The Rajya Sabha on 8th August, 2013, gave its assent to Companies Bill 2013, and it became Companies Act, 2013 on 29th August, 2013. Companies Act- 2013 introduced significant changes in provisions relating to: E-Governance; E-Management; Compliance and Enforcement; Disclosure Norms; Auditors and Mergers and Acquisitions.
From Banker’s point of view, it is extremely necessary to understand following new concepts incorporated in the act so as to entertain corporate clients more effectively:
a)One Person Company,
d)Class Action Suits,
f)Corporate Social Responsibility
A One Person Company (OPC) means a company with only one person as its member (Sec.3 (1)). This can be formed as a private limited company. The concept is introduced to restrict the liability of one investor limited to his share holding and also to crystallize assets as well as the liabilities of the entity. The company is required to comply with all the requirements of the Act and must indicate the status as “OPC” after its name. In memorandum, the name of the person who, in the event of death of the subscriber, shall become the member of the company must be stated. In case the Banker insists for guarantee of the promoter of OPC, the very spirit of introducing this type of company will be defeated.
Act has defined / classified the Small Company since few relaxations in compliance are envisaged in the Companies Act, 2013: (Section 2 (85))
A company other than a Public Company where in “Paid up Capital does not exceed Rs. 50 Lakhs Or such higher amount as may be prescribed which shall not be more than Rs. 5 Crores; or Turnover of which as per its last Profit and loss account does not exceed Rs. 2 Crores Or such higher amount as may be prescribed which shall not be more than Rs.20 Crores. However, this section does not apply to a Holding company or Subsidiary Company and a Company or Body Corporate governed by any Special act.
(Section 455) This is a new section which deals with Dormant Company i.e. where no business activities are being carried out and the company has not made any significant accounting transactions in the last two financial years. Further, many a times, the promoters intent to have some legal entity for any future projects and in such eventuality a company can be formed. Act defines Dormant company as: A Company can be classified as a Dormant Company when it is form and registered under this act for future Projects or to hold an Asset or Intellectual Property and has no significant accounting transaction.
Such company or an inactive one may apply to the ROC in prescribed manner for obtaining status of a Dormant Company.
A class action is a Legal Form of Lawsuit where a large group of individuals collectively bring the claim to Court. To protect the interest of Small shareholders, Act empowers shareholders to take joint action against the Management of the company for any fraud or irregularity. For such action, minimum number of members should not be less than 100 OR not less than such percentage of the total number of its members as prescribed, whichever less is or member / members holding not less than such percentage of the issued share capital of the company (Sec.245).
This concept is more prevalent in USA and implementation in India will be very interesting to watch as there will always be apprehensions about misuse of this provision. This leverage should not be an impediment in the day to day operations / business growth of the company.
Act has mandated the Valuation report from the Registered valuer approved / appointed by the Audit Committee or in its absence by the Board of Directors of the company in issues relating to: a) Further Issue of Capital; b) Non Cash Transactions involving Directors ; c) Compromises, arrangements and amalgamations; d) Purchase of Minority Share holding; e) Submission of report by the company liquidator; and f) Declaration of solvency in case of proposal to wind up voluntarily. (Sec 247).
The Registered Valuer is expected to have qualifications / knowledge and experience in the relevant area. He is expected to make valuation in a most impartial, true and fair valuation of assets required to be valued. Generally, various professional bodies will maintain the panel of such valuers who are registered with Institute of Valuers. Act provided penal action in case of Fraud / misrepresentation and non compliance of the provisions made in the Act.
Companies Act, 2013, has dealt with CSR issue in detail. Provisions apply to every company with- a) Net Worth of Rs.500 Crores or more, ; or b) Turnover of Rs.1000 Crores or more, or c) A Net Profit of Rs. 5 Crores or more, during the Financial Year. It is prescribed that a CSR Committee of the Board to be formed of three or more Directors and the Company to spend at-least 2% of average of Net Profit made during immediate three preceding financial years. It is directed that Board to monitor / review the CSR initiatives periodically.
Limit of the Number of members increased from 50 to 200 (Sec. 2(68)
A person who has been named as such in a Prospectus Or is identified by the company in annual return Or who has a control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise Or in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act. (Sec.2 (69)). This provision is not applicable to Professional Director.
a. Appointment of Independent Director is made as mandatory requirement for compliance by the companies viz. a) Listed Public Companies; b) Other Public Companies having Paid up Share Capital of Rs.100 Crores or more or Turnover of Rs.300 Crores or more Or Aggregate Outstanding Loans or borrowings or debentures or deposits, exceeding Rs.200 Crores must have at least One Third of the total number of Director as Independent Director.
b. Independent Director is to be appointed from the panel of Data Bank of Independent Directors maintained by any Body, Institute or association notified by the Central Government and the Director has to follow the prescribed code as mentioned in the Act. (Schedule IV Sec. 149 (7))
c. Appointment of Independent Director shall be approved by the company in General Meeting.
Companies can have Maximum of 15 Directors.
The Director is required to mandatorily forward resignation with detailed reasons for the resignation to the Registrar within 30 Days of resignation in prescribed manner.
Act requires appointment of at least One Woman Director in a) Every Listed Company; b) Every Other Public company having paid up Share capital of Rs.100 Crores or more; OR Turnover of Rs.300 Crores or more.
The Company is no more required to classify the main object, incidental or ancillary or other object of the company.
Act introduced Entrenchment provision for alteration of any specific clause in Article without any need of Special Resolution. This is a restrictive provision. For a Private Company consent of all members is required for such provisions.
Provision is made applicable to ALL the companies. The company cannot commence its business activity unless the Directors file declaration about raising of minimum paid up capital applicable for Public / Private Ltd. Company.
Companies are not permitted to issue the shares at discount except in case of sweat equity where in shares are issued to employees in lieu of their services.
All types of charges are required to be filed by the company with ROC on movable / immovable assets in favor of charge holder within a period of 30 Days from the date of creation. In case of failure to file the charge within 30 days, the Registrar can permit filing of charge before 300 Days of creation after payments of additional fees / penalty.
Central Government prescribed ceiling on annual managerial remuneration in respect of companies with inadequate profits or no profits in the preceding year. The Companies with less than Capital of Rs. 100 Cr. - Rs.42 Lakhs p.a. and companies with Capital of Rs.100 Crores or more- Rs. 60 Lakhs p.a. In respect of all Public Limited Companies the total remuneration not to exceed (maximum) 10% of the Net Profit. In case company intends to pay more than above remuneration, permission from the Central Government is required.
A New Sec. 130 is added which seeks to provide for re- opening of Books of accounts and recasting of Financial Statements only against the order from the competent court or Tribunal is available. The court will issue order when the accounts were maintained in fraudulent manner and the Financial Statements are not reliable. (Sec 131)
If the Financial Statements or Report of the Board is not in accordance with Sec. 129 or Sec.134, the company may approach Tribunal for approval to revise statements / report in respect of any of the three preceding financial years.
Act provides for specific provisions relating to act of Fraud in relation to affairs of the company. The fraud has been defined in the act and it covers Omission, Concealment of Facts, Abuse of position committed by any person in connivance to deceive, to gain undue advantage, Injury to interest of company, its shareholders, creditors or any other person for wrongful gain or wrongful loss
As per Section 466, with the constitution of Tribunal and Appellate Tribunal, the Company Law Board stand dissolved.
Suneel V. Joshi, Joint Director (Faculty)Indian Institute of Banking and Finance, 21.01.2015.