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Offline Mr. Patel

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Company Bill 2012
« on: August 09, 2013, 09:55:24 AM »
The much awaited Companies Bill, 2012 (Bill) has been passed by the Rajya Sabha on August 08, 2013, replacing 56-year-old Companies Act, 1956. The Bill seeks to consolidate and amend the law relating to the companies and intends to improve corporate governance and to further strengthen regulations for corporates.

The Bill is divided into 29 chapters, 470 clauses and 7 schedules. Some of the key highlights of the Bill are listed below: One Person Company
•    The  concept  of  One  Person  Company  has  been  introduced.  Clause  3(1)(c)
provides for the same.
•    Clause 2(62) defines a One Person Company as a company which has only one person as a member.

Private Company

•    Number of permissible members in a private company has been raised to 200 from 50 by vitue of clause 2 (68) (ii)

Private Placement

•    Provisions  for  offer  or  invitation  for  subscription  of  securities  on  private placement   basis   have   been   revised   to   ensure   more   transparency   and accountability.
•    Clause  42  lays  down  that  an  offer  or  invitation  of  securities  through  private placement  may  be  made  in  the  form  and  manner  prescribed  subject  to compliance with the following conditions prescribed:

(a) the offer or invitation in a financial year, shall be made to such number of persons, excluding qualified institutional buyers, and on such conditions (including the maximum amount to be raised) as may be prescribed;

(b) the value of such offer or invitation shall be with an investment size of such amount as may be prescribed; and

(c) the company shall not issue any prospectus for such offer or invitation and such offer or invitation shall be made through a private placement offer letter

Share Capital
 
•    Clause 58(2) of the Bill provides that the securities of a public company shall be freely transferable subject to the provisions that any contract or arrangement between two or more persons shall be enforceable as contract.
•    By virtue of clause 53, companies are prohibited from issuing shares at discount except in case of issue of sweat equity shares.
•    Clause 66 deals with reduction of share capital. It mandates approval of National
Company  Law  Tribunal  (NCLT)  for  the  same.  Further,  in  case  of  listed companies, NCLT will give notice of every application made to it for reduction of share capital to the Central Government, Registrar, SEBI and creditors of the company for taking into consideration any representation on the proposed reduction.

Directors

•    Every company shall have a Board of Directors with a minimum number of three directors in the case of a public company, two directors in the case of a private company,  and  one  director  in  the  case  of  a  One  Person  Company;  and  a maximum of fifteen directors.
•    Introduction of a class of companies (to be specified by the Govt) where at least 1
woman director to be there on the board.
•    Every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days in the previous calendar year.
•    Every listed public company shall have at least one-third of the total number of
directors as independent directors and the Central Government may prescribe the minimum number of independent directors in case of any class or classes of public companies.
•    A person can hold directorship of up to 20 companies, of which not more than 10 can be public companies.
•    Duties of the directors towards a company are prescribed in the Bill under clause
166.

Independent Directors

•    The Bill has introduced the concept of Independent director and is defined in Clause 2(47). Clause 149 lays down that every listed public company shall have at least one-third of the total number of directors as independent directors and the Central Government may prescribe the minimum number of independent directors in case of any class or classes of public companies.
•    The company and independent director are required to abide by the provisions
specified in Schedule IV.
•    The clause seeks to provide that an independent director shall not be entitled to any remuneration, other than sitting fee, reimbursement of expenses for participation in Board meeting and profit related commission as approved by the members. The clause further provides for the provisions of rotation of independent director.
 
•    An independent director shall hold office for a term up to five consecutive years on the Board of a company, but shall be eligible for re- appointment on passing of a special resolution by the company.

Committees of Board of Directors

•    The Board of Directors is required to constitute an Audit Committee (Clause 177), Nomination and Remuneration Committee [Clause 178 (a)] and Stakeholders Relationship Committee [Clause 178 (5)].
•    These committees shall have Independent Directors/non-executive directors to bring more independence in the functioning of the Board and for protection of interests of minority shareholders.

Auditors

•    The Bill provides for mandatory rotation of auditors every five years.
•    Clause 139 (2) prescribes that no listed company shall (a) appoint an individual
as auditor for more than one term of five consecutive years and (b) an audit firm as auditor for more than two terms of five consecutive years.
•    Clause 139 (3) empowers members of the company to decide by resolution that the auditing partner and his team (of an audit firm appointed by the company)
shall be rotated every year or that audit shall be conducted by more than one
auditor.

Corporate Social Responsibility

•    By   virtue   of   Clause   135,   the   most   debated   concept   of   corporate   social responsibility (CSR) has been introduced.
•    Accordingly,  every  company  having  net  worth  of  Rs.500  crore  or  more,  or turnover of Rs.1000 crore or more or a net profit of Rs.5 crore or more during any financial year is required to constitute a Corporate Social Responsibility Committee.
•    The Corporate Social Responsibility Committee will formulate a Corporate Social
Responsibility Policy.
•    Such a company is required to spend at least two per cent of the average net
profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.
•    If the company fails to spend such amount the Board shall give in its report the
reasons for the same making it a binding obligation on the Board.

Serious Fraud Investigation Office

•    The provision for establishment of Serious Fraud Investigation Office (SFIO) by the Central Government is another significant feature of the Bill.
•    Clause 212 empowers the Central Government to assign the investigation into the affairs of the said company to the SFIO.
 


Amalgamation and Arrangements

•    A more comprehensive framework has been built in through Chapter XV for compromises, amalgamations and arrangements.
•    Merger  of  Indian  companies  with  foreign  companies  incorporated  in  certain notified countries has now been permitted.

Registered Valuers

•    The concept of Registered Valuers has been 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.

Winding Up

•    Changes have also been made to the grounds for winding up a company.

Class Action Suits

•    The concept of class action suits has been introduced by Clause 245.
•    The said clause empowers the shareholders or depositors or any class of them to
file an application before NCLT if they are of the opinion that that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors.
•    The clause also provides the number of such members or depositors required to file such suit.

Some other features of the Bill include:

•    Financial year will be uniform for all companies i.e April – March
•    Restriction on buyback of shares within one year from the last buy back
•    The   provision   of   participation   of   directors   in   a   meeting   through   video conferencing or other audio visual means
•    Voting through electronic means
•    Capping director’s remuneration at 5% of the net profits of the company
•    The Concept of Dormant Company has been introduced
•    provides for prohibition on forward dealings in securities of company by key
managerial personnel, insider trading rules and restriction on non-cash transactions involving directors
•    The Bill prescribes 33 new definitions
 
•    Establishment of National Company Law Tribunal and National Company Law
Appellate
•    Special Courts for speedy trials
•    Mediation and Conciliation etc.
•    Safeguarding workmen in the legislation, the new law mandates payment of two
years' salary to employees in companies which wind up operations.
•    The legislation strengthens accounting standards  and shareholder rights, and makes it mandatory for companies with market capitalisation of more than Rs.
500 crore to spend 2 per cent of their annual net profits on corporate social responsibility (CSR), such as social work or charity.

Source:
prepared by amit k mudgal
Email :: [email protected]

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Company Bill 2012
« on: August 09, 2013, 09:55:24 AM »

Offline TechShristi

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Re: Company Bill 2012
« Reply #1 on: August 09, 2013, 05:00:00 PM »
Highlights of the Companies Bill by Institute of Company Secretary of India

(as passed by the Lok Sabha on 18.12.12 and by the Rajya Sabha on 08.08.13)

 
•    The Bill has 470 clauses as against 658 Sections in the existing Companies Act,

1956.

•    The entire bill has been divided into 29 chapters.

•    Many  new  chapters  have  been  introduced,  viz.,  Registered  Valuers  (ch.17); Government companies (ch. 23); Companies to furnish information or statistics (ch. 25); Nidhis (ch. 26); National Company Law Tribunal & Appellate Tribunal (ch. 27); Special Courts (ch. 28).

•    The  Bill  is  forward  looking  in  its  approach  which  empowers  the  Central Government to make rules, etc. through delegated legislation (clause 469 and others).

•    The Companies Bill is the result of detailed consultative process adopted by the

Government.

 

The salient and unique features of the Bill are as under:

 

1. DEFINITIONS

•    New  definitions  are  introduced  in  the  Bill,  some  of  which  are  accounting standards, auditing standards, associate company, CEO, CFO, control, deposit, employee stock option, financial statement, global depository receipt, Indian depository receipt, independent director, interested director, key managerial personnel, promoter, one person company, small company, turnover, voting right etc.

•    Definition  of  private  company  changed  -  the  limit  on  maximum  number  of members increased from 50 to 200.

•    Private company which is a subsidiary of a public company shall be deemed to be a public company.

•    Listed  company  -  A  company  which  has  any  of  its  securities  listed  on  any recognised stock exchange.

•    Associate Company - A company is considered to be an associate company of the other, if the other company has significant influence over such company (not being a subsidiary) or is a joint venture company. Significant influence means control of at least 20 per cent. of total share capital of a company or of business decisions under an agreement.

•    Dormant Company - Where a company is formed and registered under this Act for  a  future  project  or  to  hold  an  asset  or  intellectual  property  and  has  no significant accounting transaction, such a company or an inactive company may make  an  application  to  the  Registrar  for  obtaining  the  status  of  a  dormant company.

•    "expert"  includes  an  engineer,  a  valuer,  a  chartered  accountant,  a  company secretary,  a  cost  accountant  and  any  other  person  who  has  the  power  or authority to issue a certificate in pursuance of any law for the time being in force.

•    "foreign company" means any company or body corporate incorporated outside

India which,-

(a)  has  a  place  of  business  in  India  whether  by  itself  or  through  an  agent, physically or through electronic mode; and

 

 

(b) conducts any business activity in India in any other manner.

•    "Key Managerial Personnel (KMP), in relation to a company, means-

(i) the Chief Executive Officer or the Managing Director or the Manager, (ii) the Company Secretary;

(iii) the whole-time director;

(iv) the Chief Financial Officer; and

(v) such other officer as may be prescribed

•    "officer who is in default", means any of the following officers of a company, namely:-

(i) whole-time director;

(ii) key managerial personnel;

(iii) where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified;

(iv) 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  active  steps  to  prevent,  any default;

(v) any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in a professional capacity;

(vi) every director, in respect of a contravention of any of the provisions of this

Act, who is       aware of such contravention by virtue of the receipt by him of any proceedings of the                        Board  or                 participation     in     such     proceedings    without objecting to the same, or where such      contravention  had taken place  with his consent or connivance;

(vii) in respect of the issue or transfer of any shares of a company, the share transfer agents,         registrars and merchant bankers to the issue or transfer.

•          Bill defines the term 'promoter' to mean a person -

(a) who has been named as such in a prospectus or is identified by the company in the annual return, or

(b) who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or

(c)  in  accordance  with  whose  advice,  directions  or  instructions  the  Board  of

Directors is accustomed to act.

 

Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity.

 

•     Subsidiary company in relation to any other company (that is holding company), means a company in which the holding company -

o      Controls the composition of the Board of Directors; or

o      Exercises or controls more than one half of the total share capital (instead

of equity share capital as prescribed under the 1956 Act) either at its

own or together with one or more of its subsidiary companies.

 

Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.

 

 

 

•     Small company has been defined as a company other than a public company having a paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed not exceeding Rs.5 crore or turnover of which does not exceed  two  crore  rupees  or such  higher  amount  as  may  be  prescribed  not exceeding twenty crore rupees. [clause 2(85)].

•     The number of persons in any association or partnership not to exceed such number of persons as may be prescribed (not exceeding one hundred). The restriction not to apply  to  an  association  or  partnership,  constituted  by  professionals  who  are governed by special Acts. (clause 464)

 

2. CLASSIFICATION & REGISTRATION

•    Concept of One Person Company (OPC limited) introduced [Clause 2(62)].

•    Concept of Small companies have been introduced which shall be subjected to a lesser stringent regulatory framework [Clause 2(85)].

•    Provision for Conversion of Companies already registered has been introduced

[Clause 18].

•    Registration process has been made faster and compatible with e-governance.

•    For the first time, articles may contain provisions for entrenchment [clause 5(3)].

•    A declaration, in the prescribed form, required to be filed with the Registrar at the time of registration of a company that all the requirements of the Act in respect of registration and matters precedent or incidental thereto have been complied with, will be required to signed by both - a person named in the articles as a director, manager or secretary of the company as well as by an advocate, a chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of the company. (clause 7)

 

Registered office

•    A company shall, on and from the 15th day of its incorporation and at all times thereafter have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it.

•    Company is required to furnish to the Registrar verification of its registered office within 30 days of its incorporation in the prescribed manner.

•    Where a company has changed its name(s) during the last two years, it shall paint or affix or print, along with its name, the former name or names so changed during the last two years.

•    Notice  of  change,  verified  in  the  manner  prescribed,  shall  be  given  to  the

Registrar, within 15 days of the change, who shall record the same.

 

Commencement of business

•    A company having a share capital shall not commence business or exercise any borrowing powers unless a declaration is filed with Registrar by a director verified in the manner as may be prescribed that:

o   every  subscriber  to  the  memorandum  has  paid  the  value  of  shares agreed to be taken by him;

o   Paid-up  capital  is  not  less  than  Rs.  five  lakhs  in  the  case  of  public company and one lakh in case of a private company.

o   the company has filed with the Registrar the verification of its registered office.

 

 

3. PROSPECTUS AND ALLOTMENT OF SECURITIES

•    This chapter is divided into two parts. Part I relates to 'Public offer' and Part II

relates to 'Private Placement'

•    "Public offer" includes initial public offer or further public offer of securities to the public by a company, or an offer for sale of securities to the public by an existing shareholder, through issue of a prospectus.'

•    The  term  'private  placement'   has  been  defined  to  bring  clarity.  "Private placement" means any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue  of  a  private  placement  offer  letter  and  which  satisfies  the  conditions specified in this section.

•    Detailed disclosures are provided in the Bill itself. It includes disclosures about sources of promoter's contribution.

•    In case of variation  in the terms of contract  referred  to in the prospectus  or objects for which the prospectus was issued, the dissenting shareholders shall be given exit opportunity by promoters or controlling shareholders.

 

Punishment for fraudulently inducing persons to invest money (clause 36)

•    Any person who, either knowingly or recklessly makes any statement, promise or forecast which is false, deceptive  or misleading,  or deliberately  conceals any material facts, to induce another person to enter into, or to offer to enter into any agreement  for, or with a view  to, obtaining  credit facilities  from  any bank or financial institution shall be liable for punishment for fraud. This provision is proposed to help in curbing a major source of corporate delinquency.

 

4. SHARE CAPITAL AND DEBENTURES

•    If a company with intent to defraud, issues a duplicate certificate of shares, the company shall be punishable with fine which shall not be less than 5 times the face value of the shares involved in the issue of the duplicate certificate but which may extend to 10 times the face value of such shares or rupees 10 crores, whichever is higher. Stringent penalties have also been imposed for defaulting officers of the company. [clause 46(5)]

•    Where  any  depository  has  transferred  shares  with  an  intention  to  defraud  a person, it shall be liable under section 447 i.e. provisions  for punishment  for fraud.[clause56(7)]  _ Security  Premium  Account  may also be applied  for  the purchase of its own shares or other securities. [Clause 52(2)(e)]

•    Except as provided in section 54 (Issue of sweat equity shares), a company shall not issue shares at a discount [Clause(53)]

•    A company  limited by shares cannot issue any preference  shares which are irredeemable. However, a company limited by shares may, if so authorised by its articles, can issue preference shares which are liable to be redeemed within a period not exceeding twenty years from the date of their issue.

•    A company may issue preference shares for a period exceeding twenty years for infrastructural projects subject to redemption of such percentage of shares as may be prescribed on an annual basis at the option of such preference shareholders. [Clause 55].

•    Every company shall deliver debenture certificate within six months of allotment. [Clause 56(4)(d)].

•    Reduction of share capital to be made subject to confirmation by the Tribunal.

The Tribunal on receiving an application for reduction of share capital, shall give

 

 

notice to the Central Government, Registrar and to the SEBI and consider the representations received in this behalf. (Clause 66)

 

5. E-GOVERNANCE

E-Governance   proposed   for   various   company   processes   like   maintenance   and inspection of documents in electronic form, option of keeping of books of accounts in electronic  form, financial  statements  to be placed  on company's  website,  holding  of board meetings through video conferencing/other electronic mode; voting through electronic means.

 

6. BOARD AND GOVERNANCE Number of directors

•    Minimum : Public company -3 Private -2 , OPC-1.

•    Maximum : limit increased to 15 from 12 .

More directors can be added by passing of special resolution without getting the approval of Central Government as earlier required.

 

Woman director

At least one woman director shall be on the Board of such class or classes of companies as may be prescribed.

 

Resident Director

Every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days in the previous calendar year. [clause

149(2)].

 

Appointment of Key Managerial Personnel [Clause 203(1)]

•    Every company belonging to such class or classes of companies as may be prescribed shall have the wholetime key managerial personnel.

•    Unless the articles of a company provide otherwise or the company does not carry  multiple  businesses,  an  individual  shall  not  be  the  chairperson  of  the company  as well as the managing  director  or Chief  Executive  Officer  of the company at the same time [Proviso to

Clause 203(1)]

Provided that nothing contained above shall apply to such class of companies engaged  in multiple  businesses  and which has appointed  one or more chief executive  officers  for each such business  as may be notified  by the  Central Government.

•    Every Company  Secretary  being a whole-time  KMP shall be appointed  by a resolution  of  the  Board  which  shall  contain  the  terms  and  conditions  of appointment including the remuneration.

•    If the office of any whole-time KMP is vacated, the same shall be filled up by the Board at a meeting of the Board within a period of six months from the date of such vacancy [Clause 203 (2) & (4)].

•    If  a  company  does  not  appoint  a  Key  Managerial  Personnel,  the  penalty proposed is :

On company - one lakh rupees which may extend to five lakh rupees.

On every director and KMP who is in default - 50,000 rupees and 1,000 rupees per day if contravention continues.

 

 

Independent Directors

•    Concept  of  independent  directors  has  been  introduced  for  the  first  time  in

Company Law: [clause 149(5)]

•    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.

•    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. [clause 161(2)].

 

Person other than retiring director

•    If a person other than retiring director stands for directorship  but fails to get appointed, he or the member intending to propose him as a director, as the case may be, shall be refunded the sum deposited by him, if he gets more than twenty five per cent of total valid votes [clause 160(1)].

 

Resignation of director

•    A director may resign from his office by giving notice in writing. The Board shall, on receipt of such notice, intimate the Registrar and also place such resignation in the subsequent general meeting of the company. [clause 168(1)]. The director shall also forward a copy of resignation alongwith detailed reasons for the resignation to the Registrar.

•    The notice shall become effective from the date on which the notice is received by  the  company  or  the  date,  if  any,  specified  by  the  director  in  the  notice, whichever is later. [clause 168(2)].

•    If all the directors of a company resign from their office or vacate their office, the promoter or in his absence the Central Government shall appoint the required number of directors to hold office till the directors are appointed by the company in General Meeting [clause 168(3)].

 

Participation of directors through video-conferencing

•    Participation of directors at Board Meetings has been permitted through video- conferencing or other electronic means, provided such participation is capable of recording and recognizing. Also, the recording and storing of the proceedings of such meetings should be carried out [clause 173(2)].

The  Central  Government  may  however,  by  notification,  specify  such  matters which shall not be dealt with in the meeting through video-conferencing and such other electronic means as may be prescribed. [clause 173(2)]

 

Notice of Board Meeting

 

 

 

•    At least seven days' notice is required to be given for a Board meeting. The notice  may  be  sent  by  electronic  means  to  every  director  at  his  address registered with the company. [clause 173(3)].

A Board Meeting may be called at shorter notice subject to the condition that at least one independent director, if any, shall be present at the meeting. However, in the absence of any independent director from such a meeting, the decisions taken at such meeting shall be final only on ratification thereof by at least one independent director. [clause 173(3)].

 

Duties of directors (clause 166)

For  the  first  time,  duties  of directors  have  been  defined  in the  Bill. A director  of a company shall :

•    act in accordance with the articles of the company.

•    act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment.

•    exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.

•    not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.

•    not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.

•    not assign his office and any assignment so made shall be void. Penalty

If a director  of the company  contravenes  the provisions  of this  section  such director  shall  be  punishable  with  fine  which  shall  not  be less  than  one  lakh rupees but which may extend to five lakh rupees.

 

Board Committees

•    Besides the Audit Committee, the constitution of Nomination and Remuneration Committee has also been made mandatory in the case of listed companies and such other class or classes of companies as may be prescribed. [clause 178(1)].

•    The  Audit  committee  shall  consist  of  a  minimum  of  three  directors  with independent directors forming a majority and majority of members including its Chairperson shall be persons with ability to read and understand the financial statement. [clause 177(2)].

•    The Nomination  and Remuneration  Committee  shall formulate  the criteria  for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees [Clause 178(3)].

•    The Nomination  and Remuneration  Committee  shall consist of three or more non-executive director(s) out of which not less than one half shall be independent directors. [clause 178(1)].

•    Where  the  combined  membership  of  the  shareholders,  debenture  holders, deposit holders and any other security holders is more than one thousand at any time during the financial year, the company shall constitute a Stakeholders Relationship Committee. [clause 178(5)].

 

 

Managerial Remuneration [clause 197]

•    Provisions relating to limits on remuneration provided in the existing Act being included in the Bill. Maximum limit of 11% (of net profits) being retained.

•    For  companies  with  no  profits  or  inadequate  profits  remuneration  shall  be payable in accordance with new Schedule of Remuneration (Schedule V) and in case a company is not able to comply with Schedule V, approval of Central Government would be necessary.

 

Certain Insurance Premium not to be treated as part of the remuneration

•    The  premium  paid  on  any  insurance  taken  by  a  company  on  behalf  of  its managing director, whole-time director, manager, Chief Executive Officer, Chief Financial Officer or Company Secretary for indemnifying any of them against any liability in respect of any negligence,  default, misfeasance,  breach of duty or breach of trust for which they may be guilty in relation to the company, shall not be treated as part of the remuneration payable to any such personnel. [Clause

197 (13)]

 

7. DISCLOSURES Annual return [clause 92]

•    Every  company  shall  prepare  a return  (hereinafter  referred  to  as  the  annual return) in the prescribed form containing the particulars as they stood on the close of the financial year regarding;

(i)  its  registered  office,  principal  business  activities,  particulars  of  its  holding, subsidiary and associate companies;

(ii) its shares, debentures and other securities and shareholding pattern;

(iii) its indebtedness;

(iv) its members and debenture-holders along with changes therein since the close of the previous financial year;

(v) its promoters, directors, key managerial personnel along with changes therein since the close of the last financial year;

(vi) meetings of members or a class thereof, Board and its various committees along with attendance details;

(vii)remuneration of directors and key managerial personnel;

(viii)            penalties imposed on the company, its directors or officers and details of compounding of offences;

(ix) matters related to certification of compliances, disclosures as may be prescribed; (x) details in respect of shares held by foreign institutional investors; and

(xi) such other matters as may be prescribed.

 

The prescribed disclosures under the Annual Return shows significant transformation in non  financial  annual  disclosures  and  reporting  by  companies  as  compared  to  the existing format.

 

Similar  to  the  existing  compliance  certificate  as  stipulated  under  section  383A  of

Companies Act, 1956 certification  of compliances has been prescribed under clause

92(1)(ix).

•    Annual Return is required to be signed by :

(i)  A  director  and  the  Company  Secretary,  or  where  there  is  no  Company

Secretary, by a Company Secretary in whole-time practice.

 

 

It means that now in respect of all the companies (except one pferson companies and small companies), whether private or public, listed or unlisted, the annual return has to be signed by either a company secretary in employment or by a company secretary in practice i.e. where no Company Secretary is appointed by the company, the Annual Return is compulsorily required to be signed by the Company Secretary in practice.

(ii) in addition to the above, the annual return, filed by a listed company or by a company having such paid-up capital and turnover as may be prescribed, shall be certified by a company secretary in practice that the annual return discloses the facts correctly and adequately and that the Company has complied with all the provisions of the Act.

It means, in case of a listed company and other prescribed companies, even if the Annual Return is signed by the Company Secretary in employment, it is further  required  to  be  certified  by  the  Company  Secretary  in Whole  time practice.

(iii) In relation to a One Person Company and Small Company, the annual return is required to be signed by the Company Secretary, or where there is no Company Secretary, by one director of the company.

 

Penalty

In case a Company Secretary in practice certifies the annual return otherwise than in conformity with the requirements of this section or the rules made there under, such Company Secretary shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees.

 

Changes in shareholding of promoters and top ten shareholders

•    A return to be filed with the Registrar with respect to change in the number of shares held by promoters and top ten shareholders (to ensure audit trail of ownership) by a listed company.

 

Board's report (Clause 134)

•    Board's  Report  has  been  made  more  informative  and  includes  extensive disclosures like -

(i)         extract of annual return in the prescribed form;

(ii)         company's policy on director's appointment and remuneration including the         criteria for           determining       qualifications,   positive               attributes, independence of a director etc. ;

(iii)        a statement of declaration by independent directors;

(iv)        explanations   or   comments   by   the   Board   on   every   qualification, reservation or adverse remark or disclaimer made by the auditor in his report and by the company secretary in practice in his secretarial audit report;

(v)        particulars of loans, guarantees, or investments made; (vi)     particulars of contracts or arrangements entered into;

(vii)       the  conservation  of  energy,  technology  absorption,  foreign  exchange earnings and outgo in the prescribed manner;

(viii)      statement     indicating     development    and     implementation     of     a     risk management policy for the company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company;

 

 

(ix)        the details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year in case of listed companies and other prescribed class of companies, a statement indicating the manner in which formal annual evaluation has been made by  the  Board  of  its  own  performance  and  that  of  committees  and individual directors.

 

•    The Directors' Responsibility Statement shall also include the statement that the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

•    The Boards' Report is to be signed by the Chairperson of the company if he is authorized by the Board and where he is not so authorized, it shall be signed by at least two directors,  one of whom shall be a managing  director,  or by the director where there is one director. (Clause 134).

 

Related Party Transactions

•    Every contract or arrangement entered into with a related party shall be referred to in the Board's Report along with the justification for entering into such contract or arrangement [Clause 188(2)].

•    Any arrangement between a company and its directors in respect of acquisition of assets  for consideration  other than cash shall require  prior approval  by a resolution in general meeting and if the director or connected person is a director of  its  holding  company,  approval  is  required  to  be  obtained  by  passing  a resolution in general meeting of the holding company [Clause 192].

•    Where a one person company limited by shares or by guarantee enters into a contract  with  the  sole  member  of  the  company  who  is  also  its  director,  the company shall, unless the contract is in writing, ensure that the terms of the contract  or  offer  are  contained  in  the  memorandum  or  are  recorded  in  the minutes  of the  first  Board  meeting  held  after  entering  into the  contract.  The company  shall inform  the Registrar  about every contract  entered  into by the company and recorded in the minutes (Clause 193).

 

8. CORPORATE SOCIAL RESPONSIBILITY (CLAUSE 135)

•    Every company having net worth of rupees 500 crore or more, or turnover of rupees 1000 crore or more or a net profit of rupees 5 crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

•    The   CSR   Committee   shall   formulate   and   recommend   Corporate   Social Responsibility   Policy   which   shall  indicate   the  activity   or  activities   to  be undertaken  by  the  company  as  specified  in  schedule  VII  and  shall  also recommend the amount of expenditure to be incurred on the CSR activities.

•    The Board of every company shall ensure that the company spends in every financial year atleast 2% of the average net profits of the company made during the three immediately preceding financial years in pursuance of its CSR policy.

•    Where the company fails to spend such amount, the Board shall in its report specify the reasons for not spending the amount. The approach is to 'comply or explain'.

 

 

 

•    The company shall give preference to local areas where it operates, for spending amount earmarked for Corporate Social Responsibility (CSR) activities.

 

9. DEPOSITS (CLAUSE 173)

•    A company may, subject to the passing of a resolution in general meeting and subject to the prescribed  rules, accept deposits  from its members  subject  to fulfillment of the following specified conditions:

i. passing of resolution in a general meeting.

ii.  issue  of  circular  to  members  including  therein  a  statement  showing  the financial position of the company, the credit ratings obtained, the total number of depositors  and  the  amount  due  towards  deposits  in respect  of any  previous deposits accepted by the company and such other particulars in such form and in such manner as may be prescribed.

iii. filing a copy of the circular along with such statement with the registrar within

30 days            before the date of issue of the circular. iv. Providing deposit insurance.

v. Certification  by the company that it has not defaulted in the repayment of deposits.

vi. Provision of security in respect of deposit and interest and creation of charge

on company's properties and assets. An amount of not less than 15% of the deposits maturing during a                                    financial  year  shall  be deposited  in deposit  repayment  reserve account.

•    A public company having prescribed net worth or turnover may accept deposits from persons other than its members subject to compliance of rules as may be prescribed  by Central  Government  in consultation  by Reserve  Bank of India. (Clause 76).

•    The  penalty  for  failure  to repay  deposit  has  been  made  extremely  stringent.

Where a company fails to repay the deposit and it is proved that the deposits had been  accepted  with  intent  to  defraud  the  depositors  or  for  any  fraudulent purpose, every officer of the company who was

responsible for the acceptance of such deposit shall, without prejudice to liability

under section 447 i.e. punishment for fraud), be personally responsible, without any limitation of liability, for all or any of the losses or damages that may have been incurred by the depositors (Clause 75).

Stringent punishment is proposed for failure to distribute dividend within thirty days of its                        declaration. (Clause 127)

 

10.INVESTMENT COMPANIES (CLAUSE 186)

•    A company can make investment through not more than two layers of investment companies, unless otherwise prescribed.

•    This shall not affect

o   a company from acquiring any other company incorporated in a country outside India if such other company has investment subsidiaries beyond two layers as per the laws of such country;

o   a  subsidiary  company  from  having  any  investment  subsidiary  for  the purposes of meeting the requirements under any law or under any rule or regulation framed under any law for the time being in force.

•    The  restriction  on  the  number  of  step-down  subsidiary  companies  has  been introduced to prevent the abuse of diversion of funds through many step-down subsidiaries.

 

 

 

 

11. COMPANY SECRETARY

Functions of Company Secretary (clause 205)

•    The functions of the company secretary shall include -

o   to report to the Board about compliance with the provisions of this Act, the rules made there under and other laws applicable to the company;

o   to  ensure  that  the  company  complies  with  the  applicable  secretarial standards;

o   to discharge such other duties as may be prescribed.

 

Secretarial Audit (Clause 204)

•    Every listed company and a company belonging to other class of companies as may be prescribed shall annex with its Board's report a Secretarial Audit Report, given by a Company Secretary in Practice, in such form as may be prescribed.

•    It shall be the duty of the company to give all assistance and facilities to the Company Secretary in Practice, for auditing the secretarial and related records of the company.

•    The Board of Directors, in their report shall explain in full any qualification or observation or other remarks made by the Company Secretary in Practice in his report.

•    If  a  company  or  any  officer  of  the  company  or  the  Company  Secretary  in Practice, contravenes the provisions of this section, the company, every officer of the company or the Company Secretary in Practice, who is in default, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

 

Secretarial Standards Introduced [Clause 118(10) & 205]

•    For the first time, the Secretarial Standards has been introduced and provided statutory recognition

•    Clause 118(10) reads as:

"Every company shall observe Secretarial Standards with respect General and Board Meetings specified by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 and approved by the Central Government."

•    Clause 205 casts duty on the Company Secretary to ensure that the company complies with the applicable Secretarial Standards.

•    It is the beginning of a new era where non financial standards have been given importance and statutory recognition besides Financial Standards.

 

12. GENERAL MEETINGS

•    To  encourage  wider  participation  of  shareholders  at  General  Meetings,  the Central Government may prescribe the class or classes of companies in which a member may exercise their vote at meetings by electronic means [clause 108].

•    One  person  companies  have  been  given  the  option  to  dispense  with  the requirement of holding an AGM. [clause 96(1)].

 

Report on annual general meeting [clause 121]

•    Every listed company shall prepare a Report on each Annual General Meeting including confirmation  to the effect that the meeting was convened, held and conducted as per the provisions of the Act and the Rules made there under.

 

 

The report shall be prepared in the manner to be prescribed. A copy of the report shall be filed with the Registrar within 30 days of the conclusion of the AGM. Non-filing of the report has been made a punishable offence.

 

13. AUDITORS

•    A company shall appoint an individual or a firm as an auditor at annual general meeting who shall hold office till the conclusion of sixth annual general meeting.

•    However, the company shall place the matter relating to such appointment for ratification by members at every annual general meeting.

•    No  listed  company  or  a  company  belonging  to  such  class  or  classes  of companies as may be prescribed, shall appoint or re-appoint-

(a) an individual as auditor for more than one term of five consecutive years; and

(b) an audit firm as auditor for more than two terms of five consecutive years:

 

Provided that-

(i) an individual auditor who has completed his term under clause (a) shall not be eligible for            re-appointment as auditor in the same company for five years from the completion of his term;

(ii) an audit firm which has completed its term under clause (b), shall not be

eligible for re- appointment  as  auditor  in  the  same  company  for  five  years  from  the completion of such term:

•    Members of a company may resolve to provide that in the audit firm appointed by it, the auditing partner and his team shall be rotated at such intervals as may be resolved by members.

•    The limit in respect of maximum number of companies in which a person may be appointed as auditor has been proposed as twenty companies. (clause 141)

•    Auditor cannot render any of the following services, directly or indirectly to the company or its holding company or subsidiary company:

•    Accounting and book-keeping service

•    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

•    Other prescribed services

 

Internal Audit

•    Prescribed class of companies shall be required to appoint an internal auditor to conduct internal audit of the functions and activities of the company. (clause 138)

 

Cost Audit (clause 148)

•    The Central Government after consultation with regulatory body may direct class of companies engaged in production of such goods or providing such services as may be prescribed  to include in the books of accounts particulars relating to utilisation of material or labour or to such other items of cost.

•    If the Central Government is of the opinion, that it is necessary to do so, it may, direct that the audit of cost records of class of companies, which are required to maintain cost records and which have a net worth of such amount as may be

 

 

prescribed  or  a  turnover  of  such  amount  as  may  be  prescribed,  shall  be conducted in the manner specified in the order.

•    'cost auditing standards' have been mandated.

 

14. FINANCIAL STATEMENT (CLAUSE 2(40)]

•    For the first time, the term 'financial statement' has been defined to include:- (i) a balance sheet as at the end of the financial year;

(ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year;

(iii) cash flow statement for the financial year;

(iv) a statement of changes in equity, if applicable; and

(v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to subclause (iv):

•    the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement;

 

Signing of financial statement (Clause 134)

The financial statement, including consolidated financial statement, if any, shall be approved by the Board of directors before they are signed on behalf of the Board at least by the Chairperson of the company authorised by the Board or by two directors out of which one shall be managing director and the Chief Executive Officer, if he is a director in the company, the Chief Financial Officer and the company secretary of the company, wherever they are appointed, or in the case of a One Person Company, only by one director, for submission to the auditor for his report thereon.

 

15.NATIONAL FINANCIAL REPORTING AUTHORITY (NFRA) (CLAUSE 132)

•    The  Central  Government  may  be  notification  constitute  a  National  Financial Reporting  Authority  to provide  for matters  related  to accounting  and auditing standards.

•    Notwithstanding anything contained in any other law for the time being in force, the National Financial Reporting Authority shall-

(a) make recommendations to the Central Government on the formulation and laying down of accounting and auditing policies and standards for adoption by companies or class of companies or their auditors, as the case may be;

(b) monitor and enforce the compliance with accounting standards and auditing standards in such manner as may be prescribed;

(c) oversee the quality of service of the professions associated with ensuring compliance    with       such                       standards,      and               suggest              measures     required    for improvement in quality of services and such other related matters as may be prescribed; and

(d) perform such other functions relating to clauses (a), (b) and (c) as may be

prescribed.

•    Notwithstanding anything contained in any other law for the time being in force, the National Financial Reporting Authority shall-

(a) have the power to investigate, either suo moto or on a reference made to it by the Central Government, for such class of bodies corporate or persons, in such manner  as  may  be  prescribed  into  the  matters  of  professional  or  other misconduct  committed  by  any  member  or  firm  of  chartered  accountants, registered under the Chartered Accountants Act, 1949:

 

 

Provided that no other institute or body shall initiate or continue any proceedings in such matters of misconduct where the National Financial Reporting Authority has initiated an investigation under this section;

(b) have the same powers as are vested in a civil court under the Code of Civil

Procedure, 1908, while trying a suit.

(c) where professional or other misconduct is proved, have the power to make order for-

(A) imposing penalty of -

(I) not less than one lakh rupees, but which may extend to five times of the fees received, in case of individuals; and

(II) not less than ten lakh rupees, but which my extend to ten times of the fees received, in case of firms;

(B) debarring the member or the firm from engaging himself or itself from practice

as member of the institute for a minimum period of six months or for such higher period not exceeding ten years as may be decided by the National Financial Reporting Authority.

•    Any person aggrieved by any order of the National Financial Reporting Authority, may prefer an appeal before the Appellate Authority constituted by the Central Government.

 

16. INVESTOR PROTECTION MEASURES

•    Issue   and   transfer   of  securities   and   non-payment   of  dividend   by  listed companies, shall be administered by SEBI by making regulations.(Clause24)

•    An act of fraudulent inducement of persons to invest money is punishable with imprisonment for a term which may extend to ten years and with fine which shall not be less than three times the amount involved in fraud.(Clause 36)

•    A suit may be filed by a person who is affected by any misleading statement or the inclusion or omission of any matter in the Prospectus or who has invested money by fraudulent inducement. (Clause 37).

 

Class action suits

•    For the first time, a provision has been made for class action suits. It is provided that specified number of member(s), depositor(s) or any class of them, may, if they are of the opinion  that the management  or control  of the affairs  of the company are being conducted  in a manner prejudicial to the interests of the company or its members or depositors, file an application before the Tribunal on behalf of the members or depositors.

•    Where  the  members  or  depositors  seek  any  damages  or  compensation  or demand any other suitable action from or against an audit firm, the liability shall be  of  the  firm  as  well  as  of each  partner  who  was  involved  in  making  any improper or misleading statement of particulars in the audit report or who acted in a fraudulent, unlawful or wrongful manner.

•    The order passed by the Tribunal shall be binding on the company and all its members, depositors and auditors including audit firm or expert or consultant or advisor or any other person associated with the company. (clause 245)

 

Serious Fraud Investigation Office (clause 211)

Statutory status to SFIO has been proposed. Investigation report of SFIO filed with the Court for framing of charges shall be treated as a report filed by a Police Officer. SFIO shall have power to arrest in respect of certain offences of the Bill which attract the

 

 

punishment for fraud. Those offences shall be cognizable and the person accused of any such offence shall be released on bail subject to certain conditions provided in the relevant clause of the Bill.

Stringent penalty provided for fraud related offences. Fraud defined (Clause 447)

•    The term "Fraud" has for the first time been defined in the Bill. Any person who is

found to be guilty of fraud, shall be punishable with imprisonment  for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud. Where the fraud in question involves public interest, the term of imprisonment shall not be less than three years

 

Prohibition of insider trading

New  clause  has  been  introduced  with  respect  to  prohibition  of  insider  trading  of securities. The definition of price sensitive information has also been included [clause

195].

 

Prohibition on Forward dealings

Directors and the key managerial personnel of a company are prohibited from forward dealings in securities of the company. (clause 194).

 

17. INSPECTION, ENQUIRY AND INVESTIGATION

•    A new clause has been added to provide that where in connection with enquiry or investigation into the affairs of the company or reference by the Central Government, or on complaint by specified number of members or creditors or any other person having a reasonable any person that the transfer or disposal of funds,  properties  or  assets  is  likely  to  take  place  which  is  prejudicial  to  the interest of the company, then the Tribunal may order for the freezing of such transfer, removal or disposal of assets for a period of three years. [clause 221]

•    Another  new  clause  seeks  to  provide  that  the  provisions  of  inspection  or investigation applicable to Indian companies shall also apply mutatis-mutandis to inspection or investigation of foreign companies. (clause 228).

 

18. RESTRUCTURING AND LIQUIDATION

•    The entire rehabilitation and liquidation process has been made time bound.

•    Winding up is to be resorted to only when revival is not feasible. (clause 258).

•    The Tribunal may appoint an interim administrator or a company administrator from the panel of Company Secretaries,  CAs, CWAs, etc. maintained  by the Central Government. [clause 259(1)].

•    The Company Administrator shall prepare a scheme of revival and rehabilitation. [clause 261(1)].

•    If revival scheme is not approved by the creditors, the Tribunal shall order for winding up of the company. (clause 258).

•    No civil court shall have jurisdiction in respect of any matter on which Tribunal or

Appellate Tribunal is empowered. (clause 268).

 

19. COMPANY LIQUIDATORS (CLAUSE 275)

 

 

The Tribunal may appoint Provisional Liquidator or the Company Liquidator from a panel maintained by the Central Government consisting of Company Secretaries, Chartered Accountants, Advocates and Cost Accountants.

 

On an appointment as provisional liquidator or Company Liquidator, such liquidator is required to file a declaration in the prescribed form disclosing conflict of interest or lack of independence in respect of his appointment, if any, with the Tribunal.

 

Professional assistance to Company Liquidator (CLAUSE 291)

The Company Liquidator may, with the sanction of the Tribunal, appoint one or more professionals including Company Secretaries to assist him in the performance of his duties and functions under the Act.

 

20. COMPOUNDING OF CERTAIN OFFENCES (CLAUSE 441)

This clause provides for the compounding of certain offences by Tribunal or regional director in certain cases before the investigation has been initiated or is pending under this Act. It further provides the procedure followed for compounding of offence. It clause also provides penalty for any officer or other

employee of the company who fails to comply with the order of Tribunal or Regional

Director.

 

21. NATIONAL COMPANY LAW TRIBUNAL AND APPELLATE TRIBUNAL (CLAUSE

408 AND 410)

The Central Government shall, by notification, constitute, a Tribunal to be known as National Company Law Tribunal and an Appellate Tribunal to be known as National Company law Appellate Tribunal.

 

22. SPECIAL COURTS

•    For the speedy trial of offences, the Central Government has been empowered to establish special courts in consultation with the Chief Justice of the High Court within whose jurisdiction the judge is to be appointed. (clause 435).

•    All offences under this Act shall be triable by the Special Court established for the area in which the registered office of the company in relation to which the offence is committed or where there are more special courts than one for such area, by such one of them as may be specified in this behalf by the High Court concerned. (clause 436)

•    The  Special  Court  would  have  the  liberty  to  try  summary  proceedings  for offences punishable with imprisonment  for a term not exceeding three years, although it may order for the regular trial. (clause 436).

 

23. MEDIATION AND CONCILIATION PANEL (CLAUSE 442)

•    The Central government shall maintain a panel of experts to be called Mediation and Conciliation Panel for mediation between the parties during the pendency of any proceedings before the Central Government or the Tribunal or the Appellate Tribunal under this Act.

 

24. CROSS - BORDER MERGERS (CLAUSE 234)

•    The Bill has allowed cross border mergers with any foreign company;

 

 

 

•    The cross border merger may be made between companies registered under this Act and companies incorporated under jurisdiction of such countries as may be notified by the Central Government.

 

25. REGISTERED VALUERS (CLAUSE 247)

•    A new chapter has been inserted in relation to registered valuers.

•    Valuation  in  respect  of  any  property,  stock,  shares,  debentures,  securities, goodwill, networth or assets of a company shall be valued by a person registered as a valuer.

•    The Central Government shall maintain a register of valuers.

The valuer shall be a person having such qualification and experience and registered as a valuer in such manner and on such terms and conditions as may be prescribed.

 

26.    POWER     TO     EXEMPT     CLASS     OR     CLASSES     OF    COMPANIES     FROM PROVISIONS OF THIS ACT (CLAUSE 462)

•    The Central Government may in the public interest, by notification direct that any provisions of this Act:

1. shall not apply to such class or classes of companies; or

2.  shall   apply   to  class   or  classes   of  companies   with  such   exceptions, modifications and adaptations as may be specified in the notification.

•    The notification in draft to be laid in both the Houses of Parliament for a period of

30 days.

•    Houses may disapprove or modify.

 
<b

Techshristi's Forum

Re: Company Bill 2012
« Reply #1 on: August 09, 2013, 05:00:00 PM »

 
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