companies bill 08

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Companies Bill, 2008

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BREIF RUNTHROUGH OF CONTENTS

Brief summary & Status Quo of the Bill Chapter-wise changes

• Incorporation of Co• Share Capital &

Debentures• Deposits• Shareholders’ meeting• Dividend• Accounts• Board of Directors• Audit & Auditor• Managerial remuneration• Amalgamation/

Arrangement• Other

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The Bill is based on the report submitted by the Expert Committee under the Chairmanship of Dr. J. J. Irani

Introduced in Lok Sabha on 23rd October, 2008

Referred to the Parliamentary Standing Committee

The Bill has 426 clauses and 28 Chapters as against 658 Sections of the Companies Act, 1956

Many new provisions have been introduced viz.:

• Registered Valuers; • Nidhi• National Company Law Tribunal & Appellate

Tribunal; • Special Courts • Dormant Company etc.


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Definitions – Sec. 2

Amended Bill

Definitions

Certain new definitions have been introduced:

Associate Company [Sec. 2 (1) (f)] Deemed Director [Sec. 2 (1) (ze)] Financial Year [Sec. 2 (1) (zq)] Independent Director [Sec. 2 (1) (zw)] Key Managerial Personnel [Sec. 2 (1) (zza)] Promoter [Sec. 2 (1) (zzq)] Related Party [Sec. 2 (1) (zzy)] Small Company [Sec. 2 (1) (zzzg)]


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Incorporation of Company

Sec. 3 to Sec. 21

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Existing Act Amended Bill Remarks

Types Public Company Private Company

Public Co. Private Co.

• Small Co. One Person

Co. (OPC)

OPC:• Only 1 member• Name to end with ‘OPC

Limited’• Memorandum to have

name of the person to succeed in case of death/disability of the member.

Small Co.:• Other than public co.-

Paid-up share capital- < 5 crores; or

Turnover as per its last P/L Account - < 20 crores

Lesser regulatory compliances.


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Existing Act Amended Bill RemarksDocuments for Incorporation

Form 1, 18, 32 and MOA & AOA

In addition to that: Affidavit from each

subscriber and Director stating that he is not convicted for any offence.

Re- Registration

No provision A company already registered can re-register itself.

Re-registration can be done in the same or other class under the Act.

Minimum Capital Private – Rs. 1 Lakh Public – Rs. 5 Lakh

No minimum capital requirement

No capital infusion required for incorporating any company.


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Alteration of Articles Special Resolution

Special Resolution

contain provisions for entrenchment to the effect that specified provisions of the articles may be more restrictive

May include entrenchment in Articles of Association


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Share Capital & Debentures

Sec. 37 to Sec. 65

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Capital Equity with Diff.

Voting Rights (DVR)

Equity Concept of Equity with DVR - deleted.

Participating Pref. Shares (PPC)

Non-cumulative Preference Shares

Redemption of pref. shares - within 20 yrs

Preference

Diff. regarding voting rights – deleted

Redemption of pref. share – > 20 yrs.

Concept of PPC has been deleted.

Voting rights to be provided to all pref. shareholders – if dividend payable is in arrears for > 3 yrs.

Issue of Pref. shares redeemable after 20 yrs for infrastructural projects

Issue

Shares can be issued at:

Par or Pre. or Dis.

Share can be issued at: Par or Premium.

Can not be issued at Discount except in the case of issue of sweat equity shares


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Further Issue of Capital Section 81-

Further issue can be made to existing shareholders

Further issue can be made:

• to existing shareholders

• to employees under ESOS

Can avail option of further issue of shares to ESOP holders

Section 81(1A): Further issue to person other than existing shareholders by Special Resolution

Special resolution

Price to be determined by the Registered Valuer


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Issue of Debentures (Sec. 64)

Prospectus or offer documents should be issued in the case where offer is being made to more than 50 members for subscription

The limit increased to 500 members

Debenture Trustee not required to be appointed if debentures are issued to <500 person.

Debenture Certificate

Issue within 3 months from the date of allotment

The time period increased to 6 months

Provision for seeking extension of time upto 9 months from CLB – deleted.


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Acceptance of Deposits

Sec. 66 to Sec. 68

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Acceptance of Deposits A Company

can accept deposits from public.

Company can accept deposits only from members subject to a resolution passed in General Meeting.

Only NBFCs , Banking Cos., can accept the deposits from public.

Amount not less than 15% of deposits maturing during the financial year & next financial year has to be deposited in Deposit Repayment Reserve A/c.

Deposits accepted by cos. (other than NBFC, Banking Co.) will have to be repaid within a year of Bill coming into force.


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Meeting of Shareholders

Sec. 85 to Sec. 109

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Statutory Meeting To be held within

a period of 6 months from the date of Incorporation

No provision Relaxation in the legal formalities to the companies to be formed

Annual General Meeting (AGM) First AGM –

within a period of 18 months from the date of Incorporation

Business hours – not defined

Day – other than Public Holiday

First AGM – within a period of 9 months from the date of closing of the first financial year

Business hours – 9 a.m. to 6 p.m.

Day – other than National Holiday


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Report of AGM No provision Every Listed

Company to prepare a Report on each AGM

File the Report with the Registrar within 30 days

This report is to be filed in order to confirm that the meeting was convened, held and duly conducted as per the provisions of the Act.

Notice of AGM 21 days clear

notice in writing. 21 days clear notice

in advance either in writing or through electronic mode

Now notice of meeting can be sent via electronic means

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Voting through electronic means No provision A member may exercise

his vote at a meeting by electronic means in the manner as may be prescribed.

Electronic voting may be allowed, if Articles of Association specifically provides.

Poll Poll can be demanded

by member:• having 1/10th of the

total voting power; or

• holding shares on which a sum of Rs. 50,000 has been paid up.

Poll can be demanded by member:

• having 1/10th of the total voting power; or

• holding shares on which a sum of Rs. 5,00,000 has been paid up.


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Declaration & Payment of Dividend

Sec. 110 to Sec. 115

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Transfer to General Reserves (GR) Some % of profit

to be transferred to GR as specified in the Act

Transfer to reserves at the discretion of the Company

Dividends can be declared out of accumulated profits also, by special resolution.

Inadequacy of profits or no profits Unanimous

consent of the Board not required.

Unanimous consent of the Board - required,&

Approval of Financial Institutions where loan is outstanding.

Unpaid Dividend Once transferred

to IEPF – no claim for Dividend or refund amount.

Once transferred to IEPF – Claim for its entitlement to the Central Government.


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Accounts of Companies


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Existing Act Amended Bill

Financial Statements Not defined Defined as Balance Sheet, P&L, Cash Flow

Statement and explanatory note

Consolidation Section 212

provides for giving certain particulars relating to the subsidiaries of the Company

No such provision, however, preparation of consolidated financial statement of all the subsidiaries is required and

the same should be laid before the AGM.

Accounting Standards No provision Financial Statement should comply with the

Accounting Standards


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Audit & Auditors


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Services not to be provided by Auditors No such

provision Certain services not to be

provided by the Auditors to the Company viz.:

• accounting and book-keeping service,

• internal audit; investment advisory;

• investment banking;• outsourced financial service;• management service etc.

Rights & Duties of Auditor Right to

attend the Annual General Meeting (AGM)

Mandatory attendance of auditor of the co. or his representatives at any AGM, unless exempted by the Co.

Not only right but duty to attend the AGM


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Appointment of Cost Auditor Central

Government (CG) approval required

BOD to appoint and to fix the remuneration

No CG approval required

Remuneration to be fixed by shareholders in General Meeting

Board of Directors only to make appointment and not to fix the remuneration.


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Board of Directors

Appointment & Qualification – Sec. 132 to Sec. 153

Meetings & Powers – Sec. 154 to Sec. 173

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Appointment & Qualifications – Sec. 132 to Sec. 153


Minimum Directors Private – 2 Public – 3

Private – 2 Public – 3 OPC – 1

Maximum Directors 12 directors – including

Nominee Director

If more, CG approval necessary

12 Directors – excluding Nominee Director

No provision for > 12 directors

Nationality All Directors can be Foreign

Directors One of the Director – ordinarily

resident in India


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No. of Directorship A person can become

Director in not more than 15 Public Ltd. Cos.

No change in number of directorships but alternate directorship to be included while counting the number of directorships

Duties of Director Not mentioned Mentioned

Resignation of Director No specific provisions

in the Act Resignation by giving a notice in writing to

the Company.

Effective from the date of receipt of the notice or any date mentioned in the notice, whichever is later


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Vacation of Office Absence allowed with

leave of absence. In case of absent from

all meetings during a period of 12 months, either with or without leave of absence.

No Director can absent himself from 4 consecutive meetings of the Board.

Independent Director No provisions Listed Public

Company- at least 1/3rd of the total no. of Directors should be Independent Director

Other Public Company – Central Government may prescribe

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Meetings & Powers – Sec. 154 to Sec. 173


Powers of Board To be specifically

exercised in the meting

Following powers are added to the existing one which can be exercised at the board meetings:

• To approve financial statements• To diversify the business of the co.• To approve amalgamation , merger or

reconstruction• To takeover or acquire a co. or

controlling interest.

Disposal of Undertaking Approval in G.M.

required for disposal of substantial undertaking

Approval now required for the disposal of undertaking if it is more than 20% of the net worth / revenue of the company


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Notice No notice period Notice period of 7 days

Shorter notice for urgent business – presence of or ratification by 1 independent director

Time Gap Board Meeting – atleast

once in every three months

Board Meeting – not more than 120 days between two meetings.

Video conferencing Allowed but attendance

not counted for quorum Attendance of directors present through

video conferencing is considered for quorum

Mode of Notice Written notice to be sent

to directors at their usual residential address in India

Notice can now be sent electronically

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Committees of the BOD – Sec. 158 (Audit Committee)


Applicability Company having paid up share

capital more than Rs. 5 crores.

Every Listed Company; and Other Company as may be

prescribed

Membership Not less than 3 Directors. Minimum of 3 Directors with

majority of Independent. One Director having knowledge of

Financial Management

Chairman No provisions Should be Independent

Terms of reference

As specified by the Board As specified by the Board


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Committees of the BOD – Sec. 158 (Remuneration Committee)


Applicability In terms of Schedule XIII

Managerial remuneration payable by the companies having no profits or inadequate profits

Every Listed Company and Other Company as may be prescribed

Membership No provision Non-Executive Directors one of whom

shall be Independent Chairman–present in the General

Meeting

Terms of Reference No provision Determine the Company’s policies

relating to the remuneration of : Directors; KMP and Other Employees

as may be decided by the Board


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Committees of BOD – Sec. 158 (Stakeholders Relationship Committee)


Applicability No Provision Combined membership of the Shareholders,

Debenture holders and other security holders of more than 1000 at any time during a financial year

Membership No Provision Non-Executive Directors

Chairman –present in the General Meeting

Terms of Reference No Provision Resolve the grievances of stakeholders


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Appointment & Remuneration of Managerial Personnel


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Age Limit MD or Manger can not be

appointed who:• Below 25 years• Attained the age of 70 years

Revised age limit:

• Below 21 years• No change

Approval for appointment Board Shareholder – by ordinary

resolution

Unanimous consent of the Board

Shareholder – by special resolution

Alternate Director Board can appoint Alternate

Director Alternate Director appointed

for Independent Director shall also be Independent Director

Sitting Fees Maximum Rs. 20,000/- No limits prescribed


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Appointment in more than one company MD - Can be appointed as

MD in another company (not >1) with the unanimous consent of the Board of the Company in which he is MD.

Manager – can not hold office in more than one company

Key Managerial Personnel:• can not hold office in >1 company.• can be appointed as a Director of

any other Company with the permission of the Company in which he is KMP

• In case of vacancy in office of KMP - to be filled within 6 months from the date of vacancy

Managerial Remuneration Limits as prescribed by

the Schedule XIII of the Act.

Limits of Remuneration removed


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Compromise, Arrangement and Amalgamation


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Amended Bill Remarks

Approval Not to be approved by

members/creditors constituting majority in no. holding more than 3/4th in value.

The requirement of majority in number has been dispensed with, for getting approvals from shareholders / creditors.

A single shareholder having 75% voting right can approve the merger.

Objection Any objection to the compromise or

arrangement shall be made only by persons:

• holding not less than 10% of the shareholding, or

• having outstanding debt amounting to not less than 5% of the total outstanding debt as per the latest audited balance sheet.


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Corporate Restructuring /mergers & demerger To be approved by NCLT Now rather than multiple

High Courts, NCLT shall approve such proposals

Acquiring Minority Shareholding A provision has been made for

purchasing shares of minority shareholders at a price determined on the basis of valuation by a registered valuer.

For acquiring minority shareholders, the acquirer should be registered holder of 90% or more.

Registered valuer has been defined under the Act.


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Merger with Foreign Companies Indian Company can merge with

Company incorporated abroad or vice versa, subject to prescribed conditions.

Simplified and more feasible provisions for merger

Clubbing of Authorised Capital In the case of Amalgamation, the

Authorised Share Capital of the transferor Company can be clubbed in the transferee company without paying any additional fees.

The fees already paid by the transferor company would be available as a set off.

Amalgamation of Listed Co. into an Unlisted Co. In case the transferor co. is a listed

co. and the transferee co. is an unlisted co., the transferee co. will continue to be unlisted

An exit option would be given to the shareholders of transferor co.

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Other Provisions

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Existing Act


Filing of Documents No

prescribed time limit for late filing

Late filing can be done only within a period of 270 days, on payment of additional fees.

Failure to file within this period would make the company and officers in default liable for action

The current limit of 10 times the regular fee has been done away with

Related Party Transaction (RPT) Not

Defined. Public Company – for any

RPT require Boards approval,&

A Company having paid up capital equal to or not exceeding such sum require prior approval of the shareholders by special resolution.

No. central Government approval is required.


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Insider Trading No provision Prohibited KMP for forward dealings

and Insider trading of securities of the Co.

Annual Return Details required:

• Name & Registered Office

• Share Capital, Debentures

• Directors, Members, &• Indebtedness, etc.

Filing - Within 60 days from the date of AGM

In addition to existing, the details of:• Changes in the promoters;• Meetings of member, board,

committee alongwith attendance details

• Remuneration of Directors and KMP

Filing – within 30 days from the date of AGM

Secretarial Standards No provisions Mandatory to comply with the

Secretarial Standards


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Directors’ Report Current provision:

• The state of Company’s affairs;

• The amounts proposed to be carried to reserves;

• The amount of Dividend;

• Material changes;• Conservation of

energy, technology, absorption; foreign exchange earnings and outgo;

• Employees’ remuneration;

• Directors’ responsibility statement

It shall include:

• Extract of Annual Return;• No. of Meetings of the Board;• Director’s Responsibility Statement;• Declaration by independent

directors;• Report of the Committee on

Directors’ remuneration;• Clarification on adverse remark in

the Auditors’ Report;• Particulars of loans, guarantee or

investments;• Related party transaction


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National Company Law Tribunal The Central Government shall, by

notification, constitute a Tribunal known as “National Company Law Tribunal” to exercise and discharge such powers and function as are, or may be, conferred on it by or under the Act or any other Act for the time being in force.

Dissolution of role of Company Law Tribunal and constitution of NCLT

Nidhis A Company which has been incorporated

with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit.

The Central Government may, by notification, be declared a Company as a Nidhi Company.

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Amended Bill (New Provisions)

Dormant Company Where a Company is formed and registered for a future project or to

hold an assets or intellectual property and has no significant accounting transactions or an inactive company, may apply for obtaining the status of a Dormant Company.

• Inactive company: not carrying on any business or operations; or not made any significant accounting transactions during the

last 2 financial years; or has not filed financial statements and annual returns during

the last 2 financial years.• Significant accounting transactions shall not include payment

of fees to the Registrar or payment made under the Act and payment for maintenance of its office and records.

A Dormant Company may have such minimum no. of Directors and file such documents and pay such annual fees as may be prescribed.


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Amended Bill (New Provisions)

Registered Valuers Valuation in respect of any property, stock, shares, debentures,

securities, goodwill, net worth or assets of a company shall be valued by a person registered as a valuer.

The Central Government shall maintain a register of valuers. A CA, CS, CWA or other persons possessing prescribed qualifications

may apply to the Central Government to be registered as valuers.

Special Courts For the speedy trial of offences, Special Courts will be established in

consultation with the Chief Justice of the High Court within whose jurisdiction the judge is to be appointed.

All offences under this Act shall be tried by the Special Court in which the registered office of the company is situated.

The Special Court would have the liberty to try summary proceedings for offences punishable with imprisonment for a term not exceeding three years, although it may order for the regular trial. (Clause 398).


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Duties of directors:• To act in accordance with the company’s articles.• To act in good faith in order to promote the objects of the company for the

benefit of its members as a whole, and in the best interest of the company.• To exercise his duties with due and reasonable care, skill and diligence.• Not to 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 to achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates.

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

Any director who contravenes the provisions of this section shall be punishable with fine which shall not be less than 1 lakh rupees but which may extend to 5 lakh rupees.

Further if he is found guilty of making any undue gain either to himself or to his relatives, partners or associates he shall also be liable to pay an amount equal to that gain to the company
