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12 September 2013
www.deloitte.com/in
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Message
The current economic and regulatory environment in We wish to acknowledge the contribution made by the
India is on the threshold of a major recast. Constant expert research team of Deloitte for their untiring efforts
efforts are being made to amend and adapt the laws to in preparing an extensive in-depth comprehensive study.
suit the demands of modern times. The pivotal focus of
all major reforms is directed towards simplification of I am sure this study will give a rich insight and adequate
the legal system to ensure that it is easy to understand, knowledge to all the stakeholders.
implement and enables business. The country has
passed through a long span since the first Companies I wish the Conference a great success.
Act was enacted. A need has been felt to update and
make it globally compliant and more meaning full in the With Best Wishes,
context of investor protection and customer interest.
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Inter corporate loans / investments approval of merger, corporate reorganization, capital
• Loans, guarantee and security made to any person reduction, extension of financial year etc.
(the 1956 Act dealt only with body corporate) will
attract the 2013 Act compliance requirement Miscellaneous
• Rate of interest on loan granted cannot be lower • Mandatory transfer of profits to reserves for dividend
than the prevailing yield of 1 year, 3 year, 5 year or declaration dispensed
10 year Government Security closest to the tenure of • Inability to pay debts will be considered as criteria for
the loan determining a sick company
• The list of exemptions has been curtailed • Provisions of revival and rehabilitation of sick
companies to apply to all companies and not only to
Loan to Directors an "industrial company"
• No company shall directly or indirectly advance any • Central Government to establish Serious Fraud
loan (including loan represented by a book debt) or Investigation Office for investigation of frauds
give guarantee or provide security in connection with relating to a company
such loan to any director / related persons • Any person representing the company is made liable
– An exception to the above rule is made for MD for punishment for fraudulently obtaining credit
or a whole time director (WTD) if such loan is in facilities from any bank or financial institutions for
accordance with the terms of services extended making any false, deceptive or misleading statement,
to all employees or is approved by shareholders promise or forecast
by special resolution
• Provisions for loan to directors applicable to private Salient Features
companies The salient features of the 2013 Act are as follows:
Key Definitions
Mergers & Acquisitions • Maximum number of members in a "private
• Restriction placed on multi-layer investment company" increased from 50 to 200.
subsidiaries • Private company which is a subsidiary of a public
• Merger of Indian company with a foreign company company shall be deemed to be a public company
allowed regardless of its status as private company by virtue
• Fast track merger for small companies and between of its AOA.
holding company and its wholly owned subsidiary • "Financial year" of a company / body corporate
introduced means the period ending on 31st March every year.
• Person / group of persons holding 90% or more Where it is incorporated on or after 1st January of a
equity shares by virtue of amalgamation etc. can year, FY means the period ending on 31st March of
purchase the remaining equity shares of the company the following year, in respect whereof the financial
from minority shareholders statement is made up.
• Any valuation of shares / assets etc. required under • "Net worth" means aggregate of paid-up share
2013 Act to be performed by a Registered Valuer capital and all reserves created out of the profits
and securities premium account as reduced by
Measures for investor protection accumulated losses, deferred expenditure and
• Provisions relating class action suits introduced miscellaneous expenditure not written off, as per the
• Exit options for minority holders on reorganization audited balance sheet. It shall exclude revaluation
reserve assets, reserves created out of write-back of
National Company Law Tribunal (NCLT) depreciation and amalgamation.
• 2013 Act replaces the High Court with a Tribunal • "Small company" means a company, other than a
to be known as NCLT, which will consists of Judicial public company, whose paid-up share capital does
and Technical members, as Central Government not exceed ` 5 million or such higher amount as may
may deem necessary, to exercise and discharge be prescribed which shall not exceed ` 50 million; or
the powers and functions conferred including whose turnover as per its last profit & loss account
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• No offer for buy-back shall be made within a period through disgorgement or disposal of securities shall
of 1 year from the date of preceding buy-back. be transferred to IEPF.
• Companies which have issued debentures are
required to create a DRR account out of profits of Acceptance of deposits
the company available for payment of dividend and • Companies prohibited from inviting, accepting or
the amount credited to such account is to be utilized renewing deposits from public except following:
only for the redemption of debentures – Banking company;
– NBFC;
Prospectus and allotment of securities – such other company as CG may specify; and
• Public company permitted to issue securities through – Public companies having such net worth or
following modes, subject to compliances with the turnover and subject to prescribed Rules.
Rules and SEBI Act and rules and regulations made • A company may accept deposit from its members by
thereunder: passing a resolution in general meeting and subject
– public offer; or to conditions as may be prescribed in the Rules
– private placement; or including the following:
– issue of rights issue or bonus issue or further issue – Credit rating;
• Specific provisions have been inserted in 2013 Act for – Deposit insurance;
private placement of securities by public and private – Depositing in scheduled bank 15% of amount of
companies its deposits maturing during the current and next
• Allotment in respect of private placement of FY, etc.
securities must be completed within 60 days from • Public companies having such net worth or turnover
the date of receipt of application money as may be prescribed will be eligible to accept
• A person who has been convicted for personation deposits from persons other than its members
for acquisition etc. of securities shall also be liable subject to conditions including:
for suffering disgorgement of gains, seizure and – Credit rating;
disposal of such securities and such amount received – Creation of charge on the asserts of the company
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shall not be associated with any audit firm (including A company shall be deemed to be a subsidiary
related consultancy firms) during the course of their company of the holding company even if the control
appointment and 2 years thereafter. referred above is of another subsidiary company of
• Powers of NFRA shall include: the holding company.
– Investigate into the matters of professional or • The concept of holding-subsidiary company
other misconduct committed by member or firm relationship, as far as it relates to exercise or control
of CA. of more than half share capital is concerned, requires
– Powers as are vested in a civil court under the one to consider the investor company’s shareholding
Code of Civil Procedure, 1908 while trying a suit. in the total paid up share capital (i.e. equity and
– Where professional or other misconduct is preference) of the investee company for which the
proved, NFRA have the power to make order relationship is to be examined. Under the 1956 Act,
for imposing monetary penalty or debarring the the investor company’s shareholding in the total
member or the firm from engaging himself or equity paid up share capital needed to be considered.
itself from practice as member of the institute for • Class or classes of holding companies to be
a minimum period of 6 months or for such higher prescribed cannot have layers of subsidiaries beyond
period not exceeding 10 years. such numbers as may be prescribed
• Any person aggrieved by the order of NFRA can
prefer appeal to NFRAA. Corporate Social Responsibility
• CG may direct keeping books of accounts of a • Provisions applicable to every company having:
company to be maintained for a period more than 8 – net worth of ` 5 billion or more; or
years where any investigation has been ordered. – turnover of ` 10 billion or more; or
• Director’s Report to include amongst others, – net profit of ` 50 million or more
extract of the Annual Return, development and during any FY.
implementation of a risk management policy • BOD of such companies is mandated to spend, in
and CSR, related party contracts, certain loan / every FY, minimum 2% of the average net profits
guarantees / investments and in case of listed and of the company made during the 3 immediately
prescribed public companies – annual evaluation of preceding FYs, in pursuance of its the CSR Policy.
the performance of the BOD. • Such companies to constitute CSR committee of its
• the Directors' Responsibility Statement to include BOD consisting of minimum 3 directors including 1
the statement that the directors had devised proper ID.
systems to ensure compliance with the provisions • CSR committee shall formulate and recommend to
of all applicable laws and that such systems were the BOD, CSR Policy on the lines specified.
adequate and operating effectively. • BOD of such companies shall mandatorily spend, in
every FY, minimum 2% of the average net profits
Holding-Subsidiary Company of the company made during the 3 immediately
• A subsidiary company, in relation to any other preceding FYs, in pursuance of its CSR Policy. If the
company (that is to say the holding company), company fails to spend such amount, BOD shall
means a company in which: specify the reasons for not spending the amount in
– the holding company controls the composition of the BOD report.
the Board of Directors i.e. if that other company • The company is required to give preference to local
by exercise of some power exercisable by it at its area and areas where it operates for spending the
discretion can appoint or remove all or a majority amount earmarked for CSR.
of the directors; or • If the company fails to spend such amount, BOD is
– the holding company exercise or control more required to specify the reasons for not spending the
than half of the total share capital either at amount in the Director’s report.
its own or together with one or more of its
subsidiary companies.
Common conditions for appointment of auditor in • Additional grounds for disqualifications for
listed and specified class of companies: appointment as auditor provided.
• Incoming audit firm should not have any common • Auditor cannot provide following services "directly or
partners who were the partners of the outgoing indirectly" to the company or its holding company or
audit firm i.e. the audit firm whose tenure expired in subsidiary company, namely:—
the immediately preceding FY by virtue of mandatory – accounting and book keeping services;
rotation requirement. – internal audit;
• Rules to be prescribed to state the manner in which – design and implementation of any financial
the companies shall rotate their auditors information system;
• Transition period of 3 years provided to the – actuarial services;
companies to comply with the mandatory rotation of – investment advisory services;
auditor requirement. – investment banking services;
– rendering of outsourced financial services;
Provisions relating to auditors applicable to all – management services; and
companies – services prescribed under the Rules.
• The company may resolve: An auditor or audit firm who or which has been
– If Audit firm is appointed, the audit partner and performing any non-audit services on or before the
his team shall rotate at such intervals as may be commencement of 2013 Act shall comply with the
resolved by members. above before the closure of the 1st FY after the date
– Audit shall be conducted by more than 1 auditor of such commencement.
(i.e. joint auditor). "Directly or Indirectly" shall include rendering of
• Qualification of firm as auditors: services by the auditor,—
– Majority of partners practicing in India are – Where auditor is an individual - Either himself
qualified for appointment; or through his relative or any other person
– If LLP is appointed as auditor, only partners who connected or associated with such individual or
are CA shall be authorized to sign. through any other entity, whatsoever, in which
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such individual has significant influence or control, • Listed company to file with ROC a report in respect
or whose name or trade mark or brand is used by of change in number of shares held by promoters
such individual or top 10 shareholders within 15 days of the said
– Where auditor is a firm – Either itself or through change.
any of its partners or through its parent, • CG may declare by notification such items of business
subsidiary or associate entity or through any which must be transacted by means of postal ballot.
other entity, whatsoever, in which the firm or any All items other than ordinary business and any
partner of the firm has significant influence or business, in respect of which directors or auditors
control, or whose name or trade mark or brand is have a right to be heard at any meeting, may be
used by the firm or any of its partners. transacted by means of postal ballot. The manner of
• Limits on number of audits to be prescribed through postal ballot will be as prescribed.
the Rules. • Quorum for general meeting - Presence of members
• Classes of companies to be prescribed to appoint an in person only will be counted.
internal auditor who shall be CA or cost accountant – Quorum for a private company shall be 2
or such other professional as may be decided by the members personally present.
BOD. – Quorum for a public company shall be as under:
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Meetings of BOD • Listed companies and prescribed companies to have
• First meeting of the BOD of a company must be vigil mechanism for directors and employees to
held within 30 days of its incorporation. Minimum 4 report genuine concern in prescribed manner.
meetings of BOD to be held every year with the gap
between the 2 consecutive meetings not exceeding Nomination and Remuneration committee
120 days. CG may by notification provide different • Mandatory in case of listed companies and other
requirement or modify the requirement for specific prescribed classes of companies.
class or description of companies. • Composition – 3 or more NED of which at least ½
• Participation in the board meeting through shall be IDs. The Chairperson of the company can
prescribed video conferencing (VC) or other audio be a member of the committee but cannot be a
visual means recognized. CG may provide a list of chairperson of the committee.
businesses where meeting by means of VC will not • This committee shall amongst other:
be recognized. – Identify persons who are qualified to be
• At least 7 days’ notice for board meeting shall be directors and who can be appointed in senior
given. A board meeting may be called at a shorter management;
notice to transact urgent business, if at least 1 – Recommend to BOD, policy relating to
ID is present at such meeting. Decision taken at remuneration to directors, KMP and other
such meeting in absence of an ID is final only on employees keeping in mind appropriate
ratification thereof by at least 1 ID. performance bench mark; striking a balance
between fixed and incentive pay etc.;
Committees of BOD – be responsible for evaluation of every director of
Audit committee BOD.
• Mandatory for listed companies and other prescribed
classes of companies. Stakeholders Relationship Committee
• Composition – Minimum 3 directors with majority • SRC mandatory where total number of shareholders,
comprising of IDs. deposit holders, debenture holders and other security
• Chairperson and majority of directors shall be holder exceeds 1,000 at any time during a FY.
persons with ability to read and understand the • Composition – Chairperson shall be NED and such
financial statement. other number of directors as determined by the BOD.
• Transitional period for compliance – 1 year from the • This committee to consider and resolve grievances of
commencement of 2013 Act. the security holders of the company.
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the ordinary course of business but not on an arm’s any commission from the company shall not be
length basis. Related party who is a member of such disqualified from receiving any remuneration /
a company cannot vote on such a special resolution. commission from its holding company or subsidiary
– Arm’s length transaction means a transaction company subject to necessary disclosures in the BOD
between two related parties that is conducted as report.
if they were unrelated, so that there is no conflict • Prior approval of shareholders required in general
of interest. meeting for a company to enter into an arrangement
• The provisions would not apply to transactions by which -
entered into in the ordinary course of business, – a director of the company or its holding,
unless they are not on an arms’ length basis. subsidiary or associate company or a person
• Related party transactions to be disclosed in connected with him acquires or is to acquire
Director’s report along with the justification for assets for consideration other than cash, from the
entering in to such transactions company; or
– the company acquires or is to acquire assets for
Appointment and remuneration of Key Managerial consideration other than cash, from such director
Personnel or person so connected.
• In relation to a company, KMP means - • Director or KMP of a company shall not buy in
– CEO or MD or Manager; the company, its holding, subsidiary or associate
– Company Secretary; company -
– WTD; – a right to call for delivery or a right to make
– CFO; and delivery at a specified price and within a specified
– such other officer as may be prescribed time, of a specified number of relevant shares or
• Prescribed class of companies to have whole-time a specified amount of relevant debentures; or
KMP. – a right, as he may elect, to call for delivery or
– A Chairperson can be an MD or CEO at the same to make delivery at a specified price and within
time, if the Articles of the company permits or if a specified time, of a specified number of
the company does not have multiple businesses relevant shares or a specified amount of relevant
or where the company has multiple businesses debentures.
and has appointed 1 or more CEOs for each such
business as may notified by CG, . Compromises, arrangements and amalgamations
– A whole-time KMP shall not hold office in more • Fast track provisions made to facilitate merger
than 1 company at the same time. between 2 or more small companies or between
– CFO made responsible and liable for penalty and holding company and its WOS or such other class of
/ or prosecution for compliance with various companies as may be prescribed. Fast track merger
provisions such as – maintenance of books of would require approval of ROC, OL, members
accounts, preparation & filing of annual accounts, holding at least 90% of total no. of shares and
disclosure of financial information in offer majority of creditors representing 9/10th in value.
document, risk management, internal control etc., • Foreign company can be merged with Indian
• In case of companies with no profits or inadequate company or vice versa with prior approval of RBI and
profits, managerial remuneration can be paid as per the consideration can be paid in the form of cash
Schedule of remuneration (Schedule V – similar to and / or depository receipts. This would apply to
existing Schedule XIII to 1956 Act). If the conditions foreign companies in jurisdictions as notified by CG.
of such Schedule are not complied with, payment of • Acquirer and / or PAC or person or group of persons
managerial remuneration will require approval of CG. who holds 90% or more of the issued equity capital
• Insurance premium paid by company for of the company by virtue of amalgamation, share
indemnifying specified KMPs against the liabilities exchange, conversion of securities or for any other
for negligence, breach of duty etc. of such specified reasons, can notify the company of his intention
KMPs shall not be treated as part of remuneration of to purchase the remaining equity shares of the
such KMPs. company from minority shareholders. In such cases
• MD or WTD of the company who is in receipt of the valuation shall be done by RV. The minority
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amount of debt within 30 days of demand, any Dormant company
secured creditor may file an application to NCLT to • A company not having any significant accounting
declare such company as a “sick company” transaction, and which is formed under the 2013
– The company may also file an application to NCLT Act for a future project or to hold an asset or an
to declare it as a sick company on above ground intellectual property or an inactive company may
• RIF shall be formed for the purposes of rehabilitation, obtain status of a dormant company by applying to
revival and liquidation of sick companies. A company the ROC.
that has contributed any amount to RIF can utilize • A company which has not filed financial statements
the funds contributed by it for making payment to or annual returns for 2 FYs consecutively will be
workmen, protecting assets and meeting incidental classified as Dormant Company by the ROC.
costs during sickness / winding-up proceedings. • A company which not been carrying on any business
or operation, or has not made any significant
Registered Valuers accounting transaction during the last 2 FYs, or has
• Where any valuation is required to be made in not filed financial statements and annual returns
respect of any property, stocks, shares, debentures, during the last 2 FYs is classified as Inactive Company.
securities, goodwill or other assets or of net-worth • A dormant company will have such number of
or liabilities under 201 Act, such valuation 3shall be directors, file such documents and pay such annual
done by a person registered as a valuer. fees as may be prescribed.
• Registered valuer shall be appointed by the audit
committee or in its absence by the BOD. Removal of names of companies from the register of
companies
Prevention of oppression and mismanagement • A company may be struck off by ROC for following
• Class action suits enabled - One or more members reasons -
or class thereof or one or more creditors / class – subscribers to MOA have not paid the
thereof can apply to NCLT for orders to prevent the subscription money within 180 days from the
affairs of the company being conducted in a manner date of incorporation;
prejudicial to interests of the company. They may – company has failed to commence its business
also claim damages / compensation for fraudulent within 1 year of its incorporation;
/ unlawful / wrongful acts from or against the – company is not carrying on any business or
company / directors / auditors / experts / advisors etc. operation for 2 immediately preceding FY and
• To prevent possible misuse, Class action applications has within such period applied for status of a
can be made by prescribed number of members dormant company.
/ creditors. Banking companies to be out of the • Companies can also by passing a special resolution
purview of Class action. apply for removal of name.
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under 2013 Act with which the accused may, under indirectly as a result of non-disclosure or insufficient
the Code of Criminal Procedure, 1973 be charged at disclosure in the explanatory statement annexed to
the same trial. the notice of general meeting then such persons shall
hold such benefit in trust for the company and shall
Protection of minority shareholders interest be liable to compensate the company to the extent
Some of the measures include the following: of the benefit received by him.
• The promoter and shareholders having control of a
company which has unutilized money raised from Conclusion
public through prospectus and which proposes to The 2013 Act is expected to facilitate business-friendly
change its objects are required to provide an exit corporate regulation, improve corporate governance
to the dissenting shareholders in accordance with norms, enhance accountability on the part of corporates
regulations to be specified by SEBI. and auditors, raise levels of transparency and protect
• Where any benefit accrues to promoter, director, interests of investors, particularly small investors.
manager, KMP, or their relatives, either directly or
Glossary
Today, ASSOCHAM has emerged as the fountainhead Insight into ‘New Business Models’
of Knowledge for Indian industry, which is all set to ASSOCHAM has been a significant contributory factor
redefine the dynamics of growth and development in in the emergence of new-age Indian Corporates,
the technology driven cyber age of ‘Knowledge Based characterized by a new mindset and global ambition
Economy’. for dominating the international business. The
Chamber has addressed itself to the key areas like India
ASSOCHAM is seen as a forceful, proactive, forward as Investment Destination, Achieving International
looking institution equipping itself to meet the Competitiveness, Promoting International Trade,
aspirations of corporate India in the new world of Corporate Strategies for Enhancing Stakeholders Value,
business. ASSOCHAM is working towards creating a Government Policies in sustaining India’s Development,
conducive environment of India business to compete Infrastructure Development for enhancing India’s
globally. Competitiveness, Building Indian MNCs, Role of
Financial Sector the Catalyst for India’s Transformation.
ASSOCHAM derives its strength from its Promoter
Chambers and other Industry/Regional Chambers/ ASSOCHAM derives its strengths from the following
Associations spread all over the country. Promoter Chambers: Bombay Chamber of Commerce
& Industry, Mumbai; Cochin Chambers of Commerce &
Vision Industry, Cochin: Indian Merchant’s Chamber, Mumbai;
Empower Indian enterprise by inculcating knowledge The Madras Chamber of Commerce and Industry,
that will be the catalyst of growth in the barrierless Chennai; PHD Chamber of Commerce and Industry, New
technology driven global market and help them upscale, Delhi and has over 4 Lakh Direct / Indirect members.
align and emerge as formidable player in respective Together, we can make a significant difference to the
business segments. burden that our nation carries and bring in a bright, new
tomorrow for our nation.
Mission
As a representative organ of Corporate India, THE ASSOCIATED CHAMBERS OF COMMERCE AND
ASSOCHAM articulates the genuine, legitimate needs INDUSTRY OF INDIA (ASSOCHAM)
and interests of its members. Its mission is to impact ASSOCHAM House,
the policy and legislative environment so as to foster 5 Sardar Patel Marg, New Delhi - 110021
balanced economic, industrial and social development. Phone: +91-11-4655 0555 (Hunting Line)
We believe education, IT, BT, Health, Corporate Social Fax: +91-11-2301 7008/9
responsibility and environment to be the critical success Email: assocham@nic.in
factors. Website: www.assocham.org
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Companies Act, 2013 New rules of the game 23
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