COMPANIES

ACT, 2013
Exemptions under
Companies Act

SHUBHAMM SUKHLECHA

(CA, CS, LLM)

MCA vide notification dated 5th June, 20151 exempted Section 8 companies and
Government companies from complying with certain provisions of the Companies
Act, 2013 (“Act, 2013” or “Act” or CA 2013) as mentioned hereunder subject to the
condition that the company will ensure protection of shareholder’s interests.

SECTION 8 COMPANIES
EXEMPTIONS
Company Section 8 companies need not appoint a qualified professional as
Secretary its company secretary.
Minimum Since the requirement of having a minimum paid-up share
paid-up capital for incorporating a private or a public company has been
share capitaldone away with vide the Companies (Amendment) Act, 2015, a
Section 8 company also need not comply with the same.
Number of Section 8 companies can appoint more than fifteen directors
Directors without passing a special resolution. Section 8 company need
& not appoint an independent director.
Independent
Directors 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 once it is said that section 149(1) shall not apply to a
section 8 company, explicit mention that 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.
Furthermore, for the above mentioned reason, the Audit
Committee of a Section 8 company shall not require
independent directors as its members.
Maximum Section 165(1) that provides for maximum number of
number of directorship that a person can hold including alternate
Directorships directorship to be twenty companies - shall not be applicable to
a section 8 company.

This is too weird an exemption. Unlike 1956 Act, where such

companies were exempted from the count of companies in which
directorship could be hold, the new exemption says that the
maximum number of directorship shall not apply to a Section 8
company which leaves the exemption meaningless.
NRM Section 8 companies need not have a nomination and
Committee remuneration committee nor a stakeholders relationship
committee.

MODIFICATIONS
AGM 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.
Notice of AGM Pursuant to Section 101(1) of the Act, a Section 8 company can
call a general meeting by giving atleast 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.
Minutes 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.
 It is strange an exception given to a section 8 company since the
preparing and recording of detailed minutes with fair and
correct summary of the meetings held is essential for all classes
of companies.
Persons other Section 160 of the Act dealing with right of persons other than
than retiring retiring director to stand for directorship by serving a notice to
director to the company along with deposit of one lakh rupees shall not be
stand for applicable to such Section 8 companies whose articles provide
directorship for election of directors by ballot.
Meetings of Section 173(1) of the Act relating to the number and frequency
Board 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 atleast one meeting within every six
calendar months
Quorum for Quorum for board meeting of a Section 8 company shall be
BM 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.
Resolution by The delegable powers of the Board to be exercised at the
circulation 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.
Disclosure of Disclosure of interest in a contract or arrangement as per
interest 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.
Registers of Registers of contract and arrangements in which the directors
contract and are interested shall be maintained only if the transaction with
arrangements reference to section 188 on the basis of terms and conditions of
the contract or arrangement exceeds one lakh rupees.

It is pertinent to note that the provisions of the Act, 2013 exempted to Section 8
companies were also exempted in the erstwhile Act in exercise of the powers
conferred by Section 25(6) of Act, 1956 and certain special exemptions by section
263-A of Act, 1956 except that Section 209(4A) of 1956 Act is not exempted as was
exempted in the erstwhile Act.
 GOVRNMENT COMPANIES
EXEMPTIONS
Exemption to all Government Companies

Suffix in name The memorandum of a Government company shall state name

of the Company with the last word “Limited”;
Instrument of In case of Government companies the requirement under
Transfer Section 56 (1) for proper instrument of transfer duly executed
and stamped shall not be required with respect to bonds
issued by Government company provided that an intimation is
given by the transferee specifying his name, address and
occupation and delivered to the Company along with the bond
certificate, if any or with the letter of allotment of the bond.
Further the requirement proper instrument of transfer duly
executed and stamped shall also not apply in case of transfer of
securities held by nominees of the Government.
Benificial A Government company need not comply with the provisions
holding of Section 89 relating to declaration in respect of beneficial
interest in any share. Consequentially, the provisions of
Section 90 relating to investigations of beneficial ownership of
shares in certain cases by Central Government shall also not
apply to Government Company.
AGM Government company shall hold AGM of the company at the
registered office or such other place as the Central Government
may approve in this behalf, pursuant to provisions of Section
96 (2).
Directors’ A Government company need not comply with the provision of
appointment Section 134 (3) (e) relating to specifying company’s policy on
and directors’ appointment and remuneration including criteria for
remuneration determining qualifications, positive attributes, independence
of a director and other matters provided under sub-section (3)
of section 178.
Number of The restriction of having maximum 15 directors, unless
Directors approved by members by passing special resolution under
Section 149 (1) (b) read with first proviso shall not apply in
case of Government companies.
Independent The independent directors being appointed should be a person
director of integrity and possesses relevant expertise and experience in
the opinion of Ministry or Department of the Central
Government which is administratively in charge of the
Company, or as the case may, the State Government
Independent The restriction with respect to independent director not
director having pecuniary relationship with the company, its holding,
 subsidiary or associate company, or their promoters, or
directors, during the two immediately preceding financial
years or during the current financial year as specified under
Section 149 (6) (c) shall not apply to Government company.
Appointment of A Government company need not obtain consent letter from
director directors and file the same with RoC within 30 days of
appointment as required under Section 152 (5) where
appointment of such director is done by the Central
Government or State Government, as the case may be.
Disqualification The disqualification specified under Section 164 (2) pertaining
of director to ineligibility of a director of following company from being
appointed/ re-appointed as a director of the Company shall not
apply to a Government company:
 which has not filed financial statements or annual
returns for any continuous period of three financial
years; or
 which has failed to repay the deposits accepted by it or
pay interest thereon or to redeem any debentures on the
due date or pay interest due thereon or pay any dividend
declared and such failure to pay or redeem continues for
one year or more.
Remuneration The Audit Committee of a Government company shall
of auditor recommend remuneration of auditors. The recommendation
for appointment and terms of appointment as required under
Section 177 (4) (i) shall not be required to be included in the
Terms of Reference of Audit Committee.
Proportional Provision of Section 163 relating to proportional
representation representation for appointment of directors on the Board shall
for not apply.
appointment of
directors
NRM The requirement specified under Section 178 (2) , (3) and (4)
committee with respect to identification of directors, SMPs by Nomination
and Remuneration Committee , framing of criteria for
determining qualifications, positive attributes and
independence of a director and framing policy thereof, will be
applicable only for appointment of ‘senior management’ and
other employees.
Appointment of A Government company is not required to comply with
MD, WTD, provisions of Section 196 (2), (4) and (5) dealing with the
Manager following:
 Restriction on appointing or re-appointing any person as
its managing director, whole-time director or manager
for a term exceeding five years at a time;
  Approval of terms and conditions of such appointment
approved by the Board of Directors at a meeting, by a
resolution at the next general meeting of the company
and by the Central Government in case such
appointment is at variance to the conditions specified in
Schedule V;
Remuneration A Government company is not required to comply with
of KMP provisions of Section 197 which specifies limits for overall
maximum managerial remuneration and managerial
remuneration in case of absence or inadequacy of profits.
Appointment of The provisions of Section (1), (2), (3) and (4) of Section 203
KMP with respect to appointment of key managerial personnel,
holding of office, period within which appointment to be made
in case of vacation of office of KMP, will not apply to a
managing director or Chief Executive Officer or manager and in
their absence, a whole-time director of the Government
company.
Offences to be In case of Government company, no court shall take cognizance
non-cognizable of any offence under this Act which is alleged to have been
committed by any company or any officer thereof, except on
the complaint in writing of a person authorised by the Central
Government in that behalf. The Court shall not take cognizance
of any offence on a complaint made by the Registrar or
shareholder of the company as specified under Section 439 (2)
of CA, 2013.

Exemption to such Government Companies whose entire paid up share

capital is held by the Central Government, or by any State Government or
Governments or by the Central Government and one or more State
Governments

Dividend In case of inadequacy of profits, such Government company can

declare dividend without complying with the requirements of
Rule 3 of Companies (Declaration and Payment of Dividend)
Rules, 2014
Dividend Such Government company need not deposit amount of
dividend, including interim dividend in a separate bank
account within 5 days from the date of declaration of such
dividend as specified under Section 123 (4).
Retirement by The requirement of retirement of directors by rotation under
Rotation Section 152 (6)shall not apply. Consequentially, the provision
pertaining to vacancy of retiring director not being filled at the
meeting as provided under Section 152 (7) shall also not apply.
Appointment of The requirement of providing notice of candidature in case of
a director appointing a director other than a retiring director under
other than a Section 160 shall not apply.
retiring
director
Appointment of A motion can be moved for the appointment of two or more
Directors to be persons as directors of the company by a single resolution. The
voted provisions of Section 162 shall not apply to such government
individually company.
Proportional Provision of Section 163 relating to proportional
Representation representation for appointment of directors on the Board shall
not apply.
Register of Provisions of Section 170 shall not apply. Such Government
Directors and company shall not be required to maintain Register of directors
KMP and key managerial personnel and their shareholding under
Section 170. Consequentially, the provision pertaining to
inspection of the register maintained under Section 170 as
provided under Section 171 shall also not apply. Further,
section 170 also mandates filing of return for appointment of
director and KMP in DIR-12. This requirement also has been
exempted.

Exemption to such Government Companies that have obtained approval of

the Ministry or Department of the Central Government which is
administratively in charge of the Company, or as the case may be, the State
Government

Annual A Government company whose directors are evaluated by the

evaluation Ministry or Department of the Central Government which is
administratively in charge of the company, or as the case may
be, the State Government, as per its own evaluation
methodology need not include statement disclosing the
manner in which formal annual evaluation has been made by
the Board of its own performance and that of its committees
and individual directors as stipulated under Section 134 (3 (p).
Loans to Section 185 prohibiting granting of loans to directors and to
directors any other person in whom director is interested shall not apply
to Government companies in case such company obtains
approval before making any loan or giving any guarantee or
providing any security or making any investment under the
section.
Loan and Provisions of Section 186 with respect to loans and investment
investment by by company shall not apply to a Government company, other
company than a listed company in case such company obtains approval
 before making any loan or giving any guarantee or providing
any security or making any investment under the section.
Related party A Government company, other than a listed company, is not
transaction required to comply with provisions of first and second proviso
of Section 188 which restricts companies from entering into
related party transactions exceeding specified values without
obtaining prior approval of shareholder and also restricts
related party who is a party to the contract, to abstain from
voting in case such company obtains approval before entering
into such contract or arrangement.

Exemption to Government Companies engaged in defence production

Financial Section 129 pertaining to financial statement shall not apply to
statement a Government company to the extent of application of
Accounting standard 17 (Segment Reporting) to the companies
engaged in defence production.
Loan and Provisions of Section 186 with respect to loans and investment
investment by by company shall not apply
company

Exemption to subsidiary whose entire paid up share capital are held by such
Government Companies whose entire paid up share capital is held by the
Central Government, or by any State Government or Governments or by the
Central Government and one or more State Governments
Retirement by The requirement of retirement of directors by rotation shall not
rotation apply. Consequentially, the provision pertaining to vacancy of
retiring director not being filled at the meeting as provided
under Section 152 (7) shall also not apply.
Appointment of The requirement of providing notice of candidature in case of
a director appointing a director other than a retiring director under
other than a Section 160 shall not apply.
retiring
director
Appointment of A motion can be moved for the appointment of two or more
Directors to be persons as directors of the company by a single resolution. The
voted provisions of Section 162 shall not apply to such government
individually company.

Exemption to a Government company on entering into contract or

arrangement with another Government company
Related Party Such government companies are not required to comply with
Transactions provisions of first and second proviso of Section 188 which
 restricts companies from entering into related party
transactions exceeding specified values without obtaining prior
approval of shareholder and also restricts related party who is
a party to the contract, to abstain from voting
Appointment of The requirement of providing notice of candidature in case of
a director appointing a director other than a retiring director under
other than a Section 160 shall not apply.
retiring
director
Appointment of A motion can be moved for the appointment of two or more
Directors to be persons as directors of the company by a single resolution. The
voted provisions of Section 162 shall not apply to such government
individually company.

Likewise, in case of Government Companies these provisions were also formerly

exempted by ways of notifications issued under Section 620 of Act, 1956. Most of
the exemptions are same as those provided under the erstwhile notifications. The
new provisions exempted for a Government company include exemptions under
Sections 134 (3) (e) & (p), 149, 177, 178 and 203 of Act, 2013.