Ministry
of Corporate Affairs has notified the implementation of 98
sections of the Companies Act 2013 vide a notification dated
Sept 12, 2013. The corresponding sections of Companies Act
1956 have since been repealed too.
The
new Act is set to usher in a new regime of transparency and
rule-based governance in the country.
A few
sections of the Act have enormous implications for lending
institutions in credit administration.
I
thought I'd jot down a few of the features in a series of
entries in this blog and think aloud on the implications for
Banks. Hope it'll be useful to all.
Sec
2(57) says that “'Net worth' means the aggregate value of
the paid-up share capital and all reserves created out of
the profits and securities premium account, after deducting
the aggregate value of the accumulated losses, deferred
expenditure and miscellaneous expenditure not written off,
as per the audited balance sheet, but does not include
reserves created out of revaluation of assets, write-back of
depreciation and amalgamation."
Issue:
Credit
Balance in P&L Account has been left out. The
“Highlights of the Companies Act 2013” brought out by the
Institute of Chartered Accountants of India also points this
out. Should Credit Balance in P&L Account be left out by Banks while computing the Net Worth of companies henceforth? If so,
the leverage ratio will move up.
The
new Companies Act has withdrawn many of the privileges and
exemptions that were available to Private Limited Companies - e.g. Special Resolution is necessary for borrowings
“exceeding aggregate of its paid-up share capital and free
reserves” u/s 180; under section 293 of the erstwhile Act,
this limit was applicable in a different manner and that too for public limited companies only.
Issue:
Special Resolution would now need to be obtained in case of
Private Limited Companies too, who form a large part of the borrower universe of banks, failing which the borrowing
would be rendered unenforceable unless bona
fides is proven! And, Indian judiciary often do not take a kind view on lapses from banks.
