Companies Bill 2009
The Companies Bill 2009 has been introduced in Lok Sabha on August 3, 2009. The companies bill would enable the corporate sector to operate in a regulatory environment of best international practices that fosters entrepreneurship, investment and growth. The bill gives greater emphasis on self regulation and minimization of regulatory approvals in managing the affairs of the company. The bill vests the shareholders with greater powers and requires greater disclosures. The focus of this article is to give a bird’s eye view on the significant features of 426 clauses of the bill. The clauses are summarized as follows:
Incorporation of companies:
Introduction of concept of One person company (OPC) wherein minimum of one member and one director is sufficient. Any contract by OPC with its sole member who is also its Director should be informed in the Board meeting and recorded in minutes and informed to ROC within stipulated time limit. OPC need not hold Annual general meeting.
The requirements relating to statutory report, statutory meeting and certificate of commencement of business are dispensed with.
Minimum paid up capital of private and public company proposed to be dispensed with.
No company can issue preference shares which are irredeemable, and the same should be redeemed within 20 years from date of their issue. However companies involved in infrastructure projects are exempted from this provision.
No company can issue shares at discount except for issue of sweat equity shares
Key managerial personnel:
KMP means Managing Director, Chief Executive Officer, Company Secretary and Chief Financial Officer. He should not be below 21 years of age and should be appointed in board meeting wherein all directors should consent his appointment and approved by the shareholders in General meeting by special resolution. He should not hold office in more than one company but can act as director of any company with the permission of the company. The vacancy should be filled in by the Board within 6 months. Register of Key managerial person shareholding also to be maintained. He is included in the list of related parties and officer in default.
Atleast one director should be resident in India. In every public listed company not less than 1/3 shall be independent directors. The General Powers of directors which can be exercised only at board meetings are increased.
An additional disqualification from being a director is that if he has been convicted of the offence dealing with related party transactions at any time during the last preceding five years.
The office of the director shall be vacated if he fails to attend all the board meeting in a continuous period of twelve months either with or without seeking leave of absence.
A director can himself file his resignation with the Registrar of Companies.
The notice for board meeting is not less than 7 days. The time limit between two meetings should not exceed 120 days. The participation may be in person, or video conferencing or other electronic means.
Audit, remuneration and stakeholders relationship committees of the board are recognized
Related party transaction:
The transactions of public limited company with related parties would require the approval of board and in case of exceeding the threshold limit of paid up capital or turnover, bill requires approval of shareholders by special resolution and subject to compliance with the prescribed conditions. This is a major deviation to the existing provisions of section 297 of the companies Act, 1956.
Loan to Directors:
Unlike the present act, no approval of central Government is required but it should be in line with the conditions of service to all employees of the company or pursuant to the scheme approved by the shareholders in General meeting by special resolution.
Annual General Meeting:
The first annual general meeting should be held within 9 months from end of first financial year. The AGM should be held within business hours ie 9.00 am and 6 pm.
Notice of AGM can be given electronically. An Explanatory statement for special business should contain the nature of concern interest of the director and key managerial person.
Votes can be casted in the AGM by electronic means in addition to show of hands and by poll. Voting by postal ballot made applicable to all companies.
Every public listed company to prepare a report confirming that meeting has been convened held and conducted and files the same with Registrar within 30 days of conclusion of AGM.
Annual return should additionally state meetings of members or class of members, board and its attendance, remuneration of Directors and key managerial personnel, penalties and punishment imposed on company, directors and matters related to certification of compliances, disclosures. The annual return should form part of Board’s report and submitted to ROC within 30 days of AGM.
When the company has one or more subsidiaries, it shall prepare consolidated financial statement in accordance with both accounting and auditing standards and lay before AGM of the holding company. The Bill proposes all companies to close their accounts as on 31st march of every year. The financial statement should be signed by Chairman or two directors, one of whom shall be managing director or CEO.
The bill proposes that only signing partner needs to be CA in practice. This is introduced to encourage formation of Limited Liability Partnership. Special resolution would be required for removing an auditor before expiry of his term and for not reappointing retiring auditor. No person can be appointed as auditor whose relative is in the employment of the company as a director or key managerial personnel. The role, rights and duties of the auditors are defined so as to maintain integrity and independence of the audit process. It is the duty of the Auditor to attend AGM which was previously only a right.
No previous approval of central government is required for appointment of Cost Auditor. He can be appointed in Board on such remuneration as fixed by the Members.
The present provision of mandatory transfer of a percentage of profit to reserves has been dispensed with and now the percentage is discretionary in the hands of the company. In case of inadequacy of profit, dividend can be declared out of reserves with the unanimous consent of board and approval of shareholders by special resolution.
Invitation, Acceptance and renewal of deposits made more stringent by requiring issue of public circular containing interalia credit rating obtained for the same. The bill proposes deposit of not less than 15% of the deposits maturing during the financial year in Deposit Repayment Reserve Account and Creation of Deposit insurance to the extent prescribed. The deposits due for repayment are secured by creation of charge. In case of deposits accepted before commencement of the Act, any portion of deposits or interest remaining unpaid requires company to file a statement with Registrar and repay within one year from the commencement of the act or from the date on which payment are due whichever is earlier.
Registration of charges:
The company has to register the charge with the Registrar within 30 days of creation and with additional fees within 300 days from creation.
If the company fails to register the charge within due date then the person in whose favour the charge is to be registered may apply to register the same and is entitled to recover the amount of fees and additional fees from the company
Investor Education & Protection Fund
Investors claim for unclaimed dividend, deposits etc. shall not be extinguished even after transfer to the Investor Education & Protection Fund.
Appointment of valuers by audit committee or in its absence by the board of directors for enabling fair valuations in companies for various purposes
Compromises, Arrangements, Mergers and amalgamations of companies:
The National Company Law Tribunal shall be the sole authority to sanction the schemes of Compromises, Arrangements, Mergers and amalgamations of companies.
The Companies Act, 1956 does not allow merger of an Indian Company with a foreign Company and vice-versa. But the bill permits not only the merger of foreign companies into Indian Companies but also mergers of Indian Companies into foreign companies.
Simplified procedure for mergers and amalgamations of small companies as well as the merger of wholly owned subsidiary(ies) with the holding company ie when both transferor and transferee companies are private companies. The definition of “small company” means a company, other than a public company,- (i) whose paid-up share capital does not exceed such amount as may be prescribed and the prescribed amount shall not be more than five crore rupees; or (ii) whose turnover as per its last profit and loss account does not exceed such amount as may be prescribed and the prescribed amount shall not be more than twenty crore rupees
Rehabilitation of Companies:
If the Company expresses its inability to meet the demand of secured creditors representing not less than 50% of its outstanding dues within 30 days, then it is declared sick. The determination of sickness based on networth is dispensed with. The sick companies have to approach Tribunal for revival and not BIFR. Not alone industrial companies can be declared sick but applies to all companies.
Winding up of companies:
The bill proposes to empower the tribunal to deal with winding up of companies. Not commencing business within a year of incorporation, suspending business for a whole year and reduction of members below minimum will not be trigger for winding up.
The bill also provides that shareholder's association/s can take legal action against fraudulent action by companies and constitution of special courts for offences in relation to amalgamations and mergers, reduction of capital, insolvency etc.