Companies (Amendment) Act, 2017 – Important Amendments Which Have Relevance From Audit

Presently,
companies are required to deposit an amount of not less than 15% of the
deposits maturing during the financial year and financial year next following
which is to be kept in a Scheduled Bank and called as Deposit Repayment
Reserve Account. ( Section 73)

Companies
Amendment Act 2017 (CAA 2017) now provides that an amount of not less than
20% of the deposits maturing during the following financial year is to be
kept in a Scheduled Bank and called as Deposit Repayment Reserve Account.

Companies
Law Committee ( CLC/ Committee) Observations in Para 5.1 of the report are
self-explanatory which read as under :

The
Committee felt that though the provision was a safeguard for depositors, it
would increase the cost of borrowing for the company as well as lock-up a
high percentage of the borrowed sums. Accordingly, the requirement for the
amount to be deposited and kept in a scheduled bank in a financial year
should be changed to not less than twenty percent of the amount of deposits
maturing during that financial year, which would mitigate the difficulties of
companies, while continuing with reasonable safeguards for the depositors who
have to receive money on maturity of their deposits.

Currently
Rule 13 of Companies (Acceptance of Deposits) Rules, 2014 provides that
amount of deposit pursuant to these rules shall not fall below fifteen per
cent. of the amount of deposits maturing, until the end of the current
financial year and the next financial year. 

This
provision in the case of larger deposit accepting companies required huge amount
to be blocked in deposits since it required two financial years to be
considered for maintenance of liquid assets . Thus amendment made now will
help in reducing the financial burden of deposit accepting companies
especially in the falling interest rate scenario. 

Presently,
companies accepting deposits are required to get the deposits insured.

This
requirement is done away with.

CLC
Observations in Para 5.2 of the report are self-explanatory which read as
under :

It
was also noted by the Committee that as on date none of the insurance
companies is offering such insurance products.

Considering
the above situation, the provisions of Section 73(2) (d) along with relevant
Rules are  omitted.

Presently,
companies accepting deposits are required to certify that the company has not
committed any default in the repayment of deposits accepted either before or
after the commencement of this Act or payment of interest on such deposits.(
Section 73)

CAA
2017 provides that companies accepting deposits are required to certify that
the company has not committed any default in the repayment of deposits
accepted either before or after the commencement of this Act or payment of
interest on such deposits and where a default had occurred, the company
has made good the default and a period of five years has elapsed since
the date of making good the default. 

Thus
post-amendment, Company can accept deposits after 5 years from the date of
making good such default (In repayment of deposit and/or interest). 

CLC
Observations in Para 5.3 of the report are self-explanatory which read as
under :

The
Committee noted that imposing a lifelong ban for a default anytime in the
past would be harsh. Therefore, it was recommended that the prohibition on
accepting further deposits should apply indefinitely only to a company that
had not rectified/made good earlier defaults.

However,
in case a company had made good an earlier default in the repayment of
deposits and the payment of interest due thereon, then it should be allowed
to accept further deposits after a period of five years from the date it
repaid the earlier defaulting amounts with full disclosures.

Currently,
deposits accepted and interest thereon, which remained unpaid at the commencement
of Companies Act, 2013 was required to be paid within one year or before the
expiry of the stipulated period, whichever was earlier.  ( Section 74)

CAA
2017 now provides that such amounts shall be repaid within three years or
before the expiry of the stipulated period, whichever was earlier.

Under
Companies Act 2013, deposits are allowed to be accepted by only eligible
companies and this has put lot of restrictions on the companies which had
accepted deposits under Companies Act 1956 . 

To
overcome the difficulties faced by such companies, repayment is now permitted
up to 3 years or maturity , whichever is earlier.     

Currently,
Section 76A(1)(a) provides that in respect of contraventions of Section 73 or
76, the company shall, in addition to the payment of the amount of deposit or
part thereof and the interest due, be punishable with fine which shall not be
less than one crore rupees but which may extend to ten crore rupees;

CAA
2017 provides that a company will be punishable with a fine of one crore
rupees or twice the amount of deposit accepted by the company, whichever is
lower.

Normally,
rules of Penalty require that Penalty be imposed with reference to the
quantum of offence committed. Thus flat penalties provided under the current
provisions were disproportionate to the offence committed and hence this
amendment seeks to correlate penalty with the underlying deposit.

Currently,
it is provided that an officer of the company who is in default shall be
punishable with imprisonment or fine.

Now
it is provided that an officer of the company who is in default shall be
punishable with imprisonment and fine.

In
the process, the offence has been made non-compoundable.

Provisions
in brief prior to Amendment

Provisions
after Amendment

Impact
/ Implications/ Remarks

Currently,
the charge holder can register the charge only in case the company fails to
do so within the period specified in section 77, which is 300 days.

CAA
2017 now provides that the person in whose favor the charge has been created
can file the charge on the expiry of 30 days from the creation of charge
where a company (borrower) fails to file such charge

This
amendment is welcome from the point of view of the lender.

Primary
obligation for registration was with the borrower u/s 77 which allowed
creation of charge up to 300 days on payment of additional fees. After such
period, application for condonation was required to be done by the company or
any other person interested in such charge. It was felt that the wordings of
the present section required a waiting period up to 300 days for creation of
charge by the lender. But in the process the charge remained to be registered
and as such loan under the charge remained unsecured. This anomaly is sought
to be removed by this amendment.   

A
company was required to report satisfaction of charge within a period of 30
days from the date of such satisfaction failing which an application for
condonation of delay had to be made before the Regional Director.( Section
82)

The
company can now report satisfaction of charge within a period of 300 days.

This
amendment now brings reporting period of satisfaction in line with creation
of charge and as such a welcome measure. 

Provisions
in brief prior to Amendment

Provisions
after Amendment

Impact
/ Implications/ Remarks

Section
92(1) Every company shall prepare a return (hereinafter referred to as the
annual return) in the prescribed form containing the particulars as they
stood on the close of the financial year regarding—

(c)
it’s indebtedness;

(j)details,
as may be prescribed, in respect of shares held by or on behalf of the
Foreign Institutional Investors indicating their names, addresses, countries
of incorporation, registration, and percentage of shareholding held by them;

Provided
that in relation to One Person Company and small company, the annual return
shall be signed by the company secretary, or where there is no company
secretary, by the director of the company.

Section
92(1):

(a)
clause (c) shall be omitted;

(b)
in clause (j), the words “indicating their names, addresses, countries
of incorporation, registration, and percentage of shareholding held by
them” shall be omitted;

(c)
after the proviso, the following proviso shall be inserted, namely:—

“Provided
further that the Central Government may prescribe abridged form of annual
return for One Person Company, small Company and such other class or classes
of companies as may be prescribed”;

The
details related to disclosing indebtedness and details with respect to
name, address, country of incorporation etc. of FII in the annual return of
the company are also omitted.

It
is further provided that the Central Government may prescribe the abridged
form of annual return for One Person Company (‘OPC’), Small Company and such
other class or classes of companies as may be prescribed.

This
amendment thus seeks to achieve an objective of avoiding duplication of
information.

Further
proviso when implemented will achieve simplicity in the case of companies
proposed to be covered in the proviso.

Section
92(3)

An
extract of the annual return in such form as may be prescribed shall form
part of the Board‘s report.

Section
92(3)

 Every company shall place a copy of the
annual return on the website of the company if any, and the web-link of such
annual return shall be disclosed in the Board’s report.”

CAA
2017 has omitted the requirement of MGT-9 i.e. extract of annual return to
form part of the Board’s Report. The copy of annual return shall now be
uploaded on the website of the company if any, and its link shall be
disclosed in the Board’s report.

This
amendment was largely guided by the fact that report of the Board of Directors
was becoming very much lengthier and expensive especially for the listed
companies.

Time
limit of 270 days within which annual return could be filed on payment of the
additional fee has been done away with. It is further provided that a company
can file the annual return with ROC at any time on payment of a prescribed
additional fee.

All
the measures proposed hereinabove are expected to simplify Annual Return
filing process and avoid duplication of information.

;

Presently
dividend can be paid u/s 123(1) from :

Current
Year Profits or

Accumulated
Profits or

from
a and b above or

From
money provided by Central or State Governments pursuant to a guarantee given

A
proviso is added as under :

“Provided
that in computing profits any amount representing unrealized gains, notional
gains or revaluation of assets and any changes in carrying amount of an asset
or of a liability on measurement of the asset or the liability at fair value
shall be excluded;

Reserves
are clarified as “free reserves”   so
as to bring clarity as to the source of the dividend.

Consequent
upon Ind AS Applicability to Phase I and Phase II companies, this amendment
is clarificatory and a welcome measure.

This
has become essential since one of the sources for payment of dividend is free
reserves and definition of free reserves under Section 2 (43) excludes
unrealised or notional gains and l credits to such reserves on account of
measurement of assets and liabilities at fair value. Thus primary source of
reserves being profits are also sought to be brought in line with definition
of free reserves for the purpose of determination of distributable
profits. 

Section
123 (3)The Board of Directors of a company may declare interim dividend
during any financial year out of the surplus in the profit and loss account
and out of profits of the financial year in which such interim dividend is
sought to be declared:

Provided
that in case the company has incurred a loss during the current financial
year up to the end of the quarter immediately preceding the date of
declaration of interim dividend, such interim dividend shall not be declared
at a rate higher than the

Section
123 (3) The Board of Directors of a company may declare interim dividend
during any financial year or at any time during the period from closure of
financial year till holding of the annual general meeting out of the surplus
in the profit and loss account or out of profits of the financial year for
which such interim dividend is sought to be declared or out of profits
generated in the financial year till the quarter preceding the date of
declaration of the interim dividend:

Dividends
are usually payable for a financial year after the final accounts are ready
and the amount of distributable profits is available. The dividend for a
financial year of the company (which is called ‘final dividend’) is payable
only if it is declared by the company at its annual general meeting on the
recommendation of the Board of directors. Sometimes dividends are also paid
by the Board of directors between two annual general meetings without
declaring them at an annual general meeting

average
dividends declared by the company during the immediately preceding three
financial years.

Provided
that in case the company has incurred a loss during the current financial
year up to the end of the quarter immediately preceding the date of
declaration of interim dividend, such interim dividend shall not be declared
at a rate higher than the average dividends declared by the company during
immediately preceding three financial years.”

 (which is called ‘interim dividend’).

[Source:
Monograph on Dividend by ICSI ]

Thus
it is now clarified that Interim dividend will not only mean dividend paid during
the financial year but also dividend declared from the closure of financial
year till holding of an AGM.

Section
129(3)-

‘Where
a company has one or more subsidiaries, it shall, in addition to financial
statements provided under sub-section (2), prepare a consolidated financial
statement of the company and of all the subsidiaries in the same form and
manner as that of its own which shall also be laid before the annual general
meeting of the company along with the laying of its financial statement under
sub-section (2):

Revised
Section 129(3)-

“Where
a company has one or more subsidiaries or associate companies, it shall, in
addition to financial statements provided under sub-section (2), prepare a
consolidated financial statement of the company and of all the subsidiaries
and associate companies in the same form and manner as that of its own and in
accordance with applicable accounting standards, which shall also be laid
before the annual general meeting of the company along with the laying of its
financial statement under sub-section (2):

As
regards consolidation of accounts, main concern related to the inclusion of
associate companies in absence of the specific provisions. This concern now
is addressed and consolidation will have to be done even if there is no
subsidiary. 

The
consolidated financial statement of the company, its subsidiaries and
associates should be in accordance with the applicable accounting standards
which is now specifically provided in the section itself.

Explanation.—For the purposes of this
subsection, the word ?subsidiary?
shall include associate company and joint venture.

This
explanation stands deleted after the amendment

This
amendment is consequential to the changes mentioned hereinabove.

Existing
Sec 130 of the Act provides that reopening can be done on the basis of an
order from court or tribunal. The said section provides that court or
tribunal will give a notice to various regulatory authorities and will take
into consideration representations made by such regulatory authorities. However,
the said section did not provide for an opportunity of representing to any
other concerned party.

CAA,
2017 has now amended the said section to give an opportunity to other persons
concerned of making a representation before an order is passed by the
tribunal or court.

Presently
in the case of reopening, notice was required to be given to various
regulatory authorities and court or tribunal is required to take into
consideration representations of such regulatory authorities . Surprisingly
it did not provide for representation to persons concerned such as auditors
even though court/ tribunal had an inherent power to give notice to any other
interested parties.      This amendment
will remove this anomaly since it is now provided in the section itself. 

Existing
section did not provide the time limit up to which reopening could be done

CAA,
2017 now provides that reopening cannot be done for a period earlier than 8
financial years immediately preceding the current financial year unless
Central Government has given a direction under Section 128(5) for maintaining
the accounts for a longer period.

Section
128(5) provides for the period for which books are required to be maintained
which cannot go beyond 8 financial years immediately preceding current
financial year except with the permission of the Central Government.

Thus
the amendment seeks to align the period of maintenance of books of accounts
with the reopening.

The
financial statement, including consolidated financial statement, if any,
shall be approved by the Board of Directors before they are signed on behalf
of the Board at least by the chairperson of the company where he is
authorised by the Board or by two directors out of which one shall be
managing director and the Chief Executive Officer, if he is a director in the
company, the Chief Financial Officer and the company secretary of the
company, wherever they are appointed, or in the case of a One Person Company,
only by one director, for submission to the auditor for his report thereon.(
Section 134) 

The
financial statement, including consolidated financial statement, if any,
shall be approved by the Board of Directors before they are signed on behalf
of the Board by the chairperson of the company where he is authorised by the
Board or by two directors out of which one shall be managing director, if
any, and the Chief Executive Officer, the Chief Financial Officer and the
company secretary of the company, wherever they are appointed, or in the case
of One Person Company, only by one director, for submission to the auditor
for his report thereon .

The
amendment provides that the Chief Executive Officer shall sign the financial
statements irrespective of the fact whether he is a director or not because
Chief Executive Officer is a Key Managerial Personnel, and is responsible for
the overall management of the company. Further, since the appointment of a
managing director is not mandatory for all companies, it is proposed to
insert the words “if any”, after the words “managing director”.

Presently
extract of Annual Return is required to be annexed to the Board’s Report. (
Section 134)

Now
annual return is to be placed on the website and web address is required to
be mentioned in the Board’s report.

The
Requirement of having an extract of Annual return (Form MGT-9) has been done
away with by placing the copy of annual return on the website of the company
(if any) and the web address/ link is to be provided. As mentioned in the
Annual Return part above, this seeks to avoid duplication and voluminous
information which was associated with report of the Board of Directors. 

Right
of member to copies of audited financial statement [ Section 136(1) ]

A
copy of the financial statements, including consolidated financial
statements, if any, auditor‘s report and every other document required by law
to be annexed or attached to the financial statements, which are to be laid
before a company in its general meeting, shall be sent to every member of the
company, to every trustee for the debenture-holder of any debentures issued
by the company, and to all persons other than such member or trustee, being
the person so entitled, not less than 21 days before the date of the meeting:

A
provision is now made for a situation where the required copies are sent less
than 21 days before the date of the meeting. Accordingly, If the copies of
the documents are sent less than 21 days before the date of the meeting, they
shall, notwithstanding that fact, be deemed to have been duly sent if it is
so agreed by members—

(a)
holding, if the company has a share capital, majority in number entitled to
vote and who represent not less than 95% of such part of the paid-up share
capital of the company as gives a right to vote at the meeting; or

(b)
having, if the company has no share capital, not less than 95% of the total
voting power exercisable at the meeting:

Amendment
to sub-section (1) of section 136 provides that copies of audited financial
statements and other documents may be sent at shorter notice if ninety-five
percent of members entitled to vote at the meeting agree for the same.

Section
101 of the Act provides that the consent of members holding at least
ninety-five percent of the voting power be obtained to call a general meeting
at a notice shorter than twenty-one days.

For
circulation of annual accounts to members, the MCA had clarified by way of a
circular dated 21^st July 2015 that the shorter notice period would
also apply to the circulation of annual accounts. It is now provided in the
Amendment Bill itself.

Appointment
and Ratification:

It
was provided that every company shall, at the first annual general meeting,
appoint an individual or a firm as an auditor who shall hold office from the
conclusion of that meeting till the conclusion of its sixth annual general
meeting and thereafter till the conclusion of every sixth meeting.

It
was further required that the company shall place the matter relating to such
appointment for ratification by members at

every
annual general meeting.( Section 139)

The
requirement to place the matter

relating
to such appointment for

ratification
by members at every annual general meeting has been removed.

In
view of this amendment, controversy as to whether the form is required to be
filed with ROC after every ratification stands resolved.

Besides,
inconsistency between removal (which required Special Resolution and Central
Government Approval) and non ratification (which required only Board
Approval) stands resolved.

Resignation
of auditor:

The
penalty for non-filing of the return of resignation with the Registrar made
the auditor punishable with fine, not less than fifty thousand rupees but
which may extend to five lakh rupees.( Section 140)

The
penalty for non-filing of the return of resignation with the Registrar shall
now make the auditor punishable with fine not be less than fifty thousand
rupees or the remuneration of the auditor,

whichever
is less.

This
form filing requirement was to be complied by the Auditor who was resigning.
(Form ADT 3).

Eligibility
:

Presently,
it was provided in Section 141(3)(i) as under: The following persons shall
not be eligible for appointment as an auditor of a company, namely:-

(i)
any person whose subsidiary or associate company or any other form of entity,
is engaged as on the date of appointment in consulting and specialised
services as provided in section 144.

In
section 141 of the principal Act, in sub-section (3), for clause (i), the
following clause shall be substituted namely:-

(i)
a person who, directly or indirectly, renders any service referred to in
Section 144 to the company or its holding company or its subsidiary company.

Explanation.—For
the purposes of this clause, the term “directly or indirectly”
shall have the meaning assigned to it in the Explanation to section 144.‘

Existing
provisions were not very happily worded and gave an impression that Auditor
could not provide services referred to in Section 144 to any other company.

Amendment
now made makes it clear that such services are not to be provided to auditee
company or its holding or subsidiary company.

Access
to the records :

Presently
the proviso to Section 143(1) reads as under :

Provided
that the auditor of a company which is a holding company shall also have the
right of access to the records of all its subsidiaries in so far as it relates
to the consolidation of its financial statements with that of its
subsidiaries.

(i)
in sub-section (1), in the proviso, for the words “its
subsidiaries”, at both the places, the words “its subsidiaries and
associate companies” shall be substituted;

The
change now made will enable auditors of the holding  company to have right to access records of
associate companies.

As
associate includes, Joint Venture (JV), access will now be available to the
records of JVs also.

Internal
Financial Controls:

Presently
as per the provisions of Section 143(3)(i) auditor is required to report :

whether
the company has adequate internal financial controls system in place and the
operating effectiveness of such controls.

Amendment
provides as under:

in
sub-section (3), in clause (i) for the words “internal financial
controls system”, the words “internal financial controls with
reference to financial statements” shall be substituted;

This
amendment is in pursuance of the suggestion of Companies Law Committee in
Para 10.11which are worth noting:

Section
143 (3) (i) requires the auditor to state in his report whether the company
has adequate internal financial controls system in place and the operating
effectiveness of such controls. This has to be read with Section 134 (5) (e)
on the Directors’ Responsibility Statement which also defines internal
financial controls, and Rule 8(5)(viii) of Companies (Accounts) Rules, 2014.
Rule 10A of the Company (Audit and Auditors) Rules, 2014, makes the
requirement under Section 143(3)(i) optional for FY 14-15 and is mandatory
from FY 15-16 onwards. It has been expressed that auditing internal financial
control systems by auditors would be an onerous responsibility. It was also
expressed that their responsibility should be limited to the auditing of the
systems with respect to financial statements only and that this cannot be
compared with the responsibility of directors which is wider and can be
discharged as they have other resources like internal auditors, etc. who can
be used for this purpose. In this regard, the Committee recommended that the
reporting obligations of auditors should be with reference to the financial
statements.

Thus
this amendment is now brought in line with the Guidance Note issued by
ICAI. 

Applicability
:

Every
company having net worth of rupees five hundred crore or more, or turnover of
rupees one thousand crore or more or a net profit of rupees five crore or
more during any financial year shall constitute a Corporate Social
Responsibility Committee of the Board consisting of three or more directors,
out of which at least one director shall be an Independent Director.

In
section 135 of the principal Act,—

in
sub-section (1) –

(a)
for the words “any financial year”, the words “the immediately
preceding financial year” shall be substituted;

(b)
the following proviso shall be inserted, namely:—

“Provided
that where a company is not required to appoint an independent director under
sub-section (4) of section 149, it shall have in its Corporate Social
Responsibility Committee two or more directors.”;

Eligibility
criteria for the purpose of constituting the corporate social responsibility
committee and incurring expenditure towards CSR is proposed to be calculated
based on immediately preceding financial year. Currently this eligibility is
decided based on preceding three financial years.

In
case of a company which is not required to appoint an Independent Director
and such company is required to appoint CSR Committee, such committee can be
constituted with two or more directors. 

Remuneration
of Managerial Personnel ( Section 197)

First
Proviso to Subsection 1 allowed the
company in general meeting ( with the approval of the Central Government) to
authorise the payment of remuneration exceeding 11% of the net profits of the
company, subject to provisions of Schedule V.

The
requirement of taking approval from Central Government has been done away
with.

CLC
has observed in Para 13.5 of the report as under :

Currently,
the law in countries like the US, the UK and Switzerland, does not require
the company to approach government authorities for approving remuneration
payable to their managerial personnel, even in a scenario where they have
losses or inadequate profits and empowers the Board of the companies to
decide the remuneration payable to Directors.

Further,
the Committee also recommended that the requirement for government approval
may be omitted altogether, and necessary safeguards in the form of additional
disclosures, audit, higher penalties, etc. may be prescribed instead.

Keeping
in line this philosophy, Approval of Central Government is dispensed with and
Special Resolution is replaced in the place. 

Second
Proviso allowed companies to pass
ordinary resolution in general meeting and prescribe remuneration in excess
of limits specified therein.

The
second proviso has been amended by replacing ordinary resolution by special
resolution

This
amendment is consequential.

Additionally
a third proviso has been inserted which provides  that, where the company has defaulted in
payment of dues to any bank or public financial institution or non-convertible
debenture holders or any other secured creditor, the prior approval of the
bank or public financial institution concerned or the non-convertible
debenture holders or other secured creditor, as the case may be, shall be
obtained by the company before obtaining the approval in the general meeting.

Equity
demands that parties affected by any decision should be consulted prior to
taking of such decisions. Although most lenders have such clauses as a part
of their agreement, legal compulsion was lacking which is now provided for in
the section itself.

Sub
Section 3 :

Provided
that in case a company had no profits or its profits were inadequate, the
company could not pay to its directors, including any managing or whole-time

director
or manager, by way of remuneration any sum exclusive of any fees payable to
directors under sub-section (5) except in accordance with the provisions of
Schedule V and if it was not able to comply with such provisions, with the
previous approval of the Central Government.

the
words “and if it is not able to comply with such provisions, with the
previous approval of the Central Government” shall be omitted.

This
amendment is consequential.

Sub
Section 9:

If
any director draws or receives, directly or indirectly, by way of
remuneration any such sums in excess of the limit prescribed by this section
or without the prior sanction of the Central Government, where it is
required, he shall refund such sums to the company and until such sum
is refunded, hold it in trust for the company.

Sub
Section 9 is amended as under:

If
any director draws or receives, directly or indirectly, by way of

remuneration
any such sums in excess of the limit prescribed by this section or without approval
required under this section, he shall refund such sums to the

company,
within two years or such lesser period as may be allowed by the company,
and until such sum is refunded, hold it in trust for the company.”;

Period
of Recovery in the event of excess remuneration now stands extended to 2 years
subject to passing of Special Resolution. Existing section did not provide
for any time limit within which such excess remuneration paid was to be
recovered. 

Sub
Section 10:

The
company shall not waive the recovery of any sum refundable to it under
sub-section (9) unless permitted by the Central Government

Sub
Section 10

The
company shall not waive the recovery of any sum refundable to it under
sub-section (9) unless approved by the company by special resolution within
two years from the date the sum becomes refundable

Presently,
act did not provide time limit within which refund of excess remuneration was
to be made. This amendment is consequential to the amendment made in the
previous clause.

Proviso
inserted :

Provided
that where the company has defaulted in payment of dues to any bank or public
financial institution or non-convertible debenture holders or any other
secured creditor, the prior approval of the bank or public financial
institution concerned or the non-convertible debenture holders or other
secured creditor, as the case may be, shall be obtained by the company before
obtaining approval of such waiver.

Equity
demands that parties affected by any decision should be consulted prior to
taking of such decisions. Although most lenders have such clauses as a part
of their agreement, legal compulsion was lacking which is now provided for in
the section itself.

Sub
Section 11:

In
cases where Schedule V is applicable on grounds of no profits or inadequate
profits, any provision relating to the remuneration of any director which
purports to increase or has the effect of increasing the amount thereof,
whether the provision be contained in the company‘s memorandum or articles,
or in an agreement entered into by it, or in any resolution passed by the
company in general meeting or its Board, shall not have any effect unless
such increase is in accordance with the conditions specified in that Schedule
and if such conditions are not being complied, the approval of the Central
Government had been obtained.

Sub
Section 11:

the
words “and
if such conditions are not being complied, the approval of the Central
Government had been obtained” shall be omitted;

Thus
in such cases, special resolution of the company in general meeting will
suffice. The theme of the law makers now seems to be shifting to the self
regulation rather than government approvals.

Sub
Section 16:

The
auditor of the company shall, in his report under section 143, make a
statement as to whether the remuneration paid by the company to its directors
is in accordance with the provisions of this section, whether remuneration
paid to any director is in excess of the limit laid down under this

section
and give such other details as may be prescribed.

Presently
clause xi of CARO 2015 has mandated for this reporting which is now
brought under the provisions of the act.  
This will possibly lead to duplication of reporting unless MCA
clarifies the position .

Sub
Section 17:

On
and from the commencement of the Companies (Amendment) Act, 2017, any
application made to the Central Government under the provisions of this
section [as it stood before such commencement], which is pending with that
Government shall abate, and the company shall, within one year of such
commencement, obtain the approval in accordance with the provisions of this
section, as so amended.”

This
provision is enabling provision which deals with approvals pending as on the
date of the commencement of new section. This also shows lesser  indulgence of the government in the
approval process. 

Section
198 : Calculation of profits.

Section
198 : Calculation of profits.

(3)
In making the computation aforesaid, credit shall not be given for the
following sums, namely:—

(a)
profits, by way of premium on shares or debentures of the company, which are
issued or sold by the company;

(3)
In making the computation aforesaid, credit shall not be given for the
following sums, namely:—

(a)
profits, by way of premium on shares or debentures of the company, which are
issued or sold by the company unless the company is an investment company as
referred to in clause (a) of the Explanation to section 186

CLC
in Para 13.9 observed as under:

Section
198(4) requires that while calculating profits for managerial remuneration,
the profits on sale of investments be deducted. The Committee agreed to the
argument that Investment Companies, whose principal business was sale and
purchase of investments, would not be using the correct profit figures, and
may need to comply with the requirements of Schedule V to pay remuneration to
its managerial personnel. It was recommended, that specific provisions for
such companies be incorporated in the Act. 

3)
In making the computation aforesaid, credit shall not be given for the
following sums, namely:—

“(f)
any amount representing unrealised gains, notional gains or revaluation of
assets.”;

This
clause is newly added consequent upon Ind AS applicability to the companies.

In
Para 13.7 of its report, CLC observed as under:

The
Committee examined Section 198 as to whether it has outlived its utility in current times where the
Accounting Standards prescribe a robust framework for the determination of
yearly profit or loss for the company, and the possibility of using the net
profit before tax as presented in the financial statements, for basing the determination
of managerial remuneration. Alternative formulations were considered, but
found to be more complex, and further the present formulation is well
accepted. Therefore, no change, other than on account of requirement of
Ind AS, was recommended.

This
amendment is consistent with the amendment related to distributable profits
for the purposes of dividends discussed above under Dividends.  

(4)
In making the computation aforesaid, the following sums shall be deducted,
namely:

(l)
the excess of expenditure over income, which had arisen in computing the net
profits in accordance with this section in any year which begins at or
after the commencement of this Act, in so far as such excess has not been
deducted in any subsequent year preceding the year in respect of which
the net profits have to be ascertained;

(
Portion marked in bold is omitted after amendment)

(4)
In making the computation aforesaid, the following sums shall be deducted,
namely:

(l)
the excess of expenditure over income, which had arisen in computing the net
profits in accordance with this section in any year which begins at or
after the commencement of this Act, in so far as such excess has not been
deducted in any subsequent year preceding the year in respect of which the
net profits have to be ascertained;

CLC
in Para 13.8 has observed as under :

Section
198(4)(l) mandates the deduction of ‘brought forward losses’ of the company
while calculating the net profit, for the purpose of computing managerial
remuneration in the subsequent years. However, the clause did not provide for
the deduction of brought forward losses of the years prior to the
commencement of the Act, which may be an inadvertent omission.  Thus amendment now made has amended
Section 198(4)(l), to include brought forward losses of the years subsequent
to the enactment of the Companies (Amendment) Act, 1960 and inadvertent
omission existing is corrected .