Lok Sabha passes Companies Amendment Bill 2014; key changes

The Lok Sabha, the lower house of the Parliament, has passed the Companies (Amendment) Bill, 2014, which will make it easier for corporates to do business and to ensure severe punishment for illegal money pooling activities, among other things.

The amendments have been proposed in order to address some concerns raised by stakeholders.

The Cabinet, chaired by Prime Minister Narendra Modi, had approved the 14 proposed changes in various provisions of the new Companies Act, 2013, which came into force with effect from April 1, 2014.

The major concerns raised by the stakeholders included protecting confidentiality of board resolutions, as well as the provision of auditors being required to report suspected frauds at the companies audited by them.

"Now, after the provisions were implemented... while enforcing the provision, we found that there were certain difficulties with regard to the enforcement of certain provisions or certain errors, while drafting had taken place," Finance Minister Arun Jaitley had said while presenting the Bill.

Under the new norms, frauds beyond a certain threshold would need to be mandatorily reported by the auditors to the government, while cases below this threshold will be reported to the audit committee of the company’s board.

Also, the corporates have been exempted from the need of obtaining approvals of shareholders in the case of related party transactions valued lower than Rs 100 or 10 per cent of net worth.

Besides, another amendment exempts related party transactions between holding companies and wholly owned subsidiaries from the requirement of approval of non-related shareholders.

Paid-up capital criteria has also been scrapped. As per the previous system, the companies with a paid up capital of Rs 10 crore or more were required to get shareholders' nod through a special resolution in case of related party transactions.

Moreover, loans given by a company to wholly-owned subsidiaries and guarantees/securities on loans taken from banks by subsidiaries, have also been exempted from the purview of related party transactions.

Provision for writing off past losses/depreciation before declaring dividend for the year is also included. Besides, winding up cases will be heard by two-member Bench instead of a three-member Bench.

The Companies Act, 2013 was notified on August 29, 2013. The new law replaced around six-decade old Companies Act, 1956. The bill was passed by former UPA government and the Modi-led government had indicated several times that some necessary changes will be made in the Bill to address the concerns raised by various stakeholders including corporates.

(Edited by Joby Puthuparampil Johnson)

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