Report of the Company Law Committee -II

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Report of the Company Law Committee -II
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• I. Introduction
• The first part of this article was published in
  Taxmann's Corporate Professionals Today ,Vol. 35
  , February 16 To 29, 2016, Pp. 325-339.
• Carrying forward the spirit of enhancing 'ease of
  doing business' the Central Government has
  accepted mostly all recommendations of the
  Company Law Committee Report submitted in
  February,2016 and introduced the Companies
  (Amendment) Bill,2016 in the Lok Sabha on
  16thMarch 2016. Major changes introduced in the
  Bill include -

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• Allowing incorporation of companies without
  specific object clause
• Raising money through private placement without
  regulatory oversight and just by filing return of
  allotment
• Allowing six months remedial period when minimum
  membership of a company falls below the
  prescribed minimum level
• Allowing authentication of documents by any
  employee of the company authorised by the Board
• Complexity involved in the preparation of
  prospectus arising out of dual compliance of
  company law and SEBI requirements is removed by
  elimination company law requirements - Matters to
  be stated in the prospectus and reports to be
  included therein shall be as per the SEBI
  Guidelines to be developed in consultation with
  the Central Government
• Sweat equity can be issued without waiting for
  one year Time lag of one year from the
  commencement of business for the purpose of sweat
  equity issue is proposed to be omitted
• Issue of shares at a discount has been permitted
  in case statutory resolution plan or debt
  restructuring scheme as per the Guidelines or
  regulations of the Reserve Bank of India
• Norms of raising deposit has been simplified by
  reducing the level of deposit repayment reserve,
  and elimination of deposit insurance

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• Extending the time limit for repayment of deposit
  raised prior to the commencement of the relevant
  provisions of the Act
• Introducing timeframe for filing satisfaction of
  charge
• Introducing register of beneficial owners - the
  proposed provisions of the amended section 90
  detail out the related requirements
• Convening extra-ordinary general meeting at a
  shorter notice of period of less than 21 days
  based on approval of 95 of the members eligible
  to vote as against 95 members eligible to
  attend
• Provision for simplified annual return for one
  person company and small company , and minor
  simplification for other companies
• Allowing unlisted company to hold annual general
  meeting at any place within India on approval of
  all members
• Also the Ministry of Corporate Affairs has
  notified Companies ( Share Capital and
  Debentures) Amendment Rules 2016 on 10th March
  2016 and Companies (Incorporation) Second
  Amendment Rules, 2016 on 23 March 2016.
• Among the unfinished agenda , the constitution of
  NCLT and NCLAT are at the advanced stage. The
  Ministry has also issued creditor -oriented draft
  Rules with respect to revival and rehabilitation
  of sick companies on 2nd March,2016.
• In this article , we shall review various issues
  covered in the Companies (Amendment) Bill 2017
  and amended Rules vis à vis the Company Law
  Committee Report ( CLCR).

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• II. Incorporation of Company and matters
  incidental thereto
• 1. Effect of number of members falling below the
  minimum requirement
• Clause 3A is proposed to be inserted as a
  remedial provision to the cases when membership
  of a company falls below the prescribed minimum
  of seven in case of a public company and two in
  case of a private company. The CLCR ( Paragraph
  I2.7) suggested to fasten the continuing members
  with the liability for all debts incurred by the
  company till the prescribed limit is restored.
  The default should be remedied with 6 months.
• The proposed provision allows six months time to
  rectify the default. Existing members are held
  liable for whole debts incurred if a company
  carries on business with reduced members for a
  period more than six months , and they may
  severally sued.
• 2. Relaxation of object clause
• In the line of Paragraph I2.1 of CLCR, Section
  4(1) ( c) is proposed to be amended to allow a
  company to engage in any lawful act or activity
  or business . However, the Memorandum may state
  specific object (s) or restrict certain objects.
• This liberal approach will cause problem to the
  equity investors unless the SEBI Guidelines
  strictly regulates end use of money raised. The
  company will freely invest in money raised in
  various projects. Now only one defence is left to
  the shareholders to restrict the Board from
  moving out of an " object' for which money has
  ben raised to another is Section 180(a). Once the
  money raised is invested for the prescribed
  object, the directors would be able to sell the
  whole or substantially whole by passing a special
  resolution. Defence of changing the 'object
  clause' has been taken away. This may increase
  the propensity of siphoning off the money raised
  by changing lines of business.

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• 3. Period for reservation of name of the proposed
  company
• In the line of the recommendation in Paragraph
  I2.2 of the CLCR, the period of name reservation
  in Section 4(5)(i) has been proposed to reduced
  from 60 days to 20 days. The argument of misuse
  of reservation of period is misplaced. The
  reservation period of 60 days was intended to
  provide better flexibility to the promoter. The
  existing timeframe of 60 days is not too long to
  cause regulatory uneasiness - it effect, it is
  unnecessary expedition.
• 4. Model Memorandum
• Clauses 6A and 6B are introduced as regards
  application of model memorandum which intend to
  standardize memorandum . The existing companies
  may adopt model memorandum whereas companies to
  be incorporated after implementation of the
  Amendment Act shall adopt contents of model
  memorandum to the extent applicable.
• 5. Simplification of incorporation process
• Section 7(1) (c) requires submission of ' an
  affidavit from each of the subscribers to the
  memorandum and from persons named as the first
  directors , if any, in the articles..' . In
  Paragraph I2.3 of the CLCR, it has been
  recommended to replace the requirement of
  'affidavit' by ' declaration' which has been
  carried out through proposed amendment. This is a
  superficial simplification.
• The major issue in incorporation of a company is
  ' mandatory due diligence' by professional. It
  should have been made optional and the
  requirement of submission of ' affidavit' could
  have been continued. By this a promoter could
  incorporate a company at reduced cost.

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