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Companies Act, 2013

By CS Mamta BinaniPast Chairperson (Year 2010), EIRC of ICSIPractising Company Secretary

At ACAEFor Chartered Accountantsmamtab@mamtabinani.comdated : 16.11.2013

Room No.6, 4th Floor, Commerce House2A, Ganesh Chandra Avenue, Kolkata 700013

Connect me @ : (033) 3028 8955-57; (033) 3002 5630-33; 98310 99551mamtab@mamtabinani.comVisit me @ : www.mamtabinani.com1BOARD & BOARD PROVISIONSUNDER THE COMPANIES ACT, 2013(Chapters XI, XII, XIII)In this slide show Chapter XI & XIIRoom No.6, 4th Floor, Commerce House2A, Ganesh Chandra Avenue, Kolkata 700013

Connect me @ : (033) 3028 8955-57; (033) 3002 5630-33; 98310 99551mamtab@mamtabinani.comVisit me @ : www.mamtabinani.com2Chapter XIAppointment & Qualificationof Directors(which consists of Sections 149 to 172)

Room No.6, 4th Floor, Commerce House2A, Ganesh Chandra Avenue, Kolkata 700013

Connect me @ : (033) 3028 8955-57; (033) 3002 5630-33; 98310 99551mamtab@mamtabinani.comVisit me @ : www.mamtabinani.com3Section 149 (old 252,253,259)Minimum number of directors in case of private and public companies is 2 and 3 respectivelyThe limit of maximum number of directors is increased from 12 to 15In 1956 act, CG approval was required to go beyond 12In 2013 act, SR will be required to go beyond 15. No CG approval is requiredOPC needs to have minimum 1 directorAt least 1 director shall be a person - stayed in India for a total period of not less than 182 days in the previous calendar year

Women DirectorPrescribed class of companies to have 1 women director As per the draft rules: Listed and also for public limited companies with paid up capital of Rs.100 crores and above or turnover of Rs.300 crores and aboveFor Listed companies: transition period of 1 yearFor other public limited companies: transition period of 3 years

Independent DirectorsPublic companies to have 1/3 IDs of the total nu.Criteria: 1. Paid up capital >= Rs.100 croresOutstanding loans/borrowings/debentures/deposits > Rs.200 crores; Turnover >= Rs.300 croresNominee Director/ Representative Director not to be considered as IDs (in conflict with existing clause 49)IDs to abide by a detailed code of con (Schedule IV)Issue of letter of appointment to ID mandatoryLetter to contain terms of appointment, Boards expectations, fiduciary duties etc.Will not retire by rotation/ Transition period: 1 year

Independent DirectorsIDs to hold 1 separate meeting in a year without other directors and management Tenure restricted to 2 terms (5+5)Second term to require SRThen cooling period of 3 yearsTenure served by ID before commencement of new Act not to be countedStock options not permitted for ID (inconsistent with Listing Agreement)Profit related commission and sitting fees allowed Qualifications of IDAppropriate balance of : (i) skills (ii) experience and (iii)knowledge in one or more fields of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations or other disciplines related to the companys businessAfter the appointment of ID, the B/R shall have to furnish a statement to the effect that in the opinion of the Board, the ID possesses the appropriate balance of skills, experience and knowledge Database of IDs-Section 150Anybody, Institute or Association Which has been authorised in this behalf by the CGShall create and maintain a data bank of personsWilling and eligible to be appointed as IDSuch data bank shall be placed on the website of MCAOr any other website as may be approved or notified by the CGDetails as mentioned in Rules to be put up on the siteA disclaimer to be carried by the websiteID may also apply Charges can be leviedAppointment of ID-ORThe appointment has to be approved by the CompanyIn a general meetingSpecial BusinessOrdinary ResolutionThe explanatory statement (section 102 already enforced), shall inter-alia, mention the justification for choosing the appointee as the ID and also a statement that in the opinion of the Board, he fulfils the conditions specified in the Act

Section 151 (old 252)-Small ShListed company may have one director elected by such small shareholders; There is a change vis--vis the Companies Act of 1956Now, only listed companies Small shareholders has been explained in the section itself as a shareholder holding shares of nominal value of not more than Rs.20,000 or such other sum as may be prescribed

Small shareholders directorSuo-motu - Listed Company orUpon the notice of not less than 500 or 1/10th of the total number of small shareholders, whichever is lowerSuch director will be considered as an IDShall not be liable to retire by rotationNot for a period exceeding 3 consecutive yearsOn the expiry of the tenure, shall not be eligible for re-appointmentNo person shall hold the office of small shareholders director in more than 2 companies at the same timeSection 152-Appointment of DirEvery Director needs to furnish a declaration-Not disqualified for being appointed as DirectorValid DIN for getting appointedConsent letter made mandatory for private limited companies also and needs to be filed with ROC evenOPC-Individual member will be deemed to be the first director unless specific appointment madeRetirement by rotation-provisions remain the same. To note that ID number not to be included in reckoning total number of directors

Sections 153, 154, 155, 156, 157, 158, 159-Provisions of DIN153: To apply for DIN if intending to get appointed 154: CG to allot DIN to the applicant within one month155: Cannot have more than 1 DIN156: Existing Director to intimate DIN to all Companies within 1 month157: Company to inform DIN to ROC within 15 days (instead of a week) of the receipt of the same from the Director158: Obligation to mention DIN159: Punishment for contravention of sections 155, 156

Section 160 (old section 257)Right of persons other than retiring directors to stand for directorship:Amount of deposit increased from Rs.500 to Rs.1.00 lac or such higher sum as may be prescribedNow, even if the person is not elected but the person so proposed gets more than 25% of total valid votes, the amount of deposit will be refunded25%- be it by show of hands or on poll The manner in which the notice will be sent to the shareholders will be prescribed by the Central Government

Section 161 (old sections 260,262 & 313)Additional Director: If someones resolution for appointment as a Director, gets defeated in a GM, then that person cannot be appointed as an additional directorAlternate Director : 1) BOD may appoint, if authorised by AOA otherwise the GM 2) The said appointee should not be holding alternate directorship for any other director in the Company 3) If he is an AD to any ID, then AD also needs to satisfy the criteria laid for ID It is to be clarified here that a Director of the Company may act in dual capacity, that is for himself and as an AD for any other Director of the Company (SECTION APPL)

En block resolution-Section 162A single resolution not allowed for appointing 2 or more persons as directors of the Company unless A proposal to move such a motion has first been agreed to at the meeting without any vote being cast against it.

(This provision now made applicable to private co. also)(SECTION APPL)Section 163 (old section 265)Principle of proportional representation1. The AOA of the Company may provide for this 2. If it provides, then not less than 2/3 of the total number3. By a single transferable vote or by a system of cumulative voting or otherwise4. Such appointment may be made once in every 3 years5. Casual vacancies to be filled in as in the case of additional director (It is to be noted that even a private limited company can provide for this provision in its AOA)(SECTION APPL)Section 164 (old section 274)Disqualifications for appointment of Director Apart from the existing disqualifications, the additions are as below: 1. Conviction of an offence dealing with related party transactions at any time during the last preceding 5 yrs 2. A person who has been convicted of any offence and sentenced in respect thereof to imprisonment for a period extending to 7 years or more 3. A person who has not obtained a DIN (very important: old section 274(1)(g) mentioned of public company only but the new section 164(2) has removed the word public)

Section 165Maximum number of directorships is 20 (instead of 15 in old law), within which maximum 10 public limited companiesIncluding alternate directorshipsIncluding directorship in private companies that are either holding or subsidiary company of a public companyIf the members so want, they may by SR, specify a lesser number of directorships for their directors (It is to be noted that a transition period of 1 year will be provided to the directors to comply with the maximum number of directorships) Very Important: 1. The Directors have to intimate their choice to each of the company where they wish to continue 2. Intimation to be given to the ROC also

Sec 166-Duties of Directors-CarvedIn line with the UK Companies Act, 2006In accordance with the Companys AoA To act in good faith, to promote objects of the company for benefit of members and the best interest of the company, employees, community and environmentTo exercise duties with due & reasonable care, skill and diligenceNot to achieve any undue gain/advantage

Sec 167-Vacation of office of DirectorInter-aia, If he absents himself from all the meetings of the BOD held during a period of 12 months with or without seeking LOA of the Board (Section 167(b))Fine is hefty if he continues even after he should have vacated his office Resignation of Director (Section 168) Company wil have to file resignation. Director also may forward to ROC, a copy of his resignation along with detailed reasons in the prescribed form, within 30 days of resignation in the prescribed manner Quick fix solution Where all directors have resigned, the promoter or in his absence, the CG shall appoint required number of directors. These directors to hold office till the directors are appointed in General Meeting

Section 169 (old section 284)Removal of DirectorThe provisions remains the sameThe words CG have been replaced by TribunalIn case of contravention of the provisions of this section, the penalty has been increasedSection 170 (old sections 303,307)The register shall contain: - Particulars of its Directors - KMP Details like: - Securities held by each of them in the Company or its holding, subsidiary, subsidiary of companys holding company or associate companies - Other details as may be prescribed (It is to be noted two separate registers-that of directors and directors shareholding has been done away with) Very important: Return for appointment or any change therein shall also be filed for appointment of KMPSection 171 (old section 304)In the old section 304, the provision of inspection was only there. No provision for extractsIn the new law, provision for extracts includedIn old law, any member (without charge) and any other person (Re. 1.00 for every inspection)In the new law, the provision u/s 171(1)(b) is to keep the register open for inspection at every annual general meeting of the company and that it shall be made accessible to any person attending the meetingSection 172 (new)Punishment provisions If a company contravenes any of the provisions of Chapter XI and for which no specific punishment is provided in the said provisions of the Chapter, the company and every officer of the company who is in default shall be punishable with fine which shall not be less than Rs.50,000 but which may extend to Rs.5.00 lacsProposed Forms under Chap XIForm no.11.1- ID desirous of having his name in databank, will apply in this form to the bodyForm no.11.2-Consent letter by DirectorForm no.11.3-Application for DINForm no.11.4-Verification for applying for allotment of DINForm no.11.5-Any change in particulars of DIN-30 daysForm no.11.6-Verification for change in DINForm no.11.7-Director resigning may file this formForm no.11.8-Company to file this form on resignation of Director

End of Chapter XI(which consists of Sections 149 to 172) Room No.6, 4th Floor, Commerce House2A, Ganesh Chandra Avenue, Kolkata 700013

Connect me @ : (033) 3028 8955-57; (033) 3002 5630-33; 98310 99551mamtab@mamtabinani.comVisit me @ : www.mamtabinani.comChapter XIIMeeting of Board & its Powers(which consists of Sections 173 to 195) Room No.6, 4th Floor, Commerce House2A, Ganesh Chandra Avenue, Kolkata 700013

Connect me @ : (033) 3028 8955-57; (033) 3002 5630-33; 98310 99551mamtab@mamtabinani.comVisit me @ : www.mamtabinani.comSection 173 (old sections 285,286)Meetings of Board1. First BM shall be held within 30 days of Incorporation2.Notice of not less than 7 days in writing to call BM3.Notice to all Directors, whether he is in India or outside India by hand delivery/post/electronic means4.Meeting at shorter notice for urgent business. Atleast 1 independent directors presence in the meeting is reqd. If he is not present, then decision of the meeting to be circulated to all Directors and shall be valid only after final ratification of decision by atleast 1 ID.5.Directors may participate in a meeting of the Board either in person or through VC or through AV Section 173 (old sections 285,286)Meetings of Boardcontd6.The CG may specify such matters which shall not be dealt with through VC or AV. In the rules, these are:to approve the annual financial statements; and to approve the Boards report 7. At least 4 meetings each year. Not more than 120 days shall elapse between two meetings-appl.to private also8.The punishment for not serving the notice of Board meeting has been increased, wherein in case of default every officer of the Company whose duty is to give notice of board meeting and which fails to do so shall be liable to punishment of Rs.25000

Section 174 (old sections 287,288)Quorum for meetings of Board1.If the number of Directors is reduced below the quorum requirement due to resignation/removal, then the continuing Director may act for the purpose of increasing the number of Directors to that required for the quorum2.Participation of Director through VC/ AV shall be counted for the purpose of quorum3.The provisions that frequency of the Board meeting shall not be deemed to be contravened merely by the reason that the meeting of the Board had been called in compliance with the clause could not he held for the want of quorum, has been dispensed with

Section 175 (old section 289)Resolution by Circulation1. Now resolution by circulation shall be approved, if it is consented by majority of Directors instead of earlier requirement consent of all Directors present in India or by majority of them under the Companies Act, 1956

2. Also, all resolution passed by circulation shall have to be mandatorily noted in the next Board meeting and should be made part of the minutes; this requirement was not under the Companies Act, 1956

Section 175 (old section 289)Resolution by Circulationcontd3. Now where any resolution has been put to vote by circulation and not less than 1/3rd of the total number of Directors requires that any resolution under circulation must be decided at a BM, then the chairman shall put the resolution to BM4.Requirement to send notice of resolution by circulation to all the Directors not being less in number then quorum for the meeting of the Board or the committee as the case may be, has been dispensed with. Instead, the notice shall be sent in draft to all Directors. In the draft rules: can be sent by email/fax

Section 176 (old section 290)Defects in appt. not to invalidate actionsNo act shall be deemed to be invalid even if subsequently noticed that his appointment was invalid by reason of any defect or disqualification

No validity is imparted after his appointment has been noticed by the company to be invalid

(SECTION APPL)

Section 177 (old section 292A)Audit Committee 1.Every Listed Company and such other public companyhaving paid up capital of Rs.100 crores or more; orwhich have, in aggregate, outstanding loans or borrowings or debentures or deposits exceeding Rs.200 crores2. Composition of Audit Committee has been changed3. Transitional period of 1 year 4. List of responsibilities laid down5. Auditor of the Company along with KMP shall be present in Audit committee meeting, when AR is considered6.Establishment of vigil mechanism-enable Directors and employees to report genuine concerns 7. Chairman of Audit committee need not attend AGM

Vigil MechanismIn the draft rules, the following companies: Listed companies and the:(1) Companies which accept deposits from the public; and (2) Companies which have borrowed money from banks and public financial institutions in excess of Rs.50 crores

Section 178 (NEW)Nomination/Stakeholders Comm Nomination Committee 1.For Listed Company and prescribed class of Companies same criteria as for Audit Committee 2.Consisting of 3 or more Non Executive Directors out of which not less than shall be IDs 3.Role: Identify persons for Directors & Senior Mgmt Carry out evaluation of Directors performance Laying policies for appointment 4.All these policies needs to be discussed in the DR

Section 178 (NEW)Nomination/Stakeholders CommStakeholders Relationship Committee 1. More than 1000 security holders at any time during a FY 2.Chairperson-Non-Executive Director and such other members as may be decided by the Board 3. Consider and resolve the grievances of security holders

Section 179 (Old sections 291,292)Powers of BoardFollowing powers have been introduced to be exercised by the Board only at their meeting:1.To issue securities whether in India or outside;2.To grant loans or give guarantee or provide security in respect of loans;3. To approve financial statements and the Directors Report;4. To diversify the business of the Company;5. To approve amalgamation, merger or reconstruction; 6.To take over a Company or acquire a controlling or substantial stake in another Company; and7. Such other matters as may be prescribed.

Section 180 (Old section 293)Restrictions on Powers of Board1.Certain powers which could have been exercised by Board with the approval of general meeting only are now applicable to all the Companies instead of only Public Company and its Subsidiary Companies2.Instead of OR, SR will be required3.Specific definition of the word undertaking and substantially the whole undertaking4.The power to contribute to charitable and other funds has been shifted to another section(SECTION APPL)

Section 181 (Old section 293)Co. to contribute to charitable funds1. A separate section has been provided 2. Word used is bonafide charitable and other funds3.Prior permission of the GM shall be required where contribution to political party exceeds 5% of the average net profits for the 3 immediately preceding FYs

(SECTION APPL)

Section 182 (Old section 293A)Political Contributions 1. The limits for political contribution by Company has been changed. Now instead of 5% as provided under the Companies Act 1956, contribution shall not exceed 7.5% of the average NP during the 3 immediately preceding FY 2.Contribution to any person for political purpose is no more allowed (SECTION APPL)

Section 183 (Old section 293B) Contributions to National Defence Fund 1. Company may contribute such amount as it thinks fit to the National Defence Fund or any other Fund approved by the Central Government for the purpose of national defence

2.Every company shall disclose in its profits and loss account the total amount contributed

(SECTION APPL)

Section 184 (Old sections 299, 300) Disclosure of interest by director1.Every director at the 1st meeting of the Board in which he participates as a director2.And whenever there is any change in the disclosures already made, then at the first Board meeting held after such change3.In case of Private Company also, an interested Director cannot vote or take part in the decision relating to matter in which he is interested4.Notice need not be read at the meeting

Section 185 (Old sections 295, 296) Loan to Directors etc. 1. Be it a public or private company-it cannot give any loan or provide any security or guarantee in connection with loan to a Director or any other person in whom the Director is interested 2. Company can give loan to MD/WTD without approval of shareholder 3. Any Company whose business in ordinary course is to provide loan or guarantee can provide loan at a bank rate not less than that declared by RBI 4.The requirement of provision of CG for giving loan to Director as required under the Companies Act 1956has been dispensed with (SECTION APPL)

Section 186 (Old section 372A) Loan & Investment by Company 1.Disclosure to the members in FS, the full particulars of loan given, investment made or guarantee given or security provided and the purpose for which given2.Cannot make investment through more than 2 layers of investment Companies; Exceptions are:A Company acquiring any other Company incorporated in a country outside India, if such other Company has investment subsidiaries beyond 2 layers as per the laws of such countryA Subsidiary Company from having any investment subsidiary for the purpose of meeting the requirements under any law or under any Rule or Regulation framed under any law for the time being in force

Section 186 (Old section 372A) Loan & Investment by Company Now the clause for investment and loan is not only limited to inter corporate loans and investment; its scope has been extended to include loans and investment to any person also

Section 187 (Old section 49) Investments of Company to be held in its own name 1.The section specifically provides that all investments made or held by a company in any property, security or other assets shall be held in its own name2. Particulars to be mentioned in the Register3.The punishment for contravention of provisions related to investment of company to be held in its own name has been increased

Section 188 (Old sections 297, 314)Related Party Transactions 1.No approval of CG is required for entering into any related party transactions SR will be reqd-paid up capital Rs.1.00 crores and others 2.No approval of CG is required for appointment of any Director or any other person to any offices or place of profit in the Company or its Subsidiary3.All the exceptions where no approval is required for related party transactions under the old Act, has been withdrawn4.Ambit of related party widened5.The list of transactions falling under RPT widened

Section 189 (Old sections 301, 305)Register of contracts in which dir int 1.Besides Director, information regarding KMP also needs to be entered within 30 days of their appointment2.Register of contracts shall also be open for inspection during the AGM to any person having the right to attend the meeting. Hence, a proxy would also be entitled to inspect the Register3.The time period for disclosure has been extended to 30 days as against 20 days

Section 190 (Old section 302)Contract of employment with MD, WTD 1. Public company to keep at its registered office- copy of the contract entered with the MD/WTD and otherwise a written Memorandum setting out the terms of their appointment2.It shall be open to inspection for any member without payment of any fees3.No extracts is allowed to be taken of any contract or Memorandum for appointment of MD/WTD

Section 191 (Old section 318-320)Payment to Director for loss of office Specific and not general punishment has been provided for contravention of provision related to compensation for loss of office to Director in connection with transfer of undertaking or property or shares. Director who contravenes this clause, shall be punishable with fine which shall not be less than twenty five thousand rupees but which may extend to one lakh rupees.

Proposed Forms under Chap XIIForm no.12.1-Format for notice in writing (akin Form no.24AA)Form no.12.2-Company giving loan etc. to maintain a register Form no.12.3-Particulars of investments in shares or other securities beneficially held by the Company but which are not held in its own name Form no.12.4-Register of Contracts