Wednesday 1 April 2015

Celebrating 1st Birthday of Companies Act, 2013

On the April fool’s day of 2014, the Companies Act, 2013 (‘Act’) was ‘born’ and since then Govt. and professionals across India are trying to nurture the ‘new born baby’. For quite a few months, the Act was referred as ‘New Act’ in various professional journals, TV shows, interviews, various seminars and conferences. Now, it’s high time that we consider that the Act is no more ‘new’, and shall be referred to as ‘Companies Act, 2013’ only.

Frankly speaking (to which most the professionals will agree), the journey has not been very smooth for the Act and probably will not be smooth for next 2-3 years. Top – 10 most debatable issues (can be 50+ also, but restricting myself) discussed in 2013 – 2014 were:
  1. Deposits – Whether to file Form DPT with RoC? / Whether to refund or not?
  2. RPTs – What is ‘arms length’ & ‘ordinary course of business’?
  3. CSR – Whether the provision is valid & whether the provision is mandatory?
  4. Loans to Directors – No need to even explain the way it has affected the corporates.
  5. Auditors Liability to report ‘fraud’
  6. ‘Independence’ of Director
  7. ‘Other services’ by Statutory Auditor
  8. Scope of Secretarial Audit
  9. Status of ‘holding company’ / ‘subsidiary company’
  10. New wild animals like MGT – 14 & MBP – 1.

Based on this background, the Govt. introduced Cos. Amendment Bill, 2014 which had trivial issues like: common seal not being mandatory, minimum paid share capital threshold eliminated, ‘special resolution’ replacing ‘ordinary resolution’ for RPT compliance etc. – with an objective to ‘ease of doing business in India’.

If the govt. actually intended ‘ease of doing business, then they should have introduced some more amendments, with a broader perspective and long term vision. Govt. has lost a golden opportunity in amending the Act and let’s hope that they understand (within these 4 years) that the business has definitely not eased.

It will now be a herculean task for the Govt. to bring another amendment bill, getting it approved by the cabinet and then passing in LS & RS. Presently, the Companies Amendment Bill, 2014 has been passed in LS only and not in RS.

During the 12 months journey, there were numerous circulars / notifications / clarifications / MOST AWAITED - draft notification / Removal of Difficulty orders etc. were issued – but all these have not resolved core issues faced by professionals and India Inc. The draft notification is / was the only ray of hope for private companies.

To add more to the instability and uncertainty in Cos. Act, 2013 – the validity of NCLT matter is before Supreme Court’s Constitution Bench and there is very high possibility that it will be struck down (Based on the recent judgments, which struck down NTT or IPAB’s constitution). This is definitely going to be time consuming process.

Considering the industry expectation for ‘doing business easily’ and the govt. offering unwarranted ‘ease’, there is still a long way to go for the Companies Act, 2013 to settle down. The professionals need to refer both Acts for few more years as switching completely to Companies Act, 2013 will take time. The professionals need to be in their student-rooms for some more time.

On a lighter note, Companies Act, 2013 needs Batman (~ Gotham needs Batman).

Monday 16 February 2015

MCA Order issued to multiply the difficulty & not remove it!!


On February 13, 2015 (a day before Valentines Day) – Ministry of Corporate Affairs – ‘proposed’ to introduce the first Removal of Difficulty Order (‘RoD Order’) of 2015 to give some relief to the corporates.

The RoD Order may have provided ‘relief’ but has definitely raised a fundamental question – Can the MCA interfere in the wordings of Companies Act? Or broadly speaking, can any Ministry / Dept. amend the law without the same being placed & passed by the Parliament? This is a very crucial question that needs to be answered / studied by all - because, we would soon celebrate 1 year birthday of Companies Act, 2013 – and many more RoD Orders, Circulars and Notifications will be issued, which are just creating confusion.

Vide RoD Order dated February 13, 2015, MCA has introduced two amendments: (1) It has clarified the definition of small company, by replacing the word ‘or’ with ‘and’ i.e. to ensure that company is a ‘small company’ and satisfies both conditions – prescribed paid share capital AND turnover (earlier, any one condition was required to be satisfied). Even, before the issue of this RoD Order, some senior professionals were of the firm opinion that both conditions were required to be satisfied. (2) It has introduced an exception to Section 186 of Companies Act, 2013 (relating to ‘Loans and Investments by Co.’). Not just one word is replaced, but a whole sentence is introduced, whereby some companies will be excluded from compliance of Section 186 w.r.t shares acquisition in ordinary course of business.

If the RoD Order (‘amendment introduced’) is read along with Section 186(11), then Section 186(11)(b)(iv) is: “Nothing contained in this section, except sub-section (1), shall apply to any acquisition made by a banking company or an insurance company or a housing finance company, making acquisition of securities in the ordinary course of its business.”


The RoD Order relating to Section 186 ought to have been drafted in following way: “Nothing contained in this section, except sub-section (1), shall apply to any acquisition of securities in the ordinary course of business by a banking company or an insurance company or a housing finance company.”

Firmly believe that removal of difficulty order needs to be renamed as “Multiplying the Difficulty Order”. 

The way things are going for Companies Act, 2013 – I really feel terrible for all the three professions – CS, CA, CWA. Were we all destined for so much confusion and ambiguity after years effort on Companies Act?? It’s really distressing to see professionals fighting on issues like applicability / implementation / procedural / interpretation. Also, we, as professional are not worried about the documentation involved in compliance; but we are worried about the ambiguity in complying in law due to absurd drafting. To top it all, the Amendment Bill, 2014 has virtually done nothing for the corporates at large. Let’s find procedure to bring back Companies Act, 1956. We don’t want small co. / CSR / Independent Directors / onerous Directors Responsibility Statement (which is actually an ‘affidavit’) / class action suits etc. We were happy before!