1 May, 2016
Companies (Amendment) Bill, 2016
The Companies (Amendment) Bill, 2016 (‘Bill’) was introduced in the Lok Sabha on March 16, 2016, to amend the Companies Act, 2013 (‘Companies Act’), pursuant to the recommenda- tions of the Companies Law Committee in its report dated February 1, 2016. In order to give ef- fect to the proposed amendments, modifications will also be required to be made to the extant rules framed under the Companies Act. Some of the significant amendments proposed by the Bill to the Companies Act, inter-alia include:
- definition of ‘subsidiary’ to be determined based on exercise of total voting power as opposed to the entire share capital;
- permitting companies to have a generic objects clause in the Memorandum of Association;
- streamlining of the private placement process and allowing flexibility in relation thereto;
- enabling unlisted companies to hold annual general meetings at any place in India and a wholly owned subsidiary of a foreign body corporate to hold extra-ordinary general meetings outside India;
- introducing enabling language to empower the Government of India to exempt certain classes of foreign companies from the applicability of the provisions relat- ing to corporate social responsibility;
- restricting applicability of Section 177 (relating to Audit Committees) to listed public companies and permitting Audit Committees to ratify contracts involving an amount in excess of ¤1 crore (approximately US$ 150,000), providing for con- sequences of non-ratification, and introducing exemptions from approval in the case of related party transactions between holding company and its wholly owned subsidiary;
- introducing test of materiality for determining pecuniary interest for determining the independence of independent directors;
- introducing more flexibility under Section 185 by allowing a company to give loans to entities in which directors are interested after passing special resolution and adhering to disclosure requirements. However, no company can provide any loan to/guarantee for/security in connection with any loan taken by: (a) any director of a company, or of a company which is its holding company or any partner or relative of any such director; or (b) any firm in which any such director or relative is a partner;
- deleting Section 186(1), which imposed restrictions on making investments through more than two layers of investment companies;
- granting exemption to closely-held companies from the applicability of Section 188, which governs related party transactions;
- deleting provisions relating to forward dealing and insider trading by directors and key managerial personnel; and
- doing away (subject to certain conditions) with the requirement of Central Gov- ernment approval for managerial remuneration in excess of prescribed limits.
Central Registration Centre for Company Incorporation
By way of a notification dated March 23, 2016 issued by the Ministry of Corporate Affairs, the Central Registration Centre, established by the Central Government under the notification dated January 22, 2016, has been granted territorial jurisdiction all over India, for discharging or carrying out the function of processing and disposal of applications for reservation of names under the provisions of the Companies Act. This function was earlier exercised by each of the distinct State level Registrars, leading to considerable delays. With effect from March 28, 2016, all name approval applications will be considered and dealt with by a centralized agency, which is expected to considerably shorten the timeline for the name approval process.
For further information, please contact:
Zia Mody, Partner, AZB & Partners
zia.mody@azbpartners.com
