©2014 deloitte touche tohmatsu india private ltd new board dynamics and challenges companies act,...

©2014 Deloitte Touche Tohmatsu India Private Ltd

New Board Dynamics and Challenges

Companies Act, 2013

Composition, Roles, Responsibilities of the Board

Key Managerial Personnel’s

Implication of the new provisions on Board and Management

Key questions for the Boards and Managements to consider

Board level Committees - Pillars of Corporate Governance

Implication of the new provisions on Board and Management


Board and Committee Meetings

Vigil Mechanism

Penalties

Contents

©2014 Deloitte Touché Tohmatsu India Private Limited

Governance

SEBI:

LA, Insider Trading etc.

Meetings of the Board

and Committees

Board of Directors and

Board Committees

KMP

Transactions with Board of Directors and

KMPs

Accounting, Disclosures,

Auditors Rotations, Audits etc.

Corporate Governance


Board’s Structure &

Governance

4


Board of Directors

Managing Director / Whole

time Director

Independent Director

Woman Director

Additional Director

Alternate Director

Nominee Director

Small Shareholders’

Director

Resident Director

5

Composition

©2014 Deloitte Touché Tohmatsu India Private Limited6

Requirement Companies Act, 2013 Clause 49 – Listing Agreement

Woman Director

• At least 1 Woman Director - Listed and public company having PSC Rs. 100 Crore or more or TO of Rs. 300 Crore or more

At least 1 Woman Director

Resident Director

• At least 1 Resident Director - Every company

• Resident Director shall be a person who has stayed in India for 182 days or more in the previous calendar year.

No provision specified

Nominee Director

• Subject to AOA, the Board may appoint any person as Nominee Director in pursuance of provision of any law or of any agreement or by the CG/SG.

No Provision specified

Small Shareholder’s Director

• Listed Company may upon notice of not less than 1000 or 1/10th of the total number of such shareholder, whichever is lower have small shareholder’s director.

No Provision specified

New Board Dynamics The Companies Act, 2013 (New Act) has raised the bar for the boards in India. The New Act has made several significant

changes, which seek to redefine the board governance in India.

Overall, the New Act aims to raise the governance profile of Indian companies and their boards, at par with the roles and responsibilities assumed by boards globally


New Board Dynamics - Independent Director Requirement

Listed Company at least 1/3rd of its total number of directors as IDs AND Public Companies – At least 2 ID’s PSC >= 10 crore or TO >= 100 Crore or more or aggregate, outstanding loans or borrowings or debentures or deposits > 50 Crore.

Tenure - ID shall not hold office for more than 2 consecutive terms of up to 5 consecutive years each. (Cooling off period of 3 years)

Performance evaluation – Annual evaluation shall be done by the Board.

Code of Conduct - ID shall abide by the code of conduct as specified in Schedule IV of the Act for appointment as ID.

Separate Meetings of ID - ID of the Company are required to hold at least one meeting in a year.

Declaration to be given by the Independent Director - at the first meeting of the board in which he participates as a director and thereafter at the first meeting of the board in every financial year

Entitlements of Independent Directors – Sitting fees, reimbursement of expenses and profit related commission as approved by the members but will not be entitled to any stock option

Liability of Independent Director - Would be liable for such acts of omission or commission by a company which has occurred with his knowledge and attributable through board processes and with his consent and connivance or where he has not acted diligently

Selection of Independent Director - An Independent Director may be selected from a data bank maintained by any institution as notified by the central government.


New Board Dynamics - Independent Director

Requirement - Where chairman of the Board is Non executive at least 1/3rd of the Board and in case chairman is executive, at least ½ of the Board should comprise of ID.

Exclusion of Nominee Director - Nominee director shall not be considered as ID

Tenure - Person already served as ID for 5 years or more as on October 1, 2014 shall be eligible for appointment for one more term of up to 5 years only

Limit on Directorship - A Person is eligible to appoint as ID in Max 7 listed companies (Where ID holds position of WTD in any Listed Company then Max 3 Listed Companies)

Training to ID’s - Company shall provide suitable training to ID.

Additional Compliances - Listing Agreement

MCA has issued clarification on June 09, 2014 on the following matters:

Following shall not be considered as Pecuniary relationship of ID:• Transactions which are on arms length and in the ordinary course of

business;.

• Receipt of remuneration from other companies;

Appointment of ID, if eligible shall be made within 1 year from April 01, 2014.

Appointment may be made for less than 5 years but that will be constituted as 1 term of appointment.

Appointment of ID shall be formalized through appointment letter.


Key Managerial Person’s (KMP’s)

9

Every listed company and every other public company having a paid-up share capital of 10 crore rupees or more shall have whole-time key managerial personnel.

Now, a company other than companies mentioned above and which has a paid up share capital of Rs. 5 Crore or more shall have a whole-time Company Secretary

KMP shall not hold office in more than one company except in subsidiary company at the same time. (transitional period of 6 months available)

Any vacancy in the office of KMP shall be filled up within the period of 6 months.

Appointments of the KMP shall be made in the Board Meeting.

KMP’s

Chief Executive

Officer

Managing Director

Manager

Company secretary

Whole-time director

Chief Financial

Officer and

such other prescribed

officer

10 ©2014 Deloitte Touché Tohmatsu India Private Limited

Guidance to the Director’s Facilitate the convening of meetings

Obtain approvals from the Board, shareholders,

government or such other authorities

Represent before various Regulators

Assist the Board in the conduct of the affairs of the company

Advise the Board in ensuring good corporate governance

Assist in complying with the corporate

governance requirements and best practices

Discharge such other duties as have been specified under the

act or rules

Such other duties as may be assigned by the Board from time

to time

Specific Responsibilities – Chairman & Company SecretaryDuties of Company Secretary


11

Fiduciary duties of Directors

act in accordance with the articles of the company.

act in good faith in order to promote the objects of the company for the benefit of its members as a whole.

Exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.

Not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.

Not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates.

Not assign his office and any assignment so made shall be void

Act in the best interests of the company, its employees, the shareholders, the community and for the protection of environment


11

Vacation and Resignation of Director

Director to vacate the office in the event not attended any Board Meeting during last year whether leave of absence has been granted or not

A director may resign from his office by giving notice in writing.

The Board shall, on receipt of such notice, intimate the Registrar and also place such resignation in the subsequent general meeting of the company

The director shall also forward a copy of resignation along with detailed reasons for the resignation to the Registrar

The notice shall become effective from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later

If all the directors of a company resign from their office or vacate their office, the promoter or in his absence the Central Government shall appoint the required number of directors to hold office till the directors are appointed by the company in General Meeting.


Key Implications – Effect on time share of Board

Provisions What it means for the Boards and the Management Effect on Timeshare ofBoards

Additional disclosures inthe Directors’ ResponsibilityStatement by all companies

• The board would now have to articulate their policy on directors’ appointment and remuneration

• The board would have to explain if there are any qualifications in the secretarial audit report

• The board would have to lay down its policies for regulatory compliance and risk management and ensure these are operating effectively

• The board would have to devise proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively

Significant increase in the Board’s time

Reconstitution of the board andreconstitution of its committees

• The board would now have to select a woman director• The board of listed companies to have one elected director to represent

small shareholders as defined by the New Act• The board of listed companies would have to have at least one third

members as independent as defined by the New Act• Three new committees have to be constituted over and above the Audit

Committee– Nomination and Remuneration Committee Stakeholders Relationship Committee Corporate Social Responsibility Committee

Considerable increase inthe Board’s time

Corporate Social ResponsibilityCommittee

The boards have to: lay down policy on CSR, constitute a Committee give reasons if the company has not been able to spend the mandatory amount.

Considerable increase inthe Board’s time


Key Implications – Effect on time share of Board

Provisions What it means for the Boards and the Management Effect on Timeshare ofBoards

Fiduciary duties of the directors additionally

The fiduciary duties of the directors have been laid down by law under the New Act and hence the directors’ would have to be aware of these duties and act accordingly in the boards.

Marginal increase in theboard’s time

Appointment of whole time key management personnel

The whole time key management has been defined by the New Act and their appointment, including the remuneration, will be through a board resolution and would have to be recommended by the Nomination and Remuneration Committee.

Marginal increase in theboard’s time

Independent Directors definitions, selection, tenure andentitlements

• The boards would have to: take note of the changes in the criteria and the tenure of the Independent

Directors and take necessary action to reconstitute the boards if necessary and set out policies in this regard.

make the selection of new Independent Directors following the process set out in the New Act and the Rules.

examine their existing policies on the entitlements of the Independent Directors.

take fresh declaration from the Independent Directors.

Considerable increase inthe board’s time

Performance evaluation ofthe board, Chairman and thedirectors

The boards would have to lay down the procedures and methods for annual formal evaluation of performance of the board, its committees and individual directors, Chairman and of the Independent Directors (before reappointment)

Substantial increase in theboard’s time



Are the directors aware of their roles, responsibilities and duties under the New Act? How would the company help in this process?

How will the board satisfy itself about the adequacy and effectiveness of the systems of internal financial controls, and regulatory compliance so that it could give affirmations in the Directors’ Responsibility Statement?

How should the board assure itself of the reliability of disclosures to be made on behalf of the board?

How will the performance of the board and its directors be evaluated?

What process should the board follow in evaluating the performance of the board and of the Independent

Directors prior to reappointment?

Should the board and the Independent Directors document all processes related to board functioning and

management oversight?


Board level Committees Pillars of Corporate Governance

16


Particulars Audit committee Nomination and Remuneration committee (NRC)

Stakeholder relationship committee (SRC)

Corporate Social Responsibility committee (CSRC)

Applicability Listed companyPublic company with paid up capital >= 10 crores; or Turnover of >= 100 crores; or aggregate loans, borrowings, debentures or deposits > 50 crores

Listed companyPublic company with paid up capital >= 10 crores; or Turnover of >= 100 crores; or aggregate loans, borrowings, debentures or deposits > 50 crores

Where total number of shareholders, deposit holders, debenture holders and other security holder exceeds 1,000 at any time during a FY

Company having: • net worth of INR 500

crores or more; or • turnover of INR 1000

crores or more; or • net profit of INR 5

crore or more during any FY

Constitution Minimum 3 directors, majority being IDs

Minimum 3 or more NED of which at least ½ shall be IDs

To be decided by BOD

Minimum 3 Directors of which at least 1 shall be IDFor private limited company not required to have independent director.

17

Committees of Board


Additional requirements – Companies Act, 2013 Disclosure in the Board’s Report to be given regarding the constitution of the Audit Committee;

Disclosure in the Board Report, if Board has not accepted any recommendation of the Audit Committee.

Transition period of 1 year is available to the existing companies for reconstitution of the Audit Committee.

Even MCA clarified that constitution of Audit Committee under this Act shall be made within 1 year from the commencement of these rules or appointment of Independent Director by them, whichever is earlier.

Increased responsibilities of Audit Committee:

• Approval of related party transactions

• Scrutiny of inter-corporate loans and investments

• Valuation of undertakings or assets of the company, wherever it is necessary

• Evaluation of internal financial controls (IFC) and risk management systems

• Setting up Vigil Mechanism for directors and employees to report genuine concerns

• Oversight over the financial statements and governance process of subsidiaries / associates and joint ventures

• Oversee Vigil Mechanism

18

Audit Committee

Additional Requirements - Listing Agreement – In force w.e.f October 01, 2014 Qualified and independent AC shall be set up with minimum 3 Directors as members and 2/3 rd of the members of audit

committee shall be ID.

All members of AC shall be financially literate and at least one member shall have accounting or related financial management expertise.

The Audit Committee should meet at least 4 times in a year and not more than four months shall elapse between two meetings

The Chairman of the Audit Committee shall be an ID and shall be present at AGM to answer shareholder queries;


Additional requirements – Companies Act, 2013 Transitional period of 1 year has been provided for constitution of NRC from the commencement of these rules or appointment

of ID, whichever is earlier.

Chairperson of the Company may be appointed as a member but cannot be Chairperson.

The committee to formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the board a policy, relating to the remuneration for the directors, key managerial personnel and other employees.

To identify persons who may be appointed in Senior Management..

To carry out evaluation of every director’s performance and recommend to the board his/her appointment and removal based on the performance.

Disclosure of NRC in the Board’s Report

19

Nomination and Remuneration Committee (NRC)

Additional Requirements - Listing Agreement – In force w.e.f. October 01, 2014 NRC shall comprise at least 3 directors, all of whom shall be NEDs and at least 50% shall be IDs

The Chairman of the Committee shall be an independent director.

The Chairman of the Committee shall be present at Annual General Meeting to answer shareholder queries. However, it would be up to the Chairman to decide who should answer the queries.


Companies Act, 2013 Chairperson shall be a non-executive director and such other members as may be decided by the Board.

The role of the committee is to consider and resolve the grievances of security holders of the company

20

Stakeholders Relationship Committee (SRC)

Listing Agreement – In force w.e.f October 01, 2014 Company to constitute a Stakeholders Relationship committee, in which Chairperson shall be a non-executive director and

such other members as may be decided by the Board.


CSR Committee

1

• Composition - At least 3 directors, out of which at least 1 shall be ID

2

• Committee shall formulate and recommend to the Board, CSR Policy and also monitor the same from time to time.

3

• Committee shall recommend the amount of expenditure to be incurred on CSR activities.

4

• Committee shall institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company.

5

• Board Report shall disclose the composition of CSR Committee.


Board and Committees Meetings

22


Considering the Companies Act, 2013, Companies (Meetings of Board and its powers) Rules, 2014, Secretarial Standard – 1* and relevant clauses of Listing Agreement, following are the compliance

requirements for convening the Meetings of the Board of Director’s

23

Board Meeting

Time

• At least 4 meetings of Board every year in such a manner that not more than 120 days shall intervene between 2 consecutive Board meetings

Notice

• Not less than 7 days notice in writing to every director at his address registered with the company and such notice shall be sent by hand delivery or by post or by electronic means.

Shorter

Notice

• Board Meeting may be called at shorter notice subject to that at least one independent director ("ID"), shall present at the meeting.

Shorter

Notice

• In case of absence of ID, decisions taken shall be circulated to all the directors and shall be final only on ratification thereof by at least one ID, if any.

*Agenda

• Agenda, setting out the business to be transacted at the meeting, and notes on Agenda should be given at least 7 days before the meeting.

Quorum

• 1/3rd of the total strength or 2 directors whichever is higher. (Participation through VC or any other audio visual mode shall be counted for the purpose of quorum)

*Section 118 of the Act, provide that the Companies shall observe the SS – 1 & 2, however the final SS are not yet approved by the CG, our review is based upon the SS existing as on date, which might undergo change upon issuance of final SS by CG.


Applicable provisions - Board Meeting through Video Conferencing or other Audio Visual means

24

Board Meeting

VC/

AVC

• Make necessary arrangements to avoid failure of video or audio visual connection

Notice

• Notice of the meeting shall inform the directors regarding the participation option available to them i.e. video conferencing mode or other audio visual means. (E mode)

E mode

• Director intending to participate through E - mode shall give prior intimation to the Chairperson or the company secretary of the company

E mode

• Director, who desire, to participate through E mode may intimate his intention through the electronic mode at the beginning of the calendar year and such declaration shall be valid for 1 calendar year

E mode

• In the absence of any intimation, it shall be assumed that the director shall attend the meeting in person.

Place

• Scheduled venue of the meeting as set forth in the notice convening the meeting, which shall be in India, shall be deemed to be the place of the meeting

Register

• Registers shall be deemed to have been signed by the Directors participating through electronic mode, if they have given their consent to this effect and it is so recorded in the minutes of the meeting

Identity

• Every participant shall identify himself for the record before speaking on any item of business on the agenda


Don’ts of VCC or AVs means

25

Board Meeting

1• approval of the annual financial statements

2• approval of the Board’s report

3• approval of the prospectus

4• Audit Committee Meetings for consideration of accounts

5• approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover

Specific provisions w.r.t the Minutes of the Board Meeting held through VC or other audio visual mode:

• Minutes shall disclose the particulars of the directors who attended the meeting through video conferencing or other audio visual means.

• Draft minutes of the meeting shall be circulated among all the directors within 15 days of the meeting either in writing or in electronic mode as may be decided by the Board.

• Every director who attended the meeting shall confirm or give his comments in writing within 7 days or some reasonable time as decided by the Board failing which his approval shall be presumed.

26 ©2014 Deloitte Touché Tohmatsu India Private Limited

Take due care to safeguard the integrity of the meeting by

ensuring sufficient security and identification procedures

Ensure availability of proper video conferencing or other

audio visual equipment

Record proceedings and prepare the minutes of the

meeting

Store for safekeeping and marking the tape recording(s)

as part of the Secretarial records at least before the

time of completion of audit of that particular year

Ensure that no un authorized person will attend the meeting

Ensure that participants attending through E mode are able to hear and see the other

participants

At the commencement of the meeting, a roll call shall be taken by the Chairperson

After the roll call, the Chairperson/Company

Secretary shall inform the Board about the names of

persons other than directors present in Board meeting

Chairperson shall ensure that the required quorum is present

throughout the meeting.

In case any statement is interrupted or garbled, the

Chairperson/Company Secretary shall request for repeat or reiteration by the

Director

At the end of discussion on each agenda item, the Chairperson

shall announce the summary of the decision taken on such item

VCC- Specific Responsibilities – Chairman & CS


Every company shall cause minutes of the proceedings of every general meeting, and every resolution passed by postal ballot and every meeting of its Board of Directors or of every committee of the Board.

27

Minutes

1•Distinct Minute book shall be maintained for each type of meeting namely Board, Committees, shareholders, creditors.

2•Resolution passed by Postal Ballot shall be recorded in the Minutes book as if they are passed in GM.

3

•Minutes are required to be kept within 30 days of the conclusion of every such meeting in the books kept for that purpose with their pages consecutively numbered along with the date of such entry.

4

•Brief Report on Postal Ballot shall be entered in the minutes book along with the date of such entry within 30 days from the date of passing of resolution.

5•Signing of Minutes – Board or Committee Minutes (Chairman of the said meeting or Chairman of the next succeeding Meeting)

6

•Signing of Minutes – General Meeting (chairman of the same meeting within the aforesaid period of 30 days or in the event of the death or inability of Chairman, any director authorized by the Board)

7

•General Meeting minutes book - shall be kept at the Registered office, preserved permanently and kept in the custody of the Company Secretary or any other director authorized by Board.

8

•Board Meeting minutes book - shall be kept at the Registered office or any other place as Board may decide, preserved permanently and kept in the custody of the Company Secretary or any other director authorized by Board.

9•In case of Board or Committee Meeting – Names of Director’s present and name of the dissenting director shall be mentioned.

10•Every company shall observe Secretarial Standards for Board and Shareholders Meeting as approved by CG


Key Implications – Effect on time share of Board or respective Committees

Provisions What it means for the Boards and the Management Effect on Timeshare ofBoards or respective Committee

Reconstitution and additional responsibilities of Audit Committees

• The boards would now have to approve a charter for Audit Committees.• The roles and responsibilities of the Audit Committee has been extended

beyond what these were in the old Act and in Clause 49.• Boards of public companies may have to reconstitute the Audit Committees

ensuring that majority of the committee members, including its Chairperson, are financially literate.

• There is a stronger emphasis than before of the role of the Audit Committee on internal financial controls and risk management. This will make the task of the Audit Committee more onerous.

Significant increase in Audit Committee’s time

Performance evaluation of directors and board committees

• Nomination and Remuneration Committee will now have to develop criteria to assess the performance of each individual director on the board.

• Boards led by their Chairperson, will have to develop an assessment criteria to evaluate each Independent Directors performance.

• As Audit Committee is required to have a majority of Independent Directors, it may be helpful to assess the performance of the Audit Committee and other board committees, in addition to that of its executive and Independent Director members.

Substantial increase in the Nomination and Remuneration Committee’s time


Key Implications – Effect on time share of Board or respective Committees

Provisions What it means for the Boards and the Management Effect on Timeshare ofBoards or respective Committee

Mandatory constitution of board committees

• The three other new committees have been formed. Some of the committees were a part of Clause 49. But for the first time these committees form a part of the statute book

• Many companies having separate board committees for remuneration and nomination will have to reconstitute a single Nomination and Remuneration Committee with Independent Directors forming a majority.

Considerable increase in the board’s time

Additional disclosures on remuneration

• Companies need to understand implications of making remuneration policies for directors, Key Management Personnel and other employees available publicly

Considerable increase in the Nomination and Remuneration Committee’s time



Is the Audit Committee adequately constituted for it to undertake the statutory responsibilities?

Does the Audit Committee have an annual calendar of activities, covering meetings and typical agenda points to cover?

Does the full Audit Committee formally participate in the process to set the policies for internal financial controls, risk management and compliance before recommending to the board?

Does the company have clearly written and articulated policies and processes for assessing and managing major financial risks?

Are the committee members aware of the implications of the public disclosure?

Does the CSR Committee have the expertise to evaluate and monitor the working of the CSR activities?

How will the Nomination and Remuneration Committee evaluate performance of each director?


Vigil Mechanism

31


Companies Act, 2013 Every listed company and Companies which accept deposit from public or have borrowed money from banks and public

financial institutions in excess of INR 50 crore shall establish a vigil mechanism for directors and employees to report their genuine concerns or grievances.

Audit committee shall oversee the vigil mechanism (Conflicted member on specified matter shall be recused and rest of the members shall take the decisions).

In case of other companies, the Board of directors shall nominate a director to play the role of audit committee for the purpose of vigil mechanism to whom other directors and employees may report their concerns.

Role - Provide for adequate safeguards against victimization of employees and directors, direct access to the Chairperson of the Audit Committee, in exceptional cases and suitable action in case of repeated frivolous complaints being filed by a director or an employee.

Disclosure – On the website and in the Board’s Report

32

Vigil Mechanism

Listing Agreement – In force w.e.f October 01, 2014 Whistle Blower policy - Company shall establish a vigil mechanism for directors and employees to report concerns about

unethical behavior, actual or suspected fraud or violation of the company’s code of conduct or ethics policy.

Audit Committee shall review the functioning of the vigil mechanism.

Role - Provide for adequate safeguards against victimization of employees and directors, direct access to the Chairperson of the Audit Committee, in exceptional cases.

Disclosure – On the website and in the Board’s Report regarding the mechanism and a affirmation that no personnel has been denied access to the audit committee


Penalties

33


Section No

Particulars Responsibility Penalty on non-compliance Persons liable

7 Incorporation of Company

Ensure true and correct information is submitted and no material information is suppressed at the time of incorporation of company

a) Imprisonment - six months to ten years and b) Fine – 100% to 300% of the amount involved in the fraud

First directors, promoters, persons connected with incorporation

42 Contravention of provisions of private placement

Ensure compliance with the provisions relating to offer or acceptance of monies under private placement

Amount involved in the offer or invitation or two crore rupees, whichever is higher.

Company, its promoters and directors

100 Conduct of extraordinary general meeting

Ensure extraordinary general meeting is conducted as per the provisions on the request of the members

Reimbursement of reasonable expenses incurred in calling the meeting to the requisitionists

Directors who were in default in calling the meeting

102 Statement to be annexed to notice of general meeting.

Ensure appropriate disclosure in the statement annexed to notice of annual general meeting. In case any benefit accrues on account of non-disclosure or insufficient disclosure, compensate the company to the extent of benefit received

Fine - fifty thousand rupees or five times the amount of benefit derived whichever is more

Promoter, director, manager or other key managerial personnel

Penalties


Section No


127 Distribution of dividends

Ensure dividend/warrant in respect thereof is paid within 30 days from the date of declaration

Company – interest @18% per annum for the period of defaultDirector: Imprisonment - upto two years; or Fine – upto one thousand per rupees per day of default;or with both imprisonment and fine

Company, every director of the company if he is knowingly a party to default

128 Books of accounts Ensure the books of accounts and other relevant books, papers and financial statement, for every financial year for the company has been prepared and kept at its registered office

Imprisonment - upto one year; or

Fine - fifty thousand rupees to five lakh rupees; or with bothimprisonment and fine

MD, the WTD in charge of finance, the CFO or any other person responsible

129 Financial statement

Ensure provisions relating to preparation of financial statement has been complied with

Imprisonment - upto one year; orFine - fifty thousand rupees to five lakh rupees; or with both imprisonment and fine

MD, the WTD in charge of finance, the CFO or such other responsible person

Penalties


Section No


137 Copies of financials statements to be filed with the registrar

Ensure financial statements along with the relevant attachments has been filed with the registrar within the time specified under section 403

Company - fine of one thousand rupees for every day of default but not exceeding ten lakh rupeesPersons: Imprisonment - upto six months; or Fine - one lakh rupees to five lakh rupees;or with both imprisonment and fine

Company, MD and CFO, if any and if not, then any director responsible and in the absence of any such director, all such directors

152, 155 & 156

Appointment of directors

Ensure compliance with the provisions relating to appointment, retirement and furnishing of director identification number to the company etc

Imprisonment - upto six months; or Fine – upto fifty thousand rupees and fine of five hundred rupees for every day of continuing default

Any individual or director

165 Number of directorships

Ensure compliance with provisions relating to number of directorship in a company (max - 20, subject to directorship in the public company, including a company which is a subsidiary of a public company, shall not exceed 10)

Fine - five thousand rupees to twenty-five thousand rupees for every day of continuing default

Any person proposed to be appointed as director

Penalties


Section No


166 Duties of directors Act in accordance with the articles of association and according to provisions mentioned in section 166

Fine - one lakh rupees to five lakh rupees

Director

167 Vacation of office of the director

Vacate the office of director on account of disqualification as specified in subsection (1) section 167

Imprisonment - upto one year or Fine - one lakh rupees to five lakh rupees, or with both imprisonment and fine

Director

184 Disclosure of director's interest

Make appropriate disclosure of director's interest in other companies, firms, association of persons etc.

Imprisonment – upto one year; orFine - fifty thousand rupees to one lakh rupees; or with both imprisonment and fine

Director

Penalties


Section No


185 Loans to directors Ensure compliance with section 185(1) relating to advancement of loan to director or providing guarantee/security to director

Company - Fine - five lakh rupees to twenty-five lakh rupeesDirector - imprisonment upto six months; or Fine - five lakh rupees to twenty-five lakh rupees; or with both imprisonment and fine

Company and director

189 Register of contracts in which directors are interested

Ensure maintenance of register of contracts and arrangements entered into with the interested directors and related parties

Fine - twenty-five thousand rupees

Director

191 Payment to director for loss of office

Ensure compliance with provisions relating to payment to directors for loss of office in connection with the transfer of undertaking, property or shares

Fine -twenty-five thousand rupees to one lakh rupees

Director

Penalties


Section No


194 Forward dealing in securities by KMP

Not to engage in forward dealings in the securities of the company or in its holding, subsidiary or associate company

Imprisonment – upto two years; orFine - one lakh rupees to five lakh rupees; or with both fine and imprisonment

Director or KMP

203 Appointment of KMP

Ensure compliance with provisions of section 203 for appointment of whole-time KMP

Company - one lakh rupees to five lakh rupees and Director - fine upto fifty thousand rupees and one thousand rupees for every day of continuing default

Company, every director and every KMP, who is in default

238 Dissenting share holders in a scheme of merger

Register the circular/scheme for acquisition of shares from dissenting shareholders in a scheme of merger

Fine - twenty-five thousand rupees to five lakh rupees.

Director in default

243 Oppression and mismanagement

Not to act as MD, director or manager of the company for a period of five years if the contract between the company and such managing director, director or manager, as the case may be, has been terminated or set aside

Imprisonment – up to six months; or Fine - may extend to five lakh rupees; or with both fine and imprisonment

Any person who knowingly acts as a MD or other director or manager of a company & every other director of the company who is knowingly a party

Penalties

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