Dear friends,
Please find below
highlights of the Companies Bill, 2012 as passed in Lok Sabha on
18.12.12 & posted on website http://www.icsi.edu/.
HIGHLIGHTS OF THE
COMPANIES BILL, 2012
(as passed in Lok
Sabha on 18.12.12)
Ø The Bill has 470 clauses
as against 658 Sections in the existing Companies Act, 1956.
Ø The entire bill has
been divided into 29 chapters.
Ø Many new chapters have been introduced, viz., Registered Valuers
(ch.17); Government companies (ch. 23); Companies to furnish information or
statistics (ch. 25); Nidhis (ch. 26); National Company Law Tribunal &
Appellate Tribunal (ch. 27); Special Courts (ch. 28).
Ø The Bill is forward looking in its approach which empowers the
Central Government to make rules, etc. through delegated legislation (clause
469 and others).
Ø The Companies Bill is the result of detailed consultative
process adopted by the Government.
The salient and unique features of the Bill
are as under:
1. DEFINITIONS
Ø New definitions are introduced in the Bill, some of which
are accounting standards, auditing standards, associate company, CEO, CFO,
control, deposit, employee stock option, financial statement, global depository
receipt, Indian depository receipt, independent director, interested director,
key managerial personnel, promoter, one person company, small company,
turnover, voting right etc..
Ø Definition of private company changed – the limit on maximum
number of members increased from 50 to 200.
Ø Private company which is a subsidiary of a public company shall
be deemed to be a public company. Confusion whether such a company can retain
the provisions in the articles of private company though now a public company
removed.
Ø Associate Company - A company is considered to be an
associate company of the other, if the other company has significant
influence over such company (not being a subsidiary) or is a joint
venture company. Significant influence means control of at least 20
per cent. of total share capital of a company or of business decisions under an
agreement.
Ø Dormant Company - Where a company is formed and registered under
this Act for a future project or to hold an asset or intellectual property and
has no significant accounting transaction, such a company or an inactive
company may make an application to the Registrar for obtaining the status of a
dormant company.
Ø “expert” includes an engineer, a valuer, a chartered
accountant, a company secretary, a cost accountant and any other
person who has the power or authority to issue a certificate in pursuance of
any law for the time being in force.
Ø “foreign company” means any company or body corporate
incorporated outside India which,—
(a) has a place of business in India whether by itself or
through an agent, physically or through electronic mode; and
(b) conducts any business activity in India in any other manner.
Ø “Key Managerial Personnel (KMP), in relation to a
company, means—
(i)
the Chief Executive Officer or the Managing Director or the Manager,
(ii)
the Company Secretary;
(iii)
the whole-time director;
(iv)
the Chief Financial Officer; and
(v) such other officer as may be prescribed
Ø “officer who is in default”, means any of the
following officers of a company, namely:—
(i) whole-time director;
(ii) key managerial personnel;
(iii) where there is no key managerial personnel, such director or
directors as specified by the Board in this behalf and who has or have given
his or their consent in writing to the Board to such specification, or all the
directors, if no director is so specified;
(iv) any person who, under the immediate authority of the Board or
any key managerial personnel, is charged with any responsibility including
maintenance, filing or distribution of accounts or records, authorises,
actively participates in, knowingly permits, or knowingly fails to take active
steps to prevent, any default;
(v) any person in accordance with whose advice, directions or
instructions the Board of Directors of the company is accustomed to act, other
than a person who gives advice to the Board in a professional
capacity;
(vi) every director, in respect of a contravention of any of the
provisions of this Act, who is aware of such contravention by virtue of
the receipt by him of any proceedings of the Board or participation in such
proceedings without objecting to the same, or where such contravention had
taken place with his consent or connivance;
(vii) in respect of the issue or transfer of any shares of a
company, the share transfer agents, registrars and merchant bankers to
the issue or transfer.
Ø Bill defines the term ‘promoter’ to mean a person -
(a) who has been named as such in a prospectus or is
identified by the company in the annual return, or
(b) who has control over the affairs of the company, directly or
indirectly whether as a shareholder, director or otherwise; or
(c) in accordance with whose advice, directions or instructions the
Board of Directors is accustomed to
act.
Provided that nothing in sub-clause (c) shall apply to a person
who is acting merely in a professional capacity.
Ø Definition of subsidiary company in relation to any other
company (that is holding company), changed to mean a company 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 capital (instead of equity share capital as prescribed under the
1956 Act) either at its own or together with one or more of its
subsidiary companies.
Provided
that such class or classes of holding companies as may be prescribed shall not
have layers of subsidiaries beyond such numbers as may be
prescribed.
Ø Small company has been defined as
a company other than a public company having a paid-up share capital of which
does not exceed fifty lakh rupees or such higher amount as may be prescribed
not exceeding Rs.5 crore or turnover of which does not exceed two crore rupees
or such higher amount as may be prescribed not exceeding twenty crore rupees.
[clause 2(85)].
Ø The number of persons in any association or partnership not to
exceed such number of persons as may be
prescribed (not exceeding one hundred). The restriction not to apply to an
association or partnership, constituted by professionals who are governed by
special Acts. (clause 464)
2. CLASSIFICATION & REGISTRATION
Ø Concept of One Person Company (OPC limited) introduced [Clause 2(62)].
Ø Concept of Small companies have been introduced which shall be subjected to a lesser stringent regulatory framework
[Clause 2(85)].
Ø Provision for Conversion of Companies already registered has been introduced [Clause 18].
Ø Registration process has been made faster and compatible
with e-governance.
Ø For the first time, articles may contain provisions for
entrenchment [clause 5(3)].
Ø A declaration, in the prescribed form, required to be filed with the Registrar at the time of
registration of a company that all the requirements of the Act in respect of
registration and matters precedent or incidental thereto have been complied
with, will be required to signed by both - a person named in
the articles as a director, manager or secretary of the company as well as by
an advocate, a chartered accountant, cost accountant or company secretary in
practice, who is engaged in the formation of the company. (clause
7)
Ø Registered office
Ø A company shall, on and from the 15th day of its
incorporation and at all times thereafter have a registered office capable of
receiving and acknowledging all communications and notices as may be addressed
to it.
Ø Company is required to furnish to the Registrar verification of
its registered office within 30 days of its incorporation in the prescribed
manner.
Ø Where a company has changed its name(s) during the last two
years, it shall paint or affix or print, along with its name, the former name
or names so changed during the last two years.
Ø Notice of change, verified in the manner prescribed, shall be
given to the Registrar, within 15 days of the change, who shall record the
same.
Ø Commencement of business
Ø A company having a share capital shall not commence business or
exercise any borrowing powers unless a declaration is filed with Registrar by a
director verified in the manner as may be prescribed that:
every subscriber
to the memorandum has paid the value of shares agreed to be taken by him;
Paid-up capital is not
less than Rs. five lakh/ one lakh
Ø the company has filed with the Registrar the verification of its
registered office.
3. PROSPECTUS
AND ALLOTMENT OF SECURITIES
Ø This chapter is divided into two parts. Part I relates to
‘Public offer’ and Part II relates to ‘Private Placement’
Ø “Public offer” includes initial public offer or further public
offer of securities to the public by a company, or an offer for sale of
securities to the public by an existing shareholder, through issue of a
prospectus.’
Ø The term 'private placement' has been defined to bring
clarity. “Private placement” means any offer of securities or
invitation to subscribe securities to a select group of persons by a company
(other than by way of public offer) through issue of a private placement offer
letter and which satisfies the conditions specified in this section.
Ø Detailed disclosures are provided in the Bill itself. It
includes disclosures about sources of promoter’s contribution.
Ø In case of variation in the terms of contract referred to in the
prospectus or objects for which the prospectus was issued, the dissenting
shareholders shall be given exit opportunity by promoters or controlling
shareholders.
Punishment for fraudulently inducing persons to invest money
(clause 36)
Ø Any person who, either knowingly or recklessly makes any
statement, promise or forecast which is false, deceptive or misleading, or
deliberately conceals any material facts, to induce another person to enter
into, or to offer to enter into any agreement for, or with a view to, obtaining
credit facilities from any bank or financial institution shall be liable for
punishment for fraud. This provision is proposed to help in curbing a major
source of corporate delinquency.
4. SHARE CAPITAL AND
DEBENTURES
Ø If
a company with intent to defraud, issues a duplicate certificate of
shares, the company
shall be punishable with fine which shall not be less than 5 times the face
valueof the shares involved
in the issue of the duplicate certificate but which may extend to 10 times the face value of such shares or
rupees 10 crores, whichever is higher. Stringent penalties have also been
imposed for defaulting officers of the company. [clause 46(5)]
Ø Where any
depository has transferred shares with an intention to defraud a person, it shall be liable under section 447
i.e. provisions for punishment for fraud.[clause56(7)]
Ø Security Premium Account may also be applied for the purchase of its
own shares or other securities. [Clause 52(2)(e)]
Ø A company cannot issue share at a
discount. [Clause(53)]
Ø A
company limited by shares cannot issue any preference shares which are
irredeemable. However, a company limited by shares may, if so
authorised by its articles, can issue preference shares which are liable to be redeemed
within a period not exceeding twenty years from the date of their issue.
Ø A
company may issue preference shares for a period exceeding twenty years
for infrastructural projects subject to redemption of such
percentage of shares as may be prescribed on an annual basis at the option of
such preference shareholders. [Clause
55].
Ø Every company shall deliver debenture
certificate within six months of allotment. [Clause 56(4)(d)].
Ø Reduction of share capital to
be made subject to confirmation by the Tribunal. The Tribunal on
receiving an application for reduction of share capital, shall give notice to
the Central Government, Registrar and to the SEBI and consider the
representations received in this behalf. (Clause 66)
5. E-GOVERNANCE
E-Governance proposed
for various company processes like maintenance and inspection of documents in
electronic form, option of keeping of books of accounts in electronic form,
financial statements to be placed on company’s website, holding of board
meetings through video conferencing/other electronic mode; voting through
electronic means.
6. BOARD AND
GOVERNANCE
Ø Number of directors:
Ø Minimum : Public company
-3 Private -2 , OPC-1.
Ø Maximum : limit increased to 15 from 12 .
More directors can be added by passing of special
resolution without getting the approval of Central Government as
earlier required.
Ø Woman director
At least one woman director shall be on the Board of such class
or classes of companies as may be prescribed.
Ø Resident Director
Every company shall have at least one director who has
stayed in India for a total period of not less than one hundred and eighty-two
days in the previous calendar year. [clause 149(2)].
Ø Appointment of Key Managerial Personnel [Clause
203(1)]
Every company belonging to such class or classes of companies as
may be prescribed shall have the whole-time key managerial personnel.
Unless the articles of a company provide otherwise, an
individual shall not be the chairperson of the company as well as the managing
director or Chief Executive Officer of the company at the same time [Proviso to
Clause 203(1)]
Ø Every Company Secretary being a KMP shall be appointed by a
resolution of the Board which shall contain
the terms and conditions of appointment including the remuneration. If any
vacancy in the office of KMP is created, the same shall be filled up by the
Board at a meeting of the Board within a period of six months from the date of
such vacancy [Clause 203 (2) & (4)].
Ø If a company does not appoint a Key Managerial Personnel,
the penalty proposed is :
- On
company – one lakh rupees which may extend to five lakh rupees.
- On
every director and KMP who is in default – 50,000 rupees and 1,000 rupees per
day if contravention continues.
Ø Independent Directors
Ø Concept of independent directors has been
introduced for the first time in Company Law: [clause 149(5)]
· All listed companies shall have at least one-third of
the Board as independent directors.
· Such other class or classes of public companies as may be
prescribed by the Central Government shall also be required to appoint
independent directors.
· The independent director has been clearly defined in the Bill.
· Nominee director nominated by any financial institution, or in
pursuance of any agreement, or appointed by any government to represent its
shareholding shall not be deemed to be an independent director.
· An independent director shall not be entitled to any
remuneration other than sitting fee, reimbursement of expenses for
participation in the Board and other meetings and profit related commission as
may be approved by the members.
· An Independent director shall not be entitled to any stock
option.
· Only an independent director can be appointed as alternate
director to an independent director. [clause 161(2)].
Person other than
retiring director
Ø If a person other than retiring director stands for directorship
but fails to get appointed, he or the member intending to propose him as a
director, as the case may be, shall be refunded the sum deposited by him, if he
gets more than twenty five per cent of total valid votes [clause
160(1)].
Resignation of
director
Ø A director may resign from his office by giving
notice in writing. The Board shall, on receipt of such notice,
intimate the Registrar and also place such resignation in the subsequent
general meeting of the company. [clause 168(1)]. The director shall also
forward a copy of resignation alongwith detailed reasons for the resignation to
the Registrar.
The
notice shall become effective from the date on which the notice is received by
the company or the date, if any, specified by the director in the notice,
whichever is later. [clause 168(2)].
Ø If all the directors of a company resign from their office or
vacate their office, the promoter or in his absence the Central Government
shall appoint the required number of directors to hold office till the
directors are appointed by the company in General Meeting [clause 168(3)].
Participation of
directors through video-conferencing
Ø Participation of directors at Board Meetings has been permitted
through video-conferencing or other electronic means, provided such participation is capable of recording and
recognizing. Also, the recording and storing of the proceedings of
such meetings should be carried out [clause 173(2)].
The
Central Government may however, by notification, specify such matters which
shall not be dealt with in the meeting through video-conferencing and such
other electronic means as may be prescribed. [clause 173(2)]
Notice of Board
Meeting
Ø At least seven days’ notice is required to be given for a Board
meeting. The notice may be sent by electronic means to every director at his address registered with the
company. [clause 173(3)].
A Board Meeting may be
called at shorter notice subject to the condition that at
least one independent director, if any, shall be present at the
meeting. However, in the absence of any independent director from
such a meeting, the decisions taken at such meeting shall be final only on
ratification thereof by at least one independent director. [clause 173(3)].
Duties of directors
(clause 166)
For the first time, duties of directors have
been defined in the Bill. A director of a company shall :
Ø act in accordance with
the articles of the company.
Ø act in good faith in order to promote the objects of the company
for the benefit of its members as a whole, and in the best interests of
the company, its employees, the shareholders, the community and for the
protection of environment.
Ø exercise his duties with due and reasonable care, skill and
diligence and shall exercise independent judgment.
Ø not involve in a situation in which he may have a direct or
indirect interest that conflicts, or possibly may conflict, with the interest
of the company.
Ø not achieve or attempt to achieve any undue gain or advantage
either to himself or to his relatives, partners, or associates and if such
director is found guilty of making any undue gain, he shall be liable to pay an
amount equal to that gain to the company.
Ø not assign his office
and any assignment so made shall be void.
Penalty:
If a director of the
company contravenes the provisions of this section such director shall be
punishable with fine which shall not be less than one lakh rupees but which may
extend to five lakh rupees.
Board Committees
Ø Besides the Audit Committee, the constitution of
Nomination and Remuneration Committee has also been made mandatory in
the case of listed companies and such other class or classes of companies as
may be prescribed. [clause 178(1)].
Ø The Audit committee shall consist of a minimum
of three directors with independent directors forming a
majority and majority of members including its Chairperson shall be persons
with ability to read and understand the financial statement. [clause
177(2)].
Ø The Nomination and Remuneration Committee shall formulate the
criteria for determining qualifications, positive attributes and independence of
a director and recommend to the Board a policy, relating to the remuneration
for the directors, key managerial personnel and other employees [Clause
178(3)].
Ø The Nomination and Remuneration Committee shall consist of three
or more non-executive director(s) out of which not less than one half shall be
independent directors. [clause 178(1)].
Ø Where the combined membership of the shareholders, debenture
holders, deposit holders and any other security holders is more than one
thousand at any time during the financial year, the company shall constitute
a Stakeholders Relationship Committee. [clause 178(5)].
Managerial
Remuneration [clause 197]
Ø Provisions relating to limits on remuneration provided in the
existing Act being included in the Bill. Maximum limit of 11% (of net profits)
being retained.
Ø For companies with no profits or inadequate profits remuneration
shall be payable in accordance with new Schedule of Remuneration (Schedule V)
and in case a company is not able to comply with Schedule V, approval of
Central Government would be necessary.
Certain Insurance
Premium not to be treated as part of the remuneration
Ø The prem ium paid on any insurance taken by a company
on behalf of its managing director, whole-time director, manager, Chief
Executive Officer, Chief Financial Officer or Company Secretary for
indemnifying any of them against any liability in respect of any negligence,
default, misfeasance, breach of duty or breach of trust for which they may be
guilty in relation to the company, shall not be treated as part of the
remuneration payable to any such personnel. [Clause 197 (13)]
7. DISCLOSURES
Annual return [clause
92]
Ø Every company shall prepare a return (hereinafter referred to as
the annual return) in the prescribed form containing the particulars as they
stood on the close of the financial year regarding;
(i) its registered office, principal business activities,
particulars of its holding, subsidiary and associate companies;
(ii) its
shares, debentures and other securities and shareholding pattern;
(iii) its indebtedness;
(iv) its members and debenture-holders along with changes therein
since the close of the previous financial year;;
(v) its promoters, directors, key managerial personnel along with
changes therein since the close of the last financial year;
(vi) meetings of members or a class thereof, Board and its various
committees along with attendance details;
(vii) remuneration of
directors and key managerial personnel;
(viii) penalties imposed on the company, its directors or officers and
details of compounding of offences;
(ix) matters related to certification of compliances, disclosures as
may be prescribed;
(x) details in respect of shares held by foreign institutional
investors; and
(xi) such other matters as may be prescribed.
The prescribed
disclosures under the Annual Return shows significant transformation in non financial
annual disclosures and reporting by companies as compared to the existing
format.
Similar to the
existing compliance certificate as stipulated under section 383A of Companies
Act, 1956 certification of compliances has been prescribed under clause
92(1)(ix).
Ø Annual Return is required to be signed by :
(i) A director and the Company Secretary, or where there is no
Company Secretary, by a Company Secretary in whole-time practice.
It means that now in respect of all the companies
(except one person companies and small companies), whether private or public,
listed or unlisted,the annual return has to be signed by either a company
secretary in employment or by a company secretary in practice i.e.
where no Company Secretary is appointed by the company, the Annual
Return is compulsorily required to be signed by the Company Secretary in
practice.
(ii) in addition to the above, the annual return, filed by a
listed company or by a company having such paid-up capital and turnover as may
be prescribed, shall be certified by a company
secretary in practice that the annual return discloses the facts correctly and
adequately and that the Company has complied with all the provisions of the
Act.
It means, in case of a listed company and other prescribed
companies, even if the Annual Return is signed by the Company Secretary in
employment, it is further required to be certified by the Company Secretary in
Whole time practice.
(iii) In relation to a One Person Company and Small Company, the
annual return is required to be signed by the Company Secretary, or where there
is no Company Secretary, by one director of the company.
Penalty
In case a Company
Secretary in practice certifies the annual return otherwise than in conformity
with the requirements of this section or the rules made there under, such
Company Secretary shall be punishable with fine which shall not be less
than fifty thousand rupees but which may extend to five lakh rupees.
Changes in
shareholding of promoters and top ten shareholders
Ø A return to be filed with the
Registrar with respect to change in the number of shares held by promoters and
top ten shareholders (to ensure audit trail of ownership) by a listed
company.
Board’s report (Clause
134)
Ø Board’s Report has been made
more informative and includes extensive disclosures like
–
(i) extract of annual return in the prescribed form;
(ii) company’s policy on director's appointment and remuneration
including the criteria for determining qualifications, positive attributes,
independence of a director etc. ;
(iii) a statement of declaration by independent directors;
(iv) explanations or comments by the Board on every
qualification, reservation or adverse remark or disclaimer made by the
auditor in his report and by the company secretary in practice in his
secretarial audit report;
(v) particulars of loans, guarantees, or investments made;
(vi) particulars of contracts or arrangements entered into;
(vii) the conservation of energy, technology absorption, foreign
exchange earnings and outgo in the prescribed manner;
(viii) statement indicating development and implementation of a risk
management policy for the company including identification therein of elements
of risk, if any, which in the opinion of the Board may threaten the existence
of the company;
(ix) the details about the policy developed and implemented by the
company on corporate social responsibility initiatives taken during the year
(x) in case of listed companies and other prescribed class of
companies, a statement indicating the manner in which formal annual
evaluation has been made by the Board of its own performance and that of
committees and individual directors.
Ø The Directors' Responsibility Statement shall also include the
statement that the directors had devised proper systems to ensure compliance
with the provisions of all applicable laws
and that such systems were adequate and operating effectively.
Ø The Boards’ Report is to be signed by the Chairperson of the
company if he is authorized by the Board and where he is not so authorized, it
shall be signed by at least two directors, one of whom shall be a managing
director, or by the director where there is one director. (Clause 134).
Related Party Transactions
Ø Every contract or arrangement entered into with a related party
shall be referred to in the Board’s Report along with the justification for
entering into such contract or arrangement [Clause 188(2)].
Ø Any arrangement between a company and its directors in respect
of acquisition of assets for consideration other than cash shall require prior
approval by a resolution in general meeting and if the director or connected
person is a director of its holding company, approval is required to be
obtained by passing a resolution in general meeting of the holding company
[Clause 192].
Ø Where a one person company limited by shares or by guarantee
enters into a contract with the sole member of the company who is also its
director, the company shall, unless the contract is in writing, ensure that the
terms of the contract or offer are contained in the memorandum or are recorded
in the minutes of the first Board meeting held after entering into the
contract. The company shall inform the Registrar about every contract entered
into by the company and recorded in the minutes (Clause
193).
8. CORPORATE
SOCIAL RESPONSIBILITY (CLAUSE 135)
Ø Every company having net worth of rupees 500 crore or more, or
turnover of rupees 1000 crore or more or a net profit of rupees 5 crore or more
during any financial year shall constitute a Corporate Social Responsibility
Committee of the Board consisting of three or more directors, out of which at
least one director shall be an independent director.
Ø The CSR Committee shall formulate and recommend Corporate Social
Responsibility Policy which shall indicate the activity or activities to be
undertaken by the company as specified in schedule VII and shall also recommend
the amount of expenditure to be incurred on the CSR activities.
Ø The Board of every company shall ensure that the company spends
in every financial year atleast 2% of the average net profits of the company
made during the three immediately preceding financial years in pursuance of its
CSR policy.
Ø Where the company fails to spend such amount, the Board shall in
its report specify the reasons for not spending the amount. The approach
is to 'comply or explain’.
Ø The company shall give preference to local areas where it
operates, for spending amount earmarked for Corporate Social Responsibility
(CSR) activities.
9. DEPOSITS
(CLAUSE 173)
Ø A company may, subject to the passing of a resolution in general
meeting and subject to the prescribed rules, accept deposits from its members
subject to fulfillment of the following specified conditions:
i. passing of resolution in a general meeting.
ii. issue of circular to members including therein a statement
showing the financial position of the company, the credit ratings obtained, the
total number of depositors and the amount due towards deposits in respect of
any previous deposits accepted by the company and such other particulars in
such form and in such manner as may be prescribed.
iii. filing a copy of the circular along with such statement with the
registrar within 30 days before the date of issue of the circular.
iv. Providing deposit insurance.
v. Certification by the company that it has not defaulted in the
repayment of deposits.
vi. Provision of security in respect of deposit and interest and
creation of charge on company’s properties and assets. An amount of not less
than 15% of the deposits maturing during a financial year shall be deposited
in deposit repayment reserve account.
Ø A public company having prescribed net worth or turnover may
accept deposits from persons other than its members subject to compliance of rules as may be prescribed by
Central Government in consultation by Reserve Bank of India. (Clause 76).
Ø The penalty for failure to repay deposit has been made extremely stringent. Where a
company fails to repay the deposit and it is proved that the deposits had been
accepted with intent to defraud the depositors or for any fraudulent purpose,
every officer of the company who was responsible for the acceptance of such
deposit shall, without prejudice to liability under section 447 i.e. punishment
for fraud), be personally responsible, without any limitation of liability, for
all or any of the losses or damages that may have been incurred by the
depositors (Clause 75).
Stringent punishment
is proposed for failure to distribute dividend within thirty days of its
declaration. (Clause 127)
10. INVESTMENT
COMPANIES (CLAUSE 186)
Ø A company can make investment through not more than two layers
of investment companies, unless otherwise prescribed.
Ø This shall not affect
a company from acquiring any other company incorporated in a
country outside India if such other company has investment subsidiaries beyond
two layers as per the laws of such country;
a subsidiary company from having any investment subsidiary for
the purposes of meeting the requirements under any law or under any rule or
regulation framed under any law for the time being in force.
Ø The restriction on the number of step-down subsidiary companies
has been introduced to prevent the abuse of diversion of funds through many
step-down subsidiaries.
11. COMPANY
SECRETARY
Functions of Company
Secretary (clause 205)
Ø The functions of the company secretary shall include-
to report to the Board
about compliance with the provisions of
this Act, the rules made there under and other laws applicable to the company;
to ensure that the company complies with the applicable
secretarial standards;
to discharge such
other duties as may be prescribed.
Secretarial Audit
(Clause 204)
· Every listed company and a company belonging to other class of
companies as may be prescribed shall annex with its Board’s report a Secretarial
Audit Report, given by aCompany Secretary in Practice,
in such form as may be prescribed.
· It shall be the duty of the company to give all assistance and
facilities to the Company Secretary in Practice, for auditing
the secretarial and related records of the company.
· The Board of Directors, in their report shall explain in full
any qualification or observation or other remarks made by the Company
Secretary in Practice in his report.
· If a company or any officer of the company or the Company
Secretary in Practice, contravenes the provisions of this section, the
company, every officer of the company or the Company Secretary in
Practice, who is in default, shall be punishable with fine which shall not
be less than one lakh rupees but which may extend to five lakh
rupees.
Secretarial Standards Introduced [Clause
118(10) & 205]
Ø For the first time, the Secretarial Standards has been
introduced and provided statutory recognition
Ø Clause 118(10) reads
as:
“Every company shall observe Secretarial Standards with respect
General and Board Meetings specified by the Institute of Company Secretaries of India constituted under
section 3 of the Company Secretaries Act, 1980 and approved by the Central
Government.”
Ø Clause 205 casts duty on the Company Secretary to ensure that
the company complies with the applicable Secretarial Standards.
Ø It is the beginning of a new era where non financial standards
have been given importance and statutory recognition besides Financial
Standards.
12. GENERAL
MEETINGS
Ø To encourage wider participation of shareholders at General
Meetings, the Central Government may prescribe the class or classes of
companies in which a member may exercise their vote at meetings by electronic
means [clause 108].
Ø One person companies have been given the option to dispense with
the requirement of holding an AGM. [clause 96(1)].
Report on annual general meeting [clause 121]
Ø Every listed company shall prepare a Report on each
Annual General Meeting including confirmation to the effect that the meeting
was convened, held and conducted as per the provisions of the Act and the Rules
made there under. The report shall be prepared in the manner to
be prescribed. A copy of the report shall be filed with the
Registrar within 30 days of the conclusion of the AGM. Non-filing
of the report has been made a punishable offence.
13. AUDITORS
Ø A company shall appoint an individual or a firm as an
auditor at annual general meeting who shall hold office till the conclusion
of sixth annual general meeting.
Ø However, the company shall place the matter relating to such
appointment for ratification by members at every annual general
meeting.
Ø No listed company or a company belonging to such class or
classes of companies as may be prescribed, shall appoint or re-appoint—
(a) an individual as auditor for more than one term of
five consecutive years; and
(b) an audit firm as auditor for more than two terms of
five consecutive years:
Provided that—
(i) an individual auditor who has completed his term under
clause (a) shall not be eligible for re-appointment as auditor in the same
company for five years from the completion of his term;
(ii) an audit firm which has completed its term under clause
(b), shall not be eligible for re-appointment as auditor in the same company
for five years from the completion of such term:
Ø Members of a company may resolve to provide that in the audit firm appointed by it, the
auditing partner and his team shall be rotated at such intervals as
may be resolved by members .
Ø The limit in respect of maximum number of companies in which a
person may be appointed as auditor has been proposed as twenty
companies. (clause 141)
Ø Auditor cannot render any of the following services,
directly or indirectly to the company or its holding company or subsidiary
company:
Ø Accounting and book-keeping service
Ø Internal audit
Ø Design and implementation of any financial information
system
Ø Actuarial services
Ø Investment advisory services
Ø Investment banking services
Ø Rendering of outsourced financial services
Ø Management services
Ø Other prescribed services
Internal Audit
Ø Internal audit may be made
mandatory for prescribed companies (clause 138)
Cost Audit (clause
148)
Ø The Central Government after consultation with regulatory body
may direct class of companies engaged in production of such goods or providing
such services as may be prescribed to include in the books of accounts
particulars relating to utilisation of material or labour or to such other
items of cost.
Ø If the Central Government is of the opinion, that it is
necessary to do so, it may, direct that the audit of cost records of class of
companies, which are required to maintain cost records and which have a net
worth of such amount as may be prescribed or a turnover of such amount as may
be prescribed, shall be conducted in the manner specified in the order.
Ø ‘cost auditing standards’ have
been mandated.
14. FINANCIAL
STATEMENT (CLAUSE 2(40)]
Ø For the first time, the term 'financial statement' has
been defined to include:-
i. a balance sheet as at the end of the financial year;
ii. a profit and loss account, or in the case of a company carrying
on any activity not for profit, an income and expenditure account for the
financial year;
iii. cash flow statement for the financial year;
iv. a statement of changes in equity, if applicable; and
v. any explanatory note annexed to, or forming part of, any
document referred to in sub-clause (i) to sub-clause (iv):
Ø the financial statement, with respect to One Person Company,
small company and dormant company, may not include the cash flow statement;
Signing of financial
statement (Clause 134)
The financial
statement, including consolidated financial statement, if any, shall be
approved by the Board of directors before they are signed on behalf of the
Board at least by the Chairperson of the company authorised by the
Board or by two directors out of which one shall be managing director and the
Chief Executive Officer, if he is a director in the company, the Chief
Financial Officer and the company secretary of the company, wherever they are
appointed, or in the case of a One Person Company, only by one director, for
submission to the auditor for his report thereon.
15. NATIONAL FINANCIAL REPORTING AUTHORITY (NFRA)
(CLAUSE 132)
Ø The Central Government may be notification constitute a National
Financial Reporting Authority to provide for matters related to accounting and
auditing standards.
Ø Notwithstanding anything contained in any other law for the time
being in force, the National Financial Reporting Authority shall––
(a) make recommendations to the Central Government on the
formulation and laying down of accounting and auditing policies and standards
for adoption by companies or class of companies or their auditors, as the case
may be;
(b) monitor and enforce the compliance with accounting standards
and auditing standards in such manner as may be
prescribed;
(c) oversee the quality of service of the professions associated
with ensuring compliance with such standards, and suggest measures required for
improvement in quality of services and such other related matters as may be
prescribed; and
(d) perform such other functions relating to clauses (a), (b)
and (c) as may be prescribed.
Ø Notwithstanding anything contained in any other law for the time
being in force, the National Financial Reporting Authority shall—
(a)
have the power to investigate, either suo moto or on a
reference made to it by the Central Government, for such class of bodies
corporate or persons, in such manner as may be prescribed into the
matters of professional or other misconduct committed by any member or firm of
chartered accountants, registered under the Chartered Accountants
Act, 1949:
Provided
that no other institute or body shall initiate or continue any proceedings in
such matters of misconduct where the National Financial Reporting Authority has
initiated an investigation under this section;
(b)
have the same powers as are vested in a civil court under the Code of Civil
Procedure, 1908, while trying a suit.
(c)
where professional or other misconduct is proved, have the power to make order
for—
(A) imposing penalty of -
(I) not less than one lakh rupees, but which may extend to five
times of the fees received, in case of individuals; and
(II) not less than ten lakh rupees, but which my extend to ten
times of the fees received, in case of firms;
(B) debarring the member or the firm from engaging himself or
itself from practice as member of the institute for a minimum period of six
months or for such higher period not exceeding ten years as may be decided by
the National Financial Reporting Authority.
Ø Any person aggrieved by any order of the National Financial
Reporting Authority, may prefer an appeal before the Appellate Authority
constituted by the Central Government.
16. INVESTOR
PROTECTION MEASURES
Ø Issue and transfer of securities
and non-payment of dividend by listed companies, shall be administered by SEBI
by making regulations.(Clause24)
Ø An act of fraudulent inducement of persons to
invest money is punishable with imprisonment for a term which
may extend to ten years and with fine which shall not be less than three times
the amount involved in fraud.(Clause 36)
Ø A suit may be filed by a person who is affected by any
misleading statement or the inclusion
or omission of any matter in the Prospectus or who has invested money by
fraudulent inducement. (Clause 37).
Class action suits
Ø For the first time, a provision has been made for class action
suits. It is provided that specified number of member(s), depositor(s) or any
class of them, may, if they are of the opinion that the management or control
of the affairs of the company are being conducted in a manner prejudicial to
the interests of the company or its members or depositors, file an application
before the Tribunal on behalf of the members or depositors.
Ø Where the members or depositors seek any damages or compensation
or demand any other suitable action from or against an audit firm, the
liability shall be of the firm as well as of each partner who was involved in
making any improper or misleading statement of particulars in the audit report
or who acted in a fraudulent, unlawful or wrongful manner.
Ø The order passed by the Tribunal shall be binding on the company
and all its members, depositors and auditors including audit firm or expert or
consultant or advisor or any other person associated with the
company. (clause 245)
Serious Fraud Investigation
Office (clause 211)
Statutory status to
SFIO has been proposed. Investigation report of SFIO filed with the Court for
framing of charges shall be treated as a report filed by a Police Officer. SFIO
shall have power to arrest in respect of certain offences of the Bill which
attract the punishment for fraud. Those offences shall be cognizable and the
person accused of any such offence shall be released on bail subject to certain
conditions provided in the relevant clause of the Bill.
Stringent penalty provided for fraud related
offences.
Fraud defined (Clause
447)
Ø The term "Fraud" has for the first time been defined
in the Bill. Any person who is found to be guilty of fraud, shall be punishable
with imprisonment for a term which shall not be less than six months but which
may extend to ten years and shall also be liable to fine which shall not be
less than the amount involved in the fraud, but which may extend to three times
the amount involved in the fraud.
Where the fraud in
question involves public interest, the term of imprisonment shall not be less
than three years
Prohibition of insider
trading
New clause has been
introduced with respect to prohibition of insider trading of
securities. The definition of price sensitive information has also
been included [clause 195].
Prohibition on Forward
dealings
Directors and the key managerial personnel of a company are
prohibited from forward dealings
in securities of the company.(clause 194).
17. INSPECTION, ENQUIRY AND INVESTIGATION
Ø A new clause has been added to provide that where in connection
with enquiry or investigation into the affairs of the company or reference by
the Central Government, or on complaint by specified number of members or
creditors or any other person having a reasonable any person that the transfer
or disposal of funds, properties or assets is likely to take place which is
prejudicial to the interest of the company, then the Tribunal may order
for the freezing of such transfer, removal or disposal of assets for a
period of three years. [clause 221]
Ø Another new clause seeks to provide that the provisions of
inspection or investigation applicable to Indian companies shall also apply mutatis-mutandis to
inspection or investigation of foreign companies. (clause 228).
18. RESTRUCTURING AND LIQUIDATION
Ø The entire rehabilitation and liquidation process has been made time
bound.
Ø Winding up is to be resorted to only when revival is not
feasible. (clause 258).
Ø The Tribunal may appoint an interim administrator or a company
administrator from the panel of Company Secretaries, CAs, CWAs, etc. maintained
by the Central Government. [clause
259(1)].
Ø The Company Administrator shall prepare a scheme of revival and
rehabilitation. [clause 261(1)].
Ø If revival scheme is not approved by the creditors, the Tribunal
shall order for winding up of the company. (clause 258).
Ø No civil court shall have jurisdiction in respect of any matter
on which Tribunal or Appellate Tribunal is empowered. (clause 268).
19. COMPANY
LIQUIDATORS (CLAUSE 275)
The Tribunal may
appoint Provisional Liquidator or the Company Liquidator from a panel
maintained by the Central Government consisting of Company Secretaries,
Chartered Accountants, Advocates and Cost Accountants.
On an appointment as
provisional liquidator or Company Liquidator, such liquidator is required to
file a declaration in the prescribed form disclosing conflict of interest or
lack of independence in respect of his appointment, if any, with the
Tribunal.
Professional
assistance to Company Liquidator (CLAUSE 291)
The Company Liquidator
may, with the sanction of the Tribunal, appoint one or more
professionals including Company Secretaries to assist him in the
performance of his duties and functions under the Act.
20. COMPOUNDING OF CERTAIN OFFENCES
(CLAUSE 441)
This clause provides
for the compounding of certain offences by Tribunal or regional director in
certain cases before the investigation has been initiated or is pending under
this Act. It further provides the procedure followed for compounding of
offence. It clause also provides penalty for any officer or other employee of
the company who fails to comply with the order of Tribunal or Regional
Director.
21. National Company
Law Tribunal and Appellate Tribunal (Clause 408 and 410)
The Central Government
shall, by notification, constitute, a Tribunal to be known as National Company
Law Tribunal and an Appellate Tribunal to be known as National Company law
Appellate Tribunal.
22. SPECIAL
COURTS
Ø For the speedy trial of offences, the Central Government has
been empowered to establish special courts in consultation with the Chief
Justice of the High Court within whose jurisdiction the judge is to be
appointed. (clause 435).
Ø All offences under this Act shall be triable by the Special
Court established for the area in which the registered office of the company in
relation to which the offence is committed or where there are more special
courts than one for such area, by such one of them as may be specified in this
behalf by the High Court concerned. (clause 436)
Ø The Special Court would have the liberty to try summary
proceedings for offences punishable with imprisonment for a term not exceeding
three years, although it may order for the regular trial. (clause 436).
23. MEDIATION AND
CONCILIATION PANEL (CLAUSE 442)
Ø The Central government shall maintain a panel of experts to be
called Mediation and Conciliation Panel for mediation between the
parties during the pendency of any proceedings before the Central Government or
the Tribunal or the Appellate Tribunal under this Act.
24. CROSS –
BORDER MERGERS (CLAUSE 234)
Ø The Bill has allowed
cross border mergers with any foreign company;
Ø The cross border merger may be made between companies registered
under this Act and companies incorporated under jurisdiction of such countries
as may be notified by the Central Government.
25. REGISTERED VALUERS
(CLAUSE 247)
Ø A new chapter has been inserted in relation to registered
valuers.
Ø Valuation in respect of any property, stock, shares, debentures,
securities, goodwill, networth or assets of a company shall be valued by a
person registered as a valuer.
Ø The Central Government shall maintain a register of valuers. .
The valuer shall be a person having such
qualification and experience and registered as a valuer in such
manner and on such terms and conditions as may be prescribed.
26. POWER
TO EXEMPT CLASS OR CLASSES OF COMPANIES FROM PROVISIONS OF THIS ACT (CLAUSE
462)
Ø The Central Government
may in the public interest, by notification direct that any provisions of this
Act:
1. shall not apply to such class or classes of companies; or
2. shall apply to class or classes of companies with such
exceptions, modifications and adaptations as may be specified in the
notification.
Ø The notification in draft to be laid in both the Houses of
Parliament for a period of 30 days.
Ø Houses may disapprove or modify.
27. ADJUDICATION OF PENALTY (CLAUSE
454)
The Central government
may by an order publish in the Official Gazette, appoint as many officers of
the Central Government, not below the rank of Registrar, as adjudicating
officers for adjudicating penalty under the provisions of this Bill in
the manner as may be
prescribed.
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Disclaimer: This
document has been prepared on the basis of Companies Bill, 2011 as passed in
the Lok Sabha on 18th December, 2012. The Institute of Company
Secretaries of India does not own the responsibility of any error or omission.
The users and readers are advised to cross check with the original bill before
acting upon this document.
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