Exemption to Private Companies, Section 8 Companies and Government companies

Exemption to Private Companies, Section 8 Companies and Government companies

The  Ministry of Corporate Affairs (“MCA”) has issued three notifications dated 13 June 2017 providing exemptions from applicability of certain provisions of the Companies Act, 2013 (“CA 2013”) to the following type of companies:

  1. Private Companies;
  2. Section 8 Companies;
  3. Government Companies

 

The said exemption notifications hereby amends the earlier exemption notifications issued vide number G.S.R 464(E), G.S.R 466(E) and G.S.R 463(E) dated 5 June 2015 with respect to Private Companies, Section 8 Companies and Government  Companies respectively (hereinafter referred as “Principal Notifications”) and is effective from 13 June 2017.

The following are the key highlights of the said notifications:-

1. Highlights of exemption notification on Private Companies:

 

Sections under CA 2013Earlier exemption

(issued vide number G.S.R 464(E), dated 5 June 2015)

Modification/addition to earlier exemption
2 (40): Financial StatementsNilThe proviso to Section 2(40) provided that One Person Company, Small Company and Dormant Company may not include cash flow statements as part of their Financial Statements.

 

This exemption has been extended to Private Companies which fall into the category of start-up companies as defined in the explanation to the clause.

 

Start-up company means a private company and recognized as start-up in accordance with the notification issued by the DIPP (Department of Industrial Policy and Promotion).

73 (2): Acceptance of DepositsPrivate companies accepting deposits from its members, monies not exceeding 100% of aggregate of the paid up share capital and free reserves were exempted form Clauses
(a – e) of Section 73(2).Such company are only required to file the details of monies so accepted with Registrar of companies (“RoC”).The clauses (a-e) of the Section 73 (2) provided for the fulfilment of the following conditions:

 

(a)   Issuance of circular to its members indicating such matters as prescribed

(b)   Filing of circular with RoC

(c)   Creation of deposit repayment reserve account

(d)   Deposit insurance

(e)   Certificate of compliance

(f)    Creation of security

The exemption has been extended to the following classes of companies in addition to private limited companies accepting monies from its members subject to specified limits:

 

(a)   Private Company which is a start-up, for five years from the date of its incorporation; or

 

(b)   Private Company which fulfils the following conditions, namely:-

·         which is not an associate or a subsidiary company of any other company

·         if the borrowing of such company from banks or financial institutions or any  Body corporate is  less than twice of its paid up share capital or fifty crores rupees, whichever is lower: and

·         such a company has not defaulted in the repayment of such borrowing subsisting at the time of accepting deposits under this section;

 

Provided that the company referred to above shall file the details of monies accepted to the RoC in the manner as specified

92 (1) (g): Annual ReturnNILThe annual return required to be filed under Section 92 required the disclosure of remuneration paid to Directors and KMP (‘Key Managerial Personnel’);

 

Private companies are now only required to disclose the remuneration paid to the Directors. Exemption has been provided with respect to disclosure of remuneration of KMP.

92 (1): Annual ReturnNILThe provisions of Section 92 (1) provided that the annual return of a One Person Company and Small Company shall be signed by Company Secretary, or where there is no Company Secretary, by the Director of the Company.

 

Pursuant to this notification, the annual return of One Person Company, Small Company and Private Company (if such private company is a start-up) shall be signed by the Company Secretary or where there is no Company Secretary, by the Director of the Company.

143 (3) (i): Auditors ReportNILThe auditor’s report shall report shall state whether the company has adequate internal financial control systems in place and the operating effectiveness of such controls.

 

Pursuant to this notification, the following category of private companies are not required to have an internal financial control system and the Auditor’s report need not report on the same:

 

(a)   One Person Company or Small Company; or

(b)   Company which has a turnover less than rupees fifty crores as per latest audited financial statements or which has aggregate borrowings from banks and financial institutions or any Body corporate at any point of time during the financial year less than rupees twenty five crore.

173 (5): Board MeetingsNILThe earlier provisions provided that One Person Company, Small Company and Dormant Company were deemed to have complied with the provisions of Section 173 if such company held at least one meeting of Board of Directors in each half of a calendar year and the gap between the two meetings was not less than 90 days.

 

The above requirement does not apply to One Person Company where there is only one Director on its Board.

 

The above exemption has been extended to include private companies (if such company is a start-up). Thereby, a private company which is a start-up company may hold only one Board meeting in each half of a calendar year provided the gap between the two meetings is not less than 90 days to be compliant with the said provisions.

Section 174 (3): Quorum for meetings of the BoardNILThe provisions of the CA 2013 provided that where the interested Directors exceeds or is equal to two-thirds of the total strength of the Board of Director, the Directors  who are not interested directors and present at the meeting, being not less than two, shall be quorum during such time.

 

Further, the earlier exemption allowed interested Directors of private companies to participate in the meeting after disclosing their interest in accordance with Section 184 (2) of CA 2013.

 

Pursuant to this amendment notification, the provisions of this Section has been aligned with Section 184 (2) of CA 2013 to provide better clarity.

NANAThe paragraph 2A is inserted to provide that the exemptions, modifications and adaptions provided in column 3 of the Principal Notification including amendments as aforesaid shall be applicable to Private Companies which has not committed default in filing its financial statements and annual return with the Registrar of Companies.

 

2. Highlights of exemption notification on Section 8 Companies:

 

Sections under CA 2013Earlier exemption

(issued vide number G.S.R 466(E), dated 5 June 2015)

 

Modification/addition to earlier exemption
Section 149 : Number of Board of DirectorsSection 149 (1) and first proviso to sub-section 1 relating to minimum and maximum number of directors requirement was not applicable to Section 8 CompanyAs per the amendment notification, provisions pertaining to minimum number of Directors i.e., Section 149 (1)(a) is applicable and criteria for the maximum number of Directors i.e., Section 149 (1)(b) and its first proviso is not applicable to a Section 8 Company.
186: Loan and investment by company:

 

Sub-section (7) of Section 186 provides that –  No loan shall be given under this section at a rate of interest lower than the prevailing yield of one year, three year, five year or ten year Government Security closest to the tenor of the loan.

NILProviso for Sub-section (7) of Section 186 has been inserted which provides that nothing contained in sub-section (7) shall apply to a company in which twenty-six percent or more of the paid-up share capital is held by the Central Government or one or more State Governments or both, in respect of loans provided by such company for funding Industrial Research and Development projects in furtherance of its objects as stated in its memorandum of association.
NANA

 

The paragraph 2A is inserted to provide that the exemptions, modifications and adaptions provided in column 3 of the Principal Notification including amendments as aforesaid shall be applicable to a Section 8 Company which has not committed default in filing its financial statements and annual return with the Registrar of Companies.

 

3. Highlights of exemption notification on Government Companies:

 

Sections under CA 2013Earlier exemption

(issued vide number G.S.R 463(E), dated 5 June 2015)

 

Modification/addition to earlier exemption
96 (2): Annual General MeetingEvery Annual General Meeting (“AGM”) of a Government Company shall be held either at the registered office of the Company or such other place as the Central Government may approve in this behalfIn the amendment, the sentence “such other place within the city, town or village in which the registered office of the company is situated”  is inserted which was removed under earlier exemption notification.

 

As per the amendment, the AGM of a Government Company may now be held at the registered office of the company or at such other place within the city, town or village in which the registered office of the company is situated or at a place approved by the Central Government.

152 (6) and (7): Directors retire by rotationSub-section (6) and (7) of Section 152 pertaining to retirement of directors and adjournment of meeting in case of non-filling of retiring directors respectively, were not applicable to:

 

(a)   a Government Company in which the entire paid up share capital is held by the Central Government, or by any State Government or Governments or by the Central Government and one or more State Governments;

 

(b)   a subsidiary of a Government Company, referred to in (a) above, in which the entire paid up Share capital is held by that Government Company

As per the amendments, the said provisions shall not apply to:

 

(a)   a Government Company, which is not a listed company, in which not less than fifty-one percent of paid up share capital is held by the Central Government, or by any State Government or Governments or by the Central Government and one or more State Governments;

 

(b)   a subsidiary of a Government company, referred to in (a) above.

 

The amendment has brought a change in the ownership, according to which a non-listed Government Company in which at least fifty-one percent of the share capital is held by the Central Government or State Government individually or collectively is exempt from complying with the provisions of Section 152 (6) (7) as compared to the 100% control required earlier.

230: Power to compromise or make arrangements with creditors and members;

 

231: Powers of Tribunal to enforce compromise or arrangement;

 

232: Merger and amalgamation of companies

NILThe powers to compromise or make arrangements, enforce compromise or arrangement and merger and amalgamation of companies has been delegated from the Tribunal to the Central Government.
NANAThe paragraph 2A is inserted to provide that the exemptions, modifications and adaptions provided in column 3 of the Principal Notification including amendments as aforesaid shall be applicable to a Government Company which has not committed a default in filing its financial statements and annual return with the Registrar of Companies.

 

To read the full text of notifications, please click on the below link:

  1. For exemption notification on Government Companies:http://www.mca.gov.in/Ministry/pdf/ExemptionGovernmentCompanies_14062017.pdf
  2. For exemption notification on Private Companies: http://www.mca.gov.in/Ministry/pdf/ExemptionPrivateCompanies.pdf
  3. For exemption notification on Section 8 Companies:http://www.mca.gov.in/Ministry/pdf/ExemptionSection8Companies_14062017.pdf

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Adarsh Madrecha

CA, ISA, BCAF

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