Major Amendments In the Companies Act, 2015

This article talks about the various major amendments that have been brought to the companies act, 2013 through the Companies Act 2015. World Bank released a ranking of countries with reference to the ease of doing business on ten to twelve parameters such as the conducive  environment for commencing a business, enforcing contracts, resolving disputes etc. India was ranked 142 among the 189 countries of the world despite the fact that it is also one of the largest contributors to the world economy. Taking this into serious consideration the Ministry of Corporate Affairs in order to improve the rankings and remove the loopholes prevailing in the society introduced the Companies Amendment Act 2015 which received the assent of the President of India on 25th May, 2015. Some of the major amendments that were brought to the Companies Act 2013 through the Companies Amendment Act 2015 are as follows:-

• Amendment related to the Common Seal

Prior to the amendment i.e. in the Companies Act 2013, Section 9 of the act stated that “From the date of incorporation mentioned in the certificate of incorporation, such subscribers to the memorandum and all other persons, as may, from time to time, become members of the company, shall be a body corporate by the name contained in the memorandum, capable of exercising all the functions of an incorporated company under this Act and having perpetual succession and a common seal with power to acquire, hold and dispose of property, both movable and immovable, tangible and intangible, to contract and to sue and be sued, by the said name. Also According to Standard-8 (SS-8) issued by the Council of Institute of Company Secretaries of India common seal means “the metallic seal of a company which can be affixed only with the approval of the Board of directors of the company. It is the signature of the company to any document to which it is affixed and binds the company with all obligations undertaken in the document”. The new amendment with this regard omitted the phrase “and a common seal” from the section 9 of the Companies Act 2015 and thus made the requirement of the common seal optional. The mandatory nature of the common seal was now reduced to only the optional state of affairs. Initially in the earlier act what happened was that the common seal used to make the document legally binding but later with this amendment the mandate of the common seal has been done away with and has been kept as optional for the convenience of the company. Now, this helps the companies to increase their ease of doing business and hence, the Ministry of Corporate Affairs through this amendment put a step forward for the decline of the limitations on the ease of doing business. The new amendment act omitted the phrase “and a common seal” from section 9 of the companies act and thus made the very requirement of a common seal as optional. Initially, a common seal over the documents of a company made it legally binding, and it was a sine qua non-requisite to make a company bound by any agreement. With the introduction of the new amendment, the mandate of having a common seal of the company has been done away with and made optional for the convenience of the company. The Ministry of Corporate Affairs in this way made a step forward for the decline in limitations of ease of doing business and hence the signature of the concerned authorities now would suffice to give legal effect to the agreement documents of the company. This amendment was also made with regard to the technological developments that are taking place where storing an important document of the company online is not a big deal, the presence of such a mandate would not make sense.

• The omission of “Minimum Paid Up Capital” under Section 2(71)(b) and 2(68):-

Another important change that was brought to the action with respect to the relaxation brought for the ease of doing business was by bringing a change in the definitions of the public and the private companies respectively. The omission of the requirement of minimum paid up capital of Rs. 500000 or higher and Rs. 100000 or higher for the establishment of the public and private company respectively is a big step towards changing the environment for the new start-ups. Under section 2 (71) (b) a public company means a company which has a minimum paid-up capital of five lakh rupees or higher and under 2(68) similar provision for private companies made it mandatory to have a minimum paid-up capital of one lakh rupees for private companies. With the new amendment act on the table, the term “minimum paid-up capital” has been done with through the Ministry of Corporate Affairs reserves the right to specify about the same through the rule-making authorities. There were a few impacts that it brought such as the formation of the special purpose entity with lower paid up capital. This is also known as the Bankruptcy remote entity, and it is a kind of subsidiary with an asset liability structure and legal status that makes its obligation secure even if the company goes bankrupt. This way a company can use its financial assets in a large project without putting an entire entity at risk. Therefore this kind of an omission leads to motivation in the companies to grow their business and hence ease of doing business. Another important impact that this omission makes is the encouragement of the formation of the Bogus Shell companies. These companies are formed for business transactions without having any self-assets and liabilities or operations. These companies act as a channel for the underground economies like tax evasion etc. Thus although the positive side of the impact is very well appreciated such a change brings about a heavy responsibility on the government to curb such activities to justify the tax-payers money and the amendment itself.

• Introduction of the threshold limits for Fraud reporting-

Clause 143(12) of the companies act which conferred powers and duties to auditors has been substituted by a new provision. According to the old provision “if an auditor of a company, in the course of the performance of his duties as auditor, has reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees of the company, he shall immediately report the matter to the Central Government within such time and in such manner as may be prescribed”. According to the new provision a threshold limit would be decided by the central government. In accordance with the provision “if an auditor of a company in the course of the performance of his duties as auditor, has reason to believe that an offence of fraud involving such amount or amounts as may be prescribed, is being or has been committed in the company by its officers or employees, the auditor shall report the matter to the Central Government within such time and in such manner as may be prescribed.” But in the case of an offense of fraud involving amount less than the threshold limit the auditor has to inform the same to the auditing committee made under section 177 of the actor to the board. This amendment may be considered to be the most important and major change in the amendment act 2015.

• Insertion of Section 76A in the Companies Act 2015-

This section has been inserted in order to provide punishment in case of contravention of section 76 and 73 which deals with the provision of acceptance of deposit from the public. This section has been inserted for punishment in case of contravention of the provision of section 73 and 76 of the companies act which deals with acceptance of deposit from public. Any company that accepts or invites deposits from the public in contravention to the provision of section 73 or 76 or fails to repay the deposits or any interest thereon within the prescribed time limit, the company in such a condition shall other than the repayment of deposits and any sort of interest thereon shall be punishable by a fine of one crore rupees which may extend up to ten crores and every officer who is in default as provided in this section shall be punishable with imprisonment which may extend to seven years or fine which is not less than twenty five lakh rupees but may extend up to two crores rupees or with both. Thus this provision ensures that if someone tries to commit fraudulent activities during accepting the public deposits the punishment shall be granted and therefore serves as a necessary limitation to ease of doing business.   CONCLUSION Now that we have seen so many amendments in the Companies Act 2015, these changes are not exhaustive in nature and thus there are other changes as well. This project mentions only those changes which the author feels are the most important ones. The amendment was brought with a view to bringing ease of business owing to the low ranking in the Business Environment study according to the World Bank. Therefore, amendments which focus on the ease of business should not foster malpractices in the business which may cause harm to the common public and therefore, this needs to be taken into consideration. Introduction to Section 76(A) is also a big step towards curbing the malpractices involved but at the same time, it is not something that fosters ease of doing business. Therefore we can say that the amendments are brought not only with a view to easing the business but also keeping in mind the holistic perspective of business.