Table of ContentsIntroduction...................................................................................................................................... - 2 -

Need for Companies Act, 2013..........................................................................................................- 2 -

New Types of Companies:.................................................................................................................- 3 -

(i)One Person Company-...............................................................................................................- 3 -

(ii) Small Company.........................................................................................................................- 4 -

(iii) Dormant Company..................................................................................................................- 5 -

(iv) Private Company.....................................................................................................................- 6 -

Incorporation of Company................................................................................................................- 6 -

Share Capitals & Debentures.............................................................................................................- 7 -

EQUITY SHARE CAPITAL-................................................................................................................- 7 -

PREFERENCE SHARE CAPITAL-.......................................................................................................- 8 -

IMPORTANT CHANGES REGARDING SHARE CAPITAL-...................................................................- 8 -

VOTING RIGHT...............................................................................................................................- 8 -

Merger & acquisitions.......................................................................................................................- 9 -

Retained Provisions-......................................................................................................................- 9 -

CROSS BORDER MERGER.............................................................................................................- 10 -

SHORT FORM MERGER/FAST TRACK MERGER............................................................................- 10 -

REVERSE MERGER........................................................................................................................- 11 -

MERGER OF A LISTED COMPANY INTO AN UNLISTED ONE:........................................................- 12 -

PENALTIES...................................................................................................................................- 12 -

Corporate Social Responsibility.......................................................................................................- 13 -

Shareholder Democracy..................................................................................................................- 13 -

Buy-Back of Share............................................................................................................................- 15 -

Decision Making power of the Board..............................................................................................- 16 -

1

IntroductionThe long-awaited Companies Bill 2013 got its assent in the Lok Sabha on 18 December 2012

and in the Rajya Sabha on 8 August 2013. After having obtained the assent of the President of

India on 29 August 2013, it has now become the much awaited Companies Act, 2013 (2013

Act). An attempt has been made to reduce the content of the substantive portion of the related

law in the Companies Act, 2013 as compared to the Companies Act, 1956 (1956 Act). In the

process, much of the aforesaid content has been left, ‘to be prescribed’, in the Rules (340+)

which are yet to be finalised and notified. As of the date of this publication, 99 sections have

been notified and a few circulars have been issued clarifying the applicability of these.

The 2013 Act introduces significant changes in the provisions related to governance, e-

management, compliance and enforcement, disclosure norms, auditors and mergers and

acquisitions. Also, new concepts such as one-person company, small companies, dormant

company, class action suits, registered valuers and corporate social responsibility have been

included.1

The Act of 2013 intends to promote self-regulation and has also introduced some progressive

concepts like One- Person Company, Small Company, Dormant Company, E-governance, etc.

The concept of Corporate Social Responsibility has also been introduced to encourage a

socially, environmentally and ethically responsible behavior by companies.2

This project brings out the significant changes proposed by the 2013 Act as compared to the

1956 Act and our initial analysis thereon.

Need for Companies Act, 2013 The 1956 Act has been in need of a substantial revamp for quite some time now, to make it

more contemporary and relevant to corporate, regulators and other stakeholders in India.

While several unsuccessful attempts have been made in the past to revise the existing 1956

Act, there have been quite a few changes in the administrative portion of the 1956 Act. The

most recent attempt to revise the 1956 Act was the Companies Bill, 2009 which was

1 PwC India- “Companies Act, 2013: Key highlights & analysis” Significant changes & implications, Pg-3.

2 Grant Thornton India LLP- “The Companies Act, 2013: The dawn of a new era”.

2

introduced in the Lok Sabha, one of the two Houses of Parliament of India, on 3 August 2009.

This Companies Bill, 2009 was referred to the Parliamentary Standing Committee on

Finance, which submitted its report on 31 August 2010 and was withdrawn after the

introduction of the Companies Bill, 2011.

The 1956 Act was passed in the first decade of free India, when methods of business were

different as compared to new era. Methods of business have changed radically from last 60

years.3

Companies Act, 2013 is a vibrant step, which play a major role in attaining the ultimate ends

of social & economic policy of the government and in the development of companies in India

on healthy lines.

New Types of Companies:

(i)One Person Company-The revolutionary new concept of 'One Person Company' (OPC) has been introduced by

the Companies Act, 2013. This concept of OPC was first recommended by the expert

committee of Dr. JJ Irani in 2005. OPC provides a whole new bracket of opportunities for

those who look forward to start their own ventures with a structure of organized business.

OPC will give the young businessman all benefits of a private limited company which

categorically means they will have access to credits, bank loans, limited liability, legal

protection for business, access to market etc all in the name of a separate legal entity.

Though the concept of OPC is new in India but it is a very successful form of business in

UK and several European countries since a very long time now.

One Person Company is defined in Sub- Section 62 of Section 2 of The Companies Act,

2013, which reads as follows:

'One Person Company means a company which has only one member'

It shall also be important to note that Section 3 classifies OPC as a Private Company for

all the legal purposes with only one member. All the provisions related to the private

company are applicable to an OPC, unless otherwise expressly excluded.

The only exception provided by the Act to an OPC is that according to the rules only

"NATURALLY-BORN" Indian who is also a resident of India is eligible to incorporate

an OPC. Meaning thereby, the advantages of an OPC can only be obtained by those

3 A.N. Gawade & CO. “Presentation on new Companies Bill, 2013”.

3

INDIANs who are naturally born and also a resident of India. At the same, it shall also be

worth mentioning that a person cannot form more than 5 OPC's.

An OPC is incorporated as a private limited company, where there is only one member

and prohibition in regard to invitation to the public for subscription of the securities of the

company.

An OPC can be formed under if the company is limited by guarantee or limited by

shares.4

(ii) Small CompanyThe concept of “Small Company” has been introduced for the first time by the Companies

Act, 2013. The Act identifies some companies as small companies based on their capital

and turnover position for the purpose of providing certain relief/exemptions to these

companies. Most of the exemptions provided to a small company are same as that

provided to a one person company. The Act also provides for a simplified scheme of

arrangement between two small companies, without requiring the approval of Tribunal,

i.e. with the approval of Central Government.

Small Company is define u/s 2(85) as-

“Small company means a company, other than a public company,—

(i) paid-up share capital of which does not exceed fifty lakh rupees or such

higher amount as may be prescribed which shall not be more than five crore

rupees;

(ii) or turnover of which as per its last profit and loss account does not exceed

two crore rupees or such higher amount as may be prescribed which shall

not be more than twenty crore rupees:

Provided that nothing in this Section shall apply to—

(A) A holding company or a subsidiary company;

(B) A company registered under Section 8; or

(C) A company or body corporate governed by any special Act “

For qualifying as a small company, it is enough if either the capital is less than rupees

fifty lakhs or turnover is less than rupees twenty crores. It is sufficient if either one of the

requirement is met without meeting the other requirement. However, these limits may be

raised but not exceeding rupees five crores in case of capital and rupees twenty crores in

case of turnover.

4 Vastala Singh (Singh & Associates)- “One Person Company- A Concept For New Age Business Ownership”.

4

As per the definition of a small company, holding and subsidiary companies are

specifically excluded from the concept of small company. Thus even though both the

holding company and subsidiary company may fulfill the capital or turnover requirement

of a small company, they will still fall outside the purview of small company and

accordingly the benefits which are available to a small company cannot be applied to a

company which is holding or subsidiary company.5

(iii) Dormant CompanyThe Companies Act, 2013 introduces a concept of a dormant company within its ambit. It

is the first time that such a concept is thought of, i.e. company which is not active. There

is no definition of what constitutes a dormant company under the definition clause. A

definition appears in section 455 of the Act and here also the concept is defined in a very

roundabout manner.

Section 455 defines- “Where a company is formed and registered under this Act for a

future project or to hold an asset or intellectual property and has no significant

accounting transaction, such a company or an inactive company may make an

application to the Registrar in such manner as may be prescribed for obtaining the status

of a dormant company”

So dormant company can be a company formed for a future project or to hold an asset or

intellectual property without there being any significant accounting transaction OR an

inactive company.6

Where a company is formed and registered under this Act for a future project or to hold

an asset or intellectual property and has no significant accounting transaction, such a

company or an inactive company may make an application to the Registrar in such

manner as may be prescribed for obtaining the status of a dormant company.

The Registrar on consideration of the application shall allow the status of a dormant

company to the applicant and issue a certificate.

The Registrar shall maintain a register of dormant companies.

In case of a company which has not filed financial statements or annual returns for two

financial years consecutively, the Registrar shall issue a notice to that company and enter

the name of such company in the register maintained for dormant companies.

A dormant company shall have such minimum number of directors, file such documents

and pay such annual fee as may be prescribed to the Registrar to retain its dormant status

5 CS S. Dhanapal- “small companies under Companies Act, 2013”.6 CS V Ramachandran (Company Secretary)- “Dormant Company under Companies Act, 2013”.

5

in the register and may become an active company on an application made in this behalf

accompanied by such documents and fee as may be prescribed.

The Registrar shall strike off the name of a dormant company from the register of

dormant companies, which has failed to comply with the requirements of this section7.

(iv) Private CompanyThe 2013 Act introduces a change in the definition for a private company, inter-alia, the

new requirement increases the limit of the number of members from 50 to 200. [section-

2(68) of 2013 Act].

Incorporation of CompanyThe 2013 Act introduces a new form of entity ‘one-person company’ and incorporates certain

new provisions in respect of memorandum and articles of association. For instance, the

concept of including entrenchment provisions in the articles of association has been

introduced.

The 2013 Act mandates inclusion of declaration to the effect that all provisions of the 1956

Act have been complied with, which is in line with the existing requirement of 1956 Act.

Additionally, an affidavit from the subscribers to the memorandum and from the first

directors has to be filed with the ROC, to the effect that they are not convicted of any offence

in connection with promoting, forming or managing a company or have not been found guilty

of any fraud or misfeasance, etc., under the 2013 Act during the last five years along with the

complete details of name, address of the company, particulars of every subscriber and the

persons named as first directors. The 2013 Act further prescribes that if a person furnishes

false information, he or she, along with the company will be subject to penal provisions as

applicable in respect of fraud i.e. section 447 of 2013 Act [section 7(4) of 2013 Act; Also

refer the chapter on other areas]

Memorandum of Association-

The 2013 Act specifies the mandatory content for the memorandum of association which is

similar to the existing provisions of the 1956 Act and refers inter-alia to the following:

• Name of the company with last word as limited or private limited as the case may be.

7 http://aishmghrana.me/2014/01/21/dormant-companies/

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• State in which registered office of the company will be situated.

• Liability of the members of the company.

However, as against the existing requirement of the 1956 Act, the 2013 Act does not require

the objects clause in the memorandum to be classified as the following:

(i) The main object of the company.

(ii) Objects incidental or ancillary to the attainment of the main object

(iii) Other objects of the company [section 4(1) of 2013 Act]

The basic purpose in the 1956 Act for such a classification as set out in section 149 of the

1956 Act, is to restrict a company from commencing any business to pursue ‘other objects of

the company’ not incidental or ancillary to the main objects except on satisfaction of certain

requirements as prescribed in the 1956 Act like passing a special resolution, filing of

declaration with the ROC to the effect of resolution. Reservation of name: The 2013 Act

incorporates the procedural aspects for applying for the availability of a name for a new

company or an existing company in sections 4(4) and 4(5) of 2013 Act.8

Share Capitals & DebenturesThe chapter on share capital and debentures introduces some key changes in the 2013 Act. To

illustrate, the 2013 Act does not give any cognisance to the existing requirement of section 90

of the 1956 Act that provided some saving grace to private companies. Therefore, the

applicability of following sections of the 2013 Act is no longer restricted to public companies

and private companies which are subsidiaries of a public company and are now applicable to

private companies also.

EQUITY SHARE CAPITAL-“Equity share capital” means all share capital which is not preference share capital. Equity

share capital may be divided into;

(i) Equity share capital with voting right; or

(ii) Equity share capital with differential rights.

These differential rights may have difference related to dividend, voting or otherwise in

accordance with rules. The term otherwise bring scope for innovation with in limit of rules. It

8PwC India- “Companies Act, 2013: Key highlights & analysis” Significant changes & implications, Pg-11.

7

may be difference related to managing control, power to appoint director, or power to appoint

proxy and so on.

PREFERENCE SHARE CAPITAL-Preference share capital of the issued share capital of the company which carries or would

carry a preference right with respect to –

(a) Payment of dividend, either as a fixed amount or an amount calculated at a fixed rate.

Which may be either be free of or subject to income tax; and

(b) Repayment of amount of share capital or share capital deemed to be paid up, whether or

not, there is preferential right specified in the memorandum or article of the company.

This Act does not interfere in rights of preference shareholders who are entitled to participate

in the proceeds of winding up before commencement of this Act.9

IMPORTANT CHANGES REGARDING SHARE CAPITAL-Issue of shares at discount is permitted u/s 79 of Companies Act, 1956 subject to compliance

with conditions but on other hand provision under Companies Act, 2013 issue of shares at

discount is not allowed other than sweat equity share.

Issue of preference shares for more than 20 years was prohibited u/s 80 of old act but

preference share have to be redeemed within 20 years of issue except for the share issued for

prescribed infrastructure projects, provided a certain percentage of share are redeemed

annually at the option of shareholders.10

VOTING RIGHTThe provisions of 2013 Act regarding voting rights are similar to the existing section 87 of the

1956 Act. The only change noted in the 2013 Act is the removal of distinction provided by the

1956 Act with respect to the entitlement to vote in case the company fails to pay dividend to

its cumulative and non-cumulative preference share holders [section 47 of 2013 Act] The

provisions regarding private placement and additional disclosures in prospectus will also help

to strengthen the capital markets. The 2013 Act proposes to re-instate the existing concept of

9 Asim Gharana Law governance responsibility (http://aishmghrana.me/2013/09/24/share-capital-companies-act-2013/)10 A.N. Gawade & CO. “Presentation on new Companies Bill, 2013”.

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shares with differential voting rights. Pursuant to this section the company may face hardship

with regards to computation of proportionate voting rights.

Merger & acquisitionsThe 2013 Act features some new provisions in the area of mergers and acquisitions, apart

from making certain changes from the existing provisions. While the changes are aimed at

simplifying and rationalising the procedures involved, the new provisions are also aimed at

ensuring higher accountability for the company and majority shareholders and increasing

flexibility for corporate.

The changes proposed would require companies to consider the scale and extent of

compliance requirements while formulating their restructuring plans once the 2013 Act is

enacted. These changes are quite constructive and could go a long way in streamlining the

manner in which mergers and other corporate scheme of arrangements are structured and

implemented in India.

Retained Provisions-Although substantial changes have been incorporated in the New Act, several key provisions

remain unchanged. For example, the acceptance of a scheme or merger or amalgamation by

three-fourths of the shareholders, like in section 391(2) of the Old Act, is still a pre-condition

to a merger or amalgamation. The power of the Central Government to order a merger or

amalgamation in the interest of the nation is untouched and is placed in Section 237. Further,

the obligation to maintain records of the mergers/amalgamations is retained in Section 239 as

its importance cannot be ignored. Other matters like convening meetings, obtaining the

permission of the regulatory authorities and the Central Government in cases of mergers or

amalgamations remain unaltered.11

The Companies Act 2013 (“2013 Act”) has come into force, the sections related to M&A is

yet to be notified and the Ministry of Corporate Affairs (MCA) is striving hard to notify the

aforesaid sections and the rules thereon. Section 230-240 of the 2013 Act contains the

provision related to M&A as compared to Section 390- 396A of the Companies Act 1956

(“1956 Act”), which is still in presence. As the MCA notifies the sections of the new Act, the

2013 Act will replace the 1956 Act. The coming in force of the 2013 Act will help in reducing

shareholders’ litigation and make corporate restructuring process smooth and efficient. The

11 Anup Koushik Karavadi- “Changing contours of mergers and acquisitions under Companies Act, 2013”

9

new act also promises to bring easy and efficient ways of doing business in India with better

governance and improved level of transparency. Accountability and making corporate’s

socially responsible is also one of the main factors to scrap out approximately 60 years old

Act.12

The section dealing with compromises and arrangements, deals comprehensively with all

forms of compromises as well as arrangements, and extends to the reduction of share capital,

buy-back, takeovers and corporate debt restructuring as well. Another positive inclusion

within this section is that objection to any compromise or arrangement can now be made only

by persons holding not less than 10% of share holding or having an outstanding debt

amounting to not less than 5% of the total outstanding debt as per the latest audited financial

statements. [section 230 of the 2013 Act] Further, currently, under the 1956 Act, an order

does not have any effect until the same is filed with the ROC. However, such requirement has

been done away with under the 2013 Act. The 2013 Act merely requires filing of the order

with the ROC.

CROSS BORDER MERGERThe 1956 Act prohibited the merger/ demerger of Indian company with the foreign company,

however, the vice versa was possible. But as per the 2013 Act, both types of mergers have

been allowed with only those foreign entities which have been notified by the government.

RBI approval is also required to be taken for concluding these types of deals. RBI will also

notify the regulation which has to be complied to enter into this transaction. The payment in

the scheme can be done through cash or through depository receipts or both.

SHORT FORM MERGER/FAST TRACK MERGERThis type of mergers includes merger between- (a) two or more small companies (b) parent

and wholly owned subsidiary company.

“Small Company means a company, other than a public company

1) paid-up share capital of which does not exceed 50 lakh rupees or such higher amount

as may be prescribed which shall not be more than 5 crore rupees; or

12 Yogesh Malhan (Singh & Associates)- “Merger and Acquisition- transformed rules of the game”

10

2) Turnover of which as per its last P&L account does not exceed 2 crore rupees or such

higher amount as may be prescribed which shall not be more than 20 crore rupees3”

Therefore, in this form of mergers/ demergers no prior approvals of NCLT is required and

even the approval of various other regulatory bodies is not needed. However, the Central

Government, ROC, OL approval is necessary along with the approval of shareholders holding

9/10th portion of total shares and majority creditors representing 9/10th in value. Moreover,

the auditor’s certificate for compliance with applicable accounting standards is also not

required to be provided. But the benefit of this fast track merger/ demerger is not available to

small public companies where there is merger/demerger between two or more small

companies, (Benefit only applicable to private small companies). However, in case of merger/

demerger between a parent company and its wholly owned subsidiary, these provisions are

applicable for both public and private companies.

REVERSE MERGERThe merger of a company with a financially weak company, in order to get various tax

exemptions is known as reverse merger. It is also a kind of merger of listed company with an

unlisted company (private or public) by which the unlisted company gets listed in the stock

exchange wherein the listed company has already been listed earlier. In this kind of merger, as

per 1956 Act, the unlisted company automatically gets a back door entry to become a listed

company without an IPO. It means the unlisted company can enjoy all the benefits of

becoming a listed company without diluting its shares in the public. However, as per Section

232 (h), if the transferee company is an unlisted company, it shall not automatically become a

listed company by merging with a listed company. It has to follow the process of listing as per

SEBI (ICDR) Regulation 2009 in order to become listed. During merger the unlisted

company also has to grant an exit opportunity to the existing shareholders of the listed

company. Therefore, the process of backdoor listing will end as soon as these provisions of

2013 Act are notified.

MERGER OF A LISTED COMPANY INTO AN UNLISTED ONE:The 2013 Act specifically provides for the Tribunal’s order to state that the merger of a listed

company into an unlisted company will not ipso facto make the unlisted company listed. 13 It

13 See Section 232(3)(h) of the 2013 Act

11

will continue to be unlisted until the applicable listing regulations and SEBI guidelines in

relation to allotment of shares to public shareholders are complied with. Further, in case the

shareholders of the listed company decide to exit, the unlisted company would facilitate the

exit with a pre-determined price formula which shall be within the price specified by SEBI

regulations. The Indian securities law prescribes strict enforcement of listing requirements by

companies intending to get listed. SEBI had, however, eased these requirements for listed

companies proposing merger by granting them exemptions from complying with the initial

public offering requirements on a case to case basis. Recently SEBI had issued guidelines

stating that if the Scheme provides for listing of shares of an unlisted company without

complying with the initial public offering requirements, then, upon court approval of the

Scheme, the unlisted company has to file a specific application seeking such exemption from

SEBI. Such an application has to be filed upon, inter-alia, allotment of equity shares to the

holders of securities of the listed company. The changes under the 2013 Act are in line with

SEBI requirements. The 1956 Act was silent on this aspect.14

PENALTIESThe penalties for contravention of the provisions under the 1956 Act were a maximum of INR

50,000 (approximately US$ 80617) which apply to the company as well as officer-in default.

However under the 2013 Act, separate penalties have been levied on the company and its

defaulting officer. To bring in more accountability, quantum for companies has been

increased from the aforesaid sum to a minimum of INR 100,000 (approximately US$ 1,612)

and maximum of INR 2,500,000 (approximately US$ 40,322). Defaulting officer(s) will also

be punishable with imprisonment up to one year or with a minimum fine of INR 100,000

(approximately US$ 1,612) and maximum INR 300,000 (approximately US$ 4,838) or

both.18 Such stringent penal provisions will not apply to mergers of small companies and that

of a holding company with its wholly-owned subsidiaries unless their merger is transferred to

the Tribunal and approved by it.15

Corporate Social ResponsibilityThe Ministry of Corporate Affairs (MCA) had introduced the Corporate Social Responsibility

Voluntary Guidelines in 2009. These guidelines have now been incorporated within the 2013

14 Kamal Preet Kaur , E-Newsline PSA legal- “Merger Regime Under The Companies Act, 2013” Pg-215 Kamal Preet Kaur , E-Newsline PSA legal- “Merger Regime Under The Companies Act, 2013” Pg-5

12

Act and have obtained legal sanctity. Section 135 of the 2013 Act, seeks to provide that every

company having a net worth of 500 crore INR, or more or a turnover of 1000 crore INR or

more, or a net profit of five crore INR or more, during any financial year shall constitute the

corporate social responsibility committee of the board. This committee needs to comprise of

three or more directors, out of which, at least one director should be an independent director.

The composition of the committee shall be included in the board’s report. The committee

shall formulate the policy, including activities specified in Schedule VII, which are as

follows16:

• Eradicating extreme hunger and poverty.

• Promotion of education.

• Promoting gender equality and empowering women.

•Reducing child mortality and improving maternal health.

•Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria

and other diseases.

•Ensuring environmental sustainability.

•Employment enhancing vocational skills.

•Social business projects.

•Contribution to the Prime Minister’s National Relief Fund or any other fund set-up by the

central government or the state governments for socio-economic development and relief, and

funds for the welfare of the scheduled castes and Tribes, other backward classes, minorities

and women.

•Such other matters as may be prescribed.

Shareholder Democracy

"The strongest dimension of democracy is the highest degree of participation and not with the

'degree of freedom or equality'.

Shareholders are one of the vital or should say; are the supreme components in the corporate

scenario. They are theoretically empowered to influence and even frame major corporate

decisions and are the managers of their company. The aim of legislature gets fulfilled when

shareholders are free to exercise their rights in a democratic way and the device through

16 PwC India- “Companies Act, 2013: Key highlights & analysis” Significant changes & implications, Pg-37

13

which shareholders influence, lies in the voting rights, attached to ordinary shares. An

ordinary share usually grants on its holders the right to cast vote on all matters, placed in the

shareholders meeting except few provisions.

Shareholders can exercise control over the Company in several ways. The one way to exert

control over the decision making process in corporate is by utilizing their rights attached and

can explore opportunities by raising their voices. Another way to control in today's era, rests

on the market forces. The Shareholders can express their content by reacting through market

forces by way of selling or buying the shares.

The management of the Company is responsible towards involvement of shareholders in the

decision making process in order to create a "check and balance" system. This will ensure

transparency in all the acts done by the company or by the shareholders. In shareholders

Democracy everyone has equal opportunity to elect and constitute a board to manage and

conduct the affairs of the company and to decide the future course of events of the company.

The central issue of shareholders participation in Corporate Governance is that of disclosure

and information flow to the shareholders. Informed participant can actively participate in

company's affairs, contribute effectively in the discussions and help the management in

decisions and the participation of the shareholders has been increased, by way of proxies.

The new right which allows them to take part in meeting without attending it is passing of

resolution by postal ballot system. The need for proxies and postal ballot systems arises as

companies in various instances hold their meetings in the remote places of the country and it

is very troublesome for the members to access those meetings. No one can challenge the

corporate as they hold their meetings as per the laws.

The net effect is that a minute number of shareholders are really able to access those meetings

and exercise their voting rights. Thus, where a resolution has been passed by them at a

general meeting which has been attended by say, hardly 2% of the total number of

shareholders holding say 5% of the voting power, it cannot be said that the shareholders'

democracy has been established in true spirit although there is no contravention of law .

To overpower the aforesaid situation that has been in existence for decades in India, the

inauguration of the concept of postal ballot in the law books is really welcome. It provides for

true shareholders' democracy. The listing agreement has also provided for companies passing

14

certain resolutions through postal ballot. Through the postal ballot system, every member can

make his/her contribution in the important decisions of the company without attending any

meeting.

The justification behind proxies is that, it is not suitable for every member to attend meeting

every time when it is called but they may be very interested in the proposed resolutions which

have to be passed in the proposed meeting and wants to take part in itby empowering and

appointing any person on their behalf to vote on the concerned matter. This approach enables

the participation indirectly.

The Shareholders have limited access to the information on the policies and practices and also

have very limited access to corporate proxy machinery. This is the limitation of the proxy

system that shareholders are not aware about their rights and lack of information availability

is also the main hurdle in implementing the law in true letter and spirit17.

Buy-Back of ShareUnder the 1956 Act, companies could do multiple buy-backs of shares in the same financial

year except in certain specific facts where there was a cooling off period of one year.

However, now the 2013 Act requires a mandatory one-year time period between any type of

buy-back, even if the buy-back was achieved through a scheme approved by an Indian court.

The 2013 Act also stipulates that a buy-back is not possible if the company has made any

default in the repayment of deposits or interest, or redemption of debentures, or preference

shares, or payment of dividend, or in the repayment of a term loan to a bank or financial

institution. However, the buy-back may be possible if the defect is remedied, and a three-year

time period has elapsed.

The earlier common practice of a back-to-back shareholder-approved buy-back following a

board mandated buy-back is no longer possible under the 2013 Act, and this is likely to

significantly delay and adversely impact investor exit options. It is noteworthy that with the

introduction of a non-creditable tax on buy-back distributions under tax law, this route had

already become less attractive.

17 Hemant Goyal & Sandhya Aggarwal , Global Jurix, Advocates & Solicitors- “Supremacy Of Shareholders & Their Democracy In Line With New Act, 2013”

15

Decision Making power of the BoardUnlike under the Indian Companies Act 1956 (“1956 Act”), where an ordinary resolution

(requiring a simple majority of shareholders) was sufficient, under the 2013 Act, certain

powers of the board of directors can now only be exercised subject to a favourable special

resolution (requiring a three-fourth majority of shareholders) being passed. These include

important subjects such as the right to sell a substantial part of the undertaking or borrow

money above certain specified thresholds. Special resolutions may also include conditions and

the applicability of the provision has been extended to private companies as well. Further,

there have been several important additions to the list of powers which are to be exercised by

board of directors only at a meeting of the board, and cannot therefore be delegated. These

include things such as the approval of financial statements, diversification of business and the

approval of mergers and takeovers. Additionally, although the 2013 Act recognises and

permits board meetings to be conducted via video conference, certain decisions, including

those relating to the approval of financial statements and mergers, cannot be made via video

conference. Foreign investors ought to be wary of these changes, as they significantly curtail

the decision-making power of the board and require increased shareholder support for positive

company outcomes. 18

BIBLIOGRAPHY

1. PwC India- Companies Act, 2013: Key highlights & analysis.

2. Grant Thornton India LLP- The Companies Act, 2013: The dawn of a new era.

3. A.N. Gawade & CO. Presentation on new Companies Bill, 2013.

4. Rishi Shroff, Forbes India- Key implementation in CA 2013.

18 Rishi Shroff, Forbes India- “Key implementation in CA 2013”.

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5. Kamal Preet Kaur , E-Newsline PSA legal- “Merger Regime Under The Companies Act, 2013.

6. Vastala Singh (Singh & Associates)- “One Person Company- A Concept For New Age Business

Ownership”.

7. Anup Koushik Karavadi- “Changing contours of mergers and acquisitions under Companies Act,

2013”.

8. Yogesh Malhan (Singh & Associates)- “Merger and Acquisition- transformed rules of the game”.

9. Hemant Goyal & Sandhya Aggarwal , Global Jurix, Advocates & Solicitors- “Supremacy Of

Shareholders & Their Democracy In Line With New Act, 2013”

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