Introduction

Minister for Corporate Affairs, Shri Salman Khurshid introduced the Companies Bill, 2009 in the Lok Sabha.  The main objectives of the Companies Bill, 2009 are as follows -

(a) To revise and modify the Companies Act, 1956 in consonance with the changes in the national and international economy;

(b) To bring about compactness by deleting the provisions that had become redundant over time and by regrouping the scattered provisions relating to specific subjects;

(c) To re-write various provisions of the Act to enable easy interpretation; and

(d) To de-link the procedural aspects from the substantive law and provide greater flexibility in rule making to enable adaptation to the changing economic and technical environment.

Earlier last year Companies Bill, 2008 was introduced in the Lok Sabha on 23^rd October, 2008. Due to dissolution of the Fourteenth Lok Sabha, the Companies Bill, 2008 lapsed. As the provisions of the Companies Bill, 2008, are broadly considered to be suitable for addressing various contemporary issues relating to corporate governance, including those which have been recently noticed during the investigation into the affairs of some of the companies.

In view of above, the Government decided to re-introduce the Companies Bill, 2008 as the Companies Bill, 2009, without any change except for the Bill year and the Republic year.

The Companies Bill, 2009 is divided in 28 Chapters consisting of 426 Sections, as opposed to the 658 Sections of the existing Companies Act; 1956.The focus of the article is to bring about the changes in the important provision proposed in the Companies Bill 2009, in relation to existing Companies Act, 1956. These are summarized as below:-

Incorporation of a Company Sec. 3 to Sec.21

1) Changes in types of company

OPC:

• Only 1 member
• Name to end with ‘OPC Limited’
• Memorandum to have name of the person to succeed in case of death/disability of the member.

Private Co

Small Co.:

Other than public co.-

• Paid-up share capital-  < 5 crores; or
• Turnover as per its last P/L Account -      < 20 crores
• Lesser regulatory compliances

2) Affidavit from each subscriber and Director stating that he is not convicted for any offence, in addition to Form 1, 18, 32 and MOA & AOA.

3) A company already registered can re-register itself. Such Re-registration can be done in the same or other class under the Act.

4) No minimum capital requirement, previously it was Private Co – Rs. 1 Lakh

Public Co – Rs. 5 Lakh. So, no capital infusion required for incorporating any company.

Share Capital & Debentures Sec. 37 to Sec. 65

1. Concept of Equity shares with Different Voting Rights has been deleted.
2. Concept of Participating Preference Shares has been deleted.
3. Voting rights to be provided to all pref. shareholders – if dividend payable is in arrears     for > 3 yrs.
4. Issue of Pref. shares redeemable after 20 yrs for infrastructural projects.
5. Now Shares cannot be issued at Discount except in the case of issue of sweat equity shares.
6. In case of further issue of equity shares, price to be determined by the Registered Valuer.
7. Debenture Trustee not required to be appointed if debentures are issued to <500 person.
8. Time period for issue of debenture certificate increased from 3 months to 6 months. Further, Provision for seeking extension of time upto 9 months from CLB – deleted.

Acceptance of Deposits Sec 66 to Sec 68

1. A Company can accept deposits only from members subject to a resolution passed in General Meeting.
2. Only NBFCs, Banking Cos., can accept the deposits from public. Deposits accepted by cos. (other than NBFC, Banking Co.) will have to be repaid within a year of Bill coming into force.
3. Amount not less than 15% of deposits maturing during the financial year & next financial year has to be deposited in Deposit Repayment Reserve A.

Meeting of Shareholders Sec 85 to Sec 109

1. First AGM – within a period of 9 months (previously it was 18 months) from the date of closing of the first financial year, Business hours – 9 a.m. to 6 p.m., Day – other than National Holiday instead of public holiday.
2. Every Listed Company to prepare a Report on each AGM & File the Report with the Registrar within 30 days. This report is to be filed in order to confirm that the meeting was convened, held and duly conducted as per the provisions of the Act.
3. Now notice of meeting can be sent via electronic means.
4. A member may exercise his vote at a meeting by electronic means in the manner as may be prescribed, if Articles of Association specifically provides.
5. Poll can be demanded by member:
   • having 1/10th of the total voting power; or
   • holding shares on which a sum of Rs. 5, 00,000 has been paid up. Previously it was Rs 50,000.
6. Voting by Postal Ballot now applicable on all companies.

Declaration & payment of Dividend Sec. 110 to Sec. 115

1. Transfer to General Reserves at the discretion of the Company.
2. If owing to inadequacy or absence of profits in any financial year, the company proposes to declare dividend out of the accumulated profits earned by it in the previous financial year or years and transferred by it to the reserves, such declaration shall be made by a resolution passed at a meeting of the Board with the consent of all the directors and the approval of the financial institutions whose term loans are subsisting, and thereafter in accordance with a special resolution passed by the shareholders at AGM.
3. Once transferred to IEPF, unpaid dividend can be claimed from Central Government.

Accounts of companies Sec. 116 to Sec. 122

1. Financial statements defined as Balance Sheet, P&L, Cash Flow Statement and explanatory note.
2. All the companies are mandatory required to adopt year ending 31^st March for the preparation of Financial Statements.
3. Provisions of Sec 212 not applicable, however, preparation of consolidated financial statement of all the subsidiaries is required and the same should be laid before the AGM.
4. Directors Report shall include:
   • Extract of Annual Return;
   • No. of Meetings of the Board;
   • Director’s Responsibility Statement;
   • Declaration by independent directors;
   • Report of the Committee on Directors’ remuneration;
   • Clarification on adverse remark in the Auditors’ Report;
   • Particulars of loans, guarantee or investments;
   • Related party transaction
5. Annual return is to be file with in 30 days instead of 60 days from the date of AGM. It shall include following additional details
   • Changes in the promoters;
   • Meetings of member, board, committee along with attendance details;
   • Remuneration of Directors and KMP.
6. The financial statements are required to be signed by a Chairman or by atleast 2 Directors, one of the whom shall be Managing Director or Chief Executive Officer.

Audit & Auditors of companies Sec. 123 to Sec. 131

1)  Certain services not to be provided by the Auditors to the Company viz.:

• accounting and book-keeping service,
• internal audit; investment advisory;
• investment banking;
• outsourced financial service;
• management service etc.

2)  Mandatory attendance of auditor of the co. or his representatives at any AGM, unless exempted by the Co.

3)  No CG approval required for the appointment of Cost Auditors, Remuneration to be fixed by shareholders in General Meeting

4)  The requirements of section 224A & 227(1A) have been proposed to be done away with.

5)  Special resolution is required to appoint a new auditor in place of existing auditor.

6)  Previously ordinary resolution was required along with a special notice.

7)  The Bill proposes certain additional restrictions on the appointment of auditors

a)      Person having business relationships with the company

b)      Person whose relative is the employment of the company as the Director or KMP.

Appointment & Qualification of Directors Sec. 132 to Sec. 153

1)      No provision for > 12 directors (Excluding nominee directors)

2)      One of the Director – ordinarily resident in India

3)      No change in number of directorships but alternate directorship to be included while counting the number of directorships

4)      Resignation by giving a notice in writing to the Company. Effective from the date of receipt of the notice or any date mentioned in the notice, whichever is later.

5)      Director shall be required to vacate his office if he has not attended all the Board Meetings for continuous period of 12 months, with or without obtaining leave.

6)      Listed Public Company- at least 1/3rd of the total no. of Directors should be Independent Director. Other Public Company – Central Government may prescribe.

7)      Duties of directors defined :

1. To act in accordance with the company’s articles.
2. 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.
3. To exercise his duties with due and reasonable care, skill and diligence.
4. Not to involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
5. Not to achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates.
6. Not to assign his office and any assignment so made shall be void.

Any director who contravenes the provisions of this section shall be punishable with fine which shall not be less than 1 lakh rupees but which may extend to 5 lakh rupees. Further if he is found guilty of making any undue gain either to himself or to his relatives, partners or associates he shall also be liable to pay an amount equal to that gain to the company

8)      Two new disqualification for directors:-

a)      Fails to obtain DIN,

b)      Has been convicted of an offence dealing with relative party transactions at any time during the last preceding 5 years.

Meetings of Board & its powers Sec. 154 to Sec. 173

1) Following powers are added to the existing one which can be exercised at the board meetings:

• To approve financial statements
• To diversify the business of the co.
• To approve amalgamation , merger or reconstruction
• To takeover or acquire a co. or controlling interest.

2) Board Meeting time gap not more than 120 days between two meetings. Previously it was 3 Months.

3) Attendance of directors present through video conferencing is considered for quorum

4) Approval now required for the disposal of undertaking in GM, if it is more than 20% of the net worth / revenue of the company.

5) Notice can now be sent electronically

6) Audit Committee Sec 158

a) Applicable to Every Listed Company; and Other Company as may be prescribed.

b) Minimum of 3 Directors with majority of Independent. One Director having knowledge of Financial Management, audit or accounts.

c) Chairman shall be an independent director.

7) Remuneration Committee Sec 158

a) Applicable to Every Listed Company; and Other Company as may be prescribed.

b) Non-Executive Directors one of whom shall be Independent shall be the members appointed by the Board.

c) The Remuneration committee shall determine the Company’s policies relating to the remuneration of Directors; KMP and Other Employees as may be decided by the Board.

8 ) Stakeholders Relationship Committee Sec 158

a) Applicable if Combined membership of the Shareholders, Debenture holders and other security holders of more than 1000 at any time during a financial year.

b) Chairman shall be non-executive director.

c)  The committee shall resolve the grievances of stakeholders.

9) Penalty for contravention of section 158

Company- Rs 1 Lac to Rs 5 Lac.

Officer- Rs 25000 to Rs 1 Lac, Imprisonment upto 1 year or both.

10)  Prohibition on forward dealings and Insider trading of securities of the Co. by the Directors & the KMP.

11) For any Related Party Transaction by public company shall require Boards approval, &  A Company having paid up capital equal to or not exceeding such sum require prior approval of the shareholders by special resolution.

Appointment & Remuneration of managerial person Sec. 174 to Sec 178

1)      Relaxation in age limit for appointment of KMP to 21 years from 25 years.

2)      KMP to include CFO & Company Secretary.

3)      Unanimous consent of the Board is required which is subject to approval by special resolution at the next GM by shareholders.

4)      Alternate Director appointed for Independent Director shall also be Independent Director

5)      No limits prescribed for sitting fees to directors.

6)      Schedule XIII of the Act, removed. So, no restriction on managerial remuneration.

7)      Key Managerial Personnel:

1. cannot hold office in >1 company.
2. can be appointed as a Director of any other Company with the permission of the Company in which he is KMP

8)      In case of vacancy in office of KMP – to be filled within 6 months from the date of vacancy.

Conclusion

The Companies Bill 2009, is intended to, reinforce shareholders democracy, facilitate e-Governance, recognize the liability of Boards, directors and senior management personnel of companies, provide for a new scheme for penalties and punishment for non compliance or violation of the law, harmonize corporate regulation with action by sectoral regulators, incorporate a new framework for mergers and amalgamations of companies. The Bill proposes some significant provisions which are of national importance which will enable the corporate sector in India to operate in a regulatory environment following best international practices that foster entrepreneurship, investment and growth.