31 October, 2016
Amendment to the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014
The Ministry of Corporate Affairs (‘MCA’) has, by way of a notification dated June 30, 2016, amended the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. Pursuant to the amendment, the erstwhile thresholds applicable to the statement on employees prescribed for inclusion in the report by the board of directors of listed companies and such statement have now been revised to include, inter alia: (i) the top 10 employees in terms of remuneration; (ii) any employee who has received ¤10,200,000 (approximately US$ 150,000) in the preceding financial year (the erstwhile threshold in this regard was ¤6,000,000 (approximately US$ 90,000)); and (iii) any employee who was employed for a part of the preceding financial year and has received remuneration at any time, at a rate which, in aggregate was more than ¤850,000 per month (approximately US$13,000) (the erstwhile threshold in this regard was ¤500,000 (approximately US$ 7,000)).
Amendment to Schedule V of the Companies Act, 2013
The MCA has, by way of a notification dated September 21, 2016 (‘Schedule V Notification’), amended Schedule V of the Companies Act, 2013 (‘Companies Act’) which prescribes certain conditions for the payment of remuneration by a company having no profits or inadequate profits to its managerial personnel, without approval of the Central Government. The Schedule V Notification has amended the limits and conditions prescribed under Schedule V by: (i) doubling the erstwhile yearly remuneration payable; and (ii) removing the requirement for Central Government approval for payment of remuneration to managerial personnel in excess of the prescribed limits, provided that such managerial personnel meet certain qualification criteria.
Amendments to the Companies (Incorporation) Rules, 2014
The significant amendments made to the Companies (Incorporation) Rules, 2014, by way of notification dated July 27, 2016 are: (i) permitting change in the name of company once its pending annual returns or financial statements have been filed or the payment or repayment of its matured deposits or debentures or interest thereon has been made; and (ii) requiring a registered non-banking financial company (‘NBFC’) to obtain a no-objection certificate from the Reserve Bank of India (‘RBI’) for changing the registered office from one State or Union Territory to another.
Further, by way of a notification dated October 1, 2016, the MCA has introduced the Simplified Proforma for Incorporating Company Electronically (‘Spice’) e-form for providing speedy incorporation related services, in line with international best practices. With Spice, the process of incorporation of a new company has become completely digital and can be achieved in a much faster time frame than previously.
Provisions Relating to Applications Against Oppression and/or Mismanagement Brought into Force
The MCA has notified the following provisions of the Companies Act, which came into force on September 9, 2016:
i. Section 227, which deals with confidentiality of privileged communications made to any legal advisor and information regarding legal proceedings before any Governmental authority;
ii. Section 242(1)(b), which deals with the circumstances in which the company tribunal may exercise its powers for winding up of a company upon receipt of an application under Section 241 of the Companies Act, regarding oppression and mismanagement of the affairs of the company;
iii. Section 242(2) (c) and (g), which deals with the powers of the company tribunal to pass orders for reduction of the share capital of the company upon purchase of the shares of an existing member and / or for setting aside any transfer, delivery of goods payment, execution or other act relating to property taken by or against the company within the preceding three months of the date of application under Section 241; and
iv. Section 246, which states that Sections 337 to 341, which deal with liability for the fraudulent conduct of business and powers of the company tribunal to assess damages against delinquent directors in companies / partners in firms, respectively, would apply mutatis mutandis to applications made under Section 241 and Section 245 (which deals with class action suits), of the Companies Act.
Companies (Accounts) Amendment Rules, 2016
The significant changes introduced by the MCA, by way of a notification dated July 27, 2016, to the Companies (Accounts) Rules, 2014 are as follows:
i. Companies that are unlisted (and not in the process of listing), both in India or overseas, are exempted from the obligation to prepare consolidated financial statements, provided that: (i) such company is a subsidiary of another company and all its members have been notified and no objection has been received from the members in relation thereto; and (ii) the ultimate or intermediate holding company of such company files consolidated financial statements (in compliance with applicable accounting standards), with the relevant Registrar of Companies;
The Board’s report in respect of the subsidiaries’ / joint ventures’ / associate companies’ performance is now required to only provide highlights (and not contain a detailed report as was previously required); and
In addition to ‘a firm of internal auditors’, companies may now appoint either
individual/s, partnership firm/s, or a body corporate/s to act as internal auditors and a ‘Cost Accountant’ may be appointed along with a ‘Chartered Accountant’.
Companies (Share Capital and Debentures) Third Amendment Rules, 2016
The significant amendments introduced by the MCA, by way of a notification dated July 19, 2016, to the Companies (Share Capital and Debentures) Rules, 2014 (‘Share Capital Rules’), are as follows:
A company that has defaulted in payment of: (a) dividend on preference shares or repayment of any term loan or interest that has become repayable; (b) dues with respect to statutory payments relating to employees; or (c) requisite amounts in the Investor Education and Protection Fund, is now permitted to issue shares with differential voting rights upon expiry of five years from the end of the financial year within which such default has been rectified;
Start-ups1 have been provided with exemptions to issue: (a) sweat equity shares up to 50% of their paid-up capital for the first five years from the date of their in-corporation as opposed to the limit of 25% applicable to other companies; and (b) employee stock option plans to its employee/s being a promoter or a director who either directly or indirectly, holds more than 10% of the outstanding equity shares of the company for the first 5 (five) years from the date of its incorporation (which is not permitted in case of other companies);
There is no longer a requirement for all shares issued by way of preferential allotment to be fully paid up;
In case of preferential allotment of convertible securities, the price of the resultant shares (pursuant to conversion) is permitted to be arrived at either: (a) at the time of issuance of the convertible securities, based on the valuation report given at the time of the offer; or (b) within 30 days prior to the date when the holder is entitled to apply for shares (on conversion), based on the valuation report given no earlier than 60 days from such date. Provided that, the relevant time for determination of the price is required to be determined and disclosed by the company at the time of offer of the convertible securities;
Security for “secured debentures” can now be created not only by the issuing company, but also by its subsidiaries, holding company or associates companies; and
A company intending to redeem its debentures prematurely is now permitted to transfer such amounts as are in excess of the prescribed limits to the Debenture Redemption Reserve, the adequacy of which has been now clarified to mean at least 25% of the value of the outstanding debentures rather than the value of debentures issued.
Rupee Denominated Bonds Issued by Indian Companies Exclusively to Persons Resident Outside India Exempted from Certain Provisions of the Companies Act
The MCA has, by way of a notification dated August 3, 2016, clarified that unless otherwise specified by RBI, provisions of Chapter III of the Companies Act (relating to prospectus and allotment of securities) and Rule 18 of the Share Capital Rules (relating to debentures) do not apply to issue of rupee denominated bonds made exclusively to persons resident outside India. A corresponding amendment has been made to Rule 18(11) of the Share Capital Rules as well.
Companies (Mediation and Conciliation) Rules, 2016
The MCA has, by way of a notification dated September 9, 2016, notified the Companies (Mediation and Conciliation) Rules, 2016 (‘Mediation Rules’), whereby any party to a proceeding before the Central Government or the company tribunal or the Appellate Tribunal (‘Authority’) can apply to the Authority, or the Authority may apply suo moto, for the matter to be referred to the Mediation and Conciliation Panel in accordance with the process prescribed under the Mediation Rules.
1 As defined in notification dated February 17, 2016 issued by the Department of Industrial Policy and Promotion.
For further information, please contact:
Zia Mody, Partner, AZB & Partners
zia.mody@azbpartners.com
