Issues and Challenges for New Companies Act Amendment_Group 8Final

7/30/2019 Issues and Challenges for New Companies Act Amendment_Group 8Final

1/25

Issues and challenges for newcompany act amendment bill

Aniket Reddy-130

Lovenish Ruhela-131

Ronak Shah-141Aniket Tawde-161

Vipul Tenpe-162

Pankaj Vhatkar-172


2/25

Background

Companies(Amendmen

t) Bill, 2003introducedon 7th May,

2003

Conceptpaper on

newcompanylaw on 4thAugust,

2004

CompaniesBill, 2008

introducedin Loksabhaon Oct. 23,

2008

Reintroduced companiesbill,2009 on

3rd Aug,2009

ThecompaniesBill, 2011

introducedin Loksabhaon 14th Dec.

2011

On 19thDec. 2012Loksabhapassed thecompanies

bill


3/25

Background

CompaniesAct, 1956

13 parts

658 sections

15 schedules

CompaniesBill, 2009

18 chapters

426 clauses

CompaniesBill, 2011

29 chapters

470 clauses

7 schedules


4/25

Redefining the takeover code

Increase in threshold limit from 15% to 25%

Open offer size increased from 20 % to 26%

ITC holds 14.5% stake in Hotel Leela

Many promoters with stake range 20%-30%

FDI to 26%-49% Max. promoter shareholding limit of 75%


5/25

Impact on M&A horizon

Pricing of Share (highest of following)

The negotiated price

Volume weighted avg. price of last 52 weeks

Highest rice paid in last 26 months

Volume weighted avg. price of 60 days


6/25


Provision for cross border mergers

Small companies merger Reverse merger

A(Listed)

B(Unlisted)

C


7/25


Dispensation of meeting of creditors and

shareholders Introduction of NCLT

Abolition of trust shares


8/25

Impact of GAAR

Impermissible avoidance agreement

Power to tax authorities Impact on cross border deal, investment into

India

Issue of misuse & ineffective implementation


9/25

Corporate Social Responsibility

(Clause 135)

Net worth of Rs. 500 crore or more, or turnover ofRs. 1,000 crore or more, or net profit of Rs. 5 crore or

more in a financial year. Corporate social responsibility (CSR) committee.

Three or more directors, of which at least one wouldbe an independent director.

At least two per cent of the average net profits madeduring the three immediately preceding years.


10/25

Cont.

Mr. J. J. Irani, former director of Tata Sons,

People will find ways to skirt anything that is mandated, hetold Financial Express in an exclusive interview.

Issues & Challenges:

Concerns during recession or slow-down

Additional work in terms of recruitment, policy

formulation, monitoring etc.


11/25

Serious Fraud Investigation Office

(SFIO) (Clause 211)

provide statutory powers to SFIO

charges shall be treated as a report filed by a Police Officer.

SFIO shall have power to arrest in respect of certain

offences.

Stringent penalty provided for fraud related offences.

Issues & Challenges

Not sufficient manpower with SFIO


12/25

Mandatory Appointment of

Women Directors(Clause 149)

Provision:

Mandatory appointment of women directors in every companyexcept one person company.


Not enough number of women of director spirit

Female members of the business

families would be appointed on boards of companies


13/25

Director

Director liable as an officer in default even if he is aware of thecontravention, merely by virtue of receiving the proceedings of the

meeting.

That is to say, it is not a good defence for a director to say that he did notparticipate in the proceedings where an alleged contravention arose.

However, curious question isif the director has not participated in thedecision-making, and subsequently became aware of the same, how does heavert it?

And therefore, how does he save himself from being a party to the offence?


14/25

Key Managerial People

CEO and CFO defined in the Act CEO defined based on designation, not function

KMP defined to include CEO, CFO, CS, WTD andother notified designations


15/25

Key Managerial People

Clause 203, in a rather confused language, puts a bar on appointment ofa Chairperson and the Managing director

However, the section is Confusing As it stands, the bar is only on appointment as Chairperson by articles, and

the managing director/CEO at the same time

That is, if the articles name the person as Chairperson, he cannot beappointed as MD

The section does not apply to a multi-business company

Multi-business issue to be detailed in rules to be framed

Linkage with profits brought even in case of minimum remuneration 2.5% of profits, or 5% with special resolution

This may actually be meaningless in case of loss or inadequacy


16/25

Sick Companies

What is a sick company

Unfortunately the law does not define sickness with reference to loss of net

worth or inability to pay The law leaves sickness to be determined by the NCLT

Who may make a reference

Secured Creditors with 50% or more outstanding debt who have unpaid debtafter 30 days of notice

The company

CG or SG or a scheduled bank


17/25

E-Governance

Provision: (Clause 20, 120, 128)

E-Governance proposed for various company processes like

maintenance and inspection of documents in electronic form, optionof keeping of books of accounts in electronic form, financialstatements to be placed on companys website, holding of boardmeetings through video conferencing/other electronic mode; votingthrough electronic means.


18/25

E-Governance


Lack of Transparency

Speed of Decision Making

Disruption of Services

Results could be doctored

Infrastructure

Security

Integration of Fragmented E-Governance Setup


19/25

One person Company

One person only as a lawful private company

Minimum 1 and maximum 15 directors

Essential to nominate one person who becomesmember of OPC after death of subscriber

Challenge:- No clause if nominee predeceases the subscriber

Differentiation between OPC and private company


20/25

Other salient features

Limit on maximum number of members

increased from 50 to 200

1/3rd of the total number of directors as

independent directors- listed public companies

E-governance

One woman director being made mandatory in

some prescribed classes of companies


21/25

Mandatory Rotation of

auditors(Clause 139) Appointment by members in general meeting for five

years.

Instead of rotation of audit firms, rotation of auditpartners (after 5 to 7 years)

Joint audits be considered in some very large.

Appointment of auditors be considered for block of 3years in stead of 5 years. Rotation of partners could be

after 9 years3 blocks of 3 years each. More transparency in ethical way of financial reporting


22/25

Mandatory Internal Audit for prescribedclasses of companies (Clause 138)

Unlisted companies may be exempted from theprovisions of this Clause.

Appointment of external person as internal auditor

Prescribed Companies shall be required to conductinternal audit of functions and activities of thecompany by internal auditor appointed by thecompany.


23/25

Duties of Auditors (Clause 143)

Right of access at all times to the books of accountand vouchers of the company

Right to access records of subsidiaries for the purposeof consolidation of financial statements

Report to the members of the company on theaccounts examined by him and on every financialstatements


24/25

Secretarial Audit (Clause 204)

Duty of the company to give all assistance andfacilities to the company secretary

Contravenes the provisions of this section, thecompany, every officer of the company or thecompany secretary in practice, who is in default, shallbe punishable with fine which shall not be less than

one lakh rupees but which may extend to five lakhrupees.


25/25

Documents

Issues and Challenges for New Companies Act Amendment_Group 8Final