Companies Act- 2013- Highlight

The Rajya Sabha on 8th August, 2013, gave its assent to Companies Bill 2013, and it
became Companies Act, 2013 on 29th August, 2013. Companies Act- 2013 introduced
significant changes in provisions relating to: E-Governance; E-Management;
Compliance and Enforcement; Disclosure Norms; Auditors and Mergers and
Acquisitions.
From Bankers point of view, it is extremely necessary to understand following new
concepts incorporated in the act so as to entertain corporate clients more effectively:
a)One Person Company,
b)Small Companies,
c)Dormant Companies,
d)Class Action Suits,
e)Registered Valuers,
f)Corporate Social Responsibility
One Person Company:

A One Person Company (OPC) means a company with only one person as its member
(Sec.3 (1)). This can be formed as a private limited company. The concept is introduced
to restrict the liability of one investor limited to his share holding and also to crystallize
assets as well as the liabilities of the entity. The company is required to comply with all
the requirements of the Act and must indicate the status as OPC after its name. In
memorandum, the name of the person who, in the event of death of the subscriber, shall
become the member of the company must be stated. In case the Banker insists for
guarantee of the promoter of OPC, the very spirit of introducing this type of company
will be defeated.
Small Company:

Act has defined / classified the Small Company since few relaxations in compliance are
envisaged in the Companies Act, 2013: (Section 2 (85))

A company other than a Public Company where in Paid up Capital does not exceed Rs.
50 Lakhs Or such higher amount as may be prescribed which shall not be more than
Rs. 5 Crores; or Turnover of which as per its last Profit and loss account does not
exceed Rs. 2 Crores Or such higher amount as may be prescribed which shall not be
more than Rs.20 Crores. However, this section does not apply to a Holding company or
Subsidiary Company and a Company or Body Corporate governed by any Special act.
Dormant Company:

(Section 455) This is a new section which deals with Dormant Company i.e. where no
business activities are being carried out and the company has not made any significant
accounting transactions in the last two financial years. Further, many a times, the
promoters intent to have some legal entity for any future projects and in such eventuality
a company can be formed. Act defines Dormant company as: A Company can be
classified as a Dormant Company when it is form and registered under this act for future
Projects or to hold an Asset or Intellectual Property and has no significant accounting
transaction.
Such company or an inactive one may apply to the ROC in prescribed manner for
obtaining status of a Dormant Company.
Class Action Suit:

A class action is a Legal Form of Lawsuit where a large group of individuals collectively
bring the claim to Court. To protect the interest of Small shareholders, Act empowers
shareholders to take joint action against the Management of the company for any fraud
or irregularity. For such action, minimum number of members should not be less than
100 OR not less than such percentage of the total number of its members as
prescribed, whichever less is or member / members holding not less than such
percentage of the issued share capital of the company (Sec.245).
This concept is more prevalent in USA and implementation in India will be very
interesting to watch as there will always be apprehensions about misuse of this
provision. This leverage should not be an impediment in the day to day operations /
business growth of the company.
Registered Valuers:

Act has mandated the Valuation report from the Registered valuer approved / appointed
by the Audit Committee or in its absence by the Board of Directors of the company in

issues relating to: a) Further Issue of Capital; b) Non Cash Transactions involving
Directors ; c) Compromises, arrangements and amalgamations; d) Purchase of Minority
Share holding; e) Submission of report by the company liquidator; and f) Declaration of
solvency in case of proposal to wind up voluntarily. (Sec 247).
The Registered Valuer is expected to have qualifications / knowledge and experience in
the relevant area. He is expected to make valuation in a most impartial, true and fair
valuation of assets required to be valued. Generally, various professional bodies will
maintain the panel of such valuers who are registered with Institute of Valuers. Act
provided penal action in case of Fraud / misrepresentation and non compliance of the
provisions made in the Act.
Corporate Social Responsibility (CSR):

Companies Act, 2013, has dealt with CSR issue in detail. Provisions apply to every
company with- a) Net Worth of Rs.500 Crores or more, ; or b) Turnover of Rs.1000
Crores or more, or c) A Net Profit of Rs. 5 Crores or more, during the Financial Year. It is
prescribed that a CSR Committee of the Board to be formed of three or more Directors
and the Company to spend at-least 2% of average of Net Profit made during immediate
three preceding financial years. It is directed that Board to monitor / review the CSR
initiatives periodically.
Following are few aspects / other issues in Companies Act, 2013, concerning a
banker:
a)Private Company :

Limit of the Number of members increased from 50 to 200 (Sec. 2(68)

b)Act defines Promoter as:

A person who has been named as such in a Prospectus Or is identified by the company
in annual return Or who has a control over the affairs of the company, directly or
indirectly whether as a shareholder, director or otherwise Or in accordance with whose
advice, directions or instructions the Board of Directors of the company is accustomed
to act. (Sec.2 (69)). This provision is not applicable to Professional Director.
c)Independent Director:

a. Appointment of Independent Director is made as mandatory requirement for

compliance by the companies viz. a) Listed Public Companies; b) Other Public
Companies having Paid up Share Capital of Rs.100 Crores or more or Turnover of

Rs.300 Crores or more Or Aggregate Outstanding Loans or borrowings or debentures

or deposits, exceeding Rs.200 Crores must have at least One Third of the total number
of Director as Independent Director.
b. Independent Director is to be appointed from the panel of Data Bank of Independent
Directors maintained by any Body, Institute or association notified by the Central
Government and the Director has to follow the prescribed code as mentioned in the Act.
(Schedule IV Sec. 149 (7))
c. Appointment of Independent Director shall be approved by the company in General
Meeting.
d)No. Of Directors:

Companies can have Maximum of 15 Directors.

e)Resignation:

The Director is required to mandatorily forward resignation with detailed reasons for the
resignation to the Registrar within 30 Days of resignation in prescribed manner.
f) Woman Director:

Act requires appointment of at least One Woman Director in a) Every Listed Company;
b) Every Other Public company having paid up Share capital of Rs.100 Crores or more;
OR Turnover of Rs.300 Crores or more.
g)Memorandum of Association:

The Company is no more required to classify the main object, incidental or ancillary or
other object of the company.
h)Articles of Association:

Act introduced Entrenchment provision for alteration of any specific clause in Article
without any need of Special Resolution. This is a restrictive provision. For a Private
Company consent of all members is required for such provisions.
i)Commencement of Business:

Provision is made applicable to ALL the companies. The company cannot commence its
business activity unless the Directors file declaration about raising of minimum paid up
capital applicable for Public / Private Ltd. Company.

j)Issue of Shares at Discount:

Companies are not permitted to issue the shares at discount except in case of sweat
equity where in shares are issued to employees in lieu of their services.
k)Filing of Charge with ROC:

All types of charges are required to be filed by the company with ROC on movable /
immovable assets in favor of charge holder within a period of 30 Days from the date of
creation. In case of failure to file the charge within 30 days, the Registrar can permit
filing of charge before 300 Days of creation after payments of additional fees / penalty.
l)Remuneration to Executives / Key Managerial personnel:

Central Government prescribed ceiling on annual managerial remuneration in respect of

companies with inadequate profits or no profits in the preceding year. The Companies
with less than Capital of Rs. 100 Cr. - Rs.42 Lakhs p.a. and companies with Capital of
Rs.100 Crores or more- Rs. 60 Lakhs p.a. In respect of all Public Limited Companies
the total remuneration not to exceed (maximum) 10% of the Net Profit. In case company
intends to pay more than above remuneration, permission from the Central Government
is required.
m)Re Opening of Books of Accounts:

A New Sec. 130 is added which seeks to provide for re- opening of Books of accounts
and recasting of Financial Statements only against the order from the competent court
or Tribunal is available. The court will issue order when the accounts were maintained in
fraudulent manner and the Financial Statements are not reliable. (Sec 131)
n)Voluntary Revision of Financial statement:

If the Financial Statements or Report of the Board is not in accordance with Sec. 129 or
Sec.134, the company may approach Tribunal for approval to revise statements / report
in respect of any of the three preceding financial years.
o)Fraud:

Act provides for specific provisions relating to act of Fraud in relation to affairs of the
company. The fraud has been defined in the act and it covers Omission, Concealment
of Facts, Abuse of position committed by any person in connivance to deceive, to gain
undue advantage, Injury to interest of company, its shareholders, creditors or any other
person for wrongful gain or wrongful loss

p)Dissolution of Company Law Board:

As per Section 466, with the constitution of Tribunal and Appellate Tribunal, the
Company Law Board stand dissolved.