Important 43 Facts about companies bill 2012
Following are the top must know facts about the company’s bill 2012
Company’s bill 2012 will replace the Companies Act, 1956
Company’s act 1956 was amended 25 times.
First companies bill 2012 was first introduced as Companies bill 2009 in Lok Sabha on August 3, 2009.
Stages and important dates
a)Introduction Dec 14, 2011
b)Com. Ref. Jan 05, 2012
c)Com. Rep. Jun 26, 2012
d)Lok Sabha Dec 18, 2012 – passed
e)Rajya Sabha Aug 08, 2013 – passed
Now that both houses of Parliament have passed the Bill, it will go to President Pranab Mukherjee for his assent before it becomes law, following which the Ministry of Corporate Affairs will issue a notification.
The Bill has 470 clauses as against 658 Sections in the existing Companies Act, 1956.
The entire bill has been divided into 29 chapters.
Many new chapters have been introduced, viz., Registered Valuers (ch.17); Government companies (ch. 23); Companies to furnish information or statistics (ch. 25); Nidhis (ch. 26); National Company Law Tribunal & Appellate Tribunal (ch. 27); Special Courts (ch. 28).
New definitions are introduced in the Bill, some of which are accounting standards, auditing standards, associate company, CEO, CFO, control, deposit, employee stock option, financial statement, global depository receipt, Indian depository receipt, independent director, interested director, key managerial personnel, promoter, one person company, small company, turnover, voting right etc..
Definition of private company changed – the limit on maximum number of members increased from 50 to 200.
Private company which is a subsidiary of a public company shall be deemed to be a public company. Confusion whether such a company can retain the provisions in the articles of private company though now a public company removed.
Associate Company - A company is considered to be an associate company of the other, if the other company has significant influence over such company (not being a subsidiary) or is a joint venture company. Significant influence means control of at least 20 per cent. of total share capital of a company or of business decisions under an agreement.
Dormant Company - 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.
“expert” includes an engineer, a valuer, a chartered accountant, a company secretary, a cost accountant and any other person who has the power or authority to issue a certificate in pursuance of any law for the time being in force.
“foreign company” means any company or body corporate incorporated outside India which,—
(a)has a place of business in India whether by itself or through an agent, physically or through electronic mode; and
(b)conducts any business activity in India in any other manner.
“Key Managerial Personnel (KMP), in relation to a company, means—
(i) the Chief Executive Officer or the Managing Director or the Manager,
(ii) the Company Secretary;
(iii) the whole-time director;
(iv) the Chief Financial Officer; and
(v) such other officer as may be prescribed
“officer who is in default”, means any of the following officers of a company, namely:—
(ii)key managerial personnel;
(iii)where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified;
(iv)any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorises, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default;
(v)any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in a professional capacity;
(vi)every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance;
(vii)in respect of the issue or transfer of any shares of a company, the share transfer agents, registrars and merchant bankers to the issue or transfer.
Bill defines the term ‘promoter’ to mean a person -
(a)who has been named as such in a prospectus or is identified by the company in the annual return, or
(b)who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or
(c)in accordance with whose advice, directions or instructions the Board of Directors is accustomed to act.
Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity
Definition of subsidiary company in relation to any other company (that is holding company), changed to mean a company in which the holding company –
• Controls the composition of the Board of Directors; or
• Exercises or controls more than one half of the total share capital (instead of equity share capital as prescribed under the 1956 Act) either at its own or together with one or more of its subsidiary companies.
Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.
Small company has been defined as a company other than a public company having a paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed not exceeding Rs.5 crore or turnover of which does not exceed two crore rupees or such higher amount as may be prescribed not exceeding twenty crore rupees. [clause 2(85)].
The number of persons in any association or partnership not to exceed such number of persons as may be prescribed (not exceeding one hundred). The restriction not to apply to an association or partnership, constituted by professionals who are governed by special Acts. (clause 464)
CLASSIFICATION & REGISTRATION
a)Concept of One Person Company (OPC limited) introduced [Clause 2(62)].
b)Concept of Small companies have been introduced which shall be subjected to a lesser stringent regulatory framework [Clause 2(85)].
c)Provision for Conversion of Companies already registered has been introduced [Clause 18].
d)Registration process has been made faster and compatible with e-governance.
e)For the first time, articles may contain provisions for entrenchment [clause 5(3)].
f) A declaration, in the prescribed form, required to be filed with the Registrar at the time of registration of a company that all the requirements of the Act in respect of registration and matters precedent or incidental thereto have been complied with, will be required to signed by both - a person named in the articles as a director, manager or secretary of the company as well as by an advocate, a chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of the company. (clause 7)
a)A company shall, on and from the 15th day of its incorporation and at all times thereafter have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it.
b)Company is required to furnish to the Registrar verification of its registered office within 30 days of its incorporation in the prescribed manner.
c)Where a company has changed its name(s) during the last two years, it shall paint or affix or print, along with its name, the former name or names so changed during the last two years.
d)Notice of change, verified in the manner prescribed, shall be given to the Registrar, within 15 days of the change, who shall record the same.
Commencement of business
A company having a share capital shall not commence business or exercise any borrowing powers unless a declaration is filed with Registrar by a director verified in the manner as may be prescribed that:
every subscriber to the memorandum has paid the value of shares agreed to be taken by him;
Paid-up capital is not less than Rs. five lakh/ one lakh
the company has filed with the Registrar the verification of its registered office
Punishment for fraudulently inducing persons to invest money (clause 36)
Any person who, either knowingly or recklessly makes any statement, promise or forecast which is false, deceptive or misleading, or deliberately conceals any material facts, to induce another person to enter into, or to offer to enter into any agreement for, or with a view to, obtaining credit facilities from any bank or financial institution shall be liable for punishment for fraud. This provision is proposed to help in curbing a major source of corporate delinquency.
E-Governance proposed for various company processes like maintenance and inspection of documents in electronic form, option of keeping of books of accounts in electronic form, financial statements to be placed on company’s website, holding of board meetings through video conferencing/other electronic mode; voting through electronic means.
If a company with intent to defraud, issues a duplicate certificate of shares, the company shall be punishable with fine which shall not be less than 5 times the face value of the shares involved in the issue of the duplicate certificate but which may extend to 10 times the face value of such shares or rupees 10 crores, whichever is higher. Stringent penalties have also been imposed for defaulting officers of the company. [clause 46(5)]
BOARD AND GOVERNANCE
Number of directors:
Minimum : Public company -3 Private -2 , OPC-1.
Maximum : limit increased to 15 from 12 .
More directors can be added by passing of special resolution without getting the approval of Central Government as earlier required.
At least one woman director shall be on the Board of such class or classes of companies as may be prescribed.
Every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days in the previous calendar year. [clause 149(2)].
Appointment of Key Managerial Personnel [Clause 203(1)]
Every company belonging to such class or classes of companies as may be prescribed shall have the whole-time key managerial personnel.
Unless the articles of a company provide otherwise, an individual shall not be the chairperson of the company as well as the managing director or Chief Executive Officer of the company at the same time [Proviso to Clause 203(1)]
Every Company Secretary being a KMP shall be appointed by a resolution of the Board which shall contain the terms and conditions of appointment including the remuneration. If any vacancy in the office of KMP is created, the same shall be filled up by the Board at a meeting of the Board within a period of six months from the date of such vacancy [Clause 203 (2) & (4)].
If a company does not appoint a Key Managerial Personnel, the penalty proposed is :
On company – one lakh rupees which may extend to five lakh rupees.
On every director and KMP who is in default – 50,000 rupees and 1,000 rupees per day if contravention continues.
Concept of independent directors has been introduced for the first time in Company Law: [clause 149(5)]
All listed companies shall have at least one-third of the Board as independent directors.
Such other class or classes of public companies as may be prescribed by the Central Government shall also be required to appoint independent directors.
The independent director has been clearly defined in the Bill.
Nominee director nominated by any financial institution, or in pursuance of any agreement, or appointed by any government to represent its shareholding shall not be deemed to be an independent director.
An independent director shall not be entitled to any remuneration other than sitting fee, reimbursement of expenses for participation in the Board and other meetings and profit related commission as may be approved by the members.
An Independent director shall not be entitled to any stock option.
Only an independent director can be appointed as alternate director to an independent director. [clause 161(2)].
Person other than retiring director
If a person other than retiring director stands for directorship but fails to get appointed, he or the member intending to propose him as a director, as the case may be, shall be refunded the sum deposited by him, if he gets more than twenty five per cent of total valid votes [clause 160(1)].
Resignation of director
A director may resign from his office by giving notice in writing. The Board shall, on receipt of such notice, intimate the Registrar and also place such resignation in the subsequent general meeting of the company. [clause 168(1)]. The director shall also forward a copy of resignation alongwith detailed reasons for the resignation to the Registrar.
The notice shall become effective from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later. [clause 168(2)].
If all the directors of a company resign from their office or vacate their office, the promoter or in his absence the Central Government shall appoint the required number of directors to hold office till the directors are appointed by the company in General Meeting [clause 168(3)].
Participation of directors through video-conferencing
Participation of directors at Board Meetings has been permitted through video-conferencing or other electronic means, provided such participation is capable of recording and recognizing. Also, the recording and storing of the proceedings of such meetings should be carried out [clause 173(2)].
The Central Government may however, by notification, specify such matters which shall not be dealt with in the meeting through video-conferencing and such other electronic means as may be prescribed. [clause 173(2)]
CORPORATE SOCIAL RESPONSIBILITY (CLAUSE 135)
Every company having net worth of rupees 500 crore or more, or turnover of rupees 1000 crore or more or a net profit of rupees 5 crore or 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 CSR Committee shall formulate and recommend Corporate Social Responsibility Policy which shall indicate the activity or activities to be undertaken by the company as specified in schedule VII and shall also recommend the amount of expenditure to be incurred on the CSR activities.
The Board of every company shall ensure that the company spends in every financial year atleast 2% of the average net profits of the company made during the three immediately preceding financial years in pursuance of its CSR policy.
Where the company fails to spend such amount, the Board shall in its report specify the reasons for not spending the amount. The approach is to 'comply or explain’.
The company shall give preference to local areas where it operates, for spending amount earmarked for Corporate Social Responsibility (CSR) activities.
A company shall appoint an individual or a firm as an auditor at annual general meeting who shall hold office till the conclusion of sixth annual general meeting.
However, the company shall place the matter relating to such appointment for ratification by members at every annual general meeting.
No listed company or a company belonging to such class or classes of companies as may be prescribed, shall appoint or re-appoint—
(a) an individual as auditor for more than one term of five consecutive years; and
(b) an audit firm as auditor for more than two terms of five consecutive years:
(i) an individual auditor who has completed his term under clause (a) shall not be eligible for re-appointment as auditor in the same company for five years from the completion of his term;
(ii) an audit firm which has completed its term under clause (b), shall not be eligible for re-appointment as auditor in the same company for five years from the completion of such term:
NATIONAL FINANCIAL REPORTING AUTHORITY (NFRA) (CLAUSE 132)
Ø The Central Government may be notification constitute a National Financial Reporting Authority to provide for matters related to accounting and auditing standards.
Ø Notwithstanding anything contained in any other law for the time being in force, the National Financial Reporting Authority shall––
(a) make recommendations to the Central Government on the formulation and laying down of accounting and auditing policies and standards for adoption by companies or class of companies or their auditors, as the case may be;
(b) monitor and enforce the compliance with accounting standards and auditing standards in such manner as may be prescribed;
(c) oversee the quality of service of the professions associated with ensuring compliance with such standards, and suggest measures required for improvement in quality of services and such other related matters as may be prescribed; and
(d) perform such other functions relating to clauses (a), (b) and (c) as may be prescribed.
Notwithstanding anything contained in any other law for the time being in force, the National Financial Reporting Authority shall—
(a) have the power to investigate, either suo moto or on a reference made to it by the Central Government, for such class of bodies corporate or persons, in such manner as may be prescribed into the matters of professional or other misconduct committed by any member or firm of chartered accountants, registered under the Chartered Accountants Act, 1949:
Provided that no other institute or body shall initiate or continue any proceedings in such matters of misconduct where the National Financial Reporting Authority has initiated an investigation under this section;
(b) have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit.
(c) where professional or other misconduct is proved, have the power to make order for—
(A) imposing penalty of -
(I) not less than one lakh rupees, but which may extend to five times of the fees received, in case of individuals; and
(II) not less than ten lakh rupees, but which my extend to ten times of the fees received, in case of firms;
(B) debarring the member or the firm from engaging himself or itself from practice as member of the institute for a minimum period of six months or for such higher period not exceeding ten years as may be decided by the National Financial Reporting Authority.
Any person aggrieved by any order of the National Financial Reporting Authority, may prefer an appeal before the Appellate Authority constituted by the Central Government.
INVESTOR PROTECTION MEASURES
Issue and transfer of securities and non-payment of dividend by listed companies, shall be administered by SEBI by making regulations.(Clause24)
An act of fraudulent inducement of persons to invest money is punishable with imprisonment for a term which may extend to ten years and with fine which shall not be less than three times the amount involved in fraud.(Clause 36)
A suit may be filed by a person who is affected by any misleading statement or the inclusion or omission of any matter in the Prospectus or who has invested money by fraudulent inducement. (Clause 37).
Class action suits
For the first time, a provision has been made for class action suits. It is provided that specified number of member(s), depositor(s) or any class of them, may, if they are of the opinion that the management or control of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors, file an application before the Tribunal on behalf of the members or depositors.
Where the members or depositors seek any damages or compensation or demand any other suitable action from or 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 or who acted in a fraudulent, unlawful or wrongful manner.
The order passed by the Tribunal shall be binding on the company and all its members, depositors and auditors including audit firm or expert or consultant or advisor or any other person associated with the company. (clause 245)
Serious Fraud Investigation Office (clause 211)
Statutory status to SFIO has been proposed. Investigation report of SFIO filed with the Court for framing of charges shall be treated as a report filed by a Police Officer. SFIO shall have power to arrest in respect of certain offences of the Bill which attract the punishment for fraud. Those offences shall be cognizable and the person accused of any such offence shall be released on bail subject to certain conditions provided in the relevant clause of the Bill.
Stringent penalty provided for fraud related offences.
Fraud defined (Clause 447)
The term "Fraud" has for the first time been defined in the Bill. Any person who is found to be guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud.
Where the fraud in question involves public interest, the term of imprisonment shall not be less than three years
Prohibition of insider trading
New clause has been introduced with respect to prohibition of insider trading of securities. The definition of price sensitive information has also been included [clause 195].
Prohibition on Forward dealings
Directors and the key managerial personnel of a company are prohibited from forward dealings in securities of the company.(clause 194).
National Company Law Tribunal and Appellate Tribunal (Clause 408 and 410)
The Central Government shall, by notification, constitute, a Tribunal to be known as National Company Law Tribunal and an Appellate Tribunal to be known as National Company law Appellate Tribunal.
For the speedy trial of offences, the Central Government has been empowered to establish special courts in consultation with the Chief Justice of the High Court within whose jurisdiction the judge is to be appointed. (clause 435).
All offences under this Act shall be triable by the Special Court established for the area in which the registered office of the company in relation to which the offence is committed or where there are more special courts than one for such area, by such one of them as may be specified in this behalf by the High Court concerned. (clause 436)
The Special Court would have the liberty to try summary proceedings for offences punishable with imprisonment for a term not exceeding three years, although it may order for the regular trial. (clause 436).
Gives statutory recognition to CFO as ‘Key Managerial Personnel’
Companies Bill, 2012 Allows companies to file shelf prospectus with Registrar at the stage of the first offer of securities SEBI to prescribe companies who can file shelf prospectus
Company can change object of fund raising after shareholder approval via special resolution
Dissenting shareholders to get exit opportunity
Preference shares can be issued for a period exceeding 20 years for infra projects
National Financial Reporting Authority
To recommend formulation of accounting and auditing policies
To monitor and enforce compliance with accounting standards
To oversee quality of service by audit firms
Can investigate members & firms registered under Chartered Accountants Act, 1949
To have powers available to civil court under CPC
Mandates compulsory rotation of individual auditors every 5 years
Mandates audit firm rotation every 10 years
An auditor cannot audit more than 20 companies
In case of a firm, limit is applicable to each Partner
Auditor to report any offence involving fraud to the Central government
Penalty of Rs 1 lakh-25 lakh in case of non-compliance
Not entitled to stock options
Not entitled to any remuneration other than sitting fees, profit-related commission, reimbursement
To hold separate meeting once a year without the presence of non-independent directors & management
To be evaluated by the entire Board of Directors
Labile only for those acts of omission or commission which occurred with his knowledge & where he didn’t act diligently
Specified number of members/depositors of a company entitled to file a class action suit before the NCLT
Damages can be claimed for unlawful or wrongful acts from or against the company, its directors, auditors, experts, advisors etc.
Provides for constitution of National Company Law Tribunal & Appellate Tribunal
Companies Bill, 2012
To dispose off cases within 90 days
To consist of President, Judicial & Technical members
Technical Member may retain his lien with his parent cadre or Ministry for a period not more than 1 year
Allows merger of Indian companies with foreign companies
In case of merger of foreign company into Indian company, payment can be made in cash, Depository Receipts
Companies with networth of Rs 500 cr or more; turnover of Rs 1000 cr or more; Rs 5 cr or more must constitute CSR Committee
Committee to consist of 3 or more Directors of which one should be independent
Committee to recommend CSR policy to Board
CSR amount should be preferably be spent in local areas where company operates
Board to ensure 2% of average net profit spent on CSR
Board to explain reasons for non-compliance in their report
Suggested Reading -
Read Complete Companies Bill 2012 Bare Act
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Sunday, August 11, 2013
Tags – Companies Bill 2012 Important Facts
11 August 2013
Important 43 Facts about companies bill 2012