COMPANIES ACT, 2013

A PARADIGM SHIFT FOR THE

CORPORATE

The
Companies
Act, 1956

The Companies Act, 2013

COMPANIES ACT,
2013

470 Sections

29 Chapters

New
33 Definitions

7 Schedules
Facts about
the Act

Substantial Part of the Act in form of Rules

(418 places it has prescribed

word)

COMPANIES ACT,
2013
Contemporary
Business
Oriented

Easy
Understandability

Self
Regulatory

Preventive

Investor
Protective

Adaptable

PROMINENT INFLUENCERS TO THE

NEW COMPANY LAW
IPO Scam
Stock
Market
Scam

Peerless

The
Influencers
Sesa
Sterlite

Satyam

Pradeep
Overseas

Sahara

RE-ENACTING THE NEW

COMPANIES LAW

Bringing Flexibility
& Adoption of
Internationally
Accepted Practices
Self Regulation with
more disclosures

Stringent
Punishment for
violation

Effective protection
for different
sections of Society

Healthy Growth of
India Inc.

Efficient
enforcement of law

VARIOUS ENTITIES UNDER THE

ACT
Entity Structure Recognized under the law

Access to
Capital

Members

Control

Listed

OPC

Holding
Company

Unlisted

Private
company

Subsidiary
Company

Public
company

Associate
Company

Liability

Limited

Unlimited

Size
Small
Company

Others

Activity
Dormant
Company

Nidhi
Company
Foreign
Company

Shares

Producer
Company

Guarantee

Government
Company

Features of a Company. On the basis of the above observations, we may spell out the
following characteristic features of a company:
1.

Incorporated association

2.

Artificial person

3.

Separate legal entity

4.

Limited liability

5.

Separate property

6.

Transferability of shares

7.

Perpetual existence

8.

Common seal

9.

Company may sue and be sued in its own name

CATEGORIZATION OF RULES
S. No
1.

Prescription of
Manner/Form of documents

With respect to

Return of Allotment
Instrument of Transfer statements
Appeal
Secretarial Audit Report
Disclosures
Quarterly Reports
Declarations
Charge Documents
Resignation
Registers
Reports
Takeover Offer Statement
Annual Report
CSR Policy particulars
Notices
Intimation
Applications
License to Company
Verification of Declaration
Documents of Company
Statement by Board
Auditors Report

CATEGORIZATION OF RULES
S. No

Prescription of

Time limit for various processes

With respect to
Filings
Various processes

Manner of Administration

Funds

Issue
4

Conditions to be complied

Appointment of auditor
Entering into contract
Various other things

Details in Special Resolution

Obtaining copies

Requests
AGM report
Appeals
6

Fees

DIN
Sitting fees
Application
Revised Authorized Capital
Inspections

CATEGORIZATION OF RULES
S. No

Prescription of

7.

Composition

With respect to
NFRA
Other committees, bodies

8.

Class of Companies

Processes
Committees
Various other things

9.

Appointment of people

NFRA
ID
Experts for SFIO
Valuer
Members to mediation &
conciliation panel

10.

Procedure of Issue

11.

Limits

Number of companies

Managerial remuneration
Class action
Number of directors

CATEGORIZATION OF RULES
S. No

Prescription of

12.

Manner of maintenance

With respect to
Books
Accounts, etc.

13.

Documents to be annexed or attached

14.

Information to be furnished

15.

Manner of certification/authentication

16.

Salary, allowances, conditions of service

New Concepts

NOVELTIES
Introduction of One Person Company
Stipulation of Woman Director

Provision of Class Action suits

Introduction of Registered Valuer
Fast Track Merger for Holding & Subsidiary Companies
Cross Border Merger

Concept of Dormant Company

Further Use of electronic mode: Maintenance of Documents, Records, Registers,
Books of Accounts, etc. in e-Form
Meeting through Video Conferencing

Summary Procedure for Winding up of Company

Conciliation panel & special courts
Corporate Social Responsibility

WHATS IN & OUT

IN

Key managerial personnel

Resident Director
Auditor Rotation
Dormant company
NFRA
Vigil mechanism
SFIO
Definition of Subsidiary
Secretarial Audit
Recasting of Account
Private Placement

OUT

Sole selling agents

Commencement certificate
Statutory meetings
Convert share into stock
Qualification shares
Treasury stocks

So how does it start...some basics

Some preliminary aspects
Type of
entity

Proprietor?
Firm?
Company?
LLP?

Private?
Public?

Equity?
Preference?
Other
class?
Others???

Legal entities- Eligible for public offering...

Types of
entities
Sole
Proprietorship

No
registration
required
Unlimited
Laibility
Used for
small
business
No separate
legal entity

Partnership

Private Co

Formed by
two or more
persons for
profits

Separate
Legal Entity

No
partnership
consisting of
more than 20
persons shall
be formed
Registration
optional
Unlimited
liability
No separate
legal entity

Can sue and

be sued in its
own name
The liability
of the
shareholders
are limited
to the extent
of their
shareholding
It can hold
property in
its own name
One Person
Company
(OPC)

Conversion of
Pvt Co to
Public Co

Public Co

LLP

Formed by
two or more
persons for
profits

Hybrid
between a
company and
a partnership.

No partnership
consisting of
more than 20
persons shall
be formed

Registered &
formed under
LLP Act/Rules

Registration
optional
Unlimited
liability
No separate
legal entity
than its
owners
ELIGIBLE FOR
LISTING

Separate legal
entity
separate from
its partners
Have more
flexibility than
a company
less
compliance
requirements
Conversion of LLP
17 Public Co
into

SALIENT FEATURES OF THE COMPANIES BILL 2013

Salient Features
COMPANIES ACT 1956

COMPANIES ACT 2013

13 Parts

29 Chapters

658 Sections

470 Sections

15 Schedules

7 Schedules

New Chapters included in Companies Act 2013

Chapter Description

Chapter Number

Registered Valuers

Chapter 17

Government Companies

Chapter 23

Companies to Furnish Information or Statistics

Chapter 25

Nidhis

Chapter 26

National Company Law Tribunal & Appellate Tribunal

Chapter 27

Special Courts

Chapter 28

18

Legislative Framework
Companies Act, 2013
(notified provisions )
and from the rest
Companies Act 1956

SEBI* Act &

ICDR Regulations**

Principal
legislation

Securities
Contracts (Regln.)
Act/Rules

Applicable to

Regulates Stock

following issues:

exchanges and

Public issue

Intermediaries

Right issue

Requirement for listing

Preferential issue
Bonus issues
QIP placement

Listing
norms/Guidelines
of NSE/BSE

Provisions relating to
public offering and
minimum public offer
Conditions precedent for

* SEBI Securities Exchange Board of India

listing

**ICDR stands for Securities and Exchange Board of India (Issue of Capital &Disclosure Requirements)
regulations, 2009

The Companies Bill, 2012 (Bill) received the Presidents assent on 29 August 2013 and
became Companies Act, 2013 (New Act). However, the date(s) when the new Act or
specific Sections will become effective was not notified.

The Ministry of Corporate Affairs (MCA) has declared 12 September 2013 as the date when
most of the definition clauses and other about 97 Sections have become operative.
However, the date(s) when the remaining Sections will become effective is yet to be
notified.

Once all such date(s) are notified, the half a century old Companies Act, 1956 (existing Act)
will be entirely replaced and the New Act will become fully operational.

All definitions covered under Section 2, other than clauses 2,7,13,23,31,41,42,47,48,62,83

and 85 have been made operative.

Clause 29, 67 and 87 are made partially operative. Certain important ones are definition of
Control, Interested director, Key Managerial Person, public company, private company,
related party, small company and subsidiary.

Majority out of other 97 notified Sections, partially cover provisions relating to

incorporation of company, new issue of securities including issue of prospectus, foreign
companies, general meeting, directors and board meeting, special courts and
miscellaneous procedural provisions.
Merger and Acquisition related provisions are yet to be notified.

Following are some important provisions which may generally impact the companies and
may require special attention.

Section 180 (Section 293 of existing Act) dealing with Restriction on power of board in
relation to transfer / sale of undertaking, borrowing powers, etc.

Section 185 (Section 295 of the existing Act) Loan to Directors.

Section 192 Non-cash transactions with Directors requiring prior approval of shareholders
in general meeting.

Definition of Company Sec 2(20) company means a company incorporated under this Act or under
any previous company law;

Sec 2(21) company limited by guarantee means a company having the liability of its members
limited by the memorandum to such amount as the members may respectively undertake to
contribute to the assets of the company in the event of its being wound up;

Sec 2(22) company limited by shares means a company having the liability of its members
limited by the memorandum to the amount, if any, unpaid on the shares respectively held by
them;

Thus, a Company comes into existence only by registration under the Act, which can be termed as
incorporation.

Section 2(62) defines OPC as a Company which has only one person as a member.

Incorporate your OPC The process of incorporating the OPC is almost similar to that of a private limited
company with minor differences.

OPC will be formed as a Private Limited Company.

Hence, minimum paid up capital will be Rs. 1, 00,000.

It will have only one person as member. Memorandum of Association of such a company will mandatorily
prescribe the name of the person, who in the event of death or disability of the subscriber shall assume
his position.

The member of the OPC will have the right to change the nominee at any time with due intimation to
the Registrar.

OPC can be formed as company limited by share capital or limited by guarantee or unlimited company.
The words One Person Company will have to be mentioned in brackets below the name of such
company, wherever its name is printed, engraved or affixed.

One person can form only upto one (1) OPCs. An OPC can be formed only by an Indian Resident and
citizen.

3.

(1) A company may be formed for any lawful purpose by

(a) seven or more persons, where the company to be formed is to be a

public company;
(b) two or more persons, where the company to be formed is to be a
private company; or
(c) one person, where the company to be formed is to be One Person
Company
that is to say, a private company, by subscribing their names or his name to
a memorandum and complying with the requirements of this Act in respect
of registration:

Provided that the memorandum of One Person Company shall indicate the name of the other
person, with his prior written consent in the prescribed form, who shall, in the event of the
subscribers death or his incapacity to contract become the member of the company and the
written consent of such person shall also be filed with the Registrar at the time of incorporation of
the One Person Company along with its memorandum and articles:

Provided further that such other person may withdraw his consent in such manner as may be
prescribed:

Provided also that the member of One Person Company may at any time change the name of such
other person by giving notice in such manner as may be prescribed:

Provided also that it shall be the duty of the member of One Person Company to intimate the
company the change, if any, in the name of the other person nominated by him by indicating in the
memorandum or otherwise within such time and in such manner as may be prescribed, and the
company shall intimate the Registrar any such change within such time and in such manner as may
be prescribed

Advantages of Company

Separate Corporate Entity (Independent corporate existence)- the outstanding feature of a

company is its independent corporate existence.

By registration under the Companies Act, a company becomes vested with corporate personality,
which is independent of, and distinct from its members. A company is a legal person. The decision
of the House of Lords in Salomon v. Salomon & Co. Ltd- is an authority on this principle:

One S incorporated a company to take over his personal business of manufacturing shoes and
boots. The seven subscribers to the memorandum were all his family members, each taking only
one share. The Board of Directors composed of S as managing director and his four sons. The
business was transferred to the company at 40,000 pounds. S took 20,000 shares of 1 pound each
n debentures worth 10,000 pounds. Within a year the company came to be wound up and the
state if affairs was like this: Assets- 6,000 pounds; Liabilities- Debenture creditors-10,000 pounds,
Unsecured creditors- 7,000 pounds.

It was argued on behalf of the unsecured creditors that, though the co was incorporated, it never
had an independent existence. It was S himself trading under another name, but the House of Lords
held Salomon & Co. Ltd. must be regarded as a separate person from S.

Lee v. Lee Air Farming Ltd- Mrs Lee was entitled to

compensation, since it was perfectly possible for Mr
Lee to have a contract with the company he owned.

Limited Liability

Company Limited by shares

Company limited by Guarantee

Features of a Company. On the basis of the above observations, we may spell out the following

characteristic features of a company:

1.

Incorporated association

2.

Artificial person

3.

Separate legal entity

Lifting of corporate veil

a)

Determination of character- Daimler Co Ltd. v. Continental Tyre and Rubber Co

b) For benefit of revenue Sir Dinshaw Maneckjee, Re / Commissioner of Income Tax v. Meenakshi Mills
Ltd.
1.

Limited liability

2.

Separate property

3.

Transferability of shares

4.

Perpetual existence

5.

Common seal

Cont.

Capital

Capital in Company of Two kinds

Share Capital
Borrowing Capital- Debentures and Other Borrowing
2(30) debenture includes debenture stock, bonds or any
other instrument of a company evidencing a debt, whether
constituting a charge on the assets of the company or not

Share Capital
2(84) share means a share in the share capital of a company and
includes stock;
2(8) authorised capital or nominal capital means such capital
as is authorised by the memorandum of a company to be the
maximum amount of share capital of the company;
2(86) subscribed capital means such part of the capital which is
for the time being subscribed by the members of a company;
2(15) called-up capital means such part of the capital, which has
been called for payment;

Classification of Companies

On the basis of Liability- Limited and unlimited, unlimited

On the basis of incorporation-

Chartered,

Statutory Company

Registered

Foreign Company

Producer Company

Public Company
2(71) public company means a company which
(a) is not a private company;
(b) has a minimum paid-up share capital of five lakh rupees
or such higherpaid-up capital, as may be prescribed:
Provided that a company which is a subsidiary of a
company, not being a private
company, shall be deemed to be public company

Private Company
2(68) private company means a company having a
minimum paid-up share capital of one lakh rupees or such
higher paid-up share capital as may be prescribed, and
which by its articles,
(i) restricts the right to transfer its shares;
(ii) except in case of One Person Company, limits the
number of its members to two hundred:

Holding and Subsidiary Company

2(46) holding company, in relation to one or more other companies,
means a company of which such companies are subsidiary companies;
2(87) subsidiary company or subsidiary, in relation to any other
company (that is to say the holding company), means a company in
which the holding company(i) controls the composition of the Board
of Directors; or
(ii) exercises or controls more than one-half of the total share capital
either at its own or together with one or more of its subsidiary
companies:

Classification of Companies

One Person Company- 2(62) One Person Company means a company which has only
one person as a member;

Dormant Company

Government company- 2(45)

Non-Profit Company

Shares
2(84) share means a share in the share capital of a
company and includes stock;
Equity Shares
Preferences Shares
2(88) sweat equity shares means such equity shares as
are issued by a company to its directors or employees at
a discount or for consideration, other than cash, for
providing their know-how or making available rights in
the nature of intellectual property rights or value
additions, by whatever name called

Difference between Equity & preference Shares

Equity Shares

Preference Shares

Dividend must be paid after

preference shares
Winding up paid up last

Dividend must be paid first

No fixed rate of dividend

Fixed rate of dividend

Voting rights unrestricted

Winding up paid first before equity

shares
Restricted voting rights

Non-redeemable shares

Redeemable shares

Bonus/ rights shares

No bonus/ rights shares

Transfer of shares

Restriction on transfer of shares only in private companies

Judicial intervention
1. Mala fide
2. Inadequacy of reasons
3. Irrelevant Consideration

Members and shareholders

2(55) member, in relation to a company, means
(i) the subscriber to the memorandum of the company
who shall be deemed to have agreed to become member
of the company, and on its registration, shall be entered
as member in its register of members;
(ii) every other person who agrees in writing to become a
member of the company and whose name is entered in
the register of members of the company;
(iii) every person holding shares of the company and
whose name is entered as a beneficial owner in the
records of a depository;

How to become member

By subscribing to memorandum

Qualification Shares

By allotment

By Transfer

By Transmission

MANAGEMENT & ADMINISTRATION

 The

boards are central to the governance of companies

and their basic governance responsibilities remain
more or less the same across the world.

As

trustees of the shareholders, the boards play a key

role in providing direction to the companies in terms of

approving

the strategy,

maintaining
enhancing
ensuring

their integrity,

their performance and

that the companies operate in the best

interests of the shareholders and other stakeholders.

Management
2 (10) Board of Directors or Board, in relation to a
company, means the collective body of the directors of
the company;
2(51) key managerial personnel, in relation to a company,
means
(i) the Chief Executive Officer or the managing director or
the manager;
(ii) the company secretary;
(iii) the whole-time director;
(iv) the Chief Financial Officer; and
(v) such other officer as may be prescribed;

2(47) independent director means an independent director

referred to in sub-section (5) of section 149;
2(54) managing director means a director who, by virtue
of the articles of a company or an agreement with the
company or a resolution passed in its general meeting, or
by its Board of Directors, is entrusted with substantial
powers of management of the affairs of the company and
includes a director occupying the position of managing
director, by whatever name called.

CA 2013 requires companies to have

the following classes of directors:

RESIDENT DIRECTOR: CA 2013 introduces the requirement of appointing a

resident director, i.e., a person who has stayed in India for a total period of not
less than 182 (one hundred and eighty two) days in the previous calendar
year.

INDEPENDENT DIRECTORS

CA 1956 did not require companies to appoint an independent director on its

board. Provisions related to independent directors were set out in Clause 49
of the Listing Agreement (Listing Agreement).

However, under CA 2013, the following companies are required to appoint

independent directors:

(i) Public listed company: Atleast one third of the board to be comprised of
independent directors; and

(ii) Certain specified companies that meet the criteria listed below are
required to have atleast 2 (two) independent directors:

Public companies which have paid up share capital of INR 100,000,000

(Rupees one hundred million only);

Public companies which have a turnover of 1,000,000,000 (Rupees one billion

only); and

Public companies which have, in the aggregate, outstanding loans,

debentures and deposits exceeding INR 500,000,000 (Rupees five hundred
million only)

WOMAN DIRECTOR

Listed companies and certain other public companies shall be required to appoint atleast 1 (one) woman
director on its board.

Companies incorporated under CA 2013 shall be required to comply with this provision within 6 (six)
months from date of incorporation. In case of companies incorporated under CA 1956, companies are
required to comply with the provision within a period of 1 (one) year from the commencement of the
act.

DEFINITIONS

Director

Board of Directors
Or
Board

Director appointed by board of

company Section 2(34)
Collective body of director s of the
company Section 2(10)

ROLES OF DIRECTOR

Managing Director

Key Managerial Personnel

Whole time Director

Officer who is in Default

MANAGING DIRECTOR

Managing Director
Director
By
Articles

Agreements

Shareholdings

+
Entrusted with substantial powers of management

+
Occupying position of managing director by whatever name
called

MANAGER

Manager
Individual

Subject to
Direction of the BoD

Superintendence
Control

Having Management of whole of affairs of the Company

and
Includes director occupying position of manager by whatever name called

KEY MANAGERIAL PERSONNEL

Key Managerial
Personnel
CEO

Company Secretary

OR

CFO

Managing Director

OR
Such other officer as may be
prescribed

Whole time
Director

Officer who is in Default

Earlier

Now

- MD/ WTD/ Manager/Person in accordance with

whose directions the Board is accustomed to act
- No provision to impose liability on all directors
- External parties not counted in the definition
for Officer in Default

- WTD/KMP/ Directors specified by the Board in

the absence of such specification, all Directors
- Where there is no specific authorisation by the
Board all directors would be held liable. Most
importantly, every director who is AWARE of
such contravention by virtue of receipt of any
proceedings or PARTICIPATION in such
proceedings without objecting to the same
would be held liable
- Share transfer agents, Registrar to an Issue and
Merchant Bankers to Issue to be held liable in
the event of default in respect of issue or
transfer of shares of a company (shares used and
not securities)

OFFICER IN DEFAULT

KMPs

&

Whole time Director

If no KMPs
Directors appointed as OD

Any Person Authorized by

Board or KMPs

Or

All Directors if no one appointed

Any Person who advices, directs

or instructs BoD

Every Director who is aware of

Contravention

For Issue or transfer of Shares

Share Transfer Agent

Registrar to Issue

Merchant Banker

STRENGTHENING BOARD FRAMEWORK

BOARD FRAMEWORK

The Act now prescribes the duties of the directors towards the company

Matters to be considered in the Board Meeting provided for in detail

Act provides for constitution of the Audit committee by every listed company
or other prescribed class of company

Constitution of Nomination and Remuneration Committee by listed and other

prescribed class of the companies
Stakeholders Relationship Committee for companies which consist of more
than 1000 shareholders, debenture-holders, deposit-holders and other
security holders at any time during a FY

BOARD FRAMEWORK

Directors also covered under Officers in Default

Public and private companies cannot give any loan or provide any security or
guarantee in connection with a loan to a Director or any interested person,
except by way of passing a special resolution

Voting in electronic mode allowed

AGM- Listed Company AGM to be reported to ROC

ADDITIONAL/ALTERNATE/NOMINEE DIRECTOR
NOTIFIED - (SECTION 161)

Person who fails to get appointed as a director in a general meeting cannot be

appointed as an Additional Director

Alternate director can only be appointed in case director leaves India for period
of not less than 3 months

Subject to Articles, Board can appoint director nominated by any institution in

pursuance of any law or agreement has been specified in the law specifically

Person to be appointed as Alternate Director shall be a person other than one

holding any alternate directorship for any other Director in the Company

WOMAN DIRECTOR & SMALL

SHAREHOLDER DIRECTOR

At least 1 woman director

for

prescribed

class

or

classes of companies. 2nd

As per the Draft Rules: Listed Companies, and

every other public company with paid up capital
> Rs 100 cr; or turnover > Rs 300 cr.

proviso to Section 149(1)

Companies with prescribed

number
of
small
shareholders or paid up
capital
and
listed
Companies
to
have
1
director elected by Small
Shareholders
Section - 151

As per Draft Rules: A listed company may suo

moto or upon the notice of > 500 or 1/10th of the
total number of small shareholders, whichever is
lower, elect a small shareholders director from
amongst the small shareholders)

DIRECTORS OTHER REQUIREMENTS

Amount to be deposited along with notice

of nomination of any person to the office
of director has been increased from Rs
500 to Rs 100000 or such higher amount
as may be prescribed

(As

per

Draft

Rules

prescribe for manner of notice of

candidature
directorship)

RESIDENT DIRECTOR (Section 149 (2)

At least 1 director to be a person who has
stayed in India for atleast 182 days in the
previous calendar year

Rules:

of

person

for

NUMBER OF DIRECTORS

NUMBER OF DIRECTORS (SECTION 149)

Board of Directors consisting individuals as directors.

Private Company : 2 Directors

Public Company : 3 Directors

One Person Company : 1 Director

Maximum number :15 for the Public company (earlier 12)

NUMBER OF DIRECTORSHIPS

NUMBER OF DIRECTORSHIPS
(SECTION 165)

Director in maximum 20 companies

Directorship to include alternate directorship

Of these 20 companies, cannot be a Director in more than 10
public companies (including private companies which are
holding or subsidiary companies of public companies)
No. of members specify lesser number by passing special
resolution
Penalty for contravention: Minimum Rs. 5,000, and Maximum Rs.
25,000 for every day during which the default continues

APPOINTMENT & REMOVAL OF

DIRECTORS

APPOINTMENT OF DIRECTOR
(SECTION 152)

Appointment of Managing Director, Whole Time Director or Manager to be

approved by special resolution in a General Meeting

Appointment to be Voted individually (Notified). Section 162

Consent for appointment to be filed by directors of private company to

the ROC

When appointment not in accordance with Schedule V, approval of

Central Government also required
Independent directors not to be included in the total number of directors
while calculating retiring directors i.e. 2/3rd of the total number of
directors

APPOINTMENT OF DIRECTOR
(SECTION 152)

Until the director duly appointed as per provisions in the OPC,

individual being member shall be deemed to be its first director

Whole Time Director shall not be appointed for more than 5 years

Provisions to apply to Private Companies as well

In case of default the Company, such individual or director to be

punishable with imprisonment upto 6 months or with fine which shall
not be less than fifty thousand rupees but which may extend to five
hundred rupees for every day after the first during which the default
continues.

DISQUALIFICATION & REMOVAL

NEW DISQUALIFICATIONS FOR DIRECTORS
SECTION 164
Conviction for offence dealing with Related Party Transaction anytime
during previous 5 years

Not having obtained Director Identification Number

Conviction for any offence and sentenced for an imprisonment extending

to 7 years or more

No power to central government to exempt the application of particular

disqualification on any person

DISQUALIFICATION & REMOVAL

VACATION OF OFFICE OF DIRECTOR SECTION 167
When Director fails to attend all Board Meetings for consecutive period
of 12 months. This even when the leave of absence has been granted
When Director is disqualified by an order of court or Tribunal under any
Act not only the Companies Act.
When all directors have vacated the office:
the promoter shall appoint minimum number of members
Central Government may appoint Directors till company makes
appointment in General Meeting

DISQUALIFICATION & REMOVAL

REMOVAL OF DIRECTOR- SECTION 169

Notice of Removal can be given only by the following:

In Company Having Share Capital:

Member(s) having not less than 1/10th of the total voting power or
holding shares the aggregate value of which is not less than Rs. 5 lakh
In any other Company:
Member(s) having not less than 1/10th of the total voting power
In case of default, company and every director or employee who is
responsible for such contravention to be punishable with fine which shall
not be less than Rs. 50,000 but which may extend to Rs. 5 Lac

INDEPENDENT DIRECTOR

12/27/2014

71

INDEPENDENT DIRECTOR
SECTION 149
Every listed public Company to have at least one-third of the total number
of directors as Independent Directors (ID)

Central Government to prescribe the minimum number of Independent

Directors in case of any class or classes of public Companies.
(As per Draft Rules: Public Companies having paid up share capital of Rs.
100 cr or more, Public Companies having turnover of Rs. 300 cr or more,
Public Companies which have, in aggregate, outstanding loans or
borrowings or debentures or deposits, exceeding Rs. 200 cr)

Every existing company to have IDs within one year from commencement of
the Act or from the date of notification of the Rules (whichever is first)

INDEPENDENT DIRECTOR
As per the draft rules :
BOARD TO ENSURE - Appropriate balance of skills, experience and knowledge in
one or more fields of finance, law, management, sales, marketing, administration,
research, corporate governance, technical operations other disciplines related to the
companys business AND DISCLOSE IN BOARD REPORT

DATA BANK with details of the person eligible and willing to be appointed as
independent director to be prepared by any body, institutions as authorized by CG
(as may be notified by CG).

Responsibility of due diligence for appointment of independent directors to be

on company.

APPOINTMENT OF DIRECTOR
(SECTION 152) . NOTIFIED
Appointment of Managing Director, Whole Time Director or Manager to be
approved by special resolution in a General Meeting

Appointment to be Voted individually (Notified). Section 162

Consent for appointment to be filed by directors of private company to

the ROC

When appointment not in accordance with Schedule V, approval of

Central Government also required
Independent directors not to be included in the total number of directors
while calculating retiring directors i.e. 2/3rd of the total number of
directors

APPOINTMENT OF DIRECTOR
(SECTION 152) . NOTIFIED
Until the director duly appointed as per provisions in the OPC,
individual being member shall be deemed to be its first director

Whole Time Director shall not be appointed for more than 5 years

Provisions to apply to Private Companies as well

In case of default the Company, such individual or director to be

punishable with imprisonment upto 6 months or with fine which shall
not be less than fifty thousand rupees but which may extend to five
hundred rupees for every day after the first during which the default
continues.

SITTING FEE OF DIRECTORS

SECTION 197

A Director may receive remuneration by way of fee for attending meetings of the board or
committee

Independent director shall not be entitled to any stock options

Reimbursement of expenses for participation in the board and other meetings and profit related
commission as may be approved by the members
As per the draft rulesAmount of sitting fees payable to a director for attending meetings of the Board or committees to
be a maximum of Rs.1 lakh per meeting of the Board or committee
Board may decide different sitting fee payable to independent and non-independent directors
other than whole-time directors

DECISION MAKING BY DIRECTORS

DECISION MAKING BY DIRECTORS

Board meeting
Resolution by circulation

Committee meetings

Powers of the Board

Key Changes [Section 179]

There has been an addition to the list of powers which can be exercised only at a meeting of
the Board of Directors:

Approval of financial statements and Board reports;

Diversification of business;

Approval of amalgamation, merger or reconstruction;

Approval of takeover of another company or acquisition of a substantial

stake in another company.

Powers of the Board

Key Changes Restrictions [Section 180]
Powers

which can only be exercised subject to a special (not ordinary)

resolution of the shareholders:

Sell or otherwise dispose off whole or substantially

the whole of an undertaking;

Invest proceeds of a merger or amalgamation;

Borrow money in excess of the paid-up share

capital and free reserves (other than temporary
loans) and the limit of such borrowing should be
specified in the special resolution;

Powers of the Board

Temporary

loans must be: (a) from the companys bankers; (b) in the
ordinary course of business; and (c) repayable within 6 months.

Special
This

resolutions may include conditions.

section has been extended to private companies.

Definition

of the term Undertaking and substantially the whole

undertaking has been introduced

Powers of the Board

Undertaking

means:

An undertaking in which the companys investment exceeds 20% of its net worth as per
the last audited balance sheet

An undertaking which generates 20% or more of the companys total income in the
previous year
Substantially the whole undertaking means 20% or more of the value of the undertaking
as per the last audited balance sheet

Powers of the Board

Political

contribution limits enhanced to 7.5% of average net profits of

the company for the immediately 3 preceding financial years

Charitable

contribution, permission required where contribution

exceeds the limit of 5% of the average net profits for the immediately
preceding 3 financial years. The limits of monetary value have been
dispensed with

DUTIES OF DIRECTORS
- SECTION 166
A director to act in accordance with the articles of the company

A director to act in good faith in order to promote the objects of the company for the benefit of
its members as a whole, and in the best interest of the company, its employees, the
shareholders, the community and for the protection of environment.

A director to exercise his duties with due and reasonable care, skill and diligence and shall
exercise independent judgment

A director not to get involved in a situation he may have direct or indirect interest that conflicts,
or possibly may conflict, with the interest of the company

A director not to achieve or attempt to achieve any undue gain or advantage either to himself or
to his relatives, partners, or associates

27-Dec-14

83

Liability of Directors and Officers

Key Changes

Liability

of Directors under Section 166 relating to duties;

Liability

under Section 172 of the company and any officer in default for any
contravention;

Independent

and non-executive Directors only face liability for an act or

omission where they have knowledge (attributable through the Board
process) or if there is consent, connivance or a lack of diligence.

Insider Trading

Directors/ KMP shall not enter into insider trading

Insider trading defined act of subscribing, buying, selling, dealing or

agreeing to subscribe to the securities of the company by any
director if he/ she has access to non-public sensitive information OR
an act of counseling about procuring or communicating non-public
price-sensitive information to any person

Price sensitive information any information which published could

materially affect the price of the securities of the company

Loose ends not defining non-public/ materially affect the price of

the securities

COMMITTEES OF THE BOARD

CA 2013 envisages 4 (four) types of committees to be constituted by the board- But these committees are required
only for some specified companies-

Board Composition
TYPE OF COMPANY

INDEPENDENT DIRECTOR

WOMAN DIRECTOR

SMALL SHAREHOLDER
DIRECTOR

RESIDENT
DIRECTOR

Rule 11.1

Private Company

1 Independent Director on
Corporate Social Responsibility (CSR)
Committee if CSR requirement is
triggered

1/3rd of the Board to be Independent

if the Company has:
Public Unlisted Company

Paid-up share capital of INR 100

crores or more; or
Aggregate outstanding loans,
borrowings, debentures or deposits
exceeding INR 200 crores
All listed companies to have 1/3rd
of the Board comprised of
Independent Director

Listed Company

Requirement increases to half of

the Board if there is an executive
chairman [Clause 49, Listing
Agreement]

Required if paid-up
share capital > INR 100
crores (to be appointed
within 5 years) from
the commencement of
the Act

Required if paid-up
share capital > INR 100
crores (to be appointed
within 5 years) from
the commencement of
the Act
All listed companies to
have a woman director
(to be appointed within
1 year) from the
commencement of the
Act

Section 151
Rule 11.5
Not applicable

Not applicable

1 director required
to be resident in
India for at least
182 days in a
calendar year
Section 149(3)

Mandatory? Suo motu

option
Request of 1/10th the
number of small
shareholders or 500
small shareholders
(whichever is lower)

Board Committees: Applicability

TYPE OF
COMPANY

AUDIT COMMITTEE

NOMINATION &
REMUNERATION
COMMITTEE

Private Company

Not applicable

Not applicable

Both committees required if the

company has:
Public Unlisted
Company

Public Listed
Company

Paid-up share capital of INR 100

crores or more; or
Aggregate outstanding loans,
borrowings, debentures or deposits
exceeding INR 200 crores
Applicable

CSR COMMITTEE

STAKEHOLDER
RELATIONSHIP
COMMITTEE
Not applicable

Independent
Director
required on CSR
Committee if:
Net worth
INR 500 Crores
Turnover INR
1000 Crores

Applies if the
company has
1000 or more
shareholders

Net profit INR

Applies if the
5 crores
company has
1000 or more
shareholders

TYPE OF COMMITTEE

COMPOSITION

OTHER REQUIREMENTS
Roles stipulated

Audit Committee [Section 177]

Nomination & Remuneration

Committee [Section 135]
CSR Committee [Section 178]
Stakeholder Relationship
Committee [Section 178]

3 Directors
Majority Independent Directors

Decisions no longer binding on

the Board
Whistle-blower policy required,
providing direct access to the
chairman of the Audit
Committee

3 Directors
Majority Independent Directors
3 Directors
1 Independent Director
Strength and composition
determined by the Board
Chairman to be non-executive

Purpose to solve the grievances

of security holders

Related Party Transactions

RELATED PARTY - DEFINITION

Director, key managerial personnel or relative of such person

Firm in which a director, manager or relative is a partner

Private company in which a director or manager is a member or director

A public company in which a director or manager is (a) a director; or (b) along with relatives holds more than 2%

Any body corporate whose Board, Managing Director or manager is accustomed to act in accordance with the advice,
directions or instructions of a director or manager
Any person on whose advice, directions or instructions a director or manager is accustomed to act

a holding, subsidiary or an associate company of such company

Any

a subsidiary of a holding company to which it is also a subsidiary