Companies Bill 2013 [Carocks.wordpress.com]
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Companies Bill, 2013
By CS Mamta Binani Past Chairperson (Year 2010), 2010) EIRC of ICSI Practising Company Secretary At the Hooghly Chapter –EIRC EIRC of ICSI [email protected] dated : 18.08.2013
Room No.6, 4th Floor, Commerce House 2A, Ganesh Chandra Avenue, Kolkata 700013 Connect me @ : (033) 3028 8955-57; (033) 3002 5630-33; 98310 99551 [email protected] Visit me @ : www.mamtabinani.com
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• In line with global corporate laws • Re‐inforce shareholder democracy • Encourage self regulation • Therefore Th f provide id for f a pragmatic i structure
for offences • Foster entrepreneurship and growth • Furtherance of e‐governance g • Major provisions taken from J.J. Irani Committee
Objective Object e
Not so lenient stand anymore
• The new Bill looks to put more information in the
public domain, particularly related to unlisted and private i C Companies. i
• As
of now, this set has much more lenient reporting requirements as compared to the listed Companies which only constitutes about 1% of the Companies, 1.06 million Companies registered with the MCA
Companies Act, 1956 Companies Bill, 2013
• It was introduced on 1st
April, 1956.
y As passed by the Lok‐
• •
Sabha on 18th December, 2012 2012. It has 658 Sections and 15 y Rajya Sabha passed it on 8th August, g 2013 by y voice Schedules. vote It extends to the whole of y The Bill has 470 Clauses (309 pages), pages) 29 chapters India (Sikkim has its own and 7 Schedules. Companies Act). y It applies pp to the whole of India.
Slated to become a Law
• “In • •
100 years, this is the second time that a new companies law has been legislated,” Minister said. A and As d when h consented d to by b President P id P Pranab b Mukherjee, the new legislation will replace the 57‐ year‐old Companies Act, Act 1956. 1956 Around 193 recommendations have been included in the Companies p Bill by y the Parliamentary y Standing g Committee and with passing of this Bill, the Companies Act of 1956 will be replaced.
Fi ll Finally
• The
new law will be called the Companies p Act, , 2013 • But the long g wait is not over y yet. The fine p print of the clauses will be defined by rules that the corporate affairs ministry will frame now. Almost all ll relevant l clauses l need d to have h rules, l which h h the h MCA would now put on its website to seek comments from stakeholders • Until the rules are formulated, the Act will not get operationalised
• Financial Year (1st April to 31st March) • Private Limited Company: Number
SOME QUICK BITES
of members
increased (from 50 to 200) • Concept C of f small ll companies, i associate i companies i (definition clause) • Concept C t of f dormant d t companies i (clause ( l 455) ) • Ambit of ‘Officer in Default’ widened • Merger M of f Indian I di C with Co. i h Foreign F i C (such Co. ( h countries as may be notified by the Central Govt.) • And A d Vice Vi ‐versa
Some New Concepts
• Associate Company
A company is considered to be an associate company of the other: 1. if the other company has significant influence over such company (not being a subsidiary) or 2. is a joint venture company. (Significant influence means control of at least 20 per cent of f total l share h capital i l of f a company or of f business decisions under an agreement)
D Dormant t C Company
Where a company is formed and registered under this Act: 1. for a future project or 2. to hold an asset or intellectual property and 3 has no significant accounting transaction, 3. transaction such a company or an inactive company may make an application pp to the Registrar g for obtaining g the status of a dormant company.
• A company which:
I ti Company Inactive C
1. which has not been carrying on any business or operation or 2. has not made any significant accounting transaction during the last 2 FY or 3. has not filed financial statements and annual returns during the last 2 FY R i Registrar may also l issue i a notice i to such h company and enter their name in the Register of Dormant Companies
Small Company
• A company which is:
1. other than a public company 2. paid‐up share capital <= Rs.50 lakhs or such higher amount as may be prescribed not exceeding Rs.5 crores or; 3. turnover <= Rs.2 crores or such higher amount as may b be prescribed ib d not exceeding di R Rs.20 crores.
One Person Company
y Promote Entrepreneurship p p y Other than a public limited y y y y y y
Company MOA have to mention successor May have one or more directors L Less cumbersome b Restriction on number of members ( (not exceeding g 100) ) Option to dispense with AGM Financial Statement may not include cash flow statement
OPC
• At least one meeting of the Board of Directors to be
conducted in each half of a calendar year and the gap between the two meetings should not be less than 90 days (This also applicable to small and dormant companies) The above requirement shall not apply to OPC in which hi h there th i only is l one director di t on its it Board B d of f Directors Minutes book FS are required to be filed within 180 days from the closure of the FY
• • •
S b idi Company Subsidiary C
• A company:
In relation to any other company (that is holding company), p y means a company p y in which the holding g company – Controls the composition of the Board of Directors; or Exercises or controls more than one half of the total share capital (instead of equity share capital as prescribed under the 1956 Act) either at its own or together with one or more of its subsidiary companies.
• •
KMP (Key Managerial Personnel)
• The MD or CEO or Manager • The WTD • The Company Secretary • The CFO and • Such other officer as may be prescribed
Appointment to be made by the Board • No Escape clause (Every Company belonging to such class(es) as may be prescribed shall have a whole time KMP – Clause 203(1))
• Unless the articles of a company provide otherwise or
the company does not carry multiple businesses, an individual shall not be the: Chairperson of the company as well as the managing director; or Chairperson of the company as well as the Chief Executive Officer at the same time P id d that Provided th t nothing thi contained t i d above b shall h ll apply l to t such class of companies engaged in multiple businesses and which has appointed pp one or more chief executive officers for each such business as may be notified by the Central Government.
Contd… Contd
y A KMP shall not hold office in more than 1
company except in its subsidiary company at the same time. y But B a Company C may appoint i as its i MD if he h is i the h MD or manager of one other company (other conditions to be fulfilled) y If the office of KMP vacated, the vacancy to be filled up within a period of six months y A KMP may be a director of any Company with the permission of the Board
Penalty for not appointing KMP
• On Company – Rs.1.00 lakh, may extend to Rs.5.00
lakhs
• On
every Director Rs.50,000
& KMP who is in default–
• For continuing default– Rs.1000……PER DAY
Functions of a CS laid out
y Clause 205 y Functions shall include:
‐ to report to the Board about compliance with the provisions of the Companies Act, the rules made there under and other laws applicable to the Company ‐ to ensure compliance with applicable secretarial standards ‐ to discharge such other duties as may be prescribed
MOA and AOA
y Only objects for which company is incorporated along
with matters considered necessary for its furtherance shall be mentioned. The Company cannot provide for other h objects bj clause. l y Articles of Association of the Company may contain provisions with respect to entrenchment whereby the specified provisions of the article can be altered only if the more restrictive conditions or procedures as compared to those applicable in case of special resolution have been met with.
Registered Office
• Only communication address may be given at the time
of incorporation.
• Registered office address is required to be intimated
within 30 days of its incorporation.
• Notice
of every change of the situation of the registered i d office ffi shall h ll be b given i to the h Registrar R i within i hi 15 days of the change, who shall record the same.
Certificate of Commencement Not Required
• A Company having a share capital (whether public or
private) shall not commence any business or exercise any borrowing power unless ‐ declaration is filed by a director with the Registrar and
• A confirmation f that h the h Company C h filed has f l d with h the h
Registrar a verification of its registered office
Compromise, Amalgamation & Mergers
• Simplified for some • Transferee Company may continue as an unlisted
entity • Minority ‘squeeze out’ concept • Auditor’s certificate‐ Compliant with applicable accounting standards • Objection criteria
Prospectus & Allotment of Securities
y Governs the issue of not only
shares but all types of securities y Provides that 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. y Private Company may issue securities only through private p placement. y QIB shall not be covered under the provisions related to Private Placement. Placement
Prospectus & Allotment of Securities
y Now any y p person ( (including g
group or association) affected by any misleading statement, inclusion or omission of any matter in the prospectus ‐ file any suit or take any action providing idi f civil for i il liability li bili for f fraudulently inducing persons to invest money. y y In addition to shares, return of allotment is required to be filed for all types of securities. securities
Shares h
• Company cannot issue shares at discount other than as
sweat
• Company
may issue preference shares redeemable after 20 years for infrastructure projects
• No reduction of capital if deposit not repaid
A Bold Step
• If • • •
a Company, with intent to defraud, issues a DUPLICATE Certificate of shares, the Company shall be punishable with fine: Whi h shall Which h ll not t be b less l th 5 times than ti th face the f value of the shares involved But which shall extend to 10 times the face value of such shares or Rs.10.00 crores, whichever is higher. Stringent penalties have also been imposed for defaulting officers of the Company.
Accounts of Companies
• Permit • •
for the first time maintenance of books of account and other books , paper, paper minutes in electronic mode. Compulsory consolidation of accounts of Holding Company and its Subsidiaries including Joint Venture and Associate Companies. The Bill provides for provisions relating to re‐opening or re‐casting of book of accounts of the Company.
A Accounts t of f C Companies i
y If the MD, WTD in‐charge of finance, CFO or any
other h person specifically f ll charged h d by b the h Board, d contravenes the provisions relating to accounts, the said person shall be punishable with imprisonment or with fine y Accounts in the same form and manner as that of its own. This also needs to be laid before the AGM y For this purpose, subsidiary includes associate company and d joint j i t venture t
Quantification f to b be d done
Where the Financial Statements do not comply with the applicable AS as specified in clause 129(1), the Company p y will have to disclose: ‐ the deviation from the AS ‐ the reasons for such deviation ‐ financial effects, arising out of such deviation After obtaining approval of the Tribunal, provision of voluntary revision of financial statements or Board’s Report has been included in the Bill (clause 131)
New provision (clause 137)
y Provided the FS not adopted at AGM or adjourned
AGM, such un‐adopted FS along with the required documents shall be filed within 30 days of AGM and the ROC shall take it in records as provisional till the adopted FS filed. yW Where eet the e AGM GM for o a any y yea year not ot held, e d, FS S du duly ys signed g ed along with the statement of reasons shall be filed. y A company will have to attach the accounts of its foreign subsidiary and which have not established their place of business in India.
Directors’ ecto s Report epo t
• The Director’s Report for every Company, inter‐alia, • • • • • • •
except p for One Person Company, p y shall have to p provide various types of additional information: number of meetings of the Board company’s company s policy on directors directors’ appointment and remuneration formal annual evaluation of its own performance risk i k management t policy li explanation by the Board on every qualification etc. made by y the CS in its secretarial audit report p and in the h auditors d report particulars of loans, guarantees or investments etc. specify reasons for not spending specified amt in CSR
New provision for D/Report
y Every listed Company shall disclose in the
Board’s Report, the ratio of the remuneration of each director to the median employee’s remuneration ti and d such h other th details d t il as may be b prescribed
y The Directors responsibility statement in case of
listed li t d company shall h ll also l i l d additional include dditi l statement related to internal finance control and compliance of all applicable laws. laws
CSR‐Creative Capitalist Solution
• Provisions
related to Corporate Social Responsibility (CSR) Activities that can be undertaken given in Schedule (CSR). VII. criteria >= Rs.500 5 crore or Turnover criteria >= Rs.1000 crore or Net profit criteria >= Rs.5 crore or more during any fi financial i l yr. In every financial yr, atleast 2% of the average NP made during the 3 immediately preceding financial years Preference to local areas where it operates Average g NP shall be in accordance to clause 198
• For CSR, Net worth
• • •
Some facts
• According g to a Business Standard study y in J January: y
1. 457 of the 500 companies on the BSE 500 Index will have to p provide for CSR 2. Based on the average g net p profits for three preceding years, they will have to fork out Rs 6,751 crore in CSR spends. ONGC would have to spend around Rs 405 crore a year and Reliance Rs 377 crore, the newspaper says
• Every • • • • •
Secretarial Audit
listed Company and Companies belonging to other class of Companies p as p prescribed will have to mandatorily get the secretarial audit done. By a Practising Company Secretary In a prescribed form Annex the same with Director’s Report Qualifications, if any to be specifically explained in Director’s Report If contravention, t ti th Company, the C every officer ffi of f the th Company or the PCS, who is in default shall be fined: not less than 1,00,000, , , , may y extend to 5, 5,00,000 ,
Certification of Annual Return
y In case a PCS certifies the Annual Return
otherwise in conformity with the requirements of the specified section, such PCS shall be punishable with i h fine fi which hi h shall h ll not be b less l than h Rs.50,000 R but which may extend to Rs.5,00,000 y Changes Ch i shareholding in h h ldi of f promoters t and d top t 10 shareholders A listed company to file a return with the ROC with respect to changes in the above details (to ensure e su e aud audit tt trail a o of ow ownership) e s p)
R Report t on AGM
y Listed company p y along g with the report p on
each AGM, shall also file a confirmation that , held and conducted the AGM was convened, as per law y Report will be in the prescribed manner y To be filed with the ROC within 30 days of conclusion of the AGM y Non‐filing will be a punishable offence
• Individual/ Audit Firm for a period of 5 years and
block of 5 years thereafter, respectively • For Listed Companies and other prescribed class of companies – Compulsory rotation in 5 years (individual)/ ( ) 10 y years ( (firm) ) • In addition to accounting standards, auditing standards also being made compulsory • Casual vacancy caused due to resignation‐ to be filled in 3 months by general body • Errant auditor‐removed and may not be allowed to become auditor of other Companies also for 5 years
Audit & Auditors
Fi auditor First di ‐interesting i i provision ii
y Shall be appointed pp by y the BOD within 3 30 days y
from the date of registration of the Company y In case the BOD fails to do so, it shall inform the members of the Company y The members shall appoint the auditor within 90 days y At an EGM y The auditor to hold office till the conclusion of the first AGM
Internal Audit
y Prescribed class of companies shall be required to
appoint an internal auditor to conduct internal audit di of f the h functions f i and d activities i ii of f the h Company. y This Thi internal i t l auditor dit could ld be b a CA or a Cost C t Accountant or such other professional, as may be decided by the Board. Board y Appointment to be done by the Board.
The current scope of internal audit
Inter‐alia: y Obtaining knowledge of legal and regulatory framework within which the entity operates y Obtaining knowledge of the entity entity’s s accounting and internal control systems and policies y Determination of the effectiveness of internal control procedures adopted by the entity y Determination of the nature, timing and extent of procedures d to be b performed f d (source: website of the ICAI)
• Maximum 15 directors in a Company. Company If more than
15, special resolution required • Prescribed class of companies to have 1 women director • Listed company p y may y have one director elected by y such small shareholders • Maximum number of directorships p is 20, within which maximum 10 public limited companies. It includes alternate directorships • At least 1 director shall be a person ‐ stayed in India for a total period of not less than 182 days in th previous the i calendar l d year
Directors & Board Provisions
• Appointment A i
Directors & Board Provisions
of f MD/WTD/Manager MD/WTD/M to continue to require board approval + ordinary di resolution l i • Non cash transactions with directors to require mandatory valuation • Concept p of q qualifications shares removed
Duties ut es of o Directors ecto s‐Ca Carved ed
• In line with the UK Companies Act, 2006 • In I accordance d with i h the h Company’s C ’ AoA A A • To act in good faith, to promote objects of
the company for benefit of members and the best interest of the company, employees, community and environment • To exercise duties with due & reasonable care, skill and diligence • Not to achieve any undue gain/advantage
• % limit has been kept same • Schedule XIII has become Schedule V • Rs.48 lacs l increased d to Rs.60 lacs l • No Central Government approval required • Sick companies and newly incorporated
p (till 7 y ( years) ) can p pay y double companies remuneration • Stock options granted to non‐ID ID’s s to be included in remuneration as perquisite‐ valuation as per Income Tax Act
Remuneration of Directors
Independent p Directors
• Listed companies to have 1/3 ID’s • Central Government to prescribe for others • Nominee Director/ Representative Director not to
be co considered s de ed as ID’s s ( (in co conflict ct with t e existing st g clause 49) • ID’s to abide by y a detailed code ( (Schedule IV) ) • Issue of letter of appointment to ID mandatory • Letter to contain terms of appointment, Board Board’s s expectations, fiduciary duties etc. • Will not retire by y rotation
• ID ID’s s
to hold 1 separate meeting in a year without other directors and management • Tenure restricted to 2 terms (5+5) • Second term to require SR • Then cooling period of 3 years • Tenure served by y ID before commencement of new Act not to be counted • Stock options not permitted for ID (inconsistent with Listing Agreement)
Independent Directors
• Profit related commission and sitting fees allowed
Vacation of office of Director
y If he h absents b t himself hi lf from f all ll the th meetings ti of f the th BOD
held during a period of 12 months without or without seeking LOA of the Board (clause 167(b)) y Fine Fi is i hefty h f if he h continues i even after f he h should h ld have h vacated his office Resignation g of Director ( (clause 168) ) Director also needs to forward to ROC, a copy of his resignation along with detailed reasons within 30 days of resignation o es g at o in t the ep prescribed esc bed manner a e Quick fix solution Where all directors have resigned, the promoter or in his absence, absence the CG shall appoint required number of directors. These directors to hold office till the directors are appointed in General Meeting
• It
Some Facts
is important for corporate boards to ensure gender diversity, g y but before that happens, pp a supply pp y of women eligible for board positions needs to be created • According to GMI Ratings’ Women on Boards Survey 2013, even on the world’s best‐known companies, i women account t for f only l 11 percent t of f total directorships • In India, India a sample of 89 companies with more than $ 1 billion in market valuation, the women percentage is less than 7 percent
Look at this‐Register of Directors
y The register shall contain:
‐ Particulars of its Directors ‐ KMP Details like: ‐ Securities held by each of them in the Company or its holding, subsidiary, subsidiary of company’s holding company or associate companies ‐ Other details as may be prescribed
Notice of Board Meeting
y Atleast 7 days notice is required y The notice may be sent by electronic means y Meeting may be called at shorter notice y Condition that atleast 1 independent p director, if
any, shall be present at the meeting y In the absence of the independent director from such a meeting, decisions of the meeting will be final only on ratification by atleast 1 independent di t director
Meeting of Board & Its Powers
• Not more than 120 days g – consecutive meetings
companies i also l shall elapse between 2 applicable pp to p private
• Meetings through video conferencing incorporated • 7.5% Limit on political contribution increased from 5% to (political party defined) • Provisions investment
related to inter‐corporate loans and has been extended to include loan and investment to any person not beyond 2 layers of investment
• Investments companies
COMMITTEE OF DIRECTORS
4 Committees
• 1.Nomination
&
Remuneration
Committee • 2.CSR Committee (where applicable) • 3.Stakeholder St k h ld Relationship R l ti hi Committee C itt (1000 or more security ( y holders) ) • 4.Audit Committee
A dit Committee Audit C itt
y Every listed company and such other prescribed class y Inter‐alia, it shall review and monitor the auditor’s
independence and performance, and effectiveness of th audit the dit process
Vi il Mechanism Vigil M h i
Every listed company or for those prescribed, establish a vigil mechanism for directors and employees to report genuine concerns. It shall provide for adequate safeguards against victimisation
En block resolution
y A single resolution not allowed for appointing 2 or
more persons as directors of the Company unless l A proposal to move such a motion has first been agreed to at the meeting without any vote being cast against it. (Clause 162)
Remodel the Corporate Structure
• It • •
is seen how discreetly Companies route their investments by forming a myriad matrix Th Bill proposes to restrict The i the h number b of f layers l of f investment Companies to 2. This will help in identifying the ultimate beneficiary The catch is that the number of layers of subsidiaries that the 2 investment/ holding g Companies p can have is yet not specified
Case for study
• Chintamani Agrotech • 2 Companies – Jinbhuvish
Power and Aarya Agrotech owned a majority stake in Chintamani, but the ultimate beneficiary of these Companies was very hard h d to t determine d t i • Upto 3 layers, the ownership was tried to be traced but only to encounter new corporate entities at every level
Cl Action Class A ti S Suits it
• A minimum of 100 or a % to be specified later, later can join
hands to claim damages against the: * Company p y * Auditors * Consultants * Experts or Advisors for any ‘wrongful, fraudulent or unlawful’ conduct!! A weapon in the hands of the investors to save their common interest.
C for Case f reference f
• Satyam Computer Services now known as Mahindra • •
Satyam paid $125 million to settle ‘class‐action’ suits filed by shareholders in the US, where its shares were li d listed. Its auditors shelled out $25 million to do the same in the US. US Indian shareholders did not receive a penny from any such settlement as the Country did not allow class‐ action suits.
• This can’t happen in future, but the moot
point is whether shareholders of government owned company can sue the Government for squashing minority interest
• Class action suits have to be filed before the
National Company Law Tribunal first, but banking companies are excluded from such action.
• Broadly:
‘Fraud’ Fraud defined
‘Any Any omission or concealment with an INTENT to deceive and gain undue advantage from shareholders or creditors, whether or not there is any wrongful gain or loss’ So, for example, if the 2 former executives of Reebok India are found guilty of falsification of documents, under the proposed new law, they could face arrest and pay fines.
18 situations
• 18 situations in which h h the h bill b ll has h prescribed b d frauds f d • • • •
and penalties In several cases, cases the penalties have been increased upto 3 times of the amount involved In select sections, imprisonment has been introduced ‐ ranging from 6 months to 10 years Serious Fraud Investigations g Office ( (SFIO) ) to receive statutory status (but not a constitutional body like the CAG). This will give more teeth to the Investigator. As per MCA’s latest annual report, there has been no conviction in the 835 cases of prosecution filed in different courts following an investigation by the SFIO
NFRA & NCLT
• NFRA • • •
(National Financial Reporting Authority) will recommend accounting and auditing standards, standards currently the domain of ICAI. In the Satyam accounting fraud, the partners of audit firms were made liable for wrongdoing and not the firm. This will change. NFRA can take action against the h audit d firm. f NCLT (National Company Law Tribunal) to replace the CLB. CLB NCLT will have to complete proceedings in 3 months.
Sick Companies
y Any secured creditor may file an application to the
Tribunal representing 50% or more of its outstanding di amount of f debt; d b if the h debt d b remains i unpaid for more than 30 days of the service of the demand notice y This application would be for determination that the Company be declared as a sick company
ROC’ Register ROC’s R i t of f Companies C i
y Where the Registrar g has reasonable cause to believe:
‐ that a Company has failed to commence its business within 1 year of its incorporation ‐ that the subscription money remains unpaid for more than 180 days ‐ that h the h C Company i is not carrying i on any b business i f for a period of 2 immediately preceding financial years and not even applied for dormant status The ROC shall send a notice to such companies of his intention to remove the name from the Register g
• Annual Return –up to the date of closure of financial • • • •
year First AGM – within 9 months Increased quorum ‐ for public Companies > 1000 members Every y Company p y to follow the Secretarial Standards while making the minutes of board and general meeting P Penalty lt for f tampering t i with ith minutes i t which hi h may extend t d to 2 years of imprisonment and with fine which shall not be less than Rs.25,000 but which may extend to Rs.1,00,000
Miscellaneous Provisions
Continued…. Continued
y Provisions for approval of Financial Statements by
way of signatures, signatures before they are signed on behalf of the Board y Clause 247: New chapter on registered valuers inserted y Valuation in respect of any property, stock, shares, debentures, goodwill etc. by a person registered as a valuer y Appointment on such terms and conditions as may be prescribed
Laudable audab e Steps
• Plug the loopholes of unabated private placement • Reduction of corporate delinquency‐punishment • • •
for fraudulently inducing persons to invest money Any consolidation and division of share capital resulting in change in voting percentage of shareholders would need to be approved by moving an application‐Tribunal R i i / Reopening Revision/ R i only l after f approval l from f T ib Tribunal l Cooling period of auditors will ensure that after a certain period an unbiased eye will look at the company company’s s financials
RECAP‐CHAPTER WISE
Chapter I‐Preliminary • GOI has the power to notify different provisions of f the h Act A at different diff points i i time in i • 33 new definitions • FY april‐march and only 1 exception • The scope of OID (Officer in default) broadened. STA, Merchant Bankers & CFO included • ID’s also included‐Board meeting participation/ minutes
• OPC • No bifurcation of object clause • Entrenchment • COC done away y with.
CHAPTER II‐Incorporation
Declaration & confirmation required by both, Public and Private • If raised money from public through prospectus, still having unutilised amount out of the money raised, shall not change its objects unless SR. Exit opportunity to dissenting shareholders. shareholders
CHAPTER III‐Prospectus p & Allot
• Return of Allotment reqd‐all types of securities • Person P li bl liable f for i impersonation ti multiple lti l
applications in different names/combinations • If f a Company, listed l d or unlisted, l d makes k an offer ff to section of public by way of private placement to more than h 50, the h same shall h ll be b deemed d d to be b an offer to the public and SEBI comes into play • Company making an offer under private placement has to allot securities within 60 days
•A
CHAPTER IV‐Share Cap & Deb
Company cannot C t issue i shares h at t discount di t otherwise than as sweat equity • Issue Preference shares redeemable after 20 years‐infrastructure projects (Schedule VI) • Akin section 81(1A) applicable to all companies • Voting rights of preference shareholders • No reduction of capital will be allowed if arrear in payment of deposits • Debenture trustee appointment if offer made t > 500 public/ to bli / members b
CHAPTER V‐Deposits
• NBFC’s not covered RBI will govern • Cannot accept other than from members, members with
approval of members in general meeting • It also prescribes the manner in which public companies can take deposits from persons other than its members • Non continuation of suo‐moto action of T ib Tribunal l in i case of f default d f l in i repayment of f deposits or interest thereon
CHAPTER VI‐Registn of Charges
• Specific list • All types of
done away with charges would be required to be registered • 30 days + 270 days (creation/ modification) • 30 days + 270 days (satisfaction) • Beyond 300 days, application to CG (RD) • There are no separate p provisions for the p registration of charges in respect of the issue of debentures
• Annual Return detailed requirements • Particulars of holding, subsidiary and associate
company in i the h disclosure di l ambit bi • Listed company‐certification of annual return • Companies with prescribed paid up capital and q turnover‐certification will be required • Certification in prescribed form • Stating that the A/R discloses the facts correctly and adequately and that the Company has complied with all the provisions the Act
CHAPTER VII‐Mgmt & Admin
CHAPTER VII‐Mgmt & Admin
• If
incorrect certification‐punishable with fine which not less than Rs.50,000 5 , but which may y extend to Rs.5,00,000 • A/R‐sign by 1 director + CS (If no CS then PCS) • Akin section 257 • Every E C Company to follow f ll SS Minutes Mi of f Board B d & General Meetings • Report after AGM‐Listed Company • Index of security y holders compulsory p y
CHAPTER VII‐Mgmt & Admin
• First AGM‐
from the date of closure of FY/ no p more reckoned from the date of incorporation • Varying quorum for public limited companies • CG may prescribe class of companies in which member may exercise his vote‐electronic means • Eligibility Eli ibili for f demand d d of f poll ll • Postal Ballot applicable for listed and unlisted • 1 person can’t be proxy fr more than 50 members • Proxy can no more vote by show of hands
• Transfer
CHAPTER VIII‐Dividend
of fixed % of profits to reserve not compulsory. Discretionary power given • Provides that all shares in respect of which unpaid or unclaimed dividend has been transferred to IEPF, shall h ll also l be b transferred f d by b the h Company C i the in h name of IEPF (this provision is not in the interest of th investors) the i t ) • Funds in IEPF can be utilised for distribution of any di disgorged d amount, t who h have h suffered ff d losses l d to due t wrong action of any person, in accordance with the orders of the Court which had ordered disgorgement
• Recognizing g g the same‐in electronic form • Financial Statements to include:
a. Balance Sheet and P/L Account a b. Cash Flow Statement c. Statement showing changes in equity d. Notes • Re‐opening or re‐casting of books of accounts of the Company – Mandatory/ Voluntary • Benefit to private companies‐separate filing of B/S and P/L withdrawn
CHAPTER IX‐Accounts
• First
auditor appointment by Board – till the conclusion of 1st AGM • Every Company at the 1st AGM‐for 5 years • Provided that the Company shall place the matter for ratification in AGM every year • Company to inform and also file his appointment with the ROC within 15 days of meeting • Listed companies or companies belonging to such prescribed classes: classes 1. Individual‐5 years (one term); 2. Audit firm – 5 years + 5 years
CHAPTER X‐Audit & Auditors
• All the general meeting shall now be mandatorily
attended by the Auditor or through his representative • Unqualified auditors’ report need not be read in the h meeting i • Any qualification etc. having adverse effect on the functioning of the Company shall be read before the Company in general meeting • No approval of CG required for appointment of Cost Auditor to conduct the cost audit
CHAPTER X‐Audit & Auditors
• The
CHAPTER X‐Audit & Auditors
duties which have been casted on an Auditor under clause 143 shall apply mutatis‐ mutandis to both the Cost Accountant for cost audit and the Company Secretary in practice for secretarial audit. audit • Auditor shall also report on cash flow statement • Auditor to report any offence involving fraud • Auditor not to p provide ( (in)/directly, ) y, the specified services to the Company, its Holding & Subsidiary y Company p y
Schedules h d l
yI–
MOA & AOA y II – Useful lives to compute depreciation y III – General Instructions for p preparation p of balance sheet and statement of profit and loss of a Company y IV – Code for Independent Directors y V – Managerial Remuneration y VI – Explanation of terms like agriculture, t l telecommunication i ti etc. t y VII – Activities for CSR
Wait and Watch!!
• “The
challenge is not to introduce new provisions, but the implementation” p p • The devil lies in the details…….details are yet to be received in the public domain • The aim is not to impose ‘inspector raj’. It is to make India an attractive and safe investment destination.
Proof of Pudding in its Eating!
• In the weeks ahead, as companies pore over the
fine print of the Companies Bill, more issues will surface. f B for But f now the h best b sum‐up is i this: hi it’s i’ a great start, but, as always, the proof of the pudding is in the eating • The Act comes into effect with notification by Ministry of Corporate Affairs • Consult all stakeholders while framing the rules
By CS Mamta Binani Past Chairperson (Year 2010), 2010) EIRC of ICSI Practising Company Secretary At the Hooghly Chapter –EIRC EIRC of ICSI [email protected] dated : 18.08.2013
Room No.6, 4th Floor, Commerce House 2A, Ganesh Chandra Avenue, Kolkata 700013 Connect me @ : (033) 3028 8955-57; (033) 3002 5630-33; 98310 99551 [email protected] Visit me @ : www.mamtabinani.com
`
• In line with global corporate laws • Re‐inforce shareholder democracy • Encourage self regulation • Therefore Th f provide id for f a pragmatic i structure
for offences • Foster entrepreneurship and growth • Furtherance of e‐governance g • Major provisions taken from J.J. Irani Committee
Objective Object e
Not so lenient stand anymore
• The new Bill looks to put more information in the
public domain, particularly related to unlisted and private i C Companies. i
• As
of now, this set has much more lenient reporting requirements as compared to the listed Companies which only constitutes about 1% of the Companies, 1.06 million Companies registered with the MCA
Companies Act, 1956 Companies Bill, 2013
• It was introduced on 1st
April, 1956.
y As passed by the Lok‐
• •
Sabha on 18th December, 2012 2012. It has 658 Sections and 15 y Rajya Sabha passed it on 8th August, g 2013 by y voice Schedules. vote It extends to the whole of y The Bill has 470 Clauses (309 pages), pages) 29 chapters India (Sikkim has its own and 7 Schedules. Companies Act). y It applies pp to the whole of India.
Slated to become a Law
• “In • •
100 years, this is the second time that a new companies law has been legislated,” Minister said. A and As d when h consented d to by b President P id P Pranab b Mukherjee, the new legislation will replace the 57‐ year‐old Companies Act, Act 1956. 1956 Around 193 recommendations have been included in the Companies p Bill by y the Parliamentary y Standing g Committee and with passing of this Bill, the Companies Act of 1956 will be replaced.
Fi ll Finally
• The
new law will be called the Companies p Act, , 2013 • But the long g wait is not over y yet. The fine p print of the clauses will be defined by rules that the corporate affairs ministry will frame now. Almost all ll relevant l clauses l need d to have h rules, l which h h the h MCA would now put on its website to seek comments from stakeholders • Until the rules are formulated, the Act will not get operationalised
• Financial Year (1st April to 31st March) • Private Limited Company: Number
SOME QUICK BITES
of members
increased (from 50 to 200) • Concept C of f small ll companies, i associate i companies i (definition clause) • Concept C t of f dormant d t companies i (clause ( l 455) ) • Ambit of ‘Officer in Default’ widened • Merger M of f Indian I di C with Co. i h Foreign F i C (such Co. ( h countries as may be notified by the Central Govt.) • And A d Vice Vi ‐versa
Some New Concepts
• Associate Company
A company is considered to be an associate company of the other: 1. if the other company has significant influence over such company (not being a subsidiary) or 2. is a joint venture company. (Significant influence means control of at least 20 per cent of f total l share h capital i l of f a company or of f business decisions under an agreement)
D Dormant t C Company
Where a company is formed and registered under this Act: 1. for a future project or 2. to hold an asset or intellectual property and 3 has no significant accounting transaction, 3. transaction such a company or an inactive company may make an application pp to the Registrar g for obtaining g the status of a dormant company.
• A company which:
I ti Company Inactive C
1. which has not been carrying on any business or operation or 2. has not made any significant accounting transaction during the last 2 FY or 3. has not filed financial statements and annual returns during the last 2 FY R i Registrar may also l issue i a notice i to such h company and enter their name in the Register of Dormant Companies
Small Company
• A company which is:
1. other than a public company 2. paid‐up share capital <= Rs.50 lakhs or such higher amount as may be prescribed not exceeding Rs.5 crores or; 3. turnover <= Rs.2 crores or such higher amount as may b be prescribed ib d not exceeding di R Rs.20 crores.
One Person Company
y Promote Entrepreneurship p p y Other than a public limited y y y y y y
Company MOA have to mention successor May have one or more directors L Less cumbersome b Restriction on number of members ( (not exceeding g 100) ) Option to dispense with AGM Financial Statement may not include cash flow statement
OPC
• At least one meeting of the Board of Directors to be
conducted in each half of a calendar year and the gap between the two meetings should not be less than 90 days (This also applicable to small and dormant companies) The above requirement shall not apply to OPC in which hi h there th i only is l one director di t on its it Board B d of f Directors Minutes book FS are required to be filed within 180 days from the closure of the FY
• • •
S b idi Company Subsidiary C
• A company:
In relation to any other company (that is holding company), p y means a company p y in which the holding g company – Controls the composition of the Board of Directors; or Exercises or controls more than one half of the total share capital (instead of equity share capital as prescribed under the 1956 Act) either at its own or together with one or more of its subsidiary companies.
• •
KMP (Key Managerial Personnel)
• The MD or CEO or Manager • The WTD • The Company Secretary • The CFO and • Such other officer as may be prescribed
Appointment to be made by the Board • No Escape clause (Every Company belonging to such class(es) as may be prescribed shall have a whole time KMP – Clause 203(1))
• Unless the articles of a company provide otherwise or
the company does not carry multiple businesses, an individual shall not be the: Chairperson of the company as well as the managing director; or Chairperson of the company as well as the Chief Executive Officer at the same time P id d that Provided th t nothing thi contained t i d above b shall h ll apply l to t such class of companies engaged in multiple businesses and which has appointed pp one or more chief executive officers for each such business as may be notified by the Central Government.
Contd… Contd
y A KMP shall not hold office in more than 1
company except in its subsidiary company at the same time. y But B a Company C may appoint i as its i MD if he h is i the h MD or manager of one other company (other conditions to be fulfilled) y If the office of KMP vacated, the vacancy to be filled up within a period of six months y A KMP may be a director of any Company with the permission of the Board
Penalty for not appointing KMP
• On Company – Rs.1.00 lakh, may extend to Rs.5.00
lakhs
• On
every Director Rs.50,000
& KMP who is in default–
• For continuing default– Rs.1000……PER DAY
Functions of a CS laid out
y Clause 205 y Functions shall include:
‐ to report to the Board about compliance with the provisions of the Companies Act, the rules made there under and other laws applicable to the Company ‐ to ensure compliance with applicable secretarial standards ‐ to discharge such other duties as may be prescribed
MOA and AOA
y Only objects for which company is incorporated along
with matters considered necessary for its furtherance shall be mentioned. The Company cannot provide for other h objects bj clause. l y Articles of Association of the Company may contain provisions with respect to entrenchment whereby the specified provisions of the article can be altered only if the more restrictive conditions or procedures as compared to those applicable in case of special resolution have been met with.
Registered Office
• Only communication address may be given at the time
of incorporation.
• Registered office address is required to be intimated
within 30 days of its incorporation.
• Notice
of every change of the situation of the registered i d office ffi shall h ll be b given i to the h Registrar R i within i hi 15 days of the change, who shall record the same.
Certificate of Commencement Not Required
• A Company having a share capital (whether public or
private) shall not commence any business or exercise any borrowing power unless ‐ declaration is filed by a director with the Registrar and
• A confirmation f that h the h Company C h filed has f l d with h the h
Registrar a verification of its registered office
Compromise, Amalgamation & Mergers
• Simplified for some • Transferee Company may continue as an unlisted
entity • Minority ‘squeeze out’ concept • Auditor’s certificate‐ Compliant with applicable accounting standards • Objection criteria
Prospectus & Allotment of Securities
y Governs the issue of not only
shares but all types of securities y Provides that 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. y Private Company may issue securities only through private p placement. y QIB shall not be covered under the provisions related to Private Placement. Placement
Prospectus & Allotment of Securities
y Now any y p person ( (including g
group or association) affected by any misleading statement, inclusion or omission of any matter in the prospectus ‐ file any suit or take any action providing idi f civil for i il liability li bili for f fraudulently inducing persons to invest money. y y In addition to shares, return of allotment is required to be filed for all types of securities. securities
Shares h
• Company cannot issue shares at discount other than as
sweat
• Company
may issue preference shares redeemable after 20 years for infrastructure projects
• No reduction of capital if deposit not repaid
A Bold Step
• If • • •
a Company, with intent to defraud, issues a DUPLICATE Certificate of shares, the Company shall be punishable with fine: Whi h shall Which h ll not t be b less l th 5 times than ti th face the f value of the shares involved But which shall extend to 10 times the face value of such shares or Rs.10.00 crores, whichever is higher. Stringent penalties have also been imposed for defaulting officers of the Company.
Accounts of Companies
• Permit • •
for the first time maintenance of books of account and other books , paper, paper minutes in electronic mode. Compulsory consolidation of accounts of Holding Company and its Subsidiaries including Joint Venture and Associate Companies. The Bill provides for provisions relating to re‐opening or re‐casting of book of accounts of the Company.
A Accounts t of f C Companies i
y If the MD, WTD in‐charge of finance, CFO or any
other h person specifically f ll charged h d by b the h Board, d contravenes the provisions relating to accounts, the said person shall be punishable with imprisonment or with fine y Accounts in the same form and manner as that of its own. This also needs to be laid before the AGM y For this purpose, subsidiary includes associate company and d joint j i t venture t
Quantification f to b be d done
Where the Financial Statements do not comply with the applicable AS as specified in clause 129(1), the Company p y will have to disclose: ‐ the deviation from the AS ‐ the reasons for such deviation ‐ financial effects, arising out of such deviation After obtaining approval of the Tribunal, provision of voluntary revision of financial statements or Board’s Report has been included in the Bill (clause 131)
New provision (clause 137)
y Provided the FS not adopted at AGM or adjourned
AGM, such un‐adopted FS along with the required documents shall be filed within 30 days of AGM and the ROC shall take it in records as provisional till the adopted FS filed. yW Where eet the e AGM GM for o a any y yea year not ot held, e d, FS S du duly ys signed g ed along with the statement of reasons shall be filed. y A company will have to attach the accounts of its foreign subsidiary and which have not established their place of business in India.
Directors’ ecto s Report epo t
• The Director’s Report for every Company, inter‐alia, • • • • • • •
except p for One Person Company, p y shall have to p provide various types of additional information: number of meetings of the Board company’s company s policy on directors directors’ appointment and remuneration formal annual evaluation of its own performance risk i k management t policy li explanation by the Board on every qualification etc. made by y the CS in its secretarial audit report p and in the h auditors d report particulars of loans, guarantees or investments etc. specify reasons for not spending specified amt in CSR
New provision for D/Report
y Every listed Company shall disclose in the
Board’s Report, the ratio of the remuneration of each director to the median employee’s remuneration ti and d such h other th details d t il as may be b prescribed
y The Directors responsibility statement in case of
listed li t d company shall h ll also l i l d additional include dditi l statement related to internal finance control and compliance of all applicable laws. laws
CSR‐Creative Capitalist Solution
• Provisions
related to Corporate Social Responsibility (CSR) Activities that can be undertaken given in Schedule (CSR). VII. criteria >= Rs.500 5 crore or Turnover criteria >= Rs.1000 crore or Net profit criteria >= Rs.5 crore or more during any fi financial i l yr. In every financial yr, atleast 2% of the average NP made during the 3 immediately preceding financial years Preference to local areas where it operates Average g NP shall be in accordance to clause 198
• For CSR, Net worth
• • •
Some facts
• According g to a Business Standard study y in J January: y
1. 457 of the 500 companies on the BSE 500 Index will have to p provide for CSR 2. Based on the average g net p profits for three preceding years, they will have to fork out Rs 6,751 crore in CSR spends. ONGC would have to spend around Rs 405 crore a year and Reliance Rs 377 crore, the newspaper says
• Every • • • • •
Secretarial Audit
listed Company and Companies belonging to other class of Companies p as p prescribed will have to mandatorily get the secretarial audit done. By a Practising Company Secretary In a prescribed form Annex the same with Director’s Report Qualifications, if any to be specifically explained in Director’s Report If contravention, t ti th Company, the C every officer ffi of f the th Company or the PCS, who is in default shall be fined: not less than 1,00,000, , , , may y extend to 5, 5,00,000 ,
Certification of Annual Return
y In case a PCS certifies the Annual Return
otherwise in conformity with the requirements of the specified section, such PCS shall be punishable with i h fine fi which hi h shall h ll not be b less l than h Rs.50,000 R but which may extend to Rs.5,00,000 y Changes Ch i shareholding in h h ldi of f promoters t and d top t 10 shareholders A listed company to file a return with the ROC with respect to changes in the above details (to ensure e su e aud audit tt trail a o of ow ownership) e s p)
R Report t on AGM
y Listed company p y along g with the report p on
each AGM, shall also file a confirmation that , held and conducted the AGM was convened, as per law y Report will be in the prescribed manner y To be filed with the ROC within 30 days of conclusion of the AGM y Non‐filing will be a punishable offence
• Individual/ Audit Firm for a period of 5 years and
block of 5 years thereafter, respectively • For Listed Companies and other prescribed class of companies – Compulsory rotation in 5 years (individual)/ ( ) 10 y years ( (firm) ) • In addition to accounting standards, auditing standards also being made compulsory • Casual vacancy caused due to resignation‐ to be filled in 3 months by general body • Errant auditor‐removed and may not be allowed to become auditor of other Companies also for 5 years
Audit & Auditors
Fi auditor First di ‐interesting i i provision ii
y Shall be appointed pp by y the BOD within 3 30 days y
from the date of registration of the Company y In case the BOD fails to do so, it shall inform the members of the Company y The members shall appoint the auditor within 90 days y At an EGM y The auditor to hold office till the conclusion of the first AGM
Internal Audit
y Prescribed class of companies shall be required to
appoint an internal auditor to conduct internal audit di of f the h functions f i and d activities i ii of f the h Company. y This Thi internal i t l auditor dit could ld be b a CA or a Cost C t Accountant or such other professional, as may be decided by the Board. Board y Appointment to be done by the Board.
The current scope of internal audit
Inter‐alia: y Obtaining knowledge of legal and regulatory framework within which the entity operates y Obtaining knowledge of the entity entity’s s accounting and internal control systems and policies y Determination of the effectiveness of internal control procedures adopted by the entity y Determination of the nature, timing and extent of procedures d to be b performed f d (source: website of the ICAI)
• Maximum 15 directors in a Company. Company If more than
15, special resolution required • Prescribed class of companies to have 1 women director • Listed company p y may y have one director elected by y such small shareholders • Maximum number of directorships p is 20, within which maximum 10 public limited companies. It includes alternate directorships • At least 1 director shall be a person ‐ stayed in India for a total period of not less than 182 days in th previous the i calendar l d year
Directors & Board Provisions
• Appointment A i
Directors & Board Provisions
of f MD/WTD/Manager MD/WTD/M to continue to require board approval + ordinary di resolution l i • Non cash transactions with directors to require mandatory valuation • Concept p of q qualifications shares removed
Duties ut es of o Directors ecto s‐Ca Carved ed
• In line with the UK Companies Act, 2006 • In I accordance d with i h the h Company’s C ’ AoA A A • To act in good faith, to promote objects of
the company for benefit of members and the best interest of the company, employees, community and environment • To exercise duties with due & reasonable care, skill and diligence • Not to achieve any undue gain/advantage
• % limit has been kept same • Schedule XIII has become Schedule V • Rs.48 lacs l increased d to Rs.60 lacs l • No Central Government approval required • Sick companies and newly incorporated
p (till 7 y ( years) ) can p pay y double companies remuneration • Stock options granted to non‐ID ID’s s to be included in remuneration as perquisite‐ valuation as per Income Tax Act
Remuneration of Directors
Independent p Directors
• Listed companies to have 1/3 ID’s • Central Government to prescribe for others • Nominee Director/ Representative Director not to
be co considered s de ed as ID’s s ( (in co conflict ct with t e existing st g clause 49) • ID’s to abide by y a detailed code ( (Schedule IV) ) • Issue of letter of appointment to ID mandatory • Letter to contain terms of appointment, Board Board’s s expectations, fiduciary duties etc. • Will not retire by y rotation
• ID ID’s s
to hold 1 separate meeting in a year without other directors and management • Tenure restricted to 2 terms (5+5) • Second term to require SR • Then cooling period of 3 years • Tenure served by y ID before commencement of new Act not to be counted • Stock options not permitted for ID (inconsistent with Listing Agreement)
Independent Directors
• Profit related commission and sitting fees allowed
Vacation of office of Director
y If he h absents b t himself hi lf from f all ll the th meetings ti of f the th BOD
held during a period of 12 months without or without seeking LOA of the Board (clause 167(b)) y Fine Fi is i hefty h f if he h continues i even after f he h should h ld have h vacated his office Resignation g of Director ( (clause 168) ) Director also needs to forward to ROC, a copy of his resignation along with detailed reasons within 30 days of resignation o es g at o in t the ep prescribed esc bed manner a e Quick fix solution Where all directors have resigned, the promoter or in his absence, absence the CG shall appoint required number of directors. These directors to hold office till the directors are appointed in General Meeting
• It
Some Facts
is important for corporate boards to ensure gender diversity, g y but before that happens, pp a supply pp y of women eligible for board positions needs to be created • According to GMI Ratings’ Women on Boards Survey 2013, even on the world’s best‐known companies, i women account t for f only l 11 percent t of f total directorships • In India, India a sample of 89 companies with more than $ 1 billion in market valuation, the women percentage is less than 7 percent
Look at this‐Register of Directors
y The register shall contain:
‐ Particulars of its Directors ‐ KMP Details like: ‐ Securities held by each of them in the Company or its holding, subsidiary, subsidiary of company’s holding company or associate companies ‐ Other details as may be prescribed
Notice of Board Meeting
y Atleast 7 days notice is required y The notice may be sent by electronic means y Meeting may be called at shorter notice y Condition that atleast 1 independent p director, if
any, shall be present at the meeting y In the absence of the independent director from such a meeting, decisions of the meeting will be final only on ratification by atleast 1 independent di t director
Meeting of Board & Its Powers
• Not more than 120 days g – consecutive meetings
companies i also l shall elapse between 2 applicable pp to p private
• Meetings through video conferencing incorporated • 7.5% Limit on political contribution increased from 5% to (political party defined) • Provisions investment
related to inter‐corporate loans and has been extended to include loan and investment to any person not beyond 2 layers of investment
• Investments companies
COMMITTEE OF DIRECTORS
4 Committees
• 1.Nomination
&
Remuneration
Committee • 2.CSR Committee (where applicable) • 3.Stakeholder St k h ld Relationship R l ti hi Committee C itt (1000 or more security ( y holders) ) • 4.Audit Committee
A dit Committee Audit C itt
y Every listed company and such other prescribed class y Inter‐alia, it shall review and monitor the auditor’s
independence and performance, and effectiveness of th audit the dit process
Vi il Mechanism Vigil M h i
Every listed company or for those prescribed, establish a vigil mechanism for directors and employees to report genuine concerns. It shall provide for adequate safeguards against victimisation
En block resolution
y A single resolution not allowed for appointing 2 or
more persons as directors of the Company unless l A proposal to move such a motion has first been agreed to at the meeting without any vote being cast against it. (Clause 162)
Remodel the Corporate Structure
• It • •
is seen how discreetly Companies route their investments by forming a myriad matrix Th Bill proposes to restrict The i the h number b of f layers l of f investment Companies to 2. This will help in identifying the ultimate beneficiary The catch is that the number of layers of subsidiaries that the 2 investment/ holding g Companies p can have is yet not specified
Case for study
• Chintamani Agrotech • 2 Companies – Jinbhuvish
Power and Aarya Agrotech owned a majority stake in Chintamani, but the ultimate beneficiary of these Companies was very hard h d to t determine d t i • Upto 3 layers, the ownership was tried to be traced but only to encounter new corporate entities at every level
Cl Action Class A ti S Suits it
• A minimum of 100 or a % to be specified later, later can join
hands to claim damages against the: * Company p y * Auditors * Consultants * Experts or Advisors for any ‘wrongful, fraudulent or unlawful’ conduct!! A weapon in the hands of the investors to save their common interest.
C for Case f reference f
• Satyam Computer Services now known as Mahindra • •
Satyam paid $125 million to settle ‘class‐action’ suits filed by shareholders in the US, where its shares were li d listed. Its auditors shelled out $25 million to do the same in the US. US Indian shareholders did not receive a penny from any such settlement as the Country did not allow class‐ action suits.
• This can’t happen in future, but the moot
point is whether shareholders of government owned company can sue the Government for squashing minority interest
• Class action suits have to be filed before the
National Company Law Tribunal first, but banking companies are excluded from such action.
• Broadly:
‘Fraud’ Fraud defined
‘Any Any omission or concealment with an INTENT to deceive and gain undue advantage from shareholders or creditors, whether or not there is any wrongful gain or loss’ So, for example, if the 2 former executives of Reebok India are found guilty of falsification of documents, under the proposed new law, they could face arrest and pay fines.
18 situations
• 18 situations in which h h the h bill b ll has h prescribed b d frauds f d • • • •
and penalties In several cases, cases the penalties have been increased upto 3 times of the amount involved In select sections, imprisonment has been introduced ‐ ranging from 6 months to 10 years Serious Fraud Investigations g Office ( (SFIO) ) to receive statutory status (but not a constitutional body like the CAG). This will give more teeth to the Investigator. As per MCA’s latest annual report, there has been no conviction in the 835 cases of prosecution filed in different courts following an investigation by the SFIO
NFRA & NCLT
• NFRA • • •
(National Financial Reporting Authority) will recommend accounting and auditing standards, standards currently the domain of ICAI. In the Satyam accounting fraud, the partners of audit firms were made liable for wrongdoing and not the firm. This will change. NFRA can take action against the h audit d firm. f NCLT (National Company Law Tribunal) to replace the CLB. CLB NCLT will have to complete proceedings in 3 months.
Sick Companies
y Any secured creditor may file an application to the
Tribunal representing 50% or more of its outstanding di amount of f debt; d b if the h debt d b remains i unpaid for more than 30 days of the service of the demand notice y This application would be for determination that the Company be declared as a sick company
ROC’ Register ROC’s R i t of f Companies C i
y Where the Registrar g has reasonable cause to believe:
‐ that a Company has failed to commence its business within 1 year of its incorporation ‐ that the subscription money remains unpaid for more than 180 days ‐ that h the h C Company i is not carrying i on any b business i f for a period of 2 immediately preceding financial years and not even applied for dormant status The ROC shall send a notice to such companies of his intention to remove the name from the Register g
• Annual Return –up to the date of closure of financial • • • •
year First AGM – within 9 months Increased quorum ‐ for public Companies > 1000 members Every y Company p y to follow the Secretarial Standards while making the minutes of board and general meeting P Penalty lt for f tampering t i with ith minutes i t which hi h may extend t d to 2 years of imprisonment and with fine which shall not be less than Rs.25,000 but which may extend to Rs.1,00,000
Miscellaneous Provisions
Continued…. Continued
y Provisions for approval of Financial Statements by
way of signatures, signatures before they are signed on behalf of the Board y Clause 247: New chapter on registered valuers inserted y Valuation in respect of any property, stock, shares, debentures, goodwill etc. by a person registered as a valuer y Appointment on such terms and conditions as may be prescribed
Laudable audab e Steps
• Plug the loopholes of unabated private placement • Reduction of corporate delinquency‐punishment • • •
for fraudulently inducing persons to invest money Any consolidation and division of share capital resulting in change in voting percentage of shareholders would need to be approved by moving an application‐Tribunal R i i / Reopening Revision/ R i only l after f approval l from f T ib Tribunal l Cooling period of auditors will ensure that after a certain period an unbiased eye will look at the company company’s s financials
RECAP‐CHAPTER WISE
Chapter I‐Preliminary • GOI has the power to notify different provisions of f the h Act A at different diff points i i time in i • 33 new definitions • FY april‐march and only 1 exception • The scope of OID (Officer in default) broadened. STA, Merchant Bankers & CFO included • ID’s also included‐Board meeting participation/ minutes
• OPC • No bifurcation of object clause • Entrenchment • COC done away y with.
CHAPTER II‐Incorporation
Declaration & confirmation required by both, Public and Private • If raised money from public through prospectus, still having unutilised amount out of the money raised, shall not change its objects unless SR. Exit opportunity to dissenting shareholders. shareholders
CHAPTER III‐Prospectus p & Allot
• Return of Allotment reqd‐all types of securities • Person P li bl liable f for i impersonation ti multiple lti l
applications in different names/combinations • If f a Company, listed l d or unlisted, l d makes k an offer ff to section of public by way of private placement to more than h 50, the h same shall h ll be b deemed d d to be b an offer to the public and SEBI comes into play • Company making an offer under private placement has to allot securities within 60 days
•A
CHAPTER IV‐Share Cap & Deb
Company cannot C t issue i shares h at t discount di t otherwise than as sweat equity • Issue Preference shares redeemable after 20 years‐infrastructure projects (Schedule VI) • Akin section 81(1A) applicable to all companies • Voting rights of preference shareholders • No reduction of capital will be allowed if arrear in payment of deposits • Debenture trustee appointment if offer made t > 500 public/ to bli / members b
CHAPTER V‐Deposits
• NBFC’s not covered RBI will govern • Cannot accept other than from members, members with
approval of members in general meeting • It also prescribes the manner in which public companies can take deposits from persons other than its members • Non continuation of suo‐moto action of T ib Tribunal l in i case of f default d f l in i repayment of f deposits or interest thereon
CHAPTER VI‐Registn of Charges
• Specific list • All types of
done away with charges would be required to be registered • 30 days + 270 days (creation/ modification) • 30 days + 270 days (satisfaction) • Beyond 300 days, application to CG (RD) • There are no separate p provisions for the p registration of charges in respect of the issue of debentures
• Annual Return detailed requirements • Particulars of holding, subsidiary and associate
company in i the h disclosure di l ambit bi • Listed company‐certification of annual return • Companies with prescribed paid up capital and q turnover‐certification will be required • Certification in prescribed form • Stating that the A/R discloses the facts correctly and adequately and that the Company has complied with all the provisions the Act
CHAPTER VII‐Mgmt & Admin
CHAPTER VII‐Mgmt & Admin
• If
incorrect certification‐punishable with fine which not less than Rs.50,000 5 , but which may y extend to Rs.5,00,000 • A/R‐sign by 1 director + CS (If no CS then PCS) • Akin section 257 • Every E C Company to follow f ll SS Minutes Mi of f Board B d & General Meetings • Report after AGM‐Listed Company • Index of security y holders compulsory p y
CHAPTER VII‐Mgmt & Admin
• First AGM‐
from the date of closure of FY/ no p more reckoned from the date of incorporation • Varying quorum for public limited companies • CG may prescribe class of companies in which member may exercise his vote‐electronic means • Eligibility Eli ibili for f demand d d of f poll ll • Postal Ballot applicable for listed and unlisted • 1 person can’t be proxy fr more than 50 members • Proxy can no more vote by show of hands
• Transfer
CHAPTER VIII‐Dividend
of fixed % of profits to reserve not compulsory. Discretionary power given • Provides that all shares in respect of which unpaid or unclaimed dividend has been transferred to IEPF, shall h ll also l be b transferred f d by b the h Company C i the in h name of IEPF (this provision is not in the interest of th investors) the i t ) • Funds in IEPF can be utilised for distribution of any di disgorged d amount, t who h have h suffered ff d losses l d to due t wrong action of any person, in accordance with the orders of the Court which had ordered disgorgement
• Recognizing g g the same‐in electronic form • Financial Statements to include:
a. Balance Sheet and P/L Account a b. Cash Flow Statement c. Statement showing changes in equity d. Notes • Re‐opening or re‐casting of books of accounts of the Company – Mandatory/ Voluntary • Benefit to private companies‐separate filing of B/S and P/L withdrawn
CHAPTER IX‐Accounts
• First
auditor appointment by Board – till the conclusion of 1st AGM • Every Company at the 1st AGM‐for 5 years • Provided that the Company shall place the matter for ratification in AGM every year • Company to inform and also file his appointment with the ROC within 15 days of meeting • Listed companies or companies belonging to such prescribed classes: classes 1. Individual‐5 years (one term); 2. Audit firm – 5 years + 5 years
CHAPTER X‐Audit & Auditors
• All the general meeting shall now be mandatorily
attended by the Auditor or through his representative • Unqualified auditors’ report need not be read in the h meeting i • Any qualification etc. having adverse effect on the functioning of the Company shall be read before the Company in general meeting • No approval of CG required for appointment of Cost Auditor to conduct the cost audit
CHAPTER X‐Audit & Auditors
• The
CHAPTER X‐Audit & Auditors
duties which have been casted on an Auditor under clause 143 shall apply mutatis‐ mutandis to both the Cost Accountant for cost audit and the Company Secretary in practice for secretarial audit. audit • Auditor shall also report on cash flow statement • Auditor to report any offence involving fraud • Auditor not to p provide ( (in)/directly, ) y, the specified services to the Company, its Holding & Subsidiary y Company p y
Schedules h d l
yI–
MOA & AOA y II – Useful lives to compute depreciation y III – General Instructions for p preparation p of balance sheet and statement of profit and loss of a Company y IV – Code for Independent Directors y V – Managerial Remuneration y VI – Explanation of terms like agriculture, t l telecommunication i ti etc. t y VII – Activities for CSR
Wait and Watch!!
• “The
challenge is not to introduce new provisions, but the implementation” p p • The devil lies in the details…….details are yet to be received in the public domain • The aim is not to impose ‘inspector raj’. It is to make India an attractive and safe investment destination.
Proof of Pudding in its Eating!
• In the weeks ahead, as companies pore over the
fine print of the Companies Bill, more issues will surface. f B for But f now the h best b sum‐up is i this: hi it’s i’ a great start, but, as always, the proof of the pudding is in the eating • The Act comes into effect with notification by Ministry of Corporate Affairs • Consult all stakeholders while framing the rules
