25 JULY 2015
CS SACHIN BHAGWAT
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“Counsel have drawn our attention to the
extremely unsatisfactorily drafting of this Act
and we must confess that many of its
provisions do not suffer from lucidity. We
have been told that the new Act has raised
many problem for those who have anything
to do with the management or running of
companies, and the problems brought before
us are only a few of those which have arose in
practice.......
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......It seems to us unfortunate that a law
which is intended to help in the development
of companies in our country and also to put
down abuses which were noticed in the
working of companies ….. should not have
been couched in clear and more precise
language. That, however, is a matter for
Parliament. Our concern is to take the law as
we find it and do the best we can.” [Chagla J.
in Ramanben Thanawala v Jyoti Ltd. (1957) 27
CompCas 105 ]
Clause 2
“The Private companies, while complying with
such
exceptions,
modifications
and
adaptations…. shall ensure that the interests
of their shareholders are protected.”
Sub-clause (viii) of Clause (76) of Sec 2 shall not
apply with respect to section 188. Second Proviso
to Section 188(1) shall not apply
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Transactions of a Private company with Holding
company / subsidiary / associate company / cosubsidiary outside the purview of related party
transactions u/s 188
The Related Party permitted to vote on “Non-OCB
and Non-AL” transactions with the Private
Company exceeding threshold limits
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A Private company can without any consent
or approval, enter into prescribed
transactions with its Holding company /
subsidiary / associate company / cosubsidiary even if such transactions are not in
OCB or at AL
In respect of transactions of a private
companies with ‘other related parties’, not in
OCB and AL, the related party concerned is
entitled to cast vote at the general meeting
Sec 43 shall not apply where Memorandum or Articles
so provide
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Private company can define ‘Kinds of share capital’ to
suit its needs – “Status quo ante” restored
Need not comply with the Rules prescribed for issue
of shares with differential rights
Should a private company include specific clause in
its Memorandum OR Articles to specify that Sec 43
shall not apply? If so, what type of amendment can
be made to the Memorandum?
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Will it suffice if the Articles state that Sec 43
shall not apply? - NO
Company needs to specifically define the
Kinds of Share Capital in the Articles
Private company can have Share capital to
suits its needs – Example - 0% Preference
shares OR NO preference as to dividend but
with respect to repayment of capital possible
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Sec 43 shall not apply where Memorandum or
Articles so provide
Need to include specific clause in the
Memorandum OR Articles to specify that Sec
47 shall not apply?
If so, what type of amendment can be made
to the Memorandum?
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Will it suffice if the Articles state that Sec 47
shall not apply? - NO
Necessary to define voting rights of the
classes of shareholders
Possible to have EQUAL voting rights for all
classes of shares or disproportionate voting
rights for different classes
90% members’
consent required
Offer acceptance
period can be less
than 15 / 30 days
Offer can be
dispatched less
than 3 days before
opening of issue
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Consent to be obtained in “WRITING” or “IN
ELECTRONIC MODE”
Exemption from sub-sec (2) is limited to the
time specified; NOT the MODE of dispatch of
offer letter. Hand delivery / Courier not
permitted
Can the consent be obtained after dispatch of
the Offer letter?
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Issue of further shares to Employees pursuant
to ESOPs by ORDINARY instead of SPECIAL
resolution
Is an offer of shares to Employees pursuant
to ESOP a Private placement u/s 42? If yes,
Sec 42 requires Special Resolution.
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Purpose of exemption to specified private
companies not clear because Sub-sec (2)
does not apply to private companies.
Sub-sec (1) puts restrictions on buying own
shares unless share capital is reduced as per
the Act, which is anyway not required due to
the “non obstante clause” in Sec 68
Context vis-à-vis Sec 77 and 77A of CA 1956
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Exemption is specific to compliance of
Conditions in clauses (a) to (e) only
Private companies permitted to accept
deposits from members upto 100% of paid up
share capital and free reserves
Company to file the details of money
accepted with the Registrar in such manner
as may be prescribed
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Exemption does not extend to sub-sec (2), it
is limited to the following:
◦ Not to issue and file Circular (DPT-1) with ROC
◦ Not to deposit specified percentage of deposits
maturing in bank account (DRR Account)
◦ Not to provide deposit insurance
◦ Not to certify “No default” in repaying deposits or
interest thereon
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Compliance required to be done u/s 73(2)
◦ Pass a special resolution
◦ Period of deposits cannot be less than 6 months and more than 3 years
◦ Deposits less than 3 months restricted to 10% of aggregate of paid up
share capital and free reserves
◦ Rate of interest restricted as specified in the Rules
◦ Can the terms of deposits be altered to the prejudice of deposit holders?
◦ Deposit application form mandatory, which contains a declaration that the
deposit is not being made out of borrowed monies
◦ Deposit receipt to be issued. Deposit Register to be maintained
◦ Deposit Return to be filed
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Private company can provide in the Articles
its own Rules for issuing notice of general
meetings. status quo ante restored.
Exemptions:
- Mandatory notice of 21 days
- Consent for short notice of 95% of members
- Notice to legal representative of a member
/ auditor/ directors
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Articles must contain express provision for
availing exemption – status quo ante restored
No need to annex Explanatory Statement
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Articles must contain express provision for
availing exemption – status quo ante restored
Such companies can provide in its Articles
that a person present through proxy shall be
counted for quorum
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Articles must contain express provision for
availing exemption – status quo ante restored
Freedom to have provision in Articles
regulating proxies such as Proxies can speak
at the meeting and can vote on show of
hands
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Articles must contain express provision for
availing exemption – status quo ante restored
Articles may contain a provision that sense of
the meeting can be ascertained only by Poll
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Articles must contain express provision for
availing exemption – status quo ante restored
Articles may provide a higher threshold for
demanding Poll
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Board Resolutions passed under Section 179
(3) and under Rule 8 of relevant Rules to be
filed with Registrar
Caution: Need to file resolution of
appointment of a Managing Director [See Sec
117(3)(c)]
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Number of companies of which a person or
partner of a firm can be an auditor
Freedom to be an Auditor in - OPCs,
dormant, small companies and private
companies having paid up share capital less
than 100 crore – without restriction on the
number
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Right of persons to stand for directorship
Huge relief for private companies in terms of
mandate of deposit to be kept.
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No special resolution needed to sell
undertaking, invest otherwise in trust
securities the amount received on merger,
borrowing in excess of paid up capital and
free reserves or to give time to a director to
repay debt
No need to bother about determination of
what is an “undertaking”
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An ‘interested director’ of a private company
is permitted to participate in the meeting if
he makes disclosure of his interest or
concern in the contract at the meeting.
Can such Director ‘Vote’ on the resolution?
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Restrictions of giving of loan, guarantee or security to
any specified person do not apply to the following
Private companies only:
- No body corporate has invested in the share capital
- If the private company’s borrowings from Banks /
FIs or any body corporate is less than LOWER of its
paid up capital and Rs. 50 Cr.
- If the Private company has no default in repayment
of such borrowings subsisting at the time of making
transaction
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Private companies exempted from
following approvals:
Board and Shareholders approval
Central Government approval if the
conditions of Schedule V are not fulfilled
the
However, the term of appointment prescribed
in sub-sec (2), Age limits prescribed in subsec (3) will have to be adhered to
Common Seal: Made optional
“So far as the question of putting up of the seal of the
Company is concerned, it is a relic of the days when
mediaeval barons, who could not read or write, used
their rings to make a characteristic impress. Even in
absence of a seal, the Company may still be held to
be liable having regard to the nature of transaction
and the authority of those who had executed it.”
[Supreme Court – (2006) Comp Cas 131 (577)]
Suggestion: Board should authorise two Directors or
any Director and Company Secretary to authorise any
person to execute other deeds as the Company’s
attorney.
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Section inserted to provide for penalty for
contravention of provisions relating to
Deposits
Provision prospective. Any violations of Sec
73 or 76 between April 1, 2014 and May 25,
2015 shall NOT attract penalty prescribed
under Sec 76A
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Mandatory setting off of carried over previous
losses and depreciation not provided in
previous years before declaring dividend
This was provided under Rule 3(5) of
Companies (Declaration and Payment of
Dividend) Rules 2014 which has was deleted
on 29 May 2015
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Companies are exempted from obtaining
approval of shareholders if the transactions
prescribed in sub-sec (1) are between holding
company and its wholly owned subsidiary.
No relevance for Private companies as
subsidiaries are not “related parties” with
reference to a private company