THE COMPANIES AMENDMENT BILL 2014: PART 1 OF 3

The Companies Amendment Bill 2014 has been introduced and passed in Lok Sabha recently. This blog post has intention to analyse proposed changes in the Companies Act 2013.

Most important massage, this amendment prepares a best case for drafting skill development programmes in India. I am reading here this Bill clause by clause. This will be a three part series and part 1 of 3 is present here.

To amend clauses (68), (71) of Section 2 and Section 11 of the said Act to omit the requirement for minimum paid-up share capital [Clause 2 and 4 of the Amendment Bill]:

Proposed amended definition may be like:

“private company” means a company having a minimum paid-up share capital as may be prescribed…

“public company” means a company which— (b) has a minimum paid-up share capital as may be prescribed…

We have decade long requirement to have certain minimum paid up share capital. I do not think much difference after removal of such requirement for all practical purpose in case of companies limited by shares. Biggest benefit will be, not to introduce capital soon after incorporation just for compliance of law even without any intention to have a business. Should not I have caution for left out bureaucratic joy “as may be prescribed”? Hope, babu-log may prescribed a Zero minimum paid –up share capital. This will pave way to have a Zero paid up company in India (once again). This amendment may bring clarity in case of companies limited by guarantee or unlimited company. I always support zero paid up capital in case of companies limited by guarantee.

To amend Sections 9, 12, 22, 46 and 223 of the said Act for making common seal optional [Clause 3, 5, 6, 7, and 18 of the Amendment Bill]:

Why making optional? Will these silly red tap bureaucratic check list personnel spare it.

In case a company does not have a common seal; amended Section 22(2), 46(1) make way for the authorisation made by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary.

To insert a new Section 76A to provide for punishment for deposits accepted in violation [Clause 8 of the Amendment Bill]:

The Act presently does not prescribe any punishment for deposits accepted in violation of the provision of the Act and also failure to repay these deposit. This Section gave teeth to this paper tiger.

Where a company accepts or invites or allows or causes any other person to accept or invite on its behalf any deposit in contravention of the manner or the conditions prescribed under section 73 or section 76 or rules made thereunder or if a company fails to repay the deposit or part thereof or any interest due thereon within the time specified under section 73 or section 76 or rules made thereunder or such further time as may be allowed by the Tribunal under section 73,—

(a) the company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with fine which shall not be less than one crore rupees but which may extend to ten crore rupees; and

(b) every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years or with fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees, or with both:

Provided that if it is proved that the officer of the company who is in default, has contravened such provisions knowingly or wilfully with the intention to deceive the company or its shareholders or depositors or creditors or tax authorities, he shall be liable for action under section 447.

This newly introduced Section imposes very stringent penalty to give sleepless nights and restless days of all finance professionals. Be careful.

To amend clause (g) of sub-section (3) of section 117 to prohibit public inspection of Board resolutions filed in the Registry [Clause 9 of the Amendment Bill]

The amendment insert a proviso to Section 117(3)(g) saying that no person shall be entitled under section 399 to inspect or obtain copies of such resolutions.

Section 117(3) read with Section 117(1) list out resolutions which are required to be filed with the Registrar. Section 117(3)(g) lists resolutions passed in pursuance of sub-section (3) of section 179.  This sub – section 179(3) lists following resolutions:

(a) to make calls on shareholders in respect of money unpaid on their shares;

(b) to authorise buy-back of securities under section 68;

(c) to issue securities, including debentures, whether in or outside India;

(d) to borrow monies;

(e) to invest the funds of the company;

(f) to grant loans or give guarantee or provide security in respect of loans;

(g) to approve financial statement and the Board’s report;

(h) to diversify the business of the company;

(i) to approve amalgamation, merger or reconstruction;

(j) to take over a company or acquire a controlling or substantial stake in another company;

(k) any other matter which may be prescribed.

This amendment is further an example of poor drafting. This amendment only prohibits inspection and copies of such resolution but not extracts. Any person may still require extracts of abovementioned resolutions. J

I do not understand why a company is required to file all these information if such information is not going to be made public. This is first step backward on corporate governance and transparency. All these information is effect shareholders and general public, and must be made public.

In next part of this series we will further discuss the on the Companies Amendment Bill 2014.