In India, the comprehensive legal framework encompasses formation, administration, and even dissolution, enabling the company to operate within a well-defined regulatory environment. This is mainly governed by the Companies Act of 2013, which replaced the Companies Act of 1956, to ensure compatibility with the worldwide framework and address the requirements of the modern business era. This legislation outlines procedures for the formation, maintenance, and regulation of various types of undertakings, which encompass firms, partnerships, private enterprises, and proprietorships. It also encompasses vital issues related to corporate governance, shareholder rights, the role of directors, and obligations.
The Ministry of Corporate Affairs will play a crucial role in the effective enforcement process of company laws, thereby promoting transparency and accountability in business practices.
The importance of company law is considered to prevent mismanaged or poorly organised business operations, as well as to ensure legal and other perspectives that yield the maximum results for a corporation to grow. Thus, it aspires to the flexibility that a corporation needs, along with the control mechanisms required to monitor and prevent fraud and mismanagement. Ethical practices in business would also find safety under the rule of law, including mandatory corporate social responsibility, stringent auditing standards, and grievance mechanisms for stakeholders. Another way company law is strengthened is through the Insolvency and Bankruptcy Code of 2016, which provides highly effective methods for dealing with corporate insolvencies. The Company law in India has been in possession of a dynamic, progressive legislative framework, which would boost the country’s economic development and ensure ethical business conduct is combined with good and strong corporate governance.
Companies Amendment Act and the Government Companies
The Amendment Act indicates that the government is focusing on industry issues in response to the Companies Act 2013. The draft bill was passed by both Houses of Parliament in 2014 and was assented to by the President on May 25, 2015, as the Companies Amendment Act, 2015. These amendments primarily focus on enhancing the efficiency of compliance-related activities, improving business operations, and providing greater clarity on corporate governance and related-party transactions.
This is the Act that brought Indian corporate law into line with the Companies Act of 2013. It liberalised provisions on related-party transactions, reduced the compliance burden on private companies, and made penalties for non-compliance easier. The objective of the Act is to provide a better business environment, encourage entrepreneurial undertakings, and provide a better footprint for corporate regulation that is aligned with international standards.
The Companies (Amendment) Act of 2015 was a significant development in enhancing India’s regulatory landscape for enterprises. The Amendment Act streamlined various processes, expanded opportunities for business, and addressed ambiguities present in the Companies Act of 2013. The amendments were intended to integrate governance with flexibility and further promote greater vibrancy in the business climate, while safeguarding the interests of stakeholders. This change in the political climate was further improved through “significant national “economic initiative India’s “Make in India,” which reaffirms India’s commitment to creating an enabling environment for its business activity.
Highlights Of The Companies Amendment Act 2015
The Companies (Amendment) Act of 2015 made very significant changes to the Companies Act of 2013. In essence, the thrust of the Act was to simplify procedures, reduce the regulatory burden, and eliminate ambiguities, with the primary objective of improving the business environment in India. Below are some of the notable characteristics as well as modifications made under the Amendment Act of 2015:
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Minimum Paid-Up Share Capital Requirement No Longer Required
The earlier requirement of minimum paid-up share capital of Rupees One Lakh for private companies under Section 2(68) and Rupees Five Lakh for public companies under Section 2(71) has now been omitted. New ventures can now be incorporated without meeting the minimum paid-up capital requirement, which will further encourage and attract investment in entrepreneurship.
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Common Seal Made Optional
The provision of Section 9 to mandatorily have a common seal by companies has been removed and is now left up to the discretion of the company to have a common seal or not. Suppose a company intends to refrain from using a common seal. In that case, documents should be signed by either both directors or one director and the company secretary, if the company has appointed one. The simplification of the common seal requirement and making it optional shall incorporate an organization’s processes.
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Filing Declaration of Commencement of Business Not Required
Earlier, after receiving the certificate of incorporation, every company is then required to obtain a certificate of commencement of business under Section 11 to commence its business operations and activities. However, with the implementation of this Act, the requirement for this certificate has been omitted, which has led to a reduction in the number of days required for government institutions to obtain a ration, benefiting India with the government’s push to improve India’s ranking on the Degree of Ease of Doing Business Index.
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Related Parties Transactions (RPT)
The transactions of a holding company with its wholly owned subsidiaries are not subject to any shareholder approval whenever such transactions fall within the ordinary course of business and arm’s length prices, as they are not considered related party transactions anymore. This facilitates group company compliance and enables inter-company transaction activities.
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Loans to Directors
Section 185 of the Companies Act 2013 prohibits companies from providing loans to directors, their firms, or subsidiaries in which they are interested. The 2015 amendment made a few exceptions under this section, thereby making loans, giving guarantees or providing securities in respect of other loans (by banks or financial institutions) to wholly-owned companies and other firms a part of the company’s business operations, resulting in satisfaction of adequate business needs but also upholding the governance standards.
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Certain Transactions Do Not Need Special Resolution
Under Section 188, specified transactions are required to be approved only with a special resolution passed by the members in their general meeting. However, the recent amendment, to a considerable extent, helped reduce compliance costs since it struck out the special resolution requirement for most specified transactions, as long as no specific conditions are to be met. As a result, the companies achieved quicker decision-making processes, combined with reduced procedural delays.
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Strengthened Penalties for Companies Accepting Deposits
Sections 73-76 of the Companies Act 2013 do not specify penalties to be imposed on companies inviting or accepting deposits from the public without the required regulatory approval. The Companies Amendment Act, 2015, has established severe penalties for actions taken by directors of companies that invite, accept, or renew deposits in violation of the provisions of the Companies Act 2013.
Sec 76A has been inserted as follows:
“Where a company accepts or invites or allows or causes any other person to accept or invite on its behalf, any deposit in contravention of the manner or of the conditions prescribed under section 73 or 76 or rules made thereunder or if a company fails to be paid the deposit or part thereof or any interest due thereon within the time specified under section 73 or section 76 or rules made thereunder or such further time as may be allowed by the Tribunal under section 73,—Thee company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with a fine which shall not be less than one crore rupees, but which may extend to ten crore rupees and
- Every officer of the company who is in default shall be punishable with imprisonment, which may extend to 7 years, or with a fine, which shall not be less than 25 lakh rupees, but which may extend to two crore rupees, or with both:
Provided that if it is proved that the officer of the company who is in default has contravened such provisions knowingly or wilfully with the intention to deceive the company or its shareholders or depositors or creditors or tax authorities, he” shall be liable for action under section 44″.
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Privacy of the Board Resolutions
Board Resolutions are official and private company documents. In fact, a company must present its Board Resolutions to the Ministry of Corporate Affairs. However, these resolutions belong to public records and are available at a cost. A provision had been included that no person shall be allowed under section 39 to see or obtain copies of such resolutions.” Therefore, public access to board resolutions is restricted.
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A Loss-Bearing Company Will Not Declare Dividends
The provisions of Section 123 of the Companies Act 2013 have been amended within the CompAmen’mentn’ment Act of 2015 with a proviso stating’that ‘provided that no company shall declare dividend unless carried over previous losses and depreciation nor allowpreviofirm’srirm’sr or years has been sea’ainst’ainsfirm’sfirm’s profit for the current’year.’
Conclusion
The objective of the Companies (Amendment) Act 2015 is to reduce the complexity of doing business activities and enhance corporate governance and the regulation of procedures as contained under the Companies Act 2013. This piece of legislation aims to address several problems or inconsistencies that have arisen since the enactment of the 2013 Act. It also seeks to strike a balance between implicit andexplicit compliance with governance.
The amendment incorporated significant changes primarily aimed at reducing procedural complexities. Essential features include relaxing stringent requirements for the private placement of securities, thereby granting companies easier access to financing and simplifying filing and disclosure requirements, thus making the compliance burden lighter for businesses.
In the governance space, the Act has tightened the provisions for the appointment and functions of independent directors, making them more stringent and favouring the interests of shareholders. It has also attempted to strengthen accountability through stricter provisions regarding the reporting of fraud, further tightening the noose with enhanced penalties for contravention.
The Companies (Amendment) Act of 2015 simplified the regulations under which companies operate in India, addressed a few of the challenging issues, and created a more enabling environment for businesses under the law. This reform created an environment that fostered business growth while upholding strict governance principles. This is the most significant advancement in bringing Indian corporate laws up to international benchmarks and building confidence among investors in the process, thereby contributing to economic growth. Its practical approach to removing vagueness and decreasing compliance burdens underscores its significance and impact in the corporate world.
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