Companies (Amendment) Act 2017: Major Changes Adduced to the Corporate World!

The Companies Amendment Bill of 2017 got the President’s assent on 3rd January 2018 and the same had been notified in the Official Gazette on the same date to constitute an amendment to the 2013 Companies Act but different provisions of such amendment Act will be brought into force on different dates by the Central Government. The Companies Law Committee (CLC) was constituted in June 2015 to resolve the issues arising from the 2013 Act and based on such recommendation of the report the Government had introduced the Companies (Amendment) Bill, 2016 in the Lok Sabha on 16th March 2016 which was passed by the Lok Sabha on 27th July 2017 and by the Rajya Sabha later on 19th December 2017.

The amendment is important as it now addresses the difficulties faced by the previous Act of 2013 while facilitating ease of doing the business and harmonising with the other statutes such as Reserve Bank of India Act, 1934 and such other regulations made thereunder. It also rectifies the inconsistencies of the 2013 Act. The new Amendment Act also realigns the provision to improve corporate governance. It also addresses the issue of investor protection.

Five major highlights of the amendments are mentioned below:

  • Align Act with SEBI and RBI

Sections which dealt with insider trading and forward dealing have been omitted as SEBI regulations are already in place to cover these kinds of offenses. Also, disclosures which are to be specified in the prospectus are also associated with SEBI’s power to regulate IPOs. The definition of the term “debentures” has also been subjected to an amendment to allow RBI to disqualify certain instruments as debentures.

  • Penalty Rationalisation

One of the most required amendment is that the amount of penalty will be levied keeping in terms with the size of the company, nature of the business, injury to the public interest, nature and gravity of default, etc. Penal provisions for small companies and one person companies have been substantially reduced. A New section has been inserted as well with respect to the aspects for determining the level of punishment.

  • Private Placement process is made simplified

Separate offer letter for private placement is not required now thus making the process more simplified. To ensure that the investors in a company get adequate information about the company, the disclosures are to be made under Explanatory Statement referred to in Rule 13(2)(d) of Companies (Share Capital and Debenture) Rules 2014 embodied in the Private Placement Application Form.

  • Loans to the directors

Companies are now permitted to render loans to companies or entities in which the directors are interested in passing a special resolution and agreeing to disclosure requirements. It was very difficult earlier on providing loans to subsidiaries with common directors.

  • Disqualification of the Independent Director is further clarified

Section 149 had a clause stating that an independent director was disqualified if such person had “pecuniary relationship” with “the company’ its holding, subsidiary or associate company, or their promoters, or directors. The amendment has actually added the fact that pecuniary relationship excludes the remuneration to such director or having transaction not exceeding 10% of his total income or any such amount as may be prescribed.

The amendments made by the new Act are to facilitate the simplicity of doing business in India. There are also several other amendments made through the same said Act to remove the inconsistencies faced in the 2013 Act.

by Anwesha Ghosh

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