Lok Sabha clears changes to Companies Act to improve business climate

The Com­pa­nies Act (Amend­ment) Bill, 2014, was passed by voice vote in Lok sabha

The Com­pa­nies Act, 2013 (Act) was noti­fied on 29.8.2013. Out of 470 sec­tions in the Act, 283 sec­tions and 22 sets of Rules cor­re­spond­ing to such sec­tions have so far been brought into force. In order to address some issues raised by stake­hold­ers such as Char­tered Accoun­tants and pro­fes­sion­als, fol­low­ing amend­ments in the Act have been proposed:

1. Omit­ting require­ment for min­i­mum paid up share cap­i­tal, and con­se­quen­tial changes. (For ease of doing business)
2. Mak­ing com­mon seal option­al, and con­se­quen­tial changes for autho­riza­tion for exe­cu­tion of doc­u­ments. (For ease of doing business)
3. Pre­scrib­ing spe­cif­ic pun­ish­ment for deposits accept­ed under the new Act. This was left out in the Act inad­ver­tent­ly. (To remove an omission)
4. Pro­hibit­ing pub­lic inspec­tion of Board res­o­lu­tions filed in the Reg­istry. (To meet cor­po­rate demand)
5. Includ­ing pro­vi­sion for writ­ing off past losses/depreciation before declar­ing div­i­dend for the year. This was missed in the Act but includ­ed in the Rules.
6. Rec­ti­fy­ing the require­ment of trans­fer­ring equi­ty shares for which unclaimed/unpaid div­i­dend has been trans­ferred to the IEPF even though sub­se­quent dividend(s) has been claimed. (To meet cor­po­rate demand)
7. Enabling pro­vi­sions to pre­scribe thresh­olds beyond which fraud shall be report­ed to the Cen­tral Gov­ern­ment (below the thresh­old, it will be report­ed to the Audit Com­mit­tee). Dis­clo­sures for the lat­ter cat­e­go­ry also to be made in the Board’s Report. (Demand of auditors)
8. Exemp­tion u/s 185 (Loans to Direc­tors) pro­vid­ed for loans to whol­ly owned sub­sidiaries and guarantees/securities on loans tak­en from banks by sub­sidiaries. (This was pro­vid­ed under the Rules but being includ­ed in the Act as a mat­ter of abun­dant caution).
9. Empow­er­ing Audit Com­mit­tee to give omnibus approvals for relat­ed par­ty trans­ac­tions on annu­al basis. (Align with SEBI pol­i­cy and increase ease of doing business)
10. Replac­ing ‘spe­cial res­o­lu­tion’ with ‘ordi­nary res­o­lu­tion’ for approval of relat­ed par­ty trans­ac­tions by non-relat­ed share­hold­ers. (Meet prob­lems faced by large stake­hold­ers who are relat­ed parties)
11. Exempt relat­ed par­ty trans­ac­tions between hold­ing com­pa­nies and whol­ly owned sub­sidiaries from the require­ment of approval of non-relat­ed share­hold­ers. (cor­po­rate demand)
12. Bail restric­tions to apply only for offence relat­ing to fraud u/s 447. (Though ear­li­er pro­vi­sion is mit­i­gat­ed, con­ces­sion is made to Law Min­istry & ED)
13. Wind­ing Up cas­es to be heard by 2‑member Bench instead of a 3‑member Bench. (Removal of an inad­ver­tent error)
14. Spe­cial Courts to try only offences car­ry­ing impris­on­ment of two years or more. (To let mag­is­trate try minor violations).