Highlights of the Companies (Amendment) Act, 2015

Even though the Act enhanced corporate governance and compliance requirements in the interests of the investors, it imposed onerous obligations on companies thereby increasing the costs of doing business. This was seen as a hindrance to the government’s move to attract higher levels of foreign investment, especially given the express thrust of the ‘Make in India’ policy. Hence, the Amendment Act has been introduced in order to facilitate ease of doing business.

Highlights
1. Removal of minimum paid-up capital requirement:
In terms of section 2(68) and 2 (71) of the Act, private and public companies were required to have a minimum paid-up share capital of INR 100,000 and INR 500,000 respectively. The Amendment Act provides for removal of such requirement of minimum paid-up share capital for both public and private companies.

2. Removal of requirements before commencement of business:
The Amendment Act does away with the requirement for filing a declaration by a director of a company regarding minimum paid-up share capital and verification of registered office of a company before commencing any business or exercising any borrowing powers.

3. Related party transactions:
The Amendment Act replaces the requirement of passing a special resolution with that of an ordinary resolution in the case of related party transactions. The amendment shall result in increasing the responsibility and accountability of the board in relation to such transactions. The Amendment Act further does away with the requirement of passing of ordinary resolution for transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and has been placed before the shareholders for approval

4. Removal of requirement of common seal:
The Act provided that a body corporate would be required to have a common seal. The Amendment Act now makes such requirement of a common seal optional for the companies, throughout the Act.

5. Audit Committee to approve related party transactions:
The Amendment Act empowers the audit committee to give omnibus approvals for related party transactions on an annual basis in order to remove any barrier for related party transactions.

6. Punishment for acceptance of deposits from public:
The Amendment Act introduces a new provision providing harsh penalties for companies as well as the officers of the companies that accept deposits in contravention of the manner or the conditions prescribed under section 73 or section 76 of the Act.

7. Prohibition of public inspection of board resolutions filed with the registrar of companies:
The Act required the companies to file, with the registrar of companies, inter alia, copy of resolutions passed in pursuance of section 179 (3) which included issues such as issuance of securities, borrowing monies etc. The Amendment Act now prohibits public inspection of such board resolutions as they contain financial strategy and other important information.

8. Prescription of threshold beyond which a fraud shall be reported to the central government:
The Act prescribed for reporting of all kinds of frauds by auditors to the central government. Now, provisions are introduced by the Amendment Act, wherein a fraud shall be reported by the auditors to the central government involving amounts beyond the prescribed threshold. Further, frauds below such prescribed threshold shall be reported to the audit committee or to the board and shall be disclosed in the board’s report.

Conclusion
Even though the Amendment Act does away with certain rigidities, there are still certain provisions which can be amended/ removed, as they do not serve the intended purpose of the Act. In this regard, the government intends to setup a broad-based committee to further review the areas under the Act where amendments can be brought in so as to meet corporate demands and to remove discrepancies.