2/7/2016

ReportoftheCompaniesLawCommittee

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GovernmentofIndia
MinistryofCorporateAffairs
01February201618:40IST

ReportoftheCompaniesLawCommittee
TheCompaniesLawCommitteewasconstitutedinJune2015forexaminingandmakingrecommendationsonthe
issuesarisingoutofimplementationoftheCompaniesAct,2013.TheCommitteesubmitteditsreporttotheGovernment
today.

2. The Committee was chaired by Secretary, Ministry of Corporate Affairs and consisted of Shri Bharat Vasani,
nomineeoftheConfederationofIndianIndustries(CII),Smt.RevaKhetrapal,Judge(Retd.),DelhiHighCourt,ShriY.M.
Deosthalee, nominee of the Federation of Indian Chambers of Commerce and Industry (FICCI), Dr. A.S. Durga Prasad,
President of the Institute of Cost Accountants of India, Shri Manoj Fadnis, President of the Institute of Chartered
AccountantsofIndia,ShriAtulMehta,PresidentoftheInstituteofCompanySecretariesofIndia,ShriN.S.Vishwanathan,
ExecutiveDirectorfromRBIandShriP.K.Nagpal,ExecutiveDirectorfromSEBIascooptedmembersandJointSecretary
(Policy),MinistryofCorporateAffairsasMemberConvener.

3.TheCommitteehadextensiveconsultationswithstakeholdersbeforemakingitsrecommendations.Morethan2000
suggestions were received during the consultation process. The stakeholders consulted included all Industry Chambers,
Professional Institutes, law firms, financial sector and other regulators. Six broad based groups were set up to review the
suggestions received during the public consultation, each group being convened by a member of the Committee, and
consisting of subjectmatter experts including industry representatives, lawyers, company secretaries, cost accountants,
investorsrepresentativesandcharteredaccountants.

4.TheCommitteehasendeavouredtoreconcilethecompetinginterestsofthevariousstakeholderskeepinginmindthe
difficultiesandchallengesexpressedbythem,andalsobeingmindfuloftheGovernmentsobjectiveoffurtheringeaseof
doing business, encouraging startups and the need for harmonising various laws. The Committee also kept in mind the
need to bring in greater clarity in the Act and Rules and harmonizing the various provisions thereof while making its
recommendations.

5.Afterexhaustivedeliberations,theCommitteehasproposedchangesin78sectionsoftheCompaniesAct,2013,
which along with consequential changes, would result in about 100 amendments to the Act. Approximately fifty
amendments to the Rules have also been proposed. The recommendations cover significant areas of the Act, including
definitions,raisingofcapital,accountsandaudit,corporategovernance,managerialremuneration,companiesincorporated
outsideIndiaandoffences/penalties.

6.Someofthekeychangesproposedarelistedbelow:

a)Managerialremunerationtobeapprovedbyshareholders.[s.197,198]
b)Modifydefinitionofassociatecompanyandsubsidiarycompanytoensurethatequitysharecapitalisthebasisfor
decidingholdingsubsidiaryrelationshipratherthanbothequityandpreferencesharecapital.[s.2]
c) Privateplacementprocesstobesubstantiallysimplified,doingawaywithseparateofferletter,makingvaluation
detailspublic,details/recordofapplicantstobekeptbycompanyandtobefiledaspartofreturnofallotmentonly,
andreducingnumberoffilingstoRegistrar.[s.42]
d)Incorporationprocesstobemadeeasierandallowgreaterflexibilitytocompanies:Anunrestrictedobjectsclausetobe
allowed in the Memorandum of Association dispensing with detailed listing of objects, selfdeclarations to replace
affidavitsfromsubscriberstomemorandumandfirstdirectorschangesalsoinvariousForms.[s.4,7]
e)ProvisionsrelatingtoforwarddealingandinsidertradingtobeomittedfromCompaniesAct.Listedcompaniesare
coveredunderSEBIAct/Regulations.[s.194,195]
f)Companiesmaygiveloanstoentitiesinwhichdirectorsareinterestedafterpassingspecialresolutionandadheringto
disclosurerequirement.[s.185]
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g)Restrictiononlayersofsubsidiariesandinvestmentcompaniestoberemoved.[s.2(87),186(1)]
h)Changeinthedefinitionoftermrelativefordeterminingdisqualificationofauditor[s.141]
i)Rationalizepenalprovisionswithreducedliabilityforproceduralandtechnicaldefaults.Penalprovisionsforsmall
companiestobereduced.[varioussections]
j)Nofilingfeesiffinancialstatementsandannualreturnsfiledwithinprescribedtime.[s.403]
k)Auditortoreportoninternalfinancialcontrolswithregardtofinancialstatements.[s.143]
l)FraudslessthanRs.10Lakhtobecompoundableoffences.Otherfraudstobecontinuedtobenoncompoundable.[s.
447]
m) Reducingrequirementformaintainingdepositrepaymentreserveaccountfrom15%eachforlasttwoyearsto20%
duringthematuringyear.
n) Foreign companies having insignificant/incidental transactions through electronic mode to be exempted from
registeringandcomplianceregimeunderCompaniesAct,2013.[s.379]
o) Disclosures in the Directors Report to be simplified and duplications with SEBIs disclosure requirements and
financialstatementstoberemovedwhileretainingtheinformativecontentforshareholders.[s.134,Rules]
p)IncreasedthresholdforunlistedcompaniesforcomplianceincontextofrequirementforIndependentDirectors(IDs),
AuditCommitteeandNominationandRemunerationCommittee.[s.149,177,178]
q) TestofmaterialitytobeintroducedforpecuniaryinterestfortestingindependenceofIDthresholdsforrelatives
pecuniaryinteresttoberevisedtomakeitmorepractical.[s.149]
r)RequirementforamanagerialpersontoberesidentinIndiafortwelvemonthspriortoappointmenttobedoneaway
with.[ScheduleV]
s)DisclosuresintheprospectusrequiredundertheCompaniesActandSEBIRegulationstobealigned,withaviewto
makethesesimpler,byallowingprescriptionstobeasperSEBIRegulations.[s.26]
t)ESOPstobeallowedtopromotersworkingasemployees/directors[s.62,Rules]
u)Limitonsweatequitytoberaisedfrom25%ofpaidupcapitalto50%forstartups.[s.54]
v)RecognitionoftheconceptofbeneficialownerofacompanyproposedintheAct.Registerofbeneficialownerstobe
maintainedbyacompany,andfiledwiththeRegistrar.[newsection]
w)Provisionswithregardtoconsolidationofaccountstobereviewedandthosewithrespecttoattachmentofstandalone
accountsofforeignsubsidiariestoberelaxedincertaincases.[s.129,136]
x)Reopeningofaccountstobelimitedto8years.[s.130]
y)Mandatoryrequirementoftakingupsomeitemsonlythroughpostalballottoberelaxedincaseofacompanythatis
requiredtoprovideelectronicvotingatitsGeneralMeetings.[s.110]
z)Requirementforannualratificationofappointment/continuanceofauditortoberemoved.[s.139]

7.ThereportisavailableonthewebsiteoftheMinistryofCorporateAffairs,www.mca.gov.in,andpubliccomments
on the report are invited online till 15 February 2016 on the facility made available specifically for the purpose at the
portal.
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