Comparison of Companies Act 2013 with Amendment Bill 2016.

PROVISIONS UNDER COMPANIES (Amendment) Bill, 2016
PROVISIONS UNDER COMPANIES ACT,2013
Remarks

Section 2(6) Associate Company
Explanation.—For the purpose of this clause—
(a) the expression “significant influence” means control of at least twenty per cent. of total voting power, or control of or participation in business decisions under an agreement;
(b) the expression “joint venture” means a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement;

Section 2(6)
In relation to another company, means a company in which the other company has a significant influence, but is not a subsidiary company of the company having such influence, and includes a joint venture company.
Explanation-For the purpose of this clause “significant influence” means control of at least twenty percent of total share capital or business decisions under an agreement;
It may be noted that the term “total share capital” has been defined in Rule 2(1) (r) of the Companies (Specification of Definitions Details) Rules, 2014, to mean the aggregate of (a) paid-up equity share capital; and (b) convertible preference share capital.

Amendment is as per recommendation of the CLC.

To ascertain whether a company is associate or not, determining factor would be total voting power instead of total share capital.

It may be noted that LODR also refers to definition of ‘associate’ as under Companies Act or accounting standards.

The term “joint venture” is now defined and is in line with Indian Accounting Standard 28 on Investments in Associates and Joint Ventures.

However, the terms ‘associate’ and ‘significant influence’ under the Companies Act and Indian Accounting Standards continue to differ.

Section 2(28)
“Cost Accountant” means a cost accountant as defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountant Act, 1959 and who holds a valid certificate of practice under sub-section (1) of section 6 of that Act

Section 2(28)
“cost accountant” means a cost accountant as defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountant Act ,1959 (23 of1959)

Term Cost Accountant wherever appears in Companies Act has been assigned meaning of Practising Cost Accountant.

Section 2(30) Debenture
ADDITION: “Provided that-
(a) The instruments referred to in Chapter III-D of the Reserve Bank of India Act, 1934;and
(b) Such other instrument as may be prescribed by the Central Government in consultation with Reserve Bank of India, issued by a company,
Shall not be treated as Debenture.”

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Amendment is as per recommendation of the CLC.
Certain instruments like commercial papers and other money market instruments, which are often used as an important short-term fund raising source by eligible companies; and are well regulated under RBI regulations.
MCA had recognizing this, had clarified that Commercial Papers and similar instruments if issued as per guidelines of RBI would not attract debentures related provision under Rule 18 of the Companies (Share Capital and Debenture) Rules, 2014.

Now, the Bill provides to exclude all instruments specified in Chapter III-D of RBI Act 1934 from the definition of ‘Debenture’. Thus, money market instruments (which includes call or notice money, term money, repo, reverse repo, certificate of deposit, commercial usance bill, commercial paper and such other debt instrument of original or initial maturity up to one year as may be specified by RBI from time to time), derivatives, repo, reverse repo.

The Bill also authorizes MCA to exclude other instruments also from the purview of Debenture in consultation with RBI.
It is not clear whether Bonds of Central Government, State Government and local bodies would be outside the purview of ‘debenture’.

Section 2(41) Financial Year
In the first proviso, after the word “subsidiary” the words “or associate company” shall be inserted.

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Amendment is as per recommendation of the CLC.

An associate company of a foreign company may follow different financial year (other than 01 April to 31 March) if it is required to follow different financial year for consolidation of its accounts outside India. And for this purpose it need to approach National Company Law Tribunal.

Section 2(46) Holding Company
the following Explanation shall be inserted, namely:—
‘Explanation.—For the purposes of this clause, the expression “company” includes any body corporate;’

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Amendment is as per recommendation of the CLC.

While foreign company is treated as subsidiary company for the purpose of Companies Act 2013 but similar provision for holding company was not present. This anomaly is now being rectified.

With the new explanation, a company incorporated outside India could be considered to be the holding company of another company, for the purpose of the Companies Act 2013.

Section 2(49)
omitted

Section 2(49)
“interested director” means a director who is in any way, whether by himself or through any of his relatives or firm, body corporate or other association of individuals in which he is or any of the relatives is a partner, director or member, interested in a contract or arrangement, or proposed contact or arrangement, entered into or to be entered into by or on behalf of a company.

Amendment is as per recommendation of the CLC.
Definition of the term ‘interested director’ is being omitted.
The only reference to the term ‘interested director’ in the Act was in Section 174 (3) (relating to quorum at Board meeting), and an Explanation to that provision clarified that the meaning of the term ‘interested director’ would be the same as for the purposes of Section 184 (2).
And Section 184 (2) provides nature of interests to be disclosed by directors, but does not use the phrase ‘interested director’.

However, despite omission of the definition, no change in effect from governance or legal perspective would be on Directors, as wordings of section 184 are similar to erstwhile definition of interested director u/s.2(49).

Section 2(51) (iv)
The word “and” shall be omitted AND
The following shall be substituted-
“(v) such officer, not more than one level below the directors who is in whole-time employment, designated as Key managerial personnel by the Board; and
(vi) such other officer as may be prescribed”

Section 2(51)
“key managerial personnel”, in relation to a company, means—
(i) the Chief Executive Officer or the managing director or the manager;
(ii) the company secretary;
(iii) the whole-time director;
(iv) the Chief Financial Officer; and
(v) such other officer as may be prescribed;

Amendment is as per recommendation of the CLC.

The J.J. Irani Committee observed that “stakeholders / Board look towards certain key managerial personnel for formulation and execution of policies.”
The definition of KMP is now being modified to give flexibility to the Board of Companies to designate its whole time officers, who are one level below the directors, as KMP.

Section 2(57) Net worth
For the words “and securities premium account”, the words “,securities premium account and debit or credit balance of profit and loss account,” shall be substituted

Section 2(57)
“net worth” means the aggregate value of the paid up share capital and free reserves created out of profits and securities premium account, after deducting the aggregate value of accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of assets, written back of depreciation and amalgamation;

Amendment is as per recommendation of the CLC.

An obvious error in the definition is being recified.

Section 2(71)
In sub-clause (a) after the word “company”, the word “and” shall be inserted.

Section 2(71)
“public company” means a company which—
(a) is not a private company;
(b) has a minimum paid-up share capital, as may be prescribed:
Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles ;

Conjunction ‘and’ is being inserted to ensure that it is not a private company AND has a minimum prescribed capital.

Section 2(76)
For sub-clause (viii) the shall be substituted, namely-
“(viii) any body corporate which is-
(A)   a holing, subsidiary or an associate company of such company;
(B)   a subsidiary of a holding company to which it is also a subsidiary; or
(C)   an investing company or the venture of a company,”

Section 2(76)
“related party”, with reference to a company, means—
(i) a director or his relative;
(ii) a key managerial personnel or his relative;
(iii) a firm, in which a director, manager or his relative is a partner;
(iv) a private company in which a director or manager or his relative is a member or director;
(v) a public company in which a director or manager is a director and holds along with his relatives, more than two per cent. of its paid-up share capital;
(vi)any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;
(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act:
Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice,
directions or instructions given in a professional capacity;
(viii) any company which is—
(A) a holding, subsidiary or an associate company of such company; or
(B) a subsidiary of a holding company to which it is also a subsidiary;
(ix) such other person as may be prescribed;

Amendment is as per recommendation of the CLC.

Scope of related party is expanded.

Substitution of the words ‘body corporate’ for the word ‘company’ in the definition of ‘related party’ has expanded the scope of related party, which now includes foreign company which is holding, subsidiary or an associate of Indian Company.
Further sister subsidiary in India or abroad would also be a related party.

It seems term ‘investing company’ would mean investor company which could be Indian or foreign and would be treated as related party.

Section 2(85) Small Company
In sub-clause (i), for the words “five crore rupees” the word “ten crore rupees” shall be substituted

In sub-clause (ii)-
(A) For the words “as per its last profit and loss account”, the words “as per profit and loss account for the immediately presiding financial year” shall be substituted;
(B) For the words “twenty crore rupees” the words “one hundred crore rupees” shall be substituted;

Section 2(85)
‘‘small company’’ means a company, other than a public company,—
(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; or
(ii) turnover of which as per its last profit and loss account does not
exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees:
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act;

Amendment is as per recommendation of the CLC.

Criteria for a private company to be treated as small company includes paid-up share capital or turnover.
Limits for both are being expanded.

Drafting error corrected to ascertain turnover from its profit and loss account of the preceding financial year.

Section 2(87) Subsidiary Company
(a)   In sub-clause (ii) for the words “total share capital”, the words “total voting power” shall be substituted;
(b)   The proviso shall be omitted
(c)    In the explanation, item (d) shall be omitted;

Section 2(87)
“subsidiary company” or “subsidiary”, in relation to any other company
(that is to say the holding company), means a company in which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total share capital
either at its own or together with one or more of its subsidiary companies:
Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.
Explanation.—For the purposes of this clause,—
(a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;
(b) the composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors;
(c) the expression “company” includes any body corporate;
(d) “layer” in relation to a holding company means its subsidiary or
subsidiaries;

Amendment is as per recommendation of the CLC.

In defining ‘subsidiary company’ anomaly arose due to inclusion of preference share capital in total share capital. The same is now being rectified by making reference to total voting power. Thus, where holding company controls more than one-half of total voting power, it becomes subsidiary.

Companies are free to have any number of subsidiaries and restrictions on layers of subsidiaries as provided in the proviso is being omitted. Also consequential explanation (d) is being omitted.
It is pertinent to note that the said proviso was not brought to force by MCA.
Corresponding amendment is being made in Section 186(1) also so that companies can make investments in layers of subsidiaries.

The J. J. Irani Report also noted that proper disclosures accompanied by mandatory consolidation of financial statements should address the concern attendant to the lack of transparency in holding-subsidiary structure.
A register of beneficial owners of a company, which would address the need to know the ultimate beneficial owners in complex corporate structures.

Section 2(91) Turnover
“turnover” means the gross amount of revenue recognized in the profit and loss account from the sale, supply, or distribution of goods or on account of services rendered, or both, by a company during a financial year,

Section 2(91)
“turnover” means the aggregate value of the realisation of amount made from the sale, supply or distribution of goods or on account of services rendered, or
both, by the company during a financial year;

Amendment is as per recommendation of the CLC.
The new definition of turnover is verbatim as recommended by CLC.
Earlier definition created practical difficulty of taxes being excluded to arrive at ‘turnover’.

New Section 3A Members serverally liable in certain cases
The following shall be inserted after section 3

“3A.If at any time the number of members of a company is reduced, in the case of a public company, below seven, in the case of a private company, below two, and the company carries on business for more than six months while the number of members is so reduced, every person who is a member of the company during the time that it so carries on business after those six months and is cognisant of the fact that it is carrying on business with less than seven members or two members, as the case may be, shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefor.”.

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Amendment is as per recommendation of the CLC.

New provision is same as section 45 of the Companies Act 1956, which was not part of new Companies Act 2013.

It makes members knowing that number of members of a company is below minimum required and the company carries on business for more than six months, then such members are personally liable for the debt contracted during such period.