580 likes | 722 Views
Companies Bill, 2012 By CS Mamta Binani Past Chairperson (Year 2010), EIRC of ICSI Practising Company Secretary email@example.com dated : 31.01.2013. `. NEED TO REPLACE COMPANIES ACT, 1956 WITH A NEW COMPANIES ACT.
E N D
Companies Bill, 2012 By CS Mamta Binani Past Chairperson (Year 2010), EIRC of ICSI Practising Company Secretary firstname.lastname@example.org dated : 31.01.2013
NEED TO REPLACE COMPANIES ACT, 1956 WITH A NEW COMPANIES ACT • In view of changes in the national and international economic environment and expansion and growth of economy of our Country. • Consultation with various bodies & J.J. Irani Committee
Not so lenient stand anymore • The new Bill looks to put more information in the public domain, particularly related to unlisted and private Companies. • As of now, this set has much more lenient reporting requirements as compared to the listed Companies, which only constitutes about 1% of the 1.06 million Companies registered with the MCA
Companies Act, 1956 Companies Bill, 2012 • It was introduced on 1st April, 1956. • It has 658 Section and 15 Schedules. • It extends to the whole of India (Sikkim has its own Companies Act). • As passed by the Lok-Sabha on 18th December, 2012. • The Bill has 470 Clauses, 29 chapters and 7 Schedules. • It applies to the whole of India.
SOME QUICK BITES • Financial Year (1st April to 31st March) • Private Limited Company: Number of members increased (from 50 to 200) • Concept of small companies, associate companies (definition clause) • Concept of dormant companies (clause 455) • Ambit of ‘Officer in Default’ widened • Merger of Indian Co. with Foreign Co. (such countries as may be notified by the Central Govt.) • And Vice-versa
KMP (Key Managerial Personnel) • The MD or CEO or Manager and in their absence WTD • The Company Secretary and The CFO • Appointment to be made by the Board • No Escape clause (Every Company belonging to such class(es) as may be prescribed shall have a whole time KMP – Clause 203(1))
Contd… • A KMP shall not hold office in more than 1 company except in its subsidiary company at the same time. • But a Company may appoint as its MD if he is the MD or manager of one other company (other conditions to be fulfilled) • If the office of KMP vacated, the vacancy to be filled up within a period of six months • A KMP may be a director of any Company with the permission of the Board
Functions of a CS laid out • Clause 205 • Functions shall include: - to report to the Board about compliance with the provisions of the Companies Act, the rules made there under and other laws applicable to the Company - to ensure compliance with applicable secretarial standards - to discharge such other duties as may be prescribed
Penalty for not appointing KMP • On Company – Rs.1.00 lakh, may extend to Rs.5.00 lakh • On every Director & KMP who is in default– Rs.50,000.00 • For continuing default– Rs.1000.00……PER DAY
One Person Company • Promote Entrepreneurship • Other than a public limited Company • MOA have to mention successor • May have one or more directors • Less cumbersome • Restriction on number of members (not exceeding 100) • Option to dispense with AGM • Financial Statement may not include cash flow statement
OPC…..Contd…. • At least one meeting of the Board of Directors to be conducted in each half of a calendar year and the gap between the two meetings should not be less than 90 days (This also applicable to small and dormant companies) • The above requirement shall not apply to OPC in which there is only one director on its Board of Directors.
MOA and AOA • Only objects for which company is incorporated along with matters considered necessary for its furtherance shall be mentioned. The Company cannot provide for other objects clause. • Articles of Association of the Company may contain provisions with respect to entrenchment whereby the specified provisions of the article can be altered only if the more restrictive conditions or procedures as compared to those applicable in case of special resolution have been met with.
Registered Office • Only communication address may be given at the time of incorporation. • Registered office address is required to be intimated within 30 days of its incorporation. • Notice of every change of the situation of the registered office shall be given to the Registrar within 15 days of the change, who shall record the same.
Certificate of Commencement Not Required • A Company having a share capital (whether public or private) shall not commence any business or exercise any borrowing power unless - declaration is filed by a director with the Registrar and • A confirmation that the Company has filed with the Registrar a verification of its registered office, has to be filed.
Compromise, Amalgamation & Mergers • Simplified for some • Transferee Company may continue as an unlisted entity • Minority ‘squeeze out’ concept • Auditor’s certificate- Compliant with applicable accounting standards • Objection criteria
Prospectus & Allotment of Securities • Governs the issue of not only shares but all types of securities • Provides that a public Company can only issue securities by following the provisions related to Public Offer or Private Placement or by way of bonus or right issue. • Private Company may issue securities only through private placement. • QIB shall not be covered under the provisions related to Private Placement.
Prospectus & Allotment of Securities • Now any person (including group or association) affected by any misleading statement, inclusion or omission of any matter in the prospectus - file any suit or take any action providing for civil liability for fraudulently inducing persons to invest money. • In addition to shares, return of allotment is required to be filed for all types of securities.
Shares • Company cannot issue shares at discount other than as sweat • Company may issue preference shares redeemable after 20 years for infrastructure projects • No reduction of capital if deposit not repaid
A Bold Step • If a Company, with intent to defraud, issues a DUPLICATE Certificate of shares, the Company shall be punishable with fine: • Which shall not be less than 5 times the face value of the shares involved • But which shall extend to 10 times the face value of such shares or Rs.10.00 crores, whichever is higher. • Stringent penalties have also been imposed for defaulting officers of the Company.
Share Capital • Redemption of unredeemed preference shares by issue of further preference shares with consent of holders of 75% in value of such preference shares and the NCLT. • Unlike section 94(1) (b) of the 1956 Act, alteration of share capital by consolidation and division of share capital into shares of larger amount than existing shares to require NCLT’s approval.
Accounts of Companies • Permit for the first time maintenance of books of account and other books , paper, minutes in electronic mode. • Compulsory consolidation of accounts of Holding Company and its Subsidiaries including Joint Venture and Associate Companies. • The Bill provides for provisions relating to re-opening or re-casting of book of accounts of the Company. • The Directors responsibility statement in case of listed company shall also include additional statement related to internal finance control and compliance of all applicable laws.
Directors’ Report • The Director’s Report for every Company, inter-alia, except for One Person Company, shall have to provide various types of additional information: • number of meetings of the Board • company’s policy on directors’ appointment and remuneration • formal annual evaluation of its own performance • risk management policy • explanation by the Board on every qualification etc. made by the CS in its secretarial audit report and in the auditors report • particulars of loans, guarantees or investments etc. • specify reasons for not spending specified amt in CSR
New provision for D/Report • Every listed Company shall disclose in the Board’s Report, the ratio of the remuneration of each director to the median employee’s remuneration and such other details as may be prescribed.
CSR • Provisions related to Corporate Social Responsibility (CSR). Activities that can be undertaken given in Schedule VII. • For CSR, Net worth criteria >= Rs.500 crore or Turnover criteria >= Rs.1000 crore or Net profit criteria >= Rs.5 crore or more during any financial yr. • In every financial yr, atleast 2% of the average NP made during the 3 immediately preceding financial years • Preference to local areas where it operates • Average NP shall be in accordance to clause 198
Secretarial Audit • Every listed Company and Companies belonging to other class of Companies as prescribed will have to mandatorily get the secretarial audit done. • By a Practising Company Secretary • In a prescribed form • Annex the same with Director’s Report • Qualifications, if any to be specifically explained in Director’s Report • If contravention, the Company, every officer of the Company or the PCS, who is in default shall be fined : not less than 1,00,000/-, may extend to 5,00,000/-
Certification of Annual Return • In case a PCS certifies the Annual Return otherwise in conformity with the requirements of the specified section, such PCS shall be punishable with fine which shall not be less than Rs.50,000 but which may extend to Rs.5,00,000. • Changes in shareholding of promoters and top 10 shareholders A listed company to file a return with the ROC with respect to changes in the above details (to ensure audit trail of ownership)
Report on AGM • Listed company along with the report on each AGM, shall also file a confirmation that the AGM was convened, held and conducted as per law • Report will be in the prescribed manner • To be filed with the ROC within 30 days of conclusion of the AGM • Non-filing will be a punishable offence
Audit & Auditors • Individual or Audit Firm for a period of 5 years and block of 5 years thereafter • For Listed Companies and other prescribed class of companies – Compulsory rotation in 5 years (individual)/ 10 years (firm) • In addition to accounting standards, auditing standards also being made compulsory • Not to render certain services
First auditor-interesting provision • Shall be appointed by the BOD within 30 days from the date of registration of the Company • In case the BOD fails to do so, it shall inform the members of the Company • The members shall appoint the auditor within 90 days • At an EGM • The auditor to hold office till the conclusion of the first AGM
Internal Audit • Prescribed class of companies shall be required to appoint an internal auditor to conduct internal audit of the functions and activities of the Company. • This internal auditor could be a CA or a Cost Accountant or such other professional, as may be decided by the Board. • Appointment to be done by the Board.
The current scope of internal audit Inter-alia: • Obtaining knowledge of legal and regulatory framework within which the entity operates • Obtaining knowledge of the entity’s accounting and internal control systems and policies • Determination of the effectiveness of internal control procedures adopted by the entity • Determination of the nature, timing and extent of procedures to be performed (source: website of the ICAI)
Directors • At least 1 woman director in such class or classes of Companies as may be prescribed. • At least 1 director shall be a person - stayed in India for a total period of not less than 182 days in the previous calendar year. • Listed public company shall have at least 1/3 of the total number of directors as independent directors. • Term of 5 years + 5 years and then cooling period of 3 years. • Maximum limit of directors has been increased to 15 from 12. More directors can be added by passing of special resolution without getting the approval of Central Government, as earlier required. • Cannot become directors in more than 20 Companies instead of 15. Out of this 20, he cannot be director of more than 10 public Companies. • Resignation of Directors – A formal clause introduced. • Definition of Independent Directors (ID) in the Bill (clause 149) • Like 274(1)(g) is laid in the beginning of each year, every ID to give a declaration of meeting the criteria of independence.
Look at this-Register of Directors • The register shall contain: - Particulars of its Directors - KMP Details like: - Securities held by each of them in the Company or its holding, subsidiary, subsidiary of company’s holding company or associate companies - Other details as may be prescribed
Vacation of office of Director • If he absents himself from all the meetings of the BOD held during a period of 12 months without or without seeking LOA of the Board (clause 167(b)) • Fine is hefty if he continues even after he should have vacated his office Resignation of Director (clause 168) Director also needs to forward to ROC, a copy of his resignation along with detailed reasons within 30 days of resignation in the prescribed manner Quick fix solution Where all directors have resigned, the promoter or in his absence, the CG shall appoint required number of directors. These directors to hold office till the directors are appointed in General Meeting
Notice of Board Meeting • Atleast 7 days notice is required • The notice may be sent by electronic means • Meeting may be called at shorter notice • Condition that atleast 1 independent director, if any, shall be present at the meeting • In the absence of the independent director from such a meeting, decisions of the meeting will be final only on ratification by atleast 1 independent director
Meeting of Board & Its Powers • Not more than 120 days shall elapse between 2 consecutive meetings – applicable to private companies also • Meetings through video conferencing incorporated • Besides Audit, Remuneration Committee also made mandatory; Corporate Social Responsibility Committee where CSR applicable; Stakeholders RelationshipCommittee where 1000 or more security holders; • Limit on political contribution increased from 5% to 7.5% (political party defined) • Provisions related to inter-corporate loans and investment has been extended to include loan and investment to any person • Investments not beyond 2 layers of investment companies • Listed company may have one director elected by such small shareholders
Clause 184 akin to sec 299 • Every Director, whether directly or indirectly, concerned or interested in a/proposed contract or arrangement: - with a body corporate in which such director in association with any other director, holds more than 2% shareholding of that body corporate or - is a promoter/ manager/ CEO of that body corporate - with a firm or other entity, in which he is a partner, owner or member as the case may be
Audit Committee • Every listed company and such other prescribed class – Audit Committee • Inter-alia, it shall review and monitor the auditor’s independence and performance, and effectiveness of the audit process Vigil Mechanism Every listed company or for those prescribed, establish a vigil mechanism for directors and employees to report genuine concerns. It shall provide for adequate safeguards against victimisation
En block resolution • A single resolution not allowed for appointing 2 or more persons as directors of the Company unless A proposal to move such a motion has first been agreed to at the meeting without any vote being cast against it. (Clause 162)
Managerial Remuneration • CLAUSE 197 Provisions relating to limits on remuneration provided in the existing Act included in the bill. Maximum limit of 11% (of net profits) being retained. For cases of no profits or inadequate profits, Schedule V will be applicable
Accounts of Companies • If the MD, WTD in-charge of finance, CFO or any other person specifically charged by the Board, contravenes the provisions relating to accounts, the said person shall be punishable with imprisonment or with fine • In case of subsidiaries, prepare a consolidated financial statement and all the subsidiaries in the same form and manner as that of its own. This also needs to be laid before the AGM • For this purpose, subsidiary includes associate company and joint venture
Quantification to be done Where the Financial Statements do not comply with the applicable AS as specified in clause 129(1), the Company will have to disclose: - the deviation from the AS - the reasons for such deviation - financial effects, arising out of such deviation After obtaining approval of the Tribunal, provision of voluntary revision of financial statements or Board’s Report has been included in the Bill (clause 131)
New provision (clause 137) • Provided the FS not adopted at AGM or adjourned AGM, such un-adopted FS along with the required documents shall be filed within 30 days of AGM and the ROC shall take it in records as provisional till the adopted FS filed. • Where the AGM for any year not held, FS duly signed along with the statement of reasons shall be filed. • A company will have to attach the accounts of its foreign subsidiary and which have not established their place of business in India.
Remodel the Corporate Structure • It is seen how discreetly Companies route their investments by forming a myriad matrix • The Bill proposes to restrict the number of layers of investment Companies to 2. This will help in identifying the ultimate beneficiary • The catch is that the number of layers of subsidiaries that the 2 investment/ holding Companies can have is yet not specified
Case for study • Chintamani Agrotech • 2 Companies – Jinbhuvish Power and Aarya Agrotech owned a majority stake in Chintamani, but the ultimate beneficiary of these Companies was very hard to determine • Upto 3 layers, the ownership was tried to be traced but only to encounter new corporate entities at every level
Class Action Suits • A minimum of 100 or a % to be specified later, can join hands to claim damages against the: * Company * Auditors * Consultants * Experts or Advisors for any ‘wrongful, fraudulent or unlawful’ conduct!! A weapon in the hands of the investors to save their common interest.
Case for reference • Satyam Computer Services now known as Mahindra Satyam paid $125 million to settle ‘class-action’ suits filed by shareholders in the US, where its shares were listed. • Its auditors shelled out $25 million to do the same in the US. • Indian shareholders did not receive a penny from any such settlement as the Country did not allow class-action suits.
‘Fraud’ defined • Broadly: ‘Any omission or concealment with an INTENT to deceive and gain undue advantage from shareholders or creditors, whether or not there is any wrongful gain or loss’ So, for example, if the 2 former executives of Reebok India are found guilty of falsification of documents, under the proposed new law, they could face arrest and pay fines.
18 situations • 18 situations in which the bill has prescribed frauds and penalties • In several cases, the penalties have been increased upto 3 times of the amount involved • In select sections, imprisonment has been introduced - ranging from 6 months to 10 years • Serious Fraud Investigations Office (SFIO) to receive statutory status (but not a constitutional body like the CAG). This will give more teeth to the Investigator. • As per MCA’s latest annual report, there has been no conviction in the 835 cases of prosecution filed in different courts following an investigation by the SFIO