12/28/2013

“Governance

Initiatives

&

Accountability”

“NOWHERE”

Satyam Vada Dharmam Chara

- Taittariya Upanishad

12/28/2013

“Forever speak the truth and follow the dharma”

12/28/2013

Truth : Disclosure of Actual State of Affairs

(Transparency in operations and transactions)

12/28/2013

12/28/2013

Dharma: “ Dharma is for the stability of

society, the maintenance of social order

and the general well being and progress of

humankind.”

-Karan Parva of the Mahabharata. Verse -58 in Chapter 69

12/28/2013

Corporates are also expected to use their

Capacity, Knowledge and Resources

TOWARDS

Dharma

Maximization of stakeholders’ value and well-being and progress of humankind

THROUGH Truth

Transparency, accountability and truthful disclosure of state of affairs

12/28/2013

Part - A

Strengthening Broad Framework

Part - B

Stakeholder Interest Protection

Part - C

Transparency and Disclosure

Part - D

Impact of Change

Outline

12/28/2013

Novelties

Auditing standards

Related party

KMP

Fraud

Special courts &

Conciliation panel

SecretarialAudit

Code for ID’s

Corporate Social Responsibility

Listed Company

Securities

Secretarial Standards

Strengthening Board Framework

12/28/2013

Part - A

12/28/2013

Board of Directors and its Meeting

Audit and Auditors - Sec 143

12/28/2013

Audit and Auditors Sec 141Board Composition

Woman Director

Independent Director (ID)

Resident Director

Small Shareholder

Director

Audit and Auditors - Sec 143Audit and Auditors Sec 141Bird’s eye view to Provisions

Concept of Independent directorintroduced for the first time in Companies Act, 2013

Nomination of Director by memberhas been made Costlier

Candidate failed to be appointedas director by member shall not beappointed as Additional Director

Alternate Director shall be appointedonly if the original director is outof India for not less than 3 months

Resigning Director shall be liablefor the acts done by him duringhis tenure

Rubber Stamp Directors: Absence in meeting for a consecutivePeriod of 12 months shall made his Office vacant.

12/28/2013

Directorship of directors –Section 165

Director in maximum 20 companies including Alternate Directorship

Public Companies or Subsidiaries of Public Companies

Maximum 10

No. of Directorships can be reduced by passing special resolution by members

12/28/2013

12/28/2013

Notice to be sent to all the directors,

through electronic means or others

Board of Directors may participate

through video conferencing

Presence of at least 1 ID required in the

meeting called at shorter notice.

Else decision to be circulated to all the

directors and to be valid only after

ratification by at least one ID

Meeting of Board –Section 173

12/28/2013

Participation in meeting through video

conferencing allowed

Confirmation of accuracy of draft minutes

by every directors who attended meeting

within 7 days of receipt of draft minutes

Matters not to be dealt in meeting through

video conferencing

To approve the annual financial

statements; and

To approve the board’s report

Meeting through Video Conferencing

12/28/2013

Insufficient quorum shall now be not

allowed as a defense for non

compliance with frequency of

Board meeting

Quorum for Board Meeting –Section 174

12/28/2013

Board Meeting where “Interested

Director” ≥ 2/3 of the total strength of

the Board of Directors

Quorum = non interested Directors

present at the meeting, being not less

than 2

Quorum for Board Meeting in case of Interested Director

12/28/2013

New and Mandatory Committees

12/28/2013

In Every Listed Company

Public Company

Paid up capital of INR 100 Crores or

more or;

Deposits / Loans / Debentures

exceeding INR 200 Crores or more

Composition:- Min 3 directors with

majority of ID

Provision of establishment of vigil

mechanism

Audit Committee –Section 177

1 year transition period for constitution /

reconstitution of Audit committee

12/28/2013

In Every Listed Company

Public Company

Paid up capital of INR 100 Crores

or more or;

Deposits / Loans / Debentures

exceeding INR 200 Crores or more Composition:- Min 3 Non executive

directors. ≥ ½ comprising IDs.

Mandate of the Committee:-• Identification of qualified Directors

and senior management personnel

• Performance evaluation of directors

• Recommend to the Board policy for remuneration of Directors, KMPs and other employees

Nomination and Remuneration Committee –Section 178

12/28/2013

In Every Company having more that 1,000 debenture / deposit / security holders.

Composition:- to be decided by BoD. Chairperson to be an NED.

Mandate of the Committee:-• Consider and resolve the

grievances of Securities holders.

Stakeholders Relationship Committee –Section 178

12/28/2013

Appointment and Qualification of Directors

Audit and Auditors - Sec 143

12/28/2013

Audit and Auditors Sec 141Independent Director Sec 149 & 150

Applicability• Every Listed

Company to have at least 1/3 of board consisting of independent directors

• Prescribed classes of unlisted Companies also to have independent directors on its board

Criteria• Criteria for

independence similar to existing clause 49 of LA

• Nominee director not considered as independent

• Independent director to furnish declaration of independence on yearly basis

Term• Can be Appointed for

a term of 5 years in 1st Instance

• Can be re-Appointed for another term of 5 years

• Cooling off period of 3 years for after 2 consecutive terms

Others• No Stock Option • Separate meeting of

ID• Appointment to be

approved at a general meeting with explanatory statement justifying appointment

• Liability only in respect of omission & commission with the knowledge of ID

For the first

time code of

conduct

prescribed for

Independent

Directors

(Schedule IV)

12/28/2013

Enhanced Duties, Responsibilities

To act in accordance with the company’s Articles

To act in good faith in order to promote the objects of the company

Exercise his duties with due and reasonable care, skill and diligence.

Not to have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.

Director shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates.

Shall not assign his office and any assignment so made shall be void

Duties of Director –Section 166

12/28/2013

12/28/2013

Powers of Board

12/28/2013

Following powers shall be exercised by

the Board only at their meeting:-

• Issue of Securities – Equity,

Preference, Debentures

• Give guarantee or provide security in

respect of loans

• Approve financial statements and

Director’s report

• To make political contribution

• To fill a casual vacancy in the board

• To commence a new business

• To appoint internal auditor

Matters to be considered only at meeting of the Board

12/28/2013

Restrictions on powers of Board

12/28/2013

Restrictions on powers of Board –Section 180 (Notified)

Restriction for sale of undertaking

applicable to all classes of companies

Term “Undertaking” and “Substantial

Undertaking” has now been defined

Borrowing in excess of the paid –up

capital & free reserves

A special resolution is required to be

passed instead of Ordinary

resolution

12/28/2013

Restrictions on Non-Cash Transactions - Section 192 (Notified)

Director of a company or of its holding/

subsidiary/Associate company or any

connected person can not acquire

assets for consideration other than cash

from the company & vice versa.

Approval at a general meeting is

required

If the Director or connected person is

director of holding company then

approval of holding company in general

meeting is also required

Valuation of the assets by registered

valuer

12/28/2013

Forward dealing in the shares and

debentures of a company, its holding,

subsidiary or associate by Directors

and KMPs is prohibited

Banned contracts include both forward

contracts and option contracts

Securities acquired in violation to be

surrendered to company

Restriction on Directors, KMP and any

order person for indulging in Insider

trading

Communication required in ordinary

course of business or under law

exempted

Prohibition on Forward Dealing / Insider Trading - Section 194 (Notified)

12/28/2013

Appointment and Removal of Managerial Personnel

12/28/2013

Definitions

Key Managerial Personnel -2(51) (Notified)

CEO OR Managing Director

Company Secretary

Whole time Director

CFO

+

+

OR ManagerOR

12/28/2013

Appointment of MD/WTD/Manager - Section 196 & 203

• Now applicable to Private Company also

• Minimum age 21 years (25 years) and maximum

70 years

• Notice of BM/GM – T&C of appointment,

remuneration and other matters to be included

• Consent for appointment to be filed by directors

of private company to the ROC

12/28/2013

• KMP not to hold office in > 1 Company

except in Subsidiary Company at the

same time

KMP can be director with

permission of BOD

• KMP vacancy to be filled up by BOD

within 6 months at BM

• To appoint or remove any key

managerial personnel

Appointment of KMP

When Director fails to attend all Board Meetings for

consecutive period of 12 months. This even when

the leave of absence has been granted

When Director is disqualified by an order of court or

Tribunal under any Act not only the Companies Act.

When all directors have vacated the office:

the promoter shall appoint minimum number of

members

Central Government may appoint Directors till

company makes appointment in General

Meeting

12/28/2013

Vacation of office of directors –Section 167

Stakeholder Interest Protection

12/28/2013

Part - B

12/28/2013

Prospectus & Allotment of Securities

12/28/2013

Public Issues

Liability for Mis-statements

Mis-statement

Untrue Statement

Misleading Statement

Liability

Civil - Sec 34 Criminal -Sec 35

Min 6 mthsMax 10 Yrs

Min Amt InvolvedMax 3x Amt Involved

Compensate those who have suffered loss or damage

Withdrawal of consent after issue but before allotment now not a defense

In case of a fraud every person involved personally liable without limitation of liability

Civil Liability for Mis-statements

12/28/2013

Public Issues

Impersonation – Sec 38 (Notified)

Impersonation

Fictitious Name Multiple Applications

Different Names Different Combination

Consequences:-

• For the first time, provisions introduced for disgorgement of gains made by convicted

• Amount received from disgorgement of gains to be credited to IEPF

12/28/2013

Public Issues

Allotment of Securities – Sec 39 (Partially Notified)

• Return of allotment to be filed for issue of any kind of security

• Power given to SEBI to modify the minimum amount to be paid

on application which shall not be less that 5% of the nominal

amount

• Minimum subscription to be received in 30 days as against

earlier 120 days. Power to SEBI to modify the same

Fraudulent Inducement for Investing money -Sec 36 (N)

• Scope of section extended to obtaining credit facilities

from banks or financial institutions

• The offence made non compoundable

• Stringent punishment prescribed under section 447

12/28/2013

Public Issues

Variation in terms of Contracts or Objects – Sec 27

I want to change the terms of contracts referred to in prospectus

or objects of the Issue ?

Its easy pass a ordinary resolution in

general meeting

Its no longer easy

Approval of

members by Special Resolution

Notice of GM to be

published in newspapers

giving justification for variation

Dissenting Shareholders to be given an exit offer by promoters/ controlling

shareholders

Amount raised in IPO cannot be used for

buying, trading or dealing in equity shares

of another listed Company

Revised Process

12/28/2013

Acceptance of deposits

12/28/2013

Public Deposits – Tougher… Section 73

• All companies can accept deposits only

from members (Directors & their relatives

excluded)

• Prior approval of members required for

accepting deposits

• Deposit to be invited by issue of circular to

members

• Where deposits are unsecured it has to be

specifically quoted in every document

inviting deposit

• All the outstanding deposits on commencement of the Act have to be repaid within 1 year from date of maturity or 1 year from commencement if already matured

Accepting Deposits Repayment

Accepting deposit from public no longer easy. Strict requirements to ensure protection of depositor’s interests

• Only prescribed classes of companies having

net worth of INR100 crore or turnover of INR

500 crore are allowed to raise deposits from

public

• Credit rating of deposits compulsory

• Compulsory creation of charge on the assets

of the company within 30 days of acceptance,

if deposits are secured

Conditions

12/28/2013

Management & Administration

12/28/2013

Quorum of General Meeting – Sec 103 (Notified)

Quorum (Members to be personally

present) in pub co

No. of members on the day of meeting

5 ≤ 1000

15> 1000 ≤ 5000

30 > 5000

3 days notice (either individually or in newspaper), in case of adjournment of GM due to lack of quorum or change in day, time or place of adjourned meeting

Single person not to be proxy for more than 50 members

Proxy cannot vote by show of hands

Member of Private Limited company cannot appoint more than 1 proxy

to attend on same occasion

12/28/2013

Unpaid Dividend & Shares - IEPF

12/28/2013

Unpaid Dividends - Sec 124

Information relating to unclaimed dividends to be uploaded on the website of the company

and CG within 90 days of transfer to unpaid dividend account

Along with the unclaimed amounts, the shares in respect to which they relate are to

transferred to IEPF

The claimants can now apply to IEPF for claiming unpaid amounts/share due/belonging to

them

Shares transferred to IEPF shall not have voting rights- Draft Rules

12/28/2013

Introduction to CSR

Networth ≥ 500 Crs or

Turnover ≥ 1000 Crs or

Net Profits ≥ 5 Crs

CSR Committee to be constituted (3+ Dir incl. at least 1 ID)

Committee shall formulate and recommend CSR policy and amount of expenditure as well as monitor CSR activities (CSR policy on web)

Preference to local areas in which the company operates

Areas specified in Schedule VII

CSR spend of at least 2% of avg. net

profits made during 3 immediately

preceding FYs

COMPLY OR

EXPLAIN

To promote welfare Initiatives

CSR – Sec 135

12/28/2013

• Applicable to all types of companies including private

companies

• Net profits before tax to be considered

• Applicable from F/Y 14-15

• Income tax Act does not provide any deduction so far

• Surplus Income generated out of CSR activities not part of

business profits of company

• No penalty for noncompliance of the provision

CSR – Promoting Welfare Initiatives

12/28/2013

• CSR Activities to be undertaken as projects or programmes

• Excluding activities undertaken in pursuance of the normal

course of business of a company

• In the area nearby the operations of the company

• May implement the same through trust/society set up by

company or otherwise having track record of three years

• Activities to be undertaken within India

• Activities not exclusively for the benefit of employees or their

family members

• Nature of projects/programmes to be covered for eradicating

extreme hunger and Poverty, for promotion of

education…..etc as given in schedule VII

CSR – Promoting Welfare Initiatives

12/28/2013

12/28/2013

Prevention of Oppression and Mismanagement

12/28/2013

Class Action Suit –Section 245

• 100 Members or 10% of the total number of members or depositors

(whichever is less)

Who Can File

• To protect the interest of minority shareholders

Why to File

• Company or its Auditors, Experts, Advisors or Consultants

Against Whom

• NCLT

Where to File

Transparency and Disclosures

12/28/2013

Part - C

12/28/2013

Transparency and Disclosures

12/28/2013

Annual Return – Section 92

Additional information required to be provided in Annual Return

Principal business activity with

particulars of holding, subsidiary and

associate company

Details about other securities issued by

company

Details of Promoters/KMP along

with changes since closure of last FY

Details of meetings of members/class

thereof/BOD/various committee along with

attendance details

Remuneration of Directors and KMP

Details of penalties/punishment

on Co/ directors/ officers/

compounding of offence/ appeals

Details related to certification of

compliance, disclosures, etc

Details of Foreign Institutional Investors if shares held by them

or on their behalf

Such other matters as may be prescribed

Info up to FY closure only

12/28/2013

Return to be filed with Registrar in case Promoter’s stake changes – Sec 93

Listed company to file Return in prescribed form with RoC within 15 days in case of change

in number of shares held by the Promoters or top 10 shareholders

12/28/2013

General Meeting – Sec 100 (Notified)

OPC not required to hold AGM

First AGM to be held within 9 months from

closure of first FY

AGM to be held on between business

hours i.e. 9 AM to 6 PM

Notice of GM may be sent through electronic mode

To be sent to all Directors

21 clear days notice to be given

In case of AGM Shorter notice can be given by consent of 95% of members who are entitled to vote (like for EGM)

Secretarial Standards mandated

Report of AGM, prepared in prescribed manner, to be filed with RoC

12/28/2013

Statement to be annexed with Notice – Sec 102 (Notified)

Explanatory Statement in case of special business to specify

Nature of interest/ concern

RelativesKMPDirector

and Manager

Other Interest

Financial Interest

Liability in case of non-disclosure or insufficient disclosure in Explanatory Statement

Non-disclosure /insufficient disclosure

Promoter KMPDirector

and Manager

ProfitBenefit

Liable to compensate to Company to the extent of such profit/benefit

Explanatory statement to specify shareholding % of Promoters/directors/manager/KMP whose shareholding is not less than 2% of paid up capital, incase the special business transacted is to affect other Company

Default in sending or providing disclosure in explanatory statement shall attract fine extending up to Rs. 50000 or 5 times of profit or benefit, whichever is more

12/28/2013

Accounts of Company

12/28/2013

Consolidation of Accounts – Sec 129

Subsidiary to include associates and joint ventures

Mandatory consolidation of accounts in case of subsidiary, Associate and Joint Venture

Every company to place separate audited accounts for each subsidiary on its website, if any

12/28/2013

Audit and Auditors

12/28/2013

Definitions

Financial Statement – Section 2(40) (Notified)

Balance Sheet

Includes

explanatory notes

Profit & Loss Account

CashflowStatement

Statement of changes in Equity

12/28/2013

Definitions

Financial Year – Section 2(41)

Incorporated before 1st Jan

31st March of Current Year 31st March of next Year

Yes No

• Transition period of 2 years for existing Cos• Cos having foreign holding or subsidiary cos can follow different year with prior approval of

tribunal

12/28/2013

Audit and Auditors

Every Company to appoint auditor for a term of 5 years provided the same shall be ratified by members at every AGM

Listed company shall not appoint or re-appoint individual or firm as a auditor for more than 5 or 10 consecutive years respectively

Rotation of audit partner & team at such intervals as may be prescribed

Cooling period for re-appointment as auditor is 5 years

Transition period of 3 years provided from commencement of the Act

Special resolution required for appointing auditor other than the retiring auditor or not re-appointing auditor

Company to intimate RoC and Auditor within 15 days of the appointment

Appointment of Auditor – Sec 139

Rotation of auditors including audit firms is being considered for introduction in EU, US, UK and Malaysia.

Actuarial services

Investment advisory services

Management services

Internal Audit

Design and implementation of any financial

information system

Rendering of outsourced

financial services

Accounting and book keeping services

Investment banking services

Restriction for the auditors to undertake following specialized services by himself or his

subsidiary or associate company or any other form of entity

Whether following services may be undertaken ?o Tax consultancy and representationo Project financing assignmento Restructuring assignment

Restrictions for the Auditors – Section 144

12/28/2013

12/28/2013

Every Listed

Company

Every public company

having paid-share capital

of Rs. 10 crores or more

Any other public company

having borrowings from

banks/financial institutions/

deposits of Rs. 25 crores

or more

Mandatory Internal Audit – Section 138

12/28/2013

Inter Group Financing

12/28/2013

Loan to Directors & persons in whom director is interested – Section 185 (Notified)

No Company can give loan/ security/

guarantee in favour of

• Directors

• Any person in whom director is

interested

Now also applicable to private

Companies

There is no facility of seeking

approval of Central Government

12/28/2013

Related Party Transactions

12/28/2013

Definitions

Related Party – Section 2 (76) (Notified)Company

Director or his Relative

KMP or his Relative

Partnership Firm in which

partner

Private Company in

which member or

director

Public Company in

which member or

director

Holding Company

Subsidiary & Associate

Fellow Subsidiaries

Body Corporate Advised

Directed or instructed

Person who Advises

Directs or instructs

Director, manager or his Relative

Related Parties under various legislations

12/28/2013

Related Party Transactions – Section 188

Prior approval of CG for any RPT or appointment to

any office or place or profit NOT required

Transaction related to any kind of property are also

covered

Exemption granted to transactions in ordinary

course of business made at arm’s length price

Member who is a related party shall not vote on the

resolution

12/28/2013

Related Party Transactions

Transactions to be Approval by Special Resolution :

RPTs for companies having paid up capital of

1crore rupees; or

If Transaction exceeds 5% of annual turnover

or 20% of net worth of company which ever is

higher; or

Transaction relates to appointment to any office

or place of profit at a monthly remuneration

exceeding 1 lakh rupees; or

Remuneration of underwriting of subscription

exceeding 10 lakh rupees.

12/28/2013

Disclosure in explanatory statement to be

annexed to the notice

name of the related party ;

name of the director or key managerial

personnel who is related, if any;

nature of relationship;

nature, material terms, monetary value and

particulars of the contract or arrangement;

any other information relevant or important

for the members to take a decision on the

proposed resolution.

Every RPT shall be reported in the Board’s Report

along with justification for entering into the same

Disclosures of related party transaction

12/28/2013

Secretarial Audit

12/28/2013

Secretarial Audit – Sec 204

Secretarial Audit

Public Co. having paid-up capital of Rs. 100 Crore or

moreListed Company &

• Audit to be conducted by a Practising Company Secretary

• Audit of secretarial and related records• Secretarial Audit Report to form a part of Board

Report• BOD to explain in full any qualification or

observation or other remarks made in the report

Same Powers & Duties as of Statutory Auditor

12/28/2013

Fraud and Penal Provisions

12/28/2013

Fraud – Section 447 (Notified)

Act

Fraud

Omission Concealment of fact

With intent to

Abuse of position

Deceive Gain undue advantage from Injure

Interests of

Company Shareholders Creditors Any other person

Whether or not there is

Wrongful gain Wrongful loss

12/28/2013

Fraud

“wrongful gain” means the gain by unlawful means of property to which the person gaining is

not legally entitled

“wrongful loss” means the loss by unlawful means of property to which the person losing is

legally entitled.

All offenses covered u/s 447 cognizable and non bailable unless excepted

Punishment

Min 6 mthsMax 10 Yrs

Min Amt InvolvedMax 3x Amt Involved

12/28/2013

Investigation into the affairs of the Company by SFIO – Section 212

Receipt of Report from Registrar/

Inspector u/s 208

Special Resolution for

investigating the affairs of the

company

Public Interest

may order

Request from any department of Central Govt or State Govt

Central Govt

Serious Fraud Investigation

Office

Investigation Report

may direct SFIO to initiate

prosecution against the company &

officer

Investigation officer will

investigate the affairs of the

company

• SFIO commands authority over other Investigation Agencies of CG/State Govt• SIFO to provide copy of Investigation Report to other agencies who were carrying out

investigation

Search and Seizure

Power to Arrest

Powers

12/28/2013

Acts punishable as Frauds

Particulars Section

Furnishing any false or incorrect particulars of any information or suppression any material information in relation to incorporation

7(5),(6)

Fraudulent conduct of affairs of a charitable company 8(11)

Untrue or misleading statement in prospectus 34 (N)

Fraudulently inducing persons to invest money 36 (N)

Personation for acquisition, etc., of securities 38(1) (N)

Issue of duplicate certificate of shares with an intent to defraud 46(5)

Transfer of shares by depository or depository participant, with an intention to defraud

56(7)

Furnishing False statement, mutilation, destruction of documents statement during inspection, inquiry or investigation

229

Fraudulent application for removal of name 251(1)

Fraudulent conduct of business of Company being wound up 339(3)

False statement or omission in any return, report, certificate, financial statement, prospectus, statement or other document required by, or for, the purposes of this Act

448 (N)

Impact of Change

12/28/2013

Part - D

12/28/2013

Quality of functioning of the company will increase

Beginning of new era of Board Governance

Enhanced responsibility w.r.t. disclosures and transparency

Increase in trust of investors and stakeholders

Impact of Change

12/28/2013

What we can do

Saam: Diplomacy of Corporation and Mutual Respect

Daam: Stay on budget

Paband: Time Commitment

Spasht Kaam: Transparency / Ethics in work, operations and process

Vigyaan: Using the Technology to serve Clients

These are not the weapons, but the intention of its handler that counts

Satarkata: Vigilance

12/28/2013

Governing as per Indian eSource

CORPORATES SHOULD ACT LIKE HONEYBEE WHICH SUCK

THE NECTAR OF THE FLOWERS WITHOUT AFFECTING ITS

FRAGRANCE AND PRODUCE HONEY FOR THE WELL –

BEING OF SOCIETY .

12/28/2013

Our Technological Move

12/28/2013

Corporate Professionals Group D-28, South Extension –I, New Delhi-110 049

Ph: +91.11.40622200; Fax: +91.11.40622201; E: pkvijay@indiacp.com

Pavan Kumar Vijay

Thank You