Companies (Amendment) Act, 2017 - major changes introduced

The much-awaited Companies (Amendment) Act, 2017 (Amendment Act) was ratified by the President and came into force on January 03, 2018. This Amendment Act has crafted some significant modifications to the existing Companies Act, 2013.

The underlying intent of the Amendment Act is to reduce certain procedural requirements and relaxing certain norms with the intent to encourage investors to capitalize the advantages offered by Indian capital markets and further strengthening the ease of doing business sentiment in India.

Gist of the key amendments made to the Companies Act, 2013 is as follows:

·       Private placement process has been simplified with substantial decline in the filing documentation with the Registrar of Companies and releasing a company from the obligation to maintain separate offer letter details.

·       It has been made mandatory for companies to make adequate disclosures in private placement application form (under the explanatory statement) to ensure that the investors will have abundant acquaintance with the company existing financial state of affairs.

·       Central government has been empowered to exempt certain classes of foreign companies from complying with specified provisions of the Companies Act, 2013.

·       Companies are eligible to grant loans to entities in which directors of such company has interest provided such decision to grant loans is approved through special resolution in general meeting and company strictly complies with the applicable requirements.

·       Issue of shares at discount to the creditors by the company is endorsed when its debt is converted into shares in carrying out of any statutory resolution plan or debt restructuring scheme.

·       Any member (related party) of a company can cast its vote for approving any related party contract or arrangement provided that 90% or more members of the company are relatives of promoters or related parties.

·       Voting rights are included in the definition of “Significant Influence” to broaden the gauge in defining the “Associate Company” to the advantage of investors subscribed through preference shares route.

·       Certain remuneration to independent director or other director is excluded from the ambit of pecuniary relationship.

·       Joint Venture is defined as joint arrangement made by the parties that have joint control of the arrangement and rights to the net assets of the arrangement.

·      Removal of the obligation to get approval of the Central Government for Managerial remuneration above prescribed limits and is to be replaced by approval through special resolution by shareholders in general meeting.

·      Provisions with respect to insider trading/forward dealing are deleted.

·      It is mandated on companies to maintain a register of significant beneficial owners by a company and filing of all related returns to the Registrar.

·       Every company (not obligated to appoint independent director) is commanded to appoint two or more directors in its Corporate Social Responsibility committee.

Government needs to be aware of few amendments which may have negative impact on the capital markets as there is great risk of these amendments promoting the conduct of prohibited trade related activities and can prove to be counterproductive and disastrous.

In order to deal effectively with the potential dangers associated with such amendments, the government and SEBI are obligated to swiftly take corrective action and issue necessary amendments in the relevant regulations, if need be.

Despite few hiccups in the amendments, it is evident from the most of the amendments are tailor-made to ensure the ease of doing business sentiment in India. 

Research and inputs by Paruchuri Baswanth Mohan.