BROAD COMPARATIVE STUDY Companies Act, 1956 vis-à-vis Companies Bill, 2012
Background 2003 (bill ‘2003 introduced by MCA in Rajya Sabha on 07.05.2003. For want of large no. of changes comprehensive review required) 2004 (concept Paper on new company law was placed on ministry’s website. Govt. constituted JJ Irani Committee which gave report on 31.05.2005. Comprehensive review required) 2008 (Companies bill’2008 introduced but lapse due to Lok Sabha Dissolution) 2009 Bill was introduced in Lok Sabha and referred to Parliamentary Standing Committee. In view of numerous amendments Govt. withdrew this bill and introduced Cos. Bill ‘2011. This is the bill was introduced in Dec’2011 and passed in 2012.
Structure of Companies Act, 1956 & the companies Bill, 2012 Act Bill 29 Chapters 470 Clauses (i.e. Sections) 7 Schedules • 13 Parts • 750+ Sections • 15 Schedules
Memorandum of AssociationObject Clause Companies Act 1956 Companies Bill 2012 The MOA will be required to state only the object for which the company is registered & any other matter considered necessary in furtherance thereof. Clause 4(1)(c) ( position before 1965) • The MOA must have objects to be pursued divided in three parts i.e. between main, incidental or ancillary and other objects. (Section 13(1) (c & d)
Financial Year Companies Act 1956 Companies Bill 2012 Financial year for companies will be set from April 1st to March 31st. However: A two year period is allowed to existing companies to adjust their accounting years, Special provisions have been provided for newly incorporated companies. Companies are allowed to choose freely an accounting year. Though for tax purposes, the financial year runs from the April 1st to March 31st [Section 2(17)]
Financial Year Companies Act 1956 Companies Bill 2012 For companies having subsidiaries in India and Indian companies having subsidiaries outside India (special approval process)- special provisions have been provided. [Clause 2(41)] • It can not be fifteen months but may be shorter than a year. (Sec. 210)
Private Company Companies Act 1956 Companies Bill 2012 200 Members Nothing is mentioned for acceptance of deposits [Clause 2(68)(ii)] Private company will be also governed by clause 73 for acceptance of deposits. • 50 Members • Prohibits any invitation and acceptance of deposits other than from directors, members and director’s relatives [Section 3(1)(iii)]
OPC Companies Act 1956 Companies Bill 2012 The Bill introduced the concept of “One Person Company’ for the first time. [Clause 3(1)(c)] Clause 2(62) defines a OPC as “ a company which has only one person as a member”. A One Person Company is required to be registered as a “Private Limited Company”. • No provision
OPC Companies Act 1956 Companies Bill 2012 However, the Memorandum of such a company should indicate the name of the person who shall, in the event of the subscriber’s death, disability or otherwise becomes the member of the company It is also allowed an exemption from holding AGM
Small Companies Companies Act 1956 Companies Bill 2012 Having paid-up share capital of not more than Rs. 5 million or amount prescribed, however the prescribed amount must not exceed Rs. 50 million (paid-up share capital with maximum of Rs. 50 million); or As per the last profit and loss account, turnover must not exceed Rs. 20 million or amount prescribed, however the prescribed amount must not exceed Rs. 200 million. [Clause 85] • No such concept but SMC is defined in Companies (Accounting Standard) Rules 2006. • Private Company concept is in both laws.
Small Companies Companies Act 1956 Companies Bill 2012 Numbers of exemptions are provided to small companies with regard to reporting, board meetings, and procedure for mergers/amalgamations. • SMC defined:- • Not listed or in process of listing • Not bank, FI or Insurance company • Turnover not exceeding Rs. 50 crores in preceeding year • Borrowing not exceeding Rs. 10 crores • Holding or Subsidiary which is not a SMC (Conditions satisfied at the end of year
Transfer of shares of public company Companies Act 1956 Companies Bill 2012 Shares of public companies are freely transferrable. However, contract or agreement between 2 or more persons in respect of transfer of securities shall be enforceable as a contract. [Clause 58(2)] • Shares of public companies are freely transferrable. [Section 111A]
Restriction of further offer of Buy-Back Companies Act 1956 Companies Bill 2012 No Buy-Back up to period of 1 year from the date of preceding Buy-Back whether approved by BOD or Shareholders. [Clause 68(2)] • In case of Buy-Back made by BOD (10% of the total paid up equity capital and free reserves), no further offer of buy back is permissible with in a period of 365 days reckoned from the date of the preceding offer of Buy-Back. [Section 77A(1)]
Dividend Transfer to reserves Companies Act 1956 Companies Bill 2012 A company to transfer voluntarily a portion of its profits to the reserves as consider appropriate, before declaration of any dividend. Mandatory transfer to reserve done away. [Clause 123(1)] • No Dividend can be declared more than 10% for any F.Y out of the profits of the company for that F.Y, except after the transfer of profit to the reserves such portion of profits of the company for that F.Y, not exceeding 10% of its profits. As specified in declaration of Dividend(Transfer of Reserves)Rules
Declaration of dividend in case ofin-adequate profits Companies Act 1956 Companies Bill 2012 In case of inadequacy or absence of profits in any F.Y, the company can declare dividend out of the accumulated profits transferred to reserve in accordance with the rules to be prescribed. [Clause 123(1)] • In case of inadequacy or absence of profits in any F.Y, the company can declare dividend out of the reserves only after complying with the companies (Declaration of Dividend out of Reserves) Rules, 1975, wherein the maximum rate of dividend is prescribed as 10%. [section 205A(3)]
Restriction on declaration of dividend/interim dividend. Companies Act 1956 Companies Bill 2012 Interim dividend may be declared out of the surplus in the Profit & Loss Account as well as profits of the financial year in which dividend is sought to be declared. In case company has incurred loss up to the preceding quarter of the current financial year then interim dividend shall not be declared at a rate higher than the average dividend declared by the company during the immediately preceding three financial years. [Clause 123(3)] • Interim dividend may be declared Subject to provision of Section 205 and rules frame there under. • Section 205A, 205C, 206, 206A and 207 also applies to interim dividend. • Section 2(14A): Dividend includes interim dividend.
Holding-Subsidiary Company Companies Act 1956 Companies Bill 2012 Class or classes of holding company as may be prescribed shall not have layers of subsidiary companies beyond prescribed numbers. (Clause 2(87) Subsidiary company not to hold shares of holding company. However it can have shares as trustee of other beneficiary or as legal representative. (Clause 19) • No Restriction.
CSR Companies Act 1956 Companies Bill 2012 By virtue of Clause 135, the concept of CSR has been introduced. Company having net worth of Rs. 500 crores or more or turnover of Rs 1000 crores or more or net profit of Rs 5 crores or more during any financial year shall have to constitute CSR comiittee and implement CSR policies. • No provision
Auditors Companies Act 1956 Companies Bill 2012 The Bill provides for mandatory rotation of auditors every five years. Clause 139(2) prescribed that no listed company shall: Appoint an individual as auditor for more than one term of five consecutive years and An audit firm as auditor for more than two terms of five consecutive years. • One year tenure for auditors appointed at the AGM. [Section 224]
Auditors Companies Act 1956 Companies Bill 2012 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.
Consolidation of Financial Statements Companies Act 1956 Companies Bill 2012 In case a company has one or more subsidiaries, it shall in addition to stand alone financial statements if all the subsidiaries in the same form and manner as that of its own which shall also be laid before the AGM of the company. • By virtue of clause 41 of listing agreement If the company has subsidiaries, (i) it may, in addition to submitting quarterly and year to date stand alone financial results to the stock exchange, shall also submit quarterly and year to date consolidated financial results within forty-five days from the end of the quarter; and (ii) while submitting annual audited financial results prepared on stand-alone basis, it shall also submit annual audited consolidated financial results to the stock exchange within sixty days from the end of the financial year.
Registered Valuer Companies Act 1956 Companies Bill 2012 When valuation is required to be made under the Act, in respect of any property, stocks, shares, debentures, securities or goodwill or other assets or net worth of company or its liabilities, such valuation shall be done by a registered valuer. [Clause 247] • No provision provided for registered valuer.
Acceptance of DepositsEligibility for acceptance of deposits from public and shareholders Companies Act 1956 Companies Bill 2012 Banking company, NBFC and such other company as the CG may specify, are permitted to accept deposits from public. • Public companies are permitted to accept deposits from public and shareholders in accordance with Companies (Acceptance of Deposits) Rules 1975.(Section 58A)
Acceptance of DepositsEligibility for acceptance of deposits from public and shareholders Companies Act 1956 Companies Bill 2012 A company may accept deposits from its members by passing a resolution in general meeting and subject to compliance of rules and subject to conditions which includes:- Issuance Circular to member containing prescribed particulars. Obtaining credit rating Providing deposit insurance Depositing at least 15% of the amount of deposits maturing during current and next financial year in a scheduled bank to be called as deposit repayment reserve account (Clause73) Kalani & Company
Acceptance of DepositsEligibility for acceptance of deposits from public and shareholders Companies Act 1956 Companies Bill 2012 Public company having net worth or turnover as may be prescribed would be allowed to raise funds through public deposit Mandatory requirements for such companies to obtain rating from CRA (Clause 76)
Acceptance of DepositsEligibility for acceptance of deposits from public and shareholders Companies Act 1956 Companies Bill 2012 Deposit accepted before the commencement of the new Act or any interest due thereon, shall (a) File a statement of old deposits within 3 months of such commencement and (b) repay within 1 year from such commencement or on date on which such payments are due whichever is earlier (Clause 74(1))
Acceptance of DepositsEligibility for acceptance of deposits from public and shareholders Companies Act, 1956 Companies Bill, 2012 • Clause 73 is applicable both Public and Private Companies subject to compliance of such conditions and such rules prescribed by central govt. in consultation with RBI.
Inter-Corporate Loan, Guarantee,Security and Investment Companies Act 1956 Companies Bill 2012 The provisions related to inter-corporate loans, guarantees, security and investments will also apply to private companies. No investment in companies more than two layers Listed companies shall take inter corporate loans and deposits not exceeding prescribed limit. (Clause 186) • Exemption is given to private companies under provisions of inter-corporate loans, advances etc. [Section 372A]
Inter-Corporate Loan, Guarantee,Security and Investment Companies Act, 1956 Companies Bill, 2012 In case loan, guarantee, security or investment exceeds 60% of paid up capital and free reserve & Security Premium or 100% of free reserves, prior Special Resolution in GM. Financial Statement shall contain particulars prescribed in sub-clause (4). (Clause 186)
Resident Director Companies Act 1956 Companies Bill 2012 It is mandatory for all companies to have at least one resident director, which is a person who has stayed in India or 182 days or more in the last calendar year. [Clause 149(3)] No provision
Women Director Companies Act 1956 Companies Bill 2012 For specified classes of companies, it will be mandatory to appoint at least one female director. [Clause 149(1)] No provision
KMP Companies Act 1956 Companies Bill 2012 Includes: Chief Executive Officer or Managing Director, Director or Manager, Company Secretary, Chief Financial Officer if appointed by the Board, Fulltime Directors, and Any other officer if prescribed. [Clause 51] • No provision except in AS 18 Related Party Disclosures
Appointment Of Whole Time KMP Companies Act, 1956 Companies Bills, 2012 Every Company belonging to class or classes of companies as may be prescribed shall have KMPs MD or CEO or Manager and in absence of a WTD Company Secretary Chief Financial Officer (Clause 203) • Public Company having paid-up capital of Rs.5 Crore or more to have WTD or MD (Sec. 269) • CompanySecretary to be appointed Where Paid- up capital is 5 Crore or more (Sec. 383)
Independent Director Companies Act, 1956 - Companies Bill 2012 The Bill has introduced the concept of Independent director and is defined in Clause 2(47). • Sec 292A contains provision of independent director in audit committee (company having paid up capital not less than Rs 5 crores). • In case of listed company clause 49 governs.
Independent Director Companies Act 1956 Companies Bill 2012 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. • Where executive chairman half of the board strength should be of independent directors. • If non-executive chairman is promoters or relative to promoters, in such case, there should be half of the strength of the independent directors.
Independent Director Companies Act 1956 Companies Bill 2012 The company and independent director are required to abide by the provisions specified in Schedule IV. 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 for another 5 year term. Thereafter 3 years gap. • Where non- executive director not related to promoters, one third strength of the board should be of independent directors
Independent Director Companies Act 1956 Companies Bill 2012 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. • Independent director shall mean non-executive director, apart from receiving director’s remuneration has no pecuniary relationship, transaction with company, its promoters, not occupying any position may effect independence[Clause 49(1A)] of listing Agreement.
Nomination and Remuneration Committee(NRC) Companies Act, 1956 Companies Bill, 2012 BOD of listed company or such other company as may be prescribed shall constitute NRC Consist of 3 or more non executive director Not less than one half Independent Director Chairperson of Company may be member but not to chair (Clause 178) • Governed by Clause 49 of listing agreement
Stakeholder Relationship Committee (SRC) Companies Act, 1956 Companies Bill, 2012 BOD of listed company or such other company as may be prescribed shall constitute SRC Where shareholders, debenture holders, deposit holders exceeds 1000 in number Chairperson to be non executive director and such other member To resolve grievance of security holders (Clause 178) • Governed by Clause 49 of listing agreement
Maximum Directors Companies Act 1956 Companies Bill 2012 A company can have a maximum 15 directors but the limit can be increased after obtaining requite approval. A person can hold directorship in a maximum of 20 companies. However, out of the 20 companies, one cannot hold directorship in maximum 15 public companies. [Clause 149(1)] The existing maximum limit is 12 directors.(Sec 259) According to the Act, a person can hold directorship in maximum 15 public companies.(Sec 275)
Director’s Duties and Liabilities Companies Act 1956 Companies Bill 2012 Duties of the directors towards a company are prescribed in the Bill under Clause 166. A director shall act in accordance with the Companies Act. Work in accordance with the articles; Work in good faith promoting the object of the company and benefiting its members (shareholder), its employees, the community and for the protection of environment; • No provision directly. • Not to hold office of profit. (Sec 314) • General power of board (Sec 291)
Director’s Duties and Liabilities Companies Act 1956 Companies Bill 2012 Work with due and reasonable care, skill and diligence; exercising independent judgment; Not be involved in a position or activity that may be in a direct or indirect conflict of interest with company, or possibility of conflict; • Certain powers to be excercised by board only in meeting (Sec 292) • Restriction on power of board (Sec 293 & 293A)
Director’s Duties and Liabilities Companies Act 1956 Companies Bill 2012 Not take or attempt to take any undue advantage either personally or for relatives, partners or associates. If any director is found guilty for achieving undue gain, the director will be liable to reimburse an amount equal to the gain to the company; • Board of directors shall not exercise any power or do any act or things which beyond provision of Companies Act, Memorandum & articles of association or otherwise to be exercised in general meeting. (291(1) Proviso)
Director’s Duties and Liabilities Companies Act 1956 Companies Bill 2012 Cannot assign over its office and such assignment made would be held to be void. In case of infringement, a director can be fined a minimum of Rs. 100.000 (one hundred thousand rupees) extending to Rs. 500,000 (five hundred thousand rupees). • Not to assign office. (Sec 312) • Disclosure of interest(Sec- 299)- Every director who fails to comply with liable to penalty upto Rs 50,000.
Director’s Duties and Liabilities Companies Act, 1956 • Duty to make disclosure of shareholding (Sec-308) and disclosure of interest directly or indirectly in appointment of manager, managing director, wholetime director (Sec-302)
Definition of Related Party and Relative Companies Act 1956 Companies Bill 2012 Related Party means Director or his relative KMP or his relative A Firm, in which director, manager or his relative is partner A Private Company, in which director, manager is director or member A Public Company, in which director or manager is a director or holds more than 2% of paid-up capital with relatives. • Related Party is defined in AS-18 • Relatives are defined in Sec.6 • Member of HUF • Husband and Wife • Others mentioned in Schedule IA