comparative studies of companies act, 1956

8/10/2019 Comparative Studies of Companies Act, 1956

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COMPARATIVE STUDY

OF COMPANIES ACT,1956 WITH COMPANIES

ACT, 2013

Submitted to :Dr. Karunesh Saxena

Submitted by :The Miracle Workers


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2

Contents

Introduction

Roles and Responsibilities

Issues of Share Capital

Audit and Auditors

Directors

CSR & Revival and Rehabilitation of SickCompanies

Differences

Conclusion


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Introduction

3


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Terminologies

The Need for Web Security 4

OPC - One Person Company

CSR - Corporate Social Responsibility

MOA - Memorandum of Association

AOA - Article of AssociationID - Independent Director

WTD - Whole time Director

CEO - Chief Executive Officer

NCLT - National Company Law TribunalNFRA - National Financial Reporting Authority

SFIO - Serious Fraud Investigation Officer

ROC - Registrar of Companies


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5

TheCompaniesAct, 1956

The Companies Act, 2013

A PARADIGM SHIFT FOR THE

CORPORATE


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6

Facts about

the Act

658 Sections

13 Parts

15 Schedules

COMPANIES ACT,

1956


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7

Facts about the

Act

New

33 Definitions

470 Sections 29 Chapters

7 Schedules

COMPANIES ACT,

2013


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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.


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Bringing Flexibility

Self Regulation

Stringent

Punishment

Efficient

enforcement of law

Healthy Growth

of India Inc.

Effective protection

for Society

RE-ENACTING THE NEW

COMPANIES LAW


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10

New Concepts


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Introduction of One Person Company

Stipulation of Woman Director

Provision ofClass Action suits

Introduction of Registered Valuer

Fast Track Mergerfor 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

NOVELTIES


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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


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13

WHATS 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


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14

TheInfluencers

IPOScam

StockMarketScam

Satyam

SaharaPradeepOverseas

SesaSterlite

Peerless

PROMINENTINFLUENCERS TO THE

NEW COMPANY LAW


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Roles and Responsibilities


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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

ff h f l


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Officer who is in DefaultEarlier Now

- MD/ WTD/ Manager/Person in

accordance with whose directions theBoard is accustomed to act

- No provision to impose liability on all

directors

- External parties not counted in the

definition for Officer in Default

- WTD/KMP/ Directors specified by the

Boardin the absence of such

specification, all Directors

- Where there is no specific

authorisation by the Board all

directors would be held liable. Most

importantly, every director who is

AWARE of such contravention byvirtue 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 Issueto be held liable in the event of

default in respect of issue or transfer

of shares of a company (shares used

and not securities)


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Chartered Accountants included in the definition of expert who hasbeen assigned specific responsibilities and liabilities under the Act

Appointment as Internal Auditors for companies requiring mandatoryinternal 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

ROLE OF CA


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NFRA to have the power to investigate matters of professional or other misconduct committed by anymember or firm of CAs regd under the CA Act

Where auditor contravenes requirements of appointment or rotation, auditor punishable with fine ofminimum of INR 25000 and upto INR 5 Lakh

Where provisions contravend by auditor knowingly or willfully with intention to deceive company orshareholders or creditors or tax authorities, punishable with imprisonment extending not less thanone 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 partneror partners of the audit firm has or have acted in a fraudulent manner, or abetted or colluded infraud, in relation to or by, directors or officers, liability under the Act will be that of the partner orpartners 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 anyimproper or misleading statement made in audit report or fraudulent conduct

RESPONSIBILITYOF CA


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Issues of Share Capital


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Amendmends to certain topics :

Small company : Paid up share capital does not exceed 50 lacs INRor as may be prescribed but not more than 5 crore INR

Internal audit : Mandatory for companies having paid up sharecapital of more than 10 crores INR.

Commencement of business : Empowerment to ROC,to removethe 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 iswithin the prescribed limits in the act, within 180 days of its

incorporation


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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


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SHAREHOLDERS 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 andnon-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 ofshareholders 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]


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PRIVATE PLACEMENT OFFER

CONDITIONS

Offer to section of publicother than QIBs

Not more than 50 number

of people

In compliance of

prescribed terms &

conditions

Made through Private

Placement offer letter and

not Prospectus

Conditions

fulfilled?

YES NO

PUBLIC OFFER

Comply with provisions of Act,

Securities Contract Regulation

Act, 1956 and SEBI Act, 1992

The Act defines the term Private Placement:

Changes - Prospectus & Allotment of Securities


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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 beable 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 onany 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


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1. PROHIBITION OF ISSUE OF SHARES AT DISCOUNTCompanies 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 furtherissue 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 theemployees of the company who are under a scheme of employees stock

option, subject to a special resolution .

MAJOR MODIF ICATIONS WITH REGARDS TO

SHARE CAPITAL :


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3. ISSUE OF BONUS SHARES 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].

4. UNLIMITED COMPANY TO PROVIDE FOR RESERVE

SHARE CAPITAL ON CONVERSION INTO LIMITEDCOMPANY 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 becapable of being called up.


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5. ISSUE AND REDEMPTION OF PREFERENCE SHARES

The 2013 Act reiterates the existing requirement that a companycannot 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-fourthsin

value of such preference shares.

The 2013 Act does not envisage any penalty in respect of non-

compliance with the provision of this section.


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6. REDUCTION IN SHARE CAPITAL 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 Tribunalunless 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 companys 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.

7. 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 MCAs efforts to give

cognisance to use of electronic media as evident from a number of

green initiatives introduced recently, maintenance of registers andreturns at a place other than the registered office.


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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 nolonger 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 benotified.

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.



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Audit and Auditors


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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 bythe BOD and Audit

committee.


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AUDIT COMMITTEESECTION 177

Every listed company and such other class of company shall constitute anAudit committee. (As per Draft Rules: Audit Committee of the Board for everylisted company , and every other public company having paid up capital of Rs.100 cr or more; or which have, in aggregate, outstanding loans or borrowingsor debentures or deposits exceeding Rs. 200 cr)

Committee shall consist of minimum three director with the independentdirector forming majority

Auditors and KMP have right to be heard in the meeting of committee

Boards report to disclose

1. Composition of the audit committee and

2. Any recommendation which has not been accepted by the board.

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AUDIT COMMITTEE.VIGIL

MECHANISM

Every listed company or such class of companies shallestablish a vigil mechanism

As per Draft Rules: Companies which accept depositsfrom public and Companies which have borrowed moneyfrom banks and public financial institutions > Rs 50 Cr

Mechanism facilitates directors and employees to reportgenuine concerns

Adequate safeguards against victimization of personswho use such mechanism

Provision for direct access to the chairperson of the auditcommittee

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Whistle

Blower (a

non

mandatory

item as perCl 49) is now

made

mandatory,

in the name

of VigilMechanism


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Directors

Key Highlights


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Key Highlights Minimum no of directors retained

Max no of directors increased to 15 (against the earlier 12)

No of directorshipsincreased 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.


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Director

Director appoin ted by board of

comp any Section 2(34)

Board of Directors

Or

Board

Col lect ive body of director s of the

comp any Section 2(10)

DEFINITIONS


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MANAGING DIRECTOR

Managing Directo r

Director

Art ic les Agreements Sharehold ings

By

+Entrusted with sub stant ial powers of m anagement

+Occup ying posit ion o f managing director by whatever name

called


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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)

NUMBER OF DIRECTORS(SECTION 149)

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NUMBER OF DIRECTORSHIPS


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Director in maximum 20 companies

Directorship to include alternate directorship

Of these 20 companies, cannot be a Director in more than 10public companies (including private companies which are

holding or subsidiary companies of public companies)

No. of members specify lesser number by passing specialresolution

Penalty for contravention: Minimum Rs. 5,000, and Maximum Rs.25,000 for every day during which the default continues

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NUMBER OF DIRECTORSHIPS(SECTION 165)

APPOINTMENT OF DIRECTOR


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Appointment of Managing Director, Whole Time Director or Manager to beapproved 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 tothe ROC

When appointment not in accordance with Schedule V, approval ofCentral Government also required

Independent directors not to be included in the total number of directorswhile calculating retiring directors i.e. 2/3rdof the total number ofdirectors

APPOINTMENT OF DIRECTOR(SECTION 152)

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CSR & Revival and

Rehabilitation of Sick

Companies


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PROMOTING WELFARE

INITIATIVES

CORPORATE SOCIAL RESPONSIBILITY



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CORPORATE SOCIAL RESPONSIBILITY(SECTION - 135)

Every Company having net worth of rupees five hundred croreor more, or turnover of rupees one thousand crore or more or anet profit of rupees five crore or more during any financialyear to constitute a Corporate Social Responsibility Committeeof the Board consisting of three or more directors, out of whichat least one director shall be an independent director

The Boards report to disclose the composition of the CorporateSocial Responsibility Committee



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Based on recommendations from CSR Committee, Board of such Companyto approve the CSR Policy for the Company and disclose contents of suchPolicy in its report and on the Companyswebsite

Every year in the Boards Report, details about the policy developed andimplemented by the Company on CSR initiatives taken during the year to beincluded

CORPORATE SOCIAL RESPONSIBILITY(SECTION 135)



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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 financialyear on such policy

For spending the amount earmarked for CSR activities the Company shall givepreference 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 reasonsfor not spending the amount in its report

Companies require to comply with CSR shall give additional Information by way ofnotes to the Statement of Profit and Loss regarding aggregate expenditure incurredon corporate social responsibility activities.

CORPORATE SOCIAL RESPONSIBILITY(SECTION 135)


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List of Companies who are required to make CSR contribution

49

S.No. Name of Company Average PAT for last 3Years

2 % of Average PAT

1 Reliance Industries Ltd20,443.00

408.86

2 Oil & Natural Gas Corpn Ltd20,271.49

405.43

3 State Bank of India

11,358.93

227.18

4 Tata Consultancy Services Ltd10,444.10

208.88

5 NTPC Ltd9,018.17

180.36

6 Infosys Ltd8,009.67

160.19

7 Bharti Airtel Ltd 7,624.37 152.49

8 Coal India Ltd7,518.51

150.37

9 ICICI Bank Ltd6,647.37

132.95

Amount in INR Crores

R h bilit ti f Si k U it


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Rehabilitation of Sick Units

Industries that have gone sick have far-reachingconsequences 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


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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


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DIFFERENCES BETWEEN

COMPANIES ACT 1956 & COMPANIES BILL 2013

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Diff b t


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Particulars Companies Act 1956 Companies Bill 2013

RELATED PARTY TRANSACTIONS

Scope of

Section

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.

Approval

required

Prior consent of the BoD by resolution passed at

Board meeting

Prior approval of Regional Director, in case the paid-

up 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.

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Differences betweenCompanies Act 1956 & Companies Bill-2013

Diff b t


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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 accustomedto 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.

Exemptions 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 arms length

basis.

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Diff b t


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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 to-

Private 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.

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Differences between


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WINDING UP/ STRIKE OFF

Groundsfor

Winding up

reduced

Criteria for winding-up provided by NCLT-

If the Co. has, by special resolution, resolved that the co.

be wound up.

If the co. is unable to pay its debt

If a co. does not commence its business within 1 yr fromits 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.

Certain criteria for winding-up by NCLT deleted like minimum

number of members falling below prescribed limit, non-

commencement of business for 1 yr, etc.

Additional ground provided:

NCLT is of the opinion that-

The affairs of the co. have been conducted in a fraudulent mannerCo. 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.

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 reasons-

Subscribers 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

incorporationCo. 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

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CONCLUSION

The new Indian Companies Act is a positive step towards modernising Indias

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.

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CONCLUSION


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Contemporary

EasyUnderstandability

Preventive

AdaptableInvestor

Protective

Self Regulatory

BusinessOriented

CONCLUSION(continued)

IMPACT OF CHANGE


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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

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