Tue. Jan 19th, 2021

MCA’s Exemption Notification for Section 8 Companies

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[The following guest post is contributed by Nitu Poddar of Vinod Kothari & Co. The author may be contacted at [email protected] 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 companiesThe 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 modifications1. 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.

Source: Corporate

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