Companies bill 2012 vis a-vis companies act, 1956

Companies Bill 2012 vis-a-vis
Companies Act,1956
By
G. Praneeth Abhishek
Student of Institute of Company
Secretaries of India
Student Reg. No. 320617948/09/2010

Introduction
NEED FOR COMPANIES BILL 2012

• To Increase:
 Transparency
 Corporate Social Responsibility
 Accountability
 Shareholder and Stakeholder Protection

• To meet the internationally accepted concepts, practices.

• To address the needs of the Shareholders/
Stakeholders/Government/ and public at large.

Number of Sections
INTRODUCTION

Companies Bill Companies Act, 1956

470 SECTIONS 658

13 Parts, Further divided
29 Chapters CHAPTERS/ PARTS
into Chapters

7 SCHEDULES 15

New Concepts

• “One Person Company” (Clause 2(62)) – A Company which has a
Single Member

• “Key Managerial Personal” (Clause 2(51)) – Includes CEO, MD,
Manager, Company Secretary and CFO (if appointed by the
Board of Directors)

• “Class Action Suit” (Clause 37) - Class action suits can be filed by
person or group of persons affected by any misleading
statement or the inclusion or omission of any matter in the
prospectus

New Concepts

• “Small Company” (Clause 2(85)) – Means a company with paid
up capital < 50 lakh or whose turnover < 2 crore

Existing Concepts – Definition

• “Promoter” (Clause 2(69)) – Includes a person
– Named in prospectus/ identified by company as such in Annual Return
– Who has control over the affairs of the company
– In whose directions the directors are accustomed to act

• “Associate Company” (Clause 2(6))- Means a company in
which other company has significant influence (Excluding
Subsidiary Company) and includes a Joint Venture company


• “Related Party” (Clause 2(75)) – Elaborate definition is given
in Companies Bill, 2012, which is not present in Companies
Act, 1956.

• “Foreign Company” (Clause 2(42)) – Means a company or
body corporate incorporated outside India

• “Independent Director” (Clause 149(5)) – Definition has been
given for the first time, and nominee director cannot be
considered a independent director


• “Financial Statements” Clause 2(40) includes the following
– Balance sheet
– Statement of profit and loss account/ Statement of income and
expenditure
– Cash flow statement (not applicable for one person and small
companies)
– A statement of changes in equities, if applicable
– Any Explanatory statement note, annexed or forming part of any
document referred above

Existing Definition – Modifications

• “Charge” (Clause 2(16)) - Means an interest or lien created on the
property or assets of a company or any of its undertaking or both as
security and includes a mortgage

• “Private Company” (Clause 2(68)) – Limit of Members extended
from 50 to 200

• “Subsidiary Company” (Clause 2(87)) – As per changes made
– No distinction between equity and preference share capital in calculation
of > 50%
– Company includes Body Corporate (i.e. Subsidiary or Holding)
– There is a limit to number of step down subsidiaries

Existing Definition – Modifications

• “Financial Year” Clause 2(41) means, in relation to any
company or body corporate, the period ending on the 31st day
of March every year.

One Person Company - Exemptions

• Financial Statement doesn’t need to include cash flow statement

• Signing of Annual Return:
– By Company Secretary in employment or
– By 1 Director (Where no CS)

• Exemption from conducting Annual General Meeting

• Approval of Financial statements can be done by only one
director for submission to auditors

One Person Company - Exemptions

• Min. No. of directors is only 1

• Only 1 board meeting conducted in each half calendar year,
deemed proper compliance

One Person Company - Incorporation
• The MOA of the One person company to include:
– Name of Nominee
– Consent of Nominee
– Nominee can be changed (and such change not treated as Alteration
of MOA)
• One person Company can be:
– Limited by shares
– Limited by guarantee
– Unlimited company
• Capital :
– Minimum – Rs. 100,000
– Maximum – No limit

Memorandum and Articles of
Association

Power of Tribunal – Incase of Wrong/false info. /Misrepresentation/fraudulent
actions `

• Pass such Orders for/to:
 Regulation of Management of Company
 Changes in MOA, AOA

• Direct the liability of members to be unlimited

• Pass order for winding up

• Pass such other orders, as it deems fit

Association

Companies Bill, 2012 Companies Act, 1956

Divided into
Divided into
- Objects to be pursed by
- Main objects
Company on
MOA objects - Incidental objects
incorporation
- Other objects
- Incidental Objects

To be filed with ROC To be filed with ROC
Alteration of AOA
within 15 days within 30 days

Association

Companies Bill, 2012 Registered Office Companies Act, 1956

On and from 15th day of On and from 30th day of
Company shall have
incorporation incorporation

Central Government shall
Shift from one state to
dispose of application No such time limit
another
with 60 days

Commencement of Business


Both Public Companies
Applicable to Public companies
and Private companies

No Certificate Issued Certificate Issued COB

Documents to be submitted under new bill:

1. Declaration by Directors of payment of money by subscribers of MOA
2. Verification of Registered office filed with ROC

Issue and Allotment of Securities

Companies Bill, 2012 Companies
Act, 1956

Conclusive
Not a Conclusive Evidence Certificate of Incorporation
Evidence

Clause 7 Section 35


Companies Bill, 2012 Companies
Act, 1956

Under Clause 28

•Members of the Company in
consultation with the board can No such
offer there shares to public Offer of Sale provision exists
under the Act
•Such Offer of Sale shall be
deemed to be a “Prospectus
issued by the Company”



Mandatory Clause 29 for: Mandatory Sec 68B
for every listed
Issue of Securities in
• Companies Making public company making IPO
Dematerialized Form
offer of any security for a
Only
• Certain Companies as may be sum of 10 crore or
specified more



Under Clause 53
Under Section 79
• Issue of shares at discount Issue of Shares at
prohibited Discount Shares can be issued
• Sweat Equity shares can be at discount
issued at Discount
Under clause 27(2)

•Exit offer should be given to Exit Offer by No such Provision
dissenting shareholders by promoters to Exists
promoters or controlling dissenting
shareholders shareholders

Share Capital and Debentures


Under Clause 62 Under Section 81
Applicable to Both Private Provisions of Rights Issue Applicable only to public
and Public Companies companies

Under Clause 47
•Bill Doesn’t Differentiate Different period are
cumulative and non- specified for Cumulative
cumulative preference and Non-Cumulative
Voting Rights of Preference
shares Preference Shares after
Shareholders
•Same period prescribed which preference
after which preference shareholders have voting
shareholders have voting rights
rights

Share Capital and Debentures


Under Clause 55(2)
Preference shares with a
Redeemable preference
Issue of preference Shares term of more than 20 years
shares with a term of more
for infrastructural projects cannot be issued under the
than 20 years can be issued
act
by a company limited by
shares

Acceptance of Deposits

Companies Bill, 2012 Deposits from members Companies Act, 1956
For all deposits Companies
To be framed by Reserve
Rules (acceptance of deposits)
Bank of India
Rules, 1975 are applicable
Under Clause 73 (2)
Companies Can accept
General Meeting resolution Authorization
deposits from members
from members required to
accept deposits
Advertisements in
Circular to Members and newspaper and Statement
circular to Registered with Mode of Intimation in lieu of advertisement to
ROC be filed with ROC for all
deposits

Acceptance of Deposits

Companies Bill, 2012 Deposits from public Companies Act, 1956
To public companies having
such net worth or turnover Applicability To all public companies
as may be prescribed
• Mandatory
• From Recognized rating
agency
Credit Rating Not Required
• To be obtained every
year during the tenure
of deposits

All provisions applicable to acceptance of deposits from members shall apply mutatis
mutandis to acceptance of deposits from public

Registration of Charge

Under clause 77
• Wide and ambiguous
• Covers
 Property
 Assets Definite and clear
Scope
 Any of its
undertaking, whether
tangible or otherwise

Can allow registration ROC can condone delay for
within period of 300 days registration beyond 30 and
Power of ROC
of creation of charge on within 60 days from date of
payment of additional fee creation of charge

Annual Return


Under clause 92
Content
More Disclosures Minimal Disclosures

Annual Return

New disclosures to be made:

•Change of promoters/ KMP since previous FY

•Details of meetings of Board/Committee’s/ Members or class thereof along with
attendance details

•Remuneration of Directors, KMP

•Penalties/Punishment imposed on:
 Company
 Directors or Officers
 Compounding of offences
 Appeals against penalty or punishment

Annual Return

New disclosures to be made:

• Certification of Compliances, Disclosures

•Details of shares held by or on behalf of FII

Return by Listed Company – Clause 93
• Every listed Company shall file with ROC, within 15 days a return with respect to
change in number of shares:
 Held by promoters
 Top Ten Shareholders of such company

Annual Return

Companies Bill, 2012 Signing Companies Act, 1956

• Director and CS •Director and Manager/
• Where no CS, by CS in General Companies Secretary
Practice •If No Manager/Secretary,
then by CS in practice

•Company Secretary One Person/ Small Not Applicable
•If no, CS, by Director Company

To be also certified by CS in Listed Company/ Other
Only Listed Companies
practice prescribed Companies

Financial Statements

• Balance sheet
• Statement of Profit and
Loss/ Income and
• Balance Sheet
Expenditure Account
Include • Statement of Profit and
• Cash Flow statement
Loss
• Statement showing
• Notes
Changes in equity
• Notes of the above
Under clause 131,
voluntary revision of Revision of Financial
No such revision possible
Financial statements and Statements
Boards report is possible

Financial Statements

• Balance sheet and
Statement of Profit and
Loss including
consolidated financial • Balance Sheet
statement Submission at AGM • Statement of Profit and
• Cash Flow statement Loss
• Statement showing • Notes
Changes in equity
• Notes of the above
To be filed with ROC with
Un adopted Financial
30 days of AGM or No such provision
Statements
adjourned AGM

Statutory Meeting


• Companies Not • Every Company:
Statutory Meeting to
Required to conduct Limited by Shares
be conducted
Statutory Meeting Limited by guarantee
Except Private Limited
Co.

Annual General Meetings

Within 18 months from
Within 9 months of end of FY First AGM
date of incorporation

In case of Public Co. Public Company
• 5 members where no. members is <
1000 5 members personally
• 15 members where no. of members present
is 1000 >≤ 5000 Quorum
• 30 members where no. of members Private Companies
is > 5000
2 members personally
In case of Private Company present
2 members personally present


Companies Bill, 2012 Demand for Poll Companies Act, 1956

By Person/ Proxy Holding: By Person/Proxy Holding:
• ≥ 1/10 voting power or shares Public Company • ≥ 1/10 voting power
• Shares with value of more than Rs. • Paid up Shares with value
500,000 of more than Rs. 50,000

Private Company with:
• <7 members personally
present , by any member
By any member(s)/proxy with ≥ 1/ 10 • >7 members, by two
Other Company
voting power members
Other Company:
By member(s)/proxy with >
1/10 voting power



 National holidays
AGM Cannot be  Public Holidays and
 Outside Business Hours (9am to
on  Outside Business Hours
6pm)

Either in writing or electronic mode Mode of Notice In writing

Consent of not less than 95 % of Consent of All members
Shorter Notice
members entitled to vote at that entitled to vote required
meeting required

Secretarial Audit


Under Clause 204, Mandatory for:

• All Listed Companies Secretarial Audit Not Mandatory
• Such Class of Companies as may be
prescribed

To include Secretarial Audit Report Board’s Report Not Mandatory

Secretarial Standards


Statutory Recognition given under Secretarial No provisions relating to
Clause 118(10) and Clause 205 Standards applicability

Corporate Social Responsibility


Mandatory for certain Corporate Social
Not Mandatory
class of Companies Responsibility

Dividend


•Mandatory
Under Clause 123
Transfer to Reserves •depends on rate of
dividend
Not Mandatory

Under Clause 123(3)
and (6)
Restrictions on Restriction on declaration No Such Restrictions
declaration: of Dividend are provided
•Final
•Interim dividend

Dividend

Clause 124(2)
Statement of unpaid Companies are not
To be prepared within Dividend required to prepare any
90 days of transfer to such statement
unpaid Dividend A/c
Under clause 124(6)
Transfer of shares and Under section 205A(5)
Have to Transfer : unpaid dividend
•Unpaid Dividend Only Unpaid Dividend
•Respective Shares

Directorship

15* Max. No. of Directors 12*
Listed Companies – No such provision
Independent Directors
1/3rd of the Board
At least one Women Directors No such provision

≥ 1 director who has
been in India - For ≥ No such provision
Situation
182 days in the
previous calendar
year

Directorship

• One term – 5 years
• Eligible for 2 Term of Independent
Can be appointed for 3 years
consecutive terms Directors
• Cooling period – 3 years
Failure to File:
Disqualified to be • Accounts
Disqualified to be appointed
appointed in all • Annual Returns
in public companies
companies • Repay deposits
• Interest on deposits etc.
Nominee Directors of:
• Financial Institutions
• Holding Co.
• Government Nominee Directors No such provision
Not to be considered

Directorship


Public Co. having:
Listed Company May
• Paid up capital ≥ 5 crore
have one small Small Shareholders Director
• 1000 ≥ small shareholders
shareholder director
May have a representative
director
20* Max. No. of Directorships 15*
Clause 166 provides for
the duties of Directors Duties of Directors are not
Duties of Directors
provided in the Act

Chairman and Managing Director


• Cannot be appointed Same person – MD
Can be Appointed
• Unless the AOA authorize and Chairman
Special Resolution Ordinary
Applicable to:
Applicable to:
Appointment of •Public Co.
• Public Co.
MD/WTD •Private Companies which are
• Private Co.
subsidiary of public co.

•Limits of Managerial Remuneration payable incase of inadequate profit has
been changed

Audit, Audit Committee and Appointment
of Auditors


Individual – Max. 5 years Term of Auditor No such term specified
LLP, Firm – Max. 10* years

Negative List of Services No Restrictions on services
Provided in clause 144

Audit Committee No specific provision
Composition present
Should form the majority
No. of Directors - 3
No. of Directors – 3
Vigil Mechanism
Every Listed Company shall establish a vigil mechanism for directors and employees to
report genuine concerns and it shall be monitored and implemented by audit
committee

Audit, Audit Committee and Appointment
of Auditors


• Fine – Rs. 25000 to Rs.
500,000 Penalty for Non-
Fine up to Rs. 5000
• 1 year imprisonment or Compliance by Company
fine of Rs. 10,000 to Rs.
100,000 or both

• Fine – Rs. 25000 to Rs.
100000
• For Willful Contravention Penalty for Non-
Fine up to Rs. 10000
– Imprisonment which may Compliance by Auditor
extend to one year or fine
not less than Rs. 100,000
or both

BUY BACK OF SHARES

• No buy-back (made in
• No Buy-back within 1 pursuance of the
year reckoned from the resolution of the board)
Restriction on further buy
date of closure of the within a period of 365
back
preceding offer of buy- days reckoned from date
back, if any. of the preceding offer of
buy-back

Board Meeting

Companies Bill, 2012 Meetings Companies Act, 1956

• In Person
Mode In Person
• Video conference

≥ 7 days, through:
No Length of Notice
• Post Notice
prescribed
• Hand Delivery
• Electronic means

• 4 every year • 4 every year
Number
• ≤ 120 days between • 1 in each quarter
meetings

Nomination and Remuneration Committee

Every listed Company
Applicability No provisions for such
and such other Company
committee exists
shall have mandatorily
Composition
3 or more Non – Executive directors, with not less than ½ being Independent
Directors
Functions
1. Identify Prospective directors and senior management, and
2. Recommend to board their appointment and removal
3. Formulate criteria for determining qualifications, positive attributes,
independence of directors
4. Remuneration policy for directors and senior management
5. Carry out evaluation of every directors performance

Stakeholders Relationship Committee

Companies With ≥ 1000:
Shareholders
• Debenture holders
• Deposit holders Not Applicable
Applicability
• Any other security
- At any time
during the FY

To consider and resolve
Mandate Not Applicable
the grievances of security
holders of the company

Stakeholders Relationship Committee


• Strength – To be
decided by Board
Composition Not Applicable
• Chairman – Non
Executive Director

Loan to Directors


• Private Companies •Public Companies
Applicability
• Public companies •Deemed Public Companies

•Co. gives in ordinary
course of business at rate
not less than RBI
prescribed rates • Private Companies
• Loan to MD/WTD: • Banking Companies
Exemption
I. Pursuant to • Loans by Holding to
conditions of Subsidiary Co. etc.
service
II. Pursuant to
Scheme approved
by members by
special resolution

Compromises and Arrangements


To include valuation
Not Required to annex
report Notice
valuation report

3/4 value of members/ 3/4 value of members/
creditors voting in: creditors among members/
Special Majority
• Person or proxy/ creditors present and
• Through proxy or voting
• Postal ballot



Can be Raised only by
persons:
Any Member/ Creditor/
•Holding ≥ 10% of
Objections Member through proxy
shareholding
•≥ 5% of total
outstanding debt

To be given to all
Notice of Meeting in case To be given to Regional
Statutory Authorities Like
of Merger Director
RD/IT/CCI etc.



Acquirer/PAC, persons/
group holding > 90% of
equity through:
• Amalgamation Purchase of Minority
No Specific provisions
• Share Exchange shareholding by Majority
present
• Conversion of securities shareholders
etc.
-May purchase the
minority shareholding



• Can be included

• Incase of Listed Can not be included
Takeover Offer in Scheme
Companies, SEBI
Regulations need to be
complied with

Registered Valuer


No provisions provided for
Chapter XVII talks Registered Valuer
Registered Valuer
Registered Valuer

•

Registered Valuer


No provisions provided for
Chapter XVII talks Registered Valuer
Registered Valuer
Registered Valuer

Where any valuation is required under the Act, a person registered as valuer shall be
appointed by:

Audit Committee

Where no Audit Committee, by Board

Registered Valuer

Liability of Registered Valuer

• Violation of Clause 247 (i.e. • Fine ≥ Rs. 25,000 and ≤ Rs. 100,000
provision relating to
Registered Valuer)

• With Intention to Defraud • Imprisonment up to 1 year
Company/ Members • Fine ≥ Rs. 100,000 and ≤ Rs. 500,000

• When Convicted for the • Refund remuneration received from company
aforesaid: • Pay damages to Company or any person for loss
arising out of incorrect or misleading statements of
particulars in his report

Winding up and Strike off


Circumstances in which
• 9 circumstances, but:
Company may be wound • 9 Circumstances
 3 removed
up by tribunal
 3 added


Circumstance which have been removed

• Failure to commence business within 1 year

• Minimum no. of members falling below prescribed limit

• Failure to hold statutory meeting or deliver statutory report


Circumstance which have been added

• Affairs of the Company conducted in fraudulent manner

• Company has been incorporated for fraudulent or unlawful means

• Persons involved in the formation and management of its affairs have been:
– Guilty of fraud
– Misfeasance
– Misconduct, in connection therewith, and that it is proper that the company
be wound up

Strike off by ROC – Circumstances

Circumstance which have been added

• Failure to commence business within 1 year of incorporation

• Within 198 days, subscribers to MOA have not paid subscription money

• a company is not carrying on any business or operation for a period of 2
immediately preceding FY and has not made any application for obtaining the
status of a dormant company

Companies bill 2012 vis a-vis companies act, 1956

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