

Position before the Amendment Act

There were no explicit provisions under the Act mandating place of holding the EGM.

Position after the Amendment Act

EGM of wholly owned subsidiary of a company incorporated outside India can be held outside India. A company other than wholly owned subsidiary of a company incorporated outside India must hold EGM at a place within India.

Notice of general meeting (Section 101) – In effect from 9^th February, 2018

Position before the Amendment Act

Section 101 of the 2013 Act requires a 21-day notice to call for a general meeting. It also allows a general meeting to be called for at a shorter notice if at least 95% of the voting power consents to such shorter notice. Section 136 of the 2013 Act requires annual accounts to be circulated to the members 21 days in advance. However, it does not provide for a shorter notice period to circulate the annual accounts. The MCA had issued a circular dated 21 July 2015, which clarified that the shorter notice period would also apply to the circulation of annual accounts.

Position after the Amendment Act

A general meeting may be held at a shorter notice if in case of an Annual General Meeting, consent in writing or by electronic mode is given by not less than 95% of the members entitled to vote and in case of other general meetings consent is given by majority in number of members entitled to vote and who represent not less than 95% of paid-up share capital (in case of company having share capital) or total voting power exercisable at the meeting (in case of company not having share capital).

Postal ballot (Section 110) – In effect from 9^th February, 2018

Position before the Amendment Act

Certain items had to be transacted by means of postal ballot, instead of transacting such business at a general meeting.

Position after the Amendment Act – The amendment permits the company to transact an item at a general meeting also, which earlier was mandatorily required to be transacted through postal ballot, if the facility of electronic voting is provided by the company at such general meeting.

III. IMPORTANT AMENDMENTS MADE TO PROVISIONS RELATING TO DIVIDEND

Declaration & Payment of Dividend (Section 123) – In effect from 9^th February, 2018

Position after the Amendment Act

The Act permits a company to pay dividend from current year’s profits or from ‘free reserves’ (in case of inadequacy of current year’s profits) and it appeared that payment of dividend out of current year’s profits without adjustment in respect of notional / unrealized gains was also permitted.
In accordance with section 123(3) of the 2013 Act, a company may declare interim dividend during any financial year out of the surplus in the P&L account and out of profits of the financial year in which such interim dividend is sought to be declared. It appeared that the interim dividend for a particular financial year could only be declared before the close of financial year and not thereafter. For example, a company has 31 March year-end and its annual general meeting for the year ended 31 March 2017 is held in September 2017. From a literal reading of the section, the company can declare interim dividend only till 31 March 2017 and not thereafter, say, in May or June 2017.
Further, from a literal reading of the section it also appeared that if a Company has accumulated profits cannot declare a interim dividend since if it has incurred losses in the first six months of the financial year. The use of the words “out of the surplus in the P&L account and out of profits of the financial year” indicated that a company may declare interim dividend only if it has at least some profit for the current financial

Position after the Amendment Act

In computing profits any amount representing unrealized gains, notional gains or revaluation of assets and any change in carrying of an asset or of a liability on measurement of the asset or the liability at fair value shall be excluded.
In the case of inadequate or absence of profits, dividend can be declared out of accumulated profits earned by the company in previous years and transferred by the company to free reserves (instead of reserves).
Interim dividend can be declared during the period from closure of financial year till date of Annual General Meeting and in such case in addition to profits referred above, the profit generated upto quarter prior to declaration of dividend may be used. However, in case the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during immediately preceding -3- (three) financial years.

IV. IMPORTANT AMENDMENTS MADE TO PROVISIONS RELATING TO ACCOUNTS OF COMPANIES

13. Boards’ Report (Section 134) – Not yet enforced

Position before the Amendment Act

A CEO had to sign the financial statements, only if he was a director of the Company.
An extract of the annual return (in Form MGT-9) had to included in the Board’s Report and in case of a listed company and every other public company having such paid-up share capital as may be prescribed, a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors was also required to be included;

Position after the Amendment Act

Chief Executive Officer of the Company shall sign financial statements irrespective of whether or not he is a director.
In case of Board report, disclosures which have been provided in the financial statement shall not be required to be reproduced in the report again.
In place of extract of the annual return, only the web address, if any, where annual return has been placed shall be mentioned.
Instead of exact text of the policies, Salient points of the CSR Policy, Remuneration Policy may be included in the Board’s report and link where these policies are posted on website shall be provided. Changes in the policies should be specifically highlighted in the salient points.
The Central Government may prescribe an abridged Board’s report, for the purpose of compliance with this section by a One Person Company or small company.
In respect to performance evaluation, it is proposed to omit the responsibility of the Board for carrying the performance evaluation of Board, Directors and committee. It is now required to be included in the Board’s report of listed companies and other prescribed public companies that annual evaluation of the performance of the Board, its Committees and of individual directors has been done.

Corporate Social Responsibility (CSR) (Section 135) – Not yet enforced

Position before the Amendment Act

Every company having net worth of Rs. 500 crores or more, or turnover of Rs. 1,000 crores or more or a net profit of Rs. 5 crores or more during any of the last 3 (three) financial year shall constitute a CSR Committee.
The CSR Committee shall have at least one director shall be an independent director but the 2013 Act contains different criteria for applicability of CSR and appointment of Independent Directors. Based on the prescribed criteria, a company that is not otherwise covered under the appointment of independent director requirements may also need to appoint an independent director for purposes of inducting into the CSR committee.
Rule 3 of the CSR rules clarifies that foreign companies are also required to comply with the provisions of CSR. However, section 384 of the 2013 Act, which prescribes the applicability of various provisions to a foreign company, does not specify the applicability of CSR requirements.

Position after the Amendment Act

Eligibility criteria (i.e. net worth, turnover or net profit) of immediately preceding financial year shall be considered for the purpose of constituting the corporate social responsibility committee and incurring expenditure towards CSR. Currently this eligibility is decided based on preceding three financial years.
This is a welcome move for the Companies since loss in the preceding financial year but profits in the two years preceding the last financial year, made it mandatory for companies to incur CSR expenditure.
Where a company is not required to appoint an independent director, it shall have in its CSR Committee two or more directors.
Central Government is empowered to prescribe sums which shall not be included for calculating ‘net profit’ of a company under section 135.
CSR will also apply to a foreign company if it meets the prescribed criteria for its India

Right of member to copies of audited financial statement and Filing of financial statements with RoC (Section 136 and 137) – In effect from 9^th February, 2018 and 7^th May, 2018

Position after the Amendment Act

Copies of financial statements including consolidated financials, auditor’s report and every other documents can be sent in less than 21 days before the date of the annual general meeting provided consent of majority entitled to vote and who represent not less than 95% of such part of the paid-up share capital of the company as gives a right to vote at the meeting.
Only listed companies shall place on its website, if any, the separate audited accounts of its subsidiary or subsidiaries. Currently all companies required to comply this.
If the foreign subsidiary is statutorily required to prepare consolidated financial statement under any law of the country of its incorporation, the requirement of posting audited accounts of subsidiary shall be met if consolidated financial statement of such foreign subsidiary is placed on the website of the listed company.
If the foreign subsidiary is not required to get its financial statement audited, the holding listed company may place such unaudited financial statement on its website and where such financial statement is in a language other than English, a translated copy of the financial statement in English shall also be placed on the website.
Where the company has a foreign subsidiary, it can attach unaudited financial statements of such subsidiary, if getting results audited is not mandated under the law of foreign subsidiary, along with a declaration to this effect, together to be filed with ROC.

Company Law