the companies act, 2013...private company: except one person company (opc) maximum number of members...
TRANSCRIPT
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691
The Companies
The Companies Bill, 2012October 23, 2008 and was reintroduced in the Bill on October 4, 2011 &December 14, 2011.
The Companies Bill, 2012, is recently passed by the Lok Sabha on 18thDecember 2012. The 8th August 2013 and got t2013.
Now the Bill 2012 has become Companies Act 2013 and i55 year old Companies Act of 1956 which has been the only most important legislation for all the corporate bodies established andincorporated in India. modern legislation for growth and regulation of corporate sector in India.
The existing statute for regulation of companies in the country, viz. the Companies Act, 1956 had been undcomprehensive revision in view of the changing economic and commercial environment nationally as well as internationally.reformatory and contemporary provisions prop2012, together with omission of existing unwanted and obsolete compliance requirements, the companies in the country to comply with the requirements of the Companies Act and more effective manner.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691
he Companies Act, 2013
, 2012 (“The Bill”) was introduced in the Lok Sabha on October 23, 2008 and was reintroduced in 2009. The Cabinet approved
October 4, 2011 & finally placed before the Lok Sabha on
The Companies Bill, 2012, is recently passed by the Lok Sabha on 18th Bill is now approved by the Rajya Sabha
got the assent by the President of India
2012 has become Companies Act 2013 and i55 year old Companies Act of 1956 which has been the only most important legislation for all the corporate bodies established andincorporated in India. From the day of its enactment the country modern legislation for growth and regulation of corporate sector in India.
The existing statute for regulation of companies in the country, viz. the Companies Act, 1956 had been under consideration for quite long for comprehensive revision in view of the changing economic and commercial environment nationally as well as internationally. In view of various reformatory and contemporary provisions proposed in the Companies Bill,
ogether with omission of existing unwanted and obsolete compliance requirements, the companies in the country shall now to comply with the requirements of the Companies Act and more effective manner.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 1
ntroduced in the Lok Sabha on 2009. The Cabinet approved
finally placed before the Lok Sabha on
The Companies Bill, 2012, is recently passed by the Lok Sabha on 18th pproved by the Rajya Sabha on
by the President of India on 30th August
2012 has become Companies Act 2013 and it has replaced the 55 year old Companies Act of 1956 which has been the only most important legislation for all the corporate bodies established and
From the day of its enactment the country has a modern legislation for growth and regulation of corporate sector in India.
The existing statute for regulation of companies in the country, viz. the er consideration for quite long for
comprehensive revision in view of the changing economic and commercial n view of various
osed in the Companies Bill, ogether with omission of existing unwanted and obsolete
shall now be able to comply with the requirements of the Companies Act 2013 in a better
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 2
Arrangement of clauses
Sr. no Chapter Section No.
1 Preliminary 1-2
2 Incorporation of company and matters incidental thereto
3-22
3 Prospectus an allotment of securities 23-42
4 Share capital and debentures 43-72
5 Acceptance of deposits by companies 73-76
6 Registration of charges 77-87
7 Management and administration 88-122
8 Declaration and payment of dividend 123-127
9 Accounts of companies 128-138
10 Audit and auditors 139-148
11 Appointment and qualification of directors
149-172
12 Meetings of board and its powers 173-195
13 Appointment and remuneration of managerial personnel
196-205
14 Inspection, inquiry and investigation 206-229
15 Compromises, arrangement and amalgamations
230-240
16 Prevention of oppression and mismanagement
241-246
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 3
17 Registered values 247
18 Removal of names of companies from the register of companies
248-252
19 Revival and rehabilitation of sick companies
253-269
20 Winding-up 270-365
21 Companies authorised to registered under this act
366-378
22 Companies incorporated outside India 379-393
23 Government companies 394-395
24 Registration offices and fees 396-404
25 Companies to furnish information or statistics
405
26 Nidhis 406
27 National company law tribunal and appellate tribunal
407-434
28 Special court 435-446
29 Miscellaneous 447-470
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 4
The Salient features of the Companies Act 2013 are as follows:
The Companies Act 2013 has:
� 29 chapters
� 470 sections and
� 7 schedules
A substantial part of the Act shall be in form of Rules to be prescribed
separately. It has introduced 33 new definitions.
Brief Round Up of Act 2013
� Maximum number of members in a private company increased from 50 to 200.
� Concept of One Person Company (OPC) introduced.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 5
� For infrastructural projects, preference shares can be issued for a
period exceeding 20 years.
� Provisions relating to further issue of capital to be applicable to all companies.
� Shares cannot be issued at a discount except sweat equity shares.
� Time gap between 2 buy-backs shall be minimum 1 year.
� Terms for offer of securities, form and manner of “private
placement” to be as prescribed.
� Any deposit accepted before the commencement of 2012 Act or any interest due thereon to be repaid within 1 year from the commencement of 2012 Act or from the date on which such payments are due, whichever is earlier.
� Stringent norms provided for acceptance of fresh deposits including
creation of deposit repayment reserve account of 15% of the amount of deposits maturing in the current year and the next FY.
� NFRA to be constituted by CG to provide for matters relating to
accounting and auditing policies and standards.
� Consolidation of financial statements made mandatory.
� 2% of average net profits of last 3 years to be mandatorily spent on CSR for specified class of companies.
� Mandatory transfer of profits to reserves for dividend declaration
done away with.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 6
� Rotation of Auditor made mandatory. Auditor to be appointed for a
term of 5 years, to be ratified in AGM each year. Cooling off period of 5 years for ◦ Individual CA after 1 such term of 5 years ◦ Firm of CA after 2 such term of 5 years
� One of the directors of a company shall be a person who has stayed
in India for 182 days or more.
� Prescribed class of companies to have at least 1 woman director. Existing companies to comply with this requirement within 1 year.
� Independent Director (ID) is not liable to retire by rotation.
� ID not to be included in the “total number of directors liable to retire
by rotation.
� Provisions for loan to directors applicable to private companies and need to obtain Central Government (CG) approval for such loans removed.
� Requirement of obtaining CG approval for related party transactions
done away with, Shareholders to approve and pass the resolution.
� Indian company can be merged with a foreign company subject to RBI approvals.
� Fast Track merger for small companies and holding-WOS
introduced.
� Person / group of persons holding 90% or more equity shares by virtue of amalgamation etc. can purchase the remaining equity shares of the company from minority shareholders.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 7
� Inability to pay debts will be considered as criteria for determining a
sick company.
� Provisions of revival and rehabilitation of sick companies to apply to all companies and not only to an "industrial company".
� Valuation under 2013 Act to be done by Registered Valuer, a new
Definition and concept.
� To facilitate transition, Central Government empowered to remove difficulties upto 5 years.
� E- Communications and Board Meetings with Video Conference
facility is approved General Meeting Notice can be given through electronic mode . Act also recognises right to vote by electronic mode.
� “ Promoter” a new Definition introduced in line with SEBI.
� Secretarial Standards have been mandated.
� “Fraud” is defined and new concept of Serious Fraud Investigation
Officer ( SFIO ) is introduced.
� Mediation and Conciliation is new concept introduced.
� Listed company to file Shareholding Pattern in 15 days for change in shareholdings of promoters.
� More Role and Responsibility to Audit Committee given.
� Statutory recognition given to Shareholders Agreement.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 8
I. Definition
Following are some important new definition :
Private Company:
� Except One Person Company (OPC) maximum number of members
in a “private company” increased from 50 to 200.
One person Company:
� Concept of OPC is introduced. OPC can be incorporated only as a
private limited company and should mention below the name of the
company as such.
Subsidiary Company:
� For calculating exercise or control of more than 50 % of total share
capital will have to be considered (not only equity capital).
� Private company which is subsidiary of a public company shall be
deemed public company without any regard to its status as private
company by virtue of it Articles of Association.
Financial Year:
� Financial year of the company is made uniform to all the company
which should be the period starting from 1st April and ends on 31st
march (F.Y 1st April-31 March).
Exceptions to be made only for certain companies with the approval of NCLT.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 9
Free Reserves:
� Reserves which are available for distribution as dividend as per its
latest audited balance sheet.
� Excludes:
• unrealized / notional gains,
• Revaluation reserve,
• Change in carrying amount of asset / liability recognized in
equity / profit & loss account on its measurement at fair value.
Net worth:
� Includes:
• Total paid-up capital.
• All reserves credited out of profits and securities premium
accounts.
• Deferred expenditure.
• Miscellaneous expenditure not written off.
� Excludes:
• Accumulated losses.
• Revaluation reserves.
• Reserves created out of write-back of depreciation and
amalgamation.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 10
Small Company:
� Having share capital not exceeding Rs. 50 Lac to Rs.5 Crores and
Turnover of not exceeding Rs.2 Crores to Rs.20 Crores as may be
prescribed and they shall not be a public company, holding company,
company registered under section 8 or body corporate governed under
any special act.
Dormant Company:
� Company formed and registered under the act for future project or to
hold an asset or intellectual property and has no accounting
transaction.
� Company which has not filed annual reports for 2 consecutive years.
Inactive Company:
� Company has not carried any business, has not made any accounting
transaction and has not filed returns with Registrar of Companies for
the last two years.
Key managerial personnel (KMP) are considered as Officer in
Default
� the Chief Executive Officer or the Managing Director or the
Manager;
� the Company Secretary;
� Whole Time Director
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 11
� the Chief Financial Officer if the Board of Directors appoints him;
� such other officer as may be prescribed;
Associate company
� Associate Company, in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.
� “Significant influence” means control of at least twenty per cent. of total share capital, or of business decisions under an agreement;
Promoter
� Who has been named as such in a prospectus or is identified by the company in the annual return; or
� Who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or
� In accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act.
� This Section shall not apply to the person who is providing advice, directions or instructions in a professional capacity;
Control
� “Control” shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 12
Fraud
� ‘Fraud’ includes any act, omission, concealment of any fact or abuse of position with intent to deceive, to gain undue advantage from, or to injure the interests of the company or shareholders or creditors or any other person.
� Person found guilty of fraud could face severe penalties which could lead to imprisonment of 6 months to 10 years and monetary fine from 1 to 3 times the amount involved in fraud. Cases where fraud involves public interest, minimum imprisonment is 3 years.
Undertaking
� An ‘undertaking’ means an undertaking in which the investment of the company exceeds 20% of its net worth as per the audited balance sheet of the preceding year or an undertaking generating 20% of the total income of the company during previous financial year.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 13
II. Incorporation:
� A newly formed company to file with ROC before commencement of
any business or exercising any borrowing power a prescribed
declaration to the effect that:
• Every subscriber has paid-in value of shares subscribed to MOA.
• Paid –up share capital of the company is not less than the
minimum prescribed.
� Subscription money to be brought before commencement of business
or borrowing by the newly formed company.
� Object of Memorandum of Association divided into
• Main objects (object to be pursued on incorporation)
• Matters necessary for furtherance of the main objects
� Article of Association may have Entrenchment Provision
• Entrenchment Provision can be incorporated to the effect that
specified provisions of the AoA may be altered only if conditions
or the procedures as that are more restrictive then those applicable
in the case of a special resolution, are met or complied with
◦ at the time of incorporation, or later
◦ by private company, if all members agree
◦ by public company, by Special Resolution
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 14
� An affidavit from the subscribers is required stating that they are:
• not convicted of any offence in connection with forming or
managing company or,
• Not found guilty of any fraud or misfeasance.
� Company having share capital shall not commence business or
exercise borrowing power unless:
• director files declaration with Registrar that every subscriber has
paid value of shares agreed
� Registered office address not mandatory at the time of incorporation.
All changes in registered office to be communicated to ROC within
15 days
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 15
III. Capital and Deposit:
� Authorized, subscribed and paid-up capital of a company to be mentioned in all notices, advertisement or other official publication or any business letter, billhead or letter paper.
� Provision for further issue of capital and condition specified for issue
of shares shall be applicable to all companies.
� Private company can issue securities only through private placement
(rules are yet to be prescribed)
� Contracts/arrangement between persons for transfer of shares of
public company made enforceable.
� Shares cannot be issued at a discount except sweat equity shares.
� Public company can issue securities through:
• Public offering
• Private placement
• Right issue and bonus shares.
Compliance with the Rules and SEBI Act and rules is required.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 16
� If a company changes terms of the prospectus or objects for which
money is raised, it shall provide dissenting shareholders an exit
opportunity.
� Preference shares can be issued for a period exceeding 20 years for
infrastructural project.
� Bonus shares
• fully paid bonus shares can be issued out of :
o Free Reserves
o Securities Premium Account
o Capital Redemption Reserve
• Provided:
o It should be recommended by Board
o Authorised by Articles of Association
o Authorised in GM;
o Company has not defaulted on payment of int. / prin. of
FD or debt;
o Not defaulted on employee statutory dues;
o No o/s. partly paid shares;
o Not in lieu of dividend
o Such conditions as may be prescribed
� Reduction in share capital requires:
• Special Resolution,
• confirmed by Tribunal
• Auditor’s Certificate that accounting treatment proposed by
Company is in line with Accounting standards
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 17
No reduction of Share Capital, if Company is in arrears in repayment of
Deposits or interest thereon.
� Pricing of a preferential issue of shares by company to be determined
by a Registered Valuer (New term is defined).
� There should be a gap of 1year from the date of previous buy-back
� Only following companies can invite, accept or renew deposits from
public:
• Banking company
• NBFC
• Public company (subject to the rules to be prescribed)
• Such other company as central government may specify
• New Conditions
o From new deposits, 15% of current and next year’s repayment
to be kept in separate Bank A/c called as “Deposit Repayment
Reserve Account
o All existing deposits to be repaid within one year from
commencement of Act or respective repayment due date,
whichever is earlier
Other companies other than aforesaid can accept deposit only from its
members by passing a resolution in general meeting and subject to credit
rating, deposit insurance etc.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691
IV. KEY MANAGERIAL PERSON
� For class of Company
whole time KMP:
• Chief Executive Officer
• Company Secretary
• Whole Time Director
• Chief Financial Officer
• Such other officer as may be prescribed
� Whole time KMP shall not hold office in more
except in its subsidiary Company
� KMP can be director of other Company
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691
KEY MANAGERIAL PERSON:
For class of Company as may be prescribed shall have
:
Executive Officer or Managing Director
Company Secretary
Whole Time Director
Chief Financial Officer
Such other officer as may be prescribed
Whole time KMP shall not hold office in more than one comp
except in its subsidiary Company at the same time
KMP can be director of other Company with permission of Board
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 18
as may be prescribed shall have following
irector or Manager
than one company
with permission of Board
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 19
V. Company Secretaries and Auditors:
Company secretary(CS) and secretarial audit:
� The role and function of CS :
• CS are included under the definition of Key Managerial Person
• Reporting to the Board of Directors about compliance with the
various provision, act, rules and other laws applicable to the
company.
• Ensure compliance with the secretarial standards as may be
approved by Central Government.
� Secretarial Audit Report is made mandatory for all listed company
and other prescribed companies.
Auditors:
� National Financial Reporting Authority (NFRA) to be constituted by
CG to provide for matters relating to accounting and auditing
policies and standards
� Unlisted Companies (for first and subsequent AGM):
• To hold office till the conclusion of 6th AGM
� Listed companies and other specified companies:
• In case of individual auditor One term of 5 consecutive years.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 20
• Audit firm Two terms of 5 consecutive years provided
incoming auditor should not have any common partner who
was the partners of the outgoing audit firm.
� Auditor shall not render the following service whether directly or
indirectly to the company or its holding company or subsidiary
company:
• Internal audit
• Accounting and book keeping services
• Actuarial services
• Design and implementation of any financial information system
• Investment banking services
• Investment advisory services
• Management services
• Rendering of outsourced financial services
• Services prescribed under the rules
Auditors and practicing Company Secretary are also subject to search and
seizure of document by Registrar of Companies and the inspector
appointed by central government
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 21
VI. Dividend:
� Dividend shall be paid out of the profit for the current year or of the
previous year or both arrived after proving the depreciation there
from.
� Companies are not required to transfer profit to reserves before
declaring dividend.
� Interim dividend shall be declared only out of surplus in Profit &
Loss Account and out of profits of the FY in which dividend is
sought to be declared.
� In case company has incurred loss upto the preceding quarter of the
current FY then interim dividend shall not be declared at a rate
higher than the average dividends declared by the company during
the immediately preceding 3 FYs.
� If unpaid/ unclaimed dividend has been transferred to IEPF, the
corresponding shares shall also be transferred to IEPF.
Company cannot declare any dividend if the company has made default in
complying with the provision relating to deposits.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 22
VII. DIRECTORS:
� Maximum number of directors in a company increased to 15. It can
be further increased by passing a Special Resolution.
� Prescribed class of companies to have at least 1 woman director.
Existing companies to comply with this requirement within 1 year.
� One of the directors in a company shall be a person who has stayed
in India for 182 days or more in the previous calendar year.
� One Person Company (OPC) to have minimum 1 director.
� A person cannot be a director including alternate director in more
than 20 companies including not more than 10 public companies
� Director shall vacate office if he remains absent from all the meetings
of the BOD held during 12 months whether with or without seeking
leave of absence of the BOD.
� Additional grounds for disqualifications of directors include
committing offences concerning related party transactions, non-
payment of call in respect of any shares of the company held by
him/her.
� The new Act provides separation of office of chairperson of the company and managing director (‘MD’) or the chief executive officer (‘CEO’).
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 23
� An individual shall not be appointed or reappointed as the
chairperson as well as the MD or CEO at the same time unless the articles of association permit or in cases where the company does not carry on multiple businesses.
� The restriction on appointing the same person as the chairperson and the MD or CEO does not apply in the case of Companies engaged in multiple businesses and which has appointed one or more CEOs for each such business as may be notified by the central government.
� Independent Director:
• The current law neither defines nor provides for appointment of ‘independent directors’ although, Clause 49 of the Listing Agreement provides for appointment of independent directors on the board of listed companies.
• Listed company to have at least 1/3rd of its total number of
directors.
• Alternate director appointed for independent director shall also
be independent director.
• ID and/or his / her relatives should not have any pecuniary relationship with the company or its promoters or directors, during 2 financial years.
• ID should constitute the majority of the audit committee.
• Not liable to retire by rotations.
• ID not to be included in the ‘total number of directors’ liable to
retire by rotation.
• ID shall be appointed for a term upto 5 consecutive years and
are eligible for re-appointment; approval by members through
special resolution is required.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 24
• After 2 consecutive terms are completed, the ID shall be
eligible for appointment after a period of 3 years, provided he is
not associated with the company during this 3 years period in
any capacity, either directly or indirectly.
• IDs not entitled to any stock option but may receive
remuneration by way of sitting fee, re-imbursement of expenses
for participation in meetings, profit related commission as
approved by the members of the company.
• ID shall be held liable, only for such acts by a company which
had occurred with his knowledge, attributable through Board
processes, and with his consent or connivance or where he had
not acted diligently, provided ID is not promoter or KMP.
Small shareholder (holding shares of nominal value of not more than
Rs. 20,000/- or as may be prescribed) may elect 1 Independent Director.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 25
VIII. Directors Meetings
Directors meetings:
� 1st meeting shall be held within 30 days of incorporation
� Minimum 4 meetings shall be held in a year with the gap between 2
meeting shall not be more than 120 days.
� Board meeting through video conferencing or other audio visual
means is allowed.
� At least 7 days notice should be given for Board meeting. Shorter
notice is allowed in case of urgent business, if at least 1 ID is present
in the meeting or if subsequently ratified by 1 ID.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 26
IX. Directors Report now shall include:
� Extract of Annual Return;
� No. of Board Meetings;
� Director’s Responsibility Statement
� Declaration by Independent directors;
� Listed Co. and Specified Co. to give company’s policy on directors’
appointment and remuneration including criteria for determining
qualifications, positive attributes, independence of a director
� Explanation to every qualification of CA / CS
� Details of Loan, Guarantee, Investment
� Particulars of contracts or arrangements with related parties in the
prescribed form
� Statement of Company’s Affairs
� Proposed transfer to Reserves;
� Dividend recommended
� Material changes / Commitment affecting financial position of the
Company
� Conservation of Energy, Technology Absorption, Foreign Exchange
Earnings and outgo
� Statement on development / implementation of Risk Management
Policy
� Policy developed / implemented for CSR
� Listed and Specified Companies to give formal annual evaluation of
Board’s own performance
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 27
X. Corporate Social Responsibility (CSR)
� company having:
• net worth of Rs. 500 Crore or more or
• turnover of Rs. 1000 Crore or more or
• net profit of Rs. 5 Crore or more
during any financial year shall constitute the Corporate Social
Responsibility Committee consisting of 3 or more director (at least 1
should be independent director) and spend at least 2% of average net
profit of immediately preceding 3 years in pursuance of CSR.
Activities which may be included in CSR Policies
1. Eradicating extreme hunger and poverty;
2. Promotion of education;
3. Promoting gender equality and empowering women;
4. Reducing child mortality and improving maternal health;
5. Combating human immunodeficiency virus other diseases;
6. Ensuring environmental sustainability;
7. Employment enhancing vocational skills;
8. Social business projects;
9. Contribution to funds set up by the State & Central Government
10. Such other matters as may be prescribed.
In case a company fails to spend such amount, it will have to specify the
reasons for not spending the amount in its Board’s Report. A CSR
Committee need to be formed of minimum 3 Directors out of which one
shall be Independent Director.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 28
XI. Shareholders Meeting:
� First AGM to be held within 9 months from closing of first financial
year
� Shorter notice of AGM, if 95% of shareholder give consent
� AGM shall be called between Business hours which is defined
between 9.00 AM and 6.00 PM
� Notice of the meeting to the member and voting in the meeting by
the member is allowed in electronic mode.
� Condition as regard to poll in general meeting has made uniformed
for all companies having share capital.
� Postal Ballot voting, by post/ electronic mode, made applicable to all
companies, rules are yet to be prescribed
� Quorum for general meeting:
• For private company 2 members.
• For public company
Members Quorum Less than or equal to
1000 members 5
More than 1000 to 5000 members
15
Above 5000 members 30
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 29
� Proxy :
• Person cannot represent
o More than 50 members and such number of shares as may
be prescribed
• Company should not at its own expense, send any invitation to
any member to appoint a person or one of number of persons
to be appointed as Proxy
AGM cannot be called on National Holiday ( now it is not to be called on
Public Holiday) and presence of member in person only will be counted.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 30
XII. Postal Ballot
� Section 192A of the Companies Act 1956 requires listed public companies to pass certain specified resolutions by postal ballot. The new Act extends this to unlisted companies as well.
� The definition of postal ballot includes voting through electronic
mode.
� The list of matters to be passed through postal ballot which are as
follows:
• Alteration of the objects clause of the memorandum;
• Alteration of articles of association in relation to insertion or removal of provisions
• Change in place of registered office outside the local limits of any city, town or village;
• Change in objects for which a company has raised money from public through prospectus and still has any unutilized amount out of the money so raised;
• Issue of shares with differential rights as to voting or dividend or otherwise.
• Variation in the rights attached to a class of shares or debentures or other securities;
• Buy-back of shares by a company;
• Election of a director under section 151 of the Act;
• Sale of the whole or substantially the whole of an undertaking of a company;
• Giving loans or extending guarantee or providing security in excess of the limit prescribed under sub-section (3) of section 186;
Provided that One Person Company and other companies having members upto fifty are not required to transact any business through postal ballot.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 31
XIII. Accounts:
� Depreciation concept has changed from Rates to Useful Life of the
Asset
� Financial statement includes :
• Balance sheet
• Statement of P & L
• Cash flow
• Statement of change in Equity, if any
• Any explanatory note annexed to or forming part of aforesaid
statement
OPC, Small Co. and Dormant Co. need not prepare Cash Flow
� Books to be kept on
• accrual basis
• Double entry system of accounting
� Books can be kept in Electronic form.
� On application by CG, IT Authorities, SEBI and other statutory
regulatory body; in following circumstances, re-opening of books
permitted if:
• the relevant earlier accounts were prepared in a fraudulent
manner;
• the affairs of the company were mismanaged during the
relevant period, casting a doubt on the reliability of financial
statements
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 32
• If it appears to the directors of a company that—
o the financial statement of the company; or
o the report of the Board,
do not comply with the provisions of section 129 or section
134
All companies having subsidiary/ joint venture/ Associate (whether in
India or Outside) has to prepare its standalone and consolidated financial
statement.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 33
XIV. Annual Return
� Additional information need to be reported are as follow:
• Remuneration to Directors and Key Managerial Person
• Regd Office and Principal business activities of its holding,
subsidiary, associate companies
• Promoters, Directors, KMP and changes therein
• Meetings of Members, Board and various Committee along
with attendance
• Remuneration of Directors / KMP
• Penalties levied on Company director, officer, and details of
compounding of offences and appeals if made against such
penalty or punishments etc
• Complete details of holding by FII, their name, address,
countries of incorporation, % of Shareholder
� Except OPC and Small Companies, Annual Return to be signed
by:
• Director
• Company Secretary (if there is no Company Secretary, then
Company Secretary in Practice)
� Annual Return of Listed Company or Company having paid up
capital and turnover as may be prescribed, shall be certified by
Practicing Company Secretary, stating that Annual Return
discloses facts correctly and adequately and the Company has
complied with provisions.
� Annual Return extracts may be a part of Board’s Report
All details should be as on close of financial year (i.e. 31st March).
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 34
XV. Loans to Directors
� Companies are not allowed to whether directly or indirectly to its directors or to any other persons in whom they are interested:
• make any loan
• book debt
• give any guarantee
• provide any security
� This provision is not applicable to
• Loan to MD / WTD
• as a part of contract of services extended to all its employees; or
• Pursuant to scheme approved by members by special resolution
• A company which in the ordinary course of its business provides loan, guarantee or security for due repayment of any loan and charges interest thereon being not less than bank rate declared by RBI
This provision is also applicable to private companies, which currently not applicable.
Now any loan from holding to subsidiary if the Directors are common, requires approval as per section 185 of the Act 2013.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691
XVI. Limit on Layers of Investment
� A company shall make investment through not more than 2 layers of investment companies.
• However, following(a) In case an Indian company acquires a foreign company which has subsidiaries beyond two levels; and (b) If a subsidiary company is required to have an investment subsidiary under any law, rule or regulation in force. An investment company is defined to mean a company whose principal business is the acquisition of shares, debentures or other securities.
XVII. Related party transactions
� Include:
• Sale , purchase or supply of any goods or materials
• Availing or rendering of any services ;
• Buying, selling etc. property of any kind
• Leasing of any kind of property
• Appointment of any agent for purchmaterials , services or property ;
• Underwriting the subscription of any securities or derivatives
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691
Limit on Layers of Investment Companies.
company shall make investment through not more than 2 layers of investment companies.
However, following are two exceptions – n case an Indian company acquires a foreign company which has
subsidiaries beyond two levels; and bsidiary company is required to have an investment
subsidiary under any law, rule or regulation in force. An investment company is defined to mean a company whose principal business is the acquisition of shares, debentures or other securities.
party transactions
Sale , purchase or supply of any goods or materials
Availing or rendering of any services ;
Buying, selling etc. property of any kind ( currently exempted)
Leasing of any kind of property ( currently exempted)
Appointment of any agent for purchase or sale of goods, materials , services or property ;
Underwriting the subscription of any securities or derivatives
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 35
company shall make investment through not more than 2 layers of
n case an Indian company acquires a foreign company which has
bsidiary company is required to have an investment subsidiary under any law, rule or regulation in force. An investment company is defined to mean a company whose principal business is the acquisition of shares, debentures or other securities.
Sale , purchase or supply of any goods or materials
( currently exempted);
( currently exempted);
se or sale of goods,
Underwriting the subscription of any securities or derivatives
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 36
• Related party’s appointment to any office or place of profit in the company, its subsidiary company or associate company.
• Related party transactions by a company having prescribed paid-up capital or value of transaction exceeding prescribed limits will require prior approval of members by special resolution. The related party who is a member of such a company cannot vote in such special resolution.
• BOD report to disclose related party transactions along with the justification
Excludes Transactions entered into in the ordinary course of business, unless they are not on an arms’ length basis. Requirement of obtaining CG approval done away with. Shareholders are the best judge to approve this. XVIII. Insider trading:
� Director or key managerial person shall not enter into inside trading except to communication of inside information is required to be made:
• In ordinary course of business/ profession/ employment
• Under any law.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 37
XIX. Charges
� Section 125 of the Companies act 1956 specifies certain charges
which require registration with the Registrars of Companies (ROC) for such charges not to be considered void against the liquidator or any creditors of the company.
� A charge in the nature of pledge of a movable property was a notable exception from such registration requirement.
� The Companies Act 2013 does not provide the kinds of charges which require registration, but defines a charge in an inclusive manner to include any interest or lien created on the property or assets of a company or any of its undertakings as security and includes a mortgage.
� Under the new Act it has been made mandatory to register all charges with the ROC, which would now also include charge created by way of pledge of shares.
� The new Act makes it compulsory for an Indian company to register all kinds of charges created outside India or charge created in India on property situated outside India, within 30 days of such charge creation. This new requirement brings in additional compliances to be considered in cross border financing transactions where the charged assets of the borrower of its affiliates are located in multi-jurisdictions.
� The new Act extends the grace period for charge registration to 300 days from 30 days, which can be further extended on certain specified grounds by the central government on application by the company or any interested person.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 38
XX. Compromises, arrangement and amalgamation:
� Fast track provision made for merger between:
• 2 or more small companies
• Holding company and its wholly owned subsidiary.
• Other companies as may be prescribed
• Conditions o Require approval of the Registrar of Companies (R.O.C) o Require approval by member � holding at least 90% of total no. of shares � majority of creditors representing 9/10th in value
� The new Act permits amalgamation of an Indian company with a foreign company and vice versa. Such cross border merger or amalgamation will require prior approval of RBI.
� Any cross border merger or amalgamation can only be with companies incorporated in those countries which are notified from time to time by the central government.
� Acquirer and / or PAC or person or group of persons holding 90% or more of the issued equity capital of the company by virtue of amalgamation, share exchange, conversion of securities or for any other reasons, can notify the company of his intention to purchase the remaining equity shares of the company from minority shareholders.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 39
� Compromise or arrangement should be approval by:
• Majority representing 3/4th in value of the creditors and members.
Creditors (at least 90%) may agree and confirm by way of affidavit to the scheme or through postal ballot.
� Valuation (done by registered valuer) report should be given to:
• Shareholders
• Creditors
� Buy-back of securities should be as per Buy-back provision.
And shall not form part of the scheme of compromise and arrangement
� Scheme should clearly indicate APPOINTED DATE from which it shall be effective.
� Objection to scheme can be made:
• Person holding not less than 10 % of the shares of the company
• Person having outstanding debt of not less than 5% of total outstanding debts
� Notice of scheme should be given to:
• Central government
• Income tax
• Reserve Bank of India
• Securities and Exchange Board of India
• Stock Exchange
• Registrar of Companies
• Official liquidator
• Competition commission of India
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 40
XXI. National Company Law Tribunal and Appellate
Tribunal(NCLT):
� NCLT will be constituted:
• Consisting of judicial and technical member.
• Principal bench of NCLT shall be at New Delhi.
• NCLT shall dispose of the proceeding within 3 months.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 41
XXII. Sick Industry:
� Criteria for determining a sick company:
• Fails to pay debts of secured creditor representing 50% or more of outstanding amount of debt within 30days of demand
� Striking off by R.O.C:
• Subscriber to MOA has not paid the subscription money within 180 days of incorporation.
• Company failed to commence business within 1 year of its incorporation
• Company has not carried on any business or operation for 2 immediately preceding FY and has within that period applied for status of dormant company.
• Special resolution passed
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 42
XXIII. Winding up:
� can be ordered by NCLT if, of the opinion that:
• Affairs of the company are conducted in fraudulent manner.
• Company has formed for fraudulent and unlawful purpose
• The persons concerned in formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connected therewith
� Certain criteria for winding up deleted like:
• Minimum number of member falling below prescribed limit
• Non commencement of business for 1 year
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 43
XXIV. Class Action:
� The new Act provides for class action under the chapter ‘Prevention of Oppression and Mismanagement’ giving a right to members and depositors or any class of them being a minimum of 100 members or 100 depositors or holding a minimum shareholding or deposits to file an application before the NCLT seeking an order, such as, restraining the company from committing an act which is ultra vires the articles or memorandum; restraining the company from committing a breach of any provision of the memorandum or articles of a company; or passing an award for damages, compensation, demand or any suitable action from or against the company, its directors, auditors and in some cases experts, advisors or consultants to the company (on certain prescribed grounds).
� Failure to comply with NCLT’s order will result in monetary penalty
and imprisonment.
� If frivolous applications are made the applicant can be asked to pay up to Rs. 1, 00,000 to the opposite party.
� Banking companies are exempted from class action.
XXV. Special Court :
� For providing speedy trial of offences, the central government has been empowered to notify special courts in consultation with the Chief Justice of the High Court within whose jurisdiction the judge to be appointed is working.
� All offences under the new Act are to be tried only by such notified
special courts and the provisions of the Code of Criminal Procedure, 1973 apply to such proceedings.
Amita Desai & Co. Company secretaries, Mumbai, India
Off: 91 22 26845920/ 21 Cell 09820177691 Page 44
� The special courts have been vested with powers of a Court of
Sessions and are also entitled to exercise summary jurisdiction over offences for which the penalty prescribed involves imprisonment of less than 3 years.
***********************
*This legal update is not intended to be a form of solicitation or advertising.
The information contained herein is of a general nature and is not intended to
address the circumstances of any particular individual or entity. Although we
Endeavour to provide accurate and timely information, there can be no
guarantee that such information is accurate as of the date it is received or that
it will continue to be accurate thereafter. No person should act on such
information without appropriate professional advice based on the
circumstances of a particular situation. This update is intended for private
circulation only.