Companies Act 2017 : Section Wise Amendments

·         The auditor’s report is to include whether internal financial controls

with reference to financial statement are in place and not in respect of internal financial control system.

·         It is proposed to restrict the liability of auditor who is convicted of any default, to pay the damages to any person for loss arising out of incorrect or misleading statements made in the audit report, to only members and creditors of the company. Currently the Auditor is liable to pay damages to any person concerned.

·         It is proposed that criminal liability of an audit firm, in respect of liability other than fine, the concerned partner or partners, who acted in a fraudulent manner or abetted or, as the case may be, colluded in any fraud shall only be liable. Currently the criminal liability is of the partner or partners concerned of the audit firm and

the firm, jointly and severally.

Companies Act 2017 : Section Wise Amendments

·         Further it is proposed that in case of new companies, the requirement of period of 182 days shall apply proportionately at the end of the financial year in which it is incorporated.

·         In the definition of Independent Director, the words ‘pecuniary interest’ is proposed to be substituted by “pecuniary relationship, other than remuneration as such director or having transaction not exceeding ten per cent, of his total income or such amount as may be prescribed.

·         While determining the eligibility for appointment as Independent director, it is proposed to extend the restriction related to pecuniary relationships with respect to relative of a director to include the following:

(i)         is holding any security of or interest in the company, its holding, subsidiary or associate company during the two immediately preceding financial years or during the current financial year. Provided that the relative may hold security or interest in the company of face value not exceeding fifty lakh rupees or two per cent. of the paid-up capital of the company, its holding, subsidiary or associate company or such higher sum as may be prescribed;

(ii)       is indebted to the company, its holding, subsidiary or associate company or their promoters, or directors, in excess of such amount as may be prescribed during the two immediately preceding financial years or during the current financial year;

(iii)      has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, its holding, subsidiary or associate company or their promoters, or directors of such holding company, for such amount as may be prescribed during the two immediately preceding financial years or during the current financial year; or

Companies Act 2017 : Section Wise Amendments

(iv) has any other pecuniary transaction or relationship with the company, or its subsidiary, or its holding or associate company amounting to two per cent. or more of its gross turnover or total income singly or in combination with the transactions referred to in sub-clause (i), (ii) or (iii) above.

·         It is proposed to allow the appointment of person as an independent director, whose relative is an employee during the three financial years immediately preceding the financial year, in which the person is proposed to be appointed as Independent Director.

DIN, a director may hold any other identification as may be prescribed by the Central Government under section 153.

·         It is also proposed that all companies including a private company may fill up the causal vacancy by the board and casual vacancy filled by the Board shall be subsequently approved in the immediate next

general meeting.

Companies Act 2017 : Section Wise Amendments

·         It is also proposed to be clarified that disqualification arising due to conviction by court or order passed by court or tribunal or conviction related to section 188, shall continue to exist even if appeal or petition has been filed against the order of conviction or

disqualification.

·         It is also proposed that the director will not vacate office in certain cases where an appeal is preferred.

Board meetings through video conferencing or other audio-visual means if there is quorum through physical presence of directors.

·         It is proposed that related party transactions other than those prescribed under section 188, if not approved by Audit committee, will require the approval of Board of Directors.

·         In case any transaction involving any amount not exceeding one crore rupees is entered into by a director or officer of the company without obtaining the approval of the Audit Committee and it is not ratified by the Audit Committee within three months from the date of the transaction, such transaction shall be voidable at the option of the Audit Committee and if the transaction is with the related party to any director or is authorised by any other director, the director concerned shall indemnify the company against any loss incurred by it

·         It is also proposed that approval of audit committee with respect to transactions between a holding company and its wholly owned

Companies Act 2017 : Section Wise Amendments

·         It is proposed that committee will specify methodology for effective evaluation of performance of Board and committees and individual directors either by the Board, NRC or an independent external agency and NRC can review the implementation of evaluation system.

·         It is further proposed that instead of disclosing the policy in the Board’s report, such policy shall be placed on the website of the company, if any and only the salient features of the policy and the

changes therein need to be disclosed in the Board’s report.

capital and free reserves for calculation of maximum limits on borrowing powers of the Board.

·         It is also proposed to exempt body corporate where any director or two or more of them holds or hold not more than 2% of the paid-up

share capital, from the purview of section 184.

:

·         Complete restriction on providing loan, guarantee or security in connection with loan to any director, director of the holding company or any partner or relative of any such director or any firm in which any such director or relative in a partner.

·         Loan to following parties is allowed subject to special resolution of shareholders and certain other prescribed conditions

(i)        any private company of which any such director is a director or member;

(ii)       any body corporate at a general meeting of which not less than twenty- five per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or

Companies Act 2017 : Section Wise Amendments

Currently transactions with aforesaid categories is prohibited

·         Current exemption provided under section 185(1) continues to remain except that when company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the rate of prevailing yield of one year, three year, five year or ten year Government security closest to the tenor of the loan. The rate of interest is clarified

·         It is also proposed to penalize defaulting officer in the company along with the company and director or the other person to whom any loan

is advanced or guarantee or security is given.

·         It is proposed that shareholders’ approval will not be required where a loan or guarantee is given or where a security has been provided by a company to its wholly owned subsidiary company or a joint venture company, or acquisition is made by a holding company, by way of subscription, purchase or otherwise of, the securities of its wholly owned subsidiary company.

·         It is also proposed to provide that non-ratification of transaction shall be voidable at the option of the Board or shareholders, as the case may be. This amendment aims at bringing clarity since currently though ratification is allowed both by Board or Shareholders but transaction was only voidable at the option of the Board.

Companies Act 2017 : Section Wise Amendments

·         Further it is proposed that in respect of appointment of managing director, whole time director or manager, approval of Central Government shall only be required in case the appointment is not in

accordance with the matters specified in Part I of Schedule V.

·         It is proposed that company with the approval of shareholders by way of special resolution can pay the remuneration in excess of individual limits provided for payment of remuneration to executive or non-executive directors. Further where the company has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, the prior approval of the bank or public financial institution concerned or the non-convertible debenture holders or other secured creditor, as the case may be, shall be obtained by the company before obtaining the approval in the general meeting. Currently requirement is of ordinary resolution and no provision is there for approval of financial institutions etc.

·         It is also proposed that in case of loss or inadequacy of profits, remuneration can only be paid in accordance with Schedule V. This is very important amendment because currently in case where remuneration is not paid in accordance with Schedule V, then approval of Central Government can be obtained but by way of amendment, the provision of approval is proposed to be omitted.

Companies Act 2017 : Section Wise Amendments

·         It is also proposed to make a provision which empowers the Company to waive the recovery of excess remuneration paid to directors provided approval of company by special resolution within two years from the date the sum becomes refundable is obtained. Further where any term loan of any bank or public financial institution is subsisting or the company has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, the prior approval of the bank or public financial institution concerned or the non- convertible debenture holders or other secured creditor, as the case may be, shall be obtained by the company before obtaining the approval in the general meeting.

·         It is also proposed that the auditor of the company shall, in his report under section 143, make a statement as to whether the remuneration paid by the company to its directors is in accordance with the provisions of this section, whether remuneration paid to any director is in excess of the limit laid down under this section and give such other details as may be prescribed.

·         It is also proposed to provide relief to the company whose application is pending for approval before the Central Government under section 197 by making a provision under which on and from the commencement of the Companies (Amendment) Act, 2017, any application made to the Central Government under the provisions of this section as it stood before such commencement, which is pending with that Government shall abate, and the company shall, within one year of such commencement, obtain the approval in accordance with

the provisions of this section, as so amended.

shares or debentures of the company which are issued or sold by an investment company as referred to in clause (a) of the explanation

Companies Act 2017 : Section Wise Amendments

·         It is also proposed that at the time of calculation of profits, credit shall not be given for any amount representing unrealized gains, notional gains or revaluation of assets.

·         It is further proposed that sums related to excess of expenditure over income, which had arisen in computing the net profits in accordance with this section in any year, in so far as such excess has not been deducted in any subsequent year preceding the year in respect of which the net profits have to be ascertained, shall be allowed as a deduction.

report

Companies Act 2017 : Section Wise Amendments

becomes so interested is without any limitation on time.

·         It is also proposed to empower the Central Government to exempt any class of foreign companies from complying with the aforesaid provisions.

·         Further it is proposed that where the document, fact or information, in cases other than sections 92 or 137, is not submitted, within the period provided in the relevant section, it may, without prejudice to

any other legal action or liability under this Act, be submitted, filed,

Companies Act 2017 : Section Wise Amendments

·         It is also proposed that where there is default on two or more occasions in submitting, filing, registering or recording of the document, fact or information, it may, without prejudice to any other legal action or liability under this Act, be submitted, filed, registered or recorded, on payment of a higher additional fee, as may be prescribed and which shall not be lesser than twice the additional fee provided under the first or the second proviso as applicable.

·         Further it is proposed that where a company fails or commits any default to submit, file, register or record any document, fact or information before the expiry of the period specified in the relevant section, the company and the officers of the company who are in default, shall, without prejudice to the liability for the payment of fee

and additional fee, be liable for the penalty or punishment provided under this Act for such failure or default.

·         Further exhaustive definition of Nidhi company has been deleted and it is left to the Government to declare a company to be a Nidhi or Mutual Benefit Society by notification in the Official Gazette.

·         It is also proposed to modify the requirements relating to laying of copy of exemption notification before both Houses of parliament.

·         Instead of Joint Secretary to the Government of India, person who has been holding the rank of Secretary or Additional Secretary to the Government of India, will be eligible

·         A person of proven ability, integrity and standing having special knowledge and professional experience of not less than fifteen years in industrial finance, industrial management, industrial reconstruction, investment and accountancy will be eligible.

Expertise in other disciplines like law, labour laws, and disciplines

Companies Act 2017 : Section Wise Amendments

order of the National Financial Reporting Authority also for appeal before the National Company Law Appellate Tribunal.

of Chairperson and Members of Appellate Tribunal

Members of Tribunal and Appellate Tribunal

·         The constitution of Special Court has been changed and will depend upon the nature of offence

(a)    size of the company;

(b)   Nature of business carried on by the company;

(c)    Injury to public interest;

(d)   Nature of the default; and

(e)   Repetition of the default.

Companies Act 2017 : Section Wise Amendments

·         Further that where the fraud involves an amount of less than ten lakh rupees or one per cent. of the turnover of the company, whichever is lower and does not involve public interest, any person guilty of such fraud shall be punishable with imprisonment for a term which may extend to five years or with fine which may extend to twenty

lakh rupees or with both.