Focus of the Companies Bill, 2009
the Companies Act
Which – Relevant &
provision with existing
In the Form of Rules
Segregating & Deleting
Incorporation of Companies
• All Types of Companies are required to file MOA and
AOA with ROC.
• All other matters incidental thereto such as – alteration of
MOA and AOA, Rectification of Names follows the
• The provision under the Companies Act, which
prescribed minimum paid –up share capital for private
and public companies have been scrapped.
Types Of Companies
Types of Companies
Company Criteria for formation
• Public Company At least seven shareholders.
• Private Company Between two and fifty shareholders.
• One Person Company One shareholder.
• Small Companies Non-public companies with a paid up capital of less than
Rs 5 crore or turnover less than Rs 20 crore. Cannot be a
holding or subsidiary company, charitable company, or
that registered under any special Act.
• Charitable Company At least one person; only for specified objectives. Dividends cannot be
• Dormant Companies Those formed for future projects/ to hold assets or intellectual property,
and which have no significant accounting transactions; or Companies
which do not carry on any business or operation for 2 years or have not
filed financial statements in that time
Note – One Person Companies is a concept introduced in Companies Bill, 2009
Companies Act ’56
• Minimum Authorized Share Capital –
Public Limited Company – Rs 500,000
Private Company – Rs 100,000.
• Differential Voting Rights exists with
same class of shares, ( Issue of Share
Capital with differential voting rights)
• No Such Provision exists, No Concept
of Registered Valuer is present.
• Company has the right to issue of
shares at discount subject to
restrictions as stated in section 79 of
companies Act, 1956.
• A Limited Company (If authorized by
its AOA) can issue redeemable
Companies Bill ‘09
• No requirements as to minimum share
• Concept of differential voting rights
shares within a class of shares have
been done away.
• Further issue of share capital other
than Rights Issue and Employee Stock
Options Plans to be made at price
determined by Registered Valuer.
• Issue of Shares at discount prohibited
except in the case of sweat equity
• Only Infrastructure companies can
issue redeemable preference shares
beyond 20 years.
Companies Bill ’09
• Payment of Dividend –
Clause 45 authorizes a Company to pay
dividend in proportion to amount paid –
up on each share.
• The new addition to bill includes –
Chapter VIII – Declaration and Payment of
• Percentage of profits to be transferred
to reserves is left to the discretion of
• Provides for declaration interim
dividend out of profits
Companies Act ’56
• Payment of Dividend
Provision Complementary to Clause 45 of
the Bill is Section 93 of the Companies
Declaration and Payment of Dividend –
• There is a minimum requirement of
10 % of profits to be transferred to
• As per Company Amendment Act
(2000) provides for payment of interim
Dividend Continued …
Company Bill ’09
If owing to inadequacy or absence of
profits in any financial year, the company
proposes to declare dividend out of the
accumulated profits earned by it in the
previous financial year or years and
transferred it to the reserves , such
declaration shall be made by a resolution
passed at a meeting of the board –
• Unanimous consent of the Board of
• Approval from Financial Institutions with
outstanding term loan.
• Special resolutions passed by the
shareholders at the AGM
Company Act ’56
As Per Companies (Declaration of Dividend
out of Reserves) Rules 1975 –
Under the current Companies Act, if the
Company has incurred any loss in any
previous financial year or years, which
falls or fall after the commencement of
the Companies (Amendment) Act, 1960,
then, the amount of the loss or an
amount which is equal to the amount
provided for depreciation for that year or
those years whichever is less, shall be
set off –
• Against the profits of the company for the
year for which dividend is proposed
• Paid against the profits of the company
for any previous financial year or years.
Arrived in both cases after providing for
depreciation. This provision has been
omitted in the Companies Bill
Management & Administration
1. E – Governance
Application of e – governance procedures is proposed to be extended to almost all
compliance requirements and e – filings would be accepted as substantial
evidence in any proceedings.
2. Board Meetings
• Minimum period to call for Board Meeting is 7 days, such notice can be given in
writing or electronic means.
• Flexibility is provided to call a board meeting at a shorter notice to transact urgent
business. Decision become final if at least one Independent director ratifies it.
• Time interval between two board meetings increased to 120 days as against three
• Bill allows participation through video conferencing or other prescribed means
providing greater flexibility to directors in participating in board meetings.
Powers of the Board and Restrictions on its Powers
With regard to the powers of the board clause 159 of the Companies Bill is similar
to section 291 of the Companies Act ’56. Except clause 159 has expanded the
ambit of the powers to be exercised exclusively at a board meeting to include –
1. Issue of securities, including debentures, whether in India or outside;
2. Granting loans or giving guarantee or providing security in respect of loans;
3. Approving financial statements and directors report;
4. Diversification of business of the company;
5. Approving amalgamation, merger, reconstruction; and
6. Acquisition of a controlling or substantial stake in another company.
Clause 160 1 (a) (i) of Companies Bill is proposed to do away with section 293 (1) (a) of
Companies Act by incorporating these terms –
“An undertaking for this purpose shall mean an undertaking in which investment of
company exceeds 20 percent of its net worth or which generates 20 percent of
total income of the company during previous financial year.”
“Substantially the whole of the undertaking” – shall mean 20 percent of the value of an
Meetings of the Members
• Notice of meeting allowed to be issued on electronic media and voting at a meeting
by prescribed electronic means.
• Postal ballot proposed to be made applicable for all companies and not only listed
companies which was available earlier only to limited companies.
• Minimum shareholding criterion under companies act, of members in a company
having share capital, poll can be demanded by the member or by proxy – having not
less than one – tenth of the total voting power or holding shares on which an
aggregate sum of not less than Rs 50,000 has been paid up.
• Under Companies Bill, the minimum paid up amount has been raised to Rs. 500,000
• A new provision under Companies Bill, company to file a report on general meeting
with a registrar within 30 days of conclusion of such meeting confirming that the
meeting was convened, held and conducted as provided in the law.
• Time limit for filing the annual return is proposed to be reduced from 60 days under
companies act (at present) to 30 days from the date of AGM.
Related Party Transaction
• The 1956 Act restricts transactions between a company and its directors, and certain other
entities, on the grounds of possible conflict of interest.
• Government approval is required in most cases.
• The Bill restricts such transactions only for public companies but broadens the definition of a
related party to include managers of the company.
• The approval of shareholders, rather than the government is now required
Subject Companies Act, 1956 Companies Bill, 2008
Companies All Companies Only Public Companies
Definition of Definition covers directors their Managers and Relatives and those
Related relatives, firms and private accustomed to act according to the
Companies companies they are involved advice of director or manager. Public
companies in which director /
manager along their relative hold 2%
of capital. Subsidiary/ holding/ associate
company or companies which shares
common holding company
Approval Central government approval Board approval; 75 % shareholder approval
in most cases in companies above a prescribed size.
Accounts (as per Companies Bill) –
• A company has been permitted to keep books of accounts and other relevant papers
in electronic mode in such manner as may be prescribed.
• Annual financial statement is required to include the cash flow statement.
• A holding company is required to prepare and file, in addition to its own financial
statement, a consolidated financial statement of its subsidiary and itself.
• If the financial statement are adopted at the AGM, then they shall be filed with
registrar provisionally within 30 days from the date of the meeting.
• Flexibility in choosing financial year – end for preparation of financial statements is
removed. All companies would need to follow March 31 as the year – end.
• Financial statements to comply with the form as may be prescribed. Reference to
Schedule VI has been removed
Directors Responsibility Statement
The Directors responsibility statement to be fled along with financial statements of the
company shall state that –
• in the preparation of the annual accounts, the applicable accounting standards had
been followed along with proper explanation relating to material departures;
• The directors had selected such accounting policies and applied them consistently
and made judgment and estimates that are responsible and prudent so as to give a
true and fair view of the state of affairs of the company;
• They had taken proper and sufficient care for the maintenance of adequate
accounting directors records in accordance with the provision of this act for
safeguarding the assets of the company and for preventing and detecting fraud and
• They had prepared the annual accounts on a going concern basis; and
• They had, in the case of listed company, had laid down internal financial controls to
be followed by the company and that such financial controls have been complied
Audit & Auditors
National Advisory Committee on Accounting and Auditing Standards (‘NACAAS’)
• NACAAS to consult ICAI before submitting its recommendations to the Central
Government on matters relating to accounting and auditing policies and standards.
• Notification of Auditing Standards by the Central Government shall be done, after
consultation with NACAAS. Until any auditing standards are notified, any standard or
standards of auditing standards. It shall be duty of the auditors to comply with such
Appointment of Auditors
• Company need to consider the recommendations of the Audit Committee, if
consulted, for appointment of auditors, including filling up a casual vacancy. Role of
Audit Committee has bee expanded in line with global practice.
• A special resolution is required for appointing new auditors in place of retiring auditor.
Under the existing Companies Act, only an ordinary resolution is required in such a
• Requirement of special resolution has been done away in case of a company whose
25 % or more of subscribed share capital is held by Central/ State Government of
entities such as public financial institutions, insurance companies, etc.
• In case no auditor is appointed or re – appointed at the AGM, the existing auditor or
shall continue to be the auditor of the company.
Powers and Duties of Auditors –
• Auditor required to attend general meeting unless exempted by the company. Under
Companies Act, the auditor had a right and not a duty to attend general meeting.
• Auditor of a company shall have the right of access to the records of all of its
subsidiaries in so far they relate to consolidation of its financial statements with that
of its subsidiaries.
• Requirement for auditors to do specific inquiries on matters listed in Section 227 (1 A)
of the Companies Act, 1956 has been done away with.
Bill has proposed additional matter for specific reporting –
• Whether the financial statements comply with auditing standards
• Any qualification, reservation or adverse remark relating to the maintenance of
accounts and other matters connected therewith.
• In case of listed companies, whether the company has complied with the internal
financial controls and directions issued by the Board.
Audit of the Government Companies, the Bill has prescribed following additional matters –
• An Auditor to include in his audit report directions, if any, issued by C&AG in respect of
the auditing standards, action taken on such directions and their impact thereof on the
• Bill fixes 60 days time limit for C&AG to comment upon or supplement the audit report,
and conduct supplementary audit of the company’s accounts.
Composition of Audit Committee –
• To be made in line with the conditions prescribed under the listing agreements.
• Committee to be constituted with minimum 3 directors, of which majority required to be
independent directors and at least one director required to have knowledge of audit,
financial management or accounts.
• Chairman of audit committee to be an independent director.
Powers of Audit Committee has been extended to include –
• Recommendation on appointment of auditors
• Related Party Transactions
• Valuation of undertakings or assets of company
• Evaluation of internal financial controls and related matters
Independence of Auditors
To ensure independence of auditors other than disqualifications provided under sub –
sections 3 of Sections 226 of current Companies Act, The Companies Bill has proposed
to add to it by Clause 127 as follows –
An auditor cannot provide the following service –
• accounting and book keeping services;
• internal audit;
• design and implementation of any financial information system;
• actuarial services;
• investment advisory services;
• investment banking services;
• rendering of outsourced financial services; and
• management services.
Companies Bill ’09
• Same as Companies Act
• Same as Companies Act
• Every Company to have at least one
director who is ordinarily resident in
India i.e. a person who resides in India
for at least 182 days in a calendar
• Appointment of Whole Time Directors,
MD require approval of members at
general meeting thereby empowering
• Concept of Key Managerial Personnel
• No share Qualifications required
Companies Act ’56
• For incorporating a Private Limited
Company a minimum of two directors
• For incorporating a Public Limited
Company a minimum of three directors
• Appointment of Whole Time Directors ,
Managing Directors and Managers
require approval of government.
• Concept of Director and Manager
• Share Qualification for appointment of
directors are prescribed
Number & Appointment of Directors
Duties of Directors Codified
The duties of directors which under Companies Act is considered to be that of trust or
fiduciary relationship has been attempted to be codified under the Companies Bill. Clause
147 deals with duties of directors –
• A director shall act in accordance with company’s articles subject to the provision of
• He shall act in good faith in order to promote the objects of the company for the
benefit of the members as a whole and in the best interests of the company
• He shall exercise his duties with due and reasonable care, skill and diligence
• He shall involve in a situation in which he may have a direct or indirect interest that
conflicts, or possibly may conflict, with the interest of the company
• He shall not achieve or attempt to achieve any undue gain or advantage either to
himself or his relatives, partners or associates
• He shall not assign his offices and any assignment so made shall be void.
Director Identification Number
• The Following is a new provision proposed to be provided under the Companies Bill
• Holding of Director Identification Number (“DIN”) made mandatory for appointment of
any person as a director.
• Provision incorporated for application and allotment of DIN, intimation of DIN to the
company, information of DIN of all of its directors to the registrar by the company and
obligation to indicate the DIN on returns etc.
• With a View to bring harmony between listing agreements and the Companies Act, a
new provision has been inserted in case of listed public company which requires the
listed company to appoint a minimum of one – third of total directors as independent
directors on the board.
• A company having non executive shall have one – third of its board consistent of
independent directors, A company with executive chairman shall have 50% of its
board comprising of independent directors.
• Central government will prescribe minimum number of independent directors for other
• All the existing companies have to comply with these new requirements of having
independent directors on he board within one year.
Key Managerial Personnel
The bill proposes to redefine a company’s key managerial personnel to consist of –
• Managing Director, Chief Executive officer or manager and fulltime director or
• Company secretary; and
• Chief financial officer
With intent to reduce government control internal management of companies, the
requirement of seeking approval of central government in the appointment and
remuneration of managerial personnel i.e. managing director etc, has been done away
with. The aforesaid can now be made by the board of directors followed by an approval
from members in general meeting via a special resolution.
Remuneration to Directors & Key
Companies Act ’56
• Only 11 Percent of Company Net
Profits could be paid as remuneration
to Directors and Key Managerial
Companies Bill ’09
• Under the Companies Bill (Proposed)
the amount payable as remuneration
to directors and other key managerial
personnel has bee un – capped.
• Remuneration to Independent
Not entitled to remuneration other than
sitting fee, reimbursement for expense of
participation in meetings of the board,
other profit related commission and stock
– options as approved of by the members
Compromises, Amalgamation and
Compromises and Arrangements –
• Substantial changes have been proposed in the bill with respect to the existing
provision. The comprehensive review and revamp to bring out a complete and
transparent perspective to the entire process.
• Where meeting is proposed to be called, valuation report is also to be sent to the
shareholders and creditors along with the notice.
• Any objection shall be made only by the shareholders holding not less than 10% of
the shareholding or creditors with not less than 5% of the outstanding debt.
• Voting for the respective may also be done through postal ballot.
• Notice to be sent to Central Government, RBI, SEBI, Stock Exchanges etc.
Further the Bill provides for specific arrangement that the
tribunal may order (but not limited to) :
• Conversion of preferential shares into equity with an option for preference
shareholders to obtain arrears of dividend in cash or accept equity shares.
• Protection of any class of creditors
• Variation in the rights of the shareholders
• If agreed by the creditors, abatement of any proceedings pending before the Board
for Industrial and Financial Reconstruction
• Buy back of securities not permitted under this section.
Compromise/arrangement may include takeover offer as
• Where takeover offer has been defined to mean an offer to acquire all the shares
(other than those already held by the offeror) at the same terms of offer.
• Listed company takeover shall be as per guidelines issued by SEBI.
Where the compromise involves merger or hive – off
In addition to the notice requirements for shareholders and creditors meetings , following
is required to be sent –
• Confirmation of filing of the scheme with registrar
• Supplementary accounting statements where the last audited accounting statements
is more than six months old before the first meeting of the company.
The tribunal while sanctioning the compromise / arrangement, may additionally make the
• Transfer of employees of the transferor company
• Where transferor company is a listed entity and transferee company is an unlisted
1) Transferee shall continue to be an unlisted company
2) Exit opportunity for the shareholder of the transferor company shall be
provided for, in case they wish to opt out.
3) Where transferor company is not dissolved, it shall become unlisted and if
left with small portion of assets, exit opportunity shall be provided for the
• Fees paid by the transferor company on authorized share capital shall also be
available for set off against the fees payable by the transferee company on its
authorized share capital subsequent to the merger.
• The proposed bill also contemplates merger of an Indian company with a foreign
company and vice – versa, where the consideration to the shareholders of the
merging company may be discharged by way of cash or through Indian Depository
Receipts or any combination thereof.
• Further, in order to reduce regulatory rigor of merger between two small companies
or a holding company and its wholly owned subsidiary, a separate process is
envisaged which do not require approval from the tribunal. The key highlights of the
process are given below –
1) Notice of the scheme to be sent inviting comments /objections within 30 days
2) Post consideration of the comments/ objections, the scheme is to be approved by
a special resolution in the shareholders meeting and by creditors three fourths in
3) Post approval, the scheme has to be filed with the registrar and the official
liquidators for their approval –
a) Deemed approval where official liquidators do not communicate within 30 days
4) Post confirmation from the official liquidators, Registrar to register and effect the
5) In case of scheme is not in public interest, dispute resolution mechanism has also
• The Bill has also proposed the concept of purchase of minority shareholding.
• The proposed bill has introduced a framework of ‘Registered Valuer’ for all valuations
in respect of – Property, Stocks, Shares, Debentures, Securities, Goodwill, or net
worth of a company or its assets
• Valuers as registered under the act with central government shall be appointed by the
audit committee of the company or he Board of Directors in its absence
• Eligibility for Registration –
a) Charted Accountant, Cost & Works Accountant, Company Secretary or any other
person possessing necessary prescribed qualification
b) Company or a body corporate not eligible to act as valuer
c) Partnership firm not to act as a Valuer, unless all the partners are registered as
• Applicants to give a declaration at the time of registration that they shall –
a) Make an impartial and true valuation of assets
b) Make the valuation as per the rules
c) Not undertake valuation of any assets with existing or proposed direct or indirect
Rehabilitation and Liquidation
• The provisions as regards revival and rehabilitation of sick companies have
undergone significant changes with special powers being imparted to the creditors of
a sick company. The key highlights are –
a) The requirement for government companies seeking a prior approval from Central
or State Government before making a reference to the Tribunal has been removed.
b) The bill empowers the secured creditors, representing at least 50% in value of their
outstanding debt for which payment has not been secured or compounded to their
reasonable satisfaction within 30 days of the issue of demand notice of the company,
to file an application to the tribunal to declare such a company as a sick company.
c) The qualifications of a company as ‘sick company’ on the basis of reduction in net
worth as it existed earlier will no longer be applicable.
d) The role of an operating agency would be undertaken by an ‘interim administrator’,
appointed by the tribunal.
e) The committee of the company's creditors appointed by the interim administrator shall,
along with such Administrator, decide whether it is possible to revive and rehabilitate
If the tribunal is satisfied with the report of the interim administrator indicating that it
is not possible to revive and rehabilitate the company, then the tribunal will order the
proceedings for winding up.
Should the committee believe the survival of the company to be possible, the tribunal
will appoint a ‘company administrator’.
(f) The consent of atleast 75 % in value of the creditors outstanding would be essential
before the Tribunal took a decision on either the revival of sick company or it’s
(g) The revival strategy is to devised by the company administrator by way of various
means prescribed under the bill. The strategy has to be formulated in consultation
with the various classes of creditors and should be approved by 25 % of the
unsecured creditors and 75 % of the secured creditors in value.
(h) If there is a proposal to amalgamate the sick company with any other company as
part of the revival strategy then this has to be approved by the shareholders of both
companies by way of a special resolution. OR
If such a strategy is not approved by the creditors then the tribunal can order the sick
company to be wound up.
Removal of names of ‘defunct’ companies from the register
• The bill also lays down the following criteria which would enable the Registrar to
conclude that removal of the name of a company from the register is appropriate –
a) Failure of the company to commence business;
b) Failure to pay subscription amount within 180 days of incorporation of the
c) The company has not been trading for a period of one year and has not made any
application for obtaining the status of a dormant company.
Winding up by the NCLT
• The bill requires the tribunal to pass, within 90 days of presentations of a petition, an
order for winding up a company. Further, it is proposed to reduce the time frame for
submission of the official liquidator’s report to 60 days from date of such an order. In
addition, amore detailed list of particulars is required to be furnished in the report.
• It is proposed that a combined meeting of creditors and contributors is held within 30
days of the date or order of winding up in order to determine the composition of the
Committee of Inspection.
Voluntary Winding up
• A single process for the voluntary winding up of a company has been proposed under
the Bill compared to the separate processes for members and creditors voluntary
winding up detailed in the existing law.
• The bill makes it mandatory for directors to make a declaration of solvency in all
cases, irrespective of whether the company is solvent or not.
• The Companies Act requires directors to declare that either the company has no
debts or it would be able to pay its debts within 3 years of the commencement of
winding up, it has been proposed that directors state either the company has no
debts or that it would be able to pay its debt from proceeds of assets sold in winding
• The bill requires creditors meeting to be called in all cases and their approval for
winding up the company is required to be sought. A two –thirds majority in value is
required (currently under companies act the requirement is for a simple majority)
• Further, creditors are also given the power to resolve that company should be wound
up by Tribunal in cases where they opine that the company is insolvent and voluntary
winding up is not in interest of all parties. The company is required to file an
application with tribunal within 14 days of such a resolution
• The company liquidator will be required to submit a report on a quarterly basis, giving
details on the progress of the winding up.
Summary Procedure for Liquidation
• The proposed Bill introduces a new summary procedure for liquidation by tribunal in
cases where a company being wound up has assets valued at less than INR 10
Million in value.
• In the case of winding up under the summary procedure, the official Liquidator is
required to dispose of assets, recover amounts from debtors a prepare a list of
accepted and rejected a claims of creditors within specified period of time.
Inspection, Inquiry and
• Tribunal can order freezing of transfer, removal or disposal of assets during
inspection, enquiry or investigation. (Clause 191 of Companies Bill 2009)
• No suit or proceedings in court or tribunal or stay till investigation report is submitted.
(Clause 194 of Companies Act, 2009)
• Provision of Inspection and investigation apply to foreign company also ( Clause 199
of Companies Bill, 2009)
Adjudication – NCLT & NCLAT
• The bill establishes the National Company Law Tribunal (NCLT) administer various
provision of company law and adjudicate disputes between companies and their
stakeholders. It also establishes an Appellate Tribunal to hear appeals against orders
made by the NCLT.
• The NCLT may ask government to investigate a company on an application made by
100 or more shareholders of the company, or those who hold 10% or more voting
• The bill introduces the concept of class action lawsuits by shareholders or creditors.
• The bill seeks to introduce the concept of adjudication of penalties in respect of non –
compliance with procedural law. Heavy monetary penalties ranging from Rs 5,000 to
Rs 10 Million have been prescribed.
• In case of failure to repay matured deposits or interest thereon within the agreed
period or any extension thereof given by the tribunal, the company is punishable by a
fine of between Rs 10 Million and Rs 100 Million
• In addition the officer in default is punishable by a fine of between Rs 2.5 Million and
Rs 20 Million.
• Another feature of the bill relates to the constitutions of Special courts for speedy
trials of offences for non – compliance with the law as envisaged in clauses 396 and
397 of the bill.
• A special court will be established by notification.
• A special court will consist of a single judge appointed by the government in
concurrence of the chief justice of the high court within those jurisdiction the judge will
• In addition to imposing fines on companies and officers in default, many provision in
the bill impose imprisonment terms ranging from six months to five years.
• The bill also seeks to establish special courts outside India for rectification of register
Corporate Social Responsibility
The Bill may now include provisions to mandate that every company
• net worth of 5 billion or more, or turnover of 10 billion or more;
• net profit of 50 million or more during a year
shall be required to formulate a CSR Policy to ensure that every year at
least 2% of its
average net profits during the 3 immediately preceding financial years
shall be spent on
CSR activities as may be approved and specified by the company.
• Insider Trading - The Bill bans only directors or key managerial personnel from
insider trading. It prescribes a penalty of Rs 5 Lakhs to Rs 1 crore or imprisonment
upto 5 years or both, for those guilty of the offence.
• Payment of interest out of share capital – The existing provision relating to the power
of a company to pay interest out of capital raised for construction of any work or
building or provision of plant which cannot be made profitable for a lengthy period
have been deleted in the bill.
• Section 565 of Companies Act, 1956 had provision for conversion of partnership with
seven or more members to a company. This provision could have been used for
conversion of LLP to company. However there is no parallel provision in Companies
Executive Summary – New Concepts,
Deficiencies, Contentious Issues
New Concepts –
i) One Person Companies
ii) Registered Valuer
iii) Special Courts
iv) Introduction of Class Action Suits
v) Key Managerial Personnel
vi) Enhanced Investor Protection
vii) Corporate Social Responsibility
Deficiencies in the current bill –
• Constitutional Validity: The Bill provides for adjudication of company matters by the
National Company Law Tribunal set up by the Act. However, a similar body set up
under a under a 2002 amendment to the Companies Act currently faces a legal
challenge in the Supreme Court.
• Conflict with other laws: Some provisions in the Bill conflict with provisions in the
SEBI Act and its rules i.e. Insider Trading, Independent Directors and Delisting of
Companies all of which have found place in the new bill are existing in SEBI
• Delegated Legislation: The Committee noted that the Bill provided excessive scope
for delegated legislation. Several substantive provisions were left for rule-making, the
Ministry was asked to reconsider provisions made for excessive delegated legislation.
These include: (a) the definition of small companies,
(b) manner of subscribing names to the Memorandum of
(c) format of Memorandum of Association to be prescribed
in the Schedule,
(d) manner of conducting Extraordinary General Meetings,
(e) documents to be filed with the Registrar of Companies.
• Conversion of Partnership to Company has been left out
• Related Party Transaction : Addressed in S. 295 to S.301 of the Companies Act
has been highlighted in Clause 166 of the Companies Bill. There has been
• Inter – Corporate Loans and Investments : Section 372 – A of the Companies Act
is to be found in Clause 164 of the Companies bill with a change that has been
proposed by the Standing Committee with regard to exemption that were earlier
available to the private companies for inter – corporate loans and investments has
been removed , and which has been accepted to by MCA, which is not to be found in
the bill at present but will be included before it is passed.
• Appointment of Whole time Directors and Managers : Sections 269 of Companies
Act presently govern appointment of whole time directors and mangers. The
corresponding clause 174 of Companies Bill, proposes some changes like firstly the
position of directors has been separated from Key Managerial Personnel, secondly
appointment of whole time directors under the present act for public limited
companies and private companies subsidiaries of public company need approval of
the central government, which has been sought to be removed by a simple approval
in the general immediately following such appointment under Companies Bill
• Remuneration of Directors: Sections corresponding to Section 309 to Section 318,
Schedule XIII of Companies Act are mentioned in Clauses 174 and 175 of
Companies Bill. The key changes being lifting the cap of 11% of net profit being
remuneration payable under present act
• Remuneration Payable when there is inadequacy of profits, Commission
Payable and Tax Free Payments : Section 198 to Section 201 of Companies Act
deals with remuneration payable when there is inadequacy of profits, commission
payable and tax free payments to whole time directors, MDs and managers have
been left out in the Companies Bill, 2009
• Further Increase / Reduction in Share Capital: Increase in Share Capital – under
Companies Act is only possible 2 years after formation of company or 1 year after
allotment of share, this does not seem to appear under Companies Bill 2009.
Reduction of Capital – No Changes
• Exit options to minority shareholders: i) Safety net of exit options to be provided
in case of mergers to minority shareholders, to prevent exploitation of minority
shareholders. Hence an exit option would be provide at a pre – determined price and
on a fair valuation.
KIRTHI SRINIVAS G
Contact - +919049460032