HIGHLIGHTS OF COMPANIES BILL
WHY A NEW LAW WAS NEEDED?
The changing national and international economic environment
Exponential growth of the Indian economy
Changes in the stakeholders' expectations
Manifold Increase in Number of Companies
Year No. of Companies
1956 30,000 approx
2013 11,00,000 approx
The need of a legal framework was felt to enable the Indian corporate sector to adopt the
best international practices in a globally competitive manner, fostering a positive
environment for investment and growth
Companies Bill 2012 was passed by Lok Sabha on 18th December, 2012 and subsequently,
was passed by the Rajya Sabha on 8th August, 2013.
The bill comprises of 29 chapters, 470 Clauses with 7 Schedules as against 658 sections and
14 Schedules in the Companies Act, 1956
Substantively a law based on Rules (as may be prescribed).
In 470 Clauses the word "as may be prescribed" has been used at around 336 places.
NEW CONCEPTS
New definitions (Accounting Standards, Auditing Standards, Associate Company, Authorized
Capital, Books of Accounts, Called up Capital, Charge, Chartered Accountant, Chief
Executive Officer, Chief Financial Officer, Company Limited By Guarantee, Company Limited
by Shares, Company Liquidator, Contributory, Control, Cost Accountant, Deposit, Expert,
Financial Institution, Financial Statement, Foreign Company, Free Reserves, Global
Depository Receipt, Independent Director, Indian Depository Receipt, Interested Director,
Issued Capital, Key Managerial Personnel, Notification, Official Liquidator, One Person
Company, Ordinary or Special Resolution, Postal Ballot, Promoter, Public Financial
Institution, Register of Companies, Related Party, Remuneration, Serious Fraud
Investigation Office, Small Company, Subscribed Capital, Sweat Equity Shares, Turnover,
Unlimited Company, Voting Right, Whole Time Director).
Private company to have a maximum of 200 members (earlier limit was upto 50). (Clause 2
(68))
E-Governance maintenance and allowing inspection of documents by companies in
electronic form. (Clause 120)
Vigil mechanism (whistle blowing) introduced. (Clause 177 (10))
In prescribed class or classes of companies, there should be atleast 1 woman director.
(Clause 149 (1))
Restrictions on layers of subsidiaries. (Clause 2 (87))
The Financial Year of any Company can be only from April-March. Existing companies has to
align within 2 years of the commencement of the Act. (Clause 2 (41))
Memorandum not to have `other objects'. (Clause 4 (1))
A person cannot become director in more than 20 companies instead of 15 as provided in
the Companies Act 1956 and out of this 20, he cannot be director of more than 10 public
companies. (Clause 165)
Shareholders to have exit option if money raised has not been utilized. (Clause 27)
A company can make buyback even if it had at any time defaulted in repayment of deposit
or interest payable thereon, redemption of debentures or preference shares or payment of
dividend to any shareholder or repayment of any term loan or interest payable thereon to
any financial institution or bank, provided that default must have been remedied and a
period of 3 years must have lapsed after such default ceased to subsist. (Clause 66 (6))
Concept of CSR introduced. (Clause 135)
Definition of independent Directors introduced. (Clause 149 (5))
Condition and manner for issue of Bonus shares has been introduced. (Clause 63)
New provisions suggested for allowing re-opening of accounts in certain cases with due
safeguards. (Clause 130)
Consolidation of Accounts (Clause 129)
Secretarial Audit Report given by a company secretary in practice is required to be attached
with Boards' report in case of bigger companies. (Clause 204)
CHAPTERWISE HIGHLIGHTS OF COMPANIES BILL
Chapter Section Highlights
I 1-2 PRELIMINARY
This Act may be called the Companies Act, 2013 (Clause 1 (1))
Some important Definitions
Clause 2 (6) "associate company", in relation to another company, means a
company in which that other company has a significant influence, but
which is not a subsidiary company of the company having such influence
and includes a joint venture company.
Explanation.--For the purposes of this clause, "significant influence" means
control of at least twenty per cent of total share capital, or of
business decisions under an agreement.
Clause 2 (27) "control", shall include the right to appoint majority of the
directors or to control the management or policy decisions exercisable by a
person or persons acting individually or in concert, directly or indirectly,
including by virtue of their shareholding or management rights or
shareholders agreements or voting agreements or in any other manner;
Clause 2 (34) "director", means a director appointed to the Board of a
company.
Clause 2 (40) "Financial Statement" in relation to a company includes,
i. a balance sheet as at the end of the financial year,
ii. a profit and loss account, or in the case of accompany carrying on any
activity not for profit, an income and expenditure account for the
financial year;
iii cash flow statement for the financial year,
iv a statement of changes in equity; and
v any explanatory note attached to or forming part of any document
referred to in sub-clause (i) to sub-clause (iv);
provided that the financial statement with respect to One Person Company,
small company and dormant company may not include the cash flow
statement.
Issue: Cash Flow Statement becomes mandatory.
Clause 2 (41) definition of "Financial Year" modified
The Financial can mandatorily end on 31st March
Exception- entities which are holding cos or subsidiary companies of
foreign companies requiring consolidation outside India with the
approval of Tribunal.
Existing companies to align within 2 years
Clause 2 (43) definition of ``Free Reserves'' modified,
Share premium account does not form part.
Credit balance in Statement of Profit & Loss is not free reserve.
Clause 2 (51) "key managerial personnel", in relation to a company,
means--
(i) the Chief Executive Officer or the managing director or the manager;
(ii) the company secretary;
(iii) the Chief Financial Officer if the Board of Directors appoints
him; and
(iv) such other officer as may be prescribed;
Clause 2 (57) definition of ``net worth'' modified, it says that only paid up
capital, share premium and reserves created out of profit will be treated as
net worth.
Credit balance in Statement of Profit & Loss has been left out.
Clause 2 (59) definition of "Officer" modified to include CEO/ CFO or any
other officer as may be prescribed.
Clause 2 (60) "officer in default":
Scope broadened
Directors aware of the default
CFO
KMP's if knowingly commits default
Clause 2 (77) ``relative'', with reference to any person, means anyone who
is a related to another, if--
(i) they are members of a Hindu Undivided Family;
(ii) they are husband and wife; or
(iii) one person is related to the other in such manner as may be prescribed
Small Company (Clause no. 2(85)) : means a company,
other than a public company,-
i. paid up share capital of which does not exceed fifty lakh rupees or such
higher amount as may be prescribed which shall not be more than five
crore rupees; or
ii. turnover of which as per its last profit and loss account does not exceed
two crore rupees or such higher amount as may be prescribed which
shall not be more than twenty crore rupees.
Provided that nothing in this clause shall apply to :
(a) a holding company or a subsidiary company;
(b) a company registered under section 8;
(c) a company or body corporate governed by any special act.
subjected to a lesser stringent regulatory framework
II 3-22 INCORPORATION OF COMPANY AND MATTERS INCIDENTAL
THERETO
Concept of One Person Company has been introduced and the OPC can be
formed as private limited company (Clause 3). Certain Privileges Provided
to OPCs
The financial statement may not include the cash flow statement
[Proviso to Clause 2(40)]
The annual return to be signed by the company secretary, or where
there is no company secretary, by the director of the company.
No requirement of holding an AGM [Clause 96(1)]
Inapplicability of the provisions of Section 98 and Sections 100 to 111
(both inclusive) [Clause 122(1)]
Minimum number of directors: 1 [Clause 149(1)]
Board Meetings- Minimum 1 in each half of a calendar year and the Gap
between the two meetings shall not be less than 90 days. Not
applicable where there is only one Director. Clause 173 (5)
Quorum for Board Meetings not applicable where there is only 1
director in OPC. (Clause 174)
The Memorandum of Association shall only state the mandatory objects.
The Company cannot provide for other object clause (Clause 4).
After reservation of name for proposed company, if it is found that the
name was applied for furnishing wrong or incorrect information then
a) Company not incorporated- Reserved name cancelled and a penalty not
exceeding Rs. 100000 shall be levied.
b) Company incorporated- name to be changed or to make a petition for
winding up. (Clause 4(4) and 4(5)).
Articles of Association may contain provisions with respect to entrenchment
whereby the specified provisions of the article can be alerted only if the
more restrictive conditions or procedures as compared to those applicable
in case of special resolution have been met with. (Clause 5)
A declaration, in the prescribed form, required to be filed with the Registrar
at the time of registration of a company that all the requirements of the Act
in respect of registration and matters precedent or incidental thereto have
been complied with, will be required to be signed by both - a person
named in the articles as a director, manager or secretary of the company
as well as by an advocate, a chartered accountant, cost accountant or
company secretary in practice, who is engaged in the formation of the
company. (Clause 7)
If a company has any raised Money from public through prospectus and if
there is any unutilised amount out of the money so raised, it shall not
change its objects unless a special resolution is passed and other
requirements of advertisement and exit opportunity to dissenting
shareholders is complied with. (Clause 13)
III 23- 42 PROSPECTUS AND ALLOTMENT OF SECURITIES
The Bill governs the issue of all types of securities (Clause 23)
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.
(Clause 23)
A Private company may issue securities only through private placement by
complying with the provisions of Part II of Chapter III. (Clause 23)
Where a company has varied the terms of contract and has not utilized any
amount raised by it, the dissenting Shareholders to have exit option.
(Clause 27)
The Bill provides provisions for offer of sale by existing shareholders to
public. (Clause 28)
Any class of companies or companies as the SEBI may provide by
regulations may file shelf prospectus. (Clause 31)
Deals with Civil liability and where it is proved that a prospectus has been
issued with intent to defraud then every person (like directors, promoters,
experts etc.) shall be personally liable without any limitation of liability.
(Clause 35)
Any person (including group or association) who is affected by any
misleading statement or inclusion or omission of any matter in the
prospectus can file any suit or take any action under clause 35 or 36
providing for civil liability for misstatement in prospectus and Punishment
for fraudulently inducing persons to invest money. (Clause 37)
A person shall also be liable for impersonation, in case he makes multiple
applications in different name or in different combination of surnames for
acquiring or subscribing the securities of the company. (Clause 38)
Return of allotment shall be filed with the Registrar. Clause 39(4)
Companies may now issue Global Depository Receipt by passing the special
resolution and subject to such conditions as may be prescribed. (Clause 41)
Qualified Institutional Buyers shall not be covered under the provisions
related to Private Placement
If a company, listed or unlisted, makes an offer to more than the
prescribed number of persons, whether the payment for the securities has
been received or not or whether the company intends to list its securities or
not on any recognised stock exchange in or outside India, the same shall
be deemed to be an offer to the public and shall accordingly be governed
by the provisions provided in this regard by SEBI.
Any company making any offer or invitation of securities under private
placement has to allot the securities within 60 days of receipt of application
money. (Clause 42)
IV 43- 72 SHARE CAPITAL AND DEBENTURES
If a company with intent to defraud issues a duplicate certificate of shares,
the company shall be punishable with fine which shall not be less than five
times the face value of the shares involved in the issue of the duplicate
certificate but which may extend to ten times the face value of such shares
or rupees ten crores whichever is higher and every officer of the company
who is in default shall be liable for action under section 447. (Clause 46)
The conditions under which the preference shareholders can vote on every
resolution placed before meeting of shareholders has been changed. Now
preference shareholders can only exercise such voting rights when
dividends payable in respect of a class of preference shares are in arrears
for a period of 2 years or more. There is no distinction between cumulative
and non cumulative preference shares. (Clause 47)
If the variation of one class of shareholders affects the rights of any other
class of shareholders the consent of ¾ of that class should also obtained.
(Clause 48)
Such class of companies as may be prescribed and whose financial
statements comply with the accounting standards cannot utilize securities
premium for in writing off the preliminary expenses, for providing the
premium payable on the redemption of preference shares or of any
debentures of the company. (Clause 52)
A company cannot issue share at a discount. In case of default penalty
shall be levied. [Clause(53)]
Company cannot issue shares at discount other than as sweat equity, no
provision has been provided for any approval. (Clause 54)
a company may issue preference shares redeemable after 20 years for such
infrastructure projects as may be specified subject to redemption of
specified % of preference shares on annual basis at the option of the
preference shareholder. The term Infrastructure projects has been defined
for the purpose of this section as the infrastructure projects specified in
Schedule VI. (Clause 55)
Alteration of Share Capital shall be made only after making application to
the Tribunal and getting approval. (Clause 61)
Bonus shares can be issued out of
Free reserves, Securities premium, CRR, not in lieu of dividend,
authorized by AOA,
recommended by the Board and authorized by general meeting and if
no defaults in respect of statutory dues (PF, gratuity and bonus)
(Clause 63)
Apart from existing shareholders, if the company having share capital at
any time, proposes to increase its subscribed capital by the issue of further
shares, such shares may also be offered to employees by way of ESOP
subject to approval of shareholders by way of special resolution. (Clause
62)
No reduction of capital shall be allowed if the company is in arrears for
payment of deposits, accepted either before or after the commencement of
this Act. Reduction of share capital to be made subject to confirmation by
the Tribunal. The Tribunal on receiving an application for reduction of share
capital, shall give notice to the Central Government, Registrar and to the
SEBI and consider the representations received in this behalf (Clause 66)
A company can make buyback even if it had at any time defaulted in
repayment of deposit or interest payable thereon, redemption of
debentures or preference shares or payment of dividend to any shareholder
or repayments of any term loan or interest payable thereon to any financial
institution or bank, provided that default must have been remedied and a
period of 3 years must have lapsed after such default ceased to subsist.
(Clause 66 (6))
When the company issues prospectus or make an offer or invitation to the
public or to its members exceeding five hundred for the subscription of its
debentures, it is required to appoint a debenture trustee. (Clause 71)
V 73- 76 ACCEPTANCE OF DEPOSITS BY COMPANIES
NBFCs are not covered by the provisions relating to acceptance of deposits
and they will be governed under rules issued by Reserve Bank of India.
(Clause 73)
Company may accept deposit from persons other than its members having
net worth and turnover of certain amount as prescribed subject to
complying with necessary conditions and after consultation with RBI.
(Clause 76)
VI 77- 87 REGISTRATION OF CHARGES
All types of charge created would be required to be registered with ROC.
(Clause 77)
VII 88- 122 MANAGEMENT AND ADMINISTRATION
New particulars to be included in the Annual return under sub-clause (e) to
(k). (Clause 92)
Every listed company shall file a return in the prescribed form with the
Registrar with respect to change in the number of shares held by
promoters and top ten shareholders of such company, within 15 days of
such change. (Clause 93)
First Annual General Meeting of the Company shall be held within the
period of 9 months from closure of its first financial year instead of 18
months from the date of the Incorporation. AGM can be called on a public
holiday. (Clause 96)
The Central Government may prescribe the class or classes of companies
and manner in which a member may exercise his right to vote by the
electronic means. (Clause 108)
The resolution requiring special notice has to be moved by such number of
members holding not less than 1 % of total voting power or holding shares
on which an aggregate sum of not less than one lakh rupees has been
paid-up. (Clause 115)
Penalty is now prescribed for tampering with the minutes. (Clause 118)
Every Listed Public Company is required to prepare a report in the manner
as may be prescribed on each AGM including the confirmation that meeting
was convened, held and conducted as per the Act and the rules made
thereunder. (Clause 121)
VIII 123- 127 DECLARATION AND PAYMENT OF DIVIDEND
A company may before the declaration of dividend transfer such & of its
profits for that financial year to reserves as it may consider appropriate.
This means that % of profits that can be transferred to reserves has been
left to the wisdom of the company. (Clause 123)
No dividend shall be paid by a company from its reserves other than free
reserves. (Clause 123)
The Board of Directors of a company may declare interim dividend during
any financial year out of the surplus in the Statement of Profit and Loss and
out of profits of the financial year in which such interim dividend is sought
to be declared.
A company cannot declare interim dividend at a rate higher than the
average dividends declared by the company during the immediately
preceding three financial years, where it has incurred loss during the
current financial year up to the end of the quarter immediately preceding
the date of declaration of interim dividend. (Clause 123 (3))
All shares for which unpaid or unclaimed dividend has been transferred to
Investor Education Protection Fund shall also be transferred by the
company in the name of Fund along with a statement containing such
details as may be prescribed. (Clause 124 (6))
IX 128- 138 ACCOUNTS OF COMPANIES
The term Balance Sheet & Profit & Loss Account, has been defined
collectively as financial statement under the Act and cash flow statement
also forms part of the same. (Clause 2(40))
Books of Accounts etc. to be kept by the company- The Books of accounts
may be kept in electronic form also.
In case of default, the Managing Director, the whole time director in charge
of finance, the CFO and any other person charged by the Board with the
duty of complying with the provisions of this Clause, they shall be
punishable, Even if the default was not done wilfully. (Clause 128)
The requirement of attaching the balance sheet, profit & loss account,
report of board of directors, auditor report, statement of the holding
company's interest in the subsidiary and others reports as was required by
section 212 of the Companies Act 1956 has been dispensed with.
The benefit given to Private Companies to file their balance sheet & profit
and loss account separately has been withdrawn.
Along with financial statement, consolidated financial statement of all
subsidiaries shall be prepared and shall also be laid before the AGM.
Subsidiary shall for the purpose of this requirement include associate
company and joint venture. (Clause 129)
No re-opening or re-casting of book of accounts of the Company is allowed
except under Court's or Tribunal's orders. (Clause 130)
Voluntary revision of financial statements or Board's Report can also be
made with Tribunal's consent. (Clause 131)
National Financial Reporting Authority (Clause 132)
The name of NACAAS has been changed to National Financial Reporting
Authority (NFRA) and authority is to advise on matters related to auditing
standard in addition to accounting standards.
The CG may prescribe the standards of accounting or any addendum
thereto, as recommended by the ICAI in consultation with and after
examination of the recommendations made by the NFRA.
Powers of NFRA includes:
monitor and enforce the compliance with accounting and auditing
standards
oversee the quality of service of the professions associated with
ensuring compliance with such standards
have the power to investigate into the matters of professional or other
misconduct committed by any member or firm of chartered
accountants and impose penalties of not less than Rs. 1 lakhs in case
of individuals and Rs. 10 Lakhs in case of firms and debar members/
firms for a period of 6 months to 10 years.
Provided that the Appellate Authority constituted under respective Acts
shall be deemed to the appellate authority against any order made by the
NFRA and any person aggrieved by any order of the NFRA shall have the
right to appeal before the appellate authority.
Issues related to Clause 132
NFRA had jurisdictions over CAs, cost accountants, company secretaries
and any other profession as may be prescribed.
Now, this Clause has been amended, NFRA to have jurisdiction over only
CAs. i.e., Professional misconduct of chartered accountants also comes
under NFRA.
Where NFRA initiates an investigation, no other institute or body shall
initiate or continue any proceedings in such matters of misconduct
Penalty increased
Chairperson and members in Full Time Employment with NFRA shall not be
associated with any audit firm including related consultancy firms during
the course of their appointment and 2 years after ceasing to hold such
appointment.
The Director's report for every company except for One Person Company,
shall provide various types of additional information like number of
meetings of the Board, Company's policy on directors' appointment and
remuneration; explanations or comments by the Board on every
qualification, reservation or adverse remark or disclaimer made by the
Company Secretary in his secretarial audit report, particulars of loans,
guarantees or investments etc. (Clause 134)
The Directors responsibility statement in case of listed company shall also
include additional statement related to internal finance control and
compliance of all applicable laws
Corporate Social Responsibility (Clause 135)
Concept of CSR introduced & Board to have a CSR Committee consisting of
three or more directors, out of which at least one director shall be an
independent director for companies
having networth of Rs. 500 crore or more or
turnover of Rs. 1000 crore or more or
net profit of Rs. 5 crore or more
during any financial year
The committee shall recommend the policy for CSR to the Board
Board to ensure atleast 2% of average net profits may during 3
immediately preceding years spent every year on CSR
Certain Class of companies are required to appoint an internal auditor to
conduct internal audit of the books of company. Internal Auditor shall be a
Chartered Accountant or Cost Accountant or such other professional as
may be decided by Board. (Clause 138)
X 139- 148 AUDIT AND AUDITORS
Every company shall, at the first annual general meeting, appoint an
individual or a firm as an auditor who shall hold office from the conclusion
of that meeting till the conclusion of its sixth annual general meeting and
thereafter till the conclusion of every sixth meeting.
Provisions for compulsory rotation of individual auditors in every five years
and of audit firm every 10 years in the listed company & certain other class
of companies, as may be prescribed.
A transition period of 3 years from the commencement of this Act has been
prescribed for the Company existing on or before the commencement of
this Act to comply with the provision of the rotation of auditor.
The members of a company can resolve for rotation of auditing partner and
also for audit to be conducted by more than auditor. (Clause 139)
Where a company constitutes an Audit Committee, all appointments
including the filling of a casual vacancy of an auditor shall be made after
taking into account the recommendations of Audit Committee.
appointment is done once for 5 years
Ratification done every year
confusion between "ratification" and "reappointment" taken as these two
expressions to mean the same
Mandatory retirement after 5 years in case of individual and 10 years in
case of firms
no auditor/audit firm/ audit firms having common partners, shall take
audit for a consecutive term of 5 years after 5 years have been
completed
Provision applicable to all listed companies, and companies of such class
as may be prescribed
A person at the time of appointment or reappointment holding appointment
as auditor of more than twenty companies shall not be eligible for
appointment. (Clause 141 (3) (g))
In case, LLP is appointed as auditor only chartered Accountants is allowed
to act and sign on behalf of the firm. Clause 141(2)
Multidisciplinary partnership is allowed. Proviso to Clause 141(1)
Fraud reporting- A duty has been casted on the auditor, to immediately
report to the central government, any offence involving fraud which is
being or has been committed against the company by officers or
employees of the company, which he believes to be committed during the
course of performance of his duties as an auditor.
The Auditor shall also comply with auditing standards. The Central
Government will prescribe the standards of auditing or any addendum
thereto, as recommended by the ICAI, in consultation with and after
examination of the recommendations made by the NFRA. (Clause 143)
Auditor of the company shall not provide directly or indirectly the specified
services to the company, its holding and subsidiary company. (Clause 144)
The Auditor unless otherwise exempted by the company shall attend any
general meeting by himself or through his representative. (Clause 146)
Auditors not to provide non-audit services (Clause 144)
Following services not to be provided
accounting and book keeping services;
internal audit;
design and implementation of any financial information system;
actuarial services;
investment advisory services;
investment banking services;
rendering of outsourced financial services;
management services; and
any other kind of services as may be prescribed
not to the company, holding company, or subsidiary directly or
indirectly
indirectly includes through relative, connected or associated person, or
other entity over which individual has significant influence or control, or
whose name or trade mark or brand is used by the individual
Clause 147
In case the auditor contravenes the provisions related to his powers &
duties, provide services given under Clause 144 then in addition to
punishment provided in the section, he shall be required to refund the
remuneration received by him from the company and shall be liable to pay
the damages to the company or to any person for the loss arising out of
misleading or incorrect information.
It is specifically provided that partner or partners of the audit firm and the
firm shall be jointly and severally responsible for the liability, whether civil
or criminal as provided in this Act or in any other law for the time being in
force.
If 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 any fraud by, or in
relation to or by, the company or its directors or officers, and they shall
also be punishable in the manner provided in Clause 447.
Cost Audit (Clause 148)
Instead of company pertaining to any class of companies engaged in
production, processing, manufacturing or mining activities, the central
government can only direct cost audit to be conducted in such class of
companies engaged in the production of such goods or providing such
services , which have the prescribed networth or turnover and who has
been directed to include the particulars relating to the utilization of material
or labour or to other items of cost as may be prescribed in their books of
account .
No approval is required of central government for the appointment of cost
auditor to conduct the cost audit
XI 149- 172 APPOINTMENT AND QUALIFICATIONS OF DIRECTORS
In prescribed class or classes of companies, there should be atleast 1
woman director. (Clause 149)
There is a provision for compulsory rotation of individual auditors in every
five years and of audit firm every 10 years in the listed company & certain
other class of companies, as may be prescribed.
Out of all the Directors, atleast one director shall be a person who has
stayed in India for a total period of not less than one hundred and eighty-
two days in the previous calendar year.
The maximum limit of directors in the Company has been increased to 15
with a power to add more directors upon passing of Special Resolution.
(Clause 149 (1))
A person cannot become directors in more than 20 companies and out of
this 20, he cannot be director of more than 10 public companies. (Clause
165)
A transitional period of 1 year is provided to persons acting as director to
comply with the requirement of maximum number of directorship and they
have to intimate their choice to each of company where they wish to
continue as director and also to the Registrar.
Independent Directors- Defined in Clause 149 (5)
Qualifications as may be prescribed
Term upto 5 consecutive years prospectively but not for more than two
consecutive terms
Reappointment by Special Resolution
Cooling off period for three years
The Bill provides provision for limiting the liability of Independent Director
and non executive director not being promoter or key managerial
personnel. (Clause 149)
Panel of ID's to be maintained by a body/institute notified by the CG
facilitating appointment of Independent Directors. (Clause 150)
Listed company may have one director by small shareholders. (Clause 151)
The company and the independent directors shall abide by the provisions
of (Code of Conduct) specified in Schedule IV of the bill.
Every listed public company shall have at least one-third of the total
number of directors as independent directors. Companies existing as on
date of commencement of this Act have been provided a transition period
of 1 year for the compliance of this provision. (Clause 163)
Resignation of Director (Clause 168)
The Bill prescribes the duties of the directors towards the company
Directors are required to mandatorily forward their resignation along with
detailed reason for resignation also to the Registrar within 30 days of
resignation in prescribed manner.
The notice for removal of director can only be given by prescribed number
of members or members holding prescribed number of shares or voting
power.
XII 173- 195 MEETINGS OF BOARD AND ITS POWERS
Atleast 4 meeting should be held each year. There is no requirement of
holding the meeting every quarter; the only requirement is that not more
than 120 days shall elapse between two consecutive meetings. (Clause 173
(1))
The Bill provides that Director can participate in the Board meeting through
video conferencing or other audio visual mode as may be prescribed.
(Clause 173 (2))
Notice of not less than seven days in writing is required to call a board
meeting and notice of meeting to all directors shall be given, whether he is
in India or outside India by hand delivery or by post or by electronic
means. (Clause 173 (3))
The participation of director at Board meeting through video conferencing
or by other electronic means shall be counted for the purpose of Quorum.
(Clause 174)
Every Listed Company and such other company as may be prescribed shall
form Audit Committee comprised of minimum 3 directors with majority of
the Independent Directors and majority of members of committee shall be
person with ability to read and understand financial statement.
Vigil mechanism to be established in the prescribed manner by every
listed company or such class or classes of companies, as may be
prescribed. (Clause 177)
Every listed company and prescribed class or classes of companies, shall
constitute the Nomination and Remuneration Committee consisting of three
or more non-executive directors out of which not less than one half shall be
independent directors.
Every company which consists of more than one thousand shareholders,
debenture-holders, deposit-holders and any other security holders at any
time during a financial year shall constitute a Stakeholders Relationship
Committee consisting of a chairperson who shall be a non-executive
director and such other members as may be decided by the Board. (Clause
178)
The limits for political contribution by company have been changed. The
contribution shall not exceed 7.5%. of the average net profits of the
Company during the three immediately preceding financial years. (Clause
182)
Disclosure of interest by every director has been made mandatory. The
disclosure shall be made at the first meeting of the Board in which he
participates as a director and thereafter at the first meeting of the Board in
every financial year or whenever there is any change in the disclosures
already made.
In case of private company also, an interested director cannot vote or take
part in the discussion relating to any matter in which he is interested.
(Clause 184)
The requirement of permission of CG for giving loan to Director has been
dispensed with. (Clause 185)
Inter corporate investments not to be made through more than 2 layers of
investment companies. (Clause 186)
No approval of CG is required for entering into any related party
transactions and for appointment of any director or any other person to
any office or place of profit in the company or its subsidiary. (Clause 188)
A company shall not enter into any arrangement by which a director of the
company or of its holding company or any person connected with him can
acquire assets for the consideration other than cash from the company &
vice versa without the approval of company in general meeting. (Clause
192)
Forward dealing in securities of company by director and key managerial
personnel is prohibited. Penalty in case of contravention will be
imprisonment for 2 years and fine from Rs. 2 lakhs to Rs. 5 lakhs. (Clause
194)
Insider trading of the securities in the company is prohibited. (Clause 195)
XIII 196- 205 APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL
Independent director not entitled to stock option and may receive
remuneration only by way of fees or commission.
Where a company is required to re-state its financial statement due to
fraud or non-compliance with any requirement under this Act and the rules
made thereunder, the company shall recover from any past or present
managing director or whole-time director or manager who, during the
period for which the financial statements are required to be re-stated, the
remuneration received (including stock option) arisen due to such
statement or non-compliance in excess of what would have been paid to
the managing director, whole-time director or manager under such re-
stated financial statements. (Clause 197)
Every company belonging to such class or description of companies as may
be prescribed shall have Managing Director, or Chief Executive Officer or
Manager and in their absence, a whole-time director and Company
Secretary.
Same person shall not be the Chairperson and MD or CEO at the same
time. (unless articles provide). (Clause 203)
Secretarial Audit compliance report in case of certain class of companies to
be annexed with the Board's report. (Clause 204)
XIV 206- 229 INSPECTION, INQUIRY AND INVESTIGATION
The Central Government will establish Serious Fraud Investigation Office
(SFIO) for investigation of frauds relating to a company. Till the time SFIO
is not established, SFIO set up by Central Government to be used for the
purpose of this section (Clause 211)
Investigation report filed by SFIO with the court for framing of charges
shall be treated as a Report filed by a Police Officer. SFIO shall have the
power to arrest. (Clause 212)
In the process of the Investigation, Inquiry or inspection if any person
a) destroy, mutilates or falsifies or conceals or tamper or unauthorized
removes or is a party to that or any document relating to the property,
assets or affairs of the Company or body corporate or
b) makes or is a party to the making of any false entry in the document
concerning the company or body corporate or
c) provides any false information which he knows to be false then he shall
be liable to punishment for imprisonment for a term from 6 months to
10 years and shall also be liable to fine which shall not be less than the
amount involved in fraud but which may extent upto 3 times of the
amount of fraud. (Clause 229)
XV 230- 240 COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS
No compromise or arrangement shall be sanctioned by the Tribunal unless
a certificate by the company's auditor has been filed with the Tribunal to
the effect that the accounting treatment, if any, proposed in the scheme of
compromise or arrangement is in conformity with the accounting standards
prescribed under Clause 133. (Clause 230)
Separate provisions have been provided for the merger or amalgamation
between two small companies or between a holding company and a wholly
owned subsidiary company. (Clause 233)
Provision for cross border amalgamations between Indian Companies and
companies incorporated in the jurisdictions of such countries as may be
notified from time to time by the Central Government. (Clause 234)
Specific provision for purchase of minority shares in case an acquirer or
person acting in concert with the acquirer become holder of 90% or more
of the issued capital of the company, either directly or by virtue of any
amalgamation, share exchange, conversion of securities or any other
reason. (Clause 236)
XVI 241- 246 PREVENTION OF OPPRESSION AND MISMANAGEMENT
(Clause 245 Class Action Suits)
The Bill provides for class action by specified number of Members or
Depositors against the company except the banking company, which is
prevalent in developed countries.
Penalty for failing to comply with an order passed by Tribunal
Company Rs. 5 lakhs to Rs. 25 lakhs,
Officer Rs. 25000 to Rs. 10 lakhs, Imprisonment 3 years
XVII 247 REGISTERED VALUERS
Where any valuation is required to be made of any property, stocks,
shares, debentures, securities or goodwill or any other assets (herein
referred to as the assets) or net worth of a company or its liabilities under
the provision of this Act , it shall be valued by a person having such
qualifications and experience and registered as a valuer in such manner, on
such terms and conditions as may be prescribed and appointed by the
audit committee or in its absence by the Board of Directors of that
company.
XVIII 248- 252 REMOVAL OF NAMES OF COMPANIES FROM THE REGISTER OF
COMPANIES
Registrar has the power to remove the name of a company from its record
under certain circumstances. (Clause 248 (5))
In case of a company regulated under a Special Act, approval of the
regulatory body constituted or established under that Act shall also be
obtained (Clause 248 (2))
XIX 253- 269 REVIVAL AND REHABILITATION OF SICK COMPANIES
Any company can be declared as sick. (Clause 253 (1))
XX 270- 365 WINDING UP
There are only two modes of winding up. (270 (1))
(i) By the Tribunal; or
(ii) Voluntary
New grounds of winding up by Tribunal are incorporated. (271 (1))
The minimum amount of indebtedness raised from Rs. 500 to Rs. 1.00
lakh. (271 (2a))
XXI 366- 378 PART I.--Companies authorized to register under this Act
PART II.--Winding up of unregistered companies
XXII 379- 393 COMPANIES INCORPORATED OUTSIDE INDIA
Service of documents on foreign company now can be served through any
electronic mode. (Clause 383)
The foreign offices are also required to comply with the provisions of
winding up. (Clause 391)
XXIII 394- 395 GOVERNMENT COMPANIES
XXIV 396- 404 REGISTRATION OFFICES AND FEES
XXV 405 COMPANIES TO FURNISH INFORMATION OR STATISTICS
In case a company furnishes incorrect information on order by the Central
Government, then penalty shall be levied. (Clause 405)
XXVI 406 NIDHI
Definition of Nidhi has been prescribed.
XXVII 407- 434 NATIONAL COMPANY LAW TRIBUNAL AND APPELLATE TRIBUNAL
XXVIII 435- 446 SPECIAL COURTS
For providing speedy trial offences, Central Government may by notification
establish as may Special Courts as may be necessary.
XXIX 447- 470 MISCELLANEOUS
Specific provisions related to any act of fraud. (Clause 447)
SCHEDULE I SECTIONS 4 AND 5
SCHEDULE II USEFUL LIVES TO COMPUTE DEPRECIATION
SCHEDULE III GENERAL INSTRUCTIONS FOR PREPARATION OF BALANCE SHEET AND
STATEMENT OF PROFIT AND LOSS OF A COMPANY
SCHEDULE IV CODE FOR INDEPENDENT DIRECTORS
SCHEDULE V CONDITIONS TO BE FULFILLED FOR THE APPOINTMENT OF A MANGING OR
WHOLE TIME DIRECTOR OR A MANAGER WITHOUT THE APPROVAL OF THE
CENTRAL GOVERNMENT
SCHEDULE VI SECTION 55 AND 186 RELATED TO INFRASTRUCTURE PROJECTS
SCHEDULE VII CORPORATE SOCIAL RESPONSIBILITY
Disclaimer: This document is based on the Companies Bill 2012. The Institute of
Chartered Accountants of India does not own the responsibility for any error or
omission. The users are advised to cross check with the original bill before acting
upon this document.
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