ISSUES ON COMPANIES ACT, 2013 Alka Kapoor, Joint Secretary Tuesday, September 09, 2014 alka.kapoor@icsi.edu 1
Companies Act, 2013 This mammoth piece of legislation cannot avoid to go through its teething phase. New Buzz Adopt, Adapt, Improve, Innovate and Professionalise. Tuesday, September 09, 2014 alka.kapoor@icsi.edu 2
ISSUE 1 A Pvt. Co. having paid up share capital of rupees 45 lakhs and turnover of Rs. 20 crores as per last audited balance sheet will be treated as small company? Section 2(85) defines the term small company and provides two criteria. One criteria specifies an upper limit of paid up capital and another provides upper limit of turnover of the company. To remain a small company, the private company should not exceed any of these criteria. A private company shall not be covered in the definition of small company if either its paid up share capital exceeds Rs. 50 lakhs or its turnover exceeds Rs. 2 crores. Tuesday, September 09, 2014 alka.kapoor@icsi.edu 3
ISSUE 2 Can a company form a One Person Company (OPC) as its subsidiary? In terms of rule 3 of the Companies (Incorporation) Rules, 2014, only a natural person who is an Indian citizen and resident in India is eligible to incorporate OPC. Therefore, the question of any body corporate or other form of organizations being the single member does not arise. Tuesday, September 09, 2014 alka.kapoor@icsi.edu 4
ISSUE 3 One Person Company What is the requirement as to the minimum i and maximum number of directors in an OPC? In terms of section 149(1), a One Person Company needs to have minimum of one director. It can have directors up to a maximum of 15 which can also be increased by passing a special resolution as in case of any other company. Tuesday, September 09, 2014 alka.kapoor@icsi.edu 5
ISSUE 4 Is section 135 relating to Corporate Social Responsibility applicable to OPCs? Section 135 is applicable toevery company having : net worth of Rs 500 crore or more; or turnover of Rs 1000 crore or more; or a net profit of Rs 5 crore or more during any of the three preceding financial years. The word used here is every company, However, in terms of rule 6(2) of Companies (Incorporation) Rules, 2014, an OPC loses its status if paid up capital exceeds Rs. 50 lakhs or average annual turnover is more than 2 crores in three immediate preceding consecutive years. In view of this, it is unlikely that an OPC would meet the criteria specified in section 135. Tuesday, September 09, 2014 alka.kapoor@icsi.edu 6
ISSUE 5 What is the status of show of hands in the light of provisions relating to electronic voting? MCA vide General Circular 20/2014 dated 17th June, 2014 clarified that voting by show of hands u/s 107 would not be allowable in cases where Rule 20 of Companies (Management and Administration) Rules, 2014 is applicable. Tuesday, September 09, 2014 alka.kapoor@icsi.edu 7
ISSUE 6 What is the status of proxy in the light of provisions relating to electronic voting? Any member who has not exercised his vote electronically, may attend and vote at the general meeting either ih personally or by appointing a proxy to attend and vote on his behalf. The concept of proxy is still relevant, though with limited applicability. Tuesday, September 09, 2014 alka.kapoor@icsi.edu 8
ISSUE 7 What is the status of demand for poll in the light of the provisions relating to electronic voting? The MCA has vide General Circular 20/ 2014 dated 17th June, 2014 clarified that for companies which are covered under section 108 read with rule 20 of Companies (Management and Administration) Rules, 2014, the provisions relating to demand for poll would not be relevant. The Chairman shall however regulate the poll at the meeting. Tuesday, September 09, 2014 alka.kapoor@icsi.edu 9
FURTHER ISSUES ON E VOTING (1) Is e voting a must where the Company s debentures only are listed and shareholders are less than 1000? Yes (2) Is e voting a must, where an unlisted company has more than 1000 shareholders? Yes () (3) Can a shareholder who has voted during e voting period, vote again at the meeting? No. Vote is invalid if voted (4) Is a company whose shares are listed required to follow procedures of e voting in a postal ballot? Yes (5) Is e voting amustfor class meetings of shareholders or requisition meeting by numbers or meetings of debenture holders? No 10
ISSUES ON E VOTING Rule 20 of Companies (Management and Administration) Rules, 2014 requires that t electronic voting period should be complete threedayspriortothedateofthegeneralmeeting.whatisthe relevance of such three days? Rule 20 of aforesaid Rules, 2014 provides that the scrutinizer shall, within a period of not exceeding 3 working days from the date of conclusion of e voting period, make a scrutinizer s report of the votes cast in favour or against, if any, forthwith to the Chairman. If the information is disclosed to the chairman prior to the meeting the chairman may feel that there is no need for the votes to be cast at the meeting in case the votes cast through h e voting is a favourable number. Tuesday, September 09, 2014 alka.kapoor@icsi.edu 11
ISSUES ON E VOTING Should there be e voting after physical meeting OR before physical meeting? Section 103 provides for the quorum of the AGM. What is the status where the requisite members do not attend the meeting personally and the remaining members have already voted electronically, will they be counted for the purpose of quorum or the meeting will stand adjourned for want of quorum? A shareholder has voted through e voting thereafter he sells his shares. Whether the newshareholder h will permitted to physically attend and demand for recasting of votes. Tuesday, September 09, 2014 alka.kapoor@icsi.edu 12
ISSUE 8 Can existing independent directors continue up to their original tenure as if the Companies Act, 1956 had been in force and be reappointed for a period of 5 years under the Companies Act 2013 on the completion of original tenure? In terms of the explanation to sub sections (10) & (11) of section 149, any tenure of an independent director on the date of commencement of this Act shall not be counted as a term. As per General Circular No. 14/2014 dated 9th June, 2014 a existing director should be re appointed in accordance with the eligibility and other prescribed conditions within one year from April 1, 2014 i.e. by March 31, 2015. As per revised clause 49 of listing agreement a person who has already served as an independent director for five years or more in a company as on October 1, 2014 shall be eligible for appointment, on completion of his present term, for one more term of up to five years only. Tuesday, September 09, 2014 alka.kapoor@icsi.edu 13
ISSUE 9 When does the resignation of a director become effective, on the date which he specifies or the date on which the resignation letter is received by the company or the date on which from DIRfl 12isfiled? Sub section (2) of section 168 provides that the resignation of director shall be effective from the date on which the notice is received by the company or the date, if any, specified by the directorin in the notice, whichever is later. Tuesday, September 09, 2014 alka.kapoor@icsi.edu 14
ISSUE 10 In case, all the directors of the Company jointly get disqualified due to default of non filing and non payment how will new directors be appointed? As per Section 167(3) of the Companies Act, 2013 where all the directors of a company vacate their offices under any of the disqualifications as provided under the provision of this Section, the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in the general meeting Tuesday, September 09, 2014 alka.kapoor@icsi.edu 15
ISSUE 11 Can a person be CFO and the CS in a company? The term used under section 203 is whole time and therefore, three different individuals are required to hold these three key positions. Further, as per Regulation 78 of Tbl Table F, a provision ii of the Act or these regulations requiring or authorising a thing to be done by or to a director and chief executive officer, manager, company secretary or chief financial officer shall not be satisfied by its being done by or to the same person acting both as director and as, or in place of, chief executive officer, manager, company secretary or chief financial officer. Tuesday, September 09, 2014 alka.kapoor@icsi.edu 16
ISSUE 12 Can the KMP of Holding Co. be appointed in only one subsidiary or in all subsidiaries of holding company at the same time? As per section 203(3) of the Companies Act, 2013,a Wholetime KMP of a company shall not hold office in more than one company except in its subsidiary company. This section restricts a person to hold office in more than one company, while at the same time enables a person to hold office in its subsidiary company and ideally he may be appointed in only one subsidiary. Tuesday, September 09, 2014 alka.kapoor@icsi.edu 17
ISSUE 13 Whether any form is required to be filed with ROC, in case the existing i CEO, MD and CS are designated d as KMP and if Yes, in which form? In terms of section 170(2) read with Rule 18 of Companies (Appointment & Qualification) Rules, 2014, Form DIR 12 is required to be filed with the Registrar of companies in case the existing CEO, MD and CS are designated as KMP. Tuesday, September 09, 2014 alka.kapoor@icsi.edu 18
ISSUE 14 The Chairperson shall ensure that the required quorum is present throughoutthe meeting. What happens where the connection of one or two members gets disrupted? Will the meeting continue where quorum requirement is still fulfilled?
ISSUE 15 The Chairperson of the meeting and the company secretary, if any, shall take due and reasonable care to record proceedings. What happens if the recording gets corrupted before the recording of minutes?
ISSUE 16 The rules provide for certain matters not to be taken up at the meeting held through video conferencing. (i.e. Only at physical meeting) What if certain members wish to participate through Video Conferencing in such meetings? 21
ISSUE 17 The concept of CSR spend (2%) is based on Comply or Explain. What if company does not comply nor explain? Disclosure has to be made in board s report u/s 134 Penalty u/s 134(8) Co. Fine which shall be not less than Rs. 50000 but not more than Rs. 2500000. Every officer Imprisonment extending upto 3 years or fine not less than Rs. 50000 but not morethan Rs. 500000. 22
Contd. Further, in caseacompany has not spent the amountrequired under the law on corporate social activities and if it has explained the same in the Directors Report, its legal responsibility in this regard stands discharged. (section 135 (5) Also, since it is answerable to all the stakeholders, the company can only escape by explaining lii the genuine problem and which h is not possible every year. 23
ISSUE 18 Should a section 8 company also do CSR? If section 8 companies are falling within the criteria provided under section 135(1), these would be required to undertake CSR activities. 24
ISSUE 19 Where CSR activities lead to profits then what about such surplus? The surplus arising out of the CSR projects or programs or activities iti shall not form part of the business profit of a company. The same shall be specified in CSR Policy. Ideally itshould be rolled over to CSR Corpus. 25
ISSUE20 What is the treatment of expenses incurred beyond that of mandated CSR spend. CSR activities that are aein the project poject mode which require fund beyond that of the mandated 2 %, whether be counted in subsequent Financial years as part of CSR expenditure. There is no provision of spreading over the expenditure incurred in a particular year over the next few years. Any expenditure over 2% could be considered as voluntary higher spend. However, in case, a company does not want to spend the 2% in the subsequent year on account of it having spent a higher amount in the previous year, the Board s report may explain so. 26
ISSUE 21 CSR Contribution in kind Whether CSR contribution permitted in kind, such as for a company engaged in books whether hth it could donate books, for a company engaged in computer software, whether it could distribute the software to the needy, whether a company can donate land for say building a old age home The matter has been discussed with MCA and clarification is expected. 27
ISSUE 22 If a company having turnover of more than Rs. 1000 crores or more but has incurred loss during preceding three the F.Y then whether such company is required to comply with the provisions of the section 135 Companies Act, 2013? As per the literal interpretation the answer is yes. However, such company can provide the justification for not spending the amount on CSR activity it in its Board Report 28
ISSUE 23 Which extract of the Annual Return is required to be attached to Board s report. Last year s Annual Return which has been filed with ROC or current year s Annual Return, which is yet to be filed with ROC. In terms of section 92 Annual return shall contain particulars as they stood on the close of F.Y. The extract of such annual return in the MGT 9 shall be attached to the Board s Report in terms of clause (a) of sub section (3) of section 134. Such extract shall relate to such financial year to which such Board s Boards Report relates. Tuesday, September 09, 2014 alka.kapoor@icsi.edu 29
ISSUE 24 Rule 12 of the Companies (Registration of Charges) Rules, 2014 First proviso to section 77(1) empowers the Registrar to allow extension of 300 days for registration of charges. Section 82(1) deals with satisfaction of charges. As per section 82(1), the provisions of section 77(1) shall apply to section 82(1) also. This means 300 days extension is available in case of satisfaction of charges also. Whereas rule 12 of the Companies (Registration of Charges) Rules, 2014 provides that in case delay in filing of satisfaction of charge exceeding thirty days, the same is to be condoned by the Central Government. The ambiguity needs to be removed. Tuesday, September 09, 2014 alka.kapoor@icsi.edu 30
THANK YOU Tuesday, September 09, 2014 alka.kapoor@icsi.edu 31