1.2 A CSR committee will have to be formed with at least 3 or more directors, at least one director being an independent director

Transcription

1 COMPANIES ACT 2013 Note on Relevant Provisions 1. Corporate Social Responsibility (CSR) Sec Provisions are applicable to company having: i. Net worth of Rs. 500 cr or more or ii. Turnover of Rs cr or more or iii. Net profit of Rs. 5 cr or more during any financial year 1.2 A CSR committee will have to be formed with at least 3 or more directors, at least one director being an independent director 1.3 At least 2% of average net profits of company made during 3 immediately preceding financial years shall be spend. If such amount is not spend, reason for such failure shall be stated in report of Board of Directors Note: Calculation of average net profits shall be done as stated in sec 198 of the Act 1.4 Preference for CSR activities shall be given to local areas and areas around where the company operates 1.5 CSR activities shall include activities relating to: - Eradicating extreme hunger and poverty - Promotion of education - Promoting gender equality, empowering women - Reducing child mortality and improving maternal health - Ensuring environmental sustainability - Employment enhancing vocational skills - Social business projects - Contribution to Relief Fund - Combating human immunodeficiency virus, AIDS, malaria and other diseases Page 1 of 10

2 2. Loan to Directors (Sec 185) 2.1 Provisions regarding restrictions on loan to directors have been extended to private companies also. Further unlike provisions of Companies Act 1956; any loan given by holding company to its subsidiary will also be subject to restrictions contained under this section. 2.2 Earlier said provisions were applicable only to public companies who were required to obtain previous approval of Central Government for giving loan to directors. However provision for obtaining such approval does not exist anymore. Instead penalty and imprisonment provisions have been introduced. 3. Related Party Transactions (Sec 188) 3.1 Requirement for Approval of Board of Directors have been extended to following transactions of the company with a related party: - Sale, purchase or supply of any goods or materials - Selling / disposing/ buying property of any kind - Leasing of property of any kind - Availing or rendering of any services - Appointment of any agent for purchase or sale of goods, materials, services or property - Appointment to any place of profit in company, subsidiary company, associate company - Underwriting subscription of any securities or derivatives Note: Related party with reference to a company has been defined by sec 2(76) to mean as follows: a. Director or his relative (i.e. spouse/ members of HUF) b. KMP or his relative (i.e. spouse/ members of HUF) KMP means CEO, Managing Director, Manager, Company Secretary, Whole Time Director, CFO c. Firm in which director, manager, relative is a partner d. Private company in which director is a member or director e. Public company in which director is a director or holds along with his relatives more than 2% of paid up share capital f. Body corporate as per whose directions Board, manager or managing director is accustomed to act except in a professional capacity g. Any person on whose advice director or manager is accustomed to act except in a professional capacity h. Holding, subsidiary, associate Page 2 of 10

3 i. Subsidiary of company s holding company 3.2 In case such contract or arrangement exceeds the prescribed limit (yet to be notified) or the company has paid up share capital of such amount (yet to be notified); prior approval by a special resolution shall be required where a member who is a related party shall not be entitled to vote 3.3 Such transactions undertaken by company with related parties shall be reported to shareholders in Board s report along with justification 4. Disclosure of Interest by Directors (Sec 184) 4.1 A director shall disclose his nature of concern or interest in Board Meeting and shall not participate therein when the contract or arrangement is being entered into with: - A body corporate where director alone or along with other directors hold more than 2% of shareholding of the body corporate - Is a promoter, manager, CEO of that body corporate as per sec 2(69) promoter means a person (a) named as such in prospectus (b) control affairs of company, directly or indirectly, whether as shareholder, director or otherwise (c ) whose advice, instructions, or directions Board follows - Firm or other entity in which such director is partner, owner or member, as the case may be 5. Loans and investments by Company (Sec 186) 5.1 A company shall unless otherwise stated; shall not make investment through more than 2 layers of investment companies Note: (1) Investment company means a company whose principal business is acquisition of shares, debenture or other securities. (2) The above provision shall not apply to the following cases: a. Acquisition of any company incorporated outside India if it has investment subsidiaries beyond 2 layers as per laws of its country Page 3 of 10

4 b. Subsidiary company required to invest in investment subsidiary for the purposes of meeting requirements under law 5.2 Restriction on loans & investments to be made within prescribed limit or in excess of prescribed limit after passing special resolution at a general meeting; has been extended to a private company. Note: Rules may be specified for the purposes of this section 6. Directors 6.1 Appointment of one woman director on Board will be made mandatory in some classes of companies (not yet notified) 6.2 Every company shall have at least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year. Note: Existing companies are required to comply with this requirement within one year from the date of commencement or from the date of notification of the rules in this regard 6.3 In case of a listed company at least 1/3 rd of total number of directors shall be independent directors Note: Schedule IV to the Companies Act 2013f discusses the guidelines of professional conduct, manner of appointment, functions, duties, re-appointment and removal of independent directors; which is enclosed herewith 6.4 An independent director shall not hold office for more than two consecutive terms of 5 years each. He shall be eligible for re-appointment after expiry of 3 yrs of ceasing to become an independent director. Note: The tenure of an independent director as on the date of commencement of this Act shall not be counted for above purpose 6.5 An independent director and a non-executive director who is not a promoter or KMP; shall be liable only for such acts of omission or commission by a company which has occurred with his knowledge, attributable through Board processes, and with his consent or where he had not acted diligently. Page 4 of 10

5 6.6 The Central Government may prescribe the manner and procedure of selection of independent directors who fulfil the qualifications and requirements specified under the Act 7. Financial Statement (Sec 129) 7.1 Consolidation requirements regarding financial statements of subsidiaries have been specifically included for all companies. 7.2 Subsidiaries for the purposes of this section have been defined to include associate company and joint venture Note: (1) Presently only listed companies were required to prepare consolidated financial statements and that also when it had at least one subsidiary. However given the definition of subsidiary in the Act, it seems that consolidation for associates and joint ventures will have to be done even if a company does not have a single subsidiary (2) Associate Company has been defined in sec 2(6) as a company in which the other company has a significant influence i.e. control of at least 20% of total share capital or of business decisions under an agreement 7.3 Sec Provisions have been incorporated for voluntary revision of financial statements or Boards Report after obtaining approval of the Tribunal on an application made by the company. The detailed reasons for revision of accounts shall be disclosed in Boards report 8. Mergers & Amalgamation (Sec 230) 8.1 The application for mergers and amalgamation shall be accompanied by i. A statement disclosing the details of the compromise or arrangement, ii. a copy of valuation report, if any, and iii. explaining their effect on creditors, KMP, promoters and non-promoter members and the debenture holders and iv. the effect of compromise or arrangement on any material interests of the directors of the company or debenture trustees and such other matters as may be prescribed. Page 5 of 10

6 8.2 Shareholders holding at least 10% shares or more or persons having outstanding debt of at least 5% or more (of the total debt as per last audited financial statement) can object to the scheme of arrangement 8.3 Scheme of arrangement shall require approval of majority of persons i.e. 3/4 th in value of members by voting in person, by proxy or by postal ballot. 8.4 As a result of Scheme of Arrangement; a company cannot hold any shares in its own name or in the name of any trust whether on its behalf or on behalf of subsidiary or associate companies. Such shares shall be canceled or extinguished 8.5 A proper exit option shall be provided to the shareholders of listed transferor company merging with unlisted transferee company; by payment of value of shares held by them and other benefits in accordance with a pre-determined price formula or after a valuation is made which shall be as per SEBI regulations. 8.6 The Scheme shall not be sanctioned by Tribunal unless company s auditor gives a certificate to the effect that accounting treatment proposed in the Scheme is in conformity with accounting standard. 8.7 A new provision has been inserted for mergers or amalgamation of: - Two or more small companies - Small company means a company which (a) is not a public company (b) whose paid up share capital is Rs. 50 lacs or lesser (c ) whose turnover as per last P/L does not exceed Rs. 2 cr - Holding company and its wholly owned subsidiary - Other companies as may be prescribed 8.8 Along with other procedural compliances with Registrar (who may communicate their objection to Scheme in writing); said scheme will require approval of majority representing 9/10 th in value of creditors of respective companies indicated in a meeting convened by the Company. 8.9 The provision for merger of an Indian company into a foreign company has also been introduced. 9. Acceptance of Deposits by Companies (Sec 73) Page 6 of 10

7 9.1 Provisions under this section shall not apply to a banking company and non-banking financial company as defined in RBI Act 1934 Note: Earlier it excluded only banking company 9.2 The deposits may be accepted by companies from its members in accordance with rules to be prescribed and after compliance of following conditions: i. Passing of resolution in general meeting ii. Issuing circular to members along with statement showing financial position, credit rating, number of depositors, amount due towards deposit iii. Filing copy of circular along with statement with Registrar iv. Depositing at least 5% of deposits maturing in current or next financial year in separate bank account termed as deposit repayment reserve account v. Other conditions as regards security and repayment 9.3 As regards deposits already accepted at present and remaining unpaid or becoming due thereafter: - A statement of all such deposits along with interest payable thereon along with arrangements for repayment shall be filed with the Registrar within a period of 3 months from date of commencement of the Act or from the date on which payments are due - shall be repaid within one year from the date of commencement of this act or the date on which payment becomes due, whichever is earlier 9.4 Deposits may also be accepted by a public company from public other than its members depending on its net worth or turnover as may be prescribed and other provisions and requirements as stated above in point 9.2 shall also apply. 10. Formation of Companies with Charitable objects (Sec 8) 10.1 Object: The list of charitable objects has been extended to include sports, education, research, social welfare, protection of environment Note: Earlier it included commerce, art, science, religion, charity or any other useful object 10.2 Alteration: Provisions of Memorandum and Articles can be altered only with previous approval of Central Government Page 7 of 10

8 Note: Earlier approval for alteration was applicable only for object clause of Memorandum 10.3 Amalgamation: A company registered with charitable objects under this section can amalgamate only with a company registered under this section with similar objects Note: Earlier no such restriction was contained in provisions and there were judicial decisions where company having charitable objects merged with non charitable company having different objects Conversion: Company registered under this section can get converted into company of any other kind on compliance of prescribed conditions Note: Earlier no such specific provision was contained in law In accordance with sec 18 of Companies Act; conversion of company of one class into that of another class can be done by alteration of Memorandum and Articles of the Company Dissolution/ Winding Up: Any surplus remaining in the Company after payment of debts/ liabilities on dissolution/ winding up, may be: a. Transferred to another company having similar objects and registered under this section b. Sold and proceeds to be credited to Rehabilitation and Insolvency Fund 11. Return filing for change of promoters stake in listed company(sec 93) 11.1 In case of change in number of shares held by promoters and top ten shareholders of such company, return will have to be filed with Registrar within 15 days of such change 12. Companies Incorporated Outside India (Sec 379) 12.1 Foreign company is a company which is incorporated outside India with a place of business in India whether by itself or through an agent physically or through electronic mode and conducts any business activity in India in any other manner 12.2 A foreign company whose 50% or more of paid up share capital: - Whether equity or preference or partly equity and partly preference is Page 8 of 10

9 - Held by one or more Indian citizen and one or more companies or bodies corporate incorporated in India - Whether singly or in aggregate shall comply with provisions of the Act with regard to business carried on by it in India as if it were a company incorporated in India 12.3 Such company will have to submit prescribed documents to Registrar for registration and in every calendar year will have to make balance sheet and profit & loss a/c as prescribed. Note: The Central Government may notify the foreign company or class of foreign company where the above provision may not apply or may apply with modifications and exceptions 13. Auditors 13.1 A listed company or other class of companies as may be prescribed shall not appoint or reappoint an: - An individual as auditor for more than one term of 5 consecutive years - An audit firm as auditor for more than two terms of 5 consecutive years 13.2 Every company required to comply with these provisions shall do so within 3 years from the date of commencement of this Act. 14. Certain definitions under the Act 14.1 Control has been given an inclusive definition under the Act to include the following rights, exercisable directly or indirectly: - To appoint majority of directors - To control management or policy decisions by a person or persons acting individually or in concert, directly or indirectly; Page 9 of 10

10 including by virtue of their shareholding or management rights or shareholder agreements or voting agreements or in any other manner 14.2 Financial year shall be period ending on 31 st March every year. An existing company on the commencement of this Act shall within a period of 2 years align its financial year as per provisions of this clause 14.3 Officer who is in default for the purpose of any provision which enacts that officer who is in default shall be liable to any penalty or punishment by way of imprisonment means the following officers: - Whole time Director - Key Management Personnel (KMP) i.e. CEO, Managing Director, Manager, Company Secretary, Whole Time Director, CFO - Where there is no KMP; such director or directors as specified by Board on that behalf and who has given their consent to the Board to such specification; or all directors if no director is specified - Any person, who under immediate authority of Board or any KMP, is charged with any responsibility and knowingly permits or fails to take active steps to prevent any default. - Every director who is aware of any contravention of any provisions by virtue of receipt of any Board proceedings or participating in such proceeding without any objection or given his consent to such contravention Page 10 of 10