Notification of provisions of Companies (Amendment) Act 2015

MCA vide Notification No S. O. 3388(E) dated December 14, 2015 has notified the following remaining provisions of the Companies (Amendment) Act 2015

• Provisions related to reporting of fraud by the Auditor under section 143
• Provisions related to omnibus approval of related party transaction by audit committee under section 177.

Amendment in Companies (Meetings of Board and its Powers) Rules, 2014

MCA vide notification No. G.S.R. 971(E) dated December 14, 2015 has made the amendment in Companies (Meetings of Board and its Powers) Rules, 2014 through Companies (Meetings of Board and its Powers) Second Amendment Rules, 2015. While the amendment related to omnibus approval of related party transactions by audit committee is a new amendment, others were introduced in order to remove duplication and conflict between the provisions of section and rules. The text of the said changes is reproduced as under:

6A. Omnibus approval for related party transactions on annual basis.- All related party transactions shall require approval of the Audit Committee and the Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the company subject to the following conditions, namely:-

Provided that where the need for related party transaction cannot be foreseen and aforesaid details are not available, audit committee may make omnibus approval for such transactions subject to their value not exceeding rupees one crore per transaction.

The text of the omitted Rule is:-

10. Loans to Director etc. under section 185.-

The text of Rule 15(3) of Companies (Meetings of Board and its Powers), 2014 is:-

(3) For the purposes of first proviso to sub-section (1) of section 188, except with the prior approval of the company by a resolution (substituted special resolution), a company shall not enter into a transaction or transactions, where the transaction or transactions to be entered into,—

1. After rule 6 of Companies (Meetings of Board and its Powers), 2014, the following rule shall be inserted, namely:-
   1. The Audit Committee shall, after obtaining approval of the Board of Directors, specify the criteria for making the omnibus approval which shall include the following, namely:-
      1. maximum value of the transactions, in aggregate, which can be allowed under the omnibus route in a year;
      2. the maximum value per transaction which can be allowed;
      3. extent and manner of disclosures to be made to the Audit Committee at the time of seeking omnibus approval;
      4. review, at such intervals as the Audit Committee may deem fit, related party transaction entered into by the company pursuant to each of the omnibus approval made;
      5. transactions which cannot be subject to the omnibus approval by the Audit Committee.
   2. The Audit Committee shall consider the following factors while specifying the criteria for making omnibus approval, namely: –
      1. repetitiveness of the transactions (in past or in future);
      2. justification for the need of omnibus approval
   3. The Audit Committee shall satisfy itself on the need for omnibus approval for transactions of repetitive nature and that such approval is in the interest of the company.
   4. The omnibus approval shall contain or indicate the following: –
      1. name of the related parties;
      2. nature and duration of the transaction;
      3. maximum amount of transaction that can be entered into;
      4. the indicative base price or current contracted price and the formula for variation in the price, if any; and
      5. any other information relevant or important for the Audit Committee to take a decision on the proposed transaction:
   1. Omnibus approval shall be valid for a period not exceeding one financial year and shall require fresh approval after the expiry of such financial year.
   2. Omnibus approval shall not be made for transactions in respect of selling or disposing of the undertaking of the company.
   3. Any other conditions as the Audit Committee may deem fit.”
2. Rule 10 of Companies (Meetings of Board and its Powers), 2014 shall be omitted;
   1. Any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company is exempted from the requirements under this section; and
   2. Any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company is exempted from the requirements under this section: Provided that such loans made under sub-rule(1) and (2) are utilised by the subsidiary company for its principle business activities
3. In rule 15, in sub-rule (3), for the words “special resolution”, wherever they occur, the word “resolution” shall be substituted.

   Explanation-

   Explanation–

   1. as contracts or arrangements with respect to clauses (a) to (e) of sub-section (1) of section 188, with criteria as mentioned below –
      1. sale, purchase or supply of any goods or materials, directly or through appointment of agent, exceeding ten per cent. of the turnover of the company or rupees one hundred crore, whichever is lower, as mentioned in clause (a) and clause (e) respectively of sub-section (1) of section 188;
      2. selling or otherwise disposing of or buying property of any kind, directly or through appointment of agent, exceeding ten per cent. of net worth of the company or rupees one hundred crore, whichever is lower, as mentioned in clause (b) and clause (e) respectively of sub-section (1) of section 188;
      3. leasing of property of any kind exceeding ten per cent. of the net worth of the company or ten per cent. of turnover of the company or rupees one hundred crore, whichever is lower, as mentioned in clause (c) of sub-section (1) of section 188
      4. availing or rendering of any services, directly or through appointment of agent, exceeding ten per cent. of the turnover of the company or rupees fifty crore, whichever is lower, as mentioned in clause (d) and clause (e) respectively of sub-section (1) of section 188:
      1. It is hereby clarified that the limits specified in sub-clauses (i) to (iv) shall apply for transaction or transactions to be entered into either individually or taken together with the previous transactions during a financial year.
      2. is for appointment to any office or place of profit in the company, its subsidiary company or associate company at a monthly remuneration exceeding two and half lakh rupees as mentioned in clause (f) of subsection (1) of section 188; or
      3. is for remuneration for underwriting the subscription of any securities or derivatives thereof, of the company exceeding one per cent. of the net worth as mentioned in clause (g) of sub-section (1) of section 188.
      1. The Turnover or Net Worth referred in the above sub-rules shall be computed on the basis of the Audited Financial Statement of the preceding financial year.
      2. In case of a wholly owned subsidiary, the resolution (substituted special resolution) passed by the holding company shall be sufficient for the purpose of entering into the transactions between the wholly owned subsidiary and the holding company.
      3. The explanatory statement to be annexed to the notice of a general meeting convened pursuant to section 101 shall contain the following particulars, namely:—
         1. name of the related party ;
         2. name of the director or key managerial personnel who is related, if any; (c) nature of relationship;
         3. nature, material terms, monetary value and particulars of the contract or arrangement;
         4. any other information relevant or important for the members to take a decision on the proposed resolution.