Comparative Studies of Companies Act, 1956
Content
COMPARATIVE STUDY
OF COMPANIES ACT,
1956 WITH COMPANIES
ACT, 2013
Submitted to :
Dr. Karunesh Saxena
Submitted by :
The Miracle Workers
Contents
Introduction
Roles and Responsibilities
Issues of Share Capital
Audit and Auditors
Directors
CSR & Revival and Rehabilitation of Sick
Companies
Differences
Conclusion
2
Introduction
3
Terminologies
OPC
CSR
MOA
AOA
ID
WTD
CEO
NCLT
NFRA
SFIO
ROC
-
One Person Company
Corporate Social Responsibility
Memorandum of Association
Article of Association
Independent Director
Whole time Director
Chief Executive Officer
National Company Law Tribunal
National Financial Reporting Authority
Serious Fraud Investigation Officer
Registrar of Companies
The Need for Web Security
4
A PARADIGM SHIFT FOR THE
CORPORATE
The
Companies
Act, 1956
The Companies Act, 2013
5
COMPANIES ACT,
1956
13 Parts
15 Schedules
658 Sections
Facts about
the Act
6
COMPANIES ACT,
2013
470 Sections
29 Chapters
New
33 Definitions
7 Schedules
Facts about the
Act
7
Comparitive Study :
ACT 1956
ACT 2013
13 Parts
29 Chapters
658 Sections
470 Sections
15 Schedules
7 Schedules
• 98 Sections have been notified
• The Draft rules have been placed for comments from investors on
the Ministry of Corporate Affairs website.
RE-ENACTING THE NEW
COMPANIES LAW
Bringing Flexibility
Self Regulation
Stringent
Punishment
Effective protection
for Society
Healthy Growth
of India Inc.
Efficient
enforcement of law
New Concepts
10
NOVELTIES
• Introduction of One Person Company
• Stipulation of Woman Director
•Provision of Class Action suits
• Introduction of Registered Valuer
• Fast Track Merger for Holding & Subsidiary Companies
• Concept of Dormant Company
•Further Use of electronic mode: Maintenance of Documents, in
e-Form
•Meeting through Video Conferencing
• Conciliation panel & special courts
11
Changes - Incorporation
Penalizing Provisions
ROC empowered to strike off the name of a
Company incorporated with wrong/incorrect
information
Person deliberately furnishing any
false/incorrect information at the time of
incorporation shall be responsible for fraud
under section 447 & stringent punishment
Any person can challenge the validity of
incorporation before the tribunal in case of such
a Company
WHAT’S IN & OUT
IN
•
•
•
•
•
•
•
•
•
•
•
Key managerial personnel
Resident Director
Auditor Rotation
Dormant company
NFRA
Vigil mechanism
SFIO
Definition of Subsidiary
Secretarial Audit
Recasting of Account
Private Placement
OUT
•
•
•
•
•
•
Sole selling agents
Commencement certificate
Statutory meetings
Convert share into stock
Qualification shares
Treasury stocks
13
PROMINENT INFLUENCERS TO THE
NEW COMPANY LAW
IPO
Scam
Stock
Market
Scam
Peerless
The
Influencers
Sesa
Sterlite
Satyam
Pradeep
Overseas
Sahara
14
Roles and Responsibilities
15
Key Managerial Personnel
• Key managerial personnel means:
- CEO/ MD/ Manager
- CS
- WTD
- CFO
- such other person to be prescribed
• Included in the definition for an Officer who is in default
• Related party includes relative of key managerial personnel
• Section 21 interestingly provides that any document/ contract requiring
authentication by Company can be signed by KMP/ person authorised by the
Board
Officer who is in Default
Earlier
Now
- MD/ WTD/ Manager/Person in
- WTD/KMP/ Directors specified by the
accordance with whose directions the
Board – in the absence of such
Board is accustomed to act
specification, all Directors
- No provision to impose liability on all - Where there is no specific
directors
authorisation by the Board all
- External parties not counted in the
directors would be held liable. Most
definition for Officer in Default
importantly, every director who is
AWARE of such contravention by
virtue of receipt of any proceedings
or PARTICIPATION in such
proceedings without objecting to
the same would be held liable
- Share transfer agents, Registrar to an
Issue and Merchant Bankers to Issue
to be held liable in the event of
default in respect of issue or transfer
of shares of a company (shares used
and not securities)
ROLE OF CA
Chartered Accountants included in the definition of “expert” who has
been assigned specific responsibilities and liabilities under the Act
Appointment as Internal Auditors for companies requiring mandatory
internal audits
Appointment as Liquidator in Winding up proceedings
Immense opportunities for CAs with respect to M&A transactions
CA may act as insolvency practitioner, administrator and also represent
stakeholders before Tribunal
CA to act as Statutory Auditor in companies
12/1/2014
18
RESPONSIBILITYOF CA
NFRA to have the power to investigate matters of professional or other misconduct committed by any
member or firm of CAs regd under the CA Act
Where auditor contravenes requirements of appointment or rotation, auditor punishable with fine of
minimum of INR 25000 and upto INR 5 Lakh
Where provisions contravend by auditor knowingly or willfully with intention to deceive company or
shareholders or creditors or tax authorities, punishable with imprisonment extending not less than
one year, and fine being minimum INR 1 Lakh and maximum INR 25 Lakh.
Where, in case of audit of a company being conducted by an audit firm, it is proved that the partner
or partners of the audit firm has or have acted in a fraudulent manner, or abetted or colluded in
fraud, in relation to or by, directors or officers, liability under the Act will be that of the partner or
partners concerned of the audit firm and of the firm jointly and severally.
Class action suit may be instituted against the auditor including audit firm of the company for any
improper or misleading statement made in audit report or fraudulent conduct
12/1/2014
19
Issues of Share Capital
20
Amendmends to certain topics :
Small company : Paid up share capital does not exceed 50 lacs INR
or as may be prescribed but not more than 5 crore INR
Internal audit : Mandatory for companies having paid up share
capital of more than 10 crores INR.
Commencement of business : Empowerment to ROC,to remove
the name of companies who fail to declare the payment value of shares
agreed to be taken by the subscribers and their paid up share capital is
within the prescribed limits in the act, within 180 days of its
incorporation
21
Share Capital
The 2013 Act does not give any cognizance to the existing requirement
of section 90 of the 1956 Act that provided some saving grace to
private companies. Now this section applies equally to the private
companies.
• Two kinds of shares capital
• New issue of shares capital to be only of two kinds
• Voting rights
22
SHAREHOLDER’S VOTING RIGHTS
–
–
–
–
The 2013 act removes the distinction provided by the 1956 act to
vote if the company fails to pay dividend to its cumulative and
non-cumulative preference shares.
The provisions regarding private placement and additional
disclosures in prospectus(these provisions will also help to
strengthen capital markets).
The 2013 act also proposes to re-instate the existing concept of
shares with differential voting rights (Pursuant to this section the
company may face hardship with regards to computation of
proportionate voting rights).
VARIATION IN RIGHTS: If the variation by one class of
shareholders affects the rights of any other class of shareholders,
the consent of three-fourths of such other class of shareholders
shall also be obtained and the provisions of this section shall
apply to such variation.[Section 48(1) of 2013]
Changes - Prospectus & Allotment of Securities
The Act defines the term Private Placement:
PRIVATE PLACEMENT OFFER
PUBLIC OFFER
CONDITIONS
Comply with provisions of Act,
Securities Contract Regulation
Act, 1956 and SEBI Act, 1992
Offer to section of public
other than QIBs
Not more than 50 number
of people
In compliance of
prescribed terms &
conditions
Made through Private
Placement offer letter and
not Prospectus
YES
NO
Conditions
fulfilled?
TREATMENT OF PREMIUM RECEIVED ON
ISSUE OF SHARES(Sec. 52 of 2013)
• The section of 2013 Act has a non-obstante provision in respect of certain class
of companies. The 2013 Act states that these classes of companies would not be
able to apply the securities premium towards the below specified purposes,
unless the financial statements are in compliance with the accounting standards
issued under section 133 of 2013:
– Paying up unissued equity shares of the company as fully paid bonus shares;
– Writing off the expenses of or the commission paid or discount allowed on
any issue of equity shares of the company;
– Purchase of its own shares or other securities.
• The 2013 Act continues to state that securities premium amount can be utilised
for purpose of writing off preliminary expenses.
However, in view of the requirements of accounting standard 26,
intangible asset, the requirement of this sub-section appears to be
superfluous.
25
MAJOR MODIFICATIONS WITH REGARDS TO
SHARE CAPITAL:
1.
PROHIBITION OF ISSUE OF SHARES AT DISCOUNT
• Companies would no longer be permitted to issue shares at a discount.
• The only shares that could be issued at a discount are sweat equity wherein
shares are issued to employees in lieu of their services[Section 53 and Section
54 of 2013 Act].
2. FURTHER ISSUE OF SHARE CAPITAL
• The existing requirement of section 81 of the 1956 Act in regard to further
issue of capital would now be applicable to both public companies and private
companies.
• Further, the 2013 Act provides that a rights issue can also be made to the
employees of the company who are under a scheme of employees’ stock
option, subject to a special resolution .
26
3. ISSUE OF BONUS SHARES
•
4.
The 2013 Act includes a new section that provides for issue of fully
paid-up bonus shares out of its free reserves or the securities premium
account or the capital redemption reserve account, subject to the
compliance with certain conditions such as authorisation by the articles,
approval in the general meeting and so on [section 63 of 2013 Act].
UNLIMITED COMPANY TO PROVIDE FOR RESERVE
SHARE CAPITAL ON CONVERSION INTO LIMITED
COMPANY
•
•
This section corresponds to section 32 of the 1956 Act.
An unlimited company having a share capital may be re-registered as a
limited company by increasing the nominal amount of each share,
subject to the condition that no part of the increased capital shall be
capable of being called up.
27
5. ISSUE AND REDEMPTION OF PREFERENCE SHARES
• The 2013 Act reiterates the existing requirement that a company
•
•
•
•
cannot issue preference shares with a redemption date of beyond 20
years.
However, it gives an exemption for cases where preference shares
have been issued in respect of Infrastructural Projects(as defined in
Schedule VI of the 2013 Act) and these shares would be subject to
redemption at such percentage as prescribed on an annual basis at the
option of such preference shareholders.
The 2013 Act adds another requirement of obtaining special
resolution with respect to the preference shares which could not be
redeemed by a company.
The 2013 Act also provides a relief to the companies who are not in a
position to redeem any preference shares or to pay dividend, if any,
that they can issue the shareholders fresh redeemable preference
shares, but only on the consent of the holders of three-fourths in
value of such preference shares.
The 2013 Act does not envisage any penalty in respect of non28
compliance with the provision of this section.
6. REDUCTION IN SHARE CAPITAL
•
•
•
7.
The 2013 Act gives cognizance to one of the amendments made in the listing
agreement by SEBI.
A requirement has been imposed in section 66 of 2013 Act, which states that no
an application for reduction of share capital shall be sanctioned by the Tribunal
unless the accounting treatment, for such a reduction is in conformity with the
accounting standards specified in section 133 or any other provision of the 2013
Act and a certificate to that effect by the company’s auditor has been filed with
the Tribunal.
the 2013 Act clarifies that no such reduction shall be made if the company is in
arrears in repayment of any deposits accepted by it, either before or after the
commencement of the 2013 Act, or the interest payable thereon.
POWER OF COMPANY TO PURCHASE ITS OWN SECURITIES
•
Buy-back from odd lots is no longer available to a company [section 68].
The 2013 Act provides flexibility in recognising the electronic mode for
notices and voting, which is in line with the MCA’s efforts to give
cognisance to use of electronic media as evident from a number of
green initiatives’ introduced
recently,
maintenance of registers
The Need for
Web Security
29 and
returns at a place other than the registered office.
DIVIDEND
• The existing requirement of the 1956 Act with regard to the transfer of a
specified percentage of profits not exceeding 10% to reserve is no
longer applicable.
• Thus companies are now free to transfer any or no amount of profits to
reserves [Section 123 (1) of the 2013 Act].
• The 2013 Act also provides that no dividend shall be declared or paid in
case of inadequate profits by a company subject to the Rules yet to be
notified.
• The company also cannot declare or pay dividend from its reserves other
than free reserves [Section 123(1) of the 2013 Act].
• The company also cannot declare interim dividend, if it has incurred a
loss the current financial year, up to the end of the quarter immediately
preceding the date of declaration of the interim dividend at a rate higher
than the average dividends declared by the company during the
immediately preceding three financial years.
The Need for Web Security
30
Audit and Auditors
31
COMPARITIVE STUDY WITH REGARDS TO
AUDITORS OF 1956 ACT WITH 2013 ACT
POINT OF
DISTINCTION
1956
2013
1.Liability of an auditor
Liability remains the
same in all
circumstances.
Liability increases
substantially.
2.Auditors rotation
No provision of
rotation.
Introduces the concept
of auditors rotation.
3.Non-audit services
Absence of any
provision.
Any external services
rendered by the auditor
need to be approves by
the BOD and Audit
committee.
32
The Need for Web Security
33
The Need for Web Security
34
AUDIT COMMITTEE – SECTION 177
Every listed company and such other class of company shall constitute an
Audit committee. (As per Draft Rules: Audit Committee of the Board for every
listed company , and every other public company having paid up capital of Rs.
100 cr or more; or which have, in aggregate, outstanding loans or borrowings
or debentures or deposits exceeding Rs. 200 cr)
Committee shall consist of minimum three director with the independent
director forming majority
Auditors and KMP have right to be heard in the meeting of committee
Board’s report to disclose
1. Composition of the audit committee and
2. Any recommendation which has not been accepted by the board.
12/1/2014
35
AUDIT COMMITTEE…….VIGIL
MECHANISM
Every listed company or such class of companies shall
establish a vigil mechanism
As per Draft Rules: Companies which accept deposits
from public and Companies which have borrowed money
from banks and public financial institutions > Rs 50 Cr
Mechanism facilitates directors and employees to report
genuine concerns
Adequate safeguards against victimization of persons
who use such mechanism
Whistle
Blower (a
non
mandatory
item as per
Cl 49) is now
made
mandatory,
in the name
of Vigil
Mechanism
Provision for direct access to the chairperson of the audit
committee
12/1/2014
36
Directors
Key Highlights
• Minimum no of directors retained
• Max no of directors increased to 15 (against the earlier 12)
• No of directorships – increased to 20 (earlier 15 public ltd companies)
• Every company to have at least one director who has stayed in India for at
least 182 days in the previous calendar year
• Prescribed class of companies to compulsorily have at least one woman
director
• Independent director defined and specific related provisions laid down.
DEFINITIONS
Director
“Board of Directors”
Or
“Board”
Director appointed by board of
company Section 2(34)
Collective body of director s of the
company Section 2(10)
12/1/2014
39
MANAGING DIRECTOR
Managing Director
Director
By
Articles
Agreements
Shareholdings
+
Entrusted with substantial powers of management
+
Occupying position of managing director by whatever name
called
40
NUMBER OF DIRECTORS – (SECTION 149)
Board of Directors consisting individuals as directors.
Private Company : 2 Directors
Public Company : 3 Directors
One Person Company : 1 Director
Maximum number :15 (earlier 12)
12/1/2014
41
NUMBER OF DIRECTORSHIPS
(SECTION 165)
Director in maximum 20 companies
Directorship to include alternate directorship
Of these 20 companies, cannot be a Director in more than 10
public companies (including private companies which are
holding or subsidiary companies of public companies)
No. of members specify lesser number by passing special
resolution
Penalty for contravention: Minimum Rs. 5,000, and Maximum Rs.
25,000 for every day during which the default continues
12/1/2014
42
APPOINTMENT OF DIRECTOR
(SECTION 152)
Appointment of Managing Director, Whole Time Director or Manager to be
approved by special resolution in a General Meeting
Appointment to be Voted individually… (Notified). Section 162
Consent for appointment to be filed by directors of private company to
the ROC
When appointment not in accordance with Schedule V, approval of
Central Government also required
Independent directors not to be included in the total number of directors
while calculating retiring directors i.e. 2/3rd of the total number of
directors
12/1/2014
43
CSR & Revival and
Rehabilitation of Sick
Companies
44
CORPORATE SOCIAL RESPONSIBILITY
PROMOTING WELFARE
INITIATIVES
45
CORPORATE SOCIAL RESPONSIBILITY
(SECTION - 135)
Every Company having net worth of rupees five hundred crore
or more, or turnover of rupees one thousand crore or more or a
net profit of rupees five crore or more during any financial
year to constitute a Corporate Social Responsibility Committee
of the Board consisting of three or more directors, out of which
at least one director shall be an independent director
The Board’s report to disclose the composition of the Corporate
Social Responsibility Committee
12/1/2014
46
CORPORATE SOCIAL RESPONSIBILITY
(SECTION 135)
Based on recommendations from CSR Committee, Board of such Company
to approve the CSR Policy for the Company and disclose contents of such
Policy in its report and on the Company’s website
Every year in the Board’s Report, details about the policy developed and
implemented by the Company on CSR initiatives taken during the year to be
included
12/1/2014
47
CORPORATE SOCIAL RESPONSIBILITY
(SECTION 135)
Board shall ensure that at least two per cent of average net profits of the Company
made during three immediately preceding financial years is spent in every financial
year on such policy
For spending the amount earmarked for CSR activities the Company shall give
preference to the local area and areas around it where it operates.
If a Company fails to provide or spend such amount, the Board to specify reasons
for not spending the amount in its report
Companies require to comply with CSR shall give additional Information by way of
notes to the Statement of Profit and Loss regarding aggregate expenditure incurred
on corporate social responsibility activities.
12/1/2014
48
List of Companies who are required to make CSR contribution
Amount in INR Crores
S.No.
Name of Company
1
Reliance Industries Ltd
2
Oil & Natural Gas Corpn Ltd
3
State Bank of India
4
Tata Consultancy Services Ltd
5
NTPC Ltd
6
Infosys Ltd
7
Bharti Airtel Ltd
8
Coal India Ltd
9
ICICI Bank Ltd
Average PAT for last 3
Years
20,443.00
20,271.49
11,358.93
10,444.10
9,018.17
8,009.67
7,624.37
7,518.51
6,647.37
2 % of Average PAT
408.86
405.43
227.18
208.88
180.36
160.19
152.49
150.37
132.95
49
Rehabilitation of Sick Units
Industries that have gone sick have far-reaching
consequences on the economy of the nation. The
following are the bad effects of industrial sickness :
• There is under utillisation of capital assets.
• The investor confidence reaches a lower ebb.
• Industrial sickness results in large scale
unemployment and industrial unrest.
• Profitability of banks and financial institutions
gets affected
50
BOARD OF INDUSTRIAL AND FINANCIAL
RECONSTRUCTION (BIFR) :
The role of BIFR is:
(a) Securing the timely detection of sick and potentially sick
companies
(b) Speedy determination by a group of experts of the various
measures to be taken in respect of
the sick company
(c) Expeditious enforcement of such measures
51
DIFFERENCES BETWEEN
COMPANIES ACT 1956 & COMPANIES BILL 2013
52
Differences between
Companies Act 1956 & Companies Bill-2013
Particulars
Companies Act 1956
Companies Bill 2013
RELATED PARTY TRANSACTIONS
Scope
Section
Approval
required
of
A co. cannot enter into the contracts relating to• Sale, purchase or supply of any goods or materials;
• Sale, purchase or supply of any services;
• Underwriting the subscription of any shares,
debentures of a co.
A co. cannot enter into contracts relating to• Sale, purchase or supply of any goods or materials;
• Selling or disposing of ,or buying, property of any kind;
• Leasing of property of any kind;
• Availing or rendering of any services;
• Appointment of any agents for purchase or sale of
goods, materials, services or property;
• Appointment to any office or place of profit in the
company, its subsidiary co. or associate co.;
• Underwriting the subscription of any securities or
derivatives thereof , of the co.
•
•
•
Prior consent of the BoD by resolution passed at
Board meeting
Prior approval of Regional Director, in case the paidup capital of company is exceeding Rs.1 crore.
•
Prior consent of the BoD by resolution passed at Board
meeting
Prior approval of Shareholders, in case the paid-up
capital of co. or transaction amount exceeds prescribed
limit.
53
Differences between
Companies Act 1956 & Companies Bill-2013
Particulars
Companies Act 1956
Companies Bill 2013
RELATED PARTY TRANSACTIONS
Specified
persons with
whom contracts
are covered
•
•
•
•
Director of the Co.
Relative of such Director
A firm in which such Director or Relative is a partner
Any other partner of such firm in which Director or
Relative is a partner
Private co. in which such director is a director or
member
Related Party-Director or his relative
• KMP or his relative
• Firm, in which a director, manager or his relative is a partner
• Private Co. in which a director or manager is a member or
director
• Public Co. in which a director or manager is a Director or holds
along with his relatives, more than 2% of its paid-up share
capital
• Any body corporate whose BoD, MD, or manager is accustomed
to act in accordance with the advice, directions or instructions
of a director or manager
• Any person under whose advice, directions or instructions, a
director or manager is accustomed to act
• Any Co. which is-a holding, subsidiary or associate Co. of such Co.
-a subsidiary of a holding co. to which it is also a subsidiary
.such other persons as may be prescribed.
Purchase/Sale of goods and materials for cash at
prevailing market price. Purchase/Sale of goods and
materials or services, the cost of which does not exceed
Rs.5000/- in any year during the period of contract. Any
transaction of banking/insurance company in the ordinary
course of such company.
Any transaction entered by company in its ordinary course of
business other than transactions which are not an arm’s length
basis.
•
Exemptions
54
Differences between
Companies Act 1956 & Companies Bill-2013
Particulars
Companies Act 1956
Companies Bill 2013
LOAN TO DIRECTORS
Applicability of
Section
Public Companies
Public & Private Companies
Scope of Section
No Public Co. shall directly or indirectly make any loan or
give any guarantee or provide any security to its directors
and other certain specified persons, except with the
approval of CG.
No Public Co. shall directly or indirectly make any loan including book
debt or give any guarantee or provide any security to its directors or
to any other persons in whom the director is interested.
Exemptions
This section does not apply toPrivate Cos.
Holding to its subsidiary
Banking Cos
This section does not apply to• Loan to MD/WTD
-as a part of contract of services extended to all its employees
-pursuant to scheme approved by members by special resolution.
• A Co. which in the ordinary course of its business provides loan,
guarantee or security for due repayment of any loan and charges
interest thereon being not less than bank rate declared by RBI.
55
Differences between
Companies Act 1956 & Companies Bill-2013
Particulars
Companies Act 1956
Companies Bill 2013
WINDING UP/ STRIKE OFF
Grounds for
Winding up
reduced
Criteria for winding-up provided by NCLTIf the Co. has, by special resolution, resolved that the co.
be wound up.
Certain criteria for winding-up by NCLT deleted like minimum
number of members falling below prescribed limit, noncommencement of business for 1 yr, etc.
If the co. is unable to pay its debt
Additional ground provided:
NCLT is of the opinion that•The affairs of the co. have been conducted in a fraudulent manner
•Co. was formed for fraudulent and unlawful purpose
•The persons concerned in the formation or management of its
affairs have been guilty of fraud, misfeasance or misconduct in
connection therewith.
If a co. does not commence its business within 1 yr from
its incorporation or suspends its business for a whole yr
If the minimum no. of members is reduced below 2 for
pvt co. & 7 in case of public co.
Grounds for
strike off
A co. may be struck off by RoC if it has reasonable cause
to believe that a co. is not carrying on business or
operations.
A co. may be struck off by RoC for below reasonsSubscribers to the memorandum have not paid the subscription
money within 180 days from the date of incorporation
Co. has failed to commence its business within 1 yr of its
incorporation
Co. is not carrying on any business or operation for 2 immediately
preceding financial yr and has within such period applied for status
of a dormant co.
A Co. may also file application for striking of the name of the Co.
under certain circumstances
56
CONCLUSION
•
The new Indian Companies Act is a positive step towards modernising India’s
company law and aligning it to global standards. It has given increased decision
making powers to the company .
•
Introduced provisions giving minority shareholders additional rights and
protections.
•
The introduction of one person companies and small companies should alleviate
some of the administrative burdens that small businesses have to bear, but larger
companies should prepare themselves for further administrative burdens as a
result of changes in the appointment of auditors and directors.
•
Further clarity will be required as the provisions of the Companies Act come
into force and we will watch with interest as this area of law develops.
57
CONCLUSION (continued)
Contemporary
Business
Oriented
Easy
Understandability
Self Regulatory
Preventive
Investor
Protective
Adaptable
58
IMPACT OF CHANGE
Quality of functioning of the board will increase
Beginning of new era of Corporate Governance
Enhanced responsibility of Top Management
Increase in trust of investors and stakeholders
59
The Need for Web Security
60
OF COMPANIES ACT,
1956 WITH COMPANIES
ACT, 2013
Submitted to :
Dr. Karunesh Saxena
Submitted by :
The Miracle Workers
Contents
Introduction
Roles and Responsibilities
Issues of Share Capital
Audit and Auditors
Directors
CSR & Revival and Rehabilitation of Sick
Companies
Differences
Conclusion
2
Introduction
3
Terminologies
OPC
CSR
MOA
AOA
ID
WTD
CEO
NCLT
NFRA
SFIO
ROC
-
One Person Company
Corporate Social Responsibility
Memorandum of Association
Article of Association
Independent Director
Whole time Director
Chief Executive Officer
National Company Law Tribunal
National Financial Reporting Authority
Serious Fraud Investigation Officer
Registrar of Companies
The Need for Web Security
4
A PARADIGM SHIFT FOR THE
CORPORATE
The
Companies
Act, 1956
The Companies Act, 2013
5
COMPANIES ACT,
1956
13 Parts
15 Schedules
658 Sections
Facts about
the Act
6
COMPANIES ACT,
2013
470 Sections
29 Chapters
New
33 Definitions
7 Schedules
Facts about the
Act
7
Comparitive Study :
ACT 1956
ACT 2013
13 Parts
29 Chapters
658 Sections
470 Sections
15 Schedules
7 Schedules
• 98 Sections have been notified
• The Draft rules have been placed for comments from investors on
the Ministry of Corporate Affairs website.
RE-ENACTING THE NEW
COMPANIES LAW
Bringing Flexibility
Self Regulation
Stringent
Punishment
Effective protection
for Society
Healthy Growth
of India Inc.
Efficient
enforcement of law
New Concepts
10
NOVELTIES
• Introduction of One Person Company
• Stipulation of Woman Director
•Provision of Class Action suits
• Introduction of Registered Valuer
• Fast Track Merger for Holding & Subsidiary Companies
• Concept of Dormant Company
•Further Use of electronic mode: Maintenance of Documents, in
e-Form
•Meeting through Video Conferencing
• Conciliation panel & special courts
11
Changes - Incorporation
Penalizing Provisions
ROC empowered to strike off the name of a
Company incorporated with wrong/incorrect
information
Person deliberately furnishing any
false/incorrect information at the time of
incorporation shall be responsible for fraud
under section 447 & stringent punishment
Any person can challenge the validity of
incorporation before the tribunal in case of such
a Company
WHAT’S IN & OUT
IN
•
•
•
•
•
•
•
•
•
•
•
Key managerial personnel
Resident Director
Auditor Rotation
Dormant company
NFRA
Vigil mechanism
SFIO
Definition of Subsidiary
Secretarial Audit
Recasting of Account
Private Placement
OUT
•
•
•
•
•
•
Sole selling agents
Commencement certificate
Statutory meetings
Convert share into stock
Qualification shares
Treasury stocks
13
PROMINENT INFLUENCERS TO THE
NEW COMPANY LAW
IPO
Scam
Stock
Market
Scam
Peerless
The
Influencers
Sesa
Sterlite
Satyam
Pradeep
Overseas
Sahara
14
Roles and Responsibilities
15
Key Managerial Personnel
• Key managerial personnel means:
- CEO/ MD/ Manager
- CS
- WTD
- CFO
- such other person to be prescribed
• Included in the definition for an Officer who is in default
• Related party includes relative of key managerial personnel
• Section 21 interestingly provides that any document/ contract requiring
authentication by Company can be signed by KMP/ person authorised by the
Board
Officer who is in Default
Earlier
Now
- MD/ WTD/ Manager/Person in
- WTD/KMP/ Directors specified by the
accordance with whose directions the
Board – in the absence of such
Board is accustomed to act
specification, all Directors
- No provision to impose liability on all - Where there is no specific
directors
authorisation by the Board all
- External parties not counted in the
directors would be held liable. Most
definition for Officer in Default
importantly, every director who is
AWARE of such contravention by
virtue of receipt of any proceedings
or PARTICIPATION in such
proceedings without objecting to
the same would be held liable
- Share transfer agents, Registrar to an
Issue and Merchant Bankers to Issue
to be held liable in the event of
default in respect of issue or transfer
of shares of a company (shares used
and not securities)
ROLE OF CA
Chartered Accountants included in the definition of “expert” who has
been assigned specific responsibilities and liabilities under the Act
Appointment as Internal Auditors for companies requiring mandatory
internal audits
Appointment as Liquidator in Winding up proceedings
Immense opportunities for CAs with respect to M&A transactions
CA may act as insolvency practitioner, administrator and also represent
stakeholders before Tribunal
CA to act as Statutory Auditor in companies
12/1/2014
18
RESPONSIBILITYOF CA
NFRA to have the power to investigate matters of professional or other misconduct committed by any
member or firm of CAs regd under the CA Act
Where auditor contravenes requirements of appointment or rotation, auditor punishable with fine of
minimum of INR 25000 and upto INR 5 Lakh
Where provisions contravend by auditor knowingly or willfully with intention to deceive company or
shareholders or creditors or tax authorities, punishable with imprisonment extending not less than
one year, and fine being minimum INR 1 Lakh and maximum INR 25 Lakh.
Where, in case of audit of a company being conducted by an audit firm, it is proved that the partner
or partners of the audit firm has or have acted in a fraudulent manner, or abetted or colluded in
fraud, in relation to or by, directors or officers, liability under the Act will be that of the partner or
partners concerned of the audit firm and of the firm jointly and severally.
Class action suit may be instituted against the auditor including audit firm of the company for any
improper or misleading statement made in audit report or fraudulent conduct
12/1/2014
19
Issues of Share Capital
20
Amendmends to certain topics :
Small company : Paid up share capital does not exceed 50 lacs INR
or as may be prescribed but not more than 5 crore INR
Internal audit : Mandatory for companies having paid up share
capital of more than 10 crores INR.
Commencement of business : Empowerment to ROC,to remove
the name of companies who fail to declare the payment value of shares
agreed to be taken by the subscribers and their paid up share capital is
within the prescribed limits in the act, within 180 days of its
incorporation
21
Share Capital
The 2013 Act does not give any cognizance to the existing requirement
of section 90 of the 1956 Act that provided some saving grace to
private companies. Now this section applies equally to the private
companies.
• Two kinds of shares capital
• New issue of shares capital to be only of two kinds
• Voting rights
22
SHAREHOLDER’S VOTING RIGHTS
–
–
–
–
The 2013 act removes the distinction provided by the 1956 act to
vote if the company fails to pay dividend to its cumulative and
non-cumulative preference shares.
The provisions regarding private placement and additional
disclosures in prospectus(these provisions will also help to
strengthen capital markets).
The 2013 act also proposes to re-instate the existing concept of
shares with differential voting rights (Pursuant to this section the
company may face hardship with regards to computation of
proportionate voting rights).
VARIATION IN RIGHTS: If the variation by one class of
shareholders affects the rights of any other class of shareholders,
the consent of three-fourths of such other class of shareholders
shall also be obtained and the provisions of this section shall
apply to such variation.[Section 48(1) of 2013]
Changes - Prospectus & Allotment of Securities
The Act defines the term Private Placement:
PRIVATE PLACEMENT OFFER
PUBLIC OFFER
CONDITIONS
Comply with provisions of Act,
Securities Contract Regulation
Act, 1956 and SEBI Act, 1992
Offer to section of public
other than QIBs
Not more than 50 number
of people
In compliance of
prescribed terms &
conditions
Made through Private
Placement offer letter and
not Prospectus
YES
NO
Conditions
fulfilled?
TREATMENT OF PREMIUM RECEIVED ON
ISSUE OF SHARES(Sec. 52 of 2013)
• The section of 2013 Act has a non-obstante provision in respect of certain class
of companies. The 2013 Act states that these classes of companies would not be
able to apply the securities premium towards the below specified purposes,
unless the financial statements are in compliance with the accounting standards
issued under section 133 of 2013:
– Paying up unissued equity shares of the company as fully paid bonus shares;
– Writing off the expenses of or the commission paid or discount allowed on
any issue of equity shares of the company;
– Purchase of its own shares or other securities.
• The 2013 Act continues to state that securities premium amount can be utilised
for purpose of writing off preliminary expenses.
However, in view of the requirements of accounting standard 26,
intangible asset, the requirement of this sub-section appears to be
superfluous.
25
MAJOR MODIFICATIONS WITH REGARDS TO
SHARE CAPITAL:
1.
PROHIBITION OF ISSUE OF SHARES AT DISCOUNT
• Companies would no longer be permitted to issue shares at a discount.
• The only shares that could be issued at a discount are sweat equity wherein
shares are issued to employees in lieu of their services[Section 53 and Section
54 of 2013 Act].
2. FURTHER ISSUE OF SHARE CAPITAL
• The existing requirement of section 81 of the 1956 Act in regard to further
issue of capital would now be applicable to both public companies and private
companies.
• Further, the 2013 Act provides that a rights issue can also be made to the
employees of the company who are under a scheme of employees’ stock
option, subject to a special resolution .
26
3. ISSUE OF BONUS SHARES
•
4.
The 2013 Act includes a new section that provides for issue of fully
paid-up bonus shares out of its free reserves or the securities premium
account or the capital redemption reserve account, subject to the
compliance with certain conditions such as authorisation by the articles,
approval in the general meeting and so on [section 63 of 2013 Act].
UNLIMITED COMPANY TO PROVIDE FOR RESERVE
SHARE CAPITAL ON CONVERSION INTO LIMITED
COMPANY
•
•
This section corresponds to section 32 of the 1956 Act.
An unlimited company having a share capital may be re-registered as a
limited company by increasing the nominal amount of each share,
subject to the condition that no part of the increased capital shall be
capable of being called up.
27
5. ISSUE AND REDEMPTION OF PREFERENCE SHARES
• The 2013 Act reiterates the existing requirement that a company
•
•
•
•
cannot issue preference shares with a redemption date of beyond 20
years.
However, it gives an exemption for cases where preference shares
have been issued in respect of Infrastructural Projects(as defined in
Schedule VI of the 2013 Act) and these shares would be subject to
redemption at such percentage as prescribed on an annual basis at the
option of such preference shareholders.
The 2013 Act adds another requirement of obtaining special
resolution with respect to the preference shares which could not be
redeemed by a company.
The 2013 Act also provides a relief to the companies who are not in a
position to redeem any preference shares or to pay dividend, if any,
that they can issue the shareholders fresh redeemable preference
shares, but only on the consent of the holders of three-fourths in
value of such preference shares.
The 2013 Act does not envisage any penalty in respect of non28
compliance with the provision of this section.
6. REDUCTION IN SHARE CAPITAL
•
•
•
7.
The 2013 Act gives cognizance to one of the amendments made in the listing
agreement by SEBI.
A requirement has been imposed in section 66 of 2013 Act, which states that no
an application for reduction of share capital shall be sanctioned by the Tribunal
unless the accounting treatment, for such a reduction is in conformity with the
accounting standards specified in section 133 or any other provision of the 2013
Act and a certificate to that effect by the company’s auditor has been filed with
the Tribunal.
the 2013 Act clarifies that no such reduction shall be made if the company is in
arrears in repayment of any deposits accepted by it, either before or after the
commencement of the 2013 Act, or the interest payable thereon.
POWER OF COMPANY TO PURCHASE ITS OWN SECURITIES
•
Buy-back from odd lots is no longer available to a company [section 68].
The 2013 Act provides flexibility in recognising the electronic mode for
notices and voting, which is in line with the MCA’s efforts to give
cognisance to use of electronic media as evident from a number of
green initiatives’ introduced
recently,
maintenance of registers
The Need for
Web Security
29 and
returns at a place other than the registered office.
DIVIDEND
• The existing requirement of the 1956 Act with regard to the transfer of a
specified percentage of profits not exceeding 10% to reserve is no
longer applicable.
• Thus companies are now free to transfer any or no amount of profits to
reserves [Section 123 (1) of the 2013 Act].
• The 2013 Act also provides that no dividend shall be declared or paid in
case of inadequate profits by a company subject to the Rules yet to be
notified.
• The company also cannot declare or pay dividend from its reserves other
than free reserves [Section 123(1) of the 2013 Act].
• The company also cannot declare interim dividend, if it has incurred a
loss the current financial year, up to the end of the quarter immediately
preceding the date of declaration of the interim dividend at a rate higher
than the average dividends declared by the company during the
immediately preceding three financial years.
The Need for Web Security
30
Audit and Auditors
31
COMPARITIVE STUDY WITH REGARDS TO
AUDITORS OF 1956 ACT WITH 2013 ACT
POINT OF
DISTINCTION
1956
2013
1.Liability of an auditor
Liability remains the
same in all
circumstances.
Liability increases
substantially.
2.Auditors rotation
No provision of
rotation.
Introduces the concept
of auditors rotation.
3.Non-audit services
Absence of any
provision.
Any external services
rendered by the auditor
need to be approves by
the BOD and Audit
committee.
32
The Need for Web Security
33
The Need for Web Security
34
AUDIT COMMITTEE – SECTION 177
Every listed company and such other class of company shall constitute an
Audit committee. (As per Draft Rules: Audit Committee of the Board for every
listed company , and every other public company having paid up capital of Rs.
100 cr or more; or which have, in aggregate, outstanding loans or borrowings
or debentures or deposits exceeding Rs. 200 cr)
Committee shall consist of minimum three director with the independent
director forming majority
Auditors and KMP have right to be heard in the meeting of committee
Board’s report to disclose
1. Composition of the audit committee and
2. Any recommendation which has not been accepted by the board.
12/1/2014
35
AUDIT COMMITTEE…….VIGIL
MECHANISM
Every listed company or such class of companies shall
establish a vigil mechanism
As per Draft Rules: Companies which accept deposits
from public and Companies which have borrowed money
from banks and public financial institutions > Rs 50 Cr
Mechanism facilitates directors and employees to report
genuine concerns
Adequate safeguards against victimization of persons
who use such mechanism
Whistle
Blower (a
non
mandatory
item as per
Cl 49) is now
made
mandatory,
in the name
of Vigil
Mechanism
Provision for direct access to the chairperson of the audit
committee
12/1/2014
36
Directors
Key Highlights
• Minimum no of directors retained
• Max no of directors increased to 15 (against the earlier 12)
• No of directorships – increased to 20 (earlier 15 public ltd companies)
• Every company to have at least one director who has stayed in India for at
least 182 days in the previous calendar year
• Prescribed class of companies to compulsorily have at least one woman
director
• Independent director defined and specific related provisions laid down.
DEFINITIONS
Director
“Board of Directors”
Or
“Board”
Director appointed by board of
company Section 2(34)
Collective body of director s of the
company Section 2(10)
12/1/2014
39
MANAGING DIRECTOR
Managing Director
Director
By
Articles
Agreements
Shareholdings
+
Entrusted with substantial powers of management
+
Occupying position of managing director by whatever name
called
40
NUMBER OF DIRECTORS – (SECTION 149)
Board of Directors consisting individuals as directors.
Private Company : 2 Directors
Public Company : 3 Directors
One Person Company : 1 Director
Maximum number :15 (earlier 12)
12/1/2014
41
NUMBER OF DIRECTORSHIPS
(SECTION 165)
Director in maximum 20 companies
Directorship to include alternate directorship
Of these 20 companies, cannot be a Director in more than 10
public companies (including private companies which are
holding or subsidiary companies of public companies)
No. of members specify lesser number by passing special
resolution
Penalty for contravention: Minimum Rs. 5,000, and Maximum Rs.
25,000 for every day during which the default continues
12/1/2014
42
APPOINTMENT OF DIRECTOR
(SECTION 152)
Appointment of Managing Director, Whole Time Director or Manager to be
approved by special resolution in a General Meeting
Appointment to be Voted individually… (Notified). Section 162
Consent for appointment to be filed by directors of private company to
the ROC
When appointment not in accordance with Schedule V, approval of
Central Government also required
Independent directors not to be included in the total number of directors
while calculating retiring directors i.e. 2/3rd of the total number of
directors
12/1/2014
43
CSR & Revival and
Rehabilitation of Sick
Companies
44
CORPORATE SOCIAL RESPONSIBILITY
PROMOTING WELFARE
INITIATIVES
45
CORPORATE SOCIAL RESPONSIBILITY
(SECTION - 135)
Every Company having net worth of rupees five hundred crore
or more, or turnover of rupees one thousand crore or more or a
net profit of rupees five crore or more during any financial
year to constitute a Corporate Social Responsibility Committee
of the Board consisting of three or more directors, out of which
at least one director shall be an independent director
The Board’s report to disclose the composition of the Corporate
Social Responsibility Committee
12/1/2014
46
CORPORATE SOCIAL RESPONSIBILITY
(SECTION 135)
Based on recommendations from CSR Committee, Board of such Company
to approve the CSR Policy for the Company and disclose contents of such
Policy in its report and on the Company’s website
Every year in the Board’s Report, details about the policy developed and
implemented by the Company on CSR initiatives taken during the year to be
included
12/1/2014
47
CORPORATE SOCIAL RESPONSIBILITY
(SECTION 135)
Board shall ensure that at least two per cent of average net profits of the Company
made during three immediately preceding financial years is spent in every financial
year on such policy
For spending the amount earmarked for CSR activities the Company shall give
preference to the local area and areas around it where it operates.
If a Company fails to provide or spend such amount, the Board to specify reasons
for not spending the amount in its report
Companies require to comply with CSR shall give additional Information by way of
notes to the Statement of Profit and Loss regarding aggregate expenditure incurred
on corporate social responsibility activities.
12/1/2014
48
List of Companies who are required to make CSR contribution
Amount in INR Crores
S.No.
Name of Company
1
Reliance Industries Ltd
2
Oil & Natural Gas Corpn Ltd
3
State Bank of India
4
Tata Consultancy Services Ltd
5
NTPC Ltd
6
Infosys Ltd
7
Bharti Airtel Ltd
8
Coal India Ltd
9
ICICI Bank Ltd
Average PAT for last 3
Years
20,443.00
20,271.49
11,358.93
10,444.10
9,018.17
8,009.67
7,624.37
7,518.51
6,647.37
2 % of Average PAT
408.86
405.43
227.18
208.88
180.36
160.19
152.49
150.37
132.95
49
Rehabilitation of Sick Units
Industries that have gone sick have far-reaching
consequences on the economy of the nation. The
following are the bad effects of industrial sickness :
• There is under utillisation of capital assets.
• The investor confidence reaches a lower ebb.
• Industrial sickness results in large scale
unemployment and industrial unrest.
• Profitability of banks and financial institutions
gets affected
50
BOARD OF INDUSTRIAL AND FINANCIAL
RECONSTRUCTION (BIFR) :
The role of BIFR is:
(a) Securing the timely detection of sick and potentially sick
companies
(b) Speedy determination by a group of experts of the various
measures to be taken in respect of
the sick company
(c) Expeditious enforcement of such measures
51
DIFFERENCES BETWEEN
COMPANIES ACT 1956 & COMPANIES BILL 2013
52
Differences between
Companies Act 1956 & Companies Bill-2013
Particulars
Companies Act 1956
Companies Bill 2013
RELATED PARTY TRANSACTIONS
Scope
Section
Approval
required
of
A co. cannot enter into the contracts relating to• Sale, purchase or supply of any goods or materials;
• Sale, purchase or supply of any services;
• Underwriting the subscription of any shares,
debentures of a co.
A co. cannot enter into contracts relating to• Sale, purchase or supply of any goods or materials;
• Selling or disposing of ,or buying, property of any kind;
• Leasing of property of any kind;
• Availing or rendering of any services;
• Appointment of any agents for purchase or sale of
goods, materials, services or property;
• Appointment to any office or place of profit in the
company, its subsidiary co. or associate co.;
• Underwriting the subscription of any securities or
derivatives thereof , of the co.
•
•
•
Prior consent of the BoD by resolution passed at
Board meeting
Prior approval of Regional Director, in case the paidup capital of company is exceeding Rs.1 crore.
•
Prior consent of the BoD by resolution passed at Board
meeting
Prior approval of Shareholders, in case the paid-up
capital of co. or transaction amount exceeds prescribed
limit.
53
Differences between
Companies Act 1956 & Companies Bill-2013
Particulars
Companies Act 1956
Companies Bill 2013
RELATED PARTY TRANSACTIONS
Specified
persons with
whom contracts
are covered
•
•
•
•
Director of the Co.
Relative of such Director
A firm in which such Director or Relative is a partner
Any other partner of such firm in which Director or
Relative is a partner
Private co. in which such director is a director or
member
Related Party-Director or his relative
• KMP or his relative
• Firm, in which a director, manager or his relative is a partner
• Private Co. in which a director or manager is a member or
director
• Public Co. in which a director or manager is a Director or holds
along with his relatives, more than 2% of its paid-up share
capital
• Any body corporate whose BoD, MD, or manager is accustomed
to act in accordance with the advice, directions or instructions
of a director or manager
• Any person under whose advice, directions or instructions, a
director or manager is accustomed to act
• Any Co. which is-a holding, subsidiary or associate Co. of such Co.
-a subsidiary of a holding co. to which it is also a subsidiary
.such other persons as may be prescribed.
Purchase/Sale of goods and materials for cash at
prevailing market price. Purchase/Sale of goods and
materials or services, the cost of which does not exceed
Rs.5000/- in any year during the period of contract. Any
transaction of banking/insurance company in the ordinary
course of such company.
Any transaction entered by company in its ordinary course of
business other than transactions which are not an arm’s length
basis.
•
Exemptions
54
Differences between
Companies Act 1956 & Companies Bill-2013
Particulars
Companies Act 1956
Companies Bill 2013
LOAN TO DIRECTORS
Applicability of
Section
Public Companies
Public & Private Companies
Scope of Section
No Public Co. shall directly or indirectly make any loan or
give any guarantee or provide any security to its directors
and other certain specified persons, except with the
approval of CG.
No Public Co. shall directly or indirectly make any loan including book
debt or give any guarantee or provide any security to its directors or
to any other persons in whom the director is interested.
Exemptions
This section does not apply toPrivate Cos.
Holding to its subsidiary
Banking Cos
This section does not apply to• Loan to MD/WTD
-as a part of contract of services extended to all its employees
-pursuant to scheme approved by members by special resolution.
• A Co. which in the ordinary course of its business provides loan,
guarantee or security for due repayment of any loan and charges
interest thereon being not less than bank rate declared by RBI.
55
Differences between
Companies Act 1956 & Companies Bill-2013
Particulars
Companies Act 1956
Companies Bill 2013
WINDING UP/ STRIKE OFF
Grounds for
Winding up
reduced
Criteria for winding-up provided by NCLTIf the Co. has, by special resolution, resolved that the co.
be wound up.
Certain criteria for winding-up by NCLT deleted like minimum
number of members falling below prescribed limit, noncommencement of business for 1 yr, etc.
If the co. is unable to pay its debt
Additional ground provided:
NCLT is of the opinion that•The affairs of the co. have been conducted in a fraudulent manner
•Co. was formed for fraudulent and unlawful purpose
•The persons concerned in the formation or management of its
affairs have been guilty of fraud, misfeasance or misconduct in
connection therewith.
If a co. does not commence its business within 1 yr from
its incorporation or suspends its business for a whole yr
If the minimum no. of members is reduced below 2 for
pvt co. & 7 in case of public co.
Grounds for
strike off
A co. may be struck off by RoC if it has reasonable cause
to believe that a co. is not carrying on business or
operations.
A co. may be struck off by RoC for below reasonsSubscribers to the memorandum have not paid the subscription
money within 180 days from the date of incorporation
Co. has failed to commence its business within 1 yr of its
incorporation
Co. is not carrying on any business or operation for 2 immediately
preceding financial yr and has within such period applied for status
of a dormant co.
A Co. may also file application for striking of the name of the Co.
under certain circumstances
56
CONCLUSION
•
The new Indian Companies Act is a positive step towards modernising India’s
company law and aligning it to global standards. It has given increased decision
making powers to the company .
•
Introduced provisions giving minority shareholders additional rights and
protections.
•
The introduction of one person companies and small companies should alleviate
some of the administrative burdens that small businesses have to bear, but larger
companies should prepare themselves for further administrative burdens as a
result of changes in the appointment of auditors and directors.
•
Further clarity will be required as the provisions of the Companies Act come
into force and we will watch with interest as this area of law develops.
57
CONCLUSION (continued)
Contemporary
Business
Oriented
Easy
Understandability
Self Regulatory
Preventive
Investor
Protective
Adaptable
58
IMPACT OF CHANGE
Quality of functioning of the board will increase
Beginning of new era of Corporate Governance
Enhanced responsibility of Top Management
Increase in trust of investors and stakeholders
59
The Need for Web Security
60
