Companies Act, 2013 program Session 1

WELCOME TO THE PROGRAMME
ON
COMPANIES ACT ,2013
Dr. T.P.Ghosh
Updated in August 2014
T.P.Ghosh 1

Session 1 : Introduction
T.P.Ghosh 2

Companies Act,2013 : Timeline
• Primary focus of the Companies Act,2013 :
- to provide a further fillip to the cause of
Corporate Social Responsibility, corporate
governance and investor protection.
Timeline of the Companies Act , 2013 in slides 3-10
T.P.Ghosh 3

Timeline
Concept paper (2003) in legislative format
J.J. Irani Committee Report 2 December
2004 - 31 May 2005
Companies Bill 2008 was introduced on 23
October 2008 . The Bill lapsed because of
dissolution of the 14th Lok Sabha.
T.P.Ghosh 4

Timeline
Companies Bill 2009 was re-introduced on 3 August 2009 in Lok
Sabha. The Bill was referred to the Standing Committee on Finance (
SCF) of the Parliament on 9 September 2009. The Report of the SCF
on the Companies Bill 2009 was placed in Lok Sabha on 31 August
2010.
The Central Government has accepted in general the
recommendations of the Standing Committee and also considered
the suggestions received by it from various stakeholders.
In view of large amendments to the Companies Bill, 2009 arising out
of the recommendations of the Parliamentary Standing Committee
on Finance and suggestions of the stakeholders, the Central
Government decided to withdraw the Companies Bill, 2009 and
introduce a fresh Bill incorporating therein the recommendations of
Standing Committee and suggestions of the stakeholder.
T.P.Ghosh 5

Timeline
The Companies Bill, 2011 had earlier been introduced in the Lok
Sabha on 14thDecember, 2011 and was considered by the
Parliamentary Standing Committee on Finance (SCF) which
submitted its report to the Speaker, Lok Sabha, on 26th June, 2012.
The report was laid in the Parliament on 13th August 2012. Keeping
in view the recommendations made by such Committee it was
decided to make certain modifications in the Companies Bill, 2011
through official amendments.
The Companies Bill 2011 was passed in Lok Sabha on 18 December
2012 after 7 years of discussions, drafting and delays, 2 referrals to
the parliamentary standing committee and 5 different ministers
shepherding it .
T.P.Ghosh 6

Timeline
The Bill has been passed by the Rajya Sabha on 8h August , 2013.
It received assent of the President on August 29, 2013 and notified
in the Gazette of India ( Extraordinary) on 30th August, 2013.
It has been enacted as Companies Act , 2013 ( No. 18 of 2013) to
consolidate and amend the law relating to companies.
Section 1 of the Companies Act, 2013 became effective on
notification and extends to whole of India.
T.P.Ghosh 7

- The remaining provisions of this Act shall come
into force on such date as the Central Government
may, by notification in the Official Gazette, appoint
and different dates may be appointed for different
provisions of this Act.
T.P.Ghosh 9

Timeline
The Ministry of Corporate Affairs notified 98 sections on 12th
September , 2013 including 68 definitions of Section 2 out of 94
definitions
Details of notified sections are discussed separately.
MCA issued clarifications on applicability of notified sections vis-a-vis
applicability of corresponding old sections on 18.9.2013
MCA issued clarification regarding disclosure requirements under
section 182(3) [ political contribution] of the Companies Act , 2013
MCA issued clarification of applicability of old Section 372A in view
of the notification of Section 185
Notification dated 11.11.2013 & 14.2.2014
T.P.Ghosh 10

Timeline
On 27 February, 2014 Section 135 regarding Corporate Social
Responsibility has been notified and to be effective from 1.4.2014.
Schedule VII has been revised and made effective from 1.4.2014
To be discussed separately.
On 26th March ,2014 , MCA notified 183 sections & on
MCA issued General Circular no. 6/2014 on 28.3.2014 that sets out
Roll out plan of various forms under the Companies Act, 2013 and
continuance of forms under the provisions of Companies Act, 1956
MCA issued amendment to Schedule II regarding depreciation and
amortisation on 5 April, 2014
T.P.Ghosh 11

The Companies Act,2013
A Very substantial part of the
Act is in the form of rules
which are being prescribed
separately.
27 NEW DEFINITIONS OUT
OF 94 IN TOTAL
Notified sections 1+98+1+183=283
Notified definitions 68
T.P.Ghosh 12

Chapters , Sections & Schedules At A Glance
Chapter Chapter Title Sections Notified
Sections
1 Preliminary 1-2 2*
II Incorporation of Company and Matters
Incidental thereto
3-22
III Prospectus and Allotment of Securities
Part I Public Offer
Part II Private Placement
23-41
42
IV Share Capital and Debentures 43-72
V Acceptances of Public Deposits by
Companies
73-76
VI Registration of Charges 77-87
VII Management and Administration 88-122
* Out of 95 clauses of Section 2 till date 79 clauses are implemented.
T.P.Ghosh 13

Chapters , Sections & Schedules At A
Glance
Sections
VIII Declaration and Payment of Dividend 123-127
IX Accounts of Companies 128-138
X Audit and Auditors 139-148
XI Appointment and Qualification of Directors 149-172
XII Meetings of Board and its Power 173-195
XIII Appointment and Remuneration of Managerial
Personnel
196-205
T.P.Ghosh 14

Sections
XIV Inspection, Inquiry and Investigation 206-229
XV Compromises, Arrangements And
Amalgamations
230-240
XVI Prevention of Oppression and Mismanagement 241-246
XVII Registered Valuers 247
XVIII Removal of Names of Companies from the
Register of Companies
248-252
XIX Revival and Rehabilitation of Sick Companies 253-269
T.P.Ghosh 15

Sections
XX Winding Up
Part I Winding up by Tribunal
Part II Voluntary Winding up
Part III Provisions applicable to every
kind of winding up
Part IV Official Liquidators
270
271 -303
304-323
324-358
357-365
XXI Part I Companies authorised to register
under this Act
Part II Winding up of unregistered
companies
366-374
375- 378
XXII Companies incorporated Outside India 379-393
XXIII Government Companies 394-395
T.P.Ghosh 16

Sections
XXIV Registration Offices and Fees 396-404
XXV Companies to Furnish Information or Statistics 405
XXVI Nidhis 406
XXVII National Company Law Tribunal and Appellate
Tribunal
407-434
XXVIII Special Courts 435-446
XXIX Miscellaneous 447-470
T.P.Ghosh 17

Schedule Schedule Title
I Memorandum of Associations & Article of Association
II Useful lives to Compute Depreciation ( New issues added)
III General Instructions for Preparation of Balance Sheet and Statement of Profit
and Loss of a Company
There is separate Section that describes –
General Instructions for Preparation of consolidated Balance Sheet and
Statement of Profit and Loss of a Company
IV Code for Independent Directors
V PART I
Conditions to be Fulfilled for the Appointment of a Managing or
Whole-Time Director or a Manager without the Approval of the
Central Government
PART II
Remuneration
VI Infrastructural projects or infrastructural facilities
VII Activities which may be included by companies in their Corporate Social
Responsibility Policies ( RevTi.sP.eGdho)sh 18

Notified Rules Total 21
T.P.Ghosh 21

T.P.Ghosh 22

T.P.Ghosh 23

Applicability of new e-forms
T.P.Ghosh 24

1. New definitions
• Section 2 of the Companies Act, 2013 defines 94 terms of
which 27 new terms are introduced.
• Important inclusions are accounting standards, auditing
standards, associate company, books of accounts, CEO,
CFO, control, deposit, employee stock option, financial
statement, global depository receipt, Indian depository
receipt, independent director, interested director, key
managerial personnel, promoter, one person company,
small company, turnover, voting right, etc.
• Rule 1.2(1) of the Draft Companies Rules, 2013 provides
definitions of certain terms.
T.P.Ghosh 28

2. One person company
• The Companies Act,2013 Offers alternative
simplified corporate form of doing business. OPC
is incorporated by one member with nomination
of another person who will become member in
case of death or incapacity of the sole member.
• An OPC can be formed by only natural person and
the nominee can be only the natural person.
• Restriction of maximum 5 OPC by a person
T.P.Ghosh 29

2. One person company….
• Size limit :
Paid up share capital Rs. 50 lakhs
Average annual turnover during the relevant
period Rs. 2 cr.
Balance sheet total Rs. 1 Cr.
Draft Rule used here a new parameter of
balance sheet total which is not used elsewhere
T.P.Ghosh 30

3. Dormant company
• Where a company is formed and registered under the
Companies Act, 2013 for a future project or to hold an
asset or intellectual property and has no significant
accounting transaction, such a company or an inactive
company may make an application to the Registrar seeking
the status of a dormant company. [ Section 455]
• The term inactive company means a company which has
not been carrying on any business or operation, or has not
made any significant accounting transaction during the last
two financial years, or has not filed financial statements
and annual returns during the last two financial years.
notified
T.P.Ghosh 31

3. Dormant company …
• The term significant accounting transaction
means any transaction other than—
• (a) payment of fees by a company to the
Registrar;
• (b) payments made by it to fulfil the
requirements of this Act or any other law;
• (c) allotment of shares to fulfil the requirements
of this Act; and
• (d) payments for maintenance of its office and
records.
T.P.Ghosh 32

4. Small Companies
• Section 2(85) of the Companies Act, 2013 defines ‘‘small
company’’ as a company, other than a public company,—
• (i) paid-up share capital of which does not exceed Rs. 50 lakhs or
such higher amount as may be prescribed which shall not be more
than Rs, 5 cr.; or
• (ii) turnover of which as per its last profit and loss account does not
exceed Rs.2 cr. or such higher amount as may be prescribed which
shall not be more than Rs. 20 cr.:
• However, the following companies are not treated as a small
company:
• (A) a holding company or a subsidiary company;
• (B) a company registered under section 8 ( refer to Paragraph 2.3);
or
• (C) a company or body corporate governed by any special Act.
T.P.Ghosh 33

5. Turnover
• Turnover means the aggregate value of the
realisation of amount made from the sale,
supply or distribution of goods or on account
of services rendered, or both, by the company
during a financial year.
• It appears different from revenue. Revenue
excludes realisation on behalf of third parties
like taxes
T.P.Ghosh 34

6. Private Companies
Private Companies
 No. of members increased to 200.
 Joint shareholders are treated a one member.
 Employees or ex-employees are not included in the number
of members.
 Minimum share capital Rs. 1,00,000.
 Prohibited to invite the public to subscribe any securities of
the company.
- OPC is a special form of private company.
- A private company which is a subsidiary company of a
public company shall be deemed to be a public company.
T.P.Ghosh 35

Private Companies…
• (i) A private company cannot have number of members more than
200.
• (iii) It cannot issue securities to more than 50 persons in a year
which is a pre-condition of private placement and cannot invite
public to subscribe its securities.
• (iii) It cannot alter its Articles that violates the basic tenets of a
private company regarding minimum (2) and maximum (200)
number of members, minimum number of director (2) , invitation
to public to subscribe securities [Section 23 & Section 42]
• (iv) It cannot issue Global Depository Receipts in foreign currency
under section 41 as it is a public offer.
• (v) It cannot raise public deposit under section 76.
T.P.Ghosh 36

Private Companies : 30 Special
Privileges
1. Minimum members 2
2.Minimum paid up capital Rs. 1 lakh
3.Advantages of small company :
(i) Exemption of preparing and presenting
Statement of cash flows as a component of financial
statements , (ii) exemption as regards conducting
board meeting only twice a financial year with time
gap of 90 days , (iii) signing the annual report by a
company secretary and (iv) exemption audit
rotation.
T.P.Ghosh 37

Private companies..
• (4) Allotment of shares – A private company does not have the restriction on
allotment of shares unless minimum subscription is received. Also the requirement
of minimum application money of 5% for issuance of security does not apply to a
private company [ Section 39(1) &(2)]
• (5) Non-applicability of SEBI Regulations - Issue of securities including sweat equity
and ESOP of a private company are not subject to SEBI regulations. These are
guided by Rules framed by the MCA.
• (6) Loans for purchase of company’s own shares – Unlike a public company, a
private company can give loan , provide guarantee or security for purchase of its
own shares. Restrictions of Section 67(2) do not apply to a private company.
• (7) Buy back of shares and issue of shares under ESOP– It is guided by Rules framed
by the MCA. The SEBI Guidelines do not apply to a private company. Privileges, if
any, that a private company would enjoy could be evaluated once the new set of
Rules are issued.
• (8) Signatory to the annual report – In case a private company is a small company,
its annual report needs not be signed by a company secretary or company
secretary in practice [ Proviso to Section 92(1)]. A director can sign the annual
return.
T.P.Ghosh 38

Private companies..
• (9) Certificate from company secretary in practice - Unless it falls within the class of
prescribed companies ( that the Companies Rules shall provide for) , a private company is
exempt from inclusion certificate of company secretary in the annual return. [Section 92(2)]
• (10) Lower quorum in general meeting – Two persons personally present would form a
quorum for general meeting. Of course, the Articles of the company may have different
quorums, in such a case the quorum mentioned in the Article would prevail. [ Section 103]
• (11) Report of annual general meeting – A private company is exempt from submission of a
report of the annual general meeting to the Registrar. [ Section 121]
• (12) Changes in the shareholding by promotes and top ten shareholders – A private company
is exempt from submission of return to the Registrar regarding changes in the shareholding
by the promoters and top ten shareholders [ Section 93].
• (13) Matters to be included in the board’s report –A statement of formal annual evaluation of
own performance by the Board , its committees and individual directors is not required to be
included in the Board’s report. [ Section 134(3)(p)]
• (14) Report on internal financial control- The Board’s report of a private company is exempt
from inclusion of statement on implementing internal financial control , and adequacy and
effectiveness thereof. [ Section 134(5)(e)]
T.P.Ghosh 39

Private companies….
• (15) Contribution for corporate social responsibility – Only a company that satisfies criteria of
net worth of Rs. 500 cr. or more , or turnover of Rs. 1000 cr. or more , or net profit of Rs. 5 cr.
or more is required to contribute 2% of average net profit of preceding 3 years. Other private
or public companies are not required to make CSR contribution. [ Section 135]
• (16) Communicating financial statements – A private company and unlisted public company is
exempt for certain modes of communication of financial statements as required by the first
and third proviso to Section 136:
• - A private and unlisted public company is not required to prepare a salient features of
documents to be attached to annual report and send to members and debenture holders at
least 21 days before the annual general meeting.
• - A private and unlisted public company is not required to post the stand-alone and
consolidated financial statements are other documents which are required to be attached
thereto on the website of the company.
• (17) Rotation of auditor and audit firm – A private company which is a small company and
OPC is not required to rotate auditor or audit firm as per Section 139(2). [ Draft Rules 10.3]
• (18) Independent directors – A private company is not required to appoint independent
directors as per Section 149(4).
T.P.Ghosh 40

• (19) Retirement of directors – Directors of a private company are not required to
retire by rotation. [ Section 152(6)].
• (20) Additional disqualification for directors – A private company may include
additional disqualification for directors other than those specified in Section
164(1)&(2). [ Section 164(3)]
• (21) Additional grounds for vacation of office by directors- A private company may
include additional grounds for vacation of office by a director in its Articles other
than those specified in Section 167(1). [ Section 167(4)]
• (22) Audit Committee , Nomination and Remuneration Committee- A private
company is not required to constitute audit committee under section 177(1) ,
Nomination and remuneration committee under section 178(1).
• (23) Stakeholders relationship committee - A private company which does not have
more than 1000 debenture-holders or other security-holders is not required to
constitute stakeholders relationship committee under section 178(5).
• (24) Vigil mechanism – A private company other than companies which have
borrowed money from banks and public financial institutions in excess of Rs. 50 cr.
is not required to institute vigil mechanism under section 177(9).
T.P.Ghosh 41

• (25) Maintenance of copy of contract with Managing Director or Whole Time Director – The
requirements of section 190 regarding maintaining a copy of the contract of service with the
managing director or whole time director or a memorandum of the contract where such contract is
not written at the registered office and keeping it open for inspection do not apply to a private
company. [ Section 190(4)].
• (26) Overall maximum managerial remuneration – The ceiling stated in Section 197 is not
applicable to private company. [ Section 197]
• The ceiling prescribed in Sections II,III & IV of Schedule V would apply to private companies in case
it has no profit or inadequate profit under section 197(3).
• (27) Disclosure of ratio remuneration of directors – A private company is not required to disclose in
the Board’s report the ratio of the remuneration of each director to the median employee’s
remuneration and other details under section 197(12).
• (28) Secretarial audit – It is not applicable to certain private companies. [ Section 204(1)].
• The annual return, filed by a listed company or a company having paid-up share capital of Rs. 5 cr
or more and turnover of Rs. 25 cr. or more, shall be certified by a Company Secretary in practice.
• (29) Take-over offer – A private company is not required to comply with SEBI Regulations as regards
take over offer [ Proviso to Section 230(11)]
• (30) Fast track mergers without Tribunal or Court process- Merger between two or more small
companies can be carried out through Central Government , Registrar and Official Liquidator. [
Section 233]
T.P.Ghosh 42

7. Investments through not more than two
layers of investment companies
[ Section 186(1) ]
A company cannot make investment through
not more than two investment companies. This
would automatically prohibits chain holding
through investment subsidiaries.
A company may be sum of too many parts
which is perceived to be restricted:
The genesis of this provision was in the Standing
Committee Report on Companies Bill, 2009, which
discussed that multilayer subsidiaries have become
a major source for diversion of funds and, in the
process, minority interest is affected.
T.P.Ghosh 43

Exclusions from Multi-layering
• The following investments are excluded from the scope
of Section 186 :
• (i) When a company acquires any other company
incorporated in a country outside India if such other
company has investment subsidiaries beyond two
layers as per the laws of such country.
• (ii) A subsidiary company from having any investment
subsidiary for the purposes of meeting the
requirements under any law or under any rule or
regulation framed under any law for the time being in
force.
T.P.Ghosh 44

8. Key Managerial Personnel
Section 2(51) “key managerial personnel”, in
relation to a company, means—
(i) the Chief Executive Officer or the managing
director or the manager;
(ii) the company secretary;
(iii) the whole-time director;
(iv) the Chief Financial Officer; and
(v) such other officer as may be prescribed;
T.P.Ghosh 45

9. Officer in default
• “Officer who is in default”, for the purpose of
any provision in this Act which enacts that an
officer of the company who is in default shall
be liable to any penalty or punishment by way
of imprisonment, fine or otherwise, means
any of the following officers of a company:
T.P.Ghosh 46

Officer in default
• Enlarged scope of officer in default is to pinpoint
responsibility which now includes advisors as well.
• The clause “every director, in respect of a
contravention of any of the provisions of this Act, who
is aware of such contravention by virtue of the receipt
by him of any proceedings of the Board or participation
in such proceedings without objecting to the same, or
where such contravention had taken place with his
consent or connivance” includes the independent
directors and nominee directors as well.
T.P.Ghosh 48

10. Associate Company
• It is defined as a company in which that other
company has a significant influence, but which is not a
subsidiary company of the company having such
influence and includes a joint venture company.
• For the purposes of this clause, “significant influence”
means control of at least twenty per cent of total
share capital, or of business decisions under an
agreement.
[ Section 2 (6)]
• This definition contradicts the definition of associate
company given in the accounting standard.
T.P.Ghosh 49

11. Control
• The Companies Act, 2013 has introduced a broader
definition of the term control.
• Control shall include the right to appoint majority of the
directors or to control the management or policy decisions
exercisable by a person or persons acting individually or in
concert, directly or indirectly, including by virtue of their
shareholding or management rights or shareholders
agreements or voting agreements or in any other manner. [
Section 2 (27)]
• However, this definition is not in consonance of the
definition provided in the financial reporting standard.
T.P.Ghosh 50

12. Subsidiary
• The subsidiary company shall have wider meaning. In
case a holding company exercises or controls more
than one-half of the total share capital of another
company either at its own or together with one or
more of its subsidiary companies , the later company
becomes the subsidiary company of the former. [
Section 2(87)]
• Total share capital means both equity share capital and
preference share capital. The Companies Act, 2013
includes preference share capital for the purpose of
determining holding –subsidiary relationship.
T.P.Ghosh 51

13. Foreign company
• Foreign company means any company or body
corporate incorporated outside India which,—
(a) has a place of business in India whether by
itself or through an agent, physically or through
electronic mode; and
(b) conducts any business activity in India in
any other manner.
T.P.Ghosh 52

14. Promoters
Section 2 (69) “promoter” means a person—
(a) who has been named as such in a prospectus or is
identified by the company in the annual return referred
to in section 92; or
(b) who has control over the affairs of the company,
directly or indirectly whether as a shareholder, director or
otherwise; or
(c) in accordance with whose advice, directions or
instructions the Board of Directors of the company is
accustomed to act:
Provided that nothing in sub-clause (c) shall apply to a
person who is acting merely in a professional capacity.
T.P.Ghosh 53

16. Objects clause
• The object clause in the Memorandum of Association
of a company not required to be divided into main,
ancillary and other objects. Only the objects for which
the company is incorporated along with matters
considered necessary for its furtherance to be
mentioned. The company cannot provide for other
object clause.
• Section 4(c) requires that the objects for which the
company is proposed to be incorporated and any
matter considered necessary in furtherance thereof.
T.P.Ghosh 54

17. Memorandum
Schedule I
(a) The objects to be pursued by the company on its
incorporation are—
(b) Matters which are necessary for furtherance of
the objects specified in clause 3(a) are:—
- Main object , ancillary object etc. are not there.
T.P.Ghosh 55

18. Compliance with registration
requirements
• A declaration, in the prescribed form, is required
to be filed with the Registrar at the time of
registration of a company that all the
requirements of the Act in respect of registration
and matters precedent or incidental thereto have
been complied with, will be required to signed by
both - a person named in the articles as a
director, manager or secretary of the company as
well as by an advocate, a chartered accountant,
cost accountant or company secretary in practice,
who is engaged in the formation of the
company. [ Section 7 ]
T.P.Ghosh 56

19. Conversion of one class of
company into another
• Provision for Conversion of Companies already registered is
introduced. This requires alternation of Memorandum and
Articles. On satisfaction of the requirements, the Registrar
would close the former registration of the company and
after registering the documents, issue a certificate of
incorporation in the same manner as its first registration.
• Conversion shall not affect any debts, liabilities, obligations
or contracts incurred or entered into, by or on behalf of the
company before conversion and such debts, liabilities,
obligations and contracts may be enforced in the manner
as if such registration had not been done.
[Section 18]
T.P.Ghosh 57

20. Entrenchment clause
• Articles may contain entrenchment clause.
The Articles of Association of the company
may contain provisions for entrenchment
whereby specified provisions of the Articles
can be altered only if conditions or procedures
that are more restrictive than those applicable
in case of special resolution have been met
with. [Section 5(3)]
T.P.Ghosh 58

21. Commencement of business
• To commence business, a public/private company
needs to file the following with the Registrar of
Companies:
• A declaration by a director in the prescribed form
stating that the subscribers to the memorandum
have paid the value of shares agreed to be taken
by them, and
• A confirmation that the company has filed a
verification of its registered office with the
Registrar. [ Section 11]
T.P.Ghosh 59

22. Rectification name of company
• In case of registration of by a name inadvertently or
otherwise which in the opinion of the Central Government,
is identical with or too nearly resembles the name by which
a company in existence had been previously registered ,
change of name is ordered.
• A registered proprietor of a trade mark may also apply to
the Central Government complaining that the name
registered for a company is identical with or too nearly
resembles to a registered trade mark of such proprietor
under the Trade Marks Act, 1999. The application shall be
made to the Central Government within three years of
incorporation or registration of the company. The Central
Government may direct the company to change new name.
[ Section 16]
T.P.Ghosh 60

23. Subsidiary company not to hold
shares in holding company
• A subsidiary company cannot hold by itself or
through its nominee any share of its holding
company.
• A holding company shall not allot any shares
to its subsidiary company . [ Section 19]
T.P.Ghosh 61

24. Authentication of documents
• A document or proceeding requiring authentication by a
company; or (b) contracts made by or on behalf of a
company, may be signed by any key managerial personnel
or an officer of the company duly authorized by the Board
in this behalf. [ Section 21]
[ Notified ]
Old section 54. AUTHENTICATION OF DOCUMENTS AND
PROCEEDINGS
• Save as otherwise expressly provided in this Act, a
document or proceeding requiring authentication by a
company may be signed by a director, the manager, the
secretary or other authorised officer of the company, and
need not be under its common seal.
T.P.Ghosh 62

25. Change in object clause pending
utilisation of money raised from public
• A company that has raised money from public
through prospectus and has not fully utilised the
money so raised, shall not change the objects for
which money was raised unless it has passed by a
special resolution, widely publicized the proposal
by way of an advertisement and provided an exit
opportunity to dissenting shareholders. [ Section
13(8)]
• There is no such requirement under the
Companies Act, 1956.
T.P.Ghosh 63

26. PROSPECTUS AND ALLOTMENT OF
SECURITIES
• Chapter III of the Companies Act 2013 sets out provisions
governing the issue of all types of securities, as opposed to
only shares and debentures as in the Companies Act, 1956.
This Chapter provides the manner in which securities can
be issued by both public and private companies.
• A public company can issue securities through a public offer
or a private placement or by way of bonus or rights issue.
Part I of Chapter 3 covers public issue and Part II covers
private placement.
• A private company may issue securities on rights basis or by
way of bonus issue or by way of private placement in
accordance with Part II of Chapter III.
T.P.Ghosh 64

Power of the SEBI to regulate issue
and transfer of securities etc.
• The power of SEBI to administer the sections of the Companies Act related to a
listed company and a company intending to get itself listed, extended to include
the provisions related to share capital, which is not provided in the Companies Act,
1956.
• Section 24 : The provisions contained in this Chapter, Chapter IV and in section 127
shall—
(a) in so far as they relate to —
(i) issue and transfer of securities; and
(ii) non-payment of dividend, by listed companies or those companies which intend
to get their securities listed on any recognised stock exchange in India, except as
provided under this Act, be administered by the Securities and Exchange Board by
making regulations in this behalf;
(b) in any other case, be administered by the Central Government.
Explanation.— For the removal of doubts, it is hereby declared that all powers relating
to all other matters relating to prospectus, return of allotment, redemption of
preference shares and any other matter specifically provided in this Act, shall be
exercised by the Central Government, the Tribunal or the Registrar, as the case may
be.
T.P.Ghosh 65

Variation in prospectus
• A Company shall not vary the terms of contract
referred to in Prospectus or objects for which it is
issued without the approval of shareholders by
way of special resolution and providing exit
opportunity to the dissenting shareholders.
• Moreover it shall not use the amount raised by
way of issue of Prospectus for buying, trading or
otherwise dealing in Equity shares of any other
listed Company.
• The said requirement is not there under the
Companies Act 1956. [ Section 27]
T.P.Ghosh 66

27. Shelf prospectus
• SEBI to prescribe class/classes of companies
that can file shelf prospectus with the
Registrar.
• The Companies Act, 1956 allows only public
financial institutions, public sector banks and
scheduled banks to issue shelf prospectus.
T.P.Ghosh 67

28. Misleading information in prospectus and manipulations
in making application in fictitious names etc.
• Any person (including group or association) affected by any
misleading statement or inclusion or omission of any
matter in the prospectus can file any suit or take any action
under clause 34 (Criminal liability for misstatement in
prospectus), clause 35 (Civil liability for misstatement in
prospectus) and clause 36 (Punishment for fraudulently
inducing persons to invest money).
• Action to be taken against any person making or abetting
making of applications under fictitious names, different
names or in different combinations of names and surnames
for acquiring or subscribing to the securities of the
company.
T.P.Ghosh 68

29. Deemed public offer
• If a company, listed or unlisted, makes an offer to allot or invites
subscription, or allots, or enters into an agreement to allot,
securities to more than 50 persons, whether the payment for the
securities has been received or not or whether the company
intends to list its securities or not on any recognised stock exchange
in or outside India, the same shall be deemed to be an offer to the
public.
• To be qualified a private placement , an offer of securities or
invitation to subscribe securities, shall be made to such number of
persons not exceeding 50 or such higher number as may be
prescribed, (excluding qualified institutional buyers and employees
of the company being offered securities under a scheme of
employees stock option). [Section 42]
T.P.Ghosh 69

Private Placement…
• Section 42 of the Act prescribed for private placements by ALL companies.
The compliances/procedure for a privately placed offer is explained below:
• Every private placement is to be made by way of an offer letter [Section 42
(1)].
• All offers covered under this section shall be made only to such persons
whose names are recorded by the company prior to the invitation to
subscribe. Such persons shall receive the offer by name, and that a
complete record of such offers shall be kept by the company in such
manner as may be prescribed and complete information about such offer
shall be filed with the Registrar within a period of thirty days of circulation
of relevant private placement offer letter. [ Section 42(7)].
• Offer can be made only to 50 persons in a financial year .[Section 42(2)] .
T.P.Ghosh 70

• Private companies under the Act can have members up to 200 and
under private placement, in a year, a company (including private
company) can make allotment to a maximum of 50 persons in
financial .
• No fresh offer or invitation under this section shall be made unless
the allotments with respect to any offer or invitation made earlier
have been completed or that offer or invitation has been withdrawn
or abandoned by the company. [Section 42(3)] .
This mean if there are unallotted applications out of the past issues,
one cannot invite further applications from the subscribers unless the
offer has been withdrawn or abandoned by the company.
T.P.Ghosh 71

• One of the rigorous conditions prescribed is that the
application money cannot be received in cash. Cheque,
demand draft or banking channels is the only way for
issue of securities even under privately placed offers.
[Section 42(5)] .
• All securities under private placement are to be
allotted within a period of 60 days from the receipt of
application money. If the securities are not allotted
within the specified period, the application money is to
be refunded within a period of 15 days from
completion of 60 days’ time. [Section 42(6)] .
T.P.Ghosh 72

• The entire amount raised by the issue of offer or invitation will need to be
parked in a separate bank account and cannot be used until allotted.
[Proviso to section 42(6)] .
• The particulars of every private offer shall be filed with the Registrar
within 30 days of circulation of offer letter. [Section 42(7)] .
• The companies offering or inviting subscriptions under private placement
cannot advertise or utilise any marketing media. [Section 42(8)] .
• Return of allotment is required to be filed with the Registrar. [Section
42(9)].
Important to note that the time for filing such return has not been prescribed.
In the existing Companies Act, 1956, the time limit for filing return of
allotment is 30 days from the date of allotment.
T.P.Ghosh 73

30. Tenure of preference shares
• Preference shares can be issued for a
maximum period of twenty years. Companies
engaged in infrastructural projects can issue
preference shares with redemption of such
percentage shares annually at the option of
the preference shareholders. [ Section 55]
T.P.Ghosh 74

31. Restriction to Buy Back of shares
• Under the Companies Act,1956 , if buy back is
made as per approval of the Board of Directors
to the extent of 10% of paid up equity capital and
free reserve , then no further buy back is allowed
within a period of 365 days reckoned from the
preceding offer of buy back. No buy back is
allowed as per the Companies Act, 2013 for a
period of 1 year from the date of closure of the
preceding buy back whether approved by the
Board or shareholders. [ Section 68]
T.P.Ghosh 75

32. Restriction on raising deposit
• A company is permitted to raise deposits from
its shareholders on the basis of a special
resolution. However, only a public company
with prescribed net worth or turnover shall be
allowed to raise deposit from public. [
Sections 73& 76]
T.P.Ghosh 76

33. Registration Charge
• If a company fails to register a charge under
section 77, the person in whose favour the
charge is created may apply for registration of
charge. [ Section 78]
T.P.Ghosh 77

34. Demanding for Poll
• For demanding poll in general meetings of a
company, the requisite minimum voting right
shall be one-tenth of the total voting right or
holding shares of paid value not less than Rs.
5,00,000, [ Section 109]
•
T.P.Ghosh 78

35. Interim Dividend
• The new Act restricts interim dividend at a
rate higher than the average dividends
declared by the company during the
immediately preceding three financial years
when a company has incurred loss up to
preceding quarter during the year. [ Section
123(3)]
•
T.P.Ghosh 79

36. Transfer to Reserve
• Transfer to reserve before payment of final
dividend is made voluntary. [ Section 123]
T.P.Ghosh 80

37. Dividend out of accumulated
profit
• In case of inadequacy of profit, dividend can
be paid out of accumulated profit subject to
restrictions specified in the Rules. However,
dividend can be paid out of free reserves only.
[ Section 123]
•
T.P.Ghosh 81

38. Transfer shares along with unpaid
or unclaimed dividend
• On expiry of seven years, the unpaid or
unclaimed dividend is transferred to the
Investor Protection and Education Fund along
with the shares. [ Section 124(6)]
T.P.Ghosh 82

39. Uniform Financial Year
• Companies to follow uniform financial year
April-March as accounting period with certain
exceptions. [ Section 2(41)]
T.P.Ghosh 83

40. Enlarged meaning of financial
statements
• Meaning of financial statements has been
enlarged. [ Section 2(40)]
• Financial statements include statement of
cash flows and statement of changes in equity.
All companies are required to statement of
cash flows except One Person Company,
dormant company and small company.
T.P.Ghosh 84

41. Consolidated financial statements
• A company having subsidiary is required to
prepare consolidated financial statements.
There is no disclosure requirement similar to
that of Section 212 of the Companies Act,
1956. However, a holding company shall
disclose salient features of financial
statements of its subsidiary in the prescribed
format. [ Section 129(3)]
T.P.Ghosh 85

42. Fair value loss or gain
• The Companies Act, 2013 mentions about fair
value loss or gain which arise out of fair value
measurement as per IFRS. Section 198 refers to
exclusion of fair value loss or gain for calculation
profit for the purpose of determining overall
limit of managerial remuneration and
contribution for discharging corporate social
responsibility. [ Section 198]
• Dividend cannot be declared out of fair value gain
as it is not free reserve. [ Section 123 read with
Section 2(43)].
T.P.Ghosh 86

43.Annual return
• Substantial additional information is to be
furnished through Annual Return of a
company.
• Annual Return of a listed company is required
to be signed by the Company Secretary in
practice even if it is signed by the Company
Secretary in employment of the Company. [
Section 92]
T.P.Ghosh 87

44. Re-opening of books of accounts
• A company shall have to re-open books of
accounts in the order of the Tribunal [ Section
130]
T.P.Ghosh 88

45. Voluntary revision of financial statements
or Board’s report
• If it appears to the directors that financial
statements or the report of the Board do not
comply with the requirements of Section 129
or Section 134, they prepare revised financial
statements or Board’s report. [ Section 131]
T.P.Ghosh 89

46. National Financial Reporting Authority
(NFRA)
• The NFRA has been given wider authority
covering oversight and disciplinary mechanism
of auditors as compared the existing National
Advisory Committee on Accounting Standards
(NACAS) under the Companies Act, 1956. [
Section 132]
T.P.Ghosh 90

47. Corporate Social Responsibility
• The qualifying company has to use for CSR at
the minimum 2% of its average net profits for
last three years immediately before end of the
financial year. Non-compliance to be covered
in Directors’ Report. [ Section 135]
T.P.Ghosh 91

48. SHARE CAPITAL AND DEBENTURES
• (1) Voting rights of preference shareholders on resolutions placed
at a shareholders meeting modified. Now where dividend are in
arrears for 2 years or more, preference shareholders can vote on all
resolutions of the company. [ Section 47(2)]
• (2) Shares, other than sweat equity, cannot be issued at a discount.
No provision has been provided for issue of share at discount after
approval as compared to the Companies Act 1956.
• (3) Preference shares have to be redeemed within 20 years of issue.
However, for companies to be allowed to issue preference shares
redeemable after 20 years for prescribed infrastructure projects,,
provided a certain percentage of shares are redeemed annually at
the option of the shareholder. Infrastructure projects is defined in
Schedule VI. [ Section 55(2) ]
T.P.Ghosh 92

49.Statutory Audit
• Rotation of auditors and audit firm has been
introduced for achieving good corporate
governance. [ Section 139]
• Removal of the auditor by the central
Government
• Rotation and removal distinguished
T.P.Ghosh 93

50. Limit of directorship
• Upper limit of directorship in companies is increased to
20 with a sub-limit of maximum number of
directorship in public companies of 10. A directorship
of private company which is subsidiary of public
company is treated as public company for this purpose.
Also alternate directorship is included. The members of
a company may, by special resolution, specify any
lesser number of companies in which a director of the
company may act as directors. [ Section 165]
T.P.Ghosh 94

51 Woman Director
• The Companies Act, 2013 has introduced a
seat for woman director in the Board of
certain companies. [ Second Proviso to Section
149].
T.P.Ghosh 95

52. Directors elected by small shareholders
• A listed company may have one director
elected by small shareholders.
• Small shareholders means a shareholder
holding shares of nominal value of not more
than twenty thousand rupees or such other
sum as may be prescribed.
T.P.Ghosh 96

53. Independent Directors
• A listed company shall have at least one-third of
total number of directors as independent
directors. The Central Government may prescribe
the minimum number of independent directors in
case of any class or classes of public companies.
• Independent directors are not eligible to receive
stock option .
• Code of conduct for independent directors has
been introduced.
T.P.Ghosh 97

54. Permanent disqualification of directors
• A person who has been sentenced for a period
7 year or more for any offence disqualifies to
be a director in any company. [ Proviso to
Section 164(1)(d)]
T.P.Ghosh 98

55. Loans and investments
• Investments are allowed within limit and only
with two layers of investment subsidiaries. [
Section 186(1)]
• Loans, investments, guarantee, and providing
security beyond the specified limit with
special resolution only. [ Section 186(2)]
T.P.Ghosh 99

56. Loan to directors
• The Companies Act,2013 prohibits loans to
directors other than in the normal course of
business. [ Section 185]
T.P.Ghosh 100

57.Role of Company Secretary in Practice
• Increased involvement of company secretaries
including secretarial audit for selected
companies have enlarged the role of company
secretaries in practice.
T.P.Ghosh 101

58. Application of secretarial standards
• While recording minutes application of
relevant secretarial standards are made
mandatory. Also secretarial audit shall be
conducted complying with all secretarial
standards.
T.P.Ghosh 102

59. Applications of cost audit standards
• While conducting cost audit, a cost auditor
shall apply cost audit standards. [ Proviso to
Section 148(3)]
T.P.Ghosh 103

60. Registered Valuer
• If valuation of property, stocks, shares,
debentures, securities, goodwill , other assets
or net worth is required under this Act, such
valuation shall be carried out by the registered
valuer. [ Section 247]
T.P.Ghosh 104

61. Mergers and Acquisition
• Fast Track mergers without court process has
been introduced with exit route to dissenting
shareholder to facilitate speedy mergers and
acquisitions. [ Section 233]
T.P.Ghosh 105

62. Replacement of the Company Law Board
• National Company Law Tribunal (NCLT) shall
take over the functions of Company Law
Board. The Companies Act, 2013 has also
provided for establishment of National
Company Law Appellate Tribunal ( NCLAT) [
Sections 408&410]
T.P.Ghosh 106

NCLT& NCLAT
• NCLT is envisaged to replace the Company Law Board
(CLB), the Board for Industrial and Financial
Reconstruction (BIFR) and the Appellate Authority for
Industrial and Financial Reconstruction (AAIFR).
• NCLT will be a one-stop establishment for approvals of
mergers, winding up, corporate reorganisation, capital
reduction, extension of financial year, and other
matters related to companies that are currently
executed through multiple agencies including High
Courts, CLB, BIFR, AAIFR.
• This is likely to reduce the burden on High Courts.
T.P.Ghosh 108

NCLT& NCLAT
• Creation of NCLT has been the top priority of the Government because
between the CLB and the BIFR, there are around 3,000 pending cases
while the total numbers of companies under liquidation as on March 31,
2012 stood at 5,727 in various High Courts. Of these, 1,046 cases have
been pending for over 20 years.
• The MCA has now finalised the rules pertaining to the salaries, allowances
and other terms and conditions of the services of the heads and other
members of NCLAT. As per the rules, the president of NCLT will get a
monthly salary of Rs. 80,000, comparable to a secretary rank official
whereas the chairperson of the appellate tribunal will draw a salary of Rs.
90,000 per month plus fixed allowances as admissible to a Cabinet
Secretary-ranked official.
• The members of NCLT will draw a salary in the pay scale of Rs. 67,000-
79,000 whereas the members of NCLAT will have a monthly salary of Rs.
R80,000 fixed.
T.P.Ghosh 109

NCLT& NCLAT
• Once NCLT is in place, BIFR and AAIFR will be
dissolved.
• As per the provisions of the new company law,
NCLT will be the sole authority for all cases
pending across High Courts, CLB, BIFR or any
other tribunal.
• Each bench will be required to draw up a
calendar for the hearing of transferred cases.
• NCLT will also have the powers to re-hear
matters which could not be decided in CLB, BIFR
or any other tribunal/court.
T.P.Ghosh 110

New judicial system
T.P.Ghosh 111

63. Class Action Suit
• Class action suit by specified number of
members or depositors is allowed as measure
against oppression and mismanagement. [
Section 245]
T.P.Ghosh 112

64. Changes relating to inspection, inquiry and
investigations
• Statutory status is granted to Serious Fraud
Investigation Office(SFIO)
• SFIO has been given wide powers. [ Section
211]
T.P.Ghosh 113

65. Related Party Transactions
• Scope of related party transactions has been widened
and definition of relatives has also been enlarged and
replaced with definition of related party. Related party
transactions are to be approved by all members of the
Board present . Interested directors are not allowed to
participate in the meeting.
• Prescribed related party transactions shall be approved
in the general meeting by way of special resolution in
the general meeting of the shareholders in which
interested members are not allowed to participate.
• Every related party transaction to be disclosed in
Board’s report. [ Section 88]
T.P.Ghosh 114

66.Search and seizure
• The powers of Registrar /Inspector to search and
seizure under the Companies Act,2013 has been
extended to the places of Key Managerial
Persons, Auditors and Company Secretary in
practice. [ Section 209]
• Period within which the document seized to be
returned to the company has been increased
from 30 to 180 day with power to Registrar to call
the books and documents for further period of
180 days.
T.P.Ghosh 115

67. Punishment for Fraud
• Any person who is found to be guilty of fraud,
shall be punishable with imprisonment for a
term which shall not be less than 6 months
but which may extend to 10 years and shall
also be liable to fine which shall not be less
than the amount involved in the fraud, but
which may extend to 3 times the amount
involved. [ Section 447]
T.P.Ghosh 116

66. Mediation and Conciliation Panel
• The Central Government shall maintain a panel of
experts to be called as the Mediation and
Conciliation Panel consisting of such number of
experts having such qualifications as may be
prescribed for mediation between the parties
during the pendency of any proceedings before
the Central Government or the Tribunal or the
Appellate Tribunal. [ Section 442].
T.P.Ghosh 117

67.Disgorgement
• – The court may order disgorgement of gain made by person by
way of acquiring or subscribing securities in fictitious name or by
making multiple applications for subscribing securities in multiple
names, etc. The amount received through disgorgement is
transferred to Investor Protection and Education Fund. [Section 38]
• Where the report made by an inspector states that fraud has taken
place in a company and due to such fraud any director, key
managerial personnel, other officer of the company or any other
person or entity, has taken undue advantage or benefit, whether in
the form of any asset, property or cash or in any other manner, the
Central Government may file an application before the Tribunal for
appropriate orders with regard to disgorgement of such asset,
property, or cash, as the case may be, and also for holding such
director, key managerial personnel, officer or other person liable
personally without any limitation of liability. [ Section 224(5)]
T.P.Ghosh 118

Companies Act, 2013 program Session 1

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (20)

Andere mochten auch

Andere mochten auch (20)

Ähnlich wie Companies Act, 2013 program Session 1

Ähnlich wie Companies Act, 2013 program Session 1 (20)

Mehr von Tarapada Ghosh

Mehr von Tarapada Ghosh (6)

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

Companies Act, 2013 program Session 1