Companies Act Panel Recommendations 2016

a) Managerial remuneration to be approved by shareholders. [s. 197, 198] b) Modify definition of associate company and subsidiary company to ensure that ‘equity share capital’ is the basis for deciding holding-subsidiary relationship rather than “both equity and preference share capital”. [s. 2] c) Private placement process to be substantially simplified, doing away with separate offer letter, making valuation details public, details/record of applicants to be kept by company and to be filed as part of return of allotment only, and reducing number of filings to Registrar. [s. 42] d) Incorporation process to be made easier and allow greater flexibility to companies: An unrestricted objects clause to be allowed in the Memorandum of Association dispensing with detailed listing of objects, self-declarations to replace affidavits from subscribers to memorandum and first directors; changes also in various Forms. [s. 4, 7] e) Provisions relating to forward dealing and insider trading to be omitted from Companies Act. Listed companies are covered under SEBI Act/Regulations. [s. 194, 195] f) Companies may give loans to entities in which directors are interested after passing special resolution and adhering to disclosure requirement. [s. 185] g) Restriction on layers of subsidiaries and investment companies to be removed. [s. 2(87), 186(1)] h) Change in the definition of term ‘relative’ for determining disqualification of auditor [s. 141] i) Rationalize penal provisions with reduced liability for procedural and technical defaults. Penal provisions for small companies to be reduced. [ various sections] j) No filing fees if financial statements and annual returns filed within prescribed time. [s. 403] k) Auditor to report on internal financial controls with regard to financial statements. [s. 143] l) Frauds less than Rs. 10 Lakh to be compoundable offences. Other frauds to be continued to be non-compoundable. [s. 447] m) Reducing requirement for maintaining deposit repayment reserve account from 15% each for last two years to 20% during the maturing year. n) Foreign companies having insignificant/incidental transactions through electronic mode to be exempted from registering and compliance regime under Companies Act, 2013. [s. 379] o) Disclosures in the Directors’ Report to be simplified and duplications with SEBI’s disclosure requirements and financial statements to be removed while retaining the informative content for shareholders. [s. 134, Rules] p) Increased threshold for unlisted companies for compliance in context of requirement for Independent Directors (IDs), Audit Committee and Nomination and Remuneration Committee. [s. 149, 177, 178] q) Test of materiality to be introduced for pecuniary interest for testing independence of ID; thresholds for relatives’ pecuniary interest to be revised to make it more practical. [s. 149] r) Requirement for a managerial person to be resident in India for twelve months prior to appointment to be done away with. [Schedule V] s) Disclosures in the prospectus required under the Companies Act and SEBI Regulations to be aligned, with a view to make these simpler, by allowing prescriptions to be as per SEBI Regulations. [s. 26] t) ESOPs to be allowed to promoters working as employees/directors [s.62, Rules] u) Limit on sweat equity to be raised from 25% of paid up capital to 50% for start-ups. [s.54] v) Recognition of the concept of beneficial owner of a company proposed in the Act. Register of beneficial owners to be maintained by a company, and filed with the Registrar. [new section] w) Provisions with regard to consolidation of accounts to be reviewed and those with respect to attachment of standalone accounts of foreign subsidiaries to be relaxed in certain cases. [s. 129, 136] x) Re-opening of accounts to be limited to 8 years. [s. 130] y) Mandatory requirement of taking up some items only through postal ballot to be relaxed in case of a company that is required to provide electronic voting at its General Meetings. [s. 110] z) Requirement for annual ratification of appointment/continuance of auditor to be removed. [s. 139] Select proposed recommendations...


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