Companies bill 2012 by Chheda Sanjay Visanji

Kandivali Study Circle of
WIRC of ICSI
Sun, 10th February 2013
Companies Bill 2012Companies Bill 2012
Practical Aspects of Key Changes
1

AssumptionsAssumptions
Covers Principles and not Procedures
Implications of proposed Bill will differ once
◦ Rules are in place
◦ Many clauses not clear till the time details are
not “Prescribed” or “Specified” by authorities
Chheda Sanjay Visanji 2
not “Prescribed” or “Specified” by authorities
Clause No. and Headings on each slide are merely
for broad understanding and maintaining flow
Presentation focuses on Key Changes; Provisions
which are similar in “Act and Bill” are not
considered for discussion

HistoryHistory
Companies (Amendment) Bill, 2003 introduced in
2003
An Expert committee constituted in 2004
On 31st May 2005 the Expert Committee
submitted its report
But Bill didn’t see light of the day
Companies Bill, 2008 lapsed due to dissolution of
the 14th Lok Sabha
Government reintroduced Companies Bill, 2008
as The Companies Bill, 2009
3

HistoryHistory
On 3rd August, 2009 MCA introduced Companies
Bill, 2009 in Lok Sabha
The 2009 Bill was referred to Parliamentary
Standing Committee on Finance which gave its
report on 31st August, 2010.
In view of numerous amendments to the
In view of numerous amendments to the
Companies Bill 2009 arising out of the
recommendations of the Parliamentary Standing
Committee on Finance and suggestions of the
stakeholders, the Central Government withdrew
the Companies Bill 2009 and introduced a fresh
bill – The Companies Bill 2011.
4

HistoryHistory
The Companies Bill, 2011 was also referred to the
Standing Committee on Finance in 2012
The Standing Committee Report came on 26 June
2012
Based on the Standing Committee‘s
recommendations, the Bill was amended and
recommendations, the Bill was amended and
introduced as the Companies Bill 2012.
The Bill is passed by Lok Sabha and has been
introduced in the Rajya Sabha
[Bill expected to clear in RS in February 2013
before Budget Session]
5

What are the ChangesWhat are the Changes
A drive to make it simple
Financial Statement covered by Schedule
Act / Bill Schedule
1956 VI
1997 XII
2012 III
Word “Prescribed” and “Specified” appear almost
in every other clause
Particulars Act Bill
No. of Clause 658 470
Use of word “Prescribed” 219 434
Use of word “Specified” 405 256
% to Clauses 94.83% 146.81%

What are the ChangeWhat are the Change
The Companies Bill 2012 contains 29 Chapters, 7
Schedules, 470 clauses as against the Companies
Act, 1956 which consists of 658 sections under 13
Parts and 15 schedules.
Bill is trying to
◦ Cover certain issues which SEBI was regulating
◦ Cover certain issues which SEBI was regulating
through Listing Agreement
◦ Taking disciplinary rights from other Institutes
◦ Unrequired move to define terms which were
already defined in AS

Some New ConceptSome New Concept
Right issue norms applicable to Private Co.
One Person Company, Small Co., Dormant Co.
Stricter Norms for CSR
Rotation of Auditor / Independent Director
Transfer of Shares to IEPF
Transfer of Shares to IEPF
Formation of NFRA
CFO / Whole time Director included in KMP
Formation of NCLT & Appellate Tribunal
Change in Depreciation concept
Electronic mode accepted / encouraged

Some New DefinitionsSome New Definitions
Accounting Standard
Arm’s length transaction
Subsidiary / Associate Company
Control
Chartered Accountant
Independent Director
Independent Director
Related Party
Remuneration
[Revised sch. VI was very clear that terms not
defined will take meaning from AS. But Bill and AS
are in conflict]

Clauses of BillClauses of Bill
No Chapter
No. of
Clauses
1Preliminary 2
2Incorporation of Company and Matters IncidentalThereto 20
3Prospectus and Allotment of Securities 20
4Share Capital and Debentures 30
5Acceptance of Deposits By Companies 4
6Registration of Charges 11
7Management and Administration 35
8Declaration and Payment of Dividend 5
9Accounts of Companies 11
10Audit and Auditors 10
11Appointment and Qualifications of Directors 24
12Meetings of Board and Its Powers 23

No Chapter
No. of
Clauses
13Appointment and Remuneration of Managerial Personnel 10
14Inspection, Inquiry and Investigation 24
15Compromises, Arrangements and Amalgamations 11
16Prevention of Oppression and Mismanagement 6
17Registered Valuers 1
Removal of Names of Companies From The Register of
18
Removal of Names of Companies From The Register of
Companies 5
19Revival and Rehabilitation of Sick Companies 17
20Winding Up 96
21Companies Authorised to Register Under This Act 13
22Companies Incorporated Outside India 15
23Government Companies 2

No Chapter
No. of
Clauses
24Registration Offices and Fees 9
25Companies to Furnish Information Or Statistics 1
26Nidhis 1
27National Company Law Tribunal and Appellate Tribunal 28
28Special Courts 12
29Miscellaneous 24

CS in PractiseCS in Practise –– Increased scopeIncreased scope
While Incorporation of Co. – Declaration by CS
that all the requirements of this Act and rules are
complied with [7(1)]
Annual Return of every co. to be signed by CS or
CS in practise [92(1)]
Certificate for correctness and adequacy of annual
Certificate for correctness and adequacy of annual
return of Public Co. or Co. having capital or
Turnover as may be prescribed [92(1)]
Listed Co. and Co. belonging to prescribed class
to have Secretarial Audit Report [204(1)]

Public Co. [2(71)]Public Co. [2(71)]
Means a Co. which is not Private Co.
Has a minimum paid up share capital of five lac or
higher amount as prescribed
Provided Co. which is subsidiary of Public Co. shall be
deemed to be Public Co. for purpose of Act even when
such Co. continues to be Private Co. in its article
such Co. continues to be Private Co. in its article
[Similar to old section 43A’s Deeming Provision]

Small Co. [2(85)]Small Co. [2(85)]
‘‘small company’’ means a private Co.
◦ with paid-up share capital of which does not exceed
fifty Lakh rupees or such higher amount as may be
prescribed which shall not be more than five Crore
rupees; or
◦ turnover of which as per its last profit and loss
◦ turnover of which as per its last profit and loss
account does not exceed two Crore rupees or such
higher amount as may be prescribed which shall not
be more than twenty Crore rupees:

One Person Company [3 (1)]One Person Company [3 (1)]
New concept of incorporation of Company with
only one person as a member
Prior written consent of other person in
Prescribed format in the event of death or
incapacity of first person (only member of OPC)
to be filed with Registrar
to be filed with Registrar
Many consequential changes for OPC, like Board
Meeting, Annual General Meeting, Notice of Board
/ General Meeting
OPC to have only one director
OPC not required to have AGM

Dormant Co. [455]Dormant Co. [455]
Often Co. are made for future purpose
No significant activities in such Co. till
commencement of actual project
Such Co. termed as Dormant Co.
Certain relaxation in procedures for such Co.
Certain relaxation in procedures for such Co.

Small / OPC / Dormant Co.Small / OPC / Dormant Co. -- BenefitsBenefits
Need not prepare Cash Flow [Though as per AS
may be required to prepare]
One meeting of the Board of Directors in each
half of a calendar year and the gap between the
two meetings is not less than ninety days:

Officer who is in default [2(60)]Officer who is in default [2(60)]
means any of the following officers of a company, namely:—
(i) whole-time director; (ii) key managerial personnel; (iii) where there is no key managerial personnel, such director or directors as specified by the Board in this
behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified;
(iv) 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,
authorises, actively participates in, knowingly permits, or knowingly
fails to take active steps to prevent, any default;
(v) any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who
gives advice to the Board in a professional capacity;
(vi) every director, in respect of a contravention of any of the provisions
(vi) every director, in respect of a contravention of any of the provisions
of this Act, who is aware of such contravention by virtue of the
receipt by him of any proceedings of the Board or participation in
such proceedings without objecting to the same, or where such
contravention had taken place with his consent or connivance;
(vii) in respect of the issue or transfer of any shares of a company, the
share transfer agents, registrars and merchant bankers to the issue
or transfer;

Promoter [2(69)]Promoter [2(69)]
“promoter” means a person—
(a) who has been named as such in a prospectus or is
identified by the company in the annual return referred
to in section 92; or
(b) who has control over the affairs of the company,
directly or indirectly whether as a shareholder, director
directly or indirectly whether as a shareholder, director
or otherwise; or
(c) in accordance with whose advice, directions or
instructions the Board of Directors of the company is
accustomed to act:
Provided that nothing in sub-clause (c) shall apply to a
person who is acting merely in a professional capacity;

Memorandum of Asso. [4 (1)]Memorandum of Asso. [4 (1)]
Present Object clause of MoA had break up into
◦ Main Object
◦ Objects incidental or ancillary
◦ Other Objects
With Bill, Object divided into
With Bill, Object divided into
objects to be pursued on incorporation (main
objects) and
matters necessary for furtherance of the main
objects

Entrenchment Provision [5(3)]Entrenchment Provision [5(3)]
Article of Association may have Entrenchment
Provision
Entrenchment Provision can be incorporated
◦ at the time of incorporation, or later
◦ by private company, if all members agree
◦ by private company, if all members agree
◦ By public company, by Special Resolution
Such Entrenchment Provision provide that
“Specified” provisions of the Article can be
amended only if conditions / procedures are more
restrictive

Incorporation of Company [7]Incorporation of Company [7]
Declaration by professional engaged in formation of
Co. to the effect that all the provisions of Act and
rules there under are complied with
An affidavit from the subscribers that they are
◦ not convicted of any offence in connection with
forming or managing company
◦ or not found guilty of any fraud or misfeasance in
◦ or not found guilty of any fraud or misfeasance in
last 5 years
Co. having share capital shall not commence business
or exercise borrowing power unless – director files
declaration with Registrar that every subscriber has
paid value of shares agreed [11]
[Applicable to all companies now]

Disclosure Requirements [12 and 60]Disclosure Requirements [12 and 60]
In case of change in the name of the Company,
fact must be disclosed on business letters, bill
heads [12]
Where any notice, advertisement, or any business
letter, billhead or letter paper of a Co. contains
amount of the authorised capital of Co., same
amount of the authorised capital of Co., same
shall also contain a statement, in an equally
prominent position and in equally conspicuous
characters, amount of subscribed and paid-up
capital [60]

Alteration to Object of Issue [13]Alteration to Object of Issue [13]
In case, if company proposes to amend Object of
Issue Proceeds after raising money from public, it
can be done by Special Resolution and
◦ Notice of said resolution along with justification
in two newspapers
◦ Exit option to be given to dissenting
◦ Exit option to be given to dissenting
shareholders

Prospectus [26]Prospectus [26]
Requirements of Part I and II of Schedule II of Act
are covered in clause 26 of the bill
Some additional matters which are required to be
disclosed in Prospectus
◦ Source of Promoter’s Contribution
Report by Auditors on Assets & Liabilities not
earlier than 180 days before issue of prospectus
[earlier limit was 120 days]

Shelf Prospectus [31 (1)]Shelf Prospectus [31 (1)]
Currently PFI, PSB and Scheduled Banks are
allowed to file Shelf Prospectus
Bill empowers SEBI to prescribe the classes of
companies which can file Shelf Prospectus
Validity of one year which shall commence from
date of opening of first offer of securities
date of opening of first offer of securities

Utilisation of Share Premium [52(3)]Utilisation of Share Premium [52(3)]
Purposes Act
Proposed in Bill
Prescribed
Co.
Other
Co.
Issue of fully paid equity shares as bonus shares Yes Yes Yes
Issue of fully paid preference shares as bonus shares Yes No Yes
Writing off preliminary expenses of the company Yes No Yes
Writing off equity share issue expenses Yes Yes Yes
Writing off preference share issue expenses Yes No Yes
Writing off debenture issue expenses Yes No Yes
Providing for premium payable on redemption of
preference shares/debentures Yes No Yes
Buy-back of its own shares or other securities Yes Yes Yes

Share can’t be issued at Discount [53]Share can’t be issued at Discount [53]
Any shares issued at discount would be void
Only exception to this clause is “Sweat Equity”
Punishment for violations are as under:
Clause 53 (3) Min Max
Company punishable with fine > 1 Lac < 5 Lac
Every Officer in default,
imprisonment
< 6
months
Officer in default, Fine > 1 Lac < 5 Lac

Pref. Shares for Infra. Project [55]Pref. Shares for Infra. Project [55]
In line with existing Act, Bill also has cap for
maximum term of 20 years for Preference Shares.
However Company can issue Pref. Shares for
longer term for Infrastructure Projects
Relaxation given not only to Infrastructure
Companies but all Companies, if such issues is for
Companies but all Companies, if such issues is for
Infrastructure Projects
Infra. Projects / Facilities covered in Schedule VI of
Bill

Bonus Shares [63]Bonus Shares [63]
Bill has new clause which provides for issue of
fully paid bonus shares out of
◦ Free Reserves or Securities Premium Account
or Capital Redemption Reserve
Certain other conditions before Bonus Issue
◦ Authorised by AoA; after recommendation of
Board, authorised in GM; Co. not defaulted on
int. / prin. of FD or debt; not defaulted on
employee statutory dues; no o/s. partly paid
shares; not in lieu of dividend
◦ Such conditions as may be prescribed

Reduction of Share Capital [66]Reduction of Share Capital [66]
Co. after Special Resolution, subject to
confirmation byTribunal
Reduce Share Capital;Alter MoA
No reduction of Share Capital, if Co. is in arrears
in repayment of Deposits or interest thereon
Auditor’s Certificate that accounting treatment
proposed by Co. Is in line with AS
Any violation of clause, Co. punishable with fine
not less than five Lakh which may exceed to 25
Lakh

Deposits [73 to 76]Deposits [73 to 76]
After commencement of this Act, no Co. to invite,
accept or renew deposit except as provided in
this chapter
A public company, having such net worth or
turnover as may be prescribed, may accept
deposits from persons other than its members
deposits from persons other than its members
subject to compliance with the requirements
All existing deposits to be repaid within one year
from commencement of bill or respective
repayment due date, whichever is earlier

Deposits [73 to 76]Deposits [73 to 76]
Credit Rating to be obtained
From new deposits, 15% of current and next
year’s repayment to be kept in separate Bank A/c.
called as “Deposit Repayment Reserve Account”
Co. to provide Deposit Insurance as may be
prescribed
prescribed

Annual Return [92]Annual Return [92]
Apart from “Such other conditions as may be
prescribed” and existing Act’s requirement.
Co. should give details of
◦ Its holding, subsidiary, associate companies
◦ Promoters, directors, KMP and changes therein
◦ Meetings of members, board and various committee
along with attendance
along with attendance
◦ Remuneration of Directors / KMP
◦ Penalties levied on Co., director, officer, etc
◦ Complete details of holding by FII, their name,
address, countries of incorporation, % of
Shareholder
Data in Annual Return as on close of FY

Annual Return [92]Annual Return [92]
Except OPC and Small Companies, Annual Return
to be
◦ signed by Director and Company Secretary
◦ And if there is no Company Secretary, then
Company Secretary in Practise
Annual Return of Listed Co. or Co. having paid up
capital and turnover as may be prescribed, shall be
certified by Practising Company Secretary stating
that Annual Return discloses facts correctly and
adequately and Co. has complied with provisions

General Meetings [96]General Meetings [96]
First AGM to be held within 9 months from
closing of first financial year
Statutory Meeting requirement done away
AGM cant be held on National Holiday (earlier it
was Public Holiday)
AGM to be held during business hours between 9
am to 6 pm
Shorter notice of AGM, if 95% of shareholder give
consent [101]

General Meetings [96]General Meetings [96]
Notice can be given through electronic mode
Bill also recognises right to vote by electronic
mode
Quorum for Public Co. meeting [103(1)(a)]
No. of Members Quorum
Quorum for Private Co. is 2 [103(1)(b)]
No. of Members Quorum
Not exceeding 1,000 5
1,000 to 5,000 15
More than 5,000 30

Proxies [105]Proxies [105]
Stringent terms for Proxies
Person can not represent exceeding 50 members
and such number of shares as may be prescribed
Co. should not, at it’s own expense, send any
invitation to any member to appoint a person or
one of number of persons to be appointed as
one of number of persons to be appointed as
Proxy
Every officer who is party to such offence, shall be
punishable with fine which may extend to Rs. 1
Lac

Secretarial Standards [118(10)]Secretarial Standards [118(10)]
Bill requires every company to observe Secretarial
Standards specified by ICSI in respect of Board
and General Meeting
[Oxford Dictionary defines “Observe - fulfill or
comply with”]
[Secretarial Standards were recommendatory for
[Secretarial Standards were recommendatory for
CS]

Dividend [123]Dividend [123]
No requirement of transfer to General Reserve
If Co. has failed to comply with provi. of
acceptance / re-payment of Deposits, Co. cant
declare dividend

Depreciation [123(2)]Depreciation [123(2)]
Depreciation concept has changed from Rates to
Useful Life
Old Sch. XIV used to give minimum rate of
depreciation which every corporate was suppose
to provide
New Sch. II has concept of Useful Life. Bill only
New Sch. II has concept of Useful Life. Bill only
provides Useful Life of various class of Assets
Separate rates for Double / Triple Shift done away
For Double Shift, Dep. to be increased by 50%
For Triple Shift, Dep.To be increased by 100%

Depreciation [123 (2)]Depreciation [123 (2)]
Co. divided into three categories
:Companies which comply with specified
framework of accounting standards which can
apply different useful life estimates than given in
Schedule with appropriate disclosures
Companies which are regulated under some
Companies which are regulated under some
Authority set up under an Act of Parliament or by
Central Government – to use the rates of
depreciation as specified by respective regulator
and
other companies – which require to follow the
useful lives not greater than schedule II

Investor Education and Protection Fund [125]Investor Education and Protection Fund [125]
So far, Co., was required to transfer inter alia,
Unpaid Dividend after 7 years to IEPF
Now shares pertaining to such dividend also to be
transfer to IEPF

Financial Statement [2(40)]Financial Statement [2(40)]
In addition to BS, Statement of P & L, Bill has
defined following additional things in definition of
FS
Cash flow now covered in definition of FS
Statement of change in Equity, if any
Any explanatory note annexed to or forming part
of aforesaid statement
[OPC, Small Co. and Dormant Co. need not prepare
Cash Flow]

Uniform AccountingYear [2(41)]Uniform AccountingYear [2(41)]
All companies to have uniform Accounting Year, i.
e. FinancialYear ending on 31st March
Companies having foreign holding / subsidiary
companies REQUIRED TO FOLLOW DIFFERENT
FY can apply to Tribunal. No exemption for
Foreign JV or Associate
Foreign JV or Associate
Co. has to either prepare two set or apply to
Tribunal
Tribunal if satisfied, can give exemption from
following aforesaid requirement

Uniform AccountingYear [2(41)]Uniform AccountingYear [2(41)]
These requirement may seem to be simplified,
would create pressure on Chartered Accountants,
Independent Directors and Practising Company
Secretaries
AS 21, 23 and 27 used to give relief to companies,
for separate financial year which now has been
for separate financial year which now has been
taken away

Accounts [128]Accounts [128]
Books to be kept on accrual basis
Double entry system of accounting
Books can be in Electronic form
In case, Server of Co. is o/s. India, but co is able to
access, modify and manage data from India [MCA
access, modify and manage data from India [MCA
should consider the same as compliance of
requirement]

CFS [129(3)]CFS [129(3)]
Earlier, Act didn’t required Consolidated Financial
Statement (CFS); only listing agreement required
CFS
But Bill mandates CFS for ALL companies
In contrast to AS 21, Bill requires CFS even if Co.
doesn’t have any subsidiary but only Associate or
doesn’t have any subsidiary but only Associate or
JV

Associate [2(6)]Associate [2(6)]
Bill has defined Associate overriding AS 23
Both define Associate as Co. in which other Co.
has Significant Influence
AS 23 Bill
Significant influence is the power to
participate in the financial and/or
“significant influence” means
control of at least twenty per cent.
[Associate where one can control 20% of business
decisions; will change many equations]
participate in the financial and/or
operating policy decisions of the
investee but not control over those
policies.
control of at least twenty per cent.
of total share capital, or of business
decisions under an agreement;

Subsidiary [2(87)]Subsidiary [2(87)]
Definition of “subsidiary company”
to cover company wherein ‘control’ can be
exercised by holding more than 50% of the total
share capital
unlike present control of equity or voting power.
This will need change of capital structures by any
companies which have issued preference shares or
shares with differential votes.

CFS and other requirements [129]CFS and other requirements [129]
Co. which has subsidiary / JV / Associate has to
◦ Prepare its stand-alone financial statements [Clause
129(1)]
◦ Prepare CFS including all subsidiaries, associates and
joint ventures (whether in India or outside) [Clause
129(3)]
◦ Prepare a summary statement for all its subsidiaries,
◦ Prepare a summary statement for all its subsidiaries,
associates and joint ventures of the salient features
of their respective financial statements [Proviso to
clause 129(3)]
◦ Submit the standalone financial statements of
subsidiary(ies) outside India to the Registrar
[Clause 137(1)]

CFS and other requirements [129]CFS and other requirements [129]
Authorities should check need for Summary
Statement and copies of individual subsidiaries
when Individual as well as CFS are given

CFSCFS –– Other Issues [129]Other Issues [129]
AS 21, 23 and 27 prescribe manner of
consolidation
However provisio to 129 (3) states that manner
of consolidation will be prescribed [Unless these
methods are in line with already existing AS, will
add to confusion]
add to confusion]
CFS even at Intermediate Holding Level will lead
to increased cost of compliance
[Global practise is that if ultimate parent Co.
consolidates, the intermediate holding Co. should
not consolidate]

ReRe--opening of FS / Board’s Report [130]opening of FS / Board’s Report [130]
Learning from mistakes of certain big accounting
fraud unearthed, Bill allows to re-open / revise FS
and Board’s Report
On application by CG, IT Authorities, SEBI and
other statutory regulatory body; in following
circumstances, re-opening of books permitted:
circumstances, re-opening of books permitted:
◦ (i) the relevant earlier accounts were prepared in a
fraudulent manner; or
◦ (ii) the affairs of the company were mismanaged
during the relevant period, casting a doubt on the
reliability of financial statements

Revision of FS / Board’s Report by Co. [131]Revision of FS / Board’s Report by Co. [131]
If it appears to the directors of a company that—
◦ (a) the financial statement of the company; or
◦ (b) the report of the Board,
do not comply with the provisions of section 129
or section 134
or section 134
Co. can make application to Tribunal [in such form
and manner as may be prescribed]
Before passing order,Tribunal shall consider
representation by SEBI and other authorities

NFRA [132]NFRA [132]
Wide powers to National Financial Reporting
Authority [NFRA]
Formulation / laying down of Accounting and
Auditing policies and standards
Monitor and enforce compliance of AS
Oversee quality of services of professional (only
Oversee quality of services of professional (only
chartered accountant in purview of NFRA)
NFRA to investigate suo moto or on ref. by CG
No other Institute would proceed with any action,
once NFRA has initiated proceedings
NFRA not body of professional; may insist Check
Box Type Audit

Board’s Report [134 (3)]Board’s Report [134 (3)]
To include
Extract of Annual Return; No. of Board Meetings;
Director’s Responsibility Statement
Declaration by ID;
Listed Co. and Specified Co. to give company’s
policy on directors’ appointment and
policy on directors’ appointment and
remuneration including criteria for determining
qualifications, positive attributes, independence of
a director
Explanation to every qualification of CA / CS
Details of Loan, Guarantee, Investment in 186

Board’s Report to include [134 (3)]Board’s Report to include [134 (3)]
State of Co.’s Affairs
Proposed transfer to Reserves; Dividend
recommended
Material changes / Commitment affecting financial
position of Co.
Conservation of Energy;
Conservation of Energy;
Statement on development / implementation of
Risk Management Policy
Policy developed / implemented for CSR
Listed and Specified Co. to give formal annual
evaluation of Board’s own performance

CSR [135]CSR [135]
Corporate Social Responsibility (CSR)
every company having
◦ net worth of Rs. 500 Crore or more or
◦ turnover of Rs. 1000 Crore or more or
◦ net profit of Rs. 5 Crore or more
◦ net profit of Rs. 5 Crore or more
◦ during any financial year shall constitute the
Corporate Social Responsibility Committee
Bill mandates that Co. to spend at least 2% of
average net profit of immediately preceding 3
years

Internal Audit [138]Internal Audit [138]
Prescribed class of Co. to appoint an Internal
Auditor to conduct internal audit of function and
activities of Co.
CG may by rules prescribe manner and interval
in which internal audit shall be reported to Board
Generally it is Audit Committee who decides and
Generally it is Audit Committee who decides and
to whom Internal Auditor report
Can be External Professional or Internal
Department

Auditors [139]Auditors [139]
Auditor to be appointed for a term of 5 years, to
be ratified in AGM each year
Cooling off period of 5 years for
◦ Individual CA after 1 such term of 5 years
◦ Firm of CA after 2 such term of 5 years
Earlier Appointment was from conclusion of AGM
Earlier Appointment was from conclusion of AGM
to conclusion of next AGM
Incoming Firm and Outgoing Firm which has
completed 2 terms of 5 years, should not have any
common partner
Co. may specify by way of AoA for rotation of
auditing partner

Banking sector already had such rotation, every 5
years
Code of Ethics of ICAI specified rotation of audit
partner after 7 years with cooling period of 2 year
Rotation of Audit Firm to increase Cost of
Compliance
Compliance
Each new firm to spend more time to understand
business, controls, systems and process of Co.
Globally, various studies have shown that Rotation
of Auditor doesn’t serve purpose for which it is
framed

Generally it is Audit Committee which considers
and appoints Auditor
Due to this rotation, freedom of Audit Committee
to decide which audit firm suits them best is taken
away
Rotation would change equations of Audit FIrms
Rotation would change equations of Audit FIrms
Limit of Statutory Audit of 20 Co. per person
No Special Resolution when new Auditor in place
of Auditor whose term has got over

Eligibility of Auditor [141]Eligibility of Auditor [141]
Till the time, term “Relative” is not defined, no
clarity
Certain eligibility criteria also extend to “Relative”
◦ Not being Indebted to Co. or holding or
subsidiary
◦ Not being shareholder of Co. or holding or
subsidiary
◦ Not in employment of any director or KMP of
Co.
◦ Not having any business relationship with Co.

Remuneration of Auditor [142]Remuneration of Auditor [142]
The remuneration under sub-section (1) shall, in
addition to the fee payable to an auditor, include the
expenses, if any, incurred by the auditor in
connection with the audit of the company and
any facility extended to him.

Duties of Auditor [143]Duties of Auditor [143]
Bill proposes that Auditor should report to CG if
he has any reason to believe that fraud committed
by officer or employees against Co.
It seems, this is out of scope duty casted on
auditor without adequate right or power
Even materiality concept is not added to this
Even materiality concept is not added to this
requirement, which means each and every fraud
by officer / employee has to be reported to CG

Auditor Others Services [144]Auditor Others Services [144]
Auditor of Co., directly or indirectly, to Co. or its
holding or subsidiary shall not provide following
services
(a) accounting and book keeping services;
(b) internal audit;
(c) design and implementation of any financial information
system;
system;
(d) actuarial services;
(e) investment advisory services;
(f) investment banking services;
(g) rendering of outsourced financial services;
(h) management services; and
(i) any other kind of services as may be prescribed:

Auditor [143Auditor [143 -- 145]145]
Scope of Auditor’s duties and reporting has
increased
Now auditor is required give his observations or
comments on financial transactions or matters
which have any adverse effect on the functioning
of the company [143 (3) (f)]
of the company [143 (3) (f)]
Giving comments / observations on financial
transaction and their propriety
Qualification, observations or comments on FS
shall be read before the Co. in GM

Duties of Auditor [146]Duties of Auditor [146]
Attending AGM was right of Auditor; now duty of
Auditor unless exempted by Company
Auditor can attend AGM through any
representative who should be qualified to be
appointed as an Auditor

Liability of Auditor [147]Liability of Auditor [147]
Entire firm is liable for Misconduct of any audit
partner.
Even LLP structure doesn’t absolve other partners
from Liabilities
Bill allows class of shareholders to claim damages
or compensation through Class Action Suit
or compensation through Class Action Suit
Penalties seem to be too heavy as against
deterrent

Directors [149]Directors [149]
Prescribed Co. to have at least one woman
director
Maximum no. of directors increased from 12 to15
One director of Co. should have stay in India for
at least 182 days
Every listed Co. to have 1/3rd Independent
Directors (ID)
For prescribed class of Co. CG may prescribe
minimum no. of ID
Director who cant be elected can no longer be
appointed as additional director

Independent Directors [149 (6) ]Independent Directors [149 (6) ]
Some difference in definition of ID as compared
to clause 49 of listing agreement
◦ Board to opine on whether ID is a person of
integrity or has relevant expertise or
experience
◦ ID may not remain independent, if his / her
◦ ID may not remain independent, if his / her
relative have pecuniary relationship with Co.
◦ ID possesses such other qualifications as may be
prescribed
ID not liable to retire by rotation
ID not counted for Total No. of Directors liable to
retire by Rotation

IDID –– Other Issues [149 (9)]Other Issues [149 (9)]
SEBI on one hand considers ID as employee for
ESOP; Bill says No to ESOP to ID;
No clarity on ESOP already granted
As per data available in public domain, some of the
large corporate have granted ESOP to ID as
under:
under:
Company
Total number of options granted to
IDs
ITC 50,000
Larsen & Toubro 60,000
Dr Reddy’s 16,800
HDFC 200,000
M&M 175,000

Tenure of office of ID [149 (11)]Tenure of office of ID [149 (11)]
Tenure of office of ID restricted to 2 terms of 5
consecutive years
Cooling off period of three years
During Cooling off period, ID not to be associated
with Co. in any other capacity, directly or
indirectly
indirectly
Bill also includes Code of Conduct in Sch. IV
◦ Schedule IV – “Code for Independent
Directors”
◦ Code states that ID shall uphold ethical
standards of integrity and probity (too
judgemental)

Liability of ID / NED [149 (12)]Liability of ID / NED [149 (12)]
Liability of ID and NED is distinguished from rest
of the board and bill states that
ID and NED shall be held liable, only in respect of
such acts of omission or commission by a company
which had occurred with his knowledge, attributable
through Board processes, and with his consent or
through Board processes, and with his consent or
connivance or where he had not acted diligently
[ID / NED should explore getting insurance cover,
which covers them from Liabilities]

Director [165Director [165 -- 167]167]
Not more than 20 Co.
Out of which No. of Public Co. cant exceed 10
[For this clause, Private Co. which is subsidiary of
Public Co. would be counted as Public]
Members may by special resolution reduce
Members may by special resolution reduce
Maximum No. of Co. where their Director can
become Director
Office of a director shall become vacant in case
(b) he absents himself from all meetings of Board held
during a period of twelve months with or without
seeking leave of absence of the Board [167]

Resignation of Director [168]Resignation of Director [168]
Director may resign by giving a notice in writing
to Co.
Board shall on receipt of such notice take note
Co. shall intimate the Registrar
Provided that a director shall also forward a copy
Provided that a director shall also forward a copy
of his resignation along with detailed reasons for
the resignation to the Registrar within thirty days
of resignation
Resignation shall take effect from date on which
notice is received by Co. or date, if any, specified
in the notice, whichever is later:

Audit Committee (AC) [177 (1)]Audit Committee (AC) [177 (1)]
Earlier listed Co. (clause 49 of listing agreement)
and public Co. having paid-up capital not less than
5 Crores (Section 292A of the Act) were required
to constitute AC
Now bill requires all listed Co. and class of Co. as
may be prescribed to have AC
may be prescribed to have AC
Bill is in conflict to clause 49, specifies as under:
◦ AC to have majority of ID
◦ Chairman of AC need not be ID
◦ Majority of members of AC should be financially
literate

Nomination and Remu. Comm. [178(1)]Nomination and Remu. Comm. [178(1)]
Nomination and Remuneration Committee
(NRC) to be constituted by each listed Co. and
class of Co. as may be prescribed
Scope of NRC
◦ Formulate policy and recommend to Board on
Co.’s policies pertaining to remuneration of
Co.’s policies pertaining to remuneration of
directors, KMP, other employees, criteria for
determining qualifications, positive attributes
and independence of directors

Loan / Investment by Co. [186]Loan / Investment by Co. [186]
Co. can give loan, guarantee, security or invest not
exceeding higher of
◦ 60% of its paid-up share capital, free reserves
and securities premium or
◦ 100% of its free reserves and securities
premium
premium
Where aforesaid limits are exceeding, Co. to take
prior approval by Sp. Resolution
Private Company also included; No exemption
even to Holding – Subsidiary
No Loan or Inv. or guarantee to be given If default
in Deposit or Interest thereon

Loan / Investment by Co. [186]Loan / Investment by Co. [186]
In FS, Co. has to give full particulars of loans given,
investments made, guarantees given or security provided
and PURPOSE for which it was made, given or provided
Consent of all Board members who are present in
meeting
If such loan, Inv., guarantee or security is exceeding 60% or
100 % limit, Prior Approval of PFI, if there is default in
100 % limit, Prior Approval of PFI, if there is default in
payment of Principal / Interest
Co. has to charge interest not lower than prevailing yield
of 1, 3, 5 or 10 year Govt. Security closet to tenure of loan
Clarity needed for Existing Interest Free Loans given
This would create issue in Domestic / International
Transfer Pricing

Investment by Company [186 (1)]Investment by Company [186 (1)]
Bill mandates that Co. can invest only through two
layers of investment companies, except
◦ Where Co. acquires a foreign Co. which has
investment subsidiaries beyond two layers
◦ Investment Subsidiaries which are required to meet
requirements of any other law, rules or regulation
This clause is anti investment and too much of
This clause is anti investment and too much of
policing type
No clarity in Bill for existing corporate structures
which are multi level
If mandatory for even old Co. structures, no transition
period is defined

Example of Multi Layer Corp. StructureExample of Multi Layer Corp. Structure
IDFC
IDFC Securities
IDFC-SSKI
Stock
Broking
IDFC Asset
Management
IDFC
Investment
Advisors
IDFC Project
Equity
IDFC
Project
IDFC
Capital
Dheeru
Powergen
IDFC
Finance
IDFC PE
100%100% 100% 100%
51% 100% 100% 100% 100%
100%
IDFC pension
fund Mgmt
IDFC Inv
Advisors
(Mauritius)
100%
Broking Advisors
IDFC
Funds of
Funds
IDFC
General
Partner
s
Emerging
Mkt PE
Fund LP
IDFC
Capital
(Singapor
e)
IDFC Trustee Co
JVs
IDC Karnataka
Uttaranchal
Infra
Developmen
t
Delhi
Integrated
Multi Modal
Transit
Systems
49.5%
50.44%
50%
100%100%100%
OtherWoS
Subsidiary
IDFC PPP Trustee.shp
IDFC AMC Trustee
100%
100%
100%
IDFC
Capital
USA
100%

Related Party [2(76)]Related Party [2(76)]
Related Party definition to cover
◦ a public company in which a director or
manager is a director or holds along with his
relatives, more than two per cent. of its paid-up
share capital [2(76)(5)]
◦ (ix) such other person as may be prescribed
◦ (ix) such other person as may be prescribed
[2(76)(ix)]

Relative [2(77)]Relative [2(77)]
‘‘relative’’, with reference to any person, means
any one who is related to another, if—
◦ (i) they are members of a Hindu Undivided Family;
◦ (ii) they are husband and wife; or
◦ (iii) one person is related to the other in such
◦ (iii) one person is related to the other in such
manner as may be prescribed
Too many implications of definition of “Relative”
on eligibility of Auditor as well as ID

Related Party [188]Related Party [188]
Without board consent and conditions as may be prescribed, Co.
shall not enter into any transaction with Related Party for
(a) sale, purchase or supply of any goods or materials;
(b) selling or disposing of, or buying, property of any kind;
(c) leasing of property of any kind;
(d) availing or rendering of any services;
(e) appointment of any agent for purchase or sale of goods,
materials, services or property;
materials, services or property;
(f) such related party's appointment to any office or place of profit in
the company, its subsidiary company or associate company; and
(g) underwriting the subscription of any securities or derivatives
thereof, of the company:
[Act did not cover “Leasing “ as transaction in Immovable
Properties were not covered u/s. 297 of the Act]

Central Government approval done away
“Cash at prevailing market price” is now suitably
replaced for “Arm’s Length Transaction”
Related Party Transactions are to be detailed in
Board’s Report along with justification
Penalty now extends to even Imprisonment
Penalty now extends to even Imprisonment
Related Party definition in conflict with AS 18
Term “Relative” yet to be defined / prescribed
[Standing committee report has discussed that
objective of AS is only Accounting whereas Bill has
to ensure that person in control don’t take undue
advantage]

Co. having paid up capital of not less than such
amount or transaction not exceeding such sums,
as may be prescribed
Shall be entered after Prior Approval by Special
Resolution
[Not exceeding such sums, seems to be typo error.
[Not exceeding such sums, seems to be typo error.
Should have been “not less than amount as may be
specified”]

Managerial Personnel [196]Managerial Personnel [196]
Applicable to ALL companies
Maximum term to be appointed capped at 5 years
Re-appointment cant be more than 1 year in
advance
Age limit revised; Minimum age reduced from 25
to 21 years and Maximum age increased to 70
to 21 years and Maximum age increased to 70
years [GM can by Sp. Reso. Approve even when
age has exceeded 70 years]
Board Report to disclose ratio of remuneration
to each director to the median employee’s
remuneration and such other details as may be
prescribed [197 (12)]

Managerial Personnel [197]Managerial Personnel [197]
Insurance taken by Co. on behalf of
MD,WTD, CEO, CFO or CS
for indemnifying any of them against any liability in
respect of
negligence, default, misfeasance, breach of duty or
negligence, default, misfeasance, breach of duty or
trust
Premium of such insurance shall not be
considered as Remuneration payable to them
If they are proved to be guilty, then shall be
treated as Remuneration

KMP [203]KMP [203]
For class of Co., as may be prescribed shall have
following whole time KMP
◦ (i) managing director, or Chief Executive Officer or
manager and in their absence, a whole-time
director;
◦ (ii) company secretary; and
◦ (ii) company secretary; and
◦ (iii) Chief Financial Officer
Whole time KMP shall not hold office in more
than one company except in its subsidiary Co.
But whole time KMP can be director of other Co.
with permission of Board [203(3)]

Functions of CS [205]Functions of CS [205]
Functions of company secretary
(a) to report to the Board about compliance with the
provisions of this Act, the rules made there under
and other laws applicable to the company;
(b) to ensure that the company complies with the
applicable secretarial standards [SS];
applicable secretarial standards [SS];
(c) to discharge such other duties as may be
prescribed.

Search and Seizure [209]Search and Seizure [209]
Section 209 of Act prescribes Books of Accounts.
Now Clause 209 of Bill has power to seize those
books
Search and Seizure powers given to Registrars /
Inspectors
Search can be carried on
Search can be carried on
◦ Company
◦ KMP
◦ Director,
◦ Auditor
◦ CS in practise (if Co. has not appointed CS)

SFIO [211]SFIO [211]
Serious Fraud Investigation Office (SFIO) now
given statutory status by Bill
SFIO is empowered to initiate investigation at
direction of CG
SFIO has power to arrest

Investigations [213]Investigations [213]
Investigation into Company’s Affairs [213]
On application to Tribunal by
◦ Not less than 100 members of Co.
◦ Or members holding not less than 1/10th of
total voting power
total voting power
◦ Tribunal after considering case and giving Co., an
opportunity of being heard, can initiate
Investigation of affairs of Co.

Compromise, Arrangement,Amalgamation [230Compromise, Arrangement,Amalgamation [230 –– 240]240]
Compromises, Arrangements and Amalgamations are
now streamlined removing procedural issues
Cross Border Merger permitted
Holding of Treasury Shares pursuant to Court Order
now prohibited
Postal Ballot permitted mode of voting on Scheme
On merging of Listed Co. with Unlisted Co.; exit
On merging of Listed Co. with Unlisted Co.; exit
option to be provided to members of Listed Co.
Persons holding 90% or more of the issued equity
share capital of a company by virtue of an
amalgamation, share exchange, conversion of
securities or for any other reason, may now purchase
the minority shareholding of the company at a price
determined by a registered valuer

Objection to any scheme can be raised by
◦ Shareholder with 10% or more shareholding or
◦ Person having o/s. debt of more than 5% of total
debt
Additional documents to be submitted
Additional documents to be submitted
◦ Valuation Report
◦ Compliance with AS
Simple procedure for Holding – WOS; Small Co.
without approval from NCLT

Notification of Scheme to CG, IT, SEBI, Stock
Exchanges, CCI and other relevant regulators
Within 30 days of receipt of notice, these agencies
to make representation; failing which to be
presumed that they don’t have any representation

SICA 1985 [230 (7)]SICA 1985 [230 (7)]
The Sick Industrial Companies Act, 1985 (SICA)
which was earlier applicable only to Industrial Co.
is now made applicable to ALL Co.
Criteria shifted for erosion of Net Worth to
capacity to repay Secured Creditors
Application can be done by Secured Creditor or
Application can be done by Secured Creditor or
Co. itself

Rights of Shareholder [241Rights of Shareholder [241 –– 245]245]
Class Action Suit [collective lawsuit] can be filed
by group of shareholder in case of fraudulent
action by Co.
Listed Co. may have one director elected by small
shareholders [small shareholder means one
holding shares not more than nominal value of Rs.
holding shares not more than nominal value of Rs.
20,000/-]
Co. having more than 1,000 shareholders,
debenture holders or deposit holders shall form
Stakeholder’s Relationship Committee

RegisteredValuers [247]RegisteredValuers [247]
Bill refers to RegisteredValuers in various clauses like
Further issue of share capital [Clause 62]
Restriction on non-cash transactions involving directors
[192]
Compromises, arrangements and amalgamations [230]
Purchase of minority shareholding [236]
Submission of report by Company liquidator [281]
Submission of report by Company liquidator [281]
Declaration of solvency in case of proposal to wind up
voluntarily [305]
Power of Company liquidator to accept shares, etc., as
consideration for sale of property of company [319]
However qualification, experience and process of
registration of RV are yet to be prescribed

AGM Annual General Meeting MCA Ministry of Corporate Affairs
AOA Articles of Association MD Managing Director
BOD Board of Directors MOA Memorandum of Association
CA Chartered Accountant NBFC Non-Banking Finance Companies
CEO Chief Executive Officer NCLAT National Company Law Appellate Tribunal
CFO Chief Finance Officer NCLT National Company LawTribunal
CG Central Government NED Non-Executive Director
Co. Company NFRA National Financial Reporting Authority
CS Company Secretary OPC One Person Company
CSR Corporate Social Responsibility PFI Public Financial Institution
CSR Corporate Social Responsibility PFI Public Financial Institution
DRR Debenture Redemption Reserve PSB Public Sector Bank
EGM Extra-Ordinary General Meeting RBI Reserve Bank of India
FY FinancialYear ROC Registrar of Companies
GOI Government of India RV RegisteredValuer
HUF Hindu Undivided Family SEBI Securities and Exchange Board of India
ID Independent Director SFIO Serious Fraud Investigation Office
IEPF Investor Education and Protection Fund SRC Stakeholders Relationship Committee
KMP Key Managerial Personnel WOS Wholly Owned Subsidiary
LLP Limited Liability Partnership WTD Whole Time Director

Thank You
P. RAJ & CO.
Chartered Accountants
3/1218, Navjivan Society,
104
Disclaimer: The information contained in this document is intended only for use during the presentation and
should not be distributed to parties outside the presentation. PRAJCO accepts no liability whatsoever with
respect to the use of this documents or its content
3/1218, Navjivan Society,
Lamington road,
Mumbai 400 008
Tel No. 2305 4459 / 2301 2074
chhedasanjay@gmail.com

Companies bill 2012 by Chheda Sanjay Visanji

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (20)

Similaire à Companies bill 2012 by Chheda Sanjay Visanji

Similaire à Companies bill 2012 by Chheda Sanjay Visanji (20)

Dernier

Dernier (20)

Companies bill 2012 by Chheda Sanjay Visanji