OF THE COMPANIES BILL, 2012
passed in Lok Sabha on 18.12.12)
Bill has 470 clauses as against 658 Sections in the existing Companies
entire bill has been divided into 29 chapters.
new chapters have been introduced, viz., Registered Valuers (ch.17);
Government companies (ch. 23); Companies to furnish information or
statistics (ch. 25); Nidhis (ch. 26); National Company Law Tribunal &
Appellate Tribunal (ch. 27); Special Courts (ch. 28).
Bill is forward looking in its approach which empowers the Central
Government to make rules, etc. through delegated legislation (clause 469
Companies Bill is the result of detailed consultative process adopted by
The salient and unique features of the Bill are as under:
definitions are introduced in the Bill, some of which are accounting
standards, auditing standards, associate company, CEO, CFO, control,
deposit, employee stock option, financial statement, global depository
receipt, Indian depository receipt, independent director, interested
director, key managerial personnel, promoter, one person company, small
company, turnover, voting right etc..
of private company changed – the limit on maximum number of members
increased from 50 to 200.
company which is a subsidiary of a public company shall be deemed to be a
public company. Confusion whether such a company can retain the provisions
in the articles of private company though now a public company removed.
Company - A
company is considered to be an associate company of the other, if the
other company has significant influence over such company (not
being a subsidiary) or is a joint venture company. Significant influence
means control of at least 20
per cent. of total share capital of a company or of business decisions
under an agreement.
Company - Where
a company is formed and registered under this Act for a future project or
to hold an asset or intellectual property and has no significant
accounting transaction, such a
company or an inactive company may make an application to the Registrar
for obtaining the status of a dormant company.
includes an engineer, a valuer, a chartered accountant, a company
secretary, a cost accountant and any other person who has the power or
authority to issue a certificate in pursuance of any law for the time
being in force.
company” means any company or body corporate incorporated outside India
a place of business in India whether by itself or through an agent,
physically or through electronic mode; and
business activity in India in any other manner.
“Key Managerial Personnel (KMP), in relation to
a company, means—
(i) the Chief Executive Officer or the Managing Director or the Manager,
(ii) the Company Secretary;
(iii) the whole-time director;
(iv) the Chief Financial Officer; and
such other officer as may be prescribed
is in default”, means any of
the following officers of a company, namely:—
where there is
no key managerial personnel, such director or directors as specified by
the Board in this behalf and who has or have given his or their consent in
writing to the Board to such specification, or all the directors, if no
director is so specified;
any person who,
under the immediate authority of the Board or any key managerial
personnel, is charged with any responsibility including maintenance,
filing or distribution of accounts or records, authorises, actively
participates in, knowingly permits, or knowingly fails to take active
steps to prevent, any default;
any person in
accordance with whose advice, directions or instructions the Board of
Directors of the company is accustomed to act, other than a person who
gives advice to the Board in a
in respect of a contravention of any of the provisions of this Act, who
is aware of such contravention by virtue of the receipt by him of any
proceedings of the Board or participation in such proceedings without
objecting to the same, or where such contravention had taken place
with his consent or connivance;
in respect of
the issue or transfer of any shares of a company, the share transfer
agents, registrars and merchant bankers to the issue or transfer.
defines the term ‘promoter’ to mean a person -
who has been
named as such in a prospectus or
is identified by the company in the annual return, or
who has control
over the affairs of the company, directly or indirectly whether as a
shareholder, director or otherwise; or
with whose advice, directions or instructions the Board of Directors is
accustomed to act.
that nothing in sub-clause (c) shall apply to a person who is acting
merely in a professional capacity.
of subsidiary company in relation to any other company (that is holding
company), changed to mean a company in which the holding company –
composition of the Board of
controls more than one half of the total share capital (instead of
equity share capital as prescribed under the 1956 Act) either at its
own or together with one or more of its subsidiary companies.
that such class or classes of holding companies as may be prescribed shall
not have layers of subsidiaries beyond such numbers as may be prescribed.
has been defined
as a company other than a public company having a paid-up share capital of
which does not exceed fifty lakh rupees or such higher amount as may be
prescribed not exceeding Rs.5 crore or turnover of which does not exceed
two crore rupees or such higher amount as may be prescribed not exceeding
twenty crore rupees. [clause 2(85)].
The number of
persons in any association or partnership not to exceed such number of
as may be prescribed (not exceeding one hundred). The restriction not to
apply to an association or partnership, constituted by professionals who
are governed by special Acts. (clause 464)
CLASSIFICATION & REGISTRATION
of One Person Company (OPC limited) introduced [Clause
of Small companies have been introduced which shall be
subjected to a lesser stringent regulatory framework [Clause 2(85)].
for Conversion of Companies already registered has
been introduced [Clause 18].
process has been made faster and compatible with e-governance.
the first time, articles may contain provisions for entrenchment [clause 5(3)].
in the prescribed form, required to be filed with the Registrar at the time of
registration of a company that all the requirements of the Act in respect
of registration and matters precedent or incidental thereto have been
complied with, will be required to signed
by both - a person named in the articles as a director, manager or
secretary of the company as well as by an advocate, a chartered
accountant, cost accountant or company secretary in practice, who is
engaged in the formation of the company. (clause
company shall, on and from the 15th day of its incorporation
and at all times thereafter have a registered office capable of receiving
and acknowledging all communications and notices as may be addressed to
is required to furnish to the Registrar verification of its registered
office within 30 days of its incorporation in the prescribed manner.
a company has changed its name(s) during the last two years, it shall
paint or affix or print, along with its name, the former name or names so
changed during the last two years.
of change, verified in the manner prescribed, shall be given to the
Registrar, within 15 days of the change, who shall record the same.
company having a share capital shall not commence business or exercise any
borrowing powers unless a declaration is filed with Registrar by a
director verified in the manner as may be prescribed that:
subscriber to the memorandum has paid the value of shares agreed to be
taken by him;
capital is not less than Rs. five lakh/ one lakh
company has filed with the Registrar the verification of its registered
AND ALLOTMENT OF SECURITIES
This chapter is divided into two parts. Part I
relates to ‘Public offer’ and Part II relates to ‘Private
“Public offer” includes initial public offer or
further public offer of securities to the public by a company, or an offer
for sale of securities to the public by an existing shareholder, through
issue of a prospectus.’
The term 'private placement' has been defined to
bring clarity. “Private
placement” means any offer of securities or invitation to subscribe
securities to a select group of persons by a company (other than by way of
public offer) through issue of a private placement offer letter and which
satisfies the conditions specified in this section.
Detailed disclosures are provided in the Bill itself.
It includes disclosures about sources of promoter’s contribution.
In case of variation in the terms of contract
referred to in the prospectus or objects for which the prospectus was
issued, the dissenting shareholders shall be given exit opportunity by
promoters or controlling shareholders.
Punishment for fraudulently inducing persons to invest
money (clause 36)
Any person who, either knowingly or recklessly makes
any statement, promise or forecast which is false, deceptive or
misleading, or deliberately conceals any material facts, to induce another
person to enter into, or to offer to enter into any agreement for, or with
a view to, obtaining credit facilities from any bank or financial
institution shall be liable for punishment for fraud. This provision is
proposed to help in curbing a major source of corporate delinquency.
4. SHARE CAPITAL AND
If a company with intent to defraud, issues a duplicate
certificate of shares, the company shall be punishable with fine which shall not be less than 5
times the face value of
the shares involved in the issue of the duplicate certificate but which
may extend to 10 times the face value of such shares or
rupees 10 crores, whichever is higher. Stringent penalties have also been
imposed for defaulting officers of the company. [clause 46(5)]
Where any depository has transferred shares with an intention to defraud a person, it shall be liable under section 447 i.e. provisions
for punishment for fraud.[clause56(7)]
Premium Account may
also be applied for the purchase of its own shares or other securities.
company cannot issue share at a discount. [Clause(53)]
A company limited by shares cannot issue any preference
shares which are irredeemable. However, a company limited by shares
may, if so authorised by its articles, can issue preference shares which are liable to be redeemed within a period
not exceeding twenty years from the date
of their issue.
A company may issue preference shares for a period
exceeding twenty years for infrastructural
projects subject to redemption of such percentage of
shares as may be prescribed on an annual basis at the option of such
preference shareholders. [Clause 55].
Every company shall deliver debenture certificate
within six months of allotment. [Clause 56(4)(d)].
of share capital to be made subject to
confirmation by the Tribunal.
The Tribunal on receiving an application for reduction of share capital,
shall give notice to the Central Government, Registrar and to the SEBI and
consider the representations received in this behalf. (Clause 66)
E-Governance proposed 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, holding of board meetings through video
conferencing/other electronic mode; voting through electronic means.
6. BOARD AND
: Public company -3
Private -2 , OPC-1.
increased to 15 from 12
directors can be added by
passing of special resolution without
getting the approval of Central Government as earlier required.
least one woman director shall be on the Board of such class or classes of
companies as may be prescribed.
company shall have at least one
director who has stayed in India for a total period of not less than one
hundred and eighty-two days in the previous calendar year. [clause
of Key Managerial Personnel [Clause 203(1)]
Every company belonging to such class or classes of companies as may be prescribed shall have the whole-time key managerial personnel.
the articles of a company provide otherwise, an individual shall not be
the chairperson of the company as well as the managing director or Chief
Executive Officer of the company at the same time [Proviso to Clause
Company Secretary being a KMP shall be appointed by a resolution of the
shall contain the terms and conditions of appointment including the
remuneration. If any vacancy in the office of KMP is created, the same
shall be filled up by the Board at a meeting of the Board within a period
of six months from the date of such vacancy [Clause 203 (2) & (4)].
a company does not appoint a Key Managerial Personnel, the penalty
proposed is :
- On company – one lakh
rupees which may extend to five lakh rupees.
- On every director and KMP
who is in default – 50,000 rupees and 1,000 rupees per day if
of independent directors has
been introduced for the first time in Company Law:
companies shall have at least
one-third of the Board as independent directors.
class or classes of public companies as may be prescribed by the Central
Government shall also be required to appoint independent directors.
director has been clearly defined in the Bill.
director nominated by any financial institution, or in pursuance of any
agreement, or appointed by any government to represent its shareholding
shall not be deemed to be an independent director.
director shall not be entitled to any remuneration other than sitting fee,
reimbursement of expenses for participation in the Board and other
meetings and profit related commission as may be approved by the members.
director shall not be entitled to any stock option.
independent director can be appointed as alternate director to an
independent director. [clause 161(2)].
than retiring director
a person other than retiring director stands for directorship but fails to
get appointed, he or the member intending to propose him as a director, as
the case may be, shall be refunded the sum deposited by him, if he gets
more than twenty five per cent
of total valid votes [clause 160(1)].
director may resign from his
office by giving notice in writing. The
Board shall, on receipt of such notice, intimate the Registrar and also
place such resignation in the subsequent general meeting of the company.
[clause 168(1)]. The director shall also forward a copy of resignation
alongwith detailed reasons for the resignation to the Registrar.
notice shall become effective from the date on which the notice is
received by the company or the date, if any, specified by the director in
the notice, whichever is later. [clause 168(2)].
If all the
directors of a company resign from their office or vacate their office,
the promoter or in his absence the Central Government shall appoint the
required number of directors to hold office till the directors are
appointed by the company in General Meeting
of directors through video-conferencing
of directors at Board Meetings has been permitted through
video-conferencing or other electronic means, provided such
participation is capable of recording and recognizing.
Also, the recording and storing of the proceedings of such meetings
should be carried out [clause 173(2)].
Central Government may however, by notification, specify such matters
which shall not be dealt with in the meeting through video-conferencing
and such other electronic means as may be prescribed. [clause 173(2)]
Notice of Board Meeting
At least seven
days’ notice is required to be given for a Board meeting.
The notice may be sent by electronic means
to every director at his address registered with the company. [clause
Board Meeting may be called at shorter
notice subject to the condition that at
least one independent director, if any, shall be present at the
meeting. However, in the
absence of any independent director from such a meeting, the decisions
taken at such meeting shall be final only on ratification thereof by at
least one independent director. [clause 173(3)].
of directors (clause 166)
the first time, duties of directors have been defined in the Bill. A
director of a company shall :
in accordance with the articles of the company.
in good faith in order to promote the objects of the company for the
benefit of its members as a whole, and
in the best interests of the company, its employees, the shareholders, the
community and for the protection of environment.
his duties with due and reasonable care, skill and diligence and shall
exercise independent judgment.
involve in a situation in which he may have a direct or indirect interest
that conflicts, or possibly may conflict, with the interest of the
achieve or attempt to achieve any undue gain or advantage either to
himself or to his relatives, partners, or associates and if such director
is found guilty of making any undue gain, he shall be liable to pay an
amount equal to that gain to the company.
assign his office and any assignment so made shall be void.
If a director of the company contravenes the provisions of this
section such director shall be punishable with fine which shall not be
less than one lakh rupees but which may extend to five lakh rupees.
the Audit Committee, the constitution
of Nomination and Remuneration Committee has also been made mandatory
in the case of listed companies and such other class or classes of
companies as may be prescribed. [clause 178(1)].
Audit committee shall consist
of a minimum of three directors with independent
directors forming a majority and majority of members including its
Chairperson shall be persons with ability to read and understand the
financial statement. [clause 177(2)].
Nomination and Remuneration Committee shall formulate the criteria for
determining qualifications, positive attributes and independence of a
director and recommend to the Board a policy, relating to the remuneration
for the directors, key managerial personnel and other employees [Clause
Nomination and Remuneration Committee shall consist of three or more
non-executive director(s) out of which not less than one half shall be
independent directors. [clause 178(1)].
the combined membership of the shareholders, debenture holders, deposit
holders and any other security holders is more than one thousand at any
time during the financial year, the company shall constitute a Stakeholders Relationship Committee. [clause 178(5)].
relating to limits on remuneration provided in the existing Act being
included in the Bill. Maximum limit of 11% (of net profits) being
companies with no profits or inadequate profits remuneration shall be
payable in accordance with new Schedule of Remuneration (Schedule V) and
in case a company is not able to comply with Schedule V, approval of
Central Government would be necessary.
Insurance Premium not to be treated as part of the remuneration
return [clause 92]
company shall prepare a return (hereinafter referred to as the annual
return) in the prescribed form containing the particulars as they stood on
the close of the financial year regarding;
office, principal business activities, particulars of its holding,
subsidiary and associate companies;
shares, debentures and other securities and shareholding pattern;
members and debenture-holders along with changes therein since the close
of the previous financial year;;
directors, key managerial personnel along with changes therein since the
close of the last financial year;
of members or a class thereof, Board and its various committees along with
of directors and key managerial personnel;
imposed on the company, its directors or officers and details of
compounding of offences;
to certification of compliances, disclosures as may be prescribed;
respect of shares held by foreign institutional investors; and
other matters as may be prescribed.
The prescribed disclosures
under the Annual Return shows significant transformation in non financial
annual disclosures and reporting by companies as compared to the existing
Similar to the existing
compliance certificate as stipulated under section 383A of Companies Act,
1956 certification of compliances has been prescribed under clause
is required to be signed by :
director and the Company Secretary, or where there is no Company
Secretary, by a Company Secretary in whole-time practice.
It means that now in respect of all the
companies (except one person companies and small companies), whether
private or public, listed or unlisted, the annual return has to be signed by
either a company
secretary in employment or by a company secretary in practice i.e. where
no Company Secretary is appointed by the company, the Annual Return
is compulsorily required to be signed by the Company Secretary in
in addition to the above, the annual return, filed by a listed company or by a company
having such paid-up capital and turnover as may be prescribed, shall be certified
by a company secretary in practice that the annual return discloses
the facts correctly and adequately and that the Company has complied with
all the provisions of the Act.
It means, in
case of a listed company and other prescribed companies, even if the
Annual Return is signed by the Company Secretary in employment, it is
further required to be certified by the Company Secretary in Whole time
relation to a One Person Company and Small Company, the annual return is
required to be signed by the Company Secretary, or where there is no
Company Secretary, by one director of the company.
In case a Company Secretary in practice
certifies the annual return otherwise than in conformity with the
requirements of this section or the rules made there under, such Company
Secretary shall be punishable
with fine which shall not be less than fifty thousand rupees but which may
extend to five lakh rupees.
Changes in shareholding of promoters and top ten
return to be filed with the Registrar with respect to change in the
number of shares held by promoters and top ten shareholders (to ensure
audit trail of ownership) by a
report (Clause 134)
has been made more informative and includes
extensive disclosures like –
annual return in the prescribed form;
policy on director's appointment and remuneration including the criteria
for determining qualifications, positive attributes, independence of a
director etc. ;
a statement of
declaration by independent directors;
or comments by the Board on every qualification, reservation or adverse
remark or disclaimer made by the
auditor in his report and by the company secretary in practice in his
secretarial audit report;
loans, guarantees, or investments made;
contracts or arrangements entered into;
conservation of energy, technology absorption, foreign exchange earnings
and outgo in the prescribed manner;
indicating development and implementation of a risk management policy for
the company including identification therein of elements of risk, if any,
which in the opinion of the Board may threaten the existence of the
about the policy developed and implemented by the company on corporate
social responsibility initiatives taken during the year
in case of
listed companies and other prescribed class of companies, a statement
indicating the manner in which formal annual evaluation has been made
by the Board of its own performance and that of committees and individual
Directors' Responsibility Statement shall also include the statement that
the directors had devised proper systems to ensure compliance with the
all applicable laws and that such systems were adequate and operating
Boards’ Report is to be signed by the Chairperson of the company if he
is authorized by the Board and where he is not so authorized, it shall be
signed by at least two directors, one of whom shall be a managing
director, or by the director where there is one director. (Clause 134).
Related Party Transactions
contract or arrangement entered into with a related party shall be
referred to in the Board’s Report along with the justification for
entering into such contract or arrangement [Clause
arrangement between a company and its directors in respect of acquisition
of assets for consideration other than cash shall require prior approval
by a resolution in general meeting and if the director or connected person
is a director of its holding company, approval is required to be obtained
by passing a resolution in general meeting of the holding company [Clause
a one person company limited by shares or by guarantee enters into a
contract with the sole member of the company who is also its director, the
company shall, unless the contract is in writing, ensure that the terms of
the contract or offer are contained in the memorandum or are recorded in
the minutes of the first Board meeting held after entering into the
contract. The company shall inform the Registrar about every contract
entered into by the company and recorded in the minutes (Clause 193).
RESPONSIBILITY (CLAUSE 135)
having net worth of rupees 500 crore or more, or turnover of rupees 1000
crore or more or a net profit of rupees 5 crore or more during any
financial year shall constitute a Corporate Social Responsibility
Committee of the Board consisting of three or more directors, out of which
at least one director shall be an independent director.
Committee shall formulate and recommend Corporate Social Responsibility
Policy which shall indicate the activity or activities to be undertaken by
the company as specified in schedule VII and shall also recommend the
amount of expenditure to be incurred on the CSR activities.
The Board of
every company shall ensure that the company spends in every financial year
atleast 2% of the average net profits of the company made during the three
immediately preceding financial years in pursuance of its CSR policy.
company fails to spend such amount, the Board shall in its report specify
the reasons for not spending the amount. The approach is
to 'comply or explain’.
shall give preference to local areas where it operates, for spending
amount earmarked for Corporate Social Responsibility (CSR) activities.
DEPOSITS (CLAUSE 173)
company may, subject to the passing of a resolution in general meeting and
subject to the prescribed rules, accept deposits from its members subject
to fulfillment of the following specified conditions:
resolution in a general meeting.
circular to members including therein a statement showing the financial
position of the company, the credit ratings obtained, the total number of
depositors and the amount due towards deposits in respect of any previous
deposits accepted by the company and such other particulars in such form
and in such manner as may be prescribed.
a copy of the circular along with such statement with the registrar within
30 days before the date of issue of the circular.
by the company that it has not defaulted in the repayment of deposits.
security in respect of deposit and interest and creation of charge on
company’s properties and assets. An amount of not less than 15% of the
deposits maturing during a financial year shall be deposited in deposit
repayment reserve account.
public company having prescribed net worth or turnover may accept deposits
from persons other than its members subject
to compliance of rules as may be prescribed by Central Government in
consultation by Reserve Bank of India. (Clause 76).
The penalty for
failure to repay deposit has been made extremely stringent.
Where a company fails to repay the deposit and it is proved that
the deposits had been accepted with intent to defraud the depositors or
for any fraudulent purpose, every officer of the company who was
responsible for the acceptance of such deposit shall, without prejudice to
liability under section 447 i.e. punishment for fraud), be personally
responsible, without any limitation of liability, for all or any of the
losses or damages that may have been incurred by the depositors (Clause
punishment is proposed for failure to distribute dividend within thirty
days of its declaration. (Clause 127)
INVESTMENT COMPANIES (CLAUSE 186)
A company can make investment through not
more than two layers of investment companies, unless otherwise prescribed.
This shall not affect
a company from acquiring any other
company incorporated in a country outside India if such other company has
investment subsidiaries beyond two layers as per the laws of such country;
a subsidiary company from having any
investment subsidiary for the purposes of meeting the requirements under
any law or under any rule or regulation framed under any law for the time
being in force.
The restriction on the number of step-down subsidiary companies
has been introduced to prevent the abuse of diversion of funds through
many step-down subsidiaries.
Company Secretary (clause 205)
The functions of the company secretary shall include-
report to the Board about compliance with the provisions of this Act, the rules made there under and other laws
applicable to the company;
ensure that the company complies
with the applicable secretarial standards;
discharge such other duties as may be prescribed.
Audit (Clause 204)
company and a company belonging to other class of companies as may be
prescribed shall annex with its Board’s report a Secretarial Audit
Report, given by a Company Secretary in Practice, in
such form as may be prescribed.
It shall be the
duty of the company to give all assistance and facilities to the Company
Secretary in Practice, for auditing the secretarial and related
records of the company.
The Board of
Directors, in their report shall explain in full any qualification or
observation or other remarks made by the Company Secretary in Practice in
If a company or
any officer of the company or the Company Secretary in Practice, contravenes
the provisions of this section, the company, every officer of the company
or the Company Secretary in Practice, who is in default, shall be
punishable with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees.
Introduced [Clause 118(10) & 205]
For the first
time, the Secretarial Standards has been introduced and provided
company shall observe Secretarial Standards with respect General and Board
Meetings specified by the Institute
of Company Secretaries of India constituted under section 3 of the Company
Secretaries Act, 1980 and approved by the Central Government.”
casts duty on the Company Secretary to ensure that the company complies
with the applicable Secretarial Standards.
is the beginning of a new era where non financial standards have been
given importance and statutory recognition besides Financial Standards.
encourage wider participation of shareholders at General Meetings, the
Central Government may prescribe the class or classes of companies in
which a member may exercise their vote at meetings by electronic means
person companies have been given the option to dispense with the
requirement of holding an AGM. [clause 96(1)].
Report on annual general meeting [clause 121]
listed company shall prepare a
Report on each Annual General Meeting including confirmation to the effect
that the meeting was convened, held and conducted as per the provisions of
the Act and the Rules made there under.
The report shall be
prepared in the manner to be prescribed.
A copy of the report
shall be filed with the Registrar within 30 days of the conclusion of the AGM. Non-filing
of the report has been made a punishable offence.
shall appoint an individual or a firm as an auditor at annual general
meeting who shall hold office till the conclusion of sixth annual general meeting.
the company shall place the matter relating to such appointment for
ratification by members at every annual general meeting.
company or a company belonging to such class or classes of companies
as may be prescribed,
shall appoint or re-appoint—
(a) an individual as auditor for more than one term of five consecutive years; and
(b) an audit firm as auditor for more than two terms of five consecutive years:
(i) an individual auditor who has completed his term
under clause (a) shall not be eligible for re-appointment as auditor in
the same company for five years from the completion of his term;
(ii) an audit firm which has completed its term under
clause (b), shall not be eligible for re-appointment as auditor in the
same company for five years from the completion of such term:
Members of a
company may resolve to provide that in the audit firm appointed by it,
the auditing partner and his team shall be
rotated at such intervals as may be resolved by members
limit in respect of maximum number of companies in which a person may be
appointed as auditor has been proposed as twenty companies. (clause 141)
render any of the following services, directly or indirectly to the
company or its holding company or subsidiary company:
and book-keeping service
and implementation of any financial information system
of outsourced financial services
Internal audit may be made mandatory for prescribed companies
Cost Audit (clause 148)
Central Government after consultation with regulatory body may direct
class of companies engaged in production of such goods or providing such
services as may be prescribed to include in the books of accounts
particulars relating to utilisation of material or labour or to such other
items of cost.
If the Central Government is of the opinion, that it
is necessary to do so, it may, direct that the audit of cost records of
class of companies, which are required to maintain cost records and which
have a net worth of such amount as may be prescribed or a turnover of such
amount as may be prescribed, shall be conducted in the manner specified in
auditing standards’ have been mandated.
STATEMENT (CLAUSE 2(40)]
For the first
time, the term 'financial
statement' has been defined to include:-
a balance sheet as at the end of the financial year;
ii. a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year;
cash flow statement for the financial year;
a statement of changes in equity, if applicable; and
any explanatory note
annexed to, or forming part of, any document referred to in sub-clause (i)
to sub-clause (iv):
the financial statement, with respect to One Person
Company, small company and dormant company, may not include the cash flow
of financial statement (Clause 134)
The financial statement, including consolidated
financial statement, if any, shall be approved by the Board of directors
before they are signed on behalf of the Board at
least by the Chairperson of the company authorised by the Board or by two
directors out of which one shall be managing director and the Chief
Executive Officer, if he is a director in the company, the Chief Financial
Officer and the company secretary of the company, wherever they are
appointed, or in the case of a One Person Company, only by one director, for submission to the
auditor for his report thereon.
FINANCIAL REPORTING AUTHORITY (NFRA) (CLAUSE 132)
Government may be notification constitute a National Financial Reporting
Authority to provide for matters related to accounting and auditing
anything contained in any other law for the time being in force, the
National Financial Reporting Authority shall––
make recommendations to the Central Government on the formulation and
laying down of accounting and auditing policies and standards for adoption
by companies or class of companies or their auditors, as the case may be;
monitor and enforce the compliance with accounting standards and auditing
standards in such manner as
may be prescribed;
oversee the quality of service of the professions associated with ensuring
compliance with such standards, and suggest measures required for
improvement in quality of services and such other related matters as may
be prescribed; and
perform such other functions relating to clauses (a), (b) and (c) as may
Notwithstanding anything contained in any other law for
the time being in force, the National Financial Reporting Authority
have the power to investigate, either suo moto or on a reference
made to it by the Central Government, for such class of bodies corporate
or persons, in such manner as may be prescribed into the matters of
professional or other misconduct committed by any member or firm of
chartered accountants, registered
under the Chartered Accountants Act, 1949:
that no other institute or body shall initiate or continue any proceedings
in such matters of misconduct where the National Financial Reporting
Authority has initiated an investigation under this section;
(b) have the same powers as are vested in a civil court under the Code of
Civil Procedure, 1908, while trying a suit.
where professional or other misconduct is proved, have the power to make
imposing penalty of -
not less than one lakh rupees, but which may extend to five times of the
fees received, in case of individuals;
not less than ten lakh rupees, but which my extend to ten times of the
fees received, in case of firms;
debarring the member or the firm from engaging himself or itself from
practice as member of the institute for a minimum period of six months or
for such higher period not exceeding ten years as may be decided by the
National Financial Reporting Authority.
Any person aggrieved by any order of the National
Financial Reporting Authority, may prefer an appeal before the Appellate
Authority constituted by the Central Government.
INVESTOR PROTECTION MEASURES
of securities and non-payment of dividend by listed companies, shall be
administered by SEBI by making regulations.(Clause24)
act of fraudulent inducement of
persons to invest money is punishable
with imprisonment for a term which may extend to ten years and with
fine which shall not be less than three times the amount involved in
A suit may be
filed by a person who is affected by any misleading statement
or the inclusion or omission of any matter in the Prospectus or who has
invested money by fraudulent inducement. (Clause 37).
the first time, a provision has been made for class action suits. It is
provided that specified number of member(s), depositor(s) or any class of
them, may, if they are of the opinion that the management or control of
the affairs of the company are being conducted in a manner prejudicial to
the interests of the company or its members or depositors, file an
application before the Tribunal on behalf of the members or depositors.
the members or depositors seek any damages or compensation or demand any
other suitable action from or against an audit firm, the liability shall
be of the firm as well as of each partner who was involved in making any
improper or misleading statement of particulars in the audit report or who
acted in a fraudulent, unlawful or wrongful manner.
order passed by the Tribunal shall be binding on the company and all its
members, depositors and auditors including audit firm or expert or
consultant or advisor or any other person associated with the company.
Serious Fraud Investigation Office
Statutory status to SFIO has been proposed. Investigation report
of SFIO filed with the Court for framing of charges shall be treated as a
report filed by a Police Officer. SFIO shall have power to arrest in
respect of certain offences of the Bill which attract the punishment for
fraud. Those offences shall be cognizable and the person accused of any
such offence shall be released on bail subject to certain conditions
provided in the relevant clause of the Bill.
Stringent penalty provided for fraud related offences.
defined (Clause 447)
term "Fraud" has for the first time been defined in the Bill. Any person who is found to be guilty of fraud, shall be
punishable with imprisonment for a term which shall not be less than six
months but which may extend to ten years and shall also be liable to fine
which shall not be less than the amount involved in the fraud, but which
may extend to three times the amount involved in the fraud.
Where the fraud in question involves public interest, the term of
imprisonment shall not be less than three years
New clause has been introduced with respect to prohibition of insider
trading of securities. The
definition of price sensitive information has also been included [clause
on Forward dealings
Directors and the key managerial personnel of a company are
prohibited from forward dealings in securities of
the company.(clause 194).
INSPECTION, ENQUIRY AND INVESTIGATION
new clause has been added to provide that where in connection with enquiry
or investigation into the affairs of the company or reference by the
Central Government, or on complaint by specified number of members or
creditors or any other person having a reasonable any person that the
transfer or disposal of funds, properties or assets is likely to take
place which is prejudicial to the interest of the company, then the
Tribunal may order for the freezing of such transfer, removal or
disposal of assets for a period of three years. [clause 221]
new clause seeks to provide that the provisions of inspection or
investigation applicable to Indian companies shall also apply mutatis-mutandis
to inspection or investigation of foreign companies. (clause 228).
18. RESTRUCTURING AND
The entire rehabilitation and liquidation process has
up is to be resorted to only when revival is not feasible.
may appoint an interim administrator or a company administrator from the
panel of Company Secretaries, CAs, CWAs, etc. maintained by the Central
Company Administrator shall prepare a scheme of revival and
rehabilitation. [clause 261(1)].
revival scheme is not approved by the creditors, the Tribunal shall order
for winding up of the company. (clause 258).
civil court shall have jurisdiction in respect of any matter on which
Tribunal or Appellate Tribunal is empowered. (clause 268).
COMPANY LIQUIDATORS (CLAUSE 275)
Tribunal may appoint Provisional Liquidator or the Company Liquidator from
a panel maintained by the Central
Government consisting of Company Secretaries, Chartered Accountants,
Advocates and Cost Accountants.
an appointment as provisional liquidator or Company Liquidator, such
liquidator is required to file a declaration in the prescribed form
disclosing conflict of interest or lack of independence in respect of his
appointment, if any, with the Tribunal.
assistance to Company Liquidator (CLAUSE 291)
The Company Liquidator may, with the sanction of the Tribunal, appoint one
or more professionals including Company Secretaries to assist him in
the performance of his duties and functions under the Act.
COMPOUNDING OF CERTAIN OFFENCES (CLAUSE 441)
This clause provides for the compounding of certain offences by
Tribunal or regional director in certain cases before the investigation
has been initiated or is pending under this Act. It further provides the
procedure followed for compounding of offence. It clause also provides
penalty for any officer or other employee of the company who fails to
comply with the order of Tribunal or Regional Director.
21. National Company Law Tribunal and Appellate Tribunal (Clause
408 and 410)
The Central Government shall, by notification, constitute, a
Tribunal to be known as National Company Law Tribunal and an Appellate
Tribunal to be known as National Company law Appellate Tribunal.
the speedy trial of offences, the Central Government has been empowered to
establish special courts in consultation with the Chief Justice of the
High Court within whose jurisdiction the judge is to be appointed.
offences under this Act shall be triable by the Special Court established
for the area in which the registered office of the company in relation to
which the offence is committed or where there are more special courts than
one for such area, by such one of them as may be specified in this behalf
by the High Court concerned. (clause 436)
Special Court would have the liberty to try summary proceedings for
offences punishable with imprisonment for a term not exceeding three
years, although it may order for the regular trial. (clause 436).
23. MEDIATION AND CONCILIATION PANEL (CLAUSE 442)
Central government shall maintain a panel of experts to be called
Mediation and Conciliation Panel for mediation between the
parties during the pendency of any proceedings before the Central
Government or the Tribunal or the Appellate Tribunal under this Act.
CROSS – BORDER MERGERS (CLAUSE 234)
Bill has allowed cross border mergers with any foreign company;
The cross border merger may be made between companies
registered under this Act and companies incorporated under jurisdiction of
such countries as may be notified by the Central Government.
VALUERS (CLAUSE 247)
new chapter has been inserted in relation to registered valuers.
respect of any property, stock, shares, debentures, securities, goodwill,
networth or assets of a company shall be valued by a person registered as
Central Government shall maintain a register of valuers. .
The valuer shall be a
person having such qualification and experience and registered as a valuer
in such manner and on such
terms and conditions as may be prescribed.
POWER TO EXEMPT CLASS OR CLASSES OF COMPANIES FROM PROVISIONS OF
THIS ACT (CLAUSE 462)
Government may in the public interest, by notification direct that any
provisions of this Act:
shall not apply
to such class or classes of companies; or
shall apply to
class or classes of companies with such exceptions, modifications and
adaptations as may be specified in the notification.
notification in draft to be laid in both the Houses of Parliament for a
period of 30 days.
may disapprove or modify.
ADJUDICATION OF PENALTY (CLAUSE 454)
The Central government may by an order publish in the Official
Gazette, appoint as many officers of the Central Government, not below the
rank of Registrar, as adjudicating officers for adjudicating penalty under
the provisions of this Bill in
manner as may be prescribed.
Disclaimer: This document has been prepared on the basis of Companies Bill, 2011 as passed in the Lok Sabha on 18th December, 2012. The Institute of Company Secretaries of India does not own the responsibility of any error or omission. The users and readers are advised to cross check with the original bill before acting upon this document.