Seminar NewCompaniesBIll 23032013
Transcript of Seminar NewCompaniesBIll 23032013
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Name
Membership Number
Background Material
Seminar on
New
Companies Bill
23rd
March 2013Hotel the Suryaa
New Friends Colony, New Delhi
Organised by
Northern India Regional Council of
The Institute of Chartered Accountants of India
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Seminar New Companies Bill 2012
Delhi
23rd March 2013
23/03/2013
Overview OF
Thanks
Pavan Kumar Vijay
"The illiterate of the 21st century will not be those
who cannot read and write, but those who
cannot learn, unlearn, and relearn."
Alvin Toffler Eminent Writer of USA
23/03/2013
A Paradigm Shift For the Corporate
The Companies Act, 1956
The Companies Bill, 2012
23/03/2013
The Era of Opportunities
23/03/2013
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The Companies Bill, 2012
HIGHLIGHTS
29 Chapters, 470 Sections & 7 Schedules
Substantial Part of the Bill in form of rules which are to
be prescribed separately
33 New Definitions
23/03/2013
Introduction of newdefinitions in the Bill which
were not existing under the
Companies Act 1956
Control
AssociateCompany
AuditingStandards
Books of
Account
CEO/CFO Expert
Independent
Director
KeyManagerial
Personnel
One
PersonCompany
The Preliminary Provisions
23/03/20133/22/2013
Introduction of newdefinitions in the Bill which
were not existing under the
Companies Act 1956Promoter
Postal Ballot
Related Party
Transaction
Small
Company
Turnover
VotingRight
The Preliminary Provisions
07/03/201323/03/2013
A Paradigm Shift For the Corporate
The Companies Act, 1956
The Companies Bill, 2012
23/03/2013
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Re-enacting the Companies Act, 1956
THE OBJECTIVE
Effective protection
for different
sections of Society
Bringing Flexibility
& Adoption of
Internationally
Accepted Practices
Self Regulation
with more
disclosures
Stringent
Punishment forviolation
Healthy Growth of
India Inc.
Efficient
enforcement of law
23/03/2013
The Companies Bill, 2012
MAJOR CHANGES PROPOSED
Corporate
Governance
Enforcement of
Law
New Concepts
Investor
Protection
Liberalization
Disclosures &
Accountability
Corporate
Governance
23/03/2013
Restructuring
Accounts &
Audit
The Companies Bill, 2012
NEW CONCEPTS
Introduction ofOne Person Company
One Woman Directoron Board of Specific Class
Class Action suits by members against prejudicial acts of the
Company Management
Specification of term Associate Company
Introduction ofRegistered Valuer
23/03/2013
The Companies Bill, 2012
NEW CONCEPTS
Fast Track Mergerfor Holding & Subsidiary Companies, Cross
Border Merger
Introduction ofDormant Company
Use of electronic mode: E-voting, E-participation of experts, Board
Meeting through video conferencing
Maintenance of documents, records, registers, books of accounts,
etc. in e-form
23/03/2013
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The Companies Bill, 2012
ENHANCED CORPORATE GOVERNANCE
At least 1/3rd of the directors of the board of listed company
should be Independent Directors
Independent directors can serve 2 consecutive terms of 5
years each on the Board of a Company. Liability of
Independent Directors made limited
Mandatory Internal & Secretarial Audit for prescribed
Companies
Compulsory rotation of Individual Auditors every 5 years & of
Audit firms every 10 years, cap of 20 Companies for audit by a
firm
23/03/2013
The Companies Bill, 2012
Quorum of General Meeting of a Public Company to
depend upon the number of its members
Instead of Conducting EGM, Private Companies have the
option ofPostal Ballot for business conduction
Restriction on Insider Trading & Forward Dealing by
Directors & Key Managerial Personnel
ENHANCED CORPORATE GOVERNANCE
23/03/2013
The Companies Bill, 2012
IMPROVED CORPORATEGOVERNANCE
Consolidated financial statements of all subsidiaries to be
laid before AGM along with financials, subsidiaries to include
Associate companies & Joint Ventures
Provision to spend at least 2% of Average Net Profit on CSR
by Companies meeting a specific criteria
The Scope of Officer in default has been widened to include
Share Transfer Agents, Registrars Merchant Bankers
For uniformity & better compatibility, Financial year of the
Companies can be from April to March onlyexceptions: Foreign Holding/ Subsidiary subject to tribunals approval)
ENHANCED CORPORATE GOVERNANCE
23/03/2013
SOME LIBERAL PROVISIONS
Forholding the place of
profit by the Directorto in
Company or its Subsidiary
(Section 314 approval has
been done away with)
No approval from Central
Govt. for related party
transaction/loan to whole-
time Director/MD - (Section
295, 297 approval hasbeen done away with)
For paying monthly salary
to Non-Executive director
(Some Limits) (Section
309(4) approval has been
done away with)
Enabling provisions
for issue of GDRs
Rationalization of
process of removing
the name of Company
by ROC
The Companies Bill, 2012
Bifurcation of the Objects
clause into main, ancillary &
other objects has been
done away with. Only
objects to be stated in MOA
23/03/2013
Summary Procedure
for winding up of
Companies
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The Companies Bill, 2012
DISCLOSURES & ACCOUNTABILITY
The bill defines the term Private Placement:
CONDITIONS
Offer to section of
public other than QIBs
Not more than 50
number of people or such
higher number as may be
prescribed
In compliance of
prescribed terms &
conditions
Made through PrivatePlacement offer letter
and not Prospectus
Conditions
fulfilled?
YES NO
PUBLIC OFFER
Comply with provisions
of Bill, Securities
Contract Regulation Act,
1956 and SEBI Act, 1992
PRIVATE PLACEMENT OFFER
23/03/2013
The Companies Bill, 2012
DISCLOSURES & ACCOUNTABILITY
Enhanced Disclosures in the
Prospectus , source of
promoters contribution is
also required to be disclosed
Exit opportunity to
dissenting shareholders if
the Company intends to vary
the objects as specified in
the Prospectus
Company Investment
through more than 2 layers
of Investment Companies
not allowed (exemptions
available)
Disclosure of interest of
every director now
mandatory & not
discretionary
23/03/2013
The Companies Bill, 2012
DISCLOSURES & ACCOUNTABILITY
Duties of Directors towards
the Company nowprescribed
Scope of officer in default
widened to include directors
aware of the default by way of
their participation in the board
meeting or receipt of minutes
Disclosure of the Risk
Management Policy in theBoard Report
Audit & Auditors
23/03/2013
The Companies Bill, 2012
DISCLOSURES & ACCOUNTABILITY
Immunity to Independent &
Non-Executive Directors not
being Promoters or KMPs(Liability only if the act occurred
with their knowledge attributable
through Board Process)
23/03/2013
NBFCs to be governed by
the rules issued by RBI,
provisions relating toacceptance of deposit will
not be applicable
Acceptance of deposit from
members will require
shareholders approval and
public can accept deposits
from non- members subject to
certain conditions
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Major changes towards
23/03/2013
Now Auditors to Comply with the Auditing Standards
also along with the Accounting Standards
These Auditing Standards will be prescribed by ICAI in
consultation with National Financial Reporting
Authority
Audit & Auditors
Apart from the Balance Sheet, P & L auditors are
required to report on the Cash Flow of the Company
Major changes towards
23/03/2013
Monitor & Enforcing the Compliance of Accounting & Auditing Standards
Power to investigate the matters of Professional or other misconduct
committed by any member of ICAI
Audit & Auditors
No other Institute or Body shall initiate or continue any proceeding
where NFRA has initiated an investigation
In case of misconduct, power to order the penalty of not less
than Rs. 1 lakh (Individual) not less than Rs. 10 lakh (Firms)
Debarring the member or the firm from engaging
himself or itself from practice for a period which canextend upto max. 10 years
Other Functions of National Financial Reporting Authority
Major changes towards
23/03/2013
Rotation of Auditor
Listed or other prescribed class of Companies Shall NOT appoint
OR re-appoint
INDIVIDUAL
AUDITOR:
For more than 1
term of 5
consecutive years
AUDITOR
FIRM:
For more than 2
terms of 5
consecutive years
RE-APPOINTMENT: A gap of at least 5 years should elapse aftercompletion of the aforesaid term before the same auditor (individual/ firm)
can be re-appointed
Audit & Auditors
Major changes towards
23/03/2013
A period of 3 years will be given to Companies existing on the
enactment of this law to comply with the provisions
TRANSITION PERIOD
Decision regarding intervals at which the auditing partner and his team
be rotated
SOME FREEDOM GIVEN TO COMPANIES APPOINTING A FIRM
Audit & Auditors
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Major changes towards
23/03/2013
Auditor shall not provide the following services
whether directly/ indirectly to Company and its
Holding & subsidiary Companies:
Design & Implementation of
Financial Information system
Accounting & book Keeping
Services
Internal Audit Actuarial Services
Investment Banking & Advisory Management Services
Major changes towards
23/03/2013
Certain new disqualification have been added for the appointment of
director in a Company:
Holding any security of the Company or its Subsidiary/ Holding/Associate
or Subsidiary of such Holding Company, either by himself or through
relative or partner.
The relatives however may hold securities upto Rs. 1,000 or such sum as
may be prescribed
Indebted to the Company or its Subsidiary/ Holding/Associate or
Subsidiary of such Holding Company, such sum as may be prescribed.
Major changes towards
23/03/2013
Certain new disqualification have been added for the appointment of
director in a Company:
Given any guarantee or provided any security of the prescribed amount,
with regard to the indebtness of third person to the Company or its
Subsidiary/ Holding/Associate or Subsidiary of such Holding Company,either by himself or through relative or partner.
Having any direct/indirect business relation with the Company/its
subsidiary/holding/associate or Subsidiary of such Holding Company
Major changes towards
23/03/2013
Certain new disqualification have been added for the appointment of
director in a Company:
Any person whose relative is being a Key Managerial Personnel or
director of the Company
Person who has been convicted by a court of any offence involving fraud
and a period of 10 years has not been elapsed from the date of such
conviction
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The Companies Bill, 2012
ENFORCEMENT OF LAW
Establishment of National Company Law
Tribunal
Establishment of Special Courts, Mediation &
Conciliation panel for speedy trial of offences
under the Act
23/03/2013
The Companies Bill, 2012
COMPLIANCES & ENFORCEMENTS
23/03/2013
Fraud has been defined in the Companies Bill
2012 to clearly identify the defaulters
Stringent Punishment for fraud imprisonment
maximum up to 10 years & fine maximum up to
to 3 times of the amount involved
The Companies Bill, 2012
COMPLIANCES & ENFORCEMENTS
Imprisonment & twice the prescribed penalty in
case of repeated defaults committed within a
span of 3 years
Offences punishable with fine or imprisonment
or both to be compounded only by Special
Courts
23/03/2013
The Companies Bill, 2012
ENFORCEMENT OF LAW
Serious Fraud Investigation Office (SFIO)- A
separate agency for investigation of Company
related frauds
23/03/2013
Centralized Agency for investigating the affairs of the Company
The power of other authorities for investigation shall be stopped once the
case has been authorized to SFIO
Power to Arrest
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The Companies Bill, 2012
INVESTOR PROTECTION
Class Action suit empowering minority shareholders
Provision for purchase of minor shareholding in case of
acquisition
Mandatory Exit Opportunity to the dissenting shareholders in
case of Change of Objects or terms of Contract in Prospectus
23/03/2013
The Companies Bill, 2012
INVESTOR PROTECTION
Person claiming Share/amount in the Unpaid Dividend Account
that got transferred to IEPF may apply to the authority for the
money claimed/Shares
Shares in respect of which unpaid/unclaimed dividend has been
transferred to IEPF shall also be transferred to IEPF
23/03/2013
The Companies Bill, 2012
RESTRUCTURING
Process of
revival &
rehabilitation ofSick Companies
overhauled
Easy merger of
Holding &
Subsidiary
Companies -
Provision for
Cross Merger
Amalgamations
Abolition of the
concept of
treasury shares
23/03/2013 16.01.2010
The Elevated Horizon
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FOR ENTREPRENEURS
The Elevated Horizon
Self Regulatory Regime One Person Company
Special Provisions for Small
Companies
Simplified merger of Small
Companies & Holding/
Subsidiary Companies
Recognition of Partnership
or Association of up to 100
Members
Liberalization of Related
Party Transactions
Time Bound rehabilitation ofSick Companies
23/03/2013
FOR REGULATORS
The Elevated Horizon
Towards the NATION
23/03/2013
FOR REGULATORS
The Elevated Horizon
Towards the ENTREPRENEURS
Growth orientation & Liberalized outlook
Automated systems & self governance regime
Increased Quasi Judicial Authorities for faster action
More health checks for corporates and more shelf life
through rehabilitation & restructuring modes
Facilitation of inorganic growth through relaxed
provisions
23/03/2013
FOR REGULATORS
The Elevated Horizon
Towards the INVESTORS
Systematic Dispute Management System
Ability to peruse Class Action Suits
23/03/2013
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FOR INVESTORS
The Elevated Horizon
Better participation in decision making due to e-voting
regime
Increased Investor Awareness by availability of more
information on line on public portals
Responsive Investor Protection
Better dissemination of information from India Inc.
Ability to file Class Action Suit
23/03/2013
The Elevated Horizon
For Professionals-Increased scope in existing assignments
23/03/2013
The Elevated Horizon
For Professionals- New assignments
23/03/2013
The Elevated Horizon
For Professionals- Extended Role
23/03/2013
The Elevated Horizon
For Professionals - Opportunity
23/03/2013
The Elevated Horizon
For Professionals - Opportunity
23/03/2013
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COMPANIES BILL 2012Key changes and issues for discussion
CA Vinod JainVinod Kumar & associates CAsMember INMACS Global
98110 [email protected]
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Financial Statements
Presently no specific definition in Companies Act
AS 3 requires non SMCs to prepare cash flow
Companies Bill defines financial statements includingcash flow statement
Exemption from cash flow being presented given to OPC, smallcompany and dormant company
Concerns:
To bring uniformity, AS 3 to be amended to exclude OPC, SmallCompany and Dormant Company a defined in the Bill
OPC and Dormant companies which happen to be holding orsubsidiary will also be covered for preparing cash flow statements
Chapter I
Sec. 2 (40)
2
Financial Statements
SMC vs Small Company - difference
Aspect SMC as per AS now Small Company underCompanies Bill
Turnover
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Financial Statements Signing
To be signed by (including for a Banking Company which had anexemption in the present companies act)
Chairperson, if so authorised
Two directors, including the MD (if appointed) and CEO (if adirector)
Also, by the CFO and Secretary, if so appointed
Chapter IX
Sec. 134 (1)
5
Board Report
Board report is to include much more details
Extract of KMP remuneration, changes etc.,
Independence declaration from independent directors
Companys policy on director appointment and remuneration
Explanations / comments on all audit qualifications
Particulars of related party transactions, loans, guarantees andinvestments
Risk management and CSR policy
For listed and other public companies with a paid up capitalthreshold prescribed annual evaluation of board performance
Internal financial controls have been laid down and are operatingadequately
Proper systems are in place to ensure that statutory compliancesare are addressed
Chapter IX
Sec. 134 (3)
6
Board Report
Concerns:
Responsibility on CFO for true and fair accounts
More companies need to implement risk management in adocumented manner to ensure Board can report thereon
Rules need to also clarify whether Board report is to be onthe basis of CFS or SFS It might make sense for it to beon the basis of SFS; CFS a summary could bepresented, if so desired
Chapter IX
Sec. 134 (3)
7
Copies of FS to members
Circulation of SFS and CFS required. AFS could be sentoptionally
Manner of circulation (physical, electronic, on website etc.,) tobe prescribed for different classes of companies through rules
Listed companies (and other companies as prescribed)required to place the financials on their website
Subsidiarys audited accounts (SFS) to be placed in thewebsite and such SFS to be shared to members who seek thesame
Concerns:
Own SFS / CFS is not required to be placed in website by an unlistedentity but, subsidiarys SFS is required to be placed in the website
Chapter IX
Sec. 134 (3)
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Revision of Accounts
Presently. MCA Circular permits reopening and revisingaccounts to comply with technical requirements of anyother law
The bill provides for
Re-opening of accounts on court / NCLT orders Voluntary revision of FS or Board report
Revision feasible for SFS and CFS
Re-opening on court / NCLT orders
Application by CG, IT, SEBI, other authorities / anyother person concerned
Order by the NCLT / Court
Chapter IX
Sec. 130 & 131
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Revision of Accounts
No specific provision to provide a hearing to the companyin case of reference being made by any of the authorities
Reasons for revision
Fraudulent accounts Mismanagement, casting a doubt on reliability of the FS
No time limit for re-opening of accounts through Court /NCLT order
Rules are to be framed on the role of auditor of thecompany in case of revision of accounts
Provides an opportunity to revise when mergers andamalgamations occur with the effective date in the past
IND AS requires effect of revision to be given in currentFS may need revisit
Chapter IX
Sec. 130 & 131
10
Revision of Accounts
Voluntary revision Appears to Board that the FS do not comply with Companies Act Notice to be given to CG and IT authorities Restricted to past three financial years Only with prior approval of Tribunal
Detailed reasons to be disclosed in the Board report No revision permitted for the same FS more than once Subject to such further rules as may be prescribed
These provisions would enable SEBI requirement for revision inrespect of qualified audit reports
Concerns:
Post IND-AS, how the revision should be effected (as IND-AS requireseffect of revision to be disclosed in present financials) to be addressed
Chapter IX
Sec. 130 & 131
11
National Financial Reporting Authority(NFRA)
NFRA will
make recommendations to the Central
Government on the formulation and laying
down of accounting and auditing policies andstandards for adoption by companies of class
of companies or their auditors, as the case maybe ;
monitor and enforce the compliance with
accounting standards and auditing standards insuch manner as may be prescribed;
Chapter IX
Sec. 132
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National Financial Reporting Authority(NFRA)
NFRA will
oversee the quality of service of the
professions associated with ensuring
compliance with such standards, and suggest
measures required for improvement in quality
of service and such other related matters asmay be prescribed; and
perform such other functions relating to clauses(a), (b) and (c) as may be prescribed.
Chapter IX
Sec. 132
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National Financial Reporting Authority(NFRA)
NFRA will
Essentially, standard setting for accounting, auditing and
monitoring the adherence to the same by companies andaudit firms will be centralised into NFRA
Also, NFRA would have powers to undertake disciplinaryaction against audit partners / firms
In fact, if there is a action already underway by NFRA against anauditor, ICAI or any other body cannot investigate the same matter
Powers to investigate CFO and company officials(professionals)
Chapter IX
Sec. 132
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Proposed structure for NFRA
15
Auditors appointment
Auditors to be appointed for 5 years at a time in the AGM
However, such appointment to be placed to AGM andratified each year
From the second set, the act says until 6 thAGM
would this then not make it for 6 years instead of 5years?
Before appointing / reappointing, company to obtain
Written consent of the auditor
Certificate that the appointment will be in accordancewith the conditions to be prescribed in the rules andalso that the auditor satisfies the eligibility criteriaprescribed
Chapter X
Sec. 139
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Auditors appointment
If no auditor is appointed / reappointed in anAGM, the existing auditor shall continue as theauditor
This, being a general clause, cannot prevailover the specific clause requiring audit rotation
All companies required to have an AuditCommittee will need to appoint an auditor afterconsidering the recommendations of such AuditCommittee
Presently, only listed companies are required todo this
Chapter X
Sec. 139
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Auditors Removal / Resignation
Removal of an existing auditor within the 5 year termrequires
Passing of a special resolution and
Also CG approval
Also, the auditor will have to be heard before the approvalis given for the change of auditor
In case of a resignation by the auditor, there is a need to
file (with company, ROC and where applicable, CAG) within 30 days a
statement giving the reasons and other facts as may berelevant in regard to the resignation
NCLT could order for change of auditors when it issatisfied that the auditors have directly or indirectly actedin a fraudulent manner or abetted or colluded in any fraud
Chapter X
Sec. 140
18
Auditors qualifications
Eligibility
In case of an individual should be a Chartered Accountant
In case of firm / LLP Majority partners practicing in India should bequalified for appointment
In such cases, only the CA partners are authroised to act and sign Disqualifications (similar to the existing Act)
A body corporate
An officer or employee of the company
A person who is a partner, or who is in the employment, of an officer oremployee of the company
A person in full time employment elsewhere
The existing Act has a general clause that if the auditor isdisqualified for a subsidiary, holding or a co-subsidiary, then heis disqualified for the Company too probably because of theextensive disqualifications provided in the bill (see next slide),this has not been specifically provided now
Chapter X
Sec. 141
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Auditors qualifications
Enhanced disqualifications If the person holds any security or interestin the Company,
subsidiary, holding, associate or co-subsidiary
If a relative (yet to be defined in rules) holds any security(Note -interest is without any limit as per the Act) in the Company,
subsidiary, holding, associate or co-subsidiary in excess ofRs.1,000or amount as may be prescribed
Indebtedness or guarantee by the person orhis relative or partnerisindebted or has guaranteed in excess of the limits prescribed to theCompany, subsidiary, holding, associate or co-subsidiary
New disqualifications Having direct or indirect business relationship (of such nature to
be prescribed) with the Company, subsidiary, holding, associate orco-subsidiary
Relative is a director or is employed as a director or KMP in thecompany
A person convicted of fraud and 10 years not having elapsed fromsuch conviction
Chapter X
Sec. 141
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Auditors qualifications
The present Act does not cover employee or director in agroup company as the general omnibus clause is notthere any longer
Chapter X
Sec. 141
Concerns:Relatives indebtedness etc., could make it really difficult to manage mayneed clarity by way of suitable rules in this regard
Business relationship is restricted to person and firm what aboutrelatives and partners?
Would Business Relationship include even permitted professionalservices? This cannot be the intent
MCA should ensure that business relationship does not obviate all armslength transactions as these are likely to create significant challenges
Whether 20 will include all the companies consolidated in a CFS or only
the SFS actually audited by the said auditor?How will joint auditors be considered for 20 will it be treated as one foreach of the joint auditors or pro-rata for the number of joint auditors in thecompany?
21
Cap on number of audits
Provides a cap of twenty companies per partner In case of common partners between firms, the total should not
exceed 20 for the partner across the firms
Limit is set at the proprietor level or at firm level
Earlier Act provided for limits only covering publiccompanies
Presumed that CFS is not counted and Joint Audits will beconsidered as one for each joint auditor
Chapter X
Sec. 141 (3) (g)
Concerns:
Cap being provided in the Act makes it infeasible to change to meet therequirements from time to time as it would require an amendment to the
Act
Ideally, this cap should be shifted to the Rules
Whether branch audits will be considered as one audit? maybe in goodorder to provide some exceptions
22
Auditors Rotation
Listed companies and prescribed class of companies cannot have thesame auditor In case of a firm, after two terms of 5 years each
In case of an individual, after one term of 5 years
Such outgoing audit firm cannot become auditor for a period of 5 years
The prohibition covers firms which have common partners too Such rotation will have to be effected by companies covered by this
requirement within 3 years of the date of commencement of this law
In addition, the companies (all and not only those covered above) candecide To have audit partner and team rotation at such intervals as may be decided
To have joint auditors
Presently, RBI and IRDA have more stringent requirements for rotation /joint audit, which would prevail over the provisions of the Bill
Concerns:
Does the rotation requirement cover firms which may not havecommon partners but are practicing as part of the same network?
Chapter X
Sec. 139 (2)
23
Auditors Prohibited servicesAuditors can provide only such services as are approved
by the AC / Board, but cannot provide the followingeither directly or indirectly to the company its holdingand subsidiaries:Accounting and Book Keeping services
Internal audit Design and implementation of any financial information
systemActuarial services Investment advisory services Investment banking services Rendering of outsourced financial services Management services
Any other kind of services as may be prescribed
Chapter X
Sec. 144
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Auditors Prohibited services In case of an audit firm, this prohibition extends to
The audit firm
All its partners
Its parent, subsidiary and associate entity and
Any other entity, whatsoever, in which the firm or any partner of thefirm has significant influence or control, or whose name or trademark or brand is used by the firm or any of its partners
One needs to note that though associate is not included in this,sec.141 (3) (e) talks of associate also for business relationship
Concerns:
There is no exemption provided for auditors of non public interestedentities as well as small entities (such as OPC, Small Company,Dormant Company etc.,)
Implication of same network firm providing non audit services to
holding / subsidiary abroad - can we say that the jurisdiction limitapplies or can we interpret as that if such services are provided abroadtoo, the local firm becomes in-capacitated in India?
There is a need for clarity to be provided on the definitions of theseterms used in the Act
Chapter X
Sec. 144
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Audit Reporting
Due to the need for report on CFS also, access to the records and information of thesubsidiaries etc., is to be made available to the auditors of the CFS (such right not providedfor associates and joint ventures)
Two specific additional assertions required in audit reports (irrespective of company size): observations or comments of the auditors on financial transactions or matters which have any adverse
effect on the functioning of the company
any qualification, reservation or adverse remark relating to the maintenance of accounts and othermatters connected therewith
whether the company has adequate internal financial controls system in place and the operatingeffectiveness of such controls
Also, there is scope to provide more such requirements by way of rules Qualifications need no longer be in Italics / Bold
Mandatory for auditor (or his qualified representative) to attend the AGM, unless specificallyexempt by the Company
Items covered by CARO may get notified under 143 as part of the rules
Chapter X
Sec. 143
Concerns:Its in fact worth relooking at why even the regular assertions provided u/s 227 (1A) are still required let alone two more added to it now
As per SA 265, auditor is expected to only gain an understanding of the internal controls relevant toaudit for designing his audit plan and is not required to comment on the adequacy of the same. This islikely to cause additional costs of compliance for the company(especially for small companies)
financial transactions or matters would it transgress into propriety?
With access to subsidiary etc., is the intent to place responsibility on holding company auditor forsubsidiaries too though India has actually not adopted SA 600?
26
Reporting of Frauds by Auditors
Act requires auditors to report on any fraud etc., to CentralGovernment
Rules need to provide for moderation else Government is goingto be flooded with only this reports
Act requires fraud against the company to be reported (does not include frauds by the company!!)
There is no notice to the directors / officers / employeeswhen such reporting is done
Chapter X
Sec. 143 (12)
Concerns:
Are there other ways in which the impact of this could be reduced so thatonerous burden is not placed on the auditors?
Rules need to provide for material frauds only and not all frauds / likelyfrauds
There is a need to make this applicable to branch auditors in respect ofthe branch audited by them
27
Auditors - Penalties
Contravention of law Relating to appointment, rotation, powers and duties, prohibited services or signing of audit
report Min Rs.25 K to Max Rs.500 K
If done wilfully with an intention to deceive imprisonment upto 1 year and penalty of Rs.100 Kto Rs.2,500 K
Also to refund the audit fee to the Company
Pay damages to those who have lost on account of such incorrect / misleading statements or
particulars in his audit report Prosecution by NFRA (on suo moto or reference based investigation)
Penalty Min Rs.100 K to 5 times the fees received, for individuals
Min Rs.1,000 K to 10 times the fees received, for firms
Debar Member / firm for a min 6 months to 10 years period
Class action suit by members / depositors against the audit firm in case ofimproper or misleading statements in the audit report or fraudulent, unlawful orwrongful act
Liability in such cases against the firm and each partner who was involved
In case of proof of fraud / abetting to fraud, then the liability will be joint andseveral for the auditor, his partners and firm
LLP may not provide any shield to the liability in view of the language used
Chapter X
Sec. 147
Concerns:Why differentiate individual and firm?
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Internal Audit
Bill provides for class of companies as prescribed to appointinternal auditor
Present Act provides for internal audit only for producer companies
and CARO requires comment in respect of companies of a certain size
(paid up capital and reserves of Rs.50 lacs or 3 year average turnoverof Rs.5 crores) as to whether they have adequate internal audit system
Such internal auditor to be a chartered accountant, cost
accountant or such other professional as may be determinedby the board
The internal auditor could be an external agency or internal resources
CG to prescribe manner and the intervals in which the internalaudit shall be conducted and reported to the Board
Chapter IX
Sec. 138
Concerns:
Internal auditor should be allowed to be firm too
29
Cost Audit
Class of companies to which it applies and items of coststo be maintained as part of books of records
Cost audit to be done by Cost Accountant and incompliance with cost audit standards
No specific requirement to get CG approval forappointment of cost auditor
Cost audit report to be submitted to Board and Board will
file with CG along with explanations and full informationon each reservation / qualification
Remuneration to Cost Auditor
Where AC is there, AC to consider all factors and recommend
Board to approve the fees
Chapter X
Sec. 148
30
Directors Resident in India - At least one director must have stayed in India for at
least 182 days in the previous calendar year
Women director at least one women director required in case ofprescribed class of companies
Small shareholders director Only listed companies will henceforthhave this requirement
Maximum directors set at 15 (12 under present Act) for all companies (includingprivate companies not covered in the present Act); any increase beyond this will requirespecial resolution (no more CG approval)
Limits - One person can be director in 20 companies (presently 15 companies)
Of which only 10 can be public companies
Bill provides forduties of directors: Act in accordance with the AOA
Act in good faith to promote the objects of the company
Exercise his duties with due and reasonable care, skill and diligence
Not get involved into situations which may lead to conflict of interests
Not achieve or attempt to achieve undue gain for himself, relatives, partners orassociates
Not to assign his office
Chapter XI
Sec. 149 to 166
31
Independent Directors Bill provides that all listed companies must have 1/3rd independent directors
No requirement for 50% independent director in case Chairman is an executive director (as is required bylisting agreement)
Minimum number of independent directors for other class of companies can be prescribed
Additional attributes for independent director compared to Clause 49 Person of integrity and possesses relevant expertise and experience;
Has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or theirpromoters, or directors, during the two immediately preceding financial years or during the current f inancial
year; Relatives have not had pecuniary relationship or transaction amounting to two per cent or more of its gross turnover or total
income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower
Relatives not being / been with audit firm, internal audit firm, consulting entity, legal firm etc.,
Not a Nominee director
Not a CEO or director, by whatever name called, of any nonprofit organisation that receives twenty-five percent or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary orassociate company or that holds two per cent or more of the tot al voting power of the company; or
Other qualifications as may be prescribed.
Annual declaration of independence
Data bank of independent directors to be maintained by an Institute / Association to be notified bythe CG
ESOP will not be permitted to Independent Directors Bill also elaborates detailed code of conduct for independent directors
Liability restricted to cases where there is knowledge, consent, connivance or lack of diligence
Chapter XI
Sec. 149 & 150
Concerns:Material pecuniary relationship has been enhanced to pecuniary relationship now
Also, any professional relationship with any part of the group will now disentitle
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Audit CommitteeChapter XII
Sec. 177
All listed and other prescribed class of companies to have an AuditCommittee Current Act - public companies with paid up capital not less than Rs.5 crores
Listing agreement All listed companies
Minimum three directors of which majority to be independent Listing agreement 2/3rd to be independent
Majority members and Chairperson to be able to read and understandfinancial statements
One year timeline to reconstitute to meet these requirements for existingcompanies
Specifies certain identified responsibilities plus Board could prescribefurther terms of reference: Review and monitor auditor independence and effectiveness of audit process
Approval to new / modification to transactions with related parties
Scrutiny of inter corporate loans and investments
Valuation of undertakings and assets of the company, if necessary Monitoring end use of funds raised through public offer
Each listed and other class of companies to set up a whistle blowermechanism including direct access to the AC chairman
33
One Person Company (OPC)
New concept introduced in this Bill
Provides for a Private Limited company with one memberwho will also be a Director
Provision for a nominee to become the member / director on death/ incapacity of the original member
Concerns:
Rules need to provide that member / director (including nominee) to bea natural person, resident and Indian Citizen only
Chapter II
Sec. 3 (1) (c)
34
Financial Year
Mandated to be standardized as April 1 to March 31 for allcompanies, in general
Exception could be made by a Tribunal if a company (holding or subsidiaryabroad) is required to maintain accounts for a different financial year Associate / JV Companies do not have such a facility
Existing companies to align to this year end within two years
In the first year of incorporation
If incorporated before 1st Jan, then period ending 31st March of the samefinancial year
Else, period ending 31st March of the next financial year
Concerns:
Difficulty for each company to have to approach the NCLT
Instead, Act could provide for exceptions being provided for a class ofcompanies as may be prescribed
Could lead to companies still having to consolidate Associates (whichmay have a different year end date)
Chapter I
Sec. 2 (41)
35
Associate
associate company, in relation to another company, means acompany in which that other company has a significantinfluence, but which is not a subsidiary company of thecompany having such influence and includes a joint venture
company. Explanation.For the purposes of this clause, significant influence
means control of at least twenty per cent. of total share capital, or ofbusiness decisions under an agreement;
AS 23 did not specifically deal with 20% of business decisions
Chapter I
Sec. 2 (6)
Concerns:Intent may have been to mean all critical business decisions instead of trying toquantify at 20%
AS 23 provided for not considering as an associate, even if 20% holding is there,where facts prove the relationship to be otherwise no such scope under the Bill
AS 23 also provided for significant influence to be based on other parameters suchas board control / material transactions etc., which is not provided in the Bill
There is a need for clarity on which should form the basis for preparation of CFS
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Control
control shall include the right to appoint majority of thedirectors or to control the management or policy decisions
exercisable by a person or persons acting individually or
in concert, directly or indirectly, including by virtue of their
shareholding or management rights or shareholdersagreements or voting agreements or in any other manner;
Control is used in relation to:
Subsidiary whether the definition is to be as wide needs to beseen
In definition of manager / promoter
Clause 144 dealing with auditor not to render certain services
Clause 216 investigation of ownership
Clause 241 Relief from oppression
Chapter I
Sec. 2 (27)
37
Subsidiary
subsidiary company or subsidiary, in relation to any othercompany (that is to say the holding company), means acompany in which the holding company controls the composition of the Board of Directors; or
exercises or controls more than one-half of the total share capitaleither at its own or together with one or more of its subsidiarycompanies
Different from present Act and also from AS 21 One half of voting rights and use of the wordsto obtain economic
benefits from its activities
Concerns:
Voting right replaced with total share capital may lead to non votingcapital being counted for this; there is a need for clarity
Control has been defined in this Bill; presumably, the word control in thedefinition of subsidiary is limited and not as wide as per the separatedefinition control definition could extend to cover control through othermechanisms such as management rights, voting agreements etc.,
Chapter I
Sec. 2 (87)
38
Related PartyAspect Under Companies Bill Under AS 18
Officers Director or his relative
KMP or his relative KMP and his relatives
Firm Director, Manager or his relative is a partner Enterprises over which individuals with significant
influence in this company and / or KMPs havesignificant influencePrivate company Director or Manager is a member or d irector
Public company Director or Manager is a director or holdsalong with relatives more than 25% of paidup capital
Body Corporate Accustomed to act as per advice, directorsor instructions of Director or Manager
Any person On whose advice, directions or instructions,Manager / Director is accustomed to act
Having an interest in voting power with significantinfluence over the enterprise
And, their relatives
Group Holding, Subsidiary, Associate, Co-subsidiary
Holding, Subsidiary, Co-Subsidiary;
Associates and Joint Ventures
Others As may be prescribed
Concerns:There is need for clarity from MCA that Bill definition is for control andregulation whilst AS 18 definition is for disclosure in FS etc.,
JV is not covered
Chapter I
Sec. 2 (76)
39
Related Party Transactions
Concerns:Presume the intent is special resolution for transactions exceeding a certain amount prescribedApparenterror in drafting the section to be corrected
Even arms length transactions may have to be disclosed in the Board report
connected person is not defined anywhere
The disclosure requirements may make the report bulky as every contract / arrangement is to be disclosed
Chapter XII
Sec. 188 & 192
No CG approval henceforth. Special Resolution required for related party transactions, where Company has paid up capital, which is not less than amount prescribed OR
Transactions NOT exceeding such sums as may be prescribed
Members who are related parties cannot vote in such resolutions
CG may prescribe additional conditions for related party transactions Restrictions have been extended to all related parties in the new bill Also, transactions covered by such restrictions have been enhanced to cover:
Selling or otherwise disposing of, or buying, property of any kind;
Leasing of property of any kind;
Appointment of any agent for purchase or sale of goods, materials, services or property;
Such related party's appointment to any office or place of profit in the company, its subsidiary companyor associate company; and
Underwriting the subscription of derivatives on securities of the company
Restrictions not applicable for arms length transaction in the ordinary course of business Every contract / arrangement to be disclosed in the Board Report along with justifications
There is a need for prior approval of general meeting for non cash transactions with directoror his connected person by the company, holding, subsidiary or associate
In case the director is also a director in the holding company, approval of such holding company is alsorequired
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Relative
relative, with reference to any person, means any onewho is related to another, if
they are members of a Hindu Undivided Family;
they are husband and wife; or
one person is related to the other in such manner as may beprescribed
Prescribed relationship is to come by way of rules
Concerns:
Relative definition to encompass a wide range of relationship needs acomprehensive relook in the current day context
With the enhanced restrictions (esp. for auditors and directors) related torelatives, it is a dire need to have this definition made to meet the currentdays social and economic context
Economic dependence or independence could be a more fairer criteria
Chapter I
Sec. 2 (77)
41
Dividend
Dividend can be declared out of Profits for the year after providing for depreciation
Accumulated profits after providing for depreciation
Out of both
Out of monies provided by CG / SG under any guarantee
Under the bill, CG is no longer empowered to permit dividenddeclaration without providing depreciation
Transfer to reserves is no longer mandatory and left to the discretionof the company
Rules are yet to be framed for declaration of dividend from out ofreserves
Interim dividend out of profits & surplus in P&L; if during currentyear, losses have been made, dividend not to be more than last three
year average Dividend cannot be declared if the company fails to comply with the
provisions relating to acceptance and repayment of deposits
Chapter VIII
Sec. 123
42
Depreciation
Three classes of companies Prescribed class of companies with specific useful life in Schedule II Can use
other rates, with justification being explained
Class of companies where useful life is as provided by regulatory authority
Other companies minimum depreciation as per the Schedule
Useful life has been reduced in many cases compared to previous Act Also, more items have been brought into schedule industry wise WDV seems to be out; SLM or Unit of production method can be adopted
After providing for residual value (generally not more than 5%)
Concept of componentisation brought in
No separate rates for ESD for the period II shift worked 50% moredepreciation and for the period II shift worked, 100% more depreciation
No specific clause requiring assets less than Rs.5,000 to be depreciatedfully
From the date the bill is enacted Depreciation will be prospectively over remaining useful life Where remaining useful life is NIL, adjust to opening retained earnings
Chapter VIII
Sec. 123 (2)
43
Depreciation
Depreciation will have to be on the revalued amounts andthe past ICAI guidance to offset from reserve may nolonger be available
Intangibles amortisation to be based on related AS The rates provided for BOT assets in the Sch XIV is not carried
forward in the schedule also
Concerns:
Intangibles left to AS; Recent amendment to provide depreciationbased on future revenue from the project may require revisit
The transitional provisions may have erratic hit in the initial period there should have been an option to revise and adjust to openingretained earnings for the past period
Chapter VIII
Sec. 123 (2)
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Securities Premium
Creation of Securities Premium account is the same
Utilisation, though is more restrictive for prescribed class of companies inthe Bill (and hence not permitted for): Issue of fully paid preference shares as bonus shares
Writing off preliminary expenses of the company
Writing off preference / debenture issue expenses
Providing for premium payable on redemption of preference / debenture
For prescribed class of companies, premium payable on redemption ofpreference shares will have to be provided out of profits Except that to the extent it relates to issue made before this bill is p assed, it can be
from profits or out of securities premium account
Concerns:
In view of no specific transition provision, it is understood that theapplication of this utilisation restriction will be only prospective
Companies could make necessary provisions for DRR from out ofsecurities premium (which may not be possible post this bill) before thebill is passed
Chapter IV
Sec. 52
45
Bonus Shares
Explicitly provided in Bill now Under previous Act, only Table A dealt with this
Also, SEBI ICDR regulations and ICAI GN prohibited capitalisation ofrevaluation reserve
Under the Bill Issue of bonus shares can be only from free reserves, securities
premium and capital redemption reserve
Revaluation reserve cannot be used
Bill also provides for certain specific conditions to be fulfilled AOA to permit bonus issue
On Board recommendation, general body to authorise
No default in payment of statutory dues to employees
No default in payment of principal and interest on deposits and debtsecurities
Partly paid shares to be fully paid up before the bonus issue Bonus shares cannot be in lieu of dividend Any additional conditions as may be prescribed
Chapter IV
Sec. 63
46
Registered Valuer
New concept introduced in this bill Qualifications and experience etc., to be prescribed
AC or Board to appoint and decide terms for such appointment Where there is a need for valuation of property, stocks, shares, debentures, securities, goodwill
or any other asset or net worth or its liabilities under the companies bill
Prescribed in the bill for
Non cash transactions with directors etc., {192 (2)} Issue of shares {62 (1) (c)}
Compromise arrangements {230 (2) (C) (v)}
Purchase of minority shareholding {236 (2)}
Liquidation {281 (1) (a) proviso, 319 (3) (b)}
Winding up {305 (2) (d)}
Chapter XVII
Sec. 247
Concerns:
Since notified AS will become part of the Bill, it may be considered thatvaluation under that also will be covered
Even when companies have inhouse capabilities, still, this requirementwould have to be met
47
Corporate Social Responsibility
Companies requiring to constite a CSR committee
Networth of Rs.500 crore or more
Turnover of Rs.1,000 crore or more
Net profit of Rs.5 crore or more in any financial year
CSR committee to have Three or more directors
At least one is to be an independent director
CSR committee will
Formulate CSR policy and recommend to board
Recommend the amount of expenditure to be incurred
Monitor CSR policy from time to time
Schedule VII to the Bill lists out the activities which can beconsidered
Company to give preference to local areas and areas aroundwhich it operates
Chapter IX
Sec. 135
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Corporate Social Responsibility
Board will Ensure that every year at least 2% of the average net profits from the
immediately preceding thee financial years is spent on CSR Profits shall be calculated as done for managerial remuneration
Approve the CSR policy
Disclose in the Board report and place it in the companys website
If the company fails to spend such monies, Board report shouldcontain reasons for the same However, no penalties prescribed for the same
Chapter IX
Sec. 135
Concerns:
Net profit criteria seems to be significantly lower compared to the networthand revenue criteria
Whether provision to be created for unspent amount is not clear
This CSR cost may have its own tax implications whether this will beseen as setting aside of profits or as a donation or as a legal obligation forthe business (and thus a business expenditure)
49
Loan to Director
No lending / guarantee / security directly or indirectly to adirector / a person in whom the director is interested
Exemptions:
Loan to MD / WTD as per conditions of service or as approved by membersin special resolution
If lending / guarantee / security is the ordinary course of business, then if atleast bank rate is charged
There is no provision to get CG approval for lending orproviding guarantee where there is a restriction
Concerns:
The language of the section may lead to even subsidiaries beingcovered. This may have to be looked into
Chapter XII
Sec. 185
50
Layers of Investment Companies
A company cannot have more than two layers ofinvestment companies
Exception is when an acquisition is made abroad and multiplelayers abroad is as per local regulations
Another exception being subsidiary having an investmentsubsidiary for the purpose of meeting the requirement of any law
for the time being in force
Concerns:
Lack of transitional provisions for existing investment companies
It is presumed that investment can be also considered through otherthan investment companies in multiple layers
Chapter XII
Sec. 186 (1)
51
Limits on Loans and Investments
All companies have a limit for investments, loans, guarantees and securityaggregating to the higher of
60% of its paid up share capital, free reserves and securities premium or
100% of its free reserves and securities premium
The restriction which earlier was only for bodies corporate now extended to anyperson or entity
This also includes wholly owned subsidiaries
Permission to exceed this limit requires prior special resolution at the generalmeeting
FS to contain disclosure on the investments made, loans, guarantees and securityprovided and the purpose for which the loan, guarantee / security is to be used bythe recipient
Rate cannot be lower than the prevailing yield on G-sec closer to the tenor
Concerns:Lack of transitional provision for existing investment, loans, guaranteesand security
It is presumed that this will apply only prospectively and not for existingarrangements
Chapter XII
Sec. 186 (2)
52
Mergers and Amalgamations
File scheme with NCLT for Merger / amalgamation of companies
Mergers between Indian and Foreign companies permitted subject to RBI approval and
Such conditions as may be prescribed
Merger application will require a certificate by auditor that the accountingprescription in the scheme is in accordance with AS
Merger cannot lead to treasury shares these will be cancelled or extinguished Simplified procedure to be introduced for merger of
Holding company and wholly owned subsidiary
Two small companies
Shareholders of t ransferor company who want to opt out, scheme to provide forcash payment based on a valuation (which shall not be less than that specified byany regulation in this regard by SEBI)
Concerns:Whether the requirement for compliance with AS will apply to pending schemes (already filed) is not clear
The provision in AS 14 to accept accounting as per any court approved schemes SEBI has clarified on this;MCA must also clarify that this will not be acceptable as being in compliance
Need for clear IGAAP for acocunting in respect of demergers and spin offs
Court schemes already approved (even if not in conformity with AS) will continue to apply?
Clarity required on treasury shares already created
Chapter XV
Sec. 233 to 234
53
Compromise / Arrangements
File scheme with NCLT for
Making compromise / arrangement with creditors and members
Application involving CDR can be filed along with
A report from auditors on liquidity test being met
A valuation report on all assets of the company by a registeredvaluer
Objection to a scheme filed with NCLT can be filed onlyby
Persons holding 10% of shareholding or
Having 5% of the outstanding debtConcerns:Guidance will be required from ICAI for the auditors report on liquidity testbeing met as this will involve evaluation of future projections
With valuation reports being required, valuation standards would need to
be finalised
Chapter XV
Sec. 230 to 232
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PresentationBy
CA Anil Sharma
The Companies Bill, 2012
Historical background Companies Act, 1913
Companies Act, 1956 ( 30,000 cos.)
25 amendments till date ( more than 8,00,000 cos.)
Corporate scams and build up for new Bill Concept paper in 2004
Setting up of JJ Irani Committee
New Companies Bill, 2008 based on recommendations of JJ IraniCommittee
New Companies Bill, 2009
Reference to Standard Committee on Finance and its report inAugust, 2010
New Companies Bill, 2011
Presentation by CA Anil Sharma
The Companies Bill, 2012
Substantial part of law shall be in the form of
rules to be prescribed in due course.
29 chapters against 13 at present
470 clauses against 658 sections at present
7 schedules against 15 at present
More than 400 Rules are likely.
Presentation by CA Anil Sharma
New Concepts
One Person Company
Small Company
Dormant Company
Presentation by CA Anil Sharma
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One Person Company(OPC)
Definition in - clause 2(62) a company which has onlyone person as a member.
Incorporation of OPC clause 3 as a private company
MOA to indicate the name of other person who shallbecome member in case of death or his incapacity tocontract
Consent of that person to be filed
Member can change the name of other person any time
Other person can withdraw his consent any time
One Person Company to be mentioned in bracket
below the name second proviso to clause 12(3).
Presentation by CA Anil Sharma
Small Company
Definition in clause 2(85)
Other than a public company
Paid up capital does not exceed Rs. 50 Lakhs
Turnover in the last year does not exceed Rs. 2 Crores
It is not a holding company or a subsidiary co.
It is not a co. registered under section 8
It is not a co. governed by any special Act.
Merger or amalgamation of two or more small
companies in Fast Track Mode under clause 233.
Presentation by CA Anil Sharma
Dormant Company
No definition in Clause 2.
Clause 455 defines it as: A company formed and registered for a future project or to hold an
asset or intellectual property
And has no significant accounting transaction
Or an inactive company (defined in the explanation to clause 455(1))
Can apply to Registrar to obtain the status of a dormant company
Companies defaulting in filing financial statements or annual returnsfor two financial years can also be made a dormant company byRegistrar
Such company to file such documents and pay such annual fee asmay be prescribed to remain as dormant.
Can become an active company on application and payment of fee
Presentation by CA Anil Sharma
Changes in the definition of Pvt. Co.
Definition in clause 2(68)
Existing section 3 (1)(iii)(b) limit on numberof its members to 50 , now raised to 200.
Existing section 3(1)(iii)(d)- prohibits anyinvitation or acceptance of deposit frompersons other than its members, directors andtheir relatives, now removed altogether.
Presentation by CA Anil Sharma
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Prohibition of association of partnership of
persons exceeding certain number
Present section 11
10 for banking,
20 for others
Clause 464 100 for any business
Presentation by CA Anil Sharma
New Initiatives
Corporate Social Responsibility (CSR)
Class Action suit
Rehabilitation and Insolvency Fund
Use of electronics in management
Consolidated financial statement (CFS)
Women director
Fast Track Mode for merger or amalgamation
Entrenchment provision
Disgorgement of gain
Presentation by CA Anil Sharma
CSR
Clause 135 read with Schedule VII applicable to a co with capital of Rs. 500 Crores or more
or
Turnover of Rs. 1000 Crores or more or
Net profit of Rs. 5 Crores or more during any financial year
To spend in every financial year at least 2% of theaverage net profits of the co during the threeimmediately preceding financial years
Local area to be given preference, activities asmentioned in Schedule VII
To constitute a CSR Committee to formulate and
monitor implementation
Presentation by CA Anil Sharma
Class Action Suit
Clause 37- Suit which can be filed by any
person, group of persons or any association of
persons affected- against misstatement in
prospectus (clause 34) and inducement to
invest money (clause 36)
Clause 247- Application by prescribed number
of members or depositors may file class action
for seeking action against mismanagement
Presentation by CA Anil Sharma
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Rehabilitation and Revival Fund
Clause-269 fund to be established for rehabilitation,revival and liquidation of the sick companies.
Contribution by the companies volantarily.
Company which contributed is entitled to withdrawfunds, in the event of proceedings for winding up, forpayment to workmen, protecting the assets and tomeet incidental costs during proceedings.
Withdrawal restricted up to the amount contributed.
Fund to be managed by the Central government.
Presentation by CA Anil Sharma
Use of electronics in management
Voting through electronics means by members Clause 108
Central Govt. to prescribe rules for the class of
companies and manner to exercise such voting. Board meetings through video conferencing or other
audio visual means ---Clause 173 (2).
Provided proceedings are capable of recording withdate and timing and recognition of participants.
Central govt. to prescribe the item which can not bedealt with in a meeting with video teleconferencing.
Presentation by CA Anil Sharma
Woman director
Clause 149
Class of classes of companies, as prescribed must
have at least one woman director
Existing companies on the date of
commencement of the Act and if so prescribed to
comply with the requirement within one year.
Presentation by CA Anil Sharma
Fast Track Mode for
Merger/Amalgamation Clause 233
Two or more small companies
Holding and its WOS companies
Such other class as may be prescribed
Process Proposed scheme to be issued to Registrar and OL for their
objections/suggestions
Members of all the companies in their respective general meetings to approvewith at least 90%
Each company to file declaration of solvency with Registrar
Scheme to be approved by 90% in value of the creditors
Approved scheme to be filed with the Central Govt., Registrar and OL
If Registrar and OL has no objections, the Central Govt. may confirm themerger/amalgamation
Transferor co(s) shall be deemed to have dissolved without process of windingup.
Presentation by CA Anil Sharma
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CFS
Clause- 129 deals with Financial Statement.
Clause 2(40)- New Definition of financialStatement.
Sub-clause (3) of Clause 129 provides forpreparation of CFS by a company having one ormore subsidiaries and lying the same in AGM
Rules to be provided for consolidation
Subsidiary for the purpose of this clauseincludes associates and joint venture.
CFS in addition to stand alone financial statement
Presentation by CA Anil Sharma
Entrenchment Provision
Entrenchment to the effect that specified provisions ofthe AOA may be altered only if conditions orprocedures more restrictive than those applicable for
special resolution are met or complied with. Clause 5- the articles may contain provisions for
entrenchment provided these are made:
either on the formation of the company or
subsequently with the unanimous consent of all themembers in the case of private company and by specialresolution in the case of public company and
such provisions are to be notified to the Registrar.
Presentation by CA Anil Sharma
Disgorgement of gains
Clause 38- provides for punishment for person
for acquisition of securities in fictitious name(s),
or through multiple applications in different
combination of names under clause 447.
Once convicted under that, the court may order
disgorgement of gains, if any made and seizure
and disposal of securities in possession.
The amount received to be credited to Investor
Education and Protection Fund under Clause 124.
Presentation by CA Anil Sharma
New Restrictions
On deposits
On dividend
On transactions with directors On related party transactions
On revision of accounts
Presentation by CA Anil Sharma
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Deposits
Separate Chapter with four clauses as against one sectionpresently.
Clause 73- deposit from its members by a company - with theapproval of general meeting and according to rules to beframed
Clause 76- deposit from persons other than its members by apublic company having prescribed net worth, or turnover andrating from recognised rating agency.
In both the cases secured and unsecured deposits arecovered.
Clause 74 - provision of very heavy fine and imprisonment incase of default in repayment of deposits.
Clause 75- if fraudulent intentions a re established, everyofficer responsible to be personally responsible for deposits,losses and damages.
Presentation by CA Anil Sharma
Dividend
Clause 123 - No dividend from reserves other
than the free reserves.
Restriction on declaration of interim dividendproviso to sub-clause (3) of clause 123 in case
company has incurred loss during the current
financial year up to the end of the quarter
immediately preceding the date of declaration
of interim dividend.
Presentation by CA Anil Sharma
Transactions with directors
Definition of Interested director- clause 2(49).
Clause 192- Restrictions on non- cashtransactions (buying and selling both)involving directors- prior approval by passingresolution in general meeting.
Clause 193- Restriction on contract by OPCwith Sole member- contract to be in writing,terms defined in memorandum ,recording in
minutes and intimation to Registrar.
Presentation by CA Anil Sharma
Related party transactions
Definition of related party- clause 2(76)
Clause 188- lists Related party transactionsincluding leasing of property of any kind.
Consent of the Board to be given by a resolution In case of company with prescribed share capital,
prior approval of the company in general meetingis required
Does not apply to transactions entered into bythe company in ordinary course of business otherthan those which are not on arms length basis.
Presentation by CA Anil Sharma
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Revision of accounts
Distinction between reopen and recast and revision
Clause 130- reopen and recast- can not be done with approval of Tribunal and no objections
from the Central Government, Income Tax Authorities, SEBI orany other regulator/authority
Allowed only if it is established that earlier accounts wereprepared fraudulently or the affairs were mismanaged duringthe period casting doubt on the reliability of financialstatement.
Clause 131- revision For the three preceding financial years
With the approval of the Tribunal
If the Board feels that financial statements are not prepared
according to Clause 129 ( accounting standards, format)
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Amended provisions
Directors remuneration
Depreciation
Sick company Fraud
Penalties and prosecutions
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Directors Remuneration
No change in over all limit
In case of absence or inadequacy of profitsremuneration is payable subject to the provisions ofSchedule V
In Schedule V limits revised upward from those inSchedule XIII at present.
Clause 197- remuneration payable to directors who areneither MD or WTD not to exceed 1% ( if there is MD or WTD)
3% (if there is no MD or WTD)
Independent director not to entitled to stock option.
Presentation by CA Anil Sharma
Useful life and depreciation
Clause 123- to provide depreciation as perSchedule II before declaration or payment ofdividend.
Present Schedule XIV- rate of depreciationand different rates based on shifts andmethod of depreciation
New Schedule II- to calculate depreciationrate based on useful lives assigned to differentfixed assets and shifts.
Presentation by CA Anil Sharma
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Sick Company
Clause 253- Only criteria of sickness is non
payment to secured creditors representing
50% or more of its outstanding debts, with in
30 days from notice to pay.
Presentation by CA Anil Sharma
Fraud
Explanation to Clause 447 defines fraud.
Any act or omission, concealment of the fact or abuseof position committed by any person himself or byother person in connivance in any manner, with intentto deceive, to gain undue advantage from or to injurethe interest of the company or its shareholders or itscreditors or any other person, whether or not there isany wrongful gain or wrongful loss.
Clause 447- punishment for fraud Imprisonment not less than 6 months to 10 years and
Fine which shall not be less than the amount of fraud or 3times of such amount.
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Penalties and prosecutions
Harsher penalties for defaults.
Provision for imprisonment in 26 clauses.
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New Opportunities
Internal audit
At NFRA , NCLT and NCLAT
Interim administrator in revival of sickcompanies
Company Liquidator
Registered valuers
Presentation by CA Anil Sharma
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Internal Audit
Clause- 138 Prescribed class of companies toappoint an internal auditor
Qualification of internal auditor- shall be eitherCA, CMA or such other professional as may bedecided by the board
Internal audit of functions and activities of thecompany.
Rules to be framed by Central Govt. fordetermining the intervals for conducting internalaudit.
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NFRA ,NCLT and NCLAT
Clause 132 members of NFRA
Clause 409- technical members of NCLT
Appearance before NCLT
For approvals
For amalgamation
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Internal Administrator for revival
Clause -259
To be selected from databank maintained by
the Central Government
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Company Liquidator
Clause 2(23) definition of Company
Liquidator
To be appointed by Tribunal in case of
winding up by Tribunal and by the company or
creditors in case of voluntary winding up.
A panel to be maintained by the Central
government for the purpose.
Presentation by CA Anil Sharma
Registered Valuer
Clause 247 valuation of assets, properties ,
stocks, goodwill or other assets to estimating
net worth of the company to be done by a
qualified professional named as Registered
Valuer.