Company Act 2013
After
a run of around 56 years, the (Indian) Companies Act, 1956 (1956 Act) is now in
the process of being substituted by a new law.
The
new Companies Bill 2012 (Bill) was approved by the Lok Sabha (the lower house
of
India)
on 18 December 2012 and by the Rajya Sabha (the upper house of India) on 9
August 2013. The Bill received presidential assent on 29 August 2013 to become
law i.e. (Indian) Companies Act, 2013 (2013 Act). Recently, the Ministry of
Corporate Affairs (MCA) has notified a list of provisions (around 98 Sections)
of the 2013 Act that came into force with effect from 12 September 2013.
Reason behind new law?
The
promulgation of the new law is a step towards globalization and is a successful
attempt to meet the changing environment and is progressive and futuristic duly
envisaging the technological and legal developments.
Highlights
Incorporation of
Company:
Ø Incorporation of a
One Person Company has been permitted. One person can form a private limited
company.
Ø Numbers of
permissible members/shareholders in private company has been raised to 200 as
against existing limit of 50 members.
Ø Limit of number of
members in an association or partnership (without incorporation) to be
increased up to 100
Ø Small company is
introduced for lesser regulatory framework
Ø Objects clause in the
Memorandum of Association of a company not required to be divided into main,
ancillary and other objects. Only the objects for which the company is
incorporated along with matters considered necessary for its furtherance to be
mentioned. The company cannot provide for other object clause.
Share Capital and
Debentures:
Ø Shares, other than
sweat equity, cannot be issued at a discount.
Ø Reduction of share
capital is subject to the approval of Tribunal.
Ø A company may issue
preference shares redeemable after 20 years for infrastructure projects as may
be specified and redeemed as may be prescribed on an annual basis at the option
of such preference shareholders.
Ø Buyback provisions
eased. Companies can buy back its shares even if it has defaulted in repayment
of deposit or interest payable thereon, redemption of debentures or preference
shares or payment of dividend to any shareholder or repayment of any term loan
or interest payable thereon to any financial institution or bank, provided that
such default has been remedied and three years have lapsed after such default
ceased to subsist. This was not the case in the Companies Act, 1956.
Ø Debenture trustee to
be appointed only when a company issues prospectus or makes an offer or
invitation to the public or to its members exceeding five hundred for
subscription to its debentures.
Acceptance of Deposit
by Companies:
Ø NBFC’s not to be
covered by the provisions relating to acceptance of deposits. They will be
governed by the Reserve Bank of India rules on acceptance of deposits.
Ø Deposit insurance is
required to be provided as prescribed.
Ø Deposits can be
secured and unsecured.
Ø The concept of small
depositors is dispensed with.
Ø The Tribunal may
allow further time taking into consideration the financial condition of the
Company to issue directions for repayment of the deposits or interest thereon
in case of default in such repayments.
Management and
Administration:
Ø Forms & Certification
·
E-Governance
proposed for various company processes like maintenance and
inspection of documents in electronic form, option of keeping of books of accounts in electronic form, financial statements to be placed on company’s website, holding of board meetings through video conferencing/other electronic mode; voting through electronic means.
inspection of documents in electronic form, option of keeping of books of accounts in electronic form, financial statements to be placed on company’s website, holding of board meetings through video conferencing/other electronic mode; voting through electronic means.
·
For
all the companies (except one person companies and small companies) with
prescribed paid up capital and turnover, whether private or public, listed or
unlisted, annual return has to be signed by a company secretary in practice.
Ø Meetings
·
One
Person company is not required to hold any Annual General Meeting
·
Notice
of general meeting need to be sent to all the directors of the Company
·
For
special business to be transacted in the General Meeting, explanatory statement
should comprise of specified information
·
Company
should follow that secretarial standards are folled while making mintues
Ø Secretarial Audit
·
All
Listed companies to annex secretarial audit report obtained from a Practicing
Company Secretary to the Board’s report.
·
Board
to respond to qualifications, made by the Secretary, in the Board’s report.
Ø Annual Documents
·
Requirement
of compliance certificate done away with and in its place scope of annual
return has been enlarged.
·
The
annual return, filed by a listed company or, by a company having such paid-up
capital and turnover as may be prescribed, shall be certified by a company
secretary in practice in the prescribed form, stating that the annual return
discloses the facts correctly and adequately and that the company has complied
with all the provisions of this Act.
·
Directors
responsibility statement shall include additional statement realted to
compliance to all applicable laws and in case of listed companies, it shall
include statement related to internal financial control.
·
Benefit
of private companies to file their balance sheet and profit and loss account
separately has been withdrawn.
Appointment and
Variations regarding Directors & Key Managerial Personnel:
Ø Appointment
·
Certain
Companies, as may be prescribed, to mandatorily appoint company secretary.
·
Appointment
of at least one women director on the board of prescribed classes of companies
has been made mandatory.
·
Appointment
of at least one director resident in India, i.e., a director who has stayed in
India for at least 182 days in the previous calendar year, is made mandatory
for all companies.
Ø Key Managerial Personnel
·
Company
Secretary included within the definition of Key Managerial Personnel.
·
No
company can have both Managing Director and Manager at the same time.
·
Every
company belonging to such class or description of companies as may be
prescribed, to have managing director, or chief executive officer or manager
and in their absence, a whole-time director, company secretary and chief
financial officer.
·
Individual
limits for remuneration enhanced in the Act
Ø Status of Independent Director
·
Nominee
director cannot be regarded as Independent Director.
·
Maximum
term of Independent Director has been restricted to five years at once subject
to a maximum of two such terms.
·
The
independent director is not entitled to stock option and may receive
remuneration by way of fee and profit related commission as approved by members.
·
Role
or functions of independent directors is expanded.
Ø Directorships
·
Maximum
number of directors has been increased from twelve (12) to fifteen (15)
directors. Further no Central Government approval is required to increase the
maximum no. of directors beyond fifteen (15). Shareholders of companies may do
so by passing a special resolution.
·
A
person can hold directorship of up to 20 companies, of which not more than 10
can be public companies.
Meeting of Board and
its Powers:
Ø A notice of not less
than 7 days in writing is required to call a board meeting. The notice of
meeting to be given to all directors, whether he is in India or outside India
by hand delivery post or electronic means.
Ø Certain powers which
earlier can be exercised by the Board with the approval of general meeting by
way of ordinary resolution under section 293 of the Companies Act 1956, shall
now to be passed by special resolution.
Ø Every Listed Company
and such other company as may be prescribed shall have an Audit Committee.
Ø The central
government permission under section 295 and section 372A of Companies Act, 1956
is dispensed with.
Ø Following committees
of the Board made mandatory for listed and prescribed classes of companies:
·
Audit
committee
·
Stakeholder
relationship committee
·
Nomination
and Remuneration committee
·
Corporate
Social Responsibility committee
Accounts & Audit:
Ø Books of accounts can
be kept in electronic form also.
Ø The term balance
sheet & profile and loss accounts are collectively termed as financial
statement.
Ø The Act provides for
re opening or re casting of Books of Accounts at the instance of regulatory
authorities. The financial statements can be revised at specified situations.
Ø No listed companies
shall appoint.
Ø an individual as
auditor for more than one term of five consecutive years, and
Ø an audit firm as
auditor for more than two terms of five consecutive years.
Ø Shareholders are at
liberty to decide by passing resolution that audit partner and the audit team,
be rotated every year.
Ø Auditor shall not
provide directly or indirectly the specified services to the Company, its
Holding and subsidiary companies.
Ø No approval of
central government is required for appointment of cost auditor
Ø Financial year will
be uniform for all companies i.e., April-March.
Related Party
Transactions
Ø Scope of related
party transactions has been widened and definition of relatives has also been
enlarged and replaced with definition of “related party”.
Ø Clause 188 of the Act
which carries provisions regarding related party transactions, combines
existing sections 297 and 314.
Ø Central Government
Approval has been done away with. Every related party transaction to be
disclosed in Board’s report alongwith the justification.
Ø Approval in the Board
is mandatory and also require prior shareholders approval for specified share
capital and prescribed amounts.
Inspection &
investigation:
Ø The provision for
establishment of Serious Fraud Investigation Office (SFIO) by the Central
Government is another significant feature of the Act.
Ø SFIO is empowered to
arrest in respect of certain offence involving fraud.
Corporate Social
Responsibility (CSR):
Ø Formation of CSR
Committee has been made mandatory for a company having net worth of Rs. 500
crore or more, or turnover of Rs.1,000 crore or more or net profit of Rs. 5
crore or more during any financial year.
Ø Such company shall
spend, in every financial year, at least 2 % of the average net profits of the
company made during three immediately preceding financial years, in pursuance
of its Corporate Social Responsibility Policy (CSRP).
Compromises,
Arrangement and Amalgamation:
Ø The Act allows cross
border mergers
Ø Separate provision
for merger between two small companies or holding and wholly owned subsidiary
Ø Any valuation of
shares / assets etc. required to be performed by a Registered Valuer
National Company Law
Tribunal (NCLT) :
Ø NCLT replaces the
High Court, CLB. The same shall consists of Judicial and Technical members, as
Central Government may deem necessary, to exercise and discharge the powers and
functions conferred including approval of merger,corporate reorganization,
capital reduction, extension of financial year etc
Ø Every proceeding
presented before the Tribunal shall be dealt with and disposed of within 3
months from the date of commencement of proceeding before the tribunal.
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