Rules for 11 chapters of the new Companies Act 2013 notified

Rules for 11 chapters of the new Companies Act 2013 notified

The Ministry of Corporate Affairs (MCA) notified Rules for 11 Chapters of the new Companies Act of 2013, which replaces the Companies Act of 1956 and comes into force from 1 April. These include Rules for specifications and definitions, incorporation of companies, prospectus and allotment of securities, shares and debentures, registration of charges, management and administration, declaration and payment of dividend, accounts, appointment and qualification of directors, board meetings and powers, and corporate social responsibility.

Soon after the Corporate Affairs Ministry notified 183 sections of the new Act, in addition to the 100 sections that had been notified in September 2013, came the notification of Rules. On August 9, the Parliament approved the long awaited overhaul of legislation governing Indian companies. The aim of the new law is to simplify the process of doing business in the country and refine corporate governance by making firms more liable and accountable. Major changes brought by the Act are as follows

(a)    Important definitions such as the financial year (which says that the financial year of a company will be from April 1 to March 31), independent director, one person company, Serious Fraud Investigation Office, small company have been notified.

(b)    Amongst the important sections and provisions that have been notified relate to;

(i)                Articles of Association of a company which also includes the provisions relating to entrenchment;

(ii)            Non-profit companies (which were commonly called Section 25 companies under the Companies Act, 1956)  will now be called Section 8 companies;

(iii)             Concept of offer for sale by members of the company;

(iv)              Issue of GDR by passing a special resolution;

(v)            Private placement of shares (which would mean shares offered to not exceeding 200 persons in each financial year excluding the QIBs and ESOPs issued to employees);

(vi)             Kinds of share capital – i.e. two kinds of share capital – equity shares and preference share. Equity share capital is further subdivided into with voting rights and with differential rights as to dividend, voting or otherwise;

(vii)        Voting rights on shares – now no distinction has been made between cumulative and non-cumulative preference shares when it comes to giving preference shareholders voting rights on all matters of the company if the dividend is unpaid for 2 years or more;

(viii)          Prohibition on issue of shares at discount, however, sweat equity shares are permitted;

(ix)         Further issue of share capital – this is where the preferential allotment of shares by the company will be covered;

(x)            Issue of bonus shares;

(xi)          Restriction on purchase by company or giving of loans by it for purchase of its shares;

(xii)         Buy back of shares;

(xiii)        Issue of debentures – which will require a special resolution;

(xiv)       Acceptance of deposits and most importantly the provisions of Section 74 (1) which requires that in respect of any deposit accepted by a company before the commencement of this new Act, the amount of such deposit or part thereof or any interest due thereon remains unpaid on such commencement will have to repaid;

(xv)         Registration of charges;

(xvi)        Annual return;

(xvii)        AGM;

(xviii)      Notice of general meeting;

(xix)        Voting through electronic means;

(xx)        Postal ballot;

(xxi)       Declaration of dividend;

(xxii)      Preparation of financial statements and the board of directors report;

(xxiii      Concept of internal audit in certain classes of companies;

(xxiv     Appointment of auditors and other provisions related thereto, for instance, prohibition of rendering non-audit services;

(xxv      Provisions relating to appointment and qualifications of directors – this includes independent directors and woman directors; duties of directors; resignation of directors; meetings of the board of directors;

(xxvi)   Audit committee;

(xxvii)   Nomination and remuneration committee and stakeholders relationship committee;

(xxviii)  Powers of board of directors (this is corresponding to Section 292 of the Companies Act, 1956);

(xxix)   Disclosure of interest by directors;

(xxx)         Section 186- one of the most talked about provisions regarding loan and investment by companies;

(xxxi)        Related party transactions – another much talked about provisions;

(xxxii)      Appointment and remuneration of managerial personnel;

(xxxiii)     Appointment of KMP;

(xxxiv)     Secretarial audit for certain classes of companies;

(xxxv)      Provisions relating to inspection, inquiry and investigation including the SFIO;

(xxxvi)     Mediation and Conciliation Panel;

(xxxvii)    Dormant companies;

(xxxviii)  Prohibition of association of persons or partnership or persons exceed a certain number, however, an association of person if formed by professionals who are governed by special Acts is exempted from this restriction.

Please see the previous article on introduction of new Companies Bill here.