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Companies Act, 2013 By CS Mamta Binani Past Chairperson (Year 2010), EIRC of ICSI

Companies Act, 2013 By CS Mamta Binani Past Chairperson (Year 2010), EIRC of ICSI Practising Company Secretary At ACAE For Chartered Accountants mamtab@mamtabinani.com dated : 16.11.2013. BOARD & BOARD PROVISIONS. UNDER THE COMPANIES ACT, 2013 (Chapters XI, XII, XIII)

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Companies Act, 2013 By CS Mamta Binani Past Chairperson (Year 2010), EIRC of ICSI

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  1. Companies Act, 2013 By CS MamtaBinani Past Chairperson (Year 2010), EIRC of ICSI Practising Company Secretary At ACAE For Chartered Accountants mamtab@mamtabinani.com dated : 16.11.2013

  2. BOARD & BOARD PROVISIONS UNDER THE COMPANIES ACT, 2013 (Chapters XI, XII, XIII) In this slide show – Chapter XI & XII

  3. Chapter XIAppointment & Qualificationof Directors (which consists of Sections 149 to 172)

  4. Section 149 (old 252,253,259) • Minimum number of directors in case of private and public companies is 2 and 3 respectively • The limit of maximum number of directors is increased from 12 to 15 • In 1956 act, CG approval was required to go beyond 12 • In 2013 act, SR will be required to go beyond 15. No CG approval is required • OPC needs to have minimum 1 director • At least 1 director shall be a person - stayed in India for a total period of not less than 182 days in the previous calendar year

  5. Women Director • Prescribed class of companies to have 1 women director • As per the draft rules: Listed and also for public limited companies with paid up capital of Rs.100 crores and above or turnover of Rs.300 crores and above • For Listed companies: transition period of 1 year • For other public limited companies: transition period of 3 years

  6. Independent Directors • Public companies to have 1/3 ID’s of the total nu. • Criteria: 1. Paid up capital >= Rs.100 crores Outstanding loans/borrowings/debentures/deposits > Rs.200 crores; Turnover >= Rs.300 crores • Nominee Director/ Representative Director not to be considered as ID’s (in conflict with existing clause 49) • ID’s to abide by a detailed code of con (Schedule IV) • Issue of letter of appointment to ID mandatory • Letter to contain terms of appointment, Board’s expectations, fiduciary duties etc. • Will not retire by rotation/ Transition period: 1 year

  7. Independent Directors • ID’s to hold 1 separate meeting in a year without other directors and management • Tenure restricted to 2 terms (5+5) • Second term to require SR • Then cooling period of 3 years • Tenure served by ID before commencement of new Act not to be counted • Stock options not permitted for ID (inconsistent with Listing Agreement) • Profit related commission and sitting fees allowed

  8. Qualifications of ID • Appropriate balance of : (i) skills (ii) experience and (iii)knowledge in one or more fields of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations or other disciplines related to the company’s business • After the appointment of ID, the B/R shall have to furnish a statement to the effect that in the opinion of the Board, the ID possesses the appropriate balance of skills, experience and knowledge

  9. Database of ID’s-Section 150 • Anybody, Institute or Association • Which has been authorised in this behalf by the CG • Shall create and maintain a data bank of persons • Willing and eligible to be appointed as ID • Such data bank shall be placed on the website of MCA • Or any other website as may be approved or notified by the CG • Details as mentioned in Rules to be put up on the site • A disclaimer to be carried by the website • ID may also apply • Charges can be levied

  10. Appointment of ID-OR • The appointment has to be approved by the Company • In a general meeting • Special Business • Ordinary Resolution • The explanatory statement (section 102 already enforced), shall inter-alia, mention the justification for choosing the appointee as the ID and also a statement that in the opinion of the Board, he fulfils the conditions specified in the Act

  11. Section 151 (old 252)-Small Sh • Listed company may have one director elected by such small shareholders; • There is a change vis-à-vis the Companies Act of 1956 • Now, only listed companies • Small shareholders has been explained in the section itself as ‘a shareholder holding shares of nominal value of not more than Rs.20,000 or such other sum as may be prescribed’

  12. Small shareholder’s director • Suo-motu - Listed Company or • Upon the notice of not less than 500 or 1/10th of the total number of small shareholders, whichever is lower • Such director will be considered as an ID • Shall not be liable to retire by rotation • Not for a period exceeding 3 consecutive years • On the expiry of the tenure, shall not be eligible for re-appointment • No person shall hold the office of small shareholders director in more than 2 companies at the same time

  13. Section 152-Appointment of Dir • Every Director needs to furnish a declaration-Not disqualified for being appointed as Director • Valid DIN for getting appointed • Consent letter made mandatory for private limited companies also and needs to be filed with ROC even • OPC-Individual member will be deemed to be the first director unless specific appointment made • Retirement by rotation-provisions remain the same. To note that ID number not to be included in reckoning total number of directors

  14. Sections 153, 154, 155, 156, 157, 158, 159-Provisions of DIN • 153: To apply for DIN if intending to get appointed • 154: CG to allot DIN to the applicant within one month • 155: Cannot have more than 1 DIN • 156: Existing Director to intimate DIN to all Companies within 1 month • 157: Company to inform DIN to ROC within 15 days (instead of a week) of the receipt of the same from the Director • 158: Obligation to mention DIN • 159: Punishment for contravention of sections 155, 156

  15. Section 160 (old section 257) • Right of persons other than retiring directors to stand for directorship: • Amount of deposit increased from Rs.500 to Rs.1.00 lac or such higher sum as may be prescribed • Now, even if the person is not elected but the person so proposed gets more than 25% of total valid votes, the amount of deposit will be refunded • 25%- be it by show of hands or on poll • The manner in which the notice will be sent to the shareholders will be prescribed by the Central Government

  16. Section 161 (old sections 260,262 & 313) • Additional Director: If someone’s resolution for appointment as a Director, gets defeated in a GM, then that person cannot be appointed as an additional director • Alternate Director : 1) BOD may appoint, if authorised by AOA otherwise the GM 2) The said appointee should not be holding alternate directorship for any other director in the Company 3) If he is an AD to any ID, then AD also needs to satisfy the criteria laid for ID It is to be clarified here that a Director of the Company may act in dual capacity, that is for himself and as an AD for any other Director of the Company (SECTION APPL)

  17. En block resolution-Section 162 • A single resolution not allowed for appointing 2 or more persons as directors of the Company unless A proposal to move such a motion has first been agreed to at the meeting without any vote being cast against it. (This provision now made applicable to private co. also) (SECTION APPL)

  18. Section 163 (old section 265) • Principle of proportional representation 1. The AOA of the Company may provide for this 2. If it provides, then not less than 2/3 of the total number 3. By a single transferable vote or by a system of cumulative voting or otherwise 4. Such appointment may be made once in every 3 years 5. Casual vacancies to be filled in as in the case of additional director (It is to be noted that even a private limited company can provide for this provision in its AOA) (SECTION APPL)

  19. Section 164 (old section 274) • Disqualifications for appointment of Director Apart from the existing disqualifications, the additions are as below: 1. Conviction of an offence dealing with related party transactions at any time during the last preceding 5 yrs 2. A person who has been convicted of any offence and sentenced in respect thereof to imprisonment for a period extending to 7 years or more 3. A person who has not obtained a DIN (very important: old section 274(1)(g) mentioned of public company only but the new section 164(2) has removed the word public)

  20. Section 165 • Maximum number of directorships is 20 (instead of 15 in old law), within which maximum 10 public limited companies • Including alternate directorships • Including directorship in private companies that are either holding or subsidiary company of a public company • If the members so want, they may by SR, specify a lesser number of directorships for their directors (It is to be noted that a transition period of 1 year will be provided to the directors to comply with the maximum number of directorships) Very Important: 1. The Directors have to intimate their choice to each of the company where they wish to continue 2. Intimation to be given to the ROC also

  21. Sec 166-Duties of Directors-Carved • In line with the UK Companies Act, 2006 • In accordance with the Company’s AoA • To act in good faith, to promote objects of the company for benefit of members and the best interest of the company, employees, community and environment • To exercise duties with due & reasonable care, skill and diligence • Not to achieve any undue gain/advantage

  22. Sec 167-Vacation of office of Director • Inter-aia, If he absents himself from all the meetings of the BOD held during a period of 12 months with or without seeking LOA of the Board (Section 167(b)) • Fine is hefty if he continues even after he should have vacated his office Resignation of Director (Section 168) Company wil have to file resignation. Director also may forward to ROC, a copy of his resignation along with detailed reasons in the prescribed form, within 30 days of resignation in the prescribed manner Quick fix solution Where all directors have resigned, the promoter or in his absence, the CG shall appoint required number of directors. These directors to hold office till the directors are appointed in General Meeting

  23. Section 169 (old section 284)Removal of Director • The provisions remains the same • The words CG have been replaced by Tribunal • In case of contravention of the provisions of this section, the penalty has been increased

  24. Section 170 (old sections 303,307) • The register shall contain: - Particulars of its Directors - KMP Details like: - Securities held by each of them in the Company or its holding, subsidiary, subsidiary of company’s holding company or associate companies - Other details as may be prescribed (It is to be noted two separate registers-that of directors and directors shareholding has been done away with) Very important: Return for appointment or any change therein shall also be filed for appointment of KMP

  25. Section 171 (old section 304) • In the old section 304, the provision of inspection was only there. No provision for extracts • In the new law, provision for extracts included • In old law, any member (without charge) and any other person (Re. 1.00 for every inspection) • In the new law, the provision u/s 171(1)(b) is to keep the register open for inspection at every annual general meeting of the company and that it shall be made accessible to any person attending the meeting

  26. Section 172 (new) • Punishment provisions If a company contravenes any of the provisions of Chapter XI and for which no specific punishment is provided in the said provisions of the Chapter, the company and every officer of the company who is in default shall be punishable with fine which shall not be less than Rs.50,000 but which may extend to Rs.5.00 lacs

  27. Proposed Forms under Chap XI • Form no.11.1- ID desirous of having his name in databank, will apply in this form to the body • Form no.11.2-Consent letter by Director • Form no.11.3-Application for DIN • Form no.11.4-Verification for applying for allotment of DIN • Form no.11.5-Any change in particulars of DIN-30 days • Form no.11.6-Verification for change in DIN • Form no.11.7-Director resigning may file this form • Form no.11.8-Company to file this form on resignation of Director

  28. End of Chapter XI (which consists of Sections 149 to 172)

  29. Chapter XIIMeeting of Board & its Powers (which consists of Sections 173 to 195)

  30. Section 173 (old sections 285,286)Meetings of Board 1. First BM shall be held within 30 days of Incorporation 2.Notice of not less than 7 days in writing to call BM 3.Notice to all Directors, whether he is in India or outside India by hand delivery/post/electronic means 4.Meeting at shorter notice for urgent business. Atleast 1 independent director’s presence in the meeting is reqd. If he is not present, then decision of the meeting to be circulated to all Directors and shall be valid only after final ratification of decision by atleast 1 ID. 5.Directors may participate in a meeting of the Board either in person or through VC or through AV

  31. Section 173 (old sections 285,286)Meetings of Board…contd 6.The CG may specify such matters which shall not be dealt with through VC or AV. In the rules, these are: • to approve the annual financial statements; and • to approve the Board’s report 7. At least 4 meetings each year. Not more than 120 days shall elapse between two meetings-appl.to private also  8.The punishment for not serving the notice of Board meeting has been increased, wherein in case of default every officer of the Company whose duty is to give notice of board meeting and which fails to do so shall be liable to punishment of Rs.25000

  32. Section 174 (old sections 287,288)Quorum for meetings of Board 1.If the number of Directors is reduced below the quorum requirement due to resignation/removal, then the continuing Director may act for the purpose of increasing the number of Directors to that required for the quorum 2.Participation of Director through VC/ AV shall be counted for the purpose of quorum 3.The provisions that frequency of the Board meeting shall not be deemed to be contravened merely by the reason that the meeting of the Board had been called in compliance with the clause could not he held for the want of quorum, has been dispensed with

  33. Section 175 (old section 289)Resolution by Circulation 1. Now resolution by circulation shall be approved, if it is consented by majority of Directors instead of earlier requirement consent of all Directors present in India or by majority of them under the Companies Act, 1956 2. Also, all resolution passed by circulation shall have to be mandatorily noted in the next Board meeting and should be made part of the minutes; this requirement was not under the Companies Act, 1956

  34. Section 175 (old section 289)Resolution by Circulation…contd 3. Now where any resolution has been put to vote by circulation and not less than 1/3rd of the total number of Directors requires that any resolution under circulation must be decided at a BM, then the chairman shall put the resolution to BM 4.Requirement to send notice of resolution by circulation to all the Directors not being less in number then quorum for the meeting of the Board or the committee as the case may be, has been dispensed with. Instead, the notice shall be sent in draft to all Directors. In the draft rules: can be sent by email/fax

  35. Section 176 (old section 290)Defects in appt. not to invalidate actions • No act shall be deemed to be invalid even if subsequently noticed that his appointment was invalid by reason of any defect or disqualification • No validity is imparted after his appointment has been noticed by the company to be invalid (SECTION APPL)

  36. Section 177 (old section 292A)Audit Committee 1.Every Listed Company and such other public company • having paid up capital of Rs.100 crores or more; or • which have, in aggregate, outstanding loans or borrowings or debentures or deposits exceeding Rs.200 crores 2. Composition of Audit Committee has been changed 3. Transitional period of 1 year 4. List of responsibilities laid down 5. Auditor of the Company along with KMP shall be present in Audit committee meeting, when AR is considered 6.Establishment of vigil mechanism-enable Directors and employees to report genuine concerns 7. Chairman of Audit committee need not attend AGM

  37. Vigil Mechanism • In the draft rules, the following companies: Listed companies and the: • (1) Companies which accept deposits from the public; and • (2) Companies which have borrowed money from banks and public financial institutions in excess of Rs.50 crores

  38. Section 178 (NEW)Nomination/Stakeholders Comm • Nomination Committee 1.For Listed Company and prescribed class of Companies – same criteria as for Audit Committee 2.Consisting of 3 or more Non – Executive Directors out of which not less than ½ shall be IDs 3.Role: Identify persons for Directors & Senior Mgmt Carry out evaluation of Directors performance Laying policies for appointment 4.All these policies needs to be discussed in the DR

  39. Section 178 (NEW)Nomination/Stakeholders Comm • Stakeholders Relationship Committee 1. More than 1000 security holders at any time during a FY 2.Chairperson-Non-Executive Director and such other members as may be decided by the Board 3. Consider and resolve the grievances of security holders

  40. Section 179 (Old sections 291,292)Powers of Board • Following powers have been introduced to be exercised by the Board only at their meeting: 1.To issue securities whether in India or outside; 2.To grant loans or give guarantee or provide security in respect of loans; 3. To approve financial statements and the Director’s Report; 4. To diversify the business of the Company; 5. To approve amalgamation, merger or reconstruction; 6.To take over a Company or acquire a controlling or substantial stake in another Company; and 7. Such other matters as may be prescribed.

  41. Section 180 (Old section 293)Restrictions on Powers of Board 1.Certain powers which could have been exercised by Board with the approval of general meeting only are now applicable to all the Companies instead of only Public Company and its Subsidiary Companies 2.Instead of OR, SR will be required 3.Specific definition of the word undertaking and substantially the whole undertaking 4.The power to contribute to charitable and other funds has been shifted to another section (SECTION APPL)

  42. Section 181 (Old section 293)Co. to contribute to charitable funds 1. A separate section has been provided 2. Word used is ‘bonafide’ charitable and other funds 3.Prior permission of the GM shall be required where contribution to political party exceeds 5% of the average net profits for the 3 immediately preceding FYs (SECTION APPL)

  43. Section 182 (Old section 293A)Political Contributions 1. The limits for political contribution by Company has been changed. Now instead of 5% as provided under the Companies Act 1956, contribution shall not exceed 7.5% of the average NP during the 3 immediately preceding FY 2.Contribution to any person for political purpose is no more allowed (SECTION APPL)

  44. Section 183 (Old section 293B)Contributions to National Defence Fund 1. Company may contribute such amount as it thinks fit to the National Defence Fund or any other Fund approved by the Central Government for the purpose of national defence 2.Every company shall disclose in its profits and loss account the total amount contributed (SECTION APPL)

  45. Section 184 (Old sections 299, 300)Disclosure of interest by director 1.Every director at the 1st meeting of the Board in which he participates as a director 2.And whenever there is any change in the disclosures already made, then at the first Board meeting held after such change 3.In case of Private Company also, an interested Director cannot vote or take part in the decision relating to matter in which he is interested 4.Notice need not be read at the meeting

  46. Section 185 (Old sections 295, 296)Loan to Directors etc. 1. Be it a public or private company-it cannot give any loan or provide any security or guarantee in connection with loan to a Director or any other person in whom the Director is interested 2. Company can give loan to MD/WTD without approval of shareholder 3. Any Company whose business in ordinary course is to provide loan or guarantee can provide loan at a bank rate not less than that declared by RBI 4.The requirement of provision of CG for giving loan to Director as required under the Companies Act 1956has been dispensed with (SECTION APPL)

  47. Section 186 (Old section 372A)Loan & Investment by Company 1.Disclosure to the members in FS, the full particulars of loan given, investment made or guarantee given or security provided and the purpose for which given 2.Cannot make investment through more than 2 layers of investment Companies; Exceptions are:  • A Company acquiring any other Company incorporated in a country outside India, if such other Company has investment subsidiaries beyond 2 layers as per the laws of such country • A Subsidiary Company from having any investment subsidiary for the purpose of meeting the requirements under any law or under any Rule or Regulation framed under any law for the time being in force

  48. Section 186 (Old section 372A)Loan & Investment by Company Now the clause for investment and loan is not only limited to inter corporate loans and investment; its scope has been extended to include loans and investment to any person also

  49. Section 187 (Old section 49)Investments of Company to be held in its own name 1.The section specifically provides that all investments made or held by a company in any property, security or other assets shall be held in its own name 2. Particulars to be mentioned in the Register 3.The punishment for contravention of provisions related to investment of company to be held in its own name has been increased

  50. Section 188 (Old sections 297, 314)Related Party Transactions 1.No approval of CG is required for entering into any related party transactions SR will be reqd-paid up capital Rs.1.00 crores and others 2.No approval of CG is required for appointment of any Director or any other person to any offices or place of profit in the Company or its Subsidiary 3.All the exceptions where no approval is required for related party transactions under the old Act, has been withdrawn 4.Ambit of ‘related party’ widened 5.The list of transactions falling under RPT widened

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