Cabinet approves amendments to Companies Act to improve ease of doing business

The Cabinet on Tuesday approved amendments to the Companies Act to improve the ease of doing business and to specify punishments for illegal deposits.

The amendments to the Companies Act, 2013, which came into effect from April 1 2014, have been proposed "in order to address some issues raised by stakeholders such as chartered accountants and professionals," said an official statement in the national capital after a Cabinet meeting.

The Corporate Affairs Ministry has had extensive consultations with stakeholders in the matter.

Under the new norms proposed, the paid-up capital criteria has been scrapped while threshold limits for various transactions for getting shareholders' approval has now been stipulated.

"Omitting requirement for minimum paid up share capital, and consequential changes (For ease of doing business)," the Cabinet approval read.

Another amendment approves "prescribing specific punishment for deposits accepted under the new Act". This was left out in the act inadvertently, the statement added.

Towards meeting a "corporate demand", the amendment proposes "prohibiting public inspection of Board resolutions filed in the Registry", the Cabinet statement said.

Among the major concerns of stakeholders were protecting the confidentiality of board resolutions, as well as the provision of auditors being required to report suspected frauds at the companies audited by them.

"Enabling provisions to prescribe thresholds beyond which fraud shall be reported to the Central Government (below the threshold, it will be reported to the Audit Committee)," the Cabinet said in its approval.

Stakeholders were also concerned that stringent regulations for related party transactions, or those transactions between the company and another in which a board member or members are interested, could hurt routine business activity.

The new Companies Act proposes to exempt corporates from the need to get the nod of shareholders in cases of related party transactions valued lower than Rs.100 crore or 10 per cent of net worth.

Under the old system, the permission of shareholders through a special resolution was required in case of related party transactions for all firms with a paid up capital of Rs 10 crore or more.

"Replacing 'special resolution' with 'ordinary resolution' for approval of related party transactions by non-related shareholders," the Cabinet statement said.

Another amendment approved by the cabinet for tabling in parliament exempts related party transactions between holding companies and wholly owned subsidiaries from the requirement of approval of non-related shareholders.