Companies act 2013

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Companies act 2013
here you will get all the details about new companies act.
this will help you to understand the act very easily.

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Companies act 2013

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  2. 2. Introduction 1 The Companies Act 2013 got assent of the President of India on 29th August, 2013 and was published in the Official Gazette on 30th August, 2013. 2 The Act comprises of 29 chapters, 470 Sections with 7 Schedules as against 658 sections and 14 Schedules in the Companies Act, 1956 3 Substantively a law based on Rules (as may be prescribed). Rules have been exposed by MCA for public comments in 6 different phases 98 Sections of the Act have been notified and made applicable from 12th September, 2013 onwards. 2
  3. 3. Why a new Law was needed? The changing national and international economic environment ❖ Exponential growth of the Indian economy ❖ Changes in the stakeholders‟ expectations ❖ Manifold Increase in Number of Companies ❖ The need of a legal framework was felt to enable the Indian corporate sector to adopt the best international practices in a globally competitive manner, fostering a positive environment for investment and growth. Year No. of Companies 1956 30,000 approx 2013 11,00,000 approx 3
  4. 4. New Concepts ● 33 New Definitions introduced in Section 2 ● Private company to have a maximum of 200 members (earlier limit was upto 50). (Section 2 (68)) - One Person Company & Small Company allowed ● E-Governance – maintenance and allowing inspection of documents by companies in electronic form. (Section 120) ● Vigil mechanism (whistle blowing) introduced. (Section 177 (10)) ● In prescribed class or classes of companies, there should be atleast 1 woman director. (Section 149 (1)) 4
  5. 5. New Concepts ● Restrictions on layers of subsidiaries. (Section 2 (87)) ● The Financial Year of any Company can be only from April-March. Existing companies have to align within 2 years of the commencement of the Act. (Section 2 (41)) ● Memorandum not to have „other objects‟. (Clause 4 (1)) ● A person cannot become director in more than 20 companies instead of 15 as provided in the Companies Act 1956. and out of this 20, he cannot be director of more than 10 public companies. (Section 165) ● Shareholders to have exit option if money raised has not been utilized. (Section 27) ● Concept of CSR introduced. (Section 135) ● Definition and Code for independent Directors introduced. (Section 149 (5) and Schedule IV) 5
  6. 6. New Concepts ● A company can make buyback even if it had at any time defaulted in repayment of deposit or interest payable thereon, redemption of debentures or preference shares or payment of dividend to any shareholder or repayment of any term loan or interest payable thereon to any financial institution or bank, provided that default must have been remedied and a period of 3 years must have lapsed after such default ceased to subsist. (Section 66 (6)) ● Condition and manner for issue of Bonus shares has been introduced. (Section 63) ● New provisions suggested for allowing re-opening of accounts in certain cases with due safeguards. (Section 130) ● Consolidation of Accounts. (Section 129) ● Secretarial Audit Report given by a company secretary in practice is required to be attached with Boards‟ report in case of bigger companies. (Section 204) 6
  7. 7. Monitoring and Regulatory Authorities 7
  8. 8. Serious Fraud Investigation Office ● Investigation into affairs of Company by Serious Fraud Investigation Office – (a) on receipt of a report of the Registrar or inspector under section 208; (b) on intimation of a special resolution passed by a company that its affairs are required to be investigated; (c) in the public interest; or (d) on request from any Department of the Central or State Government, ● Statutory status to SFIO proposed and SFIO is given wide powers: ● SFIO’s report to be treated as report filed by Police Officer. ● SFIO will have power to arrest in certain cases which attract punishment for Fraud and person accused of such offence shall be released on bail subject to conditions as mentioned in the relevant provisions of this bill. ● Stringent penalty provided for fraud related offences 8
  9. 9. National Company Law Tribunal ● ● National Company Law Tribunal shall be established by Central Government through notification consisting of President and Judicial and Technical members to discharge such powers and functions as are, or may be, conferred on it by or under this Act or any other law for the time being in force. ● Any person aggrieved by an order of the Tribunal may prefer an appeal to the Appellate Tribunal. ● No appeal shall lie to the Appellate Tribunal from an order made by the Tribunal with the consent of parties 9
  10. 10. NFRA (Section 132) ● National Financial Reporting Authority (NFRA) is to advise on matters related to auditing standard in addition to accounting standards. ● The CG may prescribe the standards of accounting or any addendum thereto, as recommended by the ICAI in consultation with and after examination of the recommendations made by the NFRA. Powers of NFRA ● Monitor and enforce the compliance with accounting and auditing standards ● Oversee the quality of service of the professions associated with ensuring compliance with such standards ● Have the power to investigate into the matters of professional or other misconduct committed by any member or firm of chartered accountants and impose penalties of not less than Rs. 1 lakhs in case of individuals and Rs. 10 Lakhs in case of firms and debar members/ firms for a period of 6 months to 10 years. ● Provided that the Appellate Authority constituted under respective Acts shall be deemed to the appellate authority against any order made by the NFRA and any person aggrieved by any order of the NFRA shall have the right to appeal before the appellate authority. 10
  11. 11. Challenges before the Profession Audit and Auditors Voluntary Revision of Financial Statements Challenges A B NFRA D Class Action Suits and Definition of Fraud C 11
  12. 12. Voluntary Revision of Financial Statements by the Board (Section 131) Concerns in Draft Rules ● On the voluntary Revision of Financial Statements by the Board, the original auditor should not be asked to give either consent or dissent. ● ICAI opinion should be taken while Voluntary Revision of Financial Statements is being done. ● Revision of Accounts is a serious matter and thoughtful consideration should be made. ● It may have wide ramifications in case of foreign investors who have invested money based on the accounts that were already adopted in the AGM. ● Voluntary Revision of accounts should be applicable only in prescribed class or classes of companies based on high turnover or share capital/reserves whichever is higher 12
  13. 13. Corporate Social Responsibility (Section 135) Concerns in Draft Rules ● CSR should be driven more by Concept of Spending (linked to purpose) Society for Spending (linked which society/community) ● Reporting for Spending (quarterly reporting) ● CSR Audit is very important to track and trail inflows and outflows 13
  14. 14. Audit and Auditors: Section (139-148) Section 139 ● Every company shall, at the first annual general meeting, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth annual general meeting and thereafter till the conclusion of every sixth meeting. ● Provisions for compulsory rotation of individual auditors in every five years and of audit firm every 10 years in the listed company & certain other class of companies, as may be prescribed. ● A transition period of 3 years from the commencement of this Act has been prescribed for the Company existing on or before the commencement of this Act to comply with the provision of the rotation of auditor. ● The members of a company can resolve for rotation of auditing partner and also for audit to be conducted by more than auditor. (Section 139) ● Where a company constitutes an Audit Committee, all appointments including the filling of a casual vacancy of an auditor shall be made after taking into account the recommendations of Audit Committee. 14
  15. 15. Appointment of Auditors ● Appointment is done once for 5 years ● Ratification done every year ● There is a confusion between the terms “ratification” and “reappointment”. ● Mandatory retirement after 5 years in case of individual and 10 years in case of firms ● – no auditor/audit firm/ audit firms having common partners, shall take audit for a consecutive term of 5 years after 5 years have been completed ● Provision applicable to all listed companies, and companies of such class as may be prescribed ● A person at the time of appointment or reappointment holding appointment as auditor of more than twenty companies shall not be eligible for appointment. (Section 141 (3) (g)) ● In case, LLP is appointed as auditor only chartered Accountants is allowed to act and sign on behalf of the firm. Section 141(2) ● Multidisciplinary partnership is allowed. Proviso to Section 141(1) 15
  16. 16. Contd… Concerns in Draft Rules ● Audit Rotation should be applied for only public listed entities. Based on certain net worth or share capital ● Rotation should not be applicable to Sole proprietary firms. ● Distinction should be made between firms and firms run by a sole proprietor Eligibility, Qualifications and Disqualifications of Auditor( Section 141) Concerns in Draft Rules ● Cap of “Twenty” should exclude OPC and also private companies ● On the definition of relative, it should include only relative who is financially dependent ● Business relationship” should define parameters of relationship. 16
  17. 17. Powers and Duties of Auditors and Auditing Standards (Section 143) ● Fraud reporting- A duty has been casted on the auditor, to immediately report to the central government, any offence involving fraud which is being or has been committed against the company by officers or employees of the company, which he believes to be committed during the course of performance of his duties as an auditor. ● The Auditor shall also comply with auditing standards. The Central Government will prescribe the standards of auditing or any addendum thereto, as recommended by the ICAI, in consultation with and after examination of the recommendations made by the NFRA. (Section 143) ● The Auditor shall unless otherwise exempted by the company shall attend any general meeting by himself or through his representative. (Section 146) Concerns in Draft Rules ● Auditing Standards should be laid by ICAI. ● Auditor will report on Internal Financial control systems only if it has a material impact. ● Fraud reporting by the auditor on the company is should not be the responsibility of the auditor. ● Fraud Reporting shall be in line with Auditing Standards issued by ICAI. 17
  18. 18. Auditor not to render certain services Following services not to be provided (Section 144) ● 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; ● management services; and ● any other kind of services as may be prescribed 18
  19. 19. Auditor not to render certain services Concerns in Draft Rules ● Management Services should exclude 25 list items which are permitted by ICAI. ● Prohibited list to be prescribed by ICAI (as may be prescribed) ● Clarity needed on its application on services rendered outside India ● Differentiate “public interest entities” and others ● Can provide for safeguards where applicable (like ICAI Code of Conduct) ● Clarity needed on its application on services rendered outside India ● Services prohibited to be specifically defined for their meaning 19
  20. 20. Punishment for contravention- (Section 147) ● In case the auditor contravenes the provisions related to his powers & duties, provide services given under Section 144 then in addition to punishment provided in the section, he shall be required to refund the remuneration received by him from the company and shall be liable to pay the damages to the company or to any person for the loss arising out of misleading or incorrect information. ● It is specifically provided that partner or partners of the audit firm and the firm shall be jointly and severally responsible for the liability, whether civil or criminal as provided in this Act or in any other law for the time being in force. ● If it is proved that the partner or partners of the audit firm has or have acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to or by, the company or its directors or officers, and they shall also be punishable in the manner provided in Section 447. 20
  21. 21. Clause 447 of the Companies Act 2013 ● This is a new provision introduced in the Companies Act 2013 which for the first time defines the term “Fraud” and provides for stringent penalty if fraud is proved. ● Numerous sections in the Act have been linked to this one section by providing in those sections– “Penalty as prescribed under Section 447” The Act provides for specific provisions related to any act of fraud. “Fraud” in relation to affairs of a company or any body corporate, includes any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss. 21
  22. 22. Contd...... Concerns in Draft Rules ● Definition of Fraud is too exhaustive to cover the auditor. ● The penalty and fines that have been prescribed in the Law are too heavy and are not commensurate for the contravention, if any. ● It is therefore necessary that the Law should provide the opportunity of being heard before imposing any penalty. Small Company, OPC and dormant (Section 2 (85), 3 and 455) Concerns on Rules ● The general financial formats may be a too large format. ● The small and simplified format for financial statement may be prescribed by ICAI. ● A check on OPC funding and formation should be there in order to ensure KYC and Prevention of Money Laundering/ Illegal activity 22
  23. 23. Opportunities Registered Valuer CSR Audit Internal Audit Official Liquidator 23
  24. 24. Opportunities ● Internal Audit (Section 138) : Internal audit introduced Such class or class of companies shall be required to appoint an internal auditor, who shall either be a chartered accountant or a cost accountant or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company. ● Registered Valuers (Section 247): Concept of Registered valuer introduced: Where any valuation is required to be made of any property, stocks, shares, debentures, securities or goodwill or any other assets (herein referred to as the assets) or net worth of a company or its liabilities under the provision of this Act, it shall be valued by a person having such qualifications and experience and registered as a valuer in such manner, on such terms and conditions as may be prescribed and appointed by the audit committee or in its absence by the Board of Directors of that company. 24
  25. 25. Opportunities ● Official Liquidator (Section 275) For the purposes of winding up of a company by the Tribunal, the Tribunal at the time of the passing of the order of winding up, shall appoint an Official Liquidator or a provisional liquidator from the panel maintained by the Central Government as the Company Liquidator. ● CSR Audit (Section 135) Corporate Social Responsibility (CSR) Obligations have been introduced under Section 135 of the Companies Act, 2013. With the passage of this Act, India would become the first country to mandate corporate social responsibility (CSR) through a statutory provision. Under the new law, the CSR spending would be the responsibility of companies. The Act, seeks to make CSR spending compulsory for companies that meet certain criteria. The companies will have to mandatorily spend 2% of their average net profit for CSR activities. 25
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