icai co act 2013 ppt ca sudhir soni
TRANSCRIPT
7/25/2019 Icai Co Act 2013 Ppt CA Sudhir Soni
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Companies Act Seminar
January 25, 2014
ICAI- Ahmedabad
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Agenda
► An overview of key
requirements and impact:
► Directors
► Board Committees
► Managerial Remuneration
► Related Party & Arms’ Length
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Directors- Key Changes and Requirements
► Maximum number of directors raised to 15 from 12
► Can be enhanced by special resolution without Central Government approval
► Atleast one director to be a resident director
► Atleast one women director by the prescribed class of Companies as stated in the rules
► Every listed company within 1 year from commencement of the proviso
► Every other company with paid up capital of Rs 100 cr or more within 3 years from commencement of the proviso
► Atleast one third of the board to comprise of Independent Director by
► Listed company ,
► Public Company having
► Turnover >= Rs 300 crore or
► Paid up share capital of >= Rs100 crore or
► O/s Loans / Borrowings / Deposits / Debentures > Rs 200 crore
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Independent Directors
An ID cannot be –
► Present or past Promoter of Company/Holding/Subsidiary/Associate
► Relative of promoter or director in the Company/Holding/Subsidiary/Associate
► Pecuniary relationship with Company / Holding / Subsidiary / Associate or their
promoter/directors in last 2 years and current year
► Relative who has pecuniary relationship/transaction with Company / Holding /
Subsidiary / Associate or their promoter/directors >=2% of gross turnover / Rs. 50
lakhs (whichever is lower) in last 2 years or current year
► Neither he nor his relatives is KMP in the company - or employee of
Company/Holding/Subsidiary/Associate in last 3 years
► Neither he nor his relative is employee/proprietor/partner in last 3 years in firm of
auditors/company secretary in practice or cost auditor of
Company/Holding/Subsidiary/Associate
►
Neither he nor his relative is employee/proprietor/partner in last 3 years in legal or consultancy firm having transaction >=10% of gross turnover of such firm
► A person who together with his relatives hold >=2% of voting power of the
company
► Nominee Director
Independence
Section 149(6)
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Independent Directors
► Not be entitled to any stock options
► Sitting Fees max of Rs 1 lakh per meeting, reimbursement of
expenses
► Profit related commission as approved by BOD subject to
limits
Remuneration
Section 149(9)
► Term of 5 Consecutive years; Can be extended for further 5
years by special resolution;
► Re-appointment only after a cooling period of 3 years
► Applies prospectively, ie current term will not be counted
► Not liable for rotation- Sec 149(6)
Tenure
[Section 149
(10) and (11)]
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Code for Independent Directors- Schedule IV
► Appointment to be formalized through a letter of appointment
► Professional Conduct and Role to include inter alia:
► Bring independent judgement on issues of strategy, performance, risk management and
standard of conduct
► Satisfy themselves on integrity of financial information and financial controls
► Safeguard interest of minority shareholders
► Balance the conflicting interest of the stake holders
► Key role in appointment & remuneration of executive directors, key managerial personnel and
senior management
► Separate meeting to review performance of non- independent directors, board, chairperson and
flow of information
► Assist the company in implementing the best corporate governance practices
► Reappointment on the basis of performance evaluation
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Board Evaluation Mechanism
► Provision for Evaluation of board under Companies Act, 2013.
► Evaluation of Directors was already in India as a non-mandatory requirement :
a) under Clause 49 of the Listing Agreementb) Corporate Governance Voluntary Guidelines (issued by MCA)
Evaluatee Evaluator Section
Board of directors Separate meeting of ID’s 134 and 149 (8) read with Schedule IV
Non-Independent director Nomination and remuneration committee 134 and 178 (2)
Separate meeting of ID’s 149 (8) read with Schedule IV
Independent director (ID) Entire Board of directors (other than the ID beingevaluated)
149 (8) read with Schedule IV
Chairman Separate meeting of ID’s 149 (8) read with Schedule IV
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Liabili ty of Independent Directors – Sec 149(12)
► Liable only for such acts of omissions or commissions by a Company which haveoccurred with his knowledge, attributable through Board processes, with his
consent or connivance and where he had not acted diligently
► Director to be liable for offences occurred during his tenure
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Committee’s of the Board
Companies Act, 2013 Rules prescribed under Companies Act, 2013
► Every listed company and such other class or
classes of companies, as may be prescribed,
shall constitute an Audit Committee.
► The audit committee shall consist a minimum of 3
directors with ID’s forming a majority.
► Public Companies having:
► paid up share capital of Rs 100 crore or more;
or
► aggregate, outstanding loans or borrowings or
debentures or deposits, exceeding Rs 200
crore
Audi t Commi ttee
Companies Act 2013 vs Clause 49
Provision Companies Act, 2013 Clause 49
► No of independent director ► Majority ► Two third
► Financially literate ► Majority members ► All Members
► Chairman ► Need not be Independent
Director
► Independent Director
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Audit Committee- Overview and key changes
► Additional roles and responsibilities of Audit Committee will include
► Audit Committee to recommend Auditor’s
► Review and monitoring of auditor independence, performance and effectiveness of the audit
process
► Approval of related party transactions / any subsequent modification
► Scrutiny of inter-corporate loans and investments
► Valuation of undertaking or assets of the company, if required
► Monitoring the end use of funds raised through public offers and related matters instead of just
reviewing the monitoring report
► Evaluation of Internal Financial Controls and Risk Management Systems
► The AC shall have power to investigate and appoint advisors to assist
► If the Board has not accepted any recommendation of AC, disclosure along with reasons therefor is
required in Boards report
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Other Committee’s
► Nomination and remuneration committee (NRC)
► Mandatory for listed companies and prescribed companies to constitute NRC. Listing
agreement requires NRC as a non-mandatory requirement
► To comprise 3 or more non-executive directors with not less than half independent directors
► Recommend appointment and removal of director and evaluate director’s performance
► Formulate policy for determining qualification, positive attributes and independence of director
► Recommend policy for remuneration of directors, KMP and senior management
► Chairman of the Company cannot be a chairman of the NRC
► Stakeholder Relationship Committee (SRC)
► Company with more than 1000 shareholders, debenture holders, deposit holders and any other security holders at any time during the year to constitute SRC.
► SRC will consider and resolve the grievances of security holders
► Presently, listing agreement requires ‘Shareholders/Investors Grievance Committee’ under
chairmanship of non-executive director
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Vigil Mechanism
► Vigil Mechanism – For directors / employees to report their genuine concerns(Suspected fraud & unethical behavior) to the Audit Committee
► To be established by► Listed Company
► Companies which accept deposits from the public and
►
Companies which have borrowed money from banks and public financial institutionsin excess of fifty crore rupees
► To provide adequate safeguards against victimization of persons who use such
mechanism
► Make provision for direct access to the chairperson of the Audit Committee in
appropriate or exceptional cases
► Details of establishment of such mechanism shall be disclosed by the company on its
website, if any, and in the Board’s report
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Directors- Key Changes and Requirements
►
Limit on directorship – Increased from 15 to 20, however includes:-► Directorship in private companies
► Alternate Directorship
► Caps the directorship in public companies to 10
► Director to vacate office if he remains absent f rom al l the meet ings of theBOD held during 12 months whether with or without seeking leave of
absence of the BOD
► Additional grounds of disqualification of directors
► Conviction of an offence dealing with related party transaction during the past 5
years
► Inclusion of private companies for disqualification of directors under the current
Section 274(1)g
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Appointment of Key Managerial Personnel (KMP)
► KMP to include►MD/CEO/Manager/WTD
►CS
►CFO
►Mandatory for listed company and any other company whose paid up
capital exceeds Rs 5 cr as per draft rules
►MD/CEO can not be appointed as a Chairman unless► Articles provide or
►Company does NOT carry multiple business
► KMP (excluding MD) not to hold office in more than one Company except in
the subsidiary
► MD can also be a MD of one other company
► KMP can be a director with the permission of the Board
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Appointment of MD/ WTD /Manager
Key Changes in comparison to Companies Act 1956
► Applicable to private companies
► Minimum age 21 years (25 years as per existing act) and maximum 70 years
►Upper age limit can be relaxed by the company if shareholders by special resolution
approve it
► No reappointment earlier than one year (2 years as per existing act)
► A person convicted by court for any offence and sentenced for a period exceeding
six months cannot be appointed as a MD/WTD/Manager ( offence involving moral
turpi tude as per existing act)
“ Applicability of above provisions to Private Co will enforce strict governance in such
companies”
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Directors’ Report - Disclosures
► Extract of Annual Return (in prescribed form)
► Statement of declaration by Independent Directors that he is independent (Nominee directors’ notindependent )
► Policy on Directors appointment & remuneration, KMP’s remuneration
► Particulars of loans, guarantees and investments made u/s 186
► Particulars of Contracts/Arrangements with related parties along with justification for same u/s 188
► CSR and Risk Management policy developed and implemented
► Statement indicating the manner in which formal annual evaluation has been made by the board of
its own performance and that of its committees/individual directors
► Details of establishment of Vigil Mechanism
► Report on the performance and financial position of each of the subsidiaries, associates and joint
venture in consolidated financial statement. Currently, only the financial statement position of
subsidiaries had to be included in the Annual Report.
► Directors ’ Responsib il ity Statement - Confirmation on adequate and effective operation of
Internal Financial Controls and systems to ensure compliance will all provisions of all applicable
laws, compliance with Accounting Standards and Going concern principles
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Director’s Report – Median Remuneration
The Act has introduced the requirement for various disclosures relating to remuneration
and concept of median remuneration –
► The ratio of the remuneration of each director to the median remuneration of theemployees
► % increase in remuneration of each director and CEO
► % increase in the median remuneration of employees
► Explanation on the relationship between average increase in remuneration and companyperformance
► Comparison of the remuneration of the KMP against the performance of the company.
► The key parameters for any variable component of remuneration availed by thedirectors.
► The ratio of the remuneration of the highest paid director to that of the employees whoare not directors but receive remuneration in excess of the highest paid director
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Managerial Remuneration
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Managerial Remuneration – Key changes
► In calculating the net profit for the purpose of managerial remuneration the following will be deducted:
“the excess of expenditure over income, which had arisen in computing the net profits in this section
in any year which begins at or after the commencement of this Act , in so far as such excess has
not been deducted in any subsequent year preceding the year in respect of which the net profits have
to be ascertained”
► Remuneration to include perquisites as defined under Income Tax. Whether valuation of perquisites
to be done as per Income Tax Rules ?
► MD/WTD in receipt of commission from the company can also receive remuneration/commission
from subsidiary or holding company subject to disclosure in Board’s Report
► Indemnity Insurance Premium paid for managerial person shall not be included in managerial
remuneration unless the person is proved guilty (Sec 197(13))
► Recovery of remuneration (including stock options) in case of restatement of FS (Sec 199)
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Managerial Remuneration – Key changes
► Loss / inadequate profit companies – Increase of limits and option of paying higher of:
► Slab limits or
► A managerial person who was not a security holder of rupees five lakh or more or
an employee or a director of the company or not related to any director or promoter
at any time during the two years prior to his appointment can be paid upto 2.5% of
the current relevant prof it
► Current relevant profit is the profit as calculated under section 198 but without deducting the
excess of expenditure over income in respect of those years during which the managerial
person was not an employee, director or shareholder of the company or its holding or
subsidiary companies
► Newly incorporated Companies (for first seven years) and sick companies with revival
schemes ( for five years from sanction of scheme ) can pay twice the limits specified
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Companies Act 2013
Effective CapitalRemuneration in
INR (Per Annum)
Negative Or less than 5 Cr 30 Lakhs
5 Cr to 100 Cr 42 Lakhs
100 Cr to 250 Cr 60 Lakhs
250 Cr and Above
60 Lakhs+ 0.01% of
the effective capital in
excess of 250 Cr.
Companies Act 1956
Effective CapitalRemuneration in INR
(Per month)
0 to 1 Cr 75,000
1 Cr to 5 Cr 100,000
5 Cr to 25 Cr 125,000
25 Cr To 50 Cr 150,000
50 Cr to 100 Cr 175,000
100 Cr and above 200,000
“ The above limits shall be doubled if the shareholders pass a special resolut ion to that effect “
Remuneration slabs as per Schedule V for loss makingor Co with inadequate profits
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Secretarial Requirements
Provisions Companies Act 2013 Companies Act, 1956
► Appointment of Company
Secretary (Sec 203)
Listed NonListed
Public
PUC >=
Rs 5 cr
Private
PUC >=
Rs 5 cr
Listed
Mandated
by Clause
47 of LA
NonListed
Public
PUC >=
Rs 5 cr
Private
PUC >=
Rs 5 cr
► Secretarial Audit to be carriedout by PCS and attached to the
BR ( Sec 204)
PUC >=Rs 100 cr
NotRequired
NotRequired
NotRequired
NotRequired
► Observing Secretarial
Standards (Sec 118(10))
Not
Specified
Not
Specified
Not
Specified
► Certifying Annual Report to
ensure compliance with Act by
a PCS (Sec 92)
PUC >=
Rs 5 cr
and T/O
>= Rs 25
cr
PUC >=
Rs 5 cr
and T/O
>= Rs 25
cr
Not
Required
as CS
appointed
To be filed
with
Registrar
PUC >=
Rs 10 lacs
, not
exceeding
Rs 5 cr
To be filed
with
Registrar
PUC >=
Rs 10 lacs
, not
exceeding
Rs 5 cr
3
3
3 3 3
3
► PUC- Paid Up Capital T/O- Turnover PCS- Practicing Company Secretary LA- Listing Agreement
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Related Party Transact ions
Section 188
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Related Parties 2013 Act 1956 Act
Director of the Company or his relative
Key Managerial Personnel (“KMP”) or his relative
Senior Management of the Company (All members of
management one level below the executive directors,
including the functional heads)
A firm in which such director, manager or relative is a
partner
A private company of which director, manager is a member
or director
A public company in which a director or manager is a
director A public company in which a director or manager holdsalong with his relatives, more than two per cent of its
paid-up share capital
“ Related Parties” – Defined Term
3 3
3
3
3
3
3
3
3
l
l
ss
l
s
-- Not there in Co Act 1956 -- Existing with some changesl s
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Related Parties 2013 Act 1956 Act
Any body corporate whose Board of Directors, managingdirector or manager is accustomed to act in accordance with the
advice, directions or instructions of a director or manager unless
advice is given in a professional capacity
Any person on whose advice, directions or instructions a director
or manager is accustomed to act, unless advice is given in a
professional capacity
A Holding, subsidiary or an associate company of such
company along with
• Their directors and relatives
• Their KMPs and relatives• Their Senior management
Fellow Subsidiary
“ Related Parties” – Defined Term
3
3
3
s
l
s
3 l
-- Not there in Co Act 1956 -- Existing with some changesl s
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The Companies Act, 2013 – Related party
X Limited
Directors
Relatives
Private Co
Public Co
Firm
Senior Management KMP
Relatives
Subsidiary AssociateFellow
Subsidiary
► Director
► Member
► Partner
► Relatives arepartner
► Director
► Holds more than 2% withrelatives
► Directors and Relatives
► KMP and Relatives
► Senior Management
► A ny body corporate w hose B oard of Directors,
m anaging director ormanager is accustom ed to
act in accordance w ith the advice, directions orinstructions of a director or m anager unless
advice is given in a professional capacity
► A ny person on w hose advice, directions or
instructions a director ormanageris accustom ed
to act, unless advice is given in a professional
capacity
Holding
“ ”
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What are the changes – “ Relative”
Cases of Relative
Co. Act,
1956
Co. Act,
2013 Cases of Relative
Co. Act,
1956
Co. Act,
2013
Members of HUF Yes Yes Mother’s father Yes Yes
Husband/ wife Yes Yes Son’s son/ daughter Yes Yes
Father (including step-father) Yes Yes Daughter’s husband Yes Yes
Mother (including step-mother) Yes Yes Son’s daughter’s husband Yes No
Son (including step-son) Yes Yes Daughter’s son Yes No
Daughter (including step
daughter)
Yes Yes Daughter’s Son’s wife Yes No
Son’s son’s wife Yes No
Brother (including step brother) Yes Yes Daughter’s daughter Yes No
Sister (including step sister) Yes Yes Daughter’s daughter’s
husband
Yes No
Son’s wife Yes Yes Son’s daughter’s husband Yes No
Father’s father Yes Yes Daughter’s son’s wife Yes No
Father’s mother Yes Yes Brother’s wife Yes No
Mother’s mother Yes Yes Sister’s husband Yes No
No significant change in the defini tion of “ Relative” as provided in the Act. However,
there are changes in relationships prescribed by Rules under the definition.
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AS 18 Vs. Companies Act, 2013
► Covered in AS 18 but not in Companies Act
► Investing party with respect to associate/ JV
► Covered in Companies Act but not in AS 18
► Non-Executive Director
► Senior management (including functional heads)
► Unlike AS-18, ownership by director is not required. Partnership of firm, membership of Private Company and 2% holding in public company is enough to be cover them as
related party. Further, AS-18 does not include shareholding by relatives of director for the
purpose
►
Definition of relatives under AS-18 is more restricted► Companies with Common Directors
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Covered transactions under Section 188
• Sale, purchase or supply of any goods or materials
• Selling or otherwise disposing of, or buying, property of any kind
• Leasing of property of any kind
• Availing or rendering of any services
• Appointment of any agent for purchase or sale of goods, materials, services
or property
• Related party's appointment to any office or place of profit in the company,
its subsidiary company or associate company
• Underwriting the subscription of any securities or derivatives thereof, of the
company
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Related Party Transactions
Related Party Transaction Impact
In ordinary course of business – at arm’s length No prior approval
In ordinary course of business – not at arm’s length Approval through Board
Resolution
Not in the ordinary course of business apart from
below
Approval through Board
Resolution
Not in the ordinary course of business (in the case of
a company having a paid-up share capital of not less
than 1 cr or transactions not exceeding 5% of turnover or 20% of net worth)
Approval of shareholders by
special resolution AND
Board consent
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Related party transactions
► Contract / arrangement shall be referred to in the Boards report to the shareholders
along with the justification
► If contract / arrangement entered into without obtaining approval as per above - The
same to be ratified by the Board / Shareholders at a meeting within 3 month, if not
done;
► Contract / arrangement shall be voidable at the option of the Board
► If the contract / arrangement is with a related party to any director, or is authorised by any other
director, the directors concerned shall indemnify the Company against the loss incurred by it
► Company can proceed against a director / employee for recovery of any loss sustained as a
result of such contract
► Significant penal consequences if director or employee has violated the provision of the
act:
► Listed Co- Fine (Rs 25,000 to Rs 500,000) or imprisonment upto 1 year
► Other Co- Fine (Rs 25,000 to Rs 500,000)
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Arms’ length ?
► ALP is an estimate and not a finite number
► Sometimes a back filling exercise
► Divergent stands – Customs V/s Income Tax
► Important to produce the same facts and details
► What happens when the ALP is challenged by the tax authorities subsequently OR they
change the method of determining the ALP?
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Thank You
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Clause 49 v/s Companies Act 2013
Provisions Clause 49 Companies Act, 2013
► Non existence of pecuniary
relationship/transactions
► Time frame for consideration
of pecuniary
relationship/transactions
► Pecuniary
relationship/transactions with
relatives of ID
► Nominee Director
► Tenure
► Entitlement of stock options
► No of ID
► Only Material pecuniary
relationship/transactions
► Does not specify any time
frame to be considered
► No examination of the
independence of relatives
required
► Deemed to be ID
► Cannot serve for more than
nine consecutive years
► Entitled
► Chairman- ED/related to
promoter – one half
► Chairman- Non ED- one third
► All pecuniary
relationship/transactions
► Relationship should not have
existed either in the current FY
or immediately preceding 2
years
► Relatives cannot have pecuniary
relationship/transactions
exceeding a prescribed amount
► Cannot be ID
► maximum of two tenures of five
consecutive years
► Not entitled
► One third