Companies Amendment Bill passed in Lok Sabha
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Companies Amendment Bill passed in Lok Sabha

Varun Marwah

The Lok Sabha today passed the Companies Amendment Bill, 2016, which was introduced in March last year.

The Bill amends more than 40 provisions of the Companies Act, 2013. The Bill was introduced based on the suggestions received from various stakeholders on the Companies Law Committee Report, which was published in February 2016 suggesting certain reforms to the Act.

PRS reports,

During the debate, members pointed out that a high number of sections of the Companies Act has not yet been notified which is leading to implementation issues and sought a reply from the government in this regard.  Some members raised their concern about independent directors being allowed up to 10% pecuniary interest in the company. Members felt there could possibly be a conflict of interest in this. It was also pointed out that clarity on several aspects of the Bill has been left to delegated legislation.”

The Bill simplifies the private placement process under Section 42, which currently prohibits an issue while an older one is pending, thus allowing companies to keep more than one issue of security open by simultaneously offering different kind of securities.

It further removes restrictions on layers of subsidiaries and investment companies which is currently limited to two.

Another interesting feature is that the Bill allows 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’. While this amendment will allow operational freedom to companies, on the flip side, it may be detrimental to the interests of investors and creditors since the object clause defined and indicated the scope and extent of the main business activity of a company.

Yet another important change is the replacing of Central Government approval under Section 197(1) of the Act with special resolution approval of shareholders in case the managerial remuneration crosses the prescribed thresholds.

Provisions relating to forward dealing and insider trading from the Act have also been omitted, since they only apply to listed entities which are already covered under regulations promulgated by SEBI.

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