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Companies Act 2013 A Critical Analysis

Companies Act 2013 A Critical Analysis. Ashish Makhija Corporate Lawyer LLM (USA) ,LLM (India), FCA, FCMA. Member of. 1. The Pencil Parable. Pencil Parable. Looking Back. Companies Act 1956 658 Sections (Effectively 881 Sections) 16 Schedules 66 Definitions

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Companies Act 2013 A Critical Analysis

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  1. Companies Act 2013A Critical Analysis Ashish Makhija Corporate Lawyer LLM (USA) ,LLM (India), FCA, FCMA Member of 1

  2. The Pencil Parable • Pencil Parable

  3. Looking Back • Companies Act 1956 • 658 Sections (Effectively 881 Sections) • 16 Schedules • 66 Definitions • 34 set of Rules & Regulations 3

  4. Looking Forward • Companies Bill 2009 • 426 Sections • No Schedules • 93 Definitions • Phrase “as may be prescribed” appeared “235 times” in the Bill 4

  5. Looking Forward • Companies Act 2013 • 470 Sections • 7 Schedules • 95 Definitions • Phrase “as may be prescribed” appears “346 times” in the Act • 46 sections of Part IX A of Companies Act, 1956 relating to Producer Companies will continue to apply 5

  6. Companies Act 2013 - Status • President’s Assent on 29th August 2013 • 98 Sections notified on 12th September 2013 • Removal of Difficulties order issued on 20th September 2013 regarding implementation of Sections 24, 58 and 59

  7. Companies Act 2013 - Status • Clarification No. 1 – General Circular 15/2013 dated 13.09.2013 • S. 2(68) – MoA, AoA filed till 11.9.13 can be registered as per definition of private company under CA 1956 • S.102 – Notices of general meetings issued on or after 12.9.13 must comply with additional requirements as prescribed in S. 102 • S.133 – Existing Accounting Standards notified shall continue to apply till new one are notified u/s 133 • S.180 – Resolutions can be passed as ordinary resolution if general meeting notice has been issued prior to 12.0.2013

  8. Companies Act 2013 - Status • Clarification No. 2 – General Circular 16/2013 dated 18.09.2013 “It is clarified that w.e.f. 12.9.13, the relevant provisions of CA 1956, which correspond to the provisions of 98 sections of CA 2013 brought in force on 12.09.13, cease to have effect from that date.”

  9. Companies Act 2013 - Status • Draft Rules have been notified – 1st Phase (16 Chapters), 2nd Phase (9 Chapters), 3rd Phase (3 Chapters), 4th Phase ( 1 Chapter), 5th Phase (Winding-up) and 6th Phase (Cost Rules) - http://ncbfeedback.mca.gov.in/ • Feedback on 5th Tranche by 19.12.13 & 6th tranche by 14.12.13 • Draft Forms have also been uploaded

  10. Companies Act 2013 - Status • Applies to whole of India • Central Government will notify date of applicability • Different dates may be appointed for different provisions • Applies to all banking, insurance and electricity companies also so long provisions are not inconsistent with Special Acts.

  11. Understanding Layout • Divided in to 29 chapters • Incorporation, MoA, AoA – Chapter II – Sections 3 to 22 • Prospectus – Chapter III – Sections 23 to 42 • Share Capital – Chapter IV – Sections 43 to 72 • Public Deposits – Chapter V – Sections 73 to 76 • Management & Administration – Chapter VI – Sections 88 to 122 • Accounts – Chapter IX – Sections 128 to 138 • Audit & Auditors – Chapter X – Sections 139 to 148 11

  12. Understanding Layout • Directors, Board & Remuneration – Chapters 11, 12 and 13 – Sections 149 to 205 • Inspection, Investigation – Chapter 14 – Sections 206 to 229 • Mergers – Chapter 15 – Sections 230 to 240 • Oppression and Mismanagement – Chapter 16 – Sections 241 to 246 • Revival – Chapter 19 – Sections 253 to 269 • Winding –up – Chapter 20 – Sections 270 to 378 • Foreign Companies – Chapter 21 – Sections 379 to 393 12

  13. Understanding Layout • Government Companies – Chapter 22- Sections 394 & 395 • NCLT – Chapter 27 – Sections 407 to 434 • Special Courts – Chapter 28 – Sections 435 to 446 • Miscellaneous - Chapter 29 – Sections 447 to 470 • Schedule I – Table A to I • Schedule II – Depreciation • Schedule III – Balance Sheet • Schedule IV – Code for Independent Directors • Schedule V – Managerial Personnel • Schedule VI – Infrastructural Projects 13

  14. New Definitions • Associate Company [2(6)] • In relation to other company, means a company in which that other company has significant influence • Significant Influence means control • Of atleast 20% of total share capital, or of • Business decisions under an agreement • Excludes Subsidiary Company • Includes Joint Venture Company 14

  15. New Definitions • Board of Directors [2(10)] • Means the collective body of the directors of the company • Director [2(34)] • Director means the director appointed to the Board of Directors of the Company • Director includes any person occupying the position of a director by whatever name called [2(26) of Companies Act, 1956] 15

  16. New Definitions • Control [2(27)] • Incudes • Right to appoint majority of the directors • Control the management or policy decision • By person or persons, acting individually or in concert, directly or indirectly • By virtue of shareholding or management rights, or shareholders agreement or voting agreements or in any other manner 16

  17. New Definitions • Interested Director [2(49)] • Means • A Director, who is in any way, himself or • Through any of his relatives or firm , body corporate or another association of individuals in which he or any of his relatives is a partner, director or a member • Interested in a contract or arrangement or proposed contract or arrangement • Entered into or proposed to be entered into by or on behalf of the company 17

  18. New Definitions • Key Managerial Personnel [2(51)] • CEO or MD or Manager • Company Secretary • Whole-time director • CFO • Such other officer as may be prescribed 18

  19. New Definitions • Manager [2(53)] • Individual having whole or substantially the whole of the affairs of the company • Includes a director or any other person occupying the position of a manager, by whatever name called • Under a contract of service or not 19

  20. New Definitions • Managing Direcrtor [2(54)] • Director entrusted with substantial powers of the management of the company • Includes a director or occupying the position of a managing director, by whatever name called • By virtue of an agreement, articles, board or shareholder’s resolution 20

  21. New Definitions • Officer in default [2(60)] • Whole-time Director • Key Managerial Personnel • No KMP, then specified director, else all directors • Any person who – • under the immediate authority of the Board or any key managerial personnel • Is charged with any responsibility including maintenance, filing or distribution of accounts or records • Authorises, actively participates in, knowingly permits, or knowingly fails to take actives steps • To prevent any default 21

  22. New Definitions • Officer in default [2(60)] • Any person in accordance with whose advice, directions or instructions, the Board is accustomed to act (Excludes advice given in a professional capacity) • Every Director, who is aware of such contravention by virtue of receipt of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention takes place with his consent or connivance • Share Transfer Agents, Registrars and Merchant Bankers, in respect of issue or transfer of any shares 22

  23. New Definitions • Postal Ballot [2(65)] • Means voting by post, or • Through Electronic Mode 23

  24. New Definitions • Related Party [2(76)] • Director or his relative • KMP or his relative • Firm in which a Director, Manager or relative is partner • Private Company in which a Director or Manager is a member or director • Public Company in which a Director or Manager is a director or holds more than 2% either himself or through his relatives • Body Corporate or Person – Company is accustomed to act under their direction – Excludes Professional Advise 24

  25. New Definitions • Related Party [2(76)] • Holding, Subsidiary or Associate Company • Subsidiary of a holding company to which it is also a subsidiary • Such other person , as may be prescribed • (1) a director or key managerial personnel of the holding, subsidiary or associate company of such company or his relative; • (2) any person appointed in senior management in the company or its holding, subsidiary or associate company i.e. personnel of the company or its holding, subsidiary or associate company who are members of core management team excluding Board of directors comprising all members of management one level below the executive directors, including the functional heads. 25

  26. New Definitions • Relative [2(77)] • Members of HUF • Husband and wife • Related in a manner as may be prescribed • 15 categories prescribed – 1 new addition • Spouse, Father, Father’s father, Father’s mother, Mother, Mother’s mother, Mother’s father, Son, Son’s wife, Son’s son, Son’s daughter, Daughter, Daughter’s husband, Brother, Sister • 8 Removed – Son’s son’s wife, Son’s daughter’s husband, Daughter’s son, Daughter’s Son’s wife, Daughter’s daughter, Daughter’s daughter’s husband, Brother’s wife, Sister’s husband 26

  27. New Definitions • Small Company [2(85)] • Other than a Public Company • PUC does not exceed 50 lakhs or as may be prescribed (not exceeding 5 Crores) • Turnover does not exceed Rs. 2 Crores or prescribed amount (not exceeding Rs. 20 Crores) • Not applicable to holding or subsidiary company or licensed company (Section 8) 27

  28. New Definitions • Subsidiary Company [2(87)] • Controls the composition of the BOD • Controls more than one-half of Total Share Capital either alone or through subsidiaries • Chain Subsidiaries – Layers to be prescribed 28

  29. Annual Return (Section 92) • Particulars as on date of close of financial year • New Particulars • Details of meetings of Board, Committees alongwith attendance details • Remuneration to Directors and key managerial personnel • Penalties imposed/compounding done • Matters as may be prescribed • To be signed by 1 director and company secretary or CS in practice, if there is no CS (Every Company) • OPC and Small Company – Signed by CS. If no CS, then director 29

  30. Annual Return (S.92) • Extract of Annual Return to form part of Board’s Report? (form 7.9) • To be filed within 60 days of AGM • Failure to file – Fine of Rs. 50,000/- Min, Rs 5 lakhs Max., imprisonment for 6 months • To be certified by CS in practice – Listed Companies or Companies having PUC of 5 Crores or more and turnover of Rs. 25 crore or more • If CS certified wrongly – Fine – Min. 50,000/-, Max. Rs. 5 lacs • Copies of Annual Return to be preserved for 8 years from the date of filing with Registrar 30

  31. Return (Section 93) • Listed Company • Change in number of shares held by promoters and top ten shareholders • Within 15 days of such change • Promoter [S. 2(69)] • Named in prospectus and identified by the company as such in the annual return • Has control over the company, directly or indirectly, as a shareholder, director or otherwise • Under whose advice the Board of Directors is accustomed to act 31

  32. AGM (Section 96) • Every Year AGM to be held • Gap not to exceed 15 months between 2 AGM’s • First AGM – 9 months from the close of FY, else 6 months • Extension of 3 months by Registrar • OPC not to hold AGM • What is the time schedule for OPC to file Annual Return? • Time– Business Hours - 9.00 AM to 6 PM • Can be held on Sundays and Public Holidays also • Cannot be held on National Holidays 32

  33. Power of Tribunal to call AGM/Other Meetings (Section 97 and 98) • In case of default of Section 96 • Tribunal can call or direct calling of AGM • Application can be made by any member • Tribunal can direct that one member – in person or by proxy – shall constitute the quorum • Tribunal can call meeting other than AGM also either suomotoor on application by any director or member 33

  34. Extraordinary General Meeting (S.100) • Board may call EGM whenever it deems fit • Board shall call EGM upon requisition • Company having share capital – members holding 1/10th of PUC • Company not having share capital – number of members holding not less than 1/10th of voting power 34

  35. Notice of Meeting (S.101) • Not less than clear 21 days notice • In writing or through Electronic Mode • Shorter Notice permitted if consented to by 95% of members in writing or through electronic mode • Specify the Place, Day, Date and Hour • To be given to each director also besides members and auditors 35

  36. Notice of Meeting (S.101) • Electronic Mode means • any communication sent by a company • through its authorized and secured computer programme • which is capable of producing confirmation and keeping record of such communication • addressed to the person entitled to receive such communication • at the last electronic mail address provided by the member 36

  37. Notice of Meeting (S.101) • Notice may be sent through e-mail as a text or as an attachment to e-mail or as a notification providing electronic link/Uniform Resource Locator (URL) for accessing such notice • Subject line – state the name of company, notice of type of meeting and the date on which the meeting is scheduled • Attachment must be in pdf or electronic documentation format • Option to receive notice through e-mail is solely of member 37

  38. Notice of Meeting (S.101) • Company not liable for failure in transmission beyond its control • If company is aware of failure, send physical notice within 72 hours of original attempt • Place the notice on website of the company and on the website as may be notified by the CG 38

  39. Statement to be Annexed (S.102) • For each Special Business • Nature of interest, financial or otherwise, in respect of each item , of director, manager, KMP and their relatives • In case of matter relating to company, statement shall disclose shareholding of every promoter, director, manager, KMP, if it is equal to or exceeds 2% of PUC • Non-disclosure will lead to • Holding of benefit in trust • Liability to compensate the benefit to the company 39

  40. Quorum for Meetings (S. 103) • Quorum for General Meetings • Public Companies • 5 in case of 1000 members • 15 in case of 1001-5000 members • 30 in case of more than 5000 members • Private Companies – 2 • Articles can provide for larger number 40

  41. Proxies (S. 105) • No one can act as proxy of more than 50 members and holding in aggregate more than 10% of the total share capital of the company • In case of companies not having share capital, proxy must be a member • Proxy Form – 7.11 41

  42. Voting through Electronic Means (S. 108) • Listed Company • Company having 500 or more shareholders • May provide for Voting by electronic means at the general meetings • Electronic Voting System means • Secured system based process of display of electronic ballots • Recording of votes • With adequate cyber security • Notice to be sent to members, auditors, directors and KMP • E-voting to remain open for minimum 7 days and maximum 10 days • No change be permitted once the vote is cast • Portal to be blocked after end of voting period 42

  43. Minutes of Meetings (S. 118) • Prepared and signed • Board or Committee – Chairman of the meeting or next meeting • General Meeting – Chairman within 30 days • Kept within 30 days of conclusion of general meeting or board meeting • Dissents to be recorded with names of directors dissenting • Chairman enjoys absolute discretion as regards inclusion or exclusion of any matter in the minutes – defamatory, irrelevant, detrimental to the interest of the company. 43

  44. Minutes of Meetings (S. 118) • Minutes shall be evidence of the proceedings recorded therein • Every Company to follow Secretarial Standards with respect to board and general meetings as specified by ICSI • Minute Books to be preserved permanently • Separate Minute Books for • General Meetings • Board Meetings • Committee of Board • Meetings of Creditors • To be kept in the custody of CS or director authorised by the Board 44

  45. Maintenance of Documents in e-form (S. 120) • Any document, record, register, minutes etc required to be kept by the company be kept in electronic form • Inspection may also be allowed in electronic form • Report on General Meeting (S.121) • By Listed Public Companies • To be filed with ROC within 30 days • Fine – Min 1 Lakh Max. 5 Lakhs • OPC Sufficient if resolution is communicated by the member to the company and entered in the minutes book, signed and dated by the member 45

  46. Maintenance of Documents in e-form (S. 120) • Mandatory to maintain records in e-form • Listed Company • Company having not less than 1000 shareholders, debenture holders and other security holders • Readable, Retrievable and Reproducible in printed form • Capable of being dated and signed digitally • Not possible to edit or alter • MD, CS or any other officer shall be responsible for maintenance and security of e-records • Penalty also provided in rules 46

  47. Directors • Minimum • Public – 3 • Private – 2 • OPC – 1 • Maximum – 15 • To appoint more than 15, Special Resolution is required • One director to be ordinarily resident in India – 182 days in India in preceding financial year 47

  48. Directors • At least one Women Director • Listed Company • Public Company having • PUC – Rs 100 Crores or more; or • Turnover – Rs. 300 Crores or more • Listed Companies to comply within one year of commencement of this provision • Other Public Companies to comply within 3 years of commencement of this provision 48

  49. Directors • Maximum number of directorship (S.165) • Overall 20 including private companies • Directorship in Public Companies cannot exceed 10 • Private Companies, which are subsidiary or holding of a public company, will be counted in the figure of 10 meant for public companies • Includes Alternate Directorship also • Director to choose companies within one year if he holds directorships in more companies • Intimate Company and Registrar of his resignation due to Section 165 49

  50. Directors • 1/3rd directors to be independent • Listed Companies • Public Companies • PUC – Rs. 100 Crores or more; or • Turnover –Rs. 300 Crores or more; • Aggregate of loans, borrowings, debentures, deposits – Exceeding Rs. 200 Crores • Existing Companies – To comply within 1 year 50

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