Analysis of Companies Bill 2011

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CUSTOMISED DELIVERY | OBJECTIVE ADVICE | KNOWLEDGE INSIGHT | CLEAR FORESIGHT

Corporate Law Update: December 30, 2012 Analysis of Companies Bill 2011

On

December

18,

2012,

Lok

Sabha approved Companies Bill 2011 (Bill No. 121-C of 2011), in a bid to make sweeping changes to the existing 56 years old law, The Companies Act, 1956. The key objects of the new legislation are to protect interest of small

investors, encourage companies to undertake social welfare and promote societal interests. The Bill is expected to be passed by Rajya Sabha early next year. Thereafter, the Bill will be called Companies Act, which will come into force from the date to be notified by Government. We have analysed the salient features of the Bill in this Update.

1

Table of Contents
I. Executive Summary – Salient features of Bill ...................................................................3

II.

Impact of Companies Bill on various stakeholders ............................................................9

III. Detailed Analysis .............................................................................................................11

IV. Our Comments ................................................................................................................20

2

I.

Executive Summary – Salient features of Companies Bill
 CORPORATE SOCIAL RESPONSIBILITY:
 Obligatory for company having net worth of Rs.500 crores or more or turnover of Rs.1000 crores or more or net profit of Rs.5 crores or more during any financial year to constitute a committee for Corporate Social Responsibility Committee to formulate and recommend activities to be undertaken as per Schedule VII for eradicating extreme hunger and poverty, promotion of education, gender equality and empowering women, ensuring environmental sustainability, etc. Board to ensure that company spends in each financial year atleast 2% of the average net profits of three immediately preceding financial years. Company shall give preference to local area and areas around it where it operates. Failure to implement – cite reasons for failure









DIRECTORS

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 

Mandatory for prescribed class of companies to have at least one woman director Every company to have at least one director who has stayed in India for 182 days or more in previous calendar year Maximum number of directors increased to 15. Further increase after passing special resolution Duties of directors have been defined Resignation by notice to company. Resignation with detailed reasons to be forwarded to Registrar Ever listed company and other prescribed classes of companies to have independent directors Independent directors not entitled to stock options Tenure restricted to two consecutive terms of 5 years, eligible for re-appointment after 3 years The company and independent directors to abide by Code for independent directors -Code of professional conduct– guidelines, role and functions, duties, etc. defined 'Independent Directors' shall be excluded for the purpose of computing 'one third of retiring Directors' Independent director to be held liable only for acts of omission or commission by company which had occurred with his knowledge, attributable through board process and with his consent or connivance or where he had not acted diligently

3



MANAGERIAL PERSONNEL

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   

Every company belonging to such class as may be prescribed shall have whole time key managerial personnel Managing or whole-time director or manager not eligible for appointment if sentenced to imprisonment for any period or to a fine exceeding Rs.1000 for conviction of any offence under any acts namely Indian Stamp Act, Central Excise Act, Securities Contracts Regulation Act, Customs Act, FEMA, Income-tax Act, etc. Unless articles provide otherwise, individual shall not be chairperson as well as Managing Director or Chief Executive Officer of company at the same time. A class of companies having multiple business and separate divisional managing directors to appoint same person as chairman as well as managing director Failure to appoint key managerial personnel to attract penalty Managerial remuneration – maximum limit of 11% of net profits Companies with no profits or inadequate profits, remuneration payable as per new schedule of Remuneration Remuneration : Except general meeting approval,  to any one managing director or whole-time director or manager shall not exceed 5% of net profits  If more than one such director – shall not exceed 10% of net profits to all such directors and managers taken together  Other than managing directors or whole-time directors – 1% of net profit if there is managing or whole-time director or manager, 3% in other cases



AUDIT AND AUDITORS



    

Internal Audit mandatory for class of companies as may be prescribed – CA or Cost Accountant or such other professional as may be decided by Board to conduct audit Limited Liability Partnerships may be appointed as auditors Maximum number of companies in which a person may be appointed as auditor - 20 companies Appointment of auditors for 5 years – appointment subject to ratification by members at every Annual General Meeting Mandatory rotation of auditors for listed company and other prescribed classes of companies - after 5 years for individual CA and 10 years in case of CA firm Rotation of auditing partner and his team (in case of an audit firm) as may be resolved by members

4



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Restrictions on Auditor to provide either directly or indirectly non-audit services such as accounting and book keeping, design and implementation of any financial information system, management services, investment advisory services, investment banking services, rendering of outsourced financial services, etc. to the company, its holding company and subsidiary company. Resignation of auditors – statement in prescribed form to be filed with company as well as ROC indicating reasons and other facts as may be relevant, failure to attract fine Tribunal may direct company to change auditors if satisfied that auditor acted in fraudulent manner or abetted or colluded in any fraud by or in relation to company or its directors or officers Duties of auditor/secretarial auditor/cost auditor to report to Central Government where fraud is committed or being committed on company. Failure to report to attract fine Liability of auditors  Contravention of certain provisions – fine  Knowingly or willful contravention with the intent to deceive company, shareholders, creditors, tax authorities – imprisonment and fine  Convicted for offence – liable to refund remuneration and pay damages for loss arising out of incorrect or misleading statements in audit report  Central Government to specify any statutory body/authority/officer for ensuring prompt payment of damages  In case of audit firm – if it proved that audit partner/s have acted in fraudulent manner or abetted or colluded in any fraud, the liability, civil or criminal, would be of audit partner/s concerned as well as of the firm jointly and severally. Cost audit to be mandatory for class of companies engaged in production of such goods or providing such services as prescribed and which have a net worth of such amount as may be prescribed or a turnover of such amount as may be prescribed Auditing and cost auditing standards made mandatory Mandatory Secretarial audit for listed companies and such class of companies as may be prescribed by Company Secretary in Practice



E-GOVERNANCE
    Maintenance and allowing inspection of documents by companies in electronic form Participation of directors in board meetings through video conferencing or other electronic means Voting through electronic means by members Registration process made faster and compatible with e-governance

5



INVESTOR PROTECTION MEASURES
  Issue and transfer of securities and non-payment of dividend by listed companies to be administered by SEBI Punishment for falsely inducing a person to invest money (including inducing to enter into any agreement with bank or financial institution, with a view to obtaining credit facilities) – imprisonment which may extend to 10 years and fine not less than three times the amount involved in fraud Suit may be filed by any person affected by any misleading statement or inclusion or omission of any matter in prospectus Class action suits – specified number of members or class of members or depositors may file an application before Tribunal, if they are of the opinion that management or control of affairs of company are conducted in manner prejudicial to interest of company or members or creditors or depositors Investigation into affairs of company by Serious Fraud Investigation Office. Investigation report filed with court for framing of charges shall be treated as report filed by Police Officer Prohibition on insider trading of securities Directors and Key Managerial personnel prohibited from forward dealings in securities of company

 



 



ACCOUNTS

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 

Financial statements to include balance sheet, profit & loss account, cash flow statement, statement of changes in equity, explanatory notes Voluntary revision of financial statement or Board’s report of three preceding financial years after obtaining approval of Tribunal Reopening of accounts if order made by Court or Tribunal to the effect that earlier accounts were prepared in fraudulent manner or affairs were mismanaged casting a doubt on financial statements National Financial Reporting Authority responsible for monitoring and enforcing compliance with accounting and auditing standards, empowered to investigate into professional or other misconduct of CAs Depreciation to be provided as per Schedule II which provides for useful lives of assets to compute depreciate Consolidation of accounts of subsidiaries including associate company, joint venture mandatory

6



OTHER IMPORTANT PROVISIONS

 





  









Concept of One Person Company introduced – subjected to lesser stringent framework Definition of subsidiary company – company in which holding company  Controls composition of board of directors  Exercises or controls more than half of total share capital either at its own or together with one or more of its subsidiary companies  Such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed Related party defined to include any person on whose advice, directions or instructions a director or manager is accustomed to act (not applicable to advice, directions or instructions in professional capacity) Term 'Private Placement' defined – to mean offer of securities or invitation to subscribe securities by company satisfying certain conditions such as offer or invitation is to select group of persons, it is through issue of private placement letter, etc. Unless otherwise provided, company not to make investment through more than two layers of investment companies Articles of Association may contain provision for entrenchment – more restrictive procedure for altering certain provisions of articles Rate of interest on inter corporate loans to be prevailing rate of interest on dated Government Securities. Audit Committee to act on terms of reference which shall include scrutiny of inter-corporate loans and investments Mandatory for listed companies and other classes of companies as prescribed to have Audit Committee, Nomination and Remuneration Committee and Stakeholder’s Relationship Committee The Board’s report to disclose the composition of an Audit Committee and wh ere the Board had not accepted any recommendation of the Audit Committee, the same shall be disclosed along with the reasons Approval of the Tribunal shall be required for consolidation and division of share capital only if the voting percentage of shareholders changes consequent on such consolidation. Vigil mechanism for directors and employees to report genuine concerns to be established for every listed company or class of companies as may be prescribed  Adequate safeguards against victimization of persons who use such mechanism  Make provision for direct access to chairperson of Audit Committee in appropriate or exceptional cases  Details of establishment of such mechanism to be disclosed on website and in Board’s report

7





 

Valuation of any property, stock, shares, debentures, securities or goodwill or net worth of company or its assets to be done by registered valuer appointed by audit committee or in its absence by board of directors Schedules provided for General instructions for preparation of balance sheet and statement of profit and loss of company, code for independent directors, infrastructural projects/infrastructural facilities for issue of preference shares exceeding 20 years, activities which may be included in Corporate Social Responsibility Policies Cross border mergers with foreign company allowed For speedy trial of offences, Central Government empowered to establish special courts

8



II.

Impact of Companies Bill on various stakeholders
Shareholders
Key Provisions        Enabled to take legal action in case of any fraudulent action on the part of company Investor protection activities and class action suits Exit option if object clause changes of public issue To approve annually auditor appointment at annual general meeting Speedy proceedings at Appellate levels Electronic voting permitted     Our Analysis Powerful tool for small investors suffering losses due to fraud Ensures investor protection and sense of responsibility and diligence of companies Help in curbing frauds Encouragement of wider participation of shareholders

Directors
Key Provisions           Atleast one director resident in India for atleast 182 days Prescribed class of companies to have atleast 1 woman director Maximum limit of directors increased to 15 A person cannot be director in more than 20 companies (more than 10 public companies) Restrictions on directors remuneration All listed and other class of companies to appoint independent directors Mandatory for independent directors to constitute atleast one-third of board Independent directors not entitled to stock options Independent directors to form majority in audit committee Decision of board meeting in absence of any independent director to be final only on ratification by atleast one independent director        Our Analysis Strengthens corporate governance Check on conflict of interest and independence Ensuring greater transparency in board working More accountability Protection of interest of shareholders and workmen Effective cost of compliance Duties to act diligently and in best interest of company

9

  

Prohibition from insider trading and forward dealings in securities of company Participation in meetings through electronic means (e.g. videoconferencing) Defined duties of directors

Auditors
Key Provisions    Limit of 20 companies an auditor can serve Appointment for 5 years. Annual ratification of appointment of auditors Mandatory rotation - individual every five years and audit firm every 10 years in listed companies and certain other classes of companies, as may be prescribed. Members of a company to rotate an auditor partner and his team at such intervals as the shareholders want Penalty if found involved in a fraud or has abetted or colluded in any fraud Auditor will not be allowed to provide non-audit services such as accounting and book keeping, internal audit, actuarial services, etc. Obligation on the auditors to report to the Central Government offence involving fraud, if the auditor has reason to believe that such an offence has been committed against the company by its officers or employees      Our Analysis Improved quality of governance Greater check on independence of auditors More accountability and promotion of good accounting practices Greater reliance and trust on auditors Effective performance of duties by auditors

   

Company Secretaries (CS)
Key Provisions   Included in definition of key managerial personnel Declaration by CS in practice engaged in formation of company to be filed with registrar stating that all requirements of Act have been complied. Annual Return to be signed by CS (if no CS, CS in practice) For listed company or by a company having such paid up capital or turnover as prescribed, annual return to be certified by CS in practice      Our Analysis More managerial position with statutory backup Greater Role in Compliance requirements Appointment exemption route not available Mandatory Compliance certification New provisions of Secretarial compliance and secretarial audit 10

 

   

Company to observe secretarial standards Class of companies to mandatorily have CS, vacancy to be filled by Board within 6 months Listed company and such class of companies to be prescribed to annex secretarial audit report with its Board’s report Merger and Amalgamation : Company to file a statement every year indicating whether scheme is being complied with in accordance with order of Tribunal

III. Detailed Analysis
1.
1.1

Preliminary
The Bill provides for new definitions for Associate Company, One Person Company, Small Company, Related Party, Turnover, etc.  Associate Company : company has significant influence (not being a subsidiary) and includes a joint venture company  One Person Company : a company which has only one person as a member  Small Company : Private company of which paid up share capital is less than 50 Lakhs or such higher amount as may be prescribed which is not more than 5 crores or turnover as per last Profit & Loss account is less than 2 crores or such higher amount as may be prescribed which is not more than 20 crores  Related Party: o Director or his relative o Key managerial personnel or his relative o Firm, in which a director, manager or his relative is a partner o Private company in which a director or manager is a member or director o Public company in which a director or manager is a director or holds along with his relatives, more than two per cent. of its paid-up share capital o Any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager (not applicable to advice, directions or instructions in professional capacity) o any person on whose advice, directions or instructions a director or manager is accustomed to act (not applicable to advice, directions or instructions in professional capacity) o any company which is a holding, subsidiary or an associate company of such company; or a subsidiary of a holding company to which it is also a subsidiary; o such other person as may be prescribed  Turnover : aggregate value of the realisation of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year. 11

1.2 Some of the other new definitions introduced are CEO, CFO, control, promoter, interested director, key managerial personnel, etc. 1.3 Financial Year - It can be only April to March for every financial year. The relaxation is available to holding or subsidiary of a company outside India following different financial year for consolidation. Approval of Tribunal is required for following different financial year. 1.4 The limit on number of maximum members of private company is raised to 200. 1.5 Officer in default liable to penalty or punishment to include director/s giving consent in writing to board, any person under the immediate authority of board or key management personnel having responsibility of maintenance, filing of accounts, records, etc. who actively participates or knowingly permits or fails to take corrective steps (i.e. Chief Financial Officer), any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act (advice other than in professional capacity), directors who are aware of the default by way of participation in board meeting or receiving the minutes without objecting to the same, share transfer agents, registrars and merchant bankers to the issue or transfer of shares.

2.
2.1 2.2

Relating to Incorporation and connected matters
Concept of Small companies have been introduced which shall be subjected to a lesser stringent regulatory framework In the Memorandum of Association of the Company, there is no requirement as to bifurcation of the objects clause into main, ancillary and other objects. Only objects for which company is incorporated along with matters considered necessary for its furtherance shall be mentioned. A declaration, in the prescribed form, required to be filed with the Registrar at the time of registration of a company that all the requirements of the Act in respect of registration and matters precedent or incidental thereto have been complied with, will be required to signed by both – a person named in the articles as a director, manager or secretary of the company as well as by an advocate, a chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of the company. For commencement of business by a company having share capital, following needs to be filed with the registrar of companies  Declaration by director in prescribed form providing that the subscribers have paid the value of shares agreed to be taken by them  Paid up share capital is not less than 5 Lakhs for public company and 1 Lakh for private company  Confirmation that the company has filed a verification of its registered office, with the Registrar. Company, which has raised money from public through prospectus and still has any unutilised amount out of the money so raised, shall not change its objects for which money was raised unless a special resolution is passed by the company and other requirements of advertisement (in newspaper and website) and exit opportunity to dissenting shareholders is complied with. Articles can have entrenchment to the effect that specified provisions in Articles can be altered only if restrictive conditions as specified are met. 12

2.2

2.3

2.4

2.5

3.
3.1 3.2

Securities
Issue of all types of securities covered and not just shares and debentures. A public company can only issue securities by following the provisions related to public offer or Private Placement or by way of bonus or right issue. A Private company may issue securities only through private placement by complying with the provisions. A company shall not, at any time, vary the terms of a contract referred to in the prospectus or objects for which the prospectus was issued, except subject to the approval of, or except subject to an authority given by the company in general meeting by way of special resolution. If terms are varied, the company shall not use any amount raised by it through prospectus for buying, trading or otherwise dealing in equity shares of any other listed company and shall also provide an exit opportunity to the dissenting shareholders. Companies can now file Shelf Prospectus to be prescribed by SEBI. Any person who makes or abets making of multiple applications to a company in different names or in different combinations of his name or surname for acquiring or subscribing for its securities shall be liable for action under the provisions of Bill. A company may, after passing a special resolution in its general meeting, issue depository receipts in any foreign country subject to conditions, as may be prescribed. Qualified Institutional buyers not covered under provisions of private placement. The number of persons to which company may make an offer or invitation of securities to a section of the public otherwise than through issue of a prospectus, by way of private placement basis and maximum investment size in such case, shall be prescribed by way of rules. A company making an offer or invitation shall allot securities within 60 days from the date of receipt of the application money for such securities.

3.3

3.4 3.5

3.6 3.7 3.8

3.9

4.
4.1 4.2

Share Capital
Company cannot issue shares at discount other than as sweat equity. Company may issue preference shares for a period exceeding 20 years for infrastructure projects, subject to the redemption of such percentage of shares as may be prescribed on an annual basis at the option of such preferential shareholders. Apart from existing shareholders, if the company proposes to increase its subscribed capital by the issue of further shares, such shares may also be offered to employees by way of ESOP subject to special resolution passed by company. Reduction of capital will not be allowed if the company is in arrears in the repayment of any deposits accepted by it, either before or after the commencement of this Act, or the interest payable thereon. The buy-back is not prohibited, if the default in repayment of deposit or interest payable, redemption of debentures or preference shares or payment of dividend to any shareholder or repayment of any term loan or interest payable to any financial institution or bank is remedied and a period of 3 years has lapsed after such default ceased to subsist. A limited company having a share capital may, if so authorised by its articles, alter its memorandum in its general meeting to consolidate and divide all or any of its share capital 13

4.3

4.4

4.5

4.6

into shares of a larger amount than its existing shares after obtaining approval of Tribunal. Approval of the Tribunal shall be required for consolidation and division of share capital only if the voting percentage of shareholders changes consequent on such consolidation.

5.

Registration of charge
All types of charges are required to be registered in contrast to specified list which was necessary to register the charge under Companies Act, 1956.

6.
6.1

Annual Return
Every return requires substantial additional information such as particulars of holding, subsidiary, associate companies, principle business activities, matters relating to certification of compliances, disclosures, remuneration of directors, key management personnel, meeting of members, board and various committees along with attendance details, etc. The annual return, filed by a listed company or, by a company having such paid-up capital and turnover as may be prescribed, shall be certified by a company secretary in practice. Every listed company shall file a return in the prescribed form with the Registrar with respect to change in the number of shares held by promoters and top 10 shareholders of such company, within 15 days of such change.

6.2 6.3

7.
7.1

Matters related to Management and Administration
First Annual General Meeting of the Company shall be held within the period of 9 months from closure of its first financial year instead of 18 months from the date of the Incorporation, as provided in the Companies Act 1956. The provisions of Postal Ballot shall be applicable to all companies whether listed or unlisted, on all such matters which shall be prescribed by Central Government. The resolution requiring special notice has to be moved by such number of members holding not less than 1% of total voting power or holding shares on which an aggregate sum of not less than 1 Lakh has been paid-up. Every Company has to follow the Secretarial Standards. Members may exercise the right to vote by electronic means. Punishment has been provided for falsely inducing a person to enter into any agreement with bank or financial institution with a view to obtain credit facilities.

7.2 7.3

7.4 7.5 7.6

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8.
8.1

Dividend
The Board of Directors of a company may declare interim dividend during any financial year out of the surplus in the Profit and Loss Account and out of profits of the financial year in which such interim dividend is sought to be declared. If the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, interim dividend shall not be declared at a rate higher than the average dividends declared by the company during the immediately preceding 3 financial years. There is no requirement to transfer fixed percentage of profits to reserves before declaring dividend. Companies have been given discretion to transfer such amounts as they deem fit. All shares in respect of which unpaid or unclaimed dividend has been transferred shall also be transferred by the company in the name of Investor Education and Protection Fund.

8.2

8.3 8.4

9.
9.1

Accounts
Consolidated financial statements of the Company and all subsidiaries are required to be laid before annual general meeting. A separate statement containing the salient features of the financial statement of its subsidiary is also required to be attached. For these purposes, subsidiary shall include associate company and joint venture. Requirement of attaching annual report of subsidiaries has been dispensed with. Central Government may, by notification, constitute a National Financial Reporting Authority to provide for matters relating to accounting and auditing standards. Bill provides for re-opening of books of accounts or re-casting of financial statements if order is made by Court or Tribunal to the effect that accounts were prepared in fraudulent manner, affairs were mismanaged casting doubt on reliability of financial statements. Director’s report shall have provide various types of additional information like number of meetings of the Board, Company’s policy on directors’ appointment and remuneration; explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the Company Secretary in his secretarial audit report, auditor in audit report, particulars of loans, guarantees or investments etc. For One Person Company the director report will contain explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report. Every company having net worth of rupees 500 crore or more, or turnover of rupees 1000 crore or more or a net profit of rupees 5 crore or more during any financial year shall constitute a Corporate Social Responsibility (CSR) Committee of the Board consisting of 3 or more directors, out of which at least 1 director shall be an independent director. The committee shall recommend the policy for CSR to the Board. The Board of every company shall ensure that the company spends in every financial year, at least 2 per cent of the average net profits of the company made during the 3 immediately preceding financial years, in pursuance of its CSR Policy and in case of failure to do, shall report the necessary reasons for not spending the same in their Board’s report. 15

9.2 9.3 9.4

9.5

9.6

9.7

9.8

Such class or classes of companies as may be prescribed shall be required to appoint an internal auditor to conduct internal audit of functions or activities of the company. The Central Government may, by rules, prescribe the manner and the intervals in which the internal audit shall be conducted and reported to the Board.

10. Audit
10.1 The limit in respect of maximum number of companies in which a person may be appointed as auditor has been proposed as 20 companies. 10.2 Every company shall, at the first annual general meeting, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth annual general meeting and thereafter till the conclusion of every sixth meeting. The appointment of auditors for 5 years shall be subject to ratification by members at every Annual General Meeting. 10.3 In case of listed company & certain other class of companies, as may be prescribed, Bill provides for provision for compulsory rotation of individual auditors in every 5 years and of audit firm every 10 years. Individual auditors or audit firm shall not be eligible for reappointment as auditor in the same company for 5 years from the completion of their term. 10.4 In case of audit firm, members may rotate the partner at such interval as may be resolved by members. 10.5 As on the date of appointment audit firm having a common partner or partners to the other audit firm, whose tenure has expired in a company immediately preceding the financial year, shall not be appointed as auditor of the same company for a period of 5 years. 10.6 A transition period of 3 years has been prescribed to comply with the provision of the rotation of auditor. 10.7 The Bill provides for certain new disqualifications for the Auditors like a person or a firm who, whether directly or indirectly, has business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company of such nature as may be prescribed, indebtedness to holding/subsidiary companies, etc. 10.8 The Bill provides that Auditor shall comply with auditing standards. 10.9 If an auditor of a company, in the course of the performance of his duties as auditor, has reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees of the company, he shall immediately report the matter to the Central Government. These provisions also apply to Cost Accountant and Company Secretary in practice. 10.10 Auditor of the company shall not provide directly or indirectly the specified services like internal audit, management services, investment advisory, rendering of outsourced financial services, etc. to the company, its holding company and subsidiary company. 10.11 Cost records to be mandated for companies engaged in production of such goods or rendering of such services as may be prescribed.

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11. Appointment and Qualification of Directors
11.1 In prescribed class or classes of companies, there should be atleast 1 woman director. 11.2 Out of all the Directors, atleast 1 director shall be a person who has stayed in India for a total period of not less than 182 days in the previous calendar year. 11.3 Every listed public company shall have at least one-third of the total number of directors as independent directors. Companies existing as on date of commencement of this Act have been provided a transition period of 1 year for the compliance of this provision. Independent Director shall be appointed for a term of 5 consecutive years and shall be eligible for further term of 5 years. The independent director shall be eligible for appointment after the expiration of 3 years of ceasing to become an independent director. 11.4 Nominee director nominated by any financial institution, or in pursuance of any agreement, or appointed by any government to represent its shareholding shall not be deemed to be an independent director. 11.5 Independent Directors are to be excluded for the purpose of computing ‘one third of retiring Directors’. 11.6 Only an independent director can be appointed as alternate director to an independent director. 11.7 Central Government will prescribe the number of independent directors in case of class or classes of public company. 11.8 The Schedule to the Bill provides the following in respect of an Independent Director Professional Conduct  Role & Functions  Duties  Manner of Appointment  Removal & Resignation etc. 11.9 The maximum limit of directors in the Company has been increased to 15 with a power to add more directors upon passing of Special Resolution. 11.10 The Bill provides for certain new disqualification for the Directors. 11.11 A person cannot become directors in more than 20 companies and out of this 20, he cannot be director of more than 10 public companies 11.12 A transitional period of 1 year is provided to persons acting as director to comply with the requirement of maximum number of directorship and they have to intimate their choice to each of company where they wish to continue as director and also to the Registrar. 11.13 The Bill prescribes the duties of the directors towards the company. 11.14 Whole-time director included in the definition of the term 'key managerial personnel'

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12. Board – Governance and Meetings
12.1 Every company belonging to such class or classes of companies as may be prescribed shall have the whole-time key managerial personnel. 12.2 Unless the articles of a company provide otherwise, an individual shall not be the chairperson of the company as well as the managing director or Chief Executive Officer of the company at the same time. 12.3 Director can participate in the Board meeting through video conferencing or other audio visual mode as may be prescribed. 12.2 A notice of not less than 7 days in writing is required to call a board meeting. 12.3 Atleast 4 meeting should be held each year. Not more than 120 days should elapse between two consecutive meetings. 12.4 The Audit Committee shall consist of a minimum of 3 directors with independent directors forming a majority. Majority of members of Audit Committee including its Chairperson shall be persons with ability to read and understand, the financial statement. 12.5 The Board of Directors of every listed company and such other class or classes of companies, as may be prescribed shall constitute the Nomination and Remuneration Committee consisting of 3 or more non-executive directors out of which not less than one half shall be independent directors. 12.6 Board of Directors of a company which consists of more than 1000 shareholders, debentureholders, deposit-holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee consisting of a chairperson who shall be a non-executive director and such other members as may be decided by the Board. 12.7 The meeting of the Board may be called at shorter notice to transact urgent business subject to the condition that at least one independent director shall be present at the meeting. In case of absence of independent directors from such a meeting of the Board, decisions taken at such a meeting shall be circulated to all the directors and shall be final only on ratification by at least one independent director. 12.8 Disclosure of interest by every director shall be made at the first meeting of the Board in which he participates as a director and thereafter at the first meeting of the Board in every financial year or whenever there is any change in the disclosures already made. 12.9 Provisions relating to granting of loans, guarantees, security in connection with loans have been extended to other persons also. The rate of interest on inter-corporate loans will be prevailing rate of interest on dated Government Securities. 12.10 A company, unless prescribed, shall not make investments through more than two layers of investment companies. Exceptions are provided for foreign acquisitions and requirement of multi-layered structure as per any law. 12.11 No approval of central government is required for entering into any related party transactions. 12.12 No approval of central government is required for appointment of any director or any other person to any office or place of profit in the company or its subsidiary.

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12.13 Every contract or arrangement entered into with a related party shall be referred to in the Board’s Report along with the justification for entering into such contract or arrangement. 12.14 A company shall not enter into any arrangement by which a director of the company or of its holding/subsidiary/associate company or any person connected with him can acquire assets for the consideration other than cash from the company & vice versa without the approval of company in general meeting. 12.15 The Bill provided provision related to prohibition on forward dealings in securities of company by director and key managerial personnel. 12.16 The Bill now provides the provisions for prohibiting insider trading in the company.

13. Compromise, Arrangement and Amalgamations
13.1 Only persons holding atleast 10 per cent of the shareholding or having outstanding debt amounting to not less than 5 per cent of the total outstanding debt as per the latest audited financial statement, shall be eligible to raise any opposition to an arrangement or compromise. 13.2 The Tribunal may dispense with calling of a meeting of creditor or class of creditors where such creditors or class of creditors, having at least 90 per cent. value, agree and confirm, by way of affidavit, to the scheme of compromise or arrangement. 13.3 Any provision of buyback in any compromise or arrangement shall be in compliance with the provisions of the Buyback. 13.4 Any takeover offer of listed company under compromise or arrangement shall comply with SEBI guidelines. 13.5 The Bill now provides that in case of merger of listed company in unlisted company, the tribunal can order that unlisted company i.e. Transferee Company shall continue to be unlisted. 13.6 No compromise or arrangement shall be sanctioned by the Tribunal unless a certificate by the company’s auditor has been filed with the Tribunal to the effect that the accounting trea tment, if any, proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed under section 133. 13.7 Separate provisions have been provided for the merger or amalgamation between two small companies or between a holding company and a wholly owned subsidiary company. 13.8 The Bill provides provision for cross border amalgamations between Indian Companies and companies incorporated in the jurisdictions of such countries as may be notified from time to time by the Central Government 13.9 The Bill provides specific provision for purchase of minority shares in case an acquirer or person acting in concert with the acquirer becomes holder of 90% or more of the issued capital of the company, either directly or by virtue of any amalgamation, share exchange, conversion of securities or any other reason.

14. Other provisions
Apart from the above, the Bill also makes provisions for Appointment and remuneration of managerial personnel, Inspection, Inquiry and Investigation, Prevention of Oppression and Mismanagement, Registered Valuer, Revival and Rehabilitation of Sick Companies, National Company Law Tribunal and Appellate Tribunal, Special Courts, etc. 19

IV. Our Comments
In view of the changing economic and commercial environment, Companies Bill is a modern legislation for growth and regulation of corporate sector in India in line with good governance practices. Through this new legislation, the government intends to make India an attractive and safe investment destination. It has wide implications across different sectors, stakeholders with emphasis on accountability, business responsibility, social welfare and better governance. This legislation extends the intent of the Business Responsibility Reporting guidance for the top 100 listed companies by market capitalization on the NSE and the BSE and Global Reporting Initiative for reporting and disclosure beyond financial performance indicators – environmental and social behavior compliances. The tone of the legislation is forward looking and will facilitate responsible growth.

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