Kandivali Study Circle of
WIRC of ICSI
Sun, 10th February 2013
Companies Bill 2012Companies Bill 2012
Practical Aspects of...
AssumptionsAssumptions
Covers Principles and not Procedures
Implications of proposed Bill will differ once
◦ Rules are in ...
HistoryHistory
Companies (Amendment) Bill, 2003 introduced in
2003
An Expert committee constituted in 2004
On 31st May 200...
HistoryHistory
On 3rd August, 2009 MCA introduced Companies
Bill, 2009 in Lok Sabha
The 2009 Bill was referred to Parliame...
HistoryHistory
The Companies Bill, 2011 was also referred to the
Standing Committee on Finance in 2012
The Standing Commit...
What are the ChangesWhat are the Changes
A drive to make it simple
Financial Statement covered by Schedule
Act / Bill Sche...
What are the ChangeWhat are the Change
The Companies Bill 2012 contains 29 Chapters, 7
Schedules, 470 clauses as against t...
Some New ConceptSome New Concept
Right issue norms applicable to Private Co.
One Person Company, Small Co., Dormant Co.
St...
Some New DefinitionsSome New Definitions
Accounting Standard
Arm’s length transaction
Subsidiary / Associate Company
Contr...
Clauses of BillClauses of Bill
No Chapter
No. of
Clauses
1Preliminary 2
2Incorporation of Company and Matters IncidentalTh...
Clauses of BillClauses of Bill
No Chapter
No. of
Clauses
13Appointment and Remuneration of Managerial Personnel 10
14Inspe...
Clauses of BillClauses of Bill
No Chapter
No. of
Clauses
24Registration Offices and Fees 9
25Companies to Furnish Informat...
CS in PractiseCS in Practise –– Increased scopeIncreased scope
While Incorporation of Co. – Declaration by CS
that all the...
Public Co. [2(71)]Public Co. [2(71)]
Means a Co. which is not Private Co.
Has a minimum paid up share capital of five lac ...
Small Co. [2(85)]Small Co. [2(85)]
‘‘small company’’ means a private Co.
◦ with paid-up share capital of which does not ex...
One Person Company [3 (1)]One Person Company [3 (1)]
New concept of incorporation of Company with
only one person as a mem...
Dormant Co. [455]Dormant Co. [455]
Often Co. are made for future purpose
No significant activities in such Co. till
commen...
Small / OPC / Dormant Co.Small / OPC / Dormant Co. -- BenefitsBenefits
Need not prepare Cash Flow [Though as per AS
may be...
Officer who is in default [2(60)]Officer who is in default [2(60)]
means any of the following officers of a company, namel...
Promoter [2(69)]Promoter [2(69)]
“promoter” means a person—
(a) who has been named as such in a prospectus or is
identifie...
Memorandum of Asso. [4 (1)]Memorandum of Asso. [4 (1)]
Present Object clause of MoA had break up into
◦ Main Object
◦ Obje...
Entrenchment Provision [5(3)]Entrenchment Provision [5(3)]
Article of Association may have Entrenchment
Provision
Entrench...
Incorporation of Company [7]Incorporation of Company [7]
Declaration by professional engaged in formation of
Co. to the ef...
Disclosure Requirements [12 and 60]Disclosure Requirements [12 and 60]
In case of change in the name of the Company,
fact ...
Alteration to Object of Issue [13]Alteration to Object of Issue [13]
In case, if company proposes to amend Object of
Issue...
Prospectus [26]Prospectus [26]
Requirements of Part I and II of Schedule II of Act
are covered in clause 26 of the bill
So...
Shelf Prospectus [31 (1)]Shelf Prospectus [31 (1)]
Currently PFI, PSB and Scheduled Banks are
allowed to file Shelf Prospe...
Utilisation of Share Premium [52(3)]Utilisation of Share Premium [52(3)]
Purposes Act
Proposed in Bill
Prescribed
Co.
Othe...
Share can’t be issued at Discount [53]Share can’t be issued at Discount [53]
Any shares issued at discount would be void
O...
Pref. Shares for Infra. Project [55]Pref. Shares for Infra. Project [55]
In line with existing Act, Bill also has cap for
...
Bonus Shares [63]Bonus Shares [63]
Bill has new clause which provides for issue of
fully paid bonus shares out of
◦ Free R...
Reduction of Share Capital [66]Reduction of Share Capital [66]
Co. after Special Resolution, subject to
confirmation byTri...
Deposits [73 to 76]Deposits [73 to 76]
After commencement of this Act, no Co. to invite,
accept or renew deposit except as...
Deposits [73 to 76]Deposits [73 to 76]
Credit Rating to be obtained
From new deposits, 15% of current and next
year’s repa...
Annual Return [92]Annual Return [92]
Apart from “Such other conditions as may be
prescribed” and existing Act’s requiremen...
Annual Return [92]Annual Return [92]
Except OPC and Small Companies, Annual Return
to be
◦ signed by Director and Company ...
General Meetings [96]General Meetings [96]
First AGM to be held within 9 months from
closing of first financial year
Statu...
General Meetings [96]General Meetings [96]
Notice can be given through electronic mode
Bill also recognises right to vote ...
Proxies [105]Proxies [105]
Stringent terms for Proxies
Person can not represent exceeding 50 members
and such number of sh...
Secretarial Standards [118(10)]Secretarial Standards [118(10)]
Bill requires every company to observe Secretarial
Standard...
Dividend [123]Dividend [123]
No requirement of transfer to General Reserve
If Co. has failed to comply with provi. of
acce...
Depreciation [123(2)]Depreciation [123(2)]
Depreciation concept has changed from Rates to
Useful Life
Old Sch. XIV used to...
Depreciation [123 (2)]Depreciation [123 (2)]
Co. divided into three categories
:Companies which comply with specified
fram...
Investor Education and Protection Fund [125]Investor Education and Protection Fund [125]
So far, Co., was required to tran...
Financial Statement [2(40)]Financial Statement [2(40)]
In addition to BS, Statement of P & L, Bill has
defined following a...
Uniform AccountingYear [2(41)]Uniform AccountingYear [2(41)]
All companies to have uniform Accounting Year, i.
e. Financia...
Uniform AccountingYear [2(41)]Uniform AccountingYear [2(41)]
These requirement may seem to be simplified,
would create pre...
Accounts [128]Accounts [128]
Books to be kept on accrual basis
Double entry system of accounting
Books can be in Electroni...
CFS [129(3)]CFS [129(3)]
Earlier, Act didn’t required Consolidated Financial
Statement (CFS); only listing agreement requi...
Associate [2(6)]Associate [2(6)]
Bill has defined Associate overriding AS 23
Both define Associate as Co. in which other C...
Subsidiary [2(87)]Subsidiary [2(87)]
Definition of “subsidiary company”
to cover company wherein ‘control’ can be
exercise...
CFS and other requirements [129]CFS and other requirements [129]
Co. which has subsidiary / JV / Associate has to
◦ Prepar...
CFS and other requirements [129]CFS and other requirements [129]
Authorities should check need for Summary
Statement and c...
CFSCFS –– Other Issues [129]Other Issues [129]
AS 21, 23 and 27 prescribe manner of
consolidation
However provisio to 129 ...
ReRe--opening of FS / Board’s Report [130]opening of FS / Board’s Report [130]
Learning from mistakes of certain big accou...
Revision of FS / Board’s Report by Co. [131]Revision of FS / Board’s Report by Co. [131]
If it appears to the directors of...
NFRA [132]NFRA [132]
Wide powers to National Financial Reporting
Authority [NFRA]
Formulation / laying down of Accounting ...
Board’s Report [134 (3)]Board’s Report [134 (3)]
To include
Extract of Annual Return; No. of Board Meetings;
Director’s Re...
Board’s Report to include [134 (3)]Board’s Report to include [134 (3)]
State of Co.’s Affairs
Proposed transfer to Reserve...
CSR [135]CSR [135]
Corporate Social Responsibility (CSR)
every company having
◦ net worth of Rs. 500 Crore or more or
◦ tu...
Internal Audit [138]Internal Audit [138]
Prescribed class of Co. to appoint an Internal
Auditor to conduct internal audit ...
Auditors [139]Auditors [139]
Auditor to be appointed for a term of 5 years, to
be ratified in AGM each year
Cooling off pe...
Auditors [139]Auditors [139]
Banking sector already had such rotation, every 5
years
Code of Ethics of ICAI specified rota...
Auditors [139]Auditors [139]
Generally it is Audit Committee which considers
and appoints Auditor
Due to this rotation, fr...
Eligibility of Auditor [141]Eligibility of Auditor [141]
Till the time, term “Relative” is not defined, no
clarity
Certain...
Remuneration of Auditor [142]Remuneration of Auditor [142]
The remuneration under sub-section (1) shall, in
addition to th...
Duties of Auditor [143]Duties of Auditor [143]
Bill proposes that Auditor should report to CG if
he has any reason to beli...
Auditor Others Services [144]Auditor Others Services [144]
Auditor of Co., directly or indirectly, to Co. or its
holding o...
Auditor [143Auditor [143 -- 145]145]
Scope of Auditor’s duties and reporting has
increased
Now auditor is required give hi...
Duties of Auditor [146]Duties of Auditor [146]
Attending AGM was right of Auditor; now duty of
Auditor unless exempted by ...
Liability of Auditor [147]Liability of Auditor [147]
Entire firm is liable for Misconduct of any audit
partner.
Even LLP s...
Directors [149]Directors [149]
Prescribed Co. to have at least one woman
director
Maximum no. of directors increased from ...
Independent Directors [149 (6) ]Independent Directors [149 (6) ]
Some difference in definition of ID as compared
to clause...
IDID –– Other Issues [149 (9)]Other Issues [149 (9)]
SEBI on one hand considers ID as employee for
ESOP; Bill says No to E...
Tenure of office of ID [149 (11)]Tenure of office of ID [149 (11)]
Tenure of office of ID restricted to 2 terms of 5
conse...
Liability of ID / NED [149 (12)]Liability of ID / NED [149 (12)]
Liability of ID and NED is distinguished from rest
of the...
Director [165Director [165 -- 167]167]
Not more than 20 Co.
Out of which No. of Public Co. cant exceed 10
[For this clause...
Resignation of Director [168]Resignation of Director [168]
Director may resign by giving a notice in writing
to Co.
Board ...
Audit Committee (AC) [177 (1)]Audit Committee (AC) [177 (1)]
Earlier listed Co. (clause 49 of listing agreement)
and publi...
Nomination and Remu. Comm. [178(1)]Nomination and Remu. Comm. [178(1)]
Nomination and Remuneration Committee
(NRC) to be c...
Loan / Investment by Co. [186]Loan / Investment by Co. [186]
Co. can give loan, guarantee, security or invest not
exceedin...
Loan / Investment by Co. [186]Loan / Investment by Co. [186]
In FS, Co. has to give full particulars of loans given,
inves...
Investment by Company [186 (1)]Investment by Company [186 (1)]
Bill mandates that Co. can invest only through two
layers o...
Example of Multi Layer Corp. StructureExample of Multi Layer Corp. Structure
IDFC
IDFC Securities
IDFC-SSKI
Stock
Broking
...
Related Party [2(76)]Related Party [2(76)]
Related Party definition to cover
◦ a public company in which a director or
man...
Relative [2(77)]Relative [2(77)]
‘‘relative’’, with reference to any person, means
any one who is related to another, if—
...
Related Party [188]Related Party [188]
Without board consent and conditions as may be prescribed, Co.
shall not enter into...
Related Party [188]Related Party [188]
Central Government approval done away
“Cash at prevailing market price” is now suit...
Related Party [188]Related Party [188]
Co. having paid up capital of not less than such
amount or transaction not exceedin...
Managerial Personnel [196]Managerial Personnel [196]
Applicable to ALL companies
Maximum term to be appointed capped at 5 ...
Managerial Personnel [197]Managerial Personnel [197]
Insurance taken by Co. on behalf of
MD,WTD, CEO, CFO or CS
for indemn...
KMP [203]KMP [203]
For class of Co., as may be prescribed shall have
following whole time KMP
◦ (i) managing director, or ...
Functions of CS [205]Functions of CS [205]
Functions of company secretary
(a) to report to the Board about compliance with...
Search and Seizure [209]Search and Seizure [209]
Section 209 of Act prescribes Books of Accounts.
Now Clause 209 of Bill h...
SFIO [211]SFIO [211]
Serious Fraud Investigation Office (SFIO) now
given statutory status by Bill
SFIO is empowered to ini...
Investigations [213]Investigations [213]
Investigation into Company’s Affairs [213]
On application to Tribunal by
◦ Not le...
Compromise, Arrangement,Amalgamation [230Compromise, Arrangement,Amalgamation [230 –– 240]240]
Compromises, Arrangements a...
Compromise, Arrangement,Amalgamation [230Compromise, Arrangement,Amalgamation [230 –– 240]240]
Objection to any scheme can...
Compromise, Arrangement,Amalgamation [230Compromise, Arrangement,Amalgamation [230 –– 240]240]
Notification of Scheme to C...
SICA 1985 [230 (7)]SICA 1985 [230 (7)]
The Sick Industrial Companies Act, 1985 (SICA)
which was earlier applicable only to...
Rights of Shareholder [241Rights of Shareholder [241 –– 245]245]
Class Action Suit [collective lawsuit] can be filed
by gr...
RegisteredValuers [247]RegisteredValuers [247]
Bill refers to RegisteredValuers in various clauses like
Further issue of s...
AGM Annual General Meeting MCA Ministry of Corporate Affairs
AOA Articles of Association MD Managing Director
BOD Board of...
Thank You
P. RAJ & CO.
Chartered Accountants
3/1218, Navjivan Society,
Chheda Sanjay Visanji 104
104
Disclaimer: The infor...
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Companies bill 2012 by Chheda Sanjay Visanji

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Companies Bill 2012
Companies Act 1956
Corporate Social Responsibility
Independent Director
One Person Company
CSR
Kandivali Study Circle of WIRC of ICAI

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Companies bill 2012 by Chheda Sanjay Visanji

  1. 1. Kandivali Study Circle of WIRC of ICSI Sun, 10th February 2013 Companies Bill 2012Companies Bill 2012 Practical Aspects of Key Changes 1
  2. 2. AssumptionsAssumptions Covers Principles and not Procedures Implications of proposed Bill will differ once ◦ Rules are in place ◦ Many clauses not clear till the time details are not “Prescribed” or “Specified” by authorities Chheda Sanjay Visanji 2 not “Prescribed” or “Specified” by authorities Clause No. and Headings on each slide are merely for broad understanding and maintaining flow Presentation focuses on Key Changes; Provisions which are similar in “Act and Bill” are not considered for discussion
  3. 3. HistoryHistory Companies (Amendment) Bill, 2003 introduced in 2003 An Expert committee constituted in 2004 On 31st May 2005 the Expert Committee submitted its report Chheda Sanjay Visanji 3 But Bill didn’t see light of the day Companies Bill, 2008 lapsed due to dissolution of the 14th Lok Sabha Government reintroduced Companies Bill, 2008 as The Companies Bill, 2009 3
  4. 4. HistoryHistory On 3rd August, 2009 MCA introduced Companies Bill, 2009 in Lok Sabha The 2009 Bill was referred to Parliamentary Standing Committee on Finance which gave its report on 31st August, 2010. In view of numerous amendments to the Chheda Sanjay Visanji 4 In view of numerous amendments to the Companies Bill 2009 arising out of the recommendations of the Parliamentary Standing Committee on Finance and suggestions of the stakeholders, the Central Government withdrew the Companies Bill 2009 and introduced a fresh bill – The Companies Bill 2011. 4
  5. 5. HistoryHistory The Companies Bill, 2011 was also referred to the Standing Committee on Finance in 2012 The Standing Committee Report came on 26 June 2012 Based on the Standing Committee‘s recommendations, the Bill was amended and Chheda Sanjay Visanji 5 recommendations, the Bill was amended and introduced as the Companies Bill 2012. The Bill is passed by Lok Sabha and has been introduced in the Rajya Sabha [Bill expected to clear in RS in February 2013 before Budget Session] 5
  6. 6. What are the ChangesWhat are the Changes A drive to make it simple Financial Statement covered by Schedule Act / Bill Schedule 1956 VI 1997 XII 2012 III Chheda Sanjay Visanji 6 Word “Prescribed” and “Specified” appear almost in every other clause Particulars Act Bill No. of Clause 658 470 Use of word “Prescribed” 219 434 Use of word “Specified” 405 256 % to Clauses 94.83% 146.81%
  7. 7. What are the ChangeWhat are the Change The Companies Bill 2012 contains 29 Chapters, 7 Schedules, 470 clauses as against the Companies Act, 1956 which consists of 658 sections under 13 Parts and 15 schedules. Bill is trying to ◦ Cover certain issues which SEBI was regulating Chheda Sanjay Visanji 7 ◦ Cover certain issues which SEBI was regulating through Listing Agreement ◦ Taking disciplinary rights from other Institutes ◦ Unrequired move to define terms which were already defined in AS
  8. 8. Some New ConceptSome New Concept Right issue norms applicable to Private Co. One Person Company, Small Co., Dormant Co. Stricter Norms for CSR Rotation of Auditor / Independent Director Transfer of Shares to IEPF Chheda Sanjay Visanji 8 Transfer of Shares to IEPF Formation of NFRA CFO / Whole time Director included in KMP Formation of NCLT & Appellate Tribunal Change in Depreciation concept Electronic mode accepted / encouraged
  9. 9. Some New DefinitionsSome New Definitions Accounting Standard Arm’s length transaction Subsidiary / Associate Company Control Chartered Accountant Independent Director Chheda Sanjay Visanji 9 Independent Director Related Party Remuneration [Revised sch. VI was very clear that terms not defined will take meaning from AS. But Bill and AS are in conflict]
  10. 10. Clauses of BillClauses of Bill No Chapter No. of Clauses 1Preliminary 2 2Incorporation of Company and Matters IncidentalThereto 20 3Prospectus and Allotment of Securities 20 4Share Capital and Debentures 30 5Acceptance of Deposits By Companies 4 Chheda Sanjay Visanji 10 6Registration of Charges 11 7Management and Administration 35 8Declaration and Payment of Dividend 5 9Accounts of Companies 11 10Audit and Auditors 10 11Appointment and Qualifications of Directors 24 12Meetings of Board and Its Powers 23
  11. 11. Clauses of BillClauses of Bill No Chapter No. of Clauses 13Appointment and Remuneration of Managerial Personnel 10 14Inspection, Inquiry and Investigation 24 15Compromises, Arrangements and Amalgamations 11 16Prevention of Oppression and Mismanagement 6 17Registered Valuers 1 Removal of Names of Companies From The Register of Chheda Sanjay Visanji 11 18 Removal of Names of Companies From The Register of Companies 5 19Revival and Rehabilitation of Sick Companies 17 20Winding Up 96 21Companies Authorised to Register Under This Act 13 22Companies Incorporated Outside India 15 23Government Companies 2
  12. 12. Clauses of BillClauses of Bill No Chapter No. of Clauses 24Registration Offices and Fees 9 25Companies to Furnish Information Or Statistics 1 26Nidhis 1 27National Company Law Tribunal and Appellate Tribunal 28 28Special Courts 12 Chheda Sanjay Visanji 12 29Miscellaneous 24
  13. 13. CS in PractiseCS in Practise –– Increased scopeIncreased scope While Incorporation of Co. – Declaration by CS that all the requirements of this Act and rules are complied with [7(1)] Annual Return of every co. to be signed by CS or CS in practise [92(1)] Certificate for correctness and adequacy of annual Chheda Sanjay Visanji 13 Certificate for correctness and adequacy of annual return of Public Co. or Co. having capital or Turnover as may be prescribed [92(1)] Listed Co. and Co. belonging to prescribed class to have Secretarial Audit Report [204(1)]
  14. 14. Public Co. [2(71)]Public Co. [2(71)] Means a Co. which is not Private Co. Has a minimum paid up share capital of five lac or higher amount as prescribed Provided Co. which is subsidiary of Public Co. shall be deemed to be Public Co. for purpose of Act even when such Co. continues to be Private Co. in its article Chheda Sanjay Visanji 14 such Co. continues to be Private Co. in its article [Similar to old section 43A’s Deeming Provision]
  15. 15. Small Co. [2(85)]Small Co. [2(85)] ‘‘small company’’ means a private Co. ◦ with paid-up share capital of which does not exceed fifty Lakh rupees or such higher amount as may be prescribed which shall not be more than five Crore rupees; or ◦ turnover of which as per its last profit and loss Chheda Sanjay Visanji 15 ◦ turnover of which as per its last profit and loss account does not exceed two Crore rupees or such higher amount as may be prescribed which shall not be more than twenty Crore rupees:
  16. 16. One Person Company [3 (1)]One Person Company [3 (1)] New concept of incorporation of Company with only one person as a member Prior written consent of other person in Prescribed format in the event of death or incapacity of first person (only member of OPC) to be filed with Registrar Chheda Sanjay Visanji 16 to be filed with Registrar Many consequential changes for OPC, like Board Meeting, Annual General Meeting, Notice of Board / General Meeting OPC to have only one director OPC not required to have AGM
  17. 17. Dormant Co. [455]Dormant Co. [455] Often Co. are made for future purpose No significant activities in such Co. till commencement of actual project Such Co. termed as Dormant Co. Certain relaxation in procedures for such Co. Chheda Sanjay Visanji 17 Certain relaxation in procedures for such Co.
  18. 18. Small / OPC / Dormant Co.Small / OPC / Dormant Co. -- BenefitsBenefits Need not prepare Cash Flow [Though as per AS may be required to prepare] One meeting of the Board of Directors in each half of a calendar year and the gap between the two meetings is not less than ninety days: Chheda Sanjay Visanji 18
  19. 19. Officer who is in default [2(60)]Officer who is in default [2(60)] means any of the following officers of a company, namely:— (i) whole-time director; (ii) key managerial personnel; (iii) where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified; (iv) any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorises, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default; (v) any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in a professional capacity; (vi) every director, in respect of a contravention of any of the provisions Chheda Sanjay Visanji 19 (vi) every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance; (vii) in respect of the issue or transfer of any shares of a company, the share transfer agents, registrars and merchant bankers to the issue or transfer;
  20. 20. Promoter [2(69)]Promoter [2(69)] “promoter” means a person— (a) who has been named as such in a prospectus or is identified by the company in the annual return referred to in section 92; or (b) who has control over the affairs of the company, directly or indirectly whether as a shareholder, director Chheda Sanjay Visanji 20 directly or indirectly whether as a shareholder, director or otherwise; or (c) in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act: Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity;
  21. 21. Memorandum of Asso. [4 (1)]Memorandum of Asso. [4 (1)] Present Object clause of MoA had break up into ◦ Main Object ◦ Objects incidental or ancillary ◦ Other Objects With Bill, Object divided into Chheda Sanjay Visanji 21 With Bill, Object divided into objects to be pursued on incorporation (main objects) and matters necessary for furtherance of the main objects
  22. 22. Entrenchment Provision [5(3)]Entrenchment Provision [5(3)] Article of Association may have Entrenchment Provision Entrenchment Provision can be incorporated ◦ at the time of incorporation, or later ◦ by private company, if all members agree Chheda Sanjay Visanji 22 ◦ by private company, if all members agree ◦ By public company, by Special Resolution Such Entrenchment Provision provide that “Specified” provisions of the Article can be amended only if conditions / procedures are more restrictive
  23. 23. Incorporation of Company [7]Incorporation of Company [7] Declaration by professional engaged in formation of Co. to the effect that all the provisions of Act and rules there under are complied with An affidavit from the subscribers that they are ◦ not convicted of any offence in connection with forming or managing company ◦ or not found guilty of any fraud or misfeasance in Chheda Sanjay Visanji 23 ◦ or not found guilty of any fraud or misfeasance in last 5 years Co. having share capital shall not commence business or exercise borrowing power unless – director files declaration with Registrar that every subscriber has paid value of shares agreed [11] [Applicable to all companies now]
  24. 24. Disclosure Requirements [12 and 60]Disclosure Requirements [12 and 60] In case of change in the name of the Company, fact must be disclosed on business letters, bill heads [12] Where any notice, advertisement, or any business letter, billhead or letter paper of a Co. contains amount of the authorised capital of Co., same Chheda Sanjay Visanji 24 amount of the authorised capital of Co., same shall also contain a statement, in an equally prominent position and in equally conspicuous characters, amount of subscribed and paid-up capital [60]
  25. 25. Alteration to Object of Issue [13]Alteration to Object of Issue [13] In case, if company proposes to amend Object of Issue Proceeds after raising money from public, it can be done by Special Resolution and ◦ Notice of said resolution along with justification in two newspapers ◦ Exit option to be given to dissenting Chheda Sanjay Visanji 25 ◦ Exit option to be given to dissenting shareholders
  26. 26. Prospectus [26]Prospectus [26] Requirements of Part I and II of Schedule II of Act are covered in clause 26 of the bill Some additional matters which are required to be disclosed in Prospectus ◦ Source of Promoter’s Contribution Chheda Sanjay Visanji 26 Report by Auditors on Assets & Liabilities not earlier than 180 days before issue of prospectus [earlier limit was 120 days]
  27. 27. Shelf Prospectus [31 (1)]Shelf Prospectus [31 (1)] Currently PFI, PSB and Scheduled Banks are allowed to file Shelf Prospectus Bill empowers SEBI to prescribe the classes of companies which can file Shelf Prospectus Validity of one year which shall commence from date of opening of first offer of securities Chheda Sanjay Visanji 27 date of opening of first offer of securities
  28. 28. Utilisation of Share Premium [52(3)]Utilisation of Share Premium [52(3)] Purposes Act Proposed in Bill Prescribed Co. Other Co. Issue of fully paid equity shares as bonus shares Yes Yes Yes Issue of fully paid preference shares as bonus shares Yes No Yes Writing off preliminary expenses of the company Yes No Yes Chheda Sanjay Visanji 28 Writing off equity share issue expenses Yes Yes Yes Writing off preference share issue expenses Yes No Yes Writing off debenture issue expenses Yes No Yes Providing for premium payable on redemption of preference shares/debentures Yes No Yes Buy-back of its own shares or other securities Yes Yes Yes
  29. 29. Share can’t be issued at Discount [53]Share can’t be issued at Discount [53] Any shares issued at discount would be void Only exception to this clause is “Sweat Equity” Punishment for violations are as under: Clause 53 (3) Min Max Chheda Sanjay Visanji 29 Company punishable with fine > 1 Lac < 5 Lac Every Officer in default, imprisonment < 6 months Officer in default, Fine > 1 Lac < 5 Lac
  30. 30. Pref. Shares for Infra. Project [55]Pref. Shares for Infra. Project [55] In line with existing Act, Bill also has cap for maximum term of 20 years for Preference Shares. However Company can issue Pref. Shares for longer term for Infrastructure Projects Relaxation given not only to Infrastructure Companies but all Companies, if such issues is for Chheda Sanjay Visanji 30 Companies but all Companies, if such issues is for Infrastructure Projects Infra. Projects / Facilities covered in Schedule VI of Bill
  31. 31. Bonus Shares [63]Bonus Shares [63] Bill has new clause which provides for issue of fully paid bonus shares out of ◦ Free Reserves or Securities Premium Account or Capital Redemption Reserve Certain other conditions before Bonus Issue Chheda Sanjay Visanji 31 ◦ Authorised by AoA; after recommendation of Board, authorised in GM; Co. not defaulted on int. / prin. of FD or debt; not defaulted on employee statutory dues; no o/s. partly paid shares; not in lieu of dividend ◦ Such conditions as may be prescribed
  32. 32. Reduction of Share Capital [66]Reduction of Share Capital [66] Co. after Special Resolution, subject to confirmation byTribunal Reduce Share Capital;Alter MoA No reduction of Share Capital, if Co. is in arrears in repayment of Deposits or interest thereon Chheda Sanjay Visanji 32 Auditor’s Certificate that accounting treatment proposed by Co. Is in line with AS Any violation of clause, Co. punishable with fine not less than five Lakh which may exceed to 25 Lakh
  33. 33. Deposits [73 to 76]Deposits [73 to 76] After commencement of this Act, no Co. to invite, accept or renew deposit except as provided in this chapter A public company, having such net worth or turnover as may be prescribed, may accept deposits from persons other than its members Chheda Sanjay Visanji 33 deposits from persons other than its members subject to compliance with the requirements All existing deposits to be repaid within one year from commencement of bill or respective repayment due date, whichever is earlier
  34. 34. Deposits [73 to 76]Deposits [73 to 76] Credit Rating to be obtained From new deposits, 15% of current and next year’s repayment to be kept in separate Bank A/c. called as “Deposit Repayment Reserve Account” Co. to provide Deposit Insurance as may be prescribed Chheda Sanjay Visanji 34 prescribed
  35. 35. Annual Return [92]Annual Return [92] Apart from “Such other conditions as may be prescribed” and existing Act’s requirement. Co. should give details of ◦ Its holding, subsidiary, associate companies ◦ Promoters, directors, KMP and changes therein ◦ Meetings of members, board and various committee along with attendance Chheda Sanjay Visanji 35 along with attendance ◦ Remuneration of Directors / KMP ◦ Penalties levied on Co., director, officer, etc ◦ Complete details of holding by FII, their name, address, countries of incorporation, % of Shareholder Data in Annual Return as on close of FY
  36. 36. Annual Return [92]Annual Return [92] Except OPC and Small Companies, Annual Return to be ◦ signed by Director and Company Secretary ◦ And if there is no Company Secretary, then Company Secretary in Practise Chheda Sanjay Visanji 36 Annual Return of Listed Co. or Co. having paid up capital and turnover as may be prescribed, shall be certified by Practising Company Secretary stating that Annual Return discloses facts correctly and adequately and Co. has complied with provisions
  37. 37. General Meetings [96]General Meetings [96] First AGM to be held within 9 months from closing of first financial year Statutory Meeting requirement done away AGM cant be held on National Holiday (earlier it was Public Holiday) Chheda Sanjay Visanji 37 AGM to be held during business hours between 9 am to 6 pm Shorter notice of AGM, if 95% of shareholder give consent [101]
  38. 38. General Meetings [96]General Meetings [96] Notice can be given through electronic mode Bill also recognises right to vote by electronic mode Quorum for Public Co. meeting [103(1)(a)] No. of Members Quorum Chheda Sanjay Visanji 38 Quorum for Private Co. is 2 [103(1)(b)] No. of Members Quorum Not exceeding 1,000 5 1,000 to 5,000 15 More than 5,000 30
  39. 39. Proxies [105]Proxies [105] Stringent terms for Proxies Person can not represent exceeding 50 members and such number of shares as may be prescribed Co. should not, at it’s own expense, send any invitation to any member to appoint a person or one of number of persons to be appointed as Chheda Sanjay Visanji 39 one of number of persons to be appointed as Proxy Every officer who is party to such offence, shall be punishable with fine which may extend to Rs. 1 Lac
  40. 40. Secretarial Standards [118(10)]Secretarial Standards [118(10)] Bill requires every company to observe Secretarial Standards specified by ICSI in respect of Board and General Meeting [Oxford Dictionary defines “Observe - fulfill or comply with”] [Secretarial Standards were recommendatory for Chheda Sanjay Visanji 40 [Secretarial Standards were recommendatory for CS]
  41. 41. Dividend [123]Dividend [123] No requirement of transfer to General Reserve If Co. has failed to comply with provi. of acceptance / re-payment of Deposits, Co. cant declare dividend Chheda Sanjay Visanji 41
  42. 42. Depreciation [123(2)]Depreciation [123(2)] Depreciation concept has changed from Rates to Useful Life Old Sch. XIV used to give minimum rate of depreciation which every corporate was suppose to provide New Sch. II has concept of Useful Life. Bill only Chheda Sanjay Visanji 42 New Sch. II has concept of Useful Life. Bill only provides Useful Life of various class of Assets Separate rates for Double / Triple Shift done away For Double Shift, Dep. to be increased by 50% For Triple Shift, Dep.To be increased by 100%
  43. 43. Depreciation [123 (2)]Depreciation [123 (2)] Co. divided into three categories :Companies which comply with specified framework of accounting standards which can apply different useful life estimates than given in Schedule with appropriate disclosures Companies which are regulated under some Chheda Sanjay Visanji 43 Companies which are regulated under some Authority set up under an Act of Parliament or by Central Government – to use the rates of depreciation as specified by respective regulator and other companies – which require to follow the useful lives not greater than schedule II
  44. 44. Investor Education and Protection Fund [125]Investor Education and Protection Fund [125] So far, Co., was required to transfer inter alia, Unpaid Dividend after 7 years to IEPF Now shares pertaining to such dividend also to be transfer to IEPF Chheda Sanjay Visanji 44
  45. 45. Financial Statement [2(40)]Financial Statement [2(40)] In addition to BS, Statement of P & L, Bill has defined following additional things in definition of FS Cash flow now covered in definition of FS Statement of change in Equity, if any Chheda Sanjay Visanji 45 Any explanatory note annexed to or forming part of aforesaid statement [OPC, Small Co. and Dormant Co. need not prepare Cash Flow]
  46. 46. Uniform AccountingYear [2(41)]Uniform AccountingYear [2(41)] All companies to have uniform Accounting Year, i. e. FinancialYear ending on 31st March Companies having foreign holding / subsidiary companies REQUIRED TO FOLLOW DIFFERENT FY can apply to Tribunal. No exemption for Foreign JV or Associate Chheda Sanjay Visanji 46 Foreign JV or Associate Co. has to either prepare two set or apply to Tribunal Tribunal if satisfied, can give exemption from following aforesaid requirement
  47. 47. Uniform AccountingYear [2(41)]Uniform AccountingYear [2(41)] These requirement may seem to be simplified, would create pressure on Chartered Accountants, Independent Directors and Practising Company Secretaries AS 21, 23 and 27 used to give relief to companies, for separate financial year which now has been Chheda Sanjay Visanji 47 for separate financial year which now has been taken away
  48. 48. Accounts [128]Accounts [128] Books to be kept on accrual basis Double entry system of accounting Books can be in Electronic form In case, Server of Co. is o/s. India, but co is able to access, modify and manage data from India [MCA Chheda Sanjay Visanji 48 access, modify and manage data from India [MCA should consider the same as compliance of requirement]
  49. 49. CFS [129(3)]CFS [129(3)] Earlier, Act didn’t required Consolidated Financial Statement (CFS); only listing agreement required CFS But Bill mandates CFS for ALL companies In contrast to AS 21, Bill requires CFS even if Co. doesn’t have any subsidiary but only Associate or Chheda Sanjay Visanji 49 doesn’t have any subsidiary but only Associate or JV
  50. 50. Associate [2(6)]Associate [2(6)] Bill has defined Associate overriding AS 23 Both define Associate as Co. in which other Co. has Significant Influence AS 23 Bill Significant influence is the power to participate in the financial and/or “significant influence” means control of at least twenty per cent. Chheda Sanjay Visanji 50 [Associate where one can control 20% of business decisions; will change many equations] participate in the financial and/or operating policy decisions of the investee but not control over those policies. control of at least twenty per cent. of total share capital, or of business decisions under an agreement;
  51. 51. Subsidiary [2(87)]Subsidiary [2(87)] Definition of “subsidiary company” to cover company wherein ‘control’ can be exercised by holding more than 50% of the total share capital unlike present control of equity or voting power. Chheda Sanjay Visanji 51 This will need change of capital structures by any companies which have issued preference shares or shares with differential votes.
  52. 52. CFS and other requirements [129]CFS and other requirements [129] Co. which has subsidiary / JV / Associate has to ◦ Prepare its stand-alone financial statements [Clause 129(1)] ◦ Prepare CFS including all subsidiaries, associates and joint ventures (whether in India or outside) [Clause 129(3)] ◦ Prepare a summary statement for all its subsidiaries, Chheda Sanjay Visanji 52 ◦ Prepare a summary statement for all its subsidiaries, associates and joint ventures of the salient features of their respective financial statements [Proviso to clause 129(3)] ◦ Submit the standalone financial statements of subsidiary(ies) outside India to the Registrar [Clause 137(1)]
  53. 53. CFS and other requirements [129]CFS and other requirements [129] Authorities should check need for Summary Statement and copies of individual subsidiaries when Individual as well as CFS are given Chheda Sanjay Visanji 53
  54. 54. CFSCFS –– Other Issues [129]Other Issues [129] AS 21, 23 and 27 prescribe manner of consolidation However provisio to 129 (3) states that manner of consolidation will be prescribed [Unless these methods are in line with already existing AS, will add to confusion] Chheda Sanjay Visanji 54 add to confusion] CFS even at Intermediate Holding Level will lead to increased cost of compliance [Global practise is that if ultimate parent Co. consolidates, the intermediate holding Co. should not consolidate]
  55. 55. ReRe--opening of FS / Board’s Report [130]opening of FS / Board’s Report [130] Learning from mistakes of certain big accounting fraud unearthed, Bill allows to re-open / revise FS and Board’s Report On application by CG, IT Authorities, SEBI and other statutory regulatory body; in following circumstances, re-opening of books permitted: Chheda Sanjay Visanji 55 circumstances, re-opening of books permitted: ◦ (i) the relevant earlier accounts were prepared in a fraudulent manner; or ◦ (ii) the affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of financial statements
  56. 56. Revision of FS / Board’s Report by Co. [131]Revision of FS / Board’s Report by Co. [131] If it appears to the directors of a company that— ◦ (a) the financial statement of the company; or ◦ (b) the report of the Board, do not comply with the provisions of section 129 or section 134 Chheda Sanjay Visanji 56 or section 134 Co. can make application to Tribunal [in such form and manner as may be prescribed] Before passing order,Tribunal shall consider representation by SEBI and other authorities
  57. 57. NFRA [132]NFRA [132] Wide powers to National Financial Reporting Authority [NFRA] Formulation / laying down of Accounting and Auditing policies and standards Monitor and enforce compliance of AS Oversee quality of services of professional (only Chheda Sanjay Visanji 57 Oversee quality of services of professional (only chartered accountant in purview of NFRA) NFRA to investigate suo moto or on ref. by CG No other Institute would proceed with any action, once NFRA has initiated proceedings NFRA not body of professional; may insist Check Box Type Audit
  58. 58. Board’s Report [134 (3)]Board’s Report [134 (3)] To include Extract of Annual Return; No. of Board Meetings; Director’s Responsibility Statement Declaration by ID; Listed Co. and Specified Co. to give company’s policy on directors’ appointment and Chheda Sanjay Visanji 58 policy on directors’ appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director Explanation to every qualification of CA / CS Details of Loan, Guarantee, Investment in 186
  59. 59. Board’s Report to include [134 (3)]Board’s Report to include [134 (3)] State of Co.’s Affairs Proposed transfer to Reserves; Dividend recommended Material changes / Commitment affecting financial position of Co. Conservation of Energy; Chheda Sanjay Visanji 59 Conservation of Energy; Statement on development / implementation of Risk Management Policy Policy developed / implemented for CSR Listed and Specified Co. to give formal annual evaluation of Board’s own performance
  60. 60. CSR [135]CSR [135] Corporate Social Responsibility (CSR) every company having ◦ net worth of Rs. 500 Crore or more or ◦ turnover of Rs. 1000 Crore or more or ◦ net profit of Rs. 5 Crore or more Chheda Sanjay Visanji 60 ◦ net profit of Rs. 5 Crore or more ◦ during any financial year shall constitute the Corporate Social Responsibility Committee Bill mandates that Co. to spend at least 2% of average net profit of immediately preceding 3 years
  61. 61. Internal Audit [138]Internal Audit [138] Prescribed class of Co. to appoint an Internal Auditor to conduct internal audit of function and activities of Co. CG may by rules prescribe manner and interval in which internal audit shall be reported to Board Generally it is Audit Committee who decides and Chheda Sanjay Visanji 61 Generally it is Audit Committee who decides and to whom Internal Auditor report Can be External Professional or Internal Department
  62. 62. Auditors [139]Auditors [139] Auditor to be appointed for a term of 5 years, to be ratified in AGM each year Cooling off period of 5 years for ◦ Individual CA after 1 such term of 5 years ◦ Firm of CA after 2 such term of 5 years Earlier Appointment was from conclusion of AGM Chheda Sanjay Visanji 62 Earlier Appointment was from conclusion of AGM to conclusion of next AGM Incoming Firm and Outgoing Firm which has completed 2 terms of 5 years, should not have any common partner Co. may specify by way of AoA for rotation of auditing partner
  63. 63. Auditors [139]Auditors [139] Banking sector already had such rotation, every 5 years Code of Ethics of ICAI specified rotation of audit partner after 7 years with cooling period of 2 year Rotation of Audit Firm to increase Cost of Compliance Chheda Sanjay Visanji 63 Compliance Each new firm to spend more time to understand business, controls, systems and process of Co. Globally, various studies have shown that Rotation of Auditor doesn’t serve purpose for which it is framed
  64. 64. Auditors [139]Auditors [139] Generally it is Audit Committee which considers and appoints Auditor Due to this rotation, freedom of Audit Committee to decide which audit firm suits them best is taken away Rotation would change equations of Audit FIrms Chheda Sanjay Visanji 64 Rotation would change equations of Audit FIrms Limit of Statutory Audit of 20 Co. per person No Special Resolution when new Auditor in place of Auditor whose term has got over
  65. 65. Eligibility of Auditor [141]Eligibility of Auditor [141] Till the time, term “Relative” is not defined, no clarity Certain eligibility criteria also extend to “Relative” ◦ Not being Indebted to Co. or holding or subsidiary Chheda Sanjay Visanji 65 ◦ Not being shareholder of Co. or holding or subsidiary ◦ Not in employment of any director or KMP of Co. ◦ Not having any business relationship with Co.
  66. 66. Remuneration of Auditor [142]Remuneration of Auditor [142] The remuneration under sub-section (1) shall, in addition to the fee payable to an auditor, include the expenses, if any, incurred by the auditor in connection with the audit of the company and any facility extended to him. Chheda Sanjay Visanji 66
  67. 67. Duties of Auditor [143]Duties of Auditor [143] Bill proposes that Auditor should report to CG if he has any reason to believe that fraud committed by officer or employees against Co. It seems, this is out of scope duty casted on auditor without adequate right or power Even materiality concept is not added to this Chheda Sanjay Visanji 67 Even materiality concept is not added to this requirement, which means each and every fraud by officer / employee has to be reported to CG
  68. 68. Auditor Others Services [144]Auditor Others Services [144] Auditor of Co., directly or indirectly, to Co. or its holding or subsidiary shall not provide following services (a) accounting and book keeping services; (b) internal audit; (c) design and implementation of any financial information system; Chheda Sanjay Visanji 68 system; (d) actuarial services; (e) investment advisory services; (f) investment banking services; (g) rendering of outsourced financial services; (h) management services; and (i) any other kind of services as may be prescribed:
  69. 69. Auditor [143Auditor [143 -- 145]145] Scope of Auditor’s duties and reporting has increased Now auditor is required give his observations or comments on financial transactions or matters which have any adverse effect on the functioning of the company [143 (3) (f)] Chheda Sanjay Visanji 69 of the company [143 (3) (f)] Giving comments / observations on financial transaction and their propriety Qualification, observations or comments on FS shall be read before the Co. in GM
  70. 70. Duties of Auditor [146]Duties of Auditor [146] Attending AGM was right of Auditor; now duty of Auditor unless exempted by Company Auditor can attend AGM through any representative who should be qualified to be appointed as an Auditor Chheda Sanjay Visanji 70
  71. 71. Liability of Auditor [147]Liability of Auditor [147] Entire firm is liable for Misconduct of any audit partner. Even LLP structure doesn’t absolve other partners from Liabilities Bill allows class of shareholders to claim damages or compensation through Class Action Suit Chheda Sanjay Visanji 71 or compensation through Class Action Suit Penalties seem to be too heavy as against deterrent
  72. 72. Directors [149]Directors [149] Prescribed Co. to have at least one woman director Maximum no. of directors increased from 12 to15 One director of Co. should have stay in India for at least 182 days Chheda Sanjay Visanji 72 Every listed Co. to have 1/3rd Independent Directors (ID) For prescribed class of Co. CG may prescribe minimum no. of ID Director who cant be elected can no longer be appointed as additional director
  73. 73. Independent Directors [149 (6) ]Independent Directors [149 (6) ] Some difference in definition of ID as compared to clause 49 of listing agreement ◦ Board to opine on whether ID is a person of integrity or has relevant expertise or experience ◦ ID may not remain independent, if his / her Chheda Sanjay Visanji 73 ◦ ID may not remain independent, if his / her relative have pecuniary relationship with Co. ◦ ID possesses such other qualifications as may be prescribed ID not liable to retire by rotation ID not counted for Total No. of Directors liable to retire by Rotation
  74. 74. IDID –– Other Issues [149 (9)]Other Issues [149 (9)] SEBI on one hand considers ID as employee for ESOP; Bill says No to ESOP to ID; No clarity on ESOP already granted As per data available in public domain, some of the large corporate have granted ESOP to ID as under: Chheda Sanjay Visanji 74 under: Company Total number of options granted to IDs ITC 50,000 Larsen & Toubro 60,000 Dr Reddy’s 16,800 HDFC 200,000 M&M 175,000
  75. 75. Tenure of office of ID [149 (11)]Tenure of office of ID [149 (11)] Tenure of office of ID restricted to 2 terms of 5 consecutive years Cooling off period of three years During Cooling off period, ID not to be associated with Co. in any other capacity, directly or indirectly Chheda Sanjay Visanji 75 indirectly Bill also includes Code of Conduct in Sch. IV ◦ Schedule IV – “Code for Independent Directors” ◦ Code states that ID shall uphold ethical standards of integrity and probity (too judgemental)
  76. 76. Liability of ID / NED [149 (12)]Liability of ID / NED [149 (12)] Liability of ID and NED is distinguished from rest of the board and bill states that ID and NED shall be held liable, 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 Chheda Sanjay Visanji 76 through Board processes, and with his consent or connivance or where he had not acted diligently [ID / NED should explore getting insurance cover, which covers them from Liabilities]
  77. 77. Director [165Director [165 -- 167]167] Not more than 20 Co. Out of which No. of Public Co. cant exceed 10 [For this clause, Private Co. which is subsidiary of Public Co. would be counted as Public] Members may by special resolution reduce Chheda Sanjay Visanji 77 Members may by special resolution reduce Maximum No. of Co. where their Director can become Director Office of a director shall become vacant in case (b) he absents himself from all meetings of Board held during a period of twelve months with or without seeking leave of absence of the Board [167]
  78. 78. Resignation of Director [168]Resignation of Director [168] Director may resign by giving a notice in writing to Co. Board shall on receipt of such notice take note Co. shall intimate the Registrar Provided that a director shall also forward a copy Chheda Sanjay Visanji 78 Provided that a director shall also forward a copy of his resignation along with detailed reasons for the resignation to the Registrar within thirty days of resignation Resignation shall take effect from date on which notice is received by Co. or date, if any, specified in the notice, whichever is later:
  79. 79. Audit Committee (AC) [177 (1)]Audit Committee (AC) [177 (1)] Earlier listed Co. (clause 49 of listing agreement) and public Co. having paid-up capital not less than 5 Crores (Section 292A of the Act) were required to constitute AC Now bill requires all listed Co. and class of Co. as may be prescribed to have AC Chheda Sanjay Visanji 79 may be prescribed to have AC Bill is in conflict to clause 49, specifies as under: ◦ AC to have majority of ID ◦ Chairman of AC need not be ID ◦ Majority of members of AC should be financially literate
  80. 80. Nomination and Remu. Comm. [178(1)]Nomination and Remu. Comm. [178(1)] Nomination and Remuneration Committee (NRC) to be constituted by each listed Co. and class of Co. as may be prescribed Scope of NRC ◦ Formulate policy and recommend to Board on Co.’s policies pertaining to remuneration of Chheda Sanjay Visanji 80 Co.’s policies pertaining to remuneration of directors, KMP, other employees, criteria for determining qualifications, positive attributes and independence of directors
  81. 81. Loan / Investment by Co. [186]Loan / Investment by Co. [186] Co. can give loan, guarantee, security or invest not exceeding higher of ◦ 60% of its paid-up share capital, free reserves and securities premium or ◦ 100% of its free reserves and securities premium Chheda Sanjay Visanji 81 premium Where aforesaid limits are exceeding, Co. to take prior approval by Sp. Resolution Private Company also included; No exemption even to Holding – Subsidiary No Loan or Inv. or guarantee to be given If default in Deposit or Interest thereon
  82. 82. Loan / Investment by Co. [186]Loan / Investment by Co. [186] In FS, Co. has to give full particulars of loans given, investments made, guarantees given or security provided and PURPOSE for which it was made, given or provided Consent of all Board members who are present in meeting If such loan, Inv., guarantee or security is exceeding 60% or 100 % limit, Prior Approval of PFI, if there is default in Chheda Sanjay Visanji 82 100 % limit, Prior Approval of PFI, if there is default in payment of Principal / Interest Co. has to charge interest not lower than prevailing yield of 1, 3, 5 or 10 year Govt. Security closet to tenure of loan Clarity needed for Existing Interest Free Loans given This would create issue in Domestic / International Transfer Pricing
  83. 83. Investment by Company [186 (1)]Investment by Company [186 (1)] Bill mandates that Co. can invest only through two layers of investment companies, except ◦ Where Co. acquires a foreign Co. which has investment subsidiaries beyond two layers ◦ Investment Subsidiaries which are required to meet requirements of any other law, rules or regulation This clause is anti investment and too much of Chheda Sanjay Visanji 83 This clause is anti investment and too much of policing type No clarity in Bill for existing corporate structures which are multi level If mandatory for even old Co. structures, no transition period is defined
  84. 84. Example of Multi Layer Corp. StructureExample of Multi Layer Corp. Structure IDFC IDFC Securities IDFC-SSKI Stock Broking IDFC Asset Management IDFC Investment Advisors IDFC Project Equity IDFC Project IDFC Capital Dheeru Powergen IDFC Finance IDFC PE 100%100% 100% 100% 51% 100% 100% 100% 100% 100% IDFC pension fund Mgmt IDFC Inv Advisors (Mauritius) 100% Chheda Sanjay Visanji 84 Broking Advisors IDFC Funds of Funds IDFC General Partner s Emerging Mkt PE Fund LP IDFC Capital (Singapor e) IDFC Trustee Co JVs IDC Karnataka Uttaranchal Infra Developmen t Delhi Integrated Multi Modal Transit Systems 49.5% 50.44% 50% 100%100%100% OtherWoS Subsidiary IDFC PPP Trustee.shp IDFC AMC Trustee 100% 100% 100% IDFC Capital USA 100%
  85. 85. Related Party [2(76)]Related Party [2(76)] Related Party definition to cover ◦ a public company in which a director or manager is a director or holds along with his relatives, more than two per cent. of its paid-up share capital [2(76)(5)] ◦ (ix) such other person as may be prescribed Chheda Sanjay Visanji 85 ◦ (ix) such other person as may be prescribed [2(76)(ix)]
  86. 86. Relative [2(77)]Relative [2(77)] ‘‘relative’’, with reference to any person, means any one who is related to another, if— ◦ (i) they are members of a Hindu Undivided Family; ◦ (ii) they are husband and wife; or ◦ (iii) one person is related to the other in such Chheda Sanjay Visanji 86 ◦ (iii) one person is related to the other in such manner as may be prescribed Too many implications of definition of “Relative” on eligibility of Auditor as well as ID
  87. 87. Related Party [188]Related Party [188] Without board consent and conditions as may be prescribed, Co. shall not enter into any transaction with Related Party for (a) sale, purchase or supply of any goods or materials; (b) selling or disposing of, or buying, property of any kind; (c) leasing of property of any kind; (d) availing or rendering of any services; (e) appointment of any agent for purchase or sale of goods, materials, services or property; Chheda Sanjay Visanji 87 materials, services or property; (f) such related party's appointment to any office or place of profit in the company, its subsidiary company or associate company; and (g) underwriting the subscription of any securities or derivatives thereof, of the company: [Act did not cover “Leasing “ as transaction in Immovable Properties were not covered u/s. 297 of the Act]
  88. 88. Related Party [188]Related Party [188] Central Government approval done away “Cash at prevailing market price” is now suitably replaced for “Arm’s Length Transaction” Related Party Transactions are to be detailed in Board’s Report along with justification Penalty now extends to even Imprisonment Chheda Sanjay Visanji 88 Penalty now extends to even Imprisonment Related Party definition in conflict with AS 18 Term “Relative” yet to be defined / prescribed [Standing committee report has discussed that objective of AS is only Accounting whereas Bill has to ensure that person in control don’t take undue advantage]
  89. 89. Related Party [188]Related Party [188] Co. having paid up capital of not less than such amount or transaction not exceeding such sums, as may be prescribed Shall be entered after Prior Approval by Special Resolution [Not exceeding such sums, seems to be typo error. Chheda Sanjay Visanji 89 [Not exceeding such sums, seems to be typo error. Should have been “not less than amount as may be specified”]
  90. 90. Managerial Personnel [196]Managerial Personnel [196] Applicable to ALL companies Maximum term to be appointed capped at 5 years Re-appointment cant be more than 1 year in advance Age limit revised; Minimum age reduced from 25 to 21 years and Maximum age increased to 70 Chheda Sanjay Visanji 90 to 21 years and Maximum age increased to 70 years [GM can by Sp. Reso. Approve even when age has exceeded 70 years] Board Report to disclose ratio of remuneration to each director to the median employee’s remuneration and such other details as may be prescribed [197 (12)]
  91. 91. Managerial Personnel [197]Managerial Personnel [197] Insurance taken by Co. on behalf of MD,WTD, CEO, CFO or CS for indemnifying any of them against any liability in respect of negligence, default, misfeasance, breach of duty or Chheda Sanjay Visanji 91 negligence, default, misfeasance, breach of duty or trust Premium of such insurance shall not be considered as Remuneration payable to them If they are proved to be guilty, then shall be treated as Remuneration
  92. 92. KMP [203]KMP [203] For class of Co., as may be prescribed shall have following whole time KMP ◦ (i) managing director, or Chief Executive Officer or manager and in their absence, a whole-time director; ◦ (ii) company secretary; and Chheda Sanjay Visanji 92 ◦ (ii) company secretary; and ◦ (iii) Chief Financial Officer Whole time KMP shall not hold office in more than one company except in its subsidiary Co. But whole time KMP can be director of other Co. with permission of Board [203(3)]
  93. 93. Functions of CS [205]Functions of CS [205] Functions of company secretary (a) to report to the Board about compliance with the provisions of this Act, the rules made there under and other laws applicable to the company; (b) to ensure that the company complies with the applicable secretarial standards [SS]; Chheda Sanjay Visanji 93 applicable secretarial standards [SS]; (c) to discharge such other duties as may be prescribed.
  94. 94. Search and Seizure [209]Search and Seizure [209] Section 209 of Act prescribes Books of Accounts. Now Clause 209 of Bill has power to seize those books Search and Seizure powers given to Registrars / Inspectors Search can be carried on Chheda Sanjay Visanji 94 Search can be carried on ◦ Company ◦ KMP ◦ Director, ◦ Auditor ◦ CS in practise (if Co. has not appointed CS)
  95. 95. SFIO [211]SFIO [211] Serious Fraud Investigation Office (SFIO) now given statutory status by Bill SFIO is empowered to initiate investigation at direction of CG SFIO has power to arrest Chheda Sanjay Visanji 95
  96. 96. Investigations [213]Investigations [213] Investigation into Company’s Affairs [213] On application to Tribunal by ◦ Not less than 100 members of Co. ◦ Or members holding not less than 1/10th of total voting power Chheda Sanjay Visanji 96 total voting power ◦ Tribunal after considering case and giving Co., an opportunity of being heard, can initiate Investigation of affairs of Co.
  97. 97. Compromise, Arrangement,Amalgamation [230Compromise, Arrangement,Amalgamation [230 –– 240]240] Compromises, Arrangements and Amalgamations are now streamlined removing procedural issues Cross Border Merger permitted Holding of Treasury Shares pursuant to Court Order now prohibited Postal Ballot permitted mode of voting on Scheme On merging of Listed Co. with Unlisted Co.; exit Chheda Sanjay Visanji 97 On merging of Listed Co. with Unlisted Co.; exit option to be provided to members of Listed Co. Persons holding 90% or more of the issued equity share capital of a company by virtue of an amalgamation, share exchange, conversion of securities or for any other reason, may now purchase the minority shareholding of the company at a price determined by a registered valuer
  98. 98. Compromise, Arrangement,Amalgamation [230Compromise, Arrangement,Amalgamation [230 –– 240]240] Objection to any scheme can be raised by ◦ Shareholder with 10% or more shareholding or ◦ Person having o/s. debt of more than 5% of total debt Additional documents to be submitted Chheda Sanjay Visanji 98 Additional documents to be submitted ◦ Valuation Report ◦ Compliance with AS Simple procedure for Holding – WOS; Small Co. without approval from NCLT
  99. 99. Compromise, Arrangement,Amalgamation [230Compromise, Arrangement,Amalgamation [230 –– 240]240] Notification of Scheme to CG, IT, SEBI, Stock Exchanges, CCI and other relevant regulators Within 30 days of receipt of notice, these agencies to make representation; failing which to be presumed that they don’t have any representation Chheda Sanjay Visanji 99
  100. 100. SICA 1985 [230 (7)]SICA 1985 [230 (7)] The Sick Industrial Companies Act, 1985 (SICA) which was earlier applicable only to Industrial Co. is now made applicable to ALL Co. Criteria shifted for erosion of Net Worth to capacity to repay Secured Creditors Application can be done by Secured Creditor or Chheda Sanjay Visanji 100 Application can be done by Secured Creditor or Co. itself
  101. 101. Rights of Shareholder [241Rights of Shareholder [241 –– 245]245] Class Action Suit [collective lawsuit] can be filed by group of shareholder in case of fraudulent action by Co. Listed Co. may have one director elected by small shareholders [small shareholder means one holding shares not more than nominal value of Rs. Chheda Sanjay Visanji 101 holding shares not more than nominal value of Rs. 20,000/-] Co. having more than 1,000 shareholders, debenture holders or deposit holders shall form Stakeholder’s Relationship Committee
  102. 102. RegisteredValuers [247]RegisteredValuers [247] Bill refers to RegisteredValuers in various clauses like Further issue of share capital [Clause 62] Restriction on non-cash transactions involving directors [192] Compromises, arrangements and amalgamations [230] Purchase of minority shareholding [236] Submission of report by Company liquidator [281] Chheda Sanjay Visanji 102 Submission of report by Company liquidator [281] Declaration of solvency in case of proposal to wind up voluntarily [305] Power of Company liquidator to accept shares, etc., as consideration for sale of property of company [319] However qualification, experience and process of registration of RV are yet to be prescribed
  103. 103. AGM Annual General Meeting MCA Ministry of Corporate Affairs AOA Articles of Association MD Managing Director BOD Board of Directors MOA Memorandum of Association CA Chartered Accountant NBFC Non-Banking Finance Companies CEO Chief Executive Officer NCLAT National Company Law Appellate Tribunal CFO Chief Finance Officer NCLT National Company LawTribunal CG Central Government NED Non-Executive Director Co. Company NFRA National Financial Reporting Authority CS Company Secretary OPC One Person Company CSR Corporate Social Responsibility PFI Public Financial Institution Chheda Sanjay Visanji 103 CSR Corporate Social Responsibility PFI Public Financial Institution DRR Debenture Redemption Reserve PSB Public Sector Bank EGM Extra-Ordinary General Meeting RBI Reserve Bank of India FY FinancialYear ROC Registrar of Companies GOI Government of India RV RegisteredValuer HUF Hindu Undivided Family SEBI Securities and Exchange Board of India ID Independent Director SFIO Serious Fraud Investigation Office IEPF Investor Education and Protection Fund SRC Stakeholders Relationship Committee KMP Key Managerial Personnel WOS Wholly Owned Subsidiary LLP Limited Liability Partnership WTD Whole Time Director
  104. 104. Thank You P. RAJ & CO. Chartered Accountants 3/1218, Navjivan Society, Chheda Sanjay Visanji 104 104 Disclaimer: The information contained in this document is intended only for use during the presentation and should not be distributed to parties outside the presentation. PRAJCO accepts no liability whatsoever with respect to the use of this documents or its content 3/1218, Navjivan Society, Lamington road, Mumbai 400 008 Tel No. 2305 4459 / 2301 2074 chhedasanjay@gmail.com
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