Highlights of the Companies Bill
(as passed by the Lok Sabha on 18.12.12 and by the Rajya Sabha on 08.08.13)
• The Bill has 470 clauses as against 658 Sections in the existing Companies Act,
1956.
• The entire bill has been divided into 29 chapters.
• Many new chapters have been introduced, viz., Registered Valuers (ch.17);
Government companies (ch. 23); Companies to furnish information or statistics
(ch. 25); Nidhis (ch. 26); National Company Law Tribunal & Appellate Tribunal
(ch. 27); Special Courts (ch. 28).
• The Bill is forward looking in its approach which empowers the Central
Government to make rules, etc. through delegated legislation (clause 469 and
others).
• The Companies Bill is the result of detailed consultative process adopted by the
Government.
The salient and unique features of the Bill are as under:
1. DEFINITIONS
• New definitions are introduced in the Bill, some of which are accounting
standards, auditing standards, associate company, CEO, CFO, control, deposit,
employee stock option, financial statement, global depository receipt, Indian
depository receipt, independent director, interested director, key managerial
personnel, promoter, one person company, small company, turnover, voting right
etc.
• Definition of private company changed - the limit on maximum number of
members increased from 50 to 200.
• Private company which is a subsidiary of a public company shall be deemed to
be a public company.
• Listed company - A company which has any of its securities listed on any
recognised stock exchange.
• Associate Company - A company is considered to be an associate company of
the other, if the other company has significant influence over such company (not
being a subsidiary) or is a joint venture company. Significant influence means
control of at least 20 per cent. of total share capital of a company or of business
decisions under an agreement.
• Dormant Company - Where a company is formed and registered under this Act
for a future project or to hold an asset or intellectual property and has no
significant accounting transaction, such a company or an inactive company may
make an application to the Registrar for obtaining the status of a dormant
company.
• "expert" includes an engineer, a valuer, a chartered accountant, a company
secretary, a cost accountant and any other person who has the power or
authority to issue a certificate in pursuance of any law for the time being in force.
• "foreign company" means any company or body corporate incorporated outside
India which,-
(a) has a place of business in India whether by itself or through an agent,
physically or through electronic mode; and
(b) conducts any business activity in India in any other manner.
• "Key Managerial Personnel (KMP), 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
• "officer who is in default", means any of the following officers of a company,
namely:-
(i) whole-time director;
(ii) key managerial personnel;
(iii) where there is no key managerial personnel, such director or directors as
specified by the Board in this behalf and who has or have given his or their
consent in writing to the Board to such specification, or all the directors, if no
director is so specified;
(iv) any person who, under the immediate authority of the Board or any key
managerial personnel, is charged with any responsibility including maintenance,
filing or distribution of accounts or records, authorises, actively participates in,
knowingly permits, or knowingly fails to take active steps to prevent, any
default;
(v) any person in accordance with whose advice, directions or instructions the
Board of Directors of the company is accustomed to act, other than a person who
gives advice to the Board in a professional capacity;
(vi) every director, in respect of a contravention of any of the provisions of this
Act, who is aware of such contravention by virtue of the receipt by him of any
proceedings of the Board or participation in such proceedings without
objecting to the same, or where such contravention had taken place with
his consent or connivance;
(vii) in respect of the issue or transfer of any shares of a company, the share
transfer agents, registrars and merchant bankers to the issue or transfer.
• Bill defines the term 'promoter' to mean a person -
(a) who has been named as such in a prospectus or is identified by the company
in the annual return, or
(b) who has control over the affairs of the company, directly or indirectly whether
as a shareholder, director or otherwise; or
(c) in accordance with whose advice, directions or instructions the Board of
Directors is accustomed to act.
Provided that nothing in sub-clause (c) shall apply to a person who is acting
merely in a professional capacity.
• Subsidiary company in relation to any other company (that is holding company),
means a company in which the holding company -
o Controls the composition of the Board of Directors; or
o Exercises or controls more than one half of the total share capital (instead
of equity share capital as prescribed under the 1956 Act) 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.
• Small company has been defined as a company other than a public company having
a paid-up share capital of which does not exceed fifty lakh rupees or such higher
amount as may be prescribed not exceeding Rs.5 crore or turnover of which does
not exceed two crore rupees or such higher amount as may be prescribed not
exceeding twenty crore rupees. [clause 2(85)].
• The number of persons in any association or partnership not to exceed such number
of persons as may be prescribed (not exceeding one hundred). The restriction not to
apply to an association or partnership, constituted by professionals who are
governed by special Acts. (clause 464)
2. CLASSIFICATION & REGISTRATION
• Concept of One Person Company (OPC limited) introduced [Clause 2(62)].
• Concept of Small companies have been introduced which shall be subjected to a
lesser stringent regulatory framework [Clause 2(85)].
• Provision for Conversion of Companies already registered has been introduced
[Clause 18].
• Registration process has been made faster and compatible with e-governance.
• For the first time, articles may contain provisions for entrenchment [clause 5(3)].
• A declaration, in the prescribed form, required to be filed with the Registrar at the
time of registration of a company that all the requirements of the Act in respect of
registration and matters precedent or incidental thereto have been complied with,
will be required to signed by both - a person named in the articles as a director,
manager or secretary of the company as well as by an advocate, a chartered
accountant, cost accountant or company secretary in practice, who is engaged in
the formation of the company. (clause 7)
Registered office
• A company shall, on and from the 15th day of its incorporation and at all times
thereafter have a registered office capable of receiving and acknowledging all
communications and notices as may be addressed to it.
• Company is required to furnish to the Registrar verification of its registered office
within 30 days of its incorporation in the prescribed manner.
• Where a company has changed its name(s) during the last two years, it shall
paint or affix or print, along with its name, the former name or names so changed
during the last two years.
• Notice of change, verified in the manner prescribed, shall be given to the
Registrar, within 15 days of the change, who shall record the same.
Commencement of business
• A company having a share capital shall not commence business or exercise any
borrowing powers unless a declaration is filed with Registrar by a director verified
in the manner as may be prescribed that:
o every subscriber to the memorandum has paid the value of shares
agreed to be taken by him;
o Paid-up capital is not less than Rs. five lakhs in the case of public
company and one lakh in case of a private company.
o the company has filed with the Registrar the verification of its registered
office.
3. PROSPECTUS AND ALLOTMENT OF SECURITIES
• This chapter is divided into two parts. Part I relates to 'Public offer' and Part II
relates to 'Private Placement'
• "Public offer" includes initial public offer or further public offer of securities to the
public by a company, or an offer for sale of securities to the public by an existing
shareholder, through issue of a prospectus.'
• The term 'private placement' has been defined to bring clarity. "Private
placement" means any offer of securities or invitation to subscribe securities to a
select group of persons by a company (other than by way of public offer) through
issue of a private placement offer letter and which satisfies the conditions
specified in this section.
• Detailed disclosures are provided in the Bill itself. It includes disclosures about
sources of promoter's contribution.
• In case of variation in the terms of contract referred to in the prospectus or
objects for which the prospectus was issued, the dissenting shareholders shall
be given exit opportunity by promoters or controlling shareholders.
Punishment for fraudulently inducing persons to invest money (clause 36)
• Any person who, either knowingly or recklessly makes any statement, promise or
forecast which is false, deceptive or misleading, or deliberately conceals any
material facts, to induce another person to enter into, or to offer to enter into any
agreement for, or with a view to, obtaining credit facilities from any bank or
financial institution shall be liable for punishment for fraud. This provision is
proposed to help in curbing a major source of corporate delinquency.
4. SHARE CAPITAL AND DEBENTURES
• If a company with intent to defraud, issues a duplicate certificate of shares, the
company shall be punishable with fine which shall not be less than 5 times the
face value of the shares involved in the issue of the duplicate certificate but
which may extend to 10 times the face value of such shares or rupees 10 crores,
whichever is higher. Stringent penalties have also been imposed for defaulting
officers of the company. [clause 46(5)]
• Where any depository has transferred shares with an intention to defraud a
person, it shall be liable under section 447 i.e. provisions for punishment for
fraud.[clause56(7)] _ Security Premium Account may also be applied for the
purchase of its own shares or other securities. [Clause 52(2)(e)]
• Except as provided in section 54 (Issue of sweat equity shares), a company shall
not issue shares at a discount [Clause(53)]
• A company limited by shares cannot issue any preference shares which are
irredeemable. However, a company limited by shares may, if so authorised by its
articles, can issue preference shares which are liable to be redeemed within a
period not exceeding twenty years from the date of their issue.
• A company may issue preference shares for a period exceeding twenty years for
infrastructural projects subject to redemption of such percentage of shares as
may be prescribed on an annual basis at the option of such preference
shareholders. [Clause 55].
• Every company shall deliver debenture certificate within six months of allotment.
[Clause 56(4)(d)].
• Reduction of share capital to be made subject to confirmation by the Tribunal.
The Tribunal on receiving an application for reduction of share capital, shall give
notice to the Central Government, Registrar and to the SEBI and consider the
representations received in this behalf. (Clause 66)
5. E-GOVERNANCE
E-Governance proposed for various company processes like maintenance and
inspection of documents in electronic form, option of keeping of books of accounts in
electronic form, financial statements to be placed on company's website, holding of
board meetings through video conferencing/other electronic mode; voting through
electronic means.
6. BOARD AND GOVERNANCE
Number of directors
• Minimum : Public company -3 Private -2 , OPC-1.
• Maximum : limit increased to 15 from 12 .
More directors can be added by passing of special resolution without getting the
approval of Central Government as earlier required.
Woman director
At least one woman director shall be on the Board of such class or classes of companies
as may be prescribed.
Resident Director
Every company shall have at least one director who has stayed in India for a total period
of not less than one hundred and eighty-two days in the previous calendar year. [clause
149(2)].
Appointment of Key Managerial Personnel [Clause 203(1)]
• Every company belonging to such class or classes of companies as may be
prescribed shall have the wholetime key managerial personnel.
• Unless the articles of a company provide otherwise or the company does not
carry multiple businesses, an individual shall not be the chairperson of the
company as well as the managing director or Chief Executive Officer of the
company at the same time [Proviso to
Clause 203(1)]
Provided that nothing contained above shall apply to such class of companies
engaged in multiple businesses and which has appointed one or more chief
executive officers for each such business as may be notified by the Central
Government.
• Every Company Secretary being a whole-time KMP shall be appointed by a
resolution of the Board which shall contain the terms and conditions of
appointment including the remuneration.
• If the office of any whole-time KMP is vacated, the same shall be filled up by the
Board at a meeting of the Board within a period of six months from the date of
such vacancy [Clause 203 (2) & (4)].
• If a company does not appoint a Key Managerial Personnel, the penalty
proposed is :
On company - one lakh rupees which may extend to five lakh rupees.
On every director and KMP who is in default - 50,000 rupees and 1,000 rupees
per day if contravention continues.
Independent Directors
• Concept of independent directors has been introduced for the first time in
Company Law: [clause 149(5)]
• All listed companies shall have at least one-third of the Board as independent
directors.
• Such other class or classes of public companies as may be prescribed by the
Central Government shall also be required to appoint independent directors.
• The independent director has been clearly defined in the Bill.
• Nominee director nominated by any financial institution, or in pursuance of any
agreement, or appointed by any government to represent its shareholding shall
not be deemed to be an independent director.
• An independent director shall not be entitled to any remuneration other than
sitting fee, reimbursement of expenses for participation in the Board and other
meetings and profit related commission as may be approved by the members.
• An Independent director shall not be entitled to any stock option.
• Only an independent director can be appointed as alternate director to an
independent director. [clause 161(2)].
Person other than retiring director
• If a person other than retiring director stands for directorship but fails to get
appointed, he or the member intending to propose him as a director, as the case
may be, shall be refunded the sum deposited by him, if he gets more than twenty
five per cent of total valid votes [clause 160(1)].
Resignation of director
• A director may resign from his office by giving notice in writing. The Board shall,
on receipt of such notice, intimate the Registrar and also place such resignation
in the subsequent general meeting of the company. [clause 168(1)]. The director
shall also forward a copy of resignation alongwith detailed reasons for the
resignation to the Registrar.
• The notice shall become effective from the date on which the notice is received
by the company or the date, if any, specified by the director in the notice,
whichever is later. [clause 168(2)].
• If all the directors of a company resign from their office or vacate their office, the
promoter or in his absence the Central Government shall appoint the required
number of directors to hold office till the directors are appointed by the company
in General Meeting [clause 168(3)].
Participation of directors through video-conferencing
• Participation of directors at Board Meetings has been permitted through videoconferencing
or other electronic means, provided such participation is capable of
recording and recognizing. Also, the recording and storing of the proceedings of
such meetings should be carried out [clause 173(2)].
The Central Government may however, by notification, specify such matters
which shall not be dealt with in the meeting through video-conferencing and such
other electronic means as may be prescribed. [clause 173(2)]
Notice of Board Meeting
• At least seven days' notice is required to be given for a Board meeting. The
notice may be sent by electronic means to every director at his address
registered with the company. [clause 173(3)].
A Board Meeting may be called at shorter notice subject to the condition that at
least one independent director, if any, shall be present at the meeting. However,
in the absence of any independent director from such a meeting, the decisions
taken at such meeting shall be final only on ratification thereof by at least one
independent director. [clause 173(3)].
Duties of directors (clause 166)
For the first time, duties of directors have been defined in the Bill. A director of a
company shall :
• act in accordance with the articles of the company.
• act in good faith in order to promote the objects of the company for the benefit of
its members as a whole, and in the best interests of the company, its employees,
the shareholders, the community and for the protection of environment.
• exercise his duties with due and reasonable care, skill and diligence and shall
exercise independent judgment.
• 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.
• 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.
• not assign his office and any assignment so made shall be void.
Penalty
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.
Board Committees
• Besides the Audit Committee, the constitution of Nomination and Remuneration
Committee has also been made mandatory in the case of listed companies and
such other class or classes of companies as may be prescribed. [clause 178(1)].
• The Audit committee shall consist of a minimum of three directors with
independent directors forming a majority and majority of members including its
Chairperson shall be persons with ability to read and understand the financial
statement. [clause 177(2)].
• The Nomination and Remuneration Committee shall formulate the criteria for
determining qualifications, positive attributes and independence of a director and
recommend to the Board a policy, relating to the remuneration for the directors,
key managerial personnel and other employees [Clause 178(3)].
• The Nomination and Remuneration Committee shall consist of three or more
non-executive director(s) out of which not less than one half shall be independent
directors. [clause 178(1)].
• Where the combined membership of the shareholders, debenture holders,
deposit holders and any other security holders is more than one thousand at any
time during the financial year, the company shall constitute a Stakeholders
Relationship Committee. [clause 178(5)].
Managerial Remuneration [clause 197]
• Provisions relating to limits on remuneration provided in the existing Act being
included in the Bill. Maximum limit of 11% (of net profits) being retained.
• For companies with no profits or inadequate profits remuneration shall be
payable in accordance with new Schedule of Remuneration (Schedule V) and in
case a company is not able to comply with Schedule V, approval of Central
Government would be necessary.
Certain Insurance Premium not to be treated as part of the remuneration
• The premium paid on any insurance taken by a company on behalf of its
managing director, whole-time director, manager, Chief Executive Officer, Chief
Financial Officer or Company Secretary for indemnifying any of them against any
liability in respect of any negligence, default, misfeasance, breach of duty or
breach of trust for which they may be guilty in relation to the company, shall not
be treated as part of the remuneration payable to any such personnel. [Clause
197 (13)]
7. DISCLOSURES
Annual return [clause 92]
• Every company shall prepare a return (hereinafter referred to as the annual
return) in the prescribed form containing the particulars as they stood on the
close of the financial year regarding;
(i) its registered office, principal business activities, particulars of its holding,
subsidiary and associate companies;
(ii) its shares, debentures and other securities and shareholding pattern;
(iii) its indebtedness;
(iv) its members and debenture-holders along with changes therein since the close of
the previous financial year;
(v) its promoters, directors, key managerial personnel along with changes therein
since the close of the last financial year;
(vi) meetings of members or a class thereof, Board and its various committees along
with attendance details;
(vii) remuneration of directors and key managerial personnel;
(viii) penalties imposed on the company, its directors or officers and details of
compounding of offences;
(ix) matters related to certification of compliances, disclosures as may be prescribed;
(x) details in respect of shares held by foreign institutional investors; and
(xi) such other matters as may be prescribed.
The prescribed disclosures under the Annual Return shows significant transformation in
non financial annual disclosures and reporting by companies as compared to the
existing format.
Similar to the existing compliance certificate as stipulated under section 383A of
Companies Act, 1956 certification of compliances has been prescribed under clause
92(1)(ix).
• Annual Return is required to be signed by :
(i) A director and the Company Secretary, or where there is no Company
Secretary, by a Company Secretary in whole-time practice.
It means that now in respect of all the companies (except one pferson
companies and small companies), whether private or public, listed or unlisted,
the annual return has to be signed by either a company secretary in
employment or by a company secretary in practice i.e. where no Company
Secretary is appointed by the company, the Annual Return is compulsorily
required to be signed by the Company Secretary in practice.
(ii) in addition to the above, the annual return, filed by a listed company or by a
company having such paid-up capital and turnover as may be prescribed,
shall be certified by a company secretary in practice that the annual return
discloses the facts correctly and adequately and that the Company has
complied with all the provisions of the Act.
It means, in case of a listed company and other prescribed companies, even
if the Annual Return is signed by the Company Secretary in employment, it is
further required to be certified by the Company Secretary in Whole time
practice.
(iii) In relation to a One Person Company and Small Company, the annual return
is required to be signed by the Company Secretary, or where there is no
Company Secretary, by one director of the company.
Penalty
In case a Company Secretary in practice certifies the annual return otherwise
than in conformity with the requirements of this section or the rules made there
under, such Company Secretary shall be punishable with fine which shall not be
less than fifty thousand rupees but which may extend to five lakh rupees.
Changes in shareholding of promoters and top ten shareholders
• 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) by a listed company.
Board's report (Clause 134)
• Board's Report has been made more informative and includes extensive
disclosures like -
(i) extract of annual return in the prescribed form;
(ii) company's policy on director's appointment and remuneration including
the criteria for determining qualifications, positive attributes,
independence of a director etc. ;
(iii) a statement of declaration by independent directors;
(iv) explanations or comments by the Board on every qualification,
reservation or adverse remark or disclaimer made by the auditor in his
report and by the company secretary in practice in his secretarial audit
report;
(v) particulars of loans, guarantees, or investments made;
(vi) particulars of contracts or arrangements entered into;
(vii) the conservation of energy, technology absorption, foreign exchange
earnings and outgo in the prescribed manner;
(viii) statement indicating development and implementation of a risk
management policy for the company including identification therein of
elements of risk, if any, which in the opinion of the Board may threaten
the existence of the company;
(ix) the details about the policy developed and implemented by the company
on corporate social responsibility initiatives taken during the year in case
of listed companies and other prescribed class of companies, a statement
indicating the manner in which formal annual evaluation has been made
by the Board of its own performance and that of committees and
individual directors.
• The Directors' Responsibility Statement shall also include the statement that the
directors had devised proper systems to ensure compliance with the provisions
of all applicable laws and that such systems were adequate and operating
effectively.
• The Boards' Report is to be signed by the Chairperson of the company if he is
authorized by the Board and where he is not so authorized, it shall be signed by
at least two directors, one of whom shall be a managing director, or by the
director where there is one director. (Clause 134).
Related Party Transactions
• Every contract or arrangement entered into with a related party shall be referred
to in the Board's Report along with the justification for entering into such contract
or arrangement [Clause 188(2)].
• Any arrangement between a company and its directors in respect of acquisition
of assets for consideration other than cash shall require prior approval by a
resolution in general meeting and if the director or connected person is a director
of its holding company, approval is required to be obtained by passing a
resolution in general meeting of the holding company [Clause 192].
• Where a one person company limited by shares or by guarantee enters into a
contract with the sole member of the company who is also its director, the
company shall, unless the contract is in writing, ensure that the terms of the
contract or offer are contained in the memorandum or are recorded in the
minutes of the first Board meeting held after entering into the contract. The
company shall inform the Registrar about every contract entered into by the
company and recorded in the minutes (Clause 193).
8. CORPORATE SOCIAL RESPONSIBILITY (CLAUSE 135)
• Every company having net worth of rupees 500 crore or more, or turnover of
rupees 1000 crore or more or a net profit of rupees 5 crore or more during any
financial year shall constitute a Corporate Social Responsibility Committee of the
Board consisting of three or more directors, out of which at least one director
shall be an independent director.
• The CSR Committee shall formulate and recommend Corporate Social
Responsibility Policy which shall indicate the activity or activities to be
undertaken by the company as specified in schedule VII and shall also
recommend the amount of expenditure to be incurred on the CSR activities.
• The Board of every company shall ensure that the company spends in every
financial year atleast 2% of the average net profits of the company made during
the three immediately preceding financial years in pursuance of its CSR policy.
• Where the company fails to spend such amount, the Board shall in its report
specify the reasons for not spending the amount. The approach is to 'comply or
explain'.
• The company shall give preference to local areas where it operates, for spending
amount earmarked for Corporate Social Responsibility (CSR) activities.
9. DEPOSITS (CLAUSE 173)
• A company may, subject to the passing of a resolution in general meeting and
subject to the prescribed rules, accept deposits from its members subject to
fulfillment of the following specified conditions:
i. passing of resolution in a general meeting.
ii. issue of circular to members including therein a statement showing the
financial position of the company, the credit ratings obtained, the total number of
depositors and the amount due towards deposits in respect of any previous
deposits accepted by the company and such other particulars in such form and in
such manner as may be prescribed.
iii. filing a copy of the circular along with such statement with the registrar within
30 days before the date of issue of the circular.
iv. Providing deposit insurance.
v. Certification by the company that it has not defaulted in the repayment of
deposits.
vi. Provision of security in respect of deposit and interest and creation of charge
on company's properties and assets. An amount of not less than 15% of the deposits
maturing during a financial year shall be deposited in deposit repayment reserve
account.
• A public company having prescribed net worth or turnover may accept deposits
from persons other than its members subject to compliance of rules as may be
prescribed by Central Government in consultation by Reserve Bank of India.
(Clause 76).
• The penalty for failure to repay deposit has been made extremely stringent.
Where a company fails to repay the deposit and it is proved that the deposits had
been accepted with intent to defraud the depositors or for any fraudulent
purpose, every officer of the company who was
responsible for the acceptance of such deposit shall, without prejudice to liability
under section 447 i.e. punishment for fraud), be personally responsible, without
any limitation of liability, for all or any of the losses or damages that may have
been incurred by the depositors (Clause 75).
Stringent punishment is proposed for failure to distribute dividend within thirty
days of its declaration. (Clause 127)
10.INVESTMENT COMPANIES (CLAUSE 186)
• A company can make investment through not more than two layers of investment
companies, unless otherwise prescribed.
• This shall not affect
o a company from acquiring any other company incorporated in a country
outside India if such other company has investment subsidiaries beyond
two layers as per the laws of such country;
o a subsidiary company from having any investment subsidiary for the
purposes of meeting the requirements under any law or under any rule or
regulation framed under any law for the time being in force.
• The restriction on the number of step-down subsidiary companies has been
introduced to prevent the abuse of diversion of funds through many step-down
subsidiaries.
11. COMPANY SECRETARY
Functions of Company Secretary (clause 205)
• The functions of the company secretary shall include -
o to report to the Board about compliance with the provisions of this Act, the
rules made there under and other laws applicable to the company;
o to ensure that the company complies with the applicable secretarial
standards;
o to discharge such other duties as may be prescribed.
Secretarial Audit (Clause 204)
• Every listed company and a company belonging to other class of companies as
may be prescribed shall annex with its Board's report a Secretarial Audit Report,
given by a Company Secretary in Practice, in such form as may be prescribed.
• It shall be the duty of the company to give all assistance and facilities to the
Company Secretary in Practice, for auditing the secretarial and related records of
the company.
• The Board of Directors, in their report shall explain in full any qualification or
observation or other remarks made by the Company Secretary in Practice in his
report.
• If a company or any officer of the company or the Company Secretary in
Practice, contravenes the provisions of this section, the company, every officer of
the company or the Company Secretary in Practice, who is in default, shall be
punishable with fine which shall not be less than one lakh rupees but which may
extend to five lakh rupees.
Secretarial Standards Introduced [Clause 118(10) & 205]
• For the first time, the Secretarial Standards has been introduced and provided
statutory recognition
• Clause 118(10) reads as:
"Every company shall observe Secretarial Standards with respect General and
Board Meetings specified by the Institute of Company Secretaries of India
constituted under section 3 of the Company Secretaries Act, 1980 and approved
by the Central Government."
• Clause 205 casts duty on the Company Secretary to ensure that the company
complies with the applicable Secretarial Standards.
• It is the beginning of a new era where non financial standards have been given
importance and statutory recognition besides Financial Standards.
12. GENERAL MEETINGS
• To encourage wider participation of shareholders at General Meetings, the
Central Government may prescribe the class or classes of companies in which a
member may exercise their vote at meetings by electronic means [clause 108].
• One person companies have been given the option to dispense with the
requirement of holding an AGM. [clause 96(1)].
Report on annual general meeting [clause 121]
• Every listed company shall prepare a Report on each Annual General Meeting
including confirmation to the effect that the meeting was convened, held and
conducted as per the provisions of the Act and the Rules made there under.
The report shall be prepared in the manner to be prescribed. A copy of the report
shall be filed with the Registrar within 30 days of the conclusion of the AGM.
Non-filing of the report has been made a punishable offence.
13. AUDITORS
• A company shall appoint an individual or a firm as an auditor at annual general
meeting who shall hold office till the conclusion of sixth annual general meeting.
• However, the company shall place the matter relating to such appointment for
ratification by members at every annual general meeting.
• No listed company or a company belonging to such class or classes of
companies as may be prescribed, shall appoint or re-appoint-
(a) an individual as auditor for more than one term of five consecutive years; and
(b) an audit firm as auditor for more than two terms of five consecutive years:
Provided that-
(i) an individual auditor who has completed his term under clause (a) shall not be
eligible for re-appointment as auditor in the same company for five years from the
completion of his term;
(ii) an audit firm which has completed its term under clause (b), shall not be
eligible for re- appointment as auditor in the same company for five years from the
completion of such term:
• Members of a company may resolve to provide that in the audit firm appointed by
it, the auditing partner and his team shall be rotated at such intervals as may be
resolved by members.
• The limit in respect of maximum number of companies in which a person may be
appointed as auditor has been proposed as twenty companies. (clause 141)
• Auditor cannot render any of the following services, directly or indirectly to the
company or its holding company or subsidiary company:
• Accounting and book-keeping service
• Internal audit
• Design and implementation of any financial information system
• Actuarial services
• Investment advisory services
• Investment banking services
• Rendering of outsourced financial services
• Management services
• Other prescribed services
Internal Audit
• Prescribed class of companies shall be required to appoint an internal auditor to
conduct internal audit of the functions and activities of the company. (clause 138)
Cost Audit (clause 148)
• The Central Government after consultation with regulatory body may direct class
of companies engaged in production of such goods or providing such services as
may be prescribed to include in the books of accounts particulars relating to
utilisation of material or labour or to such other items of cost.
• If the Central Government is of the opinion, that it is necessary to do so, it may,
direct that the audit of cost records of class of companies, which are required to
maintain cost records and which have a net worth of such amount as may be
prescribed or a turnover of such amount as may be prescribed, shall be
conducted in the manner specified in the order.
• 'cost auditing standards' have been mandated.
14. FINANCIAL STATEMENT (CLAUSE 2(40)]
• For the first time, the term 'financial statement' has been defined to include:-
(i) a balance sheet as at the end of the financial year;
(ii) a profit and loss account, or in the case of a company carrying on any activity
not for profit, an income and expenditure account for the financial year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) any explanatory note annexed to, or forming part of, any document referred to
in sub-clause (i) to subclause (iv):
• the financial statement, with respect to One Person Company, small company
and dormant company, may not include the cash flow statement;
Signing of financial statement (Clause 134)
The financial statement, including consolidated financial statement, if any, shall be
approved by the Board of directors before they are signed on behalf of the Board at least
by the Chairperson of the company authorised by the Board or by two directors out of
which one shall be managing director and the Chief Executive Officer, if he is a director
in the company, the Chief Financial Officer and the company secretary of the company,
wherever they are appointed, or in the case of a One Person Company, only by one
director, for submission to the auditor for his report thereon.
15.NATIONAL FINANCIAL REPORTING AUTHORITY (NFRA) (CLAUSE 132)
• The Central Government may be notification constitute a National Financial
Reporting Authority to provide for matters related to accounting and auditing
standards.
• Notwithstanding anything contained in any other law for the time being in force,
the National Financial Reporting Authority shall-
(a) make recommendations to the Central Government on the formulation and
laying down of accounting and auditing policies and standards for adoption by
companies or class of companies or their auditors, as the case may be;
(b) monitor and enforce the compliance with accounting standards and auditing
standards in such manner as may be prescribed;
(c) oversee the quality of service of the professions associated with ensuring
compliance with such standards, and suggest measures required for
improvement in quality of services and such other related matters as may be
prescribed; and
(d) perform such other functions relating to clauses (a), (b) and (c) as may be
prescribed.
• Notwithstanding anything contained in any other law for the time being in force,
the National Financial Reporting Authority shall-
(a) have the power to investigate, either suo moto or on a reference made to it by
the Central Government, for such class of bodies corporate or persons, in such
manner as may be prescribed into the matters of professional or other
misconduct committed by any member or firm of chartered accountants,
registered under the Chartered Accountants Act, 1949:
Provided that no other institute or body shall initiate or continue any proceedings
in such matters of misconduct where the National Financial Reporting Authority
has initiated an investigation under this section;
(b) have the same powers as are vested in a civil court under the Code of Civil
Procedure, 1908, while trying a suit.
(c) where professional or other misconduct is proved, have the power to make
order for-
(A) imposing penalty of -
(I) not less than one lakh rupees, but which may extend to five times of
the fees received, in case of individuals; and
(II) not less than ten lakh rupees, but which my extend to ten times of the
fees received, in case of firms;
(B) debarring the member or the firm from engaging himself or itself from practice
as member of the institute for a minimum period of six months or for such higher
period not exceeding ten years as may be decided by the National Financial
Reporting Authority.
• Any person aggrieved by any order of the National Financial Reporting Authority,
may prefer an appeal before the Appellate Authority constituted by the Central
Government.
16. INVESTOR PROTECTION MEASURES
• Issue and transfer of securities and non-payment of dividend by listed
companies, shall be administered by SEBI by making regulations.(Clause24)
• An act of fraudulent inducement of persons to invest money is punishable with
imprisonment for a term which may extend to ten years and with fine which shall
not be less than three times the amount involved in fraud.(Clause 36)
• A suit may be filed by a person who is affected by any misleading statement or
the inclusion or omission of any matter in the Prospectus or who has invested
money by fraudulent inducement. (Clause 37).
Class action suits
• For the first time, a provision has been made for class action suits. It is provided
that specified number of member(s), depositor(s) or any class of them, may, if
they are of the opinion that the management or control of the affairs of the
company are being conducted in a manner prejudicial to the interests of the
company or its members or depositors, file an application before the Tribunal on
behalf of the members or depositors.
• Where the members or depositors seek any damages or compensation or
demand any other suitable action from or against an audit firm, the liability shall
be of the firm as well as of each partner who was involved in making any
improper or misleading statement of particulars in the audit report or who acted in
a fraudulent, unlawful or wrongful manner.
• The order passed by the Tribunal shall be binding on the company and all its
members, depositors and auditors including audit firm or expert or consultant or
advisor or any other person associated with the company. (clause 245)
Serious Fraud Investigation Office (clause 211)
Statutory status to SFIO has been proposed. Investigation report of SFIO filed with the
Court for framing of charges shall be treated as a report filed by a Police Officer. SFIO
shall have power to arrest in respect of certain offences of the Bill which attract the
punishment for fraud. Those offences shall be cognizable and the person accused of
any such offence shall be released on bail subject to certain conditions provided in the
relevant clause of the Bill.
Stringent penalty provided for fraud related offences.
Fraud defined (Clause 447)
• The term "Fraud" has for the first time been defined in the Bill. Any person who is
found to be guilty of fraud, shall be punishable with imprisonment for a term
which shall not be less than six months but which may extend to ten years and
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.
Where the fraud in question involves public interest, the term of imprisonment
shall not be less than three years
Prohibition of insider trading
New clause has been introduced with respect to prohibition of insider trading of
securities. The definition of price sensitive information has also been included [clause
195].
Prohibition on Forward dealings
Directors and the key managerial personnel of a company are prohibited from forward
dealings in securities of the company. (clause 194).
17. INSPECTION, ENQUIRY AND INVESTIGATION
• A new clause has been added to provide that where in connection with enquiry or
investigation into the affairs of the company or reference by the Central
Government, or on complaint by specified number of members or creditors or
any other person having a reasonable any person that the transfer or disposal of
funds, properties or assets is likely to take place which is prejudicial to the
interest of the company, then the Tribunal may order for the freezing of such
transfer, removal or disposal of assets for a period of three years. [clause 221]
• Another new clause seeks to provide that the provisions of inspection or
investigation applicable to Indian companies shall also apply mutatis-mutandis to
inspection or investigation of foreign companies. (clause 228).
18. RESTRUCTURING AND LIQUIDATION
• The entire rehabilitation and liquidation process has been made time bound.
• Winding up is to be resorted to only when revival is not feasible. (clause 258).
• The Tribunal may appoint an interim administrator or a company administrator
from the panel of Company Secretaries, CAs, CWAs, etc. maintained by the
Central Government. [clause 259(1)].
• The Company Administrator shall prepare a scheme of revival and rehabilitation.
[clause 261(1)].
• If revival scheme is not approved by the creditors, the Tribunal shall order for
winding up of the company. (clause 258).
• No civil court shall have jurisdiction in respect of any matter on which Tribunal or
Appellate Tribunal is empowered. (clause 268).
19. COMPANY LIQUIDATORS (CLAUSE 275)
The Tribunal may appoint Provisional Liquidator or the Company Liquidator from a panel
maintained by the Central Government consisting of Company Secretaries, Chartered
Accountants, Advocates and Cost Accountants.
On an appointment as provisional liquidator or Company Liquidator, such liquidator is
required to file a declaration in the prescribed form disclosing conflict of interest or lack
of independence in respect of his appointment, if any, with the Tribunal.
Professional assistance to Company Liquidator (CLAUSE 291)
The Company Liquidator may, with the sanction of the Tribunal, appoint one or more
professionals including Company Secretaries to assist him in the performance of his
duties and functions under the Act.
20. COMPOUNDING OF CERTAIN OFFENCES (CLAUSE 441)
This clause provides for the compounding of certain offences by Tribunal or regional
director in certain cases before the investigation has been initiated or is pending under
this Act. It further provides the procedure followed for compounding of offence. It clause
also provides penalty for any officer or other
employee of the company who fails to comply with the order of Tribunal or Regional
Director.
21. NATIONAL COMPANY LAW TRIBUNAL AND APPELLATE TRIBUNAL (CLAUSE
408 AND 410)
The Central Government shall, by notification, constitute, a Tribunal to be known as
National Company Law Tribunal and an Appellate Tribunal to be known as National
Company law Appellate Tribunal.
22. SPECIAL COURTS
• For the speedy trial of offences, the Central Government has been empowered to
establish special courts in consultation with the Chief Justice of the High Court
within whose jurisdiction the judge is to be appointed. (clause 435).
• All offences under this Act shall be triable by the Special Court established for
the area in which the registered office of the company in relation to which the
offence is committed or where there are more special courts than one for such
area, by such one of them as may be specified in this behalf by the High Court
concerned. (clause 436)
• The Special Court would have the liberty to try summary proceedings for
offences punishable with imprisonment for a term not exceeding three years,
although it may order for the regular trial. (clause 436).
23. MEDIATION AND CONCILIATION PANEL (CLAUSE 442)
• The Central government shall maintain a panel of experts to be called Mediation
and Conciliation Panel for mediation between the parties during the pendency of
any proceedings before the Central Government or the Tribunal or the Appellate
Tribunal under this Act.
24. CROSS - BORDER MERGERS (CLAUSE 234)
• The Bill has allowed cross border mergers with any foreign company;
• The cross border merger may be made between companies registered under this
Act and companies incorporated under jurisdiction of such countries as may be
notified by the Central Government.
25. REGISTERED VALUERS (CLAUSE 247)
• A new chapter has been inserted in relation to registered valuers.
• Valuation in respect of any property, stock, shares, debentures, securities,
goodwill, networth or assets of a company shall be valued by a person registered
as a valuer.
• The Central Government shall maintain a register of valuers.
The valuer shall be a person having such qualification and experience and
registered as a valuer in such manner and on such terms and conditions as may
be prescribed.
26. POWER TO EXEMPT CLASS OR CLASSES OF COMPANIES FROM
PROVISIONS OF THIS ACT (CLAUSE 462)
• The Central Government may in the public interest, by notification direct that any
provisions of this Act:
1. shall not apply to such class or classes of companies; or
2. shall apply to class or classes of companies with such exceptions,
modifications and adaptations as may be specified in the notification.
• The notification in draft to be laid in both the Houses of Parliament for a period of
30 days.
• Houses may disapprove or modify.
27. ADJUDICATION OF PENALTY (CLAUSE 454)
The Central government may by an order publish in the Official Gazette, appoint as
many officers of the Central Government, not below the rank of Registrar, as
adjudicating officers for adjudicating penalty under the provisions of this Bill in the
manner as may be prescribed. CS
Disclaimer:
This document has been prepared on the basis of Companies Bill, 2012 as passed by
the Lok Sabha on 18th December, 2012 and as passed by the Rajya Sabha on 08
August , 2013. The Institute of Company Secretaries of India does not own the
responsibility of any error or omission. The users and readers are advised to cross
check with the original Bill before acting upon this document.
(as passed by the Lok Sabha on 18.12.12 and by the Rajya Sabha on 08.08.13)
• The Bill has 470 clauses as against 658 Sections in the existing Companies Act,
1956.
• The entire bill has been divided into 29 chapters.
• Many new chapters have been introduced, viz., Registered Valuers (ch.17);
Government companies (ch. 23); Companies to furnish information or statistics
(ch. 25); Nidhis (ch. 26); National Company Law Tribunal & Appellate Tribunal
(ch. 27); Special Courts (ch. 28).
• The Bill is forward looking in its approach which empowers the Central
Government to make rules, etc. through delegated legislation (clause 469 and
others).
• The Companies Bill is the result of detailed consultative process adopted by the
Government.
The salient and unique features of the Bill are as under:
1. DEFINITIONS
• New definitions are introduced in the Bill, some of which are accounting
standards, auditing standards, associate company, CEO, CFO, control, deposit,
employee stock option, financial statement, global depository receipt, Indian
depository receipt, independent director, interested director, key managerial
personnel, promoter, one person company, small company, turnover, voting right
etc.
• Definition of private company changed - the limit on maximum number of
members increased from 50 to 200.
• Private company which is a subsidiary of a public company shall be deemed to
be a public company.
• Listed company - A company which has any of its securities listed on any
recognised stock exchange.
• Associate Company - A company is considered to be an associate company of
the other, if the other company has significant influence over such company (not
being a subsidiary) or is a joint venture company. Significant influence means
control of at least 20 per cent. of total share capital of a company or of business
decisions under an agreement.
• Dormant Company - Where a company is formed and registered under this Act
for a future project or to hold an asset or intellectual property and has no
significant accounting transaction, such a company or an inactive company may
make an application to the Registrar for obtaining the status of a dormant
company.
• "expert" includes an engineer, a valuer, a chartered accountant, a company
secretary, a cost accountant and any other person who has the power or
authority to issue a certificate in pursuance of any law for the time being in force.
• "foreign company" means any company or body corporate incorporated outside
India which,-
(a) has a place of business in India whether by itself or through an agent,
physically or through electronic mode; and
(b) conducts any business activity in India in any other manner.
• "Key Managerial Personnel (KMP), 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
• "officer who is in default", means any of the following officers of a company,
namely:-
(i) whole-time director;
(ii) key managerial personnel;
(iii) where there is no key managerial personnel, such director or directors as
specified by the Board in this behalf and who has or have given his or their
consent in writing to the Board to such specification, or all the directors, if no
director is so specified;
(iv) any person who, under the immediate authority of the Board or any key
managerial personnel, is charged with any responsibility including maintenance,
filing or distribution of accounts or records, authorises, actively participates in,
knowingly permits, or knowingly fails to take active steps to prevent, any
default;
(v) any person in accordance with whose advice, directions or instructions the
Board of Directors of the company is accustomed to act, other than a person who
gives advice to the Board in a professional capacity;
(vi) every director, in respect of a contravention of any of the provisions of this
Act, who is aware of such contravention by virtue of the receipt by him of any
proceedings of the Board or participation in such proceedings without
objecting to the same, or where such contravention had taken place with
his consent or connivance;
(vii) in respect of the issue or transfer of any shares of a company, the share
transfer agents, registrars and merchant bankers to the issue or transfer.
• Bill defines the term 'promoter' to mean a person -
(a) who has been named as such in a prospectus or is identified by the company
in the annual return, or
(b) who has control over the affairs of the company, directly or indirectly whether
as a shareholder, director or otherwise; or
(c) in accordance with whose advice, directions or instructions the Board of
Directors is accustomed to act.
Provided that nothing in sub-clause (c) shall apply to a person who is acting
merely in a professional capacity.
• Subsidiary company in relation to any other company (that is holding company),
means a company in which the holding company -
o Controls the composition of the Board of Directors; or
o Exercises or controls more than one half of the total share capital (instead
of equity share capital as prescribed under the 1956 Act) 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.
• Small company has been defined as a company other than a public company having
a paid-up share capital of which does not exceed fifty lakh rupees or such higher
amount as may be prescribed not exceeding Rs.5 crore or turnover of which does
not exceed two crore rupees or such higher amount as may be prescribed not
exceeding twenty crore rupees. [clause 2(85)].
• The number of persons in any association or partnership not to exceed such number
of persons as may be prescribed (not exceeding one hundred). The restriction not to
apply to an association or partnership, constituted by professionals who are
governed by special Acts. (clause 464)
2. CLASSIFICATION & REGISTRATION
• Concept of One Person Company (OPC limited) introduced [Clause 2(62)].
• Concept of Small companies have been introduced which shall be subjected to a
lesser stringent regulatory framework [Clause 2(85)].
• Provision for Conversion of Companies already registered has been introduced
[Clause 18].
• Registration process has been made faster and compatible with e-governance.
• For the first time, articles may contain provisions for entrenchment [clause 5(3)].
• A declaration, in the prescribed form, required to be filed with the Registrar at the
time of registration of a company that all the requirements of the Act in respect of
registration and matters precedent or incidental thereto have been complied with,
will be required to signed by both - a person named in the articles as a director,
manager or secretary of the company as well as by an advocate, a chartered
accountant, cost accountant or company secretary in practice, who is engaged in
the formation of the company. (clause 7)
Registered office
• A company shall, on and from the 15th day of its incorporation and at all times
thereafter have a registered office capable of receiving and acknowledging all
communications and notices as may be addressed to it.
• Company is required to furnish to the Registrar verification of its registered office
within 30 days of its incorporation in the prescribed manner.
• Where a company has changed its name(s) during the last two years, it shall
paint or affix or print, along with its name, the former name or names so changed
during the last two years.
• Notice of change, verified in the manner prescribed, shall be given to the
Registrar, within 15 days of the change, who shall record the same.
Commencement of business
• A company having a share capital shall not commence business or exercise any
borrowing powers unless a declaration is filed with Registrar by a director verified
in the manner as may be prescribed that:
o every subscriber to the memorandum has paid the value of shares
agreed to be taken by him;
o Paid-up capital is not less than Rs. five lakhs in the case of public
company and one lakh in case of a private company.
o the company has filed with the Registrar the verification of its registered
office.
3. PROSPECTUS AND ALLOTMENT OF SECURITIES
• This chapter is divided into two parts. Part I relates to 'Public offer' and Part II
relates to 'Private Placement'
• "Public offer" includes initial public offer or further public offer of securities to the
public by a company, or an offer for sale of securities to the public by an existing
shareholder, through issue of a prospectus.'
• The term 'private placement' has been defined to bring clarity. "Private
placement" means any offer of securities or invitation to subscribe securities to a
select group of persons by a company (other than by way of public offer) through
issue of a private placement offer letter and which satisfies the conditions
specified in this section.
• Detailed disclosures are provided in the Bill itself. It includes disclosures about
sources of promoter's contribution.
• In case of variation in the terms of contract referred to in the prospectus or
objects for which the prospectus was issued, the dissenting shareholders shall
be given exit opportunity by promoters or controlling shareholders.
Punishment for fraudulently inducing persons to invest money (clause 36)
• Any person who, either knowingly or recklessly makes any statement, promise or
forecast which is false, deceptive or misleading, or deliberately conceals any
material facts, to induce another person to enter into, or to offer to enter into any
agreement for, or with a view to, obtaining credit facilities from any bank or
financial institution shall be liable for punishment for fraud. This provision is
proposed to help in curbing a major source of corporate delinquency.
4. SHARE CAPITAL AND DEBENTURES
• If a company with intent to defraud, issues a duplicate certificate of shares, the
company shall be punishable with fine which shall not be less than 5 times the
face value of the shares involved in the issue of the duplicate certificate but
which may extend to 10 times the face value of such shares or rupees 10 crores,
whichever is higher. Stringent penalties have also been imposed for defaulting
officers of the company. [clause 46(5)]
• Where any depository has transferred shares with an intention to defraud a
person, it shall be liable under section 447 i.e. provisions for punishment for
fraud.[clause56(7)] _ Security Premium Account may also be applied for the
purchase of its own shares or other securities. [Clause 52(2)(e)]
• Except as provided in section 54 (Issue of sweat equity shares), a company shall
not issue shares at a discount [Clause(53)]
• A company limited by shares cannot issue any preference shares which are
irredeemable. However, a company limited by shares may, if so authorised by its
articles, can issue preference shares which are liable to be redeemed within a
period not exceeding twenty years from the date of their issue.
• A company may issue preference shares for a period exceeding twenty years for
infrastructural projects subject to redemption of such percentage of shares as
may be prescribed on an annual basis at the option of such preference
shareholders. [Clause 55].
• Every company shall deliver debenture certificate within six months of allotment.
[Clause 56(4)(d)].
• Reduction of share capital to be made subject to confirmation by the Tribunal.
The Tribunal on receiving an application for reduction of share capital, shall give
notice to the Central Government, Registrar and to the SEBI and consider the
representations received in this behalf. (Clause 66)
5. E-GOVERNANCE
E-Governance proposed for various company processes like maintenance and
inspection of documents in electronic form, option of keeping of books of accounts in
electronic form, financial statements to be placed on company's website, holding of
board meetings through video conferencing/other electronic mode; voting through
electronic means.
6. BOARD AND GOVERNANCE
Number of directors
• Minimum : Public company -3 Private -2 , OPC-1.
• Maximum : limit increased to 15 from 12 .
More directors can be added by passing of special resolution without getting the
approval of Central Government as earlier required.
Woman director
At least one woman director shall be on the Board of such class or classes of companies
as may be prescribed.
Resident Director
Every company shall have at least one director who has stayed in India for a total period
of not less than one hundred and eighty-two days in the previous calendar year. [clause
149(2)].
Appointment of Key Managerial Personnel [Clause 203(1)]
• Every company belonging to such class or classes of companies as may be
prescribed shall have the wholetime key managerial personnel.
• Unless the articles of a company provide otherwise or the company does not
carry multiple businesses, an individual shall not be the chairperson of the
company as well as the managing director or Chief Executive Officer of the
company at the same time [Proviso to
Clause 203(1)]
Provided that nothing contained above shall apply to such class of companies
engaged in multiple businesses and which has appointed one or more chief
executive officers for each such business as may be notified by the Central
Government.
• Every Company Secretary being a whole-time KMP shall be appointed by a
resolution of the Board which shall contain the terms and conditions of
appointment including the remuneration.
• If the office of any whole-time KMP is vacated, the same shall be filled up by the
Board at a meeting of the Board within a period of six months from the date of
such vacancy [Clause 203 (2) & (4)].
• If a company does not appoint a Key Managerial Personnel, the penalty
proposed is :
On company - one lakh rupees which may extend to five lakh rupees.
On every director and KMP who is in default - 50,000 rupees and 1,000 rupees
per day if contravention continues.
Independent Directors
• Concept of independent directors has been introduced for the first time in
Company Law: [clause 149(5)]
• All listed companies shall have at least one-third of the Board as independent
directors.
• Such other class or classes of public companies as may be prescribed by the
Central Government shall also be required to appoint independent directors.
• The independent director has been clearly defined in the Bill.
• Nominee director nominated by any financial institution, or in pursuance of any
agreement, or appointed by any government to represent its shareholding shall
not be deemed to be an independent director.
• An independent director shall not be entitled to any remuneration other than
sitting fee, reimbursement of expenses for participation in the Board and other
meetings and profit related commission as may be approved by the members.
• An Independent director shall not be entitled to any stock option.
• Only an independent director can be appointed as alternate director to an
independent director. [clause 161(2)].
Person other than retiring director
• If a person other than retiring director stands for directorship but fails to get
appointed, he or the member intending to propose him as a director, as the case
may be, shall be refunded the sum deposited by him, if he gets more than twenty
five per cent of total valid votes [clause 160(1)].
Resignation of director
• A director may resign from his office by giving notice in writing. The Board shall,
on receipt of such notice, intimate the Registrar and also place such resignation
in the subsequent general meeting of the company. [clause 168(1)]. The director
shall also forward a copy of resignation alongwith detailed reasons for the
resignation to the Registrar.
• The notice shall become effective from the date on which the notice is received
by the company or the date, if any, specified by the director in the notice,
whichever is later. [clause 168(2)].
• If all the directors of a company resign from their office or vacate their office, the
promoter or in his absence the Central Government shall appoint the required
number of directors to hold office till the directors are appointed by the company
in General Meeting [clause 168(3)].
Participation of directors through video-conferencing
• Participation of directors at Board Meetings has been permitted through videoconferencing
or other electronic means, provided such participation is capable of
recording and recognizing. Also, the recording and storing of the proceedings of
such meetings should be carried out [clause 173(2)].
The Central Government may however, by notification, specify such matters
which shall not be dealt with in the meeting through video-conferencing and such
other electronic means as may be prescribed. [clause 173(2)]
Notice of Board Meeting
• At least seven days' notice is required to be given for a Board meeting. The
notice may be sent by electronic means to every director at his address
registered with the company. [clause 173(3)].
A Board Meeting may be called at shorter notice subject to the condition that at
least one independent director, if any, shall be present at the meeting. However,
in the absence of any independent director from such a meeting, the decisions
taken at such meeting shall be final only on ratification thereof by at least one
independent director. [clause 173(3)].
Duties of directors (clause 166)
For the first time, duties of directors have been defined in the Bill. A director of a
company shall :
• act in accordance with the articles of the company.
• act in good faith in order to promote the objects of the company for the benefit of
its members as a whole, and in the best interests of the company, its employees,
the shareholders, the community and for the protection of environment.
• exercise his duties with due and reasonable care, skill and diligence and shall
exercise independent judgment.
• 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.
• 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.
• not assign his office and any assignment so made shall be void.
Penalty
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.
Board Committees
• Besides the Audit Committee, the constitution of Nomination and Remuneration
Committee has also been made mandatory in the case of listed companies and
such other class or classes of companies as may be prescribed. [clause 178(1)].
• The Audit committee shall consist of a minimum of three directors with
independent directors forming a majority and majority of members including its
Chairperson shall be persons with ability to read and understand the financial
statement. [clause 177(2)].
• The Nomination and Remuneration Committee shall formulate the criteria for
determining qualifications, positive attributes and independence of a director and
recommend to the Board a policy, relating to the remuneration for the directors,
key managerial personnel and other employees [Clause 178(3)].
• The Nomination and Remuneration Committee shall consist of three or more
non-executive director(s) out of which not less than one half shall be independent
directors. [clause 178(1)].
• Where the combined membership of the shareholders, debenture holders,
deposit holders and any other security holders is more than one thousand at any
time during the financial year, the company shall constitute a Stakeholders
Relationship Committee. [clause 178(5)].
Managerial Remuneration [clause 197]
• Provisions relating to limits on remuneration provided in the existing Act being
included in the Bill. Maximum limit of 11% (of net profits) being retained.
• For companies with no profits or inadequate profits remuneration shall be
payable in accordance with new Schedule of Remuneration (Schedule V) and in
case a company is not able to comply with Schedule V, approval of Central
Government would be necessary.
Certain Insurance Premium not to be treated as part of the remuneration
• The premium paid on any insurance taken by a company on behalf of its
managing director, whole-time director, manager, Chief Executive Officer, Chief
Financial Officer or Company Secretary for indemnifying any of them against any
liability in respect of any negligence, default, misfeasance, breach of duty or
breach of trust for which they may be guilty in relation to the company, shall not
be treated as part of the remuneration payable to any such personnel. [Clause
197 (13)]
7. DISCLOSURES
Annual return [clause 92]
• Every company shall prepare a return (hereinafter referred to as the annual
return) in the prescribed form containing the particulars as they stood on the
close of the financial year regarding;
(i) its registered office, principal business activities, particulars of its holding,
subsidiary and associate companies;
(ii) its shares, debentures and other securities and shareholding pattern;
(iii) its indebtedness;
(iv) its members and debenture-holders along with changes therein since the close of
the previous financial year;
(v) its promoters, directors, key managerial personnel along with changes therein
since the close of the last financial year;
(vi) meetings of members or a class thereof, Board and its various committees along
with attendance details;
(vii) remuneration of directors and key managerial personnel;
(viii) penalties imposed on the company, its directors or officers and details of
compounding of offences;
(ix) matters related to certification of compliances, disclosures as may be prescribed;
(x) details in respect of shares held by foreign institutional investors; and
(xi) such other matters as may be prescribed.
The prescribed disclosures under the Annual Return shows significant transformation in
non financial annual disclosures and reporting by companies as compared to the
existing format.
Similar to the existing compliance certificate as stipulated under section 383A of
Companies Act, 1956 certification of compliances has been prescribed under clause
92(1)(ix).
• Annual Return is required to be signed by :
(i) A director and the Company Secretary, or where there is no Company
Secretary, by a Company Secretary in whole-time practice.
It means that now in respect of all the companies (except one pferson
companies and small companies), whether private or public, listed or unlisted,
the annual return has to be signed by either a company secretary in
employment or by a company secretary in practice i.e. where no Company
Secretary is appointed by the company, the Annual Return is compulsorily
required to be signed by the Company Secretary in practice.
(ii) in addition to the above, the annual return, filed by a listed company or by a
company having such paid-up capital and turnover as may be prescribed,
shall be certified by a company secretary in practice that the annual return
discloses the facts correctly and adequately and that the Company has
complied with all the provisions of the Act.
It means, in case of a listed company and other prescribed companies, even
if the Annual Return is signed by the Company Secretary in employment, it is
further required to be certified by the Company Secretary in Whole time
practice.
(iii) In relation to a One Person Company and Small Company, the annual return
is required to be signed by the Company Secretary, or where there is no
Company Secretary, by one director of the company.
Penalty
In case a Company Secretary in practice certifies the annual return otherwise
than in conformity with the requirements of this section or the rules made there
under, such Company Secretary shall be punishable with fine which shall not be
less than fifty thousand rupees but which may extend to five lakh rupees.
Changes in shareholding of promoters and top ten shareholders
• 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) by a listed company.
Board's report (Clause 134)
• Board's Report has been made more informative and includes extensive
disclosures like -
(i) extract of annual return in the prescribed form;
(ii) company's policy on director's appointment and remuneration including
the criteria for determining qualifications, positive attributes,
independence of a director etc. ;
(iii) a statement of declaration by independent directors;
(iv) explanations or comments by the Board on every qualification,
reservation or adverse remark or disclaimer made by the auditor in his
report and by the company secretary in practice in his secretarial audit
report;
(v) particulars of loans, guarantees, or investments made;
(vi) particulars of contracts or arrangements entered into;
(vii) the conservation of energy, technology absorption, foreign exchange
earnings and outgo in the prescribed manner;
(viii) statement indicating development and implementation of a risk
management policy for the company including identification therein of
elements of risk, if any, which in the opinion of the Board may threaten
the existence of the company;
(ix) the details about the policy developed and implemented by the company
on corporate social responsibility initiatives taken during the year in case
of listed companies and other prescribed class of companies, a statement
indicating the manner in which formal annual evaluation has been made
by the Board of its own performance and that of committees and
individual directors.
• The Directors' Responsibility Statement shall also include the statement that the
directors had devised proper systems to ensure compliance with the provisions
of all applicable laws and that such systems were adequate and operating
effectively.
• The Boards' Report is to be signed by the Chairperson of the company if he is
authorized by the Board and where he is not so authorized, it shall be signed by
at least two directors, one of whom shall be a managing director, or by the
director where there is one director. (Clause 134).
Related Party Transactions
• Every contract or arrangement entered into with a related party shall be referred
to in the Board's Report along with the justification for entering into such contract
or arrangement [Clause 188(2)].
• Any arrangement between a company and its directors in respect of acquisition
of assets for consideration other than cash shall require prior approval by a
resolution in general meeting and if the director or connected person is a director
of its holding company, approval is required to be obtained by passing a
resolution in general meeting of the holding company [Clause 192].
• Where a one person company limited by shares or by guarantee enters into a
contract with the sole member of the company who is also its director, the
company shall, unless the contract is in writing, ensure that the terms of the
contract or offer are contained in the memorandum or are recorded in the
minutes of the first Board meeting held after entering into the contract. The
company shall inform the Registrar about every contract entered into by the
company and recorded in the minutes (Clause 193).
8. CORPORATE SOCIAL RESPONSIBILITY (CLAUSE 135)
• Every company having net worth of rupees 500 crore or more, or turnover of
rupees 1000 crore or more or a net profit of rupees 5 crore or more during any
financial year shall constitute a Corporate Social Responsibility Committee of the
Board consisting of three or more directors, out of which at least one director
shall be an independent director.
• The CSR Committee shall formulate and recommend Corporate Social
Responsibility Policy which shall indicate the activity or activities to be
undertaken by the company as specified in schedule VII and shall also
recommend the amount of expenditure to be incurred on the CSR activities.
• The Board of every company shall ensure that the company spends in every
financial year atleast 2% of the average net profits of the company made during
the three immediately preceding financial years in pursuance of its CSR policy.
• Where the company fails to spend such amount, the Board shall in its report
specify the reasons for not spending the amount. The approach is to 'comply or
explain'.
• The company shall give preference to local areas where it operates, for spending
amount earmarked for Corporate Social Responsibility (CSR) activities.
9. DEPOSITS (CLAUSE 173)
• A company may, subject to the passing of a resolution in general meeting and
subject to the prescribed rules, accept deposits from its members subject to
fulfillment of the following specified conditions:
i. passing of resolution in a general meeting.
ii. issue of circular to members including therein a statement showing the
financial position of the company, the credit ratings obtained, the total number of
depositors and the amount due towards deposits in respect of any previous
deposits accepted by the company and such other particulars in such form and in
such manner as may be prescribed.
iii. filing a copy of the circular along with such statement with the registrar within
30 days before the date of issue of the circular.
iv. Providing deposit insurance.
v. Certification by the company that it has not defaulted in the repayment of
deposits.
vi. Provision of security in respect of deposit and interest and creation of charge
on company's properties and assets. An amount of not less than 15% of the deposits
maturing during a financial year shall be deposited in deposit repayment reserve
account.
• A public company having prescribed net worth or turnover may accept deposits
from persons other than its members subject to compliance of rules as may be
prescribed by Central Government in consultation by Reserve Bank of India.
(Clause 76).
• The penalty for failure to repay deposit has been made extremely stringent.
Where a company fails to repay the deposit and it is proved that the deposits had
been accepted with intent to defraud the depositors or for any fraudulent
purpose, every officer of the company who was
responsible for the acceptance of such deposit shall, without prejudice to liability
under section 447 i.e. punishment for fraud), be personally responsible, without
any limitation of liability, for all or any of the losses or damages that may have
been incurred by the depositors (Clause 75).
Stringent punishment is proposed for failure to distribute dividend within thirty
days of its declaration. (Clause 127)
10.INVESTMENT COMPANIES (CLAUSE 186)
• A company can make investment through not more than two layers of investment
companies, unless otherwise prescribed.
• This shall not affect
o a company from acquiring any other company incorporated in a country
outside India if such other company has investment subsidiaries beyond
two layers as per the laws of such country;
o a subsidiary company from having any investment subsidiary for the
purposes of meeting the requirements under any law or under any rule or
regulation framed under any law for the time being in force.
• The restriction on the number of step-down subsidiary companies has been
introduced to prevent the abuse of diversion of funds through many step-down
subsidiaries.
11. COMPANY SECRETARY
Functions of Company Secretary (clause 205)
• The functions of the company secretary shall include -
o to report to the Board about compliance with the provisions of this Act, the
rules made there under and other laws applicable to the company;
o to ensure that the company complies with the applicable secretarial
standards;
o to discharge such other duties as may be prescribed.
Secretarial Audit (Clause 204)
• Every listed company and a company belonging to other class of companies as
may be prescribed shall annex with its Board's report a Secretarial Audit Report,
given by a Company Secretary in Practice, in such form as may be prescribed.
• It shall be the duty of the company to give all assistance and facilities to the
Company Secretary in Practice, for auditing the secretarial and related records of
the company.
• The Board of Directors, in their report shall explain in full any qualification or
observation or other remarks made by the Company Secretary in Practice in his
report.
• If a company or any officer of the company or the Company Secretary in
Practice, contravenes the provisions of this section, the company, every officer of
the company or the Company Secretary in Practice, who is in default, shall be
punishable with fine which shall not be less than one lakh rupees but which may
extend to five lakh rupees.
Secretarial Standards Introduced [Clause 118(10) & 205]
• For the first time, the Secretarial Standards has been introduced and provided
statutory recognition
• Clause 118(10) reads as:
"Every company shall observe Secretarial Standards with respect General and
Board Meetings specified by the Institute of Company Secretaries of India
constituted under section 3 of the Company Secretaries Act, 1980 and approved
by the Central Government."
• Clause 205 casts duty on the Company Secretary to ensure that the company
complies with the applicable Secretarial Standards.
• It is the beginning of a new era where non financial standards have been given
importance and statutory recognition besides Financial Standards.
12. GENERAL MEETINGS
• To encourage wider participation of shareholders at General Meetings, the
Central Government may prescribe the class or classes of companies in which a
member may exercise their vote at meetings by electronic means [clause 108].
• One person companies have been given the option to dispense with the
requirement of holding an AGM. [clause 96(1)].
Report on annual general meeting [clause 121]
• Every listed company shall prepare a Report on each Annual General Meeting
including confirmation to the effect that the meeting was convened, held and
conducted as per the provisions of the Act and the Rules made there under.
The report shall be prepared in the manner to be prescribed. A copy of the report
shall be filed with the Registrar within 30 days of the conclusion of the AGM.
Non-filing of the report has been made a punishable offence.
13. AUDITORS
• A company shall appoint an individual or a firm as an auditor at annual general
meeting who shall hold office till the conclusion of sixth annual general meeting.
• However, the company shall place the matter relating to such appointment for
ratification by members at every annual general meeting.
• No listed company or a company belonging to such class or classes of
companies as may be prescribed, shall appoint or re-appoint-
(a) an individual as auditor for more than one term of five consecutive years; and
(b) an audit firm as auditor for more than two terms of five consecutive years:
Provided that-
(i) an individual auditor who has completed his term under clause (a) shall not be
eligible for re-appointment as auditor in the same company for five years from the
completion of his term;
(ii) an audit firm which has completed its term under clause (b), shall not be
eligible for re- appointment as auditor in the same company for five years from the
completion of such term:
• Members of a company may resolve to provide that in the audit firm appointed by
it, the auditing partner and his team shall be rotated at such intervals as may be
resolved by members.
• The limit in respect of maximum number of companies in which a person may be
appointed as auditor has been proposed as twenty companies. (clause 141)
• Auditor cannot render any of the following services, directly or indirectly to the
company or its holding company or subsidiary company:
• Accounting and book-keeping service
• Internal audit
• Design and implementation of any financial information system
• Actuarial services
• Investment advisory services
• Investment banking services
• Rendering of outsourced financial services
• Management services
• Other prescribed services
Internal Audit
• Prescribed class of companies shall be required to appoint an internal auditor to
conduct internal audit of the functions and activities of the company. (clause 138)
Cost Audit (clause 148)
• The Central Government after consultation with regulatory body may direct class
of companies engaged in production of such goods or providing such services as
may be prescribed to include in the books of accounts particulars relating to
utilisation of material or labour or to such other items of cost.
• If the Central Government is of the opinion, that it is necessary to do so, it may,
direct that the audit of cost records of class of companies, which are required to
maintain cost records and which have a net worth of such amount as may be
prescribed or a turnover of such amount as may be prescribed, shall be
conducted in the manner specified in the order.
• 'cost auditing standards' have been mandated.
14. FINANCIAL STATEMENT (CLAUSE 2(40)]
• For the first time, the term 'financial statement' has been defined to include:-
(i) a balance sheet as at the end of the financial year;
(ii) a profit and loss account, or in the case of a company carrying on any activity
not for profit, an income and expenditure account for the financial year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) any explanatory note annexed to, or forming part of, any document referred to
in sub-clause (i) to subclause (iv):
• the financial statement, with respect to One Person Company, small company
and dormant company, may not include the cash flow statement;
Signing of financial statement (Clause 134)
The financial statement, including consolidated financial statement, if any, shall be
approved by the Board of directors before they are signed on behalf of the Board at least
by the Chairperson of the company authorised by the Board or by two directors out of
which one shall be managing director and the Chief Executive Officer, if he is a director
in the company, the Chief Financial Officer and the company secretary of the company,
wherever they are appointed, or in the case of a One Person Company, only by one
director, for submission to the auditor for his report thereon.
15.NATIONAL FINANCIAL REPORTING AUTHORITY (NFRA) (CLAUSE 132)
• The Central Government may be notification constitute a National Financial
Reporting Authority to provide for matters related to accounting and auditing
standards.
• Notwithstanding anything contained in any other law for the time being in force,
the National Financial Reporting Authority shall-
(a) make recommendations to the Central Government on the formulation and
laying down of accounting and auditing policies and standards for adoption by
companies or class of companies or their auditors, as the case may be;
(b) monitor and enforce the compliance with accounting standards and auditing
standards in such manner as may be prescribed;
(c) oversee the quality of service of the professions associated with ensuring
compliance with such standards, and suggest measures required for
improvement in quality of services and such other related matters as may be
prescribed; and
(d) perform such other functions relating to clauses (a), (b) and (c) as may be
prescribed.
• Notwithstanding anything contained in any other law for the time being in force,
the National Financial Reporting Authority shall-
(a) have the power to investigate, either suo moto or on a reference made to it by
the Central Government, for such class of bodies corporate or persons, in such
manner as may be prescribed into the matters of professional or other
misconduct committed by any member or firm of chartered accountants,
registered under the Chartered Accountants Act, 1949:
Provided that no other institute or body shall initiate or continue any proceedings
in such matters of misconduct where the National Financial Reporting Authority
has initiated an investigation under this section;
(b) have the same powers as are vested in a civil court under the Code of Civil
Procedure, 1908, while trying a suit.
(c) where professional or other misconduct is proved, have the power to make
order for-
(A) imposing penalty of -
(I) not less than one lakh rupees, but which may extend to five times of
the fees received, in case of individuals; and
(II) not less than ten lakh rupees, but which my extend to ten times of the
fees received, in case of firms;
(B) debarring the member or the firm from engaging himself or itself from practice
as member of the institute for a minimum period of six months or for such higher
period not exceeding ten years as may be decided by the National Financial
Reporting Authority.
• Any person aggrieved by any order of the National Financial Reporting Authority,
may prefer an appeal before the Appellate Authority constituted by the Central
Government.
16. INVESTOR PROTECTION MEASURES
• Issue and transfer of securities and non-payment of dividend by listed
companies, shall be administered by SEBI by making regulations.(Clause24)
• An act of fraudulent inducement of persons to invest money is punishable with
imprisonment for a term which may extend to ten years and with fine which shall
not be less than three times the amount involved in fraud.(Clause 36)
• A suit may be filed by a person who is affected by any misleading statement or
the inclusion or omission of any matter in the Prospectus or who has invested
money by fraudulent inducement. (Clause 37).
Class action suits
• For the first time, a provision has been made for class action suits. It is provided
that specified number of member(s), depositor(s) or any class of them, may, if
they are of the opinion that the management or control of the affairs of the
company are being conducted in a manner prejudicial to the interests of the
company or its members or depositors, file an application before the Tribunal on
behalf of the members or depositors.
• Where the members or depositors seek any damages or compensation or
demand any other suitable action from or against an audit firm, the liability shall
be of the firm as well as of each partner who was involved in making any
improper or misleading statement of particulars in the audit report or who acted in
a fraudulent, unlawful or wrongful manner.
• The order passed by the Tribunal shall be binding on the company and all its
members, depositors and auditors including audit firm or expert or consultant or
advisor or any other person associated with the company. (clause 245)
Serious Fraud Investigation Office (clause 211)
Statutory status to SFIO has been proposed. Investigation report of SFIO filed with the
Court for framing of charges shall be treated as a report filed by a Police Officer. SFIO
shall have power to arrest in respect of certain offences of the Bill which attract the
punishment for fraud. Those offences shall be cognizable and the person accused of
any such offence shall be released on bail subject to certain conditions provided in the
relevant clause of the Bill.
Stringent penalty provided for fraud related offences.
Fraud defined (Clause 447)
• The term "Fraud" has for the first time been defined in the Bill. Any person who is
found to be guilty of fraud, shall be punishable with imprisonment for a term
which shall not be less than six months but which may extend to ten years and
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.
Where the fraud in question involves public interest, the term of imprisonment
shall not be less than three years
Prohibition of insider trading
New clause has been introduced with respect to prohibition of insider trading of
securities. The definition of price sensitive information has also been included [clause
195].
Prohibition on Forward dealings
Directors and the key managerial personnel of a company are prohibited from forward
dealings in securities of the company. (clause 194).
17. INSPECTION, ENQUIRY AND INVESTIGATION
• A new clause has been added to provide that where in connection with enquiry or
investigation into the affairs of the company or reference by the Central
Government, or on complaint by specified number of members or creditors or
any other person having a reasonable any person that the transfer or disposal of
funds, properties or assets is likely to take place which is prejudicial to the
interest of the company, then the Tribunal may order for the freezing of such
transfer, removal or disposal of assets for a period of three years. [clause 221]
• Another new clause seeks to provide that the provisions of inspection or
investigation applicable to Indian companies shall also apply mutatis-mutandis to
inspection or investigation of foreign companies. (clause 228).
18. RESTRUCTURING AND LIQUIDATION
• The entire rehabilitation and liquidation process has been made time bound.
• Winding up is to be resorted to only when revival is not feasible. (clause 258).
• The Tribunal may appoint an interim administrator or a company administrator
from the panel of Company Secretaries, CAs, CWAs, etc. maintained by the
Central Government. [clause 259(1)].
• The Company Administrator shall prepare a scheme of revival and rehabilitation.
[clause 261(1)].
• If revival scheme is not approved by the creditors, the Tribunal shall order for
winding up of the company. (clause 258).
• No civil court shall have jurisdiction in respect of any matter on which Tribunal or
Appellate Tribunal is empowered. (clause 268).
19. COMPANY LIQUIDATORS (CLAUSE 275)
The Tribunal may appoint Provisional Liquidator or the Company Liquidator from a panel
maintained by the Central Government consisting of Company Secretaries, Chartered
Accountants, Advocates and Cost Accountants.
On an appointment as provisional liquidator or Company Liquidator, such liquidator is
required to file a declaration in the prescribed form disclosing conflict of interest or lack
of independence in respect of his appointment, if any, with the Tribunal.
Professional assistance to Company Liquidator (CLAUSE 291)
The Company Liquidator may, with the sanction of the Tribunal, appoint one or more
professionals including Company Secretaries to assist him in the performance of his
duties and functions under the Act.
20. COMPOUNDING OF CERTAIN OFFENCES (CLAUSE 441)
This clause provides for the compounding of certain offences by Tribunal or regional
director in certain cases before the investigation has been initiated or is pending under
this Act. It further provides the procedure followed for compounding of offence. It clause
also provides penalty for any officer or other
employee of the company who fails to comply with the order of Tribunal or Regional
Director.
21. NATIONAL COMPANY LAW TRIBUNAL AND APPELLATE TRIBUNAL (CLAUSE
408 AND 410)
The Central Government shall, by notification, constitute, a Tribunal to be known as
National Company Law Tribunal and an Appellate Tribunal to be known as National
Company law Appellate Tribunal.
22. SPECIAL COURTS
• For the speedy trial of offences, the Central Government has been empowered to
establish special courts in consultation with the Chief Justice of the High Court
within whose jurisdiction the judge is to be appointed. (clause 435).
• All offences under this Act shall be triable by the Special Court established for
the area in which the registered office of the company in relation to which the
offence is committed or where there are more special courts than one for such
area, by such one of them as may be specified in this behalf by the High Court
concerned. (clause 436)
• The Special Court would have the liberty to try summary proceedings for
offences punishable with imprisonment for a term not exceeding three years,
although it may order for the regular trial. (clause 436).
23. MEDIATION AND CONCILIATION PANEL (CLAUSE 442)
• The Central government shall maintain a panel of experts to be called Mediation
and Conciliation Panel for mediation between the parties during the pendency of
any proceedings before the Central Government or the Tribunal or the Appellate
Tribunal under this Act.
24. CROSS - BORDER MERGERS (CLAUSE 234)
• The Bill has allowed cross border mergers with any foreign company;
• The cross border merger may be made between companies registered under this
Act and companies incorporated under jurisdiction of such countries as may be
notified by the Central Government.
25. REGISTERED VALUERS (CLAUSE 247)
• A new chapter has been inserted in relation to registered valuers.
• Valuation in respect of any property, stock, shares, debentures, securities,
goodwill, networth or assets of a company shall be valued by a person registered
as a valuer.
• The Central Government shall maintain a register of valuers.
The valuer shall be a person having such qualification and experience and
registered as a valuer in such manner and on such terms and conditions as may
be prescribed.
26. POWER TO EXEMPT CLASS OR CLASSES OF COMPANIES FROM
PROVISIONS OF THIS ACT (CLAUSE 462)
• The Central Government may in the public interest, by notification direct that any
provisions of this Act:
1. shall not apply to such class or classes of companies; or
2. shall apply to class or classes of companies with such exceptions,
modifications and adaptations as may be specified in the notification.
• The notification in draft to be laid in both the Houses of Parliament for a period of
30 days.
• Houses may disapprove or modify.
27. ADJUDICATION OF PENALTY (CLAUSE 454)
The Central government may by an order publish in the Official Gazette, appoint as
many officers of the Central Government, not below the rank of Registrar, as
adjudicating officers for adjudicating penalty under the provisions of this Bill in the
manner as may be prescribed. CS
Disclaimer:
This document has been prepared on the basis of Companies Bill, 2012 as passed by
the Lok Sabha on 18th December, 2012 and as passed by the Rajya Sabha on 08
August , 2013. The Institute of Company Secretaries of India does not own the
responsibility of any error or omission. The users and readers are advised to cross
check with the original Bill before acting upon this document.
