The Companies Act, 2013 is a historic legislation for India that is aimed at improving corporate governance, simplifying regulations, and enhancing the interstes of minority investors. The new law replaces the nearly 60-year-old Companies Act, 1956.

1. The Companies Act, 2013
The dawn of a new era

2. The Companies Act, 2013 (‘2013 Act’) was enacted on 29 August 2013 on
accord of Hon’ble President’s assent, and has the potential to be a historic
milestone as it aims to improve corporate governance, simplify regulations,
enhance the interests of minority investors, and for the first time legislates
the role of whistle-blowers. The new law replaces the nearly 60-year-old
Companies Act, 1956 (‘1956 Act’).
The 2013 Act provides an opportunity to catch up and make our corporate
regulations more contemporary, as also potentially to make our corporate
regulatory framework a model to emulate for other economies with similar
characteristics. The 2013 Act is more of a rule-based legislation containing
only 470 Sections, which means that the substantial part of the legislation
will be in the form of Rules. There are over 180 Sections in the 2013 Act
where rules have been prescribed.
To facilitate the ease of implementation, a phased approach is being
followed by the Ministry of Corporate Affairs (‘MCA’). Accordingly, 282
sections have been notified and are in force as of 1 April 2014. Final Rules
for 19 chapters have also been released by the MCA, which are applicable
with effect from 1 April, 2014. The Rules for the remaining chapters are in
draft stage.

3. Governance
• At least one woman director
• At least one India resident director
• Independent director (ID) legislated;
roles and responsibilities defined
• Database of IDs to be maintained;
may select IDs from this database
• One-person company permitted
unlike the minimum two before
• Maximum number of directors
increased to 15; any additional
directors only through Special
Resolution
• Maximum 20 directorships per
person; maximum 10 public
companies
• Consolidated financial statements
mandatory for all Groups, including
Unlisted/ Private companies, with
more than one entity; includes
associates or joint ventures;
• Mandatory rotation of audit firm for
listed companies post 10 years
• Financial year for all companies to be
March 31 (exception for subsidiaries
of foreign entities)
• Re-casting and re-statement of
financial statements can be ordered;
Voluntary revision of financial
statements for previous periods now
permitted
• Increased restrictions on non-audit
services provided by Auditors
Accounts, Audit and Auditors
Independent
director legislated;
roles and
responsibilities
defined
• Auditor to also report on adequacy of
internal financial controls system and
the operating effectiveness of such
controls
• Auditor to be a whistle-blower to
Central Government, if becomes
aware of any fraud
• The maximum limit of 20 companies
per Partner in an Audit firm
• Prescribed companies to appoint
internal auditor; manner, period and
reporting to be prescribed by Central
Government
• Significant enhancement of penalties
for auditors
Mandatory rotation
of audit firm for
listed companies
post 10 years
Grant Thornton can help dynamic businesses navigate complexities of the new
legislation and simplify the regulatory maze through a bouquet of its assurance, business
and risk advisory services. For any assistance, contact us at:
E: CompaniesAct@in.gt.com M: +91 9930001230
• Stakeholders Relationship Committee
introduced
• Mandatory appointment of Key
Management Personnel (KMP)
• Directors responsible for design and
operating effectiveness of internal
financial controls
• Significantly enhanced penalties for
directors

4. • 2% of the average net profit of
preceding three financial years to be
spent annually on Corporate Social
Responsibility (CSR) or explain why
not; applicable for companies with
net worth of Rs 500 crore or more,
turnover of Rs 1,000 crore or more,
or net profit more than Rs 5 crore
• Valuations of any property, stocks,
shares, goodwill or any other assets,
net worth of a company etc. must be
performed by a registered valuer
• Class action suits introduced as a
remedy for small investors against
wrongful acts
Mergers without
Tribunal approval,
permitted between
two small companies,
or between a holding
company and its
wholly-owned
subsidiary
Large companies
to spend 2% of
average net profit of
preceding three
financial years on
CSR activities or
explain why not
spent
Other provisions
• Establishment of a National Financial
Reporting Authority (NFRA), with
the objective of monitoring and
enforcing compliance of auditing and
accounting standards
• Establishment of vigil mechanism
(whistle-blowing) in the prescribed
manner by every listed company
• Deposit accepted (including interest
due) to be repaid within 1 year from
enactment or from due date of such
payments, whichever is earlier
"Obviously, the intent is towards simplification, which is critical for India to become
more competitive on the ease of doing business. Whether this objective is finally
delivered will depend on two things - the rules that supplement the Act and what they
look like, and the change in attitude towards enforcement."
Vishesh C Chandiok, National Managing Partner,
Grant Thornton India LLP
Mergers and Restructuring
• No more than two layers of
investment companies (certain
exemptions to foreign acquisitions/
to comply with the law)
• Mergers without Tribunal approval
permitted between two small
companies or between holding
company and its wholly-owned
subsidiary
• Merger into foreign companies
introduced
• Valuation report mandatory along
with notice to concerned parties in
case of proposed mergers
• Scheme of compromise or
arrangement must be in line with
accounting standards; auditors'
certificate attesting the same needed
• 'Reverse merger' of listed company
into unlisted company now possible;
exit option to be provided to listed
company shareholders
• Holding of treasury shares directly or
through a Trust, prohibited

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