Companies Act,2013

The new Companies Act (hereinafter referred as CA2013) is replacing old Companies Act, 1956 (hereinafter referred as CA1956). The CA2013 makes comprehensive provisions to govern all listed and unlisted companies in the country. The CA2013 is partially made effective w.e.f. 12^th September, 2013, by way of implementing 98 Sections and repealing the relevant sections corresponded with CA1956. Some of the Salient features of the CA2013 are as under:

1. Democracy of Shareholders: The CA2013 has introduced new concept of class action suits with a view of making shareholders and other stakeholders, more informed and knowledgeable about their rights.
2. Supremacy of Shareholders: The CA2013 focused and provide major aspect on approvals from shareholders on various significant transactions. The Government has rightly reduced the need for the companies to seek approvals to managerial remuneration and the shareholders have been vested with the power to sanction the limit.
3. Strengthening Women Contributions through Board Room:The CA2013 stipulates appointment of at least one woman Director on the Board of the prescribed class of Companies so as to widen the talent pool enabling big Corporates to benefit from diversified backgrounds with different viewpoints.
4. Corporate Social Responsibility: The CA2013 stipulates certain class of Companies to spend a certain amount of money every year on activities/initiatives reflecting Corporate Social Responsibility.  There may be difficulties in implementing in the initial years but this measure would help in improving the Under-privileged & backward sections of Society and the Corporate would in fact gain in terms of their reputation and image in the Society.
5. National Company Law Tribunal: The CA2013 introduced National Company Law Tribunal and the National Company Law Appellate Tribunal to replace the Company Law Board and Board for Industrial and Financial Reconstruction. They would relieve the Courts of their burden while simultaneously providing specialized justice.
6. Fast Track Mergers: The CA2013 proposes a fast track and simplified procedure for mergers and amalgamations of certain class of companies such as holding and subsidiary, and small companies after obtaining approval of the Indian government.
7. Cross Border Mergers:The CA2013 permits cross border mergers, both ways; a foreign company merging with an India Company and vice versa but with prior permission of RBI.
8. Prohibition on forward dealings and insider trading: The CA2013 prohibits directors and key managerial personnel from purchasing call and put options of shares of the company, its holding company and its subsidiary and associate companies as if such person is reasonably expected to have access to price-sensitive information (being information which, if published, is likely to affect the price of the company's securities).  Earlier these provisions were contained in regulations framed by SEBI, as the capital market regulator. Now, it has also been informed that SEBI is expected to discuss changes in certain norms for listed firms so as to make them in line with the rules in the new Act.
9. Increase in number of Shareholders: The CA 2013 increased the number of maximum shareholders in a private company from 50 to 200.
10. Limit on Maximum Partners: The maximum number of persons/partners in any association/partnership may be upto such number as may be prescribed but not exceeding one hundred. This restriction will not apply to an association or partnership, constituted by professionals like lawyer, chartered accountants, company secretaries, etc. who are governed by their special laws. Under the CA1956, there was a limit of maximum 20 persons/partners and there was no exemption granted to the professionals.
11. One Person Company: The CA2013 provides new form of private company, i.e., one person company is introduced that may have only one director and one shareholder. The CA1956 requires minimum two shareholders and two directors in case of a private company.
12. Entrenchment in Articles of Association: The CA2013 provides for entrenchment of articles of association have been introduced.
13. Electronic Mode: The CA2013 proposed E-Governance for various company processes like maintenance and inspection of documents in electronic form, option of keeping of books of accounts in electronic form, financial statements to be placed on company's website, etc.
14. Restriction on Composition: Every company shall have at least one director who has stayed in India for a total period of not less than 182 (one hundred and eighty two) days in the previous calendar year.
15. Independent Directors: The CA2013 provides that all listed companies should have at least one-third of the Board as independent directors. Such other class or classes of public companies as may be prescribed by the Central Government shall also be required to appoint independent directors. No independent director shall hold office for more than two consecutive terms of five years.
16. Serving Notice of Board Meeting: The CA2013 requires at least seven days' notice to call a board meeting. The notice may be sent by electronic means to every director at his address registered with the company. The CA1956 did not prescribe any notice period to call the board meeting of a company.
17. Duties of Director defined: Under the CA1956, a director had fiduciary duties towards a company. However, the CA2013 has NOW defined the duties of a director.
18. Liability on Directors and Officers: The CA2013 does not restrict an Indian company from indemnifying its directors and officers like the CA1956.
19. Rotation of Auditors: The CA2013 provides for rotation of auditors and audit firms in case of publicly traded companies.
20. Auditors performing Non-Audit Services: The CA2013 prohibits Auditors from performing non-audit services to the company where they are auditor to ensure independence and accountability of auditor.  
21. Financial Year: Every company's financial year will be the period ending on 31 March every year.
22. Rehabilitation and Liquidation Process: The entire rehabilitation and liquidation process of the companies in financial crisis has been made time bound under CA2013.

Source: .http://www.mondaq.com/india/x/270182/Corporate+Commercial+Law/Indian+Companies+Act+2013+A+New+Beginning

FDI boosters on cards

The government is considering a series of measures to liberalize the country’s foreign direct investment (FDI) policy.

As part of this, it is looking at permitting 26 per cent FDI in insurance broking through the automatic route, which would mean a nod from the Foreign Investment Promotion Board (FIPB) would not be necessary.

The Department of Economic Affairs has also suggested that activities covered under the non-banking financial company list be enlarged to include financial services such as insurance agencies and services auxiliary to insurance. It is also seeking to allow up to 100 per cent FDI in commodity broking under the automatic route, subject to certain capitalization norms.

Many of these proposals would be incorporated in the consolidated FDI policy, which is modified every six months. The latest version is expected soon.

In a major boost to FDI in wholesale retailing, the government is set to clarify the definition of a group company. Under the definition, group companies would mean two or more enterprises that directly or indirectly are in a position to exercise 26 per cent or more of the voting rights of another company, or can appoint more than 50 per cent of the members of the board of directors.

Walmart had approached the government for a clarification on the definition of what constituted a group.

The government had earlier scrutinized the relationship between Bharti Walmart - a 50-50 joint venture for cash-and-carry between the Bharti group and Walmart - and Bharti Retail - a wholly owned front-end retail company of the Bharti group.

Branded international retail stores in the fashion and jewellery businesses have been stymied from setting up stores through the single-brand retailing window due to a clause that makes it mandatory for these to sell only those products “which are branded during manufacture”. The government is planning to put a clarificatory guideline exempting such firms from this rider.

The government is also looking at permitting a foreign company that has picked up the entire stake in a pharma company to make additional investment through the automatic route, but with a few riders. It can now infuse fresh capital or convert external commercial borrowing in the Indian company into equity without going to the FIPB every time. But the money invested must not be used for acquisition of a domestic pharma company.

Foreign route

ü      What the government is planning

ü      26% FDI in insurance broking through the automatic route

ü      Up to 100%  FDI in commodity broking under the automatic route

ü      Clarify what is a group company in policy on FDI in wholesale trading

ü      Exempt single-brand retailers in jewellery from selling only products “which are branded during manufacture”

ü      Permit a foreign company that has picked up 100% stake in an existing pharma firm to make additional investment through the automatic route, but with a few riders

ü      Warrants and partly paid shares to be allowed as instruments of FDI

Courtesy: Surajeet Das Gupta

Guide to Incorporate Company in India

For setting up a business establishment in India, first step is to incorporate a company whether a private limited or a public limited, which includes:

ü      obtaining director identification number (DIN),

ü      obtaining digital signature certificate,

ü      reserving the company name with the Registrar of Companies (ROC),

ü      paying stamp duties

ü      filing all incorporation forms and documents  and

ü      obtaining the certificate of incorporation.

Thereafter, it is required to get the other necessary formalities done such as:

ü      Company seal

ü      Permanent Account Number (PAN).

Based on the nature of business, it may further be required to obtain a

Tax Account Number (TAN) come taxes deducted at source (TDS).

Subsequently, depending upon the nature of business additional requirements may include

ü      registration for Value Added tax (VAT),

ü      registration with Employees' Provident Fund Organization,

ü      registration for medical insurance (ESIC)

For incorporating a company in India, there is a series of steps required for incorporating a private or public limited company in India. These steps work according to the guidelines provided by The Company’s Act, 1956.

1. The very first step of formation for incorporating a company is to get the name of the company registered at the Registered of Companies (ROC) in the territory of the company’s registered office. The company’s name should not match any existing name. ROC at least takes a week from the date of registration of the name to assure that the name does not exist before.

2. After the completion of this process, the company has to file a Memorandum of Association and Articles of Association with ROC itself. For a public company, the company’s name should end up with “Limited” and for a private company; the company’s name should end up with “Private Ltd”.

3. After submitting the Memorandum of Association and Articles of Association, ROC issues an incorporated certificate only after receiving a mandatory registration fees.

4. After these steps, the next main step is to get the address of the registered office. It is not mandatory for the registered office to be the same building from where all the work is being carried out.

5. Foreign companies need to fill up a FNV-5 form with the Reserve Bank of India to get the permission to start the manufacturing and trading activities in India without an Indian partner. Any Indian or foreigner can be the director of a company in India. Any person whether he/she is Indian or foreigner and any Indian company or foreign company can be shareholder of an Indian company.

6. For incorporating a Public Company, a minimum of three directors and seven shareholders are required and for incorporating Private Company, a minimum of two directors and two shareholders are required.

7. After the registration and certification, each company needs to designate an Auditor. He has a very important duty to perform in the company. All the balance sheets, company’s documents and company’s meetings are scrutinized by him.

8. Every company should have an account book and written records of all the directors, shareholders and the employees. Account book takes care of all income, including profits and losses and the records register takes care of all the past and present work of the people associated with the company.

9. At last, each company should have a different logo, and a stamp of that logo which is imprinted on each written record and each written document of the company. 

Agarwal and Company Law Offices LLP.

Winding up of a Company

Compulsory winding up

As the name suggests, in this kind of winding up, the situation of the company becomes as such that there would be no other option left but to wound up the company. The grounds on which a company is to be compulsorily wound up are given in section 433 of the Companies Act, 1956. The general procedure to be followed in such kind of winding up is:

·Filing of a petition for winding up – may be by the company, any creditor, contributory, Registrar or any person authorized by Central Government in case of oppression mismanagement [sec 439]

·If petition is admitted, winding up commences [sec 441]

·Intimation by court to an Official Liquidator (OL) for his appointment and taking charge of the company [sec 444]

·Notice to the company for filing Statement of Affairs (SOA) and filing of SOA with the OL [sec 454]

·Submission of preliminary report by OL to court within 6 months from the date of the order [sec 455]

·On satisfaction with the report of the OL, dissolution of the company is to be initiated [sec 481]

Voluntary winding up

1.Members Voluntary Winding up

2.Creditors Voluntary Winding up

A company may opt for voluntary winding up either by passing an ordinary resolution, where the object or the time limit for which the company was formed has achieved or by passing a special resolution. Once the resolution is general meeting is passed, the company may go either for members or for creditors voluntary winding up. The only difference between the two is that in case of members voluntary winding up, the directors are required to furnish a declaration of solvency in Form 4A which is not required in the other case.

The general procedure in a voluntary winding up is:

·Passing of requisite resolutions in a general meeting and appointment and fixation of remuneration liquidator [sec 490(1) and (2)]

·Notice of appointment of liquidator to the Registrar within ten days of appointment [sec 493]

·Filing of Declaration of Solvency with the Registrar within five weeks of passing resolution for winding [Sec 488]

· Report of the liquidator on statement of affairs of the company in a general meeting duly called by publishing the notice of the meeting in newspaper and in Official Gazette [sec 497(1) and (2)]

·Liquidator’s report to the Registrar and the Official Liquidator within a week from the meeting [sec 497(3)]

·Company deemed to be dissolved from the date of the report to the court, if the Official Liquidator has no objection on the report [sec 497(6)]

Winding up under the supervision of court

Winding up subject to supervision of court, is different from "Winding up by court."Here the court only supervises the winding up procedure. Resolution for winding up is passed by members in the general meeting. It is only for some specific reasons, that court may supervise the winding up proceedings. The court may put up some special terms and conditions also. However, liberty is granted to creditors, contributories or other to apply to court for some relief. [sec 522]. The procedure involved is as follows:

·Filing of winding up petition

·Appointment of liquidator as per the instruction of the court

·Liquidator to have all the powers as if the company is being wound up voluntarily

·Submission of SOA with the Liquidator by the company

·Liquidator’s report to the court on SOA

·Application of assets of the company on priority of payments basis [sec 529/529A/ 530]

·Dissolution of the company [sec 481]

Winding up in the light of recently issued circulars

Above are the procedures to be followed by the companies, professionals for getting the company dissolved. However, the process is quite time consuming which sometimes do not even have a favorable order from the court. To hasten the process with better governance and compliance, Ministry has issued some circulars for its various departments opening another field for practicing professionals.

Accelerating the process of winding up

It is clear that in the whole winding up proceeding, the role of the liquidator is very vital. Ministry has issued a General Circular 54/2011 dated 26^th July, 2011 to expedite the winding up proceeding. As per the Circular, the petitions filed before the high courts without providing adequate information can now be closed in lesser time with the help of the Official Liquidators (OL). The OL will be taking the following additional steps in order to fasten the disposal of the winding up petitions:

·Keeping a track of all the pending cases by appointing a staff of company court

·Obtain information from “institution register” maintained with high courts

·Application to court praying to direct the management of the company to file the following information duly verified by a chartered accountant or a company secretary or a cost accountant in practice.

oCurrent Addresses of directors, secretary and statutory auditor of the company

oLocation and physical details of each immovable asset of the company along with its current valuation;

oDetails of all the debtors and creditors with their complete addresses and occupations;

oDetails of each movable asset of the company along with value;

oDetails of workmen/employees and any amount outstanding to them;

oDetails of all movable and immovable assets held in the personal names of director by providing its location, value, dates of acquisition and nature of right, title and interest therein;

oCopies of last three years audited balance sheet of the company;

oDetails of location of the registered office of the company.

The Circular also binds the RDs for the winding up cases. It will be the duty of the RD to ensure that all the pending applications are moved before the Court before the next date of hearing and in all new cases, these are filed before the Hon’ble Court before the second hearing of the case. RDs will also ensure that a standard draft is prepared by them after taking legal advice and the same is used in all cases by OLs.

Inspection and investigation in all winding up cases

Vide General Circular 55/2011 dated 26^th July, 2011[1][3], the Ministry has prescribed some stringent steps to be followed while dealing with the malpractice and mismanaged companies. There are many winding petitions filed by the companies after having committed major violations of Companies Act and involving misappropriation of funds. In order to curb such malpractices, following guidelines have been prescribed for the OL while dealing with winding up petitions for such companies:

1. OL will obtain a copy of the petition as soon as the same is filed before the court and forward the same to the Registrar for their report

2. RoC will conduct a detailed scrutiny of the details and documents available in its records for the previous five years and will submit a preliminary report to the Ministry within a week

3. MCA will take its view based on the preliminary report of the RoC within 15 days and any inspection under section 209A and/or investigation under section 235/237, if directed by the Ministry, is to be carried out by the RoC within 30 days.

4. If found guilty, necessary actions may be initiated against the directors, ex-directors and other key managerial personnel of the company for any violation under Companies Act or any other law.

5. As the last step, the OL will submit the final report with the High Court for passing necessary order.

The RD is entrusted to supervise all these actions of RoC and the OL prescribed above and to monitor all such cases of malpractices.

---

Simplifying Procedure in External Commercial Borrowings

A. P. (DIR SERIES) CIRCULAR NO. 11, DATED 7-9-2011 simplifying procedure in External Commercial borrowings as below :

1. As per the extant ECB procedures, any request for change of the lender for an existing ECB is required to be referred by the Authorised Dealer Bank to the Reserve Bank for necessary approval.

2.As a measure of simplification of the existing procedures, it has been decided to delegate powers to the designated AD Category-I banks to approve the request from the ECB borrowers with respect to change in the recognized lender when the original lender is an international bank or a multi-lateral financial institution (such as IFC, ADB, CDC, etc.) or a regional financial institution or a Government owned development financial institution or an export credit agency or supplier of equipment and the new lender also belongs to any one of the above mentioned categories, subject to the Authorised Dealer ensuring the following conditions:-

(i) the new lender is a recognized lender as per the extant ECB norms;

(ii) there is no change in the other terms and conditions of the ECB; and

(iii) the ECB is in compliance with the extant guidelines.

3. However, changes in the recognized lender in case of foreign equity holder and foreign collaborator will continue to be examined by the Reserve Bank.

4. The changes in the recognized lender should be promptly reported to the Department of Statistics and Information Management, Reserve Bank of India in Form 83.

5.The above modifications to the ECB guidelines will come into force with immediate effect. All other aspects of the ECB policy, such as, USD 500 million limit per company per financial year under the automatic route, eligible borrower, end-use, all-in-cost ceiling, average maturity period, pre-payment, refinancing of existing ECB and reporting arrangements shall remain unchanged.

(The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/approvals, if any, required under any other law.)