COMPANIES ACT 2013 – Urgent & Important actions before March 15 - By CS Makarand Joshi -...
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Transcript of COMPANIES ACT 2013 – Urgent & Important actions before March 15 - By CS Makarand Joshi -...
COMPANIES ACT 2013 – Urgent & Important actions
before March 15- By CS Makarand Joshi
Coverage of Session
Borrowings / Deposit Allotment of Shares / Securities Fixed Assets Group Company Loans Other Loans / Investments CSR Related Party Transactions Remuneration to Directors ROC Filings
Who can approve borrowing? Board of Directors can approve
borrowing Board can delegate this power to
committee or to MD If borrowing exceeds paid up capital +
free reserves, it requires prior special resolution
All the resolutions [shareholders / directors] to be filed with ROC
Charge – secured loan
Means an interest or lien created on –1. Property or2. Asset of a company or3. Any of its undertakingas a security and includes mortgage Now requires charge registration for lien
on FD or pledge of shares Charge on vehicle is also required to be
registered.
What if not complied?
If charge is not registered – secured lender is at part with unsecured lender
Penatly = 100,000 – 500,000 + imprisonment of 6 months
If borrowing made without special resolution, borrowing may be considered as ultra vires
Summary
Repayment of Deposits
Deposits as on 1 April 2014 to be repaid till 31 March 2015
Deposit under Old act or Under New Act? Penalty for non repayment = 1cr >10 cr
+ officer liable for imprisonment >7 years and fine 25 lacs>2cr
What is ‘deposit’ under acceptance of deposit rules? The major highlights of this definition are – This is an inclusive definition. It says ‘deposit’
includes any receipt of money by way of deposit or loan or any other form, by a company, but does not include.....
There are 14 exclusions from the definition of deposit
Here any other manner has to be read in the context of receipt either as deposit or loan.
What are 14 exclusions?
1. Any amount received from government or from any other source whose repayment is guaranteed by central government
2. Any amount received from foreign source, so long as it is in compliance with Foreign Exchange Management Act
3. Any loan or facility received from Bank
4. Any loan or financial assistance received from public financial institutions
5. Any amount received against issue of commercial paper or any other instrument issued under guidance of RBI
What are 14 exclusions?
6. Any amount received from any other company
7. Any application money received under this act, against issue of any securities [so long as the allotment is done in 60 days of receipt of money]
8. Any amount received from Director of the Company [however the amount received should not be out of borrowed funds]
9. Any amount received against issue of secured bond or debentures OR Any amount received against issue of compulsory convertible bond or debentures [bond should be convertible into shares within a period of 5 years]
What are 14 exclusions?
10. Any security deposit received from employee of the company [not exceeding 12 months salary]. This deposit should be non interest bearing.
11. Any non interest bearing amount received or held in trust [by the company]
12. Any amount received in the course of and for the purpose of business of the company –
as an advance for the supply of goods or provisions of services accounted for in the manner, provided that such advance is appropriated against supply of goods or services within a period of 365 days from acceptance of deposit
What are 14 exclusions?
as advance accounted for in any manner, received in connection with consideration for property
as security deposit for performance of contract for supply of goods or services
as advance under long term projects for supply of capital goods
13.any amount brought by promoters in pursuance of stipulation imposed by the lending institution
14.any amount accepted by a Nidhi Company in accordance with section 406 of the Companies Act 2013.
Acceptance of Deposit
Private Company can take deposit only upto 25% of paid up capital + free reserves, if –
1. Credit rating is obtained
2. deposit insurance is obtained
3. Special Resolution is passed Only Public companies with min. networth of
Rs.100 Cr or turnover of Rs.500 can accept Public Deposit [other than shareholders]
Limits may be relaxed to 100% of paid up capital for private companies!!
What is the solution?
Let money received fall under any of 14 exemptions
ELSE Repay the Deposits before March 15 OR Convert Promoters Money into Capital and
accept DepositOR Seek extension of time from CLB for
repayment of Deposit
Compliances
On or before 30th Day of June, return of deposit – Registrar in Form DPT-3
Depositing on or before 30th April of each year not less 15% of the amt maturing during the financial year and following year in a scheduled bank to be maintained separately as deposit repayment reserve
The Amt so deposited shall not be used for any purpose other than for repayment.
Share Capital
Share Capital
All Shares to be offered on rights basis; ELSE It is Private Placement Private Placement requires - Special Resolution
+ valuation report Private Placement offer document!!! Separate Bank account required in private
placement Funds can not be used till allotment is completed Any mis statement in Offer document can be
alleged as ‘Fraud’
Prohibited Loan/ Guarantee/ Security
Section 185 prohibits loans / guarantee/ security to director or person in whom director is interested
Such loans can not be given This section has become effective from
12 September 2013
What is the consequence of default? For Company granting loan fine 5-25 lacs For director / entity receiving loan –
imprisonment upto 6 months OR fine 5-25 lacs
If director does not disclose his interest – vacation of directorship
Loan granted may be considered as ultra vires and person granting it may be personally responsible
Directors personal default in his duties
Section 185
Provisions of section 185 prohibits loan / security guarantee given by any company to following entities –
1. Director of lending company2. Director of holding company of lending company3. Partner/ relative of such director4. Firm in which such director is partner5. Firm in which relative of such director is partner6. Private company in which such Director is a
Director or member
Section 185
Body corporate at general meeting of which not less than 25% of total voting power may be exercised or controlled by such director or by two or more such directors together;
Body corporate, the board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company
How to comply with Section 185? Loan from company other than prohibited
entity Loan from exempted entities Change Shareholding / Directorships Don’t take loan. Take investment Don’t take loan. Take business advance Merge entities Convert companies into LLP Convert Partnership Firms to Company and
change shareholding / directorship
Model - 1
Operating Cos provide loan to each other
Model - 2
1] A can provide to B & C2] B & C can provide each other3] B & C can not provide A
Exemption:
Any loan given to MD as part of employee benefits OR under some scheme approved by shareholders
Advance loan, give guarantee or provide security in respect of loan made by any person to wholly owned subsidiary
Give guarantee or provide security in respect of loan made by any bank or financial institution to subsidiaries companies
NBFC can give loans/ provide guarantee / security
If borrowing party is anybody other than prohibited list
Comparison
Nature of Transaction
Section 179 Section 185 Section 186
Investments Applicable wrt to every investment
Not applicable Applicable wrt every investment made in securities of body corporate
Lending Applicable wrt to all loans
Applicable if loan is given to director or person in whom director is interested
Applicable wrt to all loan
Guarantee -do- -do- -do-
Security -do- -do- -do-
What is Investment?
Laying of money in such a manner that it would produce some revenue [dictionary meaning]
It may include following –1. Shares, 2. Debentures3. Property [which is not purchased for business]4. Fixed Deposit is investment? – Yes, it can be
said as Investment for the purpose of section 179
Investments – Who can approve? Every Investment requires approval of
the Board of Directors If loans / investments / guarantee/ security
made in excess of 100% of free reserves or 60% of paid up capital + free reserves, it requires prior approval of shareholders
Approval of public financial institutions, in certain cases, is required
Every such Board / Shareholder resolution to be filed with ROC
Loans and Investments
Limits on Investment /Loan /Guarantee /Security Given(186) Interest rate note lower than yield on Govt.
Security Applicable even to private limited company Applicable even for loan given to
employees Requires approval of board – to be filed
with ROC Register to be maintained
Loans and Investments
Special Resolution and Board resolution to be filed with ROC
Exemption: Loan given or guarantee or security
provided by holding company to wholly owned subsidiary or joint venture company
Investment in shares by holding company to its wholly owned subsidiary company.
This section shall not apply to NBFC
Summary
Assets
All ‘investments’ in assets should be made in company’s name
1. Motor Car?2. Agricultural Land? Depreciation to be changed on useful life
from next financial year
Disposal of Assets
Any disposal/ lease / sell of undertaking OR substantial undertaking of the Company requires Special Resolution
Undertaking includes – property / investment / business undertaking
Undertaking = undertaking in which investment of the company exceeds 20% of its net worth OR
Undertaking which generates 20% of total income of the Company as per last financial year
This section does not apply to company, where selling and leasing property is an Ordinary Course of Business
What if special resolution is not
obtained?
Disposal of Assets
Buyer will not be impacted if he proves that he acted in good faith
If buyer is aware about this non compliance, title will be faulty
It is subject to litigation If you are acquiring property from the
Company, get this special resolution passed and filed with ROC
Summary
Approach TOWARDS Related Party Transaction Scope is widened Transactions to be at arms length And in
Ordinary Course If not in ordinary Course OR if not at arms
length –requires approval of board and may be Special Resolution of Shareholders
Interest Directors not to participate at board meetings Related Party shareholders not to vote at General
Meeting Transactions with Wholly Owned Subsidiary Exempted
Remuneration
Board and Shareholder approval essential Require compliance of schedule V Appt of Non Resident MD /WTD requires CG
approval No remuneration restriction on private company, if
–no default in payment of debts Disclosure is required in the annual report Interested Directors should not vote [section 166] Related Shareholders can vote [Se. 188 does not
cover these transactions]
Liabilities
Every working Director/ KMP is officer in default
Director made accountable is officer in default
If there is no working Director, all Directors will be officer in default
Non executive / independent Directors are liable for acts / omissions occurred with his knowledge attributable through broad process
Summary
Corporate Social Responsibility
Who is covered under CSR?
Every company having: Net worth of Rs. 500 crore or more, or Turnover of Rs. 1000 crore of more, or Net profit of Rs. 5 crore or more
during 3 previous financial year Foreign company havg branch
office or project office are also included
How much to be spend?
At least 2 % of the average net profits of the company made during the three immediately preceding financial years
Profit to be calculated as prescribed under section 198 of the Act
What if not spend?
The reason for same shall be mentioned in Board report
Section 450? Duties of Director
Monitoring and Reporting of CSR Spending MONITORING - CSR Committee to
formulate and recommend CSR Policy, recommend amount to be spent and monitor the CSR policy
REPORTING: In Board report as per prescribed format In case of foreign company, the balance
sheet to contain as annexure
Summary
Importance of Type of Companies Small Company – Need not prepare Cash Flow Statement, Need not do rotation of Auditor Does not require certification of A/R by
PCS u/s 92(1)
Holding / Subsidiary / Associate Holding Subsidiary requires
consolidation Books of Associate to be consolidated
with Holding Holding – Subsidiary – enjoys exemption
u/s. 185, 186 and 188 Subsidiary – Subsidiary – no exemption Holding – Associate – no exemtion
Directorships
Max. number of Directorship per person is 15 Resident Director is mandatory Non filing of Fin. Statement or A/R makes
director disqualified and his existing offices would vacate
Non attendance of BM for 12 months – VACATION
Appt of – Woman / Independent directors Appointment of CS / CFO Appointment of one level below KMP to be
intimated to ROC
Auditors
Disqualification norms changed Restriction on Number of audits Auditor Rotation [3 yrs transition] Appointment of Internal Auditor Appointment of Cost Auditor Appointment of Secretarial Auditor
Companies (Indian Accounting Standards) Rules, 2015 Ministry has issued Companies (Indian Accounting Standards)
Rules, 2015. The Cos., may comply for the accounting period on or after
1st April, 2015 with the comparatives for the periods ending on 31st March, 2015 or thereafter
Mandatory for the following Cos., for the accounting period on or after 1st April, 2016 with the comparatives for the periods ending on 31st March, 2016 or thereafter Equity or debt listed or are in process of being listed on any
stock exchange in India or outside AND net worth of Rs. 500 cr or more
Cos., other than above AND net worth of Rs. 500 cr or more holding, subsidiary, joint venture or associate companies of
above mentioned Cos.
Companies (Indian Accounting Standards) Rules, 2015
Mandatory for the following Cos., for the accounting period on or after 1st April, 2017 with the comparatives for the periods ending on 31st March, 2017 or thereafter Equity or debt listed or are in process of being listed
on any stock exchange in India or outside AND net worth les than Rs. 500 cr or more
Cos., other than above AND net worth of Rs. 250 cr or more but less than Rs. 500 cr
holding, subsidiary, joint venture or associate companies of above mentioned Cos.
Audit Report
Apart from reporting items as per sec- 143, other imp items to be disclosed Impact of pending litigations on financial
position material foreseeable losses, if any, on long
term contracts including derivative contracts
Delay in transferring amt to IEPF
Annual Return
Other Imp contents Principal business activities along with % to total
turnover of the Company Total turnover and networth Details of promoters, directors, key managerial
personnel along with changes therein since the close of the previous financial year15. Details of all board & committee meeting along with details of attendance
Details of attendance of all directors in board and committee meetings
Annual Return
Details of remuneration of whole-time & managing directors, manager and key managerial personnel in terms of Salary & perquisites Stock option and sweat equity Commission
Details of remuneration of other directors in terms of Sitting fee commission
Amount spent on Corporate Social Responsibility Limits under sections 186 i.e. Loan and investment by
company and section 180 (1)(c) i.e. Restrictions on powers of board
Directors Report
Other Imp contents Extract of Annual return Statement on declaration given by Independent directors
as per section 149(6)] Related party transaction as per section 188 A 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
Details of Deposits
Directors Report
Details of significant and material orders passed by the Regulators or courts or tribunals impacting the going concern status and company’s operations in future Disclosures in respect of voting rights not exercised directly by the employees in respect of shares to which the scheme relates (67(3)(c)
Issue of equity shares with differential rights ( Rule 4(4) of chapter Share Capital and Debentures) 2014
Provision of money by company for purchase of its own share by employees or by trustees for the benefit of employees. ( Rule 16(4) of chapter Share Capital and Debentures) 2014
Other Important Matters
Change in Financial Year Alteration of Articles of Association of
the Company Updation of Statutory Registers Writing date of entering minutes in
minute book Various Policies to be adopted by the
Companies Mandatory Forms filing with ROC
List of Forms to be filed with ROC DPT 4 – Deposit MGT 14 – For MBP 1 / Loan / Investment / Borrowing MGT 14 – For special resolution for AOA alteration /
Borrowing in excess of cap + reserves / appt of MD / WTD
MGT 14 – adoption of accounts / directors report ADT 1 – Appointment of Auditor 23 AC /23 ACA – Balance Sheet / Profit and Loss 20B – Annual Return MR 1 – appointment of CS / CFO / MD DIR 12 - appointment of CS / CFO / MD
Change in approach…Change in Solutions Change in Approach Shift from shareholder protection to
stakeholder protection Strengthening of doctrine of constructive
notice Change in Solutions More capital intensive companies? Self sufficient companies? All transactions at arms length? Strict AND Timely Compliances
Actions Required for Pvt. Co.
Actionable for Private company Printing of CIN, website, mail id, phone, fax,
registered office on letterhead and official publication
Induction of new directors Appointment of CS (?)/ MD / WTD Appointment of Internal Auditor Policy for related party transaction Articles of Association needs revision Borrowing in excess of paid up capital + reserves
require special resolution to be filed with ROC Repayment of deposit in 1 year
Actionable for Private company Every borrowing / loan / investment requires prior board
resolution and interest to be charged Private Company can not give loan/ guarantee / security
to another entity in which Director is interested Minutes/ Registers / Share Certificates to be maintained Statutory Registers to be maintained in new format [since
incorporation] ROC filing to be maintained up to date without any delay Every Director to mention his DIN / Address etc in
correspondence Constitute CSR Policy and Spend 2% of avg. profits
THANK YOU.Lets help industry to be better governed