Topics covered in this article are as follows:
- Journey of the Companies Act so far
- Highlights of the Companies Act, 2013
- Highlights of Companies (Amendment) Act, 2015
- The Companies (Amendment) Act, 2017
- The Companies (Amendment) Act, 2019
- The Companies (Amendment) Act, 2020
- Some Major Developments having a bearing on the Companies Act, 2013
1. Journey of the Companies Act so far
The company legislation in India relates back to nineteenth century. Since then, it has been amended several times. The Companies Act, 1956 remained in force for a long time, though amended from time to time. Major amendments were made in year 2000 (postal ballot, audit committee, shelf prospectus, etc. introduced with emphasis on Corporate Governance). Amendments in 2002 introduced the concept of NCLT, NCLAT (which faced impediments in form of Court cases questioning their constitutional validity). In 2006 Project MCA21 providing for DIN and online filing of documents was launched.
A stage came where need was felt to replace the voluminous legislation with a new compact Companies Act and Dr. J.J. Irani (the then Director, Tata Sons was appointed the chairman of expert committee) Committee was appointed. The orientation initially was liberalizing the law and making it more user friendly. However, Satyam Scam had its impact on orientation and the focus got shifted a bit so as to retain certain stringencies in the Act.
The recommendations of J.J. Irani Committee finally culminated in the form of the Companies Act, 2013. It received the assent of the President on 29th August, 2013. The Companies Act, 2013, applies to the whole of India.
It needs to be emphasized here that the Companies Act, 2013 is a rule-based law. “It means that at ‘a number of places in this Act’ by using the words “as may be prescribed”, the Government has retained the power to amend by Ministry of Corporate Affairs itself rather than going to the doors of the Parliament. As rules can be made by the Ministry itself and amended as and when the need is felt.
Note: With reference to para above reader of the Companies Act, 2013 must note that wherever it is specified in different provisions ‘as may be prescribed’ the reference shall be made to respective rules as prescribed by the Ministry of Corporate Affairs or by SEBI Regulations wherever it is so specified. As Sec. 24 of the Companies Act, 2013 specifies power of SEBI to regulate issue and transfer of securities and non-payment of dividend by listed companies or companies which intend to get their securities listed on any recognised stock exchange in India.
So, it is important to know that all the sections of the Companies Act need to be read with corresponding Rules or Regulations as the case may be. Each chapter in the Bare Act has a set of corresponding rules. In this book it has been made clear by explaining the section along with the corresponding rule or regulation for better and complete understanding.
- The Companies Act, 2013
- The Companies (Amendment) Act, 2015
- The Companies (Amendment) Act, 2017
- The Companies (Amendment) Act, 2019
- The Companies (Amendment) Act, 2020
- Some major developments having a bearing on the Companies Act, 2013
The Companies Act, 1956 and 2013 – A Comparison
|Companies Act 1956||Companies Act 2013|
|658 Sections||470 Sections|
|15 Schedules||7 Schedules|
|XIII Parts||29 Chapters|
2. Highlights of the Companies Act, 2013
Concept of Woman Director, Corporate Social Responsibility (CSR), Key Managerial Personnel (KMP), Class Action Suits, Entrenchment clause in Articles of Association are new concepts introduced by the Companies Act, 2013. It also introduced new types of companies i.e., OPC, Small Company, Associate Company. New concept of ‘Dormant Company’ has also been introduced in the Companies Act, 2013. Provision of vigil mechanism has been added by this Act. Term ‘Promoter’ has been there in the earlier Act, but this Act defined it. The Companies Act, 2013 has also defined the term ‘Fraud’ in explanation attached to Sec. 447. The Companies Act, 2013 has undergone amendments in 2015, 2017, 2019 and by Amendment Act, 2020.
3. Highlights of Companies (Amendment) Act, 2015
Some of the important amendments made by the Companies (Amendment) Act, 2015 are:
- Common Seal has been made optional.
- No company shall declare dividend without setting off carried over previous year or years losses and depreciation against profits for the current year.
- Reporting of fraud by the Auditor to Central Government in case amount exceeds prescribed amount (presently Rs. 1 crore or more). Thus, the principle of materiality has been introduced by specifying the amount. Frauds involving lower amounts shall be intimated to Audit Committee, wherever company is required to have one or the Board of Directors in other cases.
4. The Companies (Amendment) Act, 2017
Some of the significant amendments made by the Companies Amendment Act, 2017 are:
- Revision in concept of KMP: It now includes such other officer, not more than one level below the directors who is in whole time employment and designated as KMP by the Board and also such other officers as may be pre- scribed;
- For defining Associate Company, Holding and Subsidiary Company Relationship words ‘total share capital’ were substituted by ‘total voting power’;
- Section 3A was inserted which relates to liability of continuing members in case of reduction in number of members below statutory minimum;
- New section related to ‘private placement’ was substituted using the term ‘identified persons’;
- Amendment related to ‘issue of shares at a discount’ inserted that a company may issue shares at a discount to its creditors when its debt is converted into shares in pursuance of any statutory resolution plan or debt restructuring scheme as per directions of RBI;
- Amendment introducing the concept of ‘Significant Beneficial Owner’ making a declaration to the company in the manner as prescribed for was one of the significant amendments as it adds to transparency;
- The matters which are required to be transacted by means of ‘Postal Ballot’ may be transacted by ‘E-voting’, where it is applicable to company;
- ‘CSR Committee’ of a Company which is not required to have ‘independent director’ shall have two or more directors in its CSR Committee.
5. The Companies (Amendment) Act, 2019
Amendments made by the Companies (Amendment) Act, 2019
- It added Sec. 10A requiring the Company having a share capital to make certain declarations;
- Reduced the burden of NCLT by transferring certain approvals, to the Central Government e.g., conversion of Public Company into Private, changing financial year of a company;
- It also substituted ‘liable to penalty’ in place of ‘fine’ in several provisions, thereby further easing the mounting work pressure on NCLT. The Registrar of Companies (RoC) and Regional Director (RD) can impose penalties directly after issuing show cause notice (SCN) in place of going to judiciary for imposing fines under several provisions.
6. The Companies (Amendment) Act, 2020
Some of the significant amendments made by the Companies Amendment Act, 2020 are:
- Decriminalization of offences: The Amendment Act has decriminalized certain offences under the Companies Act. In case of defaults which lack any element of fraud or do not involve large public interest, instead of imprisonment and/or fine, penalty will be imposed under departmental adjudication proceedings.
- Definition of Listed Company: A proviso has been inserted to Sec. 2(52) of Companies Act, 2013 excluding certain class of companies from the definition of listed company (mainly for removing companies which are listed only for debt securities).
- Issue of securities of public company for listing in foreign jurisdictions: Provision has been made to enable public companies to list their securities in foreign jurisdiction.
- Reduction in timeline for rights issue
- Insertion of provisions relating to ‘Producer Company in the 2013 Act: Chapter XXIA (containing Secs. 378A to 378ZU) has been inserted in Companies Act, 2013.
- Lesser penalty for start-up company, small company, producer company, OPC: Lesser monetary penalty will be imposed on a start-up company, Producer Company, One Person Company, or small company on failure to comply with provisions of the Companies Act, 2013 which attracts monetary penalties.
7. Some Major Developments having a bearing on the Companies Act, 2013
- The Insolvency and Bankruptcy Code, 2016 (IBC) became operational with effect from November, 2016. The Insolvency and Bankruptcy Code, 2016 is the new bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy. Secs. 304 to 323 (related to voluntary winding-up) of the Companies Act, 2013 have been omitted by the Insolvency and Bankruptcy Code, 2016 w.e.f. 15.11.2016.
- National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) have become operational. The powers which were earlier entrusted to the Company Law Board or Court in relation to companies are now with NCLT. Appeal against the order of NCLT can be made to NCLAT.
- Serious Fraud Investigation Office (SFIO) has been given Statutory Recognition through Sec. 211. SFIO is vested with requisite legal authority to conduct investigation.
- Secretarial Standards (SS) have been statutorily recognised. The revised SS-1 and SS- 2 became effective from Oct. 1, 2017.
- The Finance Act, 2017 amended Sec. 182 related to Political Contribution and abolished limit on amount of political contribution by company.
- Constitution of National Financial Reporting Authority (NFRA): Constitution of NFRA has been notified on 1st October, 2018. NFRA has been bestowed with significant powers in issuing authoritative pronouncements and also in regulating audit profession.
- On-line Compliance Monitoring and e-adjudication launched: Ministry of Corporate Affairs (MCA) launched Compliance Monitoring System on November 6th, 2019. It works on artificial intelligence. It automatically detects the non-compliance by company and digitally sends Show Cause Notice to the defaulter company. The defaulting company is required to submit its reply within 15 days digitally via MCA CMS portal (https://mcacms.gov.in/#/). In case of non-reply, the Registrar of Companies would initiate the penal action against the company/director as mentioned in the Show Cause Notice.
- Test for Independent Directors: According to Companies (Creation and Maintenance of data bank of lndependent Directors) Rules, 2019, independent directors must qualify online proficiency self-assessment test conducted by the Indian Institute of Corporate Affairs (IICA), Manesar. The new rules are effective from December 1st, 2019.
- Amendments in Schedule VII: Schedule VII prescribing list of activities on which money can be spent by the companies to which Sec. 135 relating to Corporate Social Responsibility (CSR) is applicable has been amended. By notification dated 26/05/2020 in item (VIII) of Schedule VII of the Companies Act, 2013 after the words “Prime Minister’s National Relief Fund” the words “Prime Minister’s Citizen Assistance and Relief in Emergency Situation Fund” (PM CARES FUND) have been inserted.
- Measures taken in the light of COVID-19 and resultant lockdown: Due to COVID-19 and resultant lockdown, compliance timeline has been extended and certain exemptions also given. Conduct of Annual General Meeting (AGM) and Extraordinary General Meeting (EGM) through Video Conferencing and Other Audio-Visual Means (OAVMs) is also allowed. It needs to be noted that these are temporary measures to deal with problems created by pandemic.