A Project Report on Companies Act 2013

7/23/2019 A Project Report on Companies Act 2013

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APROJECT REPORT

ON

A CONCCEPTUAL FRAMEWORK OF COMPANIES ACT

2013 AND COMPARATIVE ANALYSIS OF CA 2013 VS CA

1956

(Submitted in partial fulfilment of degree of master of commerce)

Submitted by

SAKTI RANJAN DASH

Roll no!"mcom#$%

Session& $#!"'$#!

ND*R TH* +IDAN,* -.

DR.PROBODH KUMAR HOTA

P.G EPARTMENT OF COMMERCE

UTKAL UNIVERSITY, VANIVIHAR, BBSR


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edicated t !" #a!i$" #% a$$ t&e 'ac%i#ice' t&e" &a(e

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,*RTI.I,AT*

This is to certify that the project entitled A report on A ,-N,,*/TA0 .RA1*2-RK -. ,-1/ANI

A,T $#!" AND ,-1/ARATI3* ANA04SIS -. ,A $#!" 3S ,A !567 is a record of bonfire research wo

carried out by SHAKTI RANJAN DASH under my supervision and guidance. It embodies the result of h

original contribution. The project has reached the standard of fulfilling the requirements of regulation relating to

master degree of commerce. No part of this project has been submitted to any institution for the award of any degre

I wish him all the best and success in future endeavors.

ate! ".#"$%$& '()A" &$TA#lace! #.*. +#A"T)+NT $,-$))+"-+

(T'A (NI/+"0IT12 %&(%AN+03A"


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D*,0ARATI-N

I do hereby declare that the project entitled A ,-N,,*/TA0 .RA1*2-RK -. ,-1/ANI*S A,

$#!" AND ,-1/ARATI3* ANA04SIS -. ,A $#!" 3S ,A !567submitted by me as a partial fulfillment

the requirements for the degree of )aster of commerce2 (tkal (niversity in the course curriculum. It is the origin

piece of work done by me under the guidance of DR /RA8-DH K1AR H-TAas my faculty guide and has

been submitted for the awards of any other degree elsewhere in full or in part.

ate! 0A'TI "AN4AN A0&

#lace! "oll no.


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A-'N$3+*+)+NT

The satisfaction that accompanies the successful completion of any task would be incomplete without mentioni

people who made it possible2 whose encouragement and consistent guidance crowned my effort with success.

I e5press my deep sense of gratitude and indebtedness to my guide2 DR/RA8-DH K1AR H-TA2 #.*. e

$f commerce2 (tkal(niversity2 %hubaneswar for his suggestions2 constant inspiration and prompt guidance to car

out and complete this study.

ast but not the least I especially thank all those who have helped me directly or indirectly to complete this project

e5press my profound thanks to my teachers as well as my friends for their valuable suggestions and consta

encouragement.

ate! 0A'TI "AN4AN A0&

#lace! "oll no.

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/ARTI,0ARS /A+* N-

-ertificate I

eclaration II

Acknowledgement III

Abstract I/

ist of Tables /

ist of figure /I

ist of charts /II

,9apter!& Introduction

6.6 INT"$(-TI$N

6.7 Importance of the topic

6.8 literature review

6.9 "esearch gap : statement of the problem

6.; objectives of the study

6.< &ypothesis

6.= "esearch methodology

6.=.6 0ources of the data

6.=.7 0cope of the data

6.=.8 #eriod of the data

6.=.9 Tools and techniques

6.> "elevance of the study

6.? limitation of the study

6.6@ chapter plan

,9apter $& Regulatory frame:or; of companies in India& pre and post independence era

7.6 -ompany! A bird view

7.6.6 ,eature of a joint stock company

7.6.7 Types of companies

7.7"egulations of -ompanies before independence


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7.8 "egulations of -ompanies after independence

,9apter '" &companies act $#!"

8.7 %ack ground of new companies act

8.7 "ationale behind new companies act

8.8 $bjectives of companies act

8.8-ompanies Act2 7@68! A statistical snapshot

8.9 0ilent feature of companies act 7@68

8.; ist of chapters in companies act 7@68

8.


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,HA/T*R !


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!!,-NT*@T

t has been a long time in waiting but India finally enacted its new -ompanies Act 7@68 the -ompanies Ac

at the end of August 7@68. The -ompanies %ill was passed by the ok0abha the ower &ouse of t

#arliament of IndiaC on 6> ecember 7@67 and in the "ajya0abha the (pper &ouse of the #arliament of Indon > August 7@68. It received #residential Assent on 7?th August7@68 thereby creating the -ompanies A

7@68.

IThe new -ompanies Act replaced the old -ompanies Act 6?; out of the 9=@ sections of the -ompanies Act and it h

caused confusion because businesses still have to look at both the old -ompanies Act and the new -ompanies Act interpret the current law. )any have argued that the whole of the -ompanies Act should have been brought in

force at onetimeD whilst other believes that a step by step approach provides businesses with time to get to grips wi

the new provisions. The draft -ompanies Act "ules RulesBC which are required for the implementation of somethe provisions have been issued for public comment. These have been issued in two phases2 with feedback on the #hase "ules to be submitted by 6@ $ctober and feedback on the 7nd #hase "ules to be provided by 78 $ctober. 3

have set out below a brief summary of some of the key changes that are coming into force2 mainly we focus

provisions relating to accounting and made a comparison with previous act and its impact study.

!$ I1/-RTAN,* -. TH* T-/I,&

3ith the everEchanging business environment the way in which business firms are supposed to work also chang

No nation can avoid the change in the corporate culture that comes as an e5ternal force due to the rapid linkage

various economies : their corporate entities : that not only provide ample of opportunities but poses a lot

challenges on variousfront.

In the past ;= years during which the -ompanies Act2 6?;< 6?;< ActBC has been in e5istence2 the corporate a

business environment has evolved significantly and hence there was a need to revamp the legislation governi

companies. The -ompanies Act2 7@68 Act of 7@68BC was enacted on 7?th August 7@68 after #residentFs assen

however.

The Act of 7@68 is more of a rule'basedlegislation containing only 9=@ sections2 which means that the substant

part of the legislation will be in the form of rules. It is e5pected that the Act of 7@68 will become applicable and t

corresponding portion of 6?;< Act will be repealed in a phased manner.

The Act of 7@68 intends to promote selfEregulation and has also introduced some progressive concepts like -n

/erson ,ompany? Small ,ompany? Dormant ,ompany? *'go=ernance? etcThe concept of -orporate 0oc

"esponsibility has also been introduced to encourage a socially2 environmentally and ethically responsible behav

by companies.

,urther2 the Act of 7@68 aims to fortify investor protection : transparency by introducing terms like Insider Tradin

#rice 0ensitive Information2 -lass Action 0uits and other additional disclosures. It also intends to give grea

responsibility to the auditors and to widen their role. A National -ompany aw Tribunal will also be a reality n

and therefore the matters which used to linger in courts for years will be swiftly handled by this dedicated tribunal


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Taking cogniGance of rapid globaliGation2 provisions for crossEborder mergers have been introduced. )erger betwe

small companies2 holding H subsidiaries and specified entities can now be done on a fastEtrack route.

The Act of 7@68 is aimed at building a smooth and easy corporate environment along with the new and improv

measures of strong investor protection norms and presents a model for other economies with similar characteristi

to emulate

$bviously2 the intent is towards simplification2 which is critical for India to become more competitive on the ease

doing business. 3hether this objective is finally delivered will depend on two things H the rules that supplement tAct and what they look like2 and the change in attitude towards enforcementB

0o this topic has huge importance not only for corporate professionals but also for different academician who a

keeping in touch with corporate world.

!" 0IT*RATR* R*3I*2&

India practice group7@68CEfocused on key changes being implemented in new companies act 7@68 such asE financ

year2 one person company$#-C2 ormant company2 +ntrenchment provisions2 corporate social responsibil

-0"C2 Auditor rotation2 irectors2 Independent irectors2 "elated party transactions2 oans to directoInvestments2 mergers and Amalgamations2 -lass actions2 and opined that the new Indian -ompanies Act is

positive step towards moderniGing IndiaFs company law andaligning it to global standards. It has given increas

decision making powers to the company2 and introduced provisions giving minority shareholders additional rigand protections. The Introduction of one person companies and small companies should alleviate some

theadministrative burdens that small businesses have to bear2 but larger companies should preparethemselves

further administrative burdens as a result of changes in the appointment of auditorsand directors.

&emant*oyal:4itender 4ain gave an comprehensive features of the new companies act 7@68. These a

E"ehabilitation and iquidation #rocess2 ,inancial 1ear2 Auditors performing NonEAudit 0ervices2 "otation

Auditors2 iability on irectors and $fficers2 uties of irector defined2 0erving Notice of %oard )eeti

Independent irectors2 "estriction on -omposition2 +lectronic )ode2 +ntrenchment in Articles of Association2 $

#erson -ompany2 imit on )a5imum #artners2 Increase in number of 0hareholders2 #rohibition on forward dealin

and insider trading2 -ross %order )ergers2 ,ast Track )ergers2 National -ompany aw Tribunal2 -orporate 0oc

"esponsibility2 0trengthening 3omen -ontributions through %oard "oom2 0upremacy of 0hareholders2 emocra

of 0hareholders

www.companiesact .in has made a comparison between the -ompanies Act 7@68 and -ompanies Act 6?;< various topics under

different chapters of the Act with a clear e5planation of this chapter.

,A ,9intan N /atel2 =E,ebE69 had made a study on -hapter I ! 0ec. 67> to 0ec. 68> and chapter 5! section 68?sec.69>. (nder chapter 5 he has focused on 0ec. 67> ! %ooks of account etc. to be kept by company20ec. 67

,inancial 0tatement2 0ec. 68@ ! "eEopening of accounts on -ourtFs or TribunalFs orders2 0ec. 686 ! /oluntary revisi

of financial statements or %oardFs

"eport20ec. 687 ! -onstitution of N,"A20ec. 688 ! -* to prescribe A02 0ec. 689 ! ,02 %oardFs reports etc.0ec. 68-orporate 0ocial "esponsibility2 0ec. 68! Internal Audit. 0imilarly under chapter 5 hehas focus

on AppointmentJ+ligibility2 "emovalJ"esignation2#enal:#rovisions2 $thers.
http://www.companiesact/http://www.companiesact/http://www.companiesact/


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+ port had made a study on %ackground of -ompanies Act2 7@682 key changes and definition2

Incorporation of -ompanies and matters incidental thereto20hare Allotment and -apital2irectors2 ')# s a

*overnance2eclaration and #ayment of ividend2Accounts of -ompanies2oan and Investment -ompanies2-orporate 0ocial "esponsibility2"egulatory %odies 2)ergers and Acquisitions

!< R*S*AR,H +A/ > STAT*1*NT -. TH* /R-80*1&

-ompanies act 7@68 is a relatively new issue many research have been conducting but no study have conducted

comparati=e study relating to its accounting pro=isions and its impacts on entities yet.so there is a scope

research .! -8J*,TI3*S -. TH* STD4&

6. To study the regulatory framework of companies inIndia before independence :after independence.

7. To e5amine the provisions of new companies act for accounting.

8. To make a comparative analysis of companies act 6?;


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,HA/T*R $Regulatory frame:or; of companie

in India& pre and post

independence era


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$! ,-1/AN4& A 8IRD 3I*2

companyB means a company incorporated under this Act or under any previous company lawD

A 4oint stock company is an incorporated association formed for the purpose of carrying on some business. It is

artificial person having a distinctive name and a -ommon seal. It may be defined as an artificial person created

law with a distinctive name and a separate legal entity2 a common seal2 a common capital contributed by t

members and comprising transferable shares of a fi5ed denomination2 with limited liability and with a perpetu

succession.B

According to ord 4ustice indley defined a company as2 Lan association of many persons who contribute mone

or moneyMs worth to a common stock and employ it is some trade or business and who share the profit and lo

arising there from.L

$!! .eature of a Joint stoc; company

! "egistration

7. 0eparate legal entity

8. -ommon seal

9. #erpetual succession

;. imited liability

. 0eparate property

$!$ T4/*S -. ,-1/ANI*S

-ompanies may be classified into different kinds or types from different points of view. These types of compan

that can be formed under 7@68 Act has remained same as in 6?;< Act e5cept one more class ofcompany has be

added. The new class of company is $#-. The various types of companies in which significant changeshave ma

areE #rivate imited -ompany2 0mall -ompany2 $ne #erson -ompany $#-C 0ec 7th centuries. ,or eg. %ritish +ast India companies2 %ank of +ngland2 -hartered %ank of Australia e

are e5amples of chartered companies. This form of organiGation does not e5ist in India2 as there is n


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monarchy.

bC Statutory ,ompanies&A statutory -ompany is a company which is incorporated under a special or separ

act of the legisiature i.e..2 parliamentC. Astatutorycompany requires special powers and privileges which

does not get under the companies Act. 0o2 it is registered under a special act of the legislature. The powe

and activities of a statutory companies are regulated by the special act under which it is established. Th

method of incorporation is adopted for companies of national importance and public utility companies2 su

as railway companies2 electricity supply companies2 etc. The "%I2 0%I2 I-2 (TI2 etc are e5amples

statutory companies.

cC Registered ,ompanies&A company is brought into e5istence by registration with the registrar of compan

under the companies Act of 6?;


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towards the amount required for the payment of the entire or full liabilities of the company. If any of t

members is unable to contribute anything from his private assets2 then2 that addltlonal deficiency is to

shared among the remaining members in proportion to their respective capital in the company.0imp

unlimited companyB means a company not having any limit on the liabilityof its membersD

8. ,lassification of companies on t9e basis of o:ners9ip& $n the basis of ownership2 companies may

classified into two kinds. They are!

a. *overnment companies

b. NonEgovemment companies

aC +o=ernment contpanies&A -ompany in which not less than ;6Q of the share capital is held by the cent

government and or by any state government or governments is called a goverment companies. It may be

public company or a private company. 0ome of the prominent government companies are! &indus

)achine Tools2 %harat +lectronic imited2 Indian Telephone Industries and &industan Aeronautics limited

A *overnment company may be permitted by the central government to drop the words L #rivate imitedLthe word LimitedL from its name. The -entral *overnment can by notification in the official gaGette2 restr

or modify the application of certain provision of the companies Act in regard to government companies.

bC Non' +o=ernment companies&A nonEgovernment company is a company which is owned and managed

private investors.

9. ,lassifications of companies on t9e basis of nationality&$n the basis of nationality2 companies may

classified into two kinds2 They are!

aC omestic companies

bC ,oreign companies

aC Domestic companies&A omestic company is a company which is inccrporated in India .Today most of t

4oint stock companies in India are domestic companies.

bC .oreign ,ompany

L,oreign -ompanyL is defined in 0ec7 97CO to mean any company or a body corporate incorporated outsideInd

and which H

iC has a place of business in India whether by itself or through an agent2 physically or through electronic

mode6Dand

1Under the rules: For the purposes of clause (42) of section 2 of the Act, electronic mode means carrying outelectronically based,whether main serer is installed in !ndia or not, including, but not limited to "(i) business to business and business to consumer transactions, data interchange and other digital supply transactions#(ii) o$ering to accept deposits or initing deposits or accepting deposits or subscriptions in securities, in !ndia or fromciti%ens of!ndia#(iii) &nancial settlements, web based mar'eting, adisory and transactional serices, database serices and products,supply chainmanagement#(i) online serices such as telemar'eting, telecommuting, telemedicine, education and information research# and


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iiC Econducts any business activity in India in any other manner.

The e5pression Mplace of businessM is defined to include a share transfer or registration office.

Application of Act to foreign companies& Section "%5 of t9e $#!" ActC 3here not less than fifty percent of the paidEup share capital2 whether equity or preference or partly equity and partly preference2 of a

foreign company is held by one or more citiGens of India or by one or more companies or bodies corporate

incorporated in India2 or by one or more citiGens of India and one or more companies or bodies corporateincorporated in India2 whether singly or in the aggregate2 such company shall comply with the provisions ofth

-hapter and such other provisions of this Act as may be prescribed with regard to the business carried onby it

India as if it were a company incorporated in India.

'Applicable provisions Chapter XXII -ompanies Incorporated outside India and under -ompanies"egistrati

of ,oreign -ompaniesC "ules2 7@69.

'As per ,+)A2 no person resident outside India shall2 without prior approval of "%I establish inIndia2 a branc

project or a liaison office or any other place of business by whatever name called'A foreign company is requir

to register with "$- within 8@ days from the date of its establishing aplace of business in India sec 8>@O'0ett

up of place of business in India by a foreign company through an agent or electronic modewill requ

registration under 7@68 Act.

,lassification of companies on t9e basis of control&$n the basis of control companies may be classified into

i. &olding companiesii. 0ubsidiary companies.

&olding -ompanies and 0ubsidiary -ompanies0ubsidiary H meaning2 under 6?;< Act2 a company shall be deemed

be subsidiary of other company2 if

other company e5ercise or controls the composition of %oard of directors or controls more than ;@Q of totalequ

share capital or total voting capital

(nder 7@68 Act2 the concept of holdingEsubsidiary company relationship2 as far as it relates to e5ercise orcontrolmore than half share capital is concerned2 requires one to consider the investor companyMsshareholding in the to

paid up share capital i.e. equity and preferenceC of the investee company forwhichthe relationship is to be e5amine

(nder the 6?;< Act2 the investor companyMs shareholding in thetotal equity paid up share capital needed to

considered. -lass or classes of holding companies to be prescribed cannot have layers of subsidiaries beyond su

numbers as may be prescribed &oldingEsubsidiary relationship will have to be reEe5amined especially wh

company is funded with lower equity share capital base and higher preference share capital. This is likely to trigg

unintended consolidation.Lsubsidiary company>L or LsubsidiaryL2 in relation to any other company that is to say t

holding companyC2 means a company in which the holding companyR

iCcontrols the composition of the %oard of irectorsD or

iiC e5ercises or controls more than oneEhalf of the total share capital either at its own or together with oneor more

its subsidiary companies! #rovided that such class or classes of holding companies as may be prescribed shall n

have layers ofsubsidiaries beyond such numbers as may be prescribed.

() all related data communication serices,whether conducted by e"mail, mobile deices, social media, cloud computing, document management, oice or datatransmission or otherwise


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Explanation.,or the purposes of this clause2R

aC a company shall be deemed to be a subsidiary company of the holding company even if the control referred to

subEclause iC or subEclause iiC is of another subsidiary company of the holding companyD

bC the composition of a companyMs %oard of irectors shall be deemed to be controlled by another company if th

other company by e5ercise of some power e5ercisable by it at its discretion can appoint or remove all or a major

of the directorsD

cC the e5pression LcompanyL includes any body corporateD

dC LlayerL in relation to a holding company means its subsidiary or subsidiariesD 0ubsidiary company not to ho

shares in its holding company

.+g. 3hen -ompany A has a control over company %2 company A is known as a holding company a

company % which is so controlled is known as a subsidiary company.

;. ,lassification of companies on t9e basis of number of members&"egistered companies with share capital m

be divided into two classes from the point of view of the the number of members

i. #rivate -ompaniesii. #ublic -ompanies

/ri=ate ,ompanies& private companyB means a company having a minimum paidEup share

-apital of one lakh rupees or such higher paidEup share capital as may be prescribed2and which by its articles2R

iC restricts the right to transfer its sharesD

iiC e5cept in case of $ne #erson -ompany2 limits the number of its members to two hundred it is increased from

to 7@@ 0ec 7C iiC of the7@68 ActOC

It is provided that where two or more persons hold one or more shares in a company jointly2 they shall2 for t

purposes of this clause2 be treated as a single member.

#rovided further thatR

AC persons who are in the employment of the companyD and

BC persons who2 having been formerly in the employment of the company2

were members of the company while in that employment and have continued to

be members after the employment ceased2shall not be included in the number of membersD and

iiiC prohibits any invitation to the public to subscribe for any securities ofthe companyD

EThe condition of 6?;< Act to have a restriction in the AoA of a private company prohibiting invitation or acceptan

of deposits has been removed. &owever2 this deletion may not materially benefit a private company from borrowin

by way of deposits as stringent measures have now been provided for acceptance of depositsby a company.

Eirectorships in private limited companies now counted for the purpose of ma5imum number of directorships i.e.

0ection 6


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bC has a minimum paidEup share capital of five lakh rupees or such higherpaidEup capital2 as may be prescribe

#rovided that a company which is a subsidiary of a company2 not being a private company2 shall be deemed to

public company for the purposes of this Act even

where such subsidiary company continues to be a private company in its articles


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bCicenced -ompanies! Association formed not for profit2 but for promoting non trading purposes2 such as a

science2 education2 sports2 regligion2 charity2 etc.2 can obtain a licence from the central layout and get themselv

registered as compaines with limited liability under 0ec. 7; (J0 7;C of the companies act. They are cal

companies not for profit or licenced companies.

+g.+ducation institutions2 cultural association2 sports2 clubs2 charitable association2 etc.

Dormant ,ompany Esection


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E Annual "eturn can be signed by -0 or one director if there is no -0

E %oard meeting is required to be held at least once in each half of a calendar year and the gap between the

meetings is not less than ?@ days

E )erger process between 7 or more Msmall companiesM is to be approved on fast track basis. 0uch merger wou

require approval of "$-2 $2 members holding at least ?@Q of total number of shares and majority ofcredito

representing ?J6@th in value 0ection 788 of the 7@68 ActO.

$$ R*+0ATI-NS -. ,-1/ANI*S 8*.-R* IND*/*ND*N,* &

-ompany law is that branch of law which deals e5clusively with all aspects relating to companies2 such

incorporations of companies allotment of shares and share capital membership in companies management a

administration of companies2 winding up of companies. etc.

-ompany law in India is that branch of Indian law which regulates companies in India. &ence letFs have a lo

towards regulations of companies before independence .

Joint stoc; companies act of !B#&-ompanies legislation in India owes its origin to the +nglish -ompany law. T

companies acts passed from time to time in India have been following the +nglish companies acts with certa

modifications to suit Indian conditions. The first legislative enactment for L"egistration of 4oint stock companie

was passed in the year 6>;@. This Act was based on the +nglish companies Act2 6>99 known as the 4oint sto

companies Act 6>99C which recogniGed company as a distinct legal entity2 but did not grant to it the privilege

limited liability.

Joint Stoc; ,ompanies act of !B%&The 4oint stock companies act of 6>;@ was replaced by the 4oint sto

companies act of 6>;=. This act of 6>;= conferred2 for the first time in India the benefit of limited liability on t

members of companies. %ut this act did not e5tend the benefit of limited liability to the members of banki

companies and insurance companies.

Joint Stoc; ,ompanies Act or !B6#&The 4oint stock companies act of 6>;= was replaced by the 4oint sto

companies act of 6>

was based on the +nglish companies Act of 6>


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highly unsatisfactory in the course of its operation. Assuch2 this Act was subjected to a large number of amendme

from time to time.

$" R*+0ATI-NS -. ,-1/ANI*S A.T*R IND*/*ND*N,*

After independence there is a remarkable change in companies regulation2 a new act was came into e5istence i.e

companies act 6?;< .this is detailed below.

,ompanies Act of !56&After the end of 3orld 3ar II2 the need for a further revision of the company law was fe

)any changes had taken place in the organiGation and management of 4oint stock companies. The government

India2 therefore2 appointed on 7;th $ctober2 6?;@. A committee of 67 members representing various fields under t

chairmanship of 0hri. &. -. %habha for a comprehensive review of the Indian companies Act 6?68. The committ

submitted its report on all aspects of company law in April 6?;7. %ased on the recommendation of the %hab

-ommittee companies Act of 6?;< was passed. The companies Act of 6?;< was based on the +nglish companies A

of 6?9>2 with some modifications to suit the Indian conditions. The companies Act of 6?;< came into force from

April2 6?;


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. To empower the government to interfere and investigate into the affairs of the -ompany and to take over t

-ompany when the business of the -ompany is carried on in a manner prejudicial to the interests of t

0hareholders2 the -ompany or the general public.

I. To provide for the establishment of an appropriate authority for the administration of the -ompanies Act.

,-1/ANI*S A,T $#!"&

The new -ompanies Act hereinafter referred as -A7@68C is replacing old -ompanies Act2 6?;< hereinaf

referred as -A6?;


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,HA/T*R "


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8ac;ground of companies act&

Table no'!

,ompanies bill $##B&

The companies act 7@68first came as bill which was known as companies bill .it was introduced in the year 7@@

.named as -ompanies %ill 7@@>%ill No. ;= of 7@@>C

,ompanies bill $##5&

-ompanies %ill2 7@@> was not considered due to dissolution of ok0abha D and reintroduced as -ompanies %il

7@@? ;? of 7@@?C. The same was referred to 0tanding -ommittee on ,inance

"eport of 0tanding -ommittee on ,inance was introduced in ok0abha in 7@6@

,ompanies bill $#!!&

-ompanies %ill2 7@66 No. 676 of 7@66C introduced in ok0abha on 69thecember 7@66.

,ompanies bill $#!$&

-ompanies %ill27@67 as amended was approved by ok0abha on 6>thecember 7@67.

,ompanies act $#!"&


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%ill was approved by "ajya0abha on >thAugust 7@682 and received #resident s assent on 7?thAugust 7@68

Rationale be9ind ne: companies act&'

Immense increase innumberof-ompaniesfromabout8@2@@@appro5Cin6?;lakhsD

"ecognitionofgoodcorporatepractices:technologicalimprovementsD

0implificationoflawbylocatingrelatedprovisionsunderoneclauseJsection

Insertionofnewprovisionstomeetthecurrenteconomicenvironment

-bFecti=es of companies act $#!"

Transparency through increased reporting framework

&igher Auditor Accountability

-reating fle5ibility and simplicity in the formation and maintenance of companies.

Adopt IT and )odern %usiness and ,inancial #ractices

*rowth through -orporate 0ocial "esponsibility agenda.

3ider irector and )anagement "esponsibility.

To increase investor protection.

,-1/ANI*S A,T? $#!"& A STATISTI,A0 SNA/SH-T

The -A 7@68 contains 7? -hapters divided into 9=@ sections and = schedules?; definations2 as opposed to the

EA company or body corporate governed by any special Act section 7>;C of the 7@68 ActO

ormant company! The 7@68 Act states that a company can be classified as dormant when it is formed a

registered under this 7@68 Act for a future project or to hold an asset or intellectual property and has no significaaccounting transaction. 0uch a company or an inactive one may apply to the "$- in such manner as may b

prescribed for obtaining the status of a dormant company.0ection 9;; of the 7@68 ActO

Roles and responsibilities

$fficer! The definition of officer has been e5tended to include promoters and key managerial personn

section 7;?C of the 7@68 ActO.

'ey managerial personnel! The term Mkey managerial personnelM has been defined in the 7@68 Act and h

been used in several sections2 thus e5panding the scope of persons covered by such sections section 7;6C of

7@68 ActO.

#romoter! The term MpromoterM has been defined in the following ways!

EA person who has been named as such in a prospectus or is identified by the

company in the annual return referred to in 0ection ?7 of the 7@68 Act that deals with annual returnD orEwho has control over the affairs of the company2 directly or indirectly whether as a sharehold

director or otherwiseD or

Ein accordance with whose advice2 directions or instructions the %oard of irectors of the companyaccustomed to act.

The proviso to this section states that subEsection cC would not apply to a person who is acting merely

a professional capacity. 0ection 7


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$ne of the measures adopted in 7@68 Act to ensure transparency is to restrict oneMs ability to set up multipinvestment companies.

0ec 7>=C rJw 0ec 6> 6@C of the 7@ActO2 which were hitherto not given cogniGance under the 6?;< Act.

Internal Audit! The importance of internal audit has been well acknowledged in -ompanies Auditor "epo$rder2 7@@8 the M$rderMC2 pursuant to which auditor of a company is required to comment on the fact that the intern

audit system of the company is commensurate with the nature and siGe of the companyMs operations. &owever2 t

$rder did not mandate that an internal audit should be conducted by the internal auditor of the company. The $rdacknowledged that an internal audit can be conducted by an individual who is not in appointment by the company.


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The 7@68 Act now moves a step forward and mandates the appointment of an internal auditor who shall eith

be a chartered accountant or a cost accountant2 or such other professional as may be decided by the %oard to condu

internal audit of the functions and activities of the company.

The class or classes of companies which shall be required to mandatorily appoint an internal auditor

per the draft rules are as follows! P

S +very listed companyS +very public company having paidEup share capital of more than 6@ crore IN"

S +very other public company which has any outstanding loans or borrowings from banks or public financinstitutions more than 7; crore IN" or which has accepted deposits of more than 7; crore IN" at any point

time during the last financial yearAudit of items of cost! The central government may2 by order2 in respect of such class of companies engag

in the production of such goods or providing such services as may be prescribed2 direct that particulars relating to tutilisation of material or labour or to other items of cost as may be prescribed shall also be included in the books

account kept by that class of companies. %y virtue of this section of the 7@68 Act2 the cost audit would be mandat

for certain companies. 0ection 69> of the 7@68 ActO. It is pertinent to note that similar requirements have recen

been notified by the central government.

Regulators

National -ompany aw Tribunal Tribunal or N-TC! In accordance with the 0upreme -ourtMs 0

judgment2 on 66 )ay 7@6@2 on the composition and constitution of the Tribunal2 modifications relating

qualification and e5perience2 etc. of the members of the Tribunal has been made. Appeals from the Tribunal shall

with the N-T. -hapter /II of the 7@68 Act consisting of section 9@= to 989 deals with N-T and appella

Tribunal.

National ,inancial "eporting Authority N,"AC! The 7@68 Act requires the constitution of N,"A2 which hbeen bestowed with significant powers not only in issuing the authoritative pronouncements2 but also in regulatithe audit profession.

0erious ,raud Investigation $ffice 0,I$C! The 7@68 Act has bestowed legal status to 0,I$.

1ergers and acuisitions

The 7@68 Act has streamlined as well as introduced concepts such as reverse mergers merger of foreign compani

with Indian companiesC and squeeGeEout provisions2 which are significant. The 7@68 Act has also introduced t

requirement for valuations in several cases2 including mergers and acquisitions2 by registered valuers.

,orporate social responsibility

The 7@68 Act makes an effort to introduce the culture of corporate social responsibility -0"C in Indian corporat

by requiring companies to formulate a corporate social responsibility policy and at least incur a given minimu

e5penditure on social activities.

,lass action suits

The 7@68 Act introduces a new concept of class action suits which can be initiated by shareholders against t

company and auditors.

/ro9ibition of association or partners9ip of persons eGceeding certain number

The 7@68 Act puts a restriction on the number of partners that can be admitted to a partnership at 6@@. To be specif

the 7@68 Act states that no association or partnership consisting of more than the given number of persons as may

prescribed shall be formed for the purpose of carrying on any business that has for its object the acquisition of ga

by the association or partnership or by the individual members thereof2 unless it is registered as a company under t

6?;< Act or is formed under any other law for the time being in force!

As an e5ception2 the aforesaid restriction would not apply to the following!S A &indu undivided family carrying on any businessS An association or partnership2 if it is formed by professionals who are governed by special acts like t

-hartered Accountants Act2 etc.section 9


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/o:er to remo=e difficulties

The central government will have the power to e5empt or modify provisions of the 7@68 Act for a class or classes

companies in public interest. "elevant notification shall be required to be laid in draft form in #arliament for a peri

of 8@ days. The 7@68 Act further states no such order shall be made after the e5piry of a period of five years from t

date of commencement of section 6 of the 7@68 Act section 9=@ of the 7@68 ActO.

Insider trading and pro9ibition on for:ard dealings

The 7@68 Act for the first time defines Minsider trading and priceEsensitive information and prohibits any pers

including the director or key managerial person from entering into insider trading section 6?; of the 7@68 Ac

,urther2 the Act also prohibits directors and key managerial personnel from forward dealings in the company or

holding2 subsidiary or associate company section 6?9 of the 7@68 ActO.

Setting up of a company

The 7@68 Act introduces a new form of entity MoneEperson companyM and incorporates certain new provisions

respect of memorandum and articles of association. ,or instance2 the concept of including entrenchment provisio

in the articles of association has been introduced.

/ostal 8allot ESec $(6) r: !!# of t9e $#!" ActC

/oting by #ostal ballot through post J electronic mode is made applicable to all companies.

Registered 3aluers ESec $


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There is no change in the concept of types of share capital as in 6?;< Act. The shares can be of the followitypes=!

iC +quity shares

iC 3ith voting rightsD oriiC 3ith differential rights as to dividend2 voting or otherwise

iiC #reference shares

0hares with ifferential "ights

The provisions relating to issue of shares with differential rights as to dividend2 voting or otherwise ha

been retained in 7@68 Act. The conditions for issuance for such shares are through the prescribed "ule 9 -ompanies S9are ,apital and DebenturesC "ules2 7@69>. The proviso to section 9>6C of the 7@68 Act states thathe variation by one class of shareholders affects the rights of any other class of shareholders2 the consent of threfourths of such other class of shareholders shall also be obtained and the provisions of this section shall apply to suvariation.

"ule 7rC of the 7@68 Act !?Total 0hare -apitalB2 for the purposes of clause =C of sectionmeans the aggregate of the E

aC paidEup equity share capitalD and

bC convertible preference share capitalD

Issue and redemption of preference shares6@

Tenure of preference shares has been kept at 7@ years66. &owever2 companies having Linfrastructural projectsL definedC can issue preference shares for tenure beyond 7@ years2 subject to the redemption of specified percentage

76ec 4

8hapter4uity shares with di$erential rights-"(+) 3o company limited by shares shall issue e>uity shares with di$erential rights as to diidend, oting orotherwise, unless it complies with the following conditions, namely:"(a) the articles of association of the company authori%es the issue of shares with di$erential rights#(b) the issue of shares is authori%ed by an ordinary resolution passed at a general meeting of the shareholders:/roided that where the e>uity shares of a company are listed on a recogni%ed stoc' e1change, the issue of suchshares shall be approed by the shareholders through postal ballot #(c) the shares with di$erential rights shall not e1ceed twenty"si1 percent of the total post"issue paid up e>uity sharecapital including e>uity shares with di$erential rights issued at any point of time#

(d) the company haing consistent trac' record of distributable pro&ts for the last three years#(e) the company has not defaulted in &ling &nancial statements and annual returns for three &nancial years immediatelpreceding the &nancial year in which it is decided to issue such shares#(f) the company has no subsisting default in the payment of a declared diidend to its shareholders or repayment of itsmatured deposits or redemption of its preference shares or debentures that hae become due for redemption orpayment of interest on such deposits or debentures or payment of diidend#(g) the company has not defaulted in payment of the diidend on preference shares or repayment of any term loan from public &nancial institution or 6tate leel &nancial institution or scheduled 9an' that has become repayable or interestpayable thereon or dues with respect to statutory payments relating to its employees to any authority or default increditing the amount in !nestor 0ducation and /rotection Fund to the entral ?oernment#(h) the company has not been penali%ed by ourt or @ribunal during the last three years of any o$ence under theesere 9an' of !ndia Act, +4, the 6ecurities and 01change 9oard of !ndia Act, +2, the 6ecurities ontractsegulation Act, +58, the Foreign 01change Banagement Act, + or any other special Act, under which suchcompanies being regulated by sectoral regulators-

9ompanies (6peci&cation of de&nitions details) ules, 2*+4-

106ection 55

116ection 55


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shares as per "ules67to be prescribed2 on an annual basis at the option of the preference shareholders3here a company is unable to redeem any preference shares or to pay dividend thereon in accordance with the terof issue2 it may redeem such preference shares by further issue of redeemable preference shares equal to the amoudue and dividend due thereon. This is subject to E

iC consent of the holders of 8J9th in value of such preference sharesD and

iiC approval of N-T.$n issue of such further redeemable preference shares2 the preference shares not redeemed earlier shall be deemed

have been redeemed.

3oting rig9ts on preference s9ares!"

7@68 Act provides that where a dividend in respect of a class of preferences shares has not been paid for a period o

years or more2 such class of preferences shareholders shall have a right to vote on all the resolutions placed before

general meeting of the company. This is irrespective of whether the preferences shares are cumulative or no

cumulative. Thus2 unlike 6?;< Act2 7@68 Act makes no distinction between cumulative preferences shares and no

cumulative preferences shares in the matter of the voting rights in the event of nonEpayment of dividend.

.urt9er issue of capital! %$)

A -ompany may issue debentures either with an option to convert such debentures into shares wholly

partly at the time of redemption. The issue of such debentures shall be approved by a special resolution passed

a general meeting.iC ebentures cannot carry any voting rights

iiC 0ecured debentures may be issued by a company subject to prescribed terms and conditionsiiiC -ompulsory creation of ebenture "edemption "eserve (DRR)! 3here the debentures are issued by

company2 the company is required to create a "" out of profits of the company available for payment

dividend and the amount credited to such account is to be utiliGed only for the redemption of debenture

Appointment of Debenture Trustees! %efore issuing a prospectus or making an offer or invitation to the pub

or to its members e5ceeding ;@@2 for the subscription of its debentures2 a company is required to appoint one or mo

debenture trustees

Responsibility of Debenture Trustees& In cases where the debenture trustee comes to a conclusion that tassets of the company are insufficient to pay principal amount as and when it becomes due2 debenture trustee m

file a petition before N-T to impose restrictions on the company from incurring any further liabilities

"DI3ID*ND&

Key highlightsU3andator! transfer of profits to reser$es before declaration of di$idend done a*a! *ith. Co%panies %

$oluntaril! transfer a portion of itsprofits to reser$es.

U3andator! transfer of profits to reser$es for di$idend declaration dispensed *ith.

'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

S ividend to be paid out ofD

Eprofits of the company for the year after providing for depreciationD or

Eprofits of the previous years arrived at after providing for depreciation and remaining undistributedD or

Eboth of the above 0ec678 of the 7@68 ActO.

0ec6788C of the 7@68 ActO Interim dividend may be declared only out of surplus in #rofit : oss Account and o


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of profits of the ,1 in which dividend is sought to be declared. In case a company has incurred losses up to th

preceding quarter of the current ,1 then interim dividend shall not be declared at a rate higher than the avera

dividend declared by the company during the immediately preceding 8 ,1s.

,ailure to comply with provisions relating to acceptance and repayment of deposits will prevent a company

declare any dividend during the period of such nonEcompliances

S ividend to be distributed within 8@ days of its declaration in cash only. ividend cannot be distributed

kind.3here unpaid J unclaimed dividend has been transferred to I+#,2 the corresponding shares on which such divide

was unpaid J unclaimed shall also be transferred by the company to I+#,

S Amounts that can be credited to I+#, widened to includeEamount received on disgorgementDEredemption amount of preference shares remaining unpaid J unclaimed for = years or moreD

Esale proceeds of fractional shares arising out of issuance of bonus shares2 merger and amalgamation foyears or more.

The provisions for declaration and payment of dividend are simplified

0ubject to "ules to be prescribed2 dividend can be paid out of accumulated reserves without restrictions as to raof dividend

"ules! -hapter>Veclaration and #ayment of ividend

"ule 8. eclaration of dividend out of reserves.E In the event of adequacy or absence of profits in any yearcompany may declare dividend out of surplus subject to the fulfillment of the following conditions2 namely!E

The rate of dividend declared shall not e5ceed the average of the rates at which dividend was declared by it in tthree years immediately preceding that year!

#rovided that this subErule shall not apply to a company2 which has not declared any dividend in each of the thrpreceding financial year.The total amount to be drawn from such accumulated profits shall not e5ceed oneEtenth of the sum of its paidEshare capital and free reserves as appearing in the latest audited financial statement.The amount so drawn shall first be utilised to set off the losses incurred in the financial year in which dividenddeclared before any dividend in respect of equity shares is declared.The balance of reserves after such withdrawal shall not fall below fifteen per cent of its paid up share capitalappearing in the latest audited financial statement.No company shall declare dividend unless carried over previous losses and depreciation not provided in previo

year are set off against profit of the company of the current year the loss or depreciation2 whichever is less2previous years is set off against the profit of the company for the year for which dividend is declared or paid.


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directors including )2 where there is one and E-+$ if he is a

irector2

E-,$ and -02 wherever they are appointed.In case of $#- balance sheet and statement of profit and loss are required to be signed by one director only.

-onsolidation of financial statements is made mandatory for all companies where a company has one or mo

subsidiaries whether Indian or foreign

S The mandatory consolidation applies to all companies whether such company is!

isted or unlistedD Eprivate or

public.

,or the purposes of consolidation of financial statements2 the e5pression subsidiary includes associate company a

joint venture 0ec67? 8C of the 7@68 ActOEMAssociate companyM0ec 7


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It differs from the definition of an associate as per the Accounting 0tandard 78! Accounting for Investments

Associates in -onsolidated ,inancial 0tatements.

S The status of an associate and a joint venture cannot be equated since2 the degree of control that a compa

can e5ercise in such entities2 varies significantly. 3hile Mjoint controlM is the driving factor in case of joi

ventures2 a company can at the most only MparticipateM in the operating or financing decisions in case of

associate company.

3ith regard to the e5planation to the section in the 7@68 Act2 which defines the term Msignificant influence2 it is to noted that if a company has McontrolM control has been defined in section 77=C of the 7@68 ActO with respect

business decisions of another company2 such other company will in fact be tantamount to a subsidiary and not associate company. &ence2 the use of the term McontrolM within the definition of significant influence leads toconflict between the two definitions associate company and subsidiary companyC.

3e believe that the terms which have been defined in the accounting standards2 which also form a part of t

-ompanies Act2 6?;2 the difference does not impact the financial statements2 since the disclosures in the financial statements w

be continued to be made as per A0 6>.

National .inancial Reporting Aut9ority ESec !"$ of t9e $#!" ActC

N,"A to be constituted by -entral *overnment to provide for dealing with matters relating to accounting a

auditing policies and standards to be followed by companies and their auditors

S 7@68 Act provides functions of N,"A2 which shall include!

E)ake recommendations to -* on the formulation of accounting and auditing policies and standardsDE)onitor and enforce compliance with accounting and auditing standardsDE$versee the quality of service of the professions and suggest measures required for improvement in quality

services and such other related matters as may be prescribedDE#erform other prescribed functions in relation to above as may be prescribed.

-* may prescribe standards of accounting or any addendum thereto2 as recommended by the I-AI in consultati

with and after e5amination of the recommendations made by N,"A.

S N,"A to consist of -hairperson and other part time and the full time members not e5ceeding 6;.The -hairperson and full time members of N,"A shall not be associated with any audit firm including relatconsultancy firmsC during the course of their appointment and 7 years thereafter

S 7@68 Act provides powers to N,"A2 which includes!

EInvestigate into the matters of professional or other misconduct committed by member or firm of -A.E#owers as are vested in a civil court under the -ode of -ivil #rocedure2 6?@> while trying a suit.

E3here professional or other misconduct is proved2 N,"A have the power to make order for imposing moneta


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penalty or debarring the member or the firm from engaging himself or itself from practice as member of the institufor a minimum period of < months or for such higher period not e5ceeding 6@ years.

S Any person aggrieved by the order of N,"A can prefer an appeal to N,"AA.


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?9 "ead with "ules E -hapter6@VAudit and Auditors "ule


46/69

Auditor cannot provide following services Ldirectly or indirectlyL to the company or its holding company

subsidiary company2 namely! E accounting and book keeping servicesD

Einternal auditD

Edesign and implementation of any financialinformation systemDEactuarial servicesD

Einvestment advisory servicesD Einvestment

banking servicesD

Erendering of outsourced financial servicesD

Emanagement servicesD andEother services to be prescribed under the "ules.An auditor or audit firm who or which has been performing any nonEaudit services on or before

commencement of the 7@68 Act shall comply with the above before the closure of the 6st ,1 after the date of su

commencement. Lirectly or indirectlyL shall include rendering of services by the auditor2RE3here auditor is an individual E +ither himself or through his relative or any other person connected

associated with such individual or through any other entity2 whatsoever2 in which such individual has significinfluence or control2 or whose name or trade mark or brand is used by such individual

E3here auditor is a firm E +ither itself or through any of its partners or through its parent2 subsidiary or associ

entity or through any other entity2 whatsoever2 in which the firm or any partner of the firm has significant influen

or control2 or whose name or trade mark or brand is used by the firm or any of its partners.

,urther2 the 7@68 Act provides that such services cannot be rendered by the audit firm either directly or indirecthrough itself or any of its partners2 its parent or subsidiary or through any other entity whatsoever2 in which the fir

or any other partner from the firm has significant influence or control or whose name or trademark or brand is bein

used by the firm or any of its partners section 699 of the 7@68 ActO. The 6?;< Act currently does not specify a

requirements relating to nonEaudit services.

These restrictions are aimed at achieving auditor independence. Auditor independence is fundamental to pub

confidence on the reliability of the auditorsM reports. This concept adds credibility to the published financ

information and value to investors2 creditors2 companies2 employees as well as other stakeholders. Independence

the audit professionMs primary means of demonstrating to the public as well as the regulators that auditors and au

firms are performing in line with established principles of integrity and objectivity. To comply with th

independence norms2 the 7@68 Act provides for a transitional period of one year2 that is2 an auditor or an audit fiwho or which has been performing any nonE audit services on or before the commencement of the 6?;< Act sh

comply with these provisions before closure of the first financial year after the date of commencement.

Auditors liability

The scope and e5tent of the auditorMs liability2 has been substantially enhanced under the 7@68 Act. Now2 t

auditor is not only e5posed to various new forms of liabilities2 however2 these liabilities prescribed in the e5isti

6?;< Act have been made more stringent. The auditor is now subject to oversight by multiple regulators apart fro

the I-AI such as The National ,inancial "eporting Authority N,"A2 and the body replacing the NA-A0C is n

authorised to investigate matters involving professional or other misconduct of the auditors. The penalty provisio

and other repercussions that an auditor may now be subject to as per the 7@68 Act includes monetary penaltiimprisonment2 debarring of the auditor and the firm2 and in case of frauds2 can even be subject to class action suits

Internal audit

-lasses of companies to be prescribed to appoint an internal auditor who shall be -A or cost accountant or such oth

professional as may be decided by the %$.

,ollowing provisions relating to auditors are applicable to all companies!

The members at every subsequent A*) will be required to ratify the appointment of auditor2 in case a freappointment is not made

S The company may resolve!


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EAudit shall be conducted by more than 6 auditor i.e. joint auditorC.

S The 6?;< Act requires all the partners of the firm to be a qualified -A and practicing in India. 7@68 A

providesthat!

E)ajority of partners practicing in India should be qualified -ADEIf # is appointed as auditor2 only partners who are -A shall be authoriGed to sign

S #rocedure and manner of selection of auditor to be prescribed by the "ulesS Additional grounds for disqualifications for appointment as auditor provided

9. 0oan to Directors ESec!B of t9e $#!" ActC

Key highlights

U8o co%pan! shall directl! or indirectl! ad$ance an! loan 9including loan represented b! a boo debt: or gi

guarantee or pro$ide securit! inconnection *ith such loan to an! director < related persons.

- An exception to the abo$e rule is %ade for 3= or a *hole ti%e director 9>'=: if such loan is in accordan

*ith the ter%s of ser$ices extended to all e%plo!ees or is appro$ed b! shareholders b! special resolution.U'he /10 Act exe%pted pri$ate co%panies and allo*ed public co%panies to gi$e loans etc. *ith prior appro$al

C;, restrictions on gi$ingloans etc. to directors ha$e been extended in 2/" Act e$en to pri$ate co%panies $

#ro$isions for loan to directors applicable to pri$ate co%panies.

'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

7@68 Act provides that a company cannot2 directly or indirectly2Eadvance any loan2 including any loan represented by a book debt to any director or any other person in who

the director is interested as specifiedCD or

Egive any guarantee or provide any security in connection with any loan taken by its director or such otherperson S The above restriction is not applicable toEoan to a ) J 3T which is as a part of contract of services e5tended to all its employees or pursuant to a

scheme approved by members by special resolution.

EA company which in the ordinary course of its business provides loan2 guarantee or security for due repaym

of any loanC and charges interest which is not less than %ank "ate declared by "%I.

S Ability of a company2 whether public or private2 to give loan etc. to directors is substantially curtailed

+ven if a loan etc. obtained in contravention of the above provisions is repaid2 the contravener would still be e5posto punishment by way of imprisonment.These provisions should be considered applicable prospectively and should not affect e5isting loans etc. which

given in compliance with the 6?;< Act but which are not in conformity with 7@68 Act. After the enactment of t

7@68 Act2 any renewal of loan etc. needs to be in conformity with 7@68 Act. These read with rules und

-hapter67V)eetings of %oard and its #owers viG "ule 6@?;.


49/69

?;"ule 6@. oans to irector etc. under section 6>;.E

Any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or securprovided by a holding company in respect of any loan made to its wholly owned subsidiary company is e5emptfrom the requirements under this sectionD and

?

Any guarantee given or security provided by a holding company in respect of loan made by any bank or financiainstitution to its subsidiary company is e5empted from the requirements under this section!

#rovided that such loans made under subErule 6C and 7C are utilised by the subsidiary company for its

principle business activities.


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=. In=estment? loan? guarantee? security by company&

Key highlights

U@oans, guarantee and securit! %ade to an! person 9the /10 Act dealt onl! *ith bod! corporate: *ill attraco%pliance re+uire%ents.

U5ate of interest on loan granted cannot be lo*er than the pre$ailing !ield of / !ear, " !ear, !ear or / !e;o$ern%ent )ecurit! closest tothe tenure of the loan.

U'he list of exe%ptions has been curtailed.''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

0oan and in=estment by company ESec !B6 of t9e $#!" ActC

-ompany may give a loan to any person or other body corporate or give any guarantee or provide security

connection with a loan to any other body corporate or person or acquire by way of subscription2 purchase

otherwise2 securities of any other body corporate not e5ceeding the higher of!

E


51/69

business of giving of any loan to a person or providing any guaranty or security for due repayment of any loa

availed by any person in the ordinary course of its businessB.

No company registered under section 67 of the 0ecurities and +5change %oard of India Act2 6??7 and also

covered under such class or classes of companies which may be notified by the -entral *overnment inconsultation with the 0ecurities and +5change %oard2 shall take any interEcorporate loan or deposits2 in e5cess of

the limits specified under the regulations applicable to such company2 pursuant to which it has obtained certificate

of registration from the 0ecurities and +5change %oard of India.


52/69

estment by banking company or insurance company or housing finance company in the ordinary course of

iness2 or a company engaged in the business of providing infrastructural facilities

oan J investment J guarantee J security by a private company

oan J investment J guarantee J security by a holding company to its 3$0oan J guarantee J security by a company whose principal business is acquisition of securities

8. After the enactment of the 7@68 Act2 any renewal of loan etc. needs to be in conformity with 7@68 Act

ese provisions should be considered applicable prospectively and should not affect e5isting investments2 loans eich are given in compliance with the 6?;< Act but which are not in conformity with 7@68 Act.

;. $ne would have to e5amine the "ules to be notified in this regard.


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3hereas "elated party transactions provisions are under sec 6>> wherein!

Any transaction can be entered into by a company in the ordinary course of its business with a related party on

armMs length basis. ArmMs length transaction means a transaction between two related parties that is conducted as

they were unrelated2 so that there is no conflict of interest.

3here a transaction with a related party is iC not in the ordinary course of business or iiC is in the ordinary course

business but not on an armMs length basis2 the consent of the %$ by a resolution at a board meeting and complianwith the conditions to be prescribed is necessary before a company can enter into a transaction with a related pa

i.e. any contract or arrangement with a related party with respect to!aC sale2 purchase or supply of any goods or materialDbC buying2 selling or disposing of property of any kindDcC leasing of any kind of propertyDdC availing or rendering of any servicesDeC appointment of agent for purchase or sale of goods2 material2 services or propertyD

related partyMs appointment to any office or place of profit in the company2 its subsidiary company associ

companyD or

gC underwriting the subscription of any shares in or derivatives thereofD6?;< Act2 subject to certain e5emptions2 regulated related party transactions relating to aC2 dC and gC only. T

concept of armMs length transaction was not enacted in the 6?;< Act

"elated party transactions by a company having paidEup capital or e5ceeding value of transaction2 to be prescribwill require prior approval of members by special resolution if such transaction iC is not in the ordinary course

business or iiC is in the ordinary course of business but not on an armMs length basis. "elated party who is a memb

of such a company cannot vote on such a special resolution.S "equirement of obtaining -* approval for related party transactions2 as provided in 6?;< Act2 done away wi

Transaction with a director of the company or its holding2 subsidiary or associate company or a person connected

acquisition or sale of assets for consideration other than cash to require prior approval of the members in a gene

meeting and supported by values determined by "/. If the director or connected person is a director of the holdicompany2 approval of shareholders is required to be obtained by passing a resolution in general meeting of t

holding company.

If $#- enters into a contract with the sole member of the company who is also its director2 the company shall2 unl

the contract is in writing!Eensure that the terms of the contract or offer are contained in the memorandum or are recorded in the minutes

the first %oard meeting held after entering into the contract.

Einform "$- about such contract within 6; days of entering into the contract."elated party transactions to be disclosed in irectorMs report along with the justification for entering in to su

transactions."emoval of taking -* approval for related party will remove the uncertainty in timeline and e5ecution of the relaparty transactions."elated party transactions at armsM length price will call for aligning the benchmarking under transfer pricing nor

as per Income Ta5 Act for both domestic and international transactions.

B ,orporate Social Responsibility&

,orporate Social Responsibility (,SR)5B

S 7Q of average net profits of last 8 years to be mandatorily spent on -0" by companies having

#rovisions applicable to every company having!Enet worth of "s ; billion or moreD or Eturnover of

"s 6@ billion or moreD or

Enet profit of "s ;@ million or more during any ,1

%$ of such companies is mandated to spend2 in every ,12 minimum 7Q of the average net profits of the compa

made during the 8 immediately preceding ,1s2 in pursuance of its the -0" #olicy.

0uch companies are required to constitute -0" committee of its %$ which is responsible for formulating arecommending to the %$ the -0" #olicy of the company.


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%$ is required to approve the -0" policy and disclose its content in the irectorMs "eport and also place the sa

on the companyMs website.

The company is required to give preference to local area and areas where it operates for spending the amouearmarked for -0".If the company fails to spend such amount2 %$ is required to specify the reasons for not spending the amount in

irectorMs report.

In view of the mandatory requirement under the 7@68 Act2 e5penditure on -0" may be allowed as deduction und

the Income Ta5 Act depending on the facts.

?>0ec 68; -orporate 0ocial "esponsibility


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-&A#T+"E9

A comparative analysis of companies act 7@68 vscompanies act 6?;


57/69

A comparative analysis of companies act 7@68 vs companies act 6?;< with special reference to the above discuss

provisions.

S9are capital

%asis of

difference

-ompanies Act 7@68 -ompanies Act 6?;

Documents

A Project Report on Companies Act 2013