The Companies (Amendment) Bill, 2016 introduced in Loksabha

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On 16th March 2016 Lok Sabha has passed the Companies (Amendment) Bill 2016 to further amend the Companies Act, 2013

The Act introduced significant changes related to disclosures to stakeholders, accountability of directors, auditors and key managerial personnel, investor protection and corporate governance. However, Government received number of representations from industry Chambers, Professional Institutes, legal experts and Ministries/Departments regarding difficulties faced in compliance of certain provisions. Amendments of the Act were carried out through the Companies (Amendment) Act, 2015 to address the immediate difficulties arising out of the initial experience of the working of the Act, and to facilitate “ease of doing business”.

The changes introduced are broadly aimed at addressing difficulties in implementation owing to stringency of compliance requirements; facilitating ease of doing business in order to promote growth with employment; harmonization with accounting standards, the regulations of Securities and Exchange Board of India Act, 1992 and the Reserve Bank of India Act, 1934; rectifying omissions and inconsistencies in the Act, and carrying out amendments in the provisions relating to qualifications and selection of members of the National Company Law Tribunal and the National Company Law Appellate Tribunal in accordance with the directions of the Supreme Court.

The Companies (Amendment) Bill, 2016, inter alia, proposes the following, namely:—

  • Simplification of the private placements: Simplification of the private placement process by doing away with separate offer letter, by making filing of details or records of applicants to be part of return of allotment only, and reducing number of filings to Registrar;

Earlier, there was significant difficulty was created by the Companies Act, with the unduly restrictive set of provisions pertaining to private placements. This over-ambitious scheme of regulation was a direct result of some incidents in the past. One such provision requires every private placement to be routed through a separate bank account opened for this purpose, and a bar on utilization of the money until allotment. More often than not, the amount received in private placement is large, and companies cannot afford to keep the amount idle.

Now, this private placements process has been simplified with the Companies (Amendment) Bill, 2016.

(b) Allow unrestricted object clause in the Memorandum of Association dispensing with detailed listing of objects, self-declarations to replace affidavits from subscribers to memorandum and first directors;

(c) Provisions relating to forward dealing and insider trading to be omitted from the Act;

(d) Requirement of approval of the Central Government for Managerial remuneration done away with:

Requirement of approval of the Central Government for Managerial remuneration above prescribed limits is replaced by approval through special resolution by shareholders;

Central Government control on managerial remuneration is eliminated. Section 197, which places limits on managerial remuneration, will now require special resolution only, if the limits placed under the law are exceeded.

(e) Loans to entities in which directors are interested:

A company may give loans to entities in which directors are interested after passing special resolution and adhering to disclosure requirement;

 (f) Provisions easing business by overseas entities

In support of the “Make in India” policy, it is quite appropriate that the Companies (Amendment) Bill, 2016 must have enabled foreign owned businesses to form companies in India. Accordingly, there are several provisions to facilitate foreign-owned businesses:

– EGM of a wholly-owned subsidiary of a foreign company may be called anywhere in India.

– The requirement for a resident director provided in section 149 is sought to be amended to provide that in case of newly incorporated companies the condition may be satisfied subsequent to incorporation, rather than before incorporation.

– Remove restrictions on layers of subsidiaries and investment companies

(g) Allow for exempting class of foreign companies from registering and compliance regime under the Act;

(h) Align prescription for companies to have Audit Committee and Nomination and Remuneration Committee with that of Independent Directors;

(i) Test of materiality to be introduced for pecuniary interest for testing independence of Independent Directors;

(j) Disclosures in the prospectus required under the Companies Act and the Securities and Exchange Board of India Act, 1992 and the regulations made thereunder to be aligned by omitting prescriptions in the Companies Act and allowing these prescriptions to be made by the Securities and Exchange Board of India in consultation with the Central Government;

(k) Provide for maintenance of register of significant beneficial owners by a company, and filing of returns in this regard to the Registrar;

(l) Removal of requirement for annual ratification of appointment or continuance of auditor;

(m) Amend provisions relating to Corporate Social Responsibility to bring greater clarity.

http://www.prsindia.org/uploads/media/Companies,%202016/Companies%20bill,%202016.pdf

CBEC for voluntary code for e-retailers to curb illicit trade

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Expressing concern over sale of fake products on e-commerce platform, CEBC today said it is considering putting in place a voluntary code of practice for e-retailers to curb illicit trade.
“New challenges are emerging for customs. E-commerce is one such major area of vulnerability. E-commerce in India provides an unparalleled platform for sellers of both genuine and counterfeit products. So, we are looking at possibility of introducing voluntary code of practice for e-retailers,” Central Board of Excise and Customs (CBEC) Chairman Najib Shah said at an event organised by Ficci here.
The easy concealment of identity encourages sale of counterfeit products on the e-commerce platform. At times, intermediaries are denied judicial protection in the absence of strong law, he said.
To address the challenges posed by e-commerce trade, Shah said CBEC will at a seminar next month discuss with stakeholders the possibility of introducing ‘voluntary code of practice’ for e-retailers to fight illicit trade.
Stating that any smuggling and counterfeit activities is a matter of great concern to the government, the CBEC chief said, “This game is done at the cost of the honest tax payers. Though it results in financial gain to the person infringing the law but it is a financial loss to the exchequer.”
Shah also emphasised on the intellectual property rights and called for structured interaction between the customs and stakeholders on this issue.
The latest report, ‘Emerging challenges to legitimate business in the border-less world’, prepared by tax and advisory firm Grant Thornton and industry body Ficci, also noted that online marketplaces have become a “preferred hub for illicit operations” owing to their wider reach and ease of access.
Prominent players including Alibaba, Amazon and SnapDeal, etc have been at the receiving end of imitation products offered by third parties not connected to the brand owner, the report said and suggested e-retailers to put in place an holistic anti-counterfeit policy.
That apart, the report also pitched for a separate e- commerce law in the country to check illicit trade.
“In the absence of a specific e-commerce legislature in India and other laws including the Information Technology Act, Indian Companies Act, Companies Act 2013, Intellectual property, laws in copyrights and trademark etc, there are certain grey areas. Thus, there is a need for a separate e- commerce law in the country,” the report said.
The e-commerce regulations have a long way to go in India and inching closely towards this journey is the recent proposal of the Consumer Affairs Ministry to bring e-commerce businesses under the purview of multiple government agencies, the report added.
The report was released here by Food and Consumer Affairs Minister Ram Vilas Paswan. (PTI)

Source: http://www.dailyexcelsior.com/cbec-for-voluntary-code-for-e-retailers-to-curb-illicit-trade/

India Inc takes to social causes (CSR)

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The move to make corporate social responsibility (CSR) spending mandatory has resulted in a spurt in social spending by India Inc. Spending on CSR activities by the top 100 companies increased to Rs 5,240 crore in 2014-15. The figure had stood at Rs 3,000 crore in 2012-13, when CSR spending was voluntary. Corporate governance firm Institutional Investor Advisory Services (IiAS) projects spending will increase to Rs 8,500 crore in the current financial year.

The Companies Act, 2013, requires companies above a certain financial threshold to spend at least two per cent of their average net profit of the preceding three years on CSR. Although CSR spending is compulsory, the Act has taken a ‘comply or explain’ approach, where a company has to provide reasons if the spending is less than the stipulated amount.

According to IiAS, CSR spends in FY15 were 26 per cent lower than the prescribed amount.

“Even as CSR is entering corporate consciousness, the next two to three years will remain a ‘learning period’ for industry,” the governance firm said in a note on Tuesday.

India Inc takes to social causes
IiAS has tracked the spending of BSE 100 companies, where 95 companies qualify under the profitability criteria for mandatory spending. The remaining five companies were not required to spend as they made average losses in the preceding three years.

State-owned firms set aside lesser amount compared to private sector firms. In FY13, public sector units (PSUs) spent 0.6 per cent of their average profits in the preceding three years. In comparison, non-PSUs spent one per cent of their average profit before tax of the preceding three years.

The trend continued in FY15. The CSR spends of the S&P BSE 100 companies aggregated 1.5 per cent of their three-year average profits. Non-PSUs spent 1.6 per cent and the 21 PSUs spent 1.3 per cent of their average profit in the preceding three years, IiAS noted.

Close to Rs 61 crore of the CSR spends by India Inc in FY15 was towards the Prime Minister’s National Relief Fund and seven companies contributed Rs 47 crore towards Swachh Bharat Kosh.

Source: http://www.business-standard.com/article/companies/india-inc-takes-to-social-causes-116010500776_1.html

MCA extends last date of filing of AOC-4 and MGT-7 E-Forms to 30.01.2016 to Tamil Nadu & Pondicherry

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MCA

The Circular from Ministry of Corporate Affairs extends one more month time, for Annual Filings of MGT -7 , Annual Return & AOC-4, Audited Financial Statements, without additional fees, to Tamil Nadu & Pondicherry, which were affected by floods.

The extract of the circular issued today, i.e., 30 December, 2015 is as below:

 

In continuation of the ministry’s circular 15/2015 dated 30.11.2015, keeping in view the requests received from various stakeholders stating that due to heavy rains and floods in the State of Tamil Nadu and Union Territory of Puducherry, the normal life/work was affected, it has been decided to relax the additional fees payable for the State of Tamil Nadu and UT of Puducherry on e-forms AOC-4, AOC (CFS) AOC-4 XBRL and e- Form MGT-7 up to 30.01.2016, wherever additional fee is applicable.

The last date of filing forms AOC-4 (XBRL, non-XBRL & CFS) and MGT-7 till 30th Dec 2015, without additional fees, has ended.

 

The Ministry of Corporate Affairs, Government of India has earlier vide its General Circular No.15/2015 dated 31/11/2015, extended the last date for filing the Annual Returns by 30 days and relaxed the additional fees for the forms filed till December 31, 2015. This has ended now.

 

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Integrated e-Form INC-29 for Company Incorporation and Ease of doing business

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INC 29Analysis of integrated e-Form INC-29 for Company Incorporation and Ease of doing business

With the introduction of the INC-29, the Ministry of Corporate Affairs (MCA) has begun to make good on its promise to improve India’s ranking on the World Bank’s Ease of Starting a Business Index to within the top 50 from the current 158.

The INC-29 form for company registration, combines the application for DIN allotment, name reservation, incorporation and even PAN & TAN, while making the process faster and simpler. As the entire incorporation process is in a single form, correct filing could mean approval in 48 hours. Compared to the old process, this helps in formation of company saving a lot of time, if properly implemented.

Purpose of the eForm – eForm INC-29 deals with the single application for reservation of name, incorporation of a new company and/or application for allotment of DIN. This eForm is accompanied by supporting documents including details of Directors & subscribers, MoA and AoA etc. Once the eForm is processed and found complete, company would be incorporated with Corporate Identification Number (CIN) and the Certificate of Incorporation would be issued. Also DINs gets issued to the proposed Directors, who do not have a valid DIN. Maximum three Directors are allowed for using this integrated form for allotment of DIN while incorporating a company.

Key Features of e-form INC-29 

  1. The integrated e-Form INC-29 is available with effect from 01.05.2015 for One Person Company, Private Company as well as Public Company.
  2. INC-29 does away with filing of multiple applications/forms saving time and payable fees.

It combines the processes relating to:-

  • Allotment of Director Identification Number (DIN) (up to three Directors),
  • Incorporation of a company, and
  • Appointment of first Directors of the company.

3. The new e-Form does away with the need for reserving a name for the company prior to applying for its incorporation.

  1. Declarations are in-built in the e-Form. Separate attachments containing such declarations are not required.
  1. The e-Form is enabled for future integration with e-Biz platform of DIPP for generating applications for PAN, ESIC and EPFO numbers on the platform and therefore provides a single interface for these applications also.

 

Forms no longer to be filed individually as per the new Form INC 29:

Continued

Government to set up new agency to probe corporate accounting frauds

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The government will soon set up a specialised agency to investigate large corporate accounting frauds. It is keen to establish a robust mechanism for faster inquiries into scams such as the one at Satyam Computer Services, which overstated earnings for several years under a previous management.

The proposed agency is likely to examine accounting frauds of certain classes of listed companies or those of Rs 500 crore and more.

To be formed under the Companies Act provisions, the agency will be mandated to investigate auditing and accounting frauds, either suo motu or on referral by the Centre.

 

“The threshold for accounting frauds to be probed by the upcoming agency is likely to be Rs 500 crore and above. It could also probe frauds of certain classes of listed companies,” said a senior government official. “Currently, there’s a lack of specialisation required to probe complex accounting frauds. The agency will ensure swifter probes.”
First suggested in the aftermath of the Satyam fraud, in which the auditor was also implicated, the upcoming agency will have an overarching role to regulate chartered accountants as well as set standards. It will have forensic auditors on its panel as well.

At present, the Institute of Chartered Accountants of India (ICAI) has authority to investigate and take disciplinary action in cases in which an auditor is involved. Any fraud below the threshold set by the government could still be investigated by the professional association.

ICAI has requested the corporate affairs ministry to not dilute its authority. If the government is keen on setting up an authority, ICAI has suggested that this look at high-value accounting scams above a threshold of Rs 1,000 crore.
“We have made a representation to the government that ICAI’s mandate should not be diluted and authority to initiate probe and take disciplinary action against auditors should rest with the institute,” ICAI president Manoj Fadnis told ET.

In recent years, ICAI has probed auditors of companies such as Reebok, Sesa Goa, Satyam and the Saradha Group among others. These inquiries followed references sent by the Serious Fraud Investigation Office (SFIO).
“The agency will strengthen the government’s mechanism and will ensure faster enquires into accounting frauds. For the auditing profession as well, it will be a very positive step as the agency will oversee quality of profession,” said Lalit Kumar, partner at J Sagar Associates. “But the government also has to ensure that ICAI’s mandate is not diluted.”

A recent study by Assocham and Grant Thornton India said there was a 45 per cent increase in Indian corporate fraud in the past two years. The proposed agency will have powers to penalise audit firms in case they are found guilty of misconduct. Penalty could also include the disbarment of such audit firms.

The agency will also be solely in charge of setting up and revising accounting standards and will have professionals from industry and several government bodies on its panel. “The agency will make recommendations on formulation and laying down of accounting and auditing standards for companies,” a senior government official told ET. “It will also monitor and enforce compliance and oversee quality of service of professionals in the industry.”

ET VIEW

No Duplication Please, Overhaul SFIO

Duplication makes no sense. India already has a specialised agency, the Serious Fraud Investigation Office (SFIO) to do cutting-edge investigation on financial frauds. The Institute of Chartered Accounts of India, on its part, can take disciplinary action against errant auditors. True, the SFIO’s functioning has been dismal so far, and what is needed is to transform the agency to take on new and complex probes. It should hire professionals laterally including cyber security experts, forensic auditors and tap the best talent from other investigating agencies. Ideally, it should draw together a team depending on the case. But to attract the best talent, it also needs to pay market-linked salaries.

Source: http://economictimes.indiatimes.com/articleshow/49927368.cms

Ease of doing business in India – Related Party Transactions

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Related party Transactions.

As part of its ongoing efforts to improve ease of doing business in the country, the Corporate Affairs Ministry has notified changes that further relax compliance requirements.

As another major step, the Companies Amendment Act, 2015 addresses “problems faced by large stakeholders who are related parties”.

In this new amendment, it replaces “special resolution with ordinary resolution for approval of related party transactions [Section 188] by non-related shareholders”.

Besides, related party transactions between holding companies and wholly owned subsidiaries have been exempted from the requirement of approval of non-related shareholders.

As per the amendment, the requirement of passing special resolution for approving certain related party transactions has been done away with. With this, certain related party transactions can now be approved through ‘ordinary resolution’ instead of ‘special resolution’.

Further, it has also been provided that for related party transactions between a holding company and its wholly owned subsidiary, no resolutions are required to be passed if the accounts of the holding and subsidiary company are consolidated and placed before the shareholders in a general meeting for approval.