The document provides an overview of the Companies Bill 2012 which aims to replace the existing Companies Act 1956. It discusses the key changes and highlights introduced in the new bill related to the structure, timeline, adaptation, key terms, concepts, audit and auditors, penalties, loans and investments, and duties of directors. Some of the major provisions include increasing the member limit for private companies, introducing one person companies, mandatory CSR spending, auditor rotation, limits on loans and investments, and prescribing duties for directors. The presentation provides a comprehensive summary of the revisions and new provisions covered in the Companies Bill 2012.

1. COMPANIES BILL 2012
Presented By
CA PRATIK ARORA
All rights reserved
AN INSIGHT | 1

2. PRESENTATION STRUCTURE
BACKGROUND
ADAPTATION
STRUCTURE
TIMELINE
KEY HIGHLIGHTS
NEW / AMENDED TERMS
NEW CONCEPTS
AUDIT & AUDITORS
PENAL PROVISIONS
LOANS & INVESTMENTS
DIRECTORS & KMP
CORPORATE SOCIAL RESPONSIBILITY
MERGER & ACQUISITIONS
OTHER KEY ISSUES.

3. BACKGROUND
The Companies Act 1956 was enacted with the object to consolidate the existing
corporate laws and to provide a new basis for corporate operation in independent
India.
With enactment of this legislation in 1956, the act has since provided the legal
framework for corporate entities in India.
The need for streamlining this Act was felt from time to time as the corporate sector
grew in pace with the Indian economy, with as many as 24 amendments taking place
since 1956. Major amendments to the Act were made based on recommendations of
various committees.
The Companies Bill 2012 is an embodiment of the changes/ revisions required to
reflect the new corporate scenario in India.

4. ADAPTATION
Massive increase in number of Companies from about 30,000 in 1956 to nearly 8
lakhs; (How many active and compliant!!!)
Modernization & regulatory harmony in the wake of corporate scandals; (Satyam
Saga & Sahara OFCD’s issue)
The existing Companies Act, 1956 is a voluminous document with 781 sections
containing provisions that cover aspects which are essentially procedural in nature.
This format has also resulted in the law becoming very rigid since any change
requires an amendment of the law through the parliamentary process.
The law has failed to take into account the changes in the national and international
economic scenario speedily.

5. STRUCTURE
Structure of the Companies Bill, 2012
470 CLAUSES
29 CHAPTERS
95 DEFINITIONS
7 SCHEDULES

6. TIMELINE
Companies Bill, 2009 was
Companies Bill 2008 reintroduced on 3rd Report of the SCF on
was introduced on August 2009 in the Lok Companies Bill, 2009
23rd October 2008 in was introduced in the
Sabha to replace existing
the Lower House to Lok Sabha on 31st
replace existing Companies Act 1956
Companies Act, (with minor modifications August 2010
1956 to the Companies Bill
2008)
2008 2009 2010 2011
Due to the dissolution of Companies Bill 2011
Bill was referred to the
the 14th Lok Sabha, the introduced in the Lok
Standing Committee on
Companies Bill 2008 has Sabha on 14th December
Finance of the Parliament
lapsed 2011
(the SCF) for examination
and report on 9th
September 2009
AN INSIGHT

7. KEY HIGHLIGHTS
• Number of permissible members in a private company has been raised to 200
from 50.
• The concept of One Person Company has been introduced.
• Provisions relating to further issue of capital to be applicable to all companies.
• Shares cannot be issued at a discount except sweat equity shares.
• Time gap between 2 buy-backs shall be minimum 1 year.
• Any deposit accepted before the commencement of 2012 Act or any interest due
thereon to be repaid within 1 year from the commencement of 2012 Act or from
the date on which such payments are due, whichever is earlier.
• Stringent norms provided for acceptance of fresh deposits including creation of
deposit repayment reserve account of 15% of the amount of deposits maturing in
the Current Year and the next Financial Year.

8. KEY HIGHLIGHTS
• National Financial Reporting Authority (NFRA) to be constituted by Central
Government to provide for matters relating to accounting and auditing policies
and standards Consolidation of financial statements made mandatory.
• 2% of average net profits of last 3 years to be mandatorily spent on Corporate
Social Responsibility for specified class of companies.
• Mandatory transfer of profits to reserves for dividend declaration done away with.
Companies may voluntarily transfer a portion of its profits to reserves.
• Individual auditors are to be compulsorily rotated every 5 years and audit firm
every 10 years in listed companies & certain other classes of companies, as may
be prescribed.
• One of the directors of a company shall be a person who has stayed in India for
182 days or more.

9. KEY HIGHLIGHTS
• Prescribed class of companies to have at least 1 woman director. Existing
companies to comply with this requirement within 1 year.
• Independent Director (ID) is not liable to retire by rotation.
• A Chairperson can be an MD or CEO at the same time, if the Articles of the
company permits or if the company does not have multiple businesses or where
the company has multiple businesses and has appointed 1 or more CEO for
each such business
• Provisions for loan to directors applicable to private companies and need to
obtain CG approval for such loans removed.
• Restriction on multilayer investment subsidiaries.
• Rate of interest on loan granted shall not be lower than the prevailing yield of 1
year, 3 year, 5 year or 10 year. Government Security closest to the tenure of the
loan.

10. KEY HIGHLIGHTS
• Requirement of obtaining CG approval for related party transactions done away
with.
• Approval of CG required for certain managerial remuneration.
• Indian company can be merged with a foreign company.
• Fast track merger for small companies and holding-WOS introduced.
• Person / group of persons holding 90% or more equity shares by virtue of
amalgamation etc. can purchase the remaining equity shares of the company
from minority shareholders.
• Inability to pay debts will be considered as criteria for determining a sick
company .
• Provisions of revival and rehabilitation of sick companies to apply to all
companies and not only to an "industrial company“

11. NEW /AMENDED TERMS
PROMOTERS RELATED PARTY SMALL COMPANY ONE PERSON
COMPANY
DORMANT LISTED CONTROL FOREIGN
COMPANY COMPANY COMPANY
FINANCIAL YEAR ASSOCIATE OFFICER IN SUBSIDIARY
COMPANY DEFAULT

12. NEW CONCEPTS

13. NEW CONCEPTS
ONE PERSON COMPANY
Under the Companies Act, 1956, at least  An OPC can be formed by subscribing
two people are required to form a the name of a person to the
company. The new concept will provide memorandum and complying with the
an opportunity to Indian entrepreneurs to requirements of the Act in respect of
enter the corporate world without even registration. As regards the name of an
adding a family member to the venture, OPC, new Bill provides that the words
which they, at times, do just for the sake “one person company” shall be
of a second name. mentioned in brackets below the name
of such a company, wherever its name
is printed, affixed or engraved.

14. NEW CONCEPTS
SMALL COMPANY
Company other than a public company,  Various relaxation in terms of reporting
Having paid up share capital not requirement, board meeting and
exceeding fifty lakh rupees or such procedure for mergers/amalgamation
amount, not exceeding rupees five have been introduced.
crores, as may be prescribed . Or
 However, a holding / subsidiary or a
having turnover not exceeding rupees two section 8 Company( section 25 as per
crores or such amount not exceeding Companies Act 1956) cannot be a
rupees twenty crores, as may be small company.
prescribed, as per its last profit and loss
account .

15. NEW CONCEPTS
DORMANT COMPANY
A company formed for a future project or  The dormant company shall have a
hold an asset or intellectual property and minimum number of directors , files
has no significant accounting transaction such documents and pay such annual
such a company or an inactive company fees as may be prescribed to the
can apply to the registrar for the status of registrar to retain its dormant status in
dormant company. Company other than a the register.
public company.
The registrar on consideration of the  The registrar will strike off the name of
application shall allow the status of that company form the register of
dormant company to the applicant and dormant company when it fails to
issue such certificate as may be comply with the requirement of this
prescribed to that effect. The registrar section.
shall maintain the register of dormant
company in the form as may be
prescribed.

16. NEW CONCEPTS
COMPLIANCE REQUIREMENTS
PARTICULARS ONE PERSON SMALL COMPANY DORMANT
COMPANY COMPANY
Cash flow
Not applicable Not applicable Not applicable
requirement
Annual return CS/ Director Not applicable
One meeting in each half of the calendar year and gap
Board meetings
not less than 90 days
2 members
Quorum Not applicable Not applicable
personally present
Limited liability Relatively less Can be
Others and flexibility in Compliance and converted to an
compliance easy to operate Active Co later

17. AUDIT & AUDITORS

18. AUDIT & AUDITORS
Appointment of Auditor in unlisted companies
APPOINTMENT PERIOD OF APPOINTMENT
At first AGM to hold office till conclusion of 6th AGM subject
to ratification by members at every AGM
Subsequent to hold office till conclusion of 6th meeting,
subject to ratification by members at every
AGM
Appointment of Auditor in listed and specified class of companies
APPOINTMENT PERIOD OF APPOINTMENT
Individual 1 term of 5 consecutive years.
Audit Firm 2 terms of 5 consecutive years
Cooling off period of 5 years before next appointment

19. AUDIT & AUDITORS
 A limit of 20 audits per partner without any distinction between public and private
companies, as against the current ICAI imposed limit of 30 audits.
 Ratification of appointment of auditors, by the members at every annual
general meeting of the company, has been made mandatory
 Shareholders at liberty to decide by passing resolution that audit partner and the
audit team, be rotated every year
 Company bound to re-open and recast its financial statements if application
having been made by following and an order has been made by the NCLT or a
other Court.
 Consolidated financial statements of companies are required to also include
financial statements of associate companies and joint ventures

20. AUDIT & AUDITORS
 Class action suits, can be filed against auditors to claim damages or
compensation for improper or misleading statement of particulars in the audit
report or for fraudulent, unlawful or wrongful actions.
 Auditor cannot provide following services "directly or indirectly" to the company
or its holding company or subsidiary company, namely:—
‒ 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 kinds of services as may be prescribed.
 An auditor or audit firm who or which has been performing any non-audit
services on or before the commencement of 2012 Act shall comply with the
above before the closure of the 1st FY after the date of such commencement.

21. AUDIT & AUDITORS
APPOINTMENT OF AUDITORS -COMPARISON
PARTICULARS UNDER COMPANIES ACT,1956 UNDER COMPANIES BILL
Mandatory rotation of
No mandatory rotation Individual Auditor after
Mandatory rotation
term of 5 yrs & Audit
Firm after 10 yrs
Immediate reporting by
Whistleblower No such provision Auditors to Government in
case of fraud
Prohibition of rendering
Restriction on No such provisions classified services by
services Auditors to
Co./Holding/Subsidiary
Sec 226 prescribes qualification
Other & disqualification criteria Additional disqualification
disqualification Additional disqualification of of Auditors
Auditors

22. AUDIT & AUDITORS
RESIGNATION & REMOVAL OF AUDITORS
PARTICULARS UNDER COMPANIES ACT,1956 UNDER COMPANIES BILL
Statement indicating the
reasons for resignation shall
Reasons for No such provision be filed within 30 days to
resignation company, Registrar & CAG
in case of Government
companies
No special resolution for
Special resolution Special resolution required
removing auditor on expiry of
on removal of for appointment of auditor
tenure
auditor other than retiring auditor
Tribunal can suo-moto or on
Change of auditor No such provisions application from Central
by Tribunal government/ any person can
direct change of Auditor

23. PENAL PROVISIONS
AN INSIGHT

24. PENAL PROVISIONS
UNDER COMPANIES ACT 1956
Penalty for non- compliance by auditor
with sections 227 and 229. If any
auditor' s report is made, or any
document of the company is signed or
authenticated, otherwise than in
conformity with the requirements of
sections 227 and 229, the auditor
concerned, and the person, if any,
If default is made by a company in
other than the auditor who signs the
complying with any of the provisions
report or signs or authenticates the
contained in sections 225 to 231, the
document, shall, if the default is willful,
company, and every officer of the
be punishable with fine which may
company who is in default, shall be
extend to one thousand rupees.
punishable with fine which may extend
to five thousand rupees.

25. PENAL PROVISIONS
COMPANIES BILL 2012
If any of the provisions of sections
139 to 146 is contravened, the
company shall be punishable with fine
which shall not be less than twenty-
five thousand rupees but which may
extend to five lakh rupees and every
officer of the company who is in
default shall be punishable with
imprisonment for a term which may If an auditor of a company
extend to one year or with fine which contravenes any of the provisions of
shall not be less than ten thousand section 139,section 143, section 144
rupees but which may extend to one or section 145, the auditor shall be
lakh rupees, or with both punishable with fine which shall not be
less than twenty-five thousand rupees
but which may extend to five lakh
rupees.

26. LOANS & INVESTMENTS

27. LOANS & INVESTMENTS
PARTICULARS COMPANIES ACT 1956 COMPANIES BILL 2012
Not applicable to Private
Applicability Applicable to all Companies
Company
Loan to any person or other
Loans given by one company to
body corporate
another company
Guarantee or provide security
Guarantees and securities in
in connection with a loan to
favour of a person who has
Coverage any other body corporate or
given any loan to the company
person
Acquiring by subscription or
Acquiring by subscription or
otherwise, securities of a
otherwise, securities of any
company by other company
other body corporate.
Exemption available for loans,
Exemptions investments and guarantees No such exemption
given by Holding Co to its WOS
The exemption available to
Exemption available to
infrastructure companies
infrastructure companies for
Exemptions continues for loans, provision
loans, provision of security and
of security and guarantee but
guarantee, investments
not for investments

28. LOANS & INVESTMENTS
PARTICULARS COMPANIES ACT 1956 COMPANIES BILL 2012
At a rate not lower than the
prevailing yield of the 1, 3, 5
Rate of loan At the prevailing bank rate or 10 years
G-Sec closest to the tenor of
the loan
Higher of 60% (Paid-up share
Higher of 60%(Paid-up share capital+ free reserves +
Upper limit/
capital+ free reserves) or 100% Securities premium) or 100%
Capping
(free reserves and) (free reserves and securities
premium)
No change. Prior approval by No change. Prior approval by
Approval for
Special resolution passed in Special resolution passed in
exceeding the limit
general meeting general meeting

29. DIRECTORS & KMP

30. DIRECTORS & KMP
Duties of the directors towards a company prescribed (not prescribed in the
companies Act 1956.
Maximum number of directors can be 15. This number can go up by passing a
special resolution.
In certain prescribed companies at least one woman director should be
appointed.
Every company to have a resident director , i.e. a director who has stayed in
India for a minimum 182 days in the previous calendar year.
Every company belonging to such class or description of companies as may be
prescribed shall have Managing Director (MD) or chief Executive.
Every whole time KMP to be appointed by BOD meeting .
A whole time KMP not to hold office in more than one company at a time.
Any vacancy in the office of any KMP to be filled by the BOD within 6 months.

31. DIRECTORS KMP’S & GOVERNANCE
INDEPENDENT DIRECTOR
Concept of independent directors has been introduced for the first time in
Company Law.
All listed companies shall have at least one-third of the Board as independent
directors.
Such other class or classes of public companies as may be prescribed by the
Central Government shall also be required to appoint independent directors.
The independent director has been clearly defined in the Bill.
Nominee director nominated by any financial institution, or in pursuance of any
agreement, or appointed by any government to represent its shareholding shall
not be deemed to be an independent director.

32. DIRECTORS KMP’S & GOVERNANCE
INDEPENDENT DIRECTOR
An independent director shall not be entitled to any remuneration other than
sitting fee, reimbursement of expenses for participation in the Board and other
meetings and profit related commission as may be approved by the members.
 An Independent director shall not be entitled to any stock option.
 Only an independent director can be appointed as alternate director to an
independent director.

33. CORPORATE SOCIAL RESPONSIBILITY

34. CORPORATE SOCIAL RESPONSIBILITY
PARTICULARS COMPANIES BILL 2012
 Companies that have a turnover of Rs 1,000 crore, or
Who is covered  Have a net worth of Rs 500 crore, or
 That have recorded a net profit of Rs 5 crore
These companies are expected to spend 2 per cent of their
Provisions
profit in preceding three financial years towards CSR
The bill says they are “expected” to …meaning it is not
compulsory to spend money . But , the same bill also
provides that
-Board of director will be responsible for seeing that
Punishment company spends money for CSR.
-It is compulsory to send report on the CSR spending to the
corporate affairs minister.
- If company is not spending, it has to give reasons for it.

35. MERGER & ACQUISITIONS

36. MERGER & ACQUISITIONS
Merger of Indian companies with companies incorporated in foreign jurisdictions
(as may be notified separately by central government) is permitted.
Only the persons holding 10 per cent or above of relevant shareholding or
having outstanding debt of 5% or above in the company are now entitled to
oppose a scheme of arrangement.
Bill requires a company to file certificate from its auditors with the tribunal to the
effect that accounting treatment in the scheme is in accordance with prescribed
accounting standards.
The Bill also has provisions stating that in case of merger of a listed company
into an unlisted company , the transferee company shall remain unlisted until it
becomes listed company.
Bill Proposes that where a transferor company is dissolved pursuant to an
arrangement , the fees paid by transferor company on its authorized share
capital shall be set-off against fees paid by transferee company.

37. MERGER & ACQUISITIONS
PARTICULARS COMPANIES ACT 1956 COMPANIES BILL 2012
Permitted
Prior approval of the RBI
Merger of Indian Co
Not permitted required before any foreign
into Foreign Co
company merges with an Indian
company or vice versa
Proposed new process of
Merger or
merger
amalgamation
amalgamation of small
between small
companies or
companies or
No such provision group companies involves the
between holding
approval of shareholders
companies and a
holding at least 90% of the
WOS or prescribed
shares of the company
companies

38. MERGER & ACQUISITIONS
PARTICULARS COMPANIES ACT 1956 COMPANIES BILL 2012
Auditor to certify accounting
treatment in the scheme is in
No such provision for
Auditors certificate conformity with the AS
Private Cos
prescribed under Clause 133
of the Bill
Possible to seek approval Creditor or class of creditors,
Dispensation of the of dispensation based having at least 90% value
meeting of creditors upon consent letters agree and confirm, by way of
received an affidavit to the scheme

39. OTHER KEY ISSUES
Recognition of Electronic form of Books Of accounts.
Provision of reopening /recasting of books of accounts
Provision of revision of financial statement
Authority to prescribe Accounting Standards now vested with central government.
Appointment of registered valuer made mandatory
Appointment of registered valuer to be effective by audit committee or Board of
Directors.
Exit opportunity to the dissenting shareholders of transferor company/listed
company being merged with an unlisted company.
Submission of valuation report by liquidator in the event where tribunal has made
a winding up order
Acquisition of minority shareholding by holders of at least 90% of issued equity
share capital of a company