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Companies Act 2013 A Critical Analysis. Ashish Makhija Advocate B.Com ( Hons .), LLB, LLM (USA), LLM (India), FCA, FCMA Standing Counsel for the Official Liquidator Attached to High Court of Delhi. Member of: . The Pencil Parable. Pencil Parable. Looking Back. Companies Act 1956

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companies act 2013 a critical analysis
Companies Act 2013A Critical Analysis
  • Ashish MakhijaAdvocate
  • B.Com (Hons.), LLB, LLM (USA), LLM (India), FCA, FCMA
  • Standing Counsel for the Official Liquidator
  • Attached to High Court of Delhi

Member of:

the pencil parable
The Pencil Parable
  • Pencil Parable
looking back
Looking Back
  • Companies Act 1956
    • 658 Sections (Effectively 881 Sections)
    • 16 Schedules
    • 66 Definitions
    • 34 set of Rules & Regulations
looking forward
Looking Forward
  • Companies Bill 2008
    • 426 Sections
    • No Schedules
    • 93 Definitions
    • Phrase “as may be prescribed” appeared “235 times” in the Bill
  • Companies Act 2013
    • 470 Sections
    • 7 Schedules
    • 95 Definitions
    • Phrase “as may be prescribed” appears “346 times” in the Act
    • 46 sections of Part IX A of Companies Act, 1956 relating to Producer Companies will continue to apply
companies act 2013 status
Companies Act 2013 - Status
  • President’s Assent on 29th August 2013
  • 98 Sections notified on 12th September 2013
  • Removal of Difficulties order issued on 20th September 2013 regarding implementation of Sections 24, 58 and 59
companies act 2013 status1
Companies Act 2013 - Status
  • Clarification No. 1 – General Circular 15/2013 dated 13.09.2013
    • S. 2(68) – MoA, AoA filed till 11.9.13 can be registered as per definition of private company under CA 1956
    • S.102 – Notices of general meetings issued on or after 12.9.13 must comply with additional requirements as prescribed in S. 102
    • S.133 – Existing Accounting Standards notified shall continue to apply till new one are notified u/s 133
    • S.180 – Resolutions can be passed as ordinary resolution if general meeting notice has been issued prior to 12.0.2013
companies act 2013 status2
Companies Act 2013 - Status
  • Clarification No. 2 – General Circular 16/2013 dated 18.09.2013
    • “It is clarified that w.e.f. 12.9.13, the relevant provisions of CA 1956, which correspond to the provisions of 98 sections of CA 2013 brought in force on 12.09.13, cease to have effect from that date.”
companies act 2013 status3
Companies Act 2013 - Status
  • Applies to whole of India
  • Central Government will notify date of applicability
  • Different dates may be appointed for different provisions
  • Applies to all banking, insurance and electricity companies also so long provisions are not inconsistent with Special Acts.
understanding layout
Understanding Layout
  • Divided in to 29 chapters
  • Incorporation, MoA, AoA – Chapter II – Sections 3 to 22
  • Prospectus – Chapter III – Sections 23 to 42
  • Share Capital – Chapter IV – Sections 43 to 72
  • Public Deposits – Chapter V – Sections 73 to 76
  • Registration of Charges – Chapter VI – Sections 77 to 87
  • Management & Administration – Chapter VII – Sections 88 to 122
  • Dividend – Chapter VIII – Sections 123 to 127
understanding layout1
Understanding Layout
  • Accounts – Chapter IX – Sections 128 to 138
  • Audit & Auditors – Chapter X – Sections 139 to 148
  • Directors, Board & Remuneration – Chapters XI, XIII, XIII – Sections 149 to 205
  • Inspection, Investigation – Chapter XIV – Sections 206 to 229
  • Mergers – Chapter XV – Sections 230 to 240
  • Oppression and Mismanagement – Chapter XVI – Sections 241 to 246
  • Registered Valuers – Chapter XVII – Section 247
understanding layout2
Understanding Layout
  • Removal of Names of Companies – Chapter XVIII – Sections 248 to 252
  • Revival – Chapter XIX – Sections 253 to 269
  • Winding –up – Chapter XX – Sections 270 to 378
  • Companies Authorized to Register Under the Act – Chapter XXI – Sections 366 to 374
  • Foreign Companies – Chapter XXII – Sections 379 to 393
  • Government Companies – Chapter XXIII - Sections 394 & 395
  • Registration Offices & Fees – Chapter XXIV – Sections 396 to 404
  • Companies to furnish Information – Chapter XXV – Section 405
  • Nidhis – Chapter XXVI – Section 406
understanding layout3
Understanding Layout
  • NCLT – Chapter XXVII – Sections 407 to 434
  • Special Courts – Chapter XXVIII – Sections 435 to 446
  • Miscellaneous - Chapter XXIX – Sections 447 to 470
  • Schedule I – Table A to I
  • Schedule II – Depreciation
  • Schedule III – Balance Sheet
  • Schedule IV – Code for Independent Directors
  • Schedule V – Managerial Personnel
  • Schedule VI – Infrastructural Projects
  • Schedule VII – Activities for CSR Policy
new definitions
New Definitions
  • Associate Company [2(6)]
    • In relation to other company, means a company in which that other company has significant influence
    • Significant Influence means control
      • Of at least 20% of total share capital, or of
      • Business decisions under an agreement
    • Excludes Subsidiary Company
    • Includes Joint Venture Company
new definitions1
New Definitions
  • Board of Directors [2(10)]
    • Means the collective body of the directors of the company
  • Director [2(34)]
    • Director means the director appointed to the Board of Directors of the Company
  • Director under Companies Act, 1956 [2(26)]
    • Director includes any person occupying the position of a director by whatever name called
new definitions2
New Definitions
  • Control [2(27)]
    • Includes
    • Right to appoint majority of the directors
    • Control the management or policy decision
    • By person or persons, acting individually or in concert, directly or indirectly
    • By virtue of shareholding or management rights, or shareholders agreement or voting agreements or in any other manner
new definitions3
New Definitions
  • Interested Director [2(49)]
    • Means
    • A Director, who is in any way, himself or
    • Through any of his relatives or firm , body corporate or another association of individuals in which he or any of his relatives is a partner, director or a member
    • Interested in a contract or arrangement or proposed contract or arrangement
    • Entered into or proposed to be entered into by or on behalf of the company
new definitions4
New Definitions
  • Key Managerial Personnel [2(51)]
    • CEO or MD or Manager
    • Company Secretary
    • Whole-time director
    • CFO
    • Such other officer as may be prescribed
new definitions5
New Definitions
  • Manager [2(53)]
    • Individual having whole or substantially the whole of the affairs of the company
    • Includes a director or any other person occupying the position of a manager, by whatever name called
    • Under a contract of service or not
new definitions6
New Definitions
  • Managing Director [2(54)]
    • Director entrusted with substantial powers of the management of the company
    • Includes a director or occupying the position of a managing director, by whatever name called
    • By virtue of an agreement, articles, board or shareholder’s resolution
new definitions7
New Definitions
  • Officer in default [2(60)]
    • Whole-time Director
    • Key Managerial Personnel
    • No KMP, then specified director, else all directors
    • Any person who –
      • under the immediate authority of the Board or any key managerial personnel
      • Is charged with any responsibility including maintenance, filing or distribution of accounts or records
      • Authorizes, actively participates in, knowingly permits, or knowingly fails to take actives steps
      • To prevent any default
new definitions8
New Definitions
  • Officer in default [2(60)]
    • Any person in accordance with whose advice, directions or instructions, the Board is accustomed to act (Excludes advice given in a professional capacity)
    • Every Director, who is aware of such contravention by virtue of receipt of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention takes place with his consent or connivance
    • Share Transfer Agents, Registrars and Merchant Bankers, in respect of issue or transfer of any shares
new definitions9
New Definitions
  • Postal Ballot [2(65)]
    • Means voting by post, or
    • Through Electronic Mode
new definitions10
New Definitions
  • Related Party [2(76)]
    • Director or his relative
    • KMP or his relative
    • Firm in which a Director, Manager or relative is partner
    • Private Company in which a Director or Manager is a member or director
    • Public Company in which a Director or Manager is a director or holds more than 2% either himself or through his relatives
    • Body Corporate or Person – Company is accustomed to act under their direction – Excludes Professional Advise
new definitions11
New Definitions
  • Related Party [2(76)]
    • Holding, Subsidiary or Associate Company
    • Subsidiary of a holding company to which it is also a subsidiary
    • Such other person , as may be prescribed
      • a director or key managerial personnel of the holding, subsidiary or associate company of such company or his relative;
      • any person appointed in senior management in the company or its holding, subsidiary or associate company i.e. personnel of the company or its holding, subsidiary or associate company who are members of core management team excluding Board of directors comprising all members of management one level below the executive directors, including the functional heads.
new definitions12
New Definitions
  • Relative [2(77)]
    • Members of HUF
    • Husband and wife
    • Related in a manner as may be prescribed
      • 15 categories prescribed – 1 new addition
      • Spouse, Father, Father’s father, Father’s mother, Mother, Mother’s mother, Mother’s father, Son, Son’s wife, Son’s son, Son’s daughter, Daughter, Daughter’s husband, Brother, Sister
      • 8 Removed – Son’s son’s wife, Son’s daughter’s husband, Daughter’s son, Daughter’s Son’s wife, Daughter’s daughter, Daughter’s daughter’s husband, Brother’s wife, Sister’s husband
new definitions13
New Definitions
  • Small Company [2(85)]
    • Other than a Public Company
    • PUC does not exceed 50 lakhs or as may be prescribed (not exceeding 5 Crores)
    • Turnover does not exceed Rs. 2 Crores or prescribed amount (not exceeding Rs. 20 Crores)
    • Not applicable to holding or subsidiary company or licensed company (Section 8)
new definitions14
New Definitions
  • Subsidiary Company [2(87)]
    • Controls the composition of the BOD
    • Controls more than one-half of Total Share Capital either alone or through subsidiaries
    • Chain Subsidiaries – Layers to be prescribed
annual return section 92
Annual Return (Section 92)
  • Particulars as on date of close of financial year
  • New Particulars
    • Details of meetings of Board, Committees along with attendance details
    • Remuneration to Directors and key managerial personnel
    • Penalties imposed/compounding done
    • Matters as may be prescribed
  • To be signed by 1 director and company secretary or CS in practice, if there is no CS (Every Company)
  • OPC and Small Company – Signed by CS. If no CS, then director
annual return s 92
Annual Return (S.92)
  • Extract of Annual Return to form part of Board’s Report? (form 7.9)
  • To be filed within 60 days of AGM
  • Failure to file – Fine of Rs. 50,000/- Min, Rs 5 lakhs Max., imprisonment for 6 months
  • To be certified by CS in practice – Listed Companies or Companies having PUC of 5 Crores or more and turnover of Rs. 25 crore or more
    • If CS certified wrongly – Fine – Min. 50,000/-, Max. Rs. 5 lacs
  • Copies of Annual Return to be preserved for 8 years from the date of filing with Registrar
return section 93
Return (Section 93)
  • Listed Company
  • Change in number of shares held by promoters and top ten shareholders
  • Within 15 days of such change
  • Promoter [S. 2(69)]
    • Named in prospectus and identified by the company as such in the annual return
    • Has control over the company, directly or indirectly, as a shareholder, director or otherwise
    • Under whose advice the Board of Directors is accustomed to act
agm section 96
AGM (Section 96)
  • Every Year AGM to be held
  • Gap not to exceed 15 months between 2 AGM’s
  • First AGM – 9 months from the close of FY, else 6 months
  • Extension of 3 months by Registrar
  • OPC not to hold AGM
    • What is the time schedule for OPC to file Annual Return?
  • Time– Business Hours - 9.00 AM to 6 PM
  • Can be held on Sundays and Public Holidays also
  • Cannot be held on National Holidays
power of tribunal to call agm other meetings section 97 and 98
Power of Tribunal to call AGM/Other Meetings (Section 97 and 98)
  • In case of default of Section 96
  • Tribunal can call or direct calling of AGM
  • Application can be made by any member
  • Tribunal can direct that one member – in person or by proxy – shall constitute the quorum
  • Tribunal can call meeting other than AGM also either suo moto or on application by any director or member
extraordinary general meeting s 100
Extraordinary General Meeting (S.100)
  • Board may call EGM whenever it deems fit
  • Board shall call EGM upon requisition
    • Company having share capital – members holding 1/10th of PUC
    • Company not having share capital – number of members holding not less than 1/10th of voting power
notice of meeting s 101
Notice of Meeting (S.101)
  • Not less than clear 21 days notice
  • In writing or through Electronic Mode
  • Shorter Notice permitted if consented to by 95% of members in writing or through electronic mode
  • Specify the Place, Day, Date and Hour
  • To be given to each director also besides members and auditors
notice of meeting s 1011
Notice of Meeting (S.101)
  • Electronic Mode means
    • any communication sent by a company
    • through its authorized and secured computer programmer
    • which is capable of producing confirmation and keeping record of such communication
    • addressed to the person entitled to receive such communication
    • at the last electronic mail address provided by the member
notice of meeting s 1012
Notice of Meeting (S.101)
  • Notice may be sent through e-mail as a text or as an attachment to e-mail or as a notification providing electronic link/Uniform Resource Locator (URL) for accessing such notice
  • Subject line – state the name of company, notice of type of meeting and the date on which the meeting is scheduled
  • Attachment must be in pdf or electronic documentation format
  • Option to receive notice through e-mail is solely of member
notice of meeting s 1013
Notice of Meeting (S.101)
  • Company not liable for failure in transmission beyond its control
  • If company is aware of failure, send physical notice within 72 hours of original attempt
  • Place the notice on website of the company and on the website as may be notified by the CG
statement to be annexed s 102
Statement to be Annexed (S.102)
  • For each Special Business
    • Nature of interest, financial or otherwise, in respect of each item , of director, manager, KMP and their relatives
    • In case of matter relating to company, statement shall disclose shareholding of every promoter, director, manager, KMP, if it is equal to or exceeds 2% of PUC
    • Non-disclosure will lead to
      • Holding of benefit in trust
      • Liability to compensate the benefit to the company
quorum for meetings s 103
Quorum for Meetings (S. 103)
  • Quorum for General Meetings
    • Public Companies
      • 5 in case of 1000 members
      • 15 in case of 1001-5000 members
      • 30 in case of more than 5000 members
    • Private Companies – 2
    • Articles can provide for larger number
proxies s 105
Proxies (S. 105)
  • No one can act as proxy of more than 50 members and holding in aggregate more than 10% of the total share capital of the company
  • In case of companies not having share capital, proxy must be a member
  • Proxy Form – 7.11
voting through electronic means s 108
Voting through Electronic Means (S. 108)
  • Listed Company
  • Company having 500 or more shareholders
  • May provide for Voting by electronic means at the general meetings
  • Electronic Voting System means
    • Secured system based process of display of electronic ballots
    • Recording of votes
    • With adequate cyber security
  • Notice to be sent to members, auditors, directors and KMP
voting through electronic means s 1081
Voting through Electronic Means (S. 108)
  • E-voting to remain open for minimum 7 days and maximum 10 days
  • No change be permitted once the vote is cast
  • Portal to be blocked after end of voting period
minutes of meetings s 118
Minutes of Meetings (S. 118)
  • Prepared and signed
    • Board or Committee – Chairman of the meeting or next meeting
    • General Meeting – Chairman within 30 days
  • Kept within 30 days of conclusion of general meeting or board meeting
  • Dissents to be recorded with names of directors dissenting
  • Chairman enjoys absolute discretion as regards inclusion or exclusion of any matter in the minutes – defamatory, irrelevant, detrimental to the interest of the company.
minutes of meetings s 1181
Minutes of Meetings (S. 118)
  • Minutes shall be evidence of the proceedings recorded therein
  • Every Company to follow Secretarial Standards with respect to board and general meetings as specified by ICSI
  • Minute Books to be preserved permanently
  • Separate Minute Books for
    • General Meetings
    • Board Meetings
    • Committee of Board
    • Meetings of Creditors
  • To be kept in the custody of CS or director authorized by the Board
maintenance of documents in e form s 120
Maintenance of Documents in e-form (S. 120)
  • Any document, record, register, minutes etc. required to be kept by the company be kept in electronic form
  • Inspection may also be allowed in electronic form
  • Report on General Meeting (S.121)
    • By Listed Public Companies
    • To be filed with ROC within 30 days
    • Fine – Min 1 Lakh Max. 5 Lakhs
  • OPC
    • Sufficient if resolution is communicated by the member to the company and entered in the minutes book, signed and dated by the member
maintenance of documents in e form s 1201
Maintenance of Documents in e-form (S. 120)
  • Mandatory to maintain records in e-form
    • Listed Company
    • Company having not less than 1000 shareholders, debenture holders and other security holders
  • Readable, Retrievable and Reproducible in printed form
  • Capable of being dated and signed digitally
  • Not possible to edit or alter
  • MD, CS or any other officer shall be responsible for maintenance and security of e-records
  • Penalty also provided in rules
  • Minimum
    • Public – 3
    • Private – 2
    • OPC – 1
  • Maximum – 15
  • To appoint more than 15, Special Resolution is required
  • One director to be ordinarily resident in India – 182 days in India in preceding financial year
  • At least one Women Director
    • Listed Company
    • Public Company having
      • PUC – Rs 100 Crores or more; or
      • Turnover – Rs. 300 Crores or more
  • Listed Companies to comply within one year of commencement of this provision
  • Other Public Companies to comply within 3 years of commencement of this provision
  • Maximum number of directorship (S.165)
    • Overall 20 including private companies
    • Directorship in Public Companies cannot exceed 10
    • Private Companies, which are subsidiary or holding of a public company, will be counted in the figure of 10 meant for public companies
    • Includes Alternate Directorship also
    • Director to choose companies within one year if he holds directorships in more companies
    • Intimate Company and Registrar of his resignation due to Section 165
  • 1/3rd directors to be independent
    • Listed Companies
    • Public Companies
      • PUC – Rs. 100 Crores or more; or
      • Turnover –Rs. 300 Crores or more;
      • Aggregate of loans, borrowings, debentures, deposits – Exceeding Rs. 200 Crores
  • Existing Companies – To comply within 1 year
nominee director
Nominee Director
  • Nominee Director
    • Not defined in Companies Act, 1956
    • Companies Act 2013
      • A director nominated by any financial institution pursuant to law, agreement or appointed by Govt. or any other person to represent its interests
independent directors companies act 2013
Independent Directors – Companies Act 2013
  • Independent Director defined [S.149(6)]
    • Integrity certificate
    • Disqualifications
    • Qualifications
    • Other than Nominee Director, Managing Director or Whole-time Director
  • Integrity & Experience
    • In the opinion of the Board is a person of integrity and possesses relevant experience and expertise
independent directors companies act 20131
Independent Directors – Companies Act 2013
  • Disqualifications
    • Not a promoter of the company, holding, subsidiary or associate companies
    • Not related to promoters or directors of the company, holding, subsidiary or associate companies
    • No pecuniary relationship
      • Company, holding, subsidiary or associate company
      • Promoters or directors of such companies
      • During 2 immediately preceding financial years or during current financial year
independent directors companies act 20132
Independent Directors – Companies Act 2013
  • Disqualifications
    • None of the relatives has or had pecuniary relationship or transaction with
      • Company, holding, subsidiary or associate company
      • Promoters or directors of such companies
    • Transaction should not be more than 2 % or more of its gross turnover or total income or Rs. 50 lakhs or such higher amount as may be prescribed, whichever is lower
    • During 2 preceding financial years or during the current FY
independent directors companies act 20133
Independent Directors – Companies Act 2013
  • Disqualifications
    • Neither himself nor any of his relatives
      • Is or was a KMP or Employee of company, holding, subsidiary or associate company in any of the 3 FY immediately preceding the financial year in which he is proposed to be appointed
      • Is or was an employee or proprietor or partner
        • of a firm of auditors or company secretaries or cost auditors of the company or its holding, subsidiary or associate company
        • any legal or consulting firm that has or had any transactions of 10% or more of the gross turnover of such firm
      • In any of the 3 FY immediately preceding the financial year in which he is proposed to be appointed
independent directors companies act 20134
Independent Directors – Companies Act 2013
  • Disqualifications
    • Holds with relatives 2% or more of the total voting power of the company
    • Chief Executive or Director, by whatever name called, of any non-profit organization that
      • receives 25% or more of its receipts from that company or any of its promoters, directors, or holding, subsidiary or associate company
      • Holds more than 2% or more of the total voting power of the company
independent directors companies act 20135
Independent Directors – Companies Act 2013
  • Qualifications
    • Possess appropriate balance of skills, experience and knowledge in one or more fields of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations or other disciplines related to company’s business
  • Declaration by Independent Director at first meeting after appointment and first meeting every FY or whenever there is change in status
  • Company and Independent Director to abide by Schedule IV
independent directors companies act 20136
Independent Directors – Companies Act 2013
  • Remuneration
    • No stock options
    • Sitting Fee
      • Upto Rs. 1 Lakh as decided by Board
    • Reimbursement of expenses for attending board meeting
    • Profit related commission, as approved by members
independent directors companies act 20137
Independent Directors – Companies Act 2013
  • 5 year term, renewable for another 5 year by special resolution then 3 year cooling off period
  • Term to start afresh – present tenure not to be counted
  • Making Independent directors liability proof unless fraud done with knowledge attributable through board processes, consent and connivance or not acting diligently
  • Creation of panel or data bank by authorized institutions
  • Procedure of selection – ‘as may be prescribed’
  • Disqualification of Directors (S. 164)
    • If a person is convicted and sentenced for seven years or more, then he cannot become a director in any company
    • If a person is convicted of offence dealing with related party transactions under section 188 at any time during the last preceding 5 years
  • Existing 274(1)(g) extended to all companies for default in any company
  • Vacation of Office (S.167)
    • Absenting from board meetings for 12 months period (with or without leave of absence)
  • 166
  • Subject to the provisions of this Act, a director of a company shall act in accordance with the company’s articles.
  • A director of a company 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.
  • A director of a company shall exercise his duties with due and reasonable care, skill and diligence.
  • A director of a company 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 of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates.
  • A director of a company shall not assign his office and any assignment so made shall be void.
  • Any director who contravenes the provisions of this section shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
resignation s 168
Resignation (S. 168)
  • Acceptance of Resignation by the Board is not mandatory
  • Director resigning to intimate the Registrar within 30 days of his resignation
  • Resignation takes effect from the date on which notice is received by the company or the date specified by the director, whichever is later
board meetings
Board Meetings
  • First Board Meeting within 30 days
  • 4 Board Meetings every year by each company
  • Gap between two meetings - not more 120 days
  • Board Meeting through Video Conferencing or audio visual means
  • Minimum 7 days’ notice
  • Quorum – higher of 1/3rd or 2


audit committee s 177
Audit Committee (S. 177)
  • Listed Company
  • Other Public Company having
    • PUC of Rs. 100 crores or more
    • Borrowings of Rs. 200 crores or more
  • Audit Committee
    • 3 Directors – Independent directors in majority
    • Majority of directors shall be financially literate
    • Reconstituted within one year
audit committee
Audit Committee
  • Terms of Reference
    • Auditor Appointment
    • Review independence and performance of Auditor
    • Examination of financial statement
    • Related Party Transaction
    • Scrutiny of Inter-corporate loans and investments
    • Valuation of undertakings
    • Internal Control
    • End Use of Public Funds
audit committee1
Audit Committee
  • Vigil Mechanism [S. 177(9)]
    • Listed Company
    • Class of companies
      • Deposit from Public ;and
      • Borrowings from Banks and Fis in excess of Rs. 50 crore
    • To report genuine concerns of directors and employees
    • Safeguard against victimization of whistle blower
powers of board s 179
Powers of Board (S.179)
  • Resolution at Board Meetings only – Additional business
    • Approving Financial Statement and Board Report
    • Diversification of Business
    • Approving Amalgamation, merger or reconstruction
    • Takeover or Acquisition in another company
    • Issue of Securities
    • to make political contributions;
    • to fill a casual vacancy in the Board;
    • to enter into a joint venture or technical or financial collaboration or any collaboration agreement;
powers of board s 1791
Powers of Board (S.179)
  • Resolution at Board Meetings only – Additional business
    • to commence a new business;
    • to shift the location of a plant or factory or the registered office;
    • to appoint or remove key managerial personnel (KMP) and senior management personnel one level below the KMP;
    • to appoint internal auditors; to adopt common seal;
    • to take note of the disclosure of director’s interest and shareholding;
powers of board s 1792
Powers of Board (S.179)
  • Resolution at Board Meetings only – Additional business
    • To sell investments held by the company (other than trade investments), constituting five percent or more of the paid – up share capital and free reserves of the investee company;
    • to accept public deposits and related matters and;
    • to approve quarterly, half yearly and annual financial statements.
contribution s 181 182
Contribution (S.181 & 182)
  • Bonafide Charitable and Other funds
    • 5% of average net profit of 3 preceding FYs
  • Political Contributions
    • 7.5% of average net profit of 3 preceding FYs
loans to directors
Loans to Directors
  • Section 185 – Loan to Interested Director and any other person in whom director is interested
  • Exceptions
    • Loan to MD or WTD allowed
      • Part of conditions of service extended by company to all employees
      • Pursuant to any scheme approved by Special Resolution
  • Not applicable to Banking and Finance Company
loan and investment by company
Loan and Investment by Company
  • Section 186
  • No investment beyond two layers of investment allowed
  • Limits of 60% or 100% now include securities premium
  • Exemption of loan to be provided by a holding to its wholly owned subsidiary has been withdrawn
related party transaction
Related Party Transaction
  • New Additions
    • Leasing of Property
    • Selling, buying of Property
    • Appointment of any agent
managerial personnel
Managerial Personnel
  • Appointment by Board
  • Special Resolution at next AGM
  • CG approval if conditions are variance with Schedule V
key managerial personnel
Key Managerial Personnel
  • Mandatory for following companies
    • Listed Company
    • PUC more than 5 Crore
  • MD or CEO or Manager or WTD
  • Company Secretary
  • CFO
  • S. 135 – Every company
    • Net worth – 500 crores or more
    • Turnover – 000 crores or more
    • Net Profit – 5 Crores or more
    • Constitute CSR Committee of 3 directors – at least one to be independent director
    • Board Report to disclose constitution of CSR Committee
csr committee
CSR Committee
  • Formulate and Recommend to Board CSR Policy
  • Recommend the amount of expenditure to be incurred
  • Monitor CSR Policy
  • Board to ensure spent of at least 2% of average net profits of the company made during 3 immediately preceding financial years
  • Preference to be given to local areas
  • Failure to spend – give reasons
accounts s 128
Accounts (S.128)
  • Applies to every company
  • To prepare and keep books of account and other relevant books and papers and financial statement
  • To be kept at its registered office
  • Can be kept at some other place in India
      • Board Resolution is passed
      • Full Address is notified to RoC within 7 days
  • For every financial year
accounts s 1281
Accounts (S.128)
  • To give true and fair view of the state of the affairs of the company including branch(es),
  • To explain the transactions effected both at the registered office and its branches
  • Books to be kept on accrual basis
  • In accordance with double entry system of accounting
accounts s 1282
Accounts (S.128)
  • Books of Account or other relevant papers can be kept in electronic mode in such manner as may be prescribed
  • E-books shall remain accessible in India so as to be usable for subsequent reference
  • Retained in original format in which they were originally generated, sent or received.
  • The information contained in the electronic records shall remain complete and unaltered.
accounts s 1283
Accounts (S.128)
  • Capable of being displayed in a legible form
  • Proper system for storage, retrieval, display or printout of the electronic records
  • No such records to be disposed off or rendered unusable, unless permitted by law
accounts s 1284
Accounts (S.128)
  • Branch Office in or outside India -
      • Proper books of account relating to the transactions effected at the branch office are kept at that office
      • Proper summarized returns are periodically sent by the branch office to the company at its registered office – Periodicity of returns (Quarterly or Monthly) to be decided by the Board
inspection of books of account s 128
Inspection of Books of Account (S.128)
  • The books of account and other books and papers maintained by the company within India - open for inspection by any director during business hours
  • In the case of financial information, if any, maintained outside the country, copies of such financial information shall be maintained and produced for inspection by any director subject to such conditions as may be prescribed.
  • Reasonable assistance to be given by officers and employees of the company in inspection.
accounts s 1285
Accounts (S.128)
  • Period of maintaining books of account - 8 precededing Financial Years + Current Financial Year
  • Vouchers relevant to any entry in such books of account shall be kept in good order
  • Where an investigation has been ordered, the Central Government may direct that the books of account may be kept for such longer period as it may deem fit.
accounts s 1286
Accounts (S.128)
  • Penalty for non-compliance [S.128(6)]
  • Managing director
  • Whole-time director in charge of finance
  • Chief Financial Officer, or
  • Any other person of a company charged by the Board with the duty of complying with the provisions of this section
  • Penalty – Imprisonment up to 1 year or fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees or with both.
financial statement s 129
Financial Statement (S.129)
  • Financial Statement-
      • shall give a true and fair view of the state of affairs of the company or companies
      • comply with the accounting standards notified under section 133, and
      • shall be in the form or forms as may be provided for different class or classes of companies in Schedule III
  • Insurance, Banking, Electricity Generation Companies may follow form as may be prescribed under the Act governing them
financial statement s 1291
Financial Statement (S.129)
  • Financial Statement to be laid at every AGM
  • Company having Subsidiaries
      • To prepare standalone financial statement
      • To prepare consolidated financial statements
      • To attach separate statement containing the salient features of the financial statement of its subsidiary or subsidiaries in such form as may be prescribed (Form 9.1)
  • “Subsidiary” shall include associate company and joint venture for the purpose of this Section
financial statement s 1292
Financial Statement (S.129)
  • If Financial Statements do not comply with Accounting Standards
      • Deviation, Reasons and Financial Effect to be disclosed in Financial Statement
financial statements s 129
Financial Statements (S.129)
  • Penalty for non-compliance [S.129(7)]
  • Managing director
  • Whole-time director in charge of finance
  • Chief Financial Officer, or
  • Any other person of a company charged by the Board with the duty of complying with the provisions of this section
  • Penalty – Imprisonment up to 1 year or fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees or with both.
reopening of accounts s 130
Reopening of Accounts (S.130)
  • Application for Re-opening of Accounts and Recasting Financial Statements can only be made by –
        • Central Government
        • IT Authorities
        • SEBI
        • Any other Statutory Regulatory Body or Authority
        • Any person concerned
reopening of accounts s 1301
Reopening of Accounts (S.130)
  • Reasons
      • Earlier accounts were prepared in a fraudulent manner
      • Affairs of company were mismanaged – casting a doubt on the reliability of Financial statements
  • Application to be made to Court of a competent jurisdiction or Tribunal
  • Court or Tribunal to give notice to CG, IT, SEBI or any other concerned regulatory authority
voluntary revision s 131
Voluntary Revision (S.131)
  • S. 131 – By the Board of Directors, if
    • Financial Statement or Board Report do not comply with Section 129 or 134
    • Revision can be done in respect of any of 3 preceding financial years after obtaining approval of the Tribunal on an application by the Company (Form 9.2)
    • Tribunal shall give notice to CG and Income Tax
    • Cannot be done more than once in a FY
    • Detailed Reasons to be disclosed in Board’s Report
voluntary revision s 1311
Voluntary Revision (S.131)
  • Procedural Compliance
    • Application in Form 9.2
    • Within 2 weeks of Board Decision
    • Fact of change of majority directors or change in auditor to be disclosed
    • Tribunal to hear previous auditor
    • Certified Copy of the Order to be filed within 30 days with RoC in Form 9.3
    • Upon approval, General Meeting to be called
    • Notices to be published in English and local language
    • File Revised FS/Board Report within 30 days in Form 9.4
national financial reporting authority
National Financial Reporting Authority
  • Central Government may constitute NFRA by notification to provide for matters relating to accounting and auditing standards under the Act
  • What NFRA will do
      • Recommend CG for laying down accounting and auditing policies, accounting and auditing standards
      • Monitor and enforce compliance of accounting and auditing standards
      • Oversee quality of service of professionals associated with ensuring compliance to standards
      • Perform such other functions relating to clauses (a), (b) and (c), as may be prescribed
national financial reporting authority1
National Financial Reporting Authority
  • Power to Investigate [132(4)]
      • Suo moto or reference by CG
      • Into matters of professional or other misconduct committed by any member or firm of CA
  • No proceedings shall be initiated or continued by any other Institute or body once NFRA has initiated an investigation
  • Will have powers of CPC, 1908
national financial reporting authority2
National Financial Reporting Authority
  • Penalties in case professional or other misconduct is proved
  • Fine – Rs. 1 lakh to 5 times of fee received in case of Individual, Rs. 10 lakhs – may extend to 10 times of fee received in case of firms
  • Debarring member or firm from practice – from 6 months to 10 years
  • Appeal can be filed by an aggrieved person before Appellate Authority to be constituted under Section 132(6)
national financial reporting authority3
National Financial Reporting Authority
  • Who is eligible for appointment as Member of NFRA
      • Chairperson – Person of eminence and having expertise in accountancy, auditing, finance, or law – to be appointed by CG
      • Other Members not exceeding 15 consisting of full-time and part-time members – appointed by CG
  • Members of Appellate Authority
      • 1 Chairperson and not more than 2 members
accounting standards financial statements
Accounting Standards, Financial Statements
  • Section 133 – CG to prescribe AS recommended by ICAI in consultations with NFRA
  • Section 134 – Financial Statement to be signed at least by the Chairperson authorized by the board or by 2 directors (Managing director, if there is one) and CEO and CFO and Company Secretary
board s report
Board’s Report
  • Board Report to include
      • Extract of Annual Return
      • Number of board meetings
      • Directors’ Responsibility Statement
      • Statement on declaration given by Independent Directors
      • Company’s policy on directors’ appointment and remuneration
      • Comments on Qualifications, Reservations, Adverse Remark or Disclaimer
board s report1
Board’s Report
  • Board Report to include
      • Particulars of loans, guarantees or investments
      • Particulars of contracts, arrangements with related parties
      • Risk management Policy
      • CSR Initiatives
      • Directors or KMP appointed during the year
      • Deposit details
      • Significant and Material orders passed by the Regulators or courts or tribunals impacting the going concern status and company’s operations in future
copies of audited financial statements
Copies of Audited Financial Statements
  • Companies to send copies of Financial Statements to all members at least 21 days before the meeting.
  • Listed Companies –
    • Need not send copies to all members unless demanded
    • Statement containing salient features of documents in prescribed form is sent
    • Inspection to be allowed
    • To be placed on website
copies of audited financial statements1
Copies of Audited Financial Statements
  • Filing of Financial Statements with RoC within 30 days of AGM
  • If not adopted at AGM, file unadopted Financial Statements
  • OPC to file within 180 days of the close of Financial Year
  • If AGM not held, statement of facts and reasons to be filed with RoC
  • Failure to file – Company – Rs. 1000/ per day – Max. 10 lakhs
  • MD/CEO/Director in charge or else all board members – Imprisonment – 6 months or fine – Min 1 Lakh, Max. 5 lakhs or both
internal audit s 138
Internal Audit (S. 138)
  • Such class of companies as may be prescribed must have an internal audit
    • Listed Company
    • Public Company – PUC of Rs 10 Crores or more
    • Public Company – Outstanding loans and borrowings from Banks or Public FI exceeding 25 crores or accepted deposits of Rs. 25 crores or more
  • Internal Auditor – Chartered Accountant or a Cost Accountant or such professional as may be prescribed by the CG
  • Rules, Manner and Interval of Internal Audit to be prescribed – Audit Committee or Board in consultation with Internal Auditor shall formulate the scope, functioning, periodicity and methodology of conducting the audit
auditors s 139
Auditors (S.139)
  • First Auditor of a company other than a Government Company shall be appointed by the Board of Directors within 30 days of registration
  • Upon failure, members shall appoint the Auditor in EGM
  • First Auditor shall hold office till the conclusion of First AGM
auditors s 1391
Auditors (S.139)
  • Every company to appoint auditor at first AGM to hold office till the conclusion of sixth AGM - Auditor appointed for 5 years at a stretch
  • Thereafter till the conclusion of every sixth meeting
  • Intimation by Company to ROC within 15 days
  • Provided that the company shall place the matter relating to such appointment for ratification of members at every annual general meeting
    • Manner and Procedure of selection of auditor as may be prescribed – Rule 10.1
  • Intimation by Company to Auditor
  • File notice of appointment with ROC within 15 days of the meeting in which the auditor is appointed
  • Provided that the company shall place the matter relating to such appointment for ratification of members at every annual general meeting
  • Consent of Auditor and Certificate from Auditor to be obtained first – Certificate to be made in accordance with conditions prescribed (Rule 10.2)
  • Certificate to state that he satisfies the criteria provided in Section 141
  • Appointment includes re-appointment
  • Listed Companies or such class of companies as may be prescribed (All companies except OPC and small companies)
      • Auditor cannot be appointed or re-appointed
      • For more than one term of 5 consecutive years (Individual)
      • For more than 2 terms of 5 consecutive years (Firm includes LLP)
  • An individual auditor who has completed his term shall not be eligible for re-appointment as auditor in the same company for 5 years from the completion of his term
  • A firm which has completed its term shall not be eligible for re-appointment as auditor in the same company for 5 years from the completion of its term
  • As on the date of appointment, no audit firm having a common partner to other audit firm, whose tenure has expired in a company immediately preceding the financial year, shall be appointed as auditor of the same company for a period of 5 years
  • Existing Companies to comply this within 3 years from the commencement of CA 2013
  • Company can remove the auditor
  • Auditor can resign
  • Company in a general meeting can resolve that
          • Auditing Partner and his team shall be rotated at such intervals as may be decided by them
          • Audit shall be conducted by more than one auditor
    • Rule 10.4 – Rules of Rotation
  • Government Company or other Company, directly or indirectly, controlled by CG, SG, auditor shall be appointed by CAG within 180 days from the commencement of the FY, who shall hold office till the conclusion of the AGM
  • First Auditor shall be appointed by CAG within 60 days of registration
  • Failure by CAG to appoint auditor, Board shall appoint within next 30 days
  • Failure by Board to appoint, inform members to appoint auditor within 60 days at EGM to hold office till the conclusion of First AGM
  • Casual Vacancy
    • Non-Government Company – to be filled by BOD within 30 days
    • Government Company – to be filled by CAG within 30 days and if CAG fails to appoint, then by BOD within next 30 days
  • Casual Vacancy caused by Resignation
    • Non-Government Company - Appointment to be approved at general meeting within 3 months of recommendation of the board
    • Government Company – to be filled by CAG within 30 days and if CAG fails to appoint, then by BOD within next 30 days
  • Retiring Auditor to be re-appointed at AGM unless –
    • He is disqualified for re-appointment
    • He has given notice in writing of his unwillingness to be appointed
    • Special Resolution is passed at that meeting appointing some other auditor or providing expressly that he shall not be re-appointed
  • No auditor is appointed or re-appointed at AGM, existing auditor shall continue to be the auditor of the company
  • Where Audit Committee is mandatory u/s 177, all appointments shall be made after recommendations of the Audit Committee
  • Removal by Special Resolution
  • Special Notice to auditor required for removal
  • Prior approval of CG required – Rule 10.5
  • Auditor to be given reasonable opportunity of being heard
  • If Auditor resigns, intimation to company and RoC indicating Reasons (Form 10.2) or CAG indicating reasons and other relevant facts. Fine for non-compliance – Min Rs. 50,000 Max. Rs. 5 Lakhs
  • Section 140 (5)
    • Without prejudice to any action under CA 2013 or any other law
    • Tribunal, either suo moto or on an application filed by the CG or by any person concerned, may direct the company to change its auditor
    • Grounds – Tribunal is satisfied that the auditor has acted, directly or indirectly, in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its directors or officers
  • Application by CG
    • If tribunal is satisfied that change is required, order that auditor shall not function shall be passed within 15 days of receipt of application
    • CG may appoint another auditor in his place
    • Auditor, against whom final order is passed against auditor or firm, such auditor or firm shall NOT be eligible for appointment as an auditor of ANY company for a period of 5 years from the date of passing of the order
    • Auditor shall also be liable for action u/s 447
  • Qualifications
  • Must be a CA
  • Majority of Partners practicing in India qualify for appointment
  • Not qualified for appointment
    • Officer or employee of the company
    • Person, who is partner, or who is in employment, of an officer or employee of the company
    • If he, his relative or partner
      • Is holding any security in the company, subsidiary, holding, associate or subsidiary of such holding company (CS-HAS) – Relative can hold security up to Rs. 1,00,000/- face value
      • Is indebted to CS-HAS in excess of Rs. 1,00,000/-
      • Has given a guarantee etc. to CS-HAS exceeding Rs. 1,00.000/-
      • Has business transactions, directly or indirectly, with CS-HAS (Any transaction for a commercial purpose) except permitted professional services
    • His relative is a director or in the employment of the company as director or KMP
    • Auditor of more than 20 companies
    • Convicted by a court for fraud and 10 years have not elapsed
    • Any person whose subsidiary or associate company or any other form of entity, is engaged as on the date of appointment, in consulting and specialized services u/s 144
  • Incurring any disqualification, Auditor must vacate the office as auditor and such vacancy shall be treated as casual vacancy
  • Remuneration to be fixed in general meeting or in such manner as may be determined by general meeting
  • Board can fix remuneration for first auditor
  • Remuneration include Audit Fee plus expenses in connection with audit but exclude any remuneration paid to him for any other service rendered by him at the request of the company
powers duties s 143
Powers & Duties (S.143)
  • Auditor shall have right to access at all times to the books of account and vouchers of the Company
  • Auditor shall be entitled to require from the officers of the company such information and explanation as he may consider necessary for the performance of his duties as an auditor
powers duties s 1431
Powers & Duties (S.143)
  • Auditor to inquire
  • whether loans and advances made by the company on the basis of security have been properly secured and whether the terms on which they have been made are prejudicial to the interests of the company or its members;
  • whether transactions of the company which are represented merely by book entries are prejudicial to the interests of the company;
  • where the company not being an investment company or a banking company, whether so much of the assets of the company as consist of shares, debentures and other securities have been sold at a price less than that at which they were purchased by the company;
powers duties
Powers & Duties
  • Auditor to inquire
    • whether loans and advances made by the company have been shown as deposits;
    • whether personal expenses have been charged to revenue account;
    • where it is stated in the books and documents of the company that any shares have been allotted for cash, whether cash has actually been received in respect of such allotment, and if no cash has actually been so received, whether the position as stated in the account books and the balance sheet is correct, regular and not misleading:
powers duties1
Powers & Duties
  • Audit Report to state
    • whether he has sought and obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit and if not, the details thereof and the effect of such information on the financial statements;
    • whether, in his opinion, proper books of account as required by law have been kept by the company so far as appears from his examination of those books and proper returns adequate for the purposes of his audit have been received from branches not visited by him;
powers duties2
Powers & Duties
  • Audit Report to state
  • whether the report on the accounts of any branch office of the company audited under sub-section (8) by a person other than the company’s auditor has been sent to him under the proviso to that sub-section and the manner in which he has dealt with it in preparing his report;
  • whether the company’s balance sheet and profit and loss account dealt with in the report are in agreement with the books of account and returns;
  • whether, in his opinion, the financial statements comply with the accounting standards;
powers duties3
Powers & Duties
  • Audit Report to state
    • the observations or comments of the auditors on financial transactions or matters which have any adverse effect on the functioning of the company;
    • whether any director is disqualified from being appointed as a director under sub-section (2) of section 164;
    • any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith;
    • whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls;
    • such other matters as may be prescribed.
powers duties4
Powers & Duties
  • Audit Report to state
  • j) such other matters as may be prescribed
      • Whether the company has disclosed the effect, if any, of pending litigations on its financial position in its financial statement;
      • Whether the company has made provision for foreseeable losses, if any, on long term contracts including derivative contracts;
      • Whether there has been delay in depositing money into the Investor Education and Protection Fund by the company
powers duties5
Powers & Duties
  • Any matter is answered in negative or with qualification, auditor report shall the reasons therefor
  • Every auditor shall comply with the auditing standards
  • CG may prescribe the standards of auditing as recommended by ICAI in consultation with NFRA
  • CARO provisions retained
  • Auditor to report to the CG any offence involving fraud being or has been committed against the company by officers or employees of the company
  • Fine – Min. Rs. 1 Lakh, Max. Rs. 20 Lakhs
auditor s duties
Auditor’s Duties
  • Penalty for contravention of Section 139 (Appointment), 143 (Powers & Duties), 144 (Not to render certain services) or 145 (To sign audit reports)
    • Fine
    • Min – 25000/-
    • Max - 5 lakhs
  • If convicted – Refund remuneration and pay damages
auditor not to render certain services
Auditor not to render certain services
  • Auditor to provide to the company only such other services as are approved by the Board of Directors or the audit committee, as the case may be, but which shall not include any of the following services (whether such services are rendered directly or indirectly to the company or its holding company or subsidiary company, namely:
  • accounting and book keeping services;
  • internal audit;
  • design and implementation of any financial information system;
  • actuarial services;
auditor not to render certain services1
Auditor not to render certain services
  • investment advisory services;
  • investment banking services;
  • rendering of outsourced financial services;
  • management services; and
auditor not to render certain services2
Auditor not to render certain services
  • any other kind of services as may be prescribed:
    • Provided that an auditor or audit firm who or which has been performing any non-audit services on or before the commencement of this Act shall comply with the provisions of this section before the closure of the first financial year after the date of such commencement.
auditor not to render certain services3
Auditor not to render certain services
  • Explanation.—For the purposes of this sub-section, the term “directly or indirectly” shall include rendering of services by the auditor,—
  • (i) in case of auditor being an individual, either himself or through his relative or any other person connected or associated with such individual or through any other entity, whatsoever, in which such individual has significant influence or control, or whose name or trade mark or brand is used by such individual;
  • (ii) in case of auditor being a firm, either itself or through any of its partners or through its parent, subsidiary or associate entity or through any other entity, whatsoever, in which the firm or any partner of the firm has significant influence or control, or whose name or trade mark or brand is used by the firm or any of its partners.
auditor to attend general meeting
Auditor to Attend General Meeting
  • All notices of, and other communications relating to, any general meeting shall be forwarded to the auditor of the company,
  • The auditor shall, unless otherwise exempted by the company, attend either by himself or through his authorized representative, who shall also be qualified to be an auditor, any general meeting and shall have right to be heard at such meeting on any part of the business which concerns him as the auditor.
thank you for your patience ashish makhija 9810128356 ashish@amclawfirm com
Thank you for your patience!Ashish