Sunday, 19 April 2015
Important amendments:Rules to Companies Act, 2013.
A. Clarification with regard to section 185 and 186 of the Companies Act 2013 (loans and advances to employees)
General Circular No. 04/2015 dated March 10, 2015
It has been clarified that loans and/or advances made by the companies to their employees, other than the managing or whole time directors (which is governed by section 185 of the Companies Act, 2013) are not to be governed by the requirements of section 186 of the Companies Act, 2013. Hence, companies can provide loans and advances to employees without restrictions and procedural requirements mandated under section 186 of the Companies Act, 2013, if they are doing this in accordance with the conditions of service applicable to such employees and the remuneration policy, if any.
B. Companies (Meetings of Board) Amendment Rules, 2015
F. No. 1/32/2013-CL-V-Part
March 18, 2015
Section 179 (3) of the Companies Act, 2013 specifies that ‘The Board of Directors of a company shall exercise the specified powers on behalf of the company by means of resolutions passed at meetings of the Board’.
Rule 8 of the Companies (Meetings of Board) Rules, 2014 specifies heads which were required to be passed only by way of a resolution at the Board Meeting, which has now undergone an amendment by way of Companies (Meetings of Board) Amendment Rules, 2015. This amendment has excluded the following items from the list: -
i) Rule 8 (3) to take note of appointment(s) or removal(s) of one level below the Key Managerial Personnel – The specific post to which this refers is not clear but it seems to indicate to any person who holds a post which in hierarchy falls just below the Key Managerial Personnel.
ii) Rule 8 (5) to take note of the disclosures of the director's interest and shareholding.
iii) Rule 8 (6) to buy, sell investments held by the company (other than trade investments) constituting 5 % or more of the paid up share capital and free reserves of the investee company – All investments constituting any percentage of the paid up share capital can now be bought or sold without passing a resolution in the board meeting.
iv) Rule 8 (7) for inviting or accepting or renewing public deposits and related matters.
v) Rule 8 (8) for reviewing or changing the terms and conditions of public deposits.
vi) Rule 8 (9) for approving quarterly, half yearly and annual financial statements or financial results as the case may be – This has been taken out of the purview of being passed by a resolution and has an express bar in Rule 4 (1) (i) of the Companies (Meetings of Board) Rules, 2014 to not to be passed by video conferencing either.
Hence, according to section 117 read with Rule 24 of the Companies (Management and Administration) Rules, 2014, every resolution passed in terms of section 179 (3) of the Companies Act, 2013 is required to be filed to the Registrar of Companies in Form MGT – 14. Now, there would be no requirement of filing Form MGT-14 in respect of the above 6 heads.
C. Companies (Share Capital and Debentures) Amendment Rules, 2015
F. No. 1/4/2013-CL-V(Pt I)
March 18, 2015
Several changes have been made to the Companies (Share Capital and Debentures) Rules, 2014 as: -
i) Rule 3 wherein the provisions of this rule are to apply to a listed company only to the extent that they do not contradict or conflict with any other provisions framed in this regard by SEBI– This is though obvious but has been still clarified.
ii) In Rule 5 (3) (b) the first proviso stating ‘Provided that, in companies wherein a Company Secretary is required to be appointed under the provisions of the Act, he shall deemed to be authorised for the purpose of this rule’ has been omitted. This is to remove confusion as to whether a company secretary will be an authorised signatory in companies which are not compulsorily required to have a company secretary.
iii) In Rule 6 (2) (c), a listed company can now issue duplicate share certificates within 45 days from the date of submission of complete documents instead of the previous 15 days timeline.
iv) In Rule 12 (1) explanation (c) the words ‘or of an associate company’ have been omitted, hence, the provisions related to ESOPS shall not apply in case of an employee of an associate company.
v) In Rule 13 (1) another proviso has been added stating that, ‘Provided that in case of any preferential offer made by a company to one or more existing members only, the provisions of Rule 14 (3) (1) of Companies (Prospectus and Allotment of Securities) Rules, 2014 shall not apply’. This clarification removes the flaw in the earlier provisions wherein a private placement procedure was required to do even in case of a preferential allotment.
vi) In Rule 18 (1) (d) (i), any specific movable property of the company which may even be in the nature of pledge, can be used to create a security for the debentures by way of charge or mortgage in favour of the debenture trustee. In case of a Non Banking Financial Company (NBFC), a charge or mortgage may be created on a moveable property.
vii) Two proviso's have been added after Rule 18 (1) (d) (ii) to state that: -
a. In case of issue of debentures by a government company which are fully secured by the guarantee given by the Central Government or one or more State Governments or by both, the requirement of creating a charge under this rule would not apply.
b. in case of a loan taken by a subsidiary company from any bank or financial institution only, the charge or mortgage may be created on the property of the holding company.
viii) In Rule 18 (5), the trust deed to be executed by the company issuing debentures in favour of the debenture trustees can now be executed within three months of closure of the issue or offer instead of the previous timeline of 60 days from allotment of debentures.
ix) After Rule 18 (8), two new sub-rules have been inserted stating that: -
a. Nothing stated in this rule would apply to any amount received by a company against the issue of commercial paper or any other similar instrument which is issued under the guidelines/regulations/notifications issued by the Reserve Bank of India (RBI).
b. These rules would also not apply to the offering of a foreign currency convertible bond issued in accordance to the Foreign Currency Convertible Bonds and Ordinary Shares (through depository receipt) scheme, 1993 or its regulations etc. issued by RBI unless it is so stated in such scheme, regulations or directions.