Transcript COMPANIES BILL 2009

Highlights of the
Companies Bill 2011
DEEPA KHATRI
1
History of the Companies Act,
1956

The Companies Act, 1956 had come into force on
1st April, 1956.

It had replaced the Companies Act, 1913.

The Companies Act, 1956 was enacted with the
object to amend and consolidate the law relating
to companies and certain other associations.
2
Need for a new Companies Law
 The changing national and international
economic environment
 Exponential growth of the Indian economy
 Changes in the stakeholders’ expectations
 Emergence of corporate form of organization
as the
preferred vehicle for commercial
activity with large
scale mobilization of
resources from the public.
3
Need for a new Companies Law
….Contd
 Manifold Increase in Number of Companies
Year
No. of Companies
1956
30,000 approx
2010 (31.12.10)
8,72,740
The need of a legal framework was felt to enable the
Indian corporate sector to adopt the best international
practices in a globally competitive manner, fostering a
positive environment for investment and growth.
4
Making of new Companies Bill




The drafting of a new Companies Bill was taken
up by the Government on the basis of a detailed
consultative process.
A ‘Concept Paper on new Company Law’ was
placed on the website of the Ministry on 4th
August, 2004.
The inputs received were put to a detailed
examination in the Ministry.
The Government also constituted an Expert
Committee on Company Law under the
Chairmanship of Dr. J J Irani on 2nd December
2004.
5
Making of new Companies Bill



The Committee included representatives from
concerned Departments and Ministries,
professional Institutes and trade bodies and
individual experts as members or special invitees.
The Committee deliberated extensively on
various issues and submitted its Report to the
Government on 31st May, 2005.
After considering the report of the Committee
and other inputs received from time to time, the
Government took up the exercise of
comprehensive review of the Companies Act,
1956
6
Making of new Companies Bill

Finally, a comprehensive revised Bill, was prepared in
consultation with Ministry of Law and was
introduced by
the Government in the Lok Sabha on 23rd October, 2008 as
“Companies Bill 2008”. The said Bill was referred to the
Parliamentary Standing Committee but lapsed
automatically on the dissolution of 14th Lok Sabha in terms
of Article 107(5) of the Constitution of India.

The Bill was again introduced by the Government in Lok
Sabha as “Companies Bill, 2009” on 3rd August 2009.

The Bill was referred to the Parliamentary Standing
Committee on 9th September 2009 for examination.
7
Making of new Companies Bill
…. Contd

The Committee took the representations of Ministry of
Corporate Affairs at various sittings held between
September 2009-July 2010.

The Committee also heard the views of representatives of
FICCI, CII, ICAI, ICSI, ICWAI, SEBI, RBI, Indian Banks
Association and various experts and other associations and
regulators.

The Hon’ble Parliamentary Standing Committee (PSC)
adopted its report on 26 August, 2010 and placed the same
before Lok Sabha on
31st
August, 2010.
8
Making of new
Companies Bill


The Parliamentary Standing
Committee made numerous
recommendations in its Report.
The Central Government also
received several suggestions for
amendments in the said Bill from
various stakeholders.
9
Making of new
Companies Bill


The Central Government has
accepted in general the
recommendations of the Standing
Committee.
The Government also considered the
various suggestions received from
various stakeholders.
10
Introduction of
Companies Bill, 2011

In view of large amendments to the
Companies Bill,2009 arising out of the
recommendations of the Parliamentary
Standing Committee and the suggestions
of the stakeholders, the Central
Government decided to withdraw the
Companies Bill, 2009 and introduce a
fresh Bill – Companies Bill, 2011
incorporating the recommendations of the
Standing Committee and suggestions of
the stakeholders.
11
Introduction of
Companies Bill, 2011


The Companies Bill, 2011 was thus
introduced in the Lok Sabha on 14th
December, 2011.
The Bill contains 470 clauses and 7
schedules. (as compared to 658
sections and 14 schedules under the
Act)
12
Guiding Principles in the making of
Companies Bill

Providing a compact statute to enable easy
interpretation-systematic arrangement of sections, simple
language; (substantive law/procedure in rules)

Bringing compactness by deleting the redundant
provisions;

Adopting best global practices;

Strengthening enforcement powers and prescribing
stringent penalties;
13

Segregating procedural aspects from substantive law
Concept of self regulation
introduced
The control of the Central Government over internal
corporate processes largely substituted by shareholder
control.

Shareholders democracy recognised.

Supplanting excessive intervention of the Central
Government in the internal affairs of companies with an
easy-to-comply regime of self-regulation with
accountability.

More mandatory disclosures.

Greater emphasis on protection of shareholder rights

Redrafting took into consideration Satyam, 2G Spectrum
14
HIGHLIGHTS OF
THE COMPANIES
BILL, 2011
15
New definitions introduced
The Bill prescribes 33 new
definitions., such as accounting
standard, auditing standard,
associate company , CEO,
CFO, control, deposit,
employee stock option, global
depository receipt, Indian
depository receipt, ,
independent director,
interested director, promoter,
one person company etc.,
16
Types of Companies
(1) Private company

Must have a minimum paid up capital of Rs one
lakh or such higher paid up capital as may be
prescribed
Its articles must1.
Except in the case of OPC ,limit the number of
members to 200 (against 50 under the
Companies Act,1956)
2. Restrict right to transfer shares
3. Prohibit any invitation to the public to subscribe
for any securities of the company

Types of Companies
(2) Public company –



Which is not a private company
Has a minimum paid up capital of Rs. 5
lakh or such higher paid up share capital
as may be prescribed.
Private co which is a subsidiary of
public company shall be deemed to be a
public company
Types of Companies

3.One Person Company

One Person Company (OPC) is a private company and may
be registered with one shareholder and may have a
single director.

The single member shall nominate some other person with
his prior consent who shall be member in the event of his

death.
The words ‘‘One Person Company’’ shall be mentioned in
brackets below the name of such company, wherever its
name is printed, affixed or engraved
(Australia, UK….)
19
One Person Company


The Bill provides relaxation to OPCs from a
number of compliance requirements relating to
holding of general meetings and board meetings.
The Central Government is empowered to exempt
OPCs from compliance of certain provisions, by
issuing notification.
20
Types of Companies
(4) Holding and subsidiary company
 Holding co. means a company
which exercises
control over another company and a subsidiary is
one over which control is exercised.
 Control can be exercised through
• composition of board of directors ( power to remove or
appoint majority of directors without the consent or
concurrence of some other person )
• shareholding .if holding company controls more than
one half of total share capital ( instead of equity
share capital as was prescribed under companies Act
which means preference shares will also be counted.)
• Such class or classes of holding companies as may be
prescribed shall not have layers of subsidiaries beyond
such numbers as may be prescribed.
Types of Companies
(5) Associate company
 A
company is considered to be an
associate company of the other, if the
other
company
has
a
significant
influence over such company or is a
joint venture company.


SIGNIFICANT INFLUENCE
means a
control of at least 20 per cent of total
share capital of a company or of taking
business decisions power under an
agreement.
Types of Companies
(6) Small company

Small company means a private company whose paid-up
share capital does not exceed Rs 50 lakh or such higher
amount as prescribed or a company whose turnover as per
the profit and loss account is less than Rs 2 crore or such
higher amount prescribed) Following companies cannot be
a small company-


A holding or subsidiary company,

a non-profit company licensed under section 8, or

a company governed by any Special Act.
Such Companies will be given various procedurals
Types of Companies
(7) Listed company

Listed company means a company
which has any of its securities listed
on any recognized stock exchange.
Types of Companies
(8) Company for Charitable Objects,etc.




as
limited
company
for
promoting
commerce,
art,
science,
sports,
education, research, social welfare,
protection of environment,
religion,
charity
intends to apply its profits in promoting its
objects
prohibits payment of dividend to its
members
privileges given to such companies
Formation of a Company
(1) Name availability
online.
: Application+ fee to the Registrar
(2) Filing of documents with registrar for registration
Memorandum and articles duly signed by all the
subscribers. Any 7 or more person in case of public
company, 2 or more in case of private company, one
person in case of one person company
Clauses of memorandum : Memorandum of association has
different clause like
• Name whether private or public
• State in which registered office is situated
• Objects –earlier main objects and other objects
• Liability – whether limited or unlimited
• Capital – authorized capital with the division into shares
Formation of a Company

Every clause if you wish to alter has a procedure .

Name –special resolution + CG approval

State to state – special resolution + CG approval.
Order of CG to be filed with each State

Object -

Unutilized money from public issue
change its object
cannot
Formation of a Company

Under the Companies Act 1956, a company raising
money from the public is free to use the money for
any other purpose, if the original objective cannot be
met for some reason . to plug this loophole a
restrictive clause has been brought in. According to
this , a company, which has raised money from
public through prospectus and still has any unutilized
amount out of the money so raised, shall not
suddenly enter new areas by changing its objects
unless a special resolution is passed by the
company and exit option is given to dissenting
shareholders.
Formation of a Company
1.
2.
3.
4.
5.
Declaration by advocate, CA , CS in practice
who is
engaged in the formation of company AND by a person
named in the articles as a director, manager or secretary
that all the requirements of this Act pertaining to formation
has been complied with
Affidavit from each subscriber and from first directors that
he is not convicted and have not been found guilty of
any fraud to any company during the preceding 5 years.
(new provision)
Address for
established
correspondence
Particulars of subscribers
identity (new)
till
registered
office
is
and first directors with proof of
Particulars of interest of the first directors in other firms
(new)
Formation of a Company
(3) Issue of Certificate of Incorporation and Allotment
of CIN
(NOT A CONCLUSIVE PROOF) Because if after incorporation
it is proved that the company has been formed by
furnishing false information, promoters, first directors and
for persons giving declaration will be guilty of fraud and
liable to imprisonment and fine.
Further tribunal may on the application made to it pass the
following order
(a) can order for change in its memorandum and articles
(b) can direct that liability of the member shall be unlimited
(c) can remove the name of the company from register
Order for winding up
Formation of a Company


Articles
may
contain
entrenchment
provision – it provides a more restrictive
procedure than passing a special resolution for
altering certain provision in the articles . For
example , the articles could mandate that certain
provisions in it can be altered only if agreed to by
all the members of the company in writing.
Provisions for entrenchment can be made either
on formation of the company, or by an
amendment in the articles agreed to by all the
members of the company in the case of a private
company and by a special resolution in the case
of a public company.
Share Capital and Debentures
Equity share with differential rights as
to dividend, voting or otherwise in
accordance with such rules as may
be prescribed (retained); and
Deposits



Prohibition on acceptance of deposit from public : No
company shall invite, accept or renew deposits under this Act
from the public . However a public company having such net
worth or turnover as may be prescribed, may accept deposits
from the public.
Banking company and Non banking Financial company are
not covered by the provisions relating to acceptance of
deposits from the public and they will be governed under
rules issued by Reserve Bank of India.
Acceptance of deposit from members allowed : A company
may accept deposits from its members by passing
a
resolution in general meeting and subject to such rules as
may be prescribed.
E- Governance Initiatives

Circulation of financial statements electronically and placing
on company’s website.

Existing provisions on mandatory electronic registry (MCA
21) retained.

Notice of meetings may be sent by electronic mode.

Voting by electronic mode at the meeting permitted.

Dividend may be paid electronically.

Books of accounts may be kept in electronic mode.

Participation of directors in Board meeting by means of
video conferencing or other audio visual means capable of
recording and storing the proceedings allowed.
34
Concept of Key Managerial
Personnel
 ‘Key Managerial Personnel’- a new term coined in the Bill
means
The Chief Executive Officer, the Managing Director or
the Manager;

The Company Secretary;

The Chief Financial officer if the Board of Directors
appoints him; and

Such other officer as may be prescribed
35
Concept of Key Managerial
Personnel

…Contd
Companies belonging to such class or classes of companies
as may be prescribed shall have the following whole time
KMP.
•
-Managing director, or CEO or manager and in their absence
, a whole time director; and
•
-company secretary
36

Every KMP shall be appointed by a Board
resolution containing the terms and
conditions of appointment including the
remuneration

If there is any vacancy in any of these
posts, it should be filled within a period of 6
months.

Each KMP is liable as ‘officer who is in
default’
37
Promoters
This was defined under SEBI Law. This has
now been defined in the Bill.
Promoter is a person who controls a
company, directly or indirectly, irrespective
of the number of shares held in the entity.
Named as promoter in a prospectus or
identified as one by the company in its
annual return.
In accordance with whose advice,
Board is accustomed to act
the
38
Promoters

… Contd
Sources of promoters’ contribution to be disclosed in
prospectus.

A return to be filed with the Registrar with respect to
change in the number of shares held by promoters and top
ten shareholders (to ensure audit trail of ownership)
39
Fraud defined

The term ‘fraud’
corporate,
in relation to affairs of a company or any body
has been defined in the Bill to include-

any act,

omission,

concealment of any fact OR

abuse of position committed by any person or any other person with the
connivance in any manner, with intent to deceive, to gain undue
advantage from, or to injure the interests of, the company or its
shareholders or its creditors or any other person,
40

Fraud

shall be punishable with
• imprisonment , not be less than six months
but which may extend to ten years
• shall also be liable to fine which shall not be
less than the amount involved in the fraud, but
which may extend to three times the amount
involved in the fraud.
41
DIRECTORS

Number of directors :
• minimum 3 in case of public
• 2 in case of private company,
• 1 in case of OPC.
• maximum limit 15 (from 12
Companies Act)
under
DIRECTORS


Woman directors : Induction of atleast
one woman director on the Board of
certain class of companies .
Director on the basis of stay in India :
• atleast one director shall be a person who
has stayed in India for a total period of not
less than one hundred and eighty-two days in
the previous calendar year
Independent Director
Why independent director

For good corporate governance

to bring independence, impartiality while taking decision

to have the benefit of their wide experience

to protect the interest of the minority and small shareholders



Definition: Though
Companies Act,1956 does not define
‘independent director’ , clause 49 of the Listing Agreement provides
for appointment of independent directors.
independent director is defined to mean a director other than a
managing director or a whole-time director or a nominee director of a
company
eligibility to become independent director:
(i) The candidate must be “a person of integrity and possess the
relevant expertise and experience” in the opinion of the board.
Independent Director
(ii) The proposed candidate and / or his relative not to have any
pecuniary relationship with the company, or their promoters, or
directors, during the two preceding financial years




Appointment
Listed co to have at least 1/3rd independent directors on their
board . For other class of public company, it may be prescribed by
Central Government
To be appointed from databank notified by the government .
20,756 Professionals have enrolled as independent directors with
Prime Directors database.
Can be appointed for 2 consecutive terms of 5 years each.
Cooling off period of 3 years before reappointment, provided that
during the cooling period the director was not associated with the
company in any other capacity.
Independent Director

Code of conduct prescribed under schedule IV
Independent directors to give a declaration of independence
every year.

Immunity

has
been
proposed
to
such
independent directors

The Bill limits the liability of an ID “only in respect of 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.”
Duties of Directors

(CLAUSE 166] :For the first time
duties of directors have been defined
in the Bill listing some do’s and
don’t’s.
Vigil mechanism for directors


Companies Bill proposes a whistle blower
mechanism whereby every listed company or such
class or classes of companies, as may be
prescribed, are required to establish a system
for directors and employees who want to
report genuine concerns with respect to any
deviant practices of the company.
The
Prohibition on insider trading of securities : the Bill
prohibits insider trading by directors by treating
such activities as criminal offence.
Board Meeting


Notice may be sent by electronic
means.
The participation of the directors by
video conferencing or by other audio
visual means shall also be counted
for the purposes of quorum
Annual General Meeting

Day , place and time : During business hours,
(9am to 6pm), on any day not being national
holiday (as declared by Central Government) ,
at registered office or at such other place within
the city, town or village in which the registered
office is situate

Notice : general meeting may be called by
giving not less than 21 days clear notice either
in writing or through electronic mode . As a
green initiative electronic mode has been
introduced for giving notice.
Annual General Meeting


Minutes : within 30 days of conclusion of every kind
of meeting, minutes to be recorded. They are
evidence of the proceedings recorded therein.
The Companies Bill provides for minutes to be
maintained as per Secretarial Standards prescribed by
ICSI, thus, ensuring uniformity and consistency in
maintenance
Annual General Meeting

Maintenance
and
inspection
of
documents
in
electronic
form
introduced for the first time : Any
document, record, register, minutes,
etc.,
required to be kept by a
company; or allowed to be inspected
or copies to be given to any person,
may be kept or inspected or copies
given, in electronic form
Report on Annual General
Meeting

Every listed public company shall
prepare in the prescribed manner a
report on each annual general
meeting including the confirmation to
the effect that the meeting was
convened, held and conducted as
per the provisions of this Act and the
rules made thereunder
Annual General Meeting


Annual return :
It
shall carry
information upto the date of closure of
financial year and not Annual General
Meeting as provided under Companies
Act, 1956.
Earlier it was required to be filed within
60 days of AGM. Now it is 30 days from
the date of AGM.
Annual General Meeting


Return to be filed in case promoters stake
changes : Every listed company shall file a
return with the Registrar with respect to
change in the number of shares held by
promoters and top ten shareholders of
such company, within 15 of such change.
Exemption to OPC: One person companies
have been given the option to dispense
with the requirement of holding an AGM.
Rotation of Auditors



Individual auditor : An individual auditor
can be appointed for one term of 5 years .
A cooling-off period of 5 years before
reappointment of the auditor.
Audit firm : audit firm to be appointed for
two terms of 5 years each. A cooling period
of 5 years before reappointment
Rotation of partner in audit firm : For
listed company , where
audit firm
is
appointed , the auditing partner and his
team shall be rotated every year by the
company .
Corporate Social Responsibility
• Board of every company shall make every endeavour to ensure
that the company spends, in every financial year, at least two per
cent of the average net profits of the company made during the
three immediately preceding financial years, in pursuance of its
Corporate Social Responsibility Policy.




Formulation of CSR Committee who would formulate and
recommend to the Board a CSR Policy for the company.
the company shall place it on its website.
Further if the company fails to spend such amount, the Board
shall, in its report specify the reasons.
Schedule VII list out the activities related to CSR such as to
remove hunger, to promote education, to empower woman,
etc.
Secretarial Audit

Every listed company and a company
belonging to other class of companies
as may be prescribed is required to
attach
a secretarial audit report in
such form as may be prescribed given
by a practising company secretary
along with the board report.
Functions of Company Secretary
Functions of company secretary
also for the first time prescribed:

It shall be the duty of the company
secretary
to
ensure
that
the
company
complies
with
the
secretarial standard relating to
general and board meeting
Dormant Company






Concept of ‘dormant companies’ being introduced. This
would allow a company to remain on the Register of
Companies with minimal compliance requirements even
without carrying on any operations.
A company having no significant accounting transaction or is
an inactive company may obtain status of dormant company
by applying to ROC.
A company not filing annual returns for 2 consecutive years
shall be declared dormant company after issuing a notice.
Has to maintain minimum number of directors.
May become an active company by applying to ROC.
Purpose- useful in case of company formed for a future project
and holding assets, but not having significant accounting
transaction.
NCLT



To do away with the multiplicity of authorities such
as CLB, BIFR,AAIFR and the High court, concept of
NCLT introduced way back in 2002. The setting up
of NCLT was challenged . Supreme Court upheld
the constitutional validity of NCLT vide its order
dated 11/05/2010.
This would provide single window clearance for all
types of company law related matters from mergers
to insolvency.
Appeal against order of NCLT will be with National
Company
Law Appellate Tribunal (NCLAT).
Appeal against order of NCLAT to Supreme court.
Mediation and Conciliation Panel


Settlement of disputes through “Mediation
and Conciliation Panel” consisting of such
number of experts, during any proceedings
pending before the Central Government, the
Tribunal or the Appellate Tribunal.
Time period : The time period provided for
disposal of the matter by the Mediation and
Conciliation Panel is three months from the
date of reference
Thank You