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Companies Act 2013

Companies Act 2013

LIKELY RELIEFS FOR PRIVATE COMPANIES

[DRAFT NOTIFICATION] (FOR PUBLIC COMMENTS TILL 1ST JULY, 2014)

________________________________________________________________________

Placed on website of MCA; 24/06/2014

[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)]

GOVERNMENT OF INDIA

MINISTRY OF CORPORATE AFFAIRS

NOTIFICATION

New Delhi, the 2014

G.S.R. ___ (E). - In exercise of the powers conferred by clauses (a) and (b) of subsection (1) of section 462 of the Companies Act, 2013 (18 of 2013), the Central Government hereby, in public interest, directs that the provisions of sections 43, 47, Clause (a) and (b) of sub-section (1) and sub-section (2) of section 62, 73, 101 to 107, 109, clause (g) of sub-section (3) of section 141, 160, 162, sub-sections (4) and (5) of section 196, section 180, section185, section 188, sub-section (3) of section 203 of the Companies Act, 2013 shall apply to a private Company with the modifications set out below, a copy of this notification having been laid in draft before both Houses of Parliament as required by sub-section (2) of section 462 of the said Act, namely:-

SN Chapter/ Section number/ Sub-section(s) in the Exceptions/ Modifications

Companies Act, 2013 /Adaptations

1 Chapter IV, section 43 and section 47 [Both Shall not apply

whole]

2 Chapter IV, clause (a) of sub-section (1) of section Shall apply with the following

62) and sub-section (2) of section 62 modification:-

Words ‘not being less than fifteen

days and not exceeding thirty days’

shall be substituted with ‘not being

less than seven days and not

exceeding fifteen days’

3 Chapter IV, clause (b) of sub-section (1) of section Shall apply except that instead of

62 special resolution, ordinary

resolution would be required

4 Chapter V, sub-section (2) of section 73 Shall not apply to private companies

having 50 or less number of

members if they accept monies from

their members not exceeding twenty

five per cent of aggregate of the paid

up capital and free reserves or one

hundred per cent of the paid up

[DRAFT NOTIFICATION] (FOR PUBLIC COMMENTS TILL 1ST JULY, 2014)

________________________________________________________________________

SN Chapter/ Section number/ Sub-section(s) in the Exceptions/ Modifications

Companies Act, 2013 /Adaptations

4 Cont…… capital, whichever is more, and

Chapter V, sub-section (2) of section 73 which inform the details of such

monies to the Registrar in the

prescribed manner.

5 Chapter VII, sections 101 to 107 and section 109 Shall apply unless

[All whole] - otherwise specified in respective

sections or

- unless articles of the private

company otherwise provide.

6 Chapter X, Clause (g) of sub-section (3) of section Shall not apply in respect of

141 appointment of auditors by private

companies.

7 Chapter XI, section 160( Whole) Shall not apply

8 Chapter XI, section 162 [Whole] Shall not apply

9 Chapter XII, Section 180 Shall not apply to private companies

having 50 or less number of

members

10 Chapter XII, section 185 Shall not apply to Private

companies -

(a) which have borrowings from

banks or financial institutions or

any bodies corporate not more

than twice of their paid up share

capital or Rs. 50 crore,

whichever is lower; and

(b) in whose share capital no

other body corporate has

invested any money”.

11 Chapter XII, section 188 Shall not apply.

12 Chapter XIII, section 196, sub-section (4) and sub- Shall not apply

section (5)

13 Chapter XIII, sub-section (3), section 203 Shall not apply

Companies Act 2013

COMPLIANCES OF COMPANIES ACT,2013 ON LISTED COMPANIES

# Relevant Section Area of change/ Addition New provision

1 Section 92: Annual Return

Certification of Annual Return Listed companies are required to certify their Annual return by A Company secretary in practice.

2 Section 93: Return to be filed with Registrar in case promoter’s stake changes

Changes in the number of shares held by Promoter , others, and top 10Shareholders

Within 15 days of change, companies are required to file Return with the Registrar if:a) There is change in the number of shares held by

Promoter and top 10 Shareholders.b) There is change in promoters’ share holding &

others, either increase or decrease of 2% or more in the shareholding position of promoters and top 10 shareholders in each case, either value or volume of the shares.

3 Section 108: Voting through Electronic Means

I. Means of VotingII. Appointment of Scrutinizer

I. E-voting i.e. vote at general meeting through electronic means, is mandatory .

II. Board of Directors shall appoint one Scrutinizer can be CA, CS , Advocate in practice but not in employment of Company.

4 Section 110 : Postal Ballot

Transaction with Postal Ballot Provision of the postal Ballot shall apply to both company whether listed or not . The transaction which are conducted through postal ballet are specially provided.

5 Section 120 : Maintenance and inspection of documents in electronic form

Maintenance and Transfer of Physical document in Electronic form

Every listed company have to maintain their register , index , agreement , memorandum , minutes or any other document in electric mode.Transition period: 6 months of date of notification of section 120 of the Act.

# Relevant Section Area of change New provision

6 Section 134 : Financial statement , board report , etc.

Report by Board of directors contain evaluation of company performance

Every listed company shall include in the report by its Board of directors, a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors.

7 Section 134: Financial Statement, Board's report, etc

Inclusions in Directors Responsibility Statement

The Directors Responsibility Statement shall include additional statement on compliance with all applicable laws. and, in case of listed companies, it shall also include statement that adequate internal finance control were in place.

8 Section 136: Right of member to copies of audited financial statements

Mode to sent financial statement to member

In case of listed companies the financial statements may be sent: •by electronic mode to such members whose shareholding is in dematerialized format.•where Shareholding is held otherwise than by dematerialized format, to such members who have positively consented in writing for receiving by electronic mode.• by dispatch of physical copies through any recognized mode of delivery as specified under section 20 of the Act, in all other cases.

9 Section 138: Internal Audit

Appointment of internal Auditors Every listed company shall be required to appoint an internal auditor.Transition period= 6 months given to an existing

company

10 Section 149: Company to have Board of Directors

Women Director Composition of BOD of a Listed Company must appoint at least 1 Women director.Transition Period (old company): 1 yearTransition Period (new company): 6 month



Independent Directors At least 1/3rd of the board of listed company must have independent directors.

12 Section 149: Companies to have Board of Directors

Appointment of Independent Directors already on the Board prior to April 1, 2014

Any tenure of an independent director on the date of commencement of the New Act shall not be counted as a term, it is now clarified that such director should be appointed as Independent Director in terms of section 149(6) read with Schedule IV of the New Act within a period maximum one year beginning April 1, 2014. Accordingly, any such appointment within a period of one year for a term upto five years will be considered as a fresh term. A person who has already served as an Independent Director for five years or more in a company as on October 1, 2014 shall be eligible for appointment, on completion of his present term, for only one more term of up to five years. Accordingly, listed companies may consider reappointing the said independent directors before October 1, 2014 for a term upto five years and the same, in our view, will be considered as a fresh term.


Calculation of term of Independent Directors

It is not mandatory to appoint a person as an Independent Director for a period of five years at a time. However, for whatever term an Independent Director has been appointed, will tantamount to one term out of his eligibility of two consecutive terms and in such a case, if a person is required to be re-appointed after completion of two terms, even if it is less than 10 years, as an Independent Director, then cooling period of three years will become mandatory for the re-appointment.



Letter of appointment for Independent Directors

Listed companies shall issue a formal letter of appointment to independent directors in the manner as provided in the New Act and that the letter of appointment along with the detailed profile of Independent Director shall be disclosed on the website of the company and the Stock Exchanges not later than one working day from the date of such appointment.

15 Section 177: Audit Committee

Audit Committee and a Nomination and Remuneration Committee

Every listed companies shall constitute an Audit Committee and a Nomination and Remuneration Committee of the Board.


Vigil Mechanism for genuine concerns or grievances

Every listed company shall establish Vigil Mechanism for their Directors and employees to report their genuine concerns or grievances

17 Section 204: Secretarial Audit for Bigger Companies

Secretarial Audit report Every listed Company shall annex Secretarial Audit report with its Board Report.

Companies Act 2013

COMPLIANCES OF COMPANIES ACT,2013 ON ALL COMPANIES

# Relevant Section Area of change/addition New provision

1 Section 2(76): Related Party

Definition of ‘Related Party’ A Director or Key Managerial Personnel of the holding company and his relative shall deemed to be related party.

2 Sec 2(87): Definition of Subsidiary company

Definition of ‘Total share capital’ for the purpose of Associate company & Subsidiary company

Total share capital is defined as ‘ Aggregate of paid upshare capital and convertible preference share capital’.

3 Section 4: Memorandum Object clause of Memorandum Division of Object clause into Main, Ancillary & other object cease to exist.

4 Section 13 : Alteration of Articles

Alteration of Object clause when company has raised money through public

Alteration can be done only by passing a special resolution through postal ballot and after giving the opportunity to exit to dissenting members.

5 Section 27: Variation in terms of contract or object in prospectus

Variation in terms of contract or object in prospectus when company has raised money through public

Variation can be done only by passing a special resolution through postal ballot and after giving the opportunity to exit to dissenting members.

6 Section 39: Allotment of securities by Company

Return of Allotment Return of Allotment is to be filed for all types of securities.

7 Section 39: Calling of Extra ordinary General meeting

Place of Extra ordinary General meeting

Extra ordinary General meeting shall be held at a place within INDIA.

8 Section 41: Global Depository Receipts

Issue of Global Depository Receipts A Company can issue Global Depository Receipts provided it is eligible as per FEMA rules.

# Relevant Section Area of change /addition New provision

9 Section 42: Offer or invitation for subscription of securities on private placement

Key provisions with respect to private placement

• Each private placement offer or invitationmust be approved by Special resolution• Offer cannot be made to more than 200 persons in aggregate in a financial year excluding QIB and employees offered securities under ESOP.• These provisions will not apply on Banks, NFBC and Housing finance companies complying regulations by RBI or National housing Board.• Allotment under each private placement has to be don within 60 days of receipts of application Money.

10 Section 42: Offer or invitation for subscription of securities on private placement

Offer deemed to be offer to public

If a company offer to allot or invites the subscription or allots or enter into agreement, securities to more than 200 persons, whether payment of securities has been received or not or whether company intends to list its securities or not in or outside India, the same shall deemed to be an offer to public and shall accordingly be governed by provisions of Public Offer & SEBI.

11 Section 47 : Voting Right

Voting Right to Preference shareholders

If dividend of Preference shareholder are in arrears for more than two years then Preference shareholder can vote on all the resolution of company.

12 Section 53 :Provision on issue of Shares at Discount

Issue of Share at Discount Shares Cannot be issue on discount except Sweat equity .

13 Section 55 : Issue and Redemption of Preference shares

Term of issue of Preference shares case for Infrastructure Company.

An Infrastructure company can issue preference for more than 20 years but less than 30 year subject to redemption of minimum 10% of such shares from 21st year onward or earlier , at the option of preference share holder.

# Relevant Section Area of change/addition New provision

14 Section 62: Further issue of Share Capital

Further issue of shares for first time

The requirement of provision of further issue of shares for first time only after 2 years from date of allotment or 1 year from allotment of shares cease to exist.

15 Section 70 : Prohibition for Buy-back in certain circumstances

Ease in Buy Back of shares in case of non-payment of dues

Company can buy back its share even if company has made default in payment of redemption of debenture or preference share or payment of dividend or repayment of any loan/deposit or interest thereon provided that such default has been remedied and three years have lapsed after such default.

16 Section 73 : Prohibition on acceptance of deposit from public Section 76 : Acceptance of deposits from public by certain companies .

Acceptance of Deposit from public

Company other than Eligible Companies* cannot accept deposit from public unless prior permission of shareholders at the general meeting has been taken.*Eligible Companies means companies having net worth more than or equal to 100 Crore or turnover more than or equal to 500 Crore .

17 Section 73 : Prohibition on acceptance of deposit from public & Section

Limits of Borrowing Deposit by Eligible company

Limits of Borrowing :-• Member- 10% ( paid up Share capital + reserve )• Other persons-25% ( paid up capital + reserve )


Insurance of deposit The company at the time of issue of circular/advertisement of deposit or renew of deposit shall made insurance for deposit before 30 days of issue or renew and insurer will bear the cost of seeking and maintaining such insurance. If insurance cover becomes ineffective, the company shall rectify the default immediately or enter into new contract within 30 days. Non- compliance shall call repayment of deposit.

# Relevant Section Area of change/ addition New provision


Valuation by Independent Merchant Banker or CA in Practice for minimum 10 years

The Finalization of qualifications and experience of valuers, valuations of stock, shares, debentures, securities etc. shall be conducted by :-• Independent merchant banker registered by

SEBI.• Independent C.A. in practice having experience

minimum 10 years or more .,until Section 247 (1) i.e. Valuation by Registered valuers of Companies Act 2013 is notified


Creation of Deposit Repayment Reserve Account by companies Including Eligible companies

Every company including eligible company shall transfer minimum 15 % of amount of deposit , whether secured or unsecured, maturing during current and next financial year to Deposit repayment reserve account with any schedule bank and that shall be free from any charge or lien before 30 April of each year.


Repayment of existing deposit Deposit which are accepted by companies which are not eligible under this act shall be repaid by companies as per provision of payment of pre mature deposit of previous act .And if the deposit is eligible as per this act and if company made payment of such deposit the company shall comply the provision for payment of pre mature deposit as per this act.

22 Section 92: Annual Return

I. Additional Information in Annual Return

II. Information to be contained in Annual Return

I. Companies are required to disclose additional information in its Annual return like particulars of holding, subsidiary, associate companies ; certification of compliances, remuneration of directors, key managerial personnel etc.

II. Annual Return will provide information upto the date of closure of Financial Statements rather than upto the annual general meeting


23 Section 96: Annual General Meeting

First Annual General Meeting First Annual General Meeting of a company shall be held within 9 months from the closure of its first financial year.

24 Section 103: Quorum for Meeting

Quorum of General Meeting of Public Company

SLAB:•Members not more than 1000, Quorum= 5 persons•Members more than 1000 but less than 5000,Quorum= 15 persons•Members more than5000, Quorum= 30 persons

25 Section 105: Proxies Appointment of proxy The person who is appointed as proxy shall be the member of company and cannot be act as proxy for more than 50 member and cannot hold more than 10% of total share capital carrying voting rights, in aggregate.

26 Section 108: Voting through Electronic Means

I. Means of VotingII. Appointment of Scrutinizer

I. E-voting i.e. vote at general meeting through electronic means , is mandatory for Company having 100 or more shareholder.II. Board of Directors shall appoint one Scrutinizer can be CA, CS , Advocate in practice but not in employment of Company.

27 Section 115 : Resolutions requiring Special Resolution

Special Notice for resolution by member

Member holding shares on which aggregate sum of not less than 5 lakh has been paid up or holding voting rights not less than 1% , can move special notice for a resolution .

28 Section 118 : Minutes of Proceedings of General meeting , meeting of Board of Directors and other meeting And resolutions passed by postal ballot

Secretarial Standards for preparing minutes of board and general meeting

Every company shall comply with the SecretarialStandard while preparing the minutes of Board and General Meeting .


29 Section 120 : Maintenance and inspection of documents in electronic form

Transfer of Physical document in Electronic form

Every company having 1000 or more shareholder, Debenture holder or any other security holder have to maintain their register , index , agreement , memorandum , minutes or any other document in electric mode.Transition period: 6 months of date of notification of section 120 of the Act.

30 Section 123: Declaration of Dividend

Interim dividend in case of loss A company cannot declare interim dividend at a higher than the average dividend declared by it during the immediately preceding 3 financial years, if it has incurred loss during the current financial year upto the end of quarter immediately preceding the date of declaration of interim dividend.

31 Section 128 : Books of account , etc., to be kept by company

Accounts to kept in electronic mode and accessible in India

The books of account of every company should bemade in electronic form and should be accessible in India . The information contained in electronic records shall be complete and unaltered.

32 Section 128 : Books of account , etc ,to be kept by company

Summarized returns of the books maintained outside India

Summarized return of the books of account of the company maintained outside India shall be sent to the registered office at quarterly intervals and which shall kept and maintained at the registered office of the company and kept open to directors for inspection .

33 Section 129 : Financial Statement

Uniform Financial Year Law provides for uniform financial year (April –March ) for all companies . Further the Act does not provides for extension of financial year.


34 Section 129 : Financial statement

Consolidation of financial statement

A company shall consolidate the financial statement of all the subsidiaries . “subsidies” included associate company and joint venture . The company should prepare consolidated financial statement before the annual general meeting along with the silent features of subsidiaries.

35 Section 129 : Financial statement

Requirement of attaching the Financial statement and Report as required by section 212 of the company act , 1956

The Requirement of attaching the Balance Sheet, the Profit & Loss account , the Director’s Report , the Auditor’s Report, a statement of the holding company’s interest in the subsidiary and other reports as required by section 212 of the company act , 1956 has been dispensed with.

36 Section 134 : Financial statement , board report , etc.

Report by Board of directors contain evaluation of company performance

Every public company having a paid up share capital of Rs. 25 crore rupees or more, calculated as at the end of the preceding financial year, shall include in the report by its Board of directors, a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors.

37 Section 134: Financial statement, board’s report, etc. read

Additional information in the director report

The Director's Report for every company except for OPC, shall provide additional information. Some of the key additional disclosure are : • change in the nature of business, if any;• Details of directors or key managerial personnel who were appointed or have resigned during the year; • Names of companies which have become or ceased to be its Subsidiaries, joint ventures or associate companies during the year along with reasons thereof;• Details relating to Deposits covered under Chapter V of the Act.• Details of significant and material orders passed by the Regulators or courts or tribunals impacting the going concern status and company’s operations in future.

38 Section 134: Financial Statement, Board's report, etc

Inclusions in Directors Responsibility Statement

The Directors Responsibility Statement shall include additional statement on compliance with all applicable laws.

# Relevant Section Area of change/ addition

New provision

39 Section 135: Corporate Social Responsibility( New)

Corporate Social Responsibility

Every company will:a) Spend in every financial year: 2% of average net profits (last 3 yrs.) if company’s;

i) net worth => 500 Crores; or

ii) turnover => 1,000 Crores; or

iii) net profit => 5 Crores

b) CSR Committee (3 or more Directors, 1 Independent Director) to recommend CSR policy and CSR expenditure and its monitoring

c) Undertake CSR activities through a registered trust, registered society or a company established by company, or its holding or subsidiary or associate company u/s 8 or otherwise

d) Board to approve CSR Policy and ensure activities undertaken.

e) Board’s report to specify reasons for failure to spend

f) Schedule VII – for coverage of the activities permitted

g) Disclosure of CSR initiatives in Board’s Report and on the company s website.

h) Activities taken for sole benefit of employees of company or their families shall not be considered as CSR

i) For building CSR capacities, company can spend upto 5 % of total CSR expenditure of company in 1 year.

40 Section 136: Right of member to copies of audited financial statements

Mode to sent financial statement to member

In case of public companies having net worth of more than Rs. 1 crore and turnover of more than Rs. 10 crore, the financial statements may be sent: •by electronic mode to such members whose shareholding is in dematerialized format.•where Shareholding is held otherwise than by dematerialized format, to such members who have positively consented in writing for receiving by electronic mode.• by dispatch of physical copies through any recognized mode of delivery as specified under section 20 of the Act, in all other cases.

CSR Activities

Eradication of extreme hunger and poverty

Measures for the benefits of armed forces veterans, war widows and dependence

Promotion of

Education

Environmental

sustainability

Contribution to PM’s relief fund and other such Central Government Funds

Gender equalityand women

empowerment

Training to promoterural sports

Rural DevelopmentProject

Promotion of national heritage , art and

culture

Promotion of preventive healthcare and

sanitation


41 Section 138: Internal Audit

Appointment of internal Auditors Every unlisted public company shall be required to appoint an internal auditor if :-1. paid up share capital of 50 crore rupees or more during the preceding financial year or2. turnover of 200 crore rupees or more during the preceding financial year; or

Transition period = 6 months to an existing company

42 Section 139: Appointment of Auditors

Appointment of auditor at Annual general meeting

Every Company shall, at the first annual general meeting (AGM), appoint an auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth AGM and thereafter till the conclusion of every sixth meeting. However the Company shall place the matter relating to such appointment for ratification by members at every AGM. A transition period of 3 years from the commencement of the Act has been prescribed.

43 Section 139: Appointment of auditors

Retirement of auditor Auditors of the companies, excluding one-person companies and small companies, shall retire by rotation : • all unlisted public companies having paid up share capital of Rs 10 crore or more;• all private limited companies having paid upshare capital of Rs 20 crore or more;• all companies having paid up share capital of below threshold limit mentioned in (a) and (b) above, but having public borrowings from financial institutions, banks or public deposits of Rs 50crores or more.


44 Section 139: Appointment of auditors

Rotation of auditors For the purpose of the rotation of auditors-•In case of an auditor (whether an individual or audit firm), the period for which the individual or the firm has held office as auditor prior to the commencement of the Act shall be taken into account for calculating the period of 5 consecutive years or 10 consecutive years, as the case may be• The incoming auditor or audit firm shall not beeligible if such auditor or audit firm is associated with the outgoing auditor or audit firm under thesame network of audit firms. Same network includes the firms operating or functioning hitherto or in future, under the same brand name trade name or common control.

45 Section 141: Eligibility, Qualifications and disqualifications of auditors

Disqualification of auditors The Act provides for certain new disqualifications for the Auditors such as a person shall not be eligible for appointment as an auditor if his relative holds securities in the company of face value exceeding Rs. 1 lakh and a person shall not be eligible for appointment as an auditor if he or his relative or partner is indebted to the company or its subsidiary or its holding or associate company or a subsidiary of such holding company, in excess of Rs.5 lakhs.

46 Section 143: Powers and Duties of auditors and auditing standards

Duty of auditor to report central government in case of fraud.

A duty has been cast upon the Auditor to report to the matter to the Central Government immediately within a period of 60 days of his knowledge, if he comes to know of a fraud committed or being committed against the company by officers or employees of the company. Similar duties, which have been cast on an Auditor, shall apply mutatis mutandis to Cost Accountants for Cost Audit and Company Secretary in Practice for Secretarial Audit.


47 Section 144: Auditor not to render certain services

Prohibition on services by Auditor of a company to its holding and subsidiary company.

The Auditor is prohibited to provide directly or indirectly certain specified services to the company, its holding and subsidiary company

48 Section 147: Punishment for contravention

Punishment to auditors. If proved that the partner or partners of the audit firm has or have acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its directors or officers, then such partner or partners of the firm shall also be punishable.


Meaning of pecuniary interest Following transaction(s) undertaken by the Independent Director with the company or its holding, subsidiary, or associate company or their promoters or directors during the year and during two immediately preceding financial years shall not fall in the ambit of pecuniary relationship:• transaction(s) done in ordinary course of business at arm’s length;• receipt of remuneration by way of sitting fees;• re-imbursement of expenses for attending board and other meetings;• any profit related commission as approved by members.


Maximum number of Directors Companies can have maximum 15 Directors. This number can be further increased after passing a special resolution.


Women Director Composition of BOD of a public company having paid-up share capital of 100 crore or more ; turnover of 300 crore or more ,must appoint at least 1 Women director.Transition Period (old company): 1 yearTransition Period (new company): 6 month



Resident Director Every Company must have at least 1 director who is a person who has stayed in India for not less than 182 years in previous year.


Independent Directors At least 2 Independent Directors for the following Company:a) Paid up share capital of 10 crore or more;orb) Turnover of 100 crore or more;c) In aggregate , outstanding loan, debentures, deposits,

exceeding 50 crore.


Remuneration to Independent Directors

They can receive remuneration by the way of fees or profit related commission as approved by members. They are not entitled to any stock option.

55 Section 165: Number of directorships

Maximum and minimum number of Directors

A person cannot become Director in more than 20 Companies and out of this 20, he cannot be the Director of more than 10 public Companies. The limit of 20 companies includes Private Company. Transition period = 1 year

56 Section 161 : Appointment of additional director alternate director and nominee director

Appointment of additional director

The articles of a company may provide for the power of its Board of Directors to appoint any person as an additional director. However, a person who fails to get appointed as a director in a meeting cannot be appointed as an additional director.

57 Section 168: Resignation of director

Copy of Resignation by Director to the Registrar

Where a director resigns from his office, he shall within 30 days from the date of resignation, forward to the Registrar, a copy of his resignation along with reasons for the resignation

58 Section 173: Meetings of Board

Participation by Director in a board meeting through video conferencing or other audio visual mode

A director can participate in a board meeting through video conferencing or other audio visual mode as may be prescribedand shall communicate his intention to the Chairperson or the company secretary of the company.

# Relevant Section Area of change/ addition

New provision


Audit Committee Following classes of companies shall constitute an Audit Committee and a Nomination and Remuneration Committee of the Board:a) Paid up share capital of 10 crore or more;orb) Turnover of 100 crore or more;c) In aggregate , outstanding loan, debentures, deposits, exceeding 50

crore.


Vigil Mechanism for genuine concerns or grievances

Every following company shall establish Vigil Mechanism for their Directors and employees to report their genuine concerns or grievances :a) Companies which accept deposit from publicb) Companies having borrowed money from banks & public financial

institution exceeding 50 crore

61 Section 178: Nomination and Remuneration Committee and Stakeholders Relationship Committee

Constitution a Stakeholders Relationship Committee

Every company with more than 1,000 shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee consisting of a chairperson who is a non-executive director and such other members as may be decided by the board.

62 Section 179: Powers of Board

Additional businesses exercised by board of directors only by means of resolutions passed at meetings of the Board

There are certain additional businesses provided n which can be exercised by board of directors only by means of resolutions passed at meetings of the Board. A list of some such businesses is outlined below :-a) to make political contributionsb) to appoint or remove key managerial personnel (KMP) c) to appoint internal auditors and secretarial auditor;d) to buy, sell investments held by the company (other than trade

investments), constituting 5% or more of the paid – up share capital and free reserves of the investee company

e) to invite or accept or renew public deposits and related matters;a) to approve quarterly, half yearly and annual financial statements or

financials.


63 Section 185: Loans to Directors

Prohibition of giving loan, giving of guarantee, or providing any security to director or any other person in whom the director is interested.

This section prohibits givingloan, giving of guarantee, or providing any security to director or any other person in whom the director is interested.Exemption under the Section:a) Loan made, giving of guarantee, or providing any security in respect of loan by Holding Company to its wholly owned Subsidiary Companyb) Any guarantee, or any security provided by HoldingCompany in respect of loan made by bank or financial institution to its subsidiary company.

64 Section 186: Loans and Investment by Company

Scope of section and layers of Investment company

The scope of section has been extended to include loans and investments to any person. Now, a company cannot make investment through more than 2 layers of investment company subject to following exemptions:a) A company acquires any other company incorporated

outside India and such other company has investment subsidiaries beyond two layers as per law of such country.

b) A subsidiary company from having any investment subsidiary for the purpose of meeting the requirements under any law or under any rule or regulation framed under any law for the time being in force.

65 Section 188: Related party transaction

Approval of Central Government

No approval of Central Government is required to enter into related party transaction. But apart from existing transactions, certain new related party transaction are also provided for which approval of Board is required.

Loans to directors/ any other person in whom director is interested [Section 185]*

Exemptions provided for:

• certain categories of loan to a managing/ whole

time director

• companies which provide loan/ give guarantees or

securities in ordinary course of business

• Loans, guarantees given or security provided by

holding company to its wholly owned subsidiary#

• Guarantees given or security provided in respect of

loan made by bank or financial institution to its

subsidiary#

*Notified ; # Rules

Exemption for Private Companies taken away

Exemption only if loans made under these rules

have to be utilized by subsidiary company or its principal business

activities#

Loans and investments by a company [Section 186]*

Restrictions on number of ‘Layers’

Applicability

•To All companies including private companies

Exemption given in rules (only with respect of 60%)

•Loans/ guarantees/ security to wholly owned subsidiary or joint venture

• Acquisition made by holding company by way of subscription, purchase or otherwise of the securities of its wholly owned subsidiaries#

Other requirements

• Loans exceeding the limit require special resolution [comply within 1 year]

• Interest Rate- not to be lower than prevailing yield of 1/3/5/10 yr government securities closest to tenure of loan

*Notified ; # Rules


66 Section 188: Related Party Transactions

Transactions with related Party

A company having a paid-up share capital of Rs 10 crore or more shall not enter into a contract or arrangement with any related party for following transactions except with the prior approval of the company by a special resolution: a) sale, purchase or supply of any goods or materials directly or through

appointment of agents exceeding 25%. of the annual turnover as mentioned in clause (a) and clause (e) respectively of sub-section (1) of section 188;

b) selling or otherwise disposing of, or buying, property of any kind directly or through appointment of agents exceeding 10% of net worth as mentioned in clause (b) and clause (e) respectively of sub-section (1) of section 188

c) leasing of property of any kind exceeding 10% of the net worth or exceeding 10% of turnover as mentioned in clause (c) of sub-section (1) of section 188;

d) availing or rendering of any services directly or through appointment of agents exceeding 10%. of the net worth as mentioned in clause (d) and clause (e) of sub-section (1) of section 188

e) appointment to any office or place of profit in the company, its subsidiary company or associate company at a monthly remuneration exceeding Rs 2.5 lakh; or

a) Remuneration for underwriting the subscription of any securities or derivatives thereof of the company exceeding one percent. of the net worth as mentioned in clause (g) of sub-section (1) of section 188.

67 Section 197: Overall maximum Managerial Remuneration and Managerial Remuneration in case of absence or inadequacy of profit.

Maximum sitting fees payable to Directors for attending meetings

The amount of sitting fees payable to Directors for attending meetings of Board or Committees shall exceed 1 lakh per meeting. Sitting fess for Independent and Women Director shall not be less than the sitting fees payable to other Directors.

Definition of Related parties widened

Approval of Audit Committee required

Requirement of special resolution

Coverage of transactions has been widened

Approval of central Government not required.

‘Cash at prevailing market price’ has now been substituted with ‘Arm’s length transaction’ which has been defined

RPTs to be included in the Board’s Report along with justification or entering into such contracts/arrangements

Related party


68 Section 204: Secretarial Audit for Bigger Companies

Secretarial Audit report Public Company having:a) Paid up share capital of 50 crores or moreOrb) Turnover of 50 crore or more Shall annex

Secretarial Audit report with its Board Report.

69 Section 205: Functions of Company Secretary

Functions of Company Secretary Some of the key functions are :

a) To provide to the directors of the company, collectively and individually, such guidance as they may require, with regard to their duties, responsibilities and powers;

b) To facilitate the convening of meetings and attend Board, committee and general meetings and maintain the minutes of these meetings;

c) To obtain approvals from the Board, general meeting, the Government and such other authorities as required under the provisions of the Act;

a) To represent before various regulators, and other authorities under the Act in connection with discharge of various duties

70 Sec 211: Establishment of Serious Fraud Investigation fraud {SFIO} (New)

Serious Fraud Investigation fraud {SFIO}

Fraud has been specifically defined in the New act and has been declared as a Non- Cognizable Offence. SIFO has been given Statutory recognition and very wide powers of search, seizure, arrest etc. to investigate big frauds and scams relating to companies.

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• This material and the information contained herein prepared by the authors is of a general nature and does not exhaustively deal with the subjectdiscussed.

• Although the authors have put their earnest effort in providing accurate and appropriate information, the article is not intended to be relied upon as thesole basis for any decision which may affect you or your business. The authors recommend you take professional advice before acting on specific issues.

• KGS is neither responsible for any views, opinions and statements made by the authors nor is liable for consequences, if any, arising from actions basedon such views or opinion.

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