Today’s Overview
1
HIGHLIGHTS OF THE COMPANIES ACT, 2013
2
SALIENT FEATURES OF CHAPTERS
VII AND VIII OF THE ACT AND THE
RULES NOTIFIED
Presentation Title
PROVISIONS REGARDING CS PROFESSION, KMP,
ANNUAL RETURN AND SECRETARIAL AUDIT AND
Your company
THE RULES
NOTIFIED name
Presentation by
CS. B. Narasimhan At INDORE
HIGHLIGHTS OF THE COMPANIES
ACT, 2013
Passed by the Lok Sabha and the
Rajya Sabha and obtained
Presidential assent on 30th
August 2013
COMPANIES ACT 2013
 PARTLY NOTIFIED
 Those sections which are not
dependant on the Rules stands
notified.
 Wisdom of notifying the provision
of sections partially?????
NEW ACT AT A GLANCE
29
Chapters
7
Schedules
Facts about
the Act
33 New
Definitions
470
Sections
NEW CONCEPTS
 Introduction of One Person Company
 Stipulation of Woman Director
 Provision of Class Action suits
 Associate Company
 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
 Summary Procedure for Winding up of Company
 Enabling provisions for issue of GDRs
PROVISIONS REGARDING CS
PROFESSION, BOTH FOR MEMBERS
IN PRACTICE AND IN EMPLOYMENT.
 ANNUAL RETURN CERTIFICATION
 APPOINTMENT OF KMP
SECRETARIAL AUDIT
WITH REFERENCE TO THE RULES
NOTIFIED
Companies between
Total
Co’s
Number of
Number of
Paid up Capital (in Rs)
Private
Co’s
Public Co’s
0 -50 Lakhs
751230
33405
784635
50 Lakhs - 2 crores
62746
10275
73021
2 crore - 5 Crores
18755
7020
25775
5 Crores - 10 Crores
5938
4331
10269
10 Crores - 25 Crores
3927
3878
7805
25 Crores - 50 Crores
1405
1563
2968
50 Crores - 100 Crores
798
902
1700
100 Crores and Above
820
1244
2064
845619
62618
908237
5112
Source
www.tradingeconomics.com
> 5 Crores
24806
> 10 Crores
14537
> 100 Crores
2064
> 50 Crores
3764
SOURCE MCA, GOI
AS OF SEPTEMBER 2013
No of listed entities
Listed entities with > 5 crores capital will be
around ………..?????????
No. of Listed Companies 5,293
No. of Suspended Companies
1,255
No. of Companies Eligible for
Trading 4,038
Source BSE Website
Annual Return (Section 92)
 Annual Return Certification by PCS [Section 92(1)]
• Company not having Company Secretaries.
• Listed Company or by Company having prescribed paidup capital or turnover.
 Not required for Small Companies or OPC.
Challenges:
• Certification of Compliances of All provisions of the Act .
• Wrong Certification – from Rs. 50,000/- upto Rs. 5 Lacs.
Annual Return….
Annual Return Certification by PCS [Section 92(1)] :-
Principal business activities;
Particulars of its holding, subsidiary and Associate Companies;
Promoters, directors, KMP alongwith changes therein;
Meetings of members or a class thereof;
Board and its various committees along with attendance details;
Remuneration of directors and KMP, penalty or punishment
imposed on the company, its directors or officers and details of
compounding of offences and appeals made against such penalty
or punishment.
 Details of FII including the countries of their origin
 Matters relating to certification of compliances, disclosures as
may be prescribed,
 Such other matters as may be prescribed.
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PROVISIONS REGARDING ANNUAL RETURN (AR)
Rules Notified
PCS certification for:
(a) All listed Companies
(b) Companies with PUC of Rs. 10 crore or
more AND with TO of Rs. 25 crore or more.
• Heavy penalty for non-compliance with
imprisonment up to 6 months for officials
of the Company.
• Any wrong certification by PCS – Penalty
ranges from not >Rs. 50K – Rs. 5 Lakhs.
PROVISIONS REGARDING ANNUAL RETURN (AR)
Challenges and Advantages
envisaged
• Unlike Compliance Certificate it is
exhaustive and would require great
attention of the PCS
• PCS can commence verification of AR
immediately thereafter to the extent
information is made available by the
Company.
• What Could be the Final Rules?????
Appointment of KMP
Section 203 – Appointment of whole-time KMP:
(i)Managing director, or CEO or Manager and in their absence,
a WTD;
(ii)Company Secretary; and
(iii)Chief Financial Officer (CFO).
All defense Clauses Deleted.
KMPs to be appointed by Board Resolution.
Can become Director of any Company with Board approval.
Vacancy to be filled up within 6 months.
Penalty – Rs. 1 Lacs to Rs. 5 Lacs, Continuing Rs. 1000 per day.
PROVISIONS REGARDING KEY MANAGERIAL
PERSONS (KMP)
Segregation of office of Chairman and MD or CEO
 Unless prescribed by AOA or It is a company not carrying
on multiple businesses
 OR where there is multiple business one or more CEO
appointed for the business as notified by the
Government.
Appointment to be done by a Board by a Resolution
 Containing terms and conditions including remuneration
 KMP should not hold office of more than 1 company
except subsidiaries.
 KMP can be a Director with explicit permission of the
Board.
PROVISIONS REGARDING KEY MANAGERIAL
PERSONS (KMP)
• Provisions given for existing KMP’s in multiple business to
discontinue within a period of 6 months.
• Company can appoint a person as its MD if he is already a MD
or Manager provided appointment is approved by the Board
unanimously.
• Specific notice given to the proposed appointment.
• Any vacancy in the KMP to be filled within a period of 6 months.
• Penalty of Rs. 1 Las extend to Rs. 5 Lakhs on all Companies.
• Every Director or KMP in default punishable with a fine up to Rs.
50K and if it is a continuing one Rs. 1000 per day.
PROVISIONS REGARDING KEY MANAGERIAL
PERSONS (KMP)
Rules framed for KMP
 KMP required for all listed entities and all
other companies having PUC of Rs. 5 crore
or more ( Rule 13.6)
Difficulties envisaged
 Number of CS in an employment may not
suffice the requirement especially since heavy
penalty is prescribed for contravention. The
number required as per table is at least 24806
plus listed entities with >5 Cr PUC
 THE ROAD AHEAD???????????
Secretarial Audit
 Compulsory Secretarial Audit for Listed and Class of Companies to
be prescribed (Section 204).
 Board Report to include every qualification, reservation or adverse
remark or disclaimer made by Secretarial Auditor in its Report
[Section 134(3)(f)].
 Power and Duties of Secretarial Auditor similar to Statutory Auditors
[Section 143(14)] – shall have access of all records.
 Power to Report Fraud to CG [Section 143(12)].
Challenge:
Wrong Certification, failure to report fraud Sec 143 (12)
Penalty – Rs. 1L to Rs. 25L (Sec. 143(15).
May be liable for fraud under section 447.
Functions of Company Secretaries (Section 205)
 Report Compliance with the provisions Companies Act, the
rules made there under and other laws applicable to the
company;
 To ensure compliance of applicable secretarial standards;
• Companies shall observe Secretarial Standard on Board and
General Meeting [Section 118(10)].
 To discharge such other duties as may be prescribed.
SECRETARIAL AUDIT AND THE RULES NOTIFIED
THERE UNDER:
• Background to Secretarial Audit
• Sec. 204 makes provision for carrying out Secretarial
Audit for certain companies.
• Company to provide all assistance and facility to CS for
the Audit.
• Secretarial Audit to be part of the Board report.
• Board should give explanation in full for any qualification
or observation made by the PCS.
 Any contravention of the provision of this section
involves penalty from Rs. 1 Lac up to Rs. 5 Lac on
the company, every officer of the company OR the PCS
who is in default.
 Need to examine when and why a PCS can be deemed to be in default
SECRETARIAL AUDIT AND THE RULES NOTIFIED
THERE UNDER:
RULES PRESCRIBED
• Rule 13.7 provides for PUC of Rs. 100 crores or
more
• Lot of importance is attached to non financial
disclosures
• Several private limited companies are also having
paid-up capital beyond Rs. 100 crores.
• Rules should obviously look at protecting the stake
holders at large whose interest is to be safeguarded
• Companies with a large amount of borrowing from
banks, or with a huge TO not necessarily having
large PUC should also be considered.
SECRETARIAL AUDIT AND THE RULES NOTIFIED
THERE UNDER:
Challenges and Advantages
envisaged
• SA is very exhaustive and would
require great attention of the PCS
• Certification for laws applicable to the
Company
• Time to be devoted will be very high
• Specimen of SA Report……
• Guidance note of ICSI
• What Could be the Final Rules?????
Chapter VII
Management & Administration
AGM/EGM
 First AGMs to be conducted within 9 months from close of FY;
 AGM to be called during Business Hours (9 am to 6 pm);
 Not allowed on National Holiday;

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Quorum:
<1000 members – 5 members;
1000-5000 members – 15 members;
5000 or more members – 30 members.
 Voting through electronic mode mandated for certain
Companies
Chapter VII – MANAGEMENT AND ADMINISTRATION
Analysis of Chapter with specific reference
to the Rules notified.
1. ROM also requires UID No, email address, PAN apart from
other normal requirements.
2. Depository to modify data base for provision of UID no.
3. Similarly for shares held in physical
4. Sec. 89 relates to declaration of beneficial interest specific format prescribed under the Rule “refer Rule 7.7”
filing also required with ROC.
5. Maintenance of ROM under sec. 88
Chapter VII – MANAGEMENT AND ADMINISTRATION
 Company can keep ROM other than the registered office where
more than 1/10th of the total members resides. Members
residing in a city is a variable and can change and hence a
challenge
 Sub-Rule 7 of Rule 7.3 provides for attaching the interest in the
securities based on intervention of judicial or revenue authority
to be recorded in ROM.
 The depository to record such attachment in respect of shares
held in electronic form.
 Provision made for maintenance of Foreign Register of
members.
 Rules 7.5 provides for such maintenance in relation to those
residing in particular country
Chapter VII – MANAGEMENT AND ADMINISTRATION
 Company maintaining foreign register to
intimate ROC in the prescribed format.
 Foreign register to be maintained in same
format as ROM – Challenges for getting the
information for foreign holders as well.
 Closing of ROM would also apply for foreign
register and would be applicable Mutatis
Mutandis.
Chapter VII – MANAGEMENT AND ADMINISTRATION
 Changes in the foreign register to be intimated
within 15 days.
 The company to maintain duplicate register of
every foreign register duly updated.
 Need for foreign register not really clear– some
company have listed their shares in foreign
countries , some companies have issued ADR’s
and/or GDR’s.
 ADR/GDR are held by a global depository and
they are held by the custodians – challenges
relating to compliance?
Chapter VII – MANAGEMENT AND ADMINISTRATION
 Rule 7.6 also provides for authentication by the CS or
a person to be authorized by the Board - requires
appending signatures to each entry. Similar
provision also for foreign register.
 Rule 7.11 provides for filing with ROC in specific
format with respect to changes in shareholding
position of the promoter and top 10 shareholders of
the Company within 15 days of such changes –
Currently quarterly filing is done with Stock
Exchanges and the information is available in the
public domain. The need for such requirement is
therefore not clear.
Chapter VII – MANAGEMENT AND ADMINISTRATION
 Rule 7.13 maintaining the ROM and AR –and index
of ROM a permanently. Register to be held in the
custody of CS or a person to be authorized by the
Board. – Appointment of RTA/STA to be approved
by the Board with specific authority to maintain
ROM.
• Register of Debenture holders to be maintained for
15 years from the date of redemption of debenture.
• AR under sec. 92 to be preserved for 8 years.
• Foreign Register to be maintained permanently.
• Rule 7.14 Copies of ROM and AR to be provided to
members as prescribed in AOA but not exceeding
Rs 10/- per page
Chapter VII – MANAGEMENT AND ADMINISTRATION
• Notice of Meeting
• Recognition under Rule 7.1 for sending through
electronic mode – Company should be capable
of processing the confirmation for delivery, which
has to be safely kept.
• Notice may be sent through email as a text or as
an attachment or providing electronic link for
accessing the notice.
• Opportunity to be given to the member to
register his email
Chapter VII – MANAGEMENT AND ADMINISTRATION
• Sub-rule (v) of Rule 7.16 3 seems to suggest
that a shareholder should be given opportunity
specifically for receiving notice electronically – in
the current age of going green need of positive
confirmation is regrettable.
• Company should retain confirmation of the
recipients email sent.
• Details of failed transmission – to send notice
physically within 72 hours in the event of failed
transmission.
Chapter VII – MANAGEMENT AND ADMINISTRATION
PROXIES
• There is restriction on appointment of
proxies.
• Proxy cannot have authority beyond 50
numbers and holding in aggregate not
exceeding 10% of the total paid-up capital
with voting rights.
Chapter VII – MANAGEMENT AND ADMINISTRATION
Voting through electronic means
• For the first time, the Act and Rules have
mandated for voting through electronic means in
addition to voting in meetings. This is applicable for
• All Listed Companies;
• All Companies having 500 or more shareholders
• Voting of electronic means would be through an
agency approved by MCA through a SECURED
SYSTEM.
Chapter VII – MANAGEMENT AND ADMINISTRATION
• Company can also do it by registering with
MCA or appoint an authorized agency.
• Although sec. 20 recognizes serving of
documents by courier service, sub-rule (i)
of Rule 7.18 (3) allows sending of notice
only by Registered Post or Speed Post
with AD. This is incomprehensible –
• alternate can be through electronic means
against registered email ID.
Chapter VII – MANAGEMENT AND ADMINISTRATION
• Importantly companies who are providing
electronic voting can facilitate the process at
other places in the country where there are large
number of shareholders. This is only an option
and not mandatory.
• With emphasis on governance this seems to be
good suggestion to be implemented as against
circular earlier issued by MCA for video link
allowing shareholder participation in meeting
across the country.
• Voting to remain for at least 7 days but not
exceeding 10 days.
Chapter VII – MANAGEMENT AND ADMINISTRATION
Scope of PCS to be appointed as
Scrutinizer for their clients for E-voting
• The results of the shareholders in the
general meeting will be considered along
with E-voting carried out by the members
in other cities based on which results will
be declared.
Chapter VII – MANAGEMENT AND ADMINISTRATION
Postal Ballot under sec. 110
• Sub-Rule (2) of Rule 7.20 specifically mentions
that Postal Ballot could be sent by Registered
Post or Speed Post acknowledgment due or by
electronic means against registered email ID.
• Note: The existing provision for sending Postal
Ballot provides for sending through secured
mode and companies have been sending by
ordinary post by obtaining acknowledgment from
the Post Office for article delivered. With UPC
being disbanded even first class mail would not
be allowed as per the new Act.
Chapter VII – MANAGEMENT AND ADMINISTRATION
• Post Ballot will be applicable for the following as per subrule 16 of Rule 7.20:
• Alteration of object clause of existing company and main
object of company formed under the new Act.
• Alteration of article in relation to insertion or removal of
provision of a Private Company as per Sub section (68)
of Section 2.
• Change in place of registered office outside cities, town
or village limits. – sec. 12(5).
• Change in the object for a company which has raised
money from public through prospectus and intends to
use the unutilized amount for the purpose. Refer sec.
13(8)
Chapter VII – MANAGEMENT AND ADMINISTRATION
•
•
•
•
•
•
Issue of shares with DVR as to voting or
dividend or otherwise. Refer sec. 43(a)(ii)
Variation in rights attached to a class of shares
or debentures. Refer sec. 48
Buy-back of shares- sec. 68(i)
Election of Directors under sec. 15(1) – elected
by small shareholders.
Sale of whole or substantially the whole of
undertaking of a Company – sec. 180(1) (a)
Giving loans or extending guarantees in
excess of limit prescribed under sec. 186(3)
Chapter VII – MANAGEMENT AND ADMINISTRATION
•
Postal Ballot not applicable to OPC or
Company with less than 50
shareholders. In other words for Private
Companies having in excess of 50
shareholders Postal Ballot would be
applicable.
Chapter VII – MANAGEMENT AND ADMINISTRATION
Maintenance and Inspection of documents in electronic form
•
•
•
•
•
For the first time recognition has been given for maintain records
in Electronic form. Sec. 120 provides for maintenance of
documents in electronic form.
Rule 7.25 provides for the manner in which records will be
maintained and inspection will be provided.
Rule 7.25 (3) gives authority to the management to secure the
records so maintained in electronic form.
Note : While this is a welcome move, the Company has to take
extreme care to comply with the Rule specified in Rule 7.25(3)(ii)
where activities has been outsourced. Company has to ensure
undertaking is obtained from those agencies.
Rule 7.26 provides for the report of the proceedings of all AGM’s
in a specified manner. This report has to be filed with the ROC
and in respect of listed companies as per the Listing Agreement
with respective Stock Exchanges.
Chapter VIII
DECLARATION AND PAYMENT OF
DIVIDEND
Chapter VIII- DECLARATION AND PAYMENT OF
DIVIDENDS
Broadly the provisions are very much within
the existing framework of the Companies
Act 1956
• Recourse has been made for the investor to
claim monies which is transferred to the IEPF
• Process framed is lengthy
• This is a welcome move
• Monies moved to IEPF for non encashment
due to disputes and or Court cases.
• Unclaimed and Unpaid dividends to be put up
on the website in PDF format.
 Certification for transfer by PCS CA and ICWA
Chapter VIII- DECLARATION AND PAYMENT OF
DIVIDENDS
Transfer of shares of unclaimed or Unpaid dividend
amounts by the shareholders
The origin of this perhaps lies in the changes made by
SEBI by introduction clause 5A in the LA of SE
•
Sub section (6) of Section 124 reads as follows.
–
–
–
•
All shares in respect of which unpaid or unclaimed dividend
has been transferred to IEPF u/s 125 (1) shall also be
transferred to the IEPF
However Rule 8.5 provides that it will be applicable only if all
the dividend during the 7 year period is not encashed
If dividend encashed fro even 1 year then it is not applicable.
However the Rules have gone overboard in the matter
by seeking companies to do this by some draconian
provisions in the rules.
Chapter VIII- DECLARATION AND PAYMENT OF
DIVIDENDS
Transfer of shares of unclaimed or Unpaid dividend amounts by
the shareholders
Shares required to be transferred to IEPF suspense Ac of the
Company
•
Board to authorize CS or such to sign some documents.
–
–
DIS slips if held in Depository
If held in physical form CS to make application on behalf of the
shareholder and obtain duplicate?????????
–
Legend on the Certificate”………for purpose of transfer to IEPF”????
–
Sign transfer form and Board to effect transfer
–
Voting rights stands frozen and benefits like bonus split etc also
transferred……..Not Rights? Could be merger, demerger etc
Transfer to be certified by PCS CA or ICWA
•
In the event of delisting IEPF to surrender and get money?.
Chapter VIII
FURTHER SCOPE FOR PCS OR CS
AS PER THE PROVISIONS OF THE
ACT
Registered Valuer
Section 247 read with Draft Rules:
Valuation of any property, stocks, shares, debentures, securities or
goodwill or any other assets or net worth of a company or its liabilities;
Central Government to maintain Register of Valuer;
Following person having 5 years exp. shall be eligible:
CA/CS/CWA/Person having equal Indian / Foreign qualification(IC);
Merchant Banker;
Engineers /Architect (only for technical valuation);
Notified persons.
Application to be filed F17.1/F17.2.
Company Secretary as Insolvency Practitioner
Section 259:
 Company Secretary in practice recognized as one of the
professional to be appointed as Interim Administrator or the
Company Administrator for Revival or Rehabilitation of SICK
Companies.
Professionals at NCLT/NCLAT
Section 409 :
 CA/CS/CMA in Practice can become Technical Member of
NCLT/NCLAT, if practising for atleast 15 Years/ 25 Years,
respectively.
Section 432:
 Legal Representation of Aggrieved person before NCLT /
NCLAT by professional.
THANK YOU