Report of the Companies Law Committee
Report of the Companies Law
Committee
The
Companies Law Committee was constituted in June 2015 for examining and making
recommendations on the issues arising out of implementation of the Companies
Act, 2013. The Committee submitted its report to the Government today.
2.
The Committee was chaired by Secretary, Ministry of Corporate Affairs and
consisted of Shri Bharat Vasani, nominee of the Confederation of Indian
Industries (CII), Smt. Reva Khetrapal, Judge (Retd.), Delhi High Court, Shri
Y.M. Deosthalee, nominee of the Federation of Indian Chambers of Commerce and
Industry (FICCI), Dr. A.S. Durga Prasad, President of the Institute of Cost
Accountants of India, Shri Manoj Fadnis, President of the Institute of
Chartered Accountants of India, Shri Atul Mehta, President of the Institute of
Company Secretaries of India, Shri N.S. Vishwanathan, Executive Director from
RBI and Shri P.K. Nagpal, Executive Director from SEBI as co-opted members and
Joint Secretary (Policy), Ministry of Corporate Affairs as Member Convener.
3.
The Committee had extensive consultations with stakeholders before making its
recommendations. More than 2000 suggestions were received during the
consultation process. The stakeholders consulted included all Industry
Chambers, Professional Institutes, law firms, financial sector and other
regulators. Six broad based groups were set up to review the suggestions
received during the public consultation, each group being convened by a member
of the Committee, and consisting of subject-matter experts including industry
representatives, lawyers, company secretaries, cost accountants, investors’
representatives and chartered accountants.
4.
The Committee has endeavoured to reconcile the competing interests of the
various stakeholders keeping in mind the difficulties and challenges expressed
by them, and also being mindful of the Government’s objective of furthering
ease of doing business, encouraging start-ups and the need for harmonising
various laws. The Committee also kept in mind the need to bring in
greater clarity in the Act and Rules and harmonizing the various provisions
thereof while making its recommendations.
5.
After exhaustive deliberations, the Committee has proposed changes in 78
sections of the Companies Act, 2013, which along with consequential changes,
would result in about 100 amendments to the Act. Approximately fifty
amendments to the Rules have also been proposed. The recommendations cover
significant areas of the Act, including definitions, raising of capital, accounts
and audit, corporate governance, managerial remuneration, companies
incorporated outside India and offences/ penalties.
6.
Some of the key changes proposed are listed below:
a) Managerial
remuneration to be approved by shareholders. [s. 197, 198]
b) Modify
definition of associate company and subsidiary company to ensure that ‘equity
share capital’ is the basis for deciding holding-subsidiary relationship rather
than “both equity and preference share capital”. [s. 2]
c) Private
placement process to be substantially simplified, doing away with separate
offer letter, making valuation details public, details/record of applicants to
be kept by company and to be filed as part of return of allotment only, and
reducing number of filings to Registrar. [s. 42]
d) Incorporation
process to be made easier and allow greater flexibility to companies: An
unrestricted objects clause to be allowed in the Memorandum of Association
dispensing with detailed listing of objects, self-declarations to replace
affidavits from subscribers to memorandum and first directors; changes also in
various Forms. [s. 4, 7]
e) Provisions
relating to forward dealing and insider trading to be omitted from Companies
Act. Listed companies are covered under SEBI Act/Regulations. [s. 194, 195]
f) Companies
may give loans to entities in which directors are interested after passing
special resolution and adhering to disclosure requirement. [s. 185]
g) Restriction
on layers of subsidiaries and investment companies to be removed. [s. 2(87),
186(1)]
h) Change
in the definition of term ‘relative’ for determining disqualification of
auditor [s. 141]
i) Rationalize
penal provisions with reduced liability for procedural and technical defaults.
Penal provisions for small companies to be reduced. [ various sections]
j) No
filing fees if financial statements and annual returns filed within prescribed
time. [s. 403]
k) Auditor
to report on internal financial controls with regard to financial statements.
[s. 143]
l) Frauds
less than Rs. 10 Lakh to be compoundable offences. Other frauds to be continued
to be non-compoundable. [s. 447]
m) Reducing
requirement for maintaining deposit repayment reserve account from 15% each for
last two years to 20% during the maturing year.
n) Foreign
companies having insignificant/incidental transactions through electronic mode
to be exempted from registering and compliance regime under Companies Act,
2013. [s. 379]
o) Disclosures
in the Directors’ Report to be simplified and duplications with SEBI’s
disclosure requirements and financial statements to be removed while retaining
the informative content for shareholders. [s. 134, Rules]
p) Increased
threshold for unlisted companies for compliance in context of requirement for
Independent Directors (IDs), Audit Committee and Nomination and Remuneration
Committee. [s. 149, 177, 178]
q) Test
of materiality to be introduced for pecuniary interest for testing independence
of ID; thresholds for relatives’ pecuniary interest to be revised to make it
more practical. [s. 149]
r) Requirement
for a managerial person to be resident in India for twelve months prior to
appointment to be done away with. [Schedule V]
s) Disclosures
in the prospectus required under the Companies Act and SEBI Regulations to be
aligned, with a view to make these simpler, by allowing prescriptions to be as
per SEBI Regulations. [s. 26]
t) ESOPs
to be allowed to promoters working as employees/directors [s.62, Rules]
u) Limit
on sweat equity to be raised from 25% of paid up capital to 50% for start-ups.
[s.54]
v) Recognition
of the concept of beneficial owner of a company proposed in the Act. Register
of beneficial owners to be maintained by a company, and filed with the
Registrar. [new section]
w) Provisions
with regard to consolidation of accounts to be reviewed and those with respect
to attachment of standalone accounts of foreign subsidiaries to be relaxed in
certain cases. [s. 129, 136]
x) Re-opening
of accounts to be limited to 8 years. [s. 130]
y) Mandatory
requirement of taking up some items only through postal ballot to be relaxed in
case of a company that is required to provide electronic voting at its General
Meetings. [s. 110]
z) Requirement
for annual ratification of appointment/continuance of auditor to be removed.
[s. 139]
7. The report is available
on the website of the Ministry of Corporate Affairs, www.mca.gov.in,
and public comments on the report are invited online till 15
February 2016 on the facility made available specifically for the
purpose at the portal.
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