THE INDIAN CORPORATE LAW – ITS CHANGES AND IMPLICATIONS

A Notification was passed by the Ministry of Corporate affairs dated 7^th May, 2018 to re-align the Rules with the amendment brought in the Companies Act and the highlights of the Notification and the impact that it shall have are mentioned for your kind consideration:

1. There was no re-submission criteria for the reservation of name done through web service – RUN. Now there is a 15 days’ time given to rectify the defects, if any, in re-submission.
2. The additional fees are made more stringent with the perspective so that transparency of compliance can be known easily, when all filings are done in time. The reason why the cost on additional fees is increased so that every company imbibe the culture of compliance and follow the same to avoid a hurt to their pockets. This will ensure two parameters – timely compliance of all companies and transparency of data for analysis.
3. Filing of Balance Sheet and Annual Return is mandatory for all Companies under section 92 and 137 of the Companies Act, 2013, so if the filing is not done, then over and above the additional fees there is Rs. 100 per day to be paid for the default. But the rule of paying Rs. 100 per day becomes applicable on or after 1^st July, 2018.
4. The definition of Total Share Capital which was used for understanding the Definition of Associate and Subsidiary Company is omitted. So going ahead only voting power will be the criteria to understand if another Company is an Associate or a Subsidiary Company. This means the criteria of significant influence of holding twenty percent of total share capital no more defines an Associate Company. So Control of business decisions (voting power) is the only criteria for understanding an Associate Company under the Act. Also when it comes to understand the definition of a Subsidiary Company, we do not need to do the exercise of calculating the criteria of “fifty percent and more.” So only the control of the composition of the Board is a criteria for understanding the Subsidiary Company definition.
5. The amendment in the Companies (Share Capital and debentures) rules has removed the criteria of “one year” employment for an employee to qualify for a Sweat Equity Shares. So even if the employee has not completed a year, he is eligible for Sweat Equity Shares.
6. The amendment in the Companies (Audit and Auditors) Rules specify that there is no more need of ratifying the Appointment of Auditors. Further there was an explanation which meant that if the members do not ratify the appointment, then the Board shall appoint another Individual or a firm as an auditor. So this means that there is no need of ratifying the appointment each and every year by the members. Further the auditor had to report on the “internal financial controls system” which made the scope very deep for the auditors to sign off the liability on the Company in the Balance Sheet and it was also difficult too deep to understand the systems of all the Company’s of which they would audit. So the wording “internal financial controls system” has been substituted to “internal financial controls with reference to financial statements” so going ahead the auditor need to check controls which has impact directly on the financial statements. So the auditor can specify his/her scope in a much pre-defined way and have an in-depth understanding on the Company’s controlling protocol. The Board had to appoint a Cost Accountant who was in practice, if required to be appointed as per the Act. Now the amendment includes those Cost Accountant who are in employment to be appointed by the Board for the purpose of the compliance of this section.
7. The amendment in the Companies (Meeting of Board and its powers) Rules specify that if the required quorum Directors are present, the rest of the Board can attend through video conference. Every Listed Companies had to constitute Audit Committee and Nomination and Remuneration Committee, but with this amendment, they have added the word “Listed Public Company” so those Private Listed Companies who are listed on the Stock Exchange need not comply with the constitution of the Committees.
8. A special resolution needs to be passed by the Members under Section 186 when the Loans and Investment limit is going to exceed the prescribed limits under the Act. The Special Resolution shall also specify the total amount up to which the Board of Directors are authorized to give such loan or make such guarantee.
9. For a person to become an Independent Director, the pre-requisite was that he should possess appropriate skills but till now there was no technical qualifications or limitations. However, with the amendment in the Companies (Appointment and Qualification of Directors) Rules an independent Director to get qualified need to ensure that no relatives of his has been indebted to the Company, its holding, subsidiary, associate or the promoters or Directors nor has given any security for a third person debt which make the relative indebted towards the Company for an amount of Rs. 50 lakhs in the last 2 financial years.
10. The Director on his resignation had to file a form – DIR-11 with the Registrar of Companies. The filing of this form by the Director is now optional.