WORKSHOP ON
COMPANIES ACT 2013
08 August 2015
Anagha Anasingaraju
PARTNER, KANJMAG & CO
COMPANY SECRETARIES
BOARD & COMMITTEE
MEETINGS
(WITH SECRETARIAL
STANDARDS)
Frequency of board meetings:
a. 1st meeting within 30 days of incorporation
b. At least 4 meetings in a year
c. Maximum gap between two meetings – 120 days
d. For OPC and small companies – at least 2
meetings in a year – minimum gap of 90 days
between two meetings
Notice of board meetings:
a. At least 7 days’ notice
b. Proof of service of notice and delivery to be
preserved
c. Notice to contain serial number, day, date, time, full
address of venue of meeting
d. Meeting / adjourned meeting cannot be held on
national holiday
Agenda:
a. To be circulated at least 7 days before in same manner
as notice
b. Proof of service of agenda and delivery to be
preserved
c. Matters of UPSI may be given at shorter period with
majority consent
Agenda contd:
d. Each item requiring approval to have note with details
e. Draft resolution to be circulated / placed at the
meeting
f. Each agenda item to be serially numbered
g. Matters outside agenda only with permission of the
Chairman and consent of majority directors present
Quorum:
a. 1/3 or 2 whichever is higher
b. Quorum should be present throughout the meeting
c. Interested directors not counted as quorum*
d. Directors participating through electronic mode form
quorum except certain transactions
e. For committee meetings – all members unless
provided by the Act / articles / other law
Quorum contd:
Where number of directors falls below 2 / quorum,
continuing director / s to act only for the purposes
of increasing the number to 2 / quorum or for
calling general meeting [Section 174 (2)]
Attendance:
a. Separate attendance register to be maintained for
board and committee meetings
b. Pages of register to be serially numbered
c. If in loose leaf form, to be bound periodically.
d. Contents – serial number, date of meeting, place,
time, names, signature of director, invitees, CS
Attendance Register:
a. To be maintained at registered office
b. It is open for inspection only by directors and
auditor
c. Entries to be authenticated by CS / Chairman
d. To be preserved for 8 years
e. Leave of absence granted only when specifically
requested for
Video conferencing
- Proceedings to be recorded – audio and video
- To be preserved till completion of audit
- Detailed procedure given in the Rules about conduct of
meeting through electronic means
- Meeting for accounts approval, approval of directors’ report,
approval of prospectus, approval of corporate restructuring
not through video conferencing
CIRCULAR RESOLUTIONS
(WITH SECRETARIAL
STANDARDS)
a. To be circulated to all directors with supporting papers
b. Each resolution to carry serial number
c. By hand, post, courier, email, fax
d. Proof of sending and delivery to be maintained
e. Resolution deemed to be passed when approved by
majority
f. Directors to respond within 7 days
a. Effective date of resolution – last day of assent / dissent,
day on which 2/3 have assented / date specified
b. Directors to write date of signing
c. Where 1/3 directors wish the matter to be decided at next
BM, they need to communicate as such before last date
and then matter only in next BM
d. Resolutions to be noted at next BM, text to be included in
minutes with dissent or abstention.
Matters which cannot be passed in VC meeting:
a. Accounts approval
b. Approval of directors’ report
c. Prospectus
d. Amalgamation,
takeover
merger,
demerger,
acquisition,
Matters which cannot be passed by circular resolution:
a. Accounts approval
b. Approval of directors’ report
c. Prospectus
d. Amalgamation, merger, demerger, acquisition, takeover
e. Borrowing
f. Investing funds
g. Granting loans, giving guarantee, providing security
Contd…
a. Making political contributions
b. Calls on shares
c. Approving remuneration of MD, WTD, Manager
d. Appointment / removal of KMP
e. Appointment of a person as MD / Manager in more
than one company
f. Sanction to RPT
Contd…
a. Purchase / sale of subsidiaries / assets not in
ordinary course of business
b. Approve payment to director for loss of office
c. Buy back
d. Issue of securities including debentures
e. Specific matters in listed companies
GENERAL MEETINGS
WITH SECRETARIAL
STANDARD
Annual General Meetings:
- First AGM within 9 months from date of closing first
financial year
- AGM to be held within 9.00 a.m. to 6.00 p.m. only
- AGM not to be held on National Holiday
- AGM CANNOT be held outside India
- Consent for shorter notice by at least 95% of members
entitled to vote at the meeting
Annual General Meetings contd:
- AGM notice to be given to each director, auditor, secretarial
auditor, debenture trustee
- Auditor to attend AGM unless specifically exempt by the
company
- Explanatory statement to contain details so as to enable
members to make informed decision
- Quorum now dependent on total number of members
Annual General Meetings contd:
- Financials may be circulated at shorter notice along with
AGM notice
- If foreign subsidiary is not required to get accounts audited
as per local laws, Indian holding company to place such
unaudited financials on website and file them with ROC;
format may be different
MINUTES OF MEETINGS
WITH SECRETARIAL
STANDARD
- Separate minutes book for each type of meeting
- Can be maintained in electronic form
- Should include time of commencement and conclusion of
meeting
- Draft minutes of board meeting to be circulated within 15
days for comments – proof to be maintained
- Directors to comment within 7 days of circulation
- Alteration only by express approval at next board meeting
POWERS OF THE BOARD
Powers of the Board
- List of matters to be transacted only by way of a resolution
passed at the board meeting given in section 179 and Rules
- Restrictions on powers of the board in section 180 – not
applicable to private companies w.e.f. 05 June 2015
- Contribution to bona fide charitable funds – prior special
resolution where amount exceeds 5% average NP of 3 years
Powers of the board contd….
Contributions to political party / purpose:
- Restriction on Govt companies and companies in existence
for less than 3 years
- Max. amount of contribution – 7.5% of average net profits
of last three years
- Prior board resolution required
- Amount and name of party to be disclosed in P & L account
Powers of the board contd….
Contributions to National Defence Fund:
- No restriction on amount to be contributed
- Amount to be disclosed in P & L account
List of events for which Form MGT-14 to be filed by
private companies
- Special resolutions
- Board resolution for appointment / reappointment /
variation in terms of appointment of MD
- Resolution for voluntary winding up
List of events for which Form MGT-14 to be filed
- Calls on shares
- Buy back of shares
- Borrowing monies
- Investment of funds
- Grants loans, give guarantee, provide security
- Approve financial statements
- Approve directors’ report
List of events for which Form MGT-14 to be filed
- Diversification of business
- Amalgamation, reconstruction, merger
- Takeover
- Acquisition of substantial stake in another company
- Political contributions
- Appointment / removal of KMP
- Appointment of secretarial / internal auditor
DISCLOSURE OF
INTEREST BY DIRECTORS
When to disclose interest:
- First meeting in which he participates as a director
- First meeting in every financial year
- Whenever there is a change in disclosure made, first board
meeting held after such change
- At the meeting in which contract or arrangement is discussed
- Whenever he becomes concerned or interested in the
contract or arrangement after it is entered into or 1st BM
thereafter
Manner of disclosure:
- Disclosure to be made in Form MBP-1 – extent of interest and
date of change in interest
- Concept of annual notice done away with
- Applicable to all directors including independent directors
- Interested director not to participate in discussion on the
contract / arrangement
- Disclosure should be noted in board minutes by way of a
resolution
Exemption?
- Applicable to all companies
- Not applicable to contracts / arrangements between 2
companies where one director of a company or two put
together hold upto 2% of paid up capital of other company
Contents of Form MBP-1
- Names of relatives
- Names of private companies in which director
- Names of private companies in which member
- Names of public companies in which director
- Names of public companies in which member, by himself or
with relatives
- Names of body corporates which are accustomed to act as per
his directions
Contents of Form MBP-1
- Names of BC at general meeting of which he can exercise
25% or more voting power, individually or with other
directors
- Names of persons on whose instructions he is accustomed
to act
- Name of BC of which he is promoter / manager / CEO
- Names of AOP / firms in which he is a partner
Relative under Companies Act 2013
- Spouse
- Father, Mother (including step father, mother)
- Son (including step son) and his wife
- Daughter and her husband
- Brother (including step brother)
- Sister (including step sister)
LOANS TO DIRECTORS –
SECTION 185
Complete prohibition on companies to advance any loan –
including loan represented by a book debt / give any
guarantee / provide any security in connection with loan to –
either directly or indirectly:
- Directors
- Any other person in whom director is interested
- GOVERNMENT APPROVAL DONE AWAY WITH
Person in whom director is interested:
- Director of lending company
- Director of a company which is holding company of the
lending company
- Any partner of such director
- Any relative of such director
- Any firm in which director is partner
- Any firm in which relative is partner
Person in whom director is interested contd:
- Any private company of which such director is a director
- Any private company of which such director is a member
- Any body corporate of which 25% of voting power may be
exercised or controlled by director, alone or with other director
- Any bode corporate whose BOD / MD / Manager is
accustomed to act in accordance with instructions of the
director / BOD of lending company
Exceptions:
- Giving of loan to MD / WD
(a) as a part of conditions of service extended to all
employees
(b) pursuant to a scheme approved by members by special
resolution
- Company engaged in giving loans etc in ordinary course of
business and interest rate is not less than bank rate of RBI
Exceptions contd…:
- Loan made / guarantee given / security provided by holding
company to WOS
- Guarantee given or security provided by holding company in
respect of loan made by bank / FI to subsidiary
- Provided loans are utilized by subsidiary for its principal
business activities
Exceptions contd…:
- Private company
a. Which has no body corporate as shareholders
b. Borrowing from banks / FI / body corporate < 2 times its
paid up capital or Rs. 50 crores, whichever is lower
c. Has no default in repayment of such borrowings at the
time of making transaction under Section 185
LOANS AND
INVESTMENT BY
COMPANY
Similar to old Section 372A
- Applicable to private companies also
- Upto limits, unanimous board resolution
- Beyond limits, prior special resolution
- Disclose full particulars of loans etc in financial statements
- Prior sanction of financial institution necessary in case where
loans etc beyond limits and there is default in repayment of
loan or interest thereon
- Interest rate to be at least equal to prevailing yield of 1 / 3 /
5 / 10 year government security closest to the tenor of the
loan
- Cannot give loan etc in case default in repayment of deposits
/ interest under old or new Act
- Employee loans exempted from this section by way of
circular dated 10th March 2015 if given under a Scheme
Exceptions:
- Loan / guarantee / security by banking / insurance /
housing finance company in ordinary course of business
- Loan / guarantee / security by company engaged in business
of financing companies
- Loan / guarantee / security by company engaged in
providing infrastructural facilities
Exceptions contd:
- Acquisition:
(a) By NBFC in respect of its investment and lending
activities
(b) By company whose principal business is acquisition of
securities
(c) Of shares under rights issue
RELATED PARTY
TRANSACTIONS
Who is a related party:
- A director
- Relative of director
- KMP
- Relative of KMP
- Firm in which director is a partner
- Firm in which manager is a partner
- Firm in which relative is a partner
Who is a related party contd:
- Private company in which director is a member
- Private company in which director is a director
- Private company in which manager is a member
- Private company in which manager is a director
- Private company in which relative is a member
- Private company in which relative is a director
Who is a related party contd:
- Public company in which director is a director and holds
more than 2% of paid up capital, along with relatives
- Public company in which manager is a director and holds
more than 2% of paid up capital, along with relatives
- Body corporate whose BOD / MD / Manager accustomed
to act in accordance with instructions of director / manager
Who is a related party contd:
- Person on whose advise director or manager is accustomed
to act
- A holding company
- A subsidiary company
- An associate company
- A fellow subsidiary
- Director or KMP of holding company
Which are related party transactions:
- Sale, purchase, supply of goods or materials
- Sell or otherwise dispose of, buy, property of any kind
- Lease property of any kind
- Avail or render any service
Which are related party transactions contd….:
- Appointment of agent for purchase or sale of goods
/materials / services / property
- Related party’s appointment to office or place of profit in
the company / its subsidiary / its associate company
- Underwriting subscription of any securities or derivatives of
the company
Difference in section 297 and section 188:
- Not limited only to common directors – definition of related
party widened
- Equally applicable to all types of companies
- Transactions related to immovable property also included
- No relation to paid up capital
- Government approval done away with
How it works:
- Agenda / explanatory statement should contain all details
- Prior Board approval required for entering into any such
transaction by the company with a related party
- Prior shareholders’ resolution in specified cases as per Rules
- Member who is a related party not to vote on resolution in
general meeting for approving the transaction
How it works:
- Transaction already entered into may be ratified within 3
months by board / shareholders
- Director not to remain present during discussion on transaction
in board meeting
Limits for special resolution:
- Sale, purchase, supply of goods or materials – 10% of turnover
or Rs. 100 crores, whichever is lower
- Sell or otherwise dispose of, buy, property of any kind – 10%
of networth or Rs. 100 crores, whichever is lower
- Lease property of any kind – 10% of net worth or Rs. 100
crores, whichever is lower
- Avail or render any service – 10% of turnover or Rs. 50 crores,
whichever is lower
Limits for special resolution contd…..:
- Related party’s appointment to office or place of profit in
the company / its subsidiary / its associate company –
monthly remuneration exceeding Rs. 250,000
- Underwriting subscription of any securities or derivatives of
the company – 1% of the net worth
Exceptions:
Section 188 is completely not applicable to:
- Transactions which are in the ordinary course of business
- AND
- Transactions which are at arm’s length
- Shareholders’ resolution not required for transaction
between holding and WOS whose accounts are consolidated
and placed at AGM
Exceptions contd…:
Section 188 is completely not applicable to:
- Transactions arising out of compromises, arrangements and
amalgamations
- Contracts entered into before 01 April 2014 and still valid
What is ordinary course of business:
- Whether activity is frequent, regular
- Financial scale of activity vis a vis business operations
- Revenue generated by the activity
- Resources committed to the activity
What may not be ordinary course of business:
- Mere inclusion of activity in objects clause
- Sale made for business but no reasonable connection with
business
- Disposal of old machinery
NOT related party transactions?
- Acceptance of ICD in two companies
- Payment of / increase in sitting fees to directors
- Leave and license agreement
- Reimbursement of expenses to director for attending BM
APPOINTMENT AND
REMUNERATION OF
MANAGERIAL
PERSONNEL
Section 196
- Cannot have MD and Manager at the same time
- Maximum term of appointment / re-appointment of MD,
WTD, Manager is five years
- Reappointment not before one year of expiry of term
- Minimum age 21 years and maximum age 70 years
- Beyond 70, pass special resolution for appointment /
reappointment
Other disqualifications for MD / WTD / Manager:
- Undischarged insolvent / adjudged insolvent
- Suspended payment to creditors or made composition with
them
- Convicted by court of offence and sentenced for more than
6 months
Appointment of MD / WTD / Manager in public
companies:
- Comply with provisions of Section 196, 197, Schedule V
- Appointment by board, subject to approval by members
- If terms of appointment in variance with Schedule V,
Central Government approval
- Form MR-1 to be filed within 60 days
Comparison of Schedule XIII with Schedule V:
1. Part I – Appointments – almost similar – addition of
Prevention of money laundering Act
2. Minimum age 21 against 25 earlier
3. Part II – Section I – Remuneration by companies having
profits
4. Part II – Section II – Remuneration by companies having
inadequate or no profits
Comparison of Schedule XIII with Schedule V:
1. Part II – Section III – Remuneration by companies having
inadequate or no profits in special circumstances
2. Part II – Section IV – Perquisites not included in
remuneration
3. Part II – Section V – Remuneration payable to managerial
personnel in two companies
4. Part III – Provisions applicable to Part I and II
Conditions of appointment in Schedule V – Part I:
- Not sentenced to imprisonment / fine exceeding Rs. 1,000
under listed statutes
- Not been detained under COFEPOSA
- Completed 21 years and not attained 70 years
- Managerial person in more than 1 company and draws
remuneration from 1 or more companies within ceiling of
Part II
- Is resident of India
Limits of remuneration – Section 197
A. In case of profits:
- Overall – not to exceed 11% of net profits as per section 198
- Central Govt approval to exceed 11% s.t. Schedule V Part II
Section 1
- To 1 MD or WTD or manager – 5% of NP
- More than 1 – 10% of NP
- Other directors – 1% if MD / WTD / Manager
- 3% in other cases
Limits of remuneration – Section 197 contd…
B. In case of inadequacy of profits:
- Remuneration as per Schedule V – Part II Section II
- If not, previous Central Govt approval
- Remuneration can be doubled if special resolution passed
Limits of remuneration – Section 197 contd…
B. In case of inadequacy of profits:
- In special cases, Schedule V – Part II Section III
a. Remuneration paid by another company
b.
Newly incorporated company – upto 7 years
c. Sick company
d. Remuneration fixed by BIFR / CLB / NCLT
e. Company in SEZ s.t conditions
- Remuneration to directors may be paid as monthly payment or
percentage of net profits or partly in both ways
- Remuneration
to
independent
director
–
sitting
fees,
reimbursement of expenses for attending meeting, profit
related commission approved by members BUT NOT stock
options
- MD / WTD who receives commission from the company can
receive remuneration or commission from holding company or
subsidiary company, subject to disclosure in directors’ report
[section 197 (14)]
- Premium for director liability insurance not treated as part of
remuneration, unless person is proved guilty
QUERIES?
THANK YOU!
anagha.anasingaraju@kanjcs.com