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PRESENTATION ON COMPANIES ACT, 2013
K. SETHURAMAN
March 25, 2014Walchand Hirachand Hall, IMC
Pre-Independence – The Companies Act, 1913
Post-Independence – The Companies Act, 1956
Post 2000 – The Companies Act, 2013
Received President’s approval on 29.08.2013
Gazette Notification on 30.08.2013
Total 470 sections & seven schedules
MCA notified draft Rules in two tranches
98 sections of the Act already effective September 12,
2013
New Act in full form operational from 2014-15
•2
INTRODUCTION
E-governance
E-governance has been proposed for various processes
like:
a) Option of keeping books of accounts in electronic form
b) Maintenance and inspection of documents in electronic
form
c) Placing of financial statements on company’s website
d) Holding Board meetings through video conferencing
Concept of Corporate Social Responsibility enacted
•3
SALIENT FEATURES OF THE COMPANIES ACT, 2013
Enhanced accountability on the part of companies:
a) Appointment of independent directors and provisions in respect of
their tenure and liability, etc. provided
b) Code for independent directors provided in Schedule IV
c) Duties of directors prescribed
d) Audit committee and various other committees like Nomination
and Remuneration committee and CSR committee comprising
independent directors have been prescribed in order to bring
more independence in Board functioning
e) The Central Government has been empowered to prescribe
restrictions in respect of layers of subsidiaries for any class or
classes of companies
f) New provisions for allowing re-opening of accounts in certain cases
with due safeguards
•4
Enhanced disclosure norms
a) Detailed disclosures to be made by promoters and directors at the
time of incorporation of the company
b) New disclosures like development and implementation of risk
management policy
c) Manner of formal evaluation of performance of Board of directors
and individual directors included in the Board report
d) The Board’s report to include the details in respect of related party
transactions, statement on director’s remuneration, adverse
remarks made in auditor’s report, secretarial audit report, cost audit
report, etc.
e) Every listed company required to file a return with the Registrar
regarding change in the shareholding position of promoters and top
ten shareholders of such company
f) Consolidation of accounts and accounts of foreign subsidiaries to
be attached for filing with the Registrar of companies
•5
Audit Accountability
a) Rotation of auditors and audit firms
b) Auditors prohibited from performing non-audit services
to ensure independence and accountability
c) Auditors to report specifically whether the company has
complied with the internal financial controls and
directions issued by the Board
d) Mandating National Financial Reporting Authority
(NFRA) to ensure monitoring and compliance of
accounting and auditing standards, to oversee quality of
service of professionals
e) Introduction of Secretarial audit and adherence to
secretarial standards for Board meetings and
shareholders’ meetings
•6
Facilitating mergers/acquisitions
Simplified procedure (through confirmation by the Central
Government), laid down for compromise or arrangement
including for merger or amalgamation of holding companies
and wholly owned subsidiary(ies), between two or more
small companies and for such other class or classes of
companies as may be prescribed.
•7
Protection for minority shareholders
a) Exit option to shareholders in case of dissent to change
in object for which public issue was made
b) The Tribunal is being empowered to provide for exit
offer to dissenting shareholders in case of compromise
or arrangement
c) Valuation by registered valuers mandatory for certain
actions like:
(i) issue of shares to persons other than existing shareholders,
(ii) acquisition / selling of assets on non-cash considerations to
directors / persons related to directors,
(iii) valuation at the time of merger / amalgamation, and
(iv) purchase of shares held by minority shareholders by majority
shareholders.
•8
Investor Protection
a) Acceptance of deposits from public subject to a more
stringent regime
b) Central Government to have power to prescribe class or
classes of companies which shall not be permitted to allow
use of proxies
c) Provisions that a person shall have proxies for such number
of members / such number of shares as may be prescribed
d) Provisions for class action suits to provide minimum number
of persons who may apply for such suits and safeguards
against misuse of these provisions
e) Right of an investor to claim to continue even after transfer
of the amount to IEPF
•9
Miscellaneous
a) Establishment of Special Courts to deal with offences under the
Act
b) Concept of One Person Company, dormant company, small
company and inactive company introduced
c) Mandatory appointment of woman director in the prescribed class
or classes of companies
d) Creation of ‘Mediation and Conciliation Panel’ for facilitating
mediation and conciliation between parties during any proceedings
under the proposed legislation before the Central Government or
Tribunal
e) Act lays down the minimum and maximum quantum of penalty for
each offence with deterrence for repeat offences
f) Liquidation and winding up of companies to be adjudicated by the
Tribunal.
•10
TOPICS COVERED
Page No.
Definitions (New and changes) 13
Incorporation of company 27
Prospectus and allotment of securities 33
(a) Public Offer
(b) Private Placement
Share capital and debentures 40
Management and Administration 53
Declaration and Payment of Dividend 72
Accounts of Companies 77
Audit and Auditors 93
Appointment & qualification of directors 111
•11
TOPICS COVERED
Page No.
Meetings of Board and its powers 121
Appointment and Remuneration of Managerial Personnel 151
Secretarial Audit 157
Compromises, Arrangements and Amalgamations 160
Prevention of Oppression & Mismanagement 184
Miscellaneous provisions 192
•12
DEFINITIONS
•13
Associate Company
Effective Date – September 12, 2013
The other company has a significant influence, that is, itholds at least 20% of total share capital (having votingrights); OR Controls business decisions under an agreement
The company (associate company) is not a subsidiary ofthe other company
Includes a joint venture company (irrespective of theshareholding)
Example:
X Ltd. and Y Ltd. hold 20% each of total shares of Z Ltd. ZLtd. is an associate company of both X Ltd. and Y Ltd
If X Ltd. holds 55% and Y Ltd holds 20% of the total sharecapital of Z ltd., Z ltd. will be an Associate Company of YLtd. only
•14
DEFINITIONS (SEC 2)
Financial Statement includes:
Balance sheet as at the end of the financial year.
Profit and Loss Account / Income Expenditure Account.
Cash Flow Statement.
A statement of changes in ‘equity’ (if applicable)
Explanatory notes annexed to Balance sheet, profit &
loss account, cash flow statement and a statement of
changes in equity.
Financial statement of OPC, small company and
dormant company may not include cash flow
statement.
•15
DEFINITIONS (SEC 2) (CONTD..)
DEFINITIONS (SEC 2) (CONTD..)
Financial Year
Company to have financial year ended March 31 everyyear.
Company incorporated after January 1st of a year tohave financial year ending March 31 of the followingyear (15 months)
A company which is a holding company or subsidiary ofa company incorporated outside India and is requiredto follow a different financial year for consolidation of itsaccounts outside India may have a different financialyear, if the Tribunal allows.
Existing companies and bodies corporate to align theirfinancial year to March 31, within two years from thecommencement of the Act.
Financial Year cannot be altered and mandatorily uniform
•16
DEFINITIONS (SEC 2) (CONTD..)
Free Reserves
Reserves as per latest audited balance sheet
available for distribution as dividend.
Securities premium, capital reserves, Debenture
Redemption Reserve, statutory reserves will not form
part of free reserve.
Any change in carrying amount of an asset or of a
liability recognised in equity, including surplus in
P&L account on measurement of the asset or
liability at fair value shall not be treated as free
reserve.
Similarly unrealised gains, notional gains or revaluation
reserve shall not be treated as free reserve.
•17
DEFINITIONS (SEC 2) (CONTD..)
Key Managerial Personnel
Managing Director or Chief Executive Officer or
Manager.
Wholetime Director
Company Secretary.
Chief Financial Officer.
Such other officer as may be prescribed.
Note: CEO and Manager need not be a member of the
Board
•18
DEFINITIONS (SEC 2) (CONTD..)
Officer who is in default:
Among others includes the following:
(a) Chief Financial Officer
(b) Directors who are aware of the contravention of any
of the provisions of the Act by way of participation
in board meetings or receiving the minutes even if
the company has MD / WTD / other KMPs
(c) Share Transfer Agents, Registrars and Merchant
Bankers to the Capital Issues
•19
DEFINITIONS (SEC 2) (CONTD..)
One Person Company (OPC)
A Company which has only one person as member.
OPC can be formed as a private company only.
Only a natural person can be a member of OPC
OPC can be incorporated for charitable objects
•20
DEFINITIONS (SEC 2) (CONTD..)
Private Company
Defined as per Section 3 of 1956 Act except
that it can have a maximum of 200
members.
It is prohibited from inviting Public to
subscribe for any of its securities or deposits
•21
DEFINITIONS (SEC 2) (CONTD..)
Promoter
A person who has:
Been named as such in a prospectus;
Been identified in the Annual Return;
Control over affairs of the company whether as a
shareholder, director or otherwise;
A person in accordance with whose advice,
directions or instructions, the Board is
accustomed to act.
Promoter excludes a person acting in
professional capacity.
•22
Related Party
Related Party with reference to a Company means:
1) A director or his relative.
2) A key managerial personnel or his relative
3) A firm, in which a director, manager or his relative is
a partner.
4) A private company in which a director or manager is
a member or director.
5) A public company in which a director or manager is
a director or holds alongwith his relatives more than
2% of its paid up share capital.
•23
DEFINITIONS (SEC 2) (CONTD..)
6) Any body corporate whose board of directors, managing director ormanager is accustomed to act in accordance with the advice,directions or instructions of a director or manager.
7) Any person on whose advice, directions or instructions a director ormanager is accustomed to act [Persons giving professionaladvice not covered].
8) Any company which is
(a) a holding company, subsidiary or an associatecompany of such company; or
(b) a co-subsidiary of such company.
9) *A director or Key Managerial Personnel of the holding, subsidiaryor associate company of such company or their relatives
10) *Any person appointed in senior management (members ofmanagement one level below executive directors includingfunctional heads) in the company or its holding, subsidiary orassociate company
*Draft Rules
•24
DEFINITIONS (SEC 2) (CONTD..)
DEFINITIONS (SEC 2) (CONTD..)
Small Company
Small company cannot be a public company,including a private company which is a subsidiary of apublic company.
Its paid up capital shall not exceed Rs 50 lakh or suchhigher amounts not more than Rs 5 crore.
Its turnover does not exceed two crore or such higheramount not more than twenty crore rupees.
A holding company, a subsidiary company, a companyregistered with charitable objects and a companygoverned by any Special Act not to be considered asmall company.
•25
Subsidiary Company
Subsidiary company means a company in which any other
company (holding company)
a) Controls the composition of the Board of directors; or
b) Exercises or controls more than one half of the total
share capital (including preference share capital)
either on its own or together with one or more of its
subsidiaries.
Such class or classes of holding companies as may be
prescribed shall not have layers of subsidiaries beyond
such numbers as may be prescribed. [Effective Date not
notified as yet]
•26
DEFINITIONS (SEC 2) (CONTD..)
Incorporation of Company
and
Matters Incidental thereto
(Sec 3 – 22)
•27
MEMORANDUM (SEC 4)
Specific provisions in case of OPC
• Memorandum of OPC to indicate name of the other
person who shall become the member in the event of
subscriber’s death or his incapacity to contract. Hence
only individual can be member of OPC
• Written consent of such person to be filed with ROC at
the time of incorporation
• Such person may withdraw consent or the member
may change the name of such person in such manner
as may be prescribed
• Any change to be intimated by the member to the
company and company to ROC
•28
OBJECTS CLAUSE (SEC. 4)
Object clause to state
a) The objects to be pursued by the
company on incorporation; and
b) Matters which are necessary for
furtherance thereof
Tables A to E of Schedule I prescribe the forms
•29
ARTICLES (SEC 5)
Entrenchment provisions
• Articles may contain provisions for entrenchment -specified provisions which may be altered only ifconditions or procedures that are more restrictive thanthose applicable in the case of a special resolution, aremet or complied with
• Entrenchment provisions shall be included only at thetime of formation or by amendment of articles agreedby all members in case of a private company and bya special resolution in the case of a public company
• ROC to be given notice of such provisions forentrenchment
Tables F to J of Schedule I prescribe the forms
•30
COMMENCEMENT OF BUSINESS (SEC 11)
• Every company with share capital (public and private)shall not commence any business or exercise anyborrowing powers unless it has filed with the ROC:
a declaration that every subscriber has paid the valueof the shares agreed to be taken by him and the paidup value is not less than the minimum required (Rs. 1lac or Rs. 5 lacs) on the date of the declaration
a verification of its registered office with the ROC within30 days
• Registrar to initiate action for removal of name of the companyif declaration is not filed within 180 days from the date ofincorporation only if company has not commenced business
• No requirement to file statement-in-lieu of prospectus,Statutory Report or to hold Statutory Meeting
•31
NAME OF COMPANY (SEC 12, 13, 16)
• In case of change in name, the former name or
names for last 2 years, shall be painted or
affixed or printed, along with the new name
• In case of OPC, the words ‘One Person Company’
shall be mentioned in brackets below the name of
the company, wherever it is printed, affixed or
engraved
• CIN, email and web-site address (if any) also to
be printed on all business letters, billheads,
letters, notices, official publications
•32
•33
PROSPECTUS & ALLOTMENT
OF SECURITIES
PUBLIC OFFER (S.23-41)
Public company to issue securities:
a) To public through prospectus.
b) Through private placement.
c) Through rights issue or bonus issue.
Private company to issue securities
a) Through Rights Issue or Bonus Issue
b) Through Private Placement
Public Offer includes:
a) Initial Public Offer
b) Further Public Offer
c) Offer for sale
•34
VARIATION IN TERMS OF CONTRACT OR
OBJECTS IN PROSPECTUS (SECTION 27)
Variation in terms of contract or objects for which the
prospectus was issued would require passing a special
resolution through Postal Ballot.
Justification for such variation should be clearly set out in the
notice and published in newspapers.
Such variation may be made not more than one time in
any particular public offer.
Dissenting shareholders to be given an exit offer by
Promoters or Controlling Shareholders at the exit price
specified by SEBI.
Public issue proceeds cannot be used for buying /
dealing in equity shares of any other listed company.
•35
OFFER OF SECURITIES ON PRIVATE PLACEMENT
(SECTION 42)
This section sets out conditions under which a private
placement can be made:
a) Shall be through a private placement letter
b) Offer in a financial year can be made to not more
than 200 persons in a financial year (excluding
QIBs and Employees under ESOP) not more than
four offers in a financial year
c) No transfer beyond 20 persons per allottee per
quarter; not more than four offers in a financial year.
d) Even an agreement to allot securities to more
than the prescribed number of persons (whether
money received or not) shall be deemed to be an
offer to the public.
•36
If a company makes an offer to allot securities to
more than the prescribed number of persons,
the same to be deemed to be an offer to the
public.
No fresh offer to be made unless the earlier offer
has been completed or withdrawn or abandoned.
The monies payable towards subscription should not
be or cannot be by cash.
Securities to be allotted within 60 days failing which
money to be repaid within 15 days thereafter with
interest @ 12% p.a.
•37
Application money to be kept in a separate bank
account and not be utilised other than for allotment /
refund.
Offer to be made to persons whose names are
recorded by the company prior to making the offer.
Offer to be made by name and complete information
about the private placement to be filed with ROC
within 30 days of the private placement offer letter.
No public advertisement to be released in any
media, including marketing thereof.
•38
In case of contravention the company,
promoters and directors liable for penalty
which may extend to the amount involved or
Rupees two crore whichever is higher.
Company to refund all monies to subscribers
within 30 days of the order imposing penalty.
•39
•40
SHARE CAPITAL AND
DEBENTURES (SEC 43-72)
Voting Rights (Sec 47)
If dividend is not paid for two years or
more on the preference shares (cumulative
/ non-cumulative) they shall have right to
vote on all resolutions placed before a
meeting of the company.
•41
Variation of Shareholders’ Rights (Sec 48)
Rights attached to a class of shares may be varied with
consent in writing of the holders or by means of a
special resolution passed of the shareholders of that
class.
If the variation affects the rights of any other class of
shareholders, consent of such other class is
necessary in a similar way. This is a new provision.
Shareholders holding not less than 10% of the issued
shares of a class who do not consent to the variation
may apply to the Tribunal to have the variation
cancelled.
The Tribunal to either confirm or reject the variation
which is binding on the shareholders.
•42
Prohibition on issue of shares at
discount (S.53)
No company can issue shares at a
discount except sweat equity shares.
Any shares issued at a discounted
price is void.
•43
Issue and Redemption of Preference Shares (Sec 55)
Preference shares cannot be issued with redemptionperiod exceeding 20 years.
Redemption beyond 20 years permitted if the issue is forinfrastructural projects specified in Schedule VI and theredemption is at the option of the preferenceshareholders.
Company engaged in infrastructure projects toredeem preference shares not exceeding 30 yearswith 10% minimum redemption form 21st year
Premium on redemption of preference shares shall bepayable only out of profits of the company.(Applicable to such class of companies as may beprescribed.)
•44
Issue and Redemption of Preference Shares
(cont.)
Premium payable on redemption of preference shares
issued before commencement of the Act shall be
provided either out of profits of the company or
securities premium account.
Rollover of preference shares is possible with the
consent of three-fourths in value of such
preference shareholders and prior approval of
Tribunal.
Preference shareholders who do not agree for the
rollover to be redeemed forthwith.
•45
Further issue of Share Capital (S.62)
Issue of shares to employees under ESOP requires aspecial resolution and complying with other conditionsas may be prescribed.
Further issue of shares other than by way of rightseither for cash or other than for cash requires a specialresolution plus valuation by a registered valuer.
Letter of offer to be despatched by registeredpost/speed post/e-mail 3 days before opening of theissue.
Rights Offer to be kept open for not less than 15 daysand not more than 30 days.
Issue of optionally convertible debentures / optionallyconvertible loans only with shareholders’ approval bypassing a special resolution.
•46
Issue of Bonus shares (New) (Section 63)
Fully paid-up bonus shares to members out of (a) free
reserves (b) Securities Premium Account (c) Capital
Redemption Reserve
Following are the conditions for issue of bonus shares:
a) Articles to authorise.
b) Board to recommend to the shareholders.
c) Company not a defaulter in payment of interest or
principal in respect of fixed deposit and debt securities.
d) No default in payment of any statutory dues and
employees’ dues.
No bonus shares shall be issued in lieu of dividend.
Recommendation of the Board of a bonus issue
cannot be withdrawn subsequently
•47
Reduction of Capital (Sec 66)
No reduction of share capital permitted if thecompany is in arrears of repayment of anydeposits accepted by it.
Tribunal shall give notice to Central Government,ROC and SEBI (in case of listed companies) andcreditors and take into consideration anyrepresentation.
If no representation is received within threemonths, it shall be presumed that they have noobjection to the capital reduction.
•48
Reduction of Capital (cont.)
Auditor’s certificate to be filed to the effect that
accounting treatment proposed by the company
for capital reduction is in conformity with the
accounting standards specified under Section 133.
Order of the Tribunal confirming Capital Reduction
to be published by the Company as directed by
the Tribunal.
Concealing the name of creditors will attract
penalty.
•49
Reduction of Capital (cont.)
If any officer of the company:
a) Knowingly conceals the name of any
creditors;
b) Knowingly misrepresents the amount of
claim of any creditor; OR
c) Abets or is privy to such
misrepresentation
he shall be punishable under section 447.
•50
Buyback of shares (S.68)
Buyback of shares from ‘odd lots’ is deleted.
No buyback within a period of one year from thedate of preceding offer of buyback whether madepursuant to either Board approval or shareholders’approval.
Note: SEBI Buyback Regulations, 2013 effective08.08.2013 inter-alia provide for the following:
(a) Buyback in excess of 15% only through tender offer
(b) At least 50% of amount earmarked to be used forBuyback
(c) Buyback through Stock Exchange – 6 months
(d) Escrow mechanism for buyback
•51
Debentures (Section 71)
A company issuing Debentures to create DebentureRedemption Reserve Account out of profits of the company.
- 50% of the amount raised
- Investment in unencumbered liquid securities 15%before 30th April every year
A company making an offer to the public or membersexceeding 500 for subscription of debentures to appointone or more Debenture Trustees
No secured debentures to be redeemed beyond 10 years; Acompany engaged in setting up infrastructure projects notexceeding 30 years
•52
MANAGEMENT &ADMINISTRATION
(SECTION 88-122)
•53
ANNUAL RETURN (SEC 92)
Number of new requirements introduced
Annual Return to contain particulars as they stood onthe close of the financial year (Presently particularsas on date of AGM required)
Following additional information to be provided :
principal business activities of the company
particulars of company’s holding company, subsidiaryand associate companies
Particulars of other securities (other than shares anddebentures) and holding pattern
Particulars of members and debenture holders alongwith changes therein since the close of the previousfinancial year (Once in 5 years provision does notcontinue)
•54
ANNUAL RETURN (SEC 92) (CONTD..)
Particulars of promoters, directors and keymanagerial personnel along with changes thereinsince the close of the last financial year (presentlyparticulars of directors, manager and companysecretary required)
Meetings of members or a class of members, Boardand its various committees along with attendancedetails
Remuneration of directors and key managerialpersonnel
Penalty or punishment imposed on the company, itsdirectors or officers and details of compounding ofoffences and appeals made against such penalty orpunishment
•55
ANNUAL RETURN (SEC 92) (CONTD..)
Matters related to certification of compliances,disclosures as may be prescribed
Details in respect of shares held by or on behalfof FIIs indicating their names, addresses,countries of incorporation, registration andpercentage of shareholding held by them
Such other matters as may be prescribed
•56
RETURN OF CHANGES IN PROMOTER’S
STAKE (SEC 93)
• This is a New requirement
• Every listed company to file a return inthe prescribed form with ROC, change inthe number of shares held by promotersand top ten shareholders, within 15 daysof the change
• PIT Regulations of SEBI prescribe thresholdlimits for intimating stock exchanges forchange in the Promoters’ holding; no suchlimit is specified in the Section.
•57
ANNUAL GENERAL MEETING (SEC 96)
• Existing provisions continue except that first
AGM shall be held within 9 months from the
date of closing of the first financial year
(presently it is 18 months from date of
incorporation)
• OPC need not hold AGM
• AGM can be called during business hours, that
is between 9.00 a.m. and 6.00 p.m. on any
day that is not a National Holiday
• AGM can be held on a public holiday
(Sunday)
•58
NOTICE OF MEETING (SEC 101)
• 21 clear days’ notice either in writing or inelectronic mode
• Notice of every meeting to be given to everydirector of the company (New Provision)
• ‘Electronic Mode’ means communication sentby the company to the person entitled at thelast electronic mail address provided by themember
•59
STATEMENT ANNEXED TO NOTICE (SEC 102)
Explanatory Statement should set out :
Nature of concern or interest, financial or otherwise ofevery director, manager, if any, every other KMP andtheir relatives, concerning each item of special businessto be transacted
Any other information and facts that may enable themembers to understand the meaning, scope andimplications of the items of the business and to takedecision thereon
Where any special business relates to or affects any othercompany, the extent of shareholding, interest in that othercompany of every promoter, director, manager or other keymanagerial personnel of the first mentioned companyshould be set out in the Explanatory Statement if theiraggregate holding is not less than 2 % of the paid upshare capital of that other company. (presently the limit is20%)
•60
STATEMENT ANNEXED TO NOTICE (SEC 102)
(CONTD..)
Any benefit accruing to any of the said
persons or their relatives, on account of non-
disclosure or insufficient disclosure, either
directly or indirectly, it shall be held in trust
for the company and the person shall be liable
to compensate the company to that extent
For default in complying – fine may extend
to Rs. 50,000 or five times, the amount of
benefit accruing, whichever is more
•61
QUORUM (SEC 103)
In case of a public company, unless articles provide forlarger number -
a) 5 members personally present if total numberof members as on the date of meeting is notmore than 1000
b) 15 members personally present if totalnumber of members as on the date ofmeeting is more than 1000 but up to 5000
c) 30 members personally present if totalnumber of members as on the date ofmeeting exceeds 5000
In case of private company – 2 members personallypresent
•62
QUORUM (SEC 103) (CONTD..)
• Meetings called by requisitionists shall stand
cancelled for lack of quorum
• Any other meeting shall stand adjourned to the
same day, same time and same place in the
next week or to such other date, time and place
as the Board may determine
• Such adjourned meeting shall require not
less than 3 days notice to be given
individually or by newspaper advertisement
• At such adjourned meeting also, if quorum is
not present within half an hour, members
present shall be the quorum
•63
PROXIES (SEC 105)
Proxy not to act on behalf of such member or such
number of members not exceeding 50 and holding
in the aggregate not more than 10% of the total
share capital carrying voting rights.
A member of a company registered with
Charitable objects cannot appoint any other
person as his proxy unless such other person is
also a member of such company
Voting through electronic means (Sec 108)
Every listed company or a company having 500 or
more shareholder may provide the facility for e-
voting; A company opting to provide e-voting facility
to follow procedure set out in the draft rules.
•64
DEMAND FOR POLL (SEC 109) Poll can be demanded by members present in person
or by proxy and holding not less than one-tenth ofthe total voting power or holding shares on whichnot less than Rs. 5 lac is paid up (presently Rs.50,000)
POSTAL BALLOT (SEC 110)
Provisions applicable to both unlisted and listedcompanies
Ordinary business and any business in respect ofwhich directors or auditors have a right to be heard atany meeting cannot be transacted by means of postalballot.
Resolution deemed to be passed on the date ofdeclaration of the result.
•65
RESOLUTIONS REQUIRING SPECIAL NOTICE (SEC 115)
• To move such a resolution members should
hold not less than one per cent of total
voting power or hold shares on which an
aggregate sum of not less than one lakh
rupees has been paid up on the date of the
notice.
• The criteria given under this section varies
from that given under section 109 (demand
for poll)
•66
RESOLUTIONS AND AGREEMENTS TO BE FILED (SEC 117)
• This section corresponds to existing section 192 of1956 Act which requires special resolutions, etc. tobe filed with ROC within 30 days
• Additional requirement is to file resolutions required tobe passed by the Board of directors at a meeting asper section 179 (3)
• Section 179(3) corresponds to existing section 292 of1956 Act with some additional items like, approving offinancial statements, approving amalgamation,merger, takeover, etc.
• Presently there is no requirement to file Boardresolutions other than those relating to terms ofappt of MD, with ROC
•67
REPORT OF AGM (SEC 121)
• New requirement
• Every listed company to prepare a report in prescribed
manner of each AGM including a confirmation that
the meeting was convened, held and conducted as
per the provisions of the Act and the rules made
thereunder
• The Report to be signed by the Chairman of the
meeting
• Such report to be filed with RoC within 30 days of the
conclusion of AGM
• For failure to file the report - company punishable with
fine from Rs 1 lac to Rs. 5 lacs and every officer who
is in default – with fine from Rs. 25,000 to Rs. 1 lac
•68
• Register of Directors and Key Managerial
Personnel and their holding (Section 171)
• Register of Contracts or Arrangements in
which directors are interested (Section 189)
• These Registers shall remain open and
accessible during the continuance of every
AGM to any person attending the meeting
(including proxy and Authorized
Representative)
•69
REGISTERS TO BE KEPT OPEN AT AGM
OPC –APPLICABILITY OF THE PROVISIONS OF
THIS CHAPTER (SEC 122)
• Provisions of sections 98 and 100 to 111 relating to
meetings not applicable to OPC
• OPC not required to hold AGM
• Where there is only one director on the Board of OPC,
resolution to be entered in minutes book , dated and signed
by such director.
• Such date shall be deemed to be the date of Board meeting
• In case of ordinary or special resolution to be passed at
general meeting, the resolution should be communicated
by the member to the company, entered in the minutes
book, signed and dated by the member. Such date shall be
deemed to be the date of the general meeting
•70
OPC –APPLICABILITY OF THE PROVISIONS OF
THIS CHAPTER (SEC 122)
• Provisions of sections 98 and 100 to 111 relating to
meetings not applicable to OPC
• OPC not required to hold AGM
• Where there is only one director on the Board of OPC,
resolution to be entered in minutes book , dated and signed
by such director.
• Such date shall be deemed to be the date of Board meeting
• In case of ordinary or special resolution to be passed at
general meeting, the resolution should be communicated
by the member to the company, entered in the minutes
book, signed and dated by the member. Such date shall be
deemed to be the date of the general meeting
•71
DECLARATION AND PAYMENT OF
DIVIDEND (SECTIONS 123-127)
•72
DECLARATION OF DIVIDEND (SEC 123)
• Transfer of profits to reserves is optional
• In case of inadequate or no profits, dividend canbe paid from accumulated profits and transferredto reserves, only in accordance with rules as maybe prescribed. Draft Rules prescribe.
• Dividend can be declared only out of freereserves
• No dividend can be declared if there is defaultin connection with acceptance / repayment ofdeposits and such default continues
•73
INTERIM DIVIDEND
Board of directors may declare interim
dividend out of –
surplus in profit and loss account
profits from current financial year
In case of loss in the current financial year
up to the end of the immediately preceding
quarter - rate not to be higher than the
average dividends for the immediately
preceding three financial years
•74
UNPAID DIVIDEND ACCOUNT (SEC 124)
• Within 90 days from the date of transfer to Unpaid
dividend account (i.e. 127 days from declaration),
statement containing names, addresses and
amounts due to each person shall be placed on the
web-site of the company, if any, and also any
other web-site approved by CG
• Dividend remaining unpaid or unclaimed dividend
along with interest accrued to be transferred to
IEPF at the expiry of 7 years from the date of
transfer to unpaid dividend account
•75
UNPAID DIVIDEND ACCOUNT (SEC 124) (CONTD..)
• All shares in respect of which unpaid or unclaimed
dividend has been transferred to IEPF shall also be
transferred in the name of IEPF along with a
statement containing such details as may be
prescribed
• Claimants may apply to claim such shares in prescribed
manner
• Provision similar to Clause 5A of Listing agreement
but impractical as these may not be shares which
are unclaimed or undelivered
•76
ACCOUNTS OF COMPANIES
(SECTIONS 128-138)
•77
BOOKS OF ACCOUNT, ETC. TO BE KEPT BY
COMPANY (SEC 128)
• Books of account and other relevant papers and financial
statement may be kept in electronic mode
• Any director may inspect books of account at the
registered office of the company during business hours
and copies of any financial information maintained outside
the country shall also be produced for inspection subject
to such conditions as may be prescribed
• Inspection in respect of any subsidiary shall be done
by a person authorized by a resolution of the Board of
Directors
• MD, WTD – in charge of finance, CFO or other person
charged by the Board with the duty to comply with this
section – shall be liable for contravention
•78
FINANCIAL STATEMENT (SEC 129, 136)
• Financial statement (FS) to be in the form specified in
Schedule III
• Form similar to Schedule VI notified by MCA, except that
it contains general instructions for preparation of
consolidated financial statements
• FS to be in accordance with accounting standards
• Consolidated FS mandatory if a company has one or
more subsidiaries; CFS necessary at each level
• Definition of ‘Subsidiary’ in the Act is at variance from the
definition under AS-21. The definition under AS-21 should
be followed; Draft Rule 9.4 provides that Consolidation
of FS shall be in accordance with Accounting
Standards
•79
• Subsidiary to include ‘associate’ and ‘joint venture’
for consolidation
• Consolidated FS should be also placed before AGM for
approval
• Abridged B/S and P&L may be circulated
• Consolidated FS and subsidiary accounts to be
placed on website
•80
FINANCIAL STATEMENT (SEC 129, 136)
REOPENING OF ACCOUNTS (SEC 130)
• This is a new provision
• Books of account can be reopened or FS recast, if:
earlier accounts were prepared fraudulently; or
affairs of company were mismanaged during the relevant
period
Application by CG, SEBI, I. Tax and other statutory
authorities
No time limit for reopening of past accounts
• Order of competent Court or Tribunal required
• Representations from CG, income-tax authorities, SEBI
or any other Statutory authority to be considered by
Court or Tribunal
• Revised or recast accounts to be final
•81
VOLUNTARY REVISION OF FS OR BOARD’S
REPORT (SEC 131)
• Directors may prepare revised FS or revised BR in
respect of any of the preceding 3 financial years, if
the FS or BR is not in compliance with sections 129 or
134, respectively
• Approval of Tribunal required
• Tribunal to give notice to CG and income-tax
authorities (not SEBI or any Statutory Authority) and
consider representations, if any
• Such revisions shall be prepared or filed not more
than once in a financial year
• Detailed reasons for revision to be given in Board’s
report in the relevant financial year in which revision is
made
•82
NATIONAL FINANCIAL REPORTING AUTHORITY
(NFRA) (SEC 132)
• CG to constitute NFRA
• NFRA to provide for matters relating to accounting and
auditing standards / Policies for adoption by companies and /
or Auditors
• NFRA to monitor and enforce the Compliance with accounting
standards and Auditing standards
• NFRA to have quasi-judicial powers for adjudication and have
power to investigate into matters of Professional or other
misconduct committed by any member of ICAI who is in
practice
• No other institute or body to initiate or continue
proceedings in such matters of misconduct in which
NFRA has initiated investigation
•83
FINANCIAL STATEMENT (SEC 134)
• Financial statement including consolidated FS to
be approved by Board of directors
• To be signed on behalf of the Board by :
Chairperson alone if authorised by Board ; or
Two directors out of which – one to be MD,
and CEO if he is a director; and
One director in case of OPC
• CFO and CS to also sign wherever appointed,
except in case of OPC
•84
BOARD’S REPORT (SEC 134)
Board’s report to also include:
Extract of annual return as prescribed
Number of meetings of Board
Statement on independent directors’ declaration
Company’s policy on appointment and
remuneration of directors (Applicable to listed
company and companies prescribed)
Explanation for qualifications or adverse remark in
the auditor’s report and secretarial audit report
Particulars of loans, guarantees or investments by
the company under section 186
•85
BOARD’S REPORT (SEC 134) (CONTD..)
Particulars of contracts or arrangements withrelated parties
Statement indicating development and implementationof risk management policy
CSR policy and implementation
In case of listed company and other public company asmay be prescribed – statement that formal annualevaluation has been made by the Board of its ownperformance, its committees and individualdirectors
A separate section wherein report on theperformance and financial position of eachsubsidiary, associate and joint venture to be given
•86
BOARD’S REPORT (SEC 134) (CONTD..)
Additional reporting required: (culled out from othersections)
Detailed reasons for revision of financial statements
Composition of CSR Committee
Reasons for failure to spend the required amount on CSRPolicy
Reappointment of independent directors for second term of 5years
Resignation of directors
Details of establishment of vigil mechanism for directors andemployees
Policy for determining independence of directors andremuneration for directors, KMP and other employees
•87
BOARD’S REPORT (SEC 134) (CONTD..)
Ratio of remuneration of each director to medianemployees’ remuneration
Remuneration received by MD or WTD from holding orsubsidiary company
Secretarial audit report to be annexed
In case of OPC, Board’s report to contain explanationson comments or adverse remarks in auditor’s report –no other details required
Board’s Report to be signed by:
Chairperson if authorized by Board; or
At least 2 directors, one to be MD, if any
In case of OPC by one director, if there is onlyone director
•88
DIRECTORS’ RESPONSIBILITY STATEMENT
(SEC 134)
Directors’ Responsibility Statement to also
state that:
directors, in case of a listed company, had laid
down internal financial controls to be followed by
the company and that such internal financial
controls are adequate and were operating
effectively
the directors had devised proper systems to
ensure compliance with the provisions of all
applicable laws and that such systems were
adequate and operating effectively
•89
CORPORATE SOCIAL RESPONSIBILITY (CSR) (S.135)
• New requirement; Section effective April 01, 2014
• CSR committee to be constituted by 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
• CSR committee - 3 or more directors, one independent
director
• Composition of the committee to be disclosed in Board’s
Report
• CSR committee to formulate CSR policy, recommend
expenditure to be incurred and monitor the policy
•90
CORPORATE SOCIAL RESPONSIBILITY
(CSR) (S.135) (CONTD..)
• Board to approve CSR policy and disclose the contents ofthe Policy and ensure activities included in the policy areundertaken
• CSR policy to be placed on web-site of company
• Board shall ensure that at least 2% of average netprofits during three immediately preceding financial yearsis spent in every financial year in pursuance of CSR policy
• Profit from overseas branch of the Company and dividendreceived from other companies in India will be included inthe ‘net profit’
• Company to give preference to local area around it forspending the amount earmarked for CSR activities
• Failure to spend to be reported in Board’s report withreasons
•91
INTERNAL AUDIT (SEC 138)
• New provision
• Appointment of Internal Auditor by:
(a) Every Listed company
(b) Every public company having paid-up capital of Rs 10 crore ormore
(c) Every other public company having outstanding borrowings frombanks, Public Financial Institutions exceeding Rs 25 crore ordeposits of Rs 25 crore at any point of time
• Appointment by Board
• CG to make rules to prescribe the manner and intervals forconduct of internal audit and reporting to Board
• As per Draft Rule Audit Committee to formulate scope,functioning, periodicity and methodology for conductinginternal audit
Comments
• Private Companies are exempt unless they are listed companies
•92
AUDIT AND AUDITORS
(SECTIONS 139-148)
•93
APPOINTMENT OF AUDITORS (SEC 139)
Companies other than Government Companies:
First auditor by Board within 30 days of registration.
Members within 90 days if Board fails to appoint.
Auditor to hold office till first AGM.
Reappointment from 1st AGM to 6th AGM and thereafter tillconclusion of every sixth meeting.
The company to place the matter relating to appointment ofAuditors for ratification at every AGM
Written consent of auditor necessary in addition to hiseligibility certificate.
Company (not the auditor) to inform ROC the appointmentof Auditor within 15 days of the meeting.
•94
APPOINTMENT OF AUDITORS (SEC 139)
(CONTD..)
• No listed company or other companies (excluding OPCsand small companies) to appoint / reappoint auditors:
If individual - not more than one term of 5 years;
If firm (including LLP) - not more than two terms of 5years;
Eligible for re-appointment after a break of 5 years
• As on date of appointment no audit firm having acommon partner or partners to the other audit firm,whose tenure has expired in a company shall beappointed as auditor of the same company
• Members may resolve for rotation of the auditing partnerand audit to be conducted by more than one auditor.
•95
APPOINTMENT OF AUDITORS (SEC 139)
(CONTD..)
In the case of a Government Company
• First auditor to be appointed by CAG within 60 daysof registration.
• If CAG fails, the Board to appoint within next 30days.
• If Board fails, members to appoint within next 60days.
• Every year CAG to appoint within 180 days from thebeginning of the financial year.
•96
CASUAL VACANCY IN THE OFFICE OF
AUDITOR (SEC 139) (CONTD…)
•Other than a Government Company
Board to appoint within 30 days
Casual vacancy due to resignation, EGM to appoint
within 3 months of the recommendations of the Board
•In case of a Government Company
CAG to appoint within 30 days
If CAG fails, the Board within next 30 days
•General
In AGM if no auditor is appointed, existing auditor to
continue
Audit Committee to recommend appointment of auditors
including casual vacancy
•97
REMOVAL AND RESIGNATION OF AUDITOR
(SEC 140)
• Removal by a special resolution with prior CentralGovernment approval
• Auditor resigning to file within 30 days a statement inprescribed form stating reasons & facts for resigningwith company and ROC
• In the case of a Government Company the statement tobe also filed with CAG
• Auditors’ representation in case of removal need not becirculated or read out at the meeting if the Tribunalviews that rights are being abused by the Auditor.
•98
REMOVAL AND RESIGNATION OF AUDITOR (SEC
140) (CONTD..)
• Tribunal may suo motu on reference by CG /application by any person concerned direct thecompany to change auditors, if auditor has actedfraudulently
• Tribunal to pass an order for removal of an auditor ifCentral Government makes an application and CGmay appoint another auditor
• The auditor so removed not eligible to be appointed asauditor of any company for 5 years and liable for actionunder section 447
• In case the Auditor is a firm, the liability shall be of thefirm and the concerned partner who acted fraudulently.
•99
ELIGIBILITY, QUALIFICATIONS (SEC 141)
• Effective Date not notified as yet
• CA in practice –
• In case of firm, majority of the partners practicing in
India should be qualified to be appointed
• In case of LLP, only partners who are CAs in
practice to act and sign.
•100
DISQUALIFICATIONS (SEC 141)
New Disqualifications include :
• The CA or his relative or partner
a) Not to hold any securities or interest in the company or itssubsidiary or its holding company or its associatecompany or co-subsidiary
Relative may hold security or interest in the company of face value notexceeding Rs. One lakh
b) Not to be indebted to the company or its subsidiary or itsholding company or its associate company or co-subsidiary in excess of Rs One lakh.
c) Not to give a guarantee or provide security in connectionwith a loan to the company or its subsidiary or its holdingcompany or associate company or co-subsidiary inexcess of Rs One Lakh
•101
DISQUALIFICATIONS (SEC 141) (CONTD..)
• The CA’s relative is a director of the company
or is in the employment of the company or is
a KMP.
• A person who is in full time employment
elsewhere
• A person or partner of a firm is an auditor in
more than 20 companies
• The CA who has been convicted by a court
for an offence involving fraud and 10 years
has not elapsed from such conviction.
•102
POWERS AND DUTIES OF AUDITORS (SEC 143)
• Auditor of holding company – to have access to the records of
all subsidiaries for consolidation purpose
• Auditors to report certain additional matters, namely:
(a) Whether he has sought and obtained all information and
explanations for the purpose of audit and if not details thereof
and effect thereof on financial statements
(b) The observations / comments of the auditors on financial
transactions or matters which have adverse effect on the
functioning of the company
(c) Whether the company has adequate internal financial controls
system in place and the operating effectiveness of such control
(d) *Whether the company has disclosed the effect, if any, of pending
litigations on its financial position in its financial statement.
•103
(e) *Whether the Company has made provision for
forseeable losses, if any, on long term contracts
including derivative contracts.
(f) *Whether there has been delay in depositing money
into IEPF by the company
• Auditor to comply with Auditing Standards
• Auditors’ report to state reasons for any negative
observation or disqualifications
* Draft Rules
•104
POWERS AND DUTIES OF AUDITORS (SEC 143)
Fraud Reporting:
1. An Auditor, Cost Accountant and Company Secretary in Practice in
the course of performance of his duties has reason to believe that
offence involving fraud is being committed or has been committed
against company by officers and employees of the company which
materially affects the company, he shall report the same to the
Central Government not later than 30 days of his knowledge with a
copy to the Audit Committee. Materiality means fraud where the
amount involved is not less than 5% of net profit or 2% of the Turnover
for the preceeding Financial Year.
2. Frauds which are not material should be reported by the Statutory
Auditors to the Audit Committee / Board of Directors
3. Audit Committee / Board to reply in writing the steps taken to
address the fraud
4. If auditor is not satisfied he shall report to Central Government even if
the fraud is not material
5. The Report shall be in the form of a statement as prescribed in the Draft
Rules •105
POWERS AND DUTIES OF AUDITORS (SEC 143)
AUDITOR NOT TO RENDER CERTAIN SERVICES (SEC 144)
• Following services shall not be rendered, directly or indirectly, to thecompany, its holding company or subsidiary company by theAuditors:
a) Accounting and book-keeping services;
b) Internal Audit;
c) Design and implementation of any financial information system;
d) Actuarial services;
e) Investment advisor / banking services;
f) Management services.
• Transitional period available to auditors – Auditors providing non-audit
services shall comply before the closure of the first financial year
after commencement of the Act
• Non auditing services can be rendered to an associate company
• An Auditor can provide to the Company only such other services
as are approved by the Board / Audit Committee
•106
OTHER PROVISIONS (SECTIONS 145 TO 147)
• Qualifications, observations or comments in auditor’sreport having adverse effect should be read out;Therefore, unqualified Auditors’ Report need not beread out (S. 145)
• Auditor or his representative, qualified to be an auditorto attend any general meeting of the company. (S. 146)
• Role of Auditor has been expanded
- Can we say he is moving from the role of a watch dog toa blood hound?
- From certifying Financial Statement whether it reflects atrue and fair view to report fraud if it has come to hisnotice
- Shift of his responsibility towards shareholders to allstakeholders including govt authorities and regulators likeincome-tax authorities
•107
• Prosecution by NFRA [Sec 132(4)(c)]
(a) On matters of professional or other misconduct if proved:
- Penalty not less than Rs One Lakh but extending to five timesof fees received in case of individual
- Penalty not less than Rs Ten Lakh but extending to Ten Timesof fees received in case of firms
- Debarring the member from practice for a minimum period ofsix months extending to ten years as may be decided by NFRA
•108
OTHER PROVISIONS (SECTIONS 145 TO 147)
• Class Action
Members or depositors may claim for any improper ormisleading statement made in the Audit Report or for anyfraudulent, unlawful act or conduct
• Penal provisions for non-compliance of Sections 139,143, 144, 145 willfully by Auditors – non compoundable
• In case convicted, auditor / audit firm
to refund remuneration received
to pay for damages to company or any other personsfor loss arising out of incorrect or misleadingstatements in audit report
• In case of fraud – concerned partner or partners andaudit firm will be liable jointly and severally
•109
OTHER PROVISIONS (SECTIONS 145 TO 147)
COST AUDIT (SEC 148)
• Central Government may direct by order for conductingaudit of cost records of Companies having networth asmay be prescribed
• Cost auditor to be appointed by Board
• Members to determine Cost Auditor’s remuneration
• Cost auditor to give his report to the Board.
• Company to forward the Cost Audit Report to the CentralGovernment within 30 days of receipt of report
• Penal provisions similar to that of auditor of the company
• Cost Auditor to comply with Cost Auditing Standardsissued by ICWAI
•110
•111
APPOINTMENT AND
QUALIFICATIONS OF
DIRECTORS (SEC 149-172)
APPOINTMENT & QUALIFICATIONS OF DIRECTORS (SEC 149)
• Maximum 15 directors
• Special resolution required for more than 15 directors.
• Every listed company to appoint at least one woman directorwithin one year; other public companies having a paid upcapital of Rs 100 crore or more or turnover of Rs 300 crore ormore to appoint at least one woman director within 3 years
• At least one director to stay in India for not less than 182days in the previous calendar year.
• Listed company to have 1/3rd of the total directors asindependent directors within one year; other public companieshaving a paid up capital of Rs 100 crore or more or turnover ofRs 300 crore or more having outstanding loan of Rs 200 croreor more to have 1/3rd Board strength as Independent Directorwithin 1 year
• Independent director defined exhaustively.
•112
• Every independent director to give declaration every yearthat he is independent.
• Independent directors to abide by the code –Schedule-IV.
• The Code inter alia sets out (a) Role and functions ofIndependent Directors (b) their duties (c) manner ofappointment (d) holding of at least one meeting in ayear without the attendance of non-independentdirectors and members of management
• No remuneration other than sitting fee, commission onprofit and reimbursement of expenses
• No stock Option to Independent Directors
• Independent director to hold office up to 5 consecutiveyears
• Reappointment on passing a special resolution for nextfive years and disclosure in Board’s Report.
•113
• Break of three years necessary for reappointment.
• No association with the company directly orindirectly in any capacity in the said three years.
• Existing tenure of the independent director notto be counted.
• Independent director not liable to retire by rotation.
• Explanatory statement to the notice required incase of appointment of independent director thathe fulfills the conditions specified in the Act.
• Independent director to be excluded whilecomputing directors retiring by rotation inevery AGM.
•114
RIGHT OF PERSONS OTHER THAN RETIRING DIRECTORS TO
STAND FOR DIRECTORSHIP (SECTION 160)
Proposal for appointment of director with noticeand deposit of Rs. 1 lakh – 14 days beforemeeting.
Deposit to be refunded if the person gets electedor gets more than 25% of the valid votes cast in hisfavour
•115
NUMBER OF DIRECTORSHIPS (SEC 165)
No person to hold office more than in 20 companiesincluding alternate directorship and directorship inprivate companies.
Maximum 10 public companies including privatecompanies which are either holding or subsidiary of apublic company.
Only directorship in companies incorporated outsideIndia excluded.
Members, by special resolution, may specifylesser number.
Excess than specified here to be regularized withinone year from commencement of the Act.
•116
DUTIES OF DIRECTORS (SECTION 166)
Similar to UK Companies Act, 2006
Duties of Directors are as under:
a) A director of a company shall act in accordance with
the company’s Articles.
b) A director of a company shall act in good faith in order
to promote the objects of the company for the benefit
of its members as a whole and in the best interests of
the company, its employees, the shareholders, the
community and the environment.
c) A director of a company shall exercise his duties with
due and reasonable care, skill and diligence and shall
exercise independent judgement.
•117
d) A director of a company shall not involve in a situation
in which he may have a direct or indirect interest that
conflicts or possibly may conflict, with the interest of
the company.
e) A director of a company shall not achieve or attempt to
achieve any undue gain or advantage either to himself
or his relatives, partners or associates and if such
director is found guilty of making undue gain, he shall
be liable to pay an amount equal to that gain to the
company.
f) A director of a company shall not assign his office and
any assignment so made shall be void.
•118
RESIGNATION OF DIRECTOR (SECTION 168)
Board to take note of resignation when received in
writing and inform ROC and include in the Directors’
Report.
Director to forward copy of resignation with detailed
reasons for resignation to ROC within 30 days.
Resignation to take effect from the date of receipt of the
notice by the company or the date specified by the director
whichever is later.
Promoters or in their absence, the Central
Government to appoint minimum directors if all
directors resign.
•119
REMOVAL OF DIRECTORS (SECTION 169)
Special notice required to remove a director or appoint
some one in his place upon removal.
Company to send copy of the Special notice to the
director
Company to send representation, if any, received from
director to members or to be read out at the meeting.
Director removed shall not be reappointed as director by
the Board.
The directors appointed according to principle of
proportional representation or by the Tribunal under
Section 242 (oppression and mismanagement)
cannot be removed.
•120
•121
MEETINGS OF BOARD AND ITS
POWERS (SEC 173 - 195)
MEETINGS OF BOARD (SEC 173)
First meeting within 30 days of incorporation.
Minimum 4 meetings – gap not more than 120 days.
Participation through video conferencing permitted; Every director to
attend at least one meeting in a financial year in person; Approval of
annual financial statements and Board’ Report shall not be dealt with
through video conferencing or other audio visual means.
Central government to specify such matters which shall not be
dealt with through video conferencing.
Notice for meeting not less than 7 days.
Shorter notice permitted to transact urgent business - at least
one independent director to be present at the meeting; if not, at least
one independent director should ratify decisions of such meetings.
OPC, small company, dormant company to hold at least one
meeting in each half year with gap not less than 90 days.
This requirement is not applicable where OPC has only one director.
•122
PASSING OF RESOLUTIONS BY
CIRCULATION (SEC 175)
Resolution by circulation to be withdrawn if
not less than 1/3rd of the Board require it to
be passed in a meeting of the Board; Such
restriction does not apply to resolution by
circulation passed by Board Committees
The resolution by circulation to be noted in
the subsequent meeting and to form
minutes of such meeting.
•123
AUDIT COMMITTEE (SECTION 177)
Additional requirements / features vis-à-vis Clause 49:
Terms of reference includes:
Committee to review and monitor the auditors’ independence
and performance and effectiveness of audit process.
Approval or any subsequent modification of
transactions with related parties.
Scrutiny of inter-corporate loans and investments.
Valuation of undertakings or assets of the company.
Evaluation of Internal financial controls and risk
management systems
Details of establishment of a vigil mechanism
(whistle blower) for directors and employees to
report genuine concerns to be disclosed on
company’s website.
•124
NOMINATION AND REMUNERATION
COMMITTEE (SEC 178)
• Listed company and other public companieshaving paid up capital of Rs 100 crore or more orhaving outstanding loans exceeding Rs 200 croreto constitute NRC comprising 3 or more non-executive directors and not less than half to beindependent directors [Refer ListingAgreement].
• NRC to identify persons qualified to becomedirectors of the company.
• NRC to identify persons qualified to be appointedin ‘senior management’ (members of the coreteam one level below executive directors includingfunctional heads)
•125
• NRC to carry out evaluation of everydirector’s performance.
• NRC to formulate a policy relating to theremuneration of directors, KMPs and otheremployees.
• Policy formulated by NRC to be disclosedin Board’s report.
•126
STAKEHOLDERS’ RELATIONSHIP
COMMITTEE (SEC 178)
• SRC to be constituted in a company having morethan 1000 SH/DH/Deposit holders/other securityholders.
• SRC chairman to be a non-executive director.
• SRC to consider and resolve grievances ofstakeholders.
• Chairperson of NRC & SRC or any member of therespective committee authorised by the Chairpersonto attend general meeting of the company.
Note: Not a must for Chairman of the AuditCommittee to attend AGM. But essential underlisting agreement.
•127
POWERS OF BOARD (SEC 179)
Board to exercise the following powers only at its meeting:
To make calls on shares
To authorise buy-back of securities
To issue securities including debentures.
To borrow monies, invest funds of the company and grantloans or give guarantee in respect of loans
To invest the funds of the company
To grant loans or give guarantee or provide security inrespect of loans
To approve financial statement and directors’ report.
To diversify the business of the company.
To approve amalgamation, merger, reconstruction.
To takeover a company / acquire substantial stake in anothercompany.
•128
To make political contributions
To fill Casual Vacancy in the board
To enter into JV / Technical or Financial Collaboration
To commence new business
To shift location of a plant / factory or registered office
To appoint or remove KMP and senior management
personnel one level below KMP
To appoint Internal Auditors
To adopt common seal
To take note of the disclosure of directors’ interest and
shareholding
•129
POWERS OF BOARD (SEC 179)
To sell investments held by company constituting 5%
or more of the share capital and free reserves of the
investee company
To accept public deposits
To approve quarterly / half-yearly/ annual financial
results
Corporate Social Responsibility Policy (Sec 135)
To enter into contract with related party (Sec 188)
To appoint MD / WTD / Manager (Sec 196)
•130
POWERS OF BOARD (SEC 179)
RESTRICTIONS ON POWERS OF BOARD (SEC 180 & 181)
Shareholders to grant consent only by special resolution.
‘Undertaking’ & ‘substantially the whole of the undertaking’defined.
Undertaking means an undertaking in whichinvestment of the company exceeds 20% of itsnetworth and or an undertaking which generates 20%of total income of the company.
‘Substantially the whole of the undertaking’ means20% or more value of an undertaking, i.e. 4% ofnetworth or 4% of its total income.
Board may contribute to bonafide and charitable fundsupto 5% of average net profits of last 3 years, withoutshareholders’ approval.
Prior approval of shareholders would be required for contributionabove 5%
•131
LOAN TO DIRECTORS, ETC. (SEC 185)
No company to advance any loan or give guarantee in
connection with a loan to any director except to a
MD/WTD.
The members to approve by passing a special
resolution for giving any loan to MD/WTD if it is part
of service condition.
Loans in the ordinary course of business of the company
interest should not be less than the bank rate.
No company to advance any loan or give guarantee or
provide security in connection with a loan to any person
in whom the director is interested (explained in the
Act).
No Central Government approval required
•132
LOAN & INVESTMENT BY COMPANY
(SEC 186)
• Section 372A adapted with various changes.
• No company shall make investment through morethan two layers of investment companies,unless otherwise prescribed.
• The above stipulation will not affect:
a) A company from acquiring any other companyincorporated outside India and if such companyhas investment subsidiaries beyond two layers.
a) A subsidiary from having any investmentsubsidiary for meeting any law or rule.
•133
• Company to disclose in the financial statement fullparticulars of loans given, investment made orguarantee given or security provided and thepurpose for which the loan / guarantee to be utilisedby the recipient
• Rate of interest on inter Corporate Loans equated to theyield on Govt. Securities
• No company registered under section 12 of SEBI Actshall take inter-corporate loan or deposits exceedingthe prescribed limit.
• Separate carve outs for exempting the companies:
a) For purposes of giving loans / guarantees/ securityprovided.
b) For purposes of investment in securities.
•134
• Carve Out under (a) above applicable only to:
Banking company;
Insurance company;
Housing Finance Company.
Company engaged in financing of companies
Company providing infrastructural facilities.
NBFC Company registered under the RBI Act
• Conversely carve out under (b) not applicable to them
•135
• Carve out under (b) above applicable only to:
A NBFC company registered with RBI; and whoseprincipal business is acquisition of securities.;
A Company whose principal business is acquisitionof Securities
Shares allotted by way of rights.
• Penal provisions for non-compliance arestringent; the offence is non-compoundable.
•136
• Provisions of this section are applicable to
loans or guarantees given by a company to any
person including inter-corporate
• Exemptions not to continue for Loan, guarantee
and investment by a company to its wholly
owned subsidiary;
• No provision in the Act for scaling down the
existing limits already available.
• No specific exemption for private companies.
•137
RELATED PARTY TRANSACTIONS (SEC 188 & 189)
• No Company except with its Board approval at a meeting
can enter into any Related Party Transactions in respect of:
(a) Sale, purchase or supply of any goods or materials
(b) Sell / buy / lease property of any kind
(c) Avail / render any services
(d) Appointment of any agents for purchase / sale of goods,
materials, services or property
(e) Such related party’s appointment to any office or place of
profit in the company, its subsidiary or associate company
(new item) at a monthly remuneration exceeding Rs
1,00,000
(f) Underwriting the subscription of any securities or derivatives
of the company above Rs 10 lakh
•138
Any related party transactions entered into by the company
in its ordinary course of business and which are on
arm’s length basis (business conducted as if they are
unrelated so that there is no conflict of interest) not covered;
both the conditions to be fulfilled
Prior approval of Shareholders by a Special Resolution
required in case of company having a paid up capital of
Rs One Crore or more. OR In the case of transactions
between related parties the aggregate of which during a
financial year exceed 5% of the annual turnover or 20%
networth, whichever is higher
Interested members of the company shall not vote on such
special resolution, if such member is a related party.
Interested Directors not to be present and vote.
•139
Related Party Transactions
If Board / Shareholders approval not obtained, the contract
to be ratified within three months from the date of the
Contract
In case of RPT between a WoS and holding company,
special resolution passed by Holding Company will suffice;
similar clarification not given, in case of RPTs with co-
subsidiaries, Associate Companies and Joint Ventures
Boards’ report to furnish details of all related party
transactions with justifications.
Register of contracts in which directors are interested shall
remain open and accessible at every annual general
meeting for inspection by any person entitled to attend
the meeting (including proxies).
•140
Related Party Transactions
Particulars 2013 Act AS-18
1. Director or his relative Yes Yes. If the director can
affect the policies
2. KMP or his relative Yes Yes (If KMPs are MD
/WTD / Manager)
3. Firm in which a
director, manager or his
relative is a partner
Yes No
4. Private companies in
which a director or
manager is a member or
director
Yes No
•141
COMPARISON OF RELATED PARTIES BETWEEN
2013 ACT AND ACCOUNTING STANDARD - 18
Particulars 2013 Act AS-18
5. A Public Company in which a director
or manager is a director or holds along
with his relatives more than 2% of its
paid-up share capital
Yes No
6. Any body corporate whose Board of
Directors is accustomed to act in
accordance with the directions of a
director or manager
Yes No
7. Any company which is a holding
company, subsidiary company, co-
subsidiary company or associate
company
Yes Yes
•142
COMPARISON OF RELATED PARTIES BETWEEN
2013 ACT AND ACCOUNTING STANDARD - 18
Punishment on any director or employee who enters
into the contract in contravention of the Section
• The Company can proceed against the director or
employee for recovery of any loss sustained by it.
• In the case of a listed company he shall be punishable
with:
- Imprisonment up to 1 year or
- Fine from Rs 25,000 to Rs 5,00,000 or with both
• In case of any other company he shall be punishable
with:
- Fine from Rs 25,000 to Rs 5,00,000
•143
PUNISHMENT FOR VIOLATION OF SECTION 188
Coverage of related parties enhanced in 2013 Act:
• KMPs or their relatives
• Firm in which manager or his relative is a partner
• Private company in which the manager is a member or director
• Defacto directors
• Directorship in another public company
• Any company which is
(a) A holding company, subsidiary or an associate company of such
company; or
(b) A co-subsidiary of such company
• Any person appointed in senior management (one level below
executive directors including functional heads) of the company or its
holding company, subsidiary or associate company
•144
MAJOR CHANGES WITH RESPECT TO RPTS
Coverage of Related Party Transactions widened:
• Sell / buy / lease of property of any kind (tangible / intangible
including immovable properties)
• Appointment of any agents for purchase / sale of goods, materials,
services or property
• Such related parties’ appointment to any place of profit in the
company, its subsidiary company or associate company
Cash at prevailing market price now substituted with ‘arm’s
length transactions’ (defined in the Section)
All transactions with related parties to be included in Board’s Report
along with justifications for entering into such transactions
where they are not at arm’s length
Only non interested members can vote in general meeting on any
RPT by passing a special resolution. A paradigm shift towards
shareholders democracy
•145
MAJOR CHANGES WITH RESPECT TO RPTS
No Central Government approval required for any RPT
Though all arm’s length transactions in the ordinary
course of business with related parties are not required
to be approved by the Board or shareholders, they
would still require approval of the audit Committee
SEBI Board has approved on 13th February, 2014
various proposals to amend Listing Agreement with
respect to Corporate Governance norms for listed
companies which includes requisite approvals for
Related Party Transactions
•146
MAJOR CHANGES WITH RESPECT TO RPTS
RESTRICTION ON NON-CASH TRANSACTIONS
INVOLVING DIRECTORS (SEC 192)
Unless prior approval of shareholders’ taken, no
company to enter into an arrangement by which:
a) A director of the company or director of itsholding company, subsidiary company orassociate company or a person connected withhim acquires assets from the company forconsideration other than cash; or
b) The company acquires assets from such director orperson so connected for consideration other thancash.
•147
If the director or person connected with him is
a director of the holding company, approval of
shareholders of the holding company will also
be required.
The notice of the meeting shall include
particulars of the arrangement and value of
assets duly calculated by a registered valuer.
•148
PROHIBITION ON FORWARD DEALINGS (SEC 194)
No director or KMP can do forward dealings insecurities of the company, its holding, subsidiary orassociate company.
If he contravenes, he shall be punishable withimprisonment upto 2 years or fine upto five lakh rupees orwith both.
If a director or KMP acquires any securities incontravention of this section, he shall be liable tosurrender the securities to the company; in casesecurities are in demat form, the company to informdepository not to record such acquisition and thesecurities will continue to remain in the names of thetransferors.
•149
PROHIBITION OF INSIDER TRADING OF
SECURITIES (SEC 195)
No person (means outsider) including any directoror KMP of a company shall enter into insider trading.
Contravention of the provisions of this section, theperson concerned is punishable with imprisonmentextending to 5 years or fine upto 25 crore rupees orthree times the amount of profit made out of insidertrading, whichever is higher or with both.
•150
APPOINTMENT & REMUNERATION OF
MANAGERIAL PERSONNEL
(SECTIONS 196-205)
•151
APPOINTMENT OF MD / WTD /
MANAGER (SEC 196)
Persons between 21 years and 70 years can beappointed.
Persons above 70 years can be appointed bypassing a special resolution.
Appointment and remuneration to MD / WTD /Manager requires BOD approval at a meeting andapproval of shareholders by passing an ordinaryresolution at the next General Meeting.
Approval of Central Government is required if theappointment is at variance to the conditions specifiedin Schedule-V
•152
REMUNERATION TO MANAGERIAL PERSONNEL
(SECTION 197)
Sitting fees payable to a director (other than whole-
time director) shall not exceed rupees one lakh per
meeting of the Board or Committee thereof.
Every listed company to disclose in Board’s
report the ratio of the remuneration of each
director to the median employee’s remuneration
and such other details as may be prescribed.
Insurance premium paid to cover any liability on
behalf of KMP and WTD not to be treated as part of
remuneration unless the person is proved to be guilty.
•153
Insurance premium paid to cover director simplicitor willbe treated as part of remuneration.
MD / WTD receiving commission from the company canreceive remuneration or commission from any holdingcompany or subsidiary of such company with fulldisclosures in the directors’ report.
RECOVERY OF REMUNERATION (SEC 199)
Company to recover from past and presentMD/WTD/Manager or CEO excess remuneration paid(including Stock Option), if any, consequent torestatement of financial statements due to fraud ornon-compliance with any requirement under the Act.
•154
APPOINTMENT OF KMP (SEC 203)
Every listed company and every other company having a paid
up share capital of five crore rupees or more, to have:
a) MD or CEO or Manager and in their absence a WTD
b) Company Secretary and
c) Chief Financial Officer
An individual can be the chairperson as well as MD or
CEO at the same time if the Articles provide for the same
or the company is not carrying on multiple businesses;
such restriction would not apply if the company engaged
in multiple businesses appoints CEO for each such
business.
A KMP shall not hold office in more than one company except
in its subsidiary at the same time
Board Resolution to contain terms and conditions of
appointment and remuneration
•155
A KMP can be appointed as a director simplicitor
of any company with BOD approval.
A KMP holding office in more than one company to
choose one company in which he wishes to continue
within 6 months of the commencement of the Act.
MD / Manager of a Company may be appointed as
only MD of not more than one other Company
with the unanimous Board approval of the Company
appointing him as MD.
Vacancy in the office of KMP to be filled by the Board
within six months from the date of such vacancy.
•156
SECRETARIAL AUDIT (SEC 204)
Every listed company and every public
company having a paid up share capital of one
hundred crore rupees or more to annex with
Board’s report, a secretarial audit report.
Board of directors to explain in their report for
any qualification or observation made in the
secretarial audit report.
•157
FUNCTIONS OF COMPANY SECRETARY (SEC 205)
To report to the Board about compliance with the provisions ofthe Companies Act, rules made thereunder and other lawsapplicable to the company.
To comply with applicable secretarial standards.
To discharge the following duties namely:
1) To provide to the directors of the company, such guidance asthey may require, with regard to their duties, responsibilitiesand powers;
2) To convene and attend Board, committee and generalmeetings, and maintain the minutes of these meetings;
3) To obtain approvals from the Board, general meetings, theGovernment and such other authorities as required under theprovisions of the Act.
•158
4) To represent before various regulators, Tribunal and otherauthorities under the Act in connection with discharge ofvarious functions under the Act;
5) To assist the Board in the conduct of the affairs of thecompany;
6) To assist and advise the Board in ensuring goodcorporate governance and in complying with thecorporate governance requirements and best practices;and
7) To discharge such other duties as may be assigned bythe Board from time to time.
•159
FUNCTIONS OF COMPANY SECRETARY …(CONTD)
COMPROMISES, ARRANGEMENTS &
AMALGAMATIONS
(SECTIONS 230 TO 240)
•160
POWER TO COMPROMISE OR MAKE
ARRANGEMENTS (SEC 230)
Compromise or arrangements with creditors and members
Regulatory Authority is Tribunal (NCLT)
Corporate debt restructuring and takeover offer also
covered
Takeover offer of listed companies as per SEBI regulations
Reduction of share capital can be included in the scheme
and provisions of section 66 for reduction of capital
shall not apply
No buyback shall be sanctioned by Tribunal unless it is
in accordance with section 68
•161
POWER TO COMPROMISE OR MAKE
ARRANGEMENTS (SEC 230) – (CONTD.)
Persons who can object to the Scheme -
to hold not less than 10% shareholding or
5% outstanding debt as per latest audited
Financial Statement
Valuation report by registered valuer
Approval of majority representing three-
fourths in value, voting in person or by
proxy or by postal ballot
•162
POWER TO COMPROMISE OR MAKE ARRANGEMENTS –
(CONTD.)
Scheme of Corporate Debt Restructuring (CDR) to have
consent of not less than 75% of secured creditors in value
terms
Application to Tribunal in case of a CDR to disclose by an
affidavit:
- Creditor’s responsibility statement in prescribed form
- Safeguards for protection of other secured and unsecured
creditors
- Report by auditor that the fund requirements of the company
after the CDR will conform to the liquidity test based on
estimates provided by the Board
- Where CDR is as per RBI guidelines, a statement to that effect
- A valuation report in respect of the shares and the property and all
assets, tangible and intangible, movable and immovable
•163
POWER TO COMPROMISE OR MAKE ARRANGEMENTS
(SEC 230) – (CONTD.)
Tribunal may order for a meeting to be held for the
purpose of considering the compromise or arrangement
Tribunal may dispense meeting of creditors if at least
90% in value agree and confirm by an affidavit
The notice and other documents to be placed on website
of the company
Notice to be served individually to members and creditors
Notice to state that persons to vote in the meeting either
in person or through proxies or by postal ballot within 1
one month from receipt of notice
•164
POWER TO COMPROMISE OR MAKE
ARRANGEMENTS (SEC 230) – (CONTD.)
Notice to be accompanied by a statement
disclosing :
• Details of the scheme
• The valuation report, if any
• Effects of the scheme on the creditors,
members, debenture holders, promoters, KMP,
non-promoter members and on any material
interests of the directors of the company or
debenture trustees
• Such other matters as may be prescribed
•165
POWER TO COMPROMISE OR MAKE
ARRANGEMENTS (SEC 230) – (CONTD.)
Notice along with all the accompanying documents should
also be sent to:
• Central Government
• Income-tax authorities
• RBI
• SEBI
• Registrar
• Stock exchanges
• Official Liquidator
• Competition Commission of India
• Other sectoral regulators
•166
POWER TO COMPROMISE OR MAKE
ARRANGEMENTS (SEC 230) – (CONTD.)
The authorities to make representation within one month
from the date of receipt of such notice, else deemed to
be approved
The order of Tribunal shall also provide for the following :
• Conversion of preference shares into equity shares –
with option to receive arrears of dividend in cash or
equity shares
• Protection of any class of creditors
• If scheme is agreed by creditors, any proceedings
pending before BIFR shall abate
• Variation of shareholders’ rights in compliance with
applicable provisions of the Act
• Exit offer to dissenting shareholders
•167
POWER TO COMPROMISE OR MAKE
ARRANGEMENTS (SEC 230) – (CONTD.)
Auditor’s certificate that accounting treatment,
if any, proposed in the scheme is in conformity
with accounting standards to be filed with
Tribunal
Order of Tribunal to be filed with ROC within 30
days of receipt of order
Scheme approved by members, creditors and
sanctioned by Tribunal binding on company
In connection with takeover of unlisted companies
aggrieved party may appeal to Tribunal
•168
MERGER AND AMALGAMATION OF COMPANIES
(SEC 232)
Provides for both merger and demerger (division
of undertaking)
Authority to Tribunal and procedure as in Sec 230
Where a meeting is to be held pursuant to the
order of the Tribunal, the following shall be
circulated :
• draft scheme approved by the Board of the merging
company
• confirmation that a copy of the draft scheme has been
filed with ROC
•169
MERGER AND AMALGAMATION OF COMPANIES
(SEC 232) – (CONTD.)
report adopted by the directors of the merging companies
explaining the effect of the compromise on each class of
shareholders, KMP, promoters and non-promoter
shareholders
the share exchange ratio and specifying valuation
difficulties, if any
Report of expert with regard to valuation, if any
Supplementary accounting statement if the last annual
accounts relate to financial year ending more than six
months before the first meeting for approving the scheme
•170
MERGER AND AMALGAMATION OF COMPANIES
(SEC 232) – (CONTD.)
Order of Tribunal shall also provide for the
following:
- The transferee company shall not hold any shares in its
own name or in the name of any trust whether on its behalf
or on behalf of any of its subsidiaries or associate
companies and any such shares shall be cancelled or
extinguished
- Where the transferor is a listed company and the transferee
is an unlisted company –• the transferee company shall continue to be an unlisted company until it
becomes a listed company
• exit opportunity to shareholders of transferor company and to be paid at
a pre-determined price formula or after valuation
• Such price to be not less than that specified by SEBI regulations
•171
M & A OF COMPANIES (SEC 232) –
(CONTD.)
Where transferor company is dissolved, the fee for
authorized capital shall be set-off against the fees payable
by the transferee company
Auditor’s certificate that accounting treatment, if any,
proposed in the scheme is in conformity with accounting
standards to be filed with Tribunal
Until completion of the scheme, every year statement
certified by a CA/CS/ cost accountant in practice,
indicating whether the scheme is being complied with in
accordance with the order of the Tribunal or not, shall be
filed with RoC
•172
M&A OF CERTAIN COMPANIES (SEC.233)
Mergers of Two or more small companies;
Merger between Holding and WOS;
Merger of other class or classes of companies as
may be prescribed
Simplified process and easy time lines
Central Government to approve the Scheme
•173
M&A OF CERTAIN COMPANIES (SEC.233) –
(CONTD.)
Objections received, if any, to be considered in
respective general meetings and scheme to be
approved by members holding at least 90% of
total number of shares
Each of the companies to file declaration of
solvency with ROC in prescribed form
Creditors to be given notice of 21 days
•174
M&A OF CERTAIN COMPANIES (SEC.233) –
(CONTD.)
Scheme to be approved by majority representing
nine-tenths in value of creditors or class of
creditors in a meeting or by approval in writing
Transferee company to file copy of the approved
scheme with CG, ROC and OL
ROC and OL to communicate objections to CG within
30 days
If no communication is received – no objection
presumed, CG shall register the scheme and issue
confirmation to the companies
•175
M&A OF CERTAIN COMPANIES (SEC.233) –
(CONTD.)
If CG is of the opinion that the scheme is not in
public interest or in the interest of creditors, it may
file an application with Tribunal within 60 days of
receipt of the scheme
Tribunal to consider the scheme under section 232
Any objection by CG to be considered by Tribunal
Copy of Tribunal order to be communicated to
Registrar
Transferee company not to hold any shares in
its name or in name of Trust
•176
M&A OF CERTAIN COMPANIES (SEC.233) –
(CONTD.)
Registrar to register the scheme and issue
confirmation to companies
Tribunal order to provide for various matters –
similar to that in section 232
The transferee company to file an application with
ROC along with scheme registered, for revised
authorized capital – set off of fees possible
•177
M & A WITH A FOREIGN COMPANY
(SEC 234)
Provisions of the chapter to apply
CG may make rules in consultation with RBI
Foreign Company may merge with an Indian
Company and vice versa
Prior approval of RBI required
Consideration may be in cash or in Depository
Receipts or partly in cash and partly Depository
Receipts
•178
POWER TO ACQUIRE SHARES OF DISSENTING
SHAREHOLDERS FROM A SCHEME OR CONTRACT
APPROVED BY MAJORITY (SEC 235)
• Where a Scheme or Contract involving transfer of shares in
a transferor company has been approved by the holders of
not less than 90% in value of the shares whose transfer is
involved (other than shares if any held by transferee
company or its subsidiaries) the transferee company may
give notice to the dissenting holders of the transferor
company for acquiring their shares
• Dissenting holders may apply to the Tribunal for not
transferring their shares
• If dissenting holders do not object to the offer of the
Transferee company, the Transferee company is bound to
acquire the shares as per the terms of the Scheme
•179
• If the Tribunal has not made any order to the contrary,
the Transferee company should send the instrument of
transfer to be executed by the Transferor company for
the shares held by dissenting shareholders and pay the
price payable on those shares
• Transferor company shall thereupon register the shares
in the name of the transferee company
• The transferor company thereafter to distribute the
consideration received from the Transferee company to
the dissenting shareholders
•180
POWER TO ACQUIRE SHARES OF DISSENTING
SHAREHOLDERS FROM A SCHEME OR CONTRACT
APPROVED BY MAJORITY (SEC 235) (CONTD..)
PURCHASE OF MINORITY SHAREHOLDING
(SEC 236)
If an Acquirer becomes a registered holder of 90% or more
of the issued equity share capital of a company by virtue of
an amalgamation, share exchange, conversion of
securities or for any other reason such acquirer shall
notify the company of his intention to buy the remaining
equity shares
Price to be determined by registered valuer in
accordance with such rules as may be prescribed
Minority shareholder may make an offer to the majority
shareholders for purchase of the minority shareholding
Majority shareholders to deposit amount equal to value of
shares in a separate bank account
Money to be disbursed within 60 days
•181
PURCHASE OF MINORITY SHAREHOLDING (SEC
236) (CONTD.)
Bank account to be operative for at least one year for
disbursing the amounts to minority shareholders
Transferor company to act as transfer agent to receive the
shares and pay the price to minority shareholders
In the absence of physical delivery of shares by
shareholders within specified time, the share certificates
shall be deemed to be cancelled and payment made
Transferor company to issue new certificates in lieu of
certificates not available and transfer to the majority
shareholders
Majority shareholders’ right to acquire shares from
registered minority shareholders who have died or ceased
to exist shall continue for three years from the date of
majority acquisition •182
PURCHASE OF MINORITY SHAREHOLDING (SEC
236) (CONTD.)
Minority shareholders entitled to receive on pro rata basis such
higher price, at which the majority shareholders holding at least
75% of the minority shareholding, have negotiated or have an
understanding with any other person for transfer of the said
shares.
‘Acquirer’ and ‘persons acting in concert’ to have same
meaning as in SEBI Takeover Regulations
Where a majority shareholder fails to acquire the entire minority
shareholding, the provisions of this section shall continue to
apply for acquisition of the residual minority shareholding – even
if, the shares are delisted and period of one year or such period
as specified by SEBI has elapsed
•183
CHAPTER XVI
PREVENTION OF OPPRESSION AND
MISMANAGEMENT
(SECTIONS 241-246)
•184
CLASS ACTION – SEC. 245
Prescribed number of members or depositors or
any class of them may file an application before
the Tribunal on behalf of the members or
depositors, if they are of the opinion that the
management or conduct of affairs of the
company are being conducted in a manner
prejudicial to the interests of the company or its
members or depositors.
•185
CLASS ACTION – SEC. 245 (CONTD.)
Members or Depositors can seek all or any of the
following orders, viz.
a. To restrain the company from committing an act which is
ultra vires the articles or memorandum of the company
b. To restrain the company from committing breach of any
provision of the company’s memorandum or articles
c. To declare a resolution altering the memorandum or
articles of the company as void if the resolution was
passed by suppression of material facts or obtained by
mis-statement to the members or depositors
d. To restrain the company and its directors from acting on
such resolution
•186
CLASS ACTION – SEC. 245 (CONTD.)
e. To restrain the company from doing an act which is
contrary to the provisions of this Act or any other law
for the time being in force;
f. To restrain the company from taking action contrary to
any resolution passed by the members
g. To claim damages or compensation or demand any
other suitable action from or against –
i. The company or its directors for any fraudulent,
unlawful or wrongful act or omission or conduct or
any likely act or omission or conduct on its or their
part
•187
CLASS ACTION – SEC. 245 (CONTD.)
ii. The auditor including audit firm of the company for any
improper or misleading statement of particulars made
in his audit report or for any fraudulent, unlawful or
wrongful act or conduct
iii. Any expert or advisor or consultant or any other
person for any incorrect or misleading statement made
to the company or for any fraudulent, unlawful or
wrongful act of conduct or any likely act or conduct on
his part
h. To seek any other remedy as the Tribunal
may deem fit.
•188
CLASS ACTION – SEC. 245 (CONTD.)
Who can file class action suits?
- Members
• Company having share capital – Not less than 100
numbers or members or not less than 10% of the total
number of members, whichever is less, or any
members holding not less than 10% of the issued
capital
• Company without share capital - Not less than one
fifth of the total number of members
- Deposit holders
• Not less than 100 depositors or not less than 10% of
the total number of depositors whichever is less or any
depositors holding not less than 10% of the total value
of outstanding deposits of the company
•189
CLASS ACTION – SEC. 245 (CONTD.)
In respect of application admitted by the Tribunal:
a. Public notice to be given to all members and
deposit holders
b. All similar application in any jurisdiction to be
consolidated into a single application and
Lead Applicant will be incharge of the
proceedings
c. Two class action applications for the
same cause of action shall not be allowed
Public notice shall be served on admission of the
application by the Tribunal
•190
CLASS ACTION – SEC. 245 (CONTD.)
Lead applicant shall be in charge of the
proceedings if similar application is made by
members / depositors in different jurisdiction
Order passed by the Tribunal is binding on:
a) The company and all its members and depositors
b) Auditor
c) Expert
d) Consultant
e) Advisor
f) Any other person associated with the company
If the Application filed before Tribunal found to be
frivolous or vexatious, Tribunal can reject and order
applicants to pay cost not exceeding Rs 1 lakh
•191
•192
MISCELLANEOUS
(SECTIONS 447 TO 470)
• Any person found guilty of fraud, is punishable with
imprisonment – not less than six months but extending
to ten years and liable to fine, not less than the amount
involved in the fraud but which may extend to three
times the amount involved in the fraud
• Where the fraud in question involves public interest the
term of imprisonment shall not be less than three
years
• Fraud has been defined in Section 447
•193
PUNISHMENT FOR FRAUD (SEC 447)
• If in any return, report, certificate, financial statement,
prospectus, statement or other document required by
the Act, any person makes a statement:
(a) Which is false in any material particulars, knowing it
to be false; or
(b) Which omits any material fact, knowing it to be
material
He shall be liable under Section 447
•194
PUNISHMENT FOR FALSE STATEMENT (SEC 448)
• As per the provisions of Section 449, save as otherwise
provided in the Act, if any person intentionally gives false
evidence:
(a) Upon any examination on oath or solemn affirmation
authorised under the Act; or
(b) In any affidavit, deposition or solemn affirmation, in or
about the winding up of any company or otherwise in or
about any matter arising under the Act
he shall be punishable with imprisonment for a term which
shall not be less than three years which may extend to
seven years and with fine which may extend to Rs 10 lakh
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PUNISHMENT FOR FALSE EVIDENCE (SEC 449)
• Section 450 states that where no specific penalty or
punishment is provided elsewhere in the Act, the
company and every officer of the company who is in
default shall be punishable with fine which may extend to
Rs 10,000, (present Rs 5,000) and where the default
continues with a further fine which may extend to Rs
1,000 (present Rs 500) for every day after the first during
which the contravention continues.
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PUNISHMENT WHERE NO SPECIFIC PENALTY OR
PUNISHMENT IS PROVIDED (SEC 450)
• This is a new provision
• Section 451 provides that if an offence
punishable either with fine or imprisonment is
repeated within a period of three years, the
company and the officer shall be punishable
with imprisonment as provided and twice the
amount of fine for such default, for the
second and subsequent occasions.
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PUNISHMENT IN CASE OF REPEATED DEFAULT
(SEC 451)
Dormant Company (Sec 455)
• This is a new provision
• A company formed for a future project or to hold assets or intellectual
property and which has not been carrying on any business or has not
made any significant accounting transaction during the last two
financial years such a company or an inactive company may make
an application to the Registrar for obtaining the status of a ‘Dormant
Company’
• A dormant company shall have such minimum number of directors, file
such documents and pay such annual fees as may be prescribed to
retain status
• It may become an active company by filing an application accompanied
by such documents and fee as may be prescribed
• The Registrar shall strike off the name of the dormant company from
the register of dormant companies if it has failed to comply with the
requirements set out in the Act
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New Act aims to improve Corporate Governance
Movement from the regime of Control to that of liberalization /
self regulation
MCA to make rules through subordinate Legislation
Stringent Disclosures by the Companies in Directors’ Report,
Financial Statement, Annual Return, etc.
Various measures provided for investor protection and good
corporate governance
Violations of the provisions of the Act will attract severe
punishment
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SUMMARY
THANK YOU
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