Seminar NewCompaniesBIll 23032013

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Name

Membership Number

Background Material

Seminar on

New

Companies Bill

23rd

March 2013Hotel the Suryaa

New Friends Colony, New Delhi

Organised by

Northern India Regional Council of

The Institute of Chartered Accountants of India


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Seminar New Companies Bill 2012

Delhi

23rd March 2013

23/03/2013

Overview OF

Thanks

Pavan Kumar Vijay

"The illiterate of the 21st century will not be those

who cannot read and write, but those who

cannot learn, unlearn, and relearn."

Alvin Toffler Eminent Writer of USA

23/03/2013

A Paradigm Shift For the Corporate

The Companies Act, 1956

The Companies Bill, 2012

23/03/2013

The Era of Opportunities

23/03/2013

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HIGHLIGHTS

29 Chapters, 470 Sections & 7 Schedules

Substantial Part of the Bill in form of rules which are to

be prescribed separately

33 New Definitions

23/03/2013

Introduction of newdefinitions in the Bill which

were not existing under the

Companies Act 1956

Control

AssociateCompany

AuditingStandards

Books of

Account

CEO/CFO Expert

Independent

Director

KeyManagerial

Personnel

One

PersonCompany

The Preliminary Provisions

23/03/20133/22/2013

Introduction of newdefinitions in the Bill which

were not existing under the

Companies Act 1956Promoter

Postal Ballot

Related Party

Transaction

Small

Company

Turnover

VotingRight

The Preliminary Provisions

07/03/201323/03/2013

A Paradigm Shift For the Corporate

The Companies Act, 1956


23/03/2013

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Re-enacting the Companies Act, 1956

THE OBJECTIVE

Effective protection

for different

sections of Society

Bringing Flexibility

& Adoption of

Internationally

Accepted Practices

Self Regulation

with more

disclosures

Stringent

Punishment forviolation

Healthy Growth of

India Inc.

Efficient

enforcement of law

23/03/2013


MAJOR CHANGES PROPOSED

Corporate

Governance

Enforcement of

Law

New Concepts

Investor

Protection

Liberalization

Disclosures &

Accountability

Corporate

Governance

23/03/2013

Restructuring

Accounts &

Audit


NEW CONCEPTS

Introduction ofOne Person Company

One Woman Directoron Board of Specific Class

Class Action suits by members against prejudicial acts of the

Company Management

Specification of term Associate Company

Introduction ofRegistered Valuer

23/03/2013


NEW CONCEPTS

Fast Track Mergerfor Holding & Subsidiary Companies, Cross

Border Merger

Introduction ofDormant Company

Use of electronic mode: E-voting, E-participation of experts, Board

Meeting through video conferencing

Maintenance of documents, records, registers, books of accounts,

etc. in e-form

23/03/2013

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ENHANCED CORPORATE GOVERNANCE

At least 1/3rd of the directors of the board of listed company

should be Independent Directors

Independent directors can serve 2 consecutive terms of 5

years each on the Board of a Company. Liability of

Independent Directors made limited

Mandatory Internal & Secretarial Audit for prescribed

Companies

Compulsory rotation of Individual Auditors every 5 years & of

Audit firms every 10 years, cap of 20 Companies for audit by a

firm

23/03/2013


Quorum of General Meeting of a Public Company to

depend upon the number of its members

Instead of Conducting EGM, Private Companies have the

option ofPostal Ballot for business conduction

Restriction on Insider Trading & Forward Dealing by

Directors & Key Managerial Personnel


23/03/2013


IMPROVED CORPORATEGOVERNANCE

Consolidated financial statements of all subsidiaries to be

laid before AGM along with financials, subsidiaries to include

Associate companies & Joint Ventures

Provision to spend at least 2% of Average Net Profit on CSR

by Companies meeting a specific criteria

The Scope of Officer in default has been widened to include

Share Transfer Agents, Registrars Merchant Bankers

For uniformity & better compatibility, Financial year of the

Companies can be from April to March onlyexceptions: Foreign Holding/ Subsidiary subject to tribunals approval)


23/03/2013

SOME LIBERAL PROVISIONS

Forholding the place of

profit by the Directorto in

Company or its Subsidiary

(Section 314 approval has

been done away with)

No approval from Central

Govt. for related party

transaction/loan to whole-

time Director/MD - (Section

295, 297 approval hasbeen done away with)

For paying monthly salary

to Non-Executive director

(Some Limits) (Section

309(4) approval has been

done away with)

Enabling provisions

for issue of GDRs

Rationalization of

process of removing

the name of Company

by ROC


Bifurcation of the Objects

clause into main, ancillary &

other objects has been

done away with. Only

objects to be stated in MOA

23/03/2013

Summary Procedure

for winding up of

Companies

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DISCLOSURES & ACCOUNTABILITY

The bill defines the term Private Placement:

CONDITIONS

Offer to section of

public other than QIBs

Not more than 50

number of people or such

higher number as may be

prescribed

In compliance of

prescribed terms &

conditions

Made through PrivatePlacement offer letter

and not Prospectus

Conditions

fulfilled?

YES NO

PUBLIC OFFER

Comply with provisions

of Bill, Securities

Contract Regulation Act,

1956 and SEBI Act, 1992

PRIVATE PLACEMENT OFFER

23/03/2013



Enhanced Disclosures in the

Prospectus , source of

promoters contribution is

also required to be disclosed

Exit opportunity to

dissenting shareholders if

the Company intends to vary

the objects as specified in

the Prospectus

Company Investment

through more than 2 layers

of Investment Companies

not allowed (exemptions

available)

Disclosure of interest of

every director now

mandatory & not

discretionary

23/03/2013



Duties of Directors towards

the Company nowprescribed

Scope of officer in default

widened to include directors

aware of the default by way of

their participation in the board

meeting or receipt of minutes

Disclosure of the Risk

Management Policy in theBoard Report

Audit & Auditors

23/03/2013



Immunity to Independent &

Non-Executive Directors not

being Promoters or KMPs(Liability only if the act occurred

with their knowledge attributable

through Board Process)

23/03/2013

NBFCs to be governed by

the rules issued by RBI,

provisions relating toacceptance of deposit will

not be applicable

Acceptance of deposit from

members will require

shareholders approval and

public can accept deposits

from non- members subject to

certain conditions

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Major changes towards

23/03/2013

Now Auditors to Comply with the Auditing Standards

also along with the Accounting Standards

These Auditing Standards will be prescribed by ICAI in

consultation with National Financial Reporting

Authority

Audit & Auditors

Apart from the Balance Sheet, P & L auditors are

required to report on the Cash Flow of the Company


23/03/2013

Monitor & Enforcing the Compliance of Accounting & Auditing Standards

Power to investigate the matters of Professional or other misconduct

committed by any member of ICAI

Audit & Auditors

No other Institute or Body shall initiate or continue any proceeding

where NFRA has initiated an investigation

In case of misconduct, power to order the penalty of not less

than Rs. 1 lakh (Individual) not less than Rs. 10 lakh (Firms)

Debarring the member or the firm from engaging

himself or itself from practice for a period which canextend upto max. 10 years

Other Functions of National Financial Reporting Authority


23/03/2013

Rotation of Auditor

Listed or other prescribed class of Companies Shall NOT appoint

OR re-appoint

INDIVIDUAL

AUDITOR:

For more than 1

term of 5

consecutive years

AUDITOR

FIRM:

For more than 2

terms of 5

consecutive years

RE-APPOINTMENT: A gap of at least 5 years should elapse aftercompletion of the aforesaid term before the same auditor (individual/ firm)

can be re-appointed

Audit & Auditors


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A period of 3 years will be given to Companies existing on the

enactment of this law to comply with the provisions

TRANSITION PERIOD

Decision regarding intervals at which the auditing partner and his team

be rotated

SOME FREEDOM GIVEN TO COMPANIES APPOINTING A FIRM

Audit & Auditors

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23/03/2013

Auditor shall not provide the following services

whether directly/ indirectly to Company and its

Holding & subsidiary Companies:

Design & Implementation of

Financial Information system

Accounting & book Keeping

Services

Internal Audit Actuarial Services

Investment Banking & Advisory Management Services


23/03/2013

Certain new disqualification have been added for the appointment of

director in a Company:

Holding any security of the Company or its Subsidiary/ Holding/Associate

or Subsidiary of such Holding Company, either by himself or through

relative or partner.

The relatives however may hold securities upto Rs. 1,000 or such sum as

may be prescribed

Indebted to the Company or its Subsidiary/ Holding/Associate or

Subsidiary of such Holding Company, such sum as may be prescribed.


23/03/2013



Given any guarantee or provided any security of the prescribed amount,

with regard to the indebtness of third person to the Company or its

Subsidiary/ Holding/Associate or Subsidiary of such Holding Company,either by himself or through relative or partner.

Having any direct/indirect business relation with the Company/its

subsidiary/holding/associate or Subsidiary of such Holding Company


23/03/2013



Any person whose relative is being a Key Managerial Personnel or

director of the Company

Person who has been convicted by a court of any offence involving fraud

and a period of 10 years has not been elapsed from the date of such

conviction

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ENFORCEMENT OF LAW

Establishment of National Company Law

Tribunal

Establishment of Special Courts, Mediation &

Conciliation panel for speedy trial of offences

under the Act

23/03/2013


COMPLIANCES & ENFORCEMENTS

23/03/2013

Fraud has been defined in the Companies Bill

2012 to clearly identify the defaulters

Stringent Punishment for fraud imprisonment

maximum up to 10 years & fine maximum up to

to 3 times of the amount involved


COMPLIANCES & ENFORCEMENTS

Imprisonment & twice the prescribed penalty in

case of repeated defaults committed within a

span of 3 years

Offences punishable with fine or imprisonment

or both to be compounded only by Special

Courts

23/03/2013


ENFORCEMENT OF LAW

Serious Fraud Investigation Office (SFIO)- A

separate agency for investigation of Company

related frauds

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Centralized Agency for investigating the affairs of the Company

The power of other authorities for investigation shall be stopped once the

case has been authorized to SFIO

Power to Arrest

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INVESTOR PROTECTION

Class Action suit empowering minority shareholders

Provision for purchase of minor shareholding in case of

acquisition

Mandatory Exit Opportunity to the dissenting shareholders in

case of Change of Objects or terms of Contract in Prospectus

23/03/2013


INVESTOR PROTECTION

Person claiming Share/amount in the Unpaid Dividend Account

that got transferred to IEPF may apply to the authority for the

money claimed/Shares

Shares in respect of which unpaid/unclaimed dividend has been

transferred to IEPF shall also be transferred to IEPF

23/03/2013


RESTRUCTURING

Process of

revival &

rehabilitation ofSick Companies

overhauled

Easy merger of

Holding &

Subsidiary

Companies -

Provision for

Cross Merger

Amalgamations

Abolition of the

concept of

treasury shares

23/03/2013 16.01.2010

The Elevated Horizon

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FOR ENTREPRENEURS


Self Regulatory Regime One Person Company

Special Provisions for Small

Companies

Simplified merger of Small

Companies & Holding/

Subsidiary Companies

Recognition of Partnership

or Association of up to 100

Members

Liberalization of Related

Party Transactions

Time Bound rehabilitation ofSick Companies

23/03/2013

FOR REGULATORS


Towards the NATION

23/03/2013

FOR REGULATORS


Towards the ENTREPRENEURS

Growth orientation & Liberalized outlook

Automated systems & self governance regime

Increased Quasi Judicial Authorities for faster action

More health checks for corporates and more shelf life

through rehabilitation & restructuring modes

Facilitation of inorganic growth through relaxed

provisions

23/03/2013

FOR REGULATORS


Towards the INVESTORS

Systematic Dispute Management System

Ability to peruse Class Action Suits

23/03/2013

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FOR INVESTORS


Better participation in decision making due to e-voting

regime

Increased Investor Awareness by availability of more

information on line on public portals

Responsive Investor Protection

Better dissemination of information from India Inc.

Ability to file Class Action Suit

23/03/2013


For Professionals-Increased scope in existing assignments

23/03/2013


For Professionals- New assignments

23/03/2013


For Professionals- Extended Role

23/03/2013


For Professionals - Opportunity

23/03/2013


For Professionals - Opportunity

23/03/2013

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COMPANIES BILL 2012Key changes and issues for discussion

CA Vinod JainVinod Kumar & associates CAsMember INMACS Global

98110 [email protected]

1

Financial Statements

Presently no specific definition in Companies Act

AS 3 requires non SMCs to prepare cash flow

Companies Bill defines financial statements includingcash flow statement

Exemption from cash flow being presented given to OPC, smallcompany and dormant company

Concerns:

To bring uniformity, AS 3 to be amended to exclude OPC, SmallCompany and Dormant Company a defined in the Bill

OPC and Dormant companies which happen to be holding orsubsidiary will also be covered for preparing cash flow statements

Chapter I

Sec. 2 (40)

2

Financial Statements

SMC vs Small Company - difference

Aspect SMC as per AS now Small Company underCompanies Bill

Turnover


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Financial Statements Signing

To be signed by (including for a Banking Company which had anexemption in the present companies act)

Chairperson, if so authorised

Two directors, including the MD (if appointed) and CEO (if adirector)

Also, by the CFO and Secretary, if so appointed

Chapter IX

Sec. 134 (1)

5

Board Report

Board report is to include much more details

Extract of KMP remuneration, changes etc.,

Independence declaration from independent directors

Companys policy on director appointment and remuneration

Explanations / comments on all audit qualifications

Particulars of related party transactions, loans, guarantees andinvestments

Risk management and CSR policy

For listed and other public companies with a paid up capitalthreshold prescribed annual evaluation of board performance

Internal financial controls have been laid down and are operatingadequately

Proper systems are in place to ensure that statutory compliancesare are addressed

Chapter IX

Sec. 134 (3)

6

Board Report

Concerns:

Responsibility on CFO for true and fair accounts

More companies need to implement risk management in adocumented manner to ensure Board can report thereon

Rules need to also clarify whether Board report is to be onthe basis of CFS or SFS It might make sense for it to beon the basis of SFS; CFS a summary could bepresented, if so desired

Chapter IX

Sec. 134 (3)

7

Copies of FS to members

Circulation of SFS and CFS required. AFS could be sentoptionally

Manner of circulation (physical, electronic, on website etc.,) tobe prescribed for different classes of companies through rules

Listed companies (and other companies as prescribed)required to place the financials on their website

Subsidiarys audited accounts (SFS) to be placed in thewebsite and such SFS to be shared to members who seek thesame

Concerns:

Own SFS / CFS is not required to be placed in website by an unlistedentity but, subsidiarys SFS is required to be placed in the website

Chapter IX

Sec. 134 (3)

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Revision of Accounts

Presently. MCA Circular permits reopening and revisingaccounts to comply with technical requirements of anyother law

The bill provides for

Re-opening of accounts on court / NCLT orders Voluntary revision of FS or Board report

Revision feasible for SFS and CFS

Re-opening on court / NCLT orders

Application by CG, IT, SEBI, other authorities / anyother person concerned

Order by the NCLT / Court

Chapter IX

Sec. 130 & 131

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No specific provision to provide a hearing to the companyin case of reference being made by any of the authorities

Reasons for revision

Fraudulent accounts Mismanagement, casting a doubt on reliability of the FS

No time limit for re-opening of accounts through Court /NCLT order

Rules are to be framed on the role of auditor of thecompany in case of revision of accounts

Provides an opportunity to revise when mergers andamalgamations occur with the effective date in the past

IND AS requires effect of revision to be given in currentFS may need revisit

Chapter IX

Sec. 130 & 131

10


Voluntary revision Appears to Board that the FS do not comply with Companies Act Notice to be given to CG and IT authorities Restricted to past three financial years Only with prior approval of Tribunal

Detailed reasons to be disclosed in the Board report No revision permitted for the same FS more than once Subject to such further rules as may be prescribed

These provisions would enable SEBI requirement for revision inrespect of qualified audit reports

Concerns:

Post IND-AS, how the revision should be effected (as IND-AS requireseffect of revision to be disclosed in present financials) to be addressed

Chapter IX

Sec. 130 & 131

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National Financial Reporting Authority(NFRA)

NFRA will

make recommendations to the Central

Government on the formulation and laying

down of accounting and auditing policies andstandards for adoption by companies of class

of companies or their auditors, as the case maybe ;

monitor and enforce the compliance with

accounting standards and auditing standards insuch manner as may be prescribed;

Chapter IX

Sec. 132

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NFRA will

oversee the quality of service of the

professions associated with ensuring

compliance with such standards, and suggest

measures required for improvement in quality

of service and such other related matters asmay be prescribed; and

perform such other functions relating to clauses(a), (b) and (c) as may be prescribed.

Chapter IX

Sec. 132

13


NFRA will

Essentially, standard setting for accounting, auditing and

monitoring the adherence to the same by companies andaudit firms will be centralised into NFRA

Also, NFRA would have powers to undertake disciplinaryaction against audit partners / firms

In fact, if there is a action already underway by NFRA against anauditor, ICAI or any other body cannot investigate the same matter

Powers to investigate CFO and company officials(professionals)

Chapter IX

Sec. 132

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Proposed structure for NFRA

15

Auditors appointment

Auditors to be appointed for 5 years at a time in the AGM

However, such appointment to be placed to AGM andratified each year

From the second set, the act says until 6 thAGM

would this then not make it for 6 years instead of 5years?

Before appointing / reappointing, company to obtain

Written consent of the auditor

Certificate that the appointment will be in accordancewith the conditions to be prescribed in the rules andalso that the auditor satisfies the eligibility criteriaprescribed

Chapter X

Sec. 139

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Auditors appointment

If no auditor is appointed / reappointed in anAGM, the existing auditor shall continue as theauditor

This, being a general clause, cannot prevailover the specific clause requiring audit rotation

All companies required to have an AuditCommittee will need to appoint an auditor afterconsidering the recommendations of such AuditCommittee

Presently, only listed companies are required todo this

Chapter X

Sec. 139

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Auditors Removal / Resignation

Removal of an existing auditor within the 5 year termrequires

Passing of a special resolution and

Also CG approval

Also, the auditor will have to be heard before the approvalis given for the change of auditor

In case of a resignation by the auditor, there is a need to

file (with company, ROC and where applicable, CAG) within 30 days a

statement giving the reasons and other facts as may berelevant in regard to the resignation

NCLT could order for change of auditors when it issatisfied that the auditors have directly or indirectly actedin a fraudulent manner or abetted or colluded in any fraud

Chapter X

Sec. 140

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Auditors qualifications

Eligibility

In case of an individual should be a Chartered Accountant

In case of firm / LLP Majority partners practicing in India should bequalified for appointment

In such cases, only the CA partners are authroised to act and sign Disqualifications (similar to the existing Act)

A body corporate

An officer or employee of the company

A person who is a partner, or who is in the employment, of an officer oremployee of the company

A person in full time employment elsewhere

The existing Act has a general clause that if the auditor isdisqualified for a subsidiary, holding or a co-subsidiary, then heis disqualified for the Company too probably because of theextensive disqualifications provided in the bill (see next slide),this has not been specifically provided now

Chapter X

Sec. 141

19


Enhanced disqualifications If the person holds any security or interestin the Company,

subsidiary, holding, associate or co-subsidiary

If a relative (yet to be defined in rules) holds any security(Note -interest is without any limit as per the Act) in the Company,

subsidiary, holding, associate or co-subsidiary in excess ofRs.1,000or amount as may be prescribed

Indebtedness or guarantee by the person orhis relative or partnerisindebted or has guaranteed in excess of the limits prescribed to theCompany, subsidiary, holding, associate or co-subsidiary

New disqualifications Having direct or indirect business relationship (of such nature to

be prescribed) with the Company, subsidiary, holding, associate orco-subsidiary

Relative is a director or is employed as a director or KMP in thecompany

A person convicted of fraud and 10 years not having elapsed fromsuch conviction

Chapter X

Sec. 141

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The present Act does not cover employee or director in agroup company as the general omnibus clause is notthere any longer

Chapter X

Sec. 141

Concerns:Relatives indebtedness etc., could make it really difficult to manage mayneed clarity by way of suitable rules in this regard

Business relationship is restricted to person and firm what aboutrelatives and partners?

Would Business Relationship include even permitted professionalservices? This cannot be the intent

MCA should ensure that business relationship does not obviate all armslength transactions as these are likely to create significant challenges

Whether 20 will include all the companies consolidated in a CFS or only

the SFS actually audited by the said auditor?How will joint auditors be considered for 20 will it be treated as one foreach of the joint auditors or pro-rata for the number of joint auditors in thecompany?

21

Cap on number of audits

Provides a cap of twenty companies per partner In case of common partners between firms, the total should not

exceed 20 for the partner across the firms

Limit is set at the proprietor level or at firm level

Earlier Act provided for limits only covering publiccompanies

Presumed that CFS is not counted and Joint Audits will beconsidered as one for each joint auditor

Chapter X

Sec. 141 (3) (g)

Concerns:

Cap being provided in the Act makes it infeasible to change to meet therequirements from time to time as it would require an amendment to the

Act

Ideally, this cap should be shifted to the Rules

Whether branch audits will be considered as one audit? maybe in goodorder to provide some exceptions

22

Auditors Rotation

Listed companies and prescribed class of companies cannot have thesame auditor In case of a firm, after two terms of 5 years each

In case of an individual, after one term of 5 years

Such outgoing audit firm cannot become auditor for a period of 5 years

The prohibition covers firms which have common partners too Such rotation will have to be effected by companies covered by this

requirement within 3 years of the date of commencement of this law

In addition, the companies (all and not only those covered above) candecide To have audit partner and team rotation at such intervals as may be decided

To have joint auditors

Presently, RBI and IRDA have more stringent requirements for rotation /joint audit, which would prevail over the provisions of the Bill

Concerns:

Does the rotation requirement cover firms which may not havecommon partners but are practicing as part of the same network?

Chapter X

Sec. 139 (2)

23

Auditors Prohibited servicesAuditors can provide only such services as are approved

by the AC / Board, but cannot provide the followingeither directly or indirectly to the company its holdingand subsidiaries:Accounting and Book Keeping services

Internal audit Design and implementation of any financial information

systemActuarial services Investment advisory services Investment banking services Rendering of outsourced financial services Management services

Any other kind of services as may be prescribed

Chapter X

Sec. 144

24

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Auditors Prohibited services In case of an audit firm, this prohibition extends to

The audit firm

All its partners

Its parent, subsidiary and associate entity and

Any other entity, whatsoever, in which the firm or any partner of thefirm has significant influence or control, or whose name or trademark or brand is used by the firm or any of its partners

One needs to note that though associate is not included in this,sec.141 (3) (e) talks of associate also for business relationship

Concerns:

There is no exemption provided for auditors of non public interestedentities as well as small entities (such as OPC, Small Company,Dormant Company etc.,)

Implication of same network firm providing non audit services to

holding / subsidiary abroad - can we say that the jurisdiction limitapplies or can we interpret as that if such services are provided abroadtoo, the local firm becomes in-capacitated in India?

There is a need for clarity to be provided on the definitions of theseterms used in the Act

Chapter X

Sec. 144

25

Audit Reporting

Due to the need for report on CFS also, access to the records and information of thesubsidiaries etc., is to be made available to the auditors of the CFS (such right not providedfor associates and joint ventures)

Two specific additional assertions required in audit reports (irrespective of company size): observations or comments of the auditors on financial transactions or matters which have any adverse

effect on the functioning of the company

any qualification, reservation or adverse remark relating to the maintenance of accounts and othermatters connected therewith

whether the company has adequate internal financial controls system in place and the operatingeffectiveness of such controls

Also, there is scope to provide more such requirements by way of rules Qualifications need no longer be in Italics / Bold

Mandatory for auditor (or his qualified representative) to attend the AGM, unless specificallyexempt by the Company

Items covered by CARO may get notified under 143 as part of the rules

Chapter X

Sec. 143

Concerns:Its in fact worth relooking at why even the regular assertions provided u/s 227 (1A) are still required let alone two more added to it now

As per SA 265, auditor is expected to only gain an understanding of the internal controls relevant toaudit for designing his audit plan and is not required to comment on the adequacy of the same. This islikely to cause additional costs of compliance for the company(especially for small companies)

financial transactions or matters would it transgress into propriety?

With access to subsidiary etc., is the intent to place responsibility on holding company auditor forsubsidiaries too though India has actually not adopted SA 600?

26

Reporting of Frauds by Auditors

Act requires auditors to report on any fraud etc., to CentralGovernment

Rules need to provide for moderation else Government is goingto be flooded with only this reports

Act requires fraud against the company to be reported (does not include frauds by the company!!)

There is no notice to the directors / officers / employeeswhen such reporting is done

Chapter X

Sec. 143 (12)

Concerns:

Are there other ways in which the impact of this could be reduced so thatonerous burden is not placed on the auditors?

Rules need to provide for material frauds only and not all frauds / likelyfrauds

There is a need to make this applicable to branch auditors in respect ofthe branch audited by them

27

Auditors - Penalties

Contravention of law Relating to appointment, rotation, powers and duties, prohibited services or signing of audit

report Min Rs.25 K to Max Rs.500 K

If done wilfully with an intention to deceive imprisonment upto 1 year and penalty of Rs.100 Kto Rs.2,500 K

Also to refund the audit fee to the Company

Pay damages to those who have lost on account of such incorrect / misleading statements or

particulars in his audit report Prosecution by NFRA (on suo moto or reference based investigation)

Penalty Min Rs.100 K to 5 times the fees received, for individuals

Min Rs.1,000 K to 10 times the fees received, for firms

Debar Member / firm for a min 6 months to 10 years period

Class action suit by members / depositors against the audit firm in case ofimproper or misleading statements in the audit report or fraudulent, unlawful orwrongful act

Liability in such cases against the firm and each partner who was involved

In case of proof of fraud / abetting to fraud, then the liability will be joint andseveral for the auditor, his partners and firm

LLP may not provide any shield to the liability in view of the language used

Chapter X

Sec. 147

Concerns:Why differentiate individual and firm?

28

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Internal Audit

Bill provides for class of companies as prescribed to appointinternal auditor

Present Act provides for internal audit only for producer companies

and CARO requires comment in respect of companies of a certain size

(paid up capital and reserves of Rs.50 lacs or 3 year average turnoverof Rs.5 crores) as to whether they have adequate internal audit system

Such internal auditor to be a chartered accountant, cost

accountant or such other professional as may be determinedby the board

The internal auditor could be an external agency or internal resources

CG to prescribe manner and the intervals in which the internalaudit shall be conducted and reported to the Board

Chapter IX

Sec. 138

Concerns:

Internal auditor should be allowed to be firm too

29

Cost Audit

Class of companies to which it applies and items of coststo be maintained as part of books of records

Cost audit to be done by Cost Accountant and incompliance with cost audit standards

No specific requirement to get CG approval forappointment of cost auditor

Cost audit report to be submitted to Board and Board will

file with CG along with explanations and full informationon each reservation / qualification

Remuneration to Cost Auditor

Where AC is there, AC to consider all factors and recommend

Board to approve the fees

Chapter X

Sec. 148

30

Directors Resident in India - At least one director must have stayed in India for at

least 182 days in the previous calendar year

Women director at least one women director required in case ofprescribed class of companies

Small shareholders director Only listed companies will henceforthhave this requirement

Maximum directors set at 15 (12 under present Act) for all companies (includingprivate companies not covered in the present Act); any increase beyond this will requirespecial resolution (no more CG approval)

Limits - One person can be director in 20 companies (presently 15 companies)

Of which only 10 can be public companies

Bill provides forduties of directors: Act in accordance with the AOA

Act in good faith to promote the objects of the company

Exercise his duties with due and reasonable care, skill and diligence

Not get involved into situations which may lead to conflict of interests

Not achieve or attempt to achieve undue gain for himself, relatives, partners orassociates

Not to assign his office

Chapter XI

Sec. 149 to 166

31

Independent Directors Bill provides that all listed companies must have 1/3rd independent directors

No requirement for 50% independent director in case Chairman is an executive director (as is required bylisting agreement)

Minimum number of independent directors for other class of companies can be prescribed

Additional attributes for independent director compared to Clause 49 Person of integrity and possesses relevant expertise and experience;

Has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or theirpromoters, or directors, during the two immediately preceding financial years or during the current f inancial

year; Relatives have not had pecuniary relationship or transaction amounting to two per cent or more of its gross turnover or total

income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower

Relatives not being / been with audit firm, internal audit firm, consulting entity, legal firm etc.,

Not a Nominee director

Not a CEO or director, by whatever name called, of any nonprofit organisation that receives twenty-five percent or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary orassociate company or that holds two per cent or more of the tot al voting power of the company; or

Other qualifications as may be prescribed.

Annual declaration of independence

Data bank of independent directors to be maintained by an Institute / Association to be notified bythe CG

ESOP will not be permitted to Independent Directors Bill also elaborates detailed code of conduct for independent directors

Liability restricted to cases where there is knowledge, consent, connivance or lack of diligence

Chapter XI

Sec. 149 & 150

Concerns:Material pecuniary relationship has been enhanced to pecuniary relationship now

Also, any professional relationship with any part of the group will now disentitle

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Audit CommitteeChapter XII

Sec. 177

All listed and other prescribed class of companies to have an AuditCommittee Current Act - public companies with paid up capital not less than Rs.5 crores

Listing agreement All listed companies

Minimum three directors of which majority to be independent Listing agreement 2/3rd to be independent

Majority members and Chairperson to be able to read and understandfinancial statements

One year timeline to reconstitute to meet these requirements for existingcompanies

Specifies certain identified responsibilities plus Board could prescribefurther terms of reference: Review and monitor auditor independence and effectiveness of audit process

Approval to new / modification to transactions with related parties

Scrutiny of inter corporate loans and investments

Valuation of undertakings and assets of the company, if necessary Monitoring end use of funds raised through public offer

Each listed and other class of companies to set up a whistle blowermechanism including direct access to the AC chairman

33

One Person Company (OPC)

New concept introduced in this Bill

Provides for a Private Limited company with one memberwho will also be a Director

Provision for a nominee to become the member / director on death/ incapacity of the original member

Concerns:

Rules need to provide that member / director (including nominee) to bea natural person, resident and Indian Citizen only

Chapter II

Sec. 3 (1) (c)

34

Financial Year

Mandated to be standardized as April 1 to March 31 for allcompanies, in general

Exception could be made by a Tribunal if a company (holding or subsidiaryabroad) is required to maintain accounts for a different financial year Associate / JV Companies do not have such a facility

Existing companies to align to this year end within two years

In the first year of incorporation

If incorporated before 1st Jan, then period ending 31st March of the samefinancial year

Else, period ending 31st March of the next financial year

Concerns:

Difficulty for each company to have to approach the NCLT

Instead, Act could provide for exceptions being provided for a class ofcompanies as may be prescribed

Could lead to companies still having to consolidate Associates (whichmay have a different year end date)

Chapter I

Sec. 2 (41)

35

Associate

associate company, in relation to another company, means acompany in which that other company has a significantinfluence, but which is not a subsidiary company of thecompany having such influence and includes a joint venture

company. Explanation.For the purposes of this clause, significant influence

means control of at least twenty per cent. of total share capital, or ofbusiness decisions under an agreement;

AS 23 did not specifically deal with 20% of business decisions

Chapter I

Sec. 2 (6)

Concerns:Intent may have been to mean all critical business decisions instead of trying toquantify at 20%

AS 23 provided for not considering as an associate, even if 20% holding is there,where facts prove the relationship to be otherwise no such scope under the Bill

AS 23 also provided for significant influence to be based on other parameters suchas board control / material transactions etc., which is not provided in the Bill

There is a need for clarity on which should form the basis for preparation of CFS

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Control

control shall include the right to appoint majority of thedirectors or to control the management or policy decisions

exercisable by a person or persons acting individually or

in concert, directly or indirectly, including by virtue of their

shareholding or management rights or shareholdersagreements or voting agreements or in any other manner;

Control is used in relation to:

Subsidiary whether the definition is to be as wide needs to beseen

In definition of manager / promoter

Clause 144 dealing with auditor not to render certain services

Clause 216 investigation of ownership

Clause 241 Relief from oppression

Chapter I

Sec. 2 (27)

37

Subsidiary

subsidiary company or subsidiary, in relation to any othercompany (that is to say the holding company), means acompany in which the holding company controls the composition of the Board of Directors; or

exercises or controls more than one-half of the total share capitaleither at its own or together with one or more of its subsidiarycompanies

Different from present Act and also from AS 21 One half of voting rights and use of the wordsto obtain economic

benefits from its activities

Concerns:

Voting right replaced with total share capital may lead to non votingcapital being counted for this; there is a need for clarity

Control has been defined in this Bill; presumably, the word control in thedefinition of subsidiary is limited and not as wide as per the separatedefinition control definition could extend to cover control through othermechanisms such as management rights, voting agreements etc.,

Chapter I

Sec. 2 (87)

38

Related PartyAspect Under Companies Bill Under AS 18

Officers Director or his relative

KMP or his relative KMP and his relatives

Firm Director, Manager or his relative is a partner Enterprises over which individuals with significant

influence in this company and / or KMPs havesignificant influencePrivate company Director or Manager is a member or d irector

Public company Director or Manager is a director or holdsalong with relatives more than 25% of paidup capital

Body Corporate Accustomed to act as per advice, directorsor instructions of Director or Manager

Any person On whose advice, directions or instructions,Manager / Director is accustomed to act

Having an interest in voting power with significantinfluence over the enterprise

And, their relatives

Group Holding, Subsidiary, Associate, Co-subsidiary

Holding, Subsidiary, Co-Subsidiary;

Associates and Joint Ventures

Others As may be prescribed

Concerns:There is need for clarity from MCA that Bill definition is for control andregulation whilst AS 18 definition is for disclosure in FS etc.,

JV is not covered

Chapter I

Sec. 2 (76)

39

Related Party Transactions

Concerns:Presume the intent is special resolution for transactions exceeding a certain amount prescribedApparenterror in drafting the section to be corrected

Even arms length transactions may have to be disclosed in the Board report

connected person is not defined anywhere

The disclosure requirements may make the report bulky as every contract / arrangement is to be disclosed

Chapter XII

Sec. 188 & 192

No CG approval henceforth. Special Resolution required for related party transactions, where Company has paid up capital, which is not less than amount prescribed OR

Transactions NOT exceeding such sums as may be prescribed

Members who are related parties cannot vote in such resolutions

CG may prescribe additional conditions for related party transactions Restrictions have been extended to all related parties in the new bill Also, transactions covered by such restrictions have been enhanced to cover:

Selling or otherwise disposing of, or buying, property of any kind;

Leasing of property of any kind;

Appointment of any agent for purchase or sale of goods, materials, services or property;

Such related party's appointment to any office or place of profit in the company, its subsidiary companyor associate company; and

Underwriting the subscription of derivatives on securities of the company

Restrictions not applicable for arms length transaction in the ordinary course of business Every contract / arrangement to be disclosed in the Board Report along with justifications

There is a need for prior approval of general meeting for non cash transactions with directoror his connected person by the company, holding, subsidiary or associate

In case the director is also a director in the holding company, approval of such holding company is alsorequired

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Relative

relative, with reference to any person, means any onewho is related to another, if

they are members of a Hindu Undivided Family;

they are husband and wife; or

one person is related to the other in such manner as may beprescribed

Prescribed relationship is to come by way of rules

Concerns:

Relative definition to encompass a wide range of relationship needs acomprehensive relook in the current day context

With the enhanced restrictions (esp. for auditors and directors) related torelatives, it is a dire need to have this definition made to meet the currentdays social and economic context

Economic dependence or independence could be a more fairer criteria

Chapter I

Sec. 2 (77)

41

Dividend

Dividend can be declared out of Profits for the year after providing for depreciation

Accumulated profits after providing for depreciation

Out of both

Out of monies provided by CG / SG under any guarantee

Under the bill, CG is no longer empowered to permit dividenddeclaration without providing depreciation

Transfer to reserves is no longer mandatory and left to the discretionof the company

Rules are yet to be framed for declaration of dividend from out ofreserves

Interim dividend out of profits & surplus in P&L; if during currentyear, losses have been made, dividend not to be more than last three

year average Dividend cannot be declared if the company fails to comply with the

provisions relating to acceptance and repayment of deposits

Chapter VIII

Sec. 123

42

Depreciation

Three classes of companies Prescribed class of companies with specific useful life in Schedule II Can use

other rates, with justification being explained

Class of companies where useful life is as provided by regulatory authority

Other companies minimum depreciation as per the Schedule

Useful life has been reduced in many cases compared to previous Act Also, more items have been brought into schedule industry wise WDV seems to be out; SLM or Unit of production method can be adopted

After providing for residual value (generally not more than 5%)

Concept of componentisation brought in

No separate rates for ESD for the period II shift worked 50% moredepreciation and for the period II shift worked, 100% more depreciation

No specific clause requiring assets less than Rs.5,000 to be depreciatedfully

From the date the bill is enacted Depreciation will be prospectively over remaining useful life Where remaining useful life is NIL, adjust to opening retained earnings

Chapter VIII

Sec. 123 (2)

43

Depreciation

Depreciation will have to be on the revalued amounts andthe past ICAI guidance to offset from reserve may nolonger be available

Intangibles amortisation to be based on related AS The rates provided for BOT assets in the Sch XIV is not carried

forward in the schedule also

Concerns:

Intangibles left to AS; Recent amendment to provide depreciationbased on future revenue from the project may require revisit

The transitional provisions may have erratic hit in the initial period there should have been an option to revise and adjust to openingretained earnings for the past period

Chapter VIII

Sec. 123 (2)

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Securities Premium

Creation of Securities Premium account is the same

Utilisation, though is more restrictive for prescribed class of companies inthe Bill (and hence not permitted for): Issue of fully paid preference shares as bonus shares

Writing off preliminary expenses of the company

Writing off preference / debenture issue expenses

Providing for premium payable on redemption of preference / debenture

For prescribed class of companies, premium payable on redemption ofpreference shares will have to be provided out of profits Except that to the extent it relates to issue made before this bill is p assed, it can be

from profits or out of securities premium account

Concerns:

In view of no specific transition provision, it is understood that theapplication of this utilisation restriction will be only prospective

Companies could make necessary provisions for DRR from out ofsecurities premium (which may not be possible post this bill) before thebill is passed

Chapter IV

Sec. 52

45

Bonus Shares

Explicitly provided in Bill now Under previous Act, only Table A dealt with this

Also, SEBI ICDR regulations and ICAI GN prohibited capitalisation ofrevaluation reserve

Under the Bill Issue of bonus shares can be only from free reserves, securities

premium and capital redemption reserve

Revaluation reserve cannot be used

Bill also provides for certain specific conditions to be fulfilled AOA to permit bonus issue

On Board recommendation, general body to authorise

No default in payment of statutory dues to employees

No default in payment of principal and interest on deposits and debtsecurities

Partly paid shares to be fully paid up before the bonus issue Bonus shares cannot be in lieu of dividend Any additional conditions as may be prescribed

Chapter IV

Sec. 63

46

Registered Valuer

New concept introduced in this bill Qualifications and experience etc., to be prescribed

AC or Board to appoint and decide terms for such appointment Where there is a need for valuation of property, stocks, shares, debentures, securities, goodwill

or any other asset or net worth or its liabilities under the companies bill

Prescribed in the bill for

Non cash transactions with directors etc., {192 (2)} Issue of shares {62 (1) (c)}

Compromise arrangements {230 (2) (C) (v)}

Purchase of minority shareholding {236 (2)}

Liquidation {281 (1) (a) proviso, 319 (3) (b)}

Winding up {305 (2) (d)}

Chapter XVII

Sec. 247

Concerns:

Since notified AS will become part of the Bill, it may be considered thatvaluation under that also will be covered

Even when companies have inhouse capabilities, still, this requirementwould have to be met

47

Corporate Social Responsibility

Companies requiring to constite a CSR committee

Networth of Rs.500 crore or more

Turnover of Rs.1,000 crore or more

Net profit of Rs.5 crore or more in any financial year

CSR committee to have Three or more directors

At least one is to be an independent director

CSR committee will

Formulate CSR policy and recommend to board

Recommend the amount of expenditure to be incurred

Monitor CSR policy from time to time

Schedule VII to the Bill lists out the activities which can beconsidered

Company to give preference to local areas and areas aroundwhich it operates

Chapter IX

Sec. 135

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Corporate Social Responsibility

Board will Ensure that every year at least 2% of the average net profits from the

immediately preceding thee financial years is spent on CSR Profits shall be calculated as done for managerial remuneration

Approve the CSR policy

Disclose in the Board report and place it in the companys website

If the company fails to spend such monies, Board report shouldcontain reasons for the same However, no penalties prescribed for the same

Chapter IX

Sec. 135

Concerns:

Net profit criteria seems to be significantly lower compared to the networthand revenue criteria

Whether provision to be created for unspent amount is not clear

This CSR cost may have its own tax implications whether this will beseen as setting aside of profits or as a donation or as a legal obligation forthe business (and thus a business expenditure)

49

Loan to Director

No lending / guarantee / security directly or indirectly to adirector / a person in whom the director is interested

Exemptions:

Loan to MD / WTD as per conditions of service or as approved by membersin special resolution

If lending / guarantee / security is the ordinary course of business, then if atleast bank rate is charged

There is no provision to get CG approval for lending orproviding guarantee where there is a restriction

Concerns:

The language of the section may lead to even subsidiaries beingcovered. This may have to be looked into

Chapter XII

Sec. 185

50

Layers of Investment Companies

A company cannot have more than two layers ofinvestment companies

Exception is when an acquisition is made abroad and multiplelayers abroad is as per local regulations

Another exception being subsidiary having an investmentsubsidiary for the purpose of meeting the requirement of any law

for the time being in force

Concerns:

Lack of transitional provisions for existing investment companies

It is presumed that investment can be also considered through otherthan investment companies in multiple layers

Chapter XII

Sec. 186 (1)

51

Limits on Loans and Investments

All companies have a limit for investments, loans, guarantees and securityaggregating to the higher of

60% of its paid up share capital, free reserves and securities premium or

100% of its free reserves and securities premium

The restriction which earlier was only for bodies corporate now extended to anyperson or entity

This also includes wholly owned subsidiaries

Permission to exceed this limit requires prior special resolution at the generalmeeting

FS to contain disclosure on the investments made, loans, guarantees and securityprovided and the purpose for which the loan, guarantee / security is to be used bythe recipient

Rate cannot be lower than the prevailing yield on G-sec closer to the tenor

Concerns:Lack of transitional provision for existing investment, loans, guaranteesand security

It is presumed that this will apply only prospectively and not for existingarrangements

Chapter XII

Sec. 186 (2)

52

Mergers and Amalgamations

File scheme with NCLT for Merger / amalgamation of companies

Mergers between Indian and Foreign companies permitted subject to RBI approval and

Such conditions as may be prescribed

Merger application will require a certificate by auditor that the accountingprescription in the scheme is in accordance with AS

Merger cannot lead to treasury shares these will be cancelled or extinguished Simplified procedure to be introduced for merger of

Holding company and wholly owned subsidiary

Two small companies

Shareholders of t ransferor company who want to opt out, scheme to provide forcash payment based on a valuation (which shall not be less than that specified byany regulation in this regard by SEBI)

Concerns:Whether the requirement for compliance with AS will apply to pending schemes (already filed) is not clear

The provision in AS 14 to accept accounting as per any court approved schemes SEBI has clarified on this;MCA must also clarify that this will not be acceptable as being in compliance

Need for clear IGAAP for acocunting in respect of demergers and spin offs

Court schemes already approved (even if not in conformity with AS) will continue to apply?

Clarity required on treasury shares already created

Chapter XV

Sec. 233 to 234

53

Compromise / Arrangements

File scheme with NCLT for

Making compromise / arrangement with creditors and members

Application involving CDR can be filed along with

A report from auditors on liquidity test being met

A valuation report on all assets of the company by a registeredvaluer

Objection to a scheme filed with NCLT can be filed onlyby

Persons holding 10% of shareholding or

Having 5% of the outstanding debtConcerns:Guidance will be required from ICAI for the auditors report on liquidity testbeing met as this will involve evaluation of future projections

With valuation reports being required, valuation standards would need to

be finalised

Chapter XV

Sec. 230 to 232

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PresentationBy

CA Anil Sharma


Historical background Companies Act, 1913

Companies Act, 1956 ( 30,000 cos.)

25 amendments till date ( more than 8,00,000 cos.)

Corporate scams and build up for new Bill Concept paper in 2004

Setting up of JJ Irani Committee

New Companies Bill, 2008 based on recommendations of JJ IraniCommittee

New Companies Bill, 2009

Reference to Standard Committee on Finance and its report inAugust, 2010

New Companies Bill, 2011

Presentation by CA Anil Sharma


Substantial part of law shall be in the form of

rules to be prescribed in due course.

29 chapters against 13 at present

470 clauses against 658 sections at present

7 schedules against 15 at present

More than 400 Rules are likely.


New Concepts

One Person Company

Small Company

Dormant Company


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One Person Company(OPC)

Definition in - clause 2(62) a company which has onlyone person as a member.

Incorporation of OPC clause 3 as a private company

MOA to indicate the name of other person who shallbecome member in case of death or his incapacity tocontract

Consent of that person to be filed

Member can change the name of other person any time

Other person can withdraw his consent any time

One Person Company to be mentioned in bracket

below the name second proviso to clause 12(3).


Small Company

Definition in clause 2(85)

Other than a public company

Paid up capital does not exceed Rs. 50 Lakhs

Turnover in the last year does not exceed Rs. 2 Crores

It is not a holding company or a subsidiary co.

It is not a co. registered under section 8

It is not a co. governed by any special Act.

Merger or amalgamation of two or more small

companies in Fast Track Mode under clause 233.


Dormant Company

No definition in Clause 2.

Clause 455 defines it as: A company formed and registered for a future project or to hold an

asset or intellectual property

And has no significant accounting transaction

Or an inactive company (defined in the explanation to clause 455(1))

Can apply to Registrar to obtain the status of a dormant company

Companies defaulting in filing financial statements or annual returnsfor two financial years can also be made a dormant company byRegistrar

Such company to file such documents and pay such annual fee asmay be prescribed to remain as dormant.

Can become an active company on application and payment of fee


Changes in the definition of Pvt. Co.

Definition in clause 2(68)

Existing section 3 (1)(iii)(b) limit on numberof its members to 50 , now raised to 200.

Existing section 3(1)(iii)(d)- prohibits anyinvitation or acceptance of deposit frompersons other than its members, directors andtheir relatives, now removed altogether.


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Prohibition of association of partnership of

persons exceeding certain number

Present section 11

10 for banking,

20 for others

Clause 464 100 for any business


New Initiatives

Corporate Social Responsibility (CSR)

Class Action suit

Rehabilitation and Insolvency Fund

Use of electronics in management

Consolidated financial statement (CFS)

Women director

Fast Track Mode for merger or amalgamation

Entrenchment provision

Disgorgement of gain


CSR

Clause 135 read with Schedule VII applicable to a co with capital of Rs. 500 Crores or more

or

Turnover of Rs. 1000 Crores or more or

Net profit of Rs. 5 Crores or more during any financial year

To spend in every financial year at least 2% of theaverage net profits of the co during the threeimmediately preceding financial years

Local area to be given preference, activities asmentioned in Schedule VII

To constitute a CSR Committee to formulate and

monitor implementation


Class Action Suit

Clause 37- Suit which can be filed by any

person, group of persons or any association of

persons affected- against misstatement in

prospectus (clause 34) and inducement to

invest money (clause 36)

Clause 247- Application by prescribed number

of members or depositors may file class action

for seeking action against mismanagement


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Rehabilitation and Revival Fund

Clause-269 fund to be established for rehabilitation,revival and liquidation of the sick companies.

Contribution by the companies volantarily.

Company which contributed is entitled to withdrawfunds, in the event of proceedings for winding up, forpayment to workmen, protecting the assets and tomeet incidental costs during proceedings.

Withdrawal restricted up to the amount contributed.

Fund to be managed by the Central government.


Use of electronics in management

Voting through electronics means by members Clause 108

Central Govt. to prescribe rules for the class of

companies and manner to exercise such voting. Board meetings through video conferencing or other

audio visual means ---Clause 173 (2).

Provided proceedings are capable of recording withdate and timing and recognition of participants.

Central govt. to prescribe the item which can not bedealt with in a meeting with video teleconferencing.


Woman director

Clause 149

Class of classes of companies, as prescribed must

have at least one woman director

Existing companies on the date of

commencement of the Act and if so prescribed to

comply with the requirement within one year.


Fast Track Mode for

Merger/Amalgamation Clause 233

Two or more small companies

Holding and its WOS companies

Such other class as may be prescribed

Process Proposed scheme to be issued to Registrar and OL for their

objections/suggestions

Members of all the companies in their respective general meetings to approvewith at least 90%

Each company to file declaration of solvency with Registrar

Scheme to be approved by 90% in value of the creditors

Approved scheme to be filed with the Central Govt., Registrar and OL

If Registrar and OL has no objections, the Central Govt. may confirm themerger/amalgamation

Transferor co(s) shall be deemed to have dissolved without process of windingup.


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CFS

Clause- 129 deals with Financial Statement.

Clause 2(40)- New Definition of financialStatement.

Sub-clause (3) of Clause 129 provides forpreparation of CFS by a company having one ormore subsidiaries and lying the same in AGM

Rules to be provided for consolidation

Subsidiary for the purpose of this clauseincludes associates and joint venture.

CFS in addition to stand alone financial statement


Entrenchment Provision

Entrenchment to the effect that specified provisions ofthe AOA may be altered only if conditions orprocedures more restrictive than those applicable for

special resolution are met or complied with. Clause 5- the articles may contain provisions for

entrenchment provided these are made:

either on the formation of the company or

subsequently with the unanimous consent of all themembers in the case of private company and by specialresolution in the case of public company and

such provisions are to be notified to the Registrar.


Disgorgement of gains

Clause 38- provides for punishment for person

for acquisition of securities in fictitious name(s),

or through multiple applications in different

combination of names under clause 447.

Once convicted under that, the court may order

disgorgement of gains, if any made and seizure

and disposal of securities in possession.

The amount received to be credited to Investor

Education and Protection Fund under Clause 124.


New Restrictions

On deposits

On dividend

On transactions with directors On related party transactions

On revision of accounts


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Deposits

Separate Chapter with four clauses as against one sectionpresently.

Clause 73- deposit from its members by a company - with theapproval of general meeting and according to rules to beframed

Clause 76- deposit from persons other than its members by apublic company having prescribed net worth, or turnover andrating from recognised rating agency.

In both the cases secured and unsecured deposits arecovered.

Clause 74 - provision of very heavy fine and imprisonment incase of default in repayment of deposits.

Clause 75- if fraudulent intentions a re established, everyofficer responsible to be personally responsible for deposits,losses and damages.


Dividend

Clause 123 - No dividend from reserves other

than the free reserves.

Restriction on declaration of interim dividendproviso to sub-clause (3) of clause 123 in case

company has incurred loss during the current

financial year up to the end of the quarter

immediately preceding the date of declaration

of interim dividend.


Transactions with directors

Definition of Interested director- clause 2(49).

Clause 192- Restrictions on non- cashtransactions (buying and selling both)involving directors- prior approval by passingresolution in general meeting.

Clause 193- Restriction on contract by OPCwith Sole member- contract to be in writing,terms defined in memorandum ,recording in

minutes and intimation to Registrar.


Related party transactions

Definition of related party- clause 2(76)

Clause 188- lists Related party transactionsincluding leasing of property of any kind.

Consent of the Board to be given by a resolution In case of company with prescribed share capital,

prior approval of the company in general meetingis required

Does not apply to transactions entered into bythe company in ordinary course of business otherthan those which are not on arms length basis.


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Revision of accounts

Distinction between reopen and recast and revision

Clause 130- reopen and recast- can not be done with approval of Tribunal and no objections

from the Central Government, Income Tax Authorities, SEBI orany other regulator/authority

Allowed only if it is established that earlier accounts wereprepared fraudulently or the affairs were mismanaged duringthe period casting doubt on the reliability of financialstatement.

Clause 131- revision For the three preceding financial years

With the approval of the Tribunal

If the Board feels that financial statements are not prepared

according to Clause 129 ( accounting standards, format)


Amended provisions

Directors remuneration

Depreciation

Sick company Fraud

Penalties and prosecutions


Directors Remuneration

No change in over all limit

In case of absence or inadequacy of profitsremuneration is payable subject to the provisions ofSchedule V

In Schedule V limits revised upward from those inSchedule XIII at present.

Clause 197- remuneration payable to directors who areneither MD or WTD not to exceed 1% ( if there is MD or WTD)

3% (if there is no MD or WTD)

Independent director not to entitled to stock option.


Useful life and depreciation

Clause 123- to provide depreciation as perSchedule II before declaration or payment ofdividend.

Present Schedule XIV- rate of depreciationand different rates based on shifts andmethod of depreciation

New Schedule II- to calculate depreciationrate based on useful lives assigned to differentfixed assets and shifts.


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Sick Company

Clause 253- Only criteria of sickness is non

payment to secured creditors representing

50% or more of its outstanding debts, with in

30 days from notice to pay.


Fraud

Explanation to Clause 447 defines fraud.

Any act or omission, concealment of the fact or abuseof position committed by any person himself or byother person in connivance in any manner, with intentto deceive, to gain undue advantage from or to injurethe interest of the company or its shareholders or itscreditors or any other person, whether or not there isany wrongful gain or wrongful loss.

Clause 447- punishment for fraud Imprisonment not less than 6 months to 10 years and

Fine which shall not be less than the amount of fraud or 3times of such amount.


Penalties and prosecutions

Harsher penalties for defaults.

Provision for imprisonment in 26 clauses.


New Opportunities

Internal audit

At NFRA , NCLT and NCLAT

Interim administrator in revival of sickcompanies

Company Liquidator

Registered valuers


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Internal Audit

Clause- 138 Prescribed class of companies toappoint an internal auditor

Qualification of internal auditor- shall be eitherCA, CMA or such other professional as may bedecided by the board

Internal audit of functions and activities of thecompany.

Rules to be framed by Central Govt. fordetermining the intervals for conducting internalaudit.


NFRA ,NCLT and NCLAT

Clause 132 members of NFRA

Clause 409- technical members of NCLT

Appearance before NCLT

For approvals

For amalgamation


Internal Administrator for revival

Clause -259

To be selected from databank maintained by

the Central Government


Company Liquidator

Clause 2(23) definition of Company

Liquidator

To be appointed by Tribunal in case of

winding up by Tribunal and by the company or

creditors in case of voluntary winding up.

A panel to be maintained by the Central

government for the purpose.


Registered Valuer

Clause 247 valuation of assets, properties ,

stocks, goodwill or other assets to estimating

net worth of the company to be done by a

qualified professional named as Registered

Valuer.

Seminar NewCompaniesBIll 23032013

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Transcript of Seminar NewCompaniesBIll 23032013