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Companies Act, 2013 Analysis of 98 sections effective 12.09.2013

Companies Act, 2013 Analysis of 98 sections effective 12.09.2013. Companies Act, 1956 Companies Act, 2013. It was introduced on 1st April, 1956. It has 658 Sections and 15 Schedules. It extends to the whole of India (Sikkim has its own Companies Act).

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Companies Act, 2013 Analysis of 98 sections effective 12.09.2013

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  1. Companies Act, 2013Analysis of 98 sections effective 12.09.2013 Varma & Varma

  2. Companies Act, 1956 Companies Act, 2013 • It was introduced on 1st April, 1956. • It has 658 Sections and 15 Schedules. • It extends to the whole of India (Sikkim has its own Companies Act). • Companies Bill passed by the Lok-Sabha on 18th December, 2012. • RajyaSabha passed it on 8th August, 2013 by voice vote • 29th August-President’s Assent; 30th August-Gazette Notification • The Bill has 470 Clauses (309 pages), 29 Chapters, 7 Schedules and 29 Rules • It applies to the whole of India. Varma & Varma

  3. Chapter – IPreliminary • Sections ranging from 1 to 2 • Total 2 sections • On 30th August 2013, Ministry of Law and Justice issued a notification regarding the Companies Act, 2013 immediately after it received assent of President of India. Only section 1 of the Act of 2013 came into effect from that day. Section 1 as usual deals with short title, extent, commencement and application • The 2nd section deals with the definition clauses • Out of 95 definitions, 83 definitions (in which 26 are new definitions) have been notified w.e.f. 12.09.2013 Varma & Varma

  4. Definitions-Section 2 • The following definitions given against each clause, become applicable: 1: abridged prospectus 3: alteration 4: appellate tribunal 5: articles 6: associate company 8: authorised capital (new) 9: banking company 10: board of directors or board 11: body corporate or corporation 12: book and paper and book or paper Varma & Varma

  5. Definition Continued…… 14: branch office 15: called-up capital (new) 16: charge (new) 17: chartered accountant (new) 18: chief executive officer (new) 19: chief financial officer (new) 20: company 21: company limited by guarantee 22: company limited by shares Varma & Varma

  6. Definition Continued…. 24: company secretary 25: company secretary in practice 26: contributory 27: control (new) 28: cost accountant (new) 29: Court (except sub clause iv which talks about special courts) 30: debenture 32: depository 33: derivative Varma & Varma

  7. Definition Continued 34: director 35: dividend 36: document 37: employees’ stock option 38: expert (new) 39: financial institution (new) 40: financial statement (new) 43: free reserves 44: global depository receipt (new) 45: government company Varma & Varma

  8. Definition Continued 46: holding company 49: interested director 50: issued capital (new) 51: key managerial personnel (new) 52: listed company 53: manager 54: managing director 55: member 56: memorandum 57: net worth Varma & Varma

  9. Definition Continued 58: notification (new) 59: officer 60: officer who is in default 61: official liquidator 63: ordinary or special resolution (new) 64: paid up share capital (new) 65: postal ballot (new) 66: prescribed Varma & Varma

  10. Definition Continued…. 68: private company 69: promoter (new) 70: prospectus 71: public company 72: public financial institution 73: recognised stock exchange 74: register of companies (new) 75: registrar 76: related party 77: relative Varma & Varma

  11. Definition cont……. 78: remuneration 79: schedule 80: scheduled bank 81: securities 82: securities and exchange board 84: share 86: subscribed capital (new) 87: subsidiary company or subsidiary (except the proviso and explanation (d)) Varma & Varma

  12. Definition Continued 88: sweat equity shares 89: total voting power 90: tribunal (new) 91: turnover (new) 92: unlimited company (new) 93: voting right (new) 94: whole time director (new) 95: words & expressions borrowed from SCRA, SEBI and Depositories Act… Varma & Varma

  13. Chapter – IIIncorporation • Sections ranging from 3 to 22 • Total 20 sections • Out of which 3 sections have been made applicable from 12.09.13 • The notified sections are 19,21,22. Varma & Varma

  14. Subsidiary Co. not to hold shares in its holding Company New Act (section 19) Old Act (corresponding 42) Membership of holding company –No major change • Subsidiary company shall not hold shares in its holding company (exceptions provided in 19(1)(a),(b),(c)) and • No holding company shall allot or transfer its shares to any of its subsidiary companies. Varma & Varma

  15. Authentication of documents, proceedings and contracts New Act (section 21) Old Act (corresponding 54) Authentication of documents and proceedings A document or proceeding requiring authentication by the company may be signed by a director, manager, secretary or other authorised officer of the company • A document or proceeding or contract may be signed by any KMP or an officer duly authorised by the Board in this behalf Varma & Varma

  16. Chapter – IIIProspectus & Allotment of Securities • This chapter is divided into 2 parts • Part I – Public Offer and Part II – Private Placement (Effective from 1-4-2014) • Sections ranging from 23 to 42. • Total 20 sections. • Out of which 15 sections have been made applicable from 12.09.13, all in Part I • The notified sections are 23, 24, 25, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39 and 40 Varma & Varma

  17. Public offer and pvt. placement New Act (section 23) Old Act (NEW provision) This is a new provision and no corresponding section could be found. • It provides the ways in which: Public company or a Private company may issue securities. • It is to be noted here that 23(1)(b) and 23(2) effective from 1-4-2014. • 23(1)(b): Private placement of shares by public companies • 23(2): Issue of shares by private companies Varma & Varma

  18. Doc containing offer of sec. for sale to be deemed prospectus –Section 25 • Any document by which the offer for sale of securities (under the old Act shares) is made to the public, shall be deemed to be a prospectus and all sections as applicable to prospectus, shall be applicable to it. • It is to be noted that section 25(3) is effective from 1-4-2014. • This sub section brings out additional information required to be mentioned in addition to matters specified in S. 26 of the Act such as amount received, pricing etc. Varma & Varma

  19. Public Offer of Securities to be in De-materialised form – Section 29 & Rule 9 of Companies (Prospectus & Allotment of Securities) Rules, 2014 • Applicable to every company making public offer and such other class of public companies as may be prescribed • Other companies may issue securities in physical or demat form • Under the old Act, same was applicable to every listed company making an initial public offer of any security for a sum of Rs 10 Crores or more • As per Rule 9 promoter of public companies making public offer shall hold shares only in dematerialized form. Varma & Varma

  20. Advertisement of Prospectus - Section 30 • Advertisement of Prospectus published shall specify the contents of its MOA: • Objects • Liability of Members • Amount of Share Capital • Subscriber Details • Capital Structure Varma & Varma

  21. Red Herring Prospectus (RHP) – Section 32 • RHP may be issued prior to issue of Prospectus • RHP to be filed with ROC at least 3 days prior to opening of subscription list and the offer. • Upon closing of the offer, the details of information to be filed with ROC and SEBI such as total capital raised, other information not included in red herring prospectus. • Red herring prospectus means a prospectus which does not include complete particulars of the quantum or price of the securities. • Under the old Act, Section 60B referred to this matter ie information memorandum. Varma & Varma

  22. Punishment for Fraudulently inducing persons to Invest money New Act (section 36) Old Act(Corresponding 68) Bank and Financial Institutions were not covered It was a compoundable offence • Persons who fraudulently induce persons to invest money shall be liable for action under Sec 447 (Punishment for Fraud) • This includes any agreement with a view to obtaining credit facilities from bank or financial institutions. • A non compoundable offence Varma & Varma

  23. Action by Affected Persons (Sec 37) • New Section • A suit may be filed or • Any other action may be taken • U/s 34 (Criminal liability), 35(Civil liability) or 36 (fraudulently inducing persons to invest money) • By any person, group of persons or any association of persons • Affected by any misleading statements, inclusion, omission of any matter in the prospectus Varma & Varma

  24. Punishment for Personation for Acquisition etc of Securities New Act (section 38) Old Act(Corresponding 68A) Disgorgement provisions were not there earlier Multiple applications in different names or in different combinations were not included earlier • Punishment u/s 447 (Fraud) for persons who apply in fictitious names, multiple applications • Court may order disgorgement of gains, if any and seizure and disposal of the securities • The amount so received by the court to be credited to the Investor Education and Protection Fund. Varma & Varma

  25. Allotment of Securities by Companies New Act (section 39) Old Act(Corresponding 69 & 75) Prohibition of Allotment unless Minimum Subscription Recd (Sec 69) Return as to Allotments (Sec 75) Only pertaining to Shares • Where no minimum amount has been subscribed within 30 days from the date of issue of prospectus then money received against the application needs to be refunded to all applicants within 15 days from closure of the issue (Rule 11) • Co. having a share capital, on allotment of securities (earlier only shares) shall file a return of allotment with ROC • Rs 1000/- penalty for each day of continuing default. • Share application money should be in cheque or other instruments. No cash is allowed (S 39(1)). Varma & Varma

  26. Chapter – IVShare Capital & Debentures • Sections ranging from 43 to 72 • Total 30 sections • Out of which 12 sections have been made applicable from 12.09.13 • The notified sections are 44, 45, 49, 50, 51, 57, 58, 59, 60, 65, 69 & 70 Varma & Varma

  27. Nature of Shares or Debentures New Act (section 44) Old Act(Corresponding 82) Provisions retained • Shares or Debentures or other interest of any member in the company shall be moveable property transferable in the manner provided in AOA • No Change Varma & Varma

  28. Company to accept unpaid share capital although not called up Section 50 • Allows a Company if authorized by its AOA to accept amounts from members which are unpaid on the shares even though no call has been made. • The acceptance of such amount shall not confer any voting rights against the amount paid till the call has been made. • Provisions of Section 92 of the old Act retained. Varma & Varma

  29. Payment of Dividend in proportion to amount paid up – Section 51 • Company if authorized by AOA may pay dividend in proportion to the amount paid up on each share • Provisions of Section 93 of old Act retained Varma & Varma

  30. Punishment for Personation of Security holder Section 57 • It provides penalty for a person who deceitfully personates as the owner of any security or interest in a company. • Imprisonment : 1 to 3 years • Penalty 1 lakh to 5 lakhs • Old Act – Section 116- applies only for shares, new act for all securities. Varma & Varma

  31. Publication of Authorized, Subscribed & Paid Up Capital - Section 60 • If a Co. publishes a notice, advertisement or other official publications or business letters which state the amount of Authorized Share Capital, the Company should state in the said document the details of the subscribed and paid up capital. • Penalty – Company Rs 10,000 and for officer in default Rs 5000 for each default. • Corresponding to Sec 148 of the Old Act. Varma & Varma

  32. Unlimited Company to Provide for Reserve Share Capital on Conversion into Limited Company – Sec 65 • Unlimited Company may be allowed to increase its Nominal Capital provided that the same shall not be called up except at the time of winding up. • Corresponding to Sec 98 of the old Act. Varma & Varma

  33. Transfer of Certain Sums to CRR Account Sec 69 • Where there is a buy back out of Free Reserves or Share premium Account the amount equal to nominal value of shares bought back should be transferred to CRR(Capital Redemption Reserve) • The said Reserve can be used for a bonus issue. • Under the old Act, usage of CRR not specified. Varma & Varma

  34. Prohibition for buy back in certain circumstances – Sec 70 • No company shall buy back its own shares -through its subsidiaries -through investment company or group of Ics -If default in complying in repayment of deposits, interest thereon, redemption of debentures or preference shares. • Buy back not prohibited if default remedied and a period of 3 years elapsed after such default ceased. • Company shall also not buy back its own shares if non compliance of provisions of S 92 (Filing of annual return), S.123 (Declaration of dividend), S.127 (payment of dividend) and Section 129 (financial statement). Varma & Varma

  35. Chapter – VAcceptance of Deposits by Companies • Sections ranging from 73-76 • Total 4 sections effective only from 1-4-2014 Varma & Varma

  36. Chapter – VIRegistration of Charges • Sections ranging from 77-87 • Total 11 sections • Out of which only 1 section has been made applicable from 12.09.2013 • The notified section is 86 – punishment for contravention of provisions of this Chapter. Corresponding to Section 142 of the old Act. Varma & Varma

  37. Chapter – VIIManagement & Administration • Sections ranging from 88 to 122 • Total 35 sections • Out of which 13 sections have been notified from 12.09.13 • The notified sections are 91, 100, 102, 103, 104, 105, 106, 107, 111, 112, 113, 114 and 116 Varma & Varma

  38. Calling of Extra-ordinary General Meeting Section 100 • The board at the requisition made by: • Holder of 1/10 of paid up share capital or • In case of companies not having share capital holding 1/10 of voting power may call for EGM. • The company may call EGM within 45 days from the date of receipt of requisition • If the company does not conduct EGM within 45 days, requisitionists call EGM within 3 months from the date of requisition. • It is to be noted that section 100(6) relating to reimbursement of expenses incurred by requisitionists from the fee or other remuneration under Sec 197 payable to directors who were in default in calling the meeting • Corresponding to Section 169 of the old Act. Varma & Varma

  39. Statement to be Annexed to Notice Sec 102 • Notice of items of GM concerning special business • To specify the nature of concern or interest, financial or otherwise, if any in respect of each of the following persons: • Every Director and the Manager, if any • Every other KMP and • Relatives of the persons mentioned above and • Also as per 102(1)(b) to give any other information and facts that may enable members to understand the meaning , scope and implications of the items of business and to take decisions. Varma & Varma

  40. Cont…… • 102(2)(b)-Disclosure of %age of shareholding in any other co. under consideration to be made if the %age of shares held in that co. is not less than 2%. As per Sec 173 of the old Act, same was 20%. • 102(4)-In case of any benefit or profit by the concerned Promoter, Directors, KMP etc which accrues due to insufficient/non-disclosure, the said person will be liable to compensate the company as specified Varma & Varma

  41. Quorum for Meetings New Act (section 103) Old Act(Corresponding 174) 5 members personally present in case of public co 2 members personally present for private co. • Requirement of Quorum in public co. changed • Less than 1000 = 5 members • >1000 but <=5000=15 members • >5000- 30 Members • 103(1)(b)- for private limited company 2 members personally present • 103(2)-Where GM adjourned for lack of quorum, the co. to give not less than 3 days notice to members individually or by an advertisement in newspaper Varma & Varma

  42. Punishment for failure to distribute dividends New Act (section 127) New Act (section 127) The heading read as ‘Penalty for failure to distribute dividends within 30 days Provisions have been retained In the heading of the section, the word ‘punishment’ has been replaced by the word ‘penalty’ It is to be noted that in the new law, imprisonment has been reduced from 3 to 2 years • Dividend to be paid within 30 days from declaration date • This section prescribes penalty provisions for the directors, who knowingly are parties to the default • The punishment is imprisonment which may extend to 2 years and with fine not less than Rs.1000 for every day of continuing default • 5 points have been mentioned when no offence will be deemed to have been committed Varma & Varma

  43. Chapter – IXAccounts of Companies • Sections ranging from 128 to 138 • Total 11 sections • Out of which 1 section has been made applicable from 12.09.13 • The notified section is 133 Varma & Varma

  44. Central Government to prescribe accounting standards New Act (section 133) Old Act(Corresponding 211(3C)) There was a mention of the National Advisory Committee on Accounting Standards • The CG* may prescribe the standards of accounting or any addendum thereto • As recommended by the Institute of Chartered Accountants of India • The CG would consult with NFRA* and examine the recommendations made by ICAI • CG means Central Government • NFRA means National Financial Reporting Authority Varma & Varma

  45. Chapter – XAudit & Auditors • Sections ranging from 139 to 148 • Total 10 sections • Out of which ‘NO’ section has been made applicable from 12.09.13 Varma & Varma

  46. Chapter – XIAppointment & Qualification of Dirs • Sections ranging from 149 to 172 • Total 24 sections • Out of which 3 sections have been made applicable from 12.09.13 • The notified sections are 161, 162 and 163 Varma & Varma

  47. Appointment of additional director, alternate director & nominee director • All the 3 sections merged into 1 • Section 161(1) deals with addl dir (AD): BOD can appoint ADs. Person who fails to get appointed in a general meeting will not be eligible to be appointed as AD • Section 161(2) deals with alternate dir: BOD may appoint any person to act as alternate director for any director during his absence for a period not less than 3 months from India (As per old Act absence from the state is enough) • This person should not be holding any alternate directorship for any other director in the company Varma & Varma

  48. Appointment of directors to be voted individually (Sec 162) • A single resolution cannot be passed for appointment of more than 1 director • Unless an approval for en-bloc appointment has been resolved at a meeting without a single vote cast against it • In the new law, this section has been made applicable to private limited companies but as per the draft notification the said sec is not applicable to private companies • In 1956 Act, it was applicable to public company and a private company which is a subsidiary of a public company • Corresponding to Sec 263 of the old Act. Varma & Varma

  49. Chapter – XIIMeeting of Board & its Powers • Sections ranging from 173 to 195 • Total 23 sections • Out of which 9 sections have been made applicable from 12.09.13 • The notified sections are 176, 180, 181, 182, 183, 185, 192, 194 and 195 Varma & Varma

  50. Restrictions on powers of Board Sec 180 • Certain powers which can be exercised by the BOD with the approval of general meeting by passing special resolution, are now applicable to private limited companies also (As per draft notification this Sec is not applicable to Pvtcos with less than 50 members) • Some powers now can be exercised by the BOD after passing special resolution vis-à-vis ordinary resolution in the old law • Contribution to charitable funds as mentioned in old section 293(1)(e) has been removed and shifted to a new section Varma & Varma

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