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COMPARITIVE ANALYSIS OF CERTAIN SECTIONS OF COMPANIES ACT, 1956 & COMPANIES ACT, 2013

Background:

As you know that Companies Act, 2013 has been published in the Gazette for public information with the information that it will become applicable once it is notified by the Central Government (Ministry of Corporate Affairs) to replace the present Companies Act, 1956. Accordingly, the notification for commencement of 98 sections of the new Act has been issued by the Ministry of Corporate Affairs (MCA) on 12th September, 2013 to become applicable from the date of notification, i.e. 12th September, 2013.

We have done a comparative analysis on some of the important provision of Companies Act, 2013 vis a-vis with Companies Act, 1956.

Analysis:

Name of the Section

Companies Act, 1956

Companies Act, 2013

Allotment of securities – Not Yet Effective.

In the case of private limited companies the matters of further issue are normally protected by appropriate clauses in the Articles of Association (“AOA”), as section 81 is not applicable to private limited companies.

 

 

 

 

 

 

 

 

 

 

 

 


Sec 75: Return of Allotment
When a company having share capital allots its shares, it shall file with the registrar a return of allotment within 30 days from the date of allotment.

A private company may issue securities:

  • by way of rights issue or bonus issue in accordance with the provisions of this Act; (or)

  • Through private placement by complying with the provisions of Part II of Chapter III.

 

Sec 42 read with Part II of Chapter III:
Offer or invitation for subscription of securities on private placement

A company may, subject to the provisions of this section, make private placement through issue of a private placement offer letter.
The offer shall be made to not exceeding 50 persons or such higher number prescribed, in a financial year.
“Private Placement” means any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through the issue of a private placement offer letter and which satisfies the conditions specified in this section. Allotment to be made within 60 days.

Note: All monies payable towards subscription of these securities shall be paid through cheque or demand draft or other banking channels but not by cash.

Sec 39: Return of Allotment
When a company having share capital allots its shares, it shall file with the registrar a return of allotment in such manner as may be prescribed.

Related party
transactions –
Not Yet Effective.

Section 297:
Kinds of contracts covered
Covered only sale and purchase of goods, rendering of services, underwriting the subscription of any shares or debentures.

 

 

Central Govt. approval
Where paid up share capital of the company exceeds Rs.1 crore, prior approval of the Central Govt. required.

 

 

 

 

 

 

Applicability
Not applicable to contracts between two public companies.

Sec 188:
Kinds of contracts covered
This Act also covers leasing of property, appointment of agent for the sale or purchase, related party’s appointment to any office or place of profit in the company, its subsidiary or associate company.

 

Central Govt. approval
Prior Central Government approval done away and every related party transaction to be disclosed in Board’s report along with the justification. Only Board approval & Members approval by way of a special resolution is required.

Further, the member shall not vote at any such resolution for approving any contract, if he is a related party.

The transactions entered into in ordinary course of business are exempted from taking Board's approval except the transactions which are not on arm's length basis.

Applicability
It is applicable to contracts between two public companies as well.

This section also encompasses the concept of “office or place of profit”, which was covered under Sec 314 of the old Act.

Loans to Directors –Effective.

Sec 295:
Applicability & Approval
Not applicable to private companies and prior approval of the Central Government is required.

Sec 185:
Applicability & Approval
Central Government approval done away with and applicable to private companies as well.

Prohibitions
Section 185 prohibits loan including any loan represented by book debt to its directors or to any other person in whom the director is interested or give guarantee or security for a loan taken by them unless it is given to MD or whole time director as per terms and conditions / scheme applicable to all its employees or pursuant to any scheme which shall be approved by members as a special resolution.

Appointment of Additional Director, Alternate Director –Partly Effective.

Sec 260:
The Board shall appoint additional director, who shall hold office up to the date of the next Annual General Meeting of the Company.

Sec 161:
The Articles of a company may confer on its Board of Directors the power to appoint an additional director. The person who fails to get appointed as a Director in a general meeting cannot be appointed as an Additional Director by the Board, but he can be appointed as Director in the General Meeting by the members.

An alternate director to an independent director should also satisfy the criteria for independent directors.

Woman Directorship - Sec 149
Appointment of at least one woman director on the board of such class of companies as may be prescribed.

Appointment of at least one director resident in India, i.e., a director who has stayed in India for at least 182 days in the previous calendar year, is made mandatory for all companies.

Number of Directorships – Not Yet Effective.

Sec 275:
No person shall hold office at the same time as director in more than 15 companies.

 

 

 

Penalty
In case of default, the penalty is based on no. of companies in which more than the prescribed number of directorships is held.

Sec 165:
The limit of maximum directorships has been increased to 20 companies, and maximum 10 in the case of directorships in public companies.

The members of a Company may, by special resolution, specify any lesser number of Companies in which a director of the Company may act as directors.

Penalty
In case of default, the penalty is based on no. of days for which a person continues to be Director in a company.

Duties of Director –
Not Yet Effective.

Not specifically provided.

Sec 166 provides for the following duties:

  • To act in accordance with co.’s AOA

  • Act in good faith

  • Exercise his duties with due care and diligence.

A director shall not:

  • Involve in any conflicting interest with the co.

  • Achieve or attempt to achieve any undue advantage

  • Assign his office

Quorum for General Meeting –Effective.

Sec 174:
For private company: 2 members personally present

Sec 103:
No change

Board meetings –
Not Yet Effective.

Sec 286:
Notice of Meeting
Notice to be served in writing to every director in India, and to his usual address to every other director.
 

 

 

Sec 285:Meetings of the Board of Directors shall be held at least once in every 3 months & at least 4 such meetings shall be held in every year.

Sec 173:
Notice of Meeting
A notice of not less than 7 days in writing to every director at his address, and such notice shall be sent by hand delivery or by post or by electronic means.

Shorter Notice
Board meeting can be called at a shorter notice, provided that at least 1 independent director is present at the meeting.


Sec 173(1):Hold a minimum number of four meetings of its Board of Directors every year in such a manner provided the gap between any two consecutive board meetings should not exceed 120 days.

The participation of directors in a meeting of the Board may be either in person or through video conferencing or other audio visual means, as may be prescribed, which are capable of recording and recognising the participation of the directors and of recording and storing the proceedings of such meetings along with date and time.

Annual General Meeting – Not Yet Effective.

Sec 166:
Time Gap between 2 AGMs.
Every company shall in each year hold in addition to any other meetings a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it and not more than fifteen months shall elapse between the date of one annual general meeting of a company and that of the next.

Sec 96:
Time Gap between 2 AGMs.
No Change

Notice of General Meeting –
Not Yet Effective.

Sec 171, 172:
The notice of the meeting shall be sent according to Articles of Association of the Company.

The notice is required to be sent to:

  • Every member of the company.

  • Legal representatives of any deceased member or assignee of insolvent member.

Sec 101:
The notice of the general meeting shall be sent 21 clear days before the meeting.

The notice of every General meeting is also required to be sent to the Directors and auditors of the Company under the provisions of the new Act.

The notice of General Meeting may also be sent through the electronic mode in such manner as may be prescribed.

Passing of Resolution by Circulation –
Not Yet Effective.

Sec 289:
No resolution shall be deemed to have been duly passed by the Board or committee by circulation, unless the resolutions in draft along with necessary papers are sent to all the directors, or to members of the committee at their usual address in India, and approved by a majority of the directors or members who are entitled to vote on that resolution.

Sec 175:
This section provides for the delivery of the resolution by way of hand delivery, or by post or courier, or through such electronic mode as may be prescribed and approved by a majority of the directors or members who are entitled to vote on that resolution.

Explanatory statement annexed with notice - Effective.

Sec 173:
Applicable if the Articles specify.
The special business transacted at the general meeting shall have an explanatory statement annexed to the notice of the meeting, seeking out material facts concerning each such item of business, including the nature of interest or concern of every director and manager if any.

Where the item of special business relates to or affects any other company, and if any director or manager holds shareholding interest in that other company of not less than 20% of paid up capital of that other company, such information shall also be set out in the statement.

Sec 102:
The notice shall provide the material facts concerning each such item of special business, including the nature of interest or concern of:

  • every director and manager if any,

  • every other key managerial personnel,

  • Relatives of the persons mentioned above.

 

 

 

Where the item of special business relates to or affects any other company, and if any Promoters, Directors, Manager or Key Managerial Personnel holds not less than 2%  of paid up capital of that other company, such information shall also be set out in the statement.

Transfer & Transmission of Shares –
Not Yet Effective.

Sec 108:
Requirements in order to register transfer of shares

  • Proper Instrument of Transfer.

  • Duly stamped and executed by or on behalf of transferor and transferee.

  • Along with Certificate of Letter of Allotment if no such certificate is in existence.

Time Lines for lodging Transfer form
Unlisted Company: within 2 months from the date of presentation.

Sec 110:
Transfer in case of partly paid Shares
No Objection to be obtained from the transferee within 2 weeks.
(In case transfer application is made by transferor alone).

Sec 113:
Every Company shall deliver Share Certificates/ Debenture Certificate etc.:

  • Within 3 months after the date of allotment.

  • Within 2 months after the date of application for registration of transfer.

Sec 56:
Requirements in order to register transfer of shares


No change

 

 

 

 

 

Time Lines for lodging Transfer form
Unlisted Company: within 60 days from the date of execution.

 

Sec 56:
Transfer in case of partly paid Shares
No Change.

 

 

 

 

Sec 56:
Every Company shall deliver Share Certificates Debenture Certificate etc.:

  • Within 2 months from the date of allotment.

  • Within 1 month from the date of receipt of instrument of transfer.

  • Within 6 month from the date of allotment in case of debentures

The Company may register the transfer on such terms as to indemnity as the Board may think fit:

  • In case instrument of transfer has been lost

(or)

  • The instrument of transfer has not been delivered within the prescribed period.

Books of Accounts to be kept by Company –
Not Yet Effective.

Sec 209:
Every company shall keep at its registered office proper books of account with respect to:

  • All sums of money received and expended by the company and the matters in respect of which the receipt and expenditure take place.

  • All sales and purchases of goods by the company.

  • The assets and liabilities of the company.

  • The books of account of every company relating to a period of not less than 8 years immediately preceding the current year together with all vouchers shall be preserved.

Sec 128:
Every company shall now be required to prepare and keep at its registered office, financial statements along with books of account and other relevant books and papers for every financial year including that of its branch offices if any, and explain the transactions effected both at the registered office and its branches.

The option has been given to companies to maintain books of accounts in electronic mode.

The summarised returns shall now be made periodically instead of at intervals of not more than 3 months.
The Central Govt. may direct keeping of books of accounts for a period longer than 8 years if the company is under investigation under Chapter XIV (Inspection & Investigation).

Auditors & Audit Committee –
Not Yet Effective.

Sec 224:
Appointment
Every company shall, at each AGM, appoint an auditor to hold office from the conclusion of that AGM till the conclusion of the next AGM.

 

Every auditor shall within 30 days of receiving intimation of his appointment, intimate the Registrar in writing that he has/has not accepted the offer.

 

 

 

 

 

 

 

 

 

 

 

Audit Committee
Every public company having paid-up capital of not less than five crores of rupees shall constitute a committee of the Board known as "Audit Committee" which shall consist of not less than three directors and such number of other directors as the Board may determine of which two-thirds of the total number of members shall be directors, other than managing or whole-time directors.
Not applicable to private limited companies.

Sec 139:
Appointment
Every company shall appoint at its first AGM an individual or a firm as an auditor who shall hold office from the conclusion of that AGM till the conclusion of its 6th AGM, and thereafter till the conclusion of every 6th meeting. 

 

The duty to inform the auditor about his appointment and to file a notice with the Registrar within 15 days of the meeting in which the auditor is appointed is that of the Company.

Rotation of Auditors
An individual auditor having completed his more than 1 term (5 years) shall not be eligible for re-appointment.
An audit firm having completed its term as auditor for more than 2 terms (10 years) shall not be eligible for reappointment as auditor in the same company for the next 5 years.
A transition period of 3 years from the commencement of this Act has been provided for companies in existence to comply with the provision of rotation of auditor.

In case the company has an audit committee, then all appointments of auditors including filling of casual vacancies shall be made after taking into account the recommendation of such committee.

Audit Committee
The Board of Directors of every listed company and such other class or classes of companies, as may be prescribed, shall constitute an Audit Committee.

The Audit Committee shall consist of a minimum of three directors with independent directors forming a majority:
Provided that majority of members of Audit Committee including its Chairperson shall be persons with ability to read and understand, the financial statement.

Corporate Social Responsibility (CSR) – Not Yet Effective.

Not Applicable

Sec 135:
Every Company having:

  • Net worth of Rs. 500 crore or more (or)

  • Turnover of Rs. 1000 crore or more  (or)

  • A net profit of Rs. 5 crore or more during any financial year, shall constitute a CSR committee of the Board consisting of 3 or more directors, of which 1 shall be independent director.

The Board shall ensure that the company spends, in every financial year, at least 2%  of the average net profits of the company made during the 3 immediately preceding financial years.

Appointment of CFO – Effective.

Not Applicable

Section 2 (19) of the Companies Act 2013, defines a Chief Financial Officer as follows:

Chief Financial Officer” means a person appointed as the Chief Financial Officer of a Company.

CFO in Companies Act, 2013

For the purposes of sub-section (1) of section 203 every listed company and every other company having a paid-up share capital of five crore rupees or more shall have whole-time key managerial personnel. [As per the Draft Rules]
Every KMP should be appointed by passing a Board resolution. The terms and conditions including the remuneration should be mentioned in the Board resolution for such appointment.

A whole-time KMP of a Company shall not hold office in more than one company except in its subsidiary company at the same time. A CFO of holding Company can act as a CFO of subsidiary company also. CFO shall sign the financial statements.

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