13 August, 2018
Commencement of Certain Provisions of the Companies (Amendment) Act, 2017
In the Special Edition of Inter alia (April 2018), we had highlighted the key amendments to the Companies Act, 2013 (‘Companies Act ’) proposed to be introduced pursuant to the provisions of the Companies Amendment Act, 2017 (‘Amendment Act ’), as and when notified. With effect from May 7, 2018, the Ministry of Corporate Affairs (‘MCA ’) has notified certain provisions of the Amendment Act (‘MCA Notification ’). Set out below are the key amendments to the Companies Act that have been notified by way of the MCA Notification:
i. Section 2(6) of the Companies Act (definition of ‘associate’) has been amended to modify the meaning of the term ‘significant influence’ and clarify the meaning of the term ‘joint venture’, as used in the definition of ‘associate’;
ii. In the definition of subsidiary, the phrase ‘total share capital’ has been replaced with ‘total voting power’. Along with this amendment, the MCA has issued a notification dated May 7, 2018, deleting the definition of ‘total share capital’1 under Rule (2)(1)(r) of the Companies (Specification of Definitions Details) Rules, 2014 as the term is not used under the Companies Act anymore;
iii. Amendments to Section 26 of the Companies Act relating to matters to be disclosed in the prospectus;
iv. Section 54(1) of the Companies Act has been amended by deleting the criterion of one year having elapsed from the date the company had commenced business for it to be eligible to issue sweat equity shares;
v. Section 89 of the Companies Act has been amended to introduce the definition of “beneficial interest” for the purpose of Sections 89 and 90 by inserting a new subsection (10);
vi. Section 90 of the Companies Act has been amended to incorporate provisions relating to declaration of significant beneficial interest;
vii. Section 129(3) of the Companies Act has been amended by extending the requirement to prepare consolidated financial statements to cover both subsidiaries and associates (earlier, only subsidiaries were covered);
viii. Section 139(1) of the Companies Act has been amended by deleting the requirement for appointment of auditors to be ratified by shareholders at every general meeting;
ix. Section 149 of the Companies Act has been amended to clarify the residency requirement of directors for newly incorporated companies and to amend the eligibility criteria for independent directors;
x. Section 164 of the Companies Act has been amended to provide that a person appointed as a director of a company, who is in default of Section 164(2), would not incur the disqualification for a period of six months from the date of their appointment;
xi. Section 167 of the Companies Act has been amended in connection with the circumstances in which the office of a director is vacated;
xii. Section 173(2) of the Companies Act has been amended to provide directors with the ability to attend meetings, to consider certain matters through video conferencing and other audio visual means;
xiii. Section 177 of the Companies Act has been amended to modify the circumstances in which a company is required to constitute an audit committee and amends the terms of reference of the audit committee;
xiv. Section 178 of the Companies Act has been amended to modify the circumstances in which a company is required to constitute a nomination and remuneration committee and amends the role of such nomination and remuneration committee;
xv. Section 185 of the Companies Act has been amended to modify the provisions relating to companies granting loans, giving guarantee or providing security to directors and certain persons/entities considered to be related to such director; and
xvi. Section 186 of the Companies Act has been amended relating to loans/guarantees/ security provided by or securities of another body corporate acquired by, a company.
Amendments to Companies (Meetings of Board and its Powers) Rules, 2014
The MCA has, by way of notification dated on May 7, 2018, amended the Companies (Meetings of Board and its Powers) Rules, 2014 (‘Board Meeting Rules ’). The key amendments are:
i. Rule 4 of the Board Meeting Rules provides a list of matters which had to be dealt with only in a physical meeting of the board of directors of a company. Pursuant to the amendment, in respect of these matters, directors are now been permitted to participate in such a meeting through video conferencing or other audio visual means, provided that the quorum to constitute such a board meeting is present through physical presence of directors. This has also been clarified by way of an amendment to Section 173(2) of the Companies Act, effective from May 7, 2018.
ii. Rule 6 of the Board Meeting Rules required every ‘listed company’ to set up an audit committee and a nomination and remuneration committee. Pursuant to the amendment, this requirement has been restricted only to only ‘listed public companies’.
1 The term ‘total share capital’ was defined to mean the aggregate of (a) the paid-up share capital, and (b) the convertible preference capital.
For further information, please contact:
Zia Mody, Partner, AZB & Partners
zia.mody@azbpartners.com
