companies amendment act,2014 & important provisions

Companies (Amendment) Bill, 2014

Omitting requirement for minimum paid up share capital, and consequential changes. (For ease of doing business).

Making common seal optional, and consequential changes for authorization for execution of documents. (For ease of doing business)


Prescribing specific punishment for deposits accepted under the new Act. This was left out in the Act inadvertently. (To remove an omission)

(a) the company shall, in addition to the payment of theamount of deposit or part thereof and the interest due, bepunishable with fine which shall not be less than one crorerupees but which may extend to ten crore rupees; and(b) every officer of the company who is in default shall bepunishable with imprisonment which may extend to sevenyears or with fine which shall not be less than twenty-fivelakh rupees but which may extend to two crore rupees, orwith both:Provided that if it is proved that the officer of the companywho is in default,has contravened such provisions knowinglyor wilfully with the intention to deceive the company or itsshareholders or depositors or creditors or tax authorities, heshall be liable for action under section 447.”.


Prohibiting public inspection of Board resolutions filed with the ROC. (To meet corporate demand)

Filing Board resolutions• Authorize buy-back of securities under section 68;

• Issue securities, including debentures, whether in or outside India;

• Borrow monies;

• Invest the funds of the company;

• grant loans or give guarantee or provide security in respect of loans;

• Approve financial statement and the Board’s report;

• Diversify the business of the company;

• Approve amalgamation, merger or reconstruction;

• Take over a company or acquire a controlling or substantial stake in another company;

• Make political contributions;

Filing Board resolutions..• Appoint or remove key managerial personnel (KMP);

• Take note of appointment(s) or removal(s) of one level below the Key

Management Personnel;

• Appoint Internal auditors and secretarial auditor;

• Take note of the disclosure of director’s interest and shareholding;

• Buy, sell investments held by the company (other than trade investments),

constituting five percent or more of the paid up share capital and free reserves of

the investee company;

• Invite or accept or renew public deposits and related matters;

• Approve quarterly, half yearly and annual financial statements or financial results

as the case may be.


Including provision for writing off past losses/depreciation before declaring dividend for the year. This was missed in the Act but included in the Rules. 123

Rectifying the requirement of transferring equity shares for which unclaimed/unpaid dividend has been transferred to the IEPF even though subsequent dividend(s) has been claimed. (To meet corporate demand)


Enabling provisions to prescribe thresholds beyond which fraud shall be reported to the Central Government (below the threshold, it will be reported to the Audit Committee). Disclosures for the latter category also to be made in the Board’s Report. (Demand of auditors) threshold limit yet to be notified


Exemption u/s 185 (Loans to Directors) provided for loans to wholly owned subsidiaries and guarantees/securities on loans taken from banks by subsidiaries. (This was provided under the Rules but being included in the Act as a matter of abundant caution).


Empowering Audit Committee to give omnibus approvals for related party transactions on annual basis. (Align with SEBI policy and increase ease of doing business)

Replacing ‘special resolution’ with ‘ordinary resolution’ for approval of related party transactions by non-related shareholders. (Meet problems faced by large stakeholders who are related parties)


Exempt related party transactions between holding companies and wholly owned subsidiaries from the requirement of approval of non-related shareholders. (corporate demand)

Special Courts to try only offences carrying imprisonment of two years or more. (To let magistrate try minor violations).

Expect few amendment by way of circular, notification, amendment etc

at least for PVT Companies

Other amendments• Change in Small Company as per ROD removal of difficulties

dated February 13, 2015 issued by the Ministry of Corporate Affairs

• 85) ‘‘small company’’ means a company, other than a public company,—

• (i) paid-up share capital of which does not exceed fifty lakhrupees or such higher amount as may be prescribed which shall not be more than five crore rupees; and

• (ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees:

Small Company

• Provided that nothing in this clause shall apply to— (A) a holding company or a subsidiary company; (B) a company registered under section 8; or (C) a company or body corporate governed by any special Act;

• In view of the above it now stands clarified that, a company will be considered as a small company only if both the conditions specified at (i) and (ii) are met. For eg., a company with paid up share capital of Rs. 25 lakhs and turnover of Rs. 20 crore, is not a small company in terms of section 2(85) as only one criteria with regard to capital is met. Similarly, if the paid up capital of the company is Rs. 60 lakhs and its turnover is Rs.1 crore, it would not be a small company.

Director Resignation

• In the Companies (Appointment and Qualification of Directors) Rules, 2014, in rule 16, the following proviso shall be inserted, namely:— “Provided that in case a company has already filed Form DIR-12 with the Registrar under rule 15, a foreign director of such company resigning from his office may authorise in writing a practising chartered accountant or cost accountant in practice or company secretary in practice or any other resident director of the company to sign Form DIR-11 and file the same on his behalf intimating the reasons for the resignation.”

Books of account

• Notice of address at which books of account are to be maintained.- For the purposes of the first proviso to sub-section (l) of section 128, the notice regarding address at which books of account may be kept shall be in Form AOC-5

• Cost Records & Cost Audit

Cost Records

Overall turnover Rs.35 Crores

Sectors Specified

Cost Audit

overall annual turnover is Rs.50 Crores or more and the aggregate turnover of the individual productor services for which cost records are required to be maintained is

Rs.25 Crores or more.

(falling under Table A )

overall annual turnover is Rs.100 Crores or more and the aggregate turnover of the individual productor services for which cost records are required to be maintained is

Rs.35 Crores or more

falling under Table B

• For companies engaged in sectors covered by Serial No.12 (coffee and tea), Serial Nos.24 to 32 (milkpowder, pesticides, plastics and polymers, tyres and tubes, papers, textiles, glass, other machinery, electrical or electronics machinery) of Table B, the Rules will apply only from 01st April, 2015

Board’s Report134

Board’s Report 134

• Extract of the Annual Return in Form MGT 9.

– Registration Details

– Principle Business Activities

– Details of Holding , Subsidiary & Associate

– Shareholding Pattern

– Indebtedness

– Remuneration of Directors & KMP

– Penalties/Punishment/Compounding

Board’s Report 134.......• Number of Meetings of the Board

• Directors responsibility statement

• Independent Directors statement ( 149(6)

• Extract of the Annual Return in Form MGT 9.

• Statement of Declaration of Independence by Independent Directors that he meets the criteria provided u/s 149(6)

Board’s Report 134.......

• For specified companies: Company’s Policy on Directors’ appointment and remuneration, criteria for determining qualifications/ independence of a Director & matters covered u/s 178(3) (which also covers KMP & senior management)

• This is applicable for companies covered u/s 178(1) relating to Nomination & Remuneration Committee i.e.

• Every Listed Company • Public company with paid up share capital of Rs 10 crores or more • Public company with Turnover of Rs 100 crores or more • Public company with outstanding loans/ deb/ deposits of > Rs 50

crores• as on date of last audited accounts


• Explanations or comments by the Board on everyqualification, reservation or adverse remark or disclaimermade by auditors & the Company Secretary in practice inhis Secretarial Audit Report (such audit required for publicco with paid-up share capital Rs 50 crores or more ORTurnover of Rs 250 crores or more

• Particulars of loans, guarantees or investments u/s 186.

• Particulars of RPTs referred to u/s 188(1) along withjustification for entering such contract/ arrangement inform AOC - 2.


• A statement indicating development and implementationof a risk management policy including identification ofelements of risk which in the opinion of the Board maythreaten the existence of the Company

• CSR Policy and initiatives taken during the year andreasons for not spending the money

• A statement indicating the manner in which formal annualevaluation has been made by the Board of its ownperformance and that of its Committees and individualdirectors (applicable to listed cos. and specified public co)


• Equity shares with differential rights, if any

• ESOP, if any, voting

• Details of Vigil mechanism, if applicable

(a) the Companies which accept deposits from the public; (b) the Companies which have borrowed money from banks and public financial institutions in excess of fifty crorerupees..


• Penalty provisions u/s 134(8) Company Fine of Rs 50000 to Rs 25 lakhs

• Every Officer in default Imprisonment up to 3 years Or

• with fine INR 50K to INR 5 lakhs Or

• with Both

188 - RELATED PARTY TRANSACTIONS

RPT• In the Companies Act,2013, considerable relaxations have been made

from Government for Approval in respect of related party transactions.• Really, it is a big relief for the corporate. Now it is more disclosure as

against the approval procedures.• However, Act and Rules governs RPT in details.

• In this presentation, I would like to cover the following areas.• 1.Applicability • 2. Definition/Meaning of Related Party• 3. Transactions which are deemed as related party transactions 4.

Nature of approvals required• 5. Disclosure norms• 6. Exemptions/Non-applicability• 7. Consequences of non-compliance• 8. Maintenance of Register

RPT- Applicability

• Provisions relating to related party transaction is applicable for Private Company and Public Company as of now.

Definition/Meaning of Related Party• Who is relative• As per section 2(77) ‘‘relative’’, with reference to any person, means any one

who is related to• another, if—• (i) they are members of a Hindu Undivided Family;• (ii) they are husband and wife; or• (iii) one person is related to the other in such manner as may be prescribed

• According to the rules• 1. Father including step father• 2. Mother including step mother• 3.Son including step son• 4. Son’s wife• 5.Daughter• 6.Daughter Husband• 7.Brother including step brother• 8.Sister including step sister

Definition/Meaning of Related Party • Who is related Party?• As per section 2 (76) “related party”, with reference to a company, means—• (i) a director or his relative;• (ii) a key managerial personnel or his relative;• (iii) a firm, in which a director, manager or his relative is a partner;• (iv) a private company in which a director or manager is a member or• director;• (v) a public company in which a director or manager is a director or holds along with his

relatives, more than two per cent. of its paid-up share capital;• (vi) any body corporate whose Board of Directors, managing director or• manager is accustomed to act in accordance with the advice, directions or instructions

of a director or manager;• (vii) any person on whose advice, directions or instructions a director or manager is

accustomed to act:• Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or

instructions given in a professional capacity;• (viii) any company which is—• (A) a holding, subsidiary or an associate company of such company; or• (B) a subsidiary of a holding company to which it is also a subsidiary;• (ix) such other person as may be prescribed;• According to the rules• As per rule 2(e) “Related party” means a director or key managerial personnel of the

holding company or his relative with reference to a company, shall be deemed to be a related party;

RPT Transactions are…

NATURE OF RELATED PARTY TRANSACTION THRESHOLD LIMIT

Sale, purchase or supply of any goods or materials directly or through appointment of agents (or)

Exceeding 25% of Annual Turnover

Selling or otherwise disposing of, or buying, property of any kind directly or through appointment of agents (or)

Exceeding 10% of Net worth

Leasing of property of any kind (or)Exceeding 10% of Annual Turnover

OR


Availing or rendering of any services directly or through appointment of agents (or)


Appointment to any office or place of profit in the company, its subsidiary company or associate company (or)

Monthly Remuneration Exceeding Rs. 2.5

lakhs

Remuneration for underwriting the subscription of any securities or derivative


Approvals...

• Approval: the Transaction of a company with Related Parties which are Not in the Ordinary Course of Business and which is Not on Arm Length Price require following approval for Entering into Such Transactions with Related Party:-

• “arm’s length transaction” means a transaction between two related parties that is conducted as if they were unrelated, so that there is no conflict of interest.

RPT – Board’s Approval• For enter into transactions mention under this section Consent of Board of

Directors is Require by Passing of Resolution in the Meeting of Board of Directors.

• Note: Such resolution can’t be pass by circulation of resolution to the Board of Directors.

• The agenda of the Board meeting at which the resolution is proposed to be moved shall disclose-

• (a) the name of the related party and nature of relationship; • (b) the nature, duration of the contract and particulars of the contract or

arrangement; • (c) the material terms of the contract or arrangement including the value, if any; • (d) any advance paid or received for the contract or arrangement, if any; • (e) the manner of determining the pricing and other commercial terms, both

included as part of contract and not considered as part of the contract; • (f) whether all factors relevant to the contract have been considered, if not, the

details of factors not considered with the rationale for not considering those factors; and

• (g) any other information relevant or important for the Board to take a decision on the proposed transaction.

RPT – Shareholders Approvals

• For entering Transactions with related parties mention below Special Resolution is required to be passed in GM

• When the Paid up Share Capital of Company is 10 Crore or More. Or

• Limits for sales, purchase, lease, services etc

RPT• According to the section 188, sub section (1), any contact or arrangement must be

passed through Board Meeting or Shareholders Meeting, as case may be, Suppose, the Contact has been made but the approval has not taken either in the Board Meeting or Shareholders Meeting within 3 months from the date of Contract, In that case the Contract shall be voidable at the option of the Board.

• In case of Loss in Result of Contract:

• If a director or employee entered into any contract and arrangement in contravention of provision of this section then company can proceed against such director and employee for recovery of any loss sustained by it from such contract.

• Penalty:

• Any director who enter any contact or any employee who is authorized to enter any contact make any default for compliance of this provisions shall be penalized in case of:

• Listed Company:- Imprisonment for a term which may extend to 1 Year ( or)

• fine which shall not be less than 25000/-but which may extend Rs. 5,00,000/- orBoth

• Unlisted Company: – Fine which shall not be less than 25000/- but which may extend Rs. 5,00,000/-

•

Section 189: Register of Contract and Arrangement in Director are interested• Every Company shall maintain one or more register in Form MBP-4

• particulars of Contract or arrangement to which section 184(2) or188 applies.

• After entering the particulars, such register shall be Placed before the next Board Meeting and Signed by all the directors Present at the meeting.

• Entry shall be made in chronological order, authenticated by Company secretary of Company and person authorized by board.

• The register shall be kept at the registered office of the Company and preserved permanently. Members may also take extracts from this register

• *Exemption:

• No entry required to be done in register if contract is for sale, purchase or supply of goods, material or services , the value of such materials or the cost of such services does not exceed Rs. 5 lakh in the aggregate in any year.

• Any contract or arrangement by banking company for the collection of bills in the ordinary course of its business.

• Where in any company or companies or Bodies corporate in which a director together with any other director holds 2% or less of the paid-up share capital.

LOAN TO DIRECTOR - 185

• Company shall not provide loan to :-

•

– Its Director

– Directors relatives

– Firm in which directors or their relatives are partners

– Private company of which any such director is a director or member

– Any Company in which not less than 25% of the shares held by any such director, or by two or more such directors.

• Earlier, this restriction applicable only for Public Limited Company. Now, this restriction is applicable for private company also. May be Intention of this restriction is directors should not divert company’s funds.

LOAN TO DIRECTOR - 185• any director of the lending company, or of a company

which is its holding company or any partner or relative of any such director; or

• any firm in which any such director or relative is a partner; or

• any private company of which any such director is a director or member; or

• any body corporate at a general meeting of which not less than 25% of the total voting power may be exercised or controlled by any such director, or by two or more suchdirectors, together; or

• any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.

Exemptions

• Any loan made by a holding company to its wholly owned subsidiary company; or

• Any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company

• Any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company

Penalty - 185(2)

• Company

- Fine – not less than 5 laks - max -25 laks

• Director or other person to whom loan is advanced

- Imprisonment - 6 motnhs

- Fine not less than 5 laks - max-25 laks or

- Both

Consolidation..

• Consolidated financial statement of all subsidiaries and company shall be placed before the AGM. (Section 129 (3)).

• Subsidiary includes Associates and Joint venture companies.

• Consolidation - as per SH –III & AS

• Statement containing salient feature of FS of subsidiaries in Form AOC 1

Annual Return • AR Signing by CS

• Director & Company Secretary.

• If no CS, CS in Practice

• OPC & Small Company - no CS

• AR Certification by CS

• Listed Company, P/C 10 cr or Turover -50 Cr

Allotment of Shares

Allotment

Private Placement - 42 Rights issue - 62

Preferential offer - Section 62 (1)

(c) read with Rule 13 of the

Companies (Share Capital

and Debentures) Rules, 2014

Private Placement

• Prior approval of Shareholders is required to be

obtained via Special Resolution

• Justification or basis for the offer price to be disclosed

in the Explanatory Statement calling General Meeting

• Minimum investment size of Rs 20,000 per person

• Cash receipt prohibited

• Allotment with 60 days

• Separate Bank Account

Private Placement

• Offer letter in form PAS-4• Maintenance of records pertaining to offer letter• Filing of offer letter to ROC in case of issue

through private placement in form PAS-4• Return of allotment to be filed in form PAS-3.• In case Company is not able to allot securities

within 60 days of receipt of application money, it shall be repaid within 15 days from the date of completion of 60 days otherwise pay 12% interest per annum.

Rights...

• Offer letter to all the members on proportionate

• Offer - 15-30 days

• Renouncement or not

• Board’s discretion to allot Maintenance of records pertaining to offer letter

• Return of allotment to be filed in form PAS-3.

• Prior approval of Shareholders is required to be obtained via Special Resolution

• Allotment to be made within 12 months from the date of Special Resolution

• Mandatory Disclosures in the Explanatory Statement to the Notice calling

General Meeting:

• intention of the promoters, directors & KMPs

a. Change in control, if any, consequent to the preferential offer

b. Justification for the allotment proposed to be made for consideration other

than cash

c. Details of the proposed allottees along with post preferential shareholding

d. Basis on which price is arrived along with the report of Registered Valuer

Preferential Basis...

THANK YOU

2/25/2015 60CS P Eswaramoorthy,B.Sc.,FCS.,Company

Secretary in Practice

Please send your comments to [email protected]

companies amendment act,2014 & important provisions

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