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Presentation by. A. K. Kuchhal Managing Partner IndiaCorp Law Corporate Consultants and Advocates In association with M/s A. K. Kuchhal & Co. , Company Secretaries New Concepts under the Companies Act, 2013. Companies. “A Wind of Change”. Act, 2013. Disclaimer.

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  1. Presentation by A. K. Kuchhal Managing Partner IndiaCorp Law Corporate Consultants and Advocates In association with M/s A. K. Kuchhal & Co. , Company Secretaries New Concepts under the Companies Act, 2013

  2. Companies “A Wind of Change” Act, 2013

  3. Disclaimer The information contained in this Presentation is selective and is subject to updation, expansion, revision and amendment. This document has been prepared on the basis of Companies Act, 2013 as passed by the Lok Sabha on 18th December, 2012 and by the Rajya Sabha on 08 August , 2013. The interpretations and implications are still being evaluated and readers are advised to formally cross check with the professional advisors before acting upon this document and applying to specific facts. This Presentation is confidential being for use only by the persons to whom it is issued. This Presentation may not be copied or distributed by the Recipient to third parties (other than in confidence to the Recipient’s professional advisors).

  4. Insides • Synopsis of Companies Act, 2013 • Background • Some Important Changes • High level review of Companies Act, 2013 • Provisions related to deposits • Issuance of Securities • Analysis of provisions relating to Directors; • Analysis of provisions for Board meeting procedures; • Provisions relating to conduct of board meeting through Video Conferencing facility; • Review of existing loans & investments in the Group; • Review & applicability of related party transactions; • Review of provisions relating to Accounts, Audits & Auditors; • Analysis of Provision relating to Annual Return and Board Report • Analysis of required Disclosures & Compliances. • Our Companies Act Solutions and Deliverables • Our Service Offerings

  5. Companies Act, 1956 BackgroundStructure of the Companies Act 2013 • 13 Parts • 750+ Sections • 15 Schedules Companies Act 2013 received Presidential assent on 29 August 2013 • Rule based approach – less need to go to Parliament • Significant emphasis on • Self-regulation with disclosure/transparency instead of ‘Government approval’ based regime • e-Governance and Corporate Governance measures • Accounting and Reporting considerations • Investor protection and protection of minority shareholders • Stricter enforcement - investigate, adjudicate and penalize Companies Act, 2013 • 29 Chapters • 470 Sections • 7 Schedules 5

  6. Some Important Changes • No. of members in Private Limited Company can be 200. • If Co. has changed its name during the last 2 yrs, it shall print its former name along with current name. • Co. shall get CIN, email, website along with its name and regd. Office address printed on its Business Letters, Bill Heads & all its notices & official publications. • A private company is prohibited to accept unsecured loans/ deposits from relatives of directors. • Ratio of remuneration of each Director to the median employee’s remuneration to be disclosed in Board’s Report. • Books of account can be kept in electronic form also. • Financial year will be uniform for all companies i.e. April-March. • No need to transfer to reserves before declaration of dividend. • Filing fees have increased u/s 403 of the Act.(details in the schedule prescribed) • A director is deemed to have vacated his/ her office if he/ she absents himself/ herself from all the Board Meetings during a period of 12 Months (no matter whether leave of absence is obtained or not). • New Concept viz. One Person Company, Small Co., Dormant Company, CSR, Women Director, Secretarial Audit, Secretarial Standards issued by ICSI, KMP, etc. • Applicability of CSR

  7. New Concepts Introduced One Person Company (OPC) [Sec 2 (62)]:- Means a Company which has only one person as a member. Small Company [Sec 2 (85)]: Means a Company, other than a public Company- • Paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees and • Turnover of which as per its latest profit & loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees Provided that nothing in this clause shall apply to – • A holding company or a subsidiary company ; • A company registered under section 8 or; • A company or body corporate governed by any special Act; Associate Company [Sec 2 (6)]: Associate Company in relation to other Company means a Company in which the other Company has a significant influence*, but which is not a Subsidiary Company of the Company having such influence and includes a Joint Venture Company. * Control of at least 20% of total Share Capital Dormant Company [Sec 455] A Company: Formed for a Future Project or to hold an asset or intellectual property; AND Has no significant accounting transaction Or An Inactive Company May apply to ROC for Dormant status

  8. New Concepts Introduced Class Action Secretarial Audit [Sec 204)]: • Every listed Company and a company belongings to other class of Companies as may be prescribed shall annex with its Board’s report made in terms of sub-section 134, a secretarial audit report, given by a company secretary in practice, in such forms as may be prescribed. Key Managerial Personnel [Sec 2 (51)], in relation to a company, means— • the Chief Executive Officer or the managing director or the manager; • The Company Secretary; • The Whole-Time Director; • the Chief Financial Officer; and • such other officer as may be prescribed; SECTION 203:- Every Company belonging to such class as prescribed, shall have • MD, or CEO, or Manager and in their absence a WTD • Company Secretary; and • CFO

  9. 25. Fund Raising issues

  10. Issuance of Shares Private placement and Preferential Allotment : Issuance of securities to one or more persons but not exceeding 200 persons will have to comply with the requirements of section 42 and 62 of the CA 2013 and the corresponding rules issued thereunder. Any private placement/ preferential allotment is required to be made through the issuance of a private placement offer letter in Form No. PAS - 4.

  11. Private Placement and Preferential Allotment • Approval of the shareholders of the company, by way of a Special Resolution, is required. • In case of offer or invitation for non – convertible debentures, it shall be sufficient if the Company passes a previousSpecial Resolution only once in a year for all the offers or invitation for such debentures during the year. • Any offer/ allotment shall be made to not more than 200 persons in the aggregate in a financial year, (Excluding QIB’s and employees being offered securities under ESOP) • The value of such offer or invitation per person shall be with an investment size of not less than Rs. 20,000/- of face value of the securities. • Even Further Transfer with in next 3 months is restricted. • No fresh offer shall be made unless earlier offer have been completed. • All monies payable towards subscription of securities shall be paid through cheque or DD or other banking channels but not by cash and deposited in a separate bank account. • No company shall release any public advertisements or utilize any media, marketing or distribution channel or agents to inform public at large.

  12. Private Placement and Preferential Allotment • The Company making an offer shall allot its securities within 60 days from the date of receipt of the application money, if the Company is not able to do so, it shall repay the application money to the subscriber within 15 days, if fails to do so then the Company liable to pay interest @12% p.a. from the expiry of sixty days. Post 75 days the amount will tantamount to deposit. • The company shall maintain a complete record of private placement offers and acceptances of such offers in Form No. PAS – 5 • A copy of such record along with the private placement offer letter in Form No. PAS - 4 shall be filed with the Registrar (along with the prescribed fees) and with the SEBI (in case of listed Company), within a period of 30 days of circulation of the private placement offer letter. • A return of allotment of securities shall be filed with the Registrar in Form No. PAS - 3 and with the fee as provided in Annexure ‘B’ along with a complete list of all security holders.

  13. Private Placement and Preferential Allotment • Exceptions: • Provisions regarding investment size and number of persons shall not be applicable to- • Non-banking financial company which are registered with the Reserve Bank of India under RBI Act, 1934. • Housing Finance Companies which are registered with the National Housing Bank under National Housing Bank Act, 1987. • If they are complying with the regulations made by RBI or National Housing Bank in respect of offer or invitation to be issued on private placement basis. • Penal Provision • If a Company makes an offer or accepts monies in contravention of this section, the company, its promoters and directors shall be liable for a penalty which may extend to the amount involved in the offer or invitation or two crore rupees, whichever is higher and company shall also refund all monies to subscribers within a period of thirty days of the order imposing the penalty.

  14. DEPOSITS • Any receipt of money by way of loan/deposits/any other form by company is deposit”. • PERMISSIBLE ACCEPTANCE OF DEPOSITS BY COMPANIES • PRIVATE COMPANIES --- Deposits allowed from • Directors – WITHOUT ANY LIMIT. • Members – allowed by following the PROCEDURE u/s 73(2). • Employees – up to their annual salary. • Companies – WITHOUT ANY LIMIT. • Public – NOT PERMISSIBLE. • PUBLIC COMPANIES --- Deposits allowed from • Directors – WITHOUT ANY LIMIT. • Members – allowed by following the PROCEDURE u/s 73(2). • Employees – up to their annual salary. • Companies – WITHOUT ANY LIMIT. • Public – NOT PERMISSIBLE EXCEPT AS 76 Contd/-

  15. DEPOSITS………….. • ELIGIBLE COMPANIES for Accepting the Public Deposits FROM PUBLIC (SECTION 76) – • Eligible Companies are PUBLIC COMPANIES HAVING – • Net Worth of 100 Crores or more, OR • Turnover of 500 Crores or more. • LIMITS OF ACCEPTANCE OF DEPOSITS • TIME LIMIT – Not less than 6 MONTHS and Not more than 36 MONTHS. • Exception – The Deposits can be accepted for a shorter period (less than 6 Months) after following the conditions – • The amount is raised for meeting the short term requirements of the company. • The amount of deposits shall not exceed 10% of (Paid up Capital + Free Reserves). • The deposits shall not be repaid earlier than 3 months. Contd/-

  16. DEPOSITS………… • VALUE LIMIT • For all Companies (Pub + Pvt.) - up to 25% • For Eligible Pub Co.’s - • From Members up to 10% • From Others up to 25% • For Govt Companies - up to 35% • CONDITIONS FOR ACCEPTING DEPOSITS --- • Section 73(2) • SR in General Meeting. • Statement of the Financial Position to Every Members of Company. • CREDIT RATING from a Recognized Credit Rating Agency. • Creation of DRR with Schedule Bank of Min. 15% (Transfer the amount on or before 30th April of every Financial Year). • Creation of INSURANCE and CHARGE ON ASSETS OF THE COMPANY. • Appointment of DEPOSIT TRUSTEEs. • CERTIFICATE from Co. verifying that co. had not committed any Default relating to earlier Deposits/Interest. • PENAL PROVISION • On COMPANY—Penalty of Min. 1 Crore up to Max. 10 Crore. • On EVERY DEFAULTING OFFICER --- - Imprisonment – up to SEVEN YEAR, OR/BOTH - Penalty – Min. 25 lakh up to Max. 2 Crores.

  17. Loan & Investment by Companies Directly Indirectly Provide any Security Investment Give any Guarantee Advance any loan to In connection with any loan taken by Any Other body Corporate or Person Whichever is Higher

  18. Loan & Investment by Companies….. Clarification in General Circular No. 04/2015 It is clarified that loans and /or advances made by the Companies to their Employees, other than the Managing or whole time directors (which is governed by Section 185) are not governed by the requirements of Section 186 of the Companies Act, 2013. Penal Provision • Company: fine of Rs. 25,000 to Rs. 5,00,000 • Every office of the Company who is in default shall be punishable with imprisonment for a term which may extend to two years and with fine which shall not be less then Rs. 25,000 but which may extend to Rs. 1,00,000/-

  19. 25. directors

  20. Board Composition

  21. Board Composition

  22. powers of Directors • Key Changes (Sec 179) • There has been an addition to the list of powers which can be exercised only at a meeting of the Board of Directors: • Approval of financial statements and Board Reports; • Diversification of Business • Approval of amalgamation, merger or reconstruction; • Approval of takeover of another company or acquisition of a substantial stake in another company. • Temporary loans must be • From the Company’s Bankers; • In the Ordinary Course of Business; and • Repayable within 6 months. • Special Resolution may include Conditions. • This section has now been extended to Private Companies; • Definition of the term “Undertaking” and “Substantially the whole Undertaking” has been introduced.

  23. 25. duties of directors

  24. Duties of Directors • Section 166 • A director shall act in accordance with the articles of the company • A director shall 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 interest of the company, its employees, the shareholders, the community and for the protection of environment. • A director shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment • A director shall 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 • A director shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates. • Not to assign his office, such assignment being void.

  25. Analysis of - Director and Board Meetings Board Meetings • Company to hold a minimum number of four meetings of its BOD every year in the manner provided in Act 2013. Max Gap between two meetings 120 days. • The participation of BOD may be either in person or through video conferencing or other audio visual means which are capable of recording and recognizing the participation of the directors and of recording and storing the proceedings of such meetings along with date and time. • Minimum Seven days notice is required in writing to every director Penal Provision:- • Every officer of the Company, whose duty is to give notice under this section and who fails to do so shall be liable to a penalty of twenty five thousand rupees.

  26. Vacation of office of director- SECTION 167 • The office of a director shall became vacant in case: • He incurs any of the disqualifications specified in section 164: • He absents himself from all the meetings of the Board of Directors held during a period of 12 months with or without seeking leave of absence of the Board. • He acts in contravention of the provisions of Section 184 relating to entering into contracts or arrangements in which he is directly or indirectly interested.; • He fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested, in contravention of the provisions of section 184; • He, having been appointed a director by virtue of his holding any office or other employment in the holding, subsidiary or associate company, cease to hold such office or other employment in that company. • He is convicted by a court of any offence, whether involving moral turpitude or otherwise and sentenced in respect thereof to imprisonment for not less than six months; • He is removed in pursuance of the provisions of this Act; Penal Provision:- • If a person, functions as a director even when he knows that the office of director held by him has became vacant on account of any of disqualification s , he shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees or with both. Board Meetings • Company to hold a minimum number of four meetings of its BOD every year in the manner provided in Act 2013. Max Gap between two meetings 120 days. • The participation of BOD may be either in person or through video conferencing or other audio visual means which are capable of recording and recognizing the participation of the directors and of recording and storing the proceedings of such meetings along with date and time. • Minimum Seven days notice is required in writing to every director Penal Provision:- • Every officer of the Company, whose duty is to give notice under this section and who fails to do so shall be liable to a penalty of twenty five thousand rupees.

  27. Loan to Directors, etc. Directly Indirectly Advance any loan to Give any Guarantee Provide any Security In connection with any loan taken by Any other Person in whom director is Interested Any of it’s Director

  28. Loan to Directors, etc…contd. For It’s Principal Business Activities only

  29. Penal Provision • Company: fine of Rs.5lacs to Rs.25 lacs • Director or other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or other person – imprisonment up to 6 months or with fine of Rs.5 lacs up to Rs. 25 lacs , or with both.

  30. 25. RELATED PARTY TRANSACTIONS

  31. Analysis of Companies Act, 2013 Related Party Transactions (‘RPTs’) • RPT to be referred to in the Board’s Report to BoD/ shareholders along with justification report that RPT is at arm’s length. Shareholders consent needed only in case of Company having paid up share capital of not less than prescribed amount or transactions exceeding prescribed amount • Consent of BoD by a resolution at a Board Meeting/ Consent by special resolution by Shareholders’, required • Related Party: Refer next slide • Covered Transaction: • sale/ purchase/ supply of goods or material, - 25% of Turnover • availing/ rendering of any service, - 10% of Networth • selling/ disposing off/ buying, leasing property of any kind -10% of Turnover • appointment of agent for purchase/ sale of goods/ materials, services or property - 10% of Networth • appointment of RP to any office/ place of profit in company/ subsidiary or associate company – Rs. 2,50,000 per month • Underwriting subscription of any securities/ derivatives of company – 1% of Net worth • Penal Provisions for defaulting Directors and Employees:- Imprisonment up to one year (only for listed companies) and /or both fine upto Rs. 500,000 for every Company.

  32. Who is a Related Party Relative of A *Director ‘A’ Private Co. in which A is Director/ Member Firm in which A is partner Public Co. in which A (with relatives) holds > 2% paid up equity Body Corporate whose BoD/ MD/ Mgr acts in accordance with advice/ directions or instructions of A Co X * Director, here includes Manager also Relative of “B” KMP ‘B’

  33. Who is a Related Party Subsidiary Y of Z Hold Co Z KMP Relative Director Relative Co X Subsidiary Co. KMP: CEO/ MD/ Manager/ CS/ WTD/ CFO / such other as may be prescribed Associate Co Z

  34. Analysis of Companies Act, 2013 Accounts, Audits and Auditors • Financial Statements to include Cash Flow Statement. • New Provisions in connection to adoption of financial year for holding or subsidiary companies of a company incorporated outside India. • Maintenance of minutes and registers in electronic form or manner as stipulated by CA 2013. • Internal Audit mandatory for prescribed class of companies. • Auditors’ appointment will be for a five year term (subject to ratification by members at every annual general meeting by passing Ordinary Resolution). • Board’s report more informative with extensive additional disclosures like a statement on declaration of independence by the independent directors, related party transactions, policy on director’s appointment and remuneration, ratio of remuneration to each director to the median employee’s remuneration, policy developed and implemented by the company on corporate social responsibility. • Recognition to auditing standards - Auditing standards have been given legal recognition under the Act which requires that every auditor shall comply with the auditing standards notified by Central Government. 34

  35. Analysis of Companies Act, 2013 Overview of Other Compliances • Consolidation of Accounts • Consolidation of Subsidiaries (including Associates and Joint Venture) has now become mandatory. • Enhanced Financial Disclosure requirements in Annual Reports and Annual Returns to Stakeholders, Authorities etc. • More scrutiny and regulation through: • Stringent provisions • Penal provisions (including imprisonment) • Regulatory Authorities • are some of the key noteworthy aspects in our view. Registrar of Companies National Company Law Tribunal National Financial Reporting Authority Serious Fraud Investigation Office

  36. ANNUAL RETURN: SECTION 92 Provision:- • The Annual Return shall be filed with the ROC within 60 days of the date of the AGM or the last date when the AGM should have been held. • In case of listed company or company having such paid up capital & turnover as may be prescribed, Annual return shall be required to be certified by cs in practice in form MGT-8. Penal Provision • Company: fine of Rs.50000 to Rs. 500000 rupees • Officer in default: imprisonment up to 6 months or with fine of Rs.50000 to Rs. 500000 rupees, or with both. • If cs in practice certify annual return not in conformity with the requirement shall be punishable with fine of Rs.50000 to Rs.500000 rupees.

  37. BOARD REPORTSECTION 134 Provision:- • The board report should be signed at least by the Chairperson of the Company where he is authorised by the board or by two directors out of which one shall be managing director and the CEO, if he is a director in the Company, the CFO and the CS of the Company. • The Board Report should contain all the information given under Section 134(3) of the Companies Act, 2013. Penal Provision • Company shall be punishable with fine Rs.50,000 to Rs 2,50,000. • Officers in default: imprisonment for 3 years or with fine of at least 50,000 to 5,00,000 rupees, or with both.

  38. 25.

  39. Corporate Social Responsibility (CSR)

  40. Corporate Social Responsibility (CSR)

  41. What does this mean to you • Beginning of new era of Corporate Governance • High accountability towards the stakeholders of the business • Extensive and in-depth understanding of the changes and implications • Enhanced responsibility of top management • Evaluation of Reporting requirements and filing norms and Approval Applications with Authorities • Evaluation of new and enhanced procedural Steps and formalities • Evaluation of Penalties and Penal Actions and related obligations and liabilities imposed, with KMP incoming provisions

  42. Our Companies Act Solutions • To appreciate and assess: • The fine print; • The intent of Legislature behind the Act 2013 Enactment; • Variation from previous provisions; • Implication of new provisions including Transition; • Practical application of provisions specific to organization, • We have devised following solutions to meet all your requirements: • Analyzing the impact  of the Act 2013 on the company as a on-going set up on the key issues viz.: • Company Structure; • Related Party Transactions; • Board & it’s process; • Accounts & Audits; • New requirements/ Concepts; • Disclosures & Compliances etc. • Identify various actions required to be taken to ensure compliance with the Act and Rules • Diagnostic Analysis and Reporting.

  43. Our Service Offerings

  44. About IndiaCorp Law Professionalism Commitment IndiaCorp Law comprises of professionals including Company Secretaries, Chartered Accountants, and Lawyers, with hands on industry experience that gives us the ability to innovate the most enviable practical business law solutions to clients’ needs. The IndiaCorp Law Team is headed by Mr. A. K. Kuchhal, Key Consultant of the Company. He is M.Com., LL.B., Fellow Member of the ICSI, and NCFM Certified. Acumen Service to client

  45. Contact Us • Mr. A. K. Kuchhal • IndiaCorp Law • Advocates & Solicitors • Kothi No, 154, Block- C, Sector-51, • Noida-201301 • Phone No.: 0120-4214372 • Mobile : 91- 9810894275, 9650826950 • E-mail: indiacorp@live.com • Website:www.indiacorplaw.com • Time to build trust and association

  46. Thank you • A. K. Kuchhal • C -154, Sector 51 Noida, 201301 • Ph.: 0120 – 4214372, 2485154 • Mob.: 9810894275, email: csaloknoida@gmail.com

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