Govt. Notifies Companies (Amendment) Act, 2017 [Read the Act]

The Central Government, today notified the Companies (Amendment) Act, 2017 which provides some major changes to the Companies Act, 2013.

The amendment aims at strengthening corporate governance standards, providing for strict action against defaulting companies and improving ease of doing business in the country.

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. Finally, on December 19, 2017, the Companies (Amendment) Bill, 2017 was passed by voice vote in Rajya Sabha.

The new amendment simplified the process through which companies raise funds through a private placement of shares. It rationalized the provisions pertaining to loans given to directors of companies. Further, post-amendment, there is no need to seek prior approval from the Central Government for managerial pay above the prescribed limit, after getting it approved from the company’s shareholders.

The Act 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.

It further makes it a non-compoundable offence to flout provisions pertaining to deposits.

Apart from the above-mentioned provisions, the Act also included a provision to remove the restriction on number of layers of investment companies and one to remove restrictions on the number of layers of subsidiaries.

Further, it also made it compulsory for those who hold beneficial interest of more than 25 percent of a company’s shares. There was also a proposal to ease compliance burden for unlisted companies by allowing them to hold annual general meetings in place other than their registered offices as well.

Most importantly, the Act also brought some stringent penal provisions. The company, its promoters and directors shall be liable to a penalty for each default of one thousand rupees for each day for default in filing the return of allotment within the stipulated period.

Further, if a company makes an offer or accepts monies in violation of the provisions of section 42, the company, its promoters and directors shall be liable for a penalty which may extend to the amount raised through the private placement or two crore rupees, whichever is lower, and the company shall also refund all monies with interest as specified in sub-section (6) to subscribers within a period of thirty days of the order imposing the penalty.