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MCA lays draft notification u/s 462 for Private Companies in Parliament
CompaniesAct.in
Jul 14, 2014

MCA has laid down the copy of the draft notification under section 462 of the Companies Act 2013 (“the Act”) providing necessary exemptions to private company from the provisions of the Act.

The details of exemptions provided in comparison to there status under the draft notification issued earlier for public comments is outlined below. The matter in bold signifies new addition to the notification , which was not there in the draft notification issued . Apart from this, the details of exemptions covered under the draft notification and missing from the final notification is also outlined. The copy of the draft notification was obtained from Rajya Sabha office.

Serial number Chapter/ Section number/ Sub-section(s) in the Companies Act, 2013 Exceptions / Modifications / Adaptations Status under the draft notification issued for inviting suggestions
1. Chapter I, sub-clause (viii) of clause (76) of section 2.

Text of section is reproduced below :

Section 2- Definitions.

(76) “related party”, with reference to a company, means—

(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:

Shall not apply with respect to section 188. Not provided
2. Chapter IV, section 43 and section 47. Shall not apply where memorandum or articles of association of the private company so provides. Shall not apply
3.

Chapter IV, Section 62(1)(a)(i) and (2) .

Text of section is reproduced below :

Section 62- Further issue of share capital

  1. Where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered—

(a) to persons who, at the date of the offer, are holders of equity shares of the company in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares by sending a letter of offer subject to the following conditions, namely:—

(i) the offer shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined;

(2) The notice referred to in sub-clause (i) of clause (a) of sub-section (1) shall be despatched through registered post or speed post or through electronic mode to all the existing shareholders at least three days before the opening of the issue.

Shall apply with following modifications:-

In clause (a), in sub-clause (i), the following proviso shall be inserted, namely:-

Provided that notwithstanding anything contained in this sub-clause and sub-section (2) of this section, in case ninety per cent, of the members of a private company have given their consents in writing or in electronic mode, the periods lesser than those specified in the said sub-¬clause or sub-section shall apply.
Section 62(1)(a) and (2) shall apply with the following modification:- Words ‘not being less than fifteen days and not exceeding thirty days’ shall be substituted with ‘not being less than seven days and not exceeding fifteen days’
4.

Chapter IV, Section 62(1)(b)

Text of section is reproduced below :

Section 62- Further issue of share capital

  1. Where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered

(b) to employees under a scheme of employees’ stock option, subject to special resolution passed by company and subject to such conditions as may be prescribed;

In clause (b), for the words “special resolution”, the words “ordinary resolution” shall be substituted. No change
5.

Chapter IV,

section 67. Restrictions on purchase by company or giving of loans by it for purchase of its shares.

Shall not apply to private companies -

(a) in whose share capital another body corporate has invested any money;

(b) if the borrowings of such a company from banks or financial institutions or any body corporate is less than twice its paid up share capital or fifty crore rupees, whichever is lower; and

(c) such a company is not in default in repayment of such borrowings subsisting at the time of making transactions under this section.
Not provided
6.

Chapter V, clauses (a) to (e) of sub-section (2) of section 73.

Text of section is reproduced below :

Section 73- Prohibition on acceptance of deposits from public.

(2) A company may, subject to the passing of a resolution in general meeting and subject to such rules as may be prescribed in consultation with the Reserve Bank of India, accept deposits from its members on such terms and conditions, including the provision of security, if any, or for the repayment of such deposits with interest, as may be agreed upon between the company and its members, subject to the fulfillment of the following conditions, namely:—

(a) issuance of a circular to its members including therein a statement showing the financial position of the company, the credit rating obtained, the total number of depositors and the amount due towards deposits in respect of any previous deposits accepted by the company and such other particulars in such form and in such manner as may be prescribed;

(b) filing a copy of the circular along with such statement with the Registrar within thirty days before the date of issue of the circular;

(c) depositing such sum which shall not be less than fifteen per cent. of the amount of its deposits maturing during a financial year and the financial year next following, and kept in a scheduled bank in a separate bank account to be called as deposit repayment reserve account;

(d) providing such deposit insurance in such manner and to such extent as may be prescribed;

(e) certifying that the company has not committed any default in the repayment of deposits accepted either before or after the commencement of this Act or payment of interest on such deposits; and

(f) providing security, if any for the due repayment of the amount of deposit or the interest thereon including the creation of such charge on the property or assets of the company:

Provided that in case where a company does not secure the deposits or secures such deposits partially, then, the deposits shall be termed as ‘'unsecured deposits'’ and shall be so quoted in every circular, form, advertisement or in any document related to invitation or acceptance of deposits.

Shall not apply to a private company which accepts from its members monies not exceeding one hundred per cent, of aggregate of the paid up share capital and free reserves, and such company shall file the details of monies so accepted to the Registrar in such manner as may be specified.

Entire sub-section (2) was exempted.

Shall not apply to private companies having 50 or less number of members if they accept monies from their members not exceeding twenty five per cent of aggregate of the paid up capital and free reserves or one hundred per cent of the paid up
capital, whichever is more, and which inform the details of such monies to the Registrar in the prescribed manner.

 

 

7.

Chapter VII

Section 101- Notice of meeting.
Section 102- Statement to be annexed to notice.
Section 103- Quorum for meetings.
Section 104- Chairman of meetings.
Section 105- Proxies.
Section 106- Restriction on voting rights.
Section 107- Voting by show of hands.
Section 109- Demand for poll.

Shall apply unless otherwise specified in respective sections or the articles of the company provide otherwise. Same
8.

Chapter VII, clause (g) of sub-section (3) of section 117.

Text of section is reproduced below:

Section 117- Resolutions and agreements to be filed.

(3) The provisions of this section shall apply to—

    (g) resolutions passed in pursuance of sub-section (3) of section 179; and

Shall not apply. Not provided
9.

Chapter X, Section 141(3)(g)

Text of section is reproduced below:

Section 141- Eligibility, qualifications and disqualifications of auditors. -

(3) The following persons shall not be eligible for appointment as an auditor of a company, namely:—

(g) a person who is in full time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such appointment or reappointment holding appointment as auditor of more than twenty companies;

Shall apply with the modification that the words "other than one person companies, dormant companies, small companies, and private companies having paid-up share capital less than one hundred crore rupees” shall be inserted after the words “twenty companies”. Shall not apply in respect of appointment of auditors by private companies.
10.

Chapter XI

Section 160- Right of persons other than retiring directors to stand for directorship.

Shall not apply. Same
11.

Chapter XI

Section 162- Appointment of directors to be voted individually.

Shall not apply. Same
12.

Chapter XII

Section 180- Restrictions on powers of Board.

Shall not apply. Not provided
13

Chapter XII, Section 184(2)

Text of section is reproduced below:

Section 184- Disclosure of interest by director.

(2) Every director of a company who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered into—

    (a) with a body corporate in which such director or such director in association with any other director, holds more than two per cent. shareholding of that body corporate, or is a promoter, manager, Chief Executive Officer of that body corporate; or

    (b) with a firm or other entity in which, such director is a partner, owner ormember, as the case may be,

shall disclose the nature of his concern or interest at the meeting of the Board in which thecontract or arrangement is discussed and shall not participate in such meeting:

Provided that where any director who is not so concerned or interested at the time of entering into such contract or arrangement, he shall, if he becomes concerned or interested after the contract or arrangement is entered into, disclose his concern or interest forthwith when he becomes concerned or interested or at the first meeting of the Board held after he becomes so concerned or interested.

Shall apply with the exception that the interested director may participate in such meeting after disclosure of his interest. Not provided
14.

Chapter XII,

Section 185- Loan to directors, etc.

Shall not apply to a private company -

(a) in whose share capital another body corporate has invested any money;

(b) if the borrowings of such a company from banks or financial institutions or any body corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower; and

(c) such a company has no default in repayment of such borrowings subsisting at the time of making transactions under this section.

Shall not apply to Private companies -
(a) which have borrowings from banks or financial institutions or any bodies corporate not more than twice of their paid up share capital or Rs. 50 crore, whichever is lower; and
(b) in whose share capital no other body corporate has invested any money”.

15.

Chapter XII, second proviso to section 188 (1)

Text of section is reproduced below:

Section 188- Related party transactions.

(1) Except with the consent of the Board of Directors given by a resolution at a meeting of the Board and subject to such conditions as may be prescribed, no company shall enter into any contract or arrangement with a related party with respect to—

    (a) sale, purchase or supply of any goods or materials;

    (b) selling or otherwise disposing of, or buying, property of any kind;

    (c) leasing of property of any kind;

    (d) availing or rendering of any services;

    (e) appointment of any agent for purchase or sale of goods, materials, services or property;

    (f) such related party's appointment to any office or place of profit in the company, its subsidiary company or associate company; and

    (g) underwriting the subscription of any securities or derivatives thereof, of the company: Provided that no contract or arrangement, in the case of a company having a paid-up share capital of not less than such amount, or transactions not exceeding such sums, as may be prescribed, shall be entered into except with the prior approval of the company by a special resolution:

    Provided further that no member of the company shall vote on such special resolution, to approve any contract or arrangement which may be entered into by the company, if such member is a related party:

    Provided also that nothing in this sub-section shall apply to any transactions entered into by the company in its ordinary course of business other than transactions which are not on an arm’s length basis.

    Explanation.— In this sub-section,—

      (a) the expression “office or place of profit” means any office or place—

      (i) where such office or place is held by a director, if the director holding it receives from the company anything by way of remuneration over and above the remuneration to which he is entitled as director, by way of salary, fee, commission, perquisites, any rent-free accommodation, or otherwise;

      (ii) where such office or place is held by an individual other than a director or by any firm, private company or other body corporate, if the individual, firm, private company or body corporate holding it receives from the company anything by way of remuneration, salary, fee, commission, perquisites, any rent-free accommodation, or otherwise;

    (b) the expression “arm’s length transaction” means a transaction between two related parties that is conducted as if they were unrelated, so that there is no conflict of interest.

Shall not apply. Entrie section was not applicable
16.

Chapter XIII, section 196 (4) & (5)

Text of section is reproduced below:

Section 196- Appointment of managing director, whole-time director or manager.

(4) Subject to the provisions of section 197 and Schedule V, a managing director, whole-time director or manager shall be appointed and the terms and conditions of such appointment and remuneration payable be approved by the Board of Directors at a meeting which shall be subject to approval by a resolution at the next general meeting of the company and by the Central Government in case such appointment is at variance to the conditions specified in that Schedule:

Provided that a notice convening Board or general meeting for considering such appointment shall include the terms and conditions of such appointment, remuneration payable and such other matters including interest, of a director or directors in such appointments, if any:

Provided further that a return in the prescribed form shall be filed within sixty days of such appointment with the Registrar.

(5) Subject to the provisions of this Act, where an appointment of a managing director, whole-time director or manager is not approved by the company at a general meeting, any act done by him before such approval shall not be deemed to be invalid.

Shall not apply. Same


Details of exemption provided under the draft notification but is missing from the final notification.


Serial number Chapter/ Section number/ Sub-section(s) in the Companies Act, 2013 Exceptions / Modifications / Adaptations
1.

Chapter XIII – section 203(3)

Text of section is reproduced below:

Section 203(3) - Appointment of key managerial personnel.

(3) A whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time

Shall not apply


Please take note that as per section 462, the copy of proposed notification shall be laid in draft before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in disapproving the issue of the notification or both Houses agree in making any modification in the notification, the notification shall not be issued or, as the case may be, shall be issued only in such modified form as may be agreed upon by both the Houses.

Moreover, apart for draft notification for private company, similar notification for government company , section 8 company and nidhi company were also laid down in the Parliament. Copy of said notification cannot be obtained. 




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Recent Comment
   CA Prashant Agarwal
   Oct 26 2014 6:41PM
    Regarding Adverse comment against Section 141 (3) (g) Limit of audit for auditor up to 20 audits per Chartered Accountant:- Most of the Chartered Accountant want to waive this limit for the private company. However i think that this limit should not be removed for even for private companies. As it is not possible for a single Chartered Accountant to personally check the audit for more than 20 companies. Further if this limit is removed, the practice of making bogus companies and doing entry work can not be reduce from the economy and finally lead to big legal fraud e.g. in Pearls group, sharda group etc.

   Rahul Deans
   Dec 6 2014 4:48PM
    What is the status of this notification, now that it has passed 30 days in both houses of Parliament ? Specifically, will private companies of under 50 members that have accepted shareholder loans, prior to 2013, be exempt from the reporting and repayment obligations listed in Companies Act 2013 ? Thanks.

   ANKUSH JAIN
   Dec 12 2014 11:32PM
    Pls advice the status of said draft notification as of now, since the winter session is going on and the companies are facing practical problems specially in respect of auditors appointment limit of 20 Companies 141(3)(g).

   ANKUSH JAIN
   Dec 12 2014 11:41PM
    Pls advice the status of said draft notification as of now, since the winter session is going on and the companies are facing practical problems specially in respect of auditors appointment limit of 20 Companies 141(3)(g).

   Rahul Deans
   Mar 15 2015 10:32AM
    Any news of the status of this notification. Deadline for compliance (31st Mar) is fast approaching. The draft notification would have completed 30 days in Parliament some time back without rejection of amendment, so I guess it should be notified. Can anyone advise on the status ?
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