Introduction

The Companies Act, 2013 was notified on 29th August, 2013. Out of the 470 sections in the Act, 283 sections and their corresponding rules have been brought into force so far. After the provisions were brought into force, the various stakeholders had made representations to the government regarding the practical difficulties that certain sections posed. India currently ranks 142 out of 189 countries in the World Bank’s Ease of Doing Business ranking, which rates countries for the ease at which one can open, conduct and close down businesses. Prime Minister Narendra Modi has directed government officials to take steps to bring the country’s ranking to within 50 in two years.

Hence, on 17th December, 2014, the Lok Sabha passed the Companies (Amendment) Bill, 2014 to remove the “oppressive provisions” in the Companies Act, 2013 and to improve the ease of doing business and to improve the investment environment in India. These amendments will now be referred to as the Companies Amendment Act, 2014. This article shall provide a summary of such changes and its impact on the businesses in India.

No Minimum paid-up capital

• The requirement of private company to have a minimum paid-up capital of Rs 1 lakh and for public companies to have a minimum paid-up capital of Rs 5 lakh has been removed.
• Although, this amendment may prove to be questionable as one of the reasons for its existence was to discourage setting up of shell companies meant to re-route black-money. The government, however, has said stricter compliance rules should be used to tackle the nuisance of shell companies.
• This amendment has been brought as it was seen as a deterrent for individuals to set up new companies.

Common Seal – optional

• The requirement of common seal has been made optional and accordingly consequential changes have been made in the requirement for authorization for execution of documents.
• This amendment was introduced for the ease of doing business.

Specific Punishment for non-compliance with the laws relating to deposits

• Specific punishments have been prescribed for companies raising deposits illegally.
• This amendment was brought to remove an omission.
• If the company fails to pay the deposit or any part thereof or any interest due thereon within the prescribed time limit, the company could be fined from Rs 1 crore to Rs 10 crore and its defaulting officers may be fined from Rs 25 lakh to Rs 2 crore and may be imprisoned upto 7 years or both.
• This amendment has likely been introduced in the backdrop of Saradha scam where thousands of small investors were duped and the increasing concerns over thousands of illegal chit funds throughout the country.

Prohibition of public inspection of Board Resolutions

• The clause allowing public scrutiny of documents filed with the RoC such as Board Resolutions has been done away with.
• Since, the important decisions like the company’s next model, introduction of a new product or its funding mechanism are made in a Board meeting, this move was aimed at preventing the leak of such confidential commercial information of a company to its rivals.
• This amendment was introduced in light of the representations made by the corporates.

Writing off losses/ depreciation before declaration of dividend

• An amendment has been introduced to ensure that no dividend is declared by a company unless the carried over losses and depreciation from previous years are written off against the profits of the current year.
• This, being missed in the Companies Act, 2013 (“Act”) but included in the rules, has now been added in the Act as well.
• Also, the unpaid or unclaimed dividend can now be transferred to the Investor Education and Protection Fund (“IEPF”) only after the completion of 7 years from such non-payment.

Transfer of shares to Investor Education and Protection Fund

• All shares in respect of which the unpaid or unclaimed dividend has been transferred shall now also be transferred to the IEPF.
• However, the claimant of shares transferred shall be entitled to claim the transfer of shares from the IEPF in accordance with the prescribed procedure.
• This amendment was introduced to meet the corporate demands.

Reporting of only material frauds to government

• Earlier the auditors were required to report suspicion of frauds to the central government, irrespective of what its potential size could be.
• The amendment now requires suspected frauds only above a certain threshold to be reported to the government.
• Frauds below the threshold will be reported to the company’s audit committee or to the Board. The details of the frauds, which are reported by the auditors to the audit committee or to the Board but not to the central government, shall be disclosed in the Board’s report.
• This amendment has been introduced in light of the representations made by the auditors.

Exemption u/s 185 for loans to wholly owned subsidiary

• Section 185 of the Act restricts any company from, directly or indirectly, advancing any loan or giving any guarantee or providing any security in connection with any loan to its directors or any other person in whom the director is interested.
• The amendment has exempted the companies from Section 185 requirements, where the loan is being given to a wholly owned subsidiary or where the guarantee or security given is for a loan taken from a bank by subsidiaries.
• This exemption has already been provided for in the relevant rules to Section 185 of the Act. This amendment is introduced in the Act as a matter of abundant caution.

Omnibus Approval for Related Party Transactions

• An amendment has been introduced under which the Audit Committee may make omnibus approval for related party transaction proposed to be entered into by the company.
• This amendment has been introduced in order to align the Act with the SEBI policy and to increase the ease of doing business.

Ordinary Resolution for Related Party Transactions

• Certain type of related party transactions (described in relevant rules), which earlier required a prior approval through a special resolution, can now be approved by an ordinary resolution.
• This amendment was introduced to solve the problems faced by large stakeholders who are related parties.

Exemption to Related Party Transactions between Holding company and its Wholly Owned Subsidiary

• The related party transactions 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) have been exempted from the requirement of a prior approval of the shareholders for entering into such transactions.
• This amendment has been introduced in light of the corporate demands and representations.

Bail restrictions uplifted

• Earlier, the people who committed offences under Section 7(5), 7(6), 34, 36, 38(1), 46(5), 56(7), 66(10), 140(5), 206(4), 213, 229, 251(1), 339(3), 447 of the Act were not eligible to be released on bail or on his own bond.
• With the newly introduced amendment, the bail restrictions shall apply only to fraud u/s 447 of the Act.
• This amendment was introduced with the intention to do away with draconian POTA-type provisions of the Companies Act, 2013.

Hearing of winding-up cases

• Now, the winding up cases shall be heard by a 2 member bench instead of a 3 member bench.
• This amendment will remove the inadvertent error in the Act.

Special courts to try offences carrying imprisonment of 2 years or more

• Earlier the Special courts established by the Central Government were to provide trials for all offences under this Act.
• Now, after the amendment, the Special courts shall hold trials for only such offences under this Act that carry an imprisonment of 2 years or more. All other offences would be tried by a Metropolitan Magistrate or a Judicial Magistrate of First Class.