Companies Amendment Act 2017: Sections 12, 21, 26, 35 and 42
The Companies (Amendment) Act, 2017 amended several provisions of the Companies Act, 2013. This article explains the changes concerning registered offices, authentication of documents, prospectus disclosures, civil liability for misstatements and private placement of securities.
| Provision | Subject | 2017 amendment in brief |
|---|---|---|
| Section 12 | Registered office | Changed the incorporation-related registered-office timeline and the timeline for notifying a change of registered office. |
| Section 21 | Authentication | Expanded the provision from an officer to an officer or employee duly authorised by the Board. |
| Section 26 | Prospectus | Recast prospectus information requirements with reference to information and financial reports specified by SEBI in consultation with the Central Government. |
| Section 35 | Civil liability | Added a defence concerning expert statements, reports and valuations in a prospectus. |
| Section 42 | Private placement | Substituted Section 42 with a revised framework for private placement of securities. |
Amendment relating to Section 12: Registered office of company
Section 12 of the Companies Act, 2013 governs the registered office of a company and related disclosures. Section 6 of the Companies (Amendment) Act, 2017 amended sub-sections (1) and (4). The 2017 amendment replaced the earlier reference to having a registered office "on and from the fifteenth day of its incorporation" with "within thirty days of its incorporation", and replaced the fifteen-day period in sub-section (4) with thirty days.
The registered office is the statutory address at which communications and notices may be received. Companies should verify the presently operative text and filing requirements on the Ministry of Corporate Affairs portal.
Amendment relating to Section 21: Authentication of documents, proceedings and contracts
Section 21 deals with authentication of documents or proceedings requiring authentication by a company and contracts made by or on behalf of a company. Section 7 of the 2017 Amendment Act substituted the words "an officer of the company" with "an officer or employee of the company". The provision therefore recognises authentication by an officer or employee who is duly authorised by the Board.
Amendment relating to Section 26: Matters to be stated in prospectus
Section 26 concerns information to be contained in a prospectus. Section 8 of the 2017 Amendment Act amended sub-section (1) so that a prospectus must state the information and set out reports on financial information specified by the Securities and Exchange Board of India in consultation with the Central Government. Pending such specification, the applicable SEBI regulations concerning that information or those reports were to apply. Clauses (a), (b) and (d) of the then-existing sub-section were omitted.
For listed or proposed-to-be-listed securities, current disclosure requirements should also be checked through the Securities and Exchange Board of India and the applicable securities regulations.
Amendment relating to Section 35: Civil liability for misstatements in prospectus
Section 35 provides for civil liability where a person subscribes for securities acting on a misleading statement, or on the inclusion or omission of matter, in a prospectus and sustains loss or damage. Section 9 of the 2017 Amendment Act inserted an additional defence in sub-section (2).
The inserted defence concerns a misleading statement attributed to an expert, or contained in a copy of or extract from an expert report or valuation. In substance, the defendant may rely on the defence where the representation or extract was correct and fair and the defendant had reasonable grounds to believe, and did believe up to the issue of the prospectus, that the expert was competent and had given the required consent without withdrawing it at the relevant time.
Substitution of Section 42: Private placement of securities
Section 42 regulates private placement, meaning an offer or invitation to subscribe for or issue securities to a select group of persons, otherwise than by way of a public offer, through the prescribed private placement process. Section 10 of the Companies (Amendment) Act, 2017 substituted Section 42.
Identified persons and prescribed limits
A private placement may be made only to persons identified by the Board, subject to the statutory and prescribed numerical limits and exclusions. An offer that crosses the applicable prescribed limit may be treated as a public offer, attracting the provisions governing public offers.
Offer and application
The company must issue the private placement offer and application in the prescribed form and manner to identified persons whose names and addresses are recorded by the company. The offer and application cannot carry a right of renunciation.
Subscription money and allotment
Subscription money must be received through permitted banking channels and not in cash. The statutory framework requires allotment within sixty days from receipt of application money. If allotment cannot be completed within that period, the money is to be repaid within the prescribed statutory period; delay in repayment attracts the interest specified in Section 42.
Use of funds and return of allotment
Application money is required to be kept in a separate bank account and used only for the purposes permitted by Section 42. The company must file the prescribed return of allotment with the Registrar within the statutory period. Companies should check the current MCA portal, the Companies (Prospectus and Allotment of Securities) Rules, 2014 and the current electronic forms before filing.
No public advertising
A company issuing securities by private placement cannot release public advertisements or use media, marketing or distribution channels or agents to inform the public at large about the issue.
Consequences of non-compliance
Section 42 contains consequences for delayed filing and for offers or acceptance of money made in contravention of the provision. A private placement that does not comply with the requirements specified for the permitted class and number of persons may be deemed a public offer, with the resulting statutory consequences.