List of Sections notified
by the Central Government on September 12, 2013.
1. Definitions --
2(1) Definition of Abridged Prospectus
2(3) Definitions of Alter/ Alteration
2(4) Definition of Appellate Tribunal
2(5) Definitions of Articles
2(6) Definition of Associate Company
2(8) Definitions of Authorized Capital/ Nominal
Capital
2(9) Definition of Banking Company
2(10) Definition of Board of Directors/ Board
2(11) Definition of Body Corporate/
Corporation
2(12) Definition of Book and Paper/ Book or
Paper
2(14) Definition of Branch Office
2(15) Definition of Called-up Capital
2(16) Definition of Charge
2(17) Definition of Chartered Accountant
2(18) Definition of Chief Executive Officer
2(19) Definition of Chief Financial Officer
2(20) Definition of Company
2(21) Definition of Company limited by
Guarantee
2(22) Definition of Company limited by Shares
2(24) Definition of Company Secretary/
Secretary
2(25) Definition of Company Secretary in
Practice
2(26) Definition of Contributory
2(27) Definition of Control
2(28) Definition of Cost Accountant
2(29) Definition of Court
2(30) Definition of Debenture
2(32) Definition of Depository
2(33) Definition of Derivative
2(34) Definition of Director
2(35) Definition of Dividend
2(36) Definition of Document
2(37) Definition of Employees’ Stock Option
2(38) Definition of Expert
2(39) Definition of Financial Institution
2(40) Definition of Financial Statement
2(43) Definition of Free Reserves
2(44) Definition of Global Depository Receipt
2(45) Definition of Government Company
2(46) Definition of Holding Company
2(49) Definition of Interested Director
2(50) Definition of Issued Capital
2(51) Definition of Key Managerial Person
2(52) Definition of Listed Company
2(53) Definition of Manager
2(54) Definition of Managing Director
2(55) Definition of Member
2(56) Definition of Memorandum
2(57) Definition of Net Worth
2(58) Definition of Notification
2(59) Definition of Officer
2(60) Definition of Officer who is in Default
2(61) Definition of Official Liquidator
2(63) Definition of Ordinary or Special
Resolution
2(64) Definition of Paid-up Share Capital/
Share
Capital
Paid-up
2(65) Definition of Postal Ballot
2(66) Definition of Prescribed
2(67) Definition of
Previous Company Law
2(68) Definition of Private Company
2(69) Definition of Promoter
2(70) Definition of Prospectus
2(71) Definition of Public Company
2(72) Definition of Public Financial
Institution
2(73) Definition of Recognized Stock
Exchange
2(74) Definition of Register of Companies
2(75) Definition of Registrar
2(76) Definition of Related Party
2(77) Definition of Relative
2(78) Definition of Remuneration
2(79) Definition of Schedule
2(80) Definition of Scheduled Bank
2(81) Definition of Securities
2(82) Definition of Securities and Exchange
Board
2(84) Definition of Share
2(86) Definition of Subscribed Capital
2(87) Definition of
Subsidiary Company/
Subsidiary
2(88) Definition of Sweat Equity Shares
2(89) Definition of Total Voting Power
2(90) Definition of Tribunal
2(91) Definition of Turnover
2(92) Definition of Unlimited Company
2(93) Definition of Voting Rights
2(94) Definition of Whole-time Director
2(95) Words and Expression not defined in
this
Act.
19 Subsidiary Company not to hold shares in its
Holding Company
21
Authentication of Documents, Proceedings
and
Contracts
22
Execution of Bills of Exchange, etc.
23 Public Offer and Private Placement
24 Power of Securities and Exchange Board to regulate Issue and Transfer
of Securities
25 Document
containing Offer of Securities for Sale to be Deemed Prospectus
29
Public Offer of Securities to be in Dematerialized Form
30 Advertisement
of Prospectus
31
Shelf Prospectus
32 Red-Herring Prospectus
33 Issue
of Application Form for Securities --
34 Criminal Liability for Misstatement in Prospectus
Liable
under Section 447
35 Civil Liability for Misstatement in Prospectus
Liable
under Section 36
36 Punishment for fraudulently inducing people
to invest money
Liable
under Section 447
37 Action by Affected Persons Suit/ Action
under Sections 34, 35 and/ or 36
38 Punishment
for Personating for Acquisition, etc. of Securities
Liable under Section 447/ Disgorgement of Gain/ Seizure and
disposal of securities
39 Allotment of Securities by Company Penalty of Rs. 1,000 per day
or Rs. 1,00,000 whichever is less
40 Securities to be dealt with in Stock Exchanges
For
Company: Fine - Rs. 5,00,000 up to Rs. 50,00,000. For
Officer
in Default: Imprisonment of up to 1 year and/ or
fine
of Rs. 50,000 up to Rs. 3,00,000.
44
Nature of Shares or Debentures --
45
Numbering of Shares --
49
Calls on Shares of same class to be made on
uniform basis
50
Company to accept un-paid Share Capital although not called-up
51
Payment of Dividend in proportion to amount paid-up
57 Punishment for Personation of Shareholder Imprisonment of 1
year up to 3 years and Fine of Rs. 1,00,000 up to Rs. 5,00,000.
58 Refusal of Registration and Appeal against Refusal Imprisonment
of 1 year up to 3 years and Fine of Rs. 1,00,000 up to Rs. 5,00,000 for
contravention of order of the Tribunal.
59 Rectification of Register of Members Company: Fine of Rs.
1,00,000 up to Rs. 5,00,000 Officer in Default: Imprisonment of up to 1 year or
fine of Rs. 1,00,000 up to Rs. 3,00,000.
60 Publication of Authorized, Subscribed and
Paid-up Capital
Company: Fine of Rs. 10,000 for each default. Officer in Default:
Rs. 5,000 for each default.
65 Unlimited Company to provide for Reserve Share Capital on
conversion into Limited Company
69
Transfer of Certain Sums to Capital Redemption Reserve Account
70 Prohibition
for Buy Back in Certain Circumstances
86 Punishment for Contravention Company: Fine of Rs. 1,00,000 up
to Rs. 10,00,000 Officer in Default: Imprisonment of up to 6 months or fine of
Rs. 25,000 up to Rs. 1,00,000.
91
Power to close register of members or Debenture Holders or other Security
Holders
Company and Officer in Default: Rs. 5,000 per day up to a
maximum
of Rs. 1,00,000.
100 Calling of Extraordinary General Meeting --
102 Statement to be Annexed to Notice Officer in Default: Fine up to
Rs. 50,000 or five times the amount of benefit accruing to the Officer in
Default or any
of
his relatives, whichever is more.
103 Quorum for Meetings --
104 Chairman of Meetings --
105 Proxies --
106 Restriction on Voting Rights --
107 Voting by Show of Hands --
111 Circulation of Members' Resolution Company and Officer in
Default: Fine of Rs. 25,000.
112 Representation of President and Governors
in Meetings
113 Representation of Corporations at Meeting --
114 Ordinary and Special Resolutions --
116 Resolutions passed at Adjourned Meeting --
127 Punishment for failure to distribute Dividends Every Director: Imprisonment
up to 2 years and Fine not less than Rs. 1,000 per day of default plus 18%
interest.
133 Central Government to prescribe
Accounting
Standards
161 Appointment of Additional Director,
Alternate
Director and Nominee Director
162 Appointment of Directors to be voted individually
163 Option to Adopt Principle of Proportional Representation for
Appointment of Directors
176 Defects in appointment of directors not to invalidate
actions taken
180 Restrictions on powers of Board --
181 Company to contribute to bona fide and Charitable
Funds, etc.
182 Prohibitions and restrictions regarding Political Contributions Company:
Fine of amount five times the sum contributed. Officer in Default: Imprisonment
up to 6 months and Fine of amount five times the sum contributed.
183 Power of Board and other persons to make Contributions to
National Defense Fund, etc.
185 Loan to directors, etc. Company: Fine Rs. 5,00,000 up to Rs.
25,00,000. Director/ other person to whom issued: Imprisonment up to 6 months and/ or Fine of Rs. 5,00,000 up to
Rs. 25,00,000.
192 Restriction on Non-Cash Transactions Involving
Directors
194 Prohibition on Forward Dealings in securities of Company by
Director or Key Managerial Personnel Officer in Default: Imprisonment up to 2
years and/ or Fine of Rs. 1,00,000 up to Rs. 5,00,000.
195 Prohibition on Insider Trading of Securities Imprisonment up to
5 years and/ or Fine of Rs. 5,00,000 up to Rs. 25,00,00,000 or 3 times the
amount made by such trade.
202 Compensation for loss of office of managing
Or Whole-Time Director or
Manager
379
Application of Act to Foreign Companies --
382 Display of Name, etc., of Foreign Company
383
Service on Foreign Company --
386 Interpretation
394 Annual Reports on Government Companies
405 Power of Central Government to direct Companies
to furnish information or
Statistics
Company: Fine up to Rs. 25,000.
Officer in Default: Imprisonment up to 6 months and/ or Fine of
Rs. 25, 000 up to Rs. 3,00,000.
407 Definitions --
408 Constitution of National Company Law Tribunal
409 Qualification of President and Members of Tribunal
410 Constitution of Appellate Tribunal
411 Qualifications of Chairperson and members
of Appellate Tribunal
412 Selection of Members of Tribunal and Appellate
Tribunal
413
Term of office of President, Chairperson and other Members
414
Salary, allowances and other terms and conditions of service of Members
439
Offences to be Non-Cognizable --
443 Power of Central Government to appoint Company
Prosecutors
444 Appeals against Acquittal --
445 Compensation for accusation without reasonable
cause
446
Application of Fines --
447 Punishment for Fraud Imprisonment of 6 months up to 10 years and
Fine of amount involved in fraud up to three times the sum involved.
448 Punishment for False Statements Liable
under Section 447.
449 Punishment for False Evidence Imprisonment of 3 years up to 7
years and Fine up to Rs. 10,00,000.
450 Punishment where no specific penalty or punishment is provided Fine
up to Rs. 10,000 and for continuing default additional fine up to Rs. 1,000 per
day after the first day.
451 Punishment in case of repeated default Imprisonment as provided
for the offence plus double fine.
452 Punishment for wrongful withholding of property Fine of Rs.
1,00,000 up to Rs. 5,00,000. If sub-section (2) not fulfilled imprisonment
of up to 2 years
453 Punishment for improper use of "Limited" or
"Private Limited" Fine of Rs. 500 up to Rs. 2,000 per day.
456 Protection of action taken in good faith --
457 Non-disclosure of information in certain cases
458 Delegation
by Central Government of its powers and functions
459 Powers of Central Government or Tribunal to accord approval, etc., subject
to conditions and to prescribe fees on applications
460 Condonation of delay in certain cases --
461 Annual Report by Central Government --
462 Power to exempt class or classes of companies
from provisions of this Act
--
463
Power of court to grant relief in certain cases
467 Power
of Central Government to amend
Schedules
468 Powers of Central Government to make rules
relating to winding up
469
Power of Central Government to make rules
470
Power to remove difficulties --
September, 2013 DSK
Legal Knowledge Center
____________________________________________________________________________________________________________________________________
COMPANY ACT 2013
The Company bill 2012 was passed in Rajya Sabha on 8
August 2013. Earlier the bill was passed by The Lok sabha on 18 December 2012.
The New Act Comprises of 29 chapters, 470 Sections
and 7 Schedules as against 14 Schedules in Company act 1956.
The Ministry of Corporate affairs has notified 98
Sections (out of 470 sections) of The New Companies Act, 2013. These Sections
have come into effect from 12th September 2013.
Many of the Sections which have been notified have
provisions similar to that of Companies Act 1956. However in some of the
Sections new provisions have been inculcated which demand our immediate
attention. Immediately after notifying these Sections ministry has also issued
some clarifications regarding their applicability for stakeholder convenience.
SECTION 2-
DIFINITION
Section 2 under Companies Act, 2013 contains
95 Definitions out of which all definitions except 12 definitions have been
notified. The definition of private
company given under company act 2013 is different from the earlier Act.
Some of the definitions are as under:-
2. In this Act,
unless the context otherwise requires,—
(6) “Associate company”, in relation to another company, means a company
in
Which that other company has a
significant influence, but which is not a subsidiary
Company of the company having
such influence and includes a joint venture company.
Explanation.—for the
purposes of this clause, “significant influence” means
Control of at least twenty per
cent. of total share capital, or of business decisions
Under an agreement;
(10) “Board of Directors” or “Board”, in relation to a company, means the
collective body of the directors of the company;
(11) “Body corporate” or “corporation” includes a company incorporated
outside
India, but does not include
(i) a co-operative society
registered under any law relating to co-operative
societies; and
(ii) any other body
corporate (not being a company as defined in this Act),
which the Central Government may,
by notification, specify in this behalf;
(12) “book and paper” and
“book or paper” include books of account, deeds,
vouchers, writings, documents,
minutes and registers maintained on paper or in
electronic form;
(13) “books of account”
includes records maintained in respect of—
(i) all sums of money
received and expended by a company and matters in
relation to which the receipts
and expenditure take place;
(ii) all sales and
purchases of goods and services by the company;
(iii) the assets and
liabilities of the company; and
(iv) the items of cost as
may be prescribed under section 148 in the case of
a company which belongs to any
class of companies specified under that section;
(14) “Branch office”, in relation to a company, means any establishment
described
as such by the company;
(20) “Company” means a company incorporated under this Act or under any previous
company law;
(62) “One Person Company” means a company which has only one person as a member;
(63) "ordinary or
special resolution" means an ordinary resolution, or as the
case may be, special resolution
referred to in section 114;
(64) “paid-up share
capital” or “share capital paid-up” means such aggregate
amount of money credited as
paid-up as is equivalent to the amount received as paidup
in respect of shares issued and
also includes any amount credited as paid-up in
respect of shares of the company,
but does not include any other amount received in
respect of such shares, by
whatever name called;
(68) “Private company” means a company having a minimum paid-up share capital
of one lakh rupees or such higher paid-up share capital as may be prescribed, and
which by its articles,—
(i) restricts the right to
transfer its shares;
(ii) Except in case of One
Person Company, limits the number of its members to two hundred:
Provided that where two or more
persons hold one or more shares in a company jointly, they shall, for the
purposes of this clause, be treated as a single member:
Provided further that—
(A) Persons who are in the
employment of the company; and
(B) Persons who, having
been formerly in the employment of the company, were members of the company
while in that employment and have continued to be members after the employment
ceased, shall not be included in the number of members; and
(iii) Prohibits any
invitation to the public to subscribe for any securities of the company;
(71) “public company” means a company which—
(a) is not a private
company;
(b) has a minimum paid-up share capital of five
lakh rupees or such higher paid-up capital, as may be prescribed:
Provided that a company which is
a subsidiary of a company, not being a private
Company, shall be deemed to be
public company for the purposes of this Act even
Where such subsidiary company
continues to be a private company in its articles;
(72) “Public financial
institution” means—
(i) The Life Insurance
Corporation of India, established under section 3 of the Life Insurance
Corporation Act, 1956;
(ii) The Infrastructure
Development Finance Company Limited, referred to
In clause (vi) of
sub-section (1) of section 4A of the Companies Act, 1956 so
Repealed under section 465 of
this Act;
(iii) Specified company
referred to in the Unit Trust of India (Transfer of
Undertaking and Repeal) Act,
2002;
(iv) Institutions notified
by the Central Government under sub-section (2) of section 4A of the
Companies Act, 1956 so repealed under section 465 of this
Act;
(v) Such other institution
as may be notified by the Central Government in
Consultation with the Reserve
Bank of India:
Provided that no institution
shall be so notified unless—
(A) It has been
established or constituted by or under any Central or
State Act; or
(B) Not less than
fifty-one per cent. Of the paid-up share capital is
Held or controlled by the Central
Government or by any State Government
or Governments or partly by the
Central Government and partly by one or more State Governments;
(74) “Register of companies” means the register of companies maintained
by the
Registrar on paper or in any
electronic mode under this Act;
(75) “Registrar” means a Registrar, an Additional Registrar, a Joint
Registrar, a
Deputy Registrar or an Assistant Registrar,
having the duty of registering companies
and discharging various functions
under this Act;
(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;
(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;
(85) ‘‘small company’’ means a company, other than a public company,—
(i) paid-up share capital
of which does not exceed fifty lakh rupees or such
higher amount as may be
prescribed which shall not be more than five crore
rupees; or
(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:
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;
SHAREHOLDING IN A HOLDING COMPANY
The section1 pertaining to
shareholding in a holding company in the New Company Law is similar to section
42 of the Old Company Law, which restricts acquisition or holding of any share
in a holding company by its subsidiary. The definition of ‘Subsidiary Company’ under
the New Company Law includes a company in which the holding company exercises
or controls more than one-half of the total share capital either on its own or Together
with one or more of its subsidiary companies. Unlike the Old Company Law wherein
only equity share capital was considered for determining the holding subsidiary
relationship, under the New Company Law, the calculation of total share capital
will factor in both equity shareholding and the preference shareholding.
However, a clarification or exemption may be expected in this regard as the
inclusion of preference shareholding is unwarranted for determining holding subsidiary
relationship
SHARE TRANSFER RESTRICTIONS
The New Company Law has a
provision similar to Section 111A of the Old Company Law. As per the said
provision, the shares of a public company shall be freely transferable. The New
Company Law Explicitly provides that any contract or arrangement between two or
more persons in respect of transfer of securities of a public company shall be
enforceable as a contract. The said provision, to a certain extent puts to rest
the ambiguity with respect to enforceability of contractual arrangement viz. a
right to first offer, a right of first refusal, tag along right, etc
(“Contractual Arrangement”). The enforceability of such Contractual Arrangement
has been subject matter of much litigation and the courts have taken divergent
views from time to time. The said provision only validates the enforceability
of the aforesaid Contractual Arrangement as a contract. It must be noted that
the provision is in line with the judgment of the Bombay High Court in the
matter of Messer Holdings Limited3. As per the Bombay High Court judgment, such
Contractual Arrangement can be enforced like any other contract, but does not
impede the free transferability of shares at all. However, the ambiguity
regarding the power of the company to refuse the transfer which is in violation
of such Contractual Arrangement to which the public company is a party, still
exists.
PUBLIC OFFER
The provisions pertaining to
public offer in the New Company Law have been notified. The Securities and
Exchange Board of India is empowered to regulate such public issue and transfer
of securities of a listed company and in other cases the responsibility is of
the Central Government. The definition of public offer contemplates offer of
securities to the public through issue of a prospectus. Every prospectus should
contain a declaration about the compliance of the provisions of the New Company
Law and a statement to the effect that nothing in the prospectus is contrary to
the applicable provisions of the New Company Law, the Securities Contracts (Regulation)
Act, 1956 and the Securities and Exchange Board of India Act, 1992 and the
rules and regulations made there under. Any misrepresentation of facts and/or concealment
of material facts in a prospectus will be dealt more stringently under the New Company
Law. The company shall be liable to be punished with a fine which shall not be
less than Rupees fifty thousand but which may extend up to Rupees three lakh
and every person who is knowingly a party to the issue of such prospectus shall
be liable to be punished with imprisonment for a term which may extend to three
years or with fine which shall not be less than fifty thousand rupees but which
may extend to three lakh rupees or with both. Further, if such misrepresentation
or concealment amounts to fraud, the punishment may go up to 10 years of
imprisonment as per Section 447 of the New Company Law. It may be noted that
the provision pertaining to private placements is yet to be notified.
EXTRAORDINARY
GENERAL MEETING
Calling
of Extraordinary General Meeting:
Like earlier, an Extraordinary
General Meeting may be called by the Board or at
The requisition made by the members,
Under the New Company Law.
Time
Period
The Board is required to call the
meeting within 21 (twenty-one) days from the date of receipt of a valid
requisition in regard to any matter, on a day not later than 45 (forty-five)
days from the date of receipt of such requisition. If the Board does not call a
meeting within the said time period, the meeting may be called and held by the requisitonists
themselves within a period of 3 (three) months from the date of the requisition.
Statement
to be annexed to Notice of Meeting
A statement setting out the
following material facts concerning each item of special business to be
transacted at a general meeting, shall be annexed to the
notice calling such meeting,
namely:
(a) The nature of concern or interest,
financial or otherwise, if any, in respect of each items of:
(i) Every director and the
manager, if any;
(ii)every other key managerial personnel;
and
(iii) relatives of the persons mentioned in
sub-clauses (i)and (ii);
(b) Any other information and
facts that may enable members to understand
The meaning, scope and
implications of the items of business and to take
Decision thereon;
(c) Where any item of special
business to be transacted at a meeting of the
Company relates to or affects any
other company, the extent of shareholding interest in that other company of
every promoter, director, manager, if any, and of every other key managerial
personnel of the first mentioned company shall, if the extent of such
shareholding is not less than two percent of the paid-up share capital of that
company, also be set out in the statement;
(d) where any item of business
refers to any document, which is to be considered at the meeting, the time and
place where such document can be inspected shall be specified in the statement.
MCA
Clarification:
The MCA vide its circular dated
September 13, 2013 has clarified that all companies which have issued notices
of general meeting on or after September 12, 2013, the statement to be annexed
to the notice shall comply with additional requirements as prescribed in the
New Company Law as set out
Quorum
of Meetings
The quorum requirement for a
public company has undergone change in the
New Company Law, which is as
follows:
(a) five members personally
present if the number of members as on the
date of meeting is not more than
one thousand;
(b) fifteen members personally
present if the number of members as on the
date of meeting is more than one thousand
but up to five thousand;
(c) thirty members personally
present if the number of members as on the
date of the meeting exceeds five thousand.
For
a private company, two members
personally present, shall be the
quorum for a meeting of the company. if the quorum is not present within
half-an hour from the time appointed for holding a
meeting of the company:
(a) the meeting shall stand
adjourned to the same day in the next week at the
same time and place, or to such other
date and such other time and place as the Board may determine;
Or
(b) The meeting, if called by requisitonists,
shall stand cancelled:
In case of an adjourned meeting
or of a change of day, time or place of meeting,
The company shall give not less
than three days’ notice to the members either
individually or by publishing an advertisement
in the newspapers (one in English and one in vernacular language) which is in
circulation at the place where the registered office of the company is situated.
If at the adjourned meeting also,
a quorum is not present within
half-an-hour from the time appointed for holding
Meeting, the members present
shall be the quorum.
The Articles of a company may
provide for a greater number of members required to constitute a quorum. Further,
though the members can participate in the meetings through electronic modes,
such participation shall not be counted for quorum requirement.
RESTRICTION ON VOTING RIGHTS
The Articles of a company may
restrict the right of vote of a member in respect of
Any shares registered in his name
on which any calls or other sums presently payable by him have not been paid,
or in regard to which the company has exercised any right of lien.
A company cannot prohibit any member
from exercising his voting right on any
other ground. Earlier, the
private companies could provide for other grounds restricting the exercise of
vote, which is not possible under New Company Law.
ADDITIONAL DIRECTOR
The Articles of a company may provide
for the power of its Board of Directors to
Appoint any person as an
additional director. However, a person who fails to
Get appointed as a director in a
general meeting cannot be appointed as an
Additional director
NOMINEE DIRECTOR
The Board may appoint any person
as a director
nominated by any institution in
pursuance of the provisions of
any law for the time being in force or of any agreement. Interestingly, there
is no restriction on term of such appointment and this does not require
approval in general meeting. However, the same may
be restricted by the Articles of
a company.
SECTION-102_____STATEMENT
TO BE ANNEXED TO NOTICE
Section 102 of CA, 2013
Corresponds to Section 173 of company act 1956 which specifies the requirement
of annexing a statement along with the notice of general meeting where any
special business has to transact. The important changes in this section are:
·
The
interest of not only directors/ managers has to be disclosed (as prescribe in
CA 1956) but also that of key managerial personnel and relatives of directors,
manager and KMP.
·
Earlier,
With regard to any special business concerning another company, disclosure of
shareholding interest director /manager in that another company had to be
disclosed if such shareholding was more than 20%. The percentage has been
changed to 2% and also the same has been applicable to all promoters,
directors, managers, KMP.
CA
2013 also specifies that if any benefit accrues to any director, manager,
promoter or KMP or their relatives because of non disclosure or insufficient
disclosure, the concerned person will be deemed to be holding the amount of
benefit in trust of the company. This is the new specification under company
act 2013.
·
CA,
2013 also contains penalty clause which provides for a penalty of rs 5000 or 5
times the amount of benefit whichever is more. Earlier no Specific penalty was
provided.
This section is
applicable to all companies except on Person Company.
RESTRICTION
ON POWER OF BOARD
This Section Corresponds to
section 293 of company act 1956 which contains a list of items which can be
transacted by the board only after obtaining approval of the shareholders. The
important point of difference is:
·
Company
Act 2013 mandates approval by means of special resolution only.
·
This
section is applicable to all companies.
CONTRIBUTION TO CHARITABLE AND OTHER FUNDS
The Board of Directors of a
company may contribute to bona fide charitable and other funds. A prior
permission of the company in general meeting (ordinary resolution) shall be
required for if the aggregate of such contributions in a financial year exceeds
5 % (five percent) of its average
net profits for the three
immediately preceding financial years.
POLITICAL
CONTRIBUTIONS
A company with approval from its
Board of Directors may contribute any amount
directly or indirectly to any
political party in a financial year up to 7.5 % (seven and a half percent) of
its average net profits during the three immediately preceding financial years.
However, a Government company and a company which has been in existence for less
than three financial years cannot make such political contribution.
LOANS TO DIRECTORS AND OTHER PERSONS IN WHOM THE DIRECTOR IS
INTERESTED
Like Section 295 of the Old
Company Law, the New Company Law also restricts a
Company from giving any loan to
including any loan represented by a book debt or give any guarantee or provide
any security in connection with any loan taken by any of its directors or to
the following person (in which director is interested):
(a) any director of the lending
company, or of a company which is its holding
company or any partner or
relative of any such director;
(b) any firm in which any such
director or relative is a partner;
(c) any private company of which
any such director is a director or member;
(d) any body corporate at a
general meeting of which not less than twenty five percent of the total voting
power may be exercised or controlled by any such director, or by two or more
such directors, together;
or
(e) 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.
However,
this restriction does not apply to:
(a) the giving of any loan to a
managingor whole-time director:
(i) as a part of the conditions
of service extended by the company to all its employees;or
(ii) pursuant to any scheme approved by the
members by a special resolution; or
(b) a company which in the
ordinary course of its business provides loans or gives guarantees or
securities for the due repayment of any loan and in respect of such loans an
interest is charged at a rate not less than the bank rate declared by the
Reserve Bank of India.
However, the following are main differences
between the provisions under New Company Law vis-à-vis the provisions under the
Old Company Law:
(a) This restriction also applies
to private companies under the New Company Law. Under the Old Company Law, this
restriction was applicable only to public companies and subsidiaries of a
public company.
(b) Under the Old Company Law, a company
could provide such loan, guarantee or security with the approval of the central
government. However, this is not possible under the New Company Law.
(c) Unlike Old Company Law, this provision
also restricts the holding company from providing loan to its subsidiary
company and security or guarantee with respect to a loan obtained by its
subsidiary company.
RESTRICTION ON NON-CASH TRANSACTIONS WITH DIRECTORS
A company will require prior
approval in general meeting for entering into an
Arrangement by which:
(a) a director of the company or
its holding, subsidiary or associate company or a person connected with him
acquires or is to acquire assets for consideration other than cash, from the
company; or
(b) The company acquires or is to
acquire assets for consideration other than cash, from such director or person
so connected. Further, if the director or connected person is a director of its
holding company, an approval shall also be required to be obtained by the
holding company by passing a resolution in its general meeting.
The Old Company Law did not have
such kind of restriction.
FORWARD CONTRACTS BY DIRECTOR OR KEY MANAGERIAL PERSONS
The New Company Law restricts
whole time directors and key managerial persons
from entering into forward
contracts and call option contracts with respect to shares or debentures of
holding, subsidiary or associate company.
PROHIBITION ON INSIDER TRADING
The New Company Law forbids the
insider trading by a person including any director or key managerial personnel
of a company “insider trading” has been defined as:
(i) an act of subscribing,
buying, selling, dealing or agreeing to subscribe,
buy, sell or deal in any
securities by any director or key managerial personnel or any other officer of
a company either as principal or agent if such director or key managerial personnel
or any other officer of the company is reasonably expected to
have access to any non-public
price sensitive information in respect of securities of company; or
(ii) an act of counseling about
procuring or communicating directly or indirectly any non-public price
sensitive information to any person.
“price-sensitive
information” has been defined as any information which relates,
Directly or indirectly, to a
company and which if published is likely to materially affect the price of
securities of the company.
Under the existing legal
framework, the insider trading restrictions pertains to public listed
companies, as such activity is considered to cause prejudice to public
Shareholder. Under the New Company Law, the insider trading restriction also applies
to a private company and unlisted public companies, also. However, the
Purpose of this restriction is
not clear. An exemption may be expected from the MCA from applicability of this
provision to private companies and unlisted public companies.
PUNISHMENT FOR FRAUD
The New Company Law provides for
strict punishment for any fraud. The punishment for fraud is 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 pay a 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.
POWER
TO EXEMPT
The New Company Law empowers the Central
Government to exempt a particular class of companies from applicability of particular
provisions. Considering the unwarranted applicability of many provision to
private companies and unlisted public companies.
NATIONAL COMPANY LAW TRIBUNAL AND NATIONAL COMPANY LAW APPELLATE
TRIBUNA
Section 2(90) of the New Company
Law defines ‘Tribunal’ as the National Company Law Tribunal and Section 2(4)
defines ‘Appellate Tribunal’ as the National Company Law Appellate Tribunal and
thereafter Chapter XXVII (Sections 407 to 434) deals with the Tribunal and the Appellate
Tribunal. However, only Sections 2(4), 2(90) and 407 to 414 (both inclusive) have
been notified by the Central Government till now. The notified sections of the
chapter mostly deal with the establishment/constitution of the tribunal and the
appellate tribunal. While Section 407 sets out the definitions for the purpose
of this chapter, Section 408 establishes the tribunal to be known as the National
Company Law Tribunal exclusively for dealing with and adjudicating matters pertaining
to company law and company affairs and Section 409 sets out the eligibility
criteria for the appointment of the president, judicial members and the technical
members of the tribunal. Thereafter, Section 410 establishes the appellate
tribunal to be known as the National Company Law Appellate Tribunal for dealing
with appeals from the National Company Law Tribunal and Section 411 sets out
the eligibility criteria of the chairperson, judicial members and technical members
of the appellate tribunal. Section 412 sets out that the president of the tribunal
and the chairperson of the appellate tribunal shall be appointed only after due
consultation with the Chief Justice of India and that the members of the
tribunal and the technical members of the appellate tribunal shall be appointed
on the recommendation of the selection committee comprising of persons set out therein.
Section 413 sets out the term of office for the office bearers of the tribunal and
the appellate tribunal and Section 414 sets out that the salary, allowances and
other terms and conditions of service shall be as may be prescribed. Sections
pertaining to the acting president/chairperson, resignation of members, removal
of members, staff, benches, order of the tribunal, appeal from orders of the
tribunal, expeditious disposal, appeal to Supreme Court, power to punish for
contempt, delegation of power, limitation, etc. of the tribunal and the appellate
tribunal has not been notified yet.
It is pertinent to note that
although the notification of Sections 407 to 414 establishes the tribunal and
the appellate tribunal but the procedure to be followed by the
tribunal/appellate tribunal or the powers of the tribunal/appellate tribunal
has not been notified yet.
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