TaxTMI 
TaxTMI 
Notes on clauses
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.... Authority Act, 2019. Clause 4 of the Bill seeks to insert a new proviso in sub-section (1) of section 13 of the LLP Act, 2008 to provide that a Specified International Financial Services Centre LLP shall have its registered office at all times within an International Financial Services Centre. Clause 5 of the Bill seeks to insert a new proviso in sub-section (1) of section 15 of the LLP Act, 2008 to require that a Specified International Financial Services Centre LLP shall include the suffix "International Financial Services Centre LLP" as part of its name. Clause 6 of the Bill seeks to insert a new proviso to sub-section (2) of section 23 of the LLP Act, 2008 so as to provide that in case of prescribed class or classes of LLPs regulated by the Securities and Exchange Board of India (SEBI), or by the International Financial Services Centres Authority (IFSCA), as the case may be, the requirement of filing any changes in the LLP agreement shall be such as may be provided by rules. This amendment is to facilitate setting up of Alternative Investment Funds in LLP form. Clause 7 of the Bill seeks to insert a new proviso to sub-section (2) of section 25 of the LLP Act, 2008 ....
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....th any requisition of the Registrar (other than summons) issued under this section shall be liable to penalty of ten thousand rupees. Accordingly, this aspect of offence is being decriminalised. Clause 12 of the Bill seeks to insert new section 57A in the LLP Act, 2008 to allow conversion of a specified trust into a limited liability partnership in accordance with the provisions of Chapter X and the proposed Fifth Schedule in the said Act. It also seeks to insert an Explanation to the new section to clarify that, for the purposes of the section, the term "specified trust" means a trust established under the Indian Trusts Act, 1882 or under a Central Act or State Act, and registered by SEBI or by the IFSCA, having such activities as may be provided by rules. This amendment will facilitate conversion of Alternative Investment Funds formed as trusts into LLPs. Clause 13 of the Bill seeks to replace section 58 of the LLP Act, 2008 so as to include enabling provisions for the registration and legal effect of conversion of a specified trust into limited liability partnership also, in addition to firm, private company and unlisted public company already allowed in existing section 5....
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.... to modify clause (28) to substitute reference to the appropriate title of "The Cost Accountants Act, 1959". It seeks to insert new proviso to clause (41) for empowering the Central Government to allow conversion of the financial year to the period ending on 31st March of the following year, on application by a company or a body corporate, referred to under the first proviso, or on the basis of commercial considerations, by any other company or body corporate, as the case may be. It also seeks to insert definition of "Regional Director" as a new clause (73A) to mean a person appointed by the Central Government under section 396 as Regional Director for the purposes of the Companies Act who shall include an Additional Regional Director or Joint Regional Director, or Deputy Regional Director. It also seeks to insert new clause (74A) to define the term "Registered Valuer" to mean a person who holds a certificate of registration granted under section 247. The clause also seeks to amend sub-clauses (i) and (ii) of clause (85) to expand the definition of small companies by increasing the existing upper limit of paid-up share capital to twenty crore rupees and existing upper limit of turn....
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....-section (1) of section 458". The proviso to sub-section (1) in section 458 referring to delegation of powers under sections 194 and 195 to the Securities and Exchange Board of India, as well as, sections 194 and 195 of the Companies Act were omitted in 2017. The reference to such proviso to sub-section (1) of section 458 in sub-section (2) of section 24, accordingly, is redundant and being omitted. Clause 24 of the Bill seeks to substitute sub-section (9) of section 26 of the Companies Act, to provide that if a prospectus is issued in contravention of such section, the company and every person who is knowingly a party to the issue of such prospectus shall be liable to a penalty of two lakh rupees. Accordingly, the offence is being decriminalised. Clause 25 of the Bill seeks to amend sub-section (5) of section 40 of the Companies Act, to provide that punishment under such sub-section shall be applicable only for defaults under sub-section (3) thereby decriminalising offences under sub-sections (1), (2) and (4) of section 40. It further seeks to insert new sub-section (5A) to provide that in case of defaults (under sub-sections other than sub-section (3), penalty of twenty-fiv....
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.... as may be provided by rules. It also seeks to insert a proviso to clause (g) of sub-section (2) thereto to allow prescribed class or classes of companies to make up to two offers of buy-backs within a period of year in such a manner that the second buy-back during the year is not made earlier than six months from the date of closure of the preceding offer for buy-back during the year. Further, it seeks to amend clause (c) of sub-section (5) of section 68 of the Companies Act, 2013 to include the words "or a scheme linked to the value of the share capital of a company referred to in clause (b) of sub-section (1) of section 62" after the words "sweat equity". Buy-back through tender offers is an efficient way of returning surplus funds to shareholders and it is proposed to allow prescribed class of companies to avail such mechanism. Further it is proposed that companies which are debt free can be considered to undertake more than one buy-back in a financial year. It also seeks to omit words "and verified by an affidavit" in sub-section (6) so that declaration of solvency to be filed for the purposes need not be in the form of an affidavit. The punishment of fine provided under sub-s....
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....anies Act to allow companies to hold their extraordinary general meetings (EGMs) physically or through video conferencing or other audio-visual means, either wholly or partly, in such manner and subject to such terms and conditions, as may be provided by rules. It seeks to provide that if the number of members referred to in sub-section (2) of section 100 of the Companies Act requisition the meeting to be held in a hybrid mode, the company shall hold the meeting in such mode. Clause 35 of the Bill seeks to amend the proviso to sub-section (1) of section 101 of the Companies Act to provide that EGMs conducted wholly through video conferencing or audio-visual means under sub-section (7) of section 100 may be called by giving a notice of at least seven days, or such other period, and in such manner as may be provided by rules. Clause 36 of the Bill seeks to amend sub-section (5) of section 124 of the Companies Act to provide that "any dividend which has not been paid or claimed" shall also be transferred to Investor Education and Protection Fund (IEPF) in cases where relevant shares have been transferred by the company under sub-section (6) of the said section to such Fund. It a....
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.... the National Financial Reporting Authority (NFRA) shall be a body corporate, having perpetual succession and a common seal with powers to acquire, hold and dispose of property and to contract, and to sue or be sued in its own name. It further seeks to amend clause (a) of sub-section (2) to insert the words "or bodies corporate", after the words "class of companies" to enable the authority to make recommendations for relevant bodies corporate also. It seeks to omit sub-section (3A). It also seeks to insert sub-section (3C) to provide that the Chairperson shall have the powers of general superintendence and direction of the affairs of the NFRA and may exercise all powers and do the acts delegated to him by the executive body. It seeks to insert sub-section (3D) to provide that the executive body may, by order, delegate to the Chairperson, or any full-time Member or officer of the NFRA, or to a Committee comprising of one or more of the above, subject to such conditions, such powers of the executive body under this Act as it may deem necessary. It also seeks to amend clause (a) of sub-section (4) to clarify that class of companies or bodies corporate which may be investigated under s....
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....nsert new section 132B to provide for the constitution of the NFRA Fund. It also seeks to insert a new section 132C to give the National Financial Reporting Authority the power to issue directions in public interest or interest of investors or creditors or other persons concerned. It also seeks to insert section 132D to empower NFRA to impose penalties after holding inquiry in such manner as may be provided by the rules after giving a reasonable opportunity of being heard. It also seeks to insert section 132E to provide that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the NFRA is empowered to determine, and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken by the said Authority in pursuance of any power conferred by or under the Companies Act. It also seeks to insert a new section 132F to provide that no suit, prosecution or other legal proceeding shall lie against the Central Government or the National Financial Reporting Authority or Chairperson or any member or officer or other employee of the said Authority for anything done in good faith, or intended to be d....
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....ert a new sub-section (10) to provide that prescribed class or classes of companies which fulfil prescribed conditions shall not be required to comply with the said section. Clause 44 of the Bill seeks to insert a new sub-section (12) in section 139 of the Companies Act to provide that prescribed class or classes of companies which fulfil such conditions, as may be provided by rules, shall not be required to appoint auditors under Chapter X of the said Act. This amendment is aimed at facilitating ease of compliance for small companies. Clause 45 of the Bill seeks to insert a new proviso in sub-section (1) of section 141 of the Companies Act to provide that every partner of the firm shall be a person who has been registered with a statutory institute or body established under a law in India having powers of such registration. Clause 46 of the Bill seeks to insert new proviso to section 144 of the Companies Act to provide that an auditor or audit firm of prescribed class or classes of companies shall not provide, directly or indirectly, any non-audit services to the company or its holding company or subsidiary. It also seeks to provide that the restriction under this section....
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....eeks to substitute the words "secretarial auditors" for the words "company secretaries in practice" in item (A) of sub-clause (ii) of clause (e) of sub-section (6). It also seeks to amend item (B) in sub-clause (ii) of clause (e) of the said sub-section to replace the words "amounting to ten per cent. or more", with the words "amounting to ten per cent. or such lower per cent., as may be prescribed" so that lower per cent. may be provided by rules in future with regard to the amounts of transactions which any legal or consulting firm may have with the company or its holding, subsidiary or associate company in case any employee or proprietor or partner of such firm is independent director in the company. It also seeks to insert a new sub-section (6A) to provide that every independent director shall ensure that he continues to fulfil the requirements specified under sub-section (6) during the term of his appointment. It also seeks to amend sub-section (11) of section 149 of the Companies Act to include reference to "holding, subsidiary or associate company" also so that the restriction in respect of appointment or association in any other capacity during cooling off period of three y....
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...." to bring in more transparency in levy of penalties. It also proposes to include maximum penalty amount of rupees five lakh for default in respect of this section. Clause 53 of the Bill seeks to amend sub-section (1) of section 161 of the Companies Act to provide that an additional director may hold office up to the date of the next general meeting or up to a period of three months from the date of his appointment, whichever is earlier. It further seeks to amend sub-section (4) to provide for similar requirements in case of filing of casual vacancy of a director. It also seeks to insert a new sub-section (5) to provide that notwithstanding anything contained in sub-sections (1) to (4), a person whose appointment as a director could not be considered or could not be approved in a general meeting, shall not be appointed by the Board as an additional director, or alternate director or a director against a casual vacancy under this section without the prior approval of its members. Clause 54 of the Bill seeks to amend clause (g) of sub-section (1) of section 164 of the Companies Act to cover cases where a person has been subjected to a penalty for default under the provisions of....
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....h rupees in case of any other company. The clause seeks to decriminalise offences under section 166, except sub-section (5). Clause 57 of the Bill seeks to substitute the proviso to clause (a) of sub-section (1) of section 167 of the Companies Act to provide that where a director incurs disqualification under sub-section (2) of section 164, his office shall become vacant in every company where he is a director (including the company which is in default under that sub-section), after six months from the date of incurring such disqualification or upon expiry of his tenure in such company, whichever is earlier. It further seeks to add an Explanation to clarify that the date of incurring the disqualification shall be the date on which the company fails to comply with the provisions of clause (a) or clause (b) of sub-section (2) of section 164. It also seeks to amend sub-section (2) to provide that if a person functions as a director even when he knows that the office of director held by him has become vacant on account of any of the disqualifications specified in sub-section (1) or that his Director Identification Number has been de-activated or cancelled, he shall be liable to a pe....
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.... section and the rules made thereunder shall be liable to a penalty of two lakh rupees. Clause 63 of the Bill seeks to insert a new section 203A in the Companies Act to provide for resignation of whole-time key managerial personnel (KMP) who are not a director in a company. Sub-section (1) of section 203A provides that a whole-time KMP, who is not a director, may resign from his office by giving a notice in writing to the company, and the Board shall, on receipt of such notice, take note of the same and intimate the Registrar of such resignation in such form and manner and within such time, as may be provided by rules. It further provides that where the company fails to intimate, the said KMP may forward a copy of his resignation to the Registrar in such manner as may be provided by rules. Sub-section (2) of section 203A provides that the resignation of a KMP shall take effect from the date on which the notice is received by the company or the date, if any, specified by him in the notice, whichever is later. It further provides that such KMP shall be liable even after his resignation for the default for which he was liable during his tenure. Clause 64 of the Bill seeks to ame....
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....nal shall exercise all the powers of the Tribunal referred to in such sections for all the companies involved in the schemes of compromise or arrangement or amalgamations. It also seeks to provide that any application pending before the Tribunal as on the date of such commencement shall continue to be dealt with by the Tribunal in accordance with the provisions applicable before such commencement. Clause 68 of the Bill seeks to amend the proviso to clause (b) of sub-section (3) of section 232 of the Companies Act to provide that after the words "or extinguished" occurring at the end, the words "on the merger or amalgamation" shall be inserted. This change is of drafting nature. Clause 69 of the Bill seeks to substitute clause (b) of sub-section (1) of section 233 of the Companies Act to provide that objections and suggestions received are considered by the companies in their respective general meetings and the scheme is approved by a majority of members or class of members present and voting at the meeting who hold at least seventy-five per cent. of the value in shares held by such members present and voting. This amendment seeks to aligns the approval requirements for such s....
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....Valuation Authority for the purposes of the said section; (ii) for the manner of granting or renewing certificate of recognition to valuers' organisations and certificate of registration to valuers (iii) for powers of Valuation Authority to make recommendations to the Central Government on the formulation and laying down of the valuation standards and policies, etc. (iv) that valuation under the Companies Act shall be undertaken only by a registered valuer who shall be appointed by the audit committee or in its absence, by the Board of Directors of that company, and in other cases, by such person, as may be provided by rules. It also seeks to provide for the circumstances, manner, period and consequences of suspension or cancellation of certificate of recognition or certificate of registration by Valuation Authority. Sub-section (3B) seeks to provide that any person aggrieved by an order of the Valuation Authority on suspension or cancellation may prefer an appeal before the Appellate Tribunal. Sub-section (3E) seeks to provide that no court shall take cognizance of any offence under sub-section (3C) or sub-section (3D) of section 247, which is alleged to....
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....heading of section 252 of the Companies Act to substitute the word "Tribunal" with the words "Regional Director or Tribunal". It further seeks to amend sub-section (1) of section 252 to substitute "Regional Director" for word "Tribunal", to convey that appeals for restoration of names under such sub-section may be filed before Regional Directors. Clause 77 of the Bill seeks to amend clause (a) of section 271 of the Companies Act by omitting the words "by the Tribunal" in the said clause to enable use of this clause for summery liquidation under section 361 which is approved by the Central Government. It also seeks to omit the words "by notification under this Act" in clause (c) to remove the requirement of issue of notification for authorisation of any other person by the Central Government under the said provisions. Clause 78 of the Bill seeks to amend sub-section (1) of section 361 of Companies Act to substitute the words "under this Chapter" with the words "in accordance with the provisions of this Chapter under the circumstances referred to in clauses (a), (b) and (d) of section 271" to clarify the specific circumstances under which such winding up may take place. It furt....
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....e Bill seeks to amend section 378Y of the Companies Act to provide that the quorum for a general meeting for Producer Companies, shall be either one-fourth of the total membership or one hundred members, whichever is less. Clause 86 of the Bill seeks to amend section 378ZA of the Companies Act by inserting a new proviso in sub-section (1) to provide that the first annual general meeting shall be held within a period of nine months from the date of closing of the first financial year and in any other case, within a period of six months, from the date of closing of the financial year. Further, it provides that if a company holds such first annual general meeting, it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation. Consequently, sub-section (2) of section 378ZA is proposed to be omitted. It further seeks to substitute sub-section (3) to provide that, in the first annual general meeting, the members shall adopt the articles of the Producer Company as referred to in clause (b) of sub-section (1) of section 378G and appoint the directors of its Board. It also seeks to amend sub-section (9) to provide that the quorum for the an....
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.... Deputy, Assistant Registrars presently provided in the said section. It seeks to insert a new sub-section (2A) to empower the Central Government to authorise one or more officers of that Government of appropriate rank to exercise the powers and duties of the Regional Director or the Registrar under the said Act. Clause 92 of the Bill seeks to insert a new section 396A in the Companies Act to provide that any person aggrieved by the decision of the Registrar under section 4 or section 7, may prefer an appeal to an officer not below the rank of the Joint Director as may be authorised by the Central Government, in such form and manner, and within such period as may be provided by rules. Clause 93 of the Bill seeks to amend the first proviso to sub-section (1) of section 403 of the Companies Act to substitute the minimum additional fee of "not less than one hundred rupees per day" in case of delayed filings under sections 92 and 137, with fee of "not less than such amount as may be prescribed" so that the amounts other than one hundred rupees can be provided under the said provisions for any class or classes of companies. It also seeks to provide that the additional fees shall b....
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....ch per cent. less than one-half up to which penalty amount can be levied in case of defaults by One Person Company, small company, start-up company or Producer Company or their officers in default or any other person, by rules. Clause 99 of the Bill seeks to amend section 447 of the Companies Act to replace the words "ten lakh rupees", with the words "twenty-five lakh rupees" and to replace the words "fifty lakh rupees", with the words "one crore rupees", which is consequential to the change made in section 441 of the said Act. Clause 100 of the Bill seeks to amend section 453 of the Companies Act to provide that in case of improper use of words "Limited" or "Private Limited", the person or persons concerned 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 subject to a maximum of five lakh rupees. Accordingly, it is proposed to decriminalise the offences under this section. Clause 101 of the Bill seeks to amend sub-section (1) of section 454 of the Companies Act to replace the word "Registrar" with the words "Assistant Registrar" so that officers not below the rank of Assistant Reg....
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....e power to seek assistance of local district administration while exercising powers under this section. New section 454C seeks to provide for the procedure for settlement for the contraventions which shall be liable for a penalty under Companies Act. It, inter alia, provides that the Central Government may constitute a Specified Authority (comprising of an officer or group of Officers of Central Government) to discharge functions under this section. The clause also seeks to insert new section 454D to provide that no appeal by a person who is required to pay any amount in terms of an order of the National Financial Reporting Authority, the Valuation Authority, or the adjudicating officer shall be entertained unless the person has deposited ten per cent. of that penalty amount in the manner as directed by the National Company Law Appellate Tribunal or Regional Director or the Appellate Authority as the case may be. Clause 104 of the Bill seeks to amend sub-section (1) of section 455 of the Companies Act to replace the words "or an inactive company may" with the words "or an inactive company shall" so that the provisions have mandatory force. It further seeks to amend clause ....