Government Notifies Amendments to Companies Act

The government has notified amendments to the Companies Act, which makes it easier to do business and provides for stricter penalties for fraud cases.

  • The amendments, which were passed by Parliament earlier this month, have been made to the Companies Act, 2013, mainly to deal with board resolutions, utilisation of unclaimed dividends and setting up of a firm, among others, as well as to bring the law in tune with global standards.

New Norms:

  • The Act has removed threshold limit for minimum capital required for formation of a private or public sector firm.
  • For setting-up a private company, new Act has done away with the norms of Rs 1 lakh minimum capital requirement and Rs 5 lakh in case of a public sector unit. Besides, the concept of company seal has also been done away with.
  • With regard to acceptance of deposits by the companies, in contravention with regulations, the new law says that if a firm fails to repay the deposit or any interest due thereon within the time specified, it will be “punishable with fine which shall not be less than Rs 1 crore but which may extend to Rs 10 crore” in addition to payment of deposits.
  • In case of dividend, the amended Act said that no company will declare dividend unless “carried over previous losses and depreciation not provided in previous year or years are set off against profit of the company for the current year”.
  • The unclaimed dividend will not be transferred to the Investor Education and Protection Fund.
  • With regard to trying fraud cases, the new norms said that all cases under the Companies Act cannot be tried by a special court and that only serious offences will go to such courts, while the others would be tried by normal magisterial court.
  • The Act has set a threshold limit for auditors to report frauds to central government with rider.
  • The Audit Committee can make omnibus approval for related party transactions proposed to be entered into by the company in case any loan made by a holding company to its wholly-owned subsidiary or any guarantee given by a holding company in respect of any loan made to its wholly-owned subsidiary company among others.
  • Related party transactions can be passed through ordinary resolution instead of special resolution required currently. The amendments were made as there have been complaints from the corporates about the problems ever since the companies law was enacted in 2013.

Sources: The Hindu.

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