Transcript Companies Bill 2009 - Sukumar & Associates

COMPANIES BILL 2009
Divya Sukumar
An effort to highlight the salient features of the Companies
Bill, 2009 while displaying improvements it seeks and the
conflicts and contradictions it poses
Background
History of Companies Act, 1956
– Enacted with the object to amend and consolidate the law
relating to companies and certain other associations
– Empowers the Central Government to regulate
formation, financing, functioning and winding up of
companies
– Administered by central government through ministry of
corporate affairs and office of registrar of companies
Need for introduction of Companies
Bill, 2009
– Comprehensive revision of the Companies Act, 1956 in 2004
– Number of Companies in India expanded from 30,000 in 1956
to nearly 8 lakhs in 2004,
– Modernization of the regulatory structure for the corporate
sector
– Codify a new law to regulate companies and other corporate
entities and
– Establish a new benchmark for corporate governance
Objectives of Companies Bill, 2009
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To revise and modify the Companies Act, 1956
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To bring about compactness
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To re-write provisions of the Act to enable easy
interpretation; and
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To delink the procedural aspects from the
substantive law
Structure of the Bill
Companies Act.
1956
658
Sections
Companies Bill, 2009
426
Sections
24 Amendments
28
Chapters
14
Schedules
Scope of the New Companies Bill
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Classification and Registration of Companies
Management and Board Governance
Related Party Transactions
Minority Interest
Investor Education and Protection
Access to Capital
Accounts and Audit
Mergers and Acquisitions:
Investigation under the Companies Act
Offences and Penalties
Restructuring and Liquidation
The Stages: Bill to Act
First reading
– Lok Sabha
Publication
in gazette
Standing
committee
Bill in Rajya
Sabha
Third
reading
Second
reading
Current stage of Companies Bill
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New Bill Introduced in Lok Sabha on August 3, 2009
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Cleared by Union Cabinet
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To be tabled at the ensuing winter session for approval
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Several New Concepts/Ideas Introduced-Mainly Borrowed
from UK Companies Act
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Number of sections Reduced from 658 to 426 in the new
Bill
Major Highlights
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Key managerial personnel defined, and insider trading made
criminal offence
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Introduction of E-governance
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Specific framework and a single forum for merger and
acquisitions of companies
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Company (except NBFC and banks) prohibited from
accepting deposits
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Consolidation of financial statements made mandatory
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Framework for fair valuation
Limitations
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Deposit only from their share holders -abused by giving only
one share each to members of public and then getting deposits
from them (Clause 66)
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Sick company - Company fails to re-pay debt within 30 days
(Clause 229)
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Paid up share capital can only be shares issued against cash
Concepts Newly Introduced in Companies Bill
Small Company
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Whose paid-up share capital does not exceed 5 crore rupees
(or)
Turnover does not exceed 20 crore rupees
One Person Company
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Permit entrepreneurship of a single individual
Registered as a private Company
Memorandum to prescribe the name of the successor
“OPC Limited” be suffixed with the name of company
Provision of Annual General Meeting is removed
Concepts Newly Introduced in Companies Bill
Managerial Remuneration
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No limits on quantum of managerial remuneration and sitting fee paid
Independent Director
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Listed public company should have at least one-third of the total number of
directors as independent directors
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No person should be a director of more than 15companies
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Maximum number of directors in a company should be 12
Dormant Company
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Formed and registered under the Companies Act for a future project
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To hold an asset or intellectual property
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No significant accounting transaction
Provisions Prohibited
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Issuing shares with differential voting right
Issue of shares at a discount other than sweat equity shares
Provisions Amended
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Provision for minimum capital requirement of public and
private companies
– Certificate of commencement of business
– Statutory meetings
Difference between Bill and Act
Impact on Audit
Companies Act, 1956
Chapter I of Part VI – Section
224 – 233B
Companies Bill, 2009
Chapter X – Clause 123 – 131
Differences
Particulars
Limits prescribed on
audit assignments
Special resolution on
appointment of auditors
Companies Act, 1956
Companies Bill, 2009
Specified under Section
224 (1B)
No such restrictions.
Maybe incorporated in
Rules to the Act.
Special resolution
required in case of
specified companies
No such stipulation
Companies Act , 1956
Companies Bill, 2009
Removal of auditor
before expiry of term
Prior approval of central
government is required
Not required
Removal of auditor on
expiry of term
Ordinary resolution with
special notice is to be
passed aand approval of
central government
Right
Special resolution is
required.
Central government may
appoint a person to fill
the vacancy.
Same auditor shall
continue to audit until the
adoption of the next
financials.
Attendance in meeting
Failure in AGM to
appoint auditors
Mandatory / Obligation
Note :
The clause should specifically prohibit offer of non audit services both directly as well
as indirectly which includes internal audit, book keeping and acturial services etc
Companies Bill 2009: Consistent Reporting in line with Income Tax Act
Impact on Accounts
Companies Act, 1956
Chapter I of Part VI (Section 209 223)
Companies Bill, 2009
Chapter IX (Clause 116 -122)
Differences
Particulars
Companies Act, 1956
Companies Bill, 2009
Financial Year and
extension
The period for which any
profit and loss account is
laid before in annual
general meeting whether
that period is a year or not.
Extensions to be granted by
registrar
The period ending on the
31st day of March
Extensions to be granted by
NCLT
Conflict with Existing Law and Regulation
Insider Trading
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SEBI Act, 1992 - term ‘Insider ’ not defined
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SEBI : Penalty of Rs 25 crores or 3 times the profits from insider
trading, whichever is higher,
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Bill : Penalty of Rs 5 lakhs to Rs 1 crore or imprisonment up to five
years, or both.
Delisting of Companies
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SEBI Act has imposed strict conditions in respect of delisting of
Companies
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Bill – No restrictions on companies which can delist themselves
Summary
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The new bill comes in the wake of the multi-crore accounting
scam in Satyam Computer Services that took the country by
storm and uncovered cavernous gaps in the existing corporate
governance standards and highlighted the requirement for
more tightened rules.
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In General, public are losing confidence in corporate entities
and government on account of the frequency of such scams,
thus it becomes imperative to bring in confidence inspiring
changes for strengthening business ethics
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The Proposed Landmark legislation contains many marked
differences as compared to the Companies act 1956.
THANK YOU
Questions
Acknowledgements
EY office team for their help and support
Arjun
Gurushankar
Ajoy
Family and friends