MCA’s Exemption Notification for Section 8 Companies

[The
following guest post is contributed by Nitu
Poddar
of Vinod Kothari & Co. The author may be contacted at
nitu@vinodkothari.com.
By way of a notification
dated June 5, 2015, the Ministry of Corporate Affairs (“MCA”) exempted Section
8 companies,[1] government
companies private companies and nidhi companies from complying with certain
provisions of the Companies Act, 2013 (“Act, 2013” or “Act” or “CA 2013”) as
mentioned below subject to the condition that the company ensures protection of
shareholders’ interests. The exemption
notification
has been published in Official Gazette.
Exceptions to section 8 companies
The following
exemptions have been made available for section 8 companies:
1. Section
8 companies need not appoint a qualified professional as its company secretary.
2. Since
the requirement of having a minimum paid-up share capital for incorporating a
private or a public company has been done away with by way of the Companies
(Amendment) Act, 2015, a Section 8 company also need not comply with the same.
3. Section
8 companies can appoint more than fifteen directors without passing a special
resolution. A Section 8 company need not appoint an independent director.
The language of the exempting notification is not clear. It
reads “Sub-section (1) of section 149 and first proviso to sub-section (1)
shall not apply.”
When it is said that section 149(1) shall not apply to a
section 8 company, an explicit mention that the first proviso to 149(1) again
shall not apply to a Section 8 company creates a confusion as to whether the
second proviso to 149(1) that provides for appointing a women director by
companies having paid-up share capital of Rs 100 crore or more or turnover of
Rs 300 crore or more shall apply to a section 8 company having such paid-up
share capital or turnover.
Section 149(1) would have meant entire sub-section inclusive
of any proviso(s) or explanation(s).
Further, since there is no requirement to appoint an
independent director, all consequential sub-sections of section 149 viz sub-sections (5), (6), (7), (8), (9), (10), (11), clause (i) of
sub-section (12) and sub- section (13) of section 149,
section 150 and
proviso to section 152(5) relating to independent directors shall also not
apply to section 8 company.
For the aforesaid reason, the Audit Committee of a Section 8
company shall not require independent directors as its members.
4. Section
165(1) that provides for the maximum number of directorships that a person can
hold including alternate directorship to be twenty companies – shall not be
applicable to a section 8 company.
5. Section
8 companies need not have a nomination and remuneration committee nor a
stakeholders relationship committee.
Application of certain
provisions to section 8 company with modifications
1. Pursuant
to the proviso to section 96(2) of the Act, a Section 8 company can hold its
annual general meeting on a National Holiday, beyond business hours and at a place
other than a place which is in the same city, town or village where the
registered office of the company is situated subject to any directions in this regard given by the company in a general
meeting.
2. Pursuant
to Section 101(1) of the Act, a Section 8 company can call a general meeting by
giving at least fourteen days notice instead of twenty-one days notice.
Accordingly,
the documents such as financial statements along with the auditor’s report etc.
which are to be laid before the general meeting as per section 136(1) of the
Act shall be sent to every person entitled to receive such documents not less
than fourteen days before the meeting instead of twenty-one days.
3. Section 118 of the Act
dealing with the preparation and recording of minutes of proceedings of minutes
of meeting of members and/or board of directors of a company shall not apply to
a Section 8 company except that the minutes must be recorded within thirty days
of the meeting where the articles of association of the company provides for
confirmation of minutes by circulation.
That is to say, a Section 8
company, unless the articles so provide, need not prepare and record the
minutes within thirty days of the meeting.
Except
for the said reservation of Section 118, a Section 8 company need not have to
comply with the Secretarial Standard with respect to general and Board meetings
i.e. SS-1 and SS-2 respectively.
4. Section 160 of the Act
dealing with right of persons other than retiring director to stand for
directorship by serving a notice to the company along with deposit of one lakh
rupees shall not be applicable to such Section 8 companies whose articles
provide for election of directors by ballot.
5. Section 173(1) of the Act
relating to the number and frequency of the meeting of board of directors shall
not apply to a Section 8 company to the extent that the board of directors of
such company shall hold at least one meeting within every six calendar months.
6. Quorum for board meeting of
a Section 8 company shall be either eight members or twenty five percent of its total strength of the board
whichever is less. However the quorum shall not be less than two members.
7. The delegable powers of the
Board to be exercised at the meeting as per sub-section (d), (e) and (f) of
section 179(3) may, for a Section 8 company, be decided by the board by
circulation instead of at the meeting. The resolutions for borrowing of monies,
investing the funds of the company and granting loans or giving guarantees or
providing security in respect of loans can be passed by circular instead of at
the meeting.
8. Disclosure of interest in a
contract or arrangement as per section 184(2) shall be applicable to a section
8 company only if the transaction with reference to section 188 on the basis of
terms and conditions of the contract or arrangement exceeds one lakh rupees.
9. Registers of contract and
arrangements in which the directors are interested shall be maintained only if
the transaction with reference to section 188 on the basis of terms and
conditions of the contract or arrangement exceeds one lakh rupees.
Consistent with enhancing the ease of carrying out corporate activities, all
of these reduce the compliance requirements under the Companies Act, 2013 for
section 8 companies.
– Nitu Poddar



[1] Under
section 8 of the Companies Act, 2013, companies may be formed for non-profit
activities and charitable purposes.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

9 comments

Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Recent Posts

Topics

Recent Comments

Archives

web analytics