Provisions of Companies Act 2013 pertaining to Board & Administration
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Provisions of companies act 2013 pertaining to board administration sushrut chitale

Directors Administration

Snapshot directors requirements
Snapshot – Directors requirements Administration

  • Paid up capital / turnover / loans / deposits as of last date of latest audited financial statements to be taken in to account

  • Listed company – 1/3 of total as Independent director – time period of 1 year given to comply with provisions of this section. Minimum requirement of at least 2 independent directors where criteria met

Sec 149 company to have board of directors
Sec 149 – Company to have Board of Directors Administration

  • Every company shall have -

    a) Minimum 3 directors – Public Company

    Minimum 2 directors – Private Company

    Minimum 1 director - One Person Company

    b) Maximum of 15 directors. (More than 15 allowed by special resolution)

  • At least 1 director whose stay in India is not less than 182 days in previous calendar year

Sec 149 company to have board of directors1
Sec 149 – Company to have Board of Directors Administration

  • An independent director means a director (other than MD/WTD/ nominee director);

    • who, in Boards’ opinion, is a person of integrity and possesses relevant expertise & experience

    • who is / was not a promoter of company / subsidiary / holding / associate company; and is / was not related to promoters / directors

    • who does not have pecuniary relationship with company / Group during last 2 / current financial year

    • Whose relatives do not have pecuniary relationship exceeding 2% of gross turnover or total income of Rs. 50 lakhs, whichever is lower, in current / last 2 financial years

    • Who or his relative has not been KMP in company / Group in past 3 financial years

Sec 149 company to have board of directors2
Sec 149 – Company to have Board of Directors Administration

  • Who or his relative has not been partner in firm of CA/CS/CMA who were auditing Books of Company / Group in past 3 financial years

  • Who or his relative has not been partner in legal / consulting firm who has transactions in past 3 financial years with company / group exceeding 10% of turnover of the Firm

  • Who along with relatives does not hold >2% of voting power

  • Who or his relative do not run an NGO which receives >25% of receipts from company / promoters / Group; or holds >2% voting power in company

  • Independent director to give Annual Declaration that he / she meets criteria for independence.

  • Independent director not entitled to stock option

  • Sec 149 company to have board of directors3
    Sec 149 – Company to have Board of Directors Administration

    • Independent directors can hold office for 2 consecutive terms of 5 years each. Thereafter, he / she can again be eligible by taking a break of 3 years. These provisions to be applied prospectively

    • Independent director to be liable for acts of omission / commission committed with his knowledge and with his consent / connivance / where he had not acted diligently.

    Sec 150 selection of independent directors
    Sec 150 – Selection of Independent Directors Administration

    • Shall be selected from the data bank of persons eligible & willing to act as such.

    • Appointment shall be approved in general meeting.

    • Company shall exercise proper due diligence before selection.

    • Explanatory statement annexed to notice containing agenda for appointment of independent director to include justification for such person’s appointment.

    Sec 151 small shareholders director
    Sec 151 – Small shareholders director Administration

    • A listed company may:

      a) suo moto or

      b) i) by application from at least 1000 shareholders or whichever is

      ii) one-tenth of total small shareholders lower

    • Only 1 small shareholder for a company

    • Small shareholders – those who hold shares with nominal value of < Rs. 20,000

    • Small shareholder’s director’s tenure to be 3 years – not eligible for re-appointment on expiry of tenure for another 3 years

    • A person may be small shareholder director in maximum 2 companies at a time.

    Sec 152 appointment of directors
    Sec 152 – Appointment of Directors Administration

    • First directors – Subscribers of MOA (unless AOA specifies some other person).

    • Every director to be appointed in general meeting.

    • At every AGM, one-third of the directors are liable to retire by rotation. If number is neither three nor a multiple of three, then number nearest to one-third, shall retire.

    • Company may fill up the vacancy by appointing retiring director or some other person.

    • If vacancy is not filled-up then meeting shall be adjourned. But if the vacancy is not filled up even in adjourned meeting, then the retiring director shall be deemed to be re-appointed.

    • Public Company – If there is a casual vacancy, it may be filled by BODs

    Sec 160 person other than retiring director
    Sec 160 – Person other than retiring director Administration

    • A person other than retiring director, shall be eligible for appointment as director.

    • The person / any member proposing the person to deliver notice in writing for candidature at company’s registered office 14 days before AGM.

    • Deposit of Rs. 100,000 also be submitted

    • Company to inform members about such candidature at least 7 days before AGM through individual notices / through website / through notice in newspaper

    • Deposit is refunded if proposed person gets elected or gets > 25% of votes.

    Sec 161 appointment of additional director alternate director and nominee director
    Sec 161 – Appointment of Additional Director, Alternate Director and Nominee Director

    • AOA may confer power to BODs to appoint any person as additional director to hold up to next AGM.

    • AOA may also confer power to BODs to appoint any person as alternate director for a director during his absence for a period of not less than 3 months from India.

    • Alternate director to vacate the office if the director in whose place he has been appointed returns to India.

    • One person can not be alternate director for more than 1 director in the same company.

    Sec 164 disqualifications for appointment
    Sec 164 – Disqualifications for appointment Director and Nominee Director

    • A person shall not be eligible for appointment, if he is-

      • Of unsound mind

      • An undischarged insolvent

      • Applied to be adjudicated as insolvent & application is pending

      • Convicted by court of any offence & sentenced to imprisonment for not less than 6 months & 5 years yet to pass for expiry of such sentence (if person has been convicted & sentenced for more than 7 years, he can not be Director in any company any time in future)

      • Order is passed by a court or Tribunal disqualifying him

      • Has not paid any call money for 6 months

      • Convicted of any offence dealing with related party transactions

      • Has not been allotted with DIN

    Sec 164 disqualifications for appointment1
    Sec 164 – Disqualifications for appointment Director and Nominee Director

    • If a person is a director of a company;

      • which has not filed financial statements for continuous period of 3 financial years

      • which has failed to repay deposits / interest thereon / debentures / dividends & such failure continues for more than 1 year,

        then he can not be appointed as director in any company for 5 years

    • Private company may specify additional disqualifications in AOA

    Sec 165 number of directorships
    Sec 165 – Number of Directorships Director and Nominee Director

    • No person to hold directorship (including any alternate directorship) in more than 20 companies at a time (not more than 10 in public co).

    • Directorship in Private companies that are holding or subsidiary company of a public company shall be calculated as directorship in public companies.

    • 1 year time frame given to align number of directorships to the above numbers.

    Sec 168 resignation of directors
    Sec 168 – Resignation of Directors Director and Nominee Director

    • Shall resign by giving a notice in writing.

    • Resignation shall take effect from the date notice is received by the company or any date specified by director, whichever is later.

    • When all the directors resign – Promoters or in their absence, Central Government shall appoint the required number.

    Sec 169 removal of directors
    Sec 169 – Removal of Directors Director and Nominee Director

    • Company may remove by passing ordinary resolution.

    • Special notice is required to be given.

    • Director shall be entitled to be heard.

    • If director gives any representations in writing, the company has to either send it along with notice or director can read out in the meeting.

    • The vacancy is to be filled up in the same meeting.

    • The appointed director to hold the office till the time the predecessor would have held the same.

    Sec 177 audit committee
    Sec 177 – Audit Committee Director and Nominee Director

    • Composition – At least 3 members. Majority to be independent. Majority to also have ability to read and understand financial statement

    • 1 year time given to meet requirements specified in the new Act.

    • Terms of reference to include;

      • Recommendation for appointment for auditors

      • Review & monitor auditor’s independence and performance and effectiveness of audit process

      • Examination of financial statements & auditors’ report

      • Approval of related party transactions Scrutiny of inter-corporate loans and investments

      • Valuation of undertakings/assets of the company

      • Evaluation of internal financial controls & risk management systems

      • Monitoring end use of funds raised through public offers

    Sec 177 audit committee1
    Sec 177 – Audit Committee Director and Nominee Director

    • Statutory auditors to have right to be heard at audit committee meetings when it considers auditors’ meeting but don’t have right to vote

    • Board’s report to disclose composition of Audit committee & where Board has not accepted recommendation of Audit committee, the same to be disclosed in report along with reasons therefor

    • Every listed company to have whistle blower mechanism

    Sec 178 other committees
    Sec 178 – Other Committees Director and Nominee Director

    Nomination & Remuneration committee

    • Composition – 3 or more non-executive directors (at least half to be independent). Chairperson of company can not chair the committee.

    • Terms of reference – to deal with matters pertaining to appointment, removal, promotions and other matters for executive directors & senior management.

      Stakeholders Relationship committee

    • Company with >1000 shareholders, debenture-holders, deposit-holders to constitute Stakeholders Relationship committee

    • Composition – to be decided by Board (NED to chair the committee)

    Provisions of companies act 2013 pertaining to board administration sushrut chitale

    Board meetings & powers Director and Nominee Director

    Sec 173 meetings of board
    Sec 173 – Meetings of Board Director and Nominee Director

    • Every company shall hold first Board meeting within 30 days of its incorporation.

    • Thereafter, minimum 4 meetings every year (provided not more than 120 days shall elapse between two meetings).

    • Meeting shall be called by giving notice of not less than 7 days in writing to every director at his registered address.

    • Meeting may be called at shorter notice provided at least 1 independent director, if any, is present.

    • One Person Company , Small Company and Dormant Company can hold one meeting in each half year of a calendar year (provided time gap between two meetings is not less than 90 days).

    • Board meetings can be held through video conferencing except for certain business which needs to be decided at an actual meeting of the Board

    Sec 174 quorum for meetings of board
    Sec 174 – Quorum for Meetings of Board Director and Nominee Director

    • Quorum – One-third of total strength or two directors, whichever is higher.

    • When the number of interested directors at any time equals or exceeds two-third, the non-interested directors, not less than two, form the quorum.

    • If Board meeting can not be held for want of quorum, meeting to be held to same day, time & place in next week. If such day is a national holiday, then meeting to be held on next succeeding day. However, Articles can specify another option in case meeting can not be held for want of quorum.

    Sec 175 passing of resolution by circulation
    Sec 175 – Passing of Resolution by Circulation Director and Nominee Director

    • Board can pass the resolution by circulation provided it is circulated in draft along with necessary papers, if any, to all the directors or members of the committee at their registered address.

    • If one-third of the directors require the resolution to be passed at the meeting, then the Chairman shall put it in meeting.

    Sec 179 powers of board
    Sec 179 – Powers of Board Director and Nominee Director

    • BODs are entitled to exercise all the powers as the company is authorised to exercise and do.

    • BODs shall exercise following powers only at a Board meeting;

      • Make calls on shareholders

      • Authorise buy-back

      • Issue securities

      • Borrow monies

      • Invest the funds of the company

      • Grants loans or give guarantee

      • Approve quarterly, half yearly, annual financial statements / financial results & Board’s report

      • Diversify the business of the company

      • Approve amalgamation, merger or reconstruction

    Sec 179 powers of board1
    Sec 179 – Powers of Board Director and Nominee Director

    • Take over a company or acquire controlling stake

    • Make political contributions

    • Appoint / remove KMP

    • Take note of appointment / removal of 1 level below KMP

    • Appoint internal auditors & secretarial auditor

    • Take note of disclosure of director’s interest & shareholding

    • Buy, sell investments held by company (other than trade investments) constituting >5% of paid up cap + free reserves of investee companies)

    • Invite / accept / renew public deposits

    • Review / change terms and conditions of public deposits

  • Routine investment powers out of the above can be delegated

  • Sec 180 restrictions on power of board
    Sec 180 – Restrictions on Power of Board Director and Nominee Director

    • BODs to exercise following powers only with consent of company (by special resolution);

      • Sell, lease or dispose of the whole or substantially the whole of the undertaking.

      • Invest in trust securities the amount of compensation received as a result of merger or amalgamation

      • To borrow money, where the total borrowings will exceed aggregate of its paid up share capital & free reserves.

      • To remit or give time for repayment to any director

    • These provisions also applicable to private companies. Special resolution passed at AGM in respect of above to be filed with ROC within 30 days.

    Provisions of companies act 2013 pertaining to board administration sushrut chitale

    Management & Administration Director and Nominee Director

    Sec 88 register of members etc
    Sec 88 – Register of Members, etc Director and Nominee Director

    • Every Company shall keep & maintain following registers:

      • Register of Members

      • Register of debenture-holders

      • Register of any other security holders

    • If AOA permits, the company may keep a part of its register in any country outside India, called as “foreign register”.

    • Such registers are to be maintained at the registered office of the company, except in some cases at any other place if the special resolution is passed.

    • In case of existing companies, particulars to be compiled within 6 months

    Sec 92 annual return
    Sec 92 – Annual Return Director and Nominee Director

    • Annual return to contain particulars as on close of financial year

    • Changes in members & debenture-holders since date of close of financial year

    • Annual return of following types of companies to require certification by practising CS;

      • Listed companies

      • Company with paid up capital ≥ Rs. 10 crores;

      • Company with turnover ≥ Rs. 50 crores

    • Annual return to be filed within 60 days of AGM in Form MGT-7

    • Extract of Annual return to be included in Board’s report

    Sec 93 file return promoters stake change
    Sec 93 – File return – Promoters’ stake change Director and Nominee Director

    • Return to be filed by listed company within 15 days, if there is change of > 2% in shareholding position of Promoters & Top-ten shareholders.

    Sec 94 place of keeping registers
    Sec 94 – Place of Keeping Registers Director and Nominee Director

    • The Registers and copies of annual return filed have to be kept at the registered office.

    • It can be also be kept at any other place (where at least 1/10th of members reside) by passing a Special Resolution.

    • Members may take extracts from any register or a copy of such register during business hours on any working day (at least 2 hours to be specified by Board for this – maximum fee of Rs. 10 per page extracted)

    • Periodicity of safe keeping – 8 years

    Sec 96 annual general meeting
    Sec 96 – Annual General meeting Director and Nominee Director

    • Every company other than One Person Company should hold AGM in each year.

    • Not more than 15 months shall elapse between two AGMs.

    • 1st AGM to be held within 9 months of closing of first F.Y. and in other cases within 6 months of close of FY

    • Power given to ROC to allow 3 months extension for holding AGM

    • AGM to be held between 9 am and 6 pm on any day that is not a National Holiday

    Sec 100 extraordinary general meeting
    Sec 100 –Extraordinary General Meeting Director and Nominee Director

    • EGM can be called;

      • At any time by the Board

      • Requisition of members holding ≥ 1/10th of paid-up capital

      • Requisition of members with ≥ 1/10th of voting power (in case of no share capital)

    • If Board does not call for EGM within 45 days of date of requisition, members themselves can requisition EGM within 3 months

    • In case of requisitioned meeting, the Company to give notice of resolutions to be moved by members if such requisition is deposited at registered office in the prescribed time

    Sec 101 notice of meeting
    Sec 101 – Notice of Meeting Director and Nominee Director

    • Clear notice of not less than 21 days to be given either in writing or through electronic means.

    • Shorter notice is allowed provided it is approved as such by ≥ 95% of members entitled to vote

    • Notice shall be given to:

      • Every member of the company

      • Auditor or Auditors of the company and

      • Every director of the company.

    • Omission to give notice shall not invalidate the proceedings of the meeting.

    Sec 102 statement to be annexed to notice
    Sec 102 – Statement to be annexed to notice Director and Nominee Director

    • At any general meeting, all business other than below, shall be deemed special;

      • Consideration of financial statements, Auditor & Board report

      • Declaration of dividend

      • Appointment of directors in place of those retiring

      • Appointment of Auditors & fixing their remuneration

    • All special business to require explanatory statement, and details of directors / KMP / relatives interested in the same

    • If the item to be transacted relates to or affects any other company, extent of shareholding interest in such other company held by promoter, director or any KMP shall also be set out, if it is ≥ 2% of paid-up capital of that other company

    Sec 103 quorum for meetings
    Sec 103 – Quorum for meetings Director and Nominee Director

    • In case of Public company:

      • 5 members personally present if members ≤ 1000

      • 15 members if members is > 1000 but ≤ 5000

      • 30 members if total members > 5000

    • In case of Private Company – 2 members to be personally present.

    • AOA can specify larger number than above as quorum

    • If quorum is not present within half-an hour from scheduled time, it shall stand adjourned to same day in next week at same time and same place.

    • At adjourned meeting, members present shall form a quorum.

    Sec 104 chairman of meetings
    Sec 104 – Chairman of Meetings Director and Nominee Director

    • Unless AOA provide otherwise, members present shall elect the Chairman from amongst themselves by show of hands.

    • Members may elect Chairman for the meeting by poll, if such poll is demanded by members

    Sec 105 proxies
    Sec 105 – Proxies Director and Nominee Director

    • Members are entitled to appoint another person as a proxy to attend and vote on his behalf.

    • Proxy shall not have right to speak and shall not be entitled to vote except on a poll.

    • Proxy form should be submitted before 48 hours of the scheduled time of meeting.

    • A person appointed as proxy shall act as such on behalf of ≤ 50 members or persons holding ≤ 10% voting rights

    • If a members hold > 10% of voting rights, he may appoint a proxy, provided such proxy does not act as proxy for any other member

    Sec 106 107 108 voting at general meeting
    Sec 106, 107, 108 – Voting at General meeting Director and Nominee Director

    • AOA may provide for restriction on voting rights for any member who has not paid call money.

    • Voting at general meeting to be normally by show of hands, unless poll is demanded / electronic voting is applicable

    • E-voting facility to be provided to members in case of listed companies, and companies with ≥ 1000 shareholders

    • A poll needs to be conducted in case;

      • Chairman decides so on his own motion

      • It is demanded by members with ≥ 10% voting power or holding shares where ≥ Rs. 5 lakhs has been paid up

      • It is demanded by members with ≥ 10% voting power (in case of companies without share capital)

    Sec 110 postal ballot
    Sec 110 – Postal Ballot Director and Nominee Director

    • Voting through postal ballot required in case of following;

      • Alteration of objects clause of MOA / alteration of AOA

      • Change in registered office

      • Change in objects for which a company has raised money and there is still unutilised amounts out of such money

      • Issue of shares with differential rights / variation in such rights

      • Buy-back of shares

      • Election of small shareholder director

      • Sale of whole / substantial part of undertaking

      • Giving loans / guarantee in excess of limits mentioned in sec 186

    • Additional items may also be transacted through postal ballot

    • Postal ballot not applicable for Companies with ≤ 200 members

    • Ordinary business (4 standard items of agenda) to be transacted always at a physical meeting

    Sec 114 ordinary and special resolutions
    Sec 114 – Ordinary and Special resolutions Director and Nominee Director

    • Meaning of “Ordinary Resolution”- Resolution is an ordinary one if notice has been duly given and it is required to be passed by show of hands or electronically or by poll and whereby votes cast in favour exceed votes cast against.

    • Meaning of “Special Resolution” - Resolution is a special one if

      • Intention to propose it as special is specified in the notice

      • Notice is duly given

      • Votes cast in favour ≥ 3 times the number of votes cast against.

    Sec 115 resolution requiring special notice
    Sec 115 – Resolution requiring Special Notice Director and Nominee Director

    • If special notice is required for any resolution, notice of the intention to move such resolution shall be given to the company by members

      • Holding not less than 1% of total voting power or

      • Holding shares on which sum not less than Rs. 5 lakh is paid up

    • Notice to be sent to Company between 3 months & 14 days before date of meeting

    Sec 117 resolutions to be filed with roc
    Sec 117 – Resolutions to be filed with ROC Director and Nominee Director

    • Copy of following types of resolutions / agreements is to be filed with ROC within 30 days of it’s passing with prescribed fees;

      • Special resolutions

      • Board resolution for appointment / reappointment / variation in terms of appointment of MD

      • Resolutions passed in respect of borrowing powers / disposal of substantial part of undertaking

      • Resolutions requiring a company to be wound up voluntarily

      • Certain important Board resolutions

    • Above resolutions can be filed within 300 days of event with additional fees – beyond such time limit, company will be liable to pay fines

    Sec 118 119 120 121 minutes of meetings
    Sec 118, 119, 120, 121 – Minutes of Meetings Director and Nominee Director

    • Minutes to be recorded within 30 days of conduct of meeting

    • Minutes, document, records, registers can now be maintained in electronic form

    • Inspection / copies can be given to members in electronic form

    • Every listed company to file a report of each AGM within 30 days of the conduct of the meeting.

    Consequences of default
    Consequences of default Director and Nominee Director

    Consequences of default1
    Consequences of default Director and Nominee Director

    Other administration aspects highlights
    Other administration aspects – highlights Director and Nominee Director

    • In case of new companies, Company can commence business only after subscription shares are fully paid up & verification of registered office is complete

    • CIN to be quoted on all business letters, bills, invoices, notices etc

    • In case of change in registered office for existing companies / verification of registered office for new companies, documents pertaining to ownership of premises / lease agreement / letter from owner to company for usage of premises, to be maintained.

    Sec 203 appointment of kmp
    Sec 203 – Appointment of KMP Director and Nominee Director

    • Following types of companies to appoint KMP (i.e. WTD / MD / CEO, Company secretary, chief financial officer

      • Listed companies

      • Public companies with paid up share capital > 10 crores

    • A person can be both Chairman & CEO of a company, only if Articles so provide or where there is only 1 business segment.

    • A KMP not to hold office as such in more than 1 company – he / she though can hold office in subsidiary of a company

    • A person can be MD of at most 2 companies at a time

    • Only a person resident in India can be appointed as a MD / WTD / Manager

    Sec 204 secretarial audit
    Sec 204 – Secretarial Audit Director and Nominee Director

    • Secretarial audit required for

      • Listed companies

      • Public company with paid up capital ≥ Rs. 50 crores

      • Public company with turnover ≥ Rs. 250 crores

    • Secretarial audit to be conducted by company secretary in practice

    Provisions of companies act 2013 pertaining to board administration sushrut chitale

    Related party transactions Director and Nominee Director

    Sec 184 disclosure of interest
    Sec 184 – Disclosure of interest Director and Nominee Director

    • Every Director to disclose his concern / interest at;

      • First Board meeting after he is appointed as Director

      • First Board meeting of every financial year

      • First Board meeting after there is any change in such interest

    • If Company proposes to enter in to contract / arrangement with,

      • Another company where Director holds > 2% stake or is promoter / manager / CEO; or

      • A Firm where Director is partner / owner / member,

        Then Director should disclose interest and not participate in the meeting

    • If Director does not disclose such interest / attends meeting, contract is voidable at option of company

    • “Interest” means any interest, direct or indirect, which conflicts with duties towards company as a Director

    Sec 185 loan to directors
    Sec 185 – Loan to Directors Director and Nominee Director

    A Company (including Private Limited company) can not advance loan / give guarantee / security for loan taken by

    Director or his relative / partner

    Firm where director / relative is partner

    Body corp which acts under control of lending co

    Director of Holding co

    Body corp where >25% voting controlled by 1 or more Directors

    • Above restrictions do not apply to loan given to MD/ WTD as part of terms of employment; or pursuant to scheme approved by special resolution; or to a company which is in the lending business

    • Any loan made by holding company to WOS or guarantee / security by holding company for loan taken by WOS will be expressly allowed.

    • Guarantee given/ security provided by holding company in respect of bank loan to subsidiary (note – not WOS) is also expressly allowed.

    Sec 186 loan investment by co
    Sec 186 – Loan / investment by Co Director and Nominee Director

    • Prior approval through special resolution at AGM required if,

      • Loan given

      • Guarantee / security in respect of any loan

      • Value of securities purchased

        > 60% of paid up cap + free reserves + securities premium; or

        > 100% of free reserves + securities premium; whichever is more

    • Above limits not applicable for loan / guarantee to WOS/ JV & investments in WOS

    • Sec 186 also applicable to private companies. Filing to be done with ROC within 30 days of holding AGM in case of special resolution.

    Sec 186 loan investment by co1
    Sec 186 – Loan / investment by Co.. Director and Nominee Director

    • Above provisions in respect of loan / guarantee not applicable for banks, insurance, HFC, NBFC in business of acquiring securities, acquiring shares in rights issue, company engaged in providing infrastructural facilities

    • Investment / loan / guarantee / security can be offered only after Board resolution is passed – All Directors present at meeting to give consent

    • In case of subsisting term loan from public FI, approval of such public FI also required. Such approval not required where limits mentioned earlier not exceeded and repayment is as per plan

    • Loan should not be given at yield < Government security

    • Company which has defaulted on deposits repayment shall not give loan / guarantee till such default continues

    • Company to maintain register to record such transactions. Such register to be maintained permanently

    Sec 188 related party transactions
    Sec 188 – Related party transactions Director and Nominee Director

    • Following transactions entered in to with related parties are called related party transactions;

      • sale / purchase / supply of goods / materials

      • Selling / buying of property

      • Leasing of property

      • Availing / rendering of services

      • Appointment of agent for purchase / sale of goods / materials / services / property

      • Related party’s appointment to office / place of profit in company / subsidiary / associate company

      • Underwriting subscription of securities / derivatives of company

    • “Office or place of profit” – any facility or remuneration received by the related party. In case of director, any facility or remuneration received above what he is entitled as director

    Sec 188 related party transactions1
    Sec 188 – Related party transactions.. Director and Nominee Director

    Approval process for related party transactions

    Is it an arm’s length transaction in ordinary course of business

    • All related party transactions (RPT) to be pre-approved / ratified by Board / AGM within 3 months. Interested Director not to participate

    • Interested member not to vote in AGM, for deciding approval


    Only Board resolution reqd


    Is paid up capital => 10 crores



    Transactions require prior approval at AGM through special resolution

    Is value of total transactions in a) & e) above during FY > 25% as per last FY

    Is value of transactions in b)&d) > 10% of NW

    Is value of transactions in c)>10% of turnover

    Is value of f) > 2.5 lakhs p.m.

    Is underwriting contract for > 1% of NW



    Sec 188 related party transactions2
    Sec 188 – Related party transactions.. Director and Nominee Director

    • In case of 100% subsidiary, special resolution passed by holding company is enough for transactions between holding company & subsidiary

    • “Arms length transaction” – transaction between 2 related parties that is conducted as if they were unrelated, so that there is no conflict of interest

    • Details of RPT to be mentioned in Board report, along with justification for entering in to the same

    • If Board / AGM does not ratify a RPT, contract voidable at company’s option. If contract is with related party of director, the concerned director to indemnify for any loss caused to company

    Sec 2 76 related party
    Sec 2 (76) - Related party Director and Nominee Director

    Related party with reference to a company

    • * - includes “relatives”

    • KMP–CEO/MD/Manager, CS, WTD, CFO

    A person




    Pvt Co

    Public Co

    Body corp

    Or relative is partner

    Controls action

    Is Director / members & holds with relatives > 2% paid up sh cap

    Is member / Director

    Controls action of Board / MD / Manager

    Associate co


    Holding co


    Director* / KMP*

    • Manager – manages affairs of company (may / not be Director)

    • Assoc Company - > 20% of cap , JV

    Sec 2 77 definition of relative
    Sec 2 (77) – Definition of relative Director and Nominee Director

    • Relatives include all members of HUF

    • Father, mother, son, brother, sister also includes step-relations




    Mr. A

    Mrs. A




    Daughter’s husband

    Son’s wife

    Determination of arm s length price
    Determination of arm’s length price Director and Nominee Director

    Consequences of default2
    Consequences of default Director and Nominee Director

    • Consequences of default in the above cases are either imprisonment or fine or both

    Provisions of companies act 2013 pertaining to board administration sushrut chitale

    Acceptance of Deposits Director and Nominee Director

    Sec 73 76 acceptance of deposits
    Sec 73-76 – Acceptance of deposits Director and Nominee Director

    • Definition of “Deposit” – [Sec 2 (31)] – includes any receipt of money by way of deposit or loan or in any other form by a company, but does not include such categories prescribed in consultation with RBI.

    • Definition of “Deposit” – Rule 2(1)(b) of Companies (Acceptance of Deposits) Rules, 2014 – includes any receipt of money by way of deposit / loan / other form, but does not include –

      • Amount received from Central / State Government

      • Amount received from foreign Government / approved foreign donors

      • Bank loan

      • Loan from public financial institutions / insurance companies

      • Commercial paper / instrument issued as per RBI guidelines

      • Any amount received by a company from any other company

    Sec 73 76 acceptance of deposits1
    Sec 73-76 – Acceptance of deposits…. Director and Nominee Director

    • Amount received as securities application money (If securities are not allotted within 60 days of receipt of money & still not refunded within 15 days thereafter, the money to be treated as deposits)

    • Amount received from person, who at the time of receipt of money was a director (Director to give declaration that amount given to company is not out of borrowed money)

    • Amount raised through secured bonds / Debentures or bonds / debentures compulsorily convertible in equity in 5 years

    • Non-interest bearing security deposit received from employee, not exceeding his annual salary

    • Non-interest bearing amount received / held in trust

    • Amount received in course / purposes of business

      • As advance against goods / services provided it is appropriated as such within 365 days

    Sec 73 76 acceptance of deposits2
    Sec 73-76 – Acceptance of deposits…. Director and Nominee Director

    • Advance received under agreement for sale of property provided it is duly registered

    • Security deposit against supply of goods / services

    • Advance received against long term projects (in any of above 4 sub-points, if amount becomes refundable because company does not have permission to deal in that business, amount to be considered as deposits)

    • Amount brought in by promoters / relatives as unsecured loan at insistence of bank / financial institution

    Sec 73 76 acceptance of deposits3
    Sec 73-76 – Acceptance of deposits…. Director and Nominee Director

    Provisions applicable in respect of deposits determined by type of company

    • Eligible company – Defined in Companies (Acceptance of Deposits) Rules 2014 – means a public company which has obtained prior consent of AGM through special resolution for accepting public deposits; and has

      • Net worth of at least Rs. 100 crores, or

      • Turnover of at least Rs. 500 crores,

    Private company

    Public company

    Eligible company

    Sec 73 76 acceptance of deposits4
    Sec 73-76 – Acceptance of deposits…. Director and Nominee Director

    • NW = paid up capital + free reserves

    Sec 73 76 acceptance of deposits5
    Sec 73-76 – Acceptance of deposits…. Director and Nominee Director

    Sec 73 76 acceptance of deposits6
    Sec 73-76 – Acceptance of deposits…. Director and Nominee Director

    Sec 73 76 acceptance of deposits7
    Sec 73-76 – Acceptance of deposits…. Director and Nominee Director

    Company decides to accept deposits

    Special resolution passed by AGM

    Board authorises form and content of circular / advertisement

    Board to;

    Send Circular to ROC 30 days before issue (signed by >50% directors)

    Obtain deposit insurance 30 days before issue

    Appoint deposit trustees and execute deposit trust deed at least 7 days before issue, in case of secured deposits

    Obtain credit rating in case of eligible companies – through out tenure

    Invitation in form of circular / advertisement issued to members / public;

    Send by registered post AD / speed post / electronic mode

    Publish in English / Vernacular newspaper in place where registered office is situated

    Publish on company’s website, in case of invitation to public

    Consent of deposit trustees to appear in the circular

    Circular to be valid for 6 months from end of financial year or up to AGM, whichever is earlier. Fresh circular for every financial year

    Next slide

    Sec 73 76 acceptance of deposits8
    Sec 73-76 – Acceptance of deposits…. Director and Nominee Director

    Previous slide

    Form to be submitted by intending depositor

    Company to accept deposits – furnish deposit receipt within 2 weeks – create charge within 30 days in case of secured deposits

    Company to maintain register which contains various details pertaining to the depositor and deposits

    Entry to be made in register within 7 days of issue of deposit receipt

    Register to be maintained for 8 years from date of latest entry in register

    By 30th April of every financial year, keep 15% of deposit to be repaid in current + next financial year, in a scheduled bank (Deposit repayment reserve account).Amount to be free from lien

    By 30th June of every financial year, file return along with certain audited information to ROC

    Sec 73 76 acceptance of deposits9
    Sec 73-76 – Acceptance of deposits…. Director and Nominee Director

    • Deposit trustee not to be appointed, if he is

      • Director / KMP / employee of company / holding / subsidiary company or relative of aforesaid

      • Depositor in the company

      • Indebted to company / holding / subsidiary

      • Has material pecuniary relationship with company

      • Has guaranteed repayment of the company’s deposits

    • Deposit trustee can be removed only if approved by all directors in meeting. Such meeting to include independent director, if applicable

    • Duty of deposit trustee to enforce compliance as required by Law and ensure protection of depositors interest

    • Depositors meeting can be called on requisition by depositors with 10% of total deposit value

    Sec 73 76 acceptance of deposits10
    Sec 73-76 – Acceptance of deposits…. Director and Nominee Director

    • Deposits in case of banks and NBFCs to be regulated by RBI – these provisions not to apply

    • Depositor has right to make nomination

    • If repayment made by company after 6 months, but before expiry of period – interest rate to be reduced by 1%

    • Penal rate of interest @ 18% p.a. payable on overdue period in case deposits matured & claimed but remaining unpaid

    Provisions of companies act 2013 pertaining to board administration sushrut chitale

    THANK YOU! Director and Nominee Director

    Sushrut Chitale

    Mukund M Chitale & Co.

    204/205, Agrawal Shyamkamal – A,

    Vile Parle East, Mumbai – 400057,

    Mobile: 91 98211 12904