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Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)
Companies Act 2013
2
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)3
Companies Act 2013
Audit & Auditors
Consolidated Financial Statements
Restatement of Financial Statements
Whistle Blower – Fraud Reporting
National Financial Reporting Authority
(NFRA)
Penalties, Prosecutions & Class Action
Suits
Restricted Services
Directors
Board Composition
Duties of Directors
Key Managerial Personnel (KMP)
Independent Directors
Loan to Directors
SFIO
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)4
Details Companies Act, 1956 Companies Act, 2013
Parts/ Chapter 13 29
Sections 658 470*
Schedules 15 7
No. of Clauses in Section 2
(Definitions)
67 95
Companies Act 2013
* 98 Sections notified effective from 12-September-2013
• In over 180 Sections rules have been prescribed and the draft rules were released by
MCA in three batches. Substantial part of the legislation will be in form of rules
• The provisions which require statutory or regulatory consultation or functioning of new
bodies or prescription of relevant rules and forms will be brought in force after
preparatory action is completed
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)5
Companies Act 2013
Accounts Consolidated Financial Statements & Significant Influence definition
Mandates preparation of Consolidated Financial Statements (CFS) for all companies which have one or
more subsidiaries.
Subsidiary defined to include associates and joint ventures.
Prescribes the format (similar to existing revised schedule VI of the Act) for preparation of CFS .
Requires minority interest to be presented separately within equity on the balance sheet
Defines the term significant influence as “control of at least 20 percent of total share capital or of
business decision under an agreement”. This definition differs from the existing notified accounting
standards, as per which significant influence is defined as "the power to participate in financial and/or
operating policy decisions of the investee but not control over those policies“
Financial Year
Financial year for all companies and body corporate should end on 31 March.
Exemption may be granted at the specific request of the reporting entities where the financial
statements of such entities are required for consolidation outside India.
A transition period of two years has been provided for this change.
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)6
Companies Act 2013
Accounts Restatement of Financial Statements
Currently under existing accounting practices, a Company cannot restate its previously issued financial
statements to correct for an error or misstatement. Any errors/ misstatement are corrected for in the current
period financial statements and disclosed.
The 2013 Act provides for the following:
• mandatory restatement: in case of fraud and when a Court/ the Tribunal passes an order for
restatement
• voluntary restatement: - to comply with accounting standards with the approval of tribunal
Estimated Useful Life of Assets
For a class of companies, to be prescribed, the 2013 Act removes the minimum thresholds and provides
indicative useful lives and residual values under Part C of Schedule II to the 2013 Act.
Any variation from the indicated life needs to be justified.
There is no transition period provided for this change and the change needs to be applied prospectively.
If on the date of implementation of the 2013 Act there is no useful life left for an asset with carrying value on
transitioning, the same may be adjusted through opening reserves.
In case of other companies the useful life of an asset may not be longer than the indicated/ prescribed useful
life.
The 2013 Act has introduced separate category for industries such as (a) civil construction, (b)
telecommunication, (c) exploration, production and refining oil and gas, etc.
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)7
Companies Act 2013
Audit &
Auditors
Tenure and Reappointment of Auditors
Auditors appointed in an annual general meeting („AGM‟) shall hold office from the conclusion of that
meeting until the conclusion of the ensuing sixth AGM (subject to ratification by members at every
AGM).
As per the 2013 Act, before the expiry of the term of appointment, the company may remove the
auditors (subject to special resolution and prior approval from Central Government) and the auditors, as
well, have the right to resign.
Further, the Tribunal either suo-moto or on an application made to it by Central Government or by any
person concerned, if it is satisfied that the auditor of a company has acted in a fraudulent manner or
abetted or colluded in any fraud by the company or in relation to the company/its directors/officers; may
direct the company to change its auditors. The individual or firm, against whom such an order is issued
by the Tribunal, shall not be eligible to be appointed as auditor of any company for five years in addition
to other penal actions.
An auditor/ audit firm is eligible for re-appointment after expiry of five years since completion of the
previous tenure. An audit firm having common partner (s) with another firm which has completed its term
is not eligible for re-appointment for a period of five years from the completion of the other firm‟s term.
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)8
Companies Act 2013
Audit &
Auditors
Mandatory Rotation
In case of listed companies (or a company belonging to such class or classes of companies as may
be prescribed) the term of appointment of an individual auditor/ an audit firm is restricted to a period
of five years/ ten years.
An auditor/ audit firm should mandatorily rotate at the expiry of the term.
Shareholders, at their discretion, may determine that an audit partner may rotate at such interval as
may be resolved by them, or that the audit may be conducted by more than one auditor (joint audit).
There is a transition period of three years, from date of enactment of the 2013 Act, to comply with
this requirement.
Whistleblower – Fraud Reporting
The 2013 Act provides that the auditor should immediately inform the Central Government within a,
to be prescribed, timeframe and manner if he has reason to believe that an offence involving fraud
is being or has been committed against the company by its officers or employees.
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)9
Companies Act 2013
Audit &
Auditors
Eligibility
Under the 1956 Act, a Chartered Accountant holding a certificate of practice or a firm of Chartered Accountants
(only) can be appointed as auditor(s) of a company.
The 2013 Act, in addition, proposes that a firm wherein a majority of the partners practicing in India are qualified
for appointment, may be appointed to be an auditor of a company. Where a firm, including a Limited Liability
Partnership („LLP‟), is appointed as an auditor of a company, only partners, who are chartered accountants are
permitted to act and sign on behalf of the firm.
Disqualifications
The 2013 Act includes the following additional disqualification:
• Any person who has a business relationship with the company/ its subsidiary/associate/its holding
company/subsidiary or associate of its holding company (business relationship disqualification);
• A person whose relative is a non-executive/ executive director or key managerial personnel of the
company;
• A person who has been convicted by a court of an offence involving fraud and a period of ten years
has not elapsed from the date of such conviction;
• A person who is in full-time employment elsewhere;
• Any person whose appointment will result in the person being the auditor of more than 20 companies;
• Any person whose subsidiary or associate or any other form of entity is engaged in providing non audit
services as on the date of appointment (non-audit services disqualifications).
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)10
Companies Act 2013
Audit &
Auditors
Restriction on number of Audits
The 1956 Act and the Institute of Chartered Accountants of India („ICAI‟) restrict the number of
companies in which a person/ firm can be appointed as auditor. An individual cannot be
appointed as auditor for more than 30 companies. Further, an individual cannot be appointed as
auditor for more than 20 public companies and of which not more than 10 companies should
have a paid up share capital of more than Rs 25 lakh. In case of a firm, such ceiling is
determined for every partner of the firm.
The 2013 Act restricts the number of audits to 20 companies for an individual/ partner.
Private companies will also be considered for calculating the limit of 20 audits per partner
National Financial Reporting Authority (NFRA)
Under the 2013 Act, National Financial Reporting Authority (NFRA) (replaces existing
National Advisory Committee on Accounting Standards) to make recommendations to the
Central Government on laying down auditing and accounting standards applicable to
companies.
NFRA to monitor and enforce compliance with auditing and accounting standards.
NFRA will have the power to make orders imposing penalty for professional or other
misconduct by the auditors.
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)11
Companies Act 2013
Audit &
Auditors
Penalties and Prosecution
In case if the auditor has contravened any of his duties, he shall be punishable as below:
• required to refund the remuneration
• pay damages to the company, statutory bodies/authorities or any other person for losses
arising as a result of incorrect or misleading statements in his audit report
• pay a fine which shall not be less than Rs 25,000 but which may extend to Rs 5 lakh
Further, if the above contravention is with an intention to deceive the company or its shareholders
or its creditors, tax authorities or any other person concerned or interested in the company, then
he is also punishable with an imprisonment of a term which may extend up to one year and a
minimum fine of Rs 1 lakh, which may extend to Rs 25 lakh.
Where, in case of audit of a company being conducted by an audit firm, it is proved that the
partner or partners of the audit firm has or have acted in a fraudulent manner or abetted or
colluded in any fraud by, or in relation to or by, the company or its directors or officers, the liability,
whether civil or criminal as provided in this 2013 Act or in any other law for the time being in force,
for such act shall be of the partner or partners of the audit firm and of the firm jointly and severally
and such partner or partners of the audit firm shall also be punishable in the following manner:
• imprisonment for a term not less than six months and may extent up to ten years, provided that
where the matter involves public interest, the minimum term will be three years; and
• fine for an amount ranging from one to three times the amount involved in the fraud
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)12
Companies Act 2013
Audit &
Auditors
Penalties and Prosecution ..contd/-
Similarly where a person has subscribed for securities of a company on any statement included,
or the inclusion or omission of any matter, in the prospectus which is misleading and has
sustained loss or damage as a consequence, the company and certain specified person
(includes director, promoter and experts) are liable to pay compensation to every person who has
sustained loss or damage. Experts may include auditors. Where it is proved that a prospectus
has been issued with intent to defraud the applicants for the securities of a company or any other
person or for any fraudulent purpose, every person referred to the above shall be personally
responsible, without any limitation of liability, for all or any of the losses or damages that may
have been incurred by any person who subscribed to the securities on the basis of such
prospectus.
Class Action Suits
Unlike the 1956 Act, the 2013 Act provides for class action suits, which will allow a requisite
number of members or depositors with common interest, in a matter, to file an application in the
National Company Law Tribunal („NCLT‟) against the company/its management/its auditors or a
section of its shareholders for damages or compensation if they are of the opinion that the
management or conduct of the affairs of the company are being conducted in a manner
prejudicial to their interest.
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)13
Companies Act 2013
Auditors’
Report
Reporting Requirements
In addition to the 1956 Act reporting requirements, the 2013 Act includes the following
matters for auditor reporting;
• Adequacy of the internal financial controls system and the operating effectiveness of
such controls [in a similar context with respect to directors report, internal financial
control has been defined to mean the policies and procedures adopted by the
company for ensuring the orderly and efficient conduct of its business, including
adherence to company‟s policies, the safeguarding of its assets, the prevention and
detection of frauds and errors, the accuracy and completeness of the accounting
records, and the timely preparation of reliable financial information].
• Any qualification, reservation or adverse remark relating to the maintenance of
accounts and other matters connected therewith.
It is notable in this context that only for listed entities, in the director‟s report, the 2013
Act requires directors to provide a similar report on internal financial controls.
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)14
Companies Act 2013
Non-
audit
Services
Restricted Services
Currently, whether non-audit services can be rendered to an audit client is determined by applying the
Code of Ethics and the Guidance Note on Independence of Auditors issued by the ICAI. Unlike 1956
Act, the 2013 Act contains specific provisions that prohibit auditors of a company to render non-audit
services to an audit client (or its holding company or its subsidiary company) Prohibited non-audit
services include:
• accounting and book keeping services;
• internal audit;
• design and implementation of any financial information system;
• actuarial services;
• investment advisory services;
• investment banking services;
• rendering of outsourced financial services; and
• management services.
Other restricted services may be further prescribed.
Transition Period: One year from the date of enactment of the 2013 Act.
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)15
Companies Act 2013
Directors Each company will need to have minimum 1 (one) director who stayed in India for at
least 182 days in the previous calendar year
Prescribed class of companies (listed company/ public company having paid up capital
of >=100 crores or turnover of >=300 crores) to have at least 1 (one) woman director on
the board.
Existing listed companies will be given a one-year transition period to comply with this
requirement and other public company three-year from the condition being applicable
Listed company may have 1 (one) director elected by small shareholders ~ holding
shares of nominal value not > INR 20,000 or such sum as may be prescribed.
Earlier, a public company either with (a) paid-up capital of 5 crore or more, or (b) 1,000
or more small shareholders, may have a director elected by the small shareholders
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)16
Companies Act 2013
Maximum
Number of
Directorship
Limits on maximum number of directors in a company increased
from 12 to 15. It can further be increased by passing a special
resolution. No approval from Central Government required
A person will be able to become a director in 20 companies.
However, out of this, not more than 10 companies can be public
companies.
Shareholders may specify lesser number of companies in which a
director of the company may act as a director.
Transition period to comply with the limit on directorship – 1 year
from the commencement of 2013 Act
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)17
Duties of Director
A director of the company will:
i. act in accordance with the articles of the company
ii. act in good faith to promote the objects of the company
iii. exercise his duties with due and reasonable care, skill and diligence and independent
judgement
iv. not get involved in a situation in which he may have a direct or with the interest of the
company
v. avoid any undue gain or advantage either to himself or to his relatives, partners, or
associates (if found guilty, he may be required to pay an amount equal to such gain back
to the company)
vi. not to assign his office, such assignment being void
Companies Act 2013
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)18
Companies Act 2013
Meetings of BOD
First meeting of the BOD must be held within 30 days of its incorporation
• Minimum 4 meetings of the BOD to be held each year
• Gap between 2 consecutive meetings not exceeding 120 days
• CG may be notification provide different requirement or modify the requirement for specific class of
companies
Participation in board meeting through prescribed video conferencing (VC) or
other audio visual means recognized.
CG may provide a list of businesses where meeting by means VC will not be
recognized
At least 7 days notice for board meeting shall be given
Shorter notice to transact urgent business, if at least 1 ID is present at such
meeting.
Decision taken at such meeting in absence of an ID is final only on ratification
thereof by at least one ID
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)19
Loans to Directors
Companies Act 2013
A company cannot directly or indirectly:
• Advance any loan to any director or any other person in whom the director is interested; or
• Give guarantee or provide security in connection with the loan taken by its director or such other
person
The above provision is not applicable to:
• Loan to MD/ WTD as a part of contract of services extended to all its employees or pursuant to the
scheme approved by members by special resolution
• A company which in the ordinary course of its business provides loan, guarantee or security for due
repayment of any loan and charges interest thereon not being less than bank rate declared by RBI
All the above provisions made applicable to private companies
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)
• In relation to a company, KMP means:
– CEO or MD or Manager;
– Company Secretary;
– Whole time Director (WTD);
– Chief Financial Officer (CFO); and
– Such other officer as may be prescribed
• CFO to be whole time KMP for prescribed class of companies
• CFO made responsible and liable for penalty and/ or prosecution for
compliance with various provisions such as – maintenance of books of
accounts, preparation & filing of annual accounts, disclosure of financial
information in offer document, risk management, internal control, etc.
20
Key Managerial Personnel (KMP)
Companies Act 2013
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)21
Board Committees
Companies Act 2013
Audit
Committee
Mandatory for listed companies and other prescribed classes of
companies
Minimum 3 directors with majority comprising of Independent
Directors
Chairperson and majority of directors shall be persons with ability
to read and understand financial statements
Listed companies and prescribed companies to have vigil
mechanism for directors and employees to report genuine concern
in prescribed manner
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)22
Board Committees
Companies Act 2013
Nomination
and
Remuneration
Committee
Mandatory for listed companies and other
prescribed classes of companies
3 or more Non-Executive directors (NED) of which
at least ½ shall be Independent Directors (IDs)
Chairperson of the company can be a member of
the committee but cannot be a chairperson of the
committee
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)23
Board Committees
Companies Act 2013
Nomination
and
Remuneration
Committee
The committee shall amongst other:
Identify persons who are qualified to be directors and who can
be appointed in senior management
Recommend to the BOD, policy relating to remuneration to
directors, KMP and other employees keeping in mind
appropriate performance benchmark; striking a balance
between fixed and incentive pay, etc.
Be responsible for evaluation of every director of BOD
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)24
Board Committees
Companies Act 2013
Stakeholders
Relationship
Committee
Mandatory where total number of shareholders, deposit
holders, debenture holders and other security holder
exceeds 1,000 at any time during the financial year (FY)
Chairperson shall be NED and such other number of
directors as determined by the BOD
To consider and resolve the grievances of the security
holders of the company
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)25
Board Committees
Companies Act 2013
Corporate
Social
Responsibility
Committee
(CSRC)
Mandatory where the company is required to contribute to CSR if it meets with the
net worth (>= 500 crores), turnover (>= 1,000 crores) or net profit ( >= 5 crores)
criteria
Minimum 3 directors of which at least 1 shall be Independent Director (ID)
This committee shall amongst other:
Formulate and recommend to BOD, a CSR policy
Recommend the amount of expenditure to be incurred on CSR activities
Monitor the CSR policy
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)26
Companies Act 2013
Independent
Directors
(IDs)
Listed companies to have at least 1/3rd of its total number of
directors as IDs
ID is not liable to retire by rotation and is not included in total
number of directors liable to retire by rotation
ID shall be appointed for a term of 5 consecutive years and are
eligible for re-appointment subject to compliance with conditions
including performance evaluation by BOD and approval by
members through special resolution
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)27
Companies Act 2013
Independent
Directors
(IDs)
Once 2 consecutive terms are completed, the ID shall be
eligible for appointment after the cooling period of 3 years,
provided he is not associated with the company during this 3
years period in any capacity, either directly or indirectly
ID may be selected from the data bank maintained by notified
institute or association having expertise in creation and
maintenance of such data bank
IDs is not entitled to stock options but may receive remuneration
by way of sitting fees, reimbursement of expenses for
participation in meetings, profit related commission as approved
by the members of the company
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)28
Companies Act 2013
Independent
Directors
(IDs)
ID and NED (not being promoter or KMP), shall be held liable only for such
acts by a company which had occurred with his knowledge, attributable
through Board processes, and with his consent or connivance or where he
had not acted diligently
Detailed code of conduct to be followed by companies and their IDS have
been included in the Act (Schedule IV of the Companies Act 2013)
At the 1st meeting of the Board in which he participates as a director and
thereafter the 1st meeting of the Board in every financial year or whenever
there is a change in circumstances, which may affect his status as an ID,
will have to give a declaration that he meets the criteria of independence
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)29
Independent Director - Meaning
“Independent Director” in the Companies Act, 2013 contains most of the
attributes prescribed in the listing agreement. The Act however, contains
certain additional criteria:
a. An independent director should be a person of integrity and
possess relevant expertise and experience
b. ID should not have any pecuniary relationship / transactions with
the company, its promoters, its directors or its holding company, its
subsidiaries and associates, which will affect independence of the
director, either in the current FY or immediately preceding two
years.
Companies Act 2013
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)30
Independent Directors
c. A person cannot be appointed as ID if the person and/ or his relative is/ was a partner/
executive in statutory audit firm, internal audit firm, legal firm, and or consulting firm(s),
which have association with the company.
d. Under the Companies Act, 2013, the CG may prescribe additional qualifications for an
“independent director.”
e. The Companies Act, 2013, however, states that an ID will be a director other than the
nominee director appointed by an institution, which has invested in or lent to the
company
g. An ID should not be a Chief Executive or director, by whatever name called, of any
non- profit organisation, which receives 25% or more of its receipts from the company,
any of its promoters, directors or its holding, subsidiary or associate or that holds 2%
or more of the total voting power of the company.
Companies Act 2013
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)31
Independent Directors – Impact
• The SEBI may need to amend the listing agreement to bring it in line with the Companies Act,
2013. Till such time, listed companies will need to follow the requirement of the stringent.
• Considering additional criteria prescribed in the Companies Act, 2013, many listed companies
may need to revisit appointment of their independent directors.
• The Companies Act, 2013 lays down various restrictions, on the person as well as its
relatives, for being eligible to be appointed as independent director. If the government
prescribes a long list of relations, the company, the person who is or seeking to be an
independent director and the relatives of such person will have to keep track of this, to
ensure compliance on a going forward basis. For example, a company cannot appoint any
person as an independent director if that person or his relative is/ was a partner / executive in
the preceding 3 financial years in the firm of auditors of the company.
• The Companies Act, 2013 states that an independent director will not be entitled to any stock
option. The Companies Act, 2013 is not clear as to how a company will deal with stock
options granted in the past and which are outstanding at the date of its enactment. It seems
possible that a company will cancel / forfeit these stock options immediately. It may be
appropriate for the MCA to clarify this matter.
Companies Act 2013
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)39
Serious Fraud Investigation Office
• Currently, the SFIO has been set-up by the Central Government under resolution no.
45011 / 16/ 2003 – Adm-I dated 2 July 2003. Under the Companies Act, 2013, statutory
status will be conferred upon the SFIO. Till the time SFIO is established under the
Companies Act, 2013, the SFIO previously set up by the CG will be deemed to be
SFIO under the Companies Act, 2013.
• The CG may assign investigation into the affairs of a company to SFIO (i) on receipt of
a report of the registrar or inspector, (ii) on intimation of a special resolution passed by
a company that its affairs are required to be investigated, (iii) in public interest, or (iv)
on state government.
• Where any case has been assigned by the CG to SFIO for investigation, no other
investigating agency of the CG / State Govt will proceed with investigation in such
cases.
Companies Act 2013
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)40
Serious Fraud Investigation Office
• If authorised by CG, the SFIO will have the power to arrest in respect of certain
offences, which attract the punishment for fraud. Those offences will be cognizable and
the person accused of any such stipulated conditions.
• Investigation report of SFIO filed with special court for framing of charges will be
deemed as a report filed by the police officer
• Stringent penalties are prescribed for fraud-relate offences.
• SFIO will share any information or documents, with any investigating agency, state
government, police authority or Income-tax authorities, which may be relevant or useful
for them in respect of any offence or matter being investigated by them under any other
law.
Companies Act 2013
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)41
Directors – Recap..
Companies Act 2013
TYPE OF COMPANY INDEPENDENT DIRECTOR WOMAN DIRECTOR
SMALL SHAREHOLDER
DIRECTOR
RESIDENT DIRECTOR
Private Company
1 Independent Director on Corporate
Social Responsibility (CSR) Committee
if CSR requirement is triggered
Required if paid-up share capital
> INR 100 crores (to be
appointed within 3 years) from
the commencement of the Act
Section 151
Rule 11.5
Not applicable
1 director required to be
resident in India for at
least 182 days in a
calendar year
Section 149(3)
Public Unlisted
Company
1/3rd of the Board to be Independent if
the Company has:
• Paid-up share capital of INR 100
crores or more; or
• Aggregate outstanding loans,
borrowings, debentures or deposits
exceeding INR 200 crores
Required if paid-up share capital
> INR 100 crores (to be
appointed within 3 years) from
the commencement of the Act
Section 151
Rule 11.5
Not applicable
Listed Company
• All listed companies to have 1/3rd of
the Board comprised of Independent
Director
• Requirement increases to half of the
Board if there is an executive
chairman [Clause 49, Listing
Agreement]
All listed companies to have a
woman director (to be appointed
within 1 year) from the
commencement of the Act
Mandatory.
Suo motu; or
Request of 1/10th the number
of small shareholders or 500
small shareholders
(whichever is lower)
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)42
Board Committees – Recap..
Companies Act 2013
TYPE OF
COMPANY
AUDIT COMMITTEE
NOMINATION &
REMUNERATION
COMMITTEE
CSR COMMITTEE
STAKEHOLDER
RELATIONSHIP
COMMITTEE
Private
Company
Not applicable Not applicable
Independent Director
required on CSR
Committee if:
• Net worth ≥ INR 500
Crores
• Turnover ≥ INR 1000
Crores
• Net profit ≥ INR 5 crores
Not applicable
Public Unlisted
Company
Both committees required if the company has:
• Paid-up share capital of INR 100 crores or more; or
• Aggregate outstanding loans, borrowings, debentures or
deposits exceeding INR 200 crores
Applies if the company has
1000 or more security holders
Public Listed
Company
Applicable
Applies if the company has
1000 or more security holders
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)43
Board Committees – Recap..
Companies Act 2013
TYPE OF COMMITTEE COMPOSITION OTHER REQUIREMENTS
Audit Committee [Section 177]
• 3 Directors
• Majority Independent Directors
• Roles stipulated
• Decisions no longer binding on the
Board
• Whistle-blower policy required,
providing direct access to the
chairman of the Audit Committee
Nomination & Remuneration
Committee [Section 135]
• 3 Directors
• Majority Independent Directors
CSR Committee [Section 178]
• 3 Directors
• 1 Independent Director
Stakeholder Relationship Committee
[Section 178]
• Strength and composition determined
by the Board
• Chairman to be non-executive
• Purpose – to solve the grievances of
security holders
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)44
Non Executive Director (NED) and Independent Director
Companies Act 2013
Non Executive Director
Non-executive directors are the custodians of the governance process. They are
not involved in the day-to-day running of business but monitor the executive
activity and contribute to the development of strategy.
Independent Director
Are directors who do not have any pecuniary relationship or transactions with the
company, its promoters, its management or its subsidiaries, which in the
judgement of the board may affect their independence of judgement.
Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)45
Companies Act 2013
Presenter’s contact details
CA Pooja Gupta
capooja@yahoo.com
www.capoojagupta.blogspot.in
46
Companies Act 2013
CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)

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Companies Act 2013

  • 1. 1
  • 2. Copyright This Presentation is the property of Pooja Gupta and no part of it can be copied, reproduced or distributed in any manner Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany) Companies Act 2013 2
  • 3. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)3 Companies Act 2013 Audit & Auditors Consolidated Financial Statements Restatement of Financial Statements Whistle Blower – Fraud Reporting National Financial Reporting Authority (NFRA) Penalties, Prosecutions & Class Action Suits Restricted Services Directors Board Composition Duties of Directors Key Managerial Personnel (KMP) Independent Directors Loan to Directors SFIO
  • 4. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)4 Details Companies Act, 1956 Companies Act, 2013 Parts/ Chapter 13 29 Sections 658 470* Schedules 15 7 No. of Clauses in Section 2 (Definitions) 67 95 Companies Act 2013 * 98 Sections notified effective from 12-September-2013 • In over 180 Sections rules have been prescribed and the draft rules were released by MCA in three batches. Substantial part of the legislation will be in form of rules • The provisions which require statutory or regulatory consultation or functioning of new bodies or prescription of relevant rules and forms will be brought in force after preparatory action is completed
  • 5. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)5 Companies Act 2013 Accounts Consolidated Financial Statements & Significant Influence definition Mandates preparation of Consolidated Financial Statements (CFS) for all companies which have one or more subsidiaries. Subsidiary defined to include associates and joint ventures. Prescribes the format (similar to existing revised schedule VI of the Act) for preparation of CFS . Requires minority interest to be presented separately within equity on the balance sheet Defines the term significant influence as “control of at least 20 percent of total share capital or of business decision under an agreement”. This definition differs from the existing notified accounting standards, as per which significant influence is defined as "the power to participate in financial and/or operating policy decisions of the investee but not control over those policies“ Financial Year Financial year for all companies and body corporate should end on 31 March. Exemption may be granted at the specific request of the reporting entities where the financial statements of such entities are required for consolidation outside India. A transition period of two years has been provided for this change.
  • 6. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)6 Companies Act 2013 Accounts Restatement of Financial Statements Currently under existing accounting practices, a Company cannot restate its previously issued financial statements to correct for an error or misstatement. Any errors/ misstatement are corrected for in the current period financial statements and disclosed. The 2013 Act provides for the following: • mandatory restatement: in case of fraud and when a Court/ the Tribunal passes an order for restatement • voluntary restatement: - to comply with accounting standards with the approval of tribunal Estimated Useful Life of Assets For a class of companies, to be prescribed, the 2013 Act removes the minimum thresholds and provides indicative useful lives and residual values under Part C of Schedule II to the 2013 Act. Any variation from the indicated life needs to be justified. There is no transition period provided for this change and the change needs to be applied prospectively. If on the date of implementation of the 2013 Act there is no useful life left for an asset with carrying value on transitioning, the same may be adjusted through opening reserves. In case of other companies the useful life of an asset may not be longer than the indicated/ prescribed useful life. The 2013 Act has introduced separate category for industries such as (a) civil construction, (b) telecommunication, (c) exploration, production and refining oil and gas, etc.
  • 7. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)7 Companies Act 2013 Audit & Auditors Tenure and Reappointment of Auditors Auditors appointed in an annual general meeting („AGM‟) shall hold office from the conclusion of that meeting until the conclusion of the ensuing sixth AGM (subject to ratification by members at every AGM). As per the 2013 Act, before the expiry of the term of appointment, the company may remove the auditors (subject to special resolution and prior approval from Central Government) and the auditors, as well, have the right to resign. Further, the Tribunal either suo-moto or on an application made to it by Central Government or by any person concerned, if it is satisfied that the auditor of a company has acted in a fraudulent manner or abetted or colluded in any fraud by the company or in relation to the company/its directors/officers; may direct the company to change its auditors. The individual or firm, against whom such an order is issued by the Tribunal, shall not be eligible to be appointed as auditor of any company for five years in addition to other penal actions. An auditor/ audit firm is eligible for re-appointment after expiry of five years since completion of the previous tenure. An audit firm having common partner (s) with another firm which has completed its term is not eligible for re-appointment for a period of five years from the completion of the other firm‟s term.
  • 8. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)8 Companies Act 2013 Audit & Auditors Mandatory Rotation In case of listed companies (or a company belonging to such class or classes of companies as may be prescribed) the term of appointment of an individual auditor/ an audit firm is restricted to a period of five years/ ten years. An auditor/ audit firm should mandatorily rotate at the expiry of the term. Shareholders, at their discretion, may determine that an audit partner may rotate at such interval as may be resolved by them, or that the audit may be conducted by more than one auditor (joint audit). There is a transition period of three years, from date of enactment of the 2013 Act, to comply with this requirement. Whistleblower – Fraud Reporting The 2013 Act provides that the auditor should immediately inform the Central Government within a, to be prescribed, timeframe and manner if he has reason to believe that an offence involving fraud is being or has been committed against the company by its officers or employees.
  • 9. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)9 Companies Act 2013 Audit & Auditors Eligibility Under the 1956 Act, a Chartered Accountant holding a certificate of practice or a firm of Chartered Accountants (only) can be appointed as auditor(s) of a company. The 2013 Act, in addition, proposes that a firm wherein a majority of the partners practicing in India are qualified for appointment, may be appointed to be an auditor of a company. Where a firm, including a Limited Liability Partnership („LLP‟), is appointed as an auditor of a company, only partners, who are chartered accountants are permitted to act and sign on behalf of the firm. Disqualifications The 2013 Act includes the following additional disqualification: • Any person who has a business relationship with the company/ its subsidiary/associate/its holding company/subsidiary or associate of its holding company (business relationship disqualification); • A person whose relative is a non-executive/ executive director or key managerial personnel of the company; • A person who has been convicted by a court of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction; • A person who is in full-time employment elsewhere; • Any person whose appointment will result in the person being the auditor of more than 20 companies; • Any person whose subsidiary or associate or any other form of entity is engaged in providing non audit services as on the date of appointment (non-audit services disqualifications).
  • 10. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)10 Companies Act 2013 Audit & Auditors Restriction on number of Audits The 1956 Act and the Institute of Chartered Accountants of India („ICAI‟) restrict the number of companies in which a person/ firm can be appointed as auditor. An individual cannot be appointed as auditor for more than 30 companies. Further, an individual cannot be appointed as auditor for more than 20 public companies and of which not more than 10 companies should have a paid up share capital of more than Rs 25 lakh. In case of a firm, such ceiling is determined for every partner of the firm. The 2013 Act restricts the number of audits to 20 companies for an individual/ partner. Private companies will also be considered for calculating the limit of 20 audits per partner National Financial Reporting Authority (NFRA) Under the 2013 Act, National Financial Reporting Authority (NFRA) (replaces existing National Advisory Committee on Accounting Standards) to make recommendations to the Central Government on laying down auditing and accounting standards applicable to companies. NFRA to monitor and enforce compliance with auditing and accounting standards. NFRA will have the power to make orders imposing penalty for professional or other misconduct by the auditors.
  • 11. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)11 Companies Act 2013 Audit & Auditors Penalties and Prosecution In case if the auditor has contravened any of his duties, he shall be punishable as below: • required to refund the remuneration • pay damages to the company, statutory bodies/authorities or any other person for losses arising as a result of incorrect or misleading statements in his audit report • pay a fine which shall not be less than Rs 25,000 but which may extend to Rs 5 lakh Further, if the above contravention is with an intention to deceive the company or its shareholders or its creditors, tax authorities or any other person concerned or interested in the company, then he is also punishable with an imprisonment of a term which may extend up to one year and a minimum fine of Rs 1 lakh, which may extend to Rs 25 lakh. Where, in case of audit of a company being conducted by an audit firm, it is proved that the partner or partners of the audit firm has or have acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to or by, the company or its directors or officers, the liability, whether civil or criminal as provided in this 2013 Act or in any other law for the time being in force, for such act shall be of the partner or partners of the audit firm and of the firm jointly and severally and such partner or partners of the audit firm shall also be punishable in the following manner: • imprisonment for a term not less than six months and may extent up to ten years, provided that where the matter involves public interest, the minimum term will be three years; and • fine for an amount ranging from one to three times the amount involved in the fraud
  • 12. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)12 Companies Act 2013 Audit & Auditors Penalties and Prosecution ..contd/- Similarly where a person has subscribed for securities of a company on any statement included, or the inclusion or omission of any matter, in the prospectus which is misleading and has sustained loss or damage as a consequence, the company and certain specified person (includes director, promoter and experts) are liable to pay compensation to every person who has sustained loss or damage. Experts may include auditors. Where it is proved that a prospectus has been issued with intent to defraud the applicants for the securities of a company or any other person or for any fraudulent purpose, every person referred to the above shall be personally responsible, without any limitation of liability, for all or any of the losses or damages that may have been incurred by any person who subscribed to the securities on the basis of such prospectus. Class Action Suits Unlike the 1956 Act, the 2013 Act provides for class action suits, which will allow a requisite number of members or depositors with common interest, in a matter, to file an application in the National Company Law Tribunal („NCLT‟) against the company/its management/its auditors or a section of its shareholders for damages or compensation if they are of the opinion that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to their interest.
  • 13. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)13 Companies Act 2013 Auditors’ Report Reporting Requirements In addition to the 1956 Act reporting requirements, the 2013 Act includes the following matters for auditor reporting; • Adequacy of the internal financial controls system and the operating effectiveness of such controls [in a similar context with respect to directors report, internal financial control has been defined to mean the policies and procedures adopted by the company for ensuring the orderly and efficient conduct of its business, including adherence to company‟s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information]. • Any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith. It is notable in this context that only for listed entities, in the director‟s report, the 2013 Act requires directors to provide a similar report on internal financial controls.
  • 14. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)14 Companies Act 2013 Non- audit Services Restricted Services Currently, whether non-audit services can be rendered to an audit client is determined by applying the Code of Ethics and the Guidance Note on Independence of Auditors issued by the ICAI. Unlike 1956 Act, the 2013 Act contains specific provisions that prohibit auditors of a company to render non-audit services to an audit client (or its holding company or its subsidiary company) Prohibited non-audit services include: • accounting and book keeping services; • internal audit; • design and implementation of any financial information system; • actuarial services; • investment advisory services; • investment banking services; • rendering of outsourced financial services; and • management services. Other restricted services may be further prescribed. Transition Period: One year from the date of enactment of the 2013 Act.
  • 15. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)15 Companies Act 2013 Directors Each company will need to have minimum 1 (one) director who stayed in India for at least 182 days in the previous calendar year Prescribed class of companies (listed company/ public company having paid up capital of >=100 crores or turnover of >=300 crores) to have at least 1 (one) woman director on the board. Existing listed companies will be given a one-year transition period to comply with this requirement and other public company three-year from the condition being applicable Listed company may have 1 (one) director elected by small shareholders ~ holding shares of nominal value not > INR 20,000 or such sum as may be prescribed. Earlier, a public company either with (a) paid-up capital of 5 crore or more, or (b) 1,000 or more small shareholders, may have a director elected by the small shareholders
  • 16. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)16 Companies Act 2013 Maximum Number of Directorship Limits on maximum number of directors in a company increased from 12 to 15. It can further be increased by passing a special resolution. No approval from Central Government required A person will be able to become a director in 20 companies. However, out of this, not more than 10 companies can be public companies. Shareholders may specify lesser number of companies in which a director of the company may act as a director. Transition period to comply with the limit on directorship – 1 year from the commencement of 2013 Act
  • 17. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)17 Duties of Director A director of the company will: i. act in accordance with the articles of the company ii. act in good faith to promote the objects of the company iii. exercise his duties with due and reasonable care, skill and diligence and independent judgement iv. not get involved in a situation in which he may have a direct or with the interest of the company v. avoid any undue gain or advantage either to himself or to his relatives, partners, or associates (if found guilty, he may be required to pay an amount equal to such gain back to the company) vi. not to assign his office, such assignment being void Companies Act 2013
  • 18. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)18 Companies Act 2013 Meetings of BOD First meeting of the BOD must be held within 30 days of its incorporation • Minimum 4 meetings of the BOD to be held each year • Gap between 2 consecutive meetings not exceeding 120 days • CG may be notification provide different requirement or modify the requirement for specific class of companies Participation in board meeting through prescribed video conferencing (VC) or other audio visual means recognized. CG may provide a list of businesses where meeting by means VC will not be recognized At least 7 days notice for board meeting shall be given Shorter notice to transact urgent business, if at least 1 ID is present at such meeting. Decision taken at such meeting in absence of an ID is final only on ratification thereof by at least one ID
  • 19. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)19 Loans to Directors Companies Act 2013 A company cannot directly or indirectly: • Advance any loan to any director or any other person in whom the director is interested; or • Give guarantee or provide security in connection with the loan taken by its director or such other person The above provision is not applicable to: • Loan to MD/ WTD as a part of contract of services extended to all its employees or pursuant to the scheme approved by members by special resolution • A company which in the ordinary course of its business provides loan, guarantee or security for due repayment of any loan and charges interest thereon not being less than bank rate declared by RBI All the above provisions made applicable to private companies
  • 20. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany) • In relation to a company, KMP means: – CEO or MD or Manager; – Company Secretary; – Whole time Director (WTD); – Chief Financial Officer (CFO); and – Such other officer as may be prescribed • CFO to be whole time KMP for prescribed class of companies • CFO made responsible and liable for penalty and/ or prosecution for compliance with various provisions such as – maintenance of books of accounts, preparation & filing of annual accounts, disclosure of financial information in offer document, risk management, internal control, etc. 20 Key Managerial Personnel (KMP) Companies Act 2013
  • 21. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)21 Board Committees Companies Act 2013 Audit Committee Mandatory for listed companies and other prescribed classes of companies Minimum 3 directors with majority comprising of Independent Directors Chairperson and majority of directors shall be persons with ability to read and understand financial statements Listed companies and prescribed companies to have vigil mechanism for directors and employees to report genuine concern in prescribed manner
  • 22. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)22 Board Committees Companies Act 2013 Nomination and Remuneration Committee Mandatory for listed companies and other prescribed classes of companies 3 or more Non-Executive directors (NED) of which at least ½ shall be Independent Directors (IDs) Chairperson of the company can be a member of the committee but cannot be a chairperson of the committee
  • 23. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)23 Board Committees Companies Act 2013 Nomination and Remuneration Committee The committee shall amongst other: Identify persons who are qualified to be directors and who can be appointed in senior management Recommend to the BOD, policy relating to remuneration to directors, KMP and other employees keeping in mind appropriate performance benchmark; striking a balance between fixed and incentive pay, etc. Be responsible for evaluation of every director of BOD
  • 24. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)24 Board Committees Companies Act 2013 Stakeholders Relationship Committee Mandatory where total number of shareholders, deposit holders, debenture holders and other security holder exceeds 1,000 at any time during the financial year (FY) Chairperson shall be NED and such other number of directors as determined by the BOD To consider and resolve the grievances of the security holders of the company
  • 25. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)25 Board Committees Companies Act 2013 Corporate Social Responsibility Committee (CSRC) Mandatory where the company is required to contribute to CSR if it meets with the net worth (>= 500 crores), turnover (>= 1,000 crores) or net profit ( >= 5 crores) criteria Minimum 3 directors of which at least 1 shall be Independent Director (ID) This committee shall amongst other: Formulate and recommend to BOD, a CSR policy Recommend the amount of expenditure to be incurred on CSR activities Monitor the CSR policy
  • 26. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)26 Companies Act 2013 Independent Directors (IDs) Listed companies to have at least 1/3rd of its total number of directors as IDs ID is not liable to retire by rotation and is not included in total number of directors liable to retire by rotation ID shall be appointed for a term of 5 consecutive years and are eligible for re-appointment subject to compliance with conditions including performance evaluation by BOD and approval by members through special resolution
  • 27. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)27 Companies Act 2013 Independent Directors (IDs) Once 2 consecutive terms are completed, the ID shall be eligible for appointment after the cooling period of 3 years, provided he is not associated with the company during this 3 years period in any capacity, either directly or indirectly ID may be selected from the data bank maintained by notified institute or association having expertise in creation and maintenance of such data bank IDs is not entitled to stock options but may receive remuneration by way of sitting fees, reimbursement of expenses for participation in meetings, profit related commission as approved by the members of the company
  • 28. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)28 Companies Act 2013 Independent Directors (IDs) ID and NED (not being promoter or KMP), shall be held liable only for such acts by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently Detailed code of conduct to be followed by companies and their IDS have been included in the Act (Schedule IV of the Companies Act 2013) At the 1st meeting of the Board in which he participates as a director and thereafter the 1st meeting of the Board in every financial year or whenever there is a change in circumstances, which may affect his status as an ID, will have to give a declaration that he meets the criteria of independence
  • 29. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)29 Independent Director - Meaning “Independent Director” in the Companies Act, 2013 contains most of the attributes prescribed in the listing agreement. The Act however, contains certain additional criteria: a. An independent director should be a person of integrity and possess relevant expertise and experience b. ID should not have any pecuniary relationship / transactions with the company, its promoters, its directors or its holding company, its subsidiaries and associates, which will affect independence of the director, either in the current FY or immediately preceding two years. Companies Act 2013
  • 30. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)30 Independent Directors c. A person cannot be appointed as ID if the person and/ or his relative is/ was a partner/ executive in statutory audit firm, internal audit firm, legal firm, and or consulting firm(s), which have association with the company. d. Under the Companies Act, 2013, the CG may prescribe additional qualifications for an “independent director.” e. The Companies Act, 2013, however, states that an ID will be a director other than the nominee director appointed by an institution, which has invested in or lent to the company g. An ID should not be a Chief Executive or director, by whatever name called, of any non- profit organisation, which receives 25% or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate or that holds 2% or more of the total voting power of the company. Companies Act 2013
  • 31. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)31 Independent Directors – Impact • The SEBI may need to amend the listing agreement to bring it in line with the Companies Act, 2013. Till such time, listed companies will need to follow the requirement of the stringent. • Considering additional criteria prescribed in the Companies Act, 2013, many listed companies may need to revisit appointment of their independent directors. • The Companies Act, 2013 lays down various restrictions, on the person as well as its relatives, for being eligible to be appointed as independent director. If the government prescribes a long list of relations, the company, the person who is or seeking to be an independent director and the relatives of such person will have to keep track of this, to ensure compliance on a going forward basis. For example, a company cannot appoint any person as an independent director if that person or his relative is/ was a partner / executive in the preceding 3 financial years in the firm of auditors of the company. • The Companies Act, 2013 states that an independent director will not be entitled to any stock option. The Companies Act, 2013 is not clear as to how a company will deal with stock options granted in the past and which are outstanding at the date of its enactment. It seems possible that a company will cancel / forfeit these stock options immediately. It may be appropriate for the MCA to clarify this matter. Companies Act 2013
  • 32. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)39 Serious Fraud Investigation Office • Currently, the SFIO has been set-up by the Central Government under resolution no. 45011 / 16/ 2003 – Adm-I dated 2 July 2003. Under the Companies Act, 2013, statutory status will be conferred upon the SFIO. Till the time SFIO is established under the Companies Act, 2013, the SFIO previously set up by the CG will be deemed to be SFIO under the Companies Act, 2013. • The CG may assign investigation into the affairs of a company to SFIO (i) on receipt of a report of the registrar or inspector, (ii) on intimation of a special resolution passed by a company that its affairs are required to be investigated, (iii) in public interest, or (iv) on state government. • Where any case has been assigned by the CG to SFIO for investigation, no other investigating agency of the CG / State Govt will proceed with investigation in such cases. Companies Act 2013
  • 33. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)40 Serious Fraud Investigation Office • If authorised by CG, the SFIO will have the power to arrest in respect of certain offences, which attract the punishment for fraud. Those offences will be cognizable and the person accused of any such stipulated conditions. • Investigation report of SFIO filed with special court for framing of charges will be deemed as a report filed by the police officer • Stringent penalties are prescribed for fraud-relate offences. • SFIO will share any information or documents, with any investigating agency, state government, police authority or Income-tax authorities, which may be relevant or useful for them in respect of any offence or matter being investigated by them under any other law. Companies Act 2013
  • 34. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)41 Directors – Recap.. Companies Act 2013 TYPE OF COMPANY INDEPENDENT DIRECTOR WOMAN DIRECTOR SMALL SHAREHOLDER DIRECTOR RESIDENT DIRECTOR Private Company 1 Independent Director on Corporate Social Responsibility (CSR) Committee if CSR requirement is triggered Required if paid-up share capital > INR 100 crores (to be appointed within 3 years) from the commencement of the Act Section 151 Rule 11.5 Not applicable 1 director required to be resident in India for at least 182 days in a calendar year Section 149(3) Public Unlisted Company 1/3rd of the Board to be Independent if the Company has: • Paid-up share capital of INR 100 crores or more; or • Aggregate outstanding loans, borrowings, debentures or deposits exceeding INR 200 crores Required if paid-up share capital > INR 100 crores (to be appointed within 3 years) from the commencement of the Act Section 151 Rule 11.5 Not applicable Listed Company • All listed companies to have 1/3rd of the Board comprised of Independent Director • Requirement increases to half of the Board if there is an executive chairman [Clause 49, Listing Agreement] All listed companies to have a woman director (to be appointed within 1 year) from the commencement of the Act Mandatory. Suo motu; or Request of 1/10th the number of small shareholders or 500 small shareholders (whichever is lower)
  • 35. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)42 Board Committees – Recap.. Companies Act 2013 TYPE OF COMPANY AUDIT COMMITTEE NOMINATION & REMUNERATION COMMITTEE CSR COMMITTEE STAKEHOLDER RELATIONSHIP COMMITTEE Private Company Not applicable Not applicable Independent Director required on CSR Committee if: • Net worth ≥ INR 500 Crores • Turnover ≥ INR 1000 Crores • Net profit ≥ INR 5 crores Not applicable Public Unlisted Company Both committees required if the company has: • Paid-up share capital of INR 100 crores or more; or • Aggregate outstanding loans, borrowings, debentures or deposits exceeding INR 200 crores Applies if the company has 1000 or more security holders Public Listed Company Applicable Applies if the company has 1000 or more security holders
  • 36. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)43 Board Committees – Recap.. Companies Act 2013 TYPE OF COMMITTEE COMPOSITION OTHER REQUIREMENTS Audit Committee [Section 177] • 3 Directors • Majority Independent Directors • Roles stipulated • Decisions no longer binding on the Board • Whistle-blower policy required, providing direct access to the chairman of the Audit Committee Nomination & Remuneration Committee [Section 135] • 3 Directors • Majority Independent Directors CSR Committee [Section 178] • 3 Directors • 1 Independent Director Stakeholder Relationship Committee [Section 178] • Strength and composition determined by the Board • Chairman to be non-executive • Purpose – to solve the grievances of security holders
  • 37. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)44 Non Executive Director (NED) and Independent Director Companies Act 2013 Non Executive Director Non-executive directors are the custodians of the governance process. They are not involved in the day-to-day running of business but monitor the executive activity and contribute to the development of strategy. Independent Director Are directors who do not have any pecuniary relationship or transactions with the company, its promoters, its management or its subsidiaries, which in the judgement of the board may affect their independence of judgement.
  • 38. Presented by CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)45 Companies Act 2013
  • 39. Presenter’s contact details CA Pooja Gupta capooja@yahoo.com www.capoojagupta.blogspot.in 46 Companies Act 2013 CA. Pooja Gupta – B.Com, FCA, LL.B, CS, Masters in Finance (Germany)