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Companies Bill 2012 -The Dawn of a New Era

The much awaited Companies Bill, 2012 (Bill) was passed by the Lok Sabha on 18th December 2012, replacing the 56-year old Companies Act, 1956. The Bill seeks to consolidate and amend the laws relating to the Companies and intends to improve corporate governance and to further strengthen regulations for corporates. The new law is a step forward towards globalization and is a successful attempt to meet the needs of changing environment. It is progressive and futuristic in nature, duly envisaging the technological and legal developments. The article provides an insight on the various issues relating to Companies Bill. One Person Company
  • The concept of One Person Company has been introduced. Clause 3(1)(c) provides for the same.
  • Clause 2(62) defines a One Person Company as a company which has only one person as its member.
Private Company
  • Maximum number of members in a private company has been raised to 200 from 50 by virtue of clause 2 (68) (ii)
Private Placement
  • Provisions with regard to offer or invitation for subscription of securities on private placement basis have been revised to ensure better transparency and accountability.
  • Clause 42 lays down that an offer or invitation of securities through private placement may be made in the form and manner prescribed subject to compliance with the following conditions prescribed:
  1. the offer or invitation in a financial year, shall be made to such number of persons not exceeding fifty or such higher number as may be prescribed(excluding qualified institutional buyers and employees of the company being offered securities under a scheme of employees stock option as per provisions of clause (b) of sub-section (1) of section 62) in a financial year and on such conditions (including the form and manner of private placement ) as may be prescribed;
  2. the value of such offer or invitation shall be with an investment size of such amount as may be prescribed; and
  3. the company shall not issue any prospectus for such offer or invitation and such offer or invitation shall be made through a private placement offer letter.
Share Capital
  • Clause 58(2) of the Bill provides that the securities of a public company shall be freely transferable subject to the provisions that any contract or arrangement between two or more persons shall be enforceable as contract.
  • By virtue of clause 53, companies are prohibited from issuing shares at discount except in case of issue of sweat equity shares.
  • Clause 66 deals with reduction of share capital. It mandates approval of National Company Law Tribunal (NCLT) for the same. Further, in case of listed companies, NCLT will give notice of every application made to it for reduction of share capital to the Central Government, Registrar, SEBI, in case of listed company and creditors of the company for taking into consideration any representation on the proposed reduction.
Directors
  • Every company shall have a minimum number of three directors in the case of a public company, two directors in the case of a private company, and one director in the case of a One Person Company; subject to a maximum of fifteendirectors.
  • Introduction of a class of companies(to be specified by the Govt) where at least 1 woman director to be there on the board.
  • Every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days (182 days) in the previous calendar year.
  • Every listed public company shall have at least one-third of the total number of directors as independent directors . The Central Government may prescribe the minimum number of independent directors in case of any class or classes of public companies.
  • A person can hold directorship in maximum 20 companies, of which not more than 10 companies should be public companies.
  • Duties of the directors towards the company are prescribed in the Bill under clause 166.
Independent Directors
  • The Bill has introduced the concept of Independent director and is defined in Clause 2(47). Clause 149 lays down that every listed public company shall have at least one-third of the total number of directors as independent directors and the Central Government may prescribe the minimum number of independent directors in case of any class or classes of public companies.
  • The company and independent director are required to abide by the provisions specified in Schedule IV.
  • The clause seeks to provide that an independent director shall not be entitled to any remuneration, other than sitting fees, reimbursement of expenses for participation in Board meeting and profit related commission as approved by the members. The clause further provides for the provisions of rotation of independent director.
  • An independent director shall hold office 
for a term up to five consecutive years on the Board of the company, but shall be eligible for re- appointment on passing of a special resolution by the company.
Committees of Board of Directors
  • The Board of Directors is required to constitute an Audit Committee (Clause 177), Nomination and Remuneration Committee [Clause 178 (a)] and Stakeholders Relationship Committee [Clause 178 (5)].
  • These committees shall have Independent Directors/non-executive directors to bring more independence in the functioning of the Board and for protection of interests of minority shareholders.
Auditors
  • The Bill provides for mandatory rotation of auditors for every five years.
  • Clause 139 (2) prescribes that no listed company shall (a) appoint an individual as auditor for more than one term of five consecutive years and (b) an audit firm as auditor for more than two terms of five consecutive years.
  • Clause 139 (3) empowers members of the company to decide by resolution that the auditing partner and his team (of an audit firm appointed by the company) shall be rotated every year or that audit shall be conducted by more than one auditor.
Corporate Social Responsibility
  • By virtue of Clause 135 corporate social responsibility (CSR) has been introduced.
  • Accordingly, every company having net worth of Rs.500 crores or more, or turnover of Rs.1000 crores or more or a net profit of Rs.5 crores or more during any financial year is required to constitute a Corporate Social Responsibility Committee of board consisting of three or more directors, out of which at least one director shall be an independent director.
  • The Corporate Social Responsibility Committee shall formulate and recommend to the board, a Corporate Social Responsibility Policy.
  • Such a company is required to spend at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.
  • If the company fails to spend such amount the Board shall in its report specify the reasons for the failure thus making it a binding obligation on the Board.
Serious Fraud Investigation Office
  • The provision for establishment of Serious Fraud Investigation Office (SFIO) by the Central Government is another significant feature of thisBill.
  • Clause 212 empowers the Central Government to assign the investigation into the affairs of a company by the SFIO.
Amalgamation and Arrangements
  • A more comprehensive framework has been built in through Chapter XV for compromises, amalgamations and arrangements.
  • Merger of Indian companies with foreign companies incorporated in certain notified countries has now been permitted.
Registered Valuers
  • The concept of Registered Valuers has been introduced.
  • Where any valuation is required to be made in respect of any property, stocks, shares, debentures, securities or goodwill or any other assets (herein referred to as the assets) or net worth of a company or its liabilities under the provision of this Act , it shall be valued by a person having such qualifications and experience and registered as a Valuer in such manner, on such terms and conditions as may be prescribed and appointed by the audit committee or in its absence by the board of directors of that company.
Winding Up
  • Changes have been made on the grounds for winding up a company.
Class Action Suits
  • The concept of class action suits has been introduced by Clause 245.
  • The said clause empowers the shareholders or depositors or any class of them to file an application before NCLT if they are of the opinion that that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors.
  • The clause also provides the number of such members or depositors required to file such suit.
Some other features of the Bill include:
  • Financial year will be uniform for all companies i.e April – March
  • The Concept of Dormant Company has been introduced
  • National Company Law Tribunal and National Company Law Appellate to be established.
  • Special Courts for speedy trials to be established.
The Bill was to be taken up for discussion in the Rajya Sabha on 20th December 2012 but has now been postponed until the next session. Disclaimer: The entire contents of this document have been developed on the basis of relevant provisions and are purely the views of the authors. Though the authors have made utmost efforts to provide authentic information however, the authors and the company expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document    
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