Draft Amendments to Companies Act,2013

Private companies may be exempted from complying with the new company law provisions on related party transactions (RPTs).

This forms part of several relaxations proposed by the Corporate Affairs Ministry (MCA) for private firms.

The Ministry has now come out with a draft notification which, among other things, provides for exemption to private companies with regard to compliance with provisions on related party transactions.

The new company law had wanted private companies to comply with detailed provisions on such transactions, including the most stringent one of seeking nod from disinterested directors and shareholders.

“The latest MCA proposal will free private companies from the hassle of getting disinterested vote and should definitely bring cheer to them,” Lalit Kumar, Partner, J Sagar Associates, a law firm, told Business Line . Getting a disinterested vote is generally not possible in a private company situation
where there are few members who are mostly related to one another, he added.

Interestingly, the RPT provisions in the erstwhile company law (1956 Act) did not exempt private companies.

“So the current proposal under the new company law is a major shift for private companies as far as the RPT are concerned,” Kumar said.

Audit cap

Another proposal that could spell some good news for the audit fraternity is the exclusion of private companies from the audit cap norm.

According to this proposal, audits of private companies would not be counted for deciding on the audit cap of 20 audits per partner.

In all, the Ministry has proposed 13 changes to the norms involving private companies. These include provisions relating to acceptance of public deposits, voting rights, restrictions on board powers and loans to directors besides managerial remuneration.

While the draft notification would be placed before each house of the Parliament, suggestions and comments are invited from the public till July 1, the Ministry said in a circular.