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Companies Act, 2013 Detailed analysis of 98 sections effective 12.09.2013 CS Mamta Binani

Companies Act, 2013 Detailed analysis of 98 sections effective 12.09.2013 CS Mamta Binani Past Chairperson (Year 2010), EIRC of ICSI. Companies Act, 1956 Companies Act, 2013. It was introduced on 1st April, 1956. It has 658 Sections and 15 Schedules.

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Companies Act, 2013 Detailed analysis of 98 sections effective 12.09.2013 CS Mamta Binani

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  1. Companies Act, 2013 Detailed analysis of 98 sections effective 12.09.2013 CS MamtaBinani Past Chairperson (Year 2010), EIRC of ICSI

  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.

  3. FINALLY……WE SEE THE MUCH AWAITED ACT FLUNGING INTO ACTION • Ministry of Corporate Affairs issues Notification for Commencement of 98 Sections (out of 470 sections) of the New Act on 12th September, 2013

  4. In PHASES • It seems that it has been decided to enforce the provisions of the new legislation in phases. • The provisions of the new Act which require statutory/regulatory consultation or functioning of new bodies or prescription of relevant rules/forms will be brought in force after the preparatory action is completed.

  5. Probably, sections which do not require rules • In the first instance it has been decided to notify those provisions of the Act which do not require such preparations. 

  6. Verbatim • The exact language of Notification is: In exercise of the powers conferred by sub-section (3) of section 1 of the Companies Act 2013, the Central Government hereby appoints the 12th day of September, 2013 as the date on which the following provisions of the said Act shall come into force

  7. Section 1 (3) • This section shall come into force at once and the remaining provisions of this Act shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint and different dates may be appointed for different provisions of this Act and any reference in any provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision

  8. Circular dated 12.09.2013 by way of a Notification • http://www.mca.gov.in/Ministry/pdf/CommencementNotificationOfCA2013.pdf • The notification has been signed by Renuka Kumar, Joint Secretary to the Government of India

  9. Clarification on the notification dated 12.09.2013 • The clarification has been made by way of a General Circular no.15/2013 dated 13.09.2013 • The clarifications were: • 1. Sub-section (68) of section 2: ROC may register those Memorandum and Articles of Association received till 11.09.2013 as per the definition clause of the .private company, under the Companies Act, 1956 without referring to the definition of private company under the new Act

  10. Clarification on the notification dated 12.09.2013….contd • 2. Section 102: All companies which have issued notices of general meeting on or after 12.9.2o13, the statement to be annexed to the notice shall comply with additional requirements as prescribed in section 102 of the new Act • 3. Section 133: Till the Standards of Accounting or any addendum thereto are prescribed by Central Government in consultation with and after examination of the recommendation of the National Financial Reporting Authority, the existing Accounting Standards notified under the Companies Act, 1956 shall continue to apply

  11. Clarification on the notification dated 12.09.2013….contd • 4. section 180: In respect of requirements of special resolution under Section 180 of the said Act, as against ordinary resolution required by the Companies Act 1956, if notice for any such general meeting was issued prior to 12.9.2013, then such resolution may be passed in accordance with the requirement of the Companies Act 1956

  12. Another circular on 18.09.2013 • Ministry of Corporate Affairs had issued a general circular dated 18.09.2013. • Background: Ministry had issued a notification on 12.09.2013 bringing into force 98 sections or part thereof of the Companies Act, 2013. Ministry received requests for clarification as to whether the provisions of the Companies Act, 1956 corresponding to such 98 sections would continue to apply or not and hence as a clarification, it issued this circular dated 18.09.2013.

  13. Continued…. • This Circular clarified that with effect from 12.09.2013, the relevant provisions of the Companies Act 1956, which corresponds to the provisions of 98 sections of the Companies Act, 2013 brought into force on 12.09.2013, cease to have effect from that date.

  14. In this Power Point Presentation • The objective is provide a chapter-wise comparative summary of the 98 Sections made effective in the Companies Act 2013 vis a vis the Companies Act, 1956

  15. 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

  16. Definitions-Section 2 • The following definitions given against each clause, becomes 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

  17. 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

  18. 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

  19. 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

  20. 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: networth

  21. 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 67: previous company law (except sub clause ix relating to Registration of Companies (Sikkim) Act, 1961

  22. 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 (my comment: the list of relatives as per sub clause iii is yet to be prescribed)

  23. Definition Continued…. 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)

  24. 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 & expression borrowed from SCRA, SEBI and Depositories Act…

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

  26. Subsidiary Co. not to hold shares in its holding Company New Act (section 19) Old Act (corresponding 42) Membership of holding company • 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

  27. 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 contracts may be signed by any KMP or an officer duly authorised by the Board in this behalf

  28. Execution of bills of exchange etc. New Act (section 22) Old Act (corresponding 47 & 48) Bills of Exchange & Promissory Notes • A bill of exchange, hundi or promissory note shall be deemed to be proper if signed by any person acting under its authority, express or implied • New: Execution of other deeds – POA • Deeds signed by such an POA holder shall bind the company

  29. Chapter – IIIProspectus & Allotment of Sec • This chapter is divided into 2 parts • Part I – Public Offer and Part II – Private Placement • Sections ranging from 23 to 42, i.e. (23 to 41) and 42 • Total 20 sections • Out of which 15 sections has 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

  30. 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) has yet not been notified • 23(1)(b): Private placement of shares by public companies • 23(2): Issue of shares by private companies

  31. Power of SEBI to regulate issue & transfer of securities etc New Act (section 24) O. Act(corresponding 55A) Powers of Securities and Exchange Board of India • It provides the provisions for the administration of issue and transfer of securities by SEBI, in relation to: *Issue and transfer of securities; and *Non-payment of dividend By *listed companies or *those companies which intends to get there securities listed • Scope widened

  32. Doc containing offer of sec. for sale to be deemed prospectus New Act (section 25) Old Act(corresponding 64) Document containing offer of shares or debentures for sale to be deemed prospectus • Any document by which the offer for sale of securities is made to the public, it shall be deemed to be a prospectus and all sections for the same, shall be applicable to it. • It is to be noted that section 25(3) has not been notified. • This sub section brings out additional information required to be mentioned in the prospectus

  33. Public Offer of Sec to be in Demat New Act (section 29) Old Act(corresponding 68B) Applicable to every listed company making an initial public offer of any security for a sum of Rs 10 Crores or more • 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

  34. Advertisement of Prospectus New Act (section 30) Old Act(corresponding 66) Where any prospectus is published as a newspaper ad, it can do away with specification of the contents of the memorandum or signatories thereto or the number of shares subscribed by them • Ad of Prospectus published in any manner shall specify the contents of its MOA: • Objects • Liability of Members • Share Capital • Subscriber Details • Capital Structure

  35. Shelf Prospectus (SP) New Act (section 31) Old Act(corresponding 60A) Only Public Financial Institutions, Public Sector or Scheduled Banks whose main object is financing allowed to issue SP • Any class of companies prescribed by SEBI may file SP with ROC • At the stage of 1st offer of securities • Period of Validity 1 year • Date of Opening becomes Commencing Date • Prior to any subsequent offer under the same SP, Co. to file with ROC Information Memorandum on new charges created or of any change in financial position • Option to Refund Money

  36. Red Herring Prospectus (RHP) New Act (section 32) Old Act(corresponding 60B) Information Memorandum (IM) • IM now RHP • Co. proposing to make an offer of securities • 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

  37. Issue of Application Forms for Securities New Act (section 33) Old Act(Corresponding 56) Matters to be stated and reports to be set out in Prospectus New Section Corresponds to Sec 56(3) Form was required to be accompanied by a Memorandum containing such salient features of a prospectus as was prescribed • Every form of Application Issued for purchase of any Securities shall be accompanied by an abridged Prospectus • Talks about abridged prospectus • It is to be noted that section 33(3) has not been notified. • This sub section brings out the penalty provisions in case of default

  38. Criminal Liability for Mis-statements in Prospectus New Act (section 34) Old Act(Corresponding 63) Earlier penal provision was for untrue statements only • Any statement which is Untrue or Misleading in form or context or Inclusion or omission likely to mislead • Section 447 (Punishment for Fraud) invoked • Persons who have authorized the issue of such prospectus shall also be criminally liable • Escape mechanism if the person can prove that such statement or omission was • Immaterial • Had reasonable grounds to believe etc

  39. Civil Liability for Mis-statements in Prospectus New Act (section 35) Old Act(Corresponding 62) The option to withdraw on becoming aware of any untrue statement after issue of prospectus and before allotment has been dispensed with-Sec 62(3)(b) • Civil Liability in case of prospectus issued for all type of securities. • Where prospectus issued with an intention to defraud every person liable under this section shall be personally liable without any limitation for the losses incurred by any person who has subscribed • It is to be noted that section 35(1)(e) which deals with inclusion of experts in the gamut has not been notified.

  40. 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 induces 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

  41. Action by Affected Persons (Sec 37) • New Section • A suit may be filed or • Any other action may be taken • U/s 34, 35 or 36 • By any person, group of persons or any association of persons • Affected by any misleading statements, inclusion, omission • of any matter in the prospectus

  42. Punishment for Personation for Acquisition etc of Securities New Act (section 38) Old Act(Corresponding 68A) Disgorgement provisions was not there earlier Multiple applications in different name or in different combination was 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 IAP fund.

  43. 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 and money received the amount needs to be refunded to all applicants within 30 days from date of issue of prospectus • Co. having a share capital on allotment of securities (earlier only shares) file a return of allotment with ROC • Rs 1000/- penalty for each day of continuing default • It is to be noted that section 39(4) relating to Return of Allotment has not been notified.

  44. Securities to be dealt with in SE New Act (section 40) Old Act(Corresponding 73 & 76) Allotment of shares and debentures to be dealt in on SE (Sec 73) Power to pay certain commission and prohibition of payment of all other commission, discount etc (Sec 76) • Prospectus to mention name of SE where the securities will be dealt with • Application money recd from the public to be kept in separate bank account. • Co. may pay commission to any person in connection with subscription of securities • It is to be noted that section 40(6) relating to commission payment has not been notified. • Scope widened from shares and debentures to securities

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

  46. 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

  47. Numbering of Shares New Act (section 45) Old Act(Corresponding 83) Numbering of Shares (provisions retained) • Company having a share capital • Shares of such a company to be distinguished by its distinctive number • Save and except Shares held by a person as beneficial owner in a depository account • No Major change

  48. Calls on Shares of Same Class to be made on uniform basis New Act (section 49) Old Act(Corresponding 91) Provisions retained • No change • When calls are made for further capital on shares of a particular class, the calls shall be made uniformly.

  49. Company to accept unpaid share capital although not called up New Act (section 50) Old Act(Corresponding 92) Provisions retained • No change • 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.

  50. Payment of Dividend in proportion to amount paid up New Act (section 51) Old Act(Corresponding 93) Provisions retained • No Change • Company if authorized by AOA may pay dividend in proportion to the amount paid up on each share

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