Companies Act 2013 - Manupatradocs.manupatra.in/newsline/articles/Upload/7E22E1CF-C340...Companies Act, 2013 RSM Astute Consulting l l l l l Unlisted public companies are also required

COMPANIES ACT, 2013A Regulatory Handbook for Corporates

Updated: June 2015Published in Articles section of www.manupatra.com

RSM Astute Consulting Group

Indian member of RSM International

Personnel strength of over 1,200

Consistently ranked amongst India's top 6 Accounting and Consulting groups(Source : International Accounting Bulletin)

Nationwide presence

RSM International

World's 7th largest network of independent audit, tax andadvisory firms and the 6th largest global provider of tax services

Annual combined fee income of US$ 4.4 billion

Over 730 offices across 112 countries

International delivery capabilities

www.astuteconsulting.com

Published in Articles section of www.manupatra.com

Companies Act, 2013RSM Astute Consulting

COMPANIES ACT, 2013A Regulatory Handbook for Corporates

Updated: June 2015


PREFACE

The Companies Act, 2013 has substituted the Companies Act, 1956 after a span of 58 years with most provisions becoming effective as on April 1, 2014. The Companies Act, 2013 has been organized in 29 chapters and consists of 470 sections and 7 schedules. In addition to the provisions of the Companies Act, 2013, a substantial part of the law is in the form of Rules. Till date, 183 sections have come into force, thus bringing into effect all the important provisions, such as those dealing with Accounts, Auditors, Directors and Issue of shares. The provisions which have not become operative are primarily pertaining to compromise, arrangements, mergers, oppression & mismanagement, sick companies, liquidation of companies, National Company Law Tribunal and National Financial Reporting Authority. Since the enactment of the Companies Act, 2013, over and above the Rules, the Ministry of Corporate Affairs has issued an aggregate of 116 Notifications, Circulars and Orders making it difficult even for the most ardent reader to keep abreast of the changes. The significant changes since the enactment of the Act have been reflected by way of footnotes for ease of reference. The latest in the above developments are the Notifications dated 5th June, 2015 granting exemption to private companies and Section 8 companies.

The focus of the publication is in respect of the most significant provisions from the perspective of the business and corporate world. We have identified and listed the ‘Top 20 Action Items.’ which are applicable to most companies.

The procedural compliances have not been discussed at length. It is necessary to ascertain the detailed regulations based on specific facts prior to taking action.

The distinguishing features of the Companies Act, 2013 have been listed below:

RSM Astute ConsultingCompanies Act, 2013

l

l

l

l

l

Unlisted public companies are also required to appoint independent directors if they fulfil certain conditions.Appointment of 1 resident director is mandatory for all companies.The concept of vigil mechanism has been introduced.Certain companies are required to have a Nomination and Remuneration Committee and a Stakeholders Relationship Committee.Insider trading and forward dealing has been expressly prohibited.

l

l

‘Officer in default’ now also includes key managerial personnel.The annual return of a company shall now disclose numerous additional details.

GreaterAccountability

BetterGovernance

1.

2.


l

l

l

Notices of meetings may be given electronically.Meetings conducted through video conferencing have been recognised by the Companies Act, 2013.E-voting facilities must be given to members of listed companies.

l

l

l

Particulars to be included in the directors’ report have been significantly increased and any misstatement/ omission in the same attracts heavy penalties. The concept of evaluation of performance of directors has been introduced. Shareholders have been vested with the power of initiating ‘class action ‘to prevent oppression and mismanagement.

Digital Era

l

l

l

Certain stringent provisions dealing with powers of the board, issue of shares, inter-corporate loans and investments, related party transactions, deposits, etc. are now also applicable to private companies, thus affecting their day-to day operations.Certain provisions such as those dealing with preferential allotment and private placement are applicable to private companies too but lack clarity.Implementation of the provisions of the Companies Act, 2013 and the Rules notified thereunder in a phased manner has made the transition process obscure.

Operationaldifficulties

This publication is of extreme relevance to companies, businessmen, directors, shareholders, managerial personnel (CEO/CFO/CS) and other stakeholders. With a view to assist readers in getting acquainted with the Companies Act, 2013, all the important provisions of the same have been presented in a user friendly manner, in simple and uncomplicated language

We hope this endeavor assists you in taking appropriate steps towards ensuring compliance with the Companies Act, 2013 read with the latest Rules, Notifications, Circulars and Orders.

Happy Reading!

Companies Act, 2013RSM Astute Consulting

3.

4.


Top 20 Action Items: Are you complyingwith Companies Act, 2013 1

Chapter 1: Accounts And Audit 18

Chapter 2: Directors And CommitteesOf The Board 27

Chapter 3: Key Managerial Personnel AndManagerial Remuneration 35

Chapter 4: Charges And Deposits 43

Chapter 5: Loans And Investments 48

Chapter 6: Related Party TransactionsAnd Other Transactions 54

Chapter 7: Share Capital And Dividend 59

Chapter 8: Administration And Meetings 70

Chapter 9: Other Provisions 78

Abbreviations 89

CONTENTS

RSM Astute ConsultingCompanies Act, 2013Published in Articles section of www.manupatra.com

1Companies Act, 2013RSM Astute Consulting

TOP 20 ACTION ITEMS: ARE YOU COMPLYINGWITH COMPANIES ACT, 2013 ?

1.

Sr.No.

Are youcompliant?

EffectiveDate

ApplicabilityAction Required

ListedCompany

UnlistedPublicCompany

PrivateCompany

Yes / No

Acceptance of Deposit

As per the New Act, deposit has been defined to mean any receipt of money by way of deposit or loan or in any other form by a company, thus making the definition much wider in its scope. The Deposits received from shareholders of a private company are no longer exempt and will be treated as Deposits.

Share Application money or advance for secur i t ies received towards allotment of securities shall also fall within the meaning of the term ‘deposit’, if shares are not allotted within period of 60 days from date of receipt of money.

Form DPT-4 must be filed in respect of deposits received by the Company before the commencement of the New Act, where the amount of such deposit or part thereof or any interest thereon remains unpaid existing as on the date of the commencement of the New Act and the said deposits should be repaid within 1 year f r o m t h e d a t e o f commencement of the New Act or from the date on which such payments are due, whichever is earlier.

Yes Yes No if :

Company accepts from its members monies not exceeding 100% of the aggregate PSC + free reserves and

Such company files with ROC the details of the monies so accepted.

01.04.2014


2.

Sr.No.

Are youcompliant?

EffectiveDate


ListedCompany


PrivateCompany

Yes / No

Loans to directors and any other person in whom the director is interested (Section 185)

The New Act restricts a company from advancing any loan, providing any guarantee in connection with loan, providing any security in connection with loan, to any of its directors or to any person in whom the director is interested subject to certain exemptions.

“Any other person in whom the director is interested” means

l any director of the lending company, or of a company which is its holding company or any partner or relative of any such director;

l any firm in which any such director or relative is a partner;

l any private company of which any such director is a director or member;

l any body corporate at a general meeting of which not less than twenty-five per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or

l any body corporate, the Board of d irectors, managing director or manager, whereof is accustomed to act in a c c o r d a n c e w i t h t h e directions or instructions of the Board, or of any director or directors, of the lending company.

Yes Yes Yes if :

A body corporate has invested in the share capital of the company;

If the borrowings of such a company from banks or financial institu-tions or any body corporate is not less than twice of its PSC or Rs. 50 crore, whichever is lower and

Such a company has defaulted in repayment of such borrowings subsisting at the time of making transactions under this section.

12.09.2013

RSM Astute Consulting2 Companies Act, 2013Published in Articles section of www.manupatra.com


3.

Sr.No.

Are youcompliant?

EffectiveDate


ListedCompany


PrivateCompany

Yes / No

Limit on loans and investment (Section 186)

A company cannot make investment through more than 2 layers of investment companies. However, this shall not affect:

lA company from acquiring any other company incorporated outside India, if such other company has investment subsidiaries beyond 2 layers;

la subsidiary from having any investment subsidiary for the purposes of meeting the requirements of any law.

A company shall not directly or indirectly give any loan to any person or body corporate or give any guarantee or security in connection with the loan and acquire by way of subscription, purchase or otherwise the securities of any other body corporate exceeding

l60% of its PSC, free reserves and securities premium account or

l100% of its free reserves and securities premium account;

whichever is more.

In case the loan, guarantee, secur i ty or investment exceeds the above limis, the approval of shareholders by way of special resolution is required. Further in case of default of loan from banks and

Yes Yes Yes 01.04.2014


Sr.No.

Are youcompliant?

EffectiveDate


ListedCompany


PrivateCompany

Yes / No

o t h e r p u b l i c f i n a n c i a l institutions, prior approval of l end ing inst i tu t ions i s required.

These provisions shall now also apply to a private company.

Yes 4. Related Party Transactions

Special Resolution is required where transactions exceed the following limits in case of:

lSale, purchase or supply of any goods or materials d i r e c t l y o r t h r o u g h appointment of agents: 10% of Turnover or Rs. 100 crore, whichever is less.

lSelling or otherwise disposing of, or buying, property of any kind directly or through appointment of agents: 10% of Net Worth or Rs. 100 crore, whichever is less.

lLeasing of property of any kind: 10% of Net Worth or 10% of Turnover or Rs. 100 crore, whichever is less.

lAvailing or rendering of any services directly or through appointment of agents: 10% of Turnover or Rs. 50 crore, whichever is less.

lAppointment to any office or place of profit in the company, its subsidiary company or a s s o c i a t e c o m p a n y : Remuneration in excess of Rs. 2,50,000 per month.

lR e m u n e r a t i o n f o r underwriting the subscription o f a n y s e c u r i t i e s o r

Yes Yes 01.04.2014 (the threshold limits for applicability have been notified w.e.f 14 August 2014)



Sr.No.

Are youcompliant?

EffectiveDate


ListedCompany


PrivateCompany

Yes / No

derivatives thereof of the company: 1% of Net Worth.

However, these provisions shall not apply with respect to transactions entered into by the company in its ordinary course of business and on an arm’s length basis. Companies must determine whether the transaction falls within this exemption.(Companies may be required to produce a domestic transfer pricing report, if available and applicable, or any other report from the auditors establishing that the transactions entered into by the company were in i ts ord inary course of business and on an arm’s length basis.)

5. Corporate Social Responsibility

Companies fulfilling the eligibility criteria must

lform a CSR Committee and

lspend atleast 2% of the average net profits of the preceding three financial years on CSR.

The activities eligible for CSR have been substantially enhanced and inc ludes Renewable Energy, Swachh Bharat Kosh and many others.

The Board’s report shall disclose the composition of the CSR committee, CSR policy, an annual report on CSR, failure to spend the required amount (if applicable)

Net worth: Rs. 500 crore or more or

Turnover: Rs. 1000 crore or more or

Net profit: Rs. 5 crore or more in any of the 3 preceding financial years.

01.04.2014


6.

Sr.No.

Are youcompliant?

EffectiveDate


ListedCompany


PrivateCompany

Yes / No

Financial Statements

T h e N ew Ac t re q u i re s companies to prepare cash flow statement and statement of changes in equity (if applicable) along with the balance sheet, profit and loss account and explanatory notes.

The financial statements including the consolidated financial statements of all s u b s i d i a r i e s i n c l u d i n g associates and joint ventures of the company shall be laid before the AGM. This shall not apply to preparation of c o n s o l i d a te d f i n a n c i a l statement by an intermediate wholly-owned subsidiary, other than a wholly-owned subsidiary whose immediate p a r e n t i s a c o m p a n y incorporated outside India.

Also for the financial year commencing from the 1st day of April, 2014 and ending on 31st March, 2015, consolidation is not required in case of a company which does not have a subsidiary/ies but has one or more Associate Companies or Joint Ventures or both.

A statement containing the sal ient features of the financial statements must also be attached to the financial statements.


(Until the account-ing stan-dards are specified by the CG, the stan-dards as specified by the Old Act shall be deemed to be the account-ing stan-dards.)



7.

Sr.No.

Are youcompliant?

EffectiveDate


ListedCompany


PrivateCompany

Yes / No

Appointment of Independent Directors and Woman Director

Independent Directors

The term ‘ independent director’ has been clearly d e f i n e d . A c o d e f o r i n d e p e n d e n t d i re c t o r s d e t a i l i n g t h e i r r o l e s , f u n c t i o n s , d u t i e s , appointment etc. is provided.

He can hold office for a maximum of two consecutive terms of 5 years each.

Thereafter a cooling period of 3 years should pass before reappointment.

An independent director must g ive int imat ion to the company at the first board m e e t i n g a f t e r h i s appointment and in every F.Y. that he meets the criteria for independent director.

The tenure of an independent d i r e c t o r a t t h e commencement of the New Act will not be counted for his appointment or holding office of director. Accordingly, the existing independent director m u s t b e r e a p p o i n t e d expressly as per the New Act prior to 31.03.2015.

As per amended Clause 49of the Listing Agreement a person cannot serve as an Independent Director in more than 7 listed companies .

Yes (as per revised clause 49 of the Listing Agree-ment which has come into effect from 01.10.2014)

PSC: Rs. 10 crore or more; or

TO: Rs. 100 crore or more; or

outst-andi-ng loans, debentures and deposits: Rs. 50 crore.

(A company fulfilling the above criteria shall have atleast 2 independent directors)

No 01.04.2015

01.10.2014 (for listed companies)


Sr.No.

Are youcompliant?

EffectiveDate


ListedCompany


PrivateCompany

Yes / No

A person who is serving as a Whole time director in any listed company shall serve as an Independent director in not more than 3 listed companies.

Woman Director

Company fa l l ing under prescribed class of companies is required to appoint atleast one women director on the Board of the company.

Yes P S C : R s . 1 0 0 crore o r more or

T O : R s . 3 0 0 crore o r more

No 01.04.2015

PSC of Rs. 5 crore or more for appointment of CS

8. Appointment of Whole Time Director / MD / CEO, CFO and Company Secretary

C o m p a n i e s to a p p o i n t following WTKMP:

lMD/CEO/Manager, in absence of aforesaid officers a WTD; and

lCFO; and

lCompany Secretary

Appointment of WTKMP to be by way of Board Resolution which should contain terms and conditions of appointment.

Yes PSC of Rs. 10 crores o r more.

PSC of Rs. 5 crore o r m o re f o r appoin t m ent of CS

01.04.2014



9.

Sr.No.

Are youcompliant?

EffectiveDate


ListedCompany


PrivateCompany

Yes / No

Conducting Board Meetings

Gap between two Board Meetings

The gap between two Board Meetings should not exceed 120 days.

Notice of Board Meeting

A notice of not less than 7 days must be given in writing to every director at his address registered with the company either by post or hand delivery be electronic means.

Provisions of shorter notice for Board Meet ing are applicable only to companies requiring appointment of i n d e p e n d e n t d i r e c t o r. Companies not requiring appointment of independent director must give 7 days notice and cannot give a shorter not ice pending clarification from MCA.

Interested Directors not to vote

If a director of a public company is interested in a board resolution, he shall not participate in such proceeding of the meeting.

In case of a private company, an interested director may participate in the meeting pursuant to disclosure of interest.

Filing of Board Resolutions

Certain resolutions passed by the Board are also required to be filed with the ROC.



10.

Sr.No.

Are youcompliant?

EffectiveDate


ListedCompany


PrivateCompany

Yes / No

Appointment of Internal Auditor

Companies which fulfill the el igibi l ity criteria must appoint an internal auditor who shall either be a CA or C W A o r s u c h o t h e r professional as decided by the Board to conduct an internal audit of the functions and activities of the company.

The Audit Committee of the company or the Board shall, in consultation with the Internal Auditor, formulate the scope, functioning, periodicity and methodology for conducting the Internal Audit.

Yes PSC: Rs. 50 crore or more or

Turn-over: Rs. 200 crore or more or

Out-stand-ing loans or borrowings from banks or public finan-cial institutions: Rs. 100 crore or more at any point of time during the preceding financial year or

Turnover: Rs. 200 crore or more or

Outstan-ding loans or borrowings from banks or public financial institutions: Rs. 100 crore or more at any point of time during the preceding financial year.

01.10.2014



Sr.No.

Are youcompliant?

EffectiveDate


ListedCompany


PrivateCompany

Yes / No

Out-stand-ing depo-sits: Rs. 25 crore or more at any point of time during the preceding financial year

Yes11. Establishing Internal Financial Controls, Enterprise Risk Management Policy and Legal Compliance Framework.

Internal Financial Control

Independent Auditor’s Report must disclose the adequacy and effectiveness of internal f inancial controls. This requirement is applicable to all companies.

All listed companies must disclose the adequacy and effectiveness in the Board’s report.

A u d i t C o m m i t t e e o f companies requ i red to c o n s t i t u t e a n A u d i t Committee is required to evaluate internal financial controls.

Setting up Enterprise Risk Management Policy

The Board’s report must

Yes Yes 01.04.2014

(To be reported in the Board’s report from the F.Y. 2014-15 onwards.)

Auditor to report on adequacy of internal financial controls from the F.Y. 2015-16 onwards.


Sr.No.

Are youcompliant?

EffectiveDate


ListedCompany


PrivateCompany

Yes / No

include a statement indicating d e v e l o p m e n t a n d implementation of a risk management policy for the c o m p a n y i n c l u d i n g identification of elements of risk, if any, which in the opinion of the board may threaten existence of the company

Legal Compliance Framework

The Board’s report must include a statement indicating that the directors had devised proper systems to ensure c o m p l i a n c e w i t h t h e provisions of all applicable laws and that such systems were adequate and operating effectively.

Borrowed money from banks and financial institutions in excess of Rs. 50 crore.

12. E s t a b l i s h m e n t o f V i g i l Mechanism

The New Act requires a company to have a vigil mechanism to be overviewed through the audit committee or the Board where audit committee is not required for enabling the directors and employees to report genuine concerns.

The establishment of a vigil mechanism shall be disclosed on the website of the company, if any, and in the Board’s report.

Yes Accepts depo-sits from the public or

Borro-wed money from banks and financial institutions in excess of Rs. 50 crore.

01.04.2014


13.

Sr.No.

Are youcompliant?

EffectiveDate


ListedCompany


PrivateCompany

Yes / No

Appointment of Resident Director

Every company shall have 1 director who has stayed in India for a total period of not less than 182 days in previous calendar year.


Yes14. Appointment, reappointment, vacation and resignation of director.

Every Director must attend at least 1 Board meeting upto 31.03.2015 as absence from all the meetings of the Board held during a period of 12 months with or without seeking leave of absence results in vacation of office of director.

A director must also file a copy of his resignation to the Registrar within 30 days from the date of resignation in Form DIR-11. Accordingly, every director must ensure that he has a digital signature certificate. (“DSC”)

In case of appointment of any person other than retiring d i rectors as d i rectors , including regularization of additional directors, a sum of Rs. 1 lakh must be deposited with the company atleast 14 days prior to the general meeting.

Yes Yes 01.04.2014

Not applicableYes Yes

13Companies Act, 2013RSM Astute ConsultingPublished in Articles section of www.manupatra.com

15.

Sr.No.

Are youcompliant?

EffectiveDate


ListedCompany


PrivateCompany

Yes / No

Constitution of CommitteesAudit Committee An audit committee shall

co n s i s t o f m i n i m u m 3 directors with majority independent directors and majority of directors who can read and understand financial statements.

The functions of the audit c o m m i t t e e h a v e b e e n enhanced.

A director shall not be a member in more than 10 Audit Committee and Stakeholder’s Relationship Committee or act as Chairman of more than 5 A u d i t C o m m i t t e e a n d Stakeholder’s Relationship C o m m i t t e e a c r o s s a l l companies in which he is a director

Nomination and Remuneration Committee This committee shall consist

of 3 or more non-executive directors of which not less than half shall be independent directors.

The key functions of this committee shall include:

lidentifying persons who are qualified to become directors and who may be appointed in senior management

lformulating the criteria for determining qualifications, posit ive attr ibutes and independence of a director.

lrecommending to the Board a p o l i cy re l a t i n g to t h e r e m u n e r a t i o n f o r t h e directors, key managerial p e r s o n n e l a n d o t h e r employees.

Yes PSC: Rs. 10 crore or more or

Turn-over: Rs. 100 crore or more or

Out-stand-ing loans or borrowings or debentures or deposits: Rs. 50 crore or more.

No 01.04.2015 or within 1 year from appointment of independent directors, which-ever is earlier.


16.

Sr.No.

Are youcompliant?

EffectiveDate


ListedCompany


PrivateCompany

Yes / No

Restriction on powers of the Board

Restrictions on powers of the Board apply uniformly to all c o m p a n i e s . A s p e c i a l resolution, as opposed to an ordinary resolution under the Old Act, is required for passing of resolutions specified under the section on restriction of powers of the Board.

Yes Yes No 12.09.2013

Yes17. Transitional arrangements

Resolutions passed between 01.09.2013 and 31.03.2014

Resolutions approved or passed by companies under relevant applicable provisions of the Old Act during the period from 01.09.2013 to 31.03.2014 and in respect of w h i c h i m p l e m e n t a t i o n commenced before 01.04.2014, can be implemented, in accordance with provisions of the Old Act and the said resolutions shall be valid for a period of 1 year from the passing of the resolutions or 6 m o n t h s f r o m t h e co m m e n ce m e n t o f t h e corresponding provision in the New Act.

If the conditions specified above are not fulfilled, or upon expiry of the validity term of t h e r e s o l u t i o n s , t h e resolutions must be passed afresh or ratified.

Yes Yes As per notification in this regard.


Sr.No.

Are youcompliant?

EffectiveDate


ListedCompany


PrivateCompany

Yes / No

Amendment of Memorandum and Articles of Association of Company

Every Company must determine if its memorandum and articles of association are in line with the requirements of the New Act in order to be able to amend them suitably as and when mandated.

Yes18. Additional details to be displayed on the Letterheads, Billheads etc.

New Act requires certa in additional details like Corporate Identity Number (CIN), Telephone No., Fax No., E-mail and Website address to be printed on its Letterheads, Billheads, Notices and Official Publications.

Yes Yes 01.04.2014

Yes19. Filing of Forms with the ROC

Any document, fact or information required to be filed with the ROC can now be filed only upto 270 days after the day on which it should have been filed by payment of additional fees. Filing later than the said period may require prior condonation of delay by the ROC.

The company and its officers in default shall become liable to penalty or punishment upon failure to file such document, fact or information within the period mentioned above.

Yes Yes 01.04.2014


20.

Sr.No.

Are youcompliant?

EffectiveDate


ListedCompany


PrivateCompany

Yes / No

Appointment and rotation of auditors and appointment of Secretarial Audit

Appointment and rotation of auditors

Companies which fulfill the applicability criteria shall not appoint or re-appoint,

lin case auditor is an indivi-dual, for more than one term of 5 consecutive years and

lin case of an audit firm, for more than two terms of 5 consecutive terms.

In case of an auditor (whether an individual or audit firm), the period for which the individual or the firm has held office as auditor prior to the commencement of the New Act shall be taken into account for the purpose of rotation.

W h e r e c o m p a n y h a s appointed 2 or more auditors (individual or firm) as joint auditors, the company may follow the rotation in such manner as both or all joint auditors do not complete their term in same year.

A notice of appointment shall be given by the company to the auditor and the ROC within 15 days from the date of appointment.

Appointment of Secretarial Auditor

Companies required to have secretarial audit conducted by Company Secretary in Practice. The report of such an audit would be part of Board’s report in format as prescribed by the Rules.

Yes PSC: 10 crore or more or

Public borrowings from financial institutions, banks or public deposits: Rs. 50 crore or more.

PSC: 20 crore or more or

Public borrowings from financial institu-tions, banks or public deposits: Rs. 50 crore or more.

01.04.2017 (A transition period of 3 years has been provided for the commencement of rotation of auditors)

Yes PSC: Rs. 50 crores or more; or

Turn-over: Rs. 250 crores or more

No

01.04.2014


Chapter 1: Accounts And Audit


Chapter 1: Accounts And Audit

1.1 Accounts

1.1.1 Financial year [Section 2(41)]

st All companies must follow 1 April to 31 March as their financial year.

Companies which are holding or subsidiary companies of a foreign company and which are required to follow a different financial year for the purposes of consolidation of their accounts outside India may apply to the Tribunal for allowing the company to adopt a different financial year.

1.1.2 Books of account [Section 128]

Books of account and other relevant books and papers must be kept at the registered office of the company. However, books of account can be kept at other places in India as may be decided by the Board.

The New Act now specifically provides that books of accounts can be maintained in electronic mode with servers physically located in India and the manner of their maintenance has also been provided.

1.1.3 Financial statement [Section 129]

Companies shall prepare cash flow statement and statement of changes in equity along with the balance sheet, profit and loss account and explanatory notes.

OPC, small company and dormant company may not include a cash flow statement along with the balance sheet, profit and loss account and explanatory notes.

Consolidation of financial statements is mandatory for all subsidiaries including associates and joint ventures of the company.

1( Schedule III and accounting standards shall not apply to the preparation of consolidated financial statement by an intermediate wholly-owned subsidiary other than a wholly-owned subsidiary whose immediate parent is a company incorporated outside India.)

The requirement of consolidation of accounts shall not apply for the financial year from 1 April 2014 to 31 March 2015 in case of a company which does not have a

st


1Inserted vide Notification dated 14 October 2014.


subsidiary or subsidiaries but which has associate companies or joint ventures or both.

2( Schedule III and accounting standards shall not apply in respect of consolidation of financial statements by a company having subsidiary or subsidiaries outside India only for the financial year commencing on or after 1 April 2014.)

A statement containing the salient features of the financial statements must be attached to the financial statements.

1.1.4 Re-opening of accounts [Section 130]

No company shall re-open its books of accounts and shall not recast its financial statements unless an application is made by Central Government, Income-tax authorities, SEBI or any other regulatory authority or any person concerned and an order is made by Court or Tribunal to the effect that:

The relevant earlier accounts were prepared in a fraudulent manner; or

The affairs of the company were mismanaged during the relevant period, castinga doubt on the reliability of financial statements.

(This provision is not yet notified and hence not into force.)

1.1.5 Voluntary revision [Section 131]

The concept of voluntary revision has been recognised for the first time under the New Act.

Directors of the company may prepare revised financial statement or a revised report in respect of any of the 3 preceding financial years after obtaining approval of the Tribunal in certain cases.

Revised financial statement or report shall not be prepared or filed more than once in a financial year.

Detailed reasons for such revision must be disclosed in Board’s report.

(This provision is not yet notified and hence not into force.)

1.1.6 Authentication of financial statements, Board's report [Section 134]

Chairperson or 2directors (1 MDand CEO) and

CFO + CS (if appointed)

Chairperson or 2directors (includingMD) or 1 director (ifthere is only 1director)

FINANCIALSTATEMENTS

BOARD'SREPORT

RSM Astute Consulting20 Companies Act, 2013

2Inserted vide the Companies (Accounts) Amendment Rules, 2015 notification dated 16 January, 2015.


1.1.7 Filing of Financial Statements with ROC [Section 137]

A copy of the financial statements, including consolidated financial statementmust be filed with the ROC.

Every company is also required to attach the accounts of its subsidiaries whichhave been incorporated outside India and not having place of business in India.

Benefit which was earlier given to private companies to file their balance sheetand profit & loss account separately has been withdrawn under the New Act.

1.1.8 Corporate Social Responsibility (CSR) [Section 135]

Meaning:

CSR means and includes:

lProjects or programs relating to activities specified in Schedule VII to theNew Act; or

lProjects or programs relating to activities undertaken by the Board of acompany in pursuance of recommendations of the CSR Committee of theBoard as per CSR policy of the company provided such policy coverssubjects enumerated in Schedule VII of the New Act.

Net Profit:

Net profit means the net profit as per its financial statement in accordance withthe applicable provisions of the New Act, but shall not include-

lany profit arising from any overseas branch or branches of the company,whether operated as a separate company or otherwise; and

lany dividend received from other companies in India, which are coveredunder and complying with the provisions of section 135 (CSR provisions) ofthe New Act.

Applicability:

The provisions of CSR shall apply to every company having:

lNet worth: Rs. 500 crore or more; or

lTurnover: Rs. 1000 crore or more; or

lNet profit: Rs. 5 crore or more

during any of the 3 preceding financial years.


CSR shall also be obligatory to a foreign company having its branch office orproject office in India fulfilling the criteria provided above.

Spendable amount on CSR:

Every qualifying company, must spend in every financial year at least 2% of theaverage net profits of the company made during the 3 immediately precedingfinancial years on CSR. Board shall be responsible for ensuring the same.

CSR Committee:

Any company fulfilling the applicability criteria set out above must constitute aCSR Committee.

The following table indicates the manner of composition of CSR Committee.

Functions of the CSR Committee:

CSR Committee shall:

lFormulate and recommend a CSR policy to the Board;

lRecommend amount of expenditure to be incurred on CSR activities; and

lMonitor the CSR policy of the company from time to time.

Modalities of performing CSR Activities:

lCSR activities can be undertaken through a registered society or registered

Listed Company Private CompanyUnlisted Company Foreign Company

CSR Committee of listed company shall consist of:

Minimum 3 directors

Out of which, at least 1 should be an i n d e p e n d e n t director.

A private company shall constitute a CS R Co m m i t te e w i t h o u t a n i n d e p e n d e n t director.

CSR Committee of a private company h a v i n g o n l y 2 directors on its B o a r d , s h a l l constitute a CSR Committee with o n l y 2 s u c h directors.

CSR Committee of an un l isted company, which is not required to a p p o i n t a n independent director, shall constitute a CSR Committee without such director.

CSR Committee of unlisted company required to appoint an independent d i r e c t o r s h a l l consist of:

Minimum 3 directors

Out of which, at least 1 should be an i n d e p e n d e n t director.

CSR Committee of a foreign company shall consist of at least 2 persons, of which

1 person shall be nominated by the foreign company and

1 person shall be t h e a u t h o r i ze d representative of the company who is a person resident in India and whose particulars have been submitted to the ROC as per the provisions of the New Act.


trust or a company established under Section 8 of the New Act by the company either singly or along with its holding or subsidiary or associate company, or along with any other company or holding or subsidiary or associate company of such other company or otherwise.

lCollaboration with other companies for undertaking CSR projects or programs is also permitted subject to the condition that the collaborating companies are in a position to report separately as per the reporting requirements under the New Act.

Activities not considered as CSR:

The following activities of the company shall not be considered as CSR activities:

lCSR Projects or programs or activities undertaken outside India;

lCSR Projects or programs or activities that only benefit the employees of the company and their families;

lContribution of any amount, directly or indirectly, to any political party;

lActivities undertaken in the normal course of business;

lOne-off events such as marathons/ awards/ charitable contributions, etc.;

lExpenses incurred by the company for fulfillment of any Act/ statute or regulations.

Responsibility of the Board:

The Board of every qualifying Company shall:

lInclude in the Board’s report an annual report on CSR activities as per format provided;

lApprove the CSR policy, take into account recommendations made by the CSR committee and disclose the contents of such policy in the Board’s report and place it on company’s website;

lEnsure that the CSR activities are undertaken by the company;

lEnsure that at least 2% of average net profits are spent on CSR activities.

1.2.1 Internal Audit [Section 138]

Applicability:

Internal audit is applicable to the following class of companies:

1.2 Auditors


Transition:

Existing companies hit by these provisions had been given time until 30September, 2014 to comply with the same.

Qualifications:

Internal Auditor shall be a CA or CWA or such other professional as may be decided by the Board. Internal Auditor may or may not be an employee of the company.

Scope:

The Audit Committee of the company or the Board shall, in consultation with the internal auditor, formulate the scope, functioning, periodicity and methodology for conducting the internal audit.

1.2.2 Rotation of Auditors [Section 139]

Applicability:

Following class of companies shall not appoint or re-appoint as auditors, in caseauditor is an individual, for more than one term of 5 consecutive years and in caseof an audit firm, for more than two terms of 5 consecutive years:

lPSC: Rs. 50 crore or more or

lTurnover: Rs. 200 crore or more or

lOutstanding loans & borrowings f rom b a n k s / p u b l i c f i n a n c i a l institutions: Rs. 100 crore or more at any p o i n t d u r i n g t h e preceding financial year or

lO u t s t a n d i n g deposits: Rs. 25 crore or more at any time d u r i n g p re c e d i n g financial year.

lTurnover: Rs. 200 crore or more or

lOutstanding loans & borrowings f rom b a n k s / p u b l i c f i n a n c i a l institutions: Rs. 100 crore or more at any p o i n t d u r i n g t h e preceding financial year

LISTED COMPANYUNLISTED PUBLIC

COMPANYPRIVATE COMPANY


lAll


Where company has appointed 2 or more auditors (individual or firm) as joint auditors, the company may follow the rotation in such manner as both or all joint auditors do not complete their term in same year.

Transition:

In case of an auditor (whether an individual or audit firm), the period for which the individual or the firm has held office as auditor prior to the commencement of the New Act shall be taken into account for calculating the period of 5 consecutive years or 10 consecutive years, as the case may be.

The New Act has stipulated a period of 3 years from date of commencementof this Act to comply with the provisions.

Manner of appointment of auditors:

The auditors of a company shall be appointed in the manner provided below:

lIn case a company is required to form an Audit Committee under the New Act, auditor shall be appointed through the Audit Committee and in case an Audit Committee is not required to be constituted, the auditor shall be appointed by the Board;

lThe Audit Committee shall recommend to the Board the name of the individual or the audit firm and the Board shall consider and recommend such auditor to members for appointment;

lIf Board disagrees with the recommendation of Audit Committee, it shall refer back the recommendation to the Audit Committee citing reasons for such disagreement;


lPublic borrowings f r o m f i n a n c i a l institutions, banks or public deposits: Rs. 50 crore or more at any p o i n t d u r i n g t h e preceding financial year


lPublic borrowings f r o m f i n a n c i a l institutions, banks or public deposits: Rs. 50 crore or more at any p o i n t d u r i n g t h e preceding financial year

LISTED COMPANYUNLISTED PUBLIC

COMPANYPRIVATE COMPANY


lAll


The Board shall send its own recommendation, if the Audit Committee decides not to reconsider its original recommendation.

3 Ceiling on number of companies: A person or a partner of a firm may be appointed or reappointed as an auditor provided the person or partner is at the date of such appointment or reappointment holding appointment as auditor in not more than 20 companies. However, this ceiling of 20 companies shall not include OPC, dormant company, small company and private company having PSC of less than Rs. 100 crores.

l


3Inserted vide Notification dated 5 June 2015.


Chapter 2: Directors And Committees Of The Board


Chapter 2: Directors And Committees Of The Board

2.1 Directors [Section 149]

2.1.1 Number of directors

A minimum number of 3 directors are required to be appointed in case of a publiccompany and a minimum number of 2 directors are required to be appointed incase of a private company.A maximum number of 15 directors can be appointed by a company. However, thisnumber can be increased by a special resolution of the members.

2.1.2 Composition

Independent Director

ARE YOU AN INDEPENDENT DIRECTOR? FIND OUT WITH THE FOLLOWING QUESTIONNAIRE

Before taking the questionnaire keep the following information ready:

1. Names of directors of the company

2. List of promoters of the company

3. Names of the holding, subsidiary and associate company (Associate company has been explained in chapter 9)

4. List of your relatives


RES

IDE

NT

DIR

ECTO

R

WO

MA

N D

IREC

TOR

IND

EP

EN

DE

NT

DIR

ECTO

RlEVERY

COMPANY shall have a director who has stayed in India for a total period of not less than 182 days in previous calendar year.

lLISTED COMPANYlPUBLIC

COMPANYlPSC: Rs. 100

crore or more orlTurnover: Rs.

300 crore or more shall have a woman director.

lLISTED COMPANY : 1/3rd directors should be Independent Directors,

lPUBLIC COMPANY shall have 2 independent directors if it is a public company having -


lTurnover : Rs. 100 crore or more or

lOutstanding loans, debentures and deposits.Rs. 50 crore or more


QUESTIONS YES NO

PROMOTER GROUP

a. Are you a promoter of the company, its holding, subsidiary or associate company?

b. Are you related to the promoters or directors of the holding, subsidiary or associate company?

PECUNIARY RELATIONSHIP*

c. Do you have a pecuniary relationship with the company, its holding or subsidiary or associate company?

(Answer for the period starting 2 financial years immediately preceding the current financial year)

d. Do you have a pecuniary relationship with the promoters or directors of the company, its holding or subsidiary or associate company?


e. Have your relatives had any pecuniary relationship or transaction with the company, its holding or subsidiary or associate company?


(The amount should be the lower of: more than 2% of the gross turnover or total income or Rs. 50 lakh)

f. Have your relatives had any pecuniary relationship or transaction with promoters or directors of the company, its holding or subsidiary or associate company?



(The amount should be the lower of: more than 2% of the gross turnover or total income or Rs. 50 lakh)

g. Do you individually or with your relatives hold 2% or more of the total voting power of the company?

TRANSACTION WITH COMPANY

h. Were you an employee or KMP of the company or its holding, subsidiary or associate company?


i. Was any of your relative an employee or KMP of the company or its holding, subsidiary or associate company?


j. Were you or any of your relatives, an employee, partner or proprietor in any CA, CS or CWA firm working for the company or its holding, subsidiary or associate company?


k. Were you or any of your relatives, an employee, partner or proprietor in any legal or consulting firm which has had a transaction with the company or its holding, subsidiary or associate company?


(The amount of transaction should be 10% or more of the gross turnover of the firm)

l. Are you a CEO or director of any non-profit organisation that receives 25% or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company?


m. Are you a CEO or director of any non-profit organisation that holds 2% or more of the total voting power of the company?

*Pecuniary relationship does not include transactions entered by an independent director with the company concerned at par with any member of the general public and at the same price as is payable/paid by such member of public. i.e. in the ordinary course of business and at arm’s length.

Any remuneration received from one or more companies by way of sitting fees, reimbursement of expenses for participation in the Board and other meetings, profit related commission approved by the members shall also not fall within the meaning of ‘pecuniary relationship.’

RESULT:

Answer to all the above questions is NO: You are an independent director

Answer to any of the above questions is YES: You are not an independent director

If you clear the above result, you have to comply with the following:

You must give a declaration about your independence at the first Board Meeting you attend and thereafter at the first Board Meeting of every financial year or whenever there is any change in the circumstances which affect your independence.

You must abide by the provisions of Schedule IV which prescribes a code for independent directors.

You shall not be entitled for any further stock option.

Term for holding office for an independent director shall be as under:

Unlisted Public Company: Independent director shall hold office for term of 5 consecutive years and shall be eligible for re-appointment on passing of a special resolution. Further, independent director shall be eligible to hold office for not more than 2 terms of 5 consecutive years. He shall, however, be eligible for appointment after a cooling period of 3 years.


Listed Public Company: As per the Listing Agreement, independent director shall be eligible to hold office for not more than 2 terms of 5 consecutive years. However, in case the independent director has already served as an independent director for 5 years or more in a company as on October 1, 2014, he shall be eligible for appointment, on completion of his present term, for 1 more term of up to 5 years only.

Other provisions governing Independent Directors:

• Vacancy:

Any intermittent vacancy of an independent director shall be filled-up bythe Board at the earliest but not later than the immediate next BoardMeeting or 3 months from the date of such vacancy, whichever is later.

• Discontinuance of requirement of Independent Director:

Where a company ceases to fulfill any of the applicability conditions statedabove for 3 consecutive years, it shall not be required to comply with theseprovisions until such time as it meets any of such conditions.

Liability of Independent Director:

The liability of an independent director would be only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes and with his consent or where he had not acted diligently.

2.1.3 Alternate Director [Section 161]

The New Act now states that an alternate director can be appointed in place of a director who absents himself from India for a period of 3 months.

An alternate director to an independent director must now also fulfill the criteria of an independent director.

2.1.4 Number of Directorships [Section 165]

A person can now be a director in up to 20 companies.

However, a person cannot be a director in more than 10 public companies including private companies which are holding or subsidiary of a public company.

In case of a listed company, an independent director shall not serve as an independent director in more than 7 companies and any person who is serving as a whole time director in any listed company shall serve as an independent director in not more than 3 listed companies.


2.1.5 Duties of directors [Section 166]

The New Act now expressly specifies the duties of directors.

A director shall

act in accordance with company’s articles;

act in good faith;

exercise his duties with due care and diligence.

A director shall not

involve in any conflicting interest with the company;

achieve or attempt to achieve any undue advantage;

assign his office.

2.1.6 Vacation of Office [Section 167]

Under the New Act, amongst other things, the office of a director shall become vacant if he absents himself from all the meetings of the Board held during a period of 12 months with or without seeking leave of absence.

2.1.7 Resignation of Director [Section 168]

The New Act now provides for resignation of a director and states that the resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later.

The company and the director shall intimate the ROC within 30 days from the date of resignation.

2.1.8 Board’s report [Section 134]

Disclosures in the Board’s report have now been substantially increased. The Board is now required to include particulars of contracts, arrangements with related parties, particulars of loans, guarantees and investments, policies of the company, evaluation of the committees, details in respect of adequacy of internal financial controls with respect to financial statements, extract of annual return, etc.


2.2 Committees and Mechanism

The provisions pertaining to Committees and Vigil Mechanism are as under:

Particulars Audit Committee Vigil Mechanism Nomination andRemuneration

Committee

StakeholdersRelationshipCommittee

Applicability

Composition

Functions

Ø

Ø

Listed companies

Public companies with

o PSC: Rs. 10 crore or more or

o Turnover: Rs. 100 crore or more or

o Outstanding loans or borrowings or debentures or deposits: Rs. 50 crore or more.

Ø

Ø

Ø

Listed companies

C o m p a n i e s w h i c h accept deposits from the public.

Companies which have borrowed money from b a n k s a n d p u b l i c financial institutions: Rs. 50 crore or more.

Ø

Ø

Listed companies

All public companies

o PSC: Rs. 10 crore or more or

o Turnover: Rs. 100 crore or more or

o Outstanding loans or borrowings or debentures or deposits: Rs. 50 crore or more.

Every company h a v i n g 1 0 0 0 s h a re h o l d e r s , d e b e n t u r e -holders, deposit-holders and any other security holders at any time during a financial year.

Ø

Ø

It shall consist of at least 3 directors.

Majority should be independent directors who can read and understand financial statements

The Audit Committee shall o v e r s e e t h e v i g i l mechanism and if there is no Audit committee, the Board shall nominate a director who shall oversee the vigil mechanism. The establishment shall be disclosed on the website, if any.

Ø

Ø

Ø

Ø

It shall have 3 or more non-executive directors.

At least half of the m e m b e rs s h a l l b e independent directors.

Chairperson of the c o m p a n y c a n b e m e m b e r o f s u c h committee but shall not chair such committee.

The chairperson shall attend the AGM.

Ø

Ø

It shall consist o f a cha i rperson who shall be a non-executive director and s u c h o t h e r members as m a y b e decided by the Board.

The chairperson shall attend the AGM.

The functions of the Audit Committee have been enhanced. The New Act is silent on the manner of electing the chairman.

Ø

Ø

The vigil mechanism shall look into genuine concerns that may be reported by directors and employees.

The vigil mechanism s h a l l p r o v i d e f o r adequate safeguards against victimization of e m p l o y e e s a n d directors who avail of the vigil mechanism and also provide for direct a c c e s s t o t h e Chairperson of the Audit Co m m i t te e o r t h e director nominated to play the role of Audit Committee, as the case may be, in exceptional cases

Ø

Ø

Ø

Ø

It shall identify persons who are qualified to become directors and who may be appointed in senior management.

It shall recommend to t h e B o a r d t h e i r a p p o i n t m e n t a n d removal and shall carry out evaluation of every director’s performance.

It shall formulate the criteria for determining qualifications, positive a t t r i b u t e s a n d independence of a director.

It shall recommend to the Board a policy r e l a t i n g t o t h e remuneration for the d i r e c t o r s , k e y managerial personnel and other employees.

It shall consider and resolve the gr ievances of security holders of the company.


Chapter 3: Key Managerial Personnel And Managerial Remuneration


Chapter 3: Key Managerial Personnel And Managerial Remuneration

3.1 Key Managerial Personnel (KMP) [Section 203]

3.1.1 Meaning

Key managerial personnel in relation to a company means:

The Chief Executive Officer or the managing director or the manager;

The whole-time director;

The Company secretary;

The Chief Financial Officer; and

Such other officer as may be prescribed. (No other officer has been prescribedyet.)

3.1.2 Threshold for appointment

The following companies shall appoint a whole-time KMP (Except a CS)

Every listed company and

Every public company having a PSC of Rs. 10 crore or more.

4The threshold for appointment of CS is as follows: Every company having a PSC of Rs. 5 crore or more.

3.1.3 Appointment

Every company belonging to the class of companies as mentioned above, shallappoint

MD, CEO or Manager and in their absence a whole-time director,

CS and

CFO

Every whole-time KMP shall be appointed by means of a resolution of the Board containing the terms and conditions of appointment including remuneration.

l

l

l


4Modified and substituted vide Notification dated 9 June 2014.


If the office of any whole-time KMP is vacated, the resulting vacancy shall be filled-up by the Board at a meeting of the Board within a period of 6 months from the date of such vacancy.

A return of appointment of KMP must be filed with the ROC within 30 days fromthe date of his appointment.

3.1.4 KMP in more than one company

Whole-time KMP shall not hold office in more than one company except in its subsidiary company at the same time.

If the whole-time KMP holds office in more than 1 company at the same time on the date of commencement of the New Act, he shall, within a period of 6 months from such commencement, choose 1 company, in which he wishes to continue to hold the office.

However, the fact that a person is a KMP in more than one company shall not disentitle him from being a director of any company. He shall need the permission of the Board for the same.

A company may also appoint as its MD, a person employed as a MD or manager in another company subject to the following:

a. He is an MD or manager in not more than one company.

b. The appointment or employment is approved by a unanimous resolution ofthe Board.

c. Specific notice of the meeting where such resolution is to be passed is sentto all directors in India.

3.1.5 Disclosure of Interest

A KMP must disclose his concern or interest in respect of any items of special business to transacted at the meeting which is likely to be annexed to notice. He shall also disclose his shareholding interest (provided it is greater than 2% of the PSC) in another company with which a transaction is proposed in the special business.

Any benefit accruing to a KMP due to inadequate disclosure or non-disclosure with respect to a transaction in which he is interested, shall be held by the KMP in trust for the company.


3.1.6 Register of KMP

A register of KMPs shall be maintained at the registered office which shall include the details of securities held by each KMP in the company or its holding, subsidiary, subsidiary of company’s holding company or associate companies.

3.1.7 Restrictions

KMP is prohibited from forward dealing in securities of company.

KMP is also prohibited from insider trading. A violation of this provision shallsubject the KMP to a heavy penalty as per the provisions of the New Act.

3.2.1 Appointment

A company cannot appoint MD and manager at the same time. The terms and conditions of appointment and the remuneration payable shall be included in the notice convening the Board Meeting and the General Meeting in which the appointment shall be considered. In case, the appointment is in variance of the provisions of the New Act and the Schedule, approval of the Central Government is also

5required. However, in case of a private company, the remuneration and terms and conditions of appointment of a managing director, whole-time director or manager need not be subject to the Schedule and approval in a general meeting.

3.2.2 Term

A manager, MD or whole-time director cannot be appointed or reappointed at a time for a period of more than 5 years. Reappointment of such a person cannot be made earlier than 1 year before the expiry of his term.

3.2.3 Eligibility conditions

A company can only appoint or continue in employment any person as MD, whole-time director or manager provided:

The person is above 21 years of age.

The company has passed a special resolution to appoint person who has attained age of 70 years.

The person is residing in India for a continuous period of 12 months preceding his appointment or has a valid employment visa in case he is a non-resident.

3.2 Managerial Remuneration [Section 196 and Section 197]




The person is not an undischarged insolvent or at any time been adjudged as such.

The person has not suspended payment to creditors.

The person has not been convicted by a Court of an offence and sentenced for term of more than 6 months.

The person draws remuneration subject to the limit provided under the New Act in case where he is managerial personnel in more than 1 company.

3.2.4 Return of appointment

The New Act now requires a company to file a return of MD/ whole-time director/ manager’s appointment with the ROC within 60 days instead of 90 days as provided earlier.

3.2.5 Payment of remuneration

The amount of remuneration payable to the managerial personnel of a company depends on the type of the company and on the availability of adequate profits. Remuneration shall be paid by the following companies in the manner as specified:

6 Private Company: No limits have been imposed on a private company withrespect to the payment of remuneration to managerial personnel.

Public Company having profits: A public company having profits may payremuneration subject to the following limits:

Particulars of remuneration Not more than specified percentage(%) of net profits

Total remuneration 11%(it can exceed these limits withthe approval of the Central Government)

Remuneration payable to only 1 MD,manager or whole-time director 5%

More than 1 MD, manager orwhole-time director taken together 10%

Remuneration to directors other than 1% (if there is a MD or aMD or whole-time director whole-time director)

Remuneration to directors other 3% (where there is no MD orthan MD or whole-time director whole-time director)




The above percentages do not include sitting fees payable to directors.

company which does not have profits or has inadequate profits:

A company, other than a private company, which has inadequate profits or whichdoes not have profits shall pay an amount which shall be the higher of theamounts derived from the methods below:

Method B shall apply only in case the managerial person was not paid during the preceding 2 years prior to his appointment.

holding security of nominal value of more than Rs. 5 lakh or

an employee or a director of the company or

related to any director or promoter.

A special resolution may be passed by the shareholders in order to double the limits mentioned above.

METHOD A METHOD B

Compute effective capital Compute current relevant profit

Calculate amount as per the followinglimits:

Where effective Limit of annualcapital is: remuneration

(in Rs.)

Negative- Rs. 5 crore 30 lakhs

Rs. 5 crore-Rs. 100 crore 42 lakhs

Rs. 100 crore-Rs. 250 crore 60 lakhs

Rs. 250 crore or 60 lakhs + 0.01%more of the effective

capital in excessof Rs. 250 crore.

Calculate 2.5% of the currentrelevant profit

Compare with amount in Method B Compare with amount in Method A

Limit of remuneration that may be paid is the higher of the amounts derivedby Method A and Method B


3.2.6 Meaning of key terms for the computation of remuneration as per the above methods

Effective capital means:

aggregate of the PSC (excluding share application money or advancesagainst shares);

amount standing to the credit of share premium account;

reserves and surplus (excluding revaluation reserve);

long-term loans and deposits repayable after 1 year (excluding workingcapital loans, over drafts, interest due on loans unless funded, bankguarantee, etc. and other short-term arrangements)

reduced by

aggregate of any investments (except in case of investments by aninvestment company whose principal business is acquisition of shares,stock, debentures or other securities); accumulated losses and preliminaryexpenses not written off.

Current relevant profit means: The profit as calculated under section 198 which deals with calculation of profits but without deducting the excess of expenditure over income referred to in sub-section 4 (l) in respect of those years during which the managerial person was not an employee, director or shareholder of the company or its holding or subsidiary companies.

3.2.7 Conditions for payment of remuneration as above

Remuneration shall be paid as above subject to the following conditions:

Payment of remuneration is approved by Board and by Nomination Committee and Remuneration Committee, if applicable.

Company has not defaulted in repayment of any debts, public deposits, debentures, interest thereon for a continuous period of 30 days in preceding financial year before such appointment;

Special resolution is passed for a period not exceeding 3 years;

Information and disclosures as required under Schedule V are included in statement to be given to shareholders along with notice calling general meeting.

l

l

l

l

l


In addition to the above, the managerial personnel shall be entitled to certain perquisites which shall not be included in the ceiling of remuneration computed above.

3.2.8 Sitting fees

Subject to discretion of Board, a director may receive sitting fees for attending meetings of Board or Committee thereof. However, sitting fees to a director shall not exceed Rs. 1 lakh per meeting of Board or Committee thereof. Sitting fees payable to an independent director and woman director shall not be less than fee payable to other directors.

3.2.9 Recovery of remuneration [Section 199]

The New Act now provides for recovery of remuneration paid to managerial personnel in certain cases.

This is a new provision and states that where a company is required to re-state its financial statements due to fraud or non-compliance with any requirement under the New Act and the rules made thereunder, the company shall recover from any past or present MD or whole-time director or Manager or CEO who, during the period for which the financial statements are required to be re-stated, received the remuneration (including stock option) in excess of what would have been payable to him as per restatement of financial statements.


Chapter 4: Charges And Deposits


Chapter 4: Charges And Deposits

4.1 Charge [Section 77]

4.2 Deposit [Section 73 and Section 74]

The key changes in the position of law governing charges are set out below:

4.2.1 What is a deposit?

Any receipt of money by way of deposit or loan in any other form by a company.

4.2.2 What is not a deposit?

Amount received from directors subject to declaration from such director;

Any amount received by a company from another company;

Share Application money or advance for securities received towards allotmentof securities, provided shares are allotted within period of 60 days from date ofreceipt of money;

Amount received from an employee of the company not in excess of his annualsalary under contract of employment;

Creation or Modification of Change

All charges require registration Within 30 days or of creation or modification upon giving reasons to ROC

within 300 days

Satisfaction of Charge

Satisfaction of a charge must be intimated to ROC Within 30 days or of satisfaction upon giving reasons to ROC

within 300 days

Condonation of delayA delay beyond 300 days from the creation/modification must be condoned by the CG.

The Charge will not be registered unless such delay has been condoned.

Penalty

Penalty prescribed for failure to register a charge has been modified and now also includes imprisonment of every officer in default along with fine.


Any advance received against orders for the supply of goods or properties or forthe rendering of any service, provided it is appropriated within a period of 365days from the date of acceptance.

4.2.3 From whom to accept a deposit?

Depending upon the eligibility, some companies can accept deposits only from members while some can accept deposits from public as well as members. The details of the same are set out below:

4.2.4 How to accept a deposit?

Circular A circular should be issued to the members/public giving suchdetails as have been specified under the New Act.

Inform ROC A copy of the circular must be filed with the ROC within 30 days fromthe issue of circular.

Bank Account Deposit at least 15% of the amount of deposits maturing during thecurrent and next financial year in a separate bank account calledDeposit Repayment Reserve Account. This account shall be usedonly for the repayment of deposits.

Deposit Where amount of deposit and interest is less than Rs. 20,000, Insurance insurance coverage would be the full amount of deposit and interest

and where amount of deposit is more than Rs. 20,000, the insurancecoverage shall be minimum Rs. 20,000.

Depositors Where a company has borrowed from its members and/or public, it Trustees shall appoint one or more trustees to be called as Depositors

Trustees.

Threshold Depositor Limit

l

l

l

Private CompanyPublic Company with Net worth less than Rs. 100 crore or Turnover less than Rs. 500 crorePublic Company with Net worth of Rs. 100 crore or more or Turnover of Rs. 500 crore or more

l

l

l

l

Members only

Members only

Members and

Public

l

l

l

l

100% of PSC + Free reserves25% of PSC + Free reserves

10% of PSC + Free reserves25% of PSC + Free reserves



Creation of In case of secured deposit, as per the New Act a company must Security mandatorily create a charge on tangible assets in favour of

Depositor Trustees.

Credit Rating Companies need to obtain credit rating from recognised agencyevery year during the tenure of deposits.

Repayment Deposits must be repaid with rate of interest which shall not exceedthe maximum rate of interest or brokerage prescribed by the RBI foracceptance of deposits by NBFCs.

7It must be noted here that except the provisions governing creation of security and repayment, a private company which accepts from its members monies not exceeding 100% of aggregate of the PSC and free reserves and files the details of the monies so accepted to the ROC is not required to comply with the remaining provisions governing acceptance of deposits, specified above.

4.2.5 Exempt Companies

The provisions governing deposits shall not apply to the following companies:

Banking Company;

A registered NBFC;

A registered Housing Finance Company;

Such other companies as may be prescribed by Central Government. (No suchcompanies have been prescribed till date)

4.2.6 Deposits taken under Old Act

Where deposits have been accepted under Old Act and such deposits along with interest are unpaid as on commencement of the New Act, the company was required to:

File within 3 months of commencement of New Act (i.e. up to 30 June 2014) astatement of deposits for deposits accepted and remaining unpaid; and

Repay within 1 year from date of such commencement or from the date on whichthey are due, whichever is earlier.



However, above point shall be deemed to have been complied, if the company which had accepted/ renewed deposits under Old Act has been repaying such deposits in accordance with the provisions of Old Act.

8It must be noted here that amounts received by private companies from their members, directors or their relatives prior to 1 April 2014 shall not be treated as deposits under the New Act subject to the condition that relevant private company shall disclose in the notes to its financial statements for the financial year commencing on or after 1 April 2014 the figure of such amounts and the accounting head in which such amounts have been shown in the financial statement.

94.2.7 Penalties for acceptance of deposits in contravention of the provisions of the New Act

Where a company accepts or invites or allows or causes any other person to accept or invite on its behalf any deposit in contravention of the provisions of the New Act governing deposits or if a company fails to repay the deposit or part thereof or any interest due thereon within the time specified by the New Act;

The company shall, in addition to the payment of the deposit or part thereof and the interest due, be punishable with fine which shall not be less than Rs. 1 crore but which may extend to Rs. 10 crore.

Every officer in default of the company shall be punishable with imprisonment which may extend to 7 years or with fine which shall not be less than Rs. 25 lakhs, but which may extend to Rs. 2 crore or both.

(This provision is not yet notified and hence not into force)


8Clarified by General Circular 05/2015 dated 30 March 2015.9Inserted vide the Companies (Amendment) Act, 2015 as Section 76A and is yet to come into effect.


Chapter 5: Loans And Investments



Chapter 5: Loans And Investments

5.1 Powers of the Board

5.1.1 Powers [Section 179]

The powers of the Board to be exercised only at a Board Meeting and not by circulation have been widened and now additionally include:

Issuing securities including debentures within or outside India,

Granting loans or giving guarantee or security,

Approving financial statement and Director’s report,

Diversifying the business of the company,

Taking over of a company or acquiring a control or substantial stake in anothercompany,

Making political contributions,

Appointing or removing KMP,

Appointing internal auditors and secretarial auditor.

5.1.2 Restrictions [Section 180]

The provisions dealing with restrictions on powers of the Board require the Boardto exercise certain powers only with the approval of its members in thegeneral meeting.

A special resolution at a general meeting is required for the Board toexercise the powers specified in the section dealing with restriction on powers ofthe Board.10 These restrictions are not applicable to a private company.

5.1.3 Political contribution [Section 182]

The amount that may be spent on political contributions shall not exceed 7.5% of the average net profits of the company during the 3 immediately preceding financial years.


5.2 Loans to Directors [Section 185]

5.2.1 Allowable loans

115.2.2 Exemptions

RES

TRIC

TED

ALLO

WE

DlA company cannot give a loan, guarantee or security in respect of a loan to:

lDirector of the companylDirector of the holding companylPartner or relative of directorlFirm in which the director or

relative is a partnerlPrivate company of which the

director is a director or member.lBody Corporate in which a

director or 2 directors together hold atleast 25% of the total voting power

lBody corporate whose Board, MD or manager are accustomed to act in accordance with the directions or instructions of the Board or any director of the company.

lA company can give a loan, guarantee or security with respect to a loan:

lTo a Managing or whole-time director as part of service conditions extended by company to all its employees.

lTo a Managing or whole-time director pursuant to a scheme approved by a special resolution of the members.

lIf it is a company which in the ordinary course of its business p rov i d es l o a n s o r g i ves guarantees or securities for the due repayment of any loans which charge a rate of interest not less than that declared by RBI.

Wholly-ownedsubsidiary

Subsidiary

lA company can give a loan, guarantee or security in respect of a loan to its wholly-owned subsidiary provided the wholly-owned subsidiary uses the loan made for its principle business activities.

lA company can give a guarantee or security in respect of a loan made by any bank or financial institution to its subsidiary provided the subsidiary uses the loan made for its principle business activities


11Also inserted in Section 185 by Companies (Amendment) Act, 2015, Although the Companies (Amendment) Act, 2015 has not yet come into effect, the exemptions are currently contained in Rule 10 of the Companies (Meetings of Board and its Powers) Rules, 2014.


5.2.3 Loans and Investments by Company [Section 186]

The following table complied by us answers certain FAQs relating to loans and investments.


FAQ Answer

Which company can Any company except that which has defaulted in thegive loans and make repayment of any deposits or in payment of interestinvestments? thereon shall give any loan or guarantee or security or

make an acquisition.

How to give a loan or An approval of all the directors present at the meetingguarantee or security? of the Board is required prior to giving any loan, guarantee

or security.

What are the limits A company cannot:upto which a loan,guarantee or security Give any loan to any person or other body corporate;can be made? (any person covers employees, share transfer

agents, stock brokers, etc.)

Give any guarantee or provide security in connectionwith a loan to any other body corporate or person;

Acquire by way of subscription, purchase or otherwise,the securities of any other body corporate

in excess of the higher of

60% of (PSC + free reserves + securities premiumaccount) or

100% of (free reserves+ securities premiumaccount)

What is the prescribed A company cannot give a loan at a rate of interest lowerrate of interest? than the prevailing yield of 1, 3, 5, 10 year Government

security closest to the tenor of the loan.

What are the A company which is giving any loan, guarantee ordisclosures required? security as per the above provisions shall disclose

the particulars and the purpose of the same in thefinancial statements.

A register in respect of the same shall also bemaintained.


What if the company A special resolution of the members is required. Theexceeds the limits special resolution passed shall specify the totalspecified above? amount up to which the Board is authorized to give

such loans/ guarantee or provide security or makeacquisition.

However, no such resolution is required in case of a loan, guarantee or security provided by a holding company in respect of its wholly-owned subsidiary.

Approval of the financial institutions concerned where any term loan is subsisting shall also be obtained.

When do the above The above requirements do not apply to: provisions not apply? Loan or guarantee given or security provided a

company to its wholly owned subsidiary company or a joint venture company.

Acquisition made by a holding company, by way of subscription, purchase or otherwise of the securities of its wholly owned subsidiary company.

Loan or guarantee given or security provided by a banking company or an insurance company or a housing finance company in the ordinary course of its business.

Loan or guarantee given or security provided by a company engaged in the business of financing of companies or of providing infrastructural facilities.

Acquisition made by a non-banking financial company registered with RBI and whose principal business is acquisition of securities.

Acquisition made by a company whose principal business is the acquisition of securities.

Shares allotted in pursuance of a rights issue.

Acquisition made by a banking company or an insurance company or a housing finance company, making acquisition of securities in the ordinary course of its business.

Loans or advances made by companies to their employees other than MD and WTD provided they are in

12

13


FAQ Answer

12Inserted vide Companies (Removal of Difficulties) Order dated 13 February 2015.13Clarified vide General Circular No. 04/2015 dated 10 March 2015.


5.2.4 Investment by means of a special purpose vehicle

A company cannot make investment through more than 2 layers of investment companies.

The above shall not affect:

company from acquiring any other company incorporated in a country outside India if such other company has investment subsidiaries beyond two layers as per the laws of such country;

Subsidiary company from having any investment subsidiary for the purposes of meeting the requirements under any law or under any rule or regulation framed under any law for the time being in force.

accordance with the conditions of service applicable to employees and also are in accordance with the remuneration policy, if applicable.

14Exemption to a Provisions governing loan to directors shall not apply to a private company private company.

In whose share capital no other body corporate has invested any money

whose borrowings from banks or financial institutions or any body corporate is less than twice of its PSC, or Rs. 50 crore, whichever is lower and

which has not defaulted in repayment of such borrowings subsisting at the time of making transactions under this section.


FAQ Answer

COMPANY AINVESTMENTCOMPANY 1

INVESTMENTCOMPANY 2

INVESTMENTCOMPANY 3

OPERATIONALCOMPANY B



Chapter 6: Related Party Transactions AndOther Transactions


Chapter 6: Related Party Transactions AndOther Transactions

6.1 Related Party Transactions [Section 2(76) and Section 188]

6.1.1 What is the meaning of a ‘related party’?

Related Party with reference to a company means:

i. Director or his relative;

ii. KMP or his relative;

iii. Firm in which a director, manager or his relative is a partner;

iv. Private company in which a director or manager is a member or director;

v. Public company in which a director or manager or his relative is a director andholds along with his relatives, more than two per cent of its PSC;

vi. Any body corporate whose Board, managing director or manager is accustomedto act in accordance with the advice, directions or instructions of a director ormanager;

vii. Any person on whose advice, direction or instructions a director or manager isaccustomed to act;

viii. Any company which is holding, subsidiary or an associate company, fellowsubsidiary of such company;

ix. KMP of holding company or his relative.

Nothing in clause (vi) or (vii) shall apply to advice given in professional capacity.

The definition of the term ‘relative’ has been limited and now only includes members of a Hindu Undivided Family, husband and wife and father including step father, mother including step mother, son including step son, son’s wife, daughter, daughter’s husband, brother including step brother, and sister including step sister.

15It must be noted that transactions of a private company with a company which is:

a holding, subsidiary or an associate company of such private company or

a subsidiary of a holding company to which it is also a subsidiary

shall not attract the provisions of Section 188 dealing with related party transaction.




6.1.2 What kinds of transactions with related parties require prior approval?

The following transactions require prior approval if they are entered into with a related party:

Sale, purchase or supply of any goods or materials;

Selling or otherwise disposing of, or buying, property of any kind;

Leasing of property of any kind;

Availing or rendering of any services;

Appointment of any agent for purchase or sale of goods, materials, services orproperty;

Related party's appointment to any office or place of profit in the company, itssubsidiary company or associate company;

Underwriting the subscription of any securities or derivatives thereof, of thecompany.

6.1.3 What is the procedure for entering into any of the above transactions with a related party?


If the transaction does not exceed the limits specified below: Board resolution is sufficient.16Transaction

Sale, purchase or supply of any goods or materials directly or through appointment of agents.

Selling or otherwise disposing of, or buying property of any kind directly or through appointment of agents.

Leasing of property of any kind.

Availing or rendering of any services directly or through appointment of agents.

Appointment to any office or place of profit in the company, its subsidiary company or associate company.

Remuneration for underwriting the subscription of any securities or derivatives thereof of the company.

Limit

10% of Turnover or Rs. 100 crores, whichever is less.

10% of Net Worth or Rs. 100 crores, whichever is less.

10% of Net Worth or 10% of Turnover or Rs. 100 crores, whichever is less.

10% of Turnover or Rs. 50 crores, whichever is less.

Remuneration in excess of Rs. 2,50,000 per month.

1% of Net Worth.

17If the transaction exceeds the limits specified above. Special resolution of the members is required.

16Transaction limits substituted vide Notification dated 14 August 2014.17Ordinary Resolution shall be sufficient once Section 188 of the Companies (Amendment) Act, 2015 is notified.


The above trigger shall not apply to any transaction entered into by a company

In its ordinary course of business and

On an arm’s length basis

6.1.4 What should be done where the above procedure is not followed?

18 In case where the consent of the Board or an approval by special resolution as required is not obtained, the contract/arrangement shall be valid only if it is ratified by the Board or by a special resolution of the members within 3 months from the date on which such contract or arrangement was entered into.

In case it is not ratified within the prescribed time, the contract is voidable at the option of the Board.

6.1.5 What are the restrictions on an interested party?

A director interested in any contract or arrangement with a related party shall not be present at the meeting during discussions of the subject matter of the

19resolution relating to such contract or arrangement. In case of a private company, a director interested in any contract or arrangement with a related party may participate in the meeting after disclosing his interest.

A member shall not vote on resolution in general meeting if such member is 20interested in contract or arrangement placed before the meeting. In case of a

private company, a member may vote on a resolution to approve any contract or arrangement even if such member is a related party.21 The term ‘related party’ for this purpose only refers to such related party as may be a related party in the context of the contract or arrangement for which the 22special resolution is being passed.

6.1.6 What compliance is required?

The following compliances are required in case of related party transactions by a company:


18Ordinary Resolution shall be sufficient once Section 188 of the Companies (Amendment) Act, 2015 is notified.19Inserted vide Notification dated 5 June 2015.20Inserted vide Notification dated 5 June 2015.21Clarified vide General Circular No. 30/2014 dated 17 July, 2014.22Ordinary Resolution shall substitute the word 'special resolution' once Section 188 of the Companies (Amendment) Act, 2015 is notified.


Board Meeting agenda for passing a resolution for the approval of a related party transaction shall disclose certain particulars.

The Explanatory Statement annexed to the notice of a general meeting shall contain certain particulars.

Every contract or arrangement shall be referred to in Board’s report to shareholders along with justification for entering in to such contract or arrangement.

6.1.7 Will the directors or employees be liable in case of a default?

In case where a contract or arrangement with a related party is not ratified as required, if the contract is with a related party to any director or is authorized as such by any other director, the concerned directors shall indemnify the company against loss incurred by the company due to such contract or arrangement.

In addition to the above, a company can proceed against a director or other employee who had entered into such contract in contravention of provisions of the New Act for recovery of loss sustained as a result of such contract.

The director or any other employee in case of companies other than listed companies shall be punishable with fine and imprisonment.

6.2.1 Restrictions on Non-Cash Transactions [Section 192]

Any arrangement between a company and its directors in respect of acquisition of assets for consideration other than cash shall require prior approval by a resolution in general meeting and if the director or connected person is a director of its holding company, approval is required to be obtained by passing a resolution in general meeting of the holding company.

6.2.2 Prohibition on forward dealings in securities [Section 194]

The New Act prohibits a director of a company or a KMP to buy a right to call for delivery at a specified price and within a specified time, of a specified number of relevant shares or debentures, right to make delivery at a specified price and within a specified time, of a specified number of relevant shares or debentures.

6.2.3 Prohibition on Insider Trading [Section 195]

The New Act makes insider trading by a director or a KMP, a criminal offence. Communication in the ordinary course of business, profession or employment will not be treated as insider trading.

6.2 Other Restrictions


Chapter 7: Share Capital And Dividend


Chapter 7: Share Capital And Dividend

7.1 Issue of Securities

A company may raise capital by issue of securities in the following ways:

7.1.1 Public Issue (Applicable only to Public Companies) [Sections 23 to Sections 40]

Publiccompany

Prospectus PrivatePlacement

RightsIssue

BonusIssue

Privatecompany

PrivatePlacement

Rights Issue Bonus Issue

Process Requirements

Application to stock exchange Approval from the stock exchange is required for the securities to be dealt with. Failure to apply or obtain permission would entail mandatory refund of money received from applicants.

Issue of red herring prospectus, prospectus or a shelf prospectus (if the company belongs to a class prescribed by SEBI)

Bank account

The prospectus must contain all the details as are prescribed in the New Act and the Rules.

The punishment for misstatement in prospectus is very severe and it attracts both criminal and civil liability.

All monies received on application to the securities must be kept in a separate bank account and cannot be used for any purpose other than those stated in the New Act.

Variation in terms of contract or objects of prospectus

Terms may be varied only by special resolution through postal ballot

The dissenting shareholders that do not agree with the change shall be given an exit offer by promoters or by controlling shareholders.

Minimum subscription Allotment cannot be made unless the minimum amount stated in the prospectus has been subscribed to.

The amount so subscribed shall not be less than 5% of the nominal amount of the security.

If minimum amount is not subscribed to within 30 days, the entire amount received must be refunded.

Allotment Subject to the condition of minimum subscription being complied with, securities shall be allotted.

Return of allotment Return of allotment must be filed within 30 days.


7.1.2 Private Placement (Applicable to Public and Private Companies) [Section 42]

Important Points

No offer or invitation of another kind of security shall be made unless allotment with respect to offer or invitation made earlier in respect of any other kind of security is completed, withdrawn or abandoned by the company.

Application money received shall be kept in a separate bank account in a scheduled bank.

Application money should be received through cheque/ demand draft/ any other banking channels, but not in cash.


Approval Approval of shareholders by way of special resolution for proposed offer or invitation of securities is required.

Number of persons to whom offer may be made

Time limit for allotment

Offer shall not be made to more than 200 persons in the aggregate in a financial year.

Exclusions:

Following persons are excluded while calculating the limit of 200 persons.

Qualified Institutional Buyers

Employees of the company

Restriction of 200 persons is individually for each kind of security.

Allotment of securities must be completed within 60 days of receipt of application money.

If the company fails to allot securities within 60 days, then the application money must be returned to subscribers within 15 days from the completion of 60 days, failing which interest will be charged at the rate of 12% per annum.

Value of offer The value of such offer or invitation per person shall be with an investment size of not less than Rs. 20,000 of face value of the securities.

Process / Particulars Requirements


7.1.3 Rights Issue (Applicable to Public and Private Companies) [Section 62]

7.1.4 Bonus Issue (Applicable to Public and Private Companies) [Section 63]

Unlike the Old Act, the New Act now provides separate provisions with respect to issue of bonus shares to shareholders.

Bonus shares may be issued by a company out of:

a. its free reserves;

b. the securities premium account; or

c. the capital redemption reserve account.

Approval Approval of Board of Directors is required

Allottees Allotment shall be made to: To holders of equity share holders of the Company in proportion

to the equity shares held on the date of offer.The offer shall be made by notice specifying the number of shares offered and for time, being not less than 15 days and not more than 30 days from the date of the offer.23A private company may reduce this period subject to the consent of 90% of the members of the private company.If the offer is not accepted within given time it shall be deemed as declinedUnless articles provide otherwise, the offer shall be deemed to include a right to renounce the shares or renounce the shares in name of any other personAfter expiry of the time or on receipt of earlier intimation, the person to whom the offer is made, declines the shares offered, the Board may dispose of the shares in such manner as may be advantageous to the shareholders and the Company.

Employees under a scheme of employee’s stock option by special 24resolution of members (An ordinary resolution shall be

sufficient in case of a private company). any other person either for cash or for a consideration other than

cash, if price of such shares is determined by the valuation report of a registered valuer with special resolution of members.

l

l

l

l

Time limit for allotment

Allotment of securities must be completed within 12 months of passing of resolution.


Process Requirements

23Inserted vide Notification dated 5 June 2015.24Inserted vide Notification dated 5 June 2015.


Except upon the fulfillment of certain conditions, a company cannot capitalize its profits or reserves for the purpose of issuing bonus shares.

Bonus shares cannot be issued in lieu of dividend.

A company which has once announced the decision of its Board recommending a bonus issue, shall not subsequently withdraw the same.

7.1.5 Issue of Sweat Equity Shares [Section 54]

Approval: Special Resolution

Notice: Explanatory statement of the notice requires a lot of particulars to be stated therein.

Lock in period: 3 years from the date of allotment

Price: Determined by registered valuer

Remuneration: It shall be treated as part of the managerial remuneration

Disclosure: The following disclosures are required:

Board’s report must contain certain disclosures.

Register of sweat equity shares must be maintained at the registered office and must be authenticated by a CS or any other person authorised by the Board.

7.1.6 Employee Stock Option Scheme [Section 62]

By Listed Companies: Where the equity shares of the company are listed on a recognized stock exchange, the Employees Stock Option Scheme shall be issued, in accordance with the regulations made by SEBI.

By Unlisted Companies: Procedure for Unlisted Companies for issuing employee stock option is as follows:

l

l

a. Special resolution in general meeting and 25Ordinary resolution in general meeting for a private company.

b. The option can only be granted to employees of company, as more specifically defined in the Rules.

a. Certain disclosures must be made in E x p l a n a t o r y Statement.

b. Board’s report for the year must disclose particulars of ESOP.

a. An employee who is promoter or person belonging to promoter group or director directly or indirectly holding more than 10% of outstanding equity shares shall not be eligible for ESOP.

Conditions/Requirements DisclosuresRestrictions




7.1.7 Issue of Equity Shares with Differential Voting Rights [Section 43]

26(With respect to a private company, the provisions of the New Act shall be subject to the provisions of the articles.)

Approval:

The following approvals are required

Authorization in the articles of company

Ordinary Resolution

l

l

c. The company shall have freedom to determine the exercise price in c o n f o r m i t y w i t h applicable accounting policies, if any

d. There sha l l be a minimum 1 year lock in period between grant of options and vesting of option.

e. The company shall h a v e f re e d o m to specify lock in period for shares.

f. In event of death of employee while in employment, options granted to him shall vest in the legal heirs or nominees.

g. S e p a r a t e s p e c i a l resolution shall be required for grant of option to employees of subsidiary or holding company; or where the grant of option to employees during 1 year is equal to or exceeds 1% of issued capital.

c. Company to maintain Register of Employee Stock Options which can be maintained at the registered office or such other place as may be specified by the Board.

b. Options granted to employees shall not be transferable to any other person.

c. O p t i o n s g r a n t e d cannot be pledged, h y p o t h e c a t e d , m o r t g a g e d o r encumbered.

Conditions/Requirements DisclosuresRestrictions




In case of listed company, resolution by postal ballot

Limit:

Shares with differential voting rights shall not exceed 26% of total post-issue paid-up equity share capital including equity shares with differential voting rights issued at any point of time.

Track record:

The company must have track record of distributable profit for last 3 years.

No default:

The company should not have defaulted in:

filing financial statement and annual return for preceding 3 financial years.

payment of dividend, repayment of matured deposits, redemption of preference shares or debentures, payment of interest on deposits or debentures

Conversion:

The company cannot convert existing equity shares into equity shares with differential voting rights and vice versa.

Disclosures:

The following disclosures must be made:

Disclosure of information required must be given in Explanatory Statement.

Disclosure of information must be given as prescribed in Board’s report for the financial year in which such issue is completed.

Register of members to contain all relevant particulars of the shares so issued.

7.1.8 Issue of Shares on Preferential Basis

Meaning:

‘Preferential Offer’ means an issue of shares or other securities, by a company to any select person or group of persons on a preferential basis and does not include a

public issue;

rights issue;

employee stock option scheme;

l

l

l

l

l

l

l

l

l


employee stock purchase scheme;

issue of sweat equity shares;

bonus shares or

depository receipts issued in a country outside India or foreign securities.

Shares:

Equity shares, fully and partly convertible debentures or

Securities:

Any other security convertible into or exchanged with equity shares at a later date.

Approval:


Authorization in articles of company

Special Resolution

Fully paid-up: Securities shall be made fully paid-up at the time of theirallotment.

Disclosure: Explanatory Statement must disclose certain information.

Allotment: Within 12 months from special resolution otherwise a fresh special resolution would be required.

Consideration: Securities may be issued for cash or for any other consideration determined by registered valuer.

27The provisions governing private placement should also be followed with respect to issue of shares on preferential basis except where the issue is made to one or more existing shareholders only.

7.1.9 Issue and Redemption of Preference Shares [Section 55]

Approval:


l

l

l

l

l

l


27Inserted by Notification dated 18 March 2015.


Authorization in articles of company

Special Resolution

No default:

The company should not have at the time of issue defaulted in

the redemption of preference shares or

payment of dividend due on any preference shares.

Redemption:

The company may redeem the preference shares:

at a fixed time or on the happening of a particular event;

any time at the company’s option; or

any time at the shareholder’s option.

Infrastructure Company:

A company engaged in the setting up and dealing with infrastructural projects may issue preference shares for a period exceeding 20 years but not exceeding 30 years. In this case the company must redeem a minimum 10% of such preference shares every year latest from the 21st year.

7.1.10 Issue of Debentures [Section 71]

Approval:

Special Resolution is required for issue of debentures with or without option of conversion into shares.

Voting Rights:

The debentures issued shall not carry voting rights.

Date of Redemption:

Maximum 10 years from date of issue except companies engaged in infrastructure projects, infrastructure finance companies and infrastructure debt fund non-banking financial companies can issue debentures for more than 10 years but not exceeding 30 years.

Appointment of Debenture Trustee:

If a company issues a prospectus or makes an offer or invites the public or its members exceeding 500 in number for subscription of debentures, appointment of debenture trustee is mandatory.

l

l

l

l

l

l

l


The company shall appoint a debenture trustee before the issue of prospectus or letter of offer for subscription of its debentures and not later than 60 days after the allotment of the debentures.

Debenture Redemption Reserve (DRR):

The Company shall create DRR out of profits.

The provisions pertaining to payment of dividend are as under:

7.2 Payment of Dividend [Section 123]


Final Dividend

In case of profit In case of loss

The company may declare dividends out of

Profits of the company for that year after providing depreciation.

Profits of the company for any previous year or years arrived after providing for depreciation.

Out of money provided by the Central Government or State Government for the payment of dividend by the company in pursuance of guarantee given by the company.

In case of inadequacy of profits or absence of profits in any year, a company may declare dividend out of surplus subject to conditions, namely:

The total amount to be drawn shall not exceed one-tenth of the sum of its PSC and free reserves as per latest audited financial statement.

The amount so drawn shall first be utilized to set off the losses incurred in the financial year in which dividend is declared before any dividend in respect of equity shares is declared.

The balance of reserves after such withdrawal shall not fall below 15 % of its PSC.28No company shall declare dividend unless carried over p r e v i o u s l o s s e s a n d depreciation not provided in previous year or years are set off against profit of the company of the current year.

l

l

l

l

28This requirement has been deleted vide Notification dated 29 May 2015.


Interim Dividend

In case of profit In case of loss

Out of surplus in the profit and loss account.

Out of profits of the financial year in which such interim dividend is sought to be declared.

Dividend cannot be declared at a higher rate than the average dividends declared by the company during immediately preceding 3 financial years.

7.2.1 Procedure which remains same as that under the Old Act

Amount of dividend, including interim dividend, must be deposited in a scheduled bank account within 5 days of declaration of dividend.

Unpaid or unclaimed dividend after 30 days of declaration must be transferred to Unpaid Dividend Account within 7 days from the expiry of 30 days.

Unpaid or unclaimed dividend for a period of 7 years from the date of transfer to the Unpaid Dividend Account must be transferred to Investor Education and Protection Fund.

7.2.2 Points of difference vis-á-vis the Old Act

Stricter Points

A Company which fails to repay deposits accepted before commencement of the New Act cannot declare dividend on equity shares till the default continues.

Dividend can be declared only from its free reserves.

Lenient Points

29 It is not required for a company to set off its past losses before declaration of dividend.

It is not mandatory before the declaration of dividend to transfer such percentage of company’s profit to the reserves of the company. The percentage of transfer of reserves (if any) shall be decided by the Board.

Payment of dividend is now expressly allowed through electronic mode to the registered share holder.


29This requirement has been deleted vide Notification dated 29 May 2015.


Chapter 8: Administration And Meetings


Chapter 8: Administration And Meetings

8.1 Registers [Section 88]

8.2 Annual Return [Section 92]

8.1.1 Register of Members

A company must maintain a register of shareholders, register of debenture holders and a register of any other security holders.

The register of shareholders must contain details of each class of equity and preference shareholders residing in India and outside India.

Existing companies had to comply with this requirement within 6 months from the commencement of Rules. (i.e. up to 30 September 2014)

8.1.2 Foreign Register

A company may maintain a register called the ‘foreign register’ outside India containing particulars of security holders outside India. This is subject to authorization in the articles of the company. Notice of situation of foreign register must be given to the ROC within 30 days from the opening of such a register.

The provisions apply to all companies including companies not having a share capital.

l

l

l

Sr. No. Particulars Requirements under the New Act

1. Additional The New Act now requires a lot of additional information to beRequirements provided for in the annual return.

2. Period of The annual return must be filed till the close of the financialreporting year and not till the AGM of the company.

3. Signing It must be signed by a director and CS and in the absence of a CS bya practicing CS.

4. Certification Annual return filed by a

listed company or

a company with

PSC of Rs. 10 crores or more or

turnover of Rs. 50 crores or more,

shall be certified by a practicing CS.

5. Board’s report The Board’s report must contain an extract of the annual return

6. Time period The annual return must be filed with the ROC within 60 days fromfor filing the AGM.

l

l


8.3 Electronic Records [Section 120]

8.4 Meetings

The following companies may maintain their records in electronic form

lEvery listed company or

lA company having not less than 1000 shareholders, debenture holders andother security holders.

The onus is on the MD, CS or any other director or officer as decided by the Board for security of records.

8.4.1 Annual General Meeting (AGM) [Section 96]

The table below containing FAQs complied by us explains the provisions relating to AGM.

Responsibility:

Sr. No. RequirementsParticulars

1. When should an AGM be held?

First AGM

First AGM must be held within 9 months from the closure of the first

financial year of the Company.

Subsequent AGM

lAGM must be held in each year.

lAGM must be held within 15 months form the date of previous

AGM.

lAGM must not be held later than 6 months from the date of

closure of the financial year.

2. On what days can you conduct

an AGM?

AGM must be held during business hours i.e. between 9 a.m. to 6 p.m. on any day which is not a national holiday.

3. How much notice is required?

Notice must be given at least 21 clear days in advance. It may be sent in electronic format.

Shorter Notice

A shorter notice may be given subject to consent of at least 95% of the members entitled to vote.


30A private company may, however, contain more lenient provisions than those provided in the New Act governing notice of meeting, explanatory statement, quorum for meetings, chairman of meetings, proxies, restriction on voting rights, voting by show of hands and demand for poll.

8.4.2 Extra Ordinary General Meetings [Section 100]

The Board may whenever it deems fit, call an extra ordinary general meeting.

All provisions relating to notice (including shorter notice) and quorum as provided in respect of an AGM shall be applicable to an extra ordinary general meeting.


4. .W h a t i s t h e quorum required for conducting an AGM?

Private Company

2 members are required to be personally present for a valid meeting.

Public Company

Minimum number of members required to be personally present for a valid meeting shall be as per the requirement stated below:

No. of Members No. of members as on theof the Company date of AGM

less than 1000 members: 5 members 1001 to 5000 members: 15 members More than 5000 members: 30 members

5. Can a member vote electronically?

Every listed company and a company having not less than 1000 shareholders, shall provide to its members facility to exercise their right to vote at general meetings by electronic means subject to the fulfillment of certain requirements.

6. What is the filing that should be done with respect to an AGM?

Every listed company must prepare a report on AGM.

The report shall be signed by the Chairman of the meeting or in his absence by 2 directors one of whom shall be MD, if there is one and CS of the Company.

The report is to be filed with ROC within period of 30 days from date of conclusion of AGM.




8.4.3 Board Meetings [Section 173]

The table below indicates the provisions relating to Board Meeting.

8.4.4 Board Meeting Through Video Conferencing [Section 173]

Notice of the meeting:

The notice of the meeting shall inform the directors regarding the option


1. How often should you conduct a Board Meeting?

First meeting of the Board

First Board Meeting must be held within 30 days of incorporation.

Subsequent Board meetings

4 meetings to be held every year. Gap between two meetings should not be more than 120 days.

2. How much notice is required?

At least 7 days' notice in writing should be given to every director at his address registered with the Company.

Notice can be sent by hand delivery or post or electronic means.

Shorter Notice

A meeting may be called at a shorter notice but 1 independent director must be present. If independent director is not present, the decisions will be final subject to ratification by an independent director.

In case of conveying of Board Meeting by a private company at shorter notice a circular for clarification by MCA would be welcome.

3. What is the quorum required for conducting a Board Meeting?

The quorum required is 1/3rd of the total strength or 2 directors whichever is higher.

In situations where due to the removal or resignation of a director, required quorum is not present, the continuing directors may appoint new directors to fulfill the quorum requirement or for calling an AGM/ EGM.


available to them to participate through video conferencing mode or other audiovisual means.

Intimation by Director:

A director intending to participate through video conferencing or audio visual means shall communicate his intention to the chairperson or the CS of the company.

The director, who desires, to participate may intimate his intention of participation through the electronic mode at the beginning of the calendar year and such declaration shall be valid for 1 calendar year.

While conveying Board Meeting through video conferencing or any other audio video means, a company must:

safeguard the integrity of the meeting by ensuring sufficient security and identification procedures.

record proceedings and prepare the minutes of the meeting.

ensure that no person other than the concerned director are attending or have access to the proceedings of the meeting through video conferencing mode or other audio visual means.

store for safekeeping and marking the tape recordings or other electronic recording mechanism as part of the records of the company at least before the time of completion of audit of that particular year.

The following matters shall not be dealt with in a meeting through video conferencing or other audio visual means:

approval of the annual financial statements;

approval of the Board’s report;

approval of the prospectus;

approval of the matter relating to amalgamation, merger, demerger,acquisition and takeover.

Audit Committee meetings for consideration of accounts shall also not beheld through video conferencing or other audio visual means.

8.4.5 Proxies [Section 105]

A person appointed as proxy cannot act on behalf of more than 50 members and holding in aggregate more than 10% of total share capital of the company carrying voting rights.

l

l

l

l

l

l

l

l

l

l


However, a member holding more than 10% of the total share capital of the company carrying voting rights may appoint a single person as proxy and such person shall not act as proxy for any other person or shareholder.

8.4.6 Postal Ballot [Section 110]

(Applicable to Listed and Public Companies having more than 200 members)

Following procedure shall be followed for passing of resolution by postal ballot.

Notice

Notice shall be sent to all the shareholders, along with a draft resolution explaining the reasons and requesting them to send their assent or dissent in writing on a postal ballot form.

Advertisement

Appointment of Scrutinizer

An advertisement shall be published in at least one vernacular newspaper of the district and in at least one English language newspaper having a wide circulation in that district.

Time of assent or dissent

Report of Scrutinizer

Passing of resolution

Resolution only by means of postal ballot

The Board shall appoint scrutinizer for conducting the postal ballot voting process in a fair, transparent manner ascertaining the requisite majority.

Shareholders should intimate their assent or dissent within a period of 30 days from the date of dispatch of the notice.

The scrutinizer shall submit his report as soon as possible after the last date of receipt of postal ballots but not later than 7 days.

If a resolution is assented to by the requisite majority of the shareholders by means of postal ballot including votingby electronic means, it shall be deemed to have been duly passed at a general meeting convened in that behalf.

The New Act prescribes that certain specific business shall be transacted only by means of postal ballot.


8.5 Miscellaneous

8.5.1 Limitation of time for Issue of Certificates [Section 56]

Every company shall deliver the certificates of all securities allotted, transferred or transmitted within the time limits specified below:

Incorporation: Within a period of 2 months from the date of incorporation in the case of subscribers to the memorandum (Old Act did not specify any time period)

Allotment: Within 2 months from the date of allotment, in case of any allotment (Old Act provided a period of 3 months)

Transfer: Within a period of 1 month form the date of receipt of the instrument of transfer by the Company. (Old Act provided a period of 2 months)

Debentures: Within a period of 6 months from the date of allotment of debenture (Old Act provided a period of 3 months)

8.5.2 Secretarial Audit [Section 204]

Applicability:

Listed Company

Public company having

PSC: Rs. 50 crore or more or

Turnover: Rs. 250 crore or more.

Authority: Practicing CS.

Duty of Company: the Company shall give all assistance and facilities to Practicing CS for auditing the secretarial and related records of the Company.

Board Report: Board report shall include any explanation to any qualification or observation or any remarks made by Practicing CS in Secretarial Audit Report.

l

l


Chapter 9: Other Provisions


Chapter 9: Other Provisions

9.1 Memorandum and Articles of Association [Section 4 and Section 5]

9.2 Change in Official Publications of the Company [Section 12]

9.3 PSC Requirement and Commencement of Business

The New Act has introduced a few changes with respect to the Memorandum and Articles of Association of a company. The key changes are listed below:

9.1.1 Memorandum of Association

The objects clause of the memorandum need not be classified into main, ancillary and other objects. It should only state the objects for which the company is incorporated along with matters considered necessary for its furtherance.

9.1.2 Articles of Association

The articles may contain a provision for entrenchment to the effect that specified provisions of the articles may be altered only if conditions or procedures that are more restrictive than those applicable in the case of a special resolution are met with. The provisions for entrenchment can be made in the articles by a unanimous resolution of the private company or a special resolution of a public company.

The New Act requires the company to have its name, address of registered office and Corporate Identity Number along with telephone number, fax number, if any, e-mail and website addresses, if any, printed in all its business letters, billheads, letter papers and in all its notices and other official publications.

31

By virtue of the amendment to the New Act, the requirement for a private company to have a minimum PSC of Rs. 1 lakh and a public company to have a minimum PSC of Rs. 5 lakhs has been removed. Thus, there is no requirement of minimum PSC for incorporation of a company under the New Act.

Similarly, by virtue of the amendment to the New Act, a company is not required to file a declaration prior to the commencement of business.


31The requirement of having minimum PSC at the time of incorporation of the company has been removed vide Companies (Amendment) Act, 2015. Likewise, Section 11 dealing with 'commencement of business etc.', has been omitted vide Companies (Amendment) Act, 2015. These Provisions have already come into effect from 29 May 2015.


9.4 Common Seal

9.5 Associate Company [Section 2(6)]

9.6 One Person Company

32

By virtue of the amendment to the New Act, a company is not, mandatorily, required to have a common seal

The New Act contains the definition of the term ‘associate company’. Thus an associate company in relation to another company, means a company, in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.

Significant influence means control of at least 20% of total share capital, or of business decisions under an agreement.

The term has been used in the following contexts in the New Act:

lDisclosure in the financial statements through consolidation of accounts,annual return, etc;

lDefinition of related party;lAscertaining independence of independent director and auditor;lCancellation of associate shareholding during merger and amalgamation.

The table below contains certain FAQs compiled by us dealing with the important provisions related to OPC.

Sr. No. ProvisionFAQ

1. Who can incorporate an OPC?

Only a natural person who is a resident and citizen of India can incorporate an OPC. This person cannot be a member/ nominee in more than one OPC.

2. What type of a company is an OPC?

OPC can only be a private company with 1 member.

3. What are the restrictions on OPC?

Minor cannot be member of an OPC nor can he hold any beneficial interest therein.

An OPC cannot carry the business of a NBFC.

An OPC cannot be incorporated or converted into a Section 8 company i.e. a company incorporated with charitable objects.

An OPC cannot convert into any other kind of company unless a period of 2 years has expired from date of incorporation and conversion is mandatory when the PSC is increased beyond Rs. 50 lakhs or its average annual turnover during the relevant period exceeds Rs. 2 crore.


32Pursuant to the Companies (Amendment) Act, 2015.



5. What benefits does the OPC enjoy under the New Act?

An OPC enjoys the following benefits:

Benefits related to accounts:

OPC is not required to include Cash Flow Statement in its financial statements.

Financial statements of an OPC shall be required to be signed only by 1 director.

OPC is allowed to file a copy of financial statements with the ROC within a period of 180 days from the closure of the financial year.

Benefits related to meetings:

Provisions relating to notice of general meeting, quorum, appointment of chairman, calling of general meeting by Tribunal, extra ordinary general meeting, etc. shall not apply to an OPC.

Where business is to be transacted at an AGM or other general meeting, it shall be sufficient, if the resolution is communicated by the member to the company and entered in the minutes books, signed and dated by the member and such date shall be deemed to be the date of meeting.

Where there is only 1 director on the Board of an OPC, any business which is required to be transacted at the meeting of the Board of an OPC, it shall be sufficient if, in case of such OPC, the resolution by such director is entered in the minutes book and signed and dated by such director and such date shall be deemed to be the date of the meeting of the Board for all the purposes under this Act.

OPC may hold only 1 Board Meeting in each half of a calendar year provided the gap between the 2 meetings is not less than 90 days. The provisions of quorum for a Board Meeting shall not apply to an OPC which has only 1 director.

6. Can an OPC be converted into any other type of a company and vice versa?

The Rules provide for conversion of OPC into public or private company in certain cases where the criteria for conversion are met. In such an event an OPC shall convert itself within a period of 6 months from the date of such trigger into a private company or a public company.

The New Act also provides for conversion of a private company into an OPC after obtaining an approval by a special resolution.


4. Does an OPC have perpetual succession?

Yes, the subscriber to the memorandum of an OPC shall nominate a person after obtaining his prior written consent, who shall, in the event of the subscriber’s death or his incapacity to contract, become the member of that OPC.


9.7 Small Company

9.8 Section 8 Company

33

9.7.1 Features

Only a private company can be classified as a small company.

The status of a company as ‘small company’ may change from year to year. Thus the benefits which are available during a particular year may stand withdrawn in the next year and become available again in the subsequent year.

9.7.2 Special Provisions and Exemptions available to a small company

The annual return can be signed by the CS alone, or where there is no CS, by a single director of the company.

A small company may hold only 2 Board Meetings in a year, i.e. one Board Meeting in each half of the calendar year with a minimum gap of 90 days between the two meetings.

A small company need not include Cash Flow Statement as a part of its financial statements.

Mandatory rotation of auditor is not applicable to a small company.

The procedure for merger of 2 small companies is simpler.

The table on the next page contains certain FAQs complied by us dealing with the important provisions related to a Section 8 Company:

IS A

SM

ALL

CO

MPA

NY

IS N

OT A

SM

ALL

COM

PAN

YlSmall company means a company, other than a public company with

lPSC: upto Rs. 50 lakhand

lTurnover: upto Rs. 2crores.

lA holding company or a subsidiary company are not a small company even if they fulfill the criteria.

la company registered under section 8;

la company or body corporate governed by any special Act


33Word 'and' is substituted for the word 'or' by the Companies (Removal of Difficulties) Order, 2015 dated 13 February 2015.


9.9 Dormant Company [Section 455]

9.9.1 Which company can apply for the status of a dormant company?

Company which is formed for a future project or to hold an asset or intellectualproperty and has no significant accounting transaction or

Sr. No. RequirementsFAQ

1. What is a section 8 company?

A section 8 company is a company which is a limited company that: has in its objects the promotion of commerce, art, science,

sports, education, research, social welfare, religion, charity, protection of environment or any such other object

intends to apply its profits, if any, or other income in promoting its objects and

intends to prohibit the payment of any dividend to its members.

A section 8 company enjoys the following key exemptions: It is not required to appoint a company secretary

A notice of only 14 days may be given for holding a general meeting.

Recording of minutes is not mandatory except where the articles require the minutes to be confirmed by circulation.

There shall be no limit on the number of directors, number of directorships and appointment of independent director is not required.

Provisions governing right of persons other than retiring directors to stand for directorship shall not apply where articles provides for election of directors by ballot.

Only 1 meeting of the Board is required to be held in every 6 calendar months.

The quorum for meetings of the Board shall be either 8 members or 25% of its total strength, whichever is less, minimum being presence of 2 directors.

Constitution of Nomination and Remuneration Committee and Stakeholders Relationship Committee is not required.

Resolutions governing borrowing monies, investing the funds of the company and granting loans or giving guarantee or providing security may be passed by circulation.

Provisions governing disclosure of interest by director shall only apply where terms and conditions of the contract or arrangement exceeds Rs. 1 lakh.

Register of contracts or arrangements must be maintained only where the terms and conditions of the contract or arrangement exceeds Rs. 1 lakh.

2. 34What are the key exemptions provided to a S e c t i o n 8 company?




An inactive company i.e. a company which has not been carrying on any business or operation or has not made any significant accounting transaction or has not filed financial statements and annual return in the last 2 financial years.

The ROC can suo motu initiate action and enter the name of the company in the register of dormant companies.

9.9.2 What documents should a dormant company file?

A dormant company must file a ‘Return of Dormant Company’ annually for maintaining its status as a dormant company.

The New Act has introduced certain changes in the procedure to be followed with respect to a scheme of arrangement. A comparative chart of the provisions under the New Act and those under the Old Act has been provided below.

Note : These provisions are not yet notified and hence not into force.

9.10 Scheme of Arrangement [Section 230 and Section 232]

Changed provisions under the New Act Provisions under the Old Act

Auditor’s certificate to be obtained to the effect that the accounting treatment, if any, proposed in the scheme is in conformity with the accounting standards as may be prescribed under New Act.

Companies were not mandatorily required to obtain auditor’s certificate.

Voting is allowed at the meeting as well as through postal ballot.

Voting was allowed at Court convened meeting.

Objection to the scheme can be raised only by persons holding at least 10% of the shareholding or by those having outstanding debt of at least 5% of the total outstanding debt as per latest audited financial statements.

No specific provision existed for members who could object to the scheme.

The Board Resolution approving such scheme is to be passed at the meeting of Board only, which implies that resolution by circulation is now prohibited for this purpose.

There was no restriction on passing resolution by circulation for approving the scheme.

Transferee companies are now prohibited from holding any shares (as part of allotment of shares to shareholders of transferor company in which, the company itself is a member) in its own name or in name of trust.

There were no specific provisions restricting transferee companies from holding shares by trust constituted for such purpose, where Transferee Company was shareholder in Transferor Company.


9.11 Fast Track Mergers [Section 233]

9.12 Class Action [Section 245]

The New Act now provides a fast track or a simplified procedure for merger between certain classes of companies where no approval of the High Court/Tribunal is required. The details of the provisions governing a fast track merger are stated below.

The provisions apply to the merger or amalgamation of the following classes of companies.

Two or more small companies,

Holding company with its wholly-owned subsidiary,

Such other classes as may be prescribed.

Note: This provision is not yet notified and hence not into force.

9.11.1 Procedure of a Fast Track Merger:

Regular Procedure: Any company to which these provisions are applicable may choose to follow the provisions applicable to mergers and amalgamations applicable to other companies not covered under these provisions.

9.12.1 Meaning

A concept of class action has been introduced in the New Act which gives right to members or deposit holders to file an application before the Tribunal for restraining the company from doing certain acts.


Both companies

should notify ROC and official

liquidator to invite their objections

Bothcompanies

shouldconsider

objections attheir general

meetings.

The schememust be

approved bymembersholding

at least 90% ofthe total

number ofshares

Notice mustbe sent tocreditors

at least 21days in

advance ofthe creditors'

meeting

The schememust be

approved byat least 9/10th

majority invalue of the

creditors

The schememust be filedwith the ROC,

OfficialLiquidator and

CG.

The CG shallregister the

scheme whichshall

complete thetransfer and

the transferorcompany shallbe dissolved.


9.12.2 Number of applicants

The requisite number for members/depositors who can file for class action suit shall be as under:

Note: This provision is not yet notified and hence not into force.

9.12.3 Reliefs that can be claimed

An application may be filed by eligible members or depositors to the Tribunal if it feels that the conduct of the affairs of the company is prejudicial to the interests of the company seeking the following reliefs:

Restraining the company from committing an act ultra vires or in breach of the articles or memorandum of the company, the New Act or any other law for the time being in force.

Declaring a resolution altering the memorandum or articles as void if the resolution was passed by suppression of material facts or obtained by misstatement to the members or depositors and also restraining the company and its directors from acting on such resolution.

9.12.4 Against whom can a claim be made ?

A claim for damages or compensation or demand for an action can be made in respect of any fraud, misstatement, unlawful or wrong act, etc. against:

The company

Its directors

Its Auditors

Expert or advisor or consultant

9.12.5 Effect of an order of the Tribunal

Any order passed by the Tribunal shall be binding on every entity against which it has been passed. A company which fails to comply with the order passed by the Tribunal in this regard shall be punished with a heavy fine and every officer in default shall be punished with imprisonment and fine.

The provisions of class action do not apply to a banking company.

Not less than 100 members of the company.

N o t l e s s t h a n 1 0 0 depositors.

1/5th of the total number of its members.

In case of company having a share capital

Requisite number of depositors

In case of company not having a share capital


9.13 Registered Valuer [Section 247]

Wherever a valuation is required to be made in respect of any property, stocks, shares, debentures, securities or goodwill or any other assets or net worth of company or its liabilities under the New Act, it shall be valued by a registered valuer.

9.13.1 Appointment

A registered valuer shall be appointed by the audit committee or in its absence, by the Board.

9.13.2 Qualifications

A person shall be eligible to be appointed as a registered valuer provided he fulfills the requirements with respect to qualifications and experience as may be prescribed. No such requirements have been prescribed yet.

9.13.3 Responsibility of the Registered Valuer

The registered valuer shall

Make an impartial, true and fair valuation of any assets required to be valued

Exercise due diligence while performing the functions as valuer

Make the valuation in accordance with the provisions of the New Act and

Not undertake valuation of any assets in which he is directly or indirectlyinterested.

9.13.4 Functions under the New Act

A Registered Valuer is required for the purpose of valuation of the following:

Further issue of shares to any person for cash or for a consideration other thancash.

Valuation of assets with respect to non-cash transactions involving directors

Valuation of property and assets in respect of a compromise or arrangement

Purchase of minority shareholding

Valuation of assets for the purpose of the report by company liquidator.

Valuation of assets in case of voluntary winding up

9.13.5 Punishment

The Registered Valuer shall be punished with a penalty if he commits a default.

The Registered Valuer shall be punished with a penalty and imprisonment if he contravenes the provisions of the New Act in order to defraud the company or its members.


The Registered Valuer shall be liable to refund the remuneration received by him to the company and pay damages to the company or any other person for loss arising out of incorrect or misleading statements of particulars made in his report.

9.14.1 Rehabilitation and revival of sick companies

Any company and not just industrial company as provided under the Old Act can be declared as sick company.

An application can be made to the Tribunal to be declared a sick company by:

lsecured creditors representing 50% or more of the debt of a company and whose debt the company has failed to pay within 30 days of serving notice or

lby company itself where the company has failed to pay 50% or more of the debt of the secured creditors of a company.

Requirement of erosion of 50% of the net worth as criteria for declaring a company as sick has been done away with.

Note: This provision is not yet notified and hence not in force.

9.14.2 Penalty for fraud

The New Act defines fraud and prescribes the following punishment to any person who is found to be guilty of fraud.

9.14.3 Other penalties

The New Act has now also increased the punishment for false statement, punishment for false evidence, punishment for wrongful withholding of property. The New Act also specifically prescribes a penalty for repeated default.

9.14.4 Prohibition of association or partnership of persons exceeding certain number

As per the New Act, the maximum number of persons who may carry on business for profitable purpose by way of an association or partnership has been increased to 50 persons as opposed to from 10 for banking business and 20 for any other business under the Old Act.

9.14 Miscellaneous Provisions


Fine: Amount involved in fraud but may extend to 3 times the amount of fraud.

Imprisonment: 6 months to 10 years.



Abbreviation Full Form/Meaning

AGM Annual General Meeting

Board Board of Directors

CA Chartered Accountant

CEO Chief Executive Officer

CFO Chief Financial Officer

CG Central Government

CS Company Secretary

CSR Corporate Social Responsibility

CSRC Corporate Social Responsibility Committee

CWA Cost and Works Accountant

DRR Debenture Redemption Reserve

EGM Extra Ordinary General Meeting

ESOP Employee Stock Option Scheme

FAQ Frequently Asked Questions

KMP Key Managerial Personnel

MD Managing Director

NBFC Non- Banking Financial Company

New Act Companies Act, 2013

Old Act Companies Act. 1956

OPC One Person Company

PSC Paid-up Share Capital

ROC Registrar of Companies

TO Turnover

WTD Whole Time Director

Abbreviations


NOTES


NOTES


NOTES


Mumbai13th Floor, Bakhtawar229, Nariman PointMumbai - 400 021.

301-309, A-Wing, 3rd FloorTechnopolis Knowledge ParkMahakali Caves RoadAndheri (E), Mumbai - 400 093.

201, Shree PadminiTeli Galli JunctionAndheri (E), Mumbai - 400 069.

New Delhi - NCR3rd Floor, Tower-BB-37, Sector-1, Noida - 201 301.

ChennaiAbhinav CentreNo. 4, Co-operative ColonyOff. Chamiers RoadAlwarpet, Chennai - 600 018.

1A, Chamiers Apartments62/121, Chamiers RoadR. A. Puram, Chennai - 600 028.

KolkataA-6, 12th FloorChatterjee International Centre33A, Jawaharlal Nehru RoadKolkata - 700 071.,Bengaluru (Bangalore)Sujaya, No. 1007, 2nd Cross13th Main, HAL II StageBangalore - 560 038.

SuratB/604-605, Tirupati PlazaAthwa Gate, NanpuraSurat - 395 001.

T-720, Belgium TowerOpp. Linear Bus StopRing Road, Surat - 395 002.

DTA-2, G-02 to G-05 PlotGujarat Hira BourseIchhapore-2, Surat - 394 510.

Hyderabad217, Maruti Corporate PointSwapnalok Complex92, Sarojini Devi RoadSecunderabad - 500 003.

AhmedabadB-504, Narnarayan ComplexNavrangpuraAhmedabad - 380 009.

Pune102, First FloorShree Residency, Baner Balewadi RoadNear Laxmi Mata MandirAbove Union Bank of India(Balewadi Branch), Pune - 411 045.

GandhidhamDivyasarika, Plot No. 41, Ward 10-A,Gurukul, Gandhidham - 370 201.

KochiBldg. No. 41/3647 BBlue Bird TowersProvidence RoadKochi - 682 018.

Indore106, Manas Bhavan Extension1st Floor, R.N.T. MargIndore - 452 001.

Jaipur309, 3rd Floor, Ganpati PlazaM.I. Road, Jaipur - 302 001.

RSM Astute Consulting Group

New Delhi-NCR

Jaipur

Indore

Pune

Kochi


T (91-22) 6108 5555 / 6121 4444 F (91-22) 6108 5556 / E [email protected] www.astuteconsulting.com

Offices: Mumbai, New Delhi-NCR, Chennai, Kolkata, Bengaluru, Surat, Hyderabad,Kochi, Indore and Jaipur.

2287 5771

Ahmedabad, Pune, Gandhidham,

For further information please contact:

RSM Astute Consulting Group13th Floor, Bakhtawar, 229, Nariman Point, Mumbai - 400 021.

RSM Astute Consulting Group is a member of RSM network. Each member of the RSM network is an independent accounting and advisory firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. This publication is intended to provide a broad overview of the provisions of Companies Act, 2013. Every effort has been made to ensure the contents are accurate and current. Notifications and Circulars referred to in this publication are current till June 2015. Information in this publication is in no way intended to replace or supersede independent or other professional advice. This publication should not be relied upon for taking actions or decisions without appropriate professional advice and it may be noted that nothing contained in this publication should be regarded as our opinion and facts of each case will need to be analyzed based on specific facts. While all reasonable care has been taken in preparation of this publication, we accept no responsibility for any liability arising from any statements or errors contained in this publication. © RSM Astute Consulting, 2015


Documents

Companies Act 2013 - Manupatradocs.manupatra.in/newsline/articles/Upload/7E22E1CF-C340...Companies Act, 2013 RSM Astute Consulting l l l l l Unlisted public companies are also required