Transcript Title

COMPANIES ACT,2013
By
CA PUNKAJ JAIN
TOPICS FOR DISCUSSIONS
SHARE CAPITAL &
DEBENTURES
MANAGEMENT &
ADMINISTRATION
MEETINGS OF
BOARD AND ITS
POWERS
APPOINTMENT &
QUALIFICATION
OF DIRECTORS
APPOINTMENT &
RENUMERATION OF
MANEGERIAL
PERSONNEL
SHARE CAPITAL & DEBENTURES
.
• Types of Share Capital
.
• Prohibition of Issue of Shares on Discount
.
• Issue of Sweat Equity Shares
• Issue of Bonus Shares
.
• Debentures
TYPES OF SHARE CAPITAL
Share
Capital
Equity
Shares
With
Voting
Rights
Preference
Shares
With
differential
rights
Total Share Capital Includes aggregate of :
(a) paid up equity share Capital
(b) Convertible preference share Capital
SHARE CAPITAL
 Tenure of Redeemable Preference Shares - 20 years [For defined
infrastructural projects, tenure can be exceeding 20 years];
 Requirements of Further Issue of Share Capital applicable to all Co’s.;
 Provision of ESOP at time of issue of further capital subject to approval
of shareholders by special resolution;
 Pricing of preferential issue determined by Registered valuer;
PROHIBITION OF ISSUE OF SHARES
ON DISCOUNT [S.53]
Except as provided in section 54, a company shall not issue shares at a
discount.
 Any share issued by a company at a discounted price shall be void.

PENALTY:
Fine-1 lac up to 5 lac
Officer in default –
Imprisonment of 6 months or fine
–1 lac up to 5 Lac
Or
Both
ISSUE OF SWEAT EQUITY SHARES [U/S
54]
 No shares can be issued at discount except sweat equity Shares;
 Special Resolution in General Meeting required [Validity :- Not more than 12
months ];
 Employee & Value Additions defined in Rules;
 Limit of Sweat Equity :- Not more than 15% of existing paid up equity share
capital in yr or shares of the Issue value of Rs. 5 Cr, whichever is higher.
[Overall Limit :- 25% of Paid up Equity capital of Co. at any time].
ISSUE OF BONUS SHARES [ S.63]
A company may issue fully paid-up bonus shares to its members, in any
manner whatsoever, out of—
 Free reserves;
 Securities premium account; or
 Capital redemption reserve account
No issue of bonus shares shall be made by capitalizing reserves created
by the revaluation of assets
The bonus shares shall not be issued in lieu of dividend
Company once announced the decision of its Board recommending Bonus Issue,
cannot withdraw the same
ISSUE OF BONUS SHARES SHALL
SUBJECT TO: No company shall capitalize its profits or reserves for the purpose of issuing fully
paid-up bonus unless: Authorized by its articles;
 Recommendation of the Board, been authorized in the general meeting of
the company;
 Not defaulted in payment of interest or principal in respect of fixed deposits
or debt securities issued by it;
 Not defaulted in respect of the payment of statutory dues of the employees,
such as, contribution to provident fund, gratuity and bonus;
 The partly paid-up shares, if any outstanding on the date of allotment, are
made fully paid-up.
DEBENTURES [ S. 71]
 Issue of debentures with an option to convert into shares, either wholly or partly at




the time of redemption with approved by a special resolution passed at a general
meeting.
No issue of debentures carrying any voting rights.
Creation of debenture redemption reserve account and the amount shall be only
used for the redemption of debentures.
No company shall issue a prospectus or make an offer or invitation to the public
or to its members exceeding five hundred for the subscription of its debentures.
A company shall pay interest and redeem the debentures in accordance with the
terms and conditions of their issue.
 If company fails to redeem the debentures on the date of their maturity or
pay interest ,Tribunal may, on the application of the debenture-holders, or
debenture trustee order, the company to redeem the debentures along with
payment of principal and interest due thereon.
PENALTY:
Officer in Default-Imprisonment up
to 3 years
Officer in Default-Fine Rs. 2 lac -5
lacs
MANAGEMENT & ADMINISTRATION
.
.
.
.
• Annual Return
• Return to be filed with Registrar in case promoters stake changes
• Annual General Meeting
• Report on Annual General Meeting
• Extra Ordinary General Meeting
• Statement to be annexed to Notice
.
• Quorum for meeting
ANNUAL RETURN
Section 92 (1)
Section 92 (2)
Section 92 (1) (k)
The Annual Return
shall carry
information up to
the date of closure
of financial year.
Certification of
Annual Return by
Practicing Company
Secretary
mandatory in case
of companies with
prescribed paid up
capital and
turnover.
Signed by a director
and the Company
Secretary or where
there is no CS by a
PCS.
(Concept of AGM to
AGM basis AR
preparation
dispensed).
(except for OPC
and Small
Companies)
As per Rules: Certification by PCS for Listed Company or a company with:
Paid up capital Rs.10 Crore or more
And
Turnover of Rs.50Crore or more
DISCLOSURES IN ANNUAL RETURN –
SECTION 92
Registered
office, principal
business
activities
Securities and
shareholding
pattern
Meeting of
board and
committees
Members and
debenture
holders
Promoters,
directors, key
managerial
personnel
Indebtedness
Meetings of
members
Remuneration
of directors
and KMP
Penalty or
punishment
& details of
compounding
Matters
relating to
Certification
of Compliance
shares held by
or on behalf
of the FII’s
other matters
as may be
prescribed.
ANNUAL RETURNPOINTS TO BE CONSIDERED
 Every company shall prepare its AR in Form MGT.7
 Annual Return-Listed Company-Paid up of 10 Crore or turnover of 50 Crore
–To be certified by CS –in Form MGT 8
 An Extract of annual return shall form part of Boards Report
 Non compliance may lead to penalty of 50K exceeding up to 5 lacs and office
in default –Imprisonment of Six months or fine of Rs.50K -5 Lacs
RETURN TO BE FILED WITH REGISTRAR IN CASE
PROMOTERS STAKE CHANGES [ S.93]
In Form MGT-10
Listed Company
Within 15 days
Return of Changes
Increase or decrease of
2 % or more
Either in shareholding
Position of Promoters /
Top Ten shareholders
PENALTY:
Company/Officer in Default-Fine up
to Rs. 10 ,000
Continuing Offence: Rs.1,000 /day
MEETINGS
ANNUAL GENERAL MEETING [S. 96]
OPC is not required to hold AGM
AGM may conduct on Sunday. (except national holiday)
First AGM with in 9 months of the closure of first accounts Subsequent AGMs, with in
6 months from the date of closing of financial year
15 months shall not elapse between two subsequent Annual General Meetings
During business hours (9 a.m-6 p.m)
Lack of quorum with in half an hour will be a reason for adjournment and members
present on adjourned meeting will be quorum.
Non Compliance-Fine 1 Lac and 5K for each day for continuing default
REPORT ON ANNUAL GENERAL
MEETING [S.121]
 Report in addition to the minutes of the general meeting by Listed Public
Company;
 To be signed and dated by the Chairman of the meeting or in case of his
inability to sign, by any two directors of the company, one of whom shall be
the Managing director, if there is one and company secretary of the
company;
 the Report shall contain fair and correct summary of the proceedings of the
meeting.
 Non Compliance-Fine-1 Lac to 5 Lac & Officer in Default-Rs.25 K to 1 Lac
CONTENTS OF THE REPORT





Day, date, hour and venue of the annual general meeting;
confirmation with respect to appointment of Chairman of the meeting;
number of members attending the meeting;
confirmation of quorum;
confirmation with respect to compliance of the Act and the Rules, secretarial
standards made there under with respect to calling, convening and conducting
the meeting;
 business transacted at the meeting and result thereof;
 particulars with respect to any adjournment, postponement of meeting, change
in venue; and
 any other points relevant for inclusion in the report.
EXTRA ORDINARY GENERAL
MEETING [Sec 100]
 Every general meeting (i.e. meeting of members of the company) other
than annual general meeting or any adjournment thereof, is an
extraordinary general meeting.
 The law also recognizes that occasions may arise where members may
need to meet together formally on other occasions, in between AGMs.
ESSENTIALS OF VALID REQUISITION
 The requisition must state the objects of the meetings & be signed by the requisitioning
members.
 The requisition must be deposited at the company’s registered office.
 The Directors should within 21 days, move to call a meeting and the meeting should be
actually be held within 45 days from the date of the lodgment of the requisition.
 The meeting may be called by requesitionist themselves within a period of 3 months from
date of Requisition.
Strength for
requisition of
Members
Company with
Paid up Capital
1/10 th of Paid up
Capital
Company without
Paid Up capital
1/10 th of Voting
Power
Lack of quorum will be a reason for the cancellation EGM called by
requesitionist
STATEMENT TO BE ANNEXED WITH
NOTICE – SEC 102
Explanatory Statement in case of special
business to specify
Liability in case of non-disclosure or insufficient
disclosure in Explanatory Statement
Nondisclosure
/insufficient
disclosure
Nature of
interest/
concern
Financial
Interest
Director
and
Manager
Other
Interest
Relatives
KMP
Explanatory statement to specify shareholding %
of
Promoters/directors/manager/KMP
whose
shareholding is not less than 2% of paid up
capital
Benefit
Promoter
Profit
Director
and
Manager
KMP
Liable to compensate to Company to the
extent of such profit/benefit
PENAL PROVISION U/S 102
PENALTY:
WHO ARE RESPONSIBLE:
•Promoter,
•Director,
•Manager or
•Key managerial personnel who is in
default
Fine up to Rs.50,000
Or
5 times the amount of
benefit accruing to the promoter,
director, manager or other key
managerial personnel or any
of his relatives,
WHICHEVER IS MORE.
QUORUM FOR MEETING[ S.103]
Public Company
5 members personally
present
≤ 1000 members
15 members personally
present
> 1000 members but
≤ 5000 members
30 members personally
present
> 5000 members
Private Company
2 members personally
present
VOTING THROUGH ELECTRONIC MEANS [
Sec-108]
Company having not less
than 1000 shareholders
Listed company
Right to vote at general
meetings by electronic
means.
APPOINTMENT & QUALIFICATION
OF DIRECTORS
.
.
.
.
• Key Changes under the Act
• Types of Directors
• Independent Director
• Women Director
• Disqualification/Vacation/Removal/Resignation
KEY CHANGES [S.149]
TOPIC
Minimum Number of Directors
Companies Act,2013
2 –Private Co.
3-Public Co.
1-One Person Co.
Companies Act,1956
2-Private Co.
3-Public Co.
Maximum Number of Directors 15 Directors
12 Directors
Increase in no. of directors Special Resolution required
beyond limit
C.G. Approval required
Residential status
Every Co. to have at least 1 No such provision
director who has stayed in India
for a total period of not less than
182 days in previous calendar
year
TYPES OF DIRECTORS
RESIDENT DIRECTOR
• Every company shall have at least one Director who has stayed in India for a total
period of not less than 182 days in the previous calendar year.
SMALL SHAREHOLDER DIRECTOR
• A listed company may have one director elected by small shareholders. Small
Shareholder means a shareholder holding shares of nominal value of not more than
twenty thousand rupees.
ALTERNATE DIRECTOR: Alternate director shall be appointed for a director
during his absence for 3 months or more from India. The Board of directors, if so
authorized by articles or by a resolution passed in general meeting, appoint a person
to act as an alternate director.
NOMINEE DIRECTOR:
The Central Government or State Government may nominate only by virtue of its
shareholdings in a Government Company. Articles of a company must give its Board
of Directors permission to appointment a Nominee Director.
NUMBER OF DIRECTORSHIP
(S. 165)
Director in maximum 20 companies
Directorship to include alternate directorship
Of these 20 companies, cannot be a Director in more than 10 public companies
(including private companies which are holding or subsidiary companies of
public companies)
Penalty for contravention: Minimum Rs. 5,000, and Maximum Rs. 25,000 for
every day during which the default continues
DISQUALIFICATION OF DIRECTORS
NEW DISQUALIFICATIONS FOR DIRECTORS
– SECTION 164
Conviction for offence dealing with Related Party Transaction anytime during
previous 5 years
Not having obtained Director Identification Number
Conviction for any offence and sentenced for an imprisonment extending to 7
years or more
No power to central government to exempt the application of particular
disqualification on any person
If the company has not filed financial statements for three years
DUTIES OF BOARD
Act in accordance
with the articles of
association
Avoid any undue gain
to himself, relatives
or associates
Avoid situations of
Conflict
Act in good faith to
promote the objects
of the company
Exercise his duties
with due and
reasonable care,
skill, diligence
VACATION OF OFFICE OF DIRECTOR
-S. 167
If the company does not filed the financial
statements or Annual return for 3 financial year
If the company has failed to disclose his interest
in any of the contracts & arrangements
If he fails to attend all the meetings of Board for a
consecutive period of 12 months
Mandatory vacation –even if leave of absence for
unattending meetings
If he is convicted by court involving Moral
Turpitude & sentenced for not less than 6 months
REMOVAL OF DIRECTOR-[ S.169]
Notice of Removal can be given only by the following:-
In any other Company:
In Company Having Share
Capital:
Member(s) having not less than
1/10th of the total voting power
Member(s) having not less
In case of default, company and
than 1/10th of the total voting
every director or employee who is
power or holding shares the
responsible for such contravention
aggregate value of which is not
to be punishable with fine which
less than Rs. 5 lakh
shall not be less than Rs. 50,000
but which may extend to Rs. 5 Lac
INDEPENDENT DIRECTOR
NEED FOR INDEPENDENT DIRECTOR
To Counter
balance the
weakness of
management
in the
company
To ensure
ethical
behavior
and good
accounting
control.
NEED
FOR ID
To help a
company to
survive and
grow through
improved
succession
Planning.
To ensure
binding, well
conceived
decisions
taken by the
company
WHEN AN ID IS MUST?

Paid up Share Capital of Rs. 100 Cr or more
OR

Outstanding Loans; or

Borrowings; or

Debenture; or

Deposits
Exceeding 200 cr.
EVOLUTION - ID
based on:
WHO CANNOT BE APPOINTED AS ID?
 One who together with his/her relatives holds 2 % or more of the total voting powers of






the company
Past and current employees
Partners of a firm of auditors,
Company secretaries,
Cost Accountants,
Lawyers or consultants
That has or had any transaction with the company, its holding, subsidiary or associate
company ,if that firm earned 10 per cent or more of its gross turnover in the preceding
three financial years from that company.
KEY HIGHLIGHTS-I.D
A transition period of 1 year for compliance of the
provision to have 1/3 of the total directors as ID
Minimum Term of 5 yrs prescribed with maximum of 2
terms
Maintenance of gap of 3 years after 2 terms
Remuneration through sitting fees [As per Rules
upto Rs.1,00,000 per meeting]
Reimbursement, profit linked commission
CODE OF CONDUCT-SCHEDULE IV
Schedule IV sets out a code of conduct for the role, responsibilities and
functions of the independent director;
Guidelines to be complied by the companies on manner of appointment,
re-appointment, resignation or removal of independent directors;
Independent directors to hold at least one meeting in a year to review
performance of non independent directors and board;
Evaluation mechanism to be put in place by Board to evaluate
performance of each independent director.
BOARD COMMITTEES: COMPOSITION OF ID
TYPE OF COMMITTEE
COMPOSITION
OTHER REQUIREMENTS
 Roles stipulated
 3 Directors
Audit Committee [Section 177]
Nomination & Remuneration
Committee [Section 135]
CSR Committee [Section 178]
Stakeholder Relationship
Committee [Section 178]
 Majority Independent
Directors
 Decisions no longer binding
on the Board
 Whistle-blower policy
required, providing direct
access to the chairman of the
Audit Committee
 3 Directors
 Majority Independent
Directors
 3 Directors
 1 Independent Director
 Strength and composition
determined by the Board
 Chairman to be non-executive
Purpose – to solve the
grievances of security holders
SAFEGUARD AGAINST THE LIABILITY OF ID
[U/s. 149(11)]
LIABILITY OF ID

The liability arises on account of conduct , act or omission on the part of a
person and not merely on account of holding an office or a position in a
company.

-SMS Pharmaceuticals Ltd, Supreme Court [September 2005]
TERM OF INDEPENDENT DIRECTOR
As per Companies Act
Effect
As per SEBI
• An
independent
director can hold up
to two 5 year terms
after which there
needs to be a 3 year
cooling off period
• The change made in
Companies
Act
is
PROSPECTIVELY (i.e. it
doesn’t count the time
served already)
• The change proposed
by SEBI takes into
consideration
the
previous terms (i.e. it
count the time served
already)
INDEPENDENT DIRECTORS
- CONTRADICTIONS
 The demand for independent directors is set to be large and the supply limited
 The ministry of corporate affairs rules say the individual should possess appropriate
skills
 Discontinuance of Practice of appointing friends, relatives,.
 Listing agreement allows listed companies to allot stock options to independent
directors , after obtaining shareholders consent but Companies Act,2013 does not
allow allotment of Stock options.
WOMEN DIRECTOR
RATIONALE - WOMEN DIRECTOR
A signal of better company
Greater effort across the Board
A better mix of Leadership Skill
A better reflection of Consumer decision maker
Access to a wider pool of Talent
Improved Corporate Governance
Risk aversion
As per 2nd Proviso to Section 149 (1)
At least one women director for prescribed class or classes of companies.
As per Rules
Listed Companies, and every other public company with paid up capital ≥
Rs. 100 Cr; or Turnover ≥ Rs. 300 Cr
POSITION OF WD-TOP TEN
COUNTRIES
POSITION OF
WOMEN
DIRECTOR IN
INDIA
MEETING OF BOARD & ITS POWERS
.
• Meeting of Board
.
• Committees of Board
.
• Powers of Board
.
• Loan to Directors
.
• Loan & Investment by Company
• Related Party Transaction
BOARD OF DIRECTORS
BOARD MEETING
4 board
meetings to
be held every
Not less than
7 days prior
notice for
board
meeting.
year
Not more
(Small,
Dormant and
OPC may
comply this
provision by
having 1
meeting in
each half of
calendar year
with a gap not
less than 90
days)
than 120 days
to elapse
between two
consecutive
meeting.
A director
can
participate in
a board
meeting
through
video
conferencing
or other
audio visual
mode as may
be
prescribed.
Minutes
Adjourned
should made
meeting
in
shall not
accordance
conduct in a
with
national
Secretarial
holiday, then
Standard
next
issued by
succeeding
ICSI.
day
BOARD COMMITTEES: APPLICABILITY
TYPE OF
COMPANY
Private
Company
AUDIT COMMITTEE
NOMINATION &
REMUNERATION
COMMITTEE
Not applicable
Not applicable
CSR COMMITTEE
STAKEHOLDER
RELATIONSHIP
COMMITTEE
Not applicable
Independent Director
required on CSR Committee
if:
Both committees required if the company has:
Public
Unlisted
Company
 Paid-up share capital of INR 100 crores or
more; or
 Aggregate outstanding loans, borrowings,
debentures or deposits exceeding INR 200
crores
 Net worth ≥ INR 500
Crores
 Turnover ≥ INR 1000
Applies if the
company has 1000
or more
shareholders
Crores
 Net profit ≥ INR 5 crores
Public
Listed
Company
Applicable
Applies if the
company has 1000
or more
shareholders
POWERS OF THE BOARD
Key Changes [Section 179]
Can be exercised only at a meeting of the Board
of Directors:




Approval of financial statements and Board reports
Diversification of business;
Approval of amalgamation, merger or reconstruction
Approval of takeover of another company or
acquisition of a substantial stake in another company
LIABILITY OF DIRECTORS AND OFFICERS
Liability of Directors under Section 166 relating to duties of Director - Director shall be
liable to a fine of not less than 1 lac & may extend up to 5 Lac
Liability under Section 172 of the company and any officer in default for any contravention
of this chapter ,
PENALTY:
Company/Officer in Default-Fine up
to Rs.50,000
Extending Up to : Rs. 5 Lacs
 Independent and non-executive Directors only face liability for an act or omission where
they have knowledge (attributable through the Board process) or if there is consent,
connivance or a lack of diligence.
RESTRICTIONS ON THE POWER OF THE
BOARD
SITTING FEES-Section 197
A Director may receive remuneration by way of fee for attending meetings of the
board or committee
Independent director shall not be entitled to any stock options
Reimbursement of expenses for participation in the board and other meetings and
profit related commission as may be approved by the members
As per the draft rulesAmount of sitting fees payable to a director for attending meetings of the Board or
committees to be a maximum of Rs.1 lakh per meeting of the Board or committee
Board may decide different sitting fee payable to independent and non-independent
directors other than whole-time directors
LOANS & INVESTMENTS
LOANS TO DIRECTORS [U/s 185]
 Applicability :- Pvt. & Public Companies
 No Co. shall directly/indirectly make loan [including book debt] or give guarantee/provide




security to its Director/other person in whom director is interested* [*Similar to Sec. 297 of
the 1956 Act];
Exemptions :Loan to MD/WTD as part of contract of services extended to all its employees or pursuant
to scheme approved by special resolution of members;
Co. whose ordinary business to provide loan/guarantee/security with charges of interest not
less than RBI rate.
Penalty :- Fine Rs. 5 to 25 Lakh for Co./Director along with Imprisonment for defaulting
Dir. up to 6 months.
POSITION AS PER NOTIFIED RULES
(1) Loan ,Guarantee, Security by
holding company to its wholly
owned subsidiary company in
respect of any loan made to its
wholly
owned
subsidiary
company is exempted from the
requirements under this section
(2) Guarantee given or security
provided by a holding company
in respect of loan made by any
bank or financial institution to
its subsidiary company is
exempted
from
the
requirements
under
this
section
Loans made under sub-rule (1) and (2) are to be
utilized by the subsidiary company for its principle
business activities.
LOANS & INVESTMENT BY COMPANY
[U/s 186]
 Coverage :- Investment, Loan, Guarantee or Security to Body Corporate or any
other person;
 Rate of interest:- Not Lower than prevailing yield of 1 /3/5/10 yr Govt.
security closest to tenure of loan;
 Restriction on investment in not more than 2 layers of investment companies,
[U/s 186(1)];
 [Exemptions :- Co’s incorporated outside India & layers for meeting statutory
requirements];
AMOUNT OF LOAN & INVESTMENT U/s
186(3)
 No company shall directly or indirectly give loan guarantee or acquire by
way of subscription :
 Exceeding 60% of its paid up capital, free reserves and securities premium
account
 Or 100% of its free reserves and securities premium account whichever is
more
POSITION UNDER NOTIFIED RULES
If loan, guarantee ,security
has been provided by a
company to its wholly owned
subsidiary company or a J/V,
or acquisition is made of the
securities of its wholly owned
subsidiary
company,
the
requirement of sub-section
HOWEVER
INSPITE
OF
EXEMPTIO
N UNDER
THE
PROVISIO:
Company shall disclose the
details of such loans or
guarantee or security or
acquisition in the financial
statement
as
provided
(3) of section 186 shall not
under sub-section (4) of
apply
section 186.
RELATED PARTY [U/s 2(76)]
 A director or his relative;
 A Key Managerial Personnel (‘KMP’) or his relative;
 A firm – in which a director, manager or his relative is a partner;
 A private company - in which a director or manager is a member or director;
 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;
RELATED PARTY [U/s 2(76)]
 Any person or any Body Corporate whose Board is accustomed to act in accordance with
advice of Director or manager.
 Senior Management Personnel / Members of core Management Team of Holding
/subsidiary /Associate Co. one level below Executive Directors and Functional Heads.
 KMP /Director of Holding /subsidiary /Associate Co.
 Holding /subsidiary /Associate Co. of the Co.
 Subsidiary of Holding Co. to Co. is subsidiary
 Director/KMP of the holding company or his relative with reference to a company.
RELATIVE [U/S 2(77)]
FATHER/ STEP
FATHER
BROTHER/ STEP
BROTHER
SON [STEPSON]
SISTER/ STEP
SISTER
SON’S WIFE
MOTHER / STEP
MOTHER
THE PERSON [X]
SPOUSE
DAUGHTER
DAUGHTER’S
HUSBAND
MEMBERS OF HUF
APPOINTMENT & RENUMERATION
OF MENEGERIAL PERSONNEL
.
.
.
• Appointment /Disqualification of
MD/WTD/Manager
• Overall maximum Managerial Remuneration
• Schedule V
• Appointment of Key Managerial Personnel
ROLES OF DIRECTOR
Managing Director
Key Managerial Personnel
Whole Time Director
Officer who is in default
MANAGING DIRECTOR
Director
by
Articles
Agreement
Shareholding
Entrusted with substantial powers of management
Occupying position of managing director by whatever name called
MANAGER
Individual
Subject to
Superintendence
Control
Directions of the
BoDs
Having Management of whole of affairs of the Company
Includes director occupying position of manager by whatever name called
DISQUALIFICATIONS FOR APPOINTMENT
AS MD/WD/MANAGER [S.196]
 Subsection (3) states disqualifications of MD/WD/Manager.
 A person who is below 21 and above 70 can’t be appointed as MD/WD but extension beyond
70 allowed by special resolution.
 The explanatory statement annexed to the notice for such must state the justification for
appointing such person
 Appointment to be made by Board and approved by members by ordinary resolution
without govt. approval if Schedule V complied with.
 Notices of board and general meeting to disclose details of terms and conditions,
remuneration and director’s interest.
 A return to be filed within 60 days of appointment / reappointment.
 If members disapprove appointment / re‐appointment,acts by the appointee before the
general meeting shall not be deemed to be invalid.
‘REMUNERATION’ DEFINED
 “Remuneration means any money or its equivalent given or passed to any
person for services rendered by him and includes perquisites as defined
under the Income‐tax Act, 1961.” [S. 2(78)]
 This definition is substantially different from the definition in s. 198 of 1956
Act.
 While all components of remuneration (other than perquisites) will be taken
on actual expenditure basis, perquisites will be taken as per Income Tax Act
and Rules.
REMUNERATION OF DIRECTORS [S. 197]
 This section and Schedule V don’t apply to private companies.
 They apply to public companies and subsidiaries of public companies.
 Private companies (which are not subsidiaries of public companies) are free to
remunerate their directors and managing/whole‐time directors freely without any limit
and any approval of members or govt.
 Section 196 and Part I of Schedule V applicable to private companies as well.
REMUNERATION OF
MD / WD / MANAGER
 Overall ceiling on remuneration of all
directors: 11% of Net Profit (NP).
 In excess of 11% can be paid with the
approval of shareholders and CG.
 NP to be calculated as per s. 198 (s. 349
of the 1956 Act)
 Fees for attending board meetings over
and above 11%.
REMUNERATION TO NON
EXECUTIVE DIRECTORS
 Renumuneration payable to directors
who are neither MDs nor WDs shall not
exceed,— ,
 (A) 1% of the net profits of the
company, if there is a MD or WD or
Manager;
 (B) 3% of the net profits in any other
case.
 Thus, members’ approval is not required
to pay remuneration up to 1% or 3%
SCHEDULE-V
 Part I of Sch. V contains conditions to be complied with at the time of
appointment / re‐appointment of any managerial person [MD/WD/Mgr].
 No approval of the CG necessary if conditions in Part I are complied with.
EFFECTIVE CAPITAL
•Aggregate of the paid-up share capital (excluding share application money or advances
against shares)
•Amount, if any, for the time being standing to the credit of share premium account;
reserves and surplus (excluding revaluation reserve);
•long-term loans and deposits repayable after one year (excluding working capital loans,
over drafts
•Interest due on loans unless funded, bank guarantee,
•Other short-term arrangements) as reduced by the aggregate of any investments (except
in case of investment by an investment company
•whose principal business is acquisition of shares, stock, debentures or other securities),
•Accumulated losses and preliminary expenses not written off.
SCHEDULE V: PART II
 Part II of Sch. V contains conditions to be complied with in respect of





remuneration.
Section I of Part II provides: a company having profits in a financial year may pay
remuneration to a managerial person(s) within the limits specified in s. 197, i.e.
5% or 10% of NP.
Section II of Part II contains provisions applicable in a financial year when a
company has no profit or inadequate profit.
In such a case, remuneration can be paid to managerial person(s) without govt.
approval but within the limit under Para (A) or (B) as applicable.
The applicable limit can be doubled if remuneration is approved by special
resolution.
Section III of Part II contains provisions applicable to remuneration payable by
companies having no profit or inadequate profit without govt. approval in certain
special circumstances if the remuneration is in excess of the limit specified in
Section II of Part II.
REMUNERATION FOR PROFESSIONAL
SERVICES
 As a rule, remuneration payable to NEDs in any other capacity must be included
in the 11% and 1% or 3% limits.
 But remuneration for professional services is excluded, if‐
 (a) the services rendered are of a professional nature; and
 (b) in the opinion of the Nomination and Remuneration
 Committee [if the company requires this committee under s. 178], or the Board in
other cases, the director possesses the requisite qualification for the practice of the
profession. [S. 197(4), Proviso]
KEY MANEGERIAL PERSONNEL
KEY MANAGERIAL PERSONNEL
OR
CEO
Company Secretary
MD
CFO
Whole Time
Director
OR
Such Officer as may be prescribed
18 - Related Party
Definition in Section 2Section 203 (1) of the Act ASTransactions
(51) of the Act
“Key managerial personnel”, in
relation to a company,
means:
 the chief executive officer or
the managing director or the
manager;
 the company secretary;
 the whole-time director;
 the chief financial officer;
and

 such other officer as may be
prescribed
Every company having paid
up capital of Rs.10 Crore or
more 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 management personnel those persons who have the
authority and responsibility
for planning, directing and
controlling the activities of
the reporting enterprise.
KEY HIGHLIGHTS
KMP included in the definition for an Officer who is in default;
Related party includes relative of key managerial personnel;
Any document/ contract requiring authentication by Company can
be signed by KMP/ person authorized by the Board. (Section 21 );
Annual Return to contain information about KMP and changes if
any thereof and their remuneration;
Relatives of KMP to not be appointed as auditors;
Register of KMP along with securities held by them in the company
to be maintained & particulars of change in KMP to be filed with
ROC;
Whole-time KMP to be appointed by the Board. If the position
becomes vacant the same shall be filled within six months of such
vacancy.
OFFICER IN DEFAULT-Section 2(6)
KMP
&
Whole Time Director
If no KMPs
Directors appointed as OD
Any person authorized by
Board or KMPs
OR
All directors if no one is appointed
Any person who advices,
directs or instruct s BoD
Every Director who is
aware of contravention
For issue or transfer of shares:
Share Transfer Agent
Registrar to issue
Merchant Banker
OFFICER WHO IS IN DEFAULT
Companies Act 1956
- MD/
Companies Act 2013
WTD/ - WTD/KMP/ Directors specified by the Board – in the
Manager/Person
accordance
directions
in
with
the
whose - Where there is no specific authorization by the Board
Board
is
accustomed to act
- No
provision
to
absence of such specification, all Directors
all directors would be held liable. Most importantly,
every director who is AWARE of such contravention by
impose
liability on all directors
- External parties not counted
virtue
of
receipt
PARTICIPATION
in
of
such
any
proceedings
proceedings
or
without
objecting to the same would be held liable
in the definition for Officer - Share transfer agents, Registrar to an Issue and
in Default
Merchant Bankers to Issue to be held liable in the
event of default in respect of issue or transfer of shares
of a company (shares used and not securities)
FINAL IMPACT ON CORPORATES
Quality of
functioning
of the
board will
increase
Beginning of
new era of
corporate
Governance
Increase in
trust of
Enhanced
investors
responsibility
and
of top
stakeholders
management
CA Punkaj Jain
7A LGF,NRI Complex, Mandakini, Greater
Kailash -IV
Ph:- 9810286606
Email Id :- [email protected]
Url: www.capoc.in