The Firm

Show Timings:

Friday: 10.30 pm, Saturday: 11.30 am

Sunday: 9:30am & 11.00pm


Companies Act, 2013: No Breathing Space?

Published on Wed, Mar 26,2014 | 21:41, Updated at Wed, Mar 26 at 21:43Source : 

  By: Narayan Shankar, Sr VP & Company Secretary, M&M

The Ministry of Corporate Affairs, vide notification dated 26th March 2014, has notified 183 new sections of the Companies Act 2013 and some sub- sections of 13 sections which were already notified by notification dated 12th September 2013. These sections have been notified to come into effect from 1st April 2014. With the notification of these sections, now a total of 283 sections of the new Act stand notified.
Whilst the sections have been notified the relevant final rules are yet to be put in public domain.
The notified sections are incomplete without the final rules and will have to be analysed in conjunction with the rules when they are notified in order to understand their exact implication.
Besides the above, the clarificatory Circulars issued by MCA  further adds new dimensions under law. Hence one has to go through the Act, Rules and the clarificatory Circulars for due compliance. To quote few examples:
I.         Circular of November 19, 2013 and Feb14,2014 on Section 185 requires following further compliance by Corporates:-
•      Use of the expression ‘exclusively utilised for a company’s principal business activities was beyond the mandate of the Section -  i.e., a new dimension has been created whereby loans obtained have to be exclusively utilized by the subsidiary for its principal business activities which was not the mandate of the Section.
•      Reference to ‘banks or financial institutions’ in the Circular raises questions as to what would be the treatment of loans given by lenders other than banks or financial institutions, and whether such loans would also qualify for the exemption under Section 185.
•      No mention of loans in the circular and hence no clarity on whether loans (as opposed to guarantees and securities only) given under Section 372A of CA 1956 would be exempt from the ambit of Section 185 of CA ,2013.
II.        General Circular No. 4 of 2014 dated 25 March 2014 clarifies that resolutions passed by companies for borrowing and /or creation of security previously under section 293 of the Companies Act,1956 prior to 12th September,2013 will be regarded as sufficient compliance with the requirements of section 180 of the Companies Act 2013.

However the Circular adds a new dimension by mandating that this will be valid only for a period of one year from the date of notification of section 180 of the Act which does not seem to be the intent of the  Act .
If a Company has done any act in full compliance of the law of the Land prevailing on the date of the Act then it is deemed to have been done or taken under the corresponding provisions of the New Act made by the Legislature. This is indeed the mandate of section 465(2) of the Companies Act,2013 and this section does not prescribe any limit or period.
It would therefore be difficult for the industry, specifically the vast number of small and medium sized companies to comply with the various provisions of the new Act without the Rules being in place which are inherent to the Act.
The implementation of the provisions of the new Act without there being enough breathing space for the Corporates could bring to the fore various compliance issues as right from the determination of the threshold limits for applicability of various sections till the exemptions that would be covered in the Rules, the industry would require sufficient time to dissect and digest applicability of various provisions.
In view of the above, it is imperative that the industry gets sufficient transition period to react positively. It would therefore be ideal if the effective date of implementation could be 1st October, 2014 , the date when amendments to Clause 49 of the Listing Agreement would be brought into effect which incidentally is being done by SEBI primarily with the sole intention of bringing about an alignment of Clause 49 with the provisions of the Companies Act, 2013.
The six month period that the Industry would thus get could also be used by the Ministry of Corporate Affairs along with various Chambers of Commerce and professional bodies such as ICSI and ICAI to educate and sensitise the companies on how to go about with the implementation of the various provisions of the new Act, which will effectively mitigate the scope of non-compliance.


Copyright © Ltd. All rights reserved. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express written permission of is prohibited.