presentation on companies act, · pdf filepre-independence –the companies act, ... post...

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..)


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


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


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


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


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


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


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


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



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


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


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


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


(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


(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


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


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


• 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


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


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


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


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


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


•146


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


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



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



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



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



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



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



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


(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


(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


(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


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


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


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


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


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

•195

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.

•196

PUNISHMENT WHERE NO SPECIFIC PENALTY OR

PUNISHMENT IS PROVIDED (SEC 450)


• 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.

•197

PUNISHMENT IN CASE OF REPEATED DEFAULT

(SEC 451)

Dormant Company (Sec 455)


• 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

•198

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

•199

SUMMARY

THANK YOU

•200

presentation on companies act, · pdf filepre-independence –the companies act, ... post...

Documents