The Companies Act, 2013

The dawn of a new era

The Companies Act, 2013 (‘2013 Act’) was enacted on 29 August 2013 on

accord of Hon’ble President’s assent, and has the potential to be a historic

milestone as it aims to improve corporate governance, simplify regulations,

enhance the interests of minority investors, and for the first time legislates

the role of whistle-blowers. The new law replaces the nearly 60-year-old

Companies Act, 1956 (‘1956 Act’).

The 2013 Act provides an opportunity to catch up and make our corporate

regulations more contemporary, as also potentially to make our corporate

regulatory framework a model to emulate for other economies with similar

characteristics. The 2013 Act is more of a rule-based legislation containing

only 470 Sections, which means that the substantial part of the legislation

will be in the form of Rules. There are over 180 Sections in the 2013 Act

where rules have been prescribed.

To facilitate the ease of implementation, a phased approach is being

followed by the Ministry of Corporate Affairs (‘MCA’). Accordingly, 282

sections have been notified and are in force as of 1 April 2014. Final Rules

for 19 chapters have also been released by the MCA, which are applicable

with effect from 1 April, 2014. The Rules for the remaining chapters are in

draft stage.

Governance • At least one woman director

• At least one India resident director

• Independent director (ID) legislated;

roles and responsibilities defined

• Database of IDs to be maintained;

may select IDs from this database

• One-person company permitted

unlike the minimum two before

• Maximum number of directors

increased to 15; any additional

directors only through Special

Resolution

• Maximum 20 directorships per

person; maximum 10 public

companies

• Consolidated financial statements

mandatory for all Groups, including

Unlisted/ Private companies, with

more than one entity; includes

associates or joint ventures;

• Mandatory rotation of audit firm for

listed companies post 10 years

• Financial year for all companies to be

March 31 (exception for subsidiaries

of foreign entities)

• Re-casting and re-statement of

financial statements can be ordered;

Voluntary revision of financial

statements for previous periods now

permitted

• Increased restrictions on non-audit

services provided by Auditors

Accounts, Audit and Auditors

Independent

director legislated;

roles and

responsibilities

defined

• Auditor to also report on adequacy of

internal financial controls system and

the operating effectiveness of such

controls

• Auditor to be a whistle-blower to

Central Government, if becomes

aware of any fraud

• The maximum limit of 20 companies

per Partner in an Audit firm

• Prescribed companies to appoint

internal auditor; manner, period and

reporting to be prescribed by Central

Government

• Significant enhancement of penalties

for auditors

Mandatory rotation

of audit firm for

listed companies

post 10 years

Grant Thornton can help dynamic businesses navigate complexities of the new

legislation and simplify the regulatory maze through a bouquet of its assurance, business

and risk advisory services. For any assistance, contact us at:

E: CompaniesAct@in.gt.com M: +91 9930001230

• Stakeholders Relationship Committee

introduced

• Mandatory appointment of Key

Management Personnel (KMP)

• Directors responsible for design and

operating effectiveness of internal

financial controls

• Significantly enhanced penalties for

directors

• 2% of the average net profit of

preceding three financial years to be

spent annually on Corporate Social

Responsibility (CSR) or explain why

not; applicable for companies with

net worth of Rs 500 crore or more,

turnover of Rs 1,000 crore or more,

or net profit more than Rs 5 crore

• Valuations of any property, stocks,

shares, goodwill or any other assets,

net worth of a company etc. must be

performed by a registered valuer

• Class action suits introduced as a

remedy for small investors against

wrongful acts

Mergers without

Tribunal approval,

permitted between

two small companies,

or between a holding

company and its

wholly-owned

subsidiary

Large companies

to spend 2% of

average net profit of

preceding three

financial years on

CSR activities or

explain why not

spent

Other provisions

• Establishment of a National Financial

Reporting Authority (NFRA), with

the objective of monitoring and

enforcing compliance of auditing and

accounting standards

• Establishment of vigil mechanism

(whistle-blowing) in the prescribed

manner by every listed company

• Deposit accepted (including interest

due) to be repaid within 1 year from

enactment or from due date of such

payments, whichever is earlier

"Obviously, the intent is towards simplification, which is critical for India to become

more competitive on the ease of doing business. Whether this objective is finally

delivered will depend on two things - the rules that supplement the Act and what they

look like, and the change in attitude towards enforcement."

Vishesh C Chandiok, National Managing Partner,

Grant Thornton India LLP

Mergers and Restructuring • No more than two layers of

investment companies (certain

exemptions to foreign acquisitions/

to comply with the law)

• Mergers without Tribunal approval

permitted between two small

companies or between holding

company and its wholly-owned

subsidiary

• Merger into foreign companies

introduced

• Valuation report mandatory along

with notice to concerned parties in

case of proposed mergers

• Scheme of compromise or

arrangement must be in line with

accounting standards; auditors'

certificate attesting the same needed

• 'Reverse merger' of listed company

into unlisted company now possible;

exit option to be provided to listed

company shareholders

• Holding of treasury shares directly or

through a Trust, prohibited

About Grant Thornton India LLP

Grant Thornton India LLP is a member firm within Grant Thornton International Ltd. It is a leading professional

services firm providing assurance, tax and advisory services to dynamic Indian businesses.

With a partner led approach and sound technical expertise the Firm has extensive experience across many

industries and businesses of various sizes. Moreover, with our robust compliance solutions and ability to navigate

complexities we help dynamic organisations unlock their potential for growth through global expansion, global

capital or global acquisitions.

Today, the Firm is recognised as one of the largest accountancy and advisory firms in India with nearly 2,000

professional staff in New Delhi, Bengaluru, Chandigarh, Chennai, Gurgaon, Hyderabad, Kolkata, Mumbai, Noida

and Pune, and affiliate arrangements in most of the major towns and cities across the country.

As a member firm within Grant Thornton International Ltd, the Firm has access to member and correspondent

firms in over 120 countries, offering our clients specialist knowledge supported by international expertise and

methodologies

NEW DELHI National Office

Outer Circle

L 41 Connaught Circus New Delhi 110 001

T +91 11 4278 7070

CHENNAI Arihant Nitco Park, 6th floor

No.90, Dr. Radhakrishnan Salai

Mylapore Chennai 600 004

T +91 44 4294 0000

KOLKATA 10C Hungerford Street

5th floor

Kolkata 700 017 T +91 33 4050 8000

CHANDIGARH SCO 17

2nd floor

Sector 17 E Chandigarh 160 017

T +91 172 4338 000

GURGAON 21st floor, DLF Square

Jacaranda Marg

DLF Phase II Gurgaon 122 002

T +91 124 462 8000

HYDERABAD 7th floor, Block III

White House

Kundan Bagh, Begumpet Hyderabad 500 016

T +91 40 6630 8200

MUMBAI 16th floor, Tower II

Indiabulls Finance Centre

SB Marg, Elphinstone (W) Mumbai 400 013

T +91 22 6626 2600

PUNE 401 Century Arcade

Narangi Baug Road

Off Boat Club Road Pune 411 001

T +91 20 4105 7000

BENGALURU “Wings”, 1st floor

16/1 Cambridge Road

Ulsoor Bengaluru 560 008

T +91 80 4243 0700

For more information on the Companies Act 2013, visit

http://www.grantthornton.in/companiesact2013 or write to us at CompaniesAct@in.gt.com

NOIDA Plot No. 19A, 7th Floor,

Sector 16-A,

Noida 201301. T +91 120 7109001

Our offices

© Grant Thornton India LLP. All rights reserved.

Grant Thornton India LLP (formerly Grant Thornton India) is registered with limited liability with identity

number AAA-7677 and its registered office at L-41 Connaught Circus, New Delhi, 110001

Grant Thornton India LLP is a member firm within Grant Thornton International Ltd (‘Grant Thornton

International’).

Grant Thornton International Ltd. and the member firms are not a worldwide partnership. Services are

delivered by the member firms independently.