Companies Act, 2013

20-09-2013

Every new beginning comes from some

other beginning’s end
1
Disclaimer

Pantomath does not represent that the information provided in the presentation is
completely error-free and accurate. We have however made reasonable efforts to
ensure that the information provided is accurate but do not guarantee or warrant its
accuracy, adequacy, correctness, validity, completeness or suitability for any purpose.
All data and information provided by us are for informational and academic purposes
only and does not constitute a legal advice or opinion. Pantomath accepts no
responsibility for any reliance placed on the information provided in this presentation.
Neither Pantomath nor any of its affiliates or team members shall be liable for any
actions taken based on any of the data or content provided for in this presentation.

This presentation has been prepared based on the information available as on

September 19, 2013. This presentation contains limited references to first set of draft
rules issued by MCA, however the same have not been analyzed and covered herein.

The Contents of this presentation are proprietary material of Pantomath group. Any
unauthorized usage or copying is strictly prohibited

2
Outline
Companies Act – Evolution & Background
Companies Act, 2013 - Bird’s Eye View
Key Changes in Select Chapters
Chapter I - Preliminary
Chapter II - Incorporation & Incidental Matters
Chapter III – Prospectus & Allotment of Securities
Chapter IV – Share Capital & Debentures
Chapter V – Acceptance of Deposits
Chapter VII – Management & Administration
Chapter VIII – Declaration and Payment of Dividend
Chapter IX– Accounts of Company
Chapter X – Audit and Auditors
Chapter XI – Appointment and Qualification of Directors
Chapter XII – Meetings of Board and its Powers
Chapter XIII – Appointment and Remuneration of Managerial Personnel
Chapter XIV – Inspection, Inquiry and Investigation
Chapter XVI – Prevention of Oppression and Mismanagement
Chapter XVII – Registered Valuers
Chapter XXIX – Miscellaneous
3
Companies Act – Evolution & Background

4
Evolution of Company Law in India (1 of 2)

•Cos Act, 1850

1857 •Cos Act amended
1882 •Cos Act, 1913
Till 1946
modeled by British several time based on British
•Joint Stock Cos Act, •Cos Act, 1882 •Cos Act amended
Cos Act, 1844 Cos Act, 1980
1857 – Concept of repealed all several times
ltd liability previous laws
introduced

1850 Till 1882 1913

• Independence
1952 • Central Govt
1954 • Cos Act 1956
triggered need • Bhabha introduced Bill in • Parliament passed
for amendment Committee Parliament appointed JPC
in Company Law submits its
Report
1947 1953 1956

5
Evolution of Company Law in India (2 of 2)

•Companies Act
1997 •Report of the
2004 •J J Irani
2008
amended 24 •Report of the R D Eradi Committee •Concept Paper on Committee •Companies Bill,
times till date Joshi Committee on the Cos Act, new Company Report 2008
on the Cos Bill, 2002 Law
1997
1957 2002 2005

•Companies Bill,
2010 •Parliament
2012 •Bill passed by
12.9.13
2009 •Parliament Standing •Bill passed by Lok Rajya Sabha and •1st Phase of Bill
Standing Committee Sabha accorded Notified
Committee Report Presidents accent
Report
2009 2012 9.8.13

6
Dr. J. J. Irani Committee Report

Key Exit opportunity to

Class Action Suits
Recommendations minority shareholders

One Person Key Managerial

Company Personnel

Cross Border & 1/3rd Independent

Small Cos Merger directors

Tracking Shares and Credit rating, Deposit

Treasury Stocks Insurance and DRR
Rotation of auditors Recognizing Shareholders
left to shareholders Agreements
No limit on layers of Consolidation of financial
Subsidiaries statements

7
Report of JPC dated 31st August, 2010

Key Auditing Standards Prohibition on insider

Recommendations Compliance trading by KMPs

Reporting Internal Prohibition on forward

Fin Controls dealing by KMPs

Unlimited liability Prohibition on Non Audit

for frauds Services

Source of promoter
Database of IDs
contribution
Disgorgement of Strict regulations for
fraudulent gains Public deposit
Registered valuer Intimation of change in
for valuation promoter holdings

8
Report of JPC dated 26th June, 2012

Key Consolidation /division resulting in changes in

Recommendations voting % to be approved by the Tribunal

Appointment of Auditor to be subject to

ratification at every AGM

Power to members to require audit partner to

be rotated every year

ROI on ICDs to be linked to the yield on the GOI

dated securities of equivalent maturity

Every Company to have a CFO

9
Approach to Companies Act, 2013
 Modern : Identifying essential ingredients to be addressed by new law,
at the same time retaining desirable features of the existing framework
Companies
 Ease of Interpretation : Easy and unambiguous interpretation by
Act, 1956
recasting the law enacted > 5
 Preventive : Addressing concerns arising out of experience of stock decades ago.
market scams of 1990s, the phenomenon of vanishing companies and Changing
recommendations made by JPC on Stock Market Scam
domestic and
 Flexibility : Enabling greater flexibility in procedural aspects through rule
making; segregating substantive law from procedures international
 Investor Protection : Enabling measures to protect the investor interest,
dynamics
through legal basis for sound corporate governance practices required a
 Self Regulation : Providing a framework for responsible self-regulation pragmatic and
through shareholder decisions, obviating Government approvals regime
progressive
 Business : Recognizing relevance of a climate that encourages setting up legislation to
of businesses and make them grow, addresses practical concerns of
small businesses so that people may deal with and invest in with accelerate
confidence, promotes international competitiveness of Indian business growth
[J J Irani Committtee Report]
10
Companies Act, 2013 - Bird’s Eye View

11
Companies Act, 2013- Scheme

Companies Act, 2013 whether lengthy or concise?

Particulars Cos Act Cos Act UK Cos Australia

2013 1956 Act Cos Act
Chapters/ 29 18 47 29
Parts
Sections 470 658 1300 1538
Schedules 7 15 16 0

366 Sections of Companies Act, 2013 contain provisions

prescribing rules v/s 100 sections in the Companies Act, 1956

12
Classes of Companies Covered in
Companies Act, 2013

Criteria

Manner of
Size Members Control Liability
access to Capital

Holding
Small Company OPC Limited Unlimited Listed
Company

Subsidiary
Other Company Private Company Shares Unlisted
Company

Associate
Public Company Guarantee
Company

13
Companies Act, 2013 - Key Changes
What’s New?
Minority
CSR
Key buyout Women &
Managerial Independent
Personnel Director
Private Cross Border
Placement M&A
Registered Dormant
Valuer Company
Class Action Fast Track
Suit Merger
Auditor Associate
Rotation Company

14
Companies Act, 2013 - Key Changes
What’s New?
Entrenchment
NFRA
Provisions
One Person Re-Opening
Company of Accounts
Conciliation
Secretarial
Panel &
Audit Special Courts Vigil
Fraud Mechanism
Secretarial & Ban on Non
Auditing Audit
Standards Disgorgement
Services
SFIO
of gains

15
Companies Act, 2013 - Key Changes
What has been dropped?
Qualification
BIFR
Commen- Shares
Sole Selling
cement agents
Certificate Deemed
Statutory
Public
meetings
Company Producer
SLP Company
NACAS Special Audit
Convert
Small share into
Depositor stock

16
Key Changes in Select Chapters

17
Chapter I - Preliminary

18
Definitions
Associate Company – Section 2(6)

Company A Associate of Company B

Significant Influence
through

Control of ≥ 20% Share Control of Business Decisions

Capital OR Under Agreement

Associate Company is not a subsidiary, but includes a joint venture Grey Box
company
 At variance with
• Associate Companies to be disclosed in annual report
AS 18 definition
• Definition exists under AS – 18, now brought under
Companies Act  Monitoring?
• RPT dealings extended to Associate Companies
19
Definitions
Related Party – Section 2 (76)
Company

Director or KMP or his Holding Subsidiary Fellow

his Relative Relative Company & Associate Subsidiaries

Director, manager or
his Relative

Partnership Private Public Body Person who

Firm in Company Company Corporate Advises
which in which in which Advised Directs or
partner member or member or Directed or instructs
director director instructed
Related Parties under various legislations 20
 Related Parties under various legislations
Cos Act, 1956 Cos Act, 2013 PAC AS 18
• Director of the i. A director, KMP or their relative “Persons acting in concert” Related Party-Parties are considered
company or his ii. A firm, in which a director, manager means,— to be related if at any
relative or his relative is a partner (i) a company, its holding company, time during the reporting period one
• Firm in which iii. A private company in which a subsidiary company and any party has the ability to
such a director/ manager is a member/ company under the same control the other party or exercise
director/ director management or control; significant influence over the
relative is a iv. A public company in which a (ii) a company, its directors, and any other party in making financial
partner director/ manager is a director or person entrusted with the and/or operating decisions.
• Any other holds along with his relatives, more management of the company; Associate - an enterprise in which an
partner in the than 2% of its paid-up share capital (iii) directors of companies referred investing reporting party has
firm v. A body corporate whose board, to in item (i) and (ii) of this sub- significant influence and which is
• Private managing director or manager is clause and associates of such neither a subsidiary nor a joint
company of accustomed to act in accordance directors; venture of that party
which the with the advice, directions or (iv) promoters and members of the Significant influence - participation
director is a instructions of a director or promoter group; in the financial and/or operating
member or manager, except if advice is given in (v) immediate relatives; policy decisions of an enterprise,
director the professional capacity ………………………………………. but not control of those policies.
vi. Any person on whose advice/ Explanation.— For the purposes of Control – (a) ownership, directly or
directions/ instructions a director or this clause “associate” of a person indirectly, of more than one half of
manager is accustomed to act, means,— the voting power of an enterprise, or
except advice given in professional (a) any immediate relative of such (b) control of the composition of the
capacity person; board of directors in the case of a
vii. Any company which is: (b) trusts of which such person or his company or of the composition of
• A holding, subsidiary or an immediate relative is a trustee; the corresponding governing body
associate company of such (c) partnership firm in which such in case of any other enterprise, or
company; or person or his immediate relative is a (c) a substantial interest in voting
• A subsidiary of a holding partner; and power and the power to direct, by
company to which it is also a (d) members of Hindu undivided statute or agreement, the financial
subsidiary; families of which such person is a and/or operating policies of the
coparcener; enterprise. 21
Definitions
Control - Section 2 (27)
Right to

appoint majority control policy

OR OR
directors management decisions

Exercisable by

Person OR Persons

individually or in concert directly or indirectly

By virtue of
shareholding management shareholders voting
rights agreements agreements Grey Box
‘Ability to Control’ -
question still
unanswered!
(Ref Subhakam Case)

22
Definitions
Employees Stock Option - Section 2 (37)
Option given to

Directors Officers Employees

OR OR
Of

Company OR Holding Co OR Subsidiary Co

which gives them the

benefit OR right

to
Purchase OR subscribe

the shares of the company at a future date at a pre-determined price

23
Definitions
Expert - Section 2 (38)

Engineer Valuer

Chartered Company
Accountant Secretary

Cost
Any person who
Accountant
issues certificate

24
Definitions
Financial Statement – Section 2(40)
Includes

Balance Sheet Profit & Loss Cashflow Statement of explanatory

Account Statement changes in Equity notes

Financial Year – Section 2(41)

Incorporated before 1st Jan
Yes No

31st March of Current Year 31st March of next Year

• Transition period of 2 years for existing Cos
• Cos having foreign holding or subsidiary cos can follow different year with prior approval of tribunal
25
Definitions
Free Reserves – Section 2 (43)
Means
reserves which are available for distribution as dividend

Does not include

Amount representing unrealised gains, Any change in carrying amount of an asset
notional gains or revaluation of assets or of a liability recognised in equity

Global Depository Receipts – Section 2(44)

Instrument In the form of Depository Receipt
Created by
Foreign Depositary
authorized by
Indian Company 26
Definitions

Indian Depository Receipts – Section 2(48)

Instrument In the form of Depository Receipt
Created by
Domestic Depositary
authorized by
Foreign Company

Key Managerial Personnel – Section 2(51)

CEO OR Managing Director

Company Secretary + CFO + Whole time Director

27
Definitions
Officer in Default (OD) – Section 2(60)
KMPs & Whole time Director
If no KMPs
Directors appointed as OD Or All Directors if no one appointed

Any Person Authorized by Any Person who advices, Every Director who is aware
Board or KMPs directs or instructs BoD of Contravention

For Issue or transfer of Shares

Share Transfer Agent Registrar to Issue Merchant Banker

Rationalization of directors role as liability arises on awareness of contravention

through board proceedings or non opposition

28
Definitions
Promoter – Section 2(69)
A million dollar question under Companies Act, 1956 remained unanswered for 5 decades

Section 62 (6)
A promoter who was a party to the
preparation of the prospectus or of the
portion thereof containing the untrue
statement, but does not include any person
by reason of his acting in a professional Preferential Allotment Rules
capacity for persons engaged in procuring the “Promoter” means – the person or persons who are in
formation of the company over-all control of the company; and the person or
persons who hold themselves as promoters.

Finally answered by the Companies Act, 2013

Definition based
on Malegam
Committee
Report & is in
Named in Control over
Prospectus affairs of the Sync with SEBI
Identified in Advices, directs Company Regulations
Annual Return or instructs BoD
29
Definitions
Private Company – Section 2(68)

Private Company

Paid Up Capital ≥ Transfer of Shares Maximum 200

Rs. 1 lakh Restricted members

30
Definitions
Small Company – Section 2(85)
Private Company

Paid Up Cap < Rs. 50 Lakhs Turnover < Rs. 2 Crores

Excludes

Holding co Subsidiary Co Not for Profit Co.

SME in SEBI Law SME in MSME Act

Particulars Manuf (Inv in Services (Inv in
 Paid up capital upto Rs. 25 P&M) Equipments
Crores Micro ≤ Rs. 25 Lakhs ≤ Rs. 10 Lakhs
 Net Tangible Assets of Rs. 1
Small > Rs. 25 Lakhs > Rs. 10 Lakhs ≤
Crores ≤ Rs. 5 Crores Rs. 2 Crores
 Networth of Rs. 1/Rs. 3
Crores Medium > Rs. 5 Crores > Rs. 2 Crores ≤
≤ Rs. 10 Crores Rs. 5 Crores
31
Definitions
Subsidiary – Section 2(87)
Holding Co

51% 51%
Subsidiary Subsidiary

20%
20% 20% However
Subsidiary Layers of
subsidiaries
also restricted

Grey Box

Control through one half of the total  Layers – Conflicting

share capital either at its own or together views; RBI/ JJ Irani/ JPC
with one or more of its subsidiary  Statutory/business
needs – eg. Infra Co’s?
32
Chapter II - Incorporation & Incidental Matters

33
Incorporation & Incidental Matters
New Dropped
Bifurcation of Objects - Sec 4
Filing of Statement in lieu of Prospectus
Affidavit from Subscriber on Incorporation – Sec 7(1)(c )
Certificate of Commencement of Business
Declaration of Commencement (+ Verification of RO) – Sec
11(1)a & 12(1)
Exit for Dissenting Shareholders for Change in Object of Issue
or Object of Company – Sec 13(8)(2)
CG Approval for conversion of Pvt into Public
Prohibition on Treasury Stock
Members liability extended to include unpaid share premium
– Section 4 (1)(d)(i)
Provision of Entrenchment – Sec 5(3)
34
Companies with Charitable Objects - Sec 8
 New activities such as Sports, Education,
Research, Protection of Environment and
Social Welfare included
 Upon revocation of license, CG in public
interest, may wind up the company or
amalgamate it with another similar
company
 A charitable company can only be
amalgamated with a company registered
vide this section and having similar objects
 Any amendment to MOA or AOA requires
prior CG approval
 Even an OPC can be a Sec. 8 company

35
One Person Company
• Prevalent in U.K, U.S, Singapore,
Only One
Shareholder
China etc.
• New Vehicle will provide an
Minimum opportunity to Indian
One Director Entrepreneur to enter into
Corporate framework
Private • Conceptualized and tailor-made
Limited for sole proprietors and
entrepreneurs with relaxed
regulatory requirements
Perpetual
Succession • Greater access for small
through businessmen to bank credit
Nomination
• Un-organised business under
regulatory vigil

36
Chapter III – Prospectus & Allotment of Securities

37
Issue of Securities
Modes of Issue

Public Company Private Company

IPO/FPO (Incl. OFS) Private Placement

Private Placement Rights/Bonus Issue

Rights/Bonus Issue

Companies Act, 2013 seeks to regulates issue of all types of securities and not
just shares and debentures

38
Public Issues (1 of 5)
Disclosure in
• Source of Promoter’s contribution in prescribed manner Prospectus –
• Other information as prescribed Sec 26

• Offer for sale now specifically defined in the 2013 Act

Offer of • A document for OFS shall be deemed to be prospectus
Sale – Sec • Persons desiring to make an OFS shall authorise company
28 to take necessary actions for OFS and reimburse all the
expenses

• No option to get physical allotment of shares in IPO Sec 29

• Shares to be compulsorily allotted in Demat form by a
company making an IPO and other prescribed classes of Demat
companies

Sec 30
• Advertisement of prospectus to specify main objects, liability of
members, amount of share capital, details of subscribers to
MOA and Capital Structure

39
Public Issues (2 of 5)
Liability for Mis-statements
Mis- Liability
statement

Civil - Sec 34 Criminal -Sec 35

Untrue Misleading
Statement Statement

Compensate Min Amt

those who Min 6
mths Involved
have Max 3x Amt
suffered loss Max 10
Yrs Involved
or damage

Withdrawal of consent after issue but before allotment now

Civil Liability for not a defense
Mis-statements In case of a fraud every person involved personally liable
without limitation of liability
40
Public Issues (3 of 5)
Impersonation – Sec 38

Impersonation

Fictitious Name Multiple Applications

Different Names Different Combination

Consequences:-
• For the first time, provisions introduced for disgorgement of gains made by
convicted
• Amount received from disgorgement of gains to be credited to IEPF
41
Public Issues (4 of 5)
Fraudulent Inducement for Investing money -Sec 36
• Scope of section extended to obtaining
credit facilities from banks or financial
institutions
• The offence made non compoundable
• Stringent punishment prescribed under
section 447

Allotment of Securities – Sec 39

• Return of allotment to be filed for issue
of any kind of security Grey Box
• Power given to SEBI to modify the
minimum amount to be paid on  At variance from
application which shall not be less that existing SEBI ICDR
5% of the nominal amount Regulations?
• Minimum subscription to be received
in 30 days as against earlier 120 days.
Power to SEBI to modify the same
42
Public Issues (5 of 5)
Variation in terms of Contracts or Objects – Sec 27
Its easy pass a ordinary
I want to change the terms of resolution in general
contracts referred to in prospectus meeting
or objects of the Issue ?

Its no
longer easy

Revised Process
Dissenting Amount raised in
Notice of GM to be
Shareholders to be IPO cannot be used
Approval of published in
given an exit offer for buying, trading
members by Special newspapers giving
by promoters/ or dealing in equity
Resolution justification for
controlling shares of another
variation
shareholders listed Company
43
Private Placement – Sec 42
Max allotment to 50 or higher prescribed number
of Investors (excl. QIBs & ESOP) in one FY Issue price to
be determined
Concept of Offer Letter Introduced; Offer to pre-
identified persons by name by the
valuation
report of
Cash Payment prohibited Registered
Valuer
Allotment to be made within 60 days, else refund
@ 12% interest p.a.

Share application money to be kept in Separate

Account

The landmark judgment in the Sahara Case has set the direction for private
placement code and the Companies Act, 2013 draws heavily out of the
principles enunciated by the Apex Court (most of changes already introduced in
the amended Rules issued u/s 81 of the 1956 Act)
44
Chapter IV – Share Capital & Debentures

45
Share Capital & Debentures

Variation of Shareholder Rights – Sec 48

Where variation in rights of any class of shareholders affects other class,

then consent of affected class of shareholders also needs to be taken

46
Share Capital & Debentures

Issue of Shares at Discount – Sec 53 Voting on Preference Shares – Sec 47

 Different conditions for voting

on cumulative or non
cumulative preference shares
when dividend are in arrears
dispensed with
 Now, all preference
shareholders are entitled to
vote on every resolution only
when dividends are in arrears
Issue of Shares at discount is void. for 2 or more years
However Sweat Equity Shares are
permitted to be issued at discount

47
Share Capital & Debentures
Alteration of Share capital Issue of Preference Shares
– Sec 61 – Sec 55
 Consolidation and sub-division
 Companies can issue pref. shares
of share capital now not easy
for period > 20 years for
 Consolidation and division
which results in changes in
infrastructure projects subject to
redemption of prescribed % of
voting pattern shall require
shares on annual basis at the
prior approval of Tribunal
option of pref. shareholders
(Minority Squeeze-out through
consolidation)  Companies not in a position to
redeem pref. share or pay
dividend can roll them over with
consent of 3/4th in value of pref.
shareholders and approval of
Tribunal

48
Share Capital & Debentures
Issue of Certificate Old New

6 month for
3 months for shares and
On Allotment debentures and
debentures
2 Months for other
On Transfer 2month 1 month

Transfer and Transmission - Sec 56

 Validity of Instruments of transfer, presentation to
authority, for its endorsement etc. dispensed with
 No Objection Certificate needs to be taken from
transferee for transfer of partly paid shares
 Appeal to Tribunal on refusal can be made by transferee
only

Private Company Public Company

Sr. No Time Limit Old New Old New
1 Intimation of refusal 2 mths 30 days 2 mths 30 days
2 Appeal to Tribunal when refusal notice recd 2 mths 30 days NA 60 days
3 Appeal to Tribunal when refusal notice NOT recd 4 mths 60 days NA 90 Days
49
Share Capital & Debentures
Put-Call Options in SHAs – Controversy Addressed ? - Sec 58
 Contracts having put-call options shall be enforceable
 Articles of Association may contain provision for entrenchment
which are more restrictive than special resolution provided that
the provision has been agreed by all the members in a private
company and by a special resolution in a public company

Grey Box
Earlier Position
 Conflicting precedents Validity of new
 Latest view that special rights valid if provision in light of
incorporated in AOA
SEBI interpretation ?

SEBI Interpretation
 SCRA prohibits put and call options on securities of public limited companies entered into outside
the stock exchange.
 SEBI (in previous occasions such as the MCX and Vedanta/Cairn Energy Deal) outlawed clauses in
agreements dealing with forward contracts like buyback, agreements, put and call options etc.
 SEBI has also expressed its position in an informal guidance sought by Vulcan Engineers Limited to
the effect that the put/call option would not qualify as a legal and valid derivative contract

50
Share Capital & Debentures
Further Issue of Share Capital –
Sec 62
All Companies shall issue further
share capital after subscription to
MOA under this section
Exemption for first 2 years of
incorporation or 1 years from date
of 1st allotment dispensed
Preferential Allotment shall be
made at a price arrived based on
the report of the Registered Valuer
Notice period of offer min 15 days Grey Box
and max 30 days
Private Placement
Optionally convertible debentures vs.
not to require CG approval Pref. Allotment ?

51
 Share Capital & Debentures
• No reduction of share capital allowed if the company is
in arrears for payment of deposits
Sec 66
• Tribunal will give notice to CG, SEBI and Creditors
about reduction of share capital
• Accounting Standard specified in Section 133 to be
followed and auditor certificate to that effect required
• Publication for reason for reduction now mandatory

Sec 68 & 70
• Only one buy back permitted in a financial year
• No provision for Buy Back of shares from odd lots of shares
• Buy Back can be made after a period of 3 years lapsed from
default of repayment of deposits, redemption of deb / pref.
shares or interest thereon
• Compliance of provisions relating to declaration of dividends
Sec 70 only necessary.

Sec 63
• Specific Provision relating to Issue of Bonus Shares
• CRR can be used to issue bonus
• Similar to SEBI ICDR Regulations

52
Share Capital & Debentures
Debentures –
Sec 71
 Secured debentures may be issued subject to
prescribed rules
 A contract with the company to take up and
pay for any debentures of the company may
be enforced by a decree for specific
performance.
 Approval of shareholders by means of special
resolution required for issue of convertible
debentures
 Appointment of debenture trustee required
where debentures are issued to > 500
members
 In case of insufficiency of assets, debenture
trustee to file petition before Tribunal instead
of CG

53
Chapter V – Acceptance of Deposits

54
Public Deposits – Tougher… Sec 73,74 & 76
Accepting Deposits Repayment
• All companies can accept deposits only • All the outstanding deposits on
from members (Directors & their relatives commencement of the Act have to be repaid
excluded) within 1 year from date of maturity or 1 from
• Prior approval of members required for commencement if already matured
accepting deposits
• Concept of Deposit Repayment Reserve,
credit rating, deposit insurance and creation Public Deposits
of charge introduced
• Deposit to be invited by issue of circular to
members • Only prescribed classes of companies having
• Where deposits are unsecured it has to be certain minimum networth or turnover are
specifically quoted in every document allowed to raise deposits from public
inviting deposit • Credit rating of deposits compulsory while
inviting deposits and subsequently on yearly
basis during the tenure of deposits
Accepting deposit from public no • Compulsory creation of charge on the assets
of the company for the amount of deposit
longer easy. Strict requirements to within 30 days of acceptance, if deposits are
ensure protection of depositor’s secured
interests

55
Chapter VII – Management & Administration

56
Annual Return – Sec 92
Annual Return shall
be mandatorily Additional information required to be provided in Annual Return
signed by apart from those mentioned under the 1956 Act
Practicing Company
Secretary, for such Principal business Details related to
Companies with activity with particulars certification of
paid up capital and of holding, subsidiary compliance,
turnover as may be Details of meetings of
and associate company disclosures, etc
members/class
prescribed
thereof/BOD/various
committee along with
attendance details Details of Foreign
Details about other
Institutional Investors
securities issued by
if shares held by them
company
or on their behalf
Remuneration of
Info up to Directors and KMP
FY closure Details of
only Promoters/KMP along Such other matters as
with changes since may be prescribed
closure of last FY
Details of
penalties/punishment
on Co/ directors/
officers/ compounding
of offence/ appeals

57
Return to be filed with Registrar in case Promoter’s stake
changes – Sec 93
Listed company to file Return in prescribed form with RoC within 15 days in case of
change in number of shares held by the Promoters or top 10 shareholders

58
General Meetings – Sec 100

 OPC not required to hold AGM

 First AGM to be held within 9
EGM!!
months from closure of first FY
 AGM to be held on between
business hours i.e. 9 AM to 6 PM
 Notice of GM may be sent through
electronic mode
 To be sent to all Directors
 21 clear days notice to be given
 In case of AGM Shorter notice can be given
by consent of 95% of members who are
entitled to vote (like for EGM)
 Secretarial Standards mandated
 Report of AGM, prepared in prescribed
manner, to be filed with RoC
59
Statement to be annexed with Notice – Sec 102
Explanatory Statement in case of Liability in case of non-disclosure or
special business to specify insufficient disclosure in Explanatory
Statement
Non-disclosure
Nature of /insufficient
interest/ disclosure
concern

Financial Other Benefit Profit

Interest Interest

Director
Director
Promoter and KMP
and KMP Relatives
Manager
Manager

Liable to compensate to Company to the

extent of such profit/benefit
Explanatory statement to specify shareholding % of Default in sending or providing disclosure in explanatory statement
Promoters/directors/manager/KMP whose shareholding is not less
shall attract fine extending up to Rs. 50000 or 5 times of profit or
than 2% of paid up capital, incase the special business transacted is benefit, whichever is more
to affect other Company
60
 Quorum of General Meeting – Sec 103

Quorum (Members
No. of members on
to be personally
the day of meeting
present) in pub co

5 ≤ 1000

> 1000
3 days notice (either individually or in 15
≤ 5000
newspaper), in case of adjournment of
GM due to lack of quorum or change in
day, time or place of adjourned meeting
30 > 5000

 Single person not to be proxy for more than 50

members
 Proxy cannot vote by show of hands
 Member of Private Limited company cannot appoint
more than 1 proxy to attend on same occasion

61
Others
Postal Ballot – Sect 110
 Postal ballot applicable to all companies
 Postal Ballot resolutions to be prescribed by
CG. (Other than any businesses in which
directors/auditors have the right to be
heard at the meeting and ordinary business)
 To maintain minutes

Resolutions requiring Special Notice – Sec 115

 Not less than 1% of voting power or Member holding min Rs. 5,00,000
paid up share capital can move Special Notice

Closure of RoM –Sec 88 Grey Box

 Listed Company / Company which intends to get
listed to give notice of atleast 7 days (or such lesser  Is closure of register of
days as specified by SEBI) before closure of Register members still required
of security holders in today’s context ?

62
Chapter VIII – Declaration and Payment of
Dividend

63
Declaration of Dividends Sec 123

 Transfer to reserves before declaring

dividends is now optional
 Interim dividend capped at avg. of
dividends declared during last 3 years, if
company incurs loss in preceding quarter
 Where company has failed to comply with
the provision of Acceptance of deposits
and repayments it cannot declare
dividends until the non compliance
continues

64
Unpaid Dividends - Sec 124
Rs. Crore

SL Company Amount
 Information relating to unclaimed 1 RIL 113.00
dividends to be uploaded on the
2 ITC 74.34
website of the company and CG
within 90 days of transfer to unpaid 3 HUL 49.05
dividend account 4 Hero 40.22
 Along with the unclaimed amounts,
5 Tata Steel 38.53
the shares in respect to which they
relate are to transferred to IEPF 6 Lakshmi Vilas Bank 34.14
 The claimants can now apply to IEPF 7 ICICI Bank 19.17
for claiming unpaid amounts/share
due/belonging to them 8 L&T 18.69
9 MRPL 14.23
10 IDBI Bank 13.59
11 Others 686.39
Shares transferred to IEPF shall not Total 1101.35
have voting rights- Draft Rules
Source: Zee News

65
IEPF – Sec 125
Income Expenses

Amounts received from Refund of unclaimed/unpaid

disgorgement of gains amounts

Distribution of disgorged
Sale proceeds of fractional
amounts amongst eligible
shares
applicants

Reimbursement of legal
Redemption amount of
expenses incurred for class
preference shares
action suit

66
Chapter IX– Accounts of Company

67
Consolidation of Accounts – Sec 129

Mandatory
consolidation of
accounts in case of
subsidiary
 Statement of
subsidiaries to be
Preparation, adoption and prescribed
audit of the financial  Requirement of
statements shall apply attaching BS, P&L,
mutatis mutandis to CFS BOD and Auditors
Report of subsidiary
companies not
stated
 No relaxation to
Non compliance of this provision accounts of
shall attract penalty overseas subs -
Every company to
place separate
audited accounts for
Subsidiary to include associates and joint ventures each subsidiary on
its website, if any 68
Re-opening and Revision - Sec 130 &131

 Application for re-opening of books of  Voluntary revision of financial

accounts or recasting of financial statement statement by BOD permitted,
can be made by subject to Tribunal approval
• CG
 After receiving approval from
• IT Authority
Mandatory

Tribunal, BOD may prepare

Voluntary
• SEBI
revised Financial Statement
• Any other statutory body or authority
or Board’s Report for
or person concerned
preceding 3 FYs
 Order by Tribunal or Court of competent
jurisdiction to the effect that  Tribunal to give notice to CG
• Accounts were prepared in fraudulent and IT Authorities before
manner allowing revision in Financial
• Affairs of the Company were mis- Statement or Board’s Report
managed casting a doubt on reliability
of financial statements  Detailed reasons for revision
Grey Box in Financial Statement or
 Tribunal or Court to give notice to authority
making application and to consider their  Intimation of re- Board’s Report to be
representation before passing order opening to SEBI ? disclosed in Board’s Report
for FY in which the revision is
 Re-casted or revised accounts shall be final being made
69
Directors’ Report - Sec 134
Directors Report, except incase of OPC, to contain:

Particulars of
Extract of Annual contracts/arrange
Return ments with
Directors’ related party Details of CSR
Responsibility policy developed
Statement and implemented
Material changes
No. of BMs from end of FY to
Comments/expla date of Report BOD/Committees
nation by BOD on performance
Secretarial Audit evaluation
Declaration by Report Statement on risk
Independent management
Director policy
Particulars of Other such
loan/guarantee/ matters
investment

Grey Box
 Disclosure of employee particulars and reasons for failure to complete buyback not required to be
disclosed ? 70
NFRA – Sec 132

 National Advisory Committee on

Accounting Standards (NACAS) replaced
with National Financial Reporting
Authority (NFRA)

Governing  Role of NFRA extended to advise in

matters related to Auditing Standards +
Authority Accounting Standards
 NFRA either suo moto or on reference
by CG has the power to investigate body
corporate or person in case of
professional or other misconduct
committed by any member or firm of
Chartered Accountant or Cost
Accountant
 Powers of Court

71
CSR – Sec 135
Who? What?
• Networth ≥ 500 Crs or CSR spend of at least 2% of avg.
• Turnover ≥ 1000 Crs or net profits made during 3
• Net Profits ≥ 5 Crs immediately preceding FYs
COMPLY
OR
How? EXPLAIN
• CSR Committee to be constituted (3+ Dir incl. at least 1 ID)
• Committee shall formulate and recommend CSR policy and
amount of expenditure as well as monitor CSR activities (CSR
policy on web)
• Preference to local areas in which the company operates
• Areas specified in Schedule VII

As per FICCI estimates CSR spend in the first year would be between
Rs. 9,000 – Rs. 10,000 Crs
72
CSR Areas
1. Eradicating extreme hunger and poverty;
2. Promotion of education;
3. Promoting gender equality and empowering women;
4. Reducing child mortlity and improving maternal health;
5. Combating human immunodeficiency virus, acquired immune
deficiency syndrome, malaria and other diseases;
6. Ensuring environmental sustainability;
7. Employment enhancing vocational skills;
8. Social business projects;
9. Contribution to the Prime Minister's National Relief Fund or any
other fund set up by the Central Government or the State
Governments for socio-economic development and relief and funds
for the welfare of the Scheduled Castes, the Scheduled Tribes, other
backward classes, minorities and women; and
10.Such other matters as may be prescribed.

73
Chapter X – Audit and Auditors

74
Audit and Auditors
Appointment of Auditor – Sec 139
 Every Company to appoint auditor for a term of
5 years provided the same shall be ratified by
members at every AGM
 Listed company shall not appoint or re-appoint
individual or firm as a auditor for more than 5
or 10 consecutive years respectively

 Rotation of audit partner & team at such

intervals as may be prescribed

 Cooling period for re-appointment as auditor is

5 years

 Transition period of 3 years provided from

commencement of the Act
 Special resolution required for appointing
auditor other than the retiring auditor or not
re-appointing auditor Rotation of auditors including audit firms is
 Company to intimate RoC and Auditor within 15 being considered for introduction in EU,
days of the appointment US, UK and Malaysia.

75
Audit and Auditors
Removal and Resignation of Auditor – Sec 140
 Special resolution of members along with CG approval
required for removal of auditor before expiry of term

 On resignation, auditor to file with RoC and Company or

CAG incase of Govt. company, a statement indicating
reasons for resignation within 30 days failing which he shall
be penalized

 Special notice required for proposing a resolution for

change of auditor except in case of expiry of term of 5/10
years

 Copy of representation made by auditor who is proposed to

be removed if not sent to member shall be filed with RoC

 Tribunal either suo moto or on application direct the

company to change its auditor, if it is satisfied that he has
committed fraud

 Auditor against whom an order has been passed by Tribunal

shall be ineligible for appointment in any company for 5
years

76
Audit and Auditors Sec 141

Relative OR Auditor OR Partner Person OR Firm

Direct

Securities Indebted Guarantee Business Relation

Indirect

Holding Co

F Subsidiary Company Associate

Subsidiary

77
Audit and Auditors Sec 141

Person
Person

Relative Subsidiary Associate Other Entity

Director KMP a) accounting and book keeping services;

b) internal audit;
c) design and implementation of any financial
information system;
Company 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

78
 Audit and Auditors

 Mandatory compliance with Auditing

Standards by Auditors
Powers & Duties of Auditor and

 Auditor to be allowed to access the

Auditing Standard- Sec 143

records of subsidiary so far as it relates to

consolidation of accounts of subsidiary
 CG in consultation with NFRA may specify
to prescribe additional statement in the
Audit Repot of certain class of companies
 Duty cast upon Auditor to immediately
report to CG, of any offence involving
fraud committed against the company by
any officer or employee
 Duties cast upon Auditor under this
section shall mutatis mutandis apply to
CWA and PCS for cost / secretarial audit

79
Audit and Auditors - Sec 143
 Audit Report to contain:
• Qualification, reservation or
adverse remark and reasons
thereof
• Whether company has internal
controls and operating
effectiveness of internal financial
control system
• Report on Cash Flow and such
other matters as prescribed
• Reasons for required matters not
included or included with
qualification
Qualification, observation or comments on financial transactions or matters
mentioned in Audit Report, which have adverse effect on functioning of Company,
shall be read in GM
80
Chapter XI – Appointment and Qualification of
Directors

81
Sec 149 Sec 161

Sec 149
Sec 161

Sec 149

Sec 168

Sec 151

Sec 167

Sec 160

82
Independent Director Sec 149 & 150
Applicability Criteria
• Every Listed Company to • Criteria for independence For the first time
have at least 1/3 of board similar to existing clause 49
consisting of independent of LA code of conduct
directors • Nominee director not
• Prescribed classes of unlisted considered as independent
prescribed for
Companies also to have • Independent director to Independent
independent directors on its furnish declaration of
board independence on yearly Directors
basis (Schedule IV)

Term Others
• Can be Appointed for a term • No Stock Option
of 5 years in 1st Instance • Separate meeting of ID
• Can be re-Appointed for • Appointment to be approved at
another term of 5 years a general meeting with
• Cooling off period of 3 years explanatory statement
for after 2 consecutive terms justifying appointment
• Liability only in respect of
omission & commission with
the knowledge of ID

83
Draft Rules
Particulars Class of Companies
Company having paid up capital of 100 crore or
Women Director
more
Paid up capital 100 crore +
Or
Networth 100 crore +
1/3rd of BOD to
Whichever is higher
be ID’s
Or
Companies having o/s loans/deposits of 200
crore +
Companies accepting deposit for public +
Vigil Mechanism Companies borrowed money from Banks/PFIs of
50 crore +
Companies having paid up capital of 100 crore +
Board Or
Committee’s Networth of 100 crore +
Constitution Or
O/s loan/deposit of 200 crore +
84
Chapter XII – Meetings of Board and its Powers

85
Chapter XII – Meetings of Board and its Powers
Meetings of Board

Quorum

Circular Resolution

Audit Committee

Nomination and
Remuneration Committee
Stakeholders Relationship
Committee

Powers of the Board

86
Meetings of Board and its Powers
Specific provision for holding 1st
Meetings of Board Sec 173
BM within 30 Days of
Incorporation
 At least 7 days notice in writing
Quorum
required to be given to all the
directors
Circular Resolution Notice may be sent by hand
delivery, post or electronic means
Board of Directors may participate
Audit Committee in person or by video conferencing
At least 4 BMs in one year with
time gap between two BMs not
Nomination and exceeding 120 days
Remuneration Committee Presence of at least 1 ID required
in the meeting called at shorter
Stakeholders Relationship
notice.
Committee  Else decision to be circulated to all
the directors and to be valid only
Powers of the Board after ratification by at least one ID

87
Meetings of Board and its Powers

Meetings of Board

Quorum Sec 174

 Quorum for the Board Meeting
shall be 1/3rd of total strength
or 2 directors whichever is
Circular Resolution higher
 Participation through video
conferencing counted for the
Audit Committee purpose of Quorum
 Insufficient quorum shall now
Nomination and be not allowed as a defense
Remuneration Committee for non compliance with
frequency of Board meeting
Stakeholders Relationship
Committee

Powers of the Board

88
Meetings of Board and its Powers

Meetings of Board  Draft Resolution with supporting

papers to be circulated to all
directors instead of those present
Quorum
in India.
 Approval of majority of Directors
Circular Resolution Sec 175 required instead of those present
in India.
 All resolution passed by
Audit Committee circulation shall be mandatorily
noted in the next BM and made
a part of minutes
Nomination and  If 1/3rd of the BoDs decide that
Remuneration Committee the resolution sent for approval
by circulation must be decided at
Stakeholders Relationship
a meeting, then the resolution
Committee shall be decided at the meeting
and not by circulation.
Powers of the Board

89
Meetings of Board and its Powers

Meetings of Board  Every Listed Company and other

prescribed class of companies to
have a audit committee.
Quorum  Composition:- Min 3 directors with
majority of ID
 Majority of members shall have
Circular Resolution ability to read and understand
financial statements
 1 year transition period for
Audit Committee Sec 177 reconstitution of Audit committee
 Scope of reference widened to
include appraisal of effectiveness
Nomination and of auditors, scrutiny of inter-
Remuneration Committee corporate loans and investments
evaluation of internal control and
Stakeholders Relationship Risk management systems
Committee  Provision of establishment of vigil
mechanism to report genuine
Powers of the Board concerns

90
Meetings of Board and its Powers
 Every listed company and other
Meetings of Board prescribed class of companies to
have a Nomination and
Remuneration Committee.
Quorum  Composition:- Min 3 NEDs. ≥ ½
comprising IDs. CP of the Company
may become a member but not CP
Circular Resolution of the Committee
 Mandate of the Committee:-
• Identification of qualified
Audit Committee Directors and senior
management personnel
Nomination and • Performance evaluation of
Sec 178 directors
Remuneration Committee
• Recommend to the Board
Stakeholders Relationship policy for remuneration of
Committee Directors, KMPs and other
employees
• Remuneration policy to be
Powers of the Board disclosed in Board Report

91
Meetings of Board and its Powers

Meetings of Board  Earlier there was no provision for

constitution of Stakeholders
Relationship Committee
Quorum  Listing agreement has provision
for constitution of Shareholders
grievances committee.
Circular Resolution  Every Company having more that
1,000 debenture holder, deposit
holders and any other security
Audit Committee holders shall constitute a
Stakeholders Relationship
Nomination and Committee.
Remuneration Committee  Composition:- to be decided by
BoD. Chairperson to be an NED.
Stakeholders Relationship Sec 178  Mandate of the Committee:-
Committee • Consider and resolve the
grievances of Security
Powers of the Board holders.

92
Meetings of Board and its Powers

Meetings of Board
 Following additional powers
shall be exercised by the Board
Quorum only at their meeting:-
• Issue of Securities
• Give guarantee or provide
Circular Resolution security in respect of loans
• Approve financial statements
and Director’s report
Audit Committee • Diversify business
• Approve merger,
Nomination and amalgamation or
Remuneration Committee reconstruction
• Takeover of a company or
Stakeholders Relationship acquiring controlling or
Committee substantial stake in the
company
Powers of the Board Sec 179

93
Chapter XII – Meetings of Board and its Powers
Restrictions on Powers of
Board

Loan to Directors

Loans and Investments

Investments of Company

Related Party Transactions

Restriction on Non-Cash
Transaction
Prohibition on Forward
Dealing / Insider Trading

94
Meetings of Board and its Powers
Restrictions on Powers of Sec 180
Board Restriction u/s 293 of the 1956 Act
now applicable to all classes of
Loan to Directors companies
A special resolution is required to
be passed instead of Ordinary
Loans and Investments resolution
Term “Undertaking” has now been
defined to mean an undertaking in
Investments of Company which the investment exceeds 20%
of Net worth or an undertaking
which generates 20% of total
Related Party Transactions income of company
Term “Substantial Undertaking”
Restriction on Non-Cash has now been defined to mean
Transaction 20% or more of the value of
undertaking
Prohibition on Forward
Dealing / Insider Trading

95
Meetings of Board and its Powers
Restrictions on Powers of
Board

Loan to Directors Sec 185  Even a private Company cannot

give loans to its Directors
Loans and Investments  Loans can be given to MD or
WTD as part of conditions of
service extended to all the
Investments of Company employees or in accordance with
a scheme approved by members
by a Special Resolution
Related Party Transactions
 Approval of Central Government
Restriction on Non-Cash dispensed with
Transaction
Prohibition on Forward
Dealing / Insider Trading

96
Meetings of Board and its Powers
 Exemption given to private
Restrictions on Powers of company, holding and subsidiary
Board companies lifted
 The rate of interest cannot be
Loan to Directors below prevailing yield on 1,3,5, or
10 year G-sec closest to loan
 A company cannot make
Loans and Investments Sec 186 investment through more that 2
layers of subsidiaries. Exceptions
– Overseas acquisition & legal
Investments of Company purpose
 Full particulars of loans,
investments, guarantees given and
Related Party Transactions the purpose for which they will be
utilised by the recipient shall be
disclosed in the financial
Restriction on Non-Cash statements
Transaction  No SEBI Registered intermediary
shall take Inter-corporate Loan
Prohibition on Forward and deposits exceeding specified
Dealing / Insider Trading limits

97
Meetings of Board and its Powers
Restrictions on Powers of
Board

Loan to Directors  All investments including in

property, security or any other
asset shall be held in own name
Loans and Investments
 Particulars to be mentioned in
the register where securities are
Investments of Company Sec 187 held in other name shall be
prescribed by way of rules
Related Party Transactions  Company cannot impose
restriction of time for inspection
Restriction on Non-Cash of register
Transaction
Prohibition on Forward
Dealing / Insider Trading

98
Meetings of Board and its Powers
Restrictions on Powers of
Board  Corresponds to Section 297 and
314 of the 1956 Act
Loan to Directors  Following new transaction added:-
• Purchase and sales of property
• Lease of any property
Loans and Investments • Appointment of any agent for
purchase or sales of goods,
materials services or property
Investments of Company • Appointment to office or place
of profit in an associate
 Exemption granted to transactions
Related Party Transactions Sec 188 in ordinary course of business
made at arm’s length price
 RPTs for companies having
Restriction on Non-Cash prescribed paid up capital shall
Transaction require prior approval of
shareholders by special resolution
Prohibition on Forward
Dealing / Insider Trading

99
Meetings of Board and its Powers
Restrictions on Powers of
Board

Loan to Directors  Member who is a related party

shall not vote on the resolution
Loans and Investments  Every RPT shall be reported in the
Board’s Report along with
justification for entering into the
Investments of Company same
 Prior approval of CG for any RPT or
Related Party Transactions Sec 188
appointment to any office or place
or profit NOT required

Restriction on Non-Cash
Transaction
Prohibition on Forward
Dealing / Insider Trading

100
Meetings of Board and its Powers
Restrictions on Powers of  Director of the company or its
Board holding, subsidiary or associate
person or any person connected
Loan to Directors with director can not purchase
or sell any asset to the company
for consideration other than
Loans and Investments cash
 For such a transaction prior
approval at a general meeting is
Investments of Company required
 If the Director or connected
person is director of holding
Related Party Transactions company then approval of
holding company in general
Restriction on Non-Cash Sec 192 meeting is also required
Transaction  The assets involved in the
arrangement shall be valued by a
Prohibition on Forward registered valuer
Dealing / Insider Trading

101
Meetings of Board and its Powers
Restrictions on Powers of
Board  Forward dealing in the shares
and debentures of a company,
Loan to Directors its holding, subsidiary or
associate by Directors and
KMPs is prohibited
Loans and Investments  Banned contracts include both
forward contracts and option
contracts
Investments of Company  Securities acquired in violation
to be surrendered to company
Related Party Transactions  Restriction on Directors, KMP
and any order person for
indulging in Insider trading
Restriction on Non-Cash
 Communication required in
Transaction ordinary course of business or
Prohibition on Forward under law exempted
Sec 194&195
Dealing / Insider Trading

102
Chapter XIII – Appointment and
Remuneration of Managerial Personnel

103
Appointment of MD/WTD/Manager –
Sec 196
• Applicable to Private Company
• No reappointment earlier than 1 year before expiry
(2 years)
• Minimum age 21 years (25 years) and maximum 70
years
• Return for appointment of MD/WTD/Manager to
RoC within 60 days (90 days)
• Notice of BM/GM – T&C of appointment,
remuneration and other matters to be included

Appointment of KMP – Sec 203

• MD/CEO not to be appointed as Chairman, unless:
a. AoA provides otherwise; or
b. Company does NOT carry multiple business
• KMP not to hold office in > 1 Company except in Subsidiary Company at the same
time
 KMP can be director with permission of BOD
• KMP vacancy to be filled up by BOD within 6 months at BM
104
Overall max remuneration & max remuneration
in case of absence/inadequate profit – Sec 197
• ID’s cant receive stock option Approval
• LC to disclose in Board Report the ratio of Net Profit
from
remuneration of each director to the medium
employee’s remuneration and other details as > 11% Central Govt
may be prescribed
• Premium paid on Director’s & Officer’s > 5% or 10% Shareholder
insurance not to be part of remuneration
• No CG approval required for making payment of > 1% or 3% Shareholder
salary to the NED’s by way of monthly payment
provided that its within the limits Comply with
• MD/WTD in receipt of commission from Schedule V
Company can also receive remuneration or Inadequate
or Central
commission from Holding Company/ Subsidiary or no profit
Govt
Company of such Company subject to its approval
disclosure by the Company in Board Report. The
Director however cannot accept
remuneration/commission from Associate
Company
• Changes in Schedule V
105
Secretarial Audit – Sec 204
Secretarial Audit

Listed Company & Prescribed Companies

• Audit to be conducted by a Practising Company

Secretary
• Audit of secretarial and related records
• Secretarial Audit Report to form a part of Board
Report
• BOD to explain in full any qualification or
observation or other remarks made in the report

Same Powers & Duties as of

Statutory Auditor
106
Chapter XIV – Inspection, Inquiry and
Investigation

107
Investigation into the affairs of the Company by SFIO - Sec 212

Receipt of Report
from Registrar/
Inspector u/s 208

Special Resolution
for investigating
the affairs of the Serious Investigation
may order officer will
company Fraud
Central investigate
Investigation
Govt may direct SFIO the affairs of
to initiate
Office
Public Interest
prosecution the company
against the
company &
Request from any officer
department of
Central Govt or
State Govt
Investigation Report

• SFIO commands authority over other Investigation Agencies of CG/State Govt

• SIFO to provide copy of Investigation Report to other agencies who were carrying out investigation

108
Chapter XV – Compromises,
Arrangements and Amalgamations

109
New Moves

Reduction of
Share Capital
Corporate
Restructuring
transactions have
Corporate Reorgan-
Debt ization of been made more
Restructuring Compromise Share Capital
transparent by
or increasing the
Arrangement information flow
to shareholders
to enable them
Merger Demerger to make informed
decisions

110
New Moves

Contents Pg No
Notice of the Meeting 2
Explanatory Statement 4
Scheme of Arrangement 7
Valuation Report 24
Impact Statement 36

Notice with supporting docs to be sent Need for significant stake to object the
to all the stakeholders and put up on passage of scheme. Will prevent
the website of company. frivolous complaints

111
New Moves

Wider shareholder participation

Creditors meeting not required if > 90%
through voting by postal ballot in
in value agree and confirm by affidavit
addition to physical meeting

112
New Moves

Memorandum of Association

Contents Pg No
COI 2
MOA 4
AOA 7
Scheme of Merger 24
Scheme of Arrangement 36

Takeover through scheme of Requirement of attaching the certified

arrangement allowed in accordance copy of order of arrangement to MOA
with regulations to be framed by SEBI dispensed with

113
New Moves

Certified

Accounting Treatment complies with

applicable Accounting Standards

Now Tribunal can order for

following:-
• Conversion of preference shares
into equity shares
• Protection of any class of creditors
• Variation of shareholders rights
Certificate from Stat Auditor that • Exit offer to dissenting
accounting treatment complies with shareholders
prescribed accounting standards

114
New Moves

Listed Unlisted

Listed

Holding shares in trust for subsidiary or Automatic listing on merger not

associate companies on merger not necessary. Exit to be given to
allowed. Such shares shall be cancelled shareholders who opt out.

115
Treasury Stock

Name of Co Reason % of Capital CMP* Value*

RIL RPL (Former-2002) 9.05 867 25,363
M&M Punjab Tractors and Mahindra
8.8 771 3,997
Holding Finance (2008)
BPCL Kochi refineries (2005) 9.33 300 2,022
Jaiprakash Jaypee Hotels Ltd. (JHL), Jaypee
Associates Cement Ltd. (JCL), Gujrat Anjan
8.53 38 719
Cement Ltd. (GACL), Jaiprakash
Enterprise Ltd. (JEL)(2009)
United Spirits Shaw Wallace 2.38 2420 837
Total 32,938

* Value in Rs. Crore as on September 07, 2013

116
New Moves

Scheme shall clearly indicate an Yearly statement to be filed with RoC

appointed date. Scheme effective such indicating whether the scheme is being
date and not any subsequent date complied with as per orders of NCLT.

117
New Moves
Cross Border M & A
 Indian Company may now merge into a
foreign company and vice versa
 Prior approval of RBI necessary
 Consideration to be paid in cash, or in
Depository Receipts, or partly in cash and
partly in Depository Receipts

Fast Track Merger

 Summary procedure for merger of two or more
small companies or Hold Co and WOS.
 Prior notice to ROC and OL inviting objections
 Approval of Shareholders and creditors with
9/10th Majority
 Approved scheme to be filed with CG for
confirmation

118
Exit Opportunity
Section 13 - Alteration of Provisions of
Memorandum.
• A company, which has raised money from public
through prospectus and still has any unutilized
amount out of the money so raised, shall not change
its objects for which it raised the money through
prospectus unless notice is given in newspaper,
special resolution is passed and exit offer is given
Section 27 - Variation in terms of contract or objects
in prospectus.
• A company cannot vary the terms of a contract
Grey Box
referred to in the prospectus or objects for which the
prospectus was issued  Provisions of Takeover
Code?
Section 230 - Compromise and Arrangement  Minimum Public
Shareholding?
• An order made by the Tribunal for sanctioning the
compromise or arrangement, may include exit offer  Delisting Offer?
to dissenting shareholders.
119
Buyout of Minority Shareholding – Sec 236
 Offer can be done by person holding ≥ 90% equity
Share Capital
 Offer price to be determined on the basis of valuation
by a registered valuer
 Even minority shareholders may offer to sell their
share at above price
 Payment amount to be deposited in a separate bank
account to be operated by the transferor company
for min 1 year
 Amount to be disbursed in 60 days
 In case of buyout of a company when the majority
holding ≥ 75 negotiate secretly for a higher price
then such gain shall be shared with the minority Grey Box
shareholders on pro-rata basis • Akin to Delisting offer?
• Takeover Regulations, if
 The provisions of this section shall apply to minority
Acquisition > prescribed limits?
shareholders who remain after delisting offer • What if MPS falls?

120
Chapter XVI – Prevention of Oppression and
Mismanagement

121
Class Action Suit – Sec 245
Mahindra Satyam
 A lawsuit that allows a large number of people with a and PwC paid $125
common interest in a matter to sue or be sued as a
mn and $25.5 mn to
group.
foreign investors to
 Allows shareholders to take action against shoddy
corporate governance practices and other actions settle Class Action
which harm the minority shareholders. Suits but Indian
 Allows members or depositors or any class of them to shareholders were
approach NCLT if the management or conduct of the left in lurch
affairs of the company prejudices the interest of the
company, its members or depositors.
 Compensation can be claimed from auditors, experts,
advisors or consultants for any improper or misleading
statement or any fraudulent, unlawful or wrongful act
or conduct.

Common in developed countries such as the US, UK and

Singapore does not exist in India.
122
Chapter XVII – Registered Valuers

123
Registered Valuer – Sec 247
A person having such
qualifications and Share Swap
experience and registered Ratio
as a valuer under the
provisions of the law

Pricing of
Registered Valuer Values Registered Non Cash
Pref.
Valuer Transactions
Allotment

Minority
Buyout
• Valuer not to be interested
• Valuer to exercise due diligence
• Valuation to be done as per rules
• Valuer liable for damages on default

124
Chapter XXIX – Miscellaneous

125
Dormant Company – Sec 455
To hold Assets
Having no
Significant
To hold IPRs Transactions
Dormant Company

For future Projects

Inactive Company

 On Application ROC to allow the status of a dormant company and issue

certificate to that effect
 Company to have minimum directors and file annual returns to retain status
 Company can become active anytime by filing application with ROC

126
LIST OF DORMANT COMPANIES IN INDIA

Name of State Nos Name of State Nos

Andaman and Nicobar Islands 54 Kerala 2630
Andhra Pradesh 24055 Lakshadweep 2
Arunachal Pradesh 14 Madhya Pradesh 1546
Assam 275 Maharashtra 35154
Bihar 1534 Manipur 27
Chandigarh 1837 Meghalaya 33
Chhattisgarh 276 Mizoram 6
Dadar Nagar Haveli 60 Nagaland 37
Daman and Diu 45 Orissa 1130
Delhi 27972 Pondicherry 258
Goa 840 Punjab 4043
Gujarat 11776 Rajasthan 2160
Haryana 1937 Tamil Nadu 19106
Himachal Pradesh 612 Tripura 11
Jammu and Kashmir 1028 Uttar Pradesh 5593
Jharkhand 433 Uttarakhand 355
Karnataka 8669 West Bengal 2431

Total 1,55,939 companies are dormant as per MCA records

127
Fraud – Section 447
Fraud

Act Omission Concealment of fact Abuse of position

With intent to

Deceive Gain undue advantage from Injure

Interests of

Company Shareholders Creditors Any other person

Whether or not there is

Wrongful gain Wrongful loss

128
Fraud
“wrongful gain” means the gain by unlawful means of property to which the person
gaining is not legally entitled
“wrongful loss” means the loss by unlawful means of property to which the person losing
is legally entitled.
All offenses covered u/s 447 cognizable and non bailable unless excepted

Punishment

Min 6 mths Min Amt Involved

Max 10 Yrs Max 3x Amt Involved

129
Acts punishable as Frauds
Section Particulars
Furnishing any false or incorrect particulars of any information or suppression any
7(5),(6)
material information in relation to incorporation
8(11) Fraudulent conduct of affairs of a charitable company
34 Untrue or misleading statement in prospectus
36 Fraudulently inducing persons to invest money
38(1) Personation for acquisition, etc., of securities
46(5) Issue of duplicate certificate of shares with an intent to defraud
56(7) Transfer of shares by depository or depository participant, with an intention to defraud
Furnishing False statement, mutilation, destruction of documents statement during
229
inspection, inquiry or investigation
251(1) Fraudulent application for removal of name
339(3) Fraudulent conduct of business of Company being wound up
False statement or ommission in any return, report, certificate, financial statement,
448
prospectus, statement or other document required by, or for, the purposes of this Act

130
Your queries are welcome at
info@pantomathgroup.com

TEAM PANTOMATH Happy to Help…

Thank You !
131