With the larger aim to smoothen the path for doing business in India, the Lok Sabha has given its nod to the Companies (Amendment) Bill, 2014 on December 17, 2014. The notable changes included in the Bill are as follows:

Related Party Transactions: The Companies Act, 2013 which came into effect from April 1, 2014 had made it difficult for companies to undertake RPTs in their ordinary course of business as it had introduced the requirement of passing a special resolution for all RPTs.  It was felt that these restrictions were too onerous and affected the smooth functioning of business, especially for large conglomerates. Under the Bill, it is proposed that all RPTs will require only an ordinary resolution of the shareholders, and the Audit Committee will be empowered to provide omnibus annual approvals for RPTs subject to prescribed conditions. However, it may be noted that listed companies may still have to comply with the more stringent requirements under Clause 49 of the Listing Agreement.

Public Inspection of Board Resolutions: Public inspection of board resolutions filed with the Registrar of Companies would now be prohibited. This is a step in the right direction as it would ensure that business strategies of companies are not made known to competitors.

Loans to Subsidiaries: Loans/guarantees/security provided against loans by a holding company to its subsidiaries would be exempted from the general prohibition imposed on companies from giving loans to directors/persons in which directors are interested, provided such loans are utilized by the subsidiaries for their principal activities.

Minimum Paid-up Capital:  The requirement of having a minimum paid-up capital for incorporating companies would be done away with. However, concerns have been raised that this may open the flood gates by making it easier to set up shell companies that may facilitate money laundering.

Further, the Bill makes amendments in relation to payment of dividends, fraud reporting, establishment of special courts, punishment for violation of deposit rules, optional requirement to have a common seal etc.

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Date:September 29, 2015