Companies law: Private firms seek more exemptions

Written by Ashish Sinha | New Delhi | Updated: Jul 5 2014, 21:50pm hrs
CompanyA large number of unlisted private companies have sought relief from the stringent provisions of the new company laws. (Thinkstock)
A large number of unlisted private companies have sought relief from the stringent provisions of the new company laws as part of their feedback sought by the ministry of corporate affairs, which is reviewing exemptions that can be granted to private companies.

Sources said the ministry has received close to a thousand suggestions by July 1. Some of the suggestions say that no conditions should be imposed on private companies for accepting deposits. The new law bars private companies from accepting deposits or raising funds from its members. One of the suggestions submitted to the ministry said the exemptions should include allowing fund raising from members and allowing preferential issue of shares for private companies without valuation from registered valuers. Companies have also sought exemptions from rotation of auditors on all class of private unlisted companies among several such suggestions, sources said.

The ministry, which is reviewing the new Companies Act, 2013, had sought comments from stakeholders by July 1 on proposed exemptions.

"There should be no condition imposed for accepting deposits by a private company from its members. The Companies Act, 1956 did not provide for any such conditions. Raising funds from members is commonly the primary, if not the only, source in private companies. Imposing conditions including that of seeking credit rating in Section 73(2) will make it extremely difficult for private companies to raise funds," said Lalit Kumar, partner, J Sagar Associates, a law firm which represents a number of private companies. Kumar maintained that all private companies should be exempted from the requirement of compulsory rotation of auditors irrespective of their paid-up share capital, as suggested by the ministry of corporate affairs in its draft notification.

On June 24, the ministry came out with a draft notification which exempted unlisted private companies from the 13 sections of the Companies Act, 2013. The ministry proposed that the sections relating to acceptance of deposits shall not be applied on private companies with 50 members or less.

The draft notification, however, provided conditional exemption to private companies when granting loans to directors and persons in whom director is interested. "This should be exempted for all kinds of private companies and not only certain classes of companies covered in the draft notification," said Kumar.

On its part, N Venkatram, managing partner (audit), Deloitte, Haskins & Sells said: "We welcome the exemptions provided in the draft notifications. It is a good first step. However, one should be cautiously optimistic while granting exemptions to the private companies as they remain a weak link in the corporate governance chain."