Transcript New Concepts, Initiatives and Opportunities in the

Presentation
By
CA Anil Sharma
Overview
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Interested director
Person in which director is interested
Related party transactions
Related party
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Restrictions on related party transactions
Duties of directors related to such transactions
Effect of non- disclosure by directors
Disclosures in accounts
Friday, July 17, 2015
Interested Director
• 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
– is 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.
Friday, July 17, 2015
Interested Director
• In Sub-section (2) of Section 184 “interested
director” in relation to any contract or
arrangement entered into or to be entered into
with:
– a body corporate in which such director or together
with other directors holds more than 2 %
shareholding of that body corporate
– A body corporate of which he is a promoter, manager
or CEO
– A firm or other entity in which such director is a
partner, owner or member, as the case may be.
Friday, July 17, 2015
Section 185- A person in whom the
director is interested
• (a) any director of the lending company, or of a company
which is its holding company or any partner or relative of any
such director;
• (b) any firm in which any such director or relative is a partner;
• (c) any private company of which any such director is a
director or member;
• (d) any body corporate at a general meeting of which not less
than twenty five per cent. of the total voting power may be
exercised or controlled by any such director, or by two or
more such directors, together; or
• (e) any body corporate, the Board of directors, managing
director or manager, whereof is accustomed to act in
accordance with the directions or instructions of the Board, or
of any director or directors, of the lending company.
Friday, July 17, 2015
Sec 188- Related party transactions
• (a) sale, purchase or supply of any goods or materials;
• (b) selling or otherwise disposing of, or buying,
property of any kind;
• (c) leasing of property of any kind;
• (d) availing or rendering of any services;
• (e) appointment of any agent for purchase or sale of
goods, materials, services or property;
• (f) such related party's appointment to any office or
place of profit in the company, its subsidiary company
or associate company; and
• (g) underwriting the subscription of any securities or
derivatives thereof, of the company:
Friday, July 17, 2015
Related Party
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Sec 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;
(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.
Friday, July 17, 2015
Related Party
• Rule 3 of the Companies (Specification of
Definitions Details) Rules, 2014.
• For the purposes of sub-clause (ix) of clause
(76) of section 2 of the Act the following shall
be deemed to be a related party with
reference to a company:
– a director of its holding company and his relatives,
– a key managerial personnel of its holding company
and his relatives.
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Definition of ‘Relative’
• Section 2 (77) ‘‘relative’’, with reference to any
person, means anyone who is related to
• another, if—
– (i) they are members of a Hindu Undivided Family;
– (ii) they are husband and wife; or
– (iii) one person is related to the other in such
manner as may be prescribed;
• Corresponding to Section 2(41) and Section 6
and Schedule 1A of CA, 1956
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‘Relative’
• Rule 4 the Companies (Specification of Definitions Details) Rules,
2014.
• With reference to any person, Relative means any one who is
related to other in the following manner:
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Members of a HUF
Spouse
Father includes step-father.
Mother includes the step-mother.
Son includes the step-son.
Son’s wife.
Daughter.
Daughter’s husband.
Brother includes the step-brother;
Sister includes the step-sister.
No more considered as ‘Relative’
under the Companies Act, 2013
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Father's father.
Father's mother.
Mother's mother.
Mother's father.
Son's son.
Son's son's wife.
Son's daughter.
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.
Key Managerial Personnel
• Sec 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 ( not
yet prescribed).
Friday, July 17, 2015
Subsidiary company
Sec 2 (87) “subsidiary company” in relation to any other company means a company in
which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total share capital
either at its own or together with one or more of its subsidiary companies.
Provided that such class or classes of holding companies as may be prescribed shall not
have layers of subsidiaries beyond such numbers as may be prescribed.
Explanation.—For the purposes of this clause,—
• (a) a company shall be deemed to be a subsidiary company of the holding company
even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary
company of the holding company;
• (b) the composition of a company’s Board of Directors shall be deemed to be
controlled by another company if that other company by exercise of some power
exercisable by it at its discretion can appoint or remove all or a majority of the
directors;
• (c) the expression “company” includes any body corporate;
• (d) “layer” in relation to a holding company means its subsidiary or subsidiaries
Friday, July 17, 2015
Associate company
• Sec 2(6) “associate company”, in relation to
another company, means a company in which
that other company has a significant influence,
but which is not a subsidiary company of the
company having such influence and includes a
joint venture company.
• Explanation.—For the purposes of this clause,
“significant influence” means control of
– at least twenty per cent. of total share capital, or
– business decisions under an agreement;
Friday, July 17, 2015
Sec 185- Loan to directors and others
• Restriction on loan by a company
• Shall apply to book debts in the nature of loan.
• To its directors and to ‘others in which director is
interested’
• Restriction to apply on loan given directly or indirectly
• “Others in which director is interested” is defined.
• Exception is loan to MD/WTD in case the company has
policy to give loan to its employees
• Another exception is to NBFCs provided the minimum
bank rate is charged.
Friday, July 17, 2015
Sec 186- Loans by a company
• Rule 11. Where a loan or guarantee is given or where
a security has been provided by a company to its
wholly owned subsidiary company or a joint venture
company, or acquisition is made by a holding company,
by way of subscription, purchase or otherwise of, the
securities of its wholly owned subsidiary company, the
requirement of sub-section (3) of section 186 shall not
apply:
• Provided that the company shall disclose the details of
such loans or guarantee or security or acquisition in
the financial statement as provided under sub-section
(4) of section 186.
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Section 188- Related party transactions
• Related party transactions listed in the section.
• Consent of the Board to be given by a resolution.
• In case of company with prescribed share capital,
prior approval of the company in general meeting
is required.
• Does not apply to transactions entered into by
the company in ordinary course of business other
than those which are not on arm’s length basis.
Friday, July 17, 2015
Rule 15- Contract or arrangement with
related party
• In reference to Section 188(1) First Proviso.
• With the prior approval of the company by a special resolution in
the following cases:
– A co. having paid up share capital of Rs. 10 Crores or more
– Sale , purchase or supply of any goods or materials exceeding 25% of
the annual turnover
– Selling or otherwise disposing of or buying property exceeding 10% of
net worth
– Leasing of property exceeding 10% of net worth
– Availing or rendering any services exceeding 10% of net worth
– Appointment of any office or place of profit in co, its holding or
subsidiary or associate company at a monthly remuneration exceeding
Rs. 2.5 lakhs
– Underwriting the subscription of any security exceeding 1% of net
worth
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Sec 192- Restriction on non-cash
transactions involving directors
• This new section regulates arrangements in
respect of acquisition of assets for consideration
other than cash between a company and a
director of the company or its holding company
or its subsidiary or its associate or person
connected with such director.
• This section provides that such arrangements
shall require prior approval by a resolution in
general meeting.
Sec 194-Prohibition on forward dealings
in securities of company by director or a key
managerial personnel
• This new section prohibits whole-time director
or any key managerial personnel from buying
certain kinds of future contracts in securities
of the company, its holding, subsidiary or
associate company.
• There were no such provisions in the 1956
Act.
Sec 195- Prohibition on insider trading of
securities
• This act prohibits directors or key managerial
person of the company from dealing in
securities of a company, or counselling,
procuring or communicating directly or
indirectly, about non-public price-sensitive
information to any person.
• There was no such provision in the 1956 Act.
Section 19-Subsidiary company not to hold shares in its
holding company
• *The wording in section 19(1) of the CA,2013
is 'No company ( defined as a co incorporated
under this Act or under any previous company
law) shall, either by itself or through its
nominees, hold any shares in its holding
company.
Sec 149(6)- Qualification of an
independent director
• (6) An independent director in relation to a company,
means a director other than a managing director or a
whole-time director or a nominee director,—
– (a) (ii) who is not related to promoters or directors in the
company, its holding, subsidiary or associate company;
– (d) none of whose relatives has or had pecuniary
relationship or transaction with the company, its holding,
subsidiary or associate company, or their promoters, or
– (e) who, neither himself nor any of his relatives—
– (i) holds or has held the position of a key managerial
personnel or is or has been employee of the company or
its holding, subsidiary or associate company in any of the
three financial years immediately preceding the financial
year in which he is proposed to be appointed;
Friday, July 17, 2015
Sec 149(8)- Qualification of an
independent director
• (8) The company and independent directors shall
abide by the provisions specified in Schedule IV.
• Schedule IV- Code for Independent Director.
• III. Duties :
• The independent directors shall—
• (9) 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;
Friday, July 17, 2015
Sec 102-Statement to be annexed to Notice
• A statement setting out the following material
facts concerning each item of special business to
be transacted at a general meeting, shall be
annexed to the notice calling such meeting,
namely:—
• (a) the nature of concern or interest, financial or
otherwise, if any, in respect of each items of—
– (i) every director and the manager, if any;
– (ii) every other key managerial personnel; and
– (iii) relatives of the persons mentioned in sub-clauses
(i) and (ii);
Friday, July 17, 2015
Sec 166- Duties of directors
• (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 and if such director is
found guilty of making any undue gain, he shall be liable to
pay an amount equal to that gain to the company.
• (7) If a director of the company contravenes the provisions
of this section such director shall be punishable with fine
which shall not be less than one lakh rupees but which may
extend to five lakh rupees.
Friday, July 17, 2015
Sec 189- Register of Contracts or arrangements
• (1) Every company shall keep one or more
registers giving separately the particulars of all
contracts or arrangements to which subsection (2) of section 184 or section 188
applies, in such manner and containing such
particulars as may be prescribed and after
entering the particulars, such register or
registers shall be placed before the next
meeting of the Board and signed by all the
directors present at the meeting.
Friday, July 17, 2015
Rule 9- Disclosure by a director of his interest
• (1) Every director shall disclose his concern or interest in
any company or companies or bodies corporate (including
shareholding interest), firms or other association of
individuals, by giving a notice in writing in Form MBP 1.
• (2) It shall be the duty of the director giving notice of
interest to cause it to be disclosed at the meeting held
immediately after the date of the notice.
• (3) All notices shall be kept at the registered office in the
custody of the company secretary of the company or any
other person authorized by the Board for the purpose.
• (4) Such notices shall be preserved for a period of eight
years from the end of the financial year to which it relates
and shall be kept
Friday, July 17, 2015
Rule 16- Register of contracts or arrangements
in which directors are interested
• (1) Every company shall maintain one or more registers in
Form MBP 4, and shall enter therein the particulars of– (a) company or companies or bodies corporate, firms or other
association of individuals, in which any director has any concern
or interest, as mentioned under sub-section (1) of section 184:
– Provided that the particulars of the company or companies or
bodies corporate in which a director himself together with any
other director holds two percent. or less of the paid-up share
capital would not be required to be entered in the register;
– (b) contracts or arrangements with a body corporate or firm or
other entity as mentioned under sub-section (2) of section 184,
in which any director is, directly or indirectly, concerned or
interested; and
– (c) contracts or arrangements with a related party with respect
to transactions to which section 188 applies.
Friday, July 17, 2015
Sec 190- Contract of employment with
managing or WTD
• (1) Every company shall keep at its registered office:
– (a) where a contract of service with a managing or whole-time
director is in writing, a copy of the contract; or
– (b) where such a contract is not in writing, a written
memorandum setting out its terms.
• (2) The copies of the contract or the memorandum kept
under sub-section (1) shall be open to inspection by any
member of the company without payment of fee.
• (3) If any default is made in complying with the provisions
of sub-section (1) or sub-section (2), the company shall be
liable to a penalty of twenty-five thousand rupees and
every officer of the company who is in default shall be
liable to a penalty of five thousand rupees for each default.
Friday, July 17, 2015
Sec 164- Disqualifications for
appointment of directors
• (1) A person shall not be eligible for
appointment as a director of a company, if —
• (g) he has been convicted of the offence
dealing with related party transactions under
section 188 at any time during the last
preceding five years;
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Sec 167- Vacation of office of director
• (1) The office of a director shall become
vacant in case—
• (a) he incurs any of the disqualifications
specified in section 164;
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Punishment for non- compliance of
Section 185
• the company shall be punishable with fine which
shall not be less than five lakh rupees but which
may extend to twenty-five lakh rupees, and
• the director or the other person to whom any
loan is advanced or guarantee or security is given
or provided in connection with any loan taken by
him or the other person, shall be punishable with
imprisonment which may extend to six months or
with fine which shall not be less than five lakh
rupees but which may extend to twenty-five lakh
rupees, or with both.
Friday, July 17, 2015
Related Party Disclosures
• Applicable Accounting Standard AS-18
• Para 3 of the AS describes the related party relationships
– (a) holding companies, subsidiaries and fellow subsidiaries,
– (b) associates and joint ventures and the investing party or venturer ,
– (c) individuals owning, directly or indirectly, an interest in the voting
power of the reporting enterprise that gives them control or
significant influence over the enterprise, and relatives of any such
individual,
– (d) key management personnel and relatives of such personnel,
– (e) enterprises over which any person described in (c) or (d) is able to
exercise significant influence and
– (f) enterprises owned by directors or major shareholders of the
reporting enterprise and enterprises that have a member of key
management in common with the reporting enterprise.
• Definitions of KMP and Relatives are different than those in the CA,
2013.
Friday, July 17, 2015
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Friday, July 17, 2015