Transcript Presentation

Companies Act 2013
Role & Responsibilities of Directors,
Independent Directors, KMP
Ashish Makhija
Advocate
LLM (USA), LLM (India), FCA, FCMA
Standing Counsel for the Official Liquidator
Attached to High Court of Delhi
Member of:
1
Looking Back
Companies Act 1956
 658 Sections (Effectively 881 Sections)
 16 Schedules
 66 Definitions
 34 set of Rules & Regulations
2
Looking Forward
Companies Bill 2009
 426 Sections
 No Schedules
 93 Definitions
 Phrase “as may be prescribed” appeared “235 times”
in the Bill
3
Looking Forward
Companies Act 2013
 470 Sections
 7 Schedules
 95 Definitions
 Phrase “as may be prescribed” appears “346 times” in
the Act
 46 sections of Part IX A of Companies Act, 1956
relating to Producer Companies will continue to apply
even after Companies Act, 1956 is repealed
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Companies Act 2013 - Status
 President’s Assent on 29th August 2013
 98 Sections notified on 12th September 2013
 Removal of Difficulties order issued on 20th September 2013
regarding implementation of Sections 24, 58 and 59
 Schedule VII & Section 135 notified on 27th February 2014
 183 Sections notified on 26th March 2014
 Companies 1st (Removal of Difficulties) Order, 2014 regarding
clarification on Section 2(76), the definition of related party
 Companies 2nd (Removal of Difficulties) Order, 2014 regarding
clarification on Section 92, the limit on Certification of Annual
Return
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Companies Act 2013 - Status
Clarification No. 1 – General Circular 15/2013 dated 13.09.2013
 S. 2(68) – MoA, AoA filed till 11.9.13 can be registered as per
definition of private company under CA 1956
 S.102 – Notices of general meetings issued on or after 12.9.13
must comply with additional requirements as prescribed in S. 102
 S.133 – Existing Accounting Standards notified shall continue to
apply till new one are notified u/s 133
 S.180 – Resolutions can be passed as ordinary resolution if
general meeting notice has been issued prior to 12.0.2013
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Companies Act 2013 - Status
Clarification No. 2 – General Circular 16/2013 dated 18.09.2013
 “It is clarified that w.e.f. 12.9.13, the relevant provisions of CA
1956, which correspond to the provisions of 98 sections of CA
2013 brought in force on 12.09.13, cease to have effect from
that date.”
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Companies Act 2013 - Status
 Applies to whole of India
 Central Government will notify date of applicability
 Different dates may be appointed for different provisions
 Applies to all banking, insurance and electricity companies
also so long provisions are not inconsistent with Special
Acts.
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Understanding Layout
 Divided in to 29 chapters
 Incorporation, MoA, AoA – Chapter II – Sections 3 to 22
 Prospectus – Chapter III – Sections 23 to 42
 Share Capital – Chapter IV – Sections 43 to 72
 Public Deposits – Chapter V – Sections 73 to 76
 Registration of Charges – Chapter VI – Sections 77 to 87
 Management & Administration – Chapter VII – Sections 88 to
122
 Dividend – Chapter VIII – Sections 123 to 127
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Understanding Layout
 Accounts – Chapter IX – Sections 128 to 138
 Audit & Auditors – Chapter X – Sections 139 to 148
 Directors, Board & Remuneration – Chapters XI, XIII, XIII –
Sections 149 to 205
 Inspection, Investigation – Chapter XIV – Sections 206 to 229
 Mergers – Chapter XV – Sections 230 to 240
 Oppression and Mismanagement – Chapter XVI – Sections 241
to 246
 Registered Valuers – Chapter XVII – Section 247
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Understanding Layout
 Removal of Names of Companies – Chapter XVIII – Sections 248 to 252
 Revival – Chapter XIX – Sections 253 to 269
 Winding –up – Chapter XX – Sections 270 to 378
 Companies Authorized to Register Under the Act – Chapter XXI –
Sections 366 to 374
 Foreign Companies – Chapter XXII – Sections 379 to 393
 Government Companies – Chapter XXIII - Sections 394 & 395
 Registration Offices & Fees – Chapter XXIV – Sections 396 to 404
 Companies to furnish Information – Chapter XXV – Section 405
 Nidhis – Chapter XXVI – Section 406
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Understanding Layout
 NCLT – Chapter XXVII – Sections 407 to 434
 Special Courts – Chapter XXVIII – Sections 435 to 446
 Miscellaneous - Chapter XXIX – Sections 447 to 470
 Schedule I – Table A to I
 Schedule II – Depreciation
 Schedule III – Balance Sheet
 Schedule IV – Code for Independent Directors
 Schedule V – Managerial Personnel
 Schedule VI – Infrastructural Projects
 Schedule VII – Activities for CSR Policy
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Definitions
Definitions
Companies Act, 1956
Companies Act, 2013
Board of
Directors
S. 2(6)--"Board of directors" or
"Board", in relation to a company,
means the Board of directors of the
company;
S. 2(10)-- “Board of
Directors” or “Board”, in
relation to a company,
means the
collective body of the
directors of the company;
Director
S. 2(13)-- "director" includes any
person occupying the position of
director, by whatever name called
S. 2(34)-- “director”
means a director
appointed to the Board of
a company
Definitions
Definitions
Companies Act, 1956
Companies Act, 2013
Interested
Director
S. 287(1)(b) "interested
director" means any director
whose presence cannot, by
reason of section 300, count
for the purpose of forming a
quorum at a meeting of the
Board, at the time of the
discussion or vote on any
matter.
S. 2(49) “interested director” means
a director who is in any way, whether
by himself or through any of his
relatives or firm, body corporate or
other association of individuals in
which he or any of his relatives is a
partner, director or a member,
interested
in
a
contract
or
arrangement, or proposed contract
or arrangement, entered into or to be
entered into by or on behalf of a
company;
Broader Criterion
specified—
1. Holding Directorship or is a
partner of a firm
2. More than 2% membership
3. Relative is a director,
member, partner in a firm
Definitions
Definitions
Companies Act, 1956
Companies Act, 2013
Key
Managerial
Personnel
Not defined
S. 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;
Definitions
Definitions
Companies Act, 1956
Companies Act, 2013
Managing
Director
S. 2(26)-- "managing director"
means a director who, by virtue
of an agreement with the
company or of a resolution
passed by the company in
general meeting or by its Board
of directors or, by virtue of its
memorandum or articles of
association, is entrusted with
substantial
powers
of
management which would not
otherwise be exercisable by him,
and
includes
a
director
occupying the position of a
managing director, by whatever
name called
S.
2(54)-“managing
director” means a director
who, by virtue of the articles
of a company or an
agreement with the company
or a resolution passed in its
general meeting, or by its
Board
of
Directors,
is
entrusted with substantial
powers of management of
the affairs of the company
and includes a director
occupying the position of
managing
director,
by
whatever name called.
Definitions
Definitions
Companies Act, 1956
Companies Act, 2013
Officer
S. 2(30)-- "officer" includes any
director, manager or secretary or
any person in accordance with
whose directions or instructions
the Board of directors or any one
or more of the directors is or are
accustomed to act.
S. 2(59)-- “officer” includes
any director, manager or key
managerial personnel or any
person in accordance with
whose
directions
or
instructions the Board of
Directors or any one or more
of the directors is or are
accustomed to act.
Definitions
Definitions
Companies Act,
1956
Companies Act, 2013
Officer in
Default
S.
2(31)-"officer who is
in default", in
relation to any
provision
referred to in
section 5, has
the
meaning
specified in that
section.
S. 2(60)-- “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,
namely:—
(i) whole-time director;
(ii)key managerial personnel;
(iii)where there is no key managerial personnel,
such director or directors as specified by the
Board in this behalf and who has or have given
his or their consent in writing to the Board to such
specification, or all the directors, if no director is
so specified;
……………..Contd.
Definitions
Definitions
Officer in
Default
Companies
Act, 1956
Companies Act, 2013
S. 2(60)-- “officer who is in default”,
(iv) any person who, under the immediate authority of
the Board or any
key managerial personnel, is charged with any
responsibility including maintenance, filing or
distribution of accounts or records, authorises, actively
participates in, knowingly permits, or knowingly fails to
take active steps to prevent, any default;
(v) any person in accordance with whose advice,
directions or instructions the Board of Directors of the
company is accustomed to act, other than a person
who gives advice to the Board in a professional
capacity;
Definitions
Definitions
Officer in
Default
Companies
Act, 1956
Companies Act, 2013
S. 2(60)-- “officer who is in default”,
(vi) every director, in respect of a contravention of any
of the provisions of this Act, who is aware of such
contravention by virtue of the receipt by him of any
proceedings of the Board or participation in such
proceedings without objecting to the same, or where
such contravention had taken place with his consent
or connivance;
(vii) in respect of the issue or transfer of any shares of
a company, the share transfer agents, registrars and
merchant bankers to the issue or transfer
Definitions
Definitions
Companies Act,
1956
Companies Act, 2013
Related
Party
Not defined
S. 2(76)-- “related party”, with reference to a
company, means—
(i) a director or his relative;(ii) a key managerial
personnel or his relative;
(iii) a firm, in which a director, manager or his
relative is a partner;
(iv) a private company in which a director or
manager is a member or director;
(v) a public company in which a director or
manager is a director or holds along with his
relatives, more than two per cent. of its paid-up
share capital;
(vi) any body corporate whose Board of Directors,
managing director or manager is accustomed to
act in accordance with the advice, directions or
instructions of a director or manager;
Definitions
Definitions
Related
Party
Companies Act,
1956
Companies Act, 2013
S. 2(76)-- “related party”—………Contd
(vii) any person on whose advice, directions or
instructions a director or manager is accustomed
to act:
Provided that nothing in sub-clauses (vi) and (vii)
shall apply to the advice, directions or instructions
given in a professional capacity;
(viii) any company which is—
(A) a holding, subsidiary or an associate company
of such company; or
(B) a subsidiary of a holding company to which it
is also a subsidiary;
(ix) such other person as may be prescribed;
Independent Directors
(S. 149)
• Following Companies to have Independent Directors
• Every listed public company
• Class of companies – Public Companies satisfying any
one of the following criterai as per last audited
balance sheet
• Paid-up share capital of Rs. 10 Crore or more
• Turnover of Rs. 100 Crores or more
• In aggregate outstanding loans, debentures and
deposits, exceeding Rs 50 Crores
Independent Directors
(S. 149)
• At least one-third of the total number of directors
must be independent directors
• One year transition period granted to comply with
these provision
• Casual vacancy to be filled in not later immediate next
Board meeting or 3 months of vacancy, whichever is
earlier.
• If a company ceases to fulfil any of the criteria in Rule
4 for 3 consecutive years it shall be exempted from
complying with these provisions until such time as it
meets such conditions
Independent Directors
(S. 149)
•Disclosure of Independence—First Board Meeting &
thereafter at the first meeting of the Board in every financial
year or whenever there is any change in the circumstances
which may affect his status as an independent director, give a
declaration that he meets the criteria of independence
•Nominee Director appointed by banks/ financial institutions/
government/or any other persons shall not be treated as
Independent Directors
•Not entitled to any stock option and may receive
remuneration by way of fee provided under sub-section (5) of
section 197,
•Reimbursement of expenses for participation in the Board
and other meetings and profit related commission as may be
approved by the members.
Independent Directors
(S. 149)
Term of Office
 For five consecutive years
 Shall be eligible for reappointment on passing of a
special resolution by the company and disclosure of
such appointment in the Board's report.
Maximum Tenure
 Two consecutive terms
 shall be eligible for appointment after the expiration of
three years of cessation
 shall not during the said period of three years, be
appointed in or be associated with the company in any
other capacity, either directly or indirectly
Independent Directors
(S. 149)
No Retrospective effect: Any tenure of an
independent director on the date of commencement of
this Act shall not be counted as a term
Liability: He shall be held liable, 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
connivance or where he had not acted diligently.
Manner & Selection of
Independent Directors
(S. 150)
Independent director may be selected from a data bank
containing names, addresses and qualifications of persons who are
eligible and willing to act as independent directors, maintained by
any body, institute or association, as may by notified by the Central
Government
The Agency shall put on their website for the use by the company
making the appointment of such directors:
The responsibility of exercising due diligence before selecting a
person from the data bank referred to above, as an independent
director shall lie with the company
The appointment of independent director shall be approved by
the company in general meeting as provided in sub-section (2) of
section 152
Independent Directors
The explanatory statement annexed to the notice of the
general meeting called to consider the said appointment
shall indicate the justification for choosing the appointee for
appointment as independent director.
 Section 152(5)—Explanatory statement shall include a
statement that in the opinion of the Board, he fulfils the
conditions specified in this Act for such an
appointment.(152(5))
Section 161(2)--no person shall be appointed as an
alternate director for an independent director unless he is
qualified to be appointed as an independent director under
the provisions of this Act:
Independent Directors
Independent Director shall not be counted for the
strength under Retirement by Rotation u/s 152(6)
Section 173(3)
 Board Meeting on Shorter Notice subject to the
condition, at least one independent director, if
any, shall be present at the meeting
 in case of absence of independent directors from
such a meeting of the Board, decisions taken at
such a meeting shall be circulated to all the
directors and shall be final only on ratification
thereof by at least one independent director, if
any.
Committees
Audit Committee Section 177(2)
 Requirement :Every Listed Company
 Minimum 3 Directors with majority Independent
Nomination And Remuneration Committee And
Stakeholders Relationship Committee.
 every listed company and such other class or classes of
companies, as may be prescribed shall constitute the
Nomination and Remuneration Committee consisting
of three or more non-executive directors out of which
not less than one-half shall be independent directors
 CSR Committee—Atleast one Director on committee
should be independent-Section 135
Independent Directors – Companies
Act 2013
• Independent Director defined [S.149(6)]
 Integrity certificate
 Disqualifications
 Qualifications
 Other than Nominee Director, Managing Director or
Whole-time Director
• Integrity & Experience
 In the opinion of the Board is a person of integrity and
possesses relevant experience and expertise
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Independent Directors – Companies Act 2013
Disqualifications

Not a promoter of the company, holding, subsidiary or
associate companies
 Not related to promoters or directors of the company,
holding, subsidiary or associate companies
 No pecuniary relationship
 Company, holding, subsidiary or associate company
 Promoters or directors of such companies
 During 2 immediately preceding financial years or during
current financial year
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Independent Directors – Companies Act 2013
Disqualifications

None of the relatives has or had pecuniary relationship or
transaction with
 Company, holding, subsidiary or associate company
 Promoters or directors of such companies
 Transaction should not be more than 2 % or more of its
gross turnover or total income or Rs. 50 lakhs or such
higher amount as may be prescribed, whichever is lower
 During 2 preceding financial years or during the current
FY
34
Independent Directors – Companies Act 2013
Disqualifications
 Neither himself nor any of his relatives
 Is or was a KMP or Employee of company, holding, subsidiary or
associate company in any of the 3 FY immediately preceding the
financial year in which he is proposed to be appointed
 Is or was an employee or proprietor or partner

of a firm of auditors or company secretaries or cost auditors of the
company or its holding, subsidiary or associate company

any legal or consulting firm that has or had any transactions of 10%
or more of the gross turnover of such firm
 In any of the 3 FY immediately preceding the financial year in
which he is proposed to be appointed
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Independent Directors – Companies Act 2013
Disqualifications
 Holds with relatives 2% or more of the total voting
power of the company
 Chief Executive or Director, by whatever name called,
of any non-profit organization that
 receives 25% or more of its receipts from that company
or any of its promoters, directors, or holding, subsidiary
or associate company
 Holds more than 2% or more of the total voting power
of the company
36
Independent Directors – Companies Act 2013
• Qualifications
 Possess appropriate balance of skills, experience and
knowledge in one or more fields of finance, law,
management, sales, marketing, administration, research,
corporate governance, technical operations or other
disciplines related to company’s business
• Declaration by Independent Director at first meeting
after appointment and first meeting every FY or
whenever there is change in status
• Company and Independent Director to abide by
Schedule IV
37
Independent Directors – Companies
Act 2013
Remuneration
 No stock options
 Sitting Fee
 Upto Rs. 1 Lakh as decided by Board
 Reimbursement of expenses for attending board
meeting
 Profit related commission, as approved by members
38
Independent Directors – Companies Act 2013
•
5 year term, renewable for another 5 year by special resolution
then 3 year cooling off period
•
Term to start afresh – present tenure not to be counted
•
Making Independent directors liability proof unless fraud done
with knowledge attributable through board processes, consent
and connivance or not acting diligently
•
Creation of panel or data bank by authorized institutions
•
Procedure of selection – ‘as may be prescribed’
39
Schedule IV
CODE FOR INDEPENDENT DIRECTORS
Acts as a guide to professional conduct for independent
directors
I. Guidelines of professional conduct
II. Role and functions
III. Duties
IV. Manner of appointment
V. Re-appointment
VI. Resignation or removal
VII. Separate meetings
VIII. Evaluation mechanism
Schedule IV
Guidelines of Professional Conduct
An independent director shall:
 uphold ethical standards of integrity and probity;
act objectively and constructively while exercising his
duties;
exercise his responsibilities in a bona fide manner in the
interest of the company;
devote sufficient time and attention to his professional
obligations for informed and balanced decision making;
not allow any extraneous considerations that will vitiate his
exercise of objective independent judgment in the
paramount interest of the company as a whole, while
concurring in or dissenting from the collective judgment of
the Board in its decision making;
Schedule IV
Guidelines of Professional Conduct
not abuse his position to the detriment of the
company or its shareholders or for the purpose of
gaining direct or indirect personal advantage or
advantage for any associated person;
refrain from any action that would lead to loss of his
independence;
where circumstances arise which make an
independent director lose his independence, the
independent director must immediately inform the
Board accordingly;
assist the company in implementing the best
corporate governance practices.
Schedule IV
Role & Functions
The independent directors shall:
(1) help in bringing an independent judgment to bear on the
Board’s deliberations especially on issues of strategy, performance,
risk management, resources, key appointments and standards of
conduct;
(2) bring an objective view in the evaluation of the performance of
board and management;
(3) scrutinise the performance of management in meeting agreed
goals and objectives and monitor the reporting of performance;
(4) satisfy themselves on the integrity of financial information and
that financial controls and the systems of risk management are
robust and defensible;
(5) safeguard the interests of all stakeholders, particularly the
minority shareholders;
Schedule IV
Role & Functions
(6) balance the conflicting interest of the
stakeholders;
(7) determine appropriate levels of remuneration of
executive directors, key managerial personnel and
senior management and have a prime role in
appointing and where necessary recommend
removal of executive directors, key managerial
personnel and senior management;
(8) moderate and arbitrate in the interest of the
company as a whole, in situations of conflict
between management and shareholder’s interest.
Schedule IV-Duties
The independent directors shall—
undertake appropriate induction and regularly update and
refresh their skills, knowledge and familiarity with the
company;
seek appropriate clarification or amplification of
information and, where necessary, take and follow
appropriate professional advice and opinion of outside
experts at the expense of the company;
strive to attend all meetings of the Board of Directors and
of the Board committees of which he is a member;
participate constructively and actively in the committees of
the Board in which they are chairpersons or members;
.
Schedule IV-Duties
He shall strive to attend the general meetings of the company;
where they have concerns about the running of the company or a
proposed action, ensure that these are addressed by the Board and,
to the extent that they are not resolved, insist that their concerns
are recorded in the minutes of the Board meeting;
keep themselves well informed about the company and the
external environment in which it operates;
not to unfairly obstruct the functioning of an otherwise proper
Board or committee of the Board;
pay sufficient attention and ensure that adequate deliberations
are held before approving related party transactions and assure
themselves that the same are in the interest of the company
Schedule IV-Duites
He shall ascertain and ensure that the company has an
adequate and functional vigil mechanism and to ensure that
the interests of a person who uses such mechanism are not
prejudicially affected on account of such use;
He shall report concerns about unethical behaviour, actual
or suspected fraud or violation of the company’s code of
conduct or ethics policy;
He shall be acting within his authority, assist in protecting
the legitimate interests of the company, shareholders and its
employees;
He shall not disclose confidential information, including
commercial secrets, technologies, advertising and sales
promotion plans, unpublished price sensitive information,
unless such disclosure is expressly approved by the Board or
required by law
Schedule IV
Manner of Appointment
(1) Shall be independent of the company management;
(2) while selecting independent directors the Board shall ensure
that there is appropriate balance of skills, experience and
knowledge in the Board so as to enable the Board to discharge
its functions and duties effectively.
(3) The appointment of independent director(s) of the company
shall be approved at the meeting of the shareholders.
(4) The explanatory statement attached to the notice of the
meeting for approving the appointment of independent
director shall include a statement that in the opinion of the
Board, the independent director proposed to be appointed
fulfils the conditions specified in the Act and the rules made
thereunder and that the proposed director is independent of
the management.
Schedule IV
Appointment Letter
The appointment shall be formalised through a letter of
appointment, which shall set out :
the term of appointment;
expectation of the Board from the appointed director;
Board-level committee(s) in which the director is expected to
serve and its tasks;
the fiduciary duties that come with such an appointment
along with accompanying liabilities;
Schedule IV
Appointment Letter
The appointment shall be formalised through a letter of
appointment, which shall set out :
provision for Directors and Officers (D and O) insurance,
if any;
the Code of Business Ethics that the company expects its
directors and employees to follow;
the list of actions that a director should not do while
functioning as such in the company; and
the remuneration, mentioning periodic fees,
reimbursement of expenses for participation in the Boards
and other meetings and profit related commission, if any.
Schedule IV
Manner of Appointment & Re-Appointment
The terms and conditions of appointment of
independent directors shall be open for inspection at the
registered office of the company by any member during
normal business hours.
The terms and conditions of appointment of
independent directors shall also be posted on the
company’s website
Re-appointment:
 The re-appointment of independent director shall
be on the basis of report of performance evaluation.
Schedule IV
Resignation or removal
(1) Shall be in the same manner as is provided in
sections 168 and 169 of the Act.
(2) Shall be replaced by a new independent director
within a period of not more than one hundred and
eighty days from the date of such resignation or
removal
(3) Where the company fulfils the requirement of
independent directors in its Board even without filling
the vacancy created by such resignation or removal, as
the case may be, the requirement of replacement by a
new independent director shall not apply.
Schedule IV
Separate Meetings
(1) At least one meeting in a year, without the attendance of nonindependent directors and members of management;
(2) All the independent directors of the company shall strive to be
present at such meeting;
(3) The meeting shall review the performance of :
(a) non-independent directors and the Board as a whole;
(b) the Chairperson of the company, taking into account the views
of executive directors and non-executive directors;
(c) And shall assess the quality, quantity and timeliness of flow of
information between the company management and the Board that
is necessary for the Board to effectively and reasonably perform
their duties.
Schedule IV
Evaluation Mechanism
(1) The performance evaluation of independent
directors shall be done by the entire Board of Directors,
excluding the director being evaluated.
(2) On the basis of the report of performance
evaluation, it shall be determined whether to extend or
continue the term of appointment of the independent
director.
Creation of databank for Independent
Directors--Rules
 A body authorised by CG shall create and maintain a data
bank of persons willing and eligible to be appointed as
independent director
 data bank shall be placed on the website of the Ministry of
Corporate Affairs or on any other website
The data bank shall contain following details in respect of
persons as Independent Directors
(a) DIN (Director Identification Number);
(b) the name and surname in full;
(c) income-tax PAN ;
(d) the father’s name and mother’s name and Spouse’s
name (if married) ;
Small Shareholders (S. 151)
Small Shareholders
Applicable to Listed Companies
Listed Company may have one director elected by
small shareholders as may be prescribed
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.
Rule 7 of the Companies (Appointment and
Qualification of Directors) Rules, 2014
Databank
(e) the date of Birth;
(f) gender;
(g) the nationality;
(h) the occupation;
(i) full Address with PIN Code (present and
permanent);
(j) phone number;
(k) e-mail id;
(l) the educational and professional qualifications;
(m) experience or expertise, if any;
Databank
(n) any legal proceedings initiated or pending
against such person;
(o) the list of limited liability partnerships in which he is
or was a designated partner along with –
(i) the name of the limited liability partnership;
(ii) the nature of industry; and
(iii) the duration- with dates;
Databank
(p) the list of companies in which he is or was
director along with (i) the name of the company;
(ii) the nature of industry;
(iii) the nature of directorship – Executive or
Non-executive or Managing Director or
Independent Director or Nominee
Director; and
(iv) duration – with dates.
Databank
Disclaimer ---that a company must carry out its own
due diligence before appointment of any person as an
independent director and “the agency” shall not be held
responsible for the accuracy of information or lack of
suitability of the person whose particulars form part of
the databank.
Application under DIR-1 if anyperson wishes to
include his name in Database of Independent Directors
Reasonable fee
The person whose name is in database shall intimate
the agency within 15 days regarding any changes in his
particulars
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;
 Key Managerial Personnel be treated as following:
 Officer- S. 2(59)
 Officer in default- S. 2(60)
 Related Party- S. 2(76)
Key Managerial Personnel
S. 203
 Appointment of KMP
Every company belonging to such class or classes of companies as
may be prescribed shall have the following whole-time key
managerial personnel,—
(i) managing director, or Chief Executive Officer or manager
and in their absence, a whole-time director;
(ii) company secretary; and
(iii) Chief Financial Officer :
Key Managerial Personnel
S. 203
 Return be filed with ROC within 60 days of appointment in MR. 1
 Class of Companies— Rule 8 of Companies (Appointment and
Remuneration of Managerial Personnel) Rules, 2014.
• Listed company and
• Public company having a paid-up share capital of Rs. 10
Crore or more shall have whole-time key managerial
personnel.
Return of Appointment
 RETURN OF KEY MANAGERIAL PERSONNEL [S. 170(2)]
 A return containing such particulars and documents as may be
prescribed, of the directors and the key managerial personnel shall be
filed with the Registrar within thirty days
in DIR.12 from the
appointment of every director and key managerial personnel, as the
case may be, and within thirty days of any change taking place.
 Return of Appointment-Rule 3 of Rules
 A Company shall file a return of appointment of a MD, WTD, Manager,
CEO, CS, CFO within 60 days of appointment with the Registrar in
Form No. MR. 1
Procedure of Appointment.
Procedure of Appointment
 Pass a Board Resolution
 File Form MGT. 14 for registering of resolution of appointment of KMP and
taking on record the disclosure of interest from the proposed KMP
 File DIR. 12 within 30 days of appointment
 File MR. 1 as the return of appointment to the Central Government within
60 days of appointment
 In case the listed company wishes to seek approval for waiver of excess
remuneration, appointment or re-appointment in cases of losses in Form
MR. 2
Key Managerial Personnel
(S. 203)
 Limit on number of positions
 Whole-time key managerial personnel shall not hold office in more than
one company except in its subsidiary company at the same time. He can
be a director of any other company with the permission of the Board.
 Unanimous consent of all directors for the aforesaid resolution
 Special notice has to be given to all the directors then in India.
 Vacancy in office
 the resulting vacancy shall be filled-up by the Board at a meeting of the
Board within a period of six months from the date of such vacancy.
 Penalty on contravention of Section 203
 Company with fine not less than Rs. 1 Lacs which may extend to Rs. 5
Lacs
 Every Director & KMP who is in default with fine which may extend to Rs.
50,000/- and where contravention is a continuing one, with a further fine
which may extend to Rs. 1000 for every day after the first during which
the contravention continues.
Key Managerial Personnel
REGISTER OF KEY MANAGERIAL PERSONNEL [S. 170(1)]
 Every company shall keep at its registered office a register containing such
particulars of its directors and key managerial personnel as may be prescribed,
which shall include the details of securities held by each of them in the company
or its holding, subsidiary, subsidiary of company’s holding company or associate
companies.
Register of contracts or arrangements in which directors are interested [S. 189]
 Every Company shall keep such register
 Every KMP shall within 30 days of his appointment or relinquishment of his office
disclose to company the particulars specified in sub-section (1) of section 184
 Relating to his concern or interest in the other associations which are required to
be included in the register
 Shall be kept at Registered office & be placed in every Board meeting & open for
inspection during business hours
 Be kept open for inspection at general meeting
 Every director who fails to comply with the provisions of this section and the rules
made thereunder shall be liable to a penalty of twenty-five thousand rupees.
Duties & Liabilities of KMP
Section 21—Authentication of Documents or contracts
(a) 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 92(1)(e)—Annual return
Annual return should specify
 the details of KMP alongwith changes therein related with previous financial year
 Remuneration of KMP
Section 102—Explanatory Statement
 Should disclose the nature of concern or interest, financial or otherwise, if any, in respect of
each items of KMP
 If any benefit accrued due to non-disclosure KMP shall compensate the same to company
 If default in complying then every promoter, director, manager or other key managerial
personnel who is in default shall be punishable with fine which may extend to fifty thousand
rupees or five times the amount of benefit accruing to the promoter, director, manager or
other key managerial personnel or any of his relatives, whichever is more
Duties & Liabilities of KMP
Section 192--Prohibition on forward dealings in securities of company by director or key
managerial personnel. KMP shall not buy in the company, or in its holding, subsidiary or
associate company—
 a right to call for delivery or a right to make delivery at a specified price and within a
specified time, of a specified number of relevant shares or a specified amount of relevant
debentures; or
 a right, as he may elect, to call for delivery or to make delivery at a specified price and within
a specified time, of a specified number of relevant shares or a specified amount of relevant
debentures.
 Imprisonment for a term which may extend to two years or with fine which shall not be
less than Rs1 lakh but which may extend to Rs5 lakh or with both
Section 195--Prohibition on Insider trading of securities
 KMP of a company shall not enter into insider trading
 Imprisonment for a term which may extend to five years or with fine which shall not be
less than Rs5 lakh but which may extend Rs25 crore or three times the amount of profits
made out of insider trading,whichever is higher,or with both.
Key Managerial Personnel
 Effect of being a KMP
 Cannot become a Auditor
 if relative is a KMP of the Company
 If he himself is a KMP in preceding 3 financial years
 Right to be heard at Audit Committee Meetings
 Section 177(7)—KMP shall have the right to be heard in the
meetings of the Audit Committee when Auditor considers its report
but shall not have the right to vote.
 Section 178--The Nomination and Remuneration Committee shall- Recommend to the Board a policy, relating to the remuneration for
the key managerial personnel
 Ensure that remuneration to KMP shall involves a balance between
fixed and incentive pay reflecting short and long-term performance
objectives appropriate to the working of the company and its goals
Key Managerial Personnel
 Disclosure in Board’ Report as under Rules
 comparison of the remuneration of the Key Managerial Personnel
against the performance of the company
 comparison of the each remuneration of the Key Managerial
Personnel against the performance of the company
Directors
 Who is a Director?
 Section 2(34)-- “director” means a director appointed to the Board
of a company
 When a Director shall become interested
 Section 2(49) “interested director” means a director who is in any
way, whether by himself or through any of his relatives or firm,
body corporate or other association of individuals in which he or
any of his relatives is a partner, director or a member, interested in
a contract or arrangement, or proposed contract or arrangement,
entered into or to be entered into by or on behalf of a company;
Minutes of Meetings (S. 118)
•
Prepared and signed
 Board or Committee – Chairman of the meeting or next meeting
•
Kept within 30 days of conclusion of board meeting
•
Dissents to be recorded with names of directors dissenting
•
Chairman enjoys absolute discretion as regards inclusion or
exclusion of any matter in the minutes – defamatory, irrelevant,
detrimental to the interest of the company.
73
Board Meetings
 First Board Meeting within 30 days
 4 Board Meetings every year by each company
 Gap between two meetings - not more 120 days
 Board Meeting through Video Conferencing or audio
visual means
 Minimum 7 days’ notice
 Quorum – higher of 1/3rd or 2
74
74
Directors
(S.149)
• Minimum
 Public – 3
 Private – 2
 OPC – 1
• Maximum – 15
• To appoint more than 15, Special Resolution is
required
• One director to be ordinarily resident in India – 182
days in India in preceding financial year
75
Directors
(S. 149)
• At least one Women Director
 Listed Company
 Public Company having
 PUC – Rs 100 Crores or more; or
 Turnover – Rs. 300 Crores or more
• Listed Companies to comply within one year of
commencement of this provision
• Other Public Companies to comply within 3 years of
commencement of this provision
76
Directors
(S. 165)
Maximum number of directorship (S.165)
 Overall 20 including private companies
 Directorship in Public Companies cannot exceed 10
 Private Companies, which are subsidiary or holding of a
public company, will be counted in the figure of 10
meant for public companies
 Includes Alternate Directorship also
 Director to choose companies within one year if he holds
directorships in more companies
 Intimate Company and Registrar of his resignation due
to Section 165
77
Directors
• 1/3rd directors to be independent
 Listed Companies
 Public Companies
 PUC – Rs. 100 Crores or more; or
 Turnover –Rs. 300 Crores or more;
 Aggregate of loans, borrowings, debentures, deposits –
Exceeding Rs. 200 Crores
• Existing Companies – To comply within 1 year
78
Directors (S. 164)
•
Disqualification
 If he is of undischarged insolvent
 He has applied to be adjudicated as an insolvent
 He has been convicted by a court of any offence, whether
involving moral turpitude or otherwise and sentenced in
respect thereof to imprisionment for not less than six
months and a period of 5 years has not elapsed
 If a person is convicted and sentenced for seven years or
more, then he cannot become a director in any company
 Order disqualifying him for appointment has been passed
by Court or Tribunal
 Has not paid for qualification shares & 6 months have
elapsed
79
Directors (S. 164)
•
Disqualification
 If a person is convicted of offence dealing with related
party transactions under section 188 acontinous period of
3 financial yearst any time during the last preceding 5
years
 Has not taken DIN No
 Is a director of a Company which has :
 Not filed Filed financial statements or annual returns
for any continous period of 3 financial years
 Failed to repay deposits accepted or intersts thereon
80
Directors(S. 164)
Disqualification provisions under Rules
 Every Director shall inform to the Company about his disqualification in
form DIR-8 before appointment or re-appointment
 If Company fails to file the financial statements or annual return or
repay its deposits or redeem its debentures it shall intimate ROC in
Form DIR-9
 If Company fails to file DIR-9 within 30 days officers of the Company u/s
2(60) shall be officers in default
 Application for removal of disqualification be made in Form DIR-10
Directors (S. 167)
Vacation of Office by a Director
(a) If disqualified under section 164;
(b) he absents himself from all the meetings of the Board of Directors held
during a period of twelve months with or without seeking leave of absence of
the Board;
(c) he acts in contravention of the provisions of section 184 relating to entering
into contracts or arrangements in which he is directly or indirectly interested;
(d) he fails to disclose his interest in any contract or arrangement in which he is
directly or indirectly interested, in contravention of the provisions of section
184;
(e) he becomes disqualified by an order of a court or the Tribunal;
Directors (S. 167)
Vacation of Office by a Director
(f) he is convicted by a court of any offence, whether involving moral turpitude
or otherwise and sentenced in respect thereof to imprisonment for not less
than six months:
Provided that the office shall be vacated by the director even if he has filed an
appeal against the order of such court;
(g) he is removed in pursuance of the provisions of this Act;
(h) he, having been appointed a director by virtue of his holding any office or
other employment in the holding, subsidiary or associate company, ceases to
hold such office or other employment in that company.
Duties of Directors
Section 166
 Subject to the provisions of this Act, a director of a company shall
act in accordance with the company’s articles.
 A director of a company shall act in good faith in order to promote
the objects of the company for the benefit of its members as a
whole, and in the best interest of the company.
 A director of a company shall exercise his duties
with due and
reasonable care, skill and diligence.
 A director of a company shall not involve in a situation in which he
may have a direct or indirect interest that conflicts, or possibly may
conflict, with the interest of the company.
84
Duties of Directors
(Section 166)
 A director of a company shall not achieve or attempt to achieve any
undue gain or advantage either to himself or to his relatives,
partners, or associates.
 A director of a company shall not assign his
office
and
any
assignment so made shall be void.
 Any director who contravenes the provisions of this section shall be
punishable with fine which shall not be less than one lakh rupees
but which may extend to five lakh rupees.
85
Resignation (S. 168)
 Acceptance of Resignation by the Board is not
mandatory
 Director resigning to intimate the Registrar within 30
days of his resignation
 Resignation takes effect from the date on which notice
is received by the company or the date specified by
the director, whichever is later
86
New Definitions
Board of Directors [2(10)]
 Means the collective body of the directors of the
company
Director [2(34)]
 Director means the director appointed to the Board of
Directors of the Company
Director under Companies Act, 1956 [2(26)]
 Director includes any person occupying the position of
a director by whatever name called
87
New Definitions
Control [2(27)]
 Includes
 Right to appoint majority of the directors
 Control the management or policy decision
 By person or persons, acting individually or in concert,
directly or indirectly
 By virtue of shareholding or management rights, or
shareholders agreement or voting agreements or in
any other manner
88
New Definitions
Interested Director [2(49)]
 Means
 A Director, who is in any way, himself or
 Through any of his relatives or firm , body corporate or
another association of individuals in which he or any of
his relatives is a partner, director or a member
 Interested in a contract or arrangement or proposed
contract or arrangement
 Entered into or proposed to be entered into by or on
behalf of the company
89
New Definitions
Managing Director [2(54)]
 Director entrusted with substantial powers of the
management of the company
 Includes a director or occupying the position of a
managing director, by whatever name called
 By virtue of an agreement, articles, board or
shareholder’s resolution
90
New Definitions
Officer in default [2(60)]
 Whole-time Director
 Key Managerial Personnel
 No KMP, then specified director, else all directors
 Any person who –
 under the immediate authority of the Board or any key
managerial personnel
 Is charged with any responsibility including maintenance, filing
or distribution of accounts or records
 Authorizes, actively participates in, knowingly permits, or
knowingly fails to take actives steps
 To prevent any default
91
New Definitions
Officer in default [2(60)]
 Any person in accordance with whose advice, directions or
instructions, the Board is accustomed to act (Excludes advice
given in a professional capacity)
 Every Director, who is aware of such contravention by virtue
of receipt of any proceedings of the Board or participation
in such proceedings without objecting to the same, or
where such contravention takes place with his consent or
connivance
 Share Transfer Agents, Registrars and Merchant Bankers, in
respect of issue or transfer of any shares
92
New Definitions
Related Party [2(76)]
 Director or his relative
 KMP or his relative
 Firm in which a Director, Manager or relative is partner
 Private Company in which a Director or Manager is a member
or director
 Public Company in which a Director or Manager is a director or
holds more than 2% either himself or through his relatives
 Body Corporate or Person – Company is accustomed to act
under their direction – Excludes Professional Advise
93
New Definitions
Related Party [2(76)]
 Holding, Subsidiary or Associate Company
 Subsidiary of a holding company to which it is also a
subsidiary
 Such other person , as may be prescribed
a director or key managerial personnel of the holding,
subsidiary of such company or his relative;
94
New Definitions
Relative [2(77)]
 Members of HUF
 Husband and wife
 Related in a manner as may be prescribed
 8 categories prescribed
 Father (Step Father), Mother (Step Mother), Son (Step Son), Son’s
wife, Daughter, Daughter’s husband, Brother (Step Brother), Sister
(Step Sister)
 14 Removed – Father’s father, Father’s mOther, Mother’s father,
Mother’s mother, Son’s son, Son’s daughter, Son’s son’s wife,
Son’s daughter’s husband, Daughter’s son, Daughter’s Son’s wife,
Daughter’s daughter, Daughter’s daughter’s husband, Brother’s
wife, Sister’s husband
95
New Definitions
Small Company [2(85)]
 Other than a Public Company
 PUC does not exceed 50 lakhs or as may be prescribed
(not exceeding 5 Crores)
 Turnover does not exceed Rs. 2 Crores or prescribed
amount (not exceeding Rs. 20 Crores)
 Not applicable to holding or subsidiary company or
licensed company (Section 8)
96
Directors
• Minimum
 Public – 3
 Private – 2
 OPC – 1
• Maximum – 15
• To appoint more than 15, Special Resolution is
required
• One director to be ordinarily resident in India – 182
days in India in preceding financial year
97
Directors
• At least one Women Director
 Listed Company
 Public Company having
 PUC – Rs 100 Crores or more; or
 Turnover – Rs. 300 Crores or more
• Listed Companies to comply within one year of
commencement of this provision
• Other Public Companies to comply within 3 years of
commencement of this provision
98
Directors
Maximum number of directorship (S.165)
 Overall 20 including private companies
 Directorship in Public Companies cannot exceed 10
 Private Companies, which are subsidiary or holding of a
public company, will be counted in the figure of 10
meant for public companies
 Includes Alternate Directorship also
 Director to choose companies within one year if he holds
directorships in more companies
 Intimate Company and Registrar of his resignation due
to Section 165
99
Directors
• 1/3rd directors to be independent
 Listed Companies
 Public Companies
 PUC – Rs. 100 Crores or more; or
 Turnover –Rs. 300 Crores or more;
 Aggregate of loans, borrowings, debentures, deposits –
Exceeding Rs. 200 Crores
• Existing Companies – To comply within 1 year
100
Nominee Director
Nominee Director
 Not defined in Companies Act, 1956
 Companies Act 2013
 A director nominated by any financial institution
pursuant to law, agreement or appointed by Govt. or
any other person to represent its interests
101
Duties
166
1. Subject to the provisions of this Act, a director of a
company shall act in accordance with the company’s
articles.
2. A director of a company shall act in good faith in order
to promote the objects of the company for the benefit
of its members as a whole, and in the best interest of
the company.
3. A director of a company shall exercise his duties with
due and reasonable care, skill and diligence.
102
Duties
4. A director of a company shall not involve in a situation
in which he may have a direct or indirect interest that
conflicts, or possibly may conflict, with the interest of the
company.
5. A director of a company shall not achieve or attempt to
achieve any undue gain or advantage either to himself
or to his relatives, partners, or associates.
6. A director of a company shall not assign his office and
any assignment so made shall be void.
103
Duties
 Any director who contravenes the provisions of this
section shall be punishable with fine which shall not be
less than one lakh rupees but which may extend to five
lakh rupees.
104
Resignation (S. 168)
 Acceptance of Resignation by the Board is not
mandatory
 Director resigning to intimate the Registrar within 30
days of his resignation
 Resignation takes effect from the date on which notice
is received by the company or the date specified by
the director, whichever is later
105
Board Meetings
 First Board Meeting within 30 days
 4 Board Meetings every year by each company
 Gap between two meetings - not more 120 days
 Board Meeting through Video Conferencing or audio
visual means
 Minimum 7 days’ notice
 Quorum – higher of 1/3rd or 2
74
106
Audit Committee (S. 177)
• Listed Company
• Other Public Company having
 PUC of Rs. 100 crores or more
 Borrowings of Rs. 200 crores or more
• Audit Committee
 3 Directors – Independent directors in majority
 Majority of directors shall be financially literate
 Reconstituted within one year
107
Audit Committee
 Terms of Reference
 Auditor Appointment
 Review independence and performance of Auditor
 Examination of financial statement
 Related Party Transaction
 Scrutiny of Inter-corporate loans and investments
 Valuation of undertakings
 Internal Control
 End Use of Public Funds
108
Audit Committee
 Vigil Mechanism [S. 177(9)]
 Listed Company
 Class of companies
 Deposit from Public ;and
 Borrowings from Banks and Fis in excess of Rs.
50 crore
 To report genuine concerns of directors and
employees
 Safeguard against victimization of whistle blower
109
Powers of Board (S.179)
 Resolution at Board Meetings only – Additional business
 Approving Financial Statement and Board Report
 Diversification of Business
 Approving Amalgamation, merger or reconstruction
 Takeover or Acquisition in another company
 Issue of Securities
 to make political contributions;
 to fill a casual vacancy in the Board;
 to enter into a joint venture or technical or financial
collaboration or any collaboration agreement;
110
Powers of Board (S.179)
 Resolution at Board Meetings only – Additional business
 to commence a new business;
 to shift the location of a plant or factory or the registered
office;
 to appoint or remove key managerial personnel (KMP)
and senior management personnel one level below the
KMP;
 to appoint internal auditors; to adopt common seal;
 to take note of the disclosure of director’s interest and
shareholding;
111
Powers of Board (S.179)
 Resolution at Board Meetings only – Additional
business
 To sell investments held by the company (other than
trade investments), constituting five percent or more of
the paid – up share capital and free reserves of the
investee company;

to accept public deposits and related matters and;
 to approve quarterly, half yearly and annual financial
statements.
112
CSR
S. 135 – Every company
 Net worth – 500 crores or more
 Turnover – 000 crores or more
 Net Profit – 5 Crores or more
 Constitute CSR Committee of 3 directors – at least one
to be independent director
 Board Report to disclose constitution of CSR
Committee
113
CSR Committee
•
Formulate and Recommend to Board CSR Policy
•
Recommend the amount of expenditure to be incurred
•
Monitor CSR Policy
•
Board to ensure spent of at least 2% of average net profits
of the company made during 3 immediately preceding
financial years
•
Preference to be given to local areas
•
Failure to spend – give reasons
114
Board’s Report

Board Report to include

Extract of Annual Return

Number of board meetings

Directors’ Responsibility Statement

Statement on declaration given by Independent Directors

Company’s policy on directors’ appointment and
remuneration

Comments on Qualifications, Reservations, Adverse
Remark or Disclaimer
115
Board’s Report

Board Report to include

Conservation of Energy, Technology Absorption,
Foreign Exchange Earnings & Outgo

Listed Company and Public Company with PUC of
25 Crores or more – Manner of annual evaluation by
Board, Committees and Directors

Particulars of contracts, arrangements with related
parties as per Form AOC-2

CSR Initiatives as per Section 135 & Rules made
thereunder
116
Board’s Report

Board Report to include

Directors or KMP appointed during the year

Deposit details

Significant and Material orders passed by the
Regulators or courts or tribunals impacting the going
concern status and company’s operations in future

Details in respect of adequacy of internal financial
controls with reference to the Financial Statements
117
Copies of Audited Financial
Statements
• Companies to send copies of Financial Statements to all
members at least 21 days before the meeting.
• Listed Companies –
 May not send copies to all members unless demanded
 Statement containing salient features of documents in
prescribed form is sent as per Form AOC-3
 Inspection to be allowed
 To be placed on website
118
Copies of Audited Financial Statements
• Filing of Financial Statements with RoC within 30 days of AGM
• If not adopted at AGM, file unadopted Financial Statements
• OPC to file within 180 days of the close of Financial Year
• If AGM not held, statement of facts and reasons to be filed with RoC
• Failure to file – Company – Rs. 1000/ per day – Max. 10 lakhs
• MD/CEO/Director in charge or else all board members –
Imprisonment – 6 months or fine – Min 1 Lakh, Max. 5 lakhs or both
119
Manner of Circulation of Financial Statement
• Listed Companies and Public Companies having net
worth of more than Rs 1 Crore & Turnover more than Rs.
10 Crore the financial statement may be sent
•
By electronic mode to members whose shareholding is
in demat form and whose email ids are registered with
Depository
•
Otherwise to non-demat holders who have consented
in writing for receiving in electronic form
•
In all other cases, by despatch of physical copies
through Post, Regd. Post, Speed post or Courier
120
Thank you for your patience!
Ashish Makhija
#9810128356
[email protected]
121