Introduction of New Companies Act,
2013 has brought harsh provisions however it was expected to simplify the
provisions. Industry has started calling it non business friendly and there are
provisions which are draconian and must be relaxed. It brought lot of
restrictions on doing business. Professionals were also not happy for some
harsh penal provisions. Now it is proposed by Ministry of Corporate Affairs to
provide various Exemptions to Private Limited Companies. If it approve there
will be lot of relaxation to private companies and many public companies will convert
themselves into Private Companies.
Proposed
amendment in Companies Rules to lighten the harsh provisions are :
1.
According to the
proposal floated by the MCA
·
the provisions
invoking criminality in offences like mis-statement
of prospectus or non-disclosure of financial statements will be made less severe.
2.
Further, as per
the draft Cabinet note circulated by the ministry
·
the provisions
regarding related-party transactions will be relaxed.
·
The Act under
Section 188 (1) says that related-party transactions of specified nature require approval by a board resolution or special resolution.
·
It also bars a
related-party member of the company from voting
on special resolution.
3. The
industry has been saying that this is not business-friendly especially where holding companies and their wholly owned subsidiaries
are involved. So for such transactions, the provision will be amended to
make it more pro-industry.
4. For late disclosure, not keeping books of
accounts, or financial statements not giving true and fair value, the
“punishment of imprisonment is being
done away with as the criminality of
this kind is already dealt with in the Code of Criminal Procedure”. Currently, u/s
147, for such contraventions, the company is be punishable with fine up to Rs 5
lakh while every officer of the company who is in default is punishable with
imprisonment of up to one year along with a fine up to Rs 1 lakh or both.
5. The MCA has also proposed to do away with the condition of mandatory appointment of independent directors on the board of a
private or closely-held company
which has no public involvement.
The
Cabinet note also provides a breather to auditors regarding their
responsibility of reporting frauds to the government.
“Materiality of fraud is defined in
terms of percentage or absolute value
as a threshold above which the
auditors would be required to report to the government. Below that threshold,
the auditors will need not report to the government,
They
will just have to inform the audit committee of the company,” the source added.
The
industry sources that this will be a huge reprieve to the auditors who
currently have to report all frauds to the secretary,
MCA,
adding to the compliance cost. The amendments proposed also address the issue
of maintaining confidentiality of information especially those pertaining to
board resolution.
According
to Section 179(3), several items including pure HR issues, require a board
resolution.
Contributed by Tanya Gagneja
