Overview of The Modern Company Law Presented by – Pavan Kumar Vijay 1 9/6/2013
“In a time of drastic change, it is the unlearners who inherit the future. The learned find themselves equipped to live in a world that no longer exists” . ERIC HOFFER 9/6/2013 2
A Paradigm Shift For the Corporate The Companies Act, 1956 The Companies Bill, 2013 Passed by both the Houses 9/6/2013 3
The Companies Bill, 2013 29 470 Chapters Sections Facts about the Bill 7 33 Schedules Definitions Substantial Part of the Bill in form of rules which are to be prescribed separately 9/6/2013 4
Re-enacting the New Companies Law THE OBJECTIVE Bringing Flexibility Effective protection & Adoption of for different Internationally sections of Society Accepted Practices Self Regulation Healthy Growth of with more India Inc. disclosures Stringent Efficient Punishment for enforcement of law violation 9/6/2013 5
The Companies Bill, 2013 Major Areas of Focus Corporate Liberalization New Concepts Governance Investor Disclosures & Protection Accounts & Audit Accountability Enforcement of Tightening Restructuring Law- New Provisions Institutions 9/6/2013 6
Major Changes New Concepts 9/6/2013 7
The Companies Bill, 2013 New Concepts • Introduction of One Person Company • Stipulation of Woman Director • Class Action suits by members • Associate Company • Introduction of Registered Valuer • Fast Track Merger for Holding & Subsidiary Companies • Cross Border Merger • Concept of Dormant Company • Further Use of electronic mode: Maintenance of documents, records, registers, books of accounts, etc. in e-form • Summary Procedure for Winding up of Company • Enabling provisions for issue of GDRs 9/6/2013 8
Types of entities under New Law Entity Structure recognized under Law Small Company Private Public Limited One Person Nidhi Producer Foreign Limited Limited Liability Company Company Company Company Company Company Partnership Dormant Defunct Company Company 9/6/2013 9
Major Changes Corporate Governance 9/6/2013 10
Enhanced Corporate Governance Independent Directors – Exhaustive Definition, Code of conduct, Performance Evaluation, Separate Meetings of Independent Directors, Restricted Tenure, Limited Liability etc. such concepts added as to Independent Directors Provision to spend at least 2% of Average Net Profit on CSR by Companies meeting a specific criteria Compulsory rotation of Individual Auditors every 5 years & of Audit firms every 10 years, cap of 20 Companies for audit by a firm Quorum of General Meeting of a Public Company to depend upon the number of its members 9/6/2013 11
Enhanced Corporate Governance Cont…. Restriction on Insider Trading & Forward Dealing by Directors & Key Managerial Personnel Consolidated financial statements of all subsidiaries to be laid before AGM along with financials, subsidiaries to include Associate companies & Joint Ventures For uniformity & better compatibility, Financial year of the Companies can be from April to March only exceptions: Foreign Holding/ Subsidiary subject to tribunal’s approval) Mandatory Internal & Secretarial Audit for prescribed Companies 9/6/2013 12
Major changes Liberalization 9/6/2013 13
The Companies Bill, 2013 SOME LIBERAL PROVISIONS No approval from Central Bifurcation of the Objects Govt. for related party clause into main, ancillary & transaction/loan to whole- other objects has been time Director/MD - (Section done away with . Only 295, 297 approval has been objects to be stated in MOA done away with) For paying monthly salary to Non-Executive director Rationalization of (Some Limits) – (Section process of removing 309(4) approval has been the name of Company done away with) by ROC For holding the place of profit by the Director to in Summary Procedure Company or its Subsidiary – for winding up of (Section 314 approval has Companies been done away with) 9/6/2013 14
Major changes Disclosures & Accountability 9/6/2013 15
The Companies Bill, 2013 DISCLOSURES & ACCOUNTABILITY Justification of entering into Related Party Transaction Private placement norms required to be disclosed in the made more stringent Directors Report Verification of registered office address required 9/6/2013 16
The Companies Bill, 2013 DISCLOSURES & ACCOUNTABILITY Exit opportunity to dissenting Enhanced Disclosures in the shareholders if the Company Prospectus , source of intends to vary the objects as promoters contribution is specified in the Prospectus also required to be disclosed Company Investment Disclosure of interest of through more than 2 layers every director now of Investment Companies mandatory & not discretionary not allowed (exemptions available) 9/6/2013 17
The Companies Bill, 2013 DISCLOSURES & ACCOUNTABILITY Disclosure of the Risk Duties of Directors towards Management Policy in the the Company now Board Report prescribed The scope of Officer in Scope of officer in default Default widened to include widened to include directors aware of the default by way of RTA, MB to the issue or their participation in the board transfer related to issue of meeting or receipt of minutes shares. 9/6/2013 18
The Companies Bill, 2013 DISCLOSURES & ACCOUNTABILITY NBFCs to be governed by Immunity to Independent & Non- the rules issued by RBI, Executive Directors not being provisions relating to Promoters or KMPs (Liability only if acceptance of deposit will the act occurred with their knowledge attributable through Board Process) not be applicable Acceptance of deposit from members will require shareholders approval and public can accept deposits from non- members subject to certain conditions 9/6/2013 19
Major changes Audit & Auditors 9/6/2013 20
The Companies Bill, 2013 Audits and Auditors Apart from the Balance Sheet, P & L auditors are required to report on the Cash Flow of the Company Mandatory Rotation of Auditor Introduced Restriction in Non Audit functions by Auditor Now Auditors to Comply with the Auditing Standards also along with the Accounting Standards 9/6/2013 21
The Companies Bill, 2013 Other Functions of National Financial Reporting Authority Monitor & Enforcing the Compliance of Accounting & Auditing Standards Power to investigate the matters of Professional or other misconduct committed by any member of ICAI 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 can extend upto max. 10 years 9/6/2013 22
Major Changes Investor Protection 9/6/2013 23
The Companies Bill, 2013 Investor Protection Class Action suit empowering minority shareholders Voting by Non interested shareholders in related party transactions Mandatory Exit Opportunity to the dissenting shareholders in case of Change of Objects or terms of Contract in Prospectus Shares in respect of which unpaid/unclaimed dividend has been transferred to IEPF shall also be transferred to IEPF Person claiming Share/amount in the Unpaid Dividend Account that got transferred to IEPF may apply to the authority for the money claimed/Shares 9/6/2013 24
Major Changes Tightening Provisions 9/6/2013 25
The Companies Bill, 2013 Tightening Provisions Financial year uniform to April- March & further extension restricted Grant of ESOP to Independent Directors not allowed Acceptance of deposit from Members Private companies bought under the ambit of following Private Placement Norms Company Investment through more than 2 layers of Investment Companies not allowed (exemptions available) Provision related to appointment of Managing Director/ Whole Time Director /Manger shall now also apply to a Private Company. 9/6/2013 26
Major changes Restructuring 9/6/2013 27
The Companies Bill, 2013 Restructuring The Companies Bill, 2013 Process of revival & rehabilitation of Sick Companies overhauled Provision for Cross Merger Easy merger of Holding & Amalgamations Subsidiary Companies Abolition of the concept of treasury shares 9/6/2013 28
Major Changes Compliances & Enforcements 9/6/2013 29
The Companies Bill, 2013 Enforcement of Law- Redefining Roles Establishment of National Company Law Tribunal (NCLT) & Appellate Tribunal Establishment of Special Courts, Mediation & Conciliation panel for speedy trial of offences under the Act Serious Fraud Investigation Office (SFIO )- A separate agency for investigation of Company related frauds National Financial Reporting Authority Investor Education & Protection Fund Registered Valuer Debenture Trustee 9/6/2013 30
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