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Companies Act 2013 and Amendments: Dr. Vikas Bharara

This faculty development program focuses on the Companies Act 2013 and its amendments, covering topics such as the meaning and definition of a company, the need for the Companies Act, and the new concepts introduced under the Act.

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Companies Act 2013 and Amendments: Dr. Vikas Bharara

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  1. FACULTY DEVELOPMENT PROGRAMME ON QUALITY IMPROVEMENT IN HIGHER EDUCATION (NOVEMBER 12-17, 2018) Companies Act 2013 And Amendments Dr. VikasBharara

  2. CONTENTS Meaning & Definition of Company Meaning of Companies Act Need of Companies Act The Companies Act 1913 The Companies Act 1956 The Companies Act 2013 New Concepts under Companies Act 2013 The Companies Act 1956 vs The Companies Act 2013 The Companies (Amendment) Act, 2017 The Companies (Amendment) Act, 2018

  3. COMPANY The word 'company' is derived from the Latin words, 'com' which means 'together' and the word 'panies' which means 'bread‘. A company is thusan association of persons who took their meal together. In simple language the term company means an association of persons formed for some common purpose.

  4. DEFINITION The Indian Companies Act 2013 section 2(20) defines a company as "a company formed and registered under this act or under other previous Acts". This is not a comprehensive definition. A more popular definition is the one given by the Lord Justice Lindley. According to him a company is "an association of many persons who contribute money or money's worth to a common stock and employed it in some trade or business and who share the profit or loss arising there from.

  5. COMPANIES ACT An Act of Parliament which regulates the workings of companies, stating the legal limits within which companies may do their business. Ministry of Corporate Affairs (MCA) regulates corporate affairs in India through the Companies Act and other allied Acts, Bills & Rules. MCA also protects investors and offers many important services to stakeholders.

  6. NEED OF COMPANIES ACT CORPORATE GOVERNANCE Governance refers to the processes of governing, whether undertaken by a government, market or network, whether over a family, tribe, formal or informal organization or territory and whether through the laws, norms, power or language. Corporate Governance refers to the way a corporation is governed. It is the technique by which companies are directed and managed. It means carrying the business as per the stakeholders' desires. It is actually conducted by the board of Directors and the concerned committees for the company's stakeholder's benefit.

  7. THE COMPANIES ACT 1913 The Indian Companies Act, 1913, was based on the English Companies (Consolidation) Act of 1908 and followed generally the provisions of that Act. The English Act of 1908 was examined by a committee presided over by Lord Wrenbury.

  8. THE COMPANIES ACT 1956 (1/2) The Companies Act 1956 is administered by the Government of India through the Ministry of Corporate Affairs and the Offices of Registrar of Companies, Official Liquidators, Company Law Board, etc. The Act is 658 sections long. This act states and discusses every single provision requires or may need to govern a company. It mentions different what type on companies; their differences and constitution.

  9. THE COMPANIES ACT 1956 (2/2) It explains about the whole procedure of the how to form a company, its fees procedure, name, its members, the motive behind the company, its share capital, about its general board meetings, management and administration of the company including an important part which is the directors as they are the decision makers and they take all the important decisions for the company their main responsibility and liabilities about the company matter the most. The Act explains about the winding of the business as well and what happens in detail during liquidation period.

  10. THE COMPANIES ACT 2013 (1/2) The Companies Act 2013 passed by the Parliament received the assent of the President of India on 29th August 2013. The Act consolidates and amends the law relating to companies. The Companies Act 2013 was notified in the Official Gazette on 30th August 2013. Some of the provisions of the Act have been implemented by a notification published on 12th September, 2013. The act is now in force w.e.f. 1st April 2014.

  11. THE COMPANIES ACT 2013 (2/2) Chapters: 29 Sections: 470 All the schedules of the Act 2013 have been notified by MCA vide Notification dated 26/03/2014.

  12. NEW CONCEPTS One Person Companies (OPC) Women Directors Independent Director Corporate Social Responsibility. Registered Valuers Class Action Suits Dormant Company Serious Fraud Investigation Office Fast Track Mergers Nidhis Rotation of Auditors

  13. ONE PERSON COMPANY (OPC) [Section 2(62)] (1/3) The concept of One Person Company [OPC] is a new form of business, introduced by The Companies Act, 2013 [No.18 of 2013], thereby enabling Entrepreneur(s) carrying on the business in the Sole Proprietor form of business to enter into a Corporate Framework. One Person Company is a hybrid of Sole Proprietor and Company form of business, and has been provided with concessional/relaxed requirements under the Act. One Person Company is a company with only one person as a member.

  14. ONE PERSON COMPANY (OPC) [Section 2(62)] (2/3) An OPC is classified as a private company under Companies Act. One Person Company avails all the benefits of a private limited company such as separate legal entity, protecting personal assets from business liability and perpetual succession. One Person Company is a Company registered with ONLY ONE PERSON as its shareholder. It was first recommended in India by an expert committee (headed by Dr. J.J. Irani) in 2005. At present, there are 18,437 One Person Companies in India.

  15. ONE PERSON COMPANY (OPC) [Section 2(62)] (3/3) Shareholder: Only a natural person, who is an Indian citizen and resident in India shall be eligible to incorporate a One Person Company. Nominee for the Shareholder: The shareholder shall nominate another person who shall become the shareholder in case of death/incapacity of the original shareholder. Director: Must have a minimum of One Director, the Sole Shareholder can himself be the Sole Director. The Company may have a maximum number of 15 directors.

  16. WOMAN DIRECTOR [Section 149(1)] (1/2) The Securities and Exchange Board of India (SEBI) vide its circular dated 17th April, 2014 in alignment with the requirement of Section 149 of the Companies Act, 2013, under corporate governance norms made it mandatory for the following class of companies to appoint at least one Woman Director on their Board of Directors by 31st March, 2015: (i) Every Listed Company; (ii) Every other Public Company having: (a) paid-up share capital of Rs. 100 crore or more; or   (b) turnover of Rs. 300 crore or more. Paid-up share capital or turnover, as the case may be, as on the last date of latest audited financial statements has to be taken into account.

  17. WOMAN DIRECTOR [Section 149(1)] (2/2) Time Frame for appointment: Every listed company shall appoint one woman director with in one year of commencement and every public company with paid up capital of Rs. 100 Crores or turnover of Rs. 300 Crores or more have to compulsory appoint at least one Woman Director within 3 years of commencement. Intermittent Vacancy: In case of any intermittent vacancy of woman director the same has to be filled-up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy whichever is later.

  18. INDEPENDENT DIRECTOR [Section 149 (6)] (1/3) An independent director in relation to a company, means a director other than a managing director or a whole-time director or a nominee director: (a) Who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience; (b) Who is or was not a promoter of the company or its holding, subsidiary or associate company and who is not related to promoters or directors in the company, its holding, subsidiary or associate company; (c) Who has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year.

  19. INDEPENDENT DIRECTOR [Section 149 (6)] (2/3) The appointment of independent director shall be approved by the company in general meeting with the explanatory statement annexed to the notice of the general meeting called to consider the said appointment. Every independent director shall at the first meeting of the Board in which he participates as a director and thereafter at the first meeting of the Board in every financial year, give a declaration that he meets the criteria of independence. An independent director shall not be entitled to any stock option and may receive remuneration by way of fee, reimbursement of expenses for participation in the Board and other meetings and profit related commission as may be approved by the members.

  20. INDEPENDENT DIRECTOR [Section 149 (6)] (3/3) An independent director shall be held liable, only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently. The provisions relating to retirement of directors by rotation shall not be applicable to appointment of independent directors.

  21. CORPORATE SOCIAL RESPONSIBILITY (Section 135) According to Sec. 135, every company having net worth of Rs. 500 croreor more, or turnover of Rs. 1000 croreor more or a net profit of Rs. 5 croreor more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director. The Board's report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee. The Board of every company shall ensure that the company spends, in every financial year, at least 2% of its average net profits during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.

  22. REGISTERED VALUERS (1/2) Where a valuation is required to be made in respect of any property, stocks, shares, debentures, securities or goodwill or any other assets or net worth of a company or its liabilities under the provision of this Act, it shall be valued by a person having such qualifications and experience and registered as a valuer in such manner, on such terms and conditions as may be prescribed and appointed by the audit committee. The valuer appointed under sub-section (1) shall, (a) Make an impartial, true and fair valuation of any assets which may be required to be valued; (b) Exercise due diligence while performing the functions as valuer; (c) Make the valuation in accordance with such rules as may be prescribed.

  23. REGISTERED VALUERS (2/2) If a valuercontravenes the provisions of this section or the rules made there under, the valuer shall be punishable with fine which shall not be less than Rs. 25000 but which may extend to Rs. 100000. If the valuer has contravened such provisions with the intention to defraud the company or its members, he shall be punishable with imprisonment for a term which may extend to 1 year and with fine which shall not be less than Rs. 100000 which may extend to Rs. 500000. A valuer shall also be liable to: (i) Refund the remuneration received by him to the company; and (ii) Pay for damages to the company or to any other person for loss arising out of incorrect or misleading statements of particulars made in his report.

  24. CLASS ACTION SUITS [Section 245(1)] (1/3) The concept of Class Action Suits is among one of the many novelties introduced by the Companies Act, 2013. The first time class action suit came to the spotlight in the context of securities market was when the Satyam scam broke out in 2009. At that time, the Indian investors in India couldn’t take any legal recourse against the company while their counterparts in USA filed class action suit claiming damages from the company and the auditing firm.  Credit to the Satyam scam, India has introduced class action suit in the new Companies Act, 2013 by means of Section 245 which is yet to be notified by the Ministry of Corporate Affairs.

  25. CLASS ACTION SUITS [Section 245(1)] (2/3) In simple terms, a class action suit refers to a lawsuit that allows a large number of people with a common interest in a matter to sue or be sued as a group. It is a procedural device enabling one or more plaintiffs to file and prosecute litigation on behalf of a larger group or class, wherein such class has common rights and grievances. Class action suit can be filed against the: Company, Any of its directors,Auditor, including audit firm, Expert or advisor or consultant or any other person. In case of any claim against an audit firm, the liability shall be of the firm as well as of each partner who was involved in making any improper or misleading statement of particulars in the audit report.

  26. CLASS ACTION SUITS [Section 245(1)] (3/3) A Class Action Suit may be filed by: Member or members Depositor or depositors The Central Government, if it is of the opinion that the affairs of the company are being conducted in a manner prejudicial to public interest. Any company which fails to comply with an order passed by the Tribunal under Section 245 shall be punishable with fine from Rs. 5 Lakhsto Rs. 25 Lakhsand every officer of the company who is in default shall be punishable with imprisonment for a term to 3 years and with fine which shall from Rs. 25000 to Rs. 100000.

  27. DORMANT COMPANY (1/2) Where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar for obtaining the status of a dormant company. The Registrar on consideration of the application shall allow the status of a dormant company to the applicant and issue a certificate in such form as may be prescribed to that effect. The Registrar shall maintain a register of dormant companies in such form as may be prescribed.

  28. DORMANT COMPANY (2/2) In case of a company which has not filed financial statements or annual returns for two financial years consecutively, the Registrar shall issue a notice to that company and enter the name of such company in the register maintained for dormant companies. A dormant company shall have such minimum number of directors, file such documents and pay such annual fee as may be prescribed to the Registrar to retain its dormant status in the register and may become an active company on an application made in this behalf accompanied by such documents and fee as may be prescribed.

  29. SERIOUS FRAUD INVESTIGATION OFFICE (1/2) The Central Government shall, by notification, establish an office to be called the Serious Fraud Investigation Office to investigate frauds relating to a company. The Serious Fraud Investigation Office shall be headed by a Director and consist of such number of experts from the following fields to be appointed by the Central Government from amongst persons of ability, integrity and experience in: (i) banking; (ii) corporate affairs; (iii) taxation; (iv) forensic audit; (v) capital market; (vi) information technology; (vii) law; or (viii) such other fields as may be prescribed.

  30. SERIOUS FRAUD INVESTIGATION OFFICE (2/2) The Director appointed in the Serious Fraud Investigation Office shall be an officer not below the rank of a Joint Secretary to the Government of India having knowledge and experience in dealing with matters relating to corporate affairs. The Central Government may appoint experts and other officers and employees in the Serious Fraud Investigation Office as it considers necessary for the efficient discharge of its functions under this Act. The terms and conditions of service of Director, experts, and other officers and employees of the Serious Fraud Investigation Office shall be such as may be prescribed.

  31. FAST TRACK MERGER The Companies Act, 2013 has separate provisions of fast track merger under Section 233 of Companies Act, 2013. These provisions are notwithstanding with the normal provisions of merger under Section 230 and 232 of this Act. Under fast track merger processes Central Government has the power to sanction all such scheme and there will be no requirement to approach National Company Law Tribunal (powers presently exercised by the High Court).

  32. NIDHIS (1/3) “Nidhi” means a company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with such rules as are prescribed by the Central Government for regulation of such class of companies. A Nidhi to be incorporated under the Act shall be a public company and shall have a minimum paid up equity share capital of five lakh rupees. Every Company incorporated as a “Nidhi” shall have the last words ‘Nidhi Limited’ as part of its name.

  33. NIDHIS (2/3) Nidhi shall not issue preference shares. If preference shares had been issued by a Nidhi before the commencement of Companies Act 2013, such preference shares shall be redeemed in accordance with the terms of issue of such shares. Every Nidhi shall issue equity shares of the nominal value of not less than ten rupees each. Every Nidhi shall ensure that it has not less than two hundred members. A savings account holder and a recurring deposit account holder shall hold at least one equity share of rupees ten.

  34. NIDHIS (3/3) The fixed deposits shall be accepted for a minimum period of six months and a maximum period of sixty months and recurring deposits shall be accepted for a minimum period of twelve months and a maximum period of sixty months. A Nidhi may offer interest on fixed and recurring deposits at a rate not exceeding the maximum rate of interest prescribed by the Reserve Bank of India which the Non-Banking Financial Companies can pay on their public deposits. A Nidhi shall not accept deposits exceeding twenty times of its Net Owned Funds (NOF) as per its last audited financial statements.

  35. ROTATION OF AUDITORS Every company is required at its first annual general meeting (AGM) to appoint an individual or a firm as an auditor. The auditor shall hold office from the conclusion of that meeting till the conclusion of its 6th AGM and thereafter till the conclusion of every 6th meeting. The appointment of auditor is to be ratified at every AGM. Individual Auditors are to be compulsorily rotated every 5 years and audit firm every 10 years in listed companies & certain other classes of companies, as may be prescribed. Transition period of 3 years provided to the companies to comply with the mandatory rotation of auditor requirement.

  36. THE COMPANIES (AMENDMENT) ACT, 2017 The Companies (Amendment) Act, 2017 received the assent of the President on 3 January 2018, but different provisions of the Amendment Act will be brought into force on different dates by the Central Government.

  37. THE COMPANIES (AMENDMENT) ACT, 2018 Amendments to the following key-provisions were notified on 7 May 2018:

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