1. The Companies Amendment Act 2017
: An overview of key changes
| 21st April 2018

2. Background
Significant legal reforms in recent times is the enactment of the Companies Act, 2013 (2013 Act) which overhauled the erstwhile Companies Act, 1956 (1956 Act).
Though the 2013 Act was a step in the right direction as it introduced significant changes in areas of disclosures, investor protection, corporate governance, etc., there were multiple instances of conflicts and overreach within the legislation leading to difficulties in its implementation.
In fact, since its enactment, more than 100 amendments have been made to the 2013 Act.
Accordingly, the Companies Law Committee (CLC) was constituted in June 2015 with the mandate of making recommendations to resolve issues arising from the implementation of the 2013 Act.
Based on the recommendations of the report of the CLC, the Government introduced the Companies (Amendment) Bill, 2016 (Bill)

3. Important Dates
The Government introduced the Companies (Amendment) Bill, 2016 (Bill) in the Lok Sabha
27 July 2017
Passed by the Lok Sabha
19 December 2017
Passed by the Rajya Sabha
3 January 2018
The Companies (Amendment) Act, 2017 (Amendment Act) received the assent of the President

4. The Companies Amendment Act, 2017
Associate Company
Section
The Companies Act, 2013
The Companies Amendment Act, 2017
2 (6)
'Significant influence' was defined as control of at least 20% of the total share capital or business decisions under an agreement.
Defines 'significant influence' referencing, control of 20% of the total voting power or control of or participation in business decisions.
No definition given for ‘Joint Venture’
Defines the term 'joint venture' as a joint arrangement whereby parties that have joint control of the arrangement have rights to the net assets of the arrangement.
2(41)
Financial year definition: Only holding & subsidiary companies of foreign companies were allowed to align their financial year.
Inclusion of Associate Company in the definition of 'financial year', allowing companies which are associates of foreign companies to make an application to align their financial years with the financial years of such foreign companies.

5. Key Management Personnel
Public Offer (Prospectus)
Section
The Companies Act, 2013
The Companies Amendment Act, 2017
Sec 2(51)
The term 'key managerial personnel' (KMP) was defined under the 2013 Act to mean the chief executive officer, managing director, manager, company secretary, whole time director and chief financial officer.
The Amendment Act expands the definition of KMP by giving the board of directors the power to designate an officer of the Company, one level below the director who is in whole time employment of the company, as a KMP.
Net-worth
Section
The Companies Act, 2013
The Companies Amendment Act, 2017
Sec 2(57)
The phrase was missing
While calculating net worth debit and credit balance in the profit and loss account shall be considered

6. The Companies Amendment Act, 2017 The Companies Amendment Act, 2017
Related Party
Public Offer (Prospectus)
Section
The Companies Act, 2013
The Companies Amendment Act, 2017
Sec 2(76)
As per the definition of 'related party' under the 2013 Act, only an Indian incorporated holding, subsidiary or associate company of an Indian company could be a related party of such a company.
The Amendment Act addresses this anomaly by providing that any body corporate (therefore including companies incorporated outside India) being a holding, subsidiary or associate company of an Indian company would be a related party of such company.
(c) An investing company or a venturer shall also become a related party.
Subsidiary
Section
The Companies Act, 2013
The Companies Amendment Act, 2017
Sec 2(87)
One half of “total share capital”
Now “total share capital” has been substituted with words “total voting rights” in order to consider only equity share capital for the same.

7. The Companies Amendment Act, 2017 The Companies Amendment Act, 2017
Issue of shares at a Discount
Section
The Companies Act, 2013
The Companies Amendment Act, 2017
Sec 53
Issue of shares at a discount to face value was prohibited under the 2013 Act.
Allowing issue of shares at discount to its creditors when its debt is converted into shares in pursuance of RBI guidelines
Issue of sweat equity shares
Section
The Companies Act, 2013
The Companies Amendment Act, 2017
Sec 54
Sweat equity shares could not be issued within 1 year of commencement of business of the company.
The act remove this restriction

8. The Companies Amendment Act, 2017 The Companies Amendment Act, 2017
Public Offer (Prospectus)
Section
The Companies Act, 2013
The Companies Amendment Act, 2017
Sec 26
The 2013 Act listed matters that needed to be stated in the prospectus while making a public offer.
The Amendment Act seeks to omit the provisions that require specific matters to be stated in the prospectus and proposes that the company should provide such information as required by the SEBI in consultation with the Central Government.
Key Management Personnel
Annual Return
Section
The Companies Act, 2013
The Companies Amendment Act, 2017
Sec 92
An extract of annual report shall be form of Board’s report
Every company shall place a copy of the annual return on the website of the company and web link of such annual return shall be disclosed in the Board’s report

9. Consolidation of Accounts
Section
The Companies Act, 2013
The Companies Amendment Act, 2017
Sec 129
Associate word was missing.
Where a Company has one or more subsidiaries or associates it requires to prepare CFS in addition to SFS.
Associate word inserted that means if a company has joint venture then also it requires to prepare CFS, as in the definition of Associate, Joint venture was included.
Key Management Personnel
Appointment of Auditors
Section
The Companies Act, 2013
The Companies Amendment Act, 2017
Sec 139
Requirement to ratify the appointment of auditor at every AGM is done away with.

10. The Companies Amendment Act, 2017
CSR
Section
The Companies Act, 2013
The Companies Amendment Act, 2017
Sec 135
‗Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.‘
―Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

11. The Companies Amendment Act, 2017 The Companies Amendment Act, 2017
Resident Director
Section
The Companies Act, 2013
The Companies Amendment Act, 2017
Sec 149(3)
The 2013 Act required every company to have at least one resident director, i.e., a director who has stayed in India for a total period of not less than 182 days during the previous calendar year.
The Amendment Act seeks to modify the residency requirement, by making it applicable to the current financial year instead of the previous calendar year.
It comes with an increased burden of compliance on the Indian company.
Independent Director
Section
The Companies Act, 2013
The Companies Amendment Act, 2017
Sec 149(6)
Under the 2013 Act, a person appointed as an independent director and his relatives were not permitted to have any pecuniary relationship or transaction with the company in which such a person was appointed as an independent director.
The Amendment Act permits an independent director to have limited pecuniary relationships with the company without compromising his independence, such as receiving remuneration as an independent director and having transactions with the company not exceeding 10% of his total income.

12. Number of Directorship
Section
The Companies Act, 2013
The Companies Amendment Act, 2017
Sec 168
Under the 2013 Act, a person was not allowed to hold office as a director, including alternate directorship, in more than 20 companies.
The Amendment Act excludes directorship in dormant companies in determining the limit of 20 companies, so that directorships in dormant companies is not discouraged.
Alternate Director
Section
The Companies Act, 2013
The Companies Amendment Act, 2017
Sec 161
The 2013 Act permitted a director of a company to be appointed as an alternate to another director of the company in case the latter is absent from India for a period of 3 months.
The Amendment Act prohibits the appointment of an existing director of the company as an alternate for a director during his absence.

13. Resignation of Director
Section
The Companies Act, 2013
The Companies Amendment Act, 2017
Sec 165
The 2013 Act, required the resigning director to forward a copy of his resignation, along with reasons, to the ROC within 30 days of the resignation.
he Amendment Act makes such filing optional for the resigning director.
Disqualification of appointment of directors
Section
The Companies Act, 2013
The Companies Amendment Act, 2017
Sec 164(2)
Under the 2013 Act, a director could not be reappointed as a director in a company which had failed to file financial statements and annual returns for a continuous period of three years or had not repaid deposits or interest or redeemed debentures on the due date, etc. for a year or more.
The Amendment Act provides that a newly appointed director of a company in default should not incur such disqualification for a period of six months from his appointment, which gives him an opportunity to rectify the defect and avoid this disqualification within such period.

14. Rationality Associate
The inclusion of participation rights as a test of 'significant influence' has been made to align the definition with that in the Indian Accounting Standard 28 (IndAS) which deals with investments in associates and joint ventures.
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Joint Venture
While the words 'arrangement' and 'joint control' have not been defined in the Amendment Act, guidance may be sought from the IndAS 28 which defines the terms 'joint arrangement' as 'an arrangement of which two or more parties have joint control' and the term 'joint control' as 'the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control'.
Financial Year –Associate
Under the 2013 Act, Indian companies could make an application to adopt a financial year different from the 1 April - 31 March year, only if they were required to consolidate accounts with a holding or subsidiary company incorporated outside India. This was a roadblock for companies that wanted to align their financial year with a group or sister concern or a shareholder, but, owing to ownership of less than 50% and lacking management control rights, did not satisfy the holding-subsidiary test. With the inclusion of the term 'associate company' the definition of 'financial year', this issue has now been resolved.

15. Rationality Key Managerial Personnel
This provision is aimed to enable the board to designate officers in senior leadership as KMP.
However, the above phraseology creates ambiguity as to whether the requirement to be in the company's whole-time employment applies to the director or the officer proposed to be designated as KMP.
Given that the intention is to empower the board to designate an officer of the company as KMP, the requirement should apply to the officer in question and not the director to whom such officer reports.
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Net Worth
The definition of Net Worth is not absolutely clear whether amounts recognised in OCI will be included in Net Worth. Also it is not clear whether these amounts will be included in Net Worth upfront or on realisation. Irrespective of whether recycles to P&L or not.
For example
Fair value as well as subsequent gains or losses on sale of FVTOCI equity investment are not recycles to P&L.
The following three options are available:
Never included in Net Worth
Included in Net Worth as the gains or losses are recognised in OCI or
Included in net worth when the equity instruments is eventually disposed of or impaired.

16. Rationality Issue at a Discount
It would help restructuring of a distressed company.
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Issue of Sweat Equity Shares
This amendment will enable companies, particularly start-ups, to issue sweat equity shares immediately after incorporation and consequently enable them to attract talent and procure know how and other value additions without any cash flow issues.

17. Rationality
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Appointment of Auditors
The objective of the section was to ensure independence of auditors and any decision taken by the shareholders to not ratify any appointment during the period of five-years was akin to removal of the auditor.
This resulted in an inconsistency in the 2013 Act, where removal of an auditor, before expiry of his term, required a special resolution and approval of the Central Government, while removal through non-ratification needed only an ordinary resolution.

18. Thank you