The Cabinet on 4th October, 2012 Thursday; gave its nod to the long awaited and discussed Companies Bill, 2011. This article attempts to provide the key features of this Bill.
The Companies Bill, 2011 has 470 clauses (i.e. Sections) and 7 schedules as against 658 Sections and 15 schedules in the existing Companies Act, 1956. The entire bill has been divided into 29 chapters. Following new chapters have been introduced, viz.
a. Registered Valuers (Ch.17);
b. Government companies (Ch. 23);
c. Companies to furnish information or statistics (Ch. 25);
d. Nidhis (Ch. 26);
e. National Company Law Tribunal & Appellate Tribunal (Ch. 27);
f. Special Courts (Ch. 28)
The Bill empowers Central Government to make rules, etc. through delegated legislation after having detailed consultative process. The Bill provides for self-regulatory process and stringent compliance regime.
The salient features of this Bill are as under:
1. Classification and Registration
a. Concept of One Person Company (OPC limited) [Clause 2(62)].
b. Small companies have been defined (maximum paid-up share capital not exceeding Rs. 50 Lakhs) and have been subjected to a less stringent regulatory framework [Clause 2(85)].
c. Entrenchment Provision has been proposed in the Bill [clause 5(3)].
d. Conversion of Companies already registered has been introduced [Clause 18].
e. A declaration to the effect that all the requirements of the Act in respect of registration and matters precedent or incidental thereto have been complied with. Company Secretaries continue to be recognized for the purpose of giving this declaration [Clause 7(1)(b)].
f. Securities Premium Account may also be applied for the purchase of its own shares or other securities [Clause 52(2)(e)].
g. A company cannot issue shares at a discount. Any shares issued by a company at a discounted price shall be void [Clause (53)].
E-Governance proposed for various company processes like maintenance and inspection of documents in electronic form, option of keeping of books of accounts in electronic form, financial statements, etc.
3. Independent Directors
Independent directors not to get stock option but may get payment of fee and profit linked commission subject to limits specified in the Bill/ rules. Central Government to prescribe amount of fees under the rules.
4. General Meetings
Vote by the electronic means [Clause 108].
The Central Government may prescribe the class or classes of companies and manner in which a member may exercise his right to vote by the electronic means. One Person Companies have been given the option to dispense with the requirements of holding an AGM.
5. Role of Company Secretaries
a. Every company shall observe Secretarial Standards with respect General and Board Meetings specified by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 and approved by the Central Government [Clause 118(10)].
b. Duty of the Company Secretary to ensure that the company complies with the applicable Secretarial Standards [Clause 205].
c, In case of a listed company, even if the Annual Return is signed by the Company Secretary in employment of the Company, it is further required to be signed by the Company Secretary in whole time practice. Also, in case of a company having such paid up capital and turnover as may be prescribed and even if the company is not listed, the Annual Return is required to be signed by the Company Secretary in whole time practice in addition to the Company Secretary in employment.
6. Cost Records (Clause 148)
Cost records to be mandated for companies engaged in production of such goods or rendering of such services as may be prescribed. The concept of ‘cost auditing standards’ being mandated.
7. Insider Trading of Securities (Clause 195)
New clause has been introduced with respect to prohibition of insider trading of securities. The definition of price sensitive information has also been included.
8. Woman Director (Clause 149)
At least one woman director being made mandatory in the prescribed class or classes of companies.
9. Restructuring and Rehabilitation (Clause 254)
The entire rehabilitation and liquidation process has been made time bound
10. Registered Valuers (Clause 247)
a. A new chapter has been inserted in relation to registered valuers.
b. Valuation in respect of any property, stock, shares, debentures, securities, goodwill, net worth or assets of a company shall be valued by a person registered as a valuer.
11. Appointment of Auditor (Clause 139)
No listed company or a company belonging to such class or classes of companies as may be prescribed, shall appoint or re-appoint
i. an individual as an auditor for more than one term of five consecutive years; which means now an individual auditor has to face a mandatory rotation in every five years; and
ii. an audit firm as auditor for more than two terms of five consecutive years; which means now an audit firm has to face a mandatory rotation in every ten years.
12. Board Meetings (Clause 173)
At least seven days’ notice is required to be given for a Board Meeting. The notice may be sent by electronic means to every director at his address registered with the company.
13. Corporate Social Responsibility (Clause 135)
a. The Board of every company shall make every endeavour to ensure that the company spends, in every financial year, at least two percent of the average net profits of the company during the three immediately preceding financial years, in pursuance of Corporate Social Responsibility Policy.
b. If the company fails to spend such amount, the Board shall, in its report, specify the reasons for not spending the amount.
14. Related Party Transactions
a. Every contract or arrangement entered into with a related party shall be referred to in the Board’s Report, along with the justification for entering into such contract or arrangement [Clause 188(2)].
b. Directors and the key management personnel of a company are prohibited from forward dealings in securities of the company [Clause 194].
a. Concept of “dormant companies” being introduced. This would allow a company to remain on the Register of Companies with minimal compliance requirements even without carrying on any operations.
b. It is proposed to create and maintain as ‘Mediation and Conciliation Panel’ for facilitating mediation and conciliation between parties during any proceeding under the purposed Legislation before the Central Government or Tribunal.
16. Secretarial Audit
Every listed company and a company belonging to other class of companies as may be prescribed shall annex with its Board’s report a Secretarial Audit Report, given by a Company Secretary in Practice, in such form as may be prescribed.
17. Restructuring and Liquidation
a. The entire rehabilitation and liquidation process has been made time bound.
b. Winding up is to be resorted to only when revival is not feasible.
c. The Tribunal may appoint an interim administrator or a company administrator from the panel of COMPANY SECRETARIES, CAs, CWAs, etc. maintained by the Central Government.
18. Stakeholders relationship committee
Where the combined membership of the shareholders, debenture holders, deposit holders and other security holders is more than one thousand at any time during the financial year, the company shall constitute a Stakeholders’ Relationship Committee. The Chairman of the Committee shall be a nonexecutive Director.
19. Holding – Subsidiary
Class or classes of holding companies as may be prescribed shall not have layers of Subsidiaries beyond such numbers as may be prescribed.
a. The notice of meeting to be served to Central Government, income tax authorities, RBI, SEBI, Stock Exchanges.
b. Foreign Company, may with the prior approval of RBI, can now merge into Indian company or vice versa. The consideration for the merger can be in the form of cash and/or Depository Receipts.
c. Fast Track Provisions are made to facilitate merger between two or more small or between holding and it’s wholly owned subsidiary company or such other class of companies as may be prescribed.
Approval is required of:
i. Registrar of Companies
ii. Official Liquidator
iii. Members or class of members holding at least 90% of total no. of shares
iv. Majority of creditors or class of creditors representing 9/10th in value.
21. Buy Back of Shares
No buy back of shares to be permitted up to 1 year from the date of preceding buy back, whether approved by BOD or shareholders.
Concept and penal provisions relating to ‘officer who is-in-default’ being strengthened. Definition of ‘promoter’ also included in the Bill along with his liability in appropriate cases.
Provisions in respect of vigil mechanism (whistle blowing) proposed to enable a company to evolve a process to encourage ethical corporate behaviour, while rewarding employees for their integrity and for providing valuable information to the Management on deviant process.