2. RSM Astute Consulting Group
Indian member of RSM International
Personnel strength of over 1,200
Consistently ranked amongst India's top 6 Accounting and Consulting groups
(Source : International Accounting Bulletin)
Nationwide presence
RSM International
World's 7th largest network of independent audit, tax and
advisory firms and the 6th largest global provider of tax services
Annual combined fee income of US$ 4.4 billion
Over 730 offices across 112 countries
International delivery capabilities
www.astuteconsulting.com
3. Companies Act, 2013RSM Astute Consulting
COMPANIES ACT, 2013
A Regulatory Handbook for Corporates
Updated: June 2015
4. PREFACE
The Companies Act, 2013 has substituted the Companies Act, 1956 after a span of 58 years
with most provisions becoming effective as on April 1, 2014. The Companies Act, 2013 has
been organized in 29 chapters and consists of 470 sections and 7 schedules. In addition to
the provisions of the Companies Act, 2013, a substantial part of the law is in the form of
Rules.Tilldate,183sectionshavecomeintoforce,thusbringingintoeffectalltheimportant
provisions, such as those dealing with Accounts, Auditors, Directors and Issue of shares.
The provisions which have not become operative are primarily pertaining to compromise,
arrangements, mergers, oppression & mismanagement, sick companies, liquidation of
companies, National Company Law Tribunal and National Financial Reporting Authority.
Since the enactment of the Companies Act, 2013, over and above the Rules, the Ministry of
Corporate Affairs has issued an aggregate of 116 Notifications, Circulars and Orders making
it difficult even for the most ardent reader to keep abreast of the changes. The significant
changes since the enactment of the Act have been reflected by way of footnotes for ease of
reference. The latest in the above developments are the Notifications dated 5th June, 2015
grantingexemptiontoprivatecompaniesandSection8companies.
The focus of the publication is in respect of the most significant provisions from the
perspective of the business and corporate world. We have identified and listed the ‘Top 20
ActionItems.’whichareapplicabletomostcompanies.
The procedural compliances have not been discussed at length. It is necessary to ascertain
thedetailedregulationsbasedonspecificfactspriortotakingaction.
ThedistinguishingfeaturesoftheCompaniesAct,2013havebeenlistedbelow:
RSM Astute ConsultingCompanies Act, 2013
l
l
l
l
l
Unlisted public companies are also required to appoint
independentdirectorsiftheyfulfilcertainconditions.
Appointment of 1 resident director is mandatory for all
companies.
Theconceptofvigilmechanismhasbeenintroduced.
Certain companies are required to have a Nomination and
RemunerationCommitteeandaStakeholdersRelationship
Committee.
Insider trading and forward dealing has been expressly
prohibited.
l
l
‘Officer in default’ now also includes key managerial
personnel.
The annual return of a company shall now disclose
numerousadditionaldetails.
Greater
Accountability
Better
Governance
1.
2.
5. l
l
l
Noticesofmeetingsmaybegivenelectronically.
Meetings conducted through video conferencing have
beenrecognisedbytheCompaniesAct,2013.
E-voting facilities must be given to members of listed
companies.
l
l
l
Particulars to be included in the directors’ report have
been significantly increased and any misstatement/
omissioninthesameattractsheavypenalties.
The concept of evaluation of performance of directors has
beenintroduced.
Shareholdershavebeenvestedwiththepowerofinitiating
‘classaction‘topreventoppressionandmismanagement.
Digital Era
l
l
l
Certain stringent provisions dealing with powers of the
board, issue of shares, inter-corporate loans and
investments, related party transactions, deposits, etc. are
now also applicable to private companies, thus affecting
theirday-todayoperations.
Certain provisions such as those dealing with preferential
allotment and private placement are applicable to private
companiestoobutlackclarity.
Implementation of the provisions of the Companies Act,
2013andtheRules notifiedthereunderinaphasedmanner
hasmadethetransitionprocessobscure.
Operational
difficulties
This publication is of extreme relevance to companies, businessmen, directors,
shareholders, managerial personnel (CEO/CFO/CS) and other stakeholders. With a view to
assist readers in getting acquainted with the Companies Act, 2013, all the important
provisions of the same have been presented in a user friendly manner, in simple and
uncomplicatedlanguage
We hope this endeavor assists you in taking appropriate steps towards ensuring
compliance with the Companies Act, 2013 read with the latest Rules, Notifications, Circulars
andOrders.
HappyReading!
Companies Act, 2013RSM Astute Consulting
3.
4.
6. Top 20 Action Items: Are you complying
with Companies Act, 2013 1
Chapter 1: Accounts And Audit 18
Chapter 2: Directors And Committees
Of The Board 27
Chapter 3: Key Managerial Personnel And
Managerial Remuneration 35
Chapter 4: Charges And Deposits 43
Chapter 5: Loans And Investments 48
Chapter 6: Related Party Transactions
And Other Transactions 54
Chapter 7: Share Capital And Dividend 59
Chapter 8: Administration And Meetings 70
Chapter 9: Other Provisions 78
Abbreviations 89
CONTENTS
RSM Astute ConsultingCompanies Act, 2013
7. 1Companies Act, 2013RSM Astute Consulting
TOP 20 ACTION ITEMS: ARE YOU COMPLYING
WITH COMPANIES ACT, 2013 ?
1.
Sr.
No.
Are you
compliant?
Effective
Date
ApplicabilityAction Required
Listed
Company
Unlisted
Public
Company
Private
Company
Yes / No
AcceptanceofDeposit
As per the New Act, deposit
has been defined to mean any
receipt of money by way of
deposit or loan or in any other
form by a company, thus
making the definition much
wider in its scope. The
Deposits received from
shareholders of a private
company are no longer
exempt and will be treated as
Deposits.
Share Application money or
advance for securities
received towards allotment of
securities shall also fall within
the meaning of the term
‘deposit’, if shares are not
allotted within period of 60
days from date of receipt of
money.
Form DPT-4 must be filed in
respect of deposits received
by the Company before the
commencement of the New
Act, where the amount ofsuch
deposit or part thereof or any
interest thereon remains
unpaid existing as on the date
of the commencement of the
New Act and the said deposits
should be repaid within 1 year
f r o m t h e d a t e o f
commencement of the New
Act or from the date on which
such payments are due,
whicheverisearlier.
Yes Yes No if :
Company
accepts
from its
members
monies not
exceeding
100% of
the
aggregate
PSC + free
reserves
and
Such
company
files with
ROC the
details of
the monies
so
accepted.
01.04.2014
8. 2.
Sr.
No.
Are you
compliant?
Effective
Date
ApplicabilityAction Required
Listed
Company
Unlisted
Public
Company
Private
Company
Yes / No
Loanstodirectorsandanyother
person in whom the director is
interested(Section185)
The New Act restricts a
company from advancing any
loan, providing any guarantee
in connection with loan,
providing any security in
connectionwithloan,toanyof
its directors or to any person
in whom the director is
interested subject to certain
exemptions.
“Any other person in whom
the director is interested”
means
l any director of the lending
company, or of a company
which is its holding company
or any partner or relative of
anysuchdirector;
l any firm in which any such
director or relative is a
partner;
l any private company of which
any such director is a director
ormember;
l anybodycorporateatageneral
meeting of which not less than
twenty-five per cent. of the
total voting power may be
exercised or controlled by any
such director, or bytwo or more
suchdirectors,together;or
l any body corporate, the Board
of directors, managing
director or manager, whereof
is accustomed to act in
a c c o rd a n c e w i t h t h e
directions or instructions of
theBoard,orofanydirectoror
directors, of the lending
company.
Yes Yes Yes if :
A body
corporate
has
invested in
the share
capital of
the
company;
If the
borrowings
of such a
company
from banks
or financial
institu-
tions or
any body
corporate
is not less
than twice
of its PSC
or Rs. 50
crore,
whichever
is lower
and
Such a
company
has
defaulted
in
repayment
of such
borrowings
subsisting
at the time
of making
transactio
ns under
this
section.
12.09.2013
RSM Astute Consulting2 Companies Act, 2013
9. 3Companies Act, 2013RSM Astute Consulting
3.
Sr.
No.
Are you
compliant?
Effective
Date
ApplicabilityAction Required
Listed
Company
Unlisted
Public
Company
Private
Company
Yes / No
Limit on loans and investment
(Section186)
A company cannot make
investment through more
than 2 layers of investment
companies.However,thisshall
notaffect:
lAcompanyfromacquiringany
other company incorporated
outside India, if such other
company has investment
subsidiariesbeyond2layers;
la subsidiary from having any
investment subsidiary for the
purposes of meeting the
requirementsofanylaw.
A company shall not directly
or indirectly give any loan to
any person or body corporate
or give any guarantee or
security in connection with
the loan and acquire byway of
subscription, purchase or
otherwise the securities of
any other body corporate
exceeding
l60% of its PSC, free reserves
and securities premium
accountor
l100% of its free reserves and
securitiespremiumaccount;
whicheverismore.
In case the loan, guarantee,
security or investment
exceeds the above limis, the
approval of shareholders by
way of special resolution is
required. Further in case of
defaultofloanfrombanksand
Yes Yes Yes 01.04.2014
10. Sr.
No.
Are you
compliant?
Effective
Date
ApplicabilityAction Required
Listed
Company
Unlisted
Public
Company
Private
Company
Yes / No
other public financial
institutions, prior approval of
lending institutions is
required.
These provisions shall now
also apply to a private
company.
Yes4. RelatedPartyTransactions
Special Resolution is required
where transactions exceed
thefollowinglimitsincaseof:
lSale, purchase or supply of
any goods or materials
d i r e c t l y o r t h r o u g h
appointmentofagents:10%of
Turnover or Rs. 100 crore,
whicheverisless.
lSelling or otherwise disposing
of, or buying, property of any
kind directly or through
appointmentofagents:10%of
Net Worth or Rs. 100 crore,
whicheverisless.
lLeasing of property of any
kind: 10% of Net Worth or 10%
of Turnover or Rs. 100 crore,
whicheverisless.
lAvailing or rendering of any
services directly or through
appointmentofagents:10%of
Turnover or Rs. 50 crore,
whicheverisless.
lAppointment to any office or
place of profit in the company,
its subsidiary company or
a s s o c i a t e c o m p a n y :
Remuneration in excess of Rs.
2,50,000permonth.
lR e m u n e r a t i o n f o r
underwriting the subscription
of a ny se c u r i t i es o r
Yes Yes 01.04.2014
(the
threshold
limits for
applicabil
ity have
been
notified
w.e.f 14
August
2014)
RSM Astute Consulting4 Companies Act, 2013
11. 5Companies Act, 2013RSM Astute Consulting
Sr.
No.
Are you
compliant?
Effective
Date
ApplicabilityAction Required
Listed
Company
Unlisted
Public
Company
Private
Company
Yes / No
derivatives thereof of the
company:1%ofNetWorth.
However, these provisions
shall not apply with respect to
transactions entered into by
the company in its ordinary
course of business and on an
arm’s length basis. Companies
must determine whether the
transaction falls within this
exemption.(Companies may
be required to produce a
domestic transfer pricing
report, if available and
applicable,oranyotherreport
from the auditorsestablishing
that the transactions entered
into by the company were in
its ordinary course of
business and on an arm’s
lengthbasis.)
5. CorporateSocialResponsibility
Companies fulfilling the
eligibilitycriteriamust
lformaCSRCommitteeand
lspend atleast 2% of the
average net profits of the
preceding three financial
yearsonCSR.
The activities eligible for CSR
have been substantially
enhanced and includes
Renewable Energy, Swachh
BharatKoshandmanyothers.
The Board’s report shall
disclose the composition of
the CSRcommittee, CSRpolicy,
an annual report on CSR,
failure to spend the required
amount(ifapplicable)
Net worth: Rs. 500 crore or more
or
Turnover: Rs. 1000 crore or more
or
Net profit: Rs. 5 crore or more in
any of the 3 preceding financial
years.
01.04.2014
12. 6.
Sr.
No.
Are you
compliant?
Effective
Date
ApplicabilityAction Required
Listed
Company
Unlisted
Public
Company
Private
Company
Yes / No
FinancialStatements
The New Act requires
companies to prepare cash
flow statement and statement
of changes in equity (if
applicable) along with the
balance sheet, profit and loss
account and explanatory
notes.
The financial statements
including the consolidated
financial statements of all
subsidiaries including
associates and joint ventures
of the company shall be laid
before the AGM. This shall not
apply to preparation of
consolidated financial
statement by an intermediate
wholly-owned subsidiary,
other than a wholly-owned
subsidiary whose immediate
parent is a company
incorporatedoutsideIndia.
Also for the financial year
commencing from the 1st day
of April, 2014 and ending on
31stMarch,2015,consolidation
is not required in case of a
company which does not have
asubsidiary/iesbuthasoneor
more Associate Companies or
JointVenturesorboth.
A statement containing the
salient features of the
financial statements must
also be attached to the
financialstatements.
Yes Yes Yes 01.04.2014
(Until the
account-
ing stan-
dards are
specified
by the CG,
the stan-
dards as
specified
by the
Old Act
shall be
deemed
to be the
account-
ing stan-
dards.)
RSM Astute Consulting6 Companies Act, 2013
13. 7Companies Act, 2013RSM Astute Consulting
7.
Sr.
No.
Are you
compliant?
Effective
Date
ApplicabilityAction Required
Listed
Company
Unlisted
Public
Company
Private
Company
Yes / No
Appointment of Independent
DirectorsandWomanDirector
IndependentDirectors
The term ‘independent
director’ has been clearly
d e f i n e d . A c o d e f o r
independent directors
detailing their roles,
f u n c t i o n s , d u t i e s ,
appointmentetc.isprovided.
He can hold office for a
maximum of two consecutive
termsof5yearseach.
Thereafter a cooling period of
3 years should pass before
reappointment.
An independent director must
give intimation to the
company at the first board
m e e t i n g a f t e r h i s
appointment and in every F.Y.
that he meets the criteria for
independentdirector.
The tenure of an independent
d i r e c t o r a t t h e
commencement of the New
Act will not be counted for his
appointment or holding office
of director. Accordingly, the
existing independent director
must be reappointed
expressly as per the New Act
priorto31.03.2015.
As per amended Clause 49
of the Listing Agreement
a person cannot serve as
an Independent Director in
morethan7listedcompanies.
Yes
(as per
revised
clause 49
of the
Listing
Agree-
ment
which has
come into
effect
from
01.10.2014)
PSC:
Rs. 10
crore
or
more;
or
TO:
Rs.
100
crore
or
more;
or
outst-
andi-
ng
loans,
deben
tures
and
depos
its:
Rs. 50
crore.
(A
company
fulfilling
the
above
criteria
shall
have
atleast 2
independ
ent
directors)
No 01.04.2015
01.10.2014
(for listed
companie
s)
14. Sr.
No.
Are you
compliant?
Effective
Date
ApplicabilityAction Required
Listed
Company
Unlisted
Public
Company
Private
Company
Yes / No
A person who is serving as a
Whole time director in any
listed company shall serve as
anIndependentdirectorinnot
morethan3listedcompanies.
WomanDirector
Company falling under
prescribedclass of companies
is required to appoint atleast
one women director on the
Boardofthecompany.
Yes P S C :
R s .
1 0 0
crore
o r
more
or
T O :
R s .
3 0 0
crore
o r
more
No 01.04.2015
PSC of Rs. 5
crore or more
for
appointment
of CS
8. Appointment of Whole Time
Director / MD / CEO, CFO and
CompanySecretary
Companies to appoint
followingWTKMP:
lMD/CEO/Manager, in absence
of aforesaid officers a WTD;
and
lCFO;and
lCompanySecretary
Appointment of WTKMP to be by
way of Board Resolution which
should contain terms and
conditionsofappointment.
Yes PSCof
Rs. 10
crore
s o r
more.
PSCof
Rs. 5
crore
o r
more
f o r
appoi
ntme
nt of
CS
01.04.2014
RSM Astute Consulting8 Companies Act, 2013
15. 9Companies Act, 2013RSM Astute Consulting
9.
Sr.
No.
Are you
compliant?
Effective
Date
ApplicabilityAction Required
Listed
Company
Unlisted
Public
Company
Private
Company
Yes / No
ConductingBoardMeetings
Gap between two Board
Meetings
The gap between two Board
Meetings should not exceed
120days.
NoticeofBoardMeeting
Anoticeofnotlessthan7days
must be given in writing to
every director at his address
registered with the company
eitherbypostorhanddelivery
beelectronicmeans.
Provisions of shorter notice
for Board Meeting are
applicable only to companies
requiring appointment of
independent director.
Companies not requiring
appointment of independent
director must give 7 days
notice and cannot give a
shorter notice pending
clarificationfromMCA.
Interested Directors not to
vote
If a director of a public
company is interested in a
board resolution, he shall not
participateinsuchproceeding
ofthemeeting.
In case of a private company,
an interested director may
participate in the meeting
pursuant to disclosure of
interest.
FilingofBoardResolutions
Certain resolutions passed by the
Board are also required to be filed
withtheROC.
Yes Yes Yes 01.04.2014
16. 10.
Sr.
No.
Are you
compliant?
Effective
Date
ApplicabilityAction Required
Listed
Company
Unlisted
Public
Company
Private
Company
Yes / No
Appointment of Internal
Auditor
Companies which fulfill the
eligibility criteria must
appoint an internal auditor
who shall either be a CA or
C W A o r s u c h o t h e r
professionalas decided bythe
Board to conduct an internal
audit of the functions and
activitiesofthecompany.
The Audit Committee of the
company or the Board shall, in
consultation with the Internal
Auditor, formulate the scope,
functioning, periodicity and
methodology for conducting
theInternalAudit.
Yes PSC:
Rs. 50
crore
or
more
or
Turn-
over:
Rs.
200
crore
or
more
or
Out-
stand-
ing
loans
or
borrow
ings
from
banks
or
public
finan-
cial
institu
tions:
Rs. 100
crore
or
more
at any
point
of time
during
the
preced
ing
financi
al year
or
Turnover:
Rs. 200
crore or
more or
Outstan-
ding loans
or
borrowings
from banks
or public
financial
institutions
: Rs. 100
crore or
more at
any point
of time
during the
preceding
financial
year.
01.10.2014
RSM Astute Consulting10 Companies Act, 2013
17. 11Companies Act, 2013RSM Astute Consulting
Sr.
No.
Are you
compliant?
Effective
Date
ApplicabilityAction Required
Listed
Company
Unlisted
Public
Company
Private
Company
Yes / No
Out-
stand-
ing
depo-
sits:
Rs. 25
crore
or
more
at any
point
of
time
during
the
preced
ing
financi
al year
Yes11. Establishing Internal Financial
Controls, Enterprise Risk
Management Policy and Legal
ComplianceFramework.
InternalFinancialControl
Independent Auditor’s Report
must disclose the adequacy
and effectiveness of internal
financial controls. This
requirement is applicable to
allcompanies.
All listed companies must
disclose the adequacy and
effectiveness in the Board’s
report.
A u d i t C o m m i t t e e o f
companies required to
c o n s t i t u t e a n A u d i t
Committee is required to
evaluate internal financial
controls.
Setting up Enterprise Risk
ManagementPolicy
The Board’s report must
Yes Yes 01.04.2014
(To be
reported
in the
Board’s
report
from the
F.Y. 2014-
15
onwards.)
Auditor to
report on
adequacy
of
internal
financial
controls
from the
F.Y. 2015-
16
onwards.
18. Sr.
No.
Are you
compliant?
Effective
Date
ApplicabilityAction Required
Listed
Company
Unlisted
Public
Company
Private
Company
Yes / No
includeastatementindicating
d e v e l o p m e n t a n d
implementation of a risk
management policy for the
c o m p a n y i n c l u d i n g
identification of elements of
risk, if any, which in the
opinion of the board may
threaten existence of the
company
LegalComplianceFramework
The Board’s report must
includeastatementindicating
that the directors had devised
proper systems to ensure
c o m p l i a n c e w i t h t h e
provisions of all applicable
laws and that such systems
were adequate and operating
effectively.
Borrowed
money from
banks and
financial
institutions in
excess of Rs.
50 crore.
12. Establishment of Vigil
Mechanism
The New Act requires a
company to have a vigil
mechanism to be overviewed
through the audit committee
or the Board where audit
committee is not required for
enabling the directors and
employees to report genuine
concerns.
The establishment of a vigil
mechanism shall be disclosed
on the website of the
company, if any, and in the
Board’sreport.
Yes Accepts
depo-
sits
from
the
public
or
Borro-
wed
money
from
banks
and
financi
al
instituti
ons in
excess
of Rs.
50
crore.
01.04.2014
RSM Astute Consulting12 Companies Act, 2013
19. 13.
Sr.
No.
Are you
compliant?
Effective
Date
ApplicabilityAction Required
Listed
Company
Unlisted
Public
Company
Private
Company
Yes / No
Appointment of Resident
Director
Every company shall have 1
director who has stayed in India
for a total period of not less than
182 days in previous calendar
year.
Yes Yes Yes 01.04.2014
Yes14. Appointment, reappointment,
vacation and resignation of
director.
Every Director must attend at
least 1 Board meeting upto
31.03.2015 as absence from all
the meetings of the Board
held during a period of 12
months with or without
seeking leave of absence
results in vacation of office of
director.
Adirectormustalsofileacopy
of his resignation to the
Registrar within 30 days from
thedateofresignationinForm
DIR-11. Accordingly, every
director must ensure that he
has a digital signature
certificate.(“DSC”)
In case of appointment of any
person other than retiring
directors as directors,
including regularization of
additional directors, a sum of
Rs. 1 lakh must be deposited
with the company atleast 14
days prior to the general
meeting.
Yes Yes 01.04.2014
NotapplicableYes Yes
13Companies Act, 2013RSM Astute Consulting
20. 15.
Sr.
No.
Are you
compliant?
Effective
Date
ApplicabilityAction Required
Listed
Company
Unlisted
Public
Company
Private
Company
Yes / No
ConstitutionofCommittees
AuditCommittee
An audit committee shall
consist of minimum 3
directors with majority
independent directors and
majority of directors who can
read and understand financial
statements.
The functions of the audit
committee have been
enhanced.
A director shall not be a
member in more than 10 Audit
Committee and Stakeholder’s
RelationshipCommitteeoract
as Chairman of more than 5
Audit Committee and
Stakeholder’s Relationship
Committee across all
companies in which he is a
director
Nomination and Remuneration
Committee
This committee shall consist
of 3 or more non-executive
directors of which not less
thanhalfshallbeindependent
directors.
The key functions of this
committeeshallinclude:
lidentifying persons who are
qualified to become directors
and who may be appointed in
seniormanagement
lformulating the criteria for
determining qualifications,
positive attributes and
independenceofadirector.
lrecommending to the Board a
policy relating to the
remuneration for the
directors, key managerial
p e rs o n n e l a n d o t h e r
employees.
Yes PSC:
Rs. 10
crore
or
more
or
Turn-
over:
Rs. 100
crore
or
more
or
Out-
stand-
ing
loans
or
borrow
ings or
debent
ures or
deposi
ts:
Rs. 50
crore
or
more.
No 01.04.2015
or within
1 year
from
appointm
ent of
independ
ent
directors,
which-
ever is
earlier.
RSM Astute Consulting14 Companies Act, 2013
21. 16.
Sr.
No.
Are you
compliant?
Effective
Date
ApplicabilityAction Required
Listed
Company
Unlisted
Public
Company
Private
Company
Yes / No
Restriction on powers of the
Board
Restrictions on powers of the
Board apply uniformly to all
companies. A special
resolution, as opposed to an
ordinary resolution under the
OldAct,isrequiredforpassing
of resolutions specified under
the section on restriction of
powersoftheBoard.
Yes Yes No 12.09.2013
Yes17. Transitionalarrangements
Resolutions passed between
01.09.2013and31.03.2014
Resolutions approved or
passed by companies under
relevant applicable provisions
of the Old Act during the
period from 01.09.2013 to
31.03.2014 and in respect of
which implementation
commencedbefore01.04.2014,
can be implemented, in
accordance with provisions of
the Old Act and the said
resolutions shall be valid for a
period of 1 year from the
passing ofthe resolutionsor 6
m o n t h s f r o m t h e
commencement of the
corresponding provision in
theNewAct.
If the conditions specified
abovearenotfulfilled,orupon
expiry of the validity term of
t h e re s o l u t i o n s , t h e
resolutions must be passed
afreshorratified.
Yes Yes As per
notificati
on in this
regard.
15Companies Act, 2013RSM Astute Consulting
22. Sr.
No.
Are you
compliant?
Effective
Date
ApplicabilityAction Required
Listed
Company
Unlisted
Public
Company
Private
Company
Yes / No
Amendment of Memorandum
and Articles of Association of
Company
Every Company must determine if
its memorandum and articles of
association are in line with the
requirements of the New Act in
order to be able to amend them
suitablyasandwhenmandated.
Yes18. Additional details to be
displayed on the Letterheads,
Billheadsetc.
New Act requires certain
additional details like Corporate
Identity Number (CIN), Telephone
No., Fax No., E-mail and Website
address to be printed on its
Letterheads, Billheads, Notices
andOfficialPublications.
Yes Yes 01.04.2014
Yes19. FilingofFormswiththeROC
Any document, fact or
information required to be
filed with the ROC can now be
filed only upto 270 days after
the day on which it should
have been filed by payment of
additional fees. Filing later
than the said period may
require prior condonation of
delaybytheROC.
The company and its officers in
default shall become liable to
penalty or punishment upon
failure to file such document, fact
or information within the period
mentionedabove.
Yes Yes 01.04.2014
RSM Astute Consulting16 Companies Act, 2013
23. 20.
Sr.
No.
Are you
compliant?
Effective
Date
ApplicabilityAction Required
Listed
Company
Unlisted
Public
Company
Private
Company
Yes / No
Appointment and rotation of
auditors and appointment of
SecretarialAudit
Appointment and rotation of
auditors
Companies which fulfill the
applicability criteria shall not
appointorre-appoint,
lin case auditor is an indivi-
dual, for more than one term
of5consecutiveyearsand
lin case of an audit firm, for
more than two terms of 5
consecutiveterms.
In case of an auditor (whether
an individual or audit firm),
the period for which the
individual or the firm has held
office as auditor prior to the
commencement of the New
Actshallbetakenintoaccount
forthepurposeofrotation.
W h e r e c o m p a n y h a s
appointed 2 or more auditors
(individual or firm) as joint
auditors, the company may
follow the rotation in such
manner as both or all joint
auditorsdonotcompletetheir
terminsameyear.
A notice of appointment shall
be given by the company to
the auditor and the ROCwithin
15 days from the date of
appointment.
Appointment of Secretarial
Auditor
Companies required to have
secretarial audit conducted by
Company Secretary in Practice.
The report of such an audit would
bepartofBoard’sreportinformat
asprescribedbytheRules.
Yes PSC: 10
crore
or
more
or
Public
borro
wings
from
financi
al
institu
tions,
banks
or
public
deposi
ts: Rs.
50
crore
or
more.
PSC: 20
crore or
more or
Public
borrowings
from
financial
institu-
tions,
banks or
public
deposits:
Rs. 50
crore or
more.
01.04.2017
(A
transition
period of
3 years
has been
provided
for the
commenc
ement of
rotation
of
auditors)
Yes PSC:
Rs. 50
crores
or
more;
or
Turn-
over:
Rs.
250
crores
or
more
No
01.04.2014
17Companies Act, 2013RSM Astute Consulting
25. Chapter 1: Accounts And Audit
1.1 Accounts
1.1.1 Financialyear[Section2(41)]
st
Allcompaniesmustfollow1 Aprilto31 Marchastheirfinancialyear.
Companies which are holding or subsidiary companies of a foreign company and
which are required to follow a different financial year for the purposes of
consolidation of their accounts outside India may apply to the Tribunal for
allowingthecompanytoadoptadifferentfinancialyear.
1.1.2 Booksofaccount[Section128]
Books of account and other relevant books and papers must be kept at the
registered office ofthe company. However, booksofaccount canbe keptat other
placesinIndiaasmaybedecidedbytheBoard.
The New Act now specifically provides that books of accounts can be maintained
inelectronic mode with servers physically located in Indiaandthemannerof
theirmaintenancehasalsobeenprovided.
1.1.3 Financialstatement[Section129]
Companiesshallpreparecashflowstatementandstatementofchangesinequity
alongwiththebalancesheet,profitandlossaccountandexplanatorynotes.
OPC, small company and dormant company may not include a cash flow
statement along with the balance sheet, profit and loss account and explanatory
notes.
Consolidation of financial statements is mandatory for all subsidiaries including
associatesandjointventuresofthecompany.
1
(Schedule III and accounting standards shall not apply to the preparation of
consolidated financial statement by an intermediate wholly-owned subsidiary
other than a wholly-owned subsidiary whose immediate parent is a company
incorporatedoutsideIndia.)
The requirement of consolidation of accounts shall not apply for the financial
yearfrom1April2014to31March2015incaseofacompanywhichdoesnothavea
st
19Companies Act, 2013RSM Astute Consulting
1
InsertedvideNotificationdated14October2014.
26. subsidiary or subsidiaries but which has associate companies or joint ventures
orboth.
2
( Schedule III and accounting standards shall not apply in respect of
consolidation of financial statements by a company having subsidiary or
subsidiaries outside India only for the financial year commencing on or after 1
April2014.)
A statement containing the salient features of the financial statements must be
attachedtothefinancialstatements.
1.1.4 Re-openingofaccounts[Section130]
No company shall re-open its books of accounts and shall not recast its financial
statements unless an application is made by Central Government, Income-tax
authorities, SEBI or any other regulatory authority or any person concerned and an
orderismadebyCourtorTribunaltotheeffectthat:
Therelevantearlieraccountswerepreparedinafraudulentmanner;or
Theaffairs ofthe company were mismanaged during the relevant period, casting
adoubtonthereliabilityoffinancialstatements.
(Thisprovisionisnotyetnotifiedandhencenotintoforce.)
1.1.5 Voluntaryrevision[Section131]
The concept of voluntary revision has been recognised for the first time under
theNewAct.
Directors of the company may prepare revised financial statement or a revised
report in respect of any of the 3 preceding financial years after obtaining
approvaloftheTribunalincertaincases.
Revised financial statement or report shall not be prepared or filed more than
onceinafinancialyear.
DetailedreasonsforsuchrevisionmustbedisclosedinBoard’sreport.
(Thisprovisionisnotyetnotifiedandhencenotintoforce.)
1.1.6 Authenticationoffinancialstatements,Board'sreport[Section134]
Chairperson or 2
directors (1 MD
and CEO) and
CFO + CS (if appointed)
Chairperson or 2
directors (including
MD) or 1 director (if
there is only 1
director)
FINANCIAL
STATEMENTS
BOARD'S
REPORT
RSM Astute Consulting20 Companies Act, 2013
2
InsertedvidetheCompanies(Accounts)AmendmentRules,2015notificationdated16January,2015.
27. 1.1.7 FilingofFinancialStatementswithROC[Section137]
A copy of the financial statements, including consolidated financial statement
mustbefiledwiththeROC.
Every company is also required to attach the accounts of its subsidiaries which
havebeenincorporatedoutsideIndiaandnothavingplaceofbusinessinIndia.
Benefit which was earlier given to private companies to file their balance sheet
andprofit&lossaccountseparatelyhasbeenwithdrawnundertheNewAct.
1.1.8 CorporateSocialResponsibility(CSR)[Section135]
Meaning:
CSRmeansandincludes:
lProjects or programs relating to activities specified in Schedule VII to the
NewAct;or
lProjects or programs relating to activities undertaken by the Board of a
company in pursuance of recommendations of the CSR Committee of the
Board as per CSR policy of the company provided such policy covers
subjectsenumeratedinScheduleVIIoftheNewAct.
NetProfit:
Net profit means the net profit as per its financial statement in accordance with
theapplicableprovisionsoftheNewAct,butshallnotinclude-
lany profit arising from any overseas branch or branches of the company,
whetheroperatedasaseparatecompanyorotherwise;and
lany dividend received from other companies in India, which are covered
under and complying with the provisions of section 135 (CSR provisions) of
theNewAct.
Applicability:
TheprovisionsofCSRshallapplytoeverycompanyhaving:
lNetworth:Rs.500croreormore;or
lTurnover:Rs.1000croreormore;or
lNetprofit:Rs.5croreormore
duringanyofthe3precedingfinancialyears.
21Companies Act, 2013RSM Astute Consulting
28. CSR shall also be obligatory to a foreign company having its branch office or
projectofficeinIndiafulfillingthecriteriaprovidedabove.
SpendableamountonCSR:
Every qualifying company, must spend in every financial year at least 2% of the
average net profits of the company made during the 3 immediately preceding
financialyearsonCSR.Boardshallberesponsibleforensuringthesame.
CSRCommittee:
Any company fulfilling the applicability criteria set out above must constitute a
CSRCommittee.
ThefollowingtableindicatesthemannerofcompositionofCSRCommittee.
FunctionsoftheCSRCommittee:
CSRCommitteeshall:
lFormulateandrecommendaCSRpolicytotheBoard;
lRecommendamountofexpendituretobeincurredonCSRactivities;and
lMonitortheCSRpolicyofthecompanyfromtimetotime.
ModalitiesofperformingCSRActivities:
lCSR activities can be undertaken through a registered society or registered
Listed Company Private CompanyUnlisted Company Foreign Company
CSRCommitteeoflisted
company shall consist
of:
Minimum 3
directors
Out of which, at
least 1 should be an
i n d e p e n d e n t
director.
A private company
shall constitute a
CSR Committee
w i t h o u t a n
i n d e p e n d e n t
director.
CSR Committee of a
private company
having only 2
directors on its
B o a r d , s h a l l
constitute a CSR
Committee with
o n l y 2 s u c h
directors.
CSR Committee of an
unlisted company,
which is not required to
a p p o i n t a n
independent director,
shall constitute a CSR
Committee without
suchdirector.
CSR Committee of
unlisted company
required to appoint
an independent
d i re c to r s h a l l
consistof:
Minimum 3
directors
Out of which, at
least 1 should be an
i n d e p e n d e n t
director.
CSR Committee of a
foreign company shall
consist of at least 2
persons,ofwhich
1 person shall be
nominated by the
foreign company
and
1 person shall be
the authorized
representative of
the company who is
a person resident in
India and whose
particulars have
been submitted to
the ROC as per the
provisions of the
NewAct.
RSM Astute Consulting22 Companies Act, 2013
29. trust or a company established under Section 8 of the New Act by the
company either singly or along with its holding or subsidiary or associate
company, or along with any other company or holding or subsidiary or
associatecompanyofsuchothercompanyorotherwise.
lCollaboration with other companies for undertaking CSR projects or
programs is also permitted subject to the condition that the collaborating
companies are in a position to report separately as per the reporting
requirementsundertheNewAct.
ActivitiesnotconsideredasCSR:
ThefollowingactivitiesofthecompanyshallnotbeconsideredasCSRactivities:
lCSRProjectsorprogramsoractivitiesundertakenoutsideIndia;
lCSR Projects or programs or activities that only benefit the employees of
thecompanyandtheirfamilies;
lContributionofanyamount,directlyorindirectly,toanypoliticalparty;
lActivitiesundertakeninthenormalcourseofbusiness;
lOne-offeventssuchasmarathons/awards/charitablecontributions,etc.;
lExpenses incurred by the company for fulfillment of any Act/ statute or
regulations.
ResponsibilityoftheBoard:
TheBoardofeveryqualifyingCompanyshall:
lInclude in the Board’s report an annual report on CSR activities as per
formatprovided;
lApprove the CSR policy, take into account recommendations made by the
CSR committee and disclose the contents of such policy in the Board’s
reportandplaceitoncompany’swebsite;
lEnsurethattheCSRactivitiesareundertakenbythecompany;
lEnsurethatatleast2%ofaveragenetprofitsarespentonCSRactivities.
1.2.1 InternalAudit[Section138]
Applicability:
Internal audit is applicable to the following class of companies:
1.2 Auditors
23Companies Act, 2013RSM Astute Consulting
30. Transition:
Existing companies hit by these provisions had been given time until 30
September,2014tocomplywiththesame.
Qualifications:
Internal Auditor shall be a CA or CWA or such other professional as may be
decided by the Board. Internal Auditor may or may not be an employee of the
company.
Scope:
The Audit Committee of the company or the Board shall, in consultation with the
internal auditor, formulate the scope, functioning, periodicity and methodology
forconductingtheinternalaudit.
1.2.2 RotationofAuditors[Section139]
Applicability:
Following class of companies shall not appoint or re-appoint as auditors, in case
auditorisanindividual,formorethanonetermof5consecutiveyearsandincase
ofanauditfirm,formorethantwotermsof5consecutiveyears:
lPSC: Rs. 50 crore or
moreor
lTurnover: Rs. 200
croreormoreor
lOutstanding loans &
borrowings from
b a n k s / p u b l i c
f i n a n c i a l
institutions: Rs. 100
crore or more at any
point during the
preceding financial
yearor
lO u t s t a n d i n g
deposits: Rs. 25 crore
or more at any time
during preceding
financialyear.
lTurnover: Rs. 200
croreormoreor
lOutstanding loans &
borrowings from
b a n k s / p u b l i c
f i n a n c i a l
institutions: Rs. 100
crore or more at any
point during the
preceding financial
year
LISTED COMPANY
UNLISTED PUBLIC
COMPANY
PRIVATE COMPANY
RSM Astute Consulting24 Companies Act, 2013
lAll
31. Wherecompanyhasappointed2ormoreauditors(individualorfirm)asjointauditors,
thecompanymayfollowtherotationinsuchmannerasbothoralljointauditorsdonot
completetheirterminsameyear.
Transition:
In case of an auditor (whether an individual or audit firm), the period for which
theindividualorthefirmhasheldofficeasauditorpriortothecommencementof
the New Act shall be taken into account for calculating the period of 5
consecutiveyearsor10consecutiveyears,asthecasemaybe.
The New Act has stipulated a period of 3 years from date of commencement
ofthisActtocomplywiththeprovisions.
Mannerofappointmentofauditors:
The auditors of a company shall be appointed in the manner provided below:
lIn case a company is required to form an Audit Committee under the New
Act, auditor shall be appointed through the Audit Committee and in case an
Audit Committee is not required to be constituted, the auditor shall be
appointedbytheBoard;
lThe Audit Committee shall recommend to the Board the name of the
individual or the audit firm and the Board shall consider and recommend
suchauditortomembersforappointment;
lIf Board disagrees with the recommendation of Audit Committee, it shall
refer back the recommendation to the Audit Committee citing reasons for
suchdisagreement;
lPSC: Rs. 10 crore or
moreor
lPublic borrowings
f r o m f i n a n c i a l
institutions, banks or
publicdeposits:Rs.50
crore or more at any
point during the
preceding financial
year
lPSC: Rs. 20 crore or
moreor
lPublic borrowings
f r o m f i n a n c i a l
institutions, banks or
publicdeposits:Rs.50
crore or more at any
point during the
preceding financial
year
LISTED COMPANY
UNLISTED PUBLIC
COMPANY
PRIVATE COMPANY
25Companies Act, 2013RSM Astute Consulting
lAll
32. The Board shall send its own recommendation, if the Audit Committee
decidesnottoreconsideritsoriginalrecommendation.
3
Ceiling on number of companies: A person or a partner of a firm may be
appointed or reappointed as an auditor provided the person or partner is at the
date of such appointment or reappointment holding appointment as auditor in
not more than 20 companies. However, this ceiling of 20 companies shall not
include OPC, dormant company, small company and private company having PSC
oflessthanRs.100crores.
l
RSM Astute Consulting26 Companies Act, 2013
3
InsertedvideNotificationdated5June2015.
34. Chapter 2: Directors And Committees Of The Board
2.1 Directors[Section149]
2.1.1 Numberofdirectors
A minimum number of3 directors are required to be appointed in caseofa public
company and a minimum number of 2 directors are required to be appointed in
caseofaprivatecompany.
Amaximumnumberof15directorscanbeappointedbyacompany.However,this
numbercanbeincreasedbyaspecialresolutionofthemembers.
2.1.2 Composition
IndependentDirector
ARE YOU AN INDEPENDENT DIRECTOR? FIND OUT WITH THE FOLLOWING
QUESTIONNAIRE
Beforetakingthequestionnairekeepthefollowinginformationready:
1. Namesofdirectorsofthecompany
2. Listofpromotersofthecompany
3. Names of the holding, subsidiary and associate company (Associate company
hasbeenexplainedinchapter9)
4. Listofyourrelatives
RSM Astute Consulting28 Companies Act, 2013
RESIDENTDIRECTOR
WOMANDIRECTOR
INDEPENDENTDIRECTOR
lEVERY
COMPANY shall
have a director
who has stayed in
India for a total
period of not less
than 182 days in
previous calendar
year.
lLISTED COMPANY
lPUBLIC
COMPANY
lPSC: Rs. 100
crore or more or
lTurnover: Rs.
300 crore or
more shall have
a woman
director.
lLISTED COMPANY : 1/3rd
directors should be
Independent Directors,
lPUBLIC COMPANY shall
have 2 independent
directors if it is a public
company having -
lPSC: Rs. 10 crore or more
or
lTurnover : Rs. 100 crore
or more or
lOutstanding loans,
debenturesanddeposits.
Rs. 50 crore or more
35. QUESTIONS YES NO
PROMOTERGROUP
a. Are you a promoter of the company, its holding, subsidiary
orassociatecompany?
b. Are you related to the promoters or directors ofthe holding,
subsidiaryorassociatecompany?
PECUNIARY RELATIONSHIP*
c. Do you have a pecuniary relationship with the company,
its holding or subsidiary or associate company?
(Answer for the period starting 2 financial years
immediatelyprecedingthecurrentfinancialyear)
d. Do you have a pecuniary relationship with the promoters or
directors of the company, its holding or subsidiary or
associatecompany?
(Answer for the period starting 2 financial years
immediatelyprecedingthecurrentfinancialyear)
e. Have your relatives had any pecuniary relationship or
transaction with the company, its holding or subsidiary or
associatecompany?
(Answer for the period starting 2 financial years
immediatelyprecedingthecurrentfinancialyear)
(The amount should be the lower of: more than 2% of
thegrossturnoverortotalincomeorRs.50lakh)
f. Have your relatives had any pecuniary relationship or
transaction with promoters or directors of the company, its
holdingorsubsidiaryorassociatecompany?
(Answer for the period starting 2 financial years
immediatelyprecedingthecurrentfinancialyear)
29Companies Act, 2013RSM Astute Consulting
36. (The amount should be the lower of: more than 2% of
thegrossturnoverortotalincomeorRs.50lakh)
g. Doyouindividuallyorwithyourrelativeshold2%ormoreof
thetotalvotingpowerofthecompany?
TRANSACTION WITH COMPANY
h. WereyouanemployeeorKMPofthecompanyoritsholding,
subsidiaryorassociatecompany?
(Answer for the period starting 3 financial years
immediatelyprecedingthecurrentfinancialyear)
i. WasanyofyourrelativeanemployeeorKMPofthecompany
oritsholding,subsidiaryorassociatecompany?
(Answer for the period starting 3 financial years
immediatelyprecedingthecurrentfinancialyear)
j. Were you or any of your relatives, an employee, partner or
proprietor in any CA, CS or CWA firm working for the
companyoritsholding,subsidiaryorassociatecompany?
(Answer for the period starting 3 financial years
immediatelyprecedingthecurrentfinancialyear)
k. Were you or any of your relatives, an employee, partner or
proprietor in any legal or consulting firm which has had a
transaction with the company or its holding, subsidiary or
associatecompany?
(Answer for the period starting 3 financial years
immediatelyprecedingthecurrentfinancialyear)
(The amount of transaction should be 10% or more of
thegrossturnoverofthefirm)
l. AreyouaCEOordirectorofanynon-profitorganisationthat
receives 25% or more of its receipts from the company, any
of its promoters, directors or its holding, subsidiary or
associatecompany?
RSM Astute Consulting30 Companies Act, 2013
37. m. AreyouaCEOordirectorofanynon-profitorganisationthat
holds2%ormoreofthetotalvotingpowerofthecompany?
*Pecuniary relationship does not include transactions
entered by an independent director with the company
concernedatparwithanymemberofthegeneralpublicand
at the same price as is payable/paid by such member of
public. i.e. in the ordinary course of business and at arm’s
length.
Any remuneration received from one or more companies by
way of sitting fees, reimbursement of expenses for
participation intheBoardandothermeetings,profitrelated
commission approved by the members shall also not fall
withinthemeaningof‘pecuniaryrelationship.’
RESULT:
Answer to all the above questions is NO: You are an independent director
Answer to any of the above questions is YES: You are not an independent director
Ifyoucleartheaboveresult,youhavetocomplywiththefollowing:
You must give a declaration about your independenceat the first Board Meeting you
attend and thereafter at the first Board Meeting of every financial year or whenever
thereisanychangeinthecircumstanceswhichaffectyourindependence.
You must abide by the provisions of Schedule IV which prescribes a code for
independentdirectors.
Youshallnotbeentitledforanyfurtherstockoption.
Termforholdingofficeforanindependentdirectorshallbeasunder:
Unlisted Public Company: Independent director shall hold office for term of 5
consecutive years and shall be eligible for re-appointment on passing of a
special resolution. Further, independent director shall be eligible to hold office
for not more than 2 terms of 5 consecutive years. He shall, however, be eligible
forappointmentafteracoolingperiodof3years.
31Companies Act, 2013RSM Astute Consulting
38. Listed Public Company: As per the Listing Agreement, independent director
shall be eligible to hold office for not more than 2 terms of 5 consecutive years.
However, in case the independent director has already served as an
independent director for 5 years or more in a company as on October 1, 2014,he
shall be eligible for appointment, on completion of his present term, for 1 more
termofupto5yearsonly.
OtherprovisionsgoverningIndependentDirectors:
• Vacancy:
Any intermittent vacancy of an independent director shall be filled-up by
the Board at the earliest but not later than the immediate next Board
Meetingor3monthsfromthedateofsuchvacancy,whicheverislater.
• DiscontinuanceofrequirementofIndependentDirector:
Where a company ceases to fulfill any of the applicability conditions stated
above for 3 consecutive years, it shall not be required to comply with these
provisionsuntilsuchtimeasitmeetsanyofsuchconditions.
LiabilityofIndependentDirector:
The liability of an independent director would be only in respect of such acts of
omission or commission by a company which had occurred with his knowledge,
attributable through Board processes and with his consent or where he had not
acteddiligently.
2.1.3 AlternateDirector[Section161]
The New Act now states that an alternate director can be appointed in place of a
directorwhoabsentshimselffromIndiaforaperiodof3months.
An alternate director to an independent director mustnow alsofulfill the criteria
ofanindependentdirector.
2.1.4 NumberofDirectorships[Section165]
Apersoncannowbeadirectorinupto20companies.
However, a person cannot be a director in more than 10 public companies
includingprivatecompanieswhichareholdingorsubsidiaryofapubliccompany.
In case of a listed company, an independent director shall not serve as an
independentdirectorinmorethan7companiesandanypersonwhoisservingas
a whole time director in any listed company shall serve as an independent
directorinnotmorethan3listedcompanies.
RSM Astute Consulting32 Companies Act, 2013
40. 2.2 CommitteesandMechanism
TheprovisionspertainingtoCommitteesandVigilMechanismareasunder:
Particulars Audit Committee Vigil Mechanism Nomination and
Remuneration
Committee
Stakeholders
Relationship
Committee
Applicability
Composition
Functions
Ø
Ø
Listed companies
Publiccompanieswith
o PSC: Rs. 10 crore or
moreor
o Turnover: Rs. 100
croreormoreor
o Outstanding loans
or borrowings or
debentures or
deposits: Rs. 50
croreormore.
Ø
Ø
Ø
Listed companies
Co m p a n i es w h i c h
accept deposits from
thepublic.
Companies which have
borrowed money from
banks and public
financial institutions:
Rs.50croreormore.
Ø
Ø
Listed companies
All public companies
o PSC: Rs. 10 crore or
more or
o Turnover: Rs. 100
crore or more or
o Outstanding loans
or borrowings or
debentures or
deposits: Rs. 50
crore or more.
Every company
h a v i n g 1 0 0 0
shareholders,
d e b e n t u r e -
holders, deposit-
holders and any
other security
holders at any
time during a
financialyear.
Ø
Ø
It shall consist of at
least3directors.
Majority should be
independent directors
who can read and
understand financial
statements
The Audit Committee shall
o v e r s e e t h e v i g i l
mechanism and if there is
no Audit committee, the
Board shall nominate a
director who shall oversee
the vigil mechanism. The
establishment shall be
disclosed on the website, if
any.
Ø
Ø
Ø
Ø
It shall have 3 or more
non-executivedirectors.
At least half of the
members shall be
independentdirectors.
Chairperson of the
c o m p a n y c a n b e
m e m b e r o f s u c h
committee but shall not
chairsuchcommittee.
The chairperson shall
attendtheAGM.
Ø
Ø
It shall consist
o f a
chairperson
who shall be a
non-executive
director and
such other
members as
m a y b e
decided by the
Board.
The
chairperson
shall attend
the AGM.
The functions of the Audit
Committee have been
enhanced. The New Act is
silent on the manner of
electingthechairman.
Ø
Ø
The vigil mechanism
shall look into genuine
concerns that may be
reported by directors
andemployees.
The vigil mechanism
shall provide for
adequate safeguards
against victimization of
e m p l o y e e s a n d
directors who avail of
the vigil mechanism and
also provide for direct
a c c e s s t o t h e
Chairperson of the Audit
Committee or the
director nominated to
play the role of Audit
Committee, as the case
may be, in exceptional
cases
Ø
Ø
Ø
Ø
It shall identify persons
who are qualified to
become directors and
who may be appointed
inseniormanagement.
It shall recommend to
t h e B o a r d t h e i r
a p p o i n t m e n t a n d
removal and shall carry
out evaluation of every
director’sperformance.
It shall formulate the
criteria for determining
qualifications, positive
a t t r i b u t e s a n d
independence of a
director.
It shall recommend to
the Board a policy
r e l a t i n g t o t h e
remuneration for the
d i r e c t o r s , k e y
managerial personnel
andotheremployees.
It shall consider
and resolve the
grievances of
security holders
ofthecompany.
RSM Astute Consulting34 Companies Act, 2013
41. Chapter 3: Key Managerial Personnel And
Managerial Remuneration
42. Chapter 3: Key Managerial Personnel And
Managerial Remuneration
3.1 KeyManagerialPersonnel(KMP)[Section203]
3.1.1 Meaning
Keymanagerialpersonnelinrelationtoacompanymeans:
TheChiefExecutiveOfficerorthemanagingdirectororthemanager;
Thewhole-timedirector;
TheCompanysecretary;
TheChiefFinancialOfficer;and
Suchotherofficerasmaybeprescribed.(No otherofficer has been prescribed
yet.)
3.1.2 Thresholdforappointment
Thefollowingcompaniesshallappointawhole-timeKMP(ExceptaCS)
Everylistedcompanyand
EverypubliccompanyhavingaPSCofRs.10croreormore.
4
ThethresholdforappointmentofCSisasfollows:EverycompanyhavingaPSCofRs.5
croreormore.
3.1.3 Appointment
Every company belonging to the class of companies as mentioned above, shall
appoint
MD,CEOorManagerandintheirabsenceawhole-timedirector,
CSand
CFO
Every whole-time KMP shall be appointed by means of a resolution of the Board
containingthetermsandconditionsofappointmentincludingremuneration.
l
l
l
RSM Astute Consulting36 Companies Act, 2013
4
ModifiedandsubstitutedvideNotificationdated9June2014.
43. If the office of any whole-time KMP is vacated, the resulting vacancy shall be
filled-up by the Board at a meeting of the Board within a period of 6 months from
thedateofsuchvacancy.
A return of appointment of KMP must be filed with the ROC within 30 days from
thedateofhisappointment.
3.1.4 KMPinmorethanonecompany
Whole-time KMP shall not hold office in more than one company except in its
subsidiarycompanyatthesametime.
If the whole-time KMP holds office in more than 1 company at the same time on
the date of commencement of the New Act, he shall, within a period of 6 months
from such commencement, choose 1 company, in which he wishes to continue to
holdtheoffice.
However, the fact that a person is a KMP in more than one company shall not
disentitlehimfrombeingadirectorofanycompany.Heshallneedthepermission
oftheBoardforthesame.
A company may also appoint as its MD, a person employed as a MD or manager in
anothercompanysubjecttothefollowing:
a. HeisanMDormanagerinnotmorethanonecompany.
b. The appointment or employment is approved by a unanimous resolution of
theBoard.
c. Specific notice of the meeting where such resolution is to be passed is sent
toalldirectorsinIndia.
3.1.5 DisclosureofInterest
A KMP must disclose his concern or interest in respect of any items of special
business to transacted at the meeting which is likely to be annexed to notice. He
shallalsodisclosehisshareholdinginterest(provideditisgreaterthan2%ofthe
PSC) in another company with which a transaction is proposed in the special
business.
Any benefit accruing to a KMP due to inadequate disclosure or non-disclosure
with respectto a transaction in which he is interested, shall be held by the KMP in
trustforthecompany.
37Companies Act, 2013RSM Astute Consulting
44. 3.1.6 RegisterofKMP
A register of KMPs shall be maintained at the registered office which shall include the
details of securities held by each KMP in the company or its holding, subsidiary,
subsidiaryofcompany’sholdingcompanyorassociatecompanies.
3.1.7 Restrictions
KMPisprohibitedfromforwarddealinginsecuritiesofcompany.
KMP is also prohibited from insider trading. A violation of this provision shall
subjecttheKMPtoaheavypenaltyaspertheprovisionsoftheNewAct.
3.2.1 Appointment
A company cannot appoint MD and manager at the same time. The terms and
conditions of appointment and the remuneration payable shall be included in the
notice convening the Board Meeting and the General Meeting in which the
appointment shall be considered. In case, the appointment is in variance of the
provisionsoftheNewActandtheSchedule,approvaloftheCentralGovernmentisalso
5
required. However, in case of a private company, the remuneration and terms and
conditions of appointment of a managing director, whole-time director or manager
neednotbesubjecttotheScheduleandapprovalinageneralmeeting.
3.2.2 Term
A manager, MD or whole-time director cannot be appointed or reappointed at a time
for a period of more than 5 years. Reappointment of such a person cannot be made
earlierthan1yearbeforetheexpiryofhisterm.
3.2.3 Eligibilityconditions
A company can only appoint or continuein employment any personas MD, whole-time
directorormanagerprovided:
Thepersonisabove21yearsofage.
Thecompanyhaspassedaspecialresolutiontoappointpersonwhohasattained
ageof70years.
Thepersonis residingin India for a continuousperiod of12 months precedinghis
appointmentorhasavalidemploymentvisaincaseheisanon-resident.
3.2 ManagerialRemuneration[Section196andSection197]
RSM Astute Consulting38 Companies Act, 2013
5
InsertedvideNotificationdated5June2015.
45. Thepersonisnotanundischargedinsolventoratanytimebeenadjudgedassuch.
Thepersonhasnotsuspendedpaymenttocreditors.
The person has not been convicted by a Court of an offence and sentenced for
termofmorethan6months.
The person draws remuneration subject to the limit provided under the New Act
incasewhereheismanagerialpersonnelinmorethan1company.
3.2.4 Returnofappointment
The New Act now requires a company to file a return of MD/ whole-time director/
manager’s appointment with the ROC within 60 days instead of 90 days as provided
earlier.
3.2.5 Paymentofremuneration
The amount of remuneration payable to the managerial personnel of a company
depends on the type of the company and on the availability of adequate profits.
Remunerationshallbepaidbythefollowingcompaniesinthemannerasspecified:
6
Private Company: No limits have been imposed on a private company with
respecttothepaymentofremunerationtomanagerialpersonnel.
Public Company having profits: A public company having profits may pay
remunerationsubjecttothefollowinglimits:
Particulars of remuneration Not more than specified percentage
(%) of net profits
Total remuneration 11%(it can exceed these limits with
the approval of the Central Government)
Remuneration payable to only 1 MD,
manager or whole-time director 5%
More than 1 MD, manager or
whole-time director taken together 10%
Remuneration to directors other than 1% (if there is a MD or a
MD or whole-time director whole-time director)
Remuneration to directors other 3% (where there is no MD or
than MD or whole-time director whole-time director)
39Companies Act, 2013RSM Astute Consulting
6
InsertedvideNotificationdated5June2015.
46. Theabovepercentagesdonotincludesittingfeespayabletodirectors.
companywhichdoesnothaveprofitsorhasinadequateprofits:
A company, other than a private company, which has inadequate profits or which
doesnothaveprofitsshallpay an amount which shall be the higher of the
amountsderivedfromthemethods below:
Method B shall apply only in case the managerial person was not paid during the
preceding2yearspriortohisappointment.
holdingsecurityofnominalvalueofmorethanRs.5lakhor
anemployeeoradirectorofthecompanyor
relatedtoanydirectororpromoter.
A special resolution may be passed by the shareholders in order to double the
limitsmentionedabove.
METHOD A METHOD B
Compute effective capital Compute current relevant profit
Calculate amount as per the following
limits:
Where effective Limit of annual
capital is: remuneration
(in Rs.)
Negative- Rs. 5 crore 30 lakhs
Rs. 5 crore-
Rs. 100 crore 42 lakhs
Rs. 100 crore-
Rs. 250 crore 60 lakhs
Rs. 250 crore or 60 lakhs + 0.01%
more of the effective
capital in excess
of Rs. 250 crore.
Calculate 2.5% of the current
relevant profit
Compare with amount in Method B Compare with amount in Method A
Limit of remuneration that may be paid is the higher of the amounts derived
by Method A and Method B
RSM Astute Consulting40 Companies Act, 2013
47. 3.2.6 Meaning of key terms for the computation of remuneration as per the above
methods
Effectivecapitalmeans:
aggregate of the PSC (excluding share application money or advances
againstshares);
amountstandingtothecreditofsharepremiumaccount;
reservesandsurplus(excludingrevaluationreserve);
long-term loans and deposits repayable after 1 year (excluding working
capital loans, over drafts, interest due on loans unless funded, bank
guarantee,etc.andothershort-termarrangements)
reducedby
aggregate of any investments (except in case of investments by an
investment company whose principal business is acquisition of shares,
stock, debentures or other securities); accumulated losses and preliminary
expensesnotwrittenoff.
Current relevant profit means: The profit as calculated under section 198 which
deals with calculation of profits but without deducting the excess of expenditure over
income referred to in sub-section 4 (l) in respect of those years during which the
managerialpersonwasnotanemployee,directororshareholderofthecompanyorits
holdingorsubsidiarycompanies.
3.2.7 Conditionsforpaymentofremunerationasabove
Remunerationshallbepaidasabovesubjecttothefollowingconditions:
Payment of remuneration is approved by Board and by Nomination Committee
andRemunerationCommittee,ifapplicable.
Company has not defaulted in repayment of any debts, public deposits,
debentures, interest thereon for a continuous period of 30 days in preceding
financialyearbeforesuchappointment;
Specialresolutionispassedforaperiodnotexceeding3years;
Information and disclosures as required under Schedule V are included in
statementtobegiventoshareholdersalongwithnoticecallinggeneralmeeting.
l
l
l
l
l
41Companies Act, 2013RSM Astute Consulting
48. In addition to the above, the managerial personnel shall be entitled to certain
perquisites which shall not be included in the ceiling of remuneration computed
above.
3.2.8 Sittingfees
Subject to discretion of Board, a director may receive sitting fees for attending
meetings of Board or Committee thereof. However, sitting fees to a director shall not
exceedRs.1lakhpermeetingofBoardorCommitteethereof.Sittingfeespayabletoan
independent director and woman director shall not be less than fee payable to other
directors.
3.2.9 Recoveryofremuneration[Section199]
The New Act now provides for recovery of remuneration paid to managerial personnel
incertaincases.
This is a new provision and states that where a company is required to re-state its
financial statements due to fraud or non-compliance with any requirement under the
New Act and the rules made thereunder, the company shall recover from any past or
presentMDorwhole-timedirectororManagerorCEOwho,duringtheperiodforwhich
the financial statements are required to be re-stated, received the remuneration
(including stock option) in excess of what would have been payable to him as per
restatementoffinancialstatements.
RSM Astute Consulting42 Companies Act, 2013
50. Chapter 4: Charges And Deposits
4.1 Charge[Section77]
4.2 Deposit[Section73andSection74]
Thekeychangesinthepositionoflawgoverningchargesaresetoutbelow:
4.2.1 Whatisadeposit?
Anyreceiptofmoneybywayofdepositorloaninanyotherformbyacompany.
4.2.2 Whatisnotadeposit?
Amountreceivedfromdirectorssubjecttodeclarationfromsuchdirector;
Anyamountreceivedbyacompanyfromanothercompany;
Share Application money or advance for securities received towards allotment
of securities, provided shares are allotted within period of 60 days from date of
receiptofmoney;
Amount received from an employee of the company not in excess of his annual
salaryundercontractofemployment;
Creation or Modification of Change
All charges require registration
Within 30 days or of creation or
modificationupongivingreasonstoROC
within 300 days
Satisfaction of Charge
Satisfaction of a charge must be intimated to ROC Within30daysor ofsatisfactionupon
givingreasonstoROC
within300days
Condonation of delay
A delay beyond 300 days from the creation/
modification must be condoned by the CG.
The Charge will not be registered unless such delay
hasbeencondoned.
Penalty
Penalty prescribed for failure to register a charge has been modified and now also includes imprisonment of
everyofficerindefaultalongwithfine.
RSM Astute Consulting44 Companies Act, 2013
51. Any advance received against orders for the supply of goods or properties or for
the rendering of any service, provided it is appropriated within a period of 365
daysfromthedateofacceptance.
4.2.3 Fromwhomtoacceptadeposit?
Depending upon the eligibility, some companies can accept deposits only from
members while some can accept deposits from public as well as members. The details
ofthesamearesetoutbelow:
4.2.4 Howtoacceptadeposit?
Circular A circular should be issued to the members/public giving such
detailsashavebeenspecifiedundertheNewAct.
InformROC A copy ofthe circular must be filed with the ROCwithin 30days from
theissueofcircular.
BankAccount Deposit at least 15% of the amount of deposits maturing during the
current and next financial year in a separate bank account called
Deposit Repayment Reserve Account. This account shall be used
onlyfortherepaymentofdeposits.
Deposit Where amount of deposit and interest is less than Rs. 20,000,
Insurance insurancecoveragewouldbethefullamountofdepositandinterest
and where amount of deposit is more than Rs. 20,000, the insurance
coverageshallbeminimumRs.20,000.
Depositors Where a company has borrowed from its members and/or public, it
Trustees shall appoint one or more trustees to be called as Depositors
Trustees.
Threshold Depositor Limit
l
l
l
Private Company
Public Company with
Net worth less than
Rs. 100 crore or
Turnover less than Rs.
500 crore
Public Company with
Net worth of Rs. 100
crore or more or
Turnover of Rs. 500
crore or more
l
l
l
l
Members only
Membersonly
Membersand
Public
l
l
l
l
100% of PSC + Free
reserves
25% of PSC + Free
reserves
10% of PSC + Free
reserves
25% of PSC + Free
reserves
45Companies Act, 2013RSM Astute Consulting
52. RSM Astute Consulting46 Companies Act, 2013
Creationof In case of secured deposit, as per the New Act a company must
Security mandatorily create a charge on tangible assets in favour of
DepositorTrustees.
CreditRating Companies need to obtain credit rating from recognised agency
everyyearduringthetenureofdeposits.
Repayment Deposits must be repaid with rate of interest which shall not exceed
the maximum rate of interest or brokerage prescribed by the RBI for
acceptanceofdepositsbyNBFCs.
7
It must be noted here that except the provisions governing creation of security and
repayment, a private company which acceptsfrom itsmembers moniesnotexceeding
100% of aggregate of the PSC and free reserves and files the details of the monies so
acceptedtotheROCisnotrequiredtocomplywiththeremainingprovisionsgoverning
acceptanceofdeposits,specifiedabove.
4.2.5 ExemptCompanies
Theprovisionsgoverningdepositsshallnotapplytothefollowingcompanies:
BankingCompany;
AregisteredNBFC;
AregisteredHousingFinanceCompany;
Such other companies as may be prescribed by Central Government. (No such
companieshavebeenprescribedtilldate)
4.2.6 DepositstakenunderOldAct
Where deposits have been accepted under Old Act and such deposits along with
interestareunpaidasoncommencementoftheNewAct,thecompanywasrequiredto:
File within 3 months of commencement of New Act (i.e. up to 30 June 2014) a
statementofdepositsfordepositsacceptedandremainingunpaid;and
Repay within 1 year from date of such commencement or from the date on which
theyaredue,whicheverisearlier.
7
InsertedvideNotificationdated5June2015.
53. However, above point shall be deemed to have been complied, if the company which
had accepted/ renewed deposits under Old Act has been repaying such deposits in
accordancewiththeprovisionsofOldAct.
8
It must be noted here that amounts received by private companies from their
members, directors or their relatives prior to 1 April 2014 shall not be treated as
deposits under the New Act subject to the condition that relevant private company
shall disclose in the notes to its financial statements for the financial year
commencing on or after 1 April 2014 the figure of such amounts and the accounting
headinwhichsuchamountshavebeenshowninthefinancialstatement.
9
4.2.7 Penalties for acceptance of deposits in contravention of the provisions of the
NewAct
Where a company accepts or invites or allows or causes any other person to accept or
invite on its behalf any deposit in contravention of the provisions of the New Act
governing deposits or if a company fails to repay the deposit or part thereof or any
interestduethereonwithinthetimespecifiedbytheNewAct;
The company shall, in addition to the payment of the deposit or part thereof and
the interest due, be punishable with fine which shall not be less than Rs. 1 crore
butwhichmayextendtoRs.10crore.
Every officer in default of the company shall be punishable with imprisonment
which may extend to 7 years or with fine which shall not be less than Rs. 25 lakhs,
butwhichmayextendtoRs.2croreorboth.
(Thisprovisionisnotyetnotifiedandhencenotintoforce)
47Companies Act, 2013RSM Astute Consulting
8
ClarifiedbyGeneralCircular05/2015dated30March2015.
9
InsertedvidetheCompanies(Amendment)Act,2015asSection76Aandisyettocomeintoeffect.
55. 10
InsertedvideNotificationdated5June2015.
Chapter 5: Loans And Investments
5.1 PowersoftheBoard
5.1.1 Powers[Section179]
ThepowersoftheBoardtobeexercisedonlyataBoardMeetingandnotbycirculation
havebeenwidenedandnowadditionallyinclude:
IssuingsecuritiesincludingdebentureswithinoroutsideIndia,
Grantingloansorgivingguaranteeorsecurity,
ApprovingfinancialstatementandDirector’sreport,
Diversifyingthebusinessofthecompany,
Taking over of a company or acquiring a control or substantial stake in another
company,
Makingpoliticalcontributions,
AppointingorremovingKMP,
Appointinginternalauditorsandsecretarialauditor.
5.1.2 Restrictions[Section180]
TheprovisionsdealingwithrestrictionsonpowersoftheBoardrequiretheBoard
to exercise certain powers only with the approval of its members in the
generalmeeting.
A special resolution at a general meeting is required for the Board to
exercisethepowersspecifiedinthesectiondealingwithrestrictiononpowersof
theBoard.
10
Theserestrictionsarenotapplicabletoaprivatecompany.
5.1.3 Politicalcontribution[Section182]
The amount that may be spent on political contributions shall not exceed 7.5% of the
average net profits of the company during the 3 immediately preceding financial
years.
49Companies Act, 2013RSM Astute Consulting
56. 5.2 LoanstoDirectors[Section185]
5.2.1 Allowableloans
11
5.2.2 Exemptions
RESTRICTED
ALLOWED
lA company cannot give a loan,
guarantee or security in
respectofaloanto:
lDirectorofthecompany
lDirectoroftheholdingcompany
lPartnerorrelativeofdirector
lFirm in which the director or
relativeisapartner
lPrivate company of which the
directorisadirectorormember.
lBody Corporate in which a
director or 2 directors together
hold atleast 25% of the total
votingpower
lBody corporate whose Board, MD
or manager are accustomed to
act in accordance with the
directions or instructions of the
Board or any director of the
company.
lA company can give a loan,
guarantee or security with
respecttoaloan:
lTo a Managing or whole-time
director as part of service
conditionsextendedbycompany
toallitsemployees.
lTo a Managing or whole-time
director pursuant to a scheme
approved by a special resolution
ofthemembers.
lIf it is a company which in the
ordinary course of its business
provides loans or gives
guarantees or securities for the
due repayment of any loans
which charge a rate of interest
not less than that declared by
RBI.
Wholly-owned
subsidiary
Subsidiary
lA company can give a loan, guarantee or security in respect of
a loan to its wholly-owned subsidiary provided the wholly-
owned subsidiary uses the loan made for its principle business
activities.
lA company can give a guarantee or security in respect of a loan
made by any bank or financial institution to its subsidiary
provided the subsidiary uses the loan made for its principle
businessactivities
RSM Astute Consulting50 Companies Act, 2013
11
Also inserted in Section 185 by Companies (Amendment) Act, 2015, Although the Companies (Amendment) Act, 2015
has not yet come into effect, the exemptions are currently contained in Rule 10 of the Companies (Meetings of Board
anditsPowers)Rules,2014.
57. 5.2.3 LoansandInvestmentsbyCompany[Section186]
The following table complied by us answers certain FAQs relating to loans and
investments.
51Companies Act, 2013RSM Astute Consulting
FAQ Answer
Whichcompanycan Any company except that which has defaulted in the
giveloansandmake repayment of any deposits or in payment of interest
investments? thereon shall give any loan or guarantee or security or
makeanacquisition.
Howtogivealoanor An approval of all the directors present at the meeting
guaranteeorsecurity? oftheBoardisrequiredpriortogivinganyloan,guarantee
orsecurity.
What are the limits A company cannot:
upto which a loan,
guaranteeorsecurity Give any loan to any person or other body corporate;
canbemade? (any person covers employees, share transfer
agents,stockbrokers,etc.)
Give any guarantee or provide security in connection
withaloantoanyotherbodycorporateorperson;
Acquirebywayofsubscription,purchaseorotherwise,
thesecuritiesofanyotherbodycorporate
inexcessofthehigherof
60% of (PSC + free reserves + securities premium
account)
or
100% of (free reserves+ securities premium
account)
Whatistheprescribed A company cannot give a loan at a rate of interest lower
rateofinterest? than the prevailing yield of 1, 3, 5, 10 year Government
securityclosesttothetenoroftheloan.
Whatarethe A company which is giving any loan, guarantee or
disclosuresrequired? security as per the above provisions shall disclose
the particulars and the purpose of the same in the
financialstatements.
A register in respect of the same shall also be
maintained.
58. Whatifthecompany A special resolution of the members is required. The
exceedsthelimits special resolution passed shall specify the total
specifiedabove? amount up to which the Board is authorized to give
such loans/ guarantee or provide security or make
acquisition.
However, no such resolution is required in case of a
loan, guarantee or security provided by a holding
companyinrespectofitswholly-ownedsubsidiary.
Approvalofthefinancialinstitutionsconcernedwhere
anytermloanissubsistingshallalsobeobtained.
When do the above The above requirements do not apply to:
provisionsnotapply? Loan or guarantee given or security provided a
company to its wholly owned subsidiary company or a
jointventurecompany.
Acquisition made by a holding company, by way of
subscription, purchase or otherwise of the securities
ofitswhollyownedsubsidiarycompany.
Loan or guarantee given or security provided by a
bankingcompanyoraninsurancecompanyorahousing
financecompanyintheordinarycourseofitsbusiness.
Loan or guarantee given or security provided by a
company engaged in the business of financing of
companiesorofprovidinginfrastructuralfacilities.
Acquisition made by a non-banking financial company
registered with RBI and whose principal business is
acquisitionofsecurities.
Acquisition made by a company whose principal
businessistheacquisitionofsecurities.
Sharesallottedinpursuanceofarightsissue.
Acquisition made by a banking company or an
insurance company or a housing finance company,
makingacquisitionofsecuritiesintheordinarycourse
ofitsbusiness.
Loans or advances made by companies to their
employeesotherthanMDandWTDprovidedtheyarein
12
13
RSM Astute Consulting52 Companies Act, 2013
FAQ Answer
12
InsertedvideCompanies(RemovalofDifficulties)Orderdated13February2015.
13
ClarifiedvideGeneralCircularNo.04/2015dated10March2015.
59. 5.2.4 Investmentbymeansofaspecialpurposevehicle
A company cannot make investment through more than 2 layers of investment
companies.
Theaboveshallnotaffect:
company from acquiring any other company incorporated in a country outside
India if such other company has investment subsidiaries beyond two layers as
perthelawsofsuchcountry;
Subsidiary company from having any investment subsidiary for the purposes of
meeting the requirements under any law or under any rule or regulation framed
underanylawforthetimebeinginforce.
accordance with the conditions of service applicable
to employees and also are in accordance with the
remunerationpolicy,ifapplicable.
14
Exemptiontoa Provisions governing loan to directors shall not apply to a
privatecompany privatecompany.
In whose share capital no other body corporate has
investedanymoney
whose borrowings from banks or financial institutions
or any body corporate is less than twice of its PSC, or
Rs.50crore,whicheverislowerand
which has not defaulted in repayment of such
borrowings subsisting at the time of making
transactionsunderthissection.
53Companies Act, 2013RSM Astute Consulting
FAQ Answer
COMPANY A
INVESTMENT
COMPANY 1
INVESTMENT
COMPANY 2
INVESTMENT
COMPANY 3
OPERATIONAL
COMPANY B
14
InsertedvideNotificationdated5June2015.
61. Chapter 6: Related Party Transactions And
Other Transactions
6.1 RelatedPartyTransactions[Section2(76)andSection188]
6.1.1 Whatisthemeaningofa‘relatedparty’?
RelatedPartywithreferencetoacompanymeans:
i. Directororhisrelative;
ii. KMPorhisrelative;
iii. Firminwhichadirector,managerorhisrelativeisapartner;
iv. Privatecompanyinwhichadirectorormanagerisamemberordirector;
v. Public company in which a director or manager or his relative is a director and
holdsalongwithhisrelatives,morethantwopercentofitsPSC;
vi. Any body corporate whose Board, managing director or manager is accustomed
to act in accordance with the advice, directions or instructions of a director or
manager;
vii. Any person on whose advice, direction or instructions a director or manager is
accustomedtoact;
viii. Any company which is holding, subsidiary or an associate company, fellow
subsidiaryofsuchcompany;
ix. KMPofholdingcompanyorhisrelative.
Nothinginclause(vi)or(vii)shallapplytoadvicegiveninprofessionalcapacity.
Thedefinitionoftheterm‘relative’hasbeenlimitedandnowonlyincludesmembersof
a Hindu Undivided Family, husband and wife and father including step father, mother
including step mother, son including step son, son’s wife, daughter, daughter’s
husband,brotherincludingstepbrother,andsisterincludingstepsister.
15
Itmustbenotedthattransactionsofaprivatecompanywithacompanywhichis:
aholding,subsidiaryoranassociatecompanyofsuchprivatecompanyor
asubsidiaryofaholdingcompanytowhichitisalsoasubsidiary
shallnotattracttheprovisionsofSection188dealingwithrelatedpartytransaction.
55Companies Act, 2013RSM Astute Consulting
15
InsertedvideNotificationdated5June2015.
62. 6.1.2 Whatkindsoftransactionswithrelatedpartiesrequirepriorapproval?
Thefollowingtransactionsrequirepriorapprovaliftheyareenteredintowitharelated
party:
Sale,purchaseorsupplyofanygoodsormaterials;
Sellingorotherwisedisposingof,orbuying,propertyofanykind;
Leasingofpropertyofanykind;
Availingorrenderingofanyservices;
Appointment of any agent for purchase or sale of goods, materials, services or
property;
Related party's appointment to any office or place of profit in the company, its
subsidiarycompanyorassociatecompany;
Underwriting the subscription of any securities or derivatives thereof, of the
company.
6.1.3 What is the procedure for entering into any of the above transactions with a
relatedparty?
RSM Astute Consulting56 Companies Act, 2013
If the transaction does not exceed the limits specified below: Board resolution is sufficient.
16
Transaction
Sale, purchase or supply of any goods or
materials directly or through appointment of
agents.
Selling or otherwise disposing of, or buying
property of any kind directly or through
appointmentofagents.
Leasingofpropertyofanykind.
Availing or rendering of any services directly
orthroughappointmentofagents.
Appointmenttoanyofficeorplaceofprofitin
the company, its subsidiary company or
associatecompany.
Remuneration for underwriting the
subscription of any securities or derivatives
thereofofthecompany.
Limit
10% of Turnover or Rs. 100 crores, whichever
isless.
10% of Net Worth or Rs. 100 crores, whichever
isless.
10%ofNetWorthor10%ofTurnoverorRs.100
crores,whicheverisless.
10% ofTurnover or Rs. 50 crores, whicheveris
less.
Remuneration in excess of Rs. 2,50,000 per
month.
1%ofNetWorth.
17
If the transaction exceeds the limits specified above. Special resolution of the members is required.
16
TransactionlimitssubstitutedvideNotificationdated14August2014.
17
OrdinaryResolutionshallbesufficientonceSection188oftheCompanies(Amendment)Act,2015isnotified.
63. Theabovetriggershallnotapplytoanytransactionenteredintobyacompany
Initsordinarycourseofbusinessand
Onanarm’slengthbasis
6.1.4 Whatshouldbedonewheretheaboveprocedureisnotfollowed?
18
In case where the consent of the Board or an approval by special resolution as
required is not obtained, the contract/arrangement shall be valid only if it is
ratified by the Board or by a special resolution of the members within 3 months
fromthedateonwhichsuchcontractorarrangementwasenteredinto.
In caseit is not ratified within the prescribed time, the contract is voidable at the
optionoftheBoard.
6.1.5 Whataretherestrictionsonaninterestedparty?
A director interested in any contract or arrangement with a related party shall
not be present at the meeting during discussions of the subject matter of the
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resolution relating to such contract or arrangement. In case of a private
company, a director interested in any contract or arrangement with a related
partymayparticipateinthemeetingafterdisclosinghisinterest.
A member shall not vote on resolution in general meeting if such member is
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interested in contract or arrangement placed before the meeting. In case of a
private company, a member may vote on a resolution to approve any contract or
arrangementevenifsuchmemberisarelatedparty.
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Theterm‘relatedparty’forthispurposeonlyreferstosuchrelatedpartyasmay
be a related party in the context of the contract or arrangement for which the
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specialresolutionisbeingpassed.
6.1.6 Whatcomplianceisrequired?
The following compliances are required in case of related party transactions by a
company:
57Companies Act, 2013RSM Astute Consulting
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OrdinaryResolutionshallbesufficientonceSection188oftheCompanies(Amendment)Act,2015isnotified.
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InsertedvideNotificationdated5June2015.
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InsertedvideNotificationdated5June2015.
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ClarifiedvideGeneralCircularNo.30/2014dated17July,2014.
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Ordinary Resolution shall substitute the word 'special resolution' once Section 188 of the Companies (Amendment)
Act,2015isnotified.
64. BoardMeetingagendaforpassingaresolutionfortheapprovalofarelatedparty
transactionshalldisclosecertainparticulars.
The Explanatory Statement annexed to the notice of a general meeting shall
containcertainparticulars.
Every contract or arrangement shall be referred to in Board’s report to
shareholders along with justification for entering in to such contract or
arrangement.
6.1.7 Willthedirectorsoremployeesbeliableincaseofadefault?
In case where a contract or arrangement with a related party is not ratified as
required, if the contract is with a related party to any director or is authorized as
such by any other director, the concerned directors shall indemnify the company
againstlossincurredbythecompanyduetosuchcontractorarrangement.
In addition to the above, a company can proceed against a director or other
employee who had entered into such contract in contravention of provisions of
theNewActforrecoveryoflosssustainedasaresultofsuchcontract.
The director or any other employee in case of companies other than listed
companiesshallbepunishablewithfineandimprisonment.
6.2.1 RestrictionsonNon-CashTransactions[Section192]
Any arrangement between a company and its directors in respect of acquisition of
assetsforconsiderationotherthancashshallrequirepriorapprovalbyaresolutionin
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
meetingoftheholdingcompany.
6.2.2 Prohibitiononforwarddealingsinsecurities[Section194]
TheNewActprohibitsadirectorofacompanyoraKMPtobuyarighttocallfordelivery
at a specified price and within a specified time, of a specified number of relevant
sharesordebentures,righttomakedelivery ataspecifiedpriceandwithinaspecified
time,ofaspecifiednumberofrelevantsharesordebentures.
6.2.3 ProhibitiononInsiderTrading[Section195]
The New Act makes insider trading by a director or a KMP, a criminal offence.
Communication in the ordinary course of business, profession or employment will not
betreatedasinsidertrading.
6.2 OtherRestrictions
RSM Astute Consulting58 Companies Act, 2013
66. Chapter 7: Share Capital And Dividend
7.1 IssueofSecurities
Acompanymayraisecapitalbyissueofsecuritiesinthefollowingways:
7.1.1 Public Issue (Applicable only to Public Companies) [Sections 23 to Sections 40]
Public
company
Prospectus Private
Placement
Rights
Issue
Bonus
Issue
Private
company
Private
Placement
Rights Issue Bonus Issue
Process Requirements
Application to stock exchange Approval from the stock exchange is required for the
securities to be dealt with. Failure to apply or obtain
permission would entail mandatory refund of money
receivedfromapplicants.
Issue of red herring
prospectus, prospectus or a
shelf prospectus (if the
company belongs to a class
prescribed by SEBI)
Bankaccount
The prospectus must contain all the details as are
prescribedintheNewActandtheRules.
The punishment for misstatement in prospectus is
very severe and it attracts both criminal and civil
liability.
All monies received on application to the securities must
be kept in a separate bank account and cannotbe usedfor
anypurposeotherthanthosestatedintheNewAct.
Variation in terms of contract
or objects of prospectus
Terms may be varied only by special resolution
throughpostalballot
Thedissentingshareholdersthatdonotagreewiththe
change shall be given an exit offer by promoters or by
controllingshareholders.
Minimum subscription Allotment cannot be made unless the minimum
amount stated in the prospectus has been subscribed
to.
The amount so subscribed shall not be lessthan 5%of
thenominalamountofthesecurity.
If minimum amount is not subscribed to within 30
days,theentireamountreceivedmustberefunded.
Allotment Subject to the condition of minimum subscription being
compliedwith,securitiesshallbeallotted.
Returnofallotment Returnofallotmentmustbefiledwithin30days.
RSM Astute Consulting60 Companies Act, 2013
67. 7.1.2 PrivatePlacement(ApplicabletoPublicandPrivateCompanies)[Section42]
ImportantPoints
No offer or invitation of another kind of security shall be made unless allotment
with respect to offer or invitation made earlier in respect of any other kind of
securityiscompleted,withdrawnorabandonedbythecompany.
Application money received shall be kept in a separate bank account in a
scheduledbank.
Application money should be received through cheque/ demand draft/ any other
bankingchannels,butnotincash.
61Companies Act, 2013RSM Astute Consulting
Approval Approval of shareholders by way of special
resolution for proposed offer or invitation of
securitiesisrequired.
Number of persons to whom
offermaybemade
Timelimitforallotment
Offer shall not be made to more than 200 persons in
theaggregateinafinancialyear.
Exclusions:
Followingpersonsareexcludedwhilecalculatingthe
limitof200persons.
QualifiedInstitutionalBuyers
Employeesofthecompany
Restriction of 200 persons is individually for each
kindofsecurity.
Allotmentofsecuritiesmustbecompletedwithin
60daysofreceiptofapplicationmoney.
If the company fails to allot securities within 60
days, then the application money must be
returned to subscribers within 15 days from the
completion of 60 days, failing which interest will
bechargedattherateof12%perannum.
Value of offer The value of such offer or invitation per person shall
be with an investment size of not less than Rs.
20,000offacevalueofthesecurities.
Process / Particulars Requirements
68. 7.1.3 RightsIssue(ApplicabletoPublicandPrivateCompanies)[Section62]
7.1.4 BonusIssue(ApplicabletoPublicandPrivateCompanies)[Section63]
Unlike the Old Act, the New Act now provides separate provisions with respect to
issueofbonussharestoshareholders.
Bonussharesmaybeissuedbyacompanyoutof:
a. itsfreereserves;
b. thesecuritiespremiumaccount;or
c. thecapitalredemptionreserveaccount.
Approval ApprovalofBoardofDirectorsisrequired
Allottees Allotmentshallbemadeto:
To holders of equity share holders of the Company in proportion
totheequitysharesheldonthedateofoffer.
The offer shall be made by notice specifying the number of
shares offered and for time, being not less than 15 days and
notmorethan30daysfromthedateoftheoffer.
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A private company may reduce this period subject to the
consentof90%ofthemembersoftheprivatecompany.
If the offer is not accepted within given time it shall be
deemedasdeclined
Unless articles provide otherwise, the offer shall be deemed
to include a right to renounce the shares or renounce the
sharesinnameofanyotherperson
Afterexpiryofthetimeoronreceiptofearlierintimation,the
person to whom the offer is made, declines the shares
offered, the Board may dispose of the shares in such manner
as may be advantageous to the shareholders and the
Company.
Employeesunderaschemeofemployee’sstockoptionbyspecial
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resolution of members (An ordinary resolution shall be
sufficientincaseofaprivatecompany).
anyotherpersoneitherforcashorforaconsiderationotherthan
cash,ifpriceofsuchsharesisdeterminedbythevaluationreport
ofaregisteredvaluerwithspecialresolutionofmembers.
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Time limit for
allotment
Allotment of securities must be completed within 12 months of
passingofresolution.
RSM Astute Consulting62 Companies Act, 2013
Process Requirements
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InsertedvideNotificationdated5June2015.
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InsertedvideNotificationdated5June2015.
69. Exceptuponthefulfillmentofcertainconditions,acompanycannotcapitalizeits
profitsorreservesforthepurposeofissuingbonusshares.
Bonussharescannotbeissuedinlieuofdividend.
A company which has onceannouncedthe decision ofits Board recommendinga
bonusissue,shallnotsubsequentlywithdrawthesame.
7.1.5 IssueofSweatEquityShares[Section54]
Approval:SpecialResolution
Notice: Explanatory statement of the notice requires a lot of particulars to be
statedtherein.
Lockinperiod:3yearsfromthedateofallotment
Price:Determinedbyregisteredvaluer
Remuneration:Itshallbetreatedaspartofthemanagerialremuneration
Disclosure:Thefollowingdisclosuresarerequired:
Board’sreportmustcontaincertaindisclosures.
Register of sweat equity shares must be maintained at the registered office
and must be authenticated by a CS or any other person authorised by the
Board.
7.1.6 EmployeeStockOptionScheme[Section62]
By Listed Companies: Where the equity shares of the company are listed on a
recognized stock exchange, the Employees Stock Option Scheme shall be issued,
inaccordancewiththeregulationsmadebySEBI.
ByUnlistedCompanies:ProcedureforUnlistedCompaniesforissuingemployee
stockoptionisasfollows:
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a. Special resolution in
general meeting and
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Ordinary resolution in
general meeting for a
privatecompany.
b. The option can only be
granted to employees
of company, as more
specifically defined in
theRules.
a. Certain disclosures
must be made in
E x p l a n a t o r y
Statement.
b. Board’s report for the
year must disclose
particularsofESOP.
a. An employee who is
promoter or person
belonging to promoter
group or director
directly or indirectly
holding more than 10%
of outstanding equity
shares shall not be
eligibleforESOP.
Conditions/Requirements DisclosuresRestrictions
63Companies Act, 2013RSM Astute Consulting
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InsertedvideNotificationdated5June2015.
70. 7.1.7 IssueofEquityShareswithDifferentialVotingRights[Section43]
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(With respect to a private company, the provisions of the New Act shall be subject to
theprovisionsofthearticles.)
Approval:
Thefollowingapprovalsarerequired
Authorizationinthearticlesofcompany
OrdinaryResolution
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c. Thecompanyshallhave
freedom to determine
the exercise price in
c o n f o r m i t y w i t h
applicable accounting
policies,ifany
d. There shall be a
minimum 1 year lock in
period between grant
of options and vesting
ofoption.
e. The company shall
have freedom to
specify lock in period
forshares.
f. In event of death of
employee while in
employment, options
granted to him shall
vest in the legal heirs
ornominees.
g. Separate special
resolution shall be
required for grant of
option to employees of
subsidiary or holding
company; or where the
grant of option to
employees during 1
year is equal to or
exceeds 1% of issued
capital.
c. Company to maintain
Register of Employee
Stock Options which
can be maintained at
the registered office or
such other place as
may be specified by
theBoard.
b. Options granted to
employees shall not be
transferable to any
otherperson.
c. O p t i o n s g ra n te d
cannot be pledged,
h y p o t h e c a t e d ,
m o r t g a g e d o r
encumbered.
Conditions/Requirements DisclosuresRestrictions
RSM Astute Consulting64 Companies Act, 2013
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InsertedvideNotificationdated5June2015.
71. Incaseoflistedcompany,resolutionbypostalballot
Limit:
Shares with differential voting rights shall not exceed 26% of total post-issue
paid-up equity share capital including equity shares with differential voting
rightsissuedatanypointoftime.
Trackrecord:
Thecompanymusthavetrackrecordofdistributableprofitforlast3years.
Nodefault:
Thecompanyshouldnothavedefaultedin:
filingfinancialstatementandannualreturnforpreceding3financialyears.
payment of dividend, repayment of matured deposits, redemption of
preference shares or debentures, payment of interest on deposits or
debentures
Conversion:
The company cannot convert existing equity shares into equity shares with
differentialvotingrightsandviceversa.
Disclosures:
Thefollowingdisclosuresmustbemade:
DisclosureofinformationrequiredmustbegiveninExplanatoryStatement.
Disclosure of information must be given as prescribed in Board’s report for
thefinancialyearinwhichsuchissueiscompleted.
Register of members to contain all relevant particulars of the shares so
issued.
7.1.8 IssueofSharesonPreferentialBasis
Meaning:
‘Preferential Offer’ means an issueofsharesor other securities, by a company to
any select person or group of persons on a preferential basis and does not
includea
publicissue;
rightsissue;
employeestockoptionscheme;
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65Companies Act, 2013RSM Astute Consulting
72. employeestockpurchasescheme;
issueofsweatequityshares;
bonussharesor
depositoryreceiptsissuedinacountryoutsideIndiaorforeignsecurities.
Shares:
Equityshares,fullyandpartlyconvertibledebenturesor
Securities:
Any other security convertible into or exchanged with equity shares at a later
date.
Approval:
Thefollowingapprovalsarerequired
Authorizationinarticlesofcompany
SpecialResolution
Fully paid-up: Securities shall be made fully paid-up at the time of their
allotment.
Disclosure:ExplanatoryStatementmustdisclosecertaininformation.
Allotment: Within 12 months from special resolution otherwise a fresh special
resolutionwouldberequired.
Consideration: Securities may be issued for cash or for any other consideration
determinedbyregisteredvaluer.
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The provisions governing private placement should also be followed with
respect to issue of shares on preferential basis except where the issue is made
tooneormoreexistingshareholdersonly.
7.1.9 IssueandRedemptionofPreferenceShares[Section55]
Approval:
Thefollowingapprovalsarerequired
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RSM Astute Consulting66 Companies Act, 2013
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InsertedbyNotificationdated18March2015.