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CA 13
Lalit Kumar
Partner
June 22, 2014
J. Sagar Associates
advocates & solicitors
Bengaluru | Chennai | Gurgaon | Hyderabad | Mumbai | New Delhi
Outline
 Key Aspects of Companies Act, 2013
 Share Capital & Debentures
 Appointment and Remuneration of KMP
 Deposits
Key Aspects of CA13
• Classification of companies
– Public Company
– Private Company
– Small Company
– One Person Company
– Dormant Company
– Associate Company
– Joint Venture Company
• Modified definition of holding-subsidiary relationship
• Concepts of Public Offer, Private Offer (Private Placement &
Preferential Issue)
• Same concept of share capital – Equity (including DVRs) &
Preference Shares
• Bonus Shares & Convertible Debenture provided
• Issue of shares at discount not possible except as sweat
equity
Key Aspects of CA13
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Unease of doing business for private limited companies –
contrary to expectations many exemptions withdrawn now!
• Detailed regulations for acceptance of deposits from members
and persons other than members
• Corporate Governance & Management
– Independent Director
– Woman Director
– Resident Director
– Codified Duties of Directors
– Minimum Period of Board Meeting Notice
– Reason for director’s resignation
– Additional matters to be approved in board meeting instead
of circular resolution
• Concept of Key Managerial Personnel
• Entrenchment provisions in articles of association
• Enhanced Disclosures in Documents, Reports & Statements
Key Aspects of CA13
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Vigil Mechanism (Whistle Blower Policy)
Compulsory Secretarial Audit for certain companies
Related Party Transactions
New Committees Introduced
Restrictions on non-cash transactions involving directors
Investments, Loans & Guarantees strictly regulated
CSR
Auditor’s Rotation
Prohibition on Non-Audit Services
Setting up of National Financial Reporting Authority
Compulsory Internal Audit for certain companies
NCLT, Special Courts & Mediation and Conciliation Panel
Certain new M&A aspects like cross border merger
Modified concepts of Rehabilitation & Revival of Sick
Companies
Key Aspects of CA13
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Definition of Fraud and Punishment thereof
Class Action
Setting of Serious Fraud Investigation Office
Prohibition on forward dealing and insider trading
e-Voting
Concept of valuation by Registered Valuer
Specific provisions for GDRs & IDRs
Offer for Sale concept
Enforceability of transfer restrictions in public
companies
• Doing business in India through electronic mode
• Introduction of certain policies and codes of conduct
Share Capital & Debentures
• By Public Company (Section 23 (1))
• Public offer through prospectus (Part I
Chapter III)
• Private Placement (Section 42 - Part II
Chapter III, Section 62(1)(c), Rule 14 of
Companies (Prospectus and Allotment of
Securities) Rules, 2014 and Rule 13 of
Companies (Share Capital and Debentures)
Rules, 2014)
• Rights Issue (Section 62(1)(a))
• Bonus Issue (Section 63 & Rule 14 of
Companies (Share Capital and Debentures)
Rules, 2014)
Share Capital & Debentures
• By Private Company (Section 23 (2))
• Private Placement (Section 42 - Part II
Chapter III, Section 62(1)(c), Rule 14 of
Companies (Prospectus and Allotment of
Securities) Rules, 2014 and Rule 13 of
Companies (Share Capital and Debentures)
Rules, 2014)
• Rights Issue (Section 62(1)(a))
• Bonus Issue (Section 63 & Rule 14 of
Companies (Share Capital and Debentures)
Rules, 2014)
Share Capital & Debentures
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Kinds of Securities
Equity Share Capital (Section 43)
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Preference Share Capital (Section 43)
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Redeemable Preference Shares can exceed 20 years and up
to 30 years for specified infrastructure projects (Refer
Schedule VI) (Section 55 and Rule 9 of Companies (Share
Capital and Debentures) Rules, 2014)
Convertible Preference Shares – Optionally or Compulsorily
Convertible
Debentures
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Non-Convertible Unsecured Debentures
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Non-Convertible Secured Debentures
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Convertible Debentures – Optionally Convertible or
Compulsorily Convertible
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With voting rights
With differential rights as to dividend, voting or otherwise
(Rule 4 of the Companies (Share Capital and Debentures)
Rules, 2014
Share Capital & Debentures
Issue of Secured Debentures
(Section 71 and Rule 18 of the Companies (Share Capital and Debentures)
Rules, 2014)
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The period of redemption cannot exceed 10 years except in a
company engaged in the setting up of infrastructure projects for
which the maximum period if 30 years
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Security by creation of charge on the properties or assets of the
company, having a value which is sufficient for the due repayment
of the amount of debentures and interest thereon
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Appointment of debenture trustee
Creation of Debenture Redemption Reserve
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Created out of profits of the company available for distribution of
dividend
DRR equivalent to at least 50% of the amount raised through
debenture
Each year on or before April 30, invest or deposit, not less than 15%
of the amount of debentures maturing during the year ending on
March 31 of the next year in certain prescribed methods
The remaining invested or deposited shall not at any time fall below
15% of the amount of the debentures maturing during the year
ending on March 31 of that year
Share Capital & Debentures
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Voting rights in respect of preference shares – no
distinction between cumulative and non-cumulative
preference shares (Section 47)
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Bonus issuance specifically provided – certain conditions
imposed – cannot be issued from revaluation reserve and
in lieu of dividend (Section 63) – Offer once made cannot
be withdrawn Rule 14 of Companies (Share Capital and
Debentures) Rules, 2014)
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Prohibition of issue of shares at discount - issue at
discount to be void (Section 53)
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Issue of sweat equity shares permitted (Section 54 & Rule
8 of Companies (Share Capital and Debentures) Rules,
2014)
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Preferential issue value to be determined by registered
valuer (Section 62 and Rule 13 of Companies (Share
Capital and Debentures) Rules, 2014)
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Specific mention of issue of convertible debentures
subject to shareholders’ resolution (Section 71)
Share Capital & Debentures
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In Private Placement monies payable shall be paid through
cheque or demand draft of other banking channels but not
by cash (Section 42 (5))
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Allotment of Securities within 60 days from the date of
receipt of application money (Section 42 (6))
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Money received on application shall be kept in a separate
bank account and shall not be utilised for any purpose
except (Section 42 (6))
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For adjustment against allotment of securities
For repayment of monies where the company is unable
to allot securities
Certificate for the allotted securities to be issued
• Within 2 months from the date of allotment of shares
• Within 6 months from the date of allotment of
debentures
KMP
(Section 2 (51), Section 203)
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CEO or Managing Director or Manager
Whole-time Director
CFO
Company Secretary
Such other officer as may be prescribed
Listed companies and public companies having a paid-up share
capital of Rs. 10 crores or more shall have a whole-time KMP
All companies having a paid paid-up share capital of Rs. 5 crores
or more shall have a whole-time Company Secretary
Appointment of whole-time KMP by board of directors’ resolution
containing terms and conditions including the remuneration
Separation of office of chairman and managing director or CEO
Interesting Issues!
– Whether one person can be the CFO and CS?
– Whether one person can be all three – CFO, CS and Director
as a whole time KMP
KMP
• Nature of concern or interest, financial or otherwise, of every
KMP to be disclosed in the explanatory statement
• Any item of “special business” relates to or affects any other
company, the extent of shareholding (2% or more) of KMP to be
mentioned in the explanatory statement
• Section 177(7) – As a KMP, CFO has a right to be heard in the
meetings of the audit committee when it considers the auditor’s
report but shall not have any right to vote
• Section 189(2) – Disclosure of interest at the time of appointment
or relinquishment of office
• Section 203 (3) – Whole-Time KMP cannot hold office in more
than one company except in its subsidiary company at the same
time – But can be a director in any company with the permission
of the board of directors
• KMP is a related party under Section 2(76). Relatives of KMP also
related parties
KMP
• Vacancy in the office of any whole-time KMP shall be
filled-up by the board at a meeting of the board within
6 months
• KMP will also qualify as an “officer” and “officer who is
in default” under Section 2(59) & 2(60)
• Section 194 – Prohibition on Forward Dealing
• Section 195 – Prohibition on Insider Trading of
Securities
• Is liable to compensate the company to the extent of
the benefit received arising from non-disclosure or
insufficient disclosure in the explanatory statement
• Section 224(5) – Disgorgement provisions
Deposits
(Chapter V, Sections 73-76 and Companies (Acceptance of
Deposits Rules), 2014)
• Allows acceptance of deposits from members and public
• Private company can accept only from members and
directors
• Resolution of shareholders required
• Issuance of circular to members with statement of
financial position, credit rating obtained, outstanding
amount of previous deposits
• Deposit Repayment Reserve Account in a separate bank
account– 15% of the amount of deposits maturing during a
financial year and financial year next following
• Amount of deposit or any part thereof or any interest due
thereon remains unpaid on the commencement of the Act
or becomes due thereafter – file of statement with RoC
and repay within one year
Deposits
• Deposit Repayment Reserve Account shall be
used only for repayment of deposit, no other
purpose
• Public company can accept deposits from public
• Provided it has “net worth” of not less than Rs.
100 crores or “turnover” of not less than Rs. 500
crores and has obtained prior approval of
shareholders by special resolution and filed the
resolution with RoC before making any invitation
to public for acceptance of deposits
• Banking company and NBFCs exempted
• Stringent penalties provided - Unlimited liability
of officers responsible of accepting deposit with
intent to defraud
Questions?
Thank You
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