AN INTRODUCTION

The Companies Bill 2012, after being

passed by both the legislative houses, got

presidential assent on August 29, 2013 and

got notified in the official gazette on

August 30, 2013 and shall now be called as

the Companies Act, 2013 (No. 18 of 2013)

replacing the six-decade old Companies

Act, 1956.

The Act Contains 29 Chapters containing

470 Sections and additionally 7 Schedules

against 658 Sections and 14 Schedules in

the Companies Act 1956. Overall, 43 New

Sections introduced which did not exist in

the erstwhile Act of 1956.

The provisions of the Companies Act will

come into force on such date as the

Central Government may notify in the

official gazette. Further, different dates

may be notified for different provisions of

this Act.

The Ministry of Corporate Affairs has issued

draft rules with respect to certain sections

of 16 Chapters on September 9, 2013 for

public comments. These draft rules

includes matters related to incorporation

of Company, One Person Company,

accounting standards, declaration and

payment of dividend, accounts of

Companies, Audit & Auditors, Appointment

and Qualification of Directors, etc.

SNAPSHOT OF THE NEW COMPANIES ACT 2013

Transparency

and

Accountability

Further, 98 Sections have also been

notified in the official gazette and

applicable from September 12, 2013

(majorly includes sections in which no rules

were to be prescribed) such as:

• Definitions of Appellate Tribunal,

Associate Company, Promoter, Net

Worth, Key Managerial Personnel,

Turnover, Expert, Free Reserves, etc.

• Quorum and Chairman of meetings

• Ordinary and Special resolutions

• Restriction of powers of Board

• Loan to Directors

• Constitution of Appellate Tribunal

• Prohibition and restriction regarding

political contributions

• Prohibition on insider trading of

securities

• Applicability of Act to Foreign

Companies etc.

• Shelf Prospectus & Red Herring

Prospectus

• Rectification of Register of Members

In addition to the above, draft Forms with

respect to the draft Rules have been

release on September 17, 2013 for public

comments

The new Act has brought in various changes

which intend to lead Indian Companies

towards better governance, more

transparency, defining accountability,

protection of interest of Investors

particularly small and minority investors,

improved compliance and stricter

enforcement processes.

Protection of

interest of

employees and

minority

shareholders

KEY HIGHLIGHTS OF THE COMPANIES ACT

2013

BOARD OF DIRECTORS

INDEPENDENT DIRECTOR

� Concept of independent directors has

been introduced for the first time in

the Act.

� Every listed public company to have at-

least 1/3rd of the directors to be

“independent directors”.

� Every other public company having paid

up share capital of Rs. 100 Crores or

more or Turnover of Rs 300 Crores or

Borrowings of Rs. 200 Crores or more to

have Independent Directors(As per

draft rules)

� Qualification criteria are far more

stringent as compared to the clause 49

of the Listing Agreement

� Independent Director to be selected

from a data bank maintained by a

prescribed institute. Responsibility of

exercising the due diligence for

selection shall be of the company.

� ‘Code for Independent Directors’ is

introduced (Schedule IV) - Company

and independent directors shall abide

by it

� Independent directors are not entitled

to any Stock options. They are entitled

to sitting fees and reimbursement of

expenses for participation in the Board

and other meeting. They are also

allowed profit related commission as

may be approved by the members

� An Independent Director is covered

under the definition of “Officer in

default”.

MANDATORY ROTATION OF INDEPENDENT

DIRECTORS

� Listed and other Public Companies (as

per draft rules) are required to rotate

their independent director(s) after the

expiry of 10 years

Better

Governance

� Holding office as an independent

director prior to commencement of the

Act will not be counted for the term of

10 years.

� Each company to comply with the

above changes within 1 year of the

commencement of the Act or

notification of rules in this regard as

applicable.

� Cooling period of 3 years is necessary

after completion of 10 years team.

PRESENCE OF WOMAN DIRECTOR

� Every Listed Company must have at-

least ONE Woman Director

� Every other public company having paid

up share capital of Rs. 100 Crores or

more or Turnover of 300 Crores or more

must have at-least ONE woman director

(as per draft rules).

� Provision needs to be complied within 1

and 3 years for listed company and

other public company, respectively (as

per draft rules).

DIRECTOR – OTHER SIGNIFICANT CHANGES

� Number of Directors

� Minimum number of Directors: 1

(One person Company), 2 (Private

Ltd) and 3 (Public Ltd)

� Maximum number of Directors -

Increased from 12 to 15

� More than 15 Directors can be

appointed after passing special

resolution

� Maximum no. of directorships

� The maximum no. of directorship has

increased from 15 (Public Company)

to 20 (overall, including maximum 10

Public Companies). The limit

mentioned hereunder includes

alternate directorships held which

were earlier excluded.

� The members, by a special

resolution may specify and further

bring down the maximum no. of

companies in which a director of the

company may act as a director.

� Additional disqualifications have been

introduced for

appointment/continuance as Directors

wherever

� Convicted of any offence and

sentenced in respect thereof to

imprisonment for a period of 7

years.

� Convicted by a court of any offence

and imprisonment more than 6

months, now extends to any other

offence (earlier only involving

moral turpitude).

� Convicted of the offence of dealing

with related party transactions

under section 188 at any time

during the preceding 5 years

� Failure to file annual returns, repay

deposits, etc. (applicable to all the

companies).

MEETINGS OF BOARD OF DIRECTORS

(BOD)

� First meeting of the BOD of a Company

must be held within 30 days of its

incorporation.

� Minimum 4 meetings to be held every

year with the gap between the 2

consecutive meetings not exceeding

120 days.

� In case of One Person Company, Small

Companies and Dormant Companies 1

board meeting to be held in each half

of the calendar year and gap between 2

meetings is not more than 90 days.

� Participation in the board meeting

through prescribed video conferencing

or other audio visual means has now

been recognized.

� Matters such as approval of financial

statements, approval of Board’s report,

etc. cannot be approved through video

conferencing or other audit visual

means

� At least 7 days’ notice for board

meeting shall be given. A board

meeting may be called at a shorter

notice to transact urgent business, if at

least 1 Independent director is present

at such meeting. Decision taken at such

meeting in absence of an Independent

director is final only on ratification

thereof by atleast 1 Independent

director.

� Additional Powers entrusted to the

Board

� To approve amalgamation, merger or

reconstruction

� To take over a company or acquire a

controlling or substantial stake in

another company

MANAGERIAL REMUNERATION

� Provisions relating to limits on

remuneration in the existing Act and

maximum limit of 11% (of net profits)

has been retained in the new Act.

� For companies with no profits or

inadequate profits, remuneration shall

be payable in accordance with new

Schedule of Remuneration (Schedule V)

and in case a company is not able to

comply with Schedule V, approval of

Central Government would be

necessary.

CORPORATE SOCIAL RESPONSIBILITY

(CSR)

� Every company, during any financial

year having

� net worth of Rs. 500 Crores or

more; or

� turnover of Rs. 1000 Crores or

more; or

� net profit of Rs. 5 Crores or more

should ensure spending at

2% of the average net profits for

preceding 3 years in CSR related

activities.

For companies with no profits or

remuneration shall

be payable in accordance with new

Schedule of Remuneration (Schedule V)

and in case a company is not able to

comply with Schedule V, approval of

Central Government would be

CORPORATE SOCIAL RESPONSIBILITY

y, during any financial

. 500 Crores or

turnover of Rs. 1000 Crores or

net profit of Rs. 5 Crores or more

should ensure spending at-least

2% of the average net profits for

in CSR related

� All such Companies are required to

constitute CSR Committee of Board

consisting of 3 or more directors, out of

which at least 1 director to be an

independent director

� CSR activities can be related to

eradicating extreme hunger and

poverty; promotion of education, etc.

(List of activities prescribed under

Schedule VII)

� Only activities conducted in India will

be considered as part of CSR activity

� The company shall give

local areas where it operates, for

spending amount earmarked for CSR

activities.

� If the company fails to spend such

amount, the Board shall in its report

specify the reason for not spending the

amount. The approach is to ‘comply or

explain’.

All such Companies are required to

onstitute CSR Committee of Board

consisting of 3 or more directors, out of

which at least 1 director to be an

independent director

CSR activities can be related to

eradicating extreme hunger and

poverty; promotion of education, etc.

(List of activities prescribed under

Only activities conducted in India will

be considered as part of CSR activity.

The company shall give preference to

local areas where it operates, for

spending amount earmarked for CSR

If the company fails to spend such

amount, the Board shall in its report

specify the reason for not spending the

amount. The approach is to ‘comply or

Social

Welfare

CLASS ACTION

� Right to Member or members, depositor

or depositors or any class of them If

they are of the opinion that the

management or conduct of the affairs

of the company are being conducted in

a manner prejudicial to the interests of

the company or its members or

depositors.

� In exercise of their rights, members or

depositors can claim damages or

compensation or request for any

suitable action against the company or

its directors, auditor including audit

firm or any expert or advisor or

consultant or any other person.

� Minimum of 100 shareholders or

depositors, or a minimum prescribed

percentage of such shareholders or

depositors, whichever is less, can now

file class action suits.

� The liability with respect to class

action is unlimited

ACCOUNTS OF COMPANIES

� Mandatory preparation of Consolidated

Financial Statements (CFS) (even for

Companies who will be exempted from

preparation of consolidated financial

statements under Accounting Standards

e.g. immediate parent outside India)

� Listed Company to place financial

statements including CFS & all other

documents required to be attached

thereto, on its website:

� Every Company having a subsidiary or

subsidiaries shall,—

a. place separate audited accounts

in respect of each of its subsidiary

on its website;

b. provide a copy of separate

audited financial statements in

respect of each of its subsidiary,

to any shareholder of the

Company who asks for it

� Financial year to end on March 31 for

all Companies except for

holding/subsidiary companies

incorporated outside India and

requiring consolidation of accounts

outside India

� Transfer of certain percentage of profit

to the reserve of the company before

declaration of dividend is not

Dynamic Law

mandatory. Company on its own

discretion may, before the declaration

of any dividend in any financial year,

transfer such percentage of its profits

for that financial year as it may

consider appropriate to the reserves of

the company

RE-OPENING OF ACCOUNTS

� New Section inserted for re-opening of

accounts on order of court or tribunal

� Company shall re-open its books of

account and recast its financial

statements in the event.

� an application in this regard is

made by the Central Government/

Income-tax authorities/ SEBI/other

statutory regulatory body or

authority/Any person concerned;

and

� an order is made by a court of

competent jurisdiction or the

Tribunal to the effect that:

a. the relevant earlier accounts

were prepared in a fraudulent

manner; or

b. the affairs of the Company were

mismanaged during the relevant

period, casting a doubt on the

reliability of financial

statements

NATIONAL FINANCIAL REPORTING

AUTHORITY

� Constitution of National Financial

Reporting Authority (NFRA) for

monitoring an enforcement of matters

related to accounting and auditing

standards.

� NFRA will make recommendation to

Central Government on formulation and

laying down of accounting and auditing

policies and standards for adoption by

companies or class of companies or

their auditors

� Oversee the quality of service of the

professionals associated with ensuring

compliance with such standards

� NFRA has been vested with right to

investigate into the matters of

professional or other misconduct

committed by any member/firm

� No other institute or body to initiate or

continue any proceedings in matters

misconduct where NFRA has initiated

an investigation

COMPROMISES, ARRANGEMENTS AND

AMALGAMATIONS

� Amalgamation of/Demerger from

Foreign Company incorporated in a

notified jurisdiction and vice versa

allowed subject to approval of Reserve

Bank of India (Cross border mergers)

� New concept of Fast Track

Restructuring, without obtaining

approval from National Company Law

Tribunal has been introduced.

However, Fast track reconstructing

would require approval of ROC, Official

Liquidator, members holding at least

90% of total no. of shares and majority

of creditors representing 9/10th in

value.

� Minimum shareholding/ debt ownership

limit provided for objecting to the

scheme

� Compromise and arrangement scheme

may include “takeover offer” in a

prescribed manner. In case of listed

companies such takeover offer shall be

as per the guidelines issued by SEBI.

� Auditor’s certificate to the effect that

the accounting treatment specified in

the scheme is in conformity with the

prescribed Accounting Standard is

required to be submitted.

RELATED PARTY TRANSACTION

� Requirement of obtaining Central

Government approval for related party

transactions not required.

� Approval of related party transactions

by Board of Directors at Board

meeting made mandatory

� Related party transactions to

also require prior shareholder’s

approval by special resolution for

companies having prescribed paid up

capital or transactions exceeding

prescribed amounts.

� Related party transactions to be

disclosed in the Director’s Report along

with justification thereof

INVESTMENT COMPANY

� A company can make investment

through not more than two layers of

investment companies, unless

otherwise prescribed. This shall not

affect

� a 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;

or

� a 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.

� The restriction on the number of step-

down subsidiary companies has been

introduced to prevent the abuse of

diversion of funds through many step-

down subsidiaries.

AUDITORS - NEW CONCEPTS

MANDATORY ROTATION OF AUDITORS

� Rotation of Auditors of Listed

Companies (3 years have been given

from the commencement of this act for

compliance of this section)

• Individual - total term of 5

years

• Firm - total term of 10 years (2

consecutive term of 5 years)

• Cooling period - 5 years

(applicable to whole group)

� Period served as auditor prior to the

commencement of this act shall also be

considered while calculating the above

period (as per draft rules)

Members of the Company may provide for

rotation of the Audit Partners / Team

every year through passing a resolution in

the meeting

AUDITOR – OTHER SIGNIFICANT CHANGES

� Appointment of Auditors for continuous

five years instead every year

(Ratification required by members in

every AGM)

� Audit committee to give

recommendations for the appointment

of auditors

� Members of the Company may request

appointment of Joint Auditors

� Auditor of a holding Company has the

right to access to the records of all its

subsidiaries in so far it relates to the

consolidation

� Auditor to be subjected to review by

NFRA

� Auditor is mandatorily required to

attend AGM – applicable to all

Companies

� Limits on appointment as an auditor-

not more than 20 companies including

not more than 10 public companies

� Restriction on appointment for 5 years

for ANY Company if auditor acted in

fraudulent manner or colluded in any

fraud

� Each Listed Company, public company

having paid up share capital of Rs. 10

Crores, every other public company

which has any outstanding loans or

borrowings from banks or public

financial institutions exceeding Rs. 25

Crores or has accepted deposits of Rs.

25 Crores or more at any point of time

shall be required to appoint an internal

auditor or a firm of internal auditors

(as per draft rules).

REPORTING OF FRAUD TO CENTRAL

GOVERNMENT BY AUDITOR

� Auditor required to report to the

central government for an offence

involving fraud being committed or has

been committed against the company

by officers or employees of the

company within 30 days of his

knowledge.

� Only material fraud is required to be

reported to the Central Government

(Material Fraud – not less than 5% of

net profit or 2% of turnover of the

company for the preceding financial

year) (as per draft rules)

ONE PERSON COMPANY AND SMALL

COMPANIES

� Concept of One Person Company (OPC)

and Small Company has been

introduced

� The sole shareholder incorporating an

OPC is required to appoint a nominee

(with such nominee’s written consent)

who would take charge of the company

in case of the shareholder’s death.

� An OPC is not required to convene

AGM, EOGM and other meetings subject

to fulfillment of certain conditions

� A Person can incorporate maximum of

five One Person Companies (as per

draft rules)

� Small Company means a Company

(other than public Company) having a

paid up share capital not exceeding Rs.

50 Lacs or turnover not exceeding Rs. 2

Crores (as per last Profit & Loss

account)

� Holding Companies, Subsidiary

Companies and Companies formed with

charitable objects cannot be treated as

small company.

� A scheme of merger or amalgamation

may be entered between two small

companies subject to certain conditions

� OPC and Small Companies will not be

required to prepare cash flow

statements in their financial

statements

MISCELLANEOUS PROVISIONS –

SIGNIFICANT CHANGES

� The limit of Political contribution has

been increased to 7.5% of the average

net profits of the company during the

three immediately preceding financial

years

� Prohibition of insider trading in the

company

� Prohibition in forward dealings in

securities of company by a director or

key managerial personnel

� Companies may issue preference shares

for a period exceeding 20 years for

infrastructure projects, subject to

redemption of such prescribed

percentage of shares on annual basis of

such preferential shareholders.

� Every listed company to file a return in

the prescribed form with the Registrar

with respect to change in the number

of shares held by promoters and top 10

shareholders of such company, within

15 days of such change.

� Following additional particulars in

annual return are required by

Companies Act 2013

• remuneration of directors and

key managerial personnel;

• penalty or punishment imposed

on the company, its directors or

officers and details of

compounding of offences and

appeals made against such

penalty or punishment;

• matters relating to certification

of compliances, disclosures as

may be prescribed;

• details, as may be prescribed, in

respect of shares held by or on

behalf of the Foreign

Institutional Investors indicating

their names, addresses,

countries of incorporation,

registration and percentage of

shareholding held by them

� Company to hold first AGM within a

period of 9 months from the date of

closing of the 1st financial year of the

company

� In case company has changed its

name(s) during the last two years, it

shall paint or affix or print, along with

its name, the former name or names so

changed during the last two year.

� Maintenance of books of accounts in

electronic form.

� Increase in number of members from 50

to 200 for Private Companies.

CONTACT US

Registered office :

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Point,Mumbai-400 021

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Ahmedabad

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Ahmedabad - 380 015

T: +91 79 4032 0441/4032 0442

Bengaluru (Bangalore)

No. 45, 1st Floor, 2nd Main, Sankey Road,

(Above Indian Bank),

Lower Palace Orchards, Bengaluru - 560

003.

T: +91 80 6454 2545/6454 2546

Chennai (Madras)

5B, A Block, 5th Floor, Mena Kampala

Arcade, New No 18 & 20,

Old No 113/114, Theyagaraya Road, T.

Nagar, Chennai - 600 017.

T: +91 44 4213 2024 / 4554 4143 | F: +91

44 4354 6876

Coimbatore

Shree Shanmugappriya, 2nd Floor, 454,

Ponnaiyan Street, Crosscut Road,

Gandhipuram, Coimbatore - 641 012.

T: +91 422 2237793 / 2238793 | F: +91 422

2233793

Hyderabad

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34, Silicon Valley, Madhapur,

Hyderabad - 500 081.

T: +91 40 42007771/0 | F: +91 40

42007772

Jaipur

Manish Mansion, Plot No. 247, 1st Floor

Frontier Colony,

Near Punjab National Bank, Adarsh

Nagar,Raja Park, Jaipur - 302 004.

T: +91 141 2604 743

Jamnagar

Aparna, Behind Jevandeep Hospital,

Near Hotel Bansi , Off. Indira Marg,

Jamnagar - 361 001.

T: +91 0288 2665023

Kolkata (Calcutta)

Constantia, “B” Wing, 7th Floor, 11,

Dr. U.N. Brahmachari Street,

Kolkata - 700 017.

T: +91 33 4002 1488 | F: +91 33 4002

1465

Usha Kiran Building, Flat No. 4A, 4th

Floor, 12A, Camac Street,

Kolkata - 700 017.

T: +91 33 3201 6298

Devarati, 1st Floor, 8, Dr. Rajendra

Road, Kolkata - 700 020

T: +91 33 2474 6303 | F: +91 33 2476

9341

Bagrodia Niket, 1st Floor, 19C, Sarat

Bose Road, Kolkata - 700 020.

T: +91 33 4025 4900

Mumbai

701, Leela Business Park, Andheri-Kurla

Road, Andheri (E), Mumbai - 400 059.

T: +91 22 6672 9999 | F: +91 22 6672 9777

131, Mittal Court, 13th Floor,

C Wing, Nariman Point,

Mumbai - 400 021.

TF: +91 22 4002 5858

New Delhi

3rd Floor, 52-B, Okhla Industrial Estate,

New Delhi - 110 020.

T: +91 11 4711 9999

F: +91 11 4711 9998

Pune

C-10,Godrej Eternia, Old Mumbai Pune

Highway, Wakdewadi, Pune - 411005.

T: +91 20 6729 9500 / 501 | F: +91 020

6729 9555

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact DH Consultants Pvt. Ltd. to discuss these matters in the context of your particular circumstances. DH Consultants Pvt. Ltd., its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact DH Consultants Pvt. Ltd. to discuss these matters in the context of your particular circumstances. DH Consultants Pvt. Ltd., its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.