Parliament passes The Companies Amendment Bill, 2017 [Read Bill]

The Bill to amend Companies Act, 2013 was passed in Rajya Sabha today. Interestingly, this is second Amendment Bill passed by the Parliament after notification of the Companies Act, 2013 i.e. within a span of 40 months. The Companies (Amendment) Bill, 2017 suggests 93 amendments to the Companies Act, 2013.

Background to the Companies (Amendment) Bill, 2017: The process of drafting the Companies (Amendment) Bill started with the formation of Companies Law Committee on June 4, 2015. The Companies Law Committee submitted its 138-page detailed report to the Government on February 1, 2016. Based on the Report, the Companies (Amendment) Bill, 2016 was drafted and introduced in Lok Sabha in March 2016. However, after detailed deliberations, the Companies (Amendment) Bill, 2016 was then referred to the Standing Committee. Based on the recommendations of the Standing Committee (Report dated December 1, 2016), the Amendment Bill was further amended. The Companies (Amendment) Bill, 2017 was passed in Lok Sabha on July 27, 2017. Now, on December 19, 2017, the Companies (Amendment) Bill, 2017 was passed by voice vote in Rajya Sabha.

Key Highlights & it’s impact on India Inc.: The provisions in the Amendment Bill will have an impact on the group company structure and compliance procedures, as the definitions relating to ‘holding company’, ‘subsidiary company’, ‘associate company’ are undergoing a change. At the same time, the Amendment Bill will also have an impact on the compliance procedures and approval mechanism of Related Party Transactions, as the scope of related parties will be significantly enhanced.

The provisions relating to issue of shares on private placement basis are also being amended. This amendment will have an impact on both – private companies and public companies. The Bill intends to introduce a completely new provision in the Companies Act, 2013 w.r.t. the maintenance of the “Register of significant beneficial owners in a company”. Based on the operational and compliance issues faced by the corporates, the Amendment Bill suggests changes to the provisions relating to board meetings and shareholders’ meetings.

The provisions relating to Corporate Social Responsibility is also set to be amended. The amendment particularly relates to its applicability and constitution of Corporate Social Responsibility. Taking into account the interpretational and operational issues, the provisions relating to Corporate Social Responsibility has been one of the most amended provisions of the Companies Act, 2013.

The Bill also provides for clarity in applicability and role of Resident Director and Independent Director. ‘Pecuniary relationship’ in relation to the independent directors has been further elaborated in the Bill. The entire section relating to ‘Loans to Directors’ under the Companies Act, 2013 is being substituted by way of the Amendment Bill. The Government has introduced certain checks and balances by way of approval process and for enabling ‘loans to directors’, in certain cases.

Interestingly, the provisions relating to Managerial Remuneration are being liberalized in the Bill. The requirement of Central Government approval is being replaced by the requirement of approval of the shareholders, secured creditors and non-convertible debenture holders, as the case maybe. The Bill also mandates the requirement that the Statutory Auditor of the company to report in its Auditors Report on: (i) Compliance of the provisions of managerial remuneration and (ii) Whether remuneration paid to any director is in excess of the prescribed limits.

Conclusion: The Central Government has invested considerable efforts and time and ensured pro-active approach in introducing and passing of the Companies Amendment Bill, 2017 in both Houses of the Parliament. The suggested amendments aims at strengthening the Corporate Governance standards in India, initiate strict action against defaulting companies and at the same time improve ease of doing business in India. Taking into account the efforts of the Government w.r.t. the Bill, in my view, these would be the last tranche of significant amendment to the Companies Act, 2013. Therefore, India Inc. and the practising professionals shall not expect any immediate major overhaul of the Act. Based on the provisions of the Companies Amendment Bill, the Government will accordingly amend the corresponding Rules framed under the Companies Act, 2013. As discussed above, some amendments are so significant that it requires the India Inc. to change its internal compliance structure, either within the company or within the group of companies.