Latest Blogs from SBS and Company LLP

    INTRODUCTION:

    Incurring of reimbursable expenditure by service provider during the course of providing his services and service receiver subsequently reimbursing them is the inevitable business expediency in certain service sectors. Inclusion of this expenditure in the value of taxable service for the purpose of paying service tax seems to be never ending litigation between Revenue and taxpayer. With the recent judicial pronouncements, it appeared that this issue is settling in a manner acceptable to taxpayer and Revenue. But Revenue hascome up with a heavy punch by amending the definition of ‘Consideration’ in the explanation to Section 67 to seek the last laugh in this regard. Let us analyze how distorting the amendment is capable of!

    1. Transfer Pricing (‘TP’) continuous to be the most controversial areas in international tax and more particularly in India. It is reported that more TP disputes arise in India vis-à-vis all other countries put together. Opinions continue to differ in India on various aspects of transfer pricing ranging from what constitutes an international transaction, who all can be considered as Associated Enterprises (‘AEs’), the factual understanding of the business of the Assessee and the international transactions, the most appropriate method in the facts & circumstances of the international transaction and finally the computation of Arm’s Length Price (‘ALP’), making TP a contentious issue between the Taxpayers/Assessee and the tax authorities.

    2. Relevant regulations

    The main legal provisions dealing with transfer pricing are Section 40A (2), Sec 92-92F, Sec 271,271AA, 271BA and 271G of the Income Tax Act, 1961, and Rule 10 to 10E of the Income Tax Rules, 1962.

    3. OECD guidelines treatment

    The Indian legislation is broadly based on the OECD guidelines. In conformity with the OECD guidelines, the legislation prescribes the same five methods to compute the arm’s length price. Further, the revenue authorities generally recognize the OECD guidelines and refer to the same for guidance, to the extent they are not inconsistent with the domestic law.

    4. Hierarchies/pricing methods

    The Indian legislation prescribes the following methods: CUP, Resale Price, Cost Plus, Profit Split and Transactional Net Margin Method. The legislation also grants the power to the Central Board of Direct Taxes (CBDT) to prescribe any other method; however, no other method has been prescribed by the CBDT to date. No hierarchy of methods exists. The most appropriate method should be applied.

    1. The past four cycles of transfer pricing audits in India have indicated the reliance of taxpayers on the

    Transactional Net Margin Method on account of the paucity of price and gross margin data in the

    public domain. The Indian Tax Authority recognizes the limitations of information available in

    databases and taxpayers’ inability to apply some of the transaction-base methods.

    1. Accountants Report – Form 3CEB
    2. a) To be obtained by every tax payer filing a return in India and having international transaction
    3. b) To be filed by due date for filing return of income (30 November)

     c)         Essentially comments on the following:

    whether the tax payer has maintained the transfer pricing documentation as required by the legislation,

     

    • whether as per the transfer pricing documentation the prices of international transactions are at arm’s length, and

     

    • certifies the value of the international transactions as per the books of account and as per the transfer pricing documentation are “true and correct”

     

    d) Procedural changes have been made by Central Board of Direct Taxes (CBDT) inrespect of mode of filing Form 3CEB w.e.f FY 12-13.

    e) Tax payers who are required to furnish reports/certificates under the Income Tax Act,1961(“Act“) are mandatorily required to e-file certain specified documents (in addition to the Return) before the relevant due date. These, interalia, includes Form 3CEB.

    1. f) CBDT has also notified the new format Form 3CEB which interalia, provides for the reporting requirements taking into account the extended scope of international transaction and the specified domestic transaction.

     

    • The scope of the term “international transaction” was expanded by the Finance Act, 2012 to include business restructuring, intragroup financing arrangements, etc.

     

    • Additionally, specified domestic transactions have also been brought under the ambit of the transfer pricing regulations.

    g) This new format of Form 3CEB also requires reporting of the following transactions:

    Transactions relating to share capital — transactions such as purchase or sale of marketable securities and issue and buyback of equity shares;

     

    • Transactions in the nature of guarantee;

     

    • International transactions arising out of/ being part of business restructuring or reorganization; and

     

    •          Specified domestic transactions

    1. Documentation requirements – TP Documentation Study /review

    A detailed list of contemporaneous mandatory documents is in Rule 10D (1). The categories of documentation required are:

    1. Documentation deadlines

    The information and documentation specified should, as far as possible, be contemporaneous and exist by the specified date of the filing of the income tax return, which has been fixed by the Indian government as 30th November following the end of the financial year.

    1. Although an Accountant’s Report must be submitted along with the tax return, the taxpayer is not required to furnish the transfer pricing documentation with the Accountant’s Report at the time of filing the tax return. Transfer pricing documentation must be submitted to the tax officer within 30 days of receipt of the notice during assessment proceedings.
    2. Transfer pricing penalties

    The Indian tax law provides for the imposition of the following transfer pricing penalties. For inadequate documentation, the taxpayer is fined 2% of the transaction value. For not furnishing sufficient information or documents requested by the tax officer, the taxpayer is fined 2% of the transaction value. If due diligence efforts to determine the arm’s length price have not been made by the taxpayer, then 100% to 300% of incremental tax on transfer pricing adjustments may be levied by the tax officer.

    Section

    Trigger

    Quantum of

    penalty

    271 (1) (c)

    In case of an adjustment post assessment, if regarded

    as concealment of income

    100-300% of the

    tax leviable on

    the amount of

    adjustments

    271AA

    Failure to maintain TP documentation, failure to report the

    transaction,  maintenance or   furnishing  of   incorrect

    information/document

    2% of the

    value of the

    transactions

    271BA

    Failure to furnish Form 3CEB

    INR 100,000

    271G

    Failure to furnish TP documentation with the tax officer

    2% of the value

    of the transactions

    1. In most cases, penalties are generally kept in abeyance until the matter is settled in appeals. The existing approach to penalties is not expected to change over the next two years.
    2. Penalty relief

    Penalties may be avoided if the taxpayer can demonstrate that it has exercised good faith and due diligence in determining the arm’s length price. This is also demonstrated through proper documentation and timely submission of documentation to the revenue authority during assessment proceedings.

    1. Transfer Pricing Assessment

    The selection of cases for TP audits in India are primarily based on materiality of the value of the international transaction. As per the CBDT instructions, the following categories of cases/returns are compulsorily selected for TP audit:

    Cases where value of the international transactions exceed Rs 15 crores;

    Cases involving addition in an earlier year on the issue of TP in excess of Rs 10 Cr, which is confirmed in appeal or pending before an appellate authority.

    Further, the AO scrutinising a return of an Assessee having international transactions with AEs, can refer the case for TP audit, if he considers it necessary or expedient, with the approval of the Jurisdictional Commissioner.

    In India, TP audits are conducted by specialist officers notified as Transfer Pricing Officers (‘TPO’) by the CBDT. The DGIT (International Taxation) and DIT(TP) distribute the work among the TPOs stationed at various cities across India.

    14. Issues and Practical challenges in TP Assessment

    • Transfer pricing in case of loss making companies challenged;
    • Transactions with AEs located in tax heavens under heavy scrutiny
    • Peers with different transfer pricing policies/significantly higher profitability used as benchmarks
    • Cost sharing /cost allocation/reimbursement /management fees transactions and payments for the use of intangibles questioned
    • Commensurate benefit expected to be demonstrated
    • Limited information provided on secret comparables/confidential information
    • Continued non-acceptance of economic adjustments (Risk adjustment, depreciation adjustment, working capital adjustment, capacity utilisation adjustment etc)
    • Insistence on segmental dataFinancial transactions looked at closely (Loans, guarantees, etc)
    • Strict comparability of product/service ignored while applying CU P method
    • Financial transactions looked at closely (Loans, guarantees, etc)
    • Insistence on segmental data

     

    No Condonation for claim of refund or loss shall be entertained beyond six years from the end of the assessment year for which application or claim is made. The limit of six years is uniform for all authorities considering the application or claim.

    In case where refund claim has arisen consequent to a Court Order, the period for which any such proceedings were pending before any Court of Law shall be ignored while calculating the said period of six years, provided such Condonation application is filed within six months from the end of the month in which such Court Order was issued or the end of financial year, whichever is later.

    A belated application for claim of additional amount of refund after completion of assessment for the same year (Supplementary claim of refund) can be admitted subject to conditions.

    All are aware that on the pretext of ease of doing business in India, some amendments were proposed to the Companies Act, 2013 and the said amendments were approved by the Union Cabinet on 02.12.2014.

    The said Amendment Bill was placed in the Lower house (Lok Sabha) of the Parliament and the same was approved on 17. 12.2014, and the Upper House (Rajya Sabha)approved the said Amendment Bill on 13.05.2015. The Amendment Bill received the assent of theHon’ble President on 25.05.2015, and notified in the Gazette on the 26.05.2015.

    Since, not all the provisions for which amendments have been made in the Amendment Act, have been notified, the Central Government has vide commencement notification Dated:29.05.2015, had notified 29.05.2015, as the appointed date for coming in to force of the Sections 1 to 12, 15 to 23 of the said Amendment Act.

    The Amendments under the Companies (Amendment) Act, 2015, predominantly hover over the aspect of “ease of doing business”. Subsequent to the coming in to force of the Amendment Act, the Central Government has also altered the relevant Rules and has notified the relevant Amendment rules, pursuant to the Amendment Act.

    A couple of amendments in the Amendment Act, are for incorporating some provisions, which were erroneously left out in the respective provisions of the Companies Act, 2013, but included in the Rules framed thereunder the respective section.

    Sl.

    No

    Section(s)

    under the CA,

    2013,amended

    Section No. in

    theAmendment

    Act

    Existing provision in the

    Section/Clause in the CA, 2013

    Amendment relating to

    Remarks/Comments

    1

    Amendment

    to     Section 2

    (68), (71) and

    Section 11

    2 and 4

    Section2(68),      (71)– As                         per the

    definition, a Private Company to have a

    minimum paid-up capital of Rs.1 Lakh

    and Public Company to have minimum

    paid-up capital of Rs.5 lakhs.

    Section 2 (68), (71) - Deletion of the

    requirement as to Minimum Capital i.e.,

    Rs. 1 Lakh for Private Companies and Rs. 5

    Lakhs for Public Companies.

    Now a company can be

    incorporated with paid-up

    capital of Rs.1/-, may be.

    Section 11 – Declaration as to receipt

    of the minimum paid-up capital from

    the subscribers.

    Section 11 – Omitted.

    No    requirement    of filing

    commencement of business

    declaration.

    Sl.

    No

    Section(s)

    under the CA,

    2013,amended

    Section No. in

    theAmendment

    Act

    Existing provision in the

    Section/Clause in the CA, 2013

    Amendment relating to

    Remarks/Comments

    2

    Amendment

    to sections 9,

    12, 22, 46 and

    223.

    3, 5, 6, 7 and

    18

    Section-9-Company to have Common

    Seal.

    Section-12-Company to have its name

    engraved in legible characters on its

    seal;

    Section-22-Execution                                        of                                    Bills of

    Exchange, authorisation to execute

    under the Common Seal.

    Section-46-Issue      of                        Certificates

    (Share/Debenture) to be issued under

    the Common seal of the Company.

    Section -223-nspectors report to be

    authenticated by the Common Seal of

    the Company.

    Amendment as to making commonseal

    optional, and consequential changes for

    authorisation  for execution         of

    documents for companies having no

    Common Seal.   i.e., authorisation shall

    be made by Two Directors or 1 Director

    and 1 CS, if the Company has CS

     

    3

    Insertion      of

    new Section

    76 A

    8

    No section

    Section – 76 A - Punishment for deposits

    acceptedin violation of the provisions of

    the said Act;

    Penalty:

    On Company:

    To refund the deposit with

    interest +Fine not less than

    Rs.1 Cr and upto Rs. 10 Cr.

    On every Officer:

    7 years imprisonment or fine

    not less than Rs. 25 Lakhs and

    upto Rs. 2 crores or with both

    + if proved that punishment if

    the violation is committed

    knowingly, under Section 447.

    Sl.

    No

    Section(s)

    under the CA,

    2013,amended

    Section No. in

    theAmendment

    Act

    Existing provision in the

    Section/Clause in the CA, 2013

    Amendment relating to

    Remarks/Comments

    4

    Amendment

    to Section 117

    (3) (g)

    9

    117 (3) (g) – Resolutions passed in

    pursuance of Section 179 (3) are to be

    filed with the Registrar of Companies.

    Amendment to prohibit public

    inspection of Board resolutions filed in

    the Registry.

    Board Resolution cannot to be

    inspected by others.

    Further, the many items as

    prescribed under the relevant

    rules     have   also                been

    considerably Omitted by the

    relevant amendment Rules

    5

    Amendment

    to sub-

    section (1) of

    section 123

    10

    No proviso in the Principal Act

    Amendment to include provisions for

    writing off past                 losses/depreciation

    before declaring dividend for the year

    Erroneously missed out in the

    Principal Act, but was given as

    an amendment to the relevant

    rules made under the section.

    6

    Amendment

    to sub-

    section (6) of

    section 124

    11

    Section 124 (6) - All shares in respect

    of which unpaid or unclaimed

    dividend has been transferred under

    sub-section        (5)                          shall                          also                          be

    transferred by the company in the

    name of Investor Education and

    Protection       Fund                        along with a

    Statement.

    for the words,       brackets and figure

    “unpaid or unclaimed dividend has been

    transferred under sub-section (5) shall

    also be”, the words “dividend has not

    been paid or claimed for seven

    consecutive years or more shall be” shall

    be substituted;

    Amendment so as to rectify the

    requirement of transferring equity

    shares for which unclaimed/unpaid

    dividend has been transferred to the

    Investors Education and                                Protection

    Fund even though subsequent

    dividend(s) has been claimed and paid.

     

    Sl.

    No

    Section(s)

    under the CA,

    2013,amended

    Section No. in

    theAmendment

    Act

    Existing provision in the

    Section/Clause in the CA, 2013

    Amendment relating to

    Remarks/Comments

    7

    Amendment

    to sub-section

    (3) of section

    134 and sub-

    section (12) of

    section 143

    12 and 13

    134 (3)(ca) – New provision – Details

    as to the frauds as reported by the

    Auditor to be included in the Directors

    report.

    143 (12) – reporting of Fraud by the

    Auditor

    Disclosures to be made in the Board's

    Report;

    Alteration to       incorporate                           enabling

    provisions to       prescribe thresholds

    beyond which fraud shall be reported to

    the Central Government. Below the

    threshold, it will be reported by the

    Auditor to the Audit Committee.

    Some relief to the Auditors.

    8

    Amendment

    to clause (iv)

    of sub-section

    (4) of section

    177

    14

    New proviso to Section 177 (4) (iv) –

    giving powers to Audit Committee.

    Inclusion of proviso, empowering Audit

    Committee to give omnibus approvals for

    Related party transactions on annual

    basis, subject to conditions as may be

    prescribed.

     

    9

    Amendment

    to Section 185

    of

    15

    New sub-sections 185 (1) (c) & (d) –

    These subsections were earlier

    included in the rules

    Alteration to provide for exemption for

    loans/ guarantees/securities                                             by                                               a

    Company to its wholly owned

    subsidiaries and guarantees/securities

    given by a company to its subsidiaries for

    the loans availed by it from Banks/FI.

     

     

     

     

     

     

     

    Sl.

    No

    Section(s)

    under the CA,

    2013,amended

    Section No. in

    theAmendment

    Act

    Existing provision in the

    Section/Clause in the CA, 2013

    Amendment relating to

    Remarks/Comments

    10

    Amendment

    to sub-section

    (1) of section

    188

    16

    188 (1) – Requirement of prior

    approval of the members by way of

    special   resolution for transactions

    with the related party.

    188 (3) – Requirement of special

    resolution for transaction by the

    Director      or employee with the

    Company.

    Alteration      for                      replacing                      'special

    resolution' with 'resolution' for approval

    of Related party transactions by non‑

    related shareholders;

    to exempt     relatedparty transactions

    between holding companies and wholly

    owned subsidiaries (WOS) whose

    accounts are consolidated.

    Relaxed to ordinary resolution.

     

    11

    Amendment

    to sub-section

    (6) of section

    212

    17

    212 (6) – Releasing of accused on bail.

    Many sections were covered

    Alteration    to remove the repetition of

    sections, which attract punishment for

    fraud under Section 447

     

    12

    Amendment

    to Sub-Section

    (1) of Section

    248

    19

    248 (1)-Power of Registrar to remove

    the name of the Company from the

    Register of Companies

    Alteration as to removal of Clause (b) of

    Subsection (1) of Section 248- As to

    receipt of minimum subscription and

    filing of commencement of business with

    ROC.

     

    13

    Amendment

    to sub-section

    (4) of section

    419

    20

    419 (4)-Powers of the president of the

    NCLT to constitute benches for

    disposal of cases as to rehabilitation,

    restructuring, reviving or winding up

    of companies

    Alteration as to deletion of the word

    Winding-up, so as to enable the, taking‑

    up cases relating to winding-up by 2‑

    member Bench instead of a 3-member or

    a larger Bench.

     

    Sl.

    No

    Section(s)

    under the CA,

    2013,amended

    Section No. in

    theAmendment

    Act

    Existing provision in the

    Section/Clause in the CA, 2013

    Amendment relating to

    Remarks/Comments

    14

    Amendments

    to       sections

    435 and 436

    21 and 22

    435 (1) – establishment of special

    courts for trial of offences.

    436 (1) – Offences trailable by Special

    Courts

    Earlier no limit was mentioned in the

    respective    sections,                         now,                         the

    amendment provides for Special Courts

    to    try     only        offences        carrying

    imprisonment of two years or more.

    And all other offences shall be tried, as

    the case may be, by a Metropolitan

    Magistrate or a Judicial Magistrate of the

    First Class having jurisdiction to try any

    offence under this Act or under any

    previous company law.

     

    15

    Amendment

    to Section 462

    23

    462 – Power of Central Government

    to exempt certain class of companies

    from provisions of the Act.

    Amendment to Sub-Section (2) of

    Section 462, as to the manner of placing

    the    notifications issued         by the CG

    pursuant to Section sub-section (1). The

    content of Sub-section has been altered

    and divided in to new Sub-Section (3) &

    (4).

     

     

    All are aware that the Companies Act, 2013, came in to effect from 12.09.2013, and most of the working provisions came in to force with effect from 01.04.2014.

    In comparison with the Companies Act, 1956, though the number of sections have reduced in the Companies Act, 2013, it is mostly due to clubbing of various sections in to single section and most of the operating provisions being moved to Rules.

    After the commencement of the Act, it is evident that many representations were received by the Ministry, from the Trade as to difficulties in implementation of certain provisions with specific reference to Private Companies. This was clearly evident from the draft notification by the Ministry wherein certain exemptions were proposed to be given to Private Companies. The said Draft notification was placed in the MCA Website on 24.06.2014, seeking comments from General Public, till 01.07.2014.

    There was no trace of the said proposed exemptions as per the Draft notification Dt:24.06.2014, after receiving of the public comments.

    On 05.06.2015, the Central Government has issued Four Notifications all Dt: 05.06.2015, vide which the Central Government has provided certain exemptions/modifications and adaptations as to certain provisions of the Companies Act, 2013 which are applicable to:

    è Government Companies

    è Nidhi Companies (Nidhis)

    è Private Company

    è Section 8 Companies (Companies not for profit)

    In this article, an effort is being made to look in to the exemptions, modifications and adaptations to the provisions of the Companies Act, 2013, to Private Limited Companies

     

    Sl.

    No

    Chapter/Section number/Sub-section(s) in the Companies

    Act, 2013 and Description of the Section, under which the

    changes were proposed.

    Exceptions/Modifications/Adaptations, as the case

    may be, as per the Notification

    Remarks

    1

    Chapter 1, sub-clause (viii) of Clause 76 of Section2

    (Related Party definition)

     

     

    Exception:-

    (A) a holding, subsidiary or an associate company of

    Private company; or

    (B) a subsidiary of a holding company to which it is

    also a subsidiary; is /are not a Related Party to such

    Private Company for the purpose of Section 188.

    For the purpose of Sec.188,

    the Holding, Subsidiary or

    Associate Company of a

    Private Limited Company not

    be considered as a related

    party.

    Sl.

    No

    Chapter/Section number/Sub-section(s) in the Companies

    Act, 2013 and Description of the Section, under which the

    changes were proposed.

    Exceptions/Modifications/Adaptations, as the case

    may be, as per the Notification

    Remarks

    2

    Chapter IV, section 43 (Kinds of Capital) and 47 (Voting

    Rights)

    Exception:-

    Shall not apply

    So,     a   Private         Limited

    Company, now, can have

    Capital other than Two Types

    as given in Section 43, and

    also have voting rights in the

    form other than as given in

    Section 47.

    3

    Chapter IV, sub-clause (i) of clause (a) of sub-section (1) of

    section 62) (Rights Issue) and sub-section (2) of section 62

    (relating to Despatch of Notice of Rights issue)

    Modification:-

    As to inclusion of a proviso aftersub-clause (i) of

    clause (a), for having a lesser period of notice,

    subjection to obtaining of consent from 90 %

    members of a Private Limited Company.

    Enables the Private Company

    to have rights offer with

    lesser period, if approved by

    90 % of the members of the

    Company.

    4

    Chapter IV, clause (b) of sub-section (1) of section 62

    (Issue of Shares to Employees under ESOPS)

    Modification:-

    Shall apply except that instead of Special resolution,

    Ordinary resolution would be enough.

    Reduction in requirement as

    to the nature of resolution,

    from Special to Ordinary

    Resolution.

    5

    Chapter IV, Section 67 (Restrictions on purchase by

    company or giving of loans by it for purchase of its

    shares)

    Modification/Adaptation/Exception:-

    Shall not apply to Private Companies:

    - In whose share Capital no other Body corporate

    has invested any money;

    - Whose borrowings from Banks/FI or other Body

    Corporates is less than (a) Twice its Paid-up capital

    or (b) Rs. 50 Crores, whichever is less; and

    - Has not defaulted in repayment of such

    borrowings, subsisting at the time of making

    transactions under this section.

    Benefit to closely held Private

    c o m pa n i e s with                                  s ma ll

    amounts of borrowings and

    who does not have any

    equity investment from

    other Body Corporates.

    Certain Limits have been

    prescribed,                      thereby,                        any

    private Company not hitting

    any of the said limits, is free

    to purchase its shares or give

    loans for purchase of its

    shares.

    Sl.

    No

    Chapter/Section number/Sub-section(s) in the Companies

    Act, 2013 and Description of the Section, under which the

    changes were proposed.

    Exceptions/Modifications/Adaptations, as the case

    may be, as per the Notification

    Remarks

    6

    Chapter V, Clauses (a) to (e) of sub-section (2) of section

    73 (Acceptance of deposits from its Members)

    Exemption/Adaptation:-

    Shall not apply to private companies which accepts

    from its members monies not exceeding 100 % of

    aggregate of the Paid-up Share Capital and Free

    Reserves and such company shall file the details of

    monies so accepted to the registrar in such manner

    as may be specified.

    Exemption to                         private

    companies which propose to

    accept      mon iesfrom                 its

    members not exceeding 100

    % of aggregate of the Paid‑

    up Share Capital and Free

    Reserves.

    However, the details of

    deposits accepted needs to

    be informed to the Registrar.

    7

    Chapter VII, sections 101 to 107 and section 109 (Notice of

    Meetings, Statement to be annexed to the notice, Quorum

    for meetings, Chairman of meetings, Proxies, Restrictions

    on voting rights, voting by show of hands, and Demand for

    Poll)

    Exemption/Adaptation:

    Shall apply unless:

    - otherwise specified in respective sections or

    - articles of the private company otherwise provide.

     

    8

    Chapter VII, Clause (g) of sub-section (3) of Section 117

    (Filing of Resolutions passed by the Board)

    Exemption:

    Shall not apply.

    Accordingly the resolutions

    passed by the Board of

    Directors of the Company

    pursuant to Section 179 (3)

    read with Rule 8 of the

    Companies (Meetings of

    Board and its Powers) Rules,

    2014, as amended from time

    to time, are not required to

    be filed with ROC

    Sl.

    No

    Chapter/Section number/Sub-section(s) in the Companies

    Act, 2013 and Description of the Section, under which the

    changes were proposed.

    Exceptions/Modifications/Adaptations, as the case

    may be, as per the Notification

    Remarks

    9

    Chapter X, Clause (g) of sub-section (3) of section 141

    (Appointment of a person as a Auditor, who is already an

    auditor of more than 20 Companies)

    Exception/Modification:

    Shall not apply in respect of appointment of

    auditors by private companies.

    In calculating 20 companies,

    the    following         shall             be

    excluded:

     

     

     

    - One Person Companies;

    - Dormant Companies;

    - Small Companies; and

    - Private Companies having

    paid-up Share capital less

    than Rs.100 Crores.

    10

    Chapter XI, section 160 (Right of person other than the

    retiring director to stand for directorship)

    Exception:

    Shall not apply

    Relief as to deposit of Rs.1

    Lakh by the member making

    the     proposal           as           to

    candidature of a particular

    person for directorship.

    11

    Chapter XI, section 162 (Appointment of Directors to be

    voted individually)

    Exception:

    Shall not apply

    Accordingly,   for a                       Private

    Company, a motion for

    appointment of two or more

    persons as directors of the

    company can be moved by a

    single resolution.

    12

    Chapter XII, Section 180 (Restrictions on the Powers of the

    Board)

    Exception:

    Shall not apply

    The provisions of Section

    180 are not applicable to

    Private Companies,                               and

    accordingly,      in                          case                          of

    borrowingsin excess of paid‑

    up capital and free reserves,

    approval of members is not

    required and no approval is

    required for mortgaging the

    properties of the Company

    Sl.

    No

    Chapter/Section number/Sub-section(s) in the Companies

    Act, 2013 and Description of the Section, under which the

    changes were proposed.

    Exceptions/Modifications/Adaptations, as the case

    may be, as per the Notification

    Remarks

    13

    Chapter XII, Sub-Section (2) of Section 184 (Disclosure of

    Interest in a particular part and participating in the Board

    meeting)

    Modification/Exception:-

    Shall apply with the exception that the interested

    director may participate in such meeting after

    disclosure of interest.

    Keeping in view of the

    practical     difficulties,                   the

    earlier harsh restriction that

    the said interested Director

    shall not participate in the

    Board meeting has been

    relaxed, and now allowing

    him to      participate in the

    meeting,       after     he                     has

    disclosed his interest to the

    Board

    14

    Chapter XII, section 185 (Loans to Directors)

    Modification/Adaptation/Exception:-

    Shall not apply to Private Companies:

    - In whose share Capital no other Body corporate

    has invested any money;

    - Whose borrowings from Banks/FI or other Body

    Corporates is less than (a) Twice its Paid-up capital

    or (b) Rs. 50 Crores, whichever is less; and

    - Has not defaulted in repayment of such

    borrowings, subsisting at the time of making

    transactions under this section.

    Benefit to closely held Private

    companies   with                         small

    amounts of borrowings and

    who does not have any equity

    investment from other Body

    Corporates.

    Sl.

    No

    Chapter/Section number/Sub-section(s) in the Companies

    Act, 2013 and Description of the Section, under which the

    changes were proposed.

    Exceptions/Modifications/Adaptations, as the case

    may be, as per the Notification

    Remarks

    15

    Chapter XII, section 188 (Related Party Transactions)

    Exception:

    Shall not apply.

    Total     relief    to             Private

    Companies.

    16

    Chapter XIII, section 196, sub-section (4) and sub-section

    (5)     (Appointment of MD, WTD or MGR), approval of

    Member, filing of Form etc.,.)

    Exception:

    Shall not apply.

    Exemption from obtaining of

    Members approval for the

    appointment, and filing of

    return on appointment with

    ROC.

    From the above, it can be seen that contents of the Draft notification Dt:24.06.2014, majorly form part of the exemption notification. The exemption notification brings a sigh of relief for many of the Private Companies.

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