the Companies (Amendment) Bill, 2017 has now received the assent of the President to become

the Companies (Amendment) Act, 2017 (Amendment Act).

This is the second round of amendments made to the Companies Act, 2013, with the first one
being made in 2015.
The Amendment Act, now with over 40 revisions, was first introduced in 2016 and was then
referred to the Standing Committee on Finance. After taking into consideration the
recommendations of the panel, the Cabinet had cleared a revised bill in March this year.
The Amendment Act broadly seeks to strengthen corporate governance standards, initiate
strict action against defaulting companies and help improve ease of doing business in the country
Here are the top five changes:
Harmonization with SEBI and RBI
Perhaps for the first time, several provisions have been amended to align the Act with various
rules and regulations of the SEBI and the RBI.
For instance, Sections 194 and 195 of the Act, which dealt with insider trading and forward
dealing, have now been omitted since the SEBI regulations are wide enough to cover all
instances of such frauds. Further disclosures to be made in the prospectus have also been aligned
with the SEBI’s power to regulate IPOs.
The definition of ‘debenture’ has also been amended to allow RBI to disqualify certain
instruments as debentures.
Rationalization of penalties
One of the most applauded amendments made in the Amendment Act – the quantum of penalty
will now be levied taking into consideration the size of company, nature of business, injury to
public interest, nature and gravity of default, repetition of default, etc
Two new sections with respect to factors for determining the level of punishment and for lesser
penalties for one person companies and small companies are inserted.
Penal provisions for small companies and one person companies are reduced.
Private placement process made easier
The private placement process is simplified by doing away with separate offer letter details to be
kept by company and reducing number of filings to Registrar.
Further, the company has been restricted from utilizing the money raised through private
placement unless allotment has been made and return of allotment has been filed with the
Registrar.
In order to ensure that investor gets adequate information about the company, the disclosures are
made under Explanatory Statement referred to in Rule 13(2)(d) of Companies (Share Capital
and Debenture) Rules, 2014, embodied in the Private Placement Application Form.
Change in definition of private placement is proposed to cover all securities offer and invitations
other than rights. The Companies would be allowed to make offer of multiple security
instruments simultaneously.
Loans to directors
This was done to address the difficulties being faced in genuine transactions due to the complete
embargo on providing loans to subsidiaries with common director.
Now the companies are permitted to give loans to entities in which directors are interested after
passing special resolution and adhering to disclosure requirements. This would give big relief to
the companies.
Section 185, however, has had quite a journey for it to reach here (which is explained here)
Section 185 of the 2013 Act, was more restrictive than its parallel provision, Section 295 of the
1956 Act. Not only did it omit the exemption which was granted to private companies under the
1956 law but also removed the option of obtaining government approval.
However, an exemption for granting loans and providing guarantees and security on behalf of
wholly owned subsidiaries was inserted by way of the Meeting of Boards and its Powers, Rules
in 2014. These rules, however, granted exemptions only for “wholly owned subsidiaries”
Later, however, the 2013 Act did add two separate new exemptions: one for loans granted to a
managing or whole-time director (subject to certain conditions) and to “a company which in the
ordinary course of its business provides loans or gives guarantees or securities for the due
repayment of any loan.”
The Amendment Act further bifurcates the regulatory framework into two categories: the first
contemplating certain transactions which are prohibited and another consisting of transactions
which may be permitted, subject to approval of the shareholders by way of a special resolution
passed at a general meeting.
Disqualification for Independent Director further clarified
Section 149 of the Act deals with the qualifications and disqualifications of independent
directors. Sub-Section (6) provides for various disqualifications for becoming an independent
director, one of which is, such person having “pecuniary relationship” with “the company, its
holding, subsidiary or associate company, or their promoters, or directors”.
The amendment clarifies that this pecuniary relationship excludes the remuneration to such
director or having transaction not exceeding 10% of his total income or such amount as may be
prescribed.