overview of companies act 2013 - home - chaturvedi & shah · why a new law ?. 18th september...

Overview of Companies Act

2013

R. Koria18th September 2013

WHY A NEW LAW ?

.


COMPANIES ACT, 2013

Approved by Lok Sabha 18th Dec 2012

Approved by Rajya Sabha 8th Aug 2013

Presidents Assent 29th Aug 2013

In the Gazette of India30th Aug 201312th Sept 2013

Various section to be notified separately

Draft Rules 7th Sep 2013 (16 Chp)

The Act is the result of detailed consultation Process adopted by the Govt


COMPANIES ACT : 2013 v/s 1956

Particulars Companies Act, 2013

Companies Act, 1956

Total Notified

Sections 470 98 658

Chapters 29 13

Schedules 7 15

Definition 95 70 68

As may be prescribed

336 108


COMMENCEMENT OF ACT

• Section 1 (3) (30th August 2013)

“This section shall come into force at once and remaining provisions of the Act shall come into force on such date as the Central Government may, by notification in the official gazette, appoint.”

• 98 sections notified on 12th Sept 2013


OFFENCES


OFFENCES

• The Act prescribes 141 offences with fine or imprisonment or both

• Imprisonment for 65 offences

• New concept of separate punishment for Company, Directors and Officer in default

Cont…R. Koria18th September 2013

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OFFENCES

• Compounding of offences

Authority Nature of PunishmentNo. of Offences

RD Fine upto Rs. 5 lacs 63

Tribunal Fine > Rs. 5 lacs 13

Special Court Fine / imprisonment / both 40

Notcompoundable

With imprisonment only orwith imprisonment & fine

25


FRAUD(Sec 447)

• The word fraud has been used in 126 provisions

• Fraud includes

− Any act, omission, concealment of any fact or abuse of position

− committed by any person or any other person with the connivance in any manner

− with intent to deceive, to gain undue advantage

− or to injure the interests of the company or its shareholders or its creditors or any other person

− whether or not there is any wrongful gain or wrongful loss


SERIOUS FRAUD INVESTIGATION OFFICE (Sec 211)

• Any report filed by SFIO shall be treated as report filed by Police Officer

• SFIO have powers to arrest


INSPECTION (Sec 207)

• ROC, while conducting inspection has the same power as one vested to Civil Court

• ROC granted authority for search and seizer with the permission of Special Court


NATIONAL FINANCIAL REPORTING AUTHORITY (NFRA)(Sec 132)

• A Super Regulator for CA

• NFRA to deal matters relating to Accounting and Auditing Standards

• To monitor and enforce compliances of Accounting and Auditing Standard

• To oversee quality of the services of professionals

• To investigate Suo moto or on reference by Central Government


12

NATIONAL FINANCIAL REPORTING AUTHORITY (NFRA)(Sec 132)

• Have the same powers as vested to Civil Court

• For professional & other misconduct

− Impose penalty – Minimum 10 Lacs to 10 times of fees

− Debarring the – Minimum 6 months member & firm to 10 yrs


E-GOVERNANCE

• Maintenance and inspection of documents in electronic form

• Keeping books of A/c in electronic form

• To put Financial Statements on Co. website

• Board Meetings through video conferencing/ other electronic mode

• Voting through electronic means

• Detailed rules to be prescribed


COMPANIES


COMPANIES• Public Company

• Private Limited (200 members) {Sec 2 (62)}

• One person Company {Sec 2 (62)}

− Only as a Private Company

− To have a nomination in MOA

− No requirement for AGM

• Small Company {Sec 2(85)}− Paid-up capital upto Rs.50 lacs or as may be

prescribed (Not > 5 cr)

− Turnover not more than Rs. 2 crores or as may be prescribed (Not > 20 cr)


16

COMPANIES• Dormant Company

− Formed for a future project and has no significant accounting transaction

− Need to obtain Dormant Company status from ROC

− Separate rules to be prescribed

• Subsidiary Company

− Controls the composition of Board of Directors or

− Exercise or control more than one half of the total share capital


17

COMPANIES• Foreign Company

−A Company or body corporate incorporated outside India and have a place of business or conduct business in India {Sec 2(42)}

−Needs to file various information to ROC, prepare financial statements and get them audited (Sec.380 to 384)


ISSUE OF CAPITAL

• The provisions related to further issue of capital applies to all types of companies

• Stringent provisions for Private Placement of shares (Sec 42)

• Shares cannot be issued at discount (Sec 53)

• Preference shares can be issued for a period exceeding 20 years for infrastructure projects (Sec 55)


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ISSUE OF CAPITAL

• Offer to allot securities to 50 or more persons shall be governed by provisions of SEBI.

• Money raised through prospectus cannot be used for any other purpose.


ACCEPTANCE OF DEPOSIT(Sec 73, 74 & 76)

• NBFC’s are not covered by the Act but governed by RBI

• Deposit from members only after permission of members in General Meeting and complying various other requirements

• Certain Public Companies as prescribed can accept deposits from other than its members subject to rules to be prescribed (Sec 76)

• Existing Deposits to be repaid in one year from Commence of the Act (Sec 74)


LOANS AND INVESTMENTS BY COMPANY (Sec 186)

Provisions are similar to Section 372A except :

• All loans, including to any person are covered

• Minimum interest on loan at the interest rate on Govt. Securities

• Subsidiary Companies are not exempted

• Private Companies are not exempted

• Investments not more than two layers of investment Companies


RELATED PARTY TRANSACTIONS(Sec 188)

• Scope increased to cover :

−Property

−Appointment to any office or place of profit in the company, its Subsidiary & Associate

• Prior approval by Special Resolution if paid up capital is more than as may be prescribed (Rs.1 crore)

• Explanatory statement to notice shall contain full particulars of the transaction


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RELATED PARTY TRANSACTIONS(Sec 188)

• Related parties cannot vote for such resolution

• Contract between two Limited Companies also covered

• Transactions at the ordinary course of business and at the arm’s length are exempted


CORPORATE SOCIAL RESPONSIBILITY(Sec 135)

• Companies covered with :

− Net worth of Rs.500 cr. or more

− Turnover of Rs.1000 cr. or more

− Net profit of Rs.5 cr. or more

• Rate 2% of the average profit during three immediate preceding years

• CSR activity shall be in line with Schedule VII

• Constitute a Committee of Board (3 members)Cont…R. Koria18th September 2013

25

CORPORATE SOCIAL RESPONSIBILITY(Sec 135)

• Disclosure in Directors Report

• About 8,000 to 10,000 Companies to be covered with aggregate amount > Rs.15,000 cr


BOARD – GOVERNANCE (SEC 149)



• Maximum No. of Directors increased to 15 from 12

• A women Director for such class or classes of Companies to be prescribed

• Independent Director:

− Listed company – 1/3 of total Directors

− Other class of Companies – as may be prescribed

• Directors nominated by Financial Institutions or in pursuance to an agreement shall not be deemed to be an independent director

• Independent directors cannot hold office more than 2 terms of 5 years each Cont…



• Cooling period of three years

• Independent director not entitled to any ESOP

• Schedule IV – Code of Independent Directors

• A person can hold Directorship of not more than 20 Companies including Pvt. Companies

• Resignation of directors need to be placed in the General Body Meeting

• The director resigning shall also forward a copy of resignation along with reasons to ROC


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• At least 7 days notice for Board Meeting

• Listed and such class of companies as may be prescribed shall have:

− Audit Committee

− Remuneration Committee and

− Stake Holders Relation Committee with more than 1000 shares, debentures and deposit holders (Sec 178)

• Remuneration to Directors shall be paid in accordance with Schedule – V (Sec 197)


FINANCIAL STATEMENTS



Section 2(40) #

• Balance Sheet

• Profit & Loss/ Income & Expenditure Account

• Cash flow statement (other than for one person, small and dormant company)

• Statement of changes in equity, if applicable

• Notes annexed to or forming part of


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Section – 129

• The financial statement shall be in the form as provided in Schedule- III

• If the company has any subsidiary, the consolidated financial statements made mandatory. {Sec 129(3)}

• The consolidated financial statements shall be in the same form and manner as of standalone financial statements

• Subsidiary shall include Associate Company and Joint Venture

• Financial year – (1st Apr - 31st Mar) {Sec 2(41)}


REOPENING OF ACCOUNTS (Sec 130)

• Reopening of books of account and financial statements only with the order by a Court or Tribunal

• Application for reopening can be made by Central Govt., Income Tax, SEBI or other authority (For Fraudulent /mismanaged affairs)

• Voluntarily by the Co. (Sec 129 not complied)

• Detailed rules to be prescribed


DEPRECIATION

• No dividend can be paid unless depreciation provided (Sec 123)

• Schedule II deals with depreciation

• Depreciable amount = Cost – Residual value

• Depreciable amount shall be amortized during the useful life as per Part C

• Useful life of 100 assets has been specified

• Concept of component accounting introduced


35

DEPRECIATION

• Extra shift depreciation

−Double shift : 50% of normal depreciation

−Triple shift: 100% of normal depreciation

• Carrying amount of asset

– To be depreciated over the remaining useful life

– If useful life is over, to be charged to the retained earnings


DIRECTORS REPORT(Sec 134)

To include extensive disclosures for:-

• Extract of Annual Return

• Number of meetings of the Board

• Company’s Policy on Directors appointment and remuneration

• A statement on declaration by independent director

• Explanation on qualification, reservation or adverse remark in report of auditors & Secretarial Auditors

• Particulars of loan, guarantee or investments made

• Statement for development and implementation of risk policy and identification of risk elements


37

DIRECTORS REPORT(Sec 134)

• Details about CSR policy, utilization of fund, composition of CSR Committee (Sec 135)

• A statement that the provisions of all applicable laws have been complied with.

• Every contract or arrangements with related parties along with justification for entering into such contract or arrangement (Sec 188{2})

• A statement about evaluation of performance of Board, its committees and of the individual directors.

• A statement that internal financial controls have been laid down, they are adequate and operating effectively (For Listed Companies)


ANNUAL RETURN (Sec 92)

To contain the following information:

• Registered office

• Principal business

• Particulars of holding, subsidiary and associate companies

• Share holding pattern

• Indebtedness

• Details of members and debenture holders with changes from close of previous Financial Year

• Promoters, Directors, Key Managerial personnel along with changes therein


39

ANNUAL RETURN (Sec 92)

• Details of meetings of members, board and its committee along with attendance

• Remuneration of Directors and Key Managerial personnel

• Penalty on the company, its director and officers and compounding of offences.

• Details of shares held by FII

• Such other matter as may be prescribed


AUDITORS & AUDITORS REPORT


AUDITORS (Sec 139-149)

Appointment :

• LLP can be appointed as auditors

• Auditors are subject to retirement by rotation

• Individual - only 1 term of 5 yrs

• Audit firm - only 2 terms of 5 yrs

• Every AGM to ratify the appointment of auditor

• A Chartered Accountant can be appointed as an auditor up to 20 Companies including Private Limited Companies

• Stringent provisions for disqualification of auditors


42

AUDITORS (Sec 139-149)Rotation :

• Mandatory rotation and cooling period of 5 yrs for listed companies and such other class as may be prescribed. (All companies except OPC & SC)

• The requirement of rotation shall be complied in three years from the date of this Act

• Draft Rules (for existing Auditors)

− The period prior to commencement of this act shall be taken into account in calculating 5 or 10 yrs period

• The auditors shall attend every General Body Meeting and has right to be heard (Sec 146)


43

AUDITORS (Sec 139-149)

• Removal & Resignation :

− Auditor can be removed only by a Special Resolution & prior permission of Central Govt. (Sec 140)

− On Resignation, auditor to file a statement with ROC in 30 days

• Civil Liability: (Sec 147)− Auditor to pay damages to statutory authorities or

any other person for loss arising out of incorrect or misleading statements of particulars in his Report

• The concept of joint responsibility for the Partner and Firm


AUDITORS REPORT(Sec 143)

New requirements :

• The observations or comments on financial transactions on matters which have adverse effect on the functioning of the Company

• Any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith

• Whether the company has adequate internal financial control system in place and operating effectiveness of such control

• Such other matters as may be prescribed Cont…R. Koria18th September 2013

45


• As per Draft Rules:

− Whether the co. has disclosed the effect of pending litigations on its financial position – in financial statements

− Whether the Co. has made provisions for foreseeable losses, if any, on long term contracts including derivative contracts

− Whether there has been delay in depositing money into investors Education & Protection Fund by the Co.

R. Koria18th September 201346 Conti…


• Auditors obligation to communicate− If an offence involving fraud is being committed

against the co. by officers or employees, the Auditor, Cost Auditor and Secretarial Auditor shall immediately report to Central Govt (fine upto Rs.25 lacs)

• Sec140(5) r. w. Sec 447 - In case of fraud by the auditors, the tribunal may order for :− Change of auditors− To Barr appointment for next 5 yrs to the co.− Imprisonment not < 6 months but may extend to 10 yrs− Fine not less than the amount involved in the fraud

and may extend upto 3 times of the amount involved− This offence is non compoundable


CLASS ACTION SUIT (Sec 245 & 246)

• A new concept in India but very popular in USA

• Suit can be filed by 100 members/depositor /specified % of member/ holding specified % of capital/deposit (10%)

• Suit needs to be filed before a tribunal

• To claim compensation from :

− the company or its directors for any fraudulent or unlawful or wrongful act

− The auditors including firm for improper or misleading statement in audit report

− Any expert or advisor or consultant for incorrect or misleading statement


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