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Company Law Amendments for Dec 2021

CHAPTER 1 - INTRODUCTION TO COMPANY LAW

SMALL COMPANY [SECTION 2(85)] AMENDMENT "small company" means a company, other than a public company,— (i) paid-up share capital of which does not exceed 2 crore rupees or such higher amount as may be prescribed which shall not be more than 10 crore rupees; and (ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed 20 crore rupees or such higher amount as may be prescribed which shall not be more than 100 crore rupees: Provided that nothing in this clause shall apply to— (A) a holding company or a subsidiary company; (B) a company registered under section 8; or (C) a company or body corporate governed by any special Act; LISTED COMPANY [SECTION 2(52)] ADDITION "listed company" means a company which has any of its securities listed on any recognised stock exchange; [Provided that such class of companies, which have listed or intend to list such class of securities, as may be prescribed in consultation with the Securities and Exchange Board, shall not be considered as listed companies.] Rule 2A- Companies not to be considered as listed companies – For the purposes of the proviso to clause (52) of section 2 of the Companies Act, 2013, the following classes of companies shall not be considered as listed companies, namely:- a) Public companies which have not listed their equity shares on a recognized stock exchange but have listed their – (i) non-convertible debt securities issued on private placement basis in terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008; or

23(3) of the Companies Act, 2013.


CHAPTER 2 – SHARE CAPITAL


FURTHER ISSUE OF SHARES / RIGHTS ISSUE OF SHARES (SECTION 62) AMENDMENT Right issue shall remain open for a minimum period of 15 7 days and for a maximum period of 30 days, in which shareholders shall decide whether they wish to subscribe to the shares or not.


CHAPTER 3–MEMBERSHIP IN A COMPANY


DECLARATION BY PERSONS NOT HOLDING BENEFICIAL INTEREST IN ANY SHARE (SEC 89) ADDITION A new sub-section 11 has been inserted which enables the Central Government to exempt any class or classes of persons from complying with any of the requirements of this section pertaining to Declaration in Respect of Beneficial Interest in any Share, except Section 89(10), if it is considered necessary to grant such exemption in the public interest and any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notification.


CHAPTER 6 – DISTRIBUTION OF PROFITS


PENALTY IN CASE OF UNPAID DIVIDEND ACCOUNT AMENDMENT EXISTING PROVISION Section 124(7) provides that if a company fails to comply with any of the requirements of this section, the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees. NEW PROVISION If a company fails to comply with any of the requirements of Section 124, such company shall be liable to a penalty of one lakh rupees and in case of continuing failure, with a further penalty of five hundred rupees for each day after the first during which such failure continues, subject to a maximum of ten lakh rupees and every officer of the company who is in default shall be liable to a penalty of twenty-five thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of two lakh rupees.


CHAPTER 7 – CORPORATE SOCIAL RESPONSIBILITY


CLARIFICATION ON SPENDING OF CSR FUNDS FOR AWARENESS AND PUBLIC OUTREACH ON COVID-19 VACCINATION PROGRAMME ADDITION In regards to spending of CSR funds for COVID-19, MCA had clarified that is an eligible CSR activity. It is further clarified that spending of CSR funds for carrying out awareness cam- paigns/programmes or public outreach campaigns on COVID- 19 Vaccination programme is an eligible CSR activity under item no. (i), (ii) and (xii) of Schedule VII of the Companies Act, 2013 relating to promotion of health care, including preventive health care and sanitization, promoting education, and, disaster management respectively. CSR SPENDING (SECTION 135) AMENDMENT & ADDITION Section 135(5) The Board of every company referred to in Section 135 (1), shall ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy. The company shall give preference to the local area and areas around it where it operates. If the company fails to spend such amount, the Board shall, in its report, is required to specify the reasons for not spending the amount and, unless the unspent amount relates to any ongoing project referred to in section 135(6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year. After Section 135 (5), the following sub-section (6), (7) & (8) is inserted, namely:—


Section 135(6) Any amount remaining unspent under Section 135(5), pursuant to any ongoing project, fulfilling such conditions as may be prescribed, undertaken by a company in pursuance of its Corporate Social Responsibility Policy, shall be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account, and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year. PENALTY FOR NON-COMPLIANCE OF SECTION 135(5) & (6) UNDER SECTION 135 (7) Section 135(7) If a company is in default in complying with the provisions of sub -section (5) or sub -section (6) of the Companies Act, 2013, the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or Rs. 1 crore, whichever is less, and every officer of the company who is in default shall be liable to a penalty of one -tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or Rs.2 Lakhs, whichever is less. Section 135(8) The Central Government is empowered to give such general or special directions to a company or class of companies as it considers necessary to ensure compliance of provisions of section 135 and such company or class of companies shall comply with such directions.


Section 135(9) Where the amount to be spent by a company under Section 135(5) of the Companies Act, 2013 does not exceed Rs. 50 Lakh, the requirement for constitution of the Corporate Social Responsibility Committee shall not be applicable and the functions of such Committee provided under this section shall, in such cases, be discharged by the Board of Directors of such company. SET OFF OF EXCESS SPENDING ON CSR (SECTION 135) ADDITION In Section 135(5), after the second proviso, the following proviso has been inserted, namely:— If the company spends an amount in excess of the requirements, such company may set off such excess amount against the requirement to spend for such number of succeeding financial years and in such manner, as may be prescribed. COMPANIES (CORPORATE SOCIAL RESPONSIBILITY POLICY) AMENDMENT RULES, 2021 - DEFINITIONS ADDITION "Corporate Social Responsibility (CSR)" means the activities undertaken by a Company in pursuance of its statutory obligation laid down in section 135 of the Companies Act, 2013 in accordance with the provisions contained in these rules, but shall not include the following, namely:- (i) Activities undertaken in pursuance of normal course of business of the company. Provided that any company engaged in research and development activity of new vaccine, drugs and medical devices in their normal course of business may undertake research and development activity of new vaccine, drugs and medical devices related to COVID-19 for financial years 2020- 21, 2021-22, 2022-23 subject to the conditions that - (a) such research and development activities shall be carried out in collaboration with any of the institutes or organisations mentioned in item (ix) of Schedule VII to the Act; (b) details of such activity shall be disclosed separately in the Annual report on CSR included in the Board’s Report;


(ii) any activity undertaken by the company outside India except for training of Indian sports personnel representing any State or Union territory at national level or India at international level; (iii) contribution of any amount directly or indirectly to any political party under section 182 of the Act; (iv) activities benefitting employees of the company as defined in clause (k) of section 2 of the Code on Wages, 2019 (29 of 2019); (v) activities supported by the companies on sponsorship basis for deriving marketing benefits for its products or services; (vi) activities carried out for fulfilment of any other statutory obligations under any law in force in India; "CSR Policy" means a statement containing the approach and direction given by the board of a company, taking into account the recommendations of its CSR Committee, and includes guiding principles for selection, implementation and monitoring of activities as well as formu- lation of the annual action plan; "International Organisation" means an organisation notified by the Central Government as an international organisation under section 3 of the United Nations (Privileges and Immunities) Act, 1947 (46 of 1947), to which the provisions of the Schedule to the said Act apply; "Net profit" means the net profit of a company as per its financial statement prepared in accordance with the applicable provisions of the Act, but shall not include the following, namely:- (i) any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise; and (ii) any dividend received from other companies in India, which are covered under and complying with the provisions of section 135 of the Act: In case of a foreign company covered under these rules, net profit means the net profit of such company as per profit and loss account prepared in terms of clause (a) of sub-section (1) of section 381, read with section 198 of the Act;


"Ongoing Project" means a multi-year project undertaken by a Company in fulfilment of its CSR obligation having timelines not exceeding three years excluding the financial year in which it was commenced, and shall include such project that was initially not approved as a multi- year project but whose duration has been extended beyond one year by the board based on reasonable justification; CSR IMPLEMENTATION ADDITION (1) The Board shall ensure that the CSR activities are undertaken by the company itself or through – (a) a company established under section 8 of the Companies Act, 2013 or a registered public trust or a registered society, registered under section 12A and 80 G of the Income Tax Act, 1961 (43 of 1961), established by the company, either singly or along with any other company, or (b) a company established under section 8 of the Companies Act, 2013 or a registered trust or a registered society, established by the Central Government or State Government; or (c) any entity established under an Act of Parliament or a State legislature; or (d) a company established under section 8 of the Companies Act, 2013 or a registered public trust or a registered society, registered under section 12A and 80G of the Income Tax Act, 1961, and having an established track record of at least three years in undertaking similar activities. (2) (a) Every entity, covered under sub-rule (1), who intends to undertake any CSR activity, shall register itself with the Central Government by filing the Form CSR-1 electronically with the Registrar, with effect from the 01st day of April 2021. The provisions of this sub-rule shall not affect the CSR projects or programmes approved prior to the 01st day of April 2021. (b) Form CSR-1 shall be signed and submitted electronically by the entity and shall be verified digitally by a Chartered Accountant in practice or a Company Secretary in practice or a Cost Accountant in practice. (c) On the submission of the Form CSR-1 on the portal, a unique CSR Registration Number shall be generated by the system automatically.


(3) A company may engage international organisations for designing, monitoring and evaluation of the CSR projects or programmes as per its CSR policy as well as for capacity building of their own personnel for CSR. (4) A company may also collaborate with other companies for undertaking projects or programmes or CSR activities in such a manner that the CSR committees of respective companies are in position to report separately on such projects or programmes in accordance with these rules. (5) The Board of a company shall satisfy itself that the funds so disbursed have been utilised for the purposes and in the manner as approved by it and the Chief Financial Officer or the person responsible for financial management shall certify to the effect. (6) In case of ongoing project, the Board of a Company shall monitor the implementation of the project with reference to the approved timelines and year-wise allocation and shall be com- petent to make modifications, if any, for smooth implementation of the project within the overall permissible time period. CSR COMMITTEE ADDITION The CSR Committee shall formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy, which shall include the following, namely:- (a) the list of CSR projects or programmes that are approved to be undertaken in areas or subjects specified in Schedule VII of the Act; (b) the manner of execution of such projects or programmes as specified in sub-rule (1) of rule 4; (c) the modalities of utilisation of funds and implementation schedules for the projects or pro- grammes; (d) monitoring and reporting mechanism for the projects or programmes; and (e) details of need and impact assessment, if any, for the projects undertaken by the company: Provided that Board may alter such plan at any time during the financial year, as per the recommendation of its CSR Committee, based on the reasonable justification to that effect.


CSR EXPENDITURE ADDITION (1) The board shall ensure that the administrative overheads shall not exceed five percent of total CSR expenditure of the company for the financial year. (2) Any surplus arising out of the CSR activities shall not form part of the business profit of a company and shall be ploughed back into the same project or shall be transferred to the Unspent CSR Account and spent in pursuance of CSR policy and annual action plan of the company or transfer such surplus amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year. (3) Where a company spends an amount in excess of requirement provided, such excess amount may be set off against the requirement to spend up to immediate succeeding three financial years subject to the conditions that – (i) the excess amount available for set off shall not include the surplus arising out of the CSR activities, if any, in pursuance of sub-rule (2) of this rule. (ii) the Board of the company shall pass a resolution to that effect. (4) The CSR amount may be spent by a company for creation or acquisition of a capital asset, which shall be held by – (a) a company established under section 8 of the Companies Act, 2013 or a Registered Public Trust or Registered Society, having charitable objects and CSR Registration Number; or (b) beneficiaries of the said CSR project, in the form of self-help groups, collectives, entities; or (c) a public authority: Provided that any capital asset created by a company prior to the commencement of the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021, shall within a period of one hundred and eighty days from such commencement comply with the requirement of this rule, which may be extended by a further period of not more than ninety days with the approval of the Board based on reasonable justification. CSR REPORTING ADDITION (1) The Board's Report of a company covered under these rules pertaining to any financial year shall include an annual report on CSR containing particulars as applicable.


(2) In case of a foreign company, the balance sheet filed shall contain an annual report on CSR containing particulars as applicable. (3) (a) Every company having average CSR obligation of ten crore rupees or more, in the three immediately preceding financial years, shall undertake impact assessment, through an inde- pendent agency, of their CSR projects having outlays of one crore rupees or more, and which have been completed not less than one year before undertaking the impact study. (b) The impact assessment reports shall be placed before the Board and shall be annexed to the annual report on CSR. (c) A company undertaking impact assessment may book the expenditure towards Corporate Social Responsibility for that financial year, which shall not exceed five percent of the total CSR expenditure for that financial year or fifty lakh rupees, whichever is less. DISPLAY OF CSR ACTIVITIES ON ITS WEBSITE ADDITION The Board of Directors of the Company shall mandatorily disclose the composition of the CSR Committee, and CSR Policy and Projects approved by the Board on their website, if any, for public access. TRANSFER OF UNSPENT CSR AMOUNT ADDITION Until a fund is specified in Schedule VII for the purposes of sub-section (5) and (6) of section 135 of the Act, the unspent CSR amount, if any, shall be transferred by the company to any fund included in schedule VII of the Act. CLARIFICATION ON SPENDING OF CSR FUNDS FOR SETTING UP MAKESHIFT HOSPITALS AND TEMPORARY COVID CARE FACILITIES ADDITION MCA has further clarified that spending of CSR funds for 'setting up makeshift hospitals and temporary COVID Care facilities ' is an eligible CSR activity under item nos. (i) and (xii) of


Schedule VII of the Companies Act, 2013 relating to promotion of health care, including pre- ventive health care, and, disaster management respectively. CLARIFICATION ON SPENDING OF CSR FUNDS FOR ‘CREATING HEALTH INFRASTRUCTURE FOR COVID CARE’, ‘ESTABLISHMENT OF MEDICAL OXYGEN GENERATION AND STORAGE PLANTS’ ETC ADDITION MCA has further clarified that spending of CSR funds for ‘creating health infrastructure for COVID care’, ‘establishment of medical oxygen generation and storage plants’, ‘manufacturing and supply of Oxygen concentrators, ventilators, cylinders and other medical equipment for countering COVID-19’ or similar such activities are eligible CSR activities under item nos. (i) and (xii) of Schedule VII of the Companies Act, 2013 relating to promotion of health care, including preventive health care, and, disaster management respectively.


CHAPTER 8 – ACCOUNTS, AUDIT & AUDITORS


PERIODICAL FINANCIAL RESULTS ADDITION The Central Government may, require such class or classes of unlisted companies, as may be prescribed,— (a) to prepare the financial results of the company on such periodical basis and in such form as may be prescribed; (b) to obtain approval of the Board of Directors and complete audit or limited review of such periodical financial results in such manner as may be prescribed; and (c) file a copy with the Registrar within a period of thirty days of completion of the relevant period with such fees as may be prescribed. MAINTENANCE OF BOOKS OF ACCOUNTS IN ELECTRONIC FORM AMENDMENT & ADDITION For the financial year commencing on or after the 1st day of April, 2022, every company which uses accounting software for maintaining its books of account, shall use only such accounting software which has a feature of recording audit trail of each and every transaction, creating an edit log of each change made in books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled."


CHAPTER 9 – TRANSPARENCY & DISCLOSURES


FILING OF ANNUAL RETURN One Person Company and Small Company shall now file their Annual Return in Form MGT- 7A from the financial year 2020-21 onwards and every other company shall continue to file their Annual Return in Form MGT-7. Further MCA has done away with annexing extract of Annual Return in the Board’s Report.


CHAPTER 12 – AN OVERVIEW OF CORPORATE REORGANISATION


FAST TRACK MERGER (SECTION 233) A scheme of merger or amalgamation under section 233 of the Companies Act, 2013 may be entered into between any of the following class of companies, namely:- (i) two or more start-up companies; or (ii) one or more start-up company with one or more small company. Start-up company means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognised as such in accordance with notification number G.S.R. 127 (E), dated February 19, 2019 issued by the Department for Promotion of Industry and Internal Trade.


CHAPTER 17 – KEY MANAGERIAL PERSONNEL


In pdf


CHAPTER 19 – GENERAL MEETINGS


FILING OF CERTAIN RESOLUTIONS AND AGREEMENTS AMENDMENT OLD Resolutions passed in pursuance of sub-section (3) of section 179. No person shall be enti- tled under Section 399 to inspect or obtain copies of such resolutions. This clause shall not apply to a banking company and to private companies. NEW "Provided further that nothing contained in this clause shall apply in respect of a resolution passed to grant loans, or give guarantee or provide security in respect of loans under clause (f) of sub - section (3) of section 179 in the ordinary course of its business by, — (a) a banking company; (b) any class of non -banking financial company registered under Chapter IIIB of the Reserve Bank of India Act, 1934, as may be prescribed in consultation with the Reserve Bank of India; (c) any class of housing finance company registered under the National Housing Bank Act, 1987, as may be prescribed in consultation with the National Housing Bank; ". Details of Changes The Central Government has been empowered to exempt any class of NBFCs and any class of Housing Finance Companies from filing of resolutions passed to grant loans or give guarantees or to provide security in respect of loans in the ordinary course of their business. Earlier, only Banking Companies were exempted.



By CS VIKAS VOHRA (Yes Academy)


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