Emerging trends in Company law by Vinod Kothari
1
Company Law: Recent trends in India and Abroad
Vinod Kothari1012 Krishna
224 AJC Bose RoadCalcutta 700 017. India
Phone 91-33-23233863/23233864/22811276/22817715/22813742Fax: 91-33-23233863
E-mail:[email protected]; [email protected]
Recent Global trends in Company law by Vinod Kothari 2
Relevance of corporate law on enterprise
Company law is directly related to enterprise: it can either promote it or hold it
Most enterprise is corporatised: corporate regulation has a huge impact on the economy
Recent Global trends in Company law by Vinod Kothari 3
Sources of modern corporate law
Company law in the commonwealth (UK, Australia, Hong Kong, Singapore, India, Malaysia) has common sources and influences
Common features also in European Union, US laws
UK Companies Act 1948 is the great mother of most corporate laws world over: but has undergone several changes over time:
1947 Cohen Committee report consolidated existing law in 1948 Act Jenkins Committee report introduced changes in 1967 Several changes upto 1985 based on EEC Directives New law in 1985 (747 sections and 25 schedules) The new law changed substantially by Insolvency Act 1985 (later replaced
by Insolvency Act 1986) (provisions on insolvency separated), Financial Services Act 1986 (provisions on securities regulation separated) and Companies Act 1989
New Bill prepared in 2002 much smaller: 225 sections and 4 schedule
Recent Global trends in Company law by Vinod Kothari 4
Australia: based on UK law, but major changes
in 1998
UK Companies Act, 1948is the great mother of most corporate laws
Canada: more than 25 years ago, split its base from UK laws
and is
New Zealand: in 1990 started drifting towards
US laws
United States: each state has its own law; Model Business Corporations
Act 1984
South Africa: mixed influence of UK and Roman Dutch laws
Singapore and Hong Kong: primarily based
on UK laws; Hong Kong reviewed its law in 1999
Indian subcontinent Inspired by UK law
Recent Global trends in Company law by Vinod Kothari 5
Corporate law reforms
Commercial law as a whole has been subjected to globalisation: Most commercial problems are no more domestic problems
Today’s corporate laws cannot take a domestic approach: Global trade has created the multi-jurisdictional enterprise Leading to greater international interdependence
Global convergence of corporate laws: Securities laws have been more intensively internationalised Company law is still largely a domestic issue
UK reforms: The Department of Trade and Industry, UK started a company law review process in March 1998:
Scathing criticism by leading commentators as LCB Gower, LS Sealy, Law Society
EU reforms: High level Group of Company Law Experts set up in Sept 2001 and public comments were received.
These have now been synthesized and presented in Nov 2003
Recent Global trends in Company law by Vinod Kothari 6
The outer periphery of company law
A key question before modern company law is what all should the law deal with? Incorporation and regulation of companies Issuance of securities by companies: shifted to legislation dealing
with securities regulation: Perhaps a legacy of the US, where corporations law are a state subject
and securities law a Federal subject Winding up and insolvency of companies: shifted to legislation
dealing with insolvency laws Registration and enforcement of security interests on corporate
assets: shifted to laws relating to enforcement of security interests on personal property
Types of companies to regulate: Quoted companies Public companies Private companies
Recent Global trends in Company law by Vinod Kothari 7
Major company law reform exercises
UK Companies Act: White paper issued in March 2005 Company Law Reform Bill presented to House of Lords on 1st
November, 2005 [Draft Bill preppared] Company Law Reform - Small Business Summary introduced into
parliament on 1st November, 2005 : summary sets out main elements of Bill affecting small business
Company Law Reform Bill introduced to House of Commons on 24th May, 2006
Company Law Reform Bill : Regulatory Impact Assessment – June, 2006 [An analysis done on cost of compliance v benefits associated from compliance]
Company Law Reform Bill – Draft model articles for public companies – 6th July, 2006
Notice of Amendments in Bill – 6th July, 2006EEC has finalised consultation process and may soon issue DirectivesUS Company law: piecemeal approach, more of a firefightingIndian company law: which way is the reform heading?
Recent Global trends in Company law by Vinod Kothari 8
Special needs of small companies
Current foundations of company law are inclined towards larger companies
Today’s reality: lots of small businesses which are individual enterprises are corporatised:
The starting point of company law reform should be small companies
Public versus private companies: Original UK legislation treated public companies as the residual form, and private
companies only if they satisfied certain criteria In 1980, this structure was changed – private company now became the residual form Under the amended law, in either case, it is by mere declaration
Single member corporations are already permitted by UK law: The concept was borrowed from US laws New amendments permit even public companies to be formed by single person
Formation of companies: There will be no charter: companies to be formed based on a simple signed declaration at
the time of formation: Constitutional documents required only if the company opts the same; different from model
constitution appended to the law
Recent Global trends in Company law by Vinod Kothari 9
Objects clause and ultra vires dumped
UK govt has accepted the suggestion to dump objects clause: Where required, objects clause may be there, but it will only
have an internal effect Doctrine of indoor management also dropped:
Provision inserted in law to say that the Board has full authority for all the powers of the company
Has full authority to delegate This applies inspite of restrictions in the constitution
Ultra vires doctine had been dropped long time ago under the European Communities Act 1972Memorandum and articles to be merged into one Alteration of the constitution permitted with special resolution Companies may insert “entrenching provision” making alteration
more difficult
Recent Global trends in Company law by Vinod Kothari 10
Capital maintenance
Traditional foundations of law treat capital as the basis for limited liability: The Fourth EEC Directive required UK law to dump that concept and introduced
concept of redeemable equity shares/ shares buyback (1981 amendment)
The concept of authorised capital to be done away withThe amendment continues with par value concept
Also bars issuance of shares at a discount; capital payment for subscribing to shares:
Such payment can be made out of distributable profits
Public companies required to obtain a trading certificate: Trading certificate to be given if the intended initial capital obtained
Reduction of capital permitted with mere solvency statement, and not court approval:
No restrictions on private companies Public companies – public notification required; creditors have a right to move to
Court
Funding by private companies for their own shares to be permitted
Recent Global trends in Company law by Vinod Kothari 11
Decision-making by shareholders
UK Companies Act in 1989 allowed private companies opt out of annual general meetingsAlso allowed companies to ascertain the sense of the members without a meeting:
Common law rule of unanimous consent has always existed
Amendment Bill proposes to dispense with annual general meetings altogether for private companies:
Approval of accounts, appointment of auditors/directors dispensed with
In case of public companies too, with unanimous consent, the company may opt out of AGMsTwo sets of provisions:
For private companies, the “mandatory requirements” (holding AGM and laying accounts) applicable only if opted in
For public companies, mandatory requirements not applicable if opted out; Unanimous consent of all members at a meeting required Current draft law allows any member or auditor to requisition the meeting
Recent Global trends in Company law by Vinod Kothari 12
More reforms on meetings
Written resolutions: Special set of provisions for ordinary and special resolutions
in writing: 75% of the total voting strength or more than 50% of total voting
strength Requires “formal agreement” – not voting is not treated as
consent
Proxies may be deposited in advanceDemand for poll may be made before the meetingProxies may speak at the meeting, and vote on a show of hands: Proxy has all the powers of the member in person Also has the power to demand a poll
Recent Global trends in Company law by Vinod Kothari 13
Rights of beneficial shareholders
Companies would be permitted to recognise rights of beneficial interest holders
Recent Global trends in Company law by Vinod Kothari 14
Duties of directors
Instead of relying on complex and inaccessible caselaw, the law will lay down significant duties of directors Schedule 2 lays down the general duties of
directors: Broad principles of trust law and significant case law
developed over time incorporated
Directors duties to creditors: Duty to make contribution in certain cases
Codification of civil remedies against directors
Recent Global trends in Company law by Vinod Kothari 15
Corporate directors
Most of states in the US permit individual directors
UK Companies Act permits corporate directors
Australia, New Zealand, Singapore and Canada recently prohibited corporate directors
France permits Company law reform in UK seeks to prohibit
corporate directors
Recent Global trends in Company law by Vinod Kothari 16
Distribution of annual reports
Law seeks to avoid sending of annual reports to debentureholders: This may be required under the terms of the
debentures
A new form of sending statements: website publication Law avoids sending of statements, if shareholders
given web access: The option is to be exercised by the shareholder The shareholder is to be notified of the statement having
been put on website
Recent Global trends in Company law by Vinod Kothari 17
Operating and financial review
A new reporting requirement for “operating and financial review” to be applicable: “major company” based on certain financial
parameters: turnover, balance sheet total and employees
OFR is mandatory for all public companies OFR also required for private companies if the
same are major companies: The monetary parameters are 10 times in case of private
companies
Apart from historical information, this also includes projections
Recent Global trends in Company law by Vinod Kothari 18
Corporate governance: the role of the independent director
Derek Higgs committee recommendations in Jan 2003: role of non-executive directors No of board meetings and the attendance of
individual directors should be reported in annual report
Chairman and chief executive should not be the same person
Non-executive directors must meet separately at least once in a year
Non-executive directors should serve 2 3-year terms
Recent Global trends in Company law by Vinod Kothari 19
Company secretaries
Realising that companies secretaries are not essential to corporate governance, the Bill allows private companies to opt out of keeping them.
Recent Global trends in Company law by Vinod Kothari 20
Offences
Offences classified in 6 types: Type A: summary conviction, fine upto level 3 on standard scale Type B: summary conviction; fine upto level 5 Type C: on either indictment or summary conviction, fine upto
statutory maximum Type D:
Indictment: imprisonment upto 2 years or fine or both Summary conviction: imprisonment upto 6 months or fine or both
Type E: Indictment: imprisonment upto 7 years or fine or both Summary conviction: imprisonment upto 6 months or both
Type F: Indictment: imprisonment upto 10 years or fine or both Summary conviction: imprisonment upto 6 months or fine or both
Recent Global trends in Company law by Vinod Kothari 21
US corporations law : a different breed altogether
The corporation in the US is much different from the “joint stock company”: The latter was a business association clothing
itself with a corporate character
US corporations emanated from chartered corporations, allowing people to form corporations under a general corporation law: Single member corporations are common No need for a “contract” among members Object of association, or Ultra vires have been
been there
Recent Global trends in Company law by Vinod Kothari 22
The German model
Germany has separate regulatory structure for public and private companies: AG is a German public company
Minimum capital of 100000 DM GmbH is a German private company
Single shareholder is possible Minimum capital of 50000 DMs Share certificates not required
Incorporation of GmbH is very simple – single constitutional documentUltra vires rule is not applicableAG has two tier board structure: supervisory board and managerial board: The former is supposed to take care of shareholder and employee
interests For AG’s with more than 2000 employees, there will be equal
participation
Recent Global trends in Company law by Vinod Kothari 23
The French modelTwo types of companies: Public companies Societe Anonyme (SA):
Minimum 7 members; capital of 250000 FFs Public companies are required for investment and real estate businesses
Private companies: separate law exists; called Societe a Responsabilite Limitee, or abbreviated as SARL:
Maximum membership of 50 and minimum capital 50000 FFs Share certificates are not required: participation or book entry ownership is
possible Single member companies, called EURL (Enterprise Unipersonnelle a
Responsabilite Limite)
Public companies are very common: approx 200000 SA’s exist
Board structures are mostly unitary with minimum 3 and maximum 12 directors
Recent Global trends in Company law by Vinod Kothari 24
Recommendations of the EU Group of Experts
Types of companies: public and private company distinction is not relevant. Three main types exist today: Listed companies Open companies: whose shares can be traded Closed companies
Corporate governance: Pre-meeting materials (notices, etc) to be put on companies’ websites Electronic voting or voting in absentia Obligation on the part of institutional shareholders to disclose their
beneficial shareholdings and voting directions Rights of minority shareholders to apply for investigation Nomination, remuneration and audit committees Remuneration to be disclosed; shares and
Recent Global trends in Company law by Vinod Kothari 25
EU group recommendations: legal capital
The relevance of legal capital as a protection to creditors and lenders put to questionShares without par values: Shares expressed as fractions of total capital
Capital reduction: instead of all capital reductions to require protection, shareholders to be given right to apply for protectionBuyback of shares by companies upto a distributable profits to be allowed: Financial assistance for purchase of self-shares
should also be allowed upto distributable profits
Recent Global trends in Company law by Vinod Kothari 26
EU recommendations: Creditors’ protection
Before distribution of dividends, directors should make a solvency statement:Balance sheet solvencyLiquidity solvency
Alternative regime of subordination of insiders’ claim has been recommended
Recent Global trends in Company law by Vinod Kothari 27
EU recommendations: restructuring and mobility
Members to be given right to approach Court to seek protection in case of restructuring
Recent Global trends in Company law by Vinod Kothari 28
Company law reform in India: Naresh Chandra recommendations
Private companies should have minimal regulationsSees a new class of companies called “small private companies” to which added exemptions to be allowed from the Act including a simplified exit scheme Either
Paid up capital and free reserves upto Rs 50 lacs (this covers 93% of private companies) AND
Turnover or other receipts upto Rs 5 crores OR SSI
SPCs must have a single main object
Recent Global trends in Company law by Vinod Kothari
29
JJ Irani Committee recommendations
Recent Global trends in Company law by Vinod Kothari
30
Access to Capital
Recent Global trends in Company law by Vinod Kothari 31
Broad assessmentSome bold thinking, international awareness, in tune with global efforts at company law rewritingHowever: Full of glib talk and statements of pious intentions:
Examples: “raising money fraudulently should be subject to strict penalty regime” “Companies should be allowed to raise capital so long as they provide true and
correct information to investors and regulators” “The legal process associated with prosecution should be revisited so as to make
such process more effective” Baby may be thrown with bathwater
Makes several recommendations which are already a part of the law: Disclosure requirements for deposits by advertisement:
All that has been recommended already exists Provision similar to sec. 68 for fraudulent inducement to invest should be
inserted for deposits: Actually, the definition of “prospectus” includes the invitation to deposits; hence,
those provisions apply already Makes several recommendations which have been made over years, with
no headway at all: Insurance of depositors:
Has been made over years since Sachar Committee
Recent Global trends in Company law by Vinod Kothari 32
Streamlining Capital Issues Regulation
Need for separate Financial Services regulation ruled: By itself, this is a very large, macro issue In UK, integration of financial sector supervision into the FSA
is a model India still goes by separation of regulatory regime:
These authorities have proliferated over time
Harmonisation of activities of regulators: Core provisions on maintenance and management of
capital, rights flowing from various types of capital may be left to the Companies Act:
Details may be left for the securities regulator Avoid intrusive regulation so as not to revert to the Capital
Issues Control regime More coordination between SEBI and the Department
Recent Global trends in Company law by Vinod Kothari 33
A complex web of regulation over financial services sector
Financialsector
Insuranceservices
Banking &non-banking
financial services
Capital Market Services
Pensionsand OASIS
Housing finance
IRDA SEBI PFRDA? NHBRBI
Recent Global trends in Company law by Vinod Kothari 34
Making capital issues faster, simplerCapital issues approval may be made faster with concept of “deemed approval”:
Also in case of filing and registration of docs with the RegistrarDissemination of information: electronic media should be recognisedShelf prospectus:
Currently has limited applicability: Only specified financial institutions (sec. 60A) can use it
May be extended to other classes of companiesWell-known Seasoned Issuers concept may be evolved:
These companies file only a main document once a year, and then only make incremental changes
US SEC practice recognises concept of WKSIs: Current in its filings and $ 700 mn of common equity or $1 bn of debt over last 3 years Several facilities were granted in 2005 reforms
Except in case of debt issues (which are mostly unlisted), there is not much relevance of this concept in India; however, forward-looking
Time taken in rights issues to be reducedDeemed public offers: recommends exemption to:
Exemption to rights offers by unlisted companies: Concept of sec. 67 has been misinterpreted
Issues of shares to employees by private companies: Private company meaning sec 3 (1) (iii) companies – question of more than 50 does not
arise Issuance of shares to QIBs
Recent Global trends in Company law by Vinod Kothari 35
New forms of securities
Tracking stocks: Stocks that derive dividends only from profits of a particular division:
If this concept is to work, it can only work under the frame of “Cellular Companies” or “protected cell companies”
Permitted in several countries : USA, Japan, Germany However, note:
No tracking stocks issued since 2002; between 1984 to 2001, 38 issues came of which only 5 are trading now
Treasury stocks: Companies buy back their shares but hold them as a part of their treasury Committee realises lots of preparatory steps are required to bring these
changes into effect Many countries permit them: USA, Japan, Hong Kong, most EU countries,
proposed in UK also Companies allowed to buyback shares:
No dividends No voting rights Shares may be cancelled or reissued
Target shares buyback: Buyback of shares on a preferential basis from a shareholder block:
Negatively recommended by the Committee Permitted in many countries
Recent Global trends in Company law by Vinod Kothari 36
Preference shares
Perpetual preference shares: Recommended Floating rate preference with a benchmark rate Call and put provisions may provide optionality to
issuer/shareholder
Arrears of Dividends on preference shares: Committee recommends, may be capitalised even if the
company did not make profits: Erroneous concept, as dividends on preference shares are
never guaranteed; the only concept of dividend is distribution of profit
Ambiguity on arrears of preference shares Some rulings have held that preference dividend can be
converted into equity on redemption: Mr A R Ramnathan’s rulings in Caledonian Jute, British India
Corporation, etc
Recent Global trends in Company law by Vinod Kothari 37
Capital reduction
May be made easier by transfer of powers to NCLT:Already enacted.
Recent Global trends in Company law by Vinod Kothari 38
Disclosure norms for capital issues
Glib talk - there is a need for proper disclosure at every stage No detailing as to what is currently not disclosed
that requires to be disclosed
Shareholders should be informed about all material facts: Such as?
Disclosure about shareholding controls, direct or indirect: If “indirect” is discrete, it can never be disclosed. If not discrete, it is hardly ‘indirect” Clause 49 requires control disclosures already
Recent Global trends in Company law by Vinod Kothari 39
Deposit takingNon-banking non-financial companies should be banned from accepting public deposits:
This suggestion was considered and rejected by the Committee The committee, instead, recommends stricter norms for public deposits
Facts: Public deposits by NBNCs is a rare practice: India is possibly the only example It was allowed as an adhoc measure way back in 1960s Public deposits are very costly - financial viability of a company may be severely affected by
public deposits Public does not need it – savings are getting increasingly institutionalised. Public deposit has been grossly abused instrument over time – people have miserably lost
money There is greater case than ever before in the past to ban public deposits completely
Stricter norms recommended: Disclosure requirements: already there Credit rating – if a company has a good rating, there is no reason for it to access public deposit Cash Reserve requirements out of profits – liquidity requirement already there; cash reserve
further increases the cost of public deposits Dispute resolution mechanism – the problem with public deposits is not dispute; it is default Need for bolstering confidence – it is not confidence but greed that drives people to put in
money in deposits Provisions similar to sec 68 for fraudulently accepting public deposits – in fact, prosecution
provisions for public deposits are much stricter than those for any other form of capital Suspension of further deposit taking in case of default – already exists Insurance of depositors – the matter has been discussed ever since 1975 with no resolution
Recent Global trends in Company law by Vinod Kothari 40
Registration of chargesMakes only a tinkering suggestion: Documents requiring signature of both the lender and
the borrower create difficulties
In fact, more fundamental thinking is required here: Globally, there is a move for a completely independent
system of registration of security interests: UK Law Commission has also recommended the same
There is no reason why charges should be registered only in case of companies:
Increasing use of non-corporate or JV form of businesses Registration of charges should be done by the lender,
in the lender’s own interest
Recent Global trends in Company law by Vinod Kothari 41
Issue of shares other than for cash
Valuation of consideration by independent valuer: Difficult to understand the intent of this thought
X Ltd buys property from Y, and issues shares This is issue of shares for non-cash consideration The committee is worried about this
X Ltd buys property from Y, pays for the same in cash. Y subscribes to shares of X Ltd., pays for in cash
This is NOT an issue of shares for non-cash consideration The Committee has no worries here – why?
The fear on which this recommendation is founded is only results out of conflict of interest in related party transactions
No reason to single out issue of shares for non-cash consideration
Similar recommendation in case of transfer of assets by the company and receipt of consideration other than in cash
Recent Global trends in Company law by Vinod Kothari 42
Restrictions on inter-corporate loans and advances
Observations relating to stock market scam – corporate funds diverted for price rigging
Suggests prohibition on companies lending to stock brokers: Provides for special resolution for allowing to do so
“Detailed” disclosure by a lending company on end-use of funds by the borrowing company
Disclosures to be made in explanatory statement for seeking approval also to be laid down
Recent Global trends in Company law by Vinod Kothari 43
Preferential allotments
SEBI-type regulations on preferential allotments in case of unlisted companies also recommended: Recommends valuation of shares
Difficult to understand the genesis of this proposal: Preferential allotment by any public company requires
special resolution If a special majority of shareholders approves of the action
of the company, whose protection are we seeking? Valuation of shares of an unlisted company is itself most
inefficient: Market value provides a transparent method of fair valuation There is no consistent or reliable method of valuation in case of
unquoted shares
Recent Global trends in Company law by Vinod Kothari 44
Minimum subscription
The law should permit retention of actual subscription even if minimum subscription not reached: Difficult to understand the suggestion; Minimum subscription is the minimal amount needed to accomplish
the purpose for which the issue was made If the minimum subscription is not reached, where will be the issue
funds be invested? The concept of minimum subscription has not been properly
appreciatedPartly to blame is mistaken understanding over time to equate the issue amount and the minimum subscription Sec 69 of the Companies Act expects the prospectus to mention
the minimum subscription: Item 5 of Part I of Schedule 2 specifically lists out
Since CCI regime, 90% of the issued amount has been taken as minimum subscription:
The practice has no basis.
Recent Global trends in Company law by Vinod Kothari 45
Shares with differential voting rights
Provisions were inserted but not effectiveProvisions should be retained – anomalies to be removed: Essentially, Companies Act envisaged years ago
preference shares as non-voting shares Artificial restriction brought in Indian law to say –
shares to be of only two classes This restriction may be done away with Instead, provision may be inserted to prevent
management perpetuating control by issuing “management shares”
In other words, curb shares with higher voting rights, than shares with lower or no voting rights
Recent Global trends in Company law by Vinod Kothari 46
Other provisions
DRR to regulate creation of DRR by non-banking
finance companiesFor other companies, flexibility to be ruled by
the Central Government
Deletion of sec. 208:No companies in the present times are using
sec 208 at allBut that is not the only provision in
Companies Act which is deadwood
Recent Global trends in Company law by Vinod Kothari
47
Minority rights
Recent Global trends in Company law by Vinod Kothari 48
Minority rights
Elaborate paras in Chapter VI dealing with minority interests: Para 1 to 2.4 in essence seem to say nothing They only describe the existing provisions And say, new Act should bring in a “reasonable framework” for
minority interest by bringing “specific provisions” Neither is there any suggestion that the exiting framework is not
reasonable, or not specific
Should minority directors/ directors by proportional representation be made mandatory: Committee favoured existing optionality
Stringent disclosures for Companies accessing funds through public offers: Glib talk, as no discussion on what disclosures other than those
required at presentBoard and management to be protected from undue/unjustified interference by minority: Again, no details
Extensive use of postal voting and voting by electronic media
Recent Global trends in Company law by Vinod Kothari 49
Oppression and mismanagement, takeovers
No recommendations at allObjections to a scheme of takeover, a limit to be prescribed for minimum shareholding: Courts preside over these matters; discretion of court should
be reserved
In case of takeover of 90% voting control, there must be an option to the 10% holder to sell their sharesFair valuation of shares of minority: By a valuer to be appointed by Tribunal
A company that has delisted its shares should give a buyback offer with 3 years of delisting: Superfluous, as delisting procedures currently provide
buyback offer before delisting
Recent Global trends in Company law by Vinod Kothari 50
Class action/ derivative law suits
Suits by a shareholder on behalf of a company to be allowed
Class action/ derivative suits are legally allowed in many countries:USA, Korea
Recent Global trends in Company law by Vinod Kothari
51
MCA 21
Recent Global trends in Company law by Vinod Kothari 52
MCA 21
WHAT IS MCA-21?MCA-21 is an e-governance initiative that builds on the Government vision to introduce a service oriented approach in the design and delivery of Government services.
OBJECTIVE OF MCA-21 To meet the expectation arising from globalisation Easy and secure access to MCA services To move from the traditional paper based operation to a
near paperless environment Enable convenience for statutory compliance in a
manner that best suits the stakeholders
Recent Global trends in Company law by Vinod Kothari 53
MCA 21
SCOPE Covers only the offices of ROCs, RDs and the HQs at New
Delhi Does not include other offices of MCA like Official
Liquidators, CLB/Tribunal and Court
SERVICES AVAILABLE ON MCA 21 Registration and incorporation of new companies Filing of forms for change of names/address/ Directors
details Registration and verification of charges Inspection of documents Application for various statutory services from MCA Investor grievance redressal
Recent Global trends in Company law by Vinod Kothari 54
MCA 21 – KEY BENEFITS
On-line incorporation of companiesSimplified and easy mode of filing of forms/returnsRegistration as well as verification of charges anytime and from anywhereInspection of public documents anytime and from anywhereTotal transparency through e-governanceBuilding up a centralized database repository of corporate operations in IndiaTimely redressal of investor grievanceAvailability of more time for MCA employees for qualitative analysis of corporate information
Recent Global trends in Company law by Vinod Kothari 55
MCA 21 – PRESS NOTES/CIRCULARS
Press Note dated 17-2-2006MCA 21 HandbookMCA 21 Initiation GuideDIN Process DocumentFrequently Asked QuestionsFAQs on DINProposed E-formsInstruction KitDetails of New forms and feesGeneral Instruction kit for form filing in physical modeGuidelines to be followed during E-filingScheme for Certified Filing CentresBulletin form Banks/FIs for Operation under MCA 21
Recent Global trends in Company law by Vinod Kothari 56
MCA 21 – LEGISLATIVE CHANGES
Companies (Central Government’s) General Rules and Forms (Amendment) Rules, 2006 [Notification No. 56(E) dated 10-02-2006 Application of Section 159 to Foreign Companies (Amendment) Rules, 2006 [ Notification No. 132 (E), dated 03-03-2006]Companies (Disqualification of Directors under Section 274(1)(g) of the Companies Act, 1956) Amendment Rules, 2006 [ Notification No. 133(E), dated 03-03-2006]Companies (Declaration of Dividend Out of Reserves) Amendment Rules, 2006 [ Notification No. 134(E), dated 03-03-2006]Investor Education and Protection Fund (Awareness and Protection of Investors) Amendment Rules, 2006 [Notification No. 135(E), dated 03-03-2006]Companies (Amendment) Regulations, 2006 [ Notification No. 157(E), dated 16-03-2006]Companies (Appointment of Sole Agents) Amendment Rules, 2006 [ Notification No.147 (E), dated 08-03-2006]Cost Audit Report (Amendment) Rules, 2006 [ Notification No. 148 (E), dated 08-03-2006]The Companies (Amendment) Act, 2006 [ Notification No.
Recent Global trends in Company law by Vinod Kothari 57
COMPANIES (AMENDMENT) ACT, 2006
Act to come into force on the notified date – 1st June 2006 as the effective date
Section 253-A new proviso inserted making DIN Compulsory for directors
DIN – New Section 266A to 266G inserted
E-Filing – Section 610B and 610C inserted
CG to provide Value Added Services – 610D
IT Act applicable – 610E
Recent Global trends in Company law by Vinod Kothari 58
E-FILING
MCA 21 project facilitates e-filing of forms and applications under the Companies Act, 1956.E-filing initiative started from Companies Amendment Act, 1960 by inserting Section 610AAlso, Recommendation of J.J. Irani Committee for e-filing of documents adoptedE-filing would include incorporation of new companies, filing annual and other statutory returns, registration and verification of charges and applying for various approvals/clearancesDirectors Identification Number (DIN) and Digital Signature Certificate (DSC) are pre-requisite under e-filing regimeCompanies Amendment Act, 2006 on E-filing:
CG to make Rules for – Filing of applications, BS, Prospectus, Return, declaration, M&AOA,
charges, etc in E-form
Service or delivery of document, notice, communication or intimation in E-form
Maintenance of Applications, BS, etc by Registrar in E Form
Recent Global trends in Company law by Vinod Kothari 59
E-FILING
Inspection of documents through E Form Payments of Fees, Charges or other sums through E Form Registration of Documents/incorporation certificates,
record/receive notice in E Form [Section 610B] CG may frame a scheme to facilitate the above [Section
610B] CG to notify that any provisions of Companies Act, 1956 be
made inapplicable or made applicable in modified form to suit e-filing [Section 610C]
Information Technology Act, 2000 to be made applicable in relation to electronic records [Section 610E]
Companies (Central Government) General Rules and Forms, Companies (Declaration of Dividend out of Reserves) Rules etc. modified to make them compatible with e-filing
Recent Global trends in Company law by Vinod Kothari 60
DIRECTORS IDENTIFICATION NUMBER (DIN)
DIN is a pre-requisite for e-filing of certain company related documentsApplicable to existing as well as new directors except directors of foreign companies having branch offices in IndiaForm, manner and fees to be prescribed by Central Government – At present no fees is required to get DINCG to allot DIN within one month from the receipt of the applicationOnly 1 DIN permittedDIN not an alternative to PANExisting Director to intimate his DIN within one month to all the companies wherein he is a directorCompanies to intimate DIN to Registrar within one weekDIN to be quoted in all returns/information/particulars in case they relate to directorsPenal Provision – Rs.5000/- and in case of continuing default Rs500/- per day
Recent Global trends in Company law by Vinod Kothari 61
DIN – SOME ISSUES
What happens to existing DINs taken before the commencement of Companies Amendment Act, 2006? [Second Proviso to Section 266A – weird drafting]
What if the existing director is out of station or incapacitated for 60 days?
Recent Global trends in Company law by Vinod Kothari 62
Some significant recent rulings
SC ruling in the Gaekwad family case – the only relevant restriction on allotment is the provisions of articles/memorandum
Directors are not trustees for individual shareholders; they are only for the company
In a significant ruling dealing with mergers, Rajasthan high court dispensed holding of meetings of shareholders and creditors based on sanction of concerned parties: [Rajasthan Telecom Company Ltd., In Re (Raj) [2006] 69 SCL 71]Revaluation reserves can be used for issuing bonus shares – SC ruling in Bhagwati Developers v. Peerless FinanceHouse of Lords – charges of future assets are floating charges: National Bank of WestminsterAuditors report relating to sec. 274 (1) (g) is to be based on verification of facts and not just statement made by the company – Calcutta High Court in Hindustan Club
Top Related