The Companies Amendment Act, 2017 which was passed by Rajya Sabha on 19th December 2017 has received assent of the president and same has been published in the Official Gazette of India on 3rd January 2018. The changes shall come in to force from the date notified by Ministry of Corporate Affairs. MCA may prescribe different dates for different provisions.
Kashif Ali, law graduate and fellow member of the Institute of Company Secretaries of India from ‘Kashif Ali & Associates, Company Secretaries’ Delhi, has put his efforts to bring to you the amended sections with effect of amendments. This the first article in which we will share the details of amendment made in section 2 i.e. definition under the Act.
|Sr. No.||Amended Section||Effect|
2(6)”associate company”, in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.
Explanation.—For the purposes of this clause, “significant influence” means control of at least twenty per cent of total share capital, or of business decisions under an agreement;
‘Explanation.—For the purpose of this clause—
(a) the expression “significant influence” means control of at least twenty per cent. of total voting power, or control of or participation in business decisions under an agreement;
(b) the expression “joint venture” means a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement;’;
1. Now Significant influence means control of 20% of Voting Power or control of or participation in the business decision under an agreement. To make it consistent with accounting standard and listing agreement.
2. Term ”Joint Venture” specifically defined to be in consistence with the Accounting Standard.
2(28) “cost accountant” means a cost accountant as defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 (23 of 1959);
2(28) “Cost Accountant” means a cost accountant as defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 and who holds a valid certificate of practice under sub-section (1) of section 6 of that Act;’;
Earlier the definition covers only Cost Accountant in employment now it includes Cost Accountant in Practice.
2(30) “debenture” includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not;
(a) the instruments referred to in Chapter III-D of the Reserve Bank of India Act, 1934; and
(b) such other instrument, as may be prescribed by the Central Government in consultation with Reserve Bank of India, issued by a company, shall not be treated as debenture’
Some exclusions are made from the definition of debentures.
2(41) “financial year”, in relation to any company or body corporate, means the period ending on the 31st day of March every year, and where it has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up:
Provided that on an application made by a company or body corporate, which is a holding company or a subsidiary or associate company of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year:
Provided further that a company or body corporate, existing on the commencement of this Act, shall, within a period of two years from such commencement, align its financial year as per the provisions of this clause;
Now company or body corporate, which is an associate company of a company incorporated outside India can also make application for change in period of financial year.
Earlier this relaxation was available to company which is a holding company or subsidiary company of a company incorporated outside India.
|5.||2(46) “holding company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies;
‘Explanation.—For the purposes of this clause, the expression “company” includes any body corporate;’;
Now for the purpose of definition of the term ‘holding company’, the expression “company” will include any body corporate.
Now a company incorporated outside India could be considered to be the holding company of another company, for the purposes of the Act.
((made by Kashif Ali, email@example.com))
|6.||2(49) “interested director” means a director who is in any way, whether by himself or through any of his relatives or firm, body corporate or other association of individuals in which he or any of his relatives is a partner, director or a member, interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into by or on behalf of a company;
|7.||2(51) “key managerial personnel”, in relation to a company, means—
(i) the Chief Executive Officer or the managing director or the manager;
(ii) the company secretary;
(iii) the whole-time director;
(iv) the Chief Financial Officer; and
(v) such other officer as may be prescribed;
(v) such other officer, not more than one level below the directors who is in whole-time employment, designated as key managerial personnel by the Board; and
(vi) such other officer as may be prescribed;
One more category of KMP introduces which shall be person not below the rank of directors. He/she can be appointed by a director and must be in Whole tine employment of the company
2(57) “net worth” means the aggregate value of the paid-up share capital and all reserves created out of the profits and securities premium account securities premium account and debit or credit balance of profit and loss account , after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation;
Now the debit or credit balance of profit and loss account are included in the definition of Net Worth.
|9.||2(71) “public company” means a company which—
(a) is not a private company and;
(b) has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital, as may be prescribed:
Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles ;
Including the word ‘and’ in the definition for more clarity that a public company must satisfy both the conditions mentioned in this sub-section.
|10.||2(76) “related party”, with reference to a company, means—
(i) a director or his relative;
(ii) a key managerial personnel or his relative;
(iii) a firm, in which a director, manager or his relative is a partner;
(iv) a private company in which a director or manager is a member or director;
(v) a public company in which a director or manager is a director or holds along with his relatives, more than two per cent of its paid-up share capital;
(vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;
(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act:
Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity;
(viii) any company which is—
(A) a holding, subsidiary or an associate company of such company; or
(B) a subsidiary of a holding company to which it is also a subsidiary;
“(viii) any body corporate which is—
(A) a holding, subsidiary or an associate company of such company;
(B) a subsidiary of a holding company to which it is also a subsidiary; or
(C) an investing company or the venturer of a company;”
(ix) such other person as may be prescribed;
|Earlier the definition used “Company” therefore only those entities that were incorporated in India are coming in the purview of the definition.
Now the “body Corporate” which is situated outside India shall fall under the definition of “Related Party”
|11.||2(85) “small company” means a company, other than a public company,—
(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore Ten Crore rupees; or
(ii) turnover of which as per its last profit and loss account as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees One Hundred Crore Rupees:
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act;
Increase the maximum paid-up share capital amount which can be prescribed for the purpose of determining a company as a small company from five crore rupees to ten crore rupees and prescribed turnover amount from twenty crore rupees to one hundred crore rupees.
|(87) “subsidiary company” or “subsidiary”, in relation to any other company (that is to say the holding company), means a company in which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total share capital total voting power either at its own or together with one or more of its subsidiary companies:
Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.
Explanation.—For the purposes of this clause,—
(a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;
(b) the composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors;
(c) the expression “company” includes any body corporate;
(d) “layer” in relation to a holding company means its subsidiary or subsidiaries;
As per the old definition a company in which the preference share capital was greater than its equity share capital, could become a subsidiary of an entity that holds the preference shares, even though it might not have control, or any voting rights in such a company.
Therefore this amendment was made to the term “total share capital” is replaced with the term ‘total voting power’, as equity share capital should be the basis for determining holding/subsidiary status
|13.||2(91) “turnover” means the aggregate value of the realisation of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year;
2′(91) “turnover” means the gross amount of revenue recognised in the profit and loss account from the sale, supply, or distribution of goods or on account of services rendered, or both, by a company during a financial year;’.
To exclude the excise duty and other taxes from the purview of this term and to make it consistence with the Accounting Standards
In the next article we will share the amended sections and their analysis for you.
Please feel free to ask any query or clarification for us
For Kashif Ali and Associates
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