Newsflash

Key Highlights of The Companies Bill, 2012

1.0

Brief History of the Various Bills Introduced from Time to Time Companies Bill was presented in the Lok Sabha on 23 October 2008 to replace the existing Companies Act, 1956. Due to the dissolution of the Lok Sabha, the Companies Bill had lapsed. Companies Bill, 2009 was thereafter re-introduced in the Lok Sabha on 3 August 2009, to replace the existing Companies Act, 1956, with some modifications to the erstwhile Companies Bill, 2008.This Bill was referred to the Standing Committee on Finance (SCF) of the Parliament for examination and report on 9 September 2009. Report of the SCF on the Bill was introduced in the Lok Sabha on 31 August 2010. Companies Bill 2011 was introduced in the Lok Sabha on 14 December 2011. Was shelved for taking up in the winter session of the Parliament on 22 December 2011. Was passed by a voice vote in the winter session of the lok sabha on 18 December, 2012. All set to replace the 55 years old legislation.

2.0

Salient features of the Companies Bill, 2012 The bill will be named as The Companies Bill, 2012 Maximum number of members in a private company increased from 50 to 200 Concept of One Person Company (OPC) introduced The Serious Fraud Investigation Office (SFIO) to investigate frauds relating to a company to be set up through a notification The Bill provides provisions related to Corporate Social Responsibility (CSR). Erosion of 50% of the net worth no longer the criteria for declaring the company as sick.

 Provisions for re-opening or re-casting of the books of accounts of a company provided No Central Government approval required for appointment of any director or any other person to any office or place of profit in the company or its subsidiary Financial Year: Company or body corporate to adopt uniform financial year of 1 April to 31 March every year except in certain exceptional cases. Existing Companies not adopting 1 April to 31 March as financial year for Companies Act purposes to align themselves with 1 April - 31 March within 2 years of commencement of the Companies Act, 2012. Private companies under clause 23 can issue securities only through private placement after complying with part II of Chapter II. Thus private companies cannot issue rights shares or bonus shares. However clause 62 and 63 dealing with rights and bonus respectively contains no such prohibition. Bill needs to be amended for clarity. Issue of Global Depository Receipts (GDR): Company, may, after passing a special resolution in its general meeting, issue GDRs subject to conditions. All types of charges would be required to be registered. Companies Act, 1956 provided a specific list of cases in which it is necessary to register the charge. Acceptance of Public Deposits: Companies can accept deposits only from its members after complying the terms and conditions mentioned in Chapter V. Non-Banking Financial Companies (NBFCs) are not covered by the provisions relating to acceptance of deposits. They will be governed by Reserve Bank of India Rules. Annual Return to be filed within 30 days from the date of the Annual General Meeting (AGM). Where AGM is not held, within 30 days of the due date of the AGM along with the reasons for not holding the AGM. First AGM to be held within 9 months from the date of closing of first financial year Certification of Annual Return by practicing company secretary mandatory in case of companies with prescribed paid up capital and turnover. Every company has to follow the Secretarial Standards while preparing the minutes of board and general meeting. Voting through Electronic Means: Central Government may provide for class of companies which can provide for voting through electronic means.

 Company can maintain Books of Account in electronic mode The Bill provides for conduct of internal audit of prescribed class or classes of companies. 5 Year Tenure for Auditors: Audit firm or an individual including an LLP to be appointed for 5 yrs, i.e. to hold office upto the date of the sixth AGM. Appointment of auditors for five years shall be subject to ratification by members at every Annual General Meeting. Directors: Duties of the directors towards a company prescribed. Not provided in the Companies Act, 1956 Maximum 15 directors. Company may appoint more than 15 directors on passing special resolusion In certain prescribed companies atleast 1 woman director should be appointed Every company to have one resident director, i.e. a director who has stayed in India for minimum 182 days in the previous calendar year. Independent Director: Every listed company to have 1/3rd of total number of Directors as independent directors. Tenure of such directors: Not exceeding two consecutive term of 5 years, but can be reappointed after a gap of 3 yrs provided that the independent director is not associated with the company directly or indirectly in this gap of 3 yrs. Independent Director is not liable to retire by rotation. The Company and the independent director shall abide by the Code of Conduct in schedule IV to the Bill. Independent Directors shall be excluded for the purpose of computing one third of retiring Directors Independent Directors not entitled to any stock option Every company belonging to such class or description of companies as may be prescribed shall have Managing Director (MD) or Chief Executive Director (CEO) or Manager and in their absence, a Whole time Director (WTD) TD and a Company Secretary. Individual not to be the Chairman of the company as well as the MD or CEO of the company at the same time (AoA can provide for this); Every whole time KMP to be appointed by a resolution at BOD meeting; A WTKMP not to hold office in more than one company at the same time. Any vacancy in the office of any KMP to be filled up by the BOD within 6 months. Provisions relating to separation of office of Chairman and Managing Director (MD) modified to allow, in certain cases, a class of companies having multiple business and separate divisional MDs to appoint same person as Chairman as well as MD

 Loan to Directors: Loan can be given to the director subject to certain conditions Private companies also can now extend loan to its directors subject to such conditions Central Government approval is no longer required. Inter-Corporate Investments: investments not to be made through more than 2 layers of investment companies The rate of interest on inter corporate loans will be the prevailing rate of interest on dated Government Securities. Prohibition on Insider Trading of Securities: Clause 195- makes insider trading by a Director or a Key Management Personnel (KMP), a criminal offence. However, communication in the ordinary course of business, profession or employment will not be treated as Insider Trading. Clause 195 prohibits forward dealings in securities of company by director or KMP. Cross Border Mergers: Chapter VX deals with Compromises, Arrangements and Amalgamations. It provides for cross border mergers where a foreign company may with prior approval of RBI, merge or amalgamate in to a Company registered under this Act or vice-versa. Payment of consideration to the shareholders of the merged company in cash, or in Depository Receipts (DRs) or partly by cash and DRs.

3.0

Tabular Comparison Between Old Versus New Provisions: Sr. No. 1. 2. Subject matter Composition Definitions Old provision in the Companies Corresponding new provision in the Companies Bill,2011 Act,1956 Contains 658 sections and 15 Contains 29 chapters with 470 clauses and with 7 schedules. schedules Section 2 Contains 67 definitions Clause 2 of elephant size contains 95 definitions. The additional definitions not included in section 2 are: Auditing Standards; Associate Company; Chief Executive Officer; Chief Financial Officer; Company Liquidator; Called up capital; Company limited by shares; Company limited by guarantee; Control; Employees Stock Option; Financial Statement; Financial Year; Global Depository Receipt; Independent Director; Interested Director; Indian Depository Receipt; Issued capital; Financial statement; Key Managerial Personnel ;( Whole-time director has been included in the definition of the term key managerial personnel) One Person Company; Promoter; Remuneration; Small Company; Sweat equity shares;

3. 4. 5.

Definition Company Definition Company.

of of

Private Public

Definition of Financial Year.

6. 7. 8.

Types of Company that can be formed

One Person Company(OPC)- clause 3 Mandatory contents of the Five clauses were mandatory: Memorandum Name Clause; Registered office Clause; Objects divisible into: Main Objects; Objects ancillary or incidental to the Main Objects; Other Objects; Liability Clause; Capital Clause Reservation of name for Procedural aspects not covered. proposed Companyprocedural aspects- clause

Unlimited company; Turnover. Restricts the maximum number of To restrict the maximum number of members to 200 members to 50 Considers a private company which is a Further enhanced to provide that a private subsidiary of a public company subsidiary of a public company as a deemed to be a public company even though the subsidiary continues to public company. be a private company in the articles. Financial year not defined in section 2 Defined in clause 2(41) as under: Financial year as defined in clause 2(41) requires Company or body corporate to adopt uniform financial year of 1 April to 31 March every year except in certain exceptional cases. Existing Companies not adopting 1 April to 31 March as financial year for Companies Act purposes to align themselves with 1 April-31 March within two years of commencement of the Companies Act, 2012. Public Company or Private Company Besides Public and Private Company, clause 3 also provides for One which can be limited by shares/limited Person Company as a Private Company. by guarantee or unlimited company. Such a concept was absent hitherto. OPC can be formed. Same except that no classification required for the object clause into Main objects, incidental/ancillary objects, other objects. As a result of the above, section 149(2A) and 149(2B) of the Companies Act is no longer applicable.

9.

Provides for making an application for reservation of new name or change of name of an existing company to the ROC on payment of prescribed fees.

4(4) and 4(5) 10. Penalty for obtaining name No recourse provided by providing wrong or incorrect information

11. Entrenchment provisions in Articles. Clause 5 12. Formats of association. articles of

13. Incorporation of Company.- clause 7

14. Formation of Companies with Charitable objects.clause 8

If company is not incorporated, reserved name shall be cancelled after imposing a penalty not exceeding Rs. 100,000; and If Company is incorporated the ROC may : Give direction to change name within 3 months by passing ordinary resolution or Make a petition for winding up of the company. No such provision existed Articles may provide for more stringent or restrictive procedure than passing of special resolution for altering certain provisions of the AoA (like a provision can be altered only if agreed to by all the members of the company in writing). Table A- AoA of Company limited by Table F- Company limited by Shares. shares. Table G- Company limited by Guarantee and having share capital. Table B- MoA of Company limited by Table H- Company limited by Guarantee and not having share capital. shares. Table I- Unlimited Company having share capital. Table C- MAA of Company limited by Table J- Unlimited Company not having share capital. Guarantee and not having a share capital Table D- MAA of Company limited by Guarantee and having a share capital Table E- MAA of an Unlimited Company Certificate of Incorporation to be Action can be taken even after incorporation if incorporation is on the conclusive evidence basis of false or incorrect incorporation. Thus CoI is not treated as conclusive evidence. Section 25 Company. Did not Specifically provides for all these words. specifically provide for sports, education, research, social welfare and Could be as a OPC or an Association of Persons (AOP). environment protection. Could be only by way of a public or Action besides revocation can be direction for winding up of the Company private company. or amalgamation with another company registered with same objects. Max. action that can be taken by Provides for additional grounds for revocation like affairs being conducted Central Government (CG) was fraudulently or prejudicial to public interest. revocation of license and that too only

15. Commencement Business- clause 11

for violation of any terms of the license. of Applicable only to Public Companies. If not complied, no powers to the ROC to initiate action for the removal of the name of the Company from the Register of Companies.

16. Name change of a Company No provision existed. during the last two years.clause 12

17. New restrictions on Objects clause alteration required only alteration of objects clause special resolution of members and filing where Co. has any of Form 23 with the ROC. unutilized proceeds from Public Issue (PI).- cl. 13. 18. Permissible mode of issuing Companies could issue securities by securities.- clause 23 way of public issue, private placement, rights issues or bonus issue.

19. Raising capital through No such provision existed. public offer-Clause 28 20. Civil liability misstatement in prospectus. for Section 62 provides that where the prospectus invites persons to subscribe for shares in or debentures of a

Applicable to both public as well as private companies. clause 11 Empowers ROC to remove the name of the Company from the Register of Companies if: Declaration is not filed within 180 days from the date of incorporation of the Co and ROC has reasonable cause to believe that the Company is not carrying on any business. Company to paint or affix outside every office or place of business letters, bill heads, etc. along with its name, the former name or names changed during the last two years. Also company shall, on and from the 15th day of its incorporation and at all times have a registered office address. Not necessary to have a registered office at the time of incorporation. Where Co. has any unutilized proceeds from PI, it cannot change its objects unless a special resolution is passed by it and the details as may be prescribed, of the notice, shall be published in two newspapers and shall also be placed on the website of the company; Dissenting shareholders should be given an exit opportunity in accordance with SEBI regulations. Private companies under clause 23 can issue securities only through private placement after complying with part II of Chapter II. Thus private companies cannot issue rights shares or bonus shares. However clause 62 and 63 dealing with rights and bonus respectively contains no such prohibition. Bill needs to be amended for clarity. Only public companies can issue securities by making public offer and that too by complying Part I of chapter III of the bill. Clause 28 enables offer of sale of shares by certain members of the company. Clause 35 provides that where it is proved that the prospectus has been issued with intent to defraud, every person like directors, promoters, experts, etc shall be personally responsible without any limitation of

21. Criminal liability misstatement in prospectus.(no change) 22. Punishment for fraudulently inducing persons to invest money.(no change) 23. Class action for misleading statement in prospectus and fraudulently inducing people to invest money.-clause 37 24. Allotment of securities and minimum subscription. 25. Disgorgement provisions.Clause 38(3)

company, then the liability is only for liability for all the loss or damages. payment of compensation to every person who relied on the prospectus and for loss and damage that they may suffer. for Section 63 Clause 34 the Section 68 No such provision existed. Clause 36-to also include punishment for falsely inducing a person to enter into any agreement with bank or financial institution, with a view to obtaining credit facilities. Any group of persons or any association of persons affected by any misleading statement or the inclusion or omission of any matter in the prospectus may take action against any guilty persons.

Section 69- Minimum subscription Clause 39-minimum subscription to be extended to all securities. applicable only to shares. Did not exist Clause 38(3) provides that where a person has made applications in fictitious names for securities and has made multiple applications to company in different names for acquiring securities and he has been convicted of any of the offences, the Court may also order disgorgement of gain, if any, made by, and seizure and disposal of the securities still in possession of, such person and amount received through disgorgement or disposal of securities shall be credited to IEPF. Clause 38 applies only to public offers. 26. Issue of Global Depository Did not exist Company, may, after passing a special resolution in its general meeting, Receipts (GDR).- clause 41 issue GDRs subject to conditions. 27. Raising of capital by private Did not exist Offer can be made to such number of persons as may be prescribed and placement basis- clause42 for prescribed amount without issue of prospectus.. If offer is made to more than prescribed no. of persons, the same shall be deemed to be an offer to the public. private placement has been defined to bring clarity. 28. Voting rights on preference Section 87-Different criteria for Clause 47-No such difference between cumulative and non-cumulative .

shares.- clause 47 29. 30.

31.

32. 33.

34.

cumulative and non-cumulative Voting rights to arise if dividends payable are in arrears for a period of two preference shares for trigger of voting years or more. rights. When is dividend said to be Explanation to clause 87 provides for Explanation omitted. May give rise to needless litigation. payable for determination of the same. voting rights as above. Where variation in rights of Section 106-107 provides for variation Clause 48- if variation by one class of shareholders affects the rights of one class of shareholders in rights of shareholders by obtaining any other class of shareholders, the consent of at least 75% of such other affects rights of other class consent in writing of not less than 3/4th class shall also be obtained. of shareholders.- clause 48 of the issued shares of that class or with the sanction of the special resolution passed at a separate meeting of the holders of the issued shares of that class. Utilization of securities Section 78- SPA can be utilized for Clause 52(3)- prescribed class of companies whose financial statements premium account writing off preliminary expenses or for comply with accounting standards prescribed for such class cannot utilize (SPA).clause 52(3) providing premium payable on SPA for writing off preliminary expenses and premium on redemption of redemption of preference shares or preference shares or debentures. debentures. Prohibition on issue of Section 79- Issue of shares at discount Clause 53- prohibits issue of shares at discount as void and not shares at discount.- clause permissible subject to conditions and permissible except for Sweat Equity under clause 54 53 CG approval Preference shares beyond Section 80- Issue of irredeemable Clause 55-preference shares beyond 20 yrs may be issued by 20 yrs clause 55 preference shares or redeemable infrastructure companies subject to annual redemption of such beyond 20 yrs is prohibited. percentage of preference shares as may be prescribed on an annual basis at the option of such preferential shareholders. Redemption of unredeemed No such provision existed. A Company may redeem unredeemed preference shares by issuing preference shares by issue further redeemable preference shares equal to the amount due, including of further shares.-clause the dividend thereon with the consent of 75% holders in value for such 55(3) pref. shares and approval of the Tribunal on a petition made to it in this behalf is obtained. Such issue or redemption shall not be deemed to be an increase or as the case may be reduction in the share capital of the Company.

35. Transfer of interest of a member in a company having no share capitalclause 56(1) 36. Alteration of share capital by consolidation or division of share capital into shares of larger amount.- clause 61(1)(b)_

No such provision existed under the Clause 56(1) provides for registration of transfer by company of such Companies Act, 1956. Was transferable interest by delivery to the company by the transferor or the transferee of only under the Transfer of Property Act. proper instrument of transfer within 60 days from the date of execution. Clause 61(1) (b) provides that such alteration shall be made only after making application to the Tribunal and obtaining the approval of the Tribunal. Approval of the Tribunal shall be required for consolidation and division of share capital only if the voting percentage of shareholders changes consequent on such consolidation Clause 63 provides for issue of bonus shares. Private companies are not excluded in clause 63 for issue of bonus shares but apparently clause 23 does not permit private companies to issue bonus shares. No reduction of capital shall be made by a company if the company is in arrears in the repayment of any deposits accepted by it or the interest payable thereon irrespective of the deposits being accepted before or after the commencement of this Act. Needs special resolution of the members for the issue of debentures with conversion option, wholly or partly.

Section 94(1) permitted the same if there was a provision for the same in the AoA treating it as a mere alteration not involving any reduction in the share capital. No approval of the Court or any other authority required. 37. New enabling provision for No provision in the act. However Rules issue of bonus shares- framed for public unlisted Company. clause 63 38. No reduction of capital if No such provision existed. deposits not repaid.- clause 66 39. Special resolution required for issue of debentures with conversion option & other provisions clause 71 40. Appointment of Debenture Trustees (DT) compulsory for public issue of debentures through prospectus to more than 500 persons. 41. Public Deposits( PD): (a) Prohibition on acceptance of PD ( clause 73-76) No such requirement existed.

Section 117B- No such ceiling of 500 Clause 71-Appointment of Debenture Trustees compulsory for public existed. Appt. of DT compulsory for issue of debentures through prospectus to more than 500 persons. company issuing prospectus or a letter of offer to the public for subscription of its debentures Section existed. prohibition Clause 73 Specifically provides that only banking companies, NBFCs, Notified Companies and Public Company having such net worth as may be prescribed. Section 58AA_ concept of small Companies other than above can accept PD only from its members, only depositors done away with in the new if certain conditions like resolution at GM, compliance with rules and Bill. regulations of the RBI, provision of security for the repayment, filing a 58A-General

42.

43. 44. 45.

46.

copy of circular with the ROC, issuance of circular to its members, creation of Deposit Repayment Reserve Account, providing Deposit Insurance,etc, are met. For acceptance of PDs from persons other than members, specific conditions have to be met, like, prescribed net worth or turnover, credit rating from a credit rating agency, creation of charge. Definition of charge. Section 124- definition is an inclusive Clause 2(16) defines charge to cover the following: definition to include mortgage. An interest or lien created on the property of the Company or its assets or any of its undertakings or both as security. A mortgage. Registration of pledges. Pledge of movable property does not Registration of pledges of movable property with the ROC, proposed. require registration with the ROC Types of charges requiring Section 125(4)- only 9 types of charges To cover all the charges on the companys assets, properties or any of its registration. require registration. undertakings. Power of Registrar to make Such a provision did not exist. Provided for in clause 88. entries of satisfaction and release in absence of intimation from company.clause 83 Annual Return (AR).- clause Section 159 provided for only 7 details Clause 92 provides for the additional details to be mentioned in the AR 92 to be specified in the AR. like, (i) Details of principal business activities, particulars of holding, subsidiary and associate companies; (ii) Promoters, directors, key managerial personnel along with changes since last year; (iii) Meetings of members or a class thereof, Board and its various committees along with the attendance details; (iv) Remuneration of directors and KMP; (v) Penalties or punishments imposed on the Company, its directors or officers and details of compounding of offences and appeals made against penalties or punishments; (vi) Matters related to certification of compliances, disclosures as may be prescribed;

47. Certification Return):

Annual Section 161 provides for AR to be signed by a Director and by the manager or secretary, and where there is no manager or secretary, by Two Directors, one of whom shall be the Managing Director (MD), where there is one. In case of a listed company, such AR to be also signed by a Practicing Company Secretary (PCS). 48. Time limit for filing of the AR Section 159-within 60 days from the Clause 92(3)-where AGM is held- within 30 days from the date of the with the ROC day on which the AGM is held. AGM. Where AGM is not held- within 30 days of the due date of the AGM along with the reasons for not holding the AGM. 49. Consequences for default in Section 162- company and every officer Where the co.fails to file within 30 days but files it within 300 days, filing the AR. of the company who is in default, shall additional filing fees as prescribed in clause 403; be punishable with fine which may Where co. fails to file within 270 days from expiry of 30 days timeline, the extend to 500 Rs for every day of co. shall be punishable with fine not less than 50000 but which may default. extend upto 500000 and every officer of the company who is in default shall be punishable with imprisonment for 6 m or with fine which shall not be less than Rs.50000 but which may extend upto Rs. 500000/-, or with both. 50. Return to be filed by listed No such provision existed. Clause 93 provides listed company to file a return with the ROC in case of company in case of changes changes in promoters or top ten shareholders of the company within 15 in promoters.-clause 93 days of such change. 51. Holding of first Annual To be held within 9 months from the To do away with the 18 m timeline in case of the 1st AGM. General Meeting (AGM)- financial year ending or within 18 m clause 96 from the date of incorporation whichever is earlier. 52. AGM to be called during Section 166 merely mandated calling of Business hours would mean between 9.00 am and 6 p.m. business hours- business AGM during business hours without

of

(vii) Details of shares held on behalf of FIIs (viii) Such other matter as may be prescribed. Clause 92- in case of an OPC and small company, AR to be signed by a CS or where there is no Company Secretary (CS), by a PCS; For listed company and companies having such turnover and paid up capital as may be prescribed- by a Director and a CS, where there is no CS by a PCS. In addition to this, it shall also be certified by a PCS that the AR discloses the facts correctly and adequately and that the Co. has complied with all the provisions of the Act. Other companies- by a Director and a CS, where there is no CS by a PCS.

hours defined. defining business hours. 53. AGM cannot be called on Section 166 provided that AGM cannot Bill allows AGM to be called on a public holiday but not on a national which days. be held on a public holiday. holiday. National holiday means and includes a day declared as such by the Cent. Govt. 54. Explanatory statement in Section 173 does not define material Clause 102 defines material facts to be set out in the Explanatory respect of material facts.- facts. statement, namely, the nature of the concern or interest, financial or clause 102 otherwise, if any, in respect of each item of every director and manager, every other KMP and relatives of all the above and such other information and facts that may enable members to understand the meaning , scope and implications of the items of business and to take decision thereon. 55. Consequences for non- Not provided If any benefits accrue due to non-disclosure, all the aforesaid persons disclosure or insufficient shall hold such benefit in trust for the company and shall be liable to disclosure in the explanatory compensate the company to the extent of the benefit received by them. statement.- clause 102 56. Quorum for public Section 174-Quorum was 5 members Clause 103companies having more personally present unless AoA provides If members on the date of the meeting does not exceed 1000- 5 members than 1000 members- clause for a bigger quorum. personally present; 103 If members on the date of the AGM exceeds 1000 but not more than 5000- 15 members personally present. If members as on the date of the AGM exceed 5000- 30 members personally present. 57. Voting through electronic No such provision existed. Clause 108-Central Government may provide for class of companies means.-clause 108 which can provide for voting through electronic means. 58. Resolutions requiring special Section 190- no criteria for voting power Clause 115-such a notice can be given by such number of members notice.-clause 115 or shares. holding not less than 1% of the total voting power or holding shares on which an aggregate sum of not less than Rs.100000 has been paid up. 59. Statutory recognition to SS were recommendatory. Clause 118 provides that every company shall follow SS with respect to Secretarial Standards (SS)General and Board Meetings and approved by the Cent. Govt. clause 118(10) Clause 205 provides that functions of a CS, shall, inter-alia include ensuring compliance with the applicable SS. 60. Penalty for tampering with No such provision existed. Clause 118 any person found guilty of tampering any minutes of the minutes.-clause 118(12) proceeding of any meeting shall be punishable with imprisonment which may extend upto two years and with fine which shall not be less than

Rs.25000 but which may extend to Rs.100000. Clause 120 provides for any document, record, register, minutes etc may be kept or inspected or copies given, as the case may be, in electronic form in such form and manner as may be prescribed. Clause 121 provides that every listed company shall prepare a report on each AGM and file a copy of the same with the ROC within 30 days from the AGM. Clause 98 and clause 100-111 (both inclusive) shall not apply to an OPC. cl. 98- power of Tribunal to call meetings of members, etc. cl. 100-calling of EOGM cl. 101- notice of meeting cl. 102-statement to be annexed to notice. Cl. 103-quorum for meetings cl. 104- chairman of meetings cl. 105-proxies cl. 106- restriction on voting rights cl. 107- voting by show of hands cl. 108- voting through electronic means cl. 109- demand for poll cl. 110- postal ballot & cl. 111- circulation of members resolution. 64. Transfer of specified % of Section 205- company could not Company to use its wisdom to decide % of profits to be transferred to profits not exceeding 10% to transfer more than 10% profits except in reserves. Its no longer mandatory for companies to transfer its profits to Reserves- clause 123 accordance with the rules. Reserves. 61. Maintenance and inspection No such provision existed. of documents in electronic form.-clause 120 62. Report on AGM required to No such provision existed. be submitted by listed company- clause 121 63. Applicability of certain NA provisions to OPC- clause 122 65. Restriction on interim No such restriction existed. Dividend introduced- clause 123(3) 66. Transfer of shares to Only unclaimed dividend Investor Education & transferred to IEPF Protection Fund (IEPF)clause 124 to BOD to declare interim dividend out of the surplus in the P&L ac as well as the profits for the financial year in which the interim dividend is sought to be declared. In case of loss, interim dividend rate not to exceed average dividends declared during preceding three financial years. be Along with the unclaimed dividend, the shares on which dividend is unclaimed, also to be transferred to the IEPF.

67.

68. 69. 70.

71.

No claim lied against the Fund or the Company in respect of individual amounts which were unclaimed or unpaid for a period of seven years. Maintenance of books of Not permitted account in electronic modeclause 128(1) Preservation period of books Section 209- books and vouchers for 8 of account. yrs period. Compulsory consolidation of Section 212 provided for attachment of accounts of holding accounts of subsidiaries along with the company and its holding company accounts. No subsidiaries including provision for consolidation. associate companies and JVs. Re-opening of No such provision existed. accounts/recasting of financial statements clause 130

Claim from IEPF after 7 yrs.

Claim of an investor over a dividend not claimed for more than a period of 7 years not to be extinguished and shall be entitled to refund in accordance with the rules. Provides for electronic maintenance of the same. Clause 128(5) where investigation is ordered, CG may direct books to be preserved for longer period. Clause 129 provides for consolidation of financial statements of company and all its subsidiaries.

72. Voluntary revision of No such provision existed. financial statement or board report with tribunals consent.-clause 131 73. Additional disclosures in the Section 217 Board Report (BR)- Clause 134

Can be done if there is an order in this regard made by the court or tribunal to the effect that the relevant earlier accounts were prepared in fraudulent manner or the affairs were mismanaged during the relevant period, casting a doubt on the reliability of the financial statements. Court or Tribunal shall give notice to the CG and the Income Tax and shall take into consideration, representation, if any, made by them. The accounts so revised or re-casted shall be final. If the Board feels that the financials or the Report do not comply with the applicable provisions of clause 129 or 134, they may revise the aforesaid in respect of any of the three preceding financial years after obtaining approval of the Tribunal.. Cannot be revised for more than once in one financial year. CG may make separate rules for this. Clause 134(1) has stipulated new disclosures in BR like: Number of meetings of Board; Statement of declaration by independent directors; Companys policy on director appt/remuneration; Explanation on every qualification made by PCS in his report;

74. Directors responsibility statement.- clause 134(5)

75. CSR Obligations.- clause 135

76. Compulsory Internal Audit (IA).- clause 138 77. Rotation of Statutory Auditors.- clause 139(2)

Particulars of loans, guarantee, investment; Related party contracts; Implementation of risk management policy; Policy developed on Corporate Social Responsibility; Statement of formal evaluation of the performance of the board and its committees in case of listed and public companies, as may be prescribed. 217(2AA) ; Clause 134(5) provides for additional disclosures: Disclosures required on four fronts: In case of a listed company, Directors have laid down internal financial Applicable accounting standards controls and they have been complied with; followed; Directors have devised proper systems to ensure compliance with the True and fair view of the financials; provisions of this Act, rules, and that such systems were adequate and Detecting and preventing fraud; operating effectively. Accounts on a going concern basis. Did not exist. Clause 135-co. having net worth of 500 cr or turnover of 1000 cr or net profit of 5 cr or more during any financial year shall constitute a CSR Committee. Co to ensure that at least two percent of average net profits of the company during the 3 preceding financial years is spent in every financial year on CSR. Company shall give preference to local areas where it operates, for spending amount earmarked for Corporate Social Responsibility (CSR) activities If the Company fails to spend such amount, the Board to report the reasons for the same in its Report. No such provision existed. Clause 138-prescribed companies to have an Internal Auditor to conduct IA, who can be a CA or ICWA or such other professional as may be decided by the Board. CG may prescribe rules for conduct and report of IA. No such provision existed. Listed and other prescribed companies not to appoint or re-appoint an individual auditor for more than one term of five years and an audit firm for more than two terms of five consecutive years. Members of a company may resolve to rotate the audit partner every year to resolve to conduct audit by more than one auditor.

78. Re-appointment of statutory Board recommended the reauditors. appointment of retiring auditors and retiring auditors could be re-appointed at the AGM. 79. 5 years tenure for auditors. Sec 224-Auditors could be appointed to hold office only upto the date of the next AGM and could be re-appointed thereat.

80. Automatic re-appointment of existing Auditors, when not appointed/re-appointed at the AGM- clause 139(10) 81. Time bound filling up of Casual vacancy in the office of Auditors.- clause 139(8)

Section 224(3) provided that if no Auditor was appointed/re-appointed at the AGM, the Central Government could fill up the vacancy. Section 224(6) - Casual vacancy to be filled up by the Board. If due to resignation, then by the members in their meeting. 82. Recommendations of Audit No such provision existed. Committee for appointment of auditors.- clause 139(11)

Provisions relating to voluntary rotation of auditing partner (in case of an audit firm) modified to provide that members may rotate the partner at such interval as may be resolved by members instead of every year proposed in the clause earlier. The limit in respect of maximum number of companies in which a person may be appointed as auditor has been proposed as twenty companies. After the expiry of term mentioned at point 75 above, there has to be a gap of 5 yrs for re-appointment after every cessation. Further in case of an Audit firm, no other firm which has a common partner to the other audit firm can be appointed as Stat Auditors. Members can approve rotation of audit partners and also appointment of joint auditors. Clause 139(1)- Audit firm or an individual including an LLP to be appointed for 5 yrs. i.e. to hold office upto the date of the sixth AGM. Appointment of auditors for five years shall be subject to ratification by members at every Annual General Meeting. . Clause 139(10) - existing auditors continue to be the auditors of the company in such a scenario. Clause 139(8)-Casual vacancy to be filled up by the Board within 30 days. If due to resignation, then by the Company in its meeting within 3 m from the date of recommendation of the Board and such auditor to hold office only upto the date of the next AGM. Clause 139(1) all the appointment of statutory auditors including in case of casual vacancy shall be made after considering the recommendations of the Audit Committee, where there is one.

83. Auditors duties when they No such provision or requirement Retiring auditor to file a statement with the ROC as well as the Company, resign.- clause 140(2)/(3) existed. within 30 days of resignation, indicating reasons and other facts that may be relevant with regard to his resignation

84. Tribunal may direct Section 224(7) provided for removal of company to change its auditors before the expiry of their term, auditors.-clause 140(5) only with the prior approval of the Central Government. 85. Duties of auditor/secretarial No such provision existed. auditor/cost auditor to report fraud to the CG.- clause 143(12)-(14) 86. Limited Liability Partnership Section 226(3) LLP was not to be (LLP) can act as an Auditor.- treated as a Body Corporate for the Clause 141 limited purpose of this section and hence could be appointed as an Auditor. 87. Auditor not to render certain No such provision existed. services.- clause 144

Clause 140(5) provides that the Tribunal may, by order, direct the company to change its auditors on being satisfied that the auditors has acted in a fraudulent manner or abetted or colluded in any fraud. Auditors/CWA/CS to inform the fraud to the CG within prescribed time and manner and the same shall not be construed as breach of duty. Where a firm including an LLP is appointed as an auditor of a company, only the partners who are chartered accountants shall be authorized to act and sign on behalf of the firm.

Clause 144- auditor not to render directly or indirectly the following services to the company, its holding company or its subsidiaries, or associate company: Accounting and book keeping service; Internal audit; Design and implementation of any financial information system; Actuarial services; Investment advisory services; Investment banking services; Rendering of outsourced financial services; Management services; and Any other kind of consultancy services. Provisions relating to restrictions on non-audit services modified to provide that such restrictions shall not apply to associate companies and further to provide for transitional period for complying with such provisions. 88. Auditors attendance at AGM Section 231- provides for all notices of Clause 146- provides that auditor shall, unless otherwise exempted by proposed to be made and other communication relating to the Company, attend any general meeting, either by himself or through obligatory.- clause 146 general meeting of a company to be his Authorized representative who is qualified to be an auditor. forwarded to the Auditor. The Auditor

was thus entitled to but not obliged to attend any general meeting. 89. Increased accountability of Penalties were provided for violation of auditors.-clause 147 section 227 (dealing with powers and duties of auditors) and section 229 (dealing with signature of audit report). Meager penalties of fine upto Rs. 10000.

90. Woman Director mandatory No such provision existed. for certain class of companies-clause 149(1) Resident Director No such provision existed. 91. Maximum number of Section 259 provided for max. 12 and Directors. beyond 12 required prior Central Govt. approval. 92. Independent Directors.- No such provision existed. clause 149

Penalties significantly enhanced- fine not less than 25000 but extendable to Rs. 5 lakhs. Imprisonment upto one year and fine in case there is an intention to deceive the company, its shareholders or creditors. Provisions relating to extent of criminal liability of auditors particularly in case of partners of an audit firm reviewed to bring clarity. Further, to ensure that the liability in respect of damages paid by auditor, as per the order of the Court, (in case of conviction under Clause 147) is promptly used for payment to affected parties including tax authorities, Central Government has been empowered to specify any statutory body/authority for such purpose. Such class/es of companies as may be prescribed shall have a woman Director. 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. Clause 149(1) provides for max 15 and beyond 15 by passing a special resolution.

Every listed company to have 1/3rd of total no. of Directors as independent directors. Tenure of such directors- not exceeding two consecutive term of 5 years. Can be reappointed after a gap of 3 yrs. Not to be associated with the company directly or indirectly in this gap of 3 yrs. Such Director is not liable to retire by rotation. The Company and the ID shall abide by the Code of Conduct in schedule IV to the Bill. Independent Directors shall be excluded for the purpose of computing one third of retiring Directors 93. Right of person other than Section 257 provides that such a Clause 160- has increased this amount to Rs. 100,000 which is retiring directors to stand for person has to deposit Rs. 500 which refundable when he is appointed or even when he gets more than 25% of

directorship.- clause 160

would be refunded in case he is the total valid votes cast either on show of hands or on poll on such appointed as a Director. resolution.

94. Alternate Director- clause Section 313-Absence for 3 m from the Clause 161- has been modified to include India, instead of the state 161 state where the Board Meetings are where the board meetings are ordinarily held, to be the criteria. ordinarily held, is the criteria. 95. Duties of Director- clause Not specifically provided. Clause 166 provides for the following duties: 166 To act in accordance with cos AoA; Act in good faith; Exercise his duties with due care and diligence. A director shall not: Involve in any conflicting interest with the co.; Achieve or attempt to achieve any undue advantage; Assign his office. 96. Resignation of directors. No such provision specifically existed. Clause 168 contains provision for director to resign by tendering his Clause 168 resignation letter, which the Board has to note and place before the members in the next general meeting. Date of resignation will be date mentioned in the letter or the date of receipt of the resignation by the company, whichever is later. Director who has resigned shall be liable even after his resignation for offences which occurred during his tenure. 97. Gap between two board Section 285 provided for one meeting to Clause 173(1) provides that the gap between any two board meetings meetings. Clause 173 (1) be held in every calendar quarter. So should not exceed 120 days. one board meeting could be held in the For OPC: first month of the quarter and the next If OPC has more than one director, then at least one meeting in each half could be held in the last month of the of the calendar year and gap should not be less than 90 days between next quarter, thereby a gap of almost 6 such meetings. m. If OPC has only ONE director, no need to hold any board meetings. 98. Directors participation by No such provision specifically existed. Clause 173(2) and 174(1) specifically provides for directors attending the audio-visual means or video Companies used to resort to such meetings even by way of video conferencing/audio-visual conferencing. conferencing.clause mechanism for administrative Such director to be counted for the purpose of quorum. 173/174 convenience however the director CG may notify such matters which shall not be dealt with in a meeting participating through audio/video through video conferencing or other audio-visual means.

conferencing could not be counted for quorum 99. Notice for board meetings Section 286 merely provided for notice (BM).-clause 173(3) of BMs to be given to directors in writing but did not specify the length of such notice. 100. Withdrawal of Resolution by Section 289 provided for passing of circulation- clause 175 board resolutions by circulation with no provision of withdrawal. 101.

Clause 173(3) provides for 7 days notice for BM.(can be electronic also) Shorter consent possible if at least one independent director is present at such meeting.

102.

103. 104.

105.

Clause 175 provides that if a demand is made by not less than 1/3 rd of Board of Directors (BOD) that resolution under circulation be decided at a BM the chairman shall withdraw the resolution from circulation and have the question decided at a BM. Nomination & A mention of Remuneration committee Clause 178-Provides for mandatory constitution of Nomination and Remuneration Committee was made only in the Schedule XIII. Remuneration Committee and Stakeholders Relationship Committee for and Stakeholders prescribed companies. Relationship Committee.clause 178 Limit on political contribution Section 293A upto 5 % of the average Clause 182- limit enhanced to 7.5% from 5%. by a non-government net profits for preceding three financial Political party defined as political party registered under section 29A of company- clause 182 years on authority of a Board the Representation of the People Act, 1951. Resolution. Loan to Directors- Clause sec 295- not applicable to private Clause 185- CG approval done away with and applicable to private 185 companies and prior approval of the CG companies as well. required. Inter-corporate investments No such provision existed in section Clause 186 provides that investments not to be made through more than not to be made through 372A of the companies act, which dealt 2 layers of investment companies. more than 2 layers of with inter corporate loans and The rate of interest on inter corporate loans will be the prevailing rate of investment companies- investments. interest on dated Government Securities. clause 186 Related party transactions.- Section 297 covered only sale and Also covers leasing of property, appointment of agent for the sale or clause 188 purchase of goods, rendering of purchase, related partys appointment to any office or place of profit in the services , underwriting the subscription company, its subsidiary or associate company. of any shares or debentures. Prior CG approval done away it and only Members approval required by Where paid up share capital of the way of a special resolution. company exceeds Rs. 1 crore, prior

106.

107.

108.

109.

110. 111.

approval of the CG required. Applicable to contracts between two public companies as well. Not applicable to contracts between two public companies. New restrictions on non- No such provision existed. Clause 192- A company shall NOT, subsidiary or associate, enter into cash transactions by specified non cash transactions with its director or a director of its holding directors.-clause 192 company or person connected with him unless approved by the company in its general meeting. Such transactions to be treated voidable. Contract by OPC- clause No OPC concept existed. Clause 193- Where OPC limited by shares or by guarantee enters into a 193 contract with its sole member, who is also a Director; the company should preferably enter into a written contract. If not the above, the OPC will have to record the contract in the board minutes book and file a return with the ROC within 15 days of the date of approval by the BOD, with prescribed fees. Prohibition on forward No such provision existed. Clause 194 prohibits a Director of a Company or a KMP to buy a right to dealings in securities of call for delivery at a specified price and within a specified time, of a company by a Key specified number of relevant shares or debentures, right to make delivery Managerial Personnel at a specified price and within a specified time, of a specified number of (KMP)- clause 194 relevant shares or debentures Prohibition on Insider No such provision existed. Clause 195- makes insider trading by a Director or a KMP, a criminal Trading of Securities.-clause offence. 195 Communication in the ordinary course of business, profession or employment will not be treated as Insider Trading. Remuneration of managerial Governed by Schedule XIII To be governed by schedule V. IDs not to get stock option but may get personnel in case of no payment of fees and profit linked commission subject to limits. CG may profits or inadequate profits. prescribe amount of fees under the rules. Appointment of Whole Time Section 269- every public company Clause 203- every company belonging to such class or description of Director.-clause 203 having capital of more than Rs 5 cr. To companies as may be prescribed shall have MD or CEO or Manager and have a managing in their absence, a WTD and a Company Secretary. director/WTD/Manager. Individual not to be the Chairman of the Co. as well as the MD or CEO of the Co. at the same time (AoA can provide for this); Every whole time KMP to be appointed by a resolution at BOD meeting; A WTKMP not to hold office in more than one company at the same time.

112. Secretarial audit compliance report from PCS to be attached to Directors reportclause 204

Section 383A provided only for secretarial audit by companies having paid up capital between Rs. 10 lakh to Rs. 5crores. Did not specifically provide for attachment of such report to the Directors report. 113. Functions of the CS.-clause No such provision existed. Clause 205-to report to the BOD, compliance with the Act, rules made 205 there under; To ensure that the company complies with the applicable SS; To discharge such other duties, as may be prescribed. 114. Serious Fraud Investigating No such provision existed. Clause 211-statutory status to SFIO proposed in the Bill. Office (SFIO) clause 211 115. Freezing of assets of No such provision existed Clause 221 provides for the same. company on inquiry and investigation. Clause 221116. Simplified procedure for No such provision existed. compromise between small companies or between Holding/subsidiary cos. clause 233 117. Cross Border Mergers- No such provision existed. clause 234 Clause 233- provides for the same.

Any vacancy in the office of any KMP to be filled up by the BOD within 6 m. Provisions relating to separation of office of Chairman and Managing Director (MD) modified to allow, in certain cases, a class of companies having multiple business and separate divisional MDs to appoint same person as chairman as well as MD Clause 204- every listed company and other prescribed companies shall annex with its Boards Report, a Secretarial Audit Report. Directors shall explain in full in their DR, qualification/observation/remarks in the secretarial audit report.

Clause 234 provides for cross border mergers where a foreign company may with prior approval of RBI, merge or amalgamate in to a co. registered under this Act or vice-versa. Payment of consideration to the shareholders of the merged company in cash, or in DRs or partly by cash and DRs.

118. Squeeze out clause 236

provisions- No such provision existed.

119. Relief for past concluded acts of oppression- clause 241 120. Class action by member/s, depositor/s or any class of them. clause 245

121. Registered valuers.- clause 247

122. Power of Registrar to remove name of a company from Register. clause 248 123. Bar on company making application to the ROC for removal of its name from register-clause 248(2)

Squeeze out provision means provisions which confer the acquirer with a statutory right to squeeze out the minority, i.e. acquire minority shareholders on the same terms when the acquirers shareholding crosses a certain high percentage of the voting capital of the target company. This was not possible under section Clause 241 uses the phraseology-affairs of the company have been or 397 of the Companies Act, 1956, as the are being conducted/. Thus relief for past acts is possible. same provided only for the current affairs of the company. No such provision existed. Provided for. Provisions relating to extent of criminal liability of auditors particularly in case of partners of an audit firm reviewed to bring clarity. Further, to ensure that the liability in respect of damages paid by auditor, as per the order of the Court, (in case of conviction under Clause 147) is promptly used for payment to affected parties including tax authorities, Central Government has been empowered to specify any statutory body/authority for such purpose. No such provision existed. Clause 247- wherever valuation is to be done of any property, stocks, shares, debentures, securities or goodwill or net worth of a company or of its assets, such valuation shall be done by a person who is a registered valuer under this chapter and appointed by the Audit Committee or in its absence by the BOD. Section 560 provided for the ROC to Clause 247- give suo-motu powers to the ROC and also power to suo motu strike off the company as a members holding 75% of the paid up share capital of the company to defunct company if it has reasonable apply to the ROC for striking off the name of a company as a defunct cause to believe that a Co. is not company. Grounds for name removal specified. Clause 8 companies not carrying on its business or in operation. included. No such provision existed. Provides for situations ( in the previous 3 m) where such an applications cannot be made: -Name change/registered office change; -Disposal for value of property; -Engagement in any other activity; -Made an application to the Tribunal for compromise/arrangement;

124. Fraudulent application by No such provision existed. company for removal of name. clause 248(2) 125. Sick Industrial Companies- Treatment meted out under SICA,1985 clause 253-269 Coverage limited only to Industrial companies. SICA determines sickness based on negative net worth criteria. 126. Modes of winding up. By court, under supervision of court and Clause 270-365 voluntary winding up. Voluntary could be members or creditors. 127. Limits for determining inability to pay debts. 128. Conversion of LLPs into companies.-clause 371 129. Nidhi Companies.-clause 406 Section 434- Any creditor indebted for more than Rs. 500/Not permitted under the present regime- Part IX Section 620A- Necessary for Cent. Govt. to notify a company as a Nidhi for it to qualify as such. 130. Special Courts. Clause 435- No such provision existed. 446 131. Punishment for fraud.-clause Fraud not defined. 447 Punishment for fraud not quantified or provided. 132. Dormant Company- clause Not defined. 455

-Is being wound up. Provides for management being responsible, jointly and severally, in such a scenario to any person/s who incurred loss or damage and shall also be liable to penal action. ROC may recommend prosecution of persons responsible for filing of application for removal of name, fraudulently. Treatment meted out under chapter XIX of the Bill: Covers revival and rehabilitation of all companies irrespective of the industry they are in. Sickness of company to be determined on the basis of whether co is able to pay its debts or not. By the Tribunal and Voluntary. No such classification exists. Additional grounds for winding up by Tribunal provided. Limit raised to Rs. 100,000/Clause 371 provides for conversion of LLPs into companies. Clause 406- no such notification required. Nidhi defined in this clause. The Bill aims at setting up of special courts to try offences under the Bill. Fraud has been defined and penalty provided. Clause 455 defines inactive company as a company which: (i) Has not been carrying on any business or operation or has not made any significant accounting transaction during the last two financial

133. Prohibition of association or partnership of persons exceeding a certain number.-clause 464

Section 11-no company, association or partnership consisting of more than 10 persons shall be formed for banking purpose and for non-banking, it cannot exceed 20

134. Power to remove difficulties.

years, or (ii) Has not filed financial statements and annual returns during the last two financial years. Clause 464 provides for increasing the number to 100 in case of persons in associations or partnerships, with no ceiling as to association or partnerships, formed by professionals regulated by special acts. If Association or partnership is formed for acquisition of gain by professionals (CA, CS, CWA, Doctors, Architects, Lawyers, etc) then there is no need to get the same registered either under the Companies Act or the LLP Act. In other cases, registration is required. HUF is not covered under this. Provisions in respect of removal of difficulty modified to provide that the power to remove difficulties may be exercised by the Central Government upto five years (after enactment of the legislation) instead of earlier upto three years. This is considered necessary to avoid serious hardship and dislocation since many provisions of the Bill involve transition from preexisting arrangements to new systems.

For further information please contact:

RSM Astute Consulting Group

13th Floor, Bakhtawar, 229, Nariman Point, Mumbai - 400 021. T: (91-22) 6696 0644 / 6121 4444 F: (91-22) 2287 5771 / 2820 5685 E: emails@astuteconsulting.com www.astuteconsulting.com Offices: Mumbai, New Delhi - NCR, Chennai, Kolkata, Bengaluru (Bangalore), Surat, Hyderabad, Ahmedabad, Gandhidham and Aurangabad.
RSM Astute Consulting Private Limited is a member of RSM network. Each member of the RSM network is an independent accounting and advisory firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. This newsflash is general in nature. In this publication, we have endeavoured to summarise the significant aspects of the Companies Bill, 2012 passed in Loksabha on 18 December 2012. It may be noted that nothing contained in this publication should be regarded as our opinion and facts of each case will need to be analysed to ascertain applicability or otherwise of the topics covered in this publication. Appropriate professional advice should be sought for applicability of legal provisions based on specific facts. We are not responsible for any liability arising from any statements or errors contained in this publication.

21 December 2012 RSM Astute Consulting, 2012