Companies Amendment Act 2017: Sections 186, 188, 196, 197, 198 and 200

The Companies (Amendment) Act, 2017, enacted as Act No. 1 of 2018, amended several provisions of the Companies Act, 2013. This page explains the amendments concerning inter-corporate loans and investments, related party transactions, appointment and remuneration of managerial personnel, computation of net profits, and the factors relevant to managerial remuneration.

Amendments made by the Companies (Amendment) Act, 2017

Amendment of section 186 of Companies Act 2013

62. In section 186 of the principal Act,-

(i) in sub-section (2), the following Explanation shall be inserted, namely:-

'Explanation.-For the purposes of this sub-section, the word "person" does not include any individual who is in the employment of the company.';

(ii) for sub-section (3), the following sub-section shall be substituted, namely:-
'(3) Where the aggregate of the loans and investment so far made, the amount for which guarantee or security so far provided to or in all other bodies corporate along with the investment, loan, guarantee or security proposed to be made or given by the Board, exceed the limits specified under sub-section (2), no investment or loan shall be made or guarantee shall be given or security shall be provided unless previously authorised by a special resolution passed in a general meeting:

Provided that where a loan or guarantee is given or where a security has been provided by a company to its wholly owned subsidiary company or a joint venture company, or acquisition is made by a holding company, by way of subscription, purchase or otherwise of, the securities of its wholly owned subsidiary company, the requirement of this sub-section shall not apply:

Provided further that the company shall disclose the details of such loans or guarantee or security or acquisition in the financial statement as provided under sub-section (4).".
(iii) for sub-section (11), the following sub-section shall be substituted, namely:-

"(11) Nothing contained in this section, except sub-section (1), shall apply-
(a) to any loan made, any guarantee given or any security provided or any investment made by a banking company, or an insurance company, or a housing finance company in the ordinary course of its business, or a company established with the object of and engaged in the business of financing industrial enterprises, or of providing infrastructural facilities;
(b) to any investment-
(i) made by an investment company;
(ii) made in shares allotted in pursuance of clause (a) of sub-section (1) of section 62 or in shares allotted in pursuance of rights issues made by a body corporate;
(iii) made, in respect of investment or lending activities, by a non-banking financial company registered under Chapter III-B of the Reserve Bank of India Act, 1934 and whose principal business is acquisition of securities.";
(iv) in the Explanation, in clause (a), after the words "other securities" the following shall be inserted, namely:-
"and a company will be deemed to be principally engaged in the business of acquisition of shares, debentures or other securities, if its assets in the form of investment in shares, debentures or other securities constitute not less than fifty per cent. of its total assets, or if its income derived from investment business constitutes not less than fifty per cent as a proportion of its gross income.".

Amendment of section 188 of Companies Act 2013

63. In section 188 of the principal Act,-
(i) in sub-section (1), after the second proviso, the following proviso shall be inserted, namely:-
"Provided also that nothing contained in the second proviso shall apply to a company in which ninety per cent. or more members, in number, are relatives of promoters or are related parties:";
(ii) in sub-section (3), for the words "shall be voidable at the option of the Board", the words "shall be voidable at the option of the Board or, as the case may be, of the shareholders" shall be substituted.

Omission of section 194 of Companies Act 2013

64. Section 194 of the principal Act shall be omitted.

Omission of section 195 of Companies Act 2013

65. Section 195 of the principal Act shall be omitted

Amendment of section 196 of Companies Act 2013

66. In section 196 of the principal Act,-
(a) in sub-section (3), in clause (a), after the proviso, the following proviso shall be inserted, namely:-
"Provided further that where no such special resolution is passed but votes cast in favour of the motion exceed the votes, if any, cast against the motion and the Central Government is satisfied, on an application made by the Board, that such appointment is most beneficial to the company, the appointment of the person who has attained the age of seventy years may be made.";
(b) in sub-section (4), for the words "specified in that Schedule", the words "specified in Part I of that Schedule" shall be substituted.

Amendment of section 197 of Companies Act 2013

67. In section 197 of the principal Act,-
(a) in sub-section (1),-
(i) in the first proviso, the words "with the approval of the Central Government," shall be omitted;
(ii) in the second proviso, after the words "general meeting,", the words "by a special resolution," shall be inserted;
(iii) after the second proviso, the following proviso shall be inserted, namely:-
"Provided also 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.";
(b) in sub-section (3), the words "and if it is not able to comply with such provisions, with the previous approval of the Central Government" shall be omitted;
(c) for sub-section (9), the following sub-section shall be substituted, namely:-
"(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 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.";
(d) in sub-section (10),-
(i) for the words "permitted by the Central Government", the words "approved by the company by special resolution within two years from the date the sum becomes refundable" shall be substituted;
(ii) the following proviso shall be inserted, namely:-
"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.";
(e) in 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;
(f) after sub-section (15), the following sub-sections shall be inserted, namely:-
"(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.
(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.".

Amendment of section 198 of Companies Act 2013

68. In section 198 of the principal Act,-
(i) in sub-section (3),-
(a) in clause (a), after the words "sold by the company", the words, letter, brackets and figures "unless the company is an investment company as referred to in clause (a) of the Explanation to section 186" shall be inserted;
(b) after clause (e), the following clause shall be inserted, namely:-
"(f) any amount representing unrealised gains, notional gains or revaluation of assets.";
(ii) in sub-section (4), in clause (l), the words "which begins at or after the commencement of this Act" shall be omitted

Amendment of section 200 of Companies Act 2013

69. In section 200 of the principal Act, the words "the Central Government or" appearing at both the places shall be omitted.