Corporate Treasury management : Liquid Funds (also known as Money Market Mutual Funds) for parking short term funds at interest rate higher than bank deposits


Liquid Funds (also known as Money Market Mutual Funds) have portfolios having average maturities of less than or equal to 1 year. Thus such schemes normally do not carry any interest rate risk. Liquid Funds do not carry Exit Loads. Other recurring expenses associated with Liquid Schemes are also kept to a bare minimum.

Money Market refers to that part of the debt market where papers with maturities less than 1 year is traded. Commercial Papers, Certificate of Deposits, Treasury Bills, Collateralised Borrowing & Lending Obligations (CBLOs), Interest Rate Swaps (IRS), etc. are the instruments which comprise this market

Out of the various debit instruments, money market instruments stand out in terms of the term to maturity. Debt papers have wide range of term to maturity - as high as 20 years and more or as low as 90 days and less. The market for short term paper; i.e. paper with less than 1 year maturity attracts huge interest, volumes and money. This is because the demand for short term money by corporates, financial institutions and Government is huge. At the same time, there is a class of investors with which there is an availability of short term funds.

Due to this constant demand and ready investors, the volumes in trades of this short-term paper have increased so much that this segment is classified as a separate segment in the debt markets and is known as Money Markets.

By far the biggest contributor to the MF industry, Liquid Funds attract a lot of institutional and High Networth Individuals (HNI) money. It accounts for approximately 40% of industry AUM. Less risky and better returns than a bank current account, are the two plus points of Liquid Funds.

Corporate Treasury Management: Business transactional account Vs short term investment account 


Corporate Funds that are in a business transactional account( called current account in some countries) are  non interest bearing account .These funds can be invested into an short term investment account that earns interest .
The bank has informed that the existing business cheque account cannot be converted into an investment account and therefore we need to open a new investment account where the funds are kept separately from the cheque account.

Out of the available options for investment account, bank has suggested to opt for 7 day notice deposit account that earns a higher rate of interest than other short term investment options.
The features of  7 day notice deposit offered by First National Bank South Africa (of First Rand group) as are follows  :

·         Minimum opening balance  R50 000.00
·         The access to funds can be done with a letter instructing the bank to place 7 day notice  when funds are required.
·         Only the authorised signatories are allowed to place a notice for the withdrawal of the funds.
·         Funds can be added to the 7 day notice at any time, electronically (internet banking) or via an written instruction to the bank with authorisation from the signatories only.
·          The Interest rate increases twice - once after 32 days and another after 64 days   on the same 7 day notice account.
·         Interest earned on this account can be capitalized on the same account or it can be paid out to the business cheque account.
·         There is no monthly or transaction fees on the 7 day account.
·         There is no cash or cheque deposit allowed on this account.

Corporate Actions and compliances under Companies Act 2013




Shareholders Meeting : Postal Ballot and E-voting -  passing company resolutions

E-voting

Companies Act,2013 has introduced new provision, voting through electronic means under Section 108.

Voting through electronic means.-

(1) Every listed company or a company having not less than one thousand shareholders, shall provide to its members facility to exercise their right to vote at general meetings by electronic means.
(2) A member may exercise his right to vote at any general meeting by electronic means and company may pass any resolution by electronic voting system in accordance with the provisions of this rule.

E-voting Platform Service Agencies:
NSDL and CDSL ventures ltd (CVL) has developed an internet based e-voting platform which enables the shareholders to vote electronically in a convenient manner.
Particulars
Agency-1
Agency-2
Name of the agency
NSDL
CDSL ventures ltd (CVL)
Website Id
www.evoting.nsdl.com
http://www.evotingindia.com/
E-mail Id
Helpdesk@nsdl.co.in ; evoting@nsdl.co.in
helpdesk.evoting@cdslindia.com.
-

Postal Ballot

Section 110 of the Companies Act,2013 deals with Postal Ballot.

Postal Ballot – Business: A company shall transact the following business only by means of Postal Ballot;

Section
Description
13
Alteration of the objects clause of the memorandum and in the case of the company in existence immediately before the commencement of the Act, alteration of the main objects of the memorandum
2 (68)
Alteration of articles of association in relation to insertion or removal of provisions which are required to be included in the articles of a company in order to constitute it a private company
12(5)
Change in place of registered office outside the local limits of any city, town or village.
13(8)
Change in objects for which a company has raised money from public through prospectus and still has any unutilized amount out of the money so raised
43(a)(ii)
Issue of shares with differential rights as to voting or dividend or otherwise
48
Variation in the rights attached to a class of shares or debentures or other securities
68(1)
Buy-back of shares by a company
151
Election of a director
180(1)(a)
Sale of the whole or substantially the whole of an undertaking of a company
186(3)
Giving loans or extending guarantee or providing security in excess of the limit

A company may transact any other business by postal ballot instead of transacting at a general meeting except:
·         ordinary business and any business in respect of which directors or auditors have a right to be heard at any meeting.

Postal Ballot – Companies Act,1956 Vs Companies Act,2013:
Companies Act,1956
Companies Act,2013
Section 192A of the 1956 Act deals with Postal Ballot
Section 110 of the 2013 act deals with Postal Ballot
It applies only to listed public companies
It applies to all companies

Exemptions:
·         One Person Company and  other companies having members up to two hundred are not required to transact any business through postal ballot



Buyback
How it works
In a buyback, a company repurchases its shares from existing shareholders, usually at a premium to the existing market price. This is done either through a traditional open-market purchase or through a tender route. As per the buyback regulations of the Securities and Exchange Board of India (SEBI), both promoters and public shareholders can offer their shares in a tender buyback. On the other hand, only public shareholders can take part in an open-market scheme.
There are other differences as well. For instance, in a tender buyback, a company fixes a price and accepts shares on a proportionate basis directly from shareholders during the buyback period. Under an open-market plan, a company announces a maximum price (but may purchase well below it and will never exceed it) and buys back a certain number of shares (remember, it may not purchase the entire amount announced) from the market within a specific timeframe.
For a company, a buyback typically perks up the return on equity by reducing the equity base, thus leading to long-term increase in shareholder value. Moreover, the market price of its stock usually moves towards the buyback price. In brief, it sets the floor on which the company can trade post buyback.
"One fundamental reason for this is valuation. If a company is commanding a P/E multiple of 10, then, in order to command the same valuation post buyback, the price should automatically adjust upwards to account for its increased earnings per share (EPS) due to the decline in the number of shares," says Pankaj Pandey, Head of Research, ICICI Direct. However, if the buyback is in the form of a quasi-dividend payout where every investor (including promoters) participates, no such rise in stock price is seen. In the past, a large number of public sector undertakings saw a rise in their share prices post buybacks while others did not see any significant change. It all depends on the company's performance and the macroeconomic environment post the buyback (See Past Performance).

What's triggering buybacks
While dividends are still going strong, the current wave of buybacks may continue due to its financial impact and tax implications. High-profile stock buybacks may lead to huge growth in corporate earnings as companies reduce the number of shares used to calculate their EPS. More important, India's shifting tax structure subjects short-term captital gains to stiff taxation and hence, this move. Here are three key triggers that lead to share buybacks.
Surplus cash: "Surplus cash with less meaningful deployment options is the prime reason for share buybacks," says Pandey of ICICI Direct. You typically see cash-rich companies returning some cash through buybacks, as they reward shareholders in this manner, besides paying dividends. Wipro, for instance, offered a share buyback in June 2016 at Rs 625 per share, for which the company utilised up to Rs 2,500 crore. The company said the buyback was undertaken to return surplus funds to shareholders, which were over and above its ordinary capital requirements and in excess of any current investment plans.
Undervalued stock: "When a company believes its current share price does not reflect its true value, it can buy back its shares, which increases its EPS and, hence, the share price," says Shrikant Akolkar, senior equity research analyst at Angel Broking. A buyback, in such cases, signals to investors the company's confidence in its business and future value. It also increases the promoters' stake, assuming they did not participate in the buyback.
Tax arbitrage: Buybacks have gathered momentum, especially after the Union Budget 2016/17, when the government imposed an additional 10 per cent tax on dividends for all individual shareholders (including Hindu Undivided Families) and partnership firms (also extended to private trusts in FY18 Budget) whose dividend income exceeds Rs 10 lakh in a financial year. This is over and above the 20.90 per cent Dividend Distribution Tax (DDT) paid by the company concerned, thus making buybacks a tax-efficient choice over dividend payouts.





Should you exit that stock?
Selling shares in a buyback to exit that stock or book some profit needs some careful consideration. As a small retail investor, you can get a tidy sum for your equity shares accepted under the ongoing scheme. Or you may choose to retain your shares and increase your percentage shareholding in the company without any additional investment. But in such cases, the percentage increase in holding may not be significant and the number of shares one owns will remain the same.
"There are two things an investor should keep in mind--one is the buyback price and the other is the acceptance ratio," says Pandey. If the buyback price is at a steep premium to the current prevailing market price (with muted growth prospects, of course), it does make sense to go for it. Most companies tend to offer a premium of 10-15 per cent on the existing market price to make it lucrative for shareholders. Wipro, for instance, offered Rs 625 per share when the stock was trading at Rs 550. Sun Pharma offered Rs 900 a share when its stock was trading at Rs 780.
In many cases, the acceptance ratio also plays a crucial role. Simply put, it is the number of shares offered for buyback/total number of outstanding shares; so, the lower the ratio, the lower the probability of investors' shares being accepted for buybacks. If you hold 100 shares and only five are to be accepted, the effort to tender the shares in a buyback seems futile. Sun Pharmaceuticals offered a handsome price of Rs 900 per share (compared to current Rs 700), but its acceptance ratio was only 3.5 per cent. However, SEBI has now mandated a 15 per cent reservation of buyback offers for retail investors. In order to qualify for the same, your holding must not exceed Rs 2 lakh.
"The winning combination will be a premium buyback price and high acceptance ratio," says Pandey. "But there are times when the premium price is intended to signal a belief that the stock is undervalued and the management will work towards improving shareholder value. If that is the case, long-term investors should stay invested." All these differ from company to company; so do a thorough due diligence before offering your stock.
Tax advantages may also play a key role in your decision-making. As buybacks can be done through share brokers on stock exchanges, these are now subject to Securities Transaction Tax (STT). For listed companies, share buybacks also invite capital gains tax for shareholders. Long-term capital gains from transfer of equity shares (on which STT is paid), which have been held for more than 12 months, are exempt from tax. In contrast, short-term capital gains from transfer of equity shares, which have been held for less than 12 months, are subject to 15 per cent tax plus surcharge and cess.

Ground realities
Let us take the case of Tata Consultancy Services (TCS), the country's largest listed company in terms of market capitalisation, to understand the context. The company had a cash pile of nearly Rs 40,000 crore in December 2016, and recently announced one of the biggest buyback offers. It plans to repurchase up to 5.6 crore equity shares at Rs 2,850 per share, which pegs the offer at a mammoth Rs 16,000 crore. The buyback price of Rs 2,850 is a 14 per cent premium to its closing price of Rs 2,500 on the day TCS made the announcement. According to Akolkar of Angel Broking, if shareholders believe that the premium offered is higher and there is lack of visibility on the company's earnings, they should tender their shares if the holding period is more than 12 months. In case they are holding the shares for less than 12 months, it may not be wise to tender shares due to the tax implications, he adds.
"Many a time, companies decide to buy back their shares when they have cash-rich balance sheets, but growth is slowing and there are no reinvestments, mergers or acquisitions," says Akolkar. In such cases, a buyback is a good strategy as it will return the excess cash to shareholders and signal investor friendliness to the market. Also, a large number of IT companies are facing a slowdown due to global macroeconomic issues in general and the protectionist policies of the US, a market that accounts for more than 50 per cent of their revenues. As these companies are now sitting on unproductive cash piles and growth is muted, buybacks can be an ideal way to reward shareholders.
Infosys, too, is seeking shareholder approval for amending its Articles of Association to include provision for buybacks. HCL Technologies board has also approved share buyback worth Rs 3,500 crore. Among non-IT companies, ICRA is offering a buyback at Rs 4,500 per share (See Open Buyback Offers), saying it will not jeopardise future growth opportunities of the company, but will provide an exit opportunity to public shareholders.
All that sounds good, especially when you consider how Berkshire Hathaway Chairman Warren Buffett has constantly supported the desirability of repurchases and said that "from the standpoint of exiting shareholders, repurchases are always a plus." So depending on your tax liablities, shareholding and understanding of the business, it is time to take a good, hard look at your portfolio companies and decide whether buybacks will work for you. 


Issue of Warrants, preferential allotment

1.      Pricing shall not be less than below:
a.       The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the six months preceding the relevant date;    OR
b.      The average of the weekly high and low of the closing prices of the related shares quoted on a stock exchange during the two weeks preceding the relevant date.

2.      Payment of consideration:
a.       25% of consideration on or before allotment of warrants
b.      Remaining 75% on or before allotment of equity shares

3.      Conversion Period:
a.       Warrants should be converted into equity within a period of 18 months from the date of allotment of warrants.
b.      If not converted the first 25% amount will be forfeited, and can’t be refunded to proposed allottee

4.      Lock In Period:
a.       Shares allotted on preferential basis to promoters/promoter group shall be locked in for 3 years from the date of allotment
b.      Pre-preferential allotment holding of the allottee shall also be kept under lock-in from the relevant date up to 6 months from the date of making preferential allotment
5.      “relevant date" means the date thirty days prior to the date on which the meeting of general body of shareholders is held

6.      Shares cannot be allotted to a person, who together with persons acting in concert with him, would be entitled to exercise more than 55% of the voting rights of the Company post-allotment of the share capital
7.      Approvals:
a.       Board approval – 1 week
b.      Shareholder’s approval by a special resolution – 8 weeks
c.       Stock Exchange in principle approval – 3 weeks
d.      Total time lines – 12 weeks (approximately 3 months)
8.      Disclosures to shareholders (in the shareholder’s meeting notice):
a.       the objects of the preferential issue;
b.      the proposal of the promoters, directors or key management personnel of the issuer to subscribe to the offer;
c.       the shareholding pattern of the issuer before and after the preferential issue;
d.      the time within which the preferential issue shall be completed;
e.       the identity of the proposed allottees, the percentage of post preferential issue capital that may be held by them and change in control, if any, in the issuer consequent to the preferential issue;
f.        an undertaking that the issuer shall re-compute the price of the specified securities in terms of the provision of these regulations where it is required to do so;
g.       an undertaking that if the amount payable on account of the re-computation of price is not paid within the time stipulated in these regulations, the specified securities shall continue to be locked- in till the time such amount is paid by the allottees.



Private Placement Vs Preferential Allotment







Issue of Bonus Shares

A bonus share is a free share of stock given to current shareholders in a company, based upon the number of shares that the shareholder already owns. While the issue of bonus shares increases the total number of shares issued and owned, it does not increase the value of the company. Although the total number of issued shares increases, the ratio of number of shares held by each shareholder remains constant. An issue of bonus shares is referred to as a bonus issue. Depending upon the constitutional documents of the company, only certain classes of shares may be entitled to bonus issues, or may be entitled to bonus issues in preference to other classes.

A bonus issue (or scrip issue) is a stock split in which a company issues new shares without charge in order to bring its issued capital in line with its employed capital (the increased capital available to the company after profits). This usually happens after a company has made profits, thus increasing its employed capital. Therefore, a bonus issue can be seen as an alternative to dividends. No new funds are raised with a bonus issue.

Unlike a rights issue , a bonus issue does not risk diluting your investment. Although the earnings per share of the stock will drop in proportion to the new issue, this is compensated by the fact that you will own more shares. Therefore the value of your investment should remain the same although the price will adjust accordingly. The whole idea behind the issue of Bonus shares is to bring the Nominal Share Capital into line with the true excess of assets over liabilities.
Whether Bonus shares are miraculous?

Few things match the sheer joy of getting a fat bonus at work. That is what shareholders of a good company feel when their company decides to throw a few shares (free of cost) in their direction. Here’s explaining what bonus shares are all about and why investors like investing in such companies. Free shares are given to you and are called bonus shares. Make money with shares. They are additional shares issues given without any cost to existing shareholders. These shares are issued in a certain proportion to the existing holding. So, a 2 for 1 bonus would mean you get two additional shares -- free of cost -- for the one share you hold in the company.
If you hold 100 shares of a company and a 2:1 bonus offer is declared, you get 200 shares free. That means your total holding of shares in that company will now be 300 instead of 100 at no cost to you.
Bonus shares are issued by cashing in on the free reserves of the company. The assets of a company also consist of cash reserves. A company builds up its reserves by retaining part of its profit over the years (the part that is not paid out as dividend). After a while, these free reserves increase, and the company wanting to issue bonus shares converts part of the reserves into capital.
What is the biggest benefit in issuing bonus shares is that its adds to the total number of shares in the market. Say a company had 10 million shares. Now, with a bonus issue of 2:1, there will be 20 million shares issues. So now, there will be 30 million shares. This is referred to as a dilution in equity.
Now the earnings of the company will have to be divided by that many more shares. Since the profits remain the same but the number of shares has increased, the EPS (Earnings per Share = Net Profit/ Number of Shares) will decline. Theoretically, the stock price should also decrease proportionately to the number of new shares. But, in reality, it may not happen.
A bonus issue is a signal that the company is in a position to service its larger equity. What it means is that the management would not have given these shares if it was not confident of being able to increase its profits and distribute dividends on all these shares in the future.
A bonus issue is taken as a sign of the good health of the company.

When a bonus issue is announced, the company also announces a record date for the issue. The record date is the date on which the bonus takes effect, and shareholders on that date are entitled to the bonus. After the announcement of the bonus but before the record date, the shares are referred to as cum-bonus. After the record date, when the bonus has been given effect, the shares become ex-bonus.
Issue of bonus shares

Bonus shares are issued by converting the reserves of the company into share capital. It is nothing but capitalization of the reserves of the company. There are some conditions which need to be satisfied before issuing Bonus shares:

1) Bonus shares can be issued by a company only if the Articles of Association of the company authorizes a bonus issue. Where there is no provision in this regard in the articles, they must be amended by passing special resolution act at the general meeting of the company.
2) It must be sanctioned by shareholders in general meeting on recommendations of BOD of company.
3) Guidelines issue by SEBI must be complied with. Care must be taken that issue of bonus shares does not lead to total share capital in excess of the authorized share capital. Otherwise, the authorized capital must be increased by amending the capital clause of the Memorandum of association. If the company has availed of any loan from the financial institutions, prior permission is to be obtained from the institutions for issue of bonus shares. If the company is listed on the stock exchange, the stock exchange must be informed of the decision of the board to issue bonus shares immediately after the board meeting. Where the bonus shares are to be issued to the non-resident members, prior consent of the Reserve Bank should be obtained.
Only fully paid up bonus share can be issued. Partly paid up bonus shares cannot be issued since the shareholders become liable to pay the uncalled amount on those shares.
It is important to note here that Issue of bonus shares does not entail release of company’s assets. When bonus shares are issued/credited as fully paid up out of capitalized accumulated profits, there is distribution of capitalized accumulated profits but such distribution does not entail release of assets of the company.
Issue of Bonus Shares by Public Sector Undertakings

It has come to the notice of the Government that a number of Central Government Public Sector Undertakings are carrying substantial reserves in their balance sheets against a relatively small paid up capital base. The question of the need for these enterprises to capitalize a portion of their reserves by issuing Bonus Shares to the existing shareholders has been under consideration of the Government. The issue of Bonus Shares helps in bringing about at proper balance between paid up capital and accumulated reserves, elicit good public response to equity issues of the public enterprises and helps in improving the market image of the company. Therefore, the Government has decided that the public enterprises, which are carrying substantial reserves in comparison to their paid up capital sold issue Bonus Shares to capitalize the reserves for which the certain norms/conditions and criteria may be followed and fulfilled. There are some SEBI guidelines for Bonus issue which are contained in Chapter XV of SEBI( Disclosure & Investor Protection) Guidelines, 2000 which should be followed in deciding the correct proportion of reserves to be capitalized by issuing Bonus Shares.
Private sector banks, whether listed or unlisted, can also issue bonus and rights shares without prior approval from the Reserve Bank of India. Liberalising the norms for issue and pricing of shares by private sector banks, the RBI said that the bonus issue would be delinked from the rights issue. However, central bank approval will be required for Initial Public Offerings (IPOs) and preferential shares. These measures are seen as part of the RBI's attempt to confine itself to banking sector regulation and leave the capital market entirely to the SEBI. Under the guidelines, private sector banks have also been given the freedom to price their subsequent issues once their shares are listed on the stock exchanges. The issue price should be based on merchant bankers' recommendation, the RBI has said. It means though RBI approval is not required but pricing should be as per SEBI guidelines. The RBI, however, clarified that banks will have to meet SEBI's requirements on issue of bonus shares. As per current regulations, private sector banks whose shares are not listed on the stock exchange are required to obtain prior approval of the RBI for issue of all types of shares such as public, preferential, rights or special allotment to employees and bonus. Banks whose shares are listed on the stock exchanges need not seek prior approval of the RBI for issue of shares except bonus shares, which was to be linked with rights or public issues by all private sector banks.
Bonus Issue & SEBI Guidelines

The SEBI has issued guidelines for Bonus issue which are contained in Chapter XV of SEBI( Disclosure & Investor Protection) Guidelines, 2000. A company issuing Bonus Shares should ensure that the issue is in conformity with the guidelines for bonus issue laid down by SEBI (Disclosure & Investor Protection) Guidelines, 2000. It is a detailed guideline which talks about that the bonus issue has to be made out of free reserves, the reserves by revaluation should not be capitalized. Bonus issue should not be made in lieu of dividend. There should be no default in respect to fixed deposits. Bonus issue should be made within 6 month from date of approval. This is not exhaustive but a lot of things are more in the guidelines regarding this.
Bonus issue vis-à-vis Share split

There is much hair-splitting on the relative benefits of a bonus issue vis-à-vis a share split. An investor with a short-term outlook may benefit by a split, while one willing to wait may prefer a bonus issue. - Laxmikant Gupta
A few years ago, corporate action relating to existing shares was relegated to mainly dividends, rights issues and bonus issues. Now a days splitting of shares has become a common phenomenon. What a stock split does is divide each of the existing shares into a number of shares of a lower value. Unlike in the case of a bonus issue, the existing shares are converted into new shares of a lower value. In a bonus issue, additional new shares are allotted to the shareholder; the existing shares continue as they are, and there is no change in their face value. The news about bonus issues or share splits is normally received positively by shareholders. Bonus or split in units is normally done when the Net Asset Value of the fund is at respectable levels. Similarly, normally, corporates announce bonus or split when the share price goes to a respectable level and the management sees bright prospects for profitability and net worth. With splitting of paid-up capital allowed, corporate started doing it without touching the reserves. This way they could limit the paid-up capital value even while increasing the liquidity of shares in the market, which is always desirable.
The Balance-Sheet perspective

Rewarding by bonus shares means actual capitalization of reserves. Rewarding by split does not mean anything from the balance-sheet perspective. It only increases the liquidity of stock by reducing the paid-up capital. If the corporate comes up with further new share issues, by way of private placement, the lower base of the paid-up capital and the higher percentage stake of new investors can be attractive features if the capital has only been split. If expanded by bonus shares, then, the existing shareholders would already have a higher stake vis-à-vis further new issue size. Of course, the equity dilution will be lower in that case.
As per Section 55 of The Income-Tax Act, 1961 bonus shares entail zero costs while all the purchase cost can be loaded on to the original shares. For bonus shares, the one-year holding requirement for Long-Term Capital Asset (LTCA) eligibility starts from the allotment date of bonus shares. In the case of split, the one-year eligibility is along with the original form of capital, which is split. In other words, the one-year does not start on the split date but on the date of purchase of original shares.
When does the shareholders benefit - by bonus or by split?

For a long-term investor, neither options makes a difference. Relative benefit on either option may get neutralised over time. In case of further shares issue by way of private placement, the equity dilution may be less had shareholders been rewarded with bonus issues. However, much depends on the pricing and the premium parts of the issue. An investor with a short-term outlook may benefit by a split rather than a bonus issue. Shares after split are recognised as LTCA if originally these have been held for one year. However, in the case of bonus issues, the new shares need to be held for one year to become LTCA. Periodic bonus announcements show up the real strengths of a company in building up reserves, in its profit model and, of course, in the intention to reward. Further, splitting is more beneficial to short-term stakeholders, while bonus shares are more for long-term stakeholders.
Bonus Issue & Taxation

For some years now, the issue of bonus equity shares has been a common phenomenon on the Indian bourses. However, one reads about other types of bonuses being issued by companies to shareholders. While some issue bonus dividends, while others proposes to issue bonus preference shares. The big question: what will be the tax treatment of the different types of bonuses, and which is more beneficial?
To get a grip on the tax treatment, one needs to understand two provisions in the tax laws: the definition of dividend, and the manner of computing capital gains in respect of bonus issue of securities.
Definition of dividends: Under the tax laws, if a company distributes its accumulated profits through the release of any of its assets to shareholders, the distribution will be regarded as a dividend. The definition also includes the distribution of debentures or deposits by a company, irrespective of whether the debentures or deposits are interest-bearing or not. Further, any issue of bonus shares to preference shareholders (equity shares are not included) is also deemed to be a dividend. Computation of capital gains: In the case of bonus shares and securities, if a person, by virtue of his holding a share or any other security, is allotted additional shares and securities without having to make any payment, then for the purpose of computing capital gains, the cost of the new shares and securities is to be taken as nil. The cost of the original share or security remains unchanged. For example, if a company issues bonus equity shares, there is no tax implication in the hands of the shareholders in the year of issue of the bonus shares. But when the bonus shares are finally sold, the entire sale proceeds are taxable as capital gains. This is because the cost of the acquisition of such shares is regarded as nil.
Bonus dividends: This is a one-time dividend given on a particular occasion through the issue of dividend warrants (cheques). The company pays this out of its post-tax profits, and, therefore, does not get any deduction from its taxable income.
Bonus debentures: Since bonus debentures are covered by the definition of dividends due to their specific inclusion, shareholders will have to pay tax on the capital value of the debentures they get. Further, since bonus debentures are issued out of the post-tax profit accumulated by the company, the company does not get any deduction for the value of the debentures that have been issued. In subsequent years, when the debentures are either sold or redeemed, the sale price or the redemption amount received by the debenture holder will not be taxable to the extent of the capital value of the debentures already taxed as dividend in the year of the issue of the bonus debentures.
A view is however possible that, the issue of bonus debentures is also covered by the provisions relating to taxation of capital gains on the sale of bonus issues, since it involves the allotment of a security (debenture) without any payment. Since it is covered under two different provisions of law, the provision that is more specific to the case will be applicable. Again, since the definition of dividends has a specific reference to the distribution of debentures to shareholders, the more acceptable view is that the issue of bonus debentures should be regarded as dividends, rather than be covered by the provisions relating to capital gains from bonus issues.In subsequent years, when the company pays interest on the debentures, the company is allowed a deduction for this while computing its taxable income; the interest is taxable as the income of the debenture holders who receive it. Therefore, where bonus issues of debentures are concerned, they are not tax-efficient at the time of issue, but are subsequently tax-efficient over the life of the debentures.
Bonus issues of preference shares: The issue of such a bonus to equity shareholders does not involve any distribution of assets by the company to shareholders, nor is it otherwise specifically included in the definition of dividends. Such bonus issues will, therefore, be governed by the provisions relating to capital gains from bonus issues, and will not be taxed as dividends. Therefore, at the time of the issue of bonus preference shares, neither is the shareholder taxed, nor does the company get a deduction from its taxable income for the value of the bonus preference shares. When the bonus preference shares are finally sold by the shareholder or redeemed, the cost of the preference shares is to be taken as nil, and the entire sale/redemption proceeds taxable as capital gains in the shareholder’s hands.
In subsequent years, however, preference dividends declared by the company are taxable as dividend income in the shareholder’s hands; on the company’s part, the dividend has to be distributed out of its post-tax profits, for which it does not get any deduction from its taxable income. Therefore, this is tantamount to double taxation of the company’s profits in subsequent years, since the company pays tax on its profits, while the shareholder pays tax on the distributed profits received as preference dividends. Bonus issues of preference shares are, therefore, tax-efficient in the year of allotment, but not so over the subsequent life of the preference shares.
Therefore, in the current scenario, bonus preference shares are more beneficial from a shareholder’s tax perspective when compared with bonus debentures. However, when we compare the situation over the subsequent life of the preference shares or debentures, debentures prove to be more tax-friendly.
Capital v/s Revenue Expenditure: Fusion & Confusion

It is said that India has the most complex Income-tax legislation. The tax system bristles with complexities and uncertainties. Consequent upon this there are problems of evasions and avoidance. As such, let us probe two fiercely debated concepts of taxation laws i.e. Capital & Revenue Expenditure which is very much relevant mentioning here. These two propositions are rays with different wave-lengths but from the same source. While the former is susceptible to tax being more extensive, the latter is advantageous to assessee.
This is being done with regard to the issuance of bonus shares but simultaneously dealing with other tests mechanism. The controversy was whether the expenditure incurred by the assessee Company on account of issue of bonus shares was Revenue Expenditure or a Capital Expenditure. This was remotely connected with Section 37 of The Income Tax Act, 1961 and Section 75 (1)(c)(I) of the Companies Act, 1956. On this issue, there was a conflict of opinion between the High Courts of Bombay & Calcutta on the one hand and Gujarat & Andhra Pradesh on the other. The Bombay and Calcutta High Courts were of the view that the expenses incurred in connection with bonus shares is a revenue expenditure whereas Gujarat and Andhra Pradesh High courts have taken a contrary view and have ruled that the expenses incurred in connection with the bonus shares is in the nature of capital expenditure because it expanded the capital base of the Company.
This matter went to the Apex Court in the case of CIT, Mumbai v. General Insurance Corporation. In the instant case before their Lordships the assessee Company had during the concerned accounting year - incurred expenditure separately for the increase of its authorised share capital and the issue of bonus shares. The assessee being unsuccessful at various forums finally went to the Supreme Court on the second category i.e. the nature of expenditure incurred in the issuance of bonus shares. In Empire Jute Company Ltd v. CIT Supreme Court laid down the test for determining whether a particular expenditure is revenue or capital expenditure. It was observed that there was no all-embracing formula, which could provide ready solution to the problem, and that no touchstone had been devised. It laid down that every case had to be decided on its own canvass keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred.
The Apex Court endorsed the text laid down by Lord Cave, LC, in Altherton v. British Insulated and Helsby Cables Ltd. In this case it was observed that when an expenditure was made, not only once and for all but with a view to bringing into existence an asset of advantage for the enduring benefit of a trade then there was a very good reason for treating such an expenditure as properly attributable not to Revenue but to Capital. This brings us to the crux of the problem. One of the arguments that could be advanced is that the expenses incurred towards issue of bonus shares conferred an enduring benefit to the Company, which resulted in an impact on the capital structure of the Company, and in that perception it should be regarded as capital expenditure. Conversely, the issuance of bonus shares by capitalisation of reserves was merely reallocation of a company’s fund and there was no inflow of fresh funds or increase in the capital employed which remained the same therefore did not result in conferring an enduring benefit to the Company and therefore the same should be regarded as revenue expenditure. The “enduring benefit” is of paramount importance while examining the rival contentions with which these two concepts are interwoven.
There is also no unanimity in verdicts of various High Courts. In the back ground, the Supreme Court laid down the test whether a particular expenditure was Revenue or Capital in Empire Jute Company Ltd. v. CIT whereas the cases of Karnataka and Gujarat High Court dealt with the issuance of fresh shares and therefore the ratio decidendi of these courts did not apply to the issuance of bonus shares. However, the view as taken appears to be as laying down correct law. The Supreme Court did not agree with the observation of learned author A. Ramaiya which was of the view that while issuing bonus shares a Company converts the accumulated large surplus into Capital and divides the Capital among the members in proportion to their rights. The learned author felt that the bonus shares went by the modern name “Capitalisation of Shares”. The Apex Court has, therefore, marshalled the entire arithmetic and chemistry of the two very important propositions of the taxation law i.e. Capital expenditure and Revenue expenditure and made over a conceptual clarity by reiterating the evolved principle of “enduring benefit” vis-à-vis reallocation of a Company’s fund. The court has also laid down acid test for determining these two contingencies although the occasion was the event of issuance of bonus shares. The Capital expenditure is expenditure for long-term betterments or additions.
This expenditure is in the nature of an investment for future chargeable to capital asset account whereas revenue expenditure is incurred in the purchase of goods for resale, in selling those goods and administering and carrying of the business of the Company. The free wheeling dissections by the Apex Court in Commissioner of Income Tax v. General Insurance Corporation of the various limbs of these twin concepts has cleared much of the haze. The Court held that the expenditure incurred in connection with the issuance of bonus shares is in the nature of revenue expenditure. The Bench said “the issue of bonus shares by capitalization of reserves is merely a reallocation of company’s funds. There is no inflow of fresh funds or increase in the capital employed, which remains the same. If that be so, then it cannot be held that the Company has acquired a benefit or advantage of enduring nature. The total funds available with the company will remain the same and the issue of bonus shares will not result in any change in the capital structure of the company. Issue of bonus shares does not result in the expansion of capital base of the company.”
Conclusion
The economy is booming, the markets are buoyant, and Indian companies are increasing their profitability. Consequential of all this, many companies have announced issues of bonus shares to their shareholders by capitalizing their free reserves this year. In this bullish market, shareholders have benefited tremendously, even after accounting the inevitable reduction in share prices post-bonus, since the floating stock of shares increases. The whole purpose is to capitalize profits. We can say that Bonus shares go by the modern name of “Capitalisation Share”.
Fully paid bonus shares are not a gift distributed of capital under profit. No new funds are raised. Earlier there was also a lot of confusion & chaos between the two fiercely debated concepts of taxation laws i.e. Capital & Revenue Expenditure which was finally settled after the case which come up in SC in 2006, named Commissioner of Income Tax v. General Insurance Corporation. Now it is also settled law that a bonus issue in the form of fully paid share of the company is not income for the Income Tax purpose. The undistributed profit of the company is applied and appropriated for the issue of bonus shares

Note on Bonus Shares:

1. Applicable law:
a. Section 63 of the Companies Act 2013 & Rule 14 of the Companies (Share capital & Debentures) Rules, 2014.
b. Chapter IX of the SEBI ICDR Regulations

2. Important points:
a. The company shall capitalize its profits or reserves for the purpose of issuing fully paid-up bonus shares only when it is authorized by its articles and it has, on the recommendation of the Board, been authorized in the general meeting of the company.
bBonus Issue once recommended by the Board and announced by the Company, it cannot be withdrawn subsequently.
c. Where the issuer is required to seek shareholders’ approval for capitalization of profits or reserves for making the bonus issue, the bonus issue shall be implemented within two months from the date of the meeting of its board of directors wherein the decision to announce the bonus issue was taken subject to shareholders’ approval.

3. A company may issue fully paid-up bonus shares to its members, in any manner whatsoever, out of

a. its free reserves;
b. the securities premium account; or (both collected in cash only)
c. the capital redemption reserve account:
Note: The Bonus issue shall be made out of free reserves built out of genuine profits or securities premium account both collected in cash only and reserves created by revaluation of fixed assets shall not be capitalized for the same.

4. Source from which Bonus Shares can’t issue:
a. No issue of bonus shares shall be made capitalizing reserves created by the revaluation of assets. (Company can’t issue Bonus Shares out of reserve create from revaluation of assets).
b. The Company shall not issue shares in lieu of Dividend.

5. Authorizations:
a.    The Articles of Association of the Company should authorize such issue. if there is no such provision for capitalization of reserves in the articles of association, the issuer shall pass a resolution at its general body meeting making provisions in the articles of associations for capitalisation of reserve;
b.   The Board has to recommend the issue of Bonus Shares
c.    The Company in a general Meeting should authorize the issue of Bonus Shares
d. Check Authorized Share Capital.

6. COMPANY NOT ELIGIBILE IN ISSUING BONUS SHARES
A Company shall not be in a position to issue Bonus Shares if
a.   It has defaulted in repayment of deposit.
b.   It has defaulted deposit interest.
c.   It has defaulted in debt securities.
d.   It has defaulted in respect of payment of statutory dues of the employees viz., contribution to Provident fund, Bonus, gratuity.
e.   Any outstanding partly paid shares remains unpaid

PROCEDURE:
7. Hold Board Meeting for the following:
            a. Alteration of AOA, if required.
b. recommending Issue of Bonus Shares.
c. Book Closure date
c. Holding of AGM
8. Intimate outcome to Stock Exchange and also notices to Stock Exchange regarding book closure and AGM and File MGT 14 with ROC.
9. Hold General Meeting and pass the resolutions for issue of Bonus shares.
10. Intimate the same to Stock Exchanges & File MGT 14 & MGT 15.
11. Listing Approval form NSE & BSE

i. NSE: Documents required
            a. Certified copy of the resolution passed by the Board of Directors approving the issue
b. Certified true copy of the notice convening the AGM/EGM of shareholders along with the explanatory statement annexed thereto where the proposal for issue is to be put for approval
c. Certified copy of the resolution passed by the shareholders at the AGM/EGM approving the  issue/increase in the authorised share capital
d. Confirmation from the Company
e. Statement of total bonus entitlement as per the existing capital, bonus shares to be allotted and shares kept in abeyance, if any to  be given by the Company Secretary
f. Certified true copy of the amended copy of the Memorandum and Articles of Association of the Company. In case the Memorandum and Articles of Association is not amended, confirmation from the company regarding the same
g. Processing fee, if any.

ii. BSE: Documents required
a.      Certified copy of the resolution passed by the Board of Directors of the Company approving the bonus issue
b.      Certified copy of the notice sent to the shareholders of the company for the proposed bonus issue
c.       Certified copy of the resolution passed by the shareholders of the Company approving bonus issue
Or
Clause in the Articles of Association granting powers to the Board of Directors to capitalize the profits
d.      Copy of the shareholders resolution for increase in authorized capital in case the existing authorized share capital is insufficient to accommodate the bonus issue 
e.      Confirmation by the Managing Director/ Company Secretary as per format
f.        Statement of total bonus entitlement as per the existing capital, bonus shares to be allotted and shares kept in abeyance, if any to  be given by the Company Secretary
g.      Processing fee (non-refundable) of Rs. 30000/- along with Service Tax as applicable, favoring ‘BSE Limited’.
h.      Copy of the latest audited annual report.
i.        Certified true copy of the amended copy of the Memorandum and Articles of Association of the Company. In case the Memorandum and Articles of Association is not amended, confirmation from the company regarding the same
j.        Name & Designation of the Contact  Person of the Company Telephone Nos. (landline & mobile) & Email add.
12. Obtain in principal approval from Stock Exchange.
13. Convene Board Meeting for allotment and alteration of share certificate and file return of allotment i.e., PAS 3 and notice of alteration of Capital in form SH 7, if any, with ROC.
14. File the required documents with CDSL & NSDL.

i. CDSL: Documents required
            a. Details of Allotment / Corporate Action Information.
            b. 2. Certified copy of the Board Resolution approving the allotment.
c. Certified copy of the Shareholders Resolution passed in AGM/EGM approving the allotment
d. Certified copy of the Inprinciple approval for listing from BSE & NSE. (If not listed on BSE & NSE then from all the Stock Exchanges where the securities will be listed)
e. Request letter from the RTA for submission of file for allotment.
f. Corporate Action document processing fees @ 10,000 (INR) with service tax as applicable. (This is applicable for listed equity shares).
g. Electronic debit/credit through the CDSL system will attract charges @ 10 (INR) per debit/credit, subject to a minimum of 1,000 (INR), with service tax as applicable.
Payment to be made by Cheque / Demand Draft in favor of Central Depository Services (I) Ltd. payable at Mumbai.
ii. NSDL: Documents required
a.      Certified true copy of the Shareholders’ Resolution approving the issue of shares.
b.      Certified true copy of the Board Resolution for allotment of shares.
c.       Copies of the letters of “in-principle” listing approvals of the stock exchanges obtained after completion of all listing formalities except credit of shares directly in dematerialised form and / or despatch of physical certificates
d.      Corporate Action Information Form (for shares) duly filled in (format enclosed).
e.      For credits to accounts in NSDL system, Demand Draft / Cheque payable at Mumbai towards corporate action fee @ Rs.10/- per record subject to minimum of Rs.1000/- plus service tax including education cess at 14% (e.g. minimum fee including tax is Rs.1140/-)
f.        Confirmation stating that the new shares are pari-passu in all respects with the existing shares. 
g.      Copy of the letter / circular of the stock exchange confirming / notifying the record date.
Note : Documents mentioned in point no. a, f and g have to be submitted atleast ten  days before the record date.
15. File Post issue documents with Stock Exchanges

i. NSE: Documents required
            a. Part I-Letter of Application
            b. Part II-Issue Details (in case of equity shares)
            c. CTC of Board Resolution, AGM notice & AGM resolution.
            d. CTC of Board resolution for allotment.
            e. CTC of amended MOA & AOA.
            f. Share holding pattern (Pre & Post issue)
g. Certificate from Statutory Auditors / Practicing Chartered Accountant / Practicing Company Secretary to the effect that the SEBI (ICDR) Regulations, 2009 for bonus issue is complied with.
h. Confirmation from the Company.
i. Statement of total bonus entitlement as per the existing capital, bonus shares actually allotted and shares kept in abeyance, if any to  be given by the Company Secretary
j. Additional listing fees as may be applicable.

ii. BSE: Documents required
a.      Letter of Application (i.e. by Listed companies applying for listing of further issue) duly completed alongwith Distribution Schedule pre and post allotment.
b. Certified true copy of the Board resolution in which the equity shares were allotted.
c. Brief particular of the new securities issued as per format.
d. Share holding pattern (Pre & Post issue)
e. Certificate from Statutory Auditors / Practicing Chartered Accountant / Practicing Company Secretary to the effect that the SEBI (ICDR) Regulations, 2009 for bonus issue has been complied with.
f. Confirmation by the Managing Director/ Company Secretary as per format.

g. Details of further listing /processing fee remitted, if applicable.







Key Management Person - KMP as per companies Act 2013


Applicability:

Every listed  company and every other public company having paid up share capital of Rs.10 Crores or more shall have the  following whole-time Key Managerial Personnel (KMP),—

(i) Managing Director (MD) or Chief Executive Officer (CEO) or manager and in their absence, Whole- Time Director(WTD)

(ii) Company Secretary; and

(iii) Chief Financial Officer (CFO)

A company other than a company covered above,(i.e., Private Company) which has a paid up share capital of Rs.5 Crores or more shall have a whole–time Company Secretary.

Appointment:

An individual shall not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the MD or CEO of the company at the same time after the date of commencement of this Act unless,—

(a) the articles of such a company provide otherwise; or
(b) the company does not carry multiple businesses:

It is not applicable to such class of companies engaged in multiple businesses and which has appointed one or more CEO for each such business as may be notified by the Central Government.

Every whole-time KMP of a company shall be appointed by means of a resolution of the Board containing the terms and conditions of the appointment including the remuneration

Holding of Office:

A whole-time KMP shall not hold office in more than one company except in its subsidiary company at the same time.

A KMP shall be appointed as a  director of any company with the permission of the Board.

A whole-time KMP holding office in more than one company at the same time on the date of commencement of this Act, shall, within a period of six months from such commencement, choose one company, in which he wishes to continue to hold the office of KMP.

A company may appoint or employ a person as its MD, if he is the MD or manager of one, and of not more than one, other company and such appointment or employment is made or approved by a resolution passed at a meeting of the Board with the consent of all the directors present at the meeting and of which meeting, and of the resolution to be moved thereat, specific notice has been given to all the directors then in India.

Filling of Vacancy:

If the office of any whole-time KMP is vacated, the resulting vacancy 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.

Penalty:

Company Fine  of Rs.1,00,000/- to Rs.5,00,000/-

Director & KMP Fine of Rs.50,000/-

Continuing one – Rs.1,000/- per day


Appointment of KMP - Companies Act,2013 Vs Companies Act,1956:

S.No CA 2013CA,1956
1 It bars an individual from being appointed chairperson as well as MD/CEO unless (a) the articles provide otherwise; or (b) the company does not carry multiple businesses.

There was no such bar in  the CA,1956.
2 It requires every whole-time KMP to be appointed by a board resolution containing terms and conditions of appointment including remuneration.There was no such provision in CA,1956.
3 It provides that a whole –time KMP not to hold office in more than one company except in its subsidiary company at the same time.There was no such provision in CA,1956.
4 It provides that if office of KMP vacated, resulting vacancy to be filled up by board at board meeting within 6 months.There was no such provision in CA,1956.




Shares with Differential Rights

The Companies Amendment Act, 2000 has allowed companies to issue shares with differential rights. Industry had been demanding legislative changes for quite some time so as to enable companies to issue shares with differential voting rights. With the dematerialization of the stock markets, it is not always possible for the company to have a day-to-day break-up of its shareholding and who the major shareholders are. Many industrialists felt that their companies were in danger of hostile takeovers by outsiders. Therefore, there was a demand for allowing companies to issue equity shares without voting rights but without losing other benefits such as dividend, bonus shares, rights, etc. Accordingly, the Companies Amendment Act, 2000 has made the suitable legislative changes to allow companies to issue such shares. These rights may be differential with respect to dividend, voting or any other matter, subject to rules made by the Central Government and conditions specified therein.

The Ministry of Law, Justice and Company Affairs, Government of India has vide notification number G.S.R.167 (E) dated 9 March 2001 notified the Companies ((Issue of Share capital with differential voting Rights) Rules, 2001 to be followed by companies for issue of shares with differential voting rights. These rules have come into effect on the date of their publication in the Official Gazette.

Conditions to be satisfied

Every company limited by shares may issue shares with differential rights as to dividend, voting or otherwise, if -

1.     the company has distributable profits in terms of Section 205 of the Companies Act, 1956 for preceding three financial years preceding the year in which it was decided to issue such shares.

2.     the company has not defaulted in filing annual accounts and annual returns for three financial years immediately preceding the financial year of the year in which it was decided to issue such shares.

3.     the company has not failed to repay its deposits or interest thereon on due date or redeem its debentures on due date or pay dividend.

4.     the Articles of Association of the company authorizes the issue of shares with differential voting rights.

5.     the company has not been convicted of any offence arising under, Securities Exchange Board of India Act, 1992, Securities Contracts (Regulation) Act, 1956, Foreign Exchange Management Act, 1999.

6.     the company has not defaulted in meeting investors’ grievances.

7.     the company has obtained the approval of share holders in a General Meeting by passing resolution as required under the provisions of sub-clause (a) of sub-section (1) of section 94 read with sub-section (2) of the said section.

8.     in case of a listed public company, approval of share holders through Postal Ballot has been obtained for the same.

9.     the notice of the meeting at which resolution is proposed to be passed is accompanied by an explanatory statement stating :–

a.     the rate of voting rights which the equity share capital with differential voting right shall carry;

b.    the scale or in proportion to which the voting rights of such class or type of shares will vary;

c.     the company shall not convert its equity capital with voting rights into equity share capital with differential voting rights and the shares with differential voting rights into equity share capital with voting rights;

d.    the shares with differential voting rights shall not exceed 25% of the total share capital issued;

e.     that a member of the company holding any equity share with differential voting rights shall be entitled to bonus shares, right shares of the same class;

f.     the holders of the equity shares with differential voting rights shall enjoy all others rights to which the holder is entitled to excepting right to vote as indicated in (a) above.




Companies Amendment Act 2017
The Parliament has passed Companies (Amendment) Bill, 2017 to strengthen corporate governance standards, initiate strict action against defaulting companies and help improve ease of doing business in the country,
The bill provides for more than 40 amendments to Companies Act, 2013. It will help in simplifying procedures, make compliance easy and take stringent action against defaulting companies.

Key Features of Bill

Group company structure and compliance procedures: The bill has changed definitions relating to 'holding company', 'subsidiary company', 'associate company'. It will have impact on group company structure and compliance procedures.
Compliance procedures and approval mechanism: It enhances scope of compliance procedures and approval mechanism of Related Party Transaction of related parties.
Shares on private placement basis: It amends this provision in parent Act. It will have impact on both – private companies and public companies.
Maintenance of Register of significant beneficial owners in a company: The bill adds this new provision. Besides, changes provisions relating to board meetings and shareholders' meetings, based on operational and compliance issues faced by the corporates.
Corporate Social Responsibility (CSR): The amendment to CSR provisions are particularly related to its applicability and constitution of CSR. It takes into account the interpretational and operational issues.
Resident Director and Independent Director:It provides for clarity in applicability and role of Resident Director and Independent Director. Further it elaborated 'Pecuniary relationship' in relation to independent directors.
Loans to Directors: The bill substitutes entire section relating to 'Loans to Directors' under the Companies Act, 2013. It introduces certain checks and balances by way of approval process and for enabling 'loans to directors', in certain cases.
Managerial Remuneration: It liberalises provision related to Managerial Remuneration. It replaces requirement of Central Government approval by requirement of approval of shareholders, secured creditors and non-convertible debenture holders, as the case maybe.
Auditors Report: It mandates requirement that Statutory Auditor of company to report in its Auditors Report on compliance of provisions of managerial remuneration and whether remuneration paid to any director is in excess of prescribed limits.


FAQs on Companies Act 2013

Q1.      What is SPICE?

A1.      SPICE refers to “Simplified Proforma for Incorporating Company Electronically”. It is a simplified integrated process for incorporating a company in Form No. INC-32 along with e-MOA in Form No. INC-33 and e-AOA in Form No. INC-34. It has been recently introduced by the MCA and is effective from 1 October 2016.
Q2:       In case the subscriber to the MOA is a foreign national residing outside India, his signatures and address etc. shall be witnessed by a Notary Public/Embassy/Consulate offices of Embassies as per the Rule 13 of the Companies (Incorporation) Rules, 2014. In such cases, how can the DSC of such a witness be affixed?
A2:      In such cases, SPICe (INC-32) shall be filed along with the manually signed and duly attested MOA and AOA.
Q3:       Whether every company is required to follow the SPICe process for incorporation of a company?
A3:      As per Companies (Incorporation) Fifth Amendment Rules, 2016, all companies except Part I companies and a company having more than
7 subscribers/promoters are required to follow the SPICe process for incorporation with effect from 1 January 2017.
Q4:      Can a company apply for name availability certificate by filing
Form INC-1 prior to filing of SPICe form?

A4:      Yes, an applicant can make an application in Form INC-1 for name availability as per Rule 9 of the Companies (Incorporation) Rules,
2014,  and  file  incorporation  documents  through  SPICe  mode  on
approval of the name. However, such name shall be reserved for a period of 60 days from the date of making an application.
However,  as  per  the  proposed  Companies  Amendment  Bill,  2016 which is yet to be notified, name shall be reserved for a period of 20 days from the date of approval or such other period as may be prescribed shall be substituted.
Q5:      Can a company be incorporated without a registered office?

A5:      Yes,  a  company may  be incorporated without having a  registered office address by  providing an  address for  correspondence in  the incorporation form. However, as per Section 12 of the CA, 2013 read with Rule 25 of the Companies (Incorporation) Rules, 2014 on or from the 15th day of its incorporation and at all time thereafter, a company is required to have a registered office. The company which has not intimated address of its registered office at the time of incorporation is required to intimate to ROC of the same within 30 days of incorporation.
However,  as  per  the  proposed  Companies  Amendment  Bill,  2016 which is yet to be notified, a Company can have its registered office within 30 days of  its incorporation as  against 15 days as  per the present requirement.
Q6:       In   case   of   an   overseas   subscriber   and   director,   are   the documents required to be notarised and apostilled for incorporation of a company?
A6:      As per Rule, 13 of the Companies (Incorporation) Rules, 2014, where the subscriber to the MOA or a director to be appointed is a foreign national residing outside India, the MOA, AOA, proof of identity as well as address proof shall be attested in the following manner which is based on the country where the subscriber/ director reside or the registered office is situated in case of a body corporate being the subscriber:
1.          Residing in a country which is part of the Commonwealth - by a Notary (Public) in that part of the Commonwealth;
2.          Residing in a country which is party to the Hague Apostille Convention, 1961 - by a Notary (Public) and duly apostilled in accordance with the said Hague Convention; and
3.          Residing in a country which is not party to the Hague Apostille Convention, 1961 - the documents shall be notarized before the Notary (Public) of such country and the certificate of the Notary  (Public)  shall  be  authenticated  by  a  Diplomatic or Consular Officer empowered in this behalf under Section 3 of the Diplomatic and Consular Officers (Oaths and Fees) Act,
1948   (40   of   1948)   i.e.   attested  by   Public   Notary   and authenticated by Indian Embassy in the country of residence.
Q7:       What  is  the  due  date  to  intimate  the  ROC  for  change  in  the situation of registered office of the company?
A7:      As  per  Section  12(4)  of  the  CA,  2013  read  with  Rule  27  of  the
Companies (Incorporation) Rules, 2014, notice of every change in the situation of registered office of the company is required to be given to the ROC within 15 days of the change in Form INC-22.
However,  as  per  the  proposed  Companies  Amendment  Bill,  2016 which is yet to be notified, every change in the situation of registered office of the company is required to be given to the ROC within 30 days of the change.
Q8:       What is OPC?

A8:      As per Section 2(62) of the CA, 2013, OPC means a company which has only one person as a member.
Q9:      Can a non-resident become a member of an OPC?

A9:      In terms of Rule 3 of the Companies (Incorporation) Rules, 2014, only a natural person who is an Indian citizen and resident in India is eligible to incorporate an OPC. Therefore, a non-resident cannot become a member or nominee of an OPC.
For the purposes of this rule, the term “resident in India” means a person who has stayed in India for a period of not less than one hundred and eighty two days during the immediately preceding one calendar year.
Q10:    How  many OPCs can  be  incorporated by  a  person or  in  how many OPCs, he shall be eligible to be a nominee?
A10:    As per Rule 3(2) of Companies (Incorporation) Rules, 2014 no person is eligible to incorporate more than one OPC or become nominee in more than one such company.
Rule   3(2)   of   the   Companies  (Incorporation)  Rules,   2014   was substituted vide Notification dated 27 July 2016, Companies (Incorporation) Third Amendment Rules, 2016, as per which a natural person shall not be member of more than an OPC at any point of time and the said person shall not be a nominee of more than an OPC.
Q11:    Can a company registered under Section 8 merge with another company with dissimilar objects?
A11:    As  per  Section  8(10)  of  CA,  2013,  a  company  registered  under Section 8 can only be merged with another Section 8 company which has similar objects.
Q12:    Is a Section 8 company required to seek permission of Central
Government (“RD”) for alteration of its AOA prior to getting the



same approved by the members by means of special resolution in general meeting?
A12:    Yes,  as  per  Section  8  (4)(i)  of  CA,  2013,  Section  8  Company  is required to obtain prior approval of Central Government (power delegated to “RD”) for alteration of its articles. However, members may pass the resolution for alteration of articles prior to the approval, but   it   shall   be   effective  only   post   approval  from   the   Central Government (“RD”).
Q13:    How will the surplus be treated in case of winding up of Section
8 Company?

A13:    As per Section 8(9) of CA, 2013 (applicable w.e.f. 15.12.2016), any asset remaining after satisfaction of the debts will be transferred to another company registered under Section 8 of the CA, 2013 having similar objects, subject to such conditions as the NCLT may impose, or the same may be sold and proceeds thereof will be credited to the Insolvency and Bankruptcy Fund formed under Section 224 of the Insolvency and Bankruptcy Code, 2016.
Q14:    What is Small Company?

A14:    As per Section 2(85) of the CA, 2013, a Small Company, other than public company, means a company where the:
(a)        paid-up share capital of the company does not exceed INR 50
Lakhs or such higher amount as  may be prescribed which shall not be more than five crore rupees; and
(b)         turnover  as  per  its  last  profit  and  loss  account  does  not exceed 2 Crores or such higher amount as may be prescribed which shall not be more than twenty crore rupees:
Note: No higher amount has been prescribed as yet.

Further, holding company, subsidiary company, company registered under Section 8 or a company or body corporate governed by any special act will not be considered as a small company.
However,  as  per  the  proposed  Companies  Amendment  Bill,  2016 which is yet to be notified, the limit of paid up capital and turnover is proposed to  be  increased to  INR  10  Crores and  INR  100  Crores respectively.
Q15:    Is it mandatory for the name of the company to be indicative of the nature of its business?



A15:    No, it is not mandatory for the name to be indicative of the nature of its business.
Q16:    Can a company have multiple and varied objects under its MOA?

A16:    The Object Clause of the MOA of a company defines the objects or business it can carry and there is no bar under Section 4 (1) (c) of CA, 2013 on a company from having multiple objectives. As a matter of  practice, the  authorities do  not  approve more than  four  to  five objects in the Object Clause of the MOA.
However,  as  per  the  proposed  Companies  Amendment  Bill,  2016 which is yet to be notified, the Company may engage in any lawful act or activity for the time being in force. In case, company proposes to pursue any specific objective, MOA shall state the said object for which company is incorporated.
Thus, as per the proposed Companies Amendment Bill, 2016, the question on multiple object or varied object would not arise.
Q17:    Is a company required to alter its AOA as per the new format under the CA, 2013?
A17:    As per the provisions of Section 5(6) of the CA, 2013, AOA of the company shall be in respective forms specified in Table F, G, H, I and J in Schedule I.
Also, as per the provisions of Section 5(9) of CA, 2013, provisions pertaining to AOA shall not apply to the AOA of company registered under  any  previous  company  law  unless  amended under  the  CA,
2013.

It is not necessary, but advisable that subsequent to any amendment to the AOA, the AOA is aligned as per the format specified under the CA, 2013.
Q18:    Is a company required to pass a special resolution for altering its MOA?
A18:    As per the provisions of Section 13(1) of the CA, 2013, a company is required to pass special resolution for altering its MOA except for the alteration of capital clause of MOA which could be altered by passing ordinary resolution as per the provisions of Section 61 of the CA,
2013.

Q19:   Is an approval from Central Government (“RD”) required for alteration of MOA relating to change in place of registered office from one state to another?



A19:    As per Section 13(4) of the CA, 2013, the alteration of MOA relating to change in place of registered office from one state to another shall not have any effect unless it is approved by the Central Government. As the powers of Central Government on this aspect are delegated to RD, the company will have to make an application and obtain the approval from the RD.
Q20:    In case of shifting of registered office from one state to another there is a requirement of filing the order with each of the ROC’s. Is it possible to file two forms with a single CIN?
A20:    No, it is not possible to file order approving the change of registered office with two different ROC’s with the same CIN.
As  per  Section  13  (7)  of  CA,  2013  read  with  Rule  31  of  the Companies   (Incorporation)   Rules,   2014,   the   order   of   the   RD approving the change of registered office from one state to another has to be filed in Form INC-28 with the ROC of each of the state within 30 days from the receipt of the certified copy of the order. Given the practical challenge, that the company cannot file Form INC-
28 twice with the same CIN, the form is required to be filed with the
ROC under whose jurisdiction the registered office was originally situated. The company will then have to file the Form INC-28 again with the new ROC where the registered office of Company is shifted.
Q21:    What is the limit on  the number of  members for  formation of association or partnership of persons?
A21:    Section  464  of  the  CA,  2013  provides  that  no  association  or partnership can be formed with the number of members exceeding hundred (100) subject to the Rules prescribed under the CA, 2013. Rule 10 of Companies (Miscellaneous) Rules, 2014 provides that no association  or  partnership  can  be  formed  with  the  number  of members exceeding fifty (50).
Therefore, the limit of number members for formation of association or partnership of persons is fifty (50).
Q22.     Will the notifications, circulars, rules, orders issued for certain type of companies under Companies Act 1956 still be applicable for those companies under the Companies Act 2013?
A22:    Section 465 (2) of the CA, 2013 provides that the notification, circular, rules, orders issued under CA, 1956, insofar as it is not inconsistent with the provisions of CA, 2013, be deemed to have been done or taken under the corresponding provisions of the CA, 2013. It further



provides that it shall continue to be in force, if it was in force at the commencement of the CA, 2013 and shall have effect as if made, directed, passed, given, taken, executed, issued or done under or in pursuance of the CA, 2013.
Considering the aforesaid, notifications, circulars, rules, orders issued for  certain  type  of  companies  under  the  CA,  1956  will  also  be applicable for those companies under the CA, 2013.
Q23.    Is a Small Company required to prepare Cash Flow Statement?

A23:    As per Proviso to Section 2(40), exemptions have been granted to Small Company, OPC and Dormant Company with effect from 1st April, 2014. Therefore, it is not mandatory for a Small Company to prepare Cash Flow Statement.
Q24:    Is it mandatory for a company to have a common seal?

A24:    No, as per the Companies (Amendment) Act 2015, the companies are not mandatorily required to have common seal. Further, the existing companies may amend their AOA to this effect.

 Capital and Allied Matters


Q25:    Is a private company required to follow the rules pertaining to issue of shares with differential voting rights?
A25:    As per notification No. GSR 464(E), dated 5th June, 2015 issued by MCA, Section 43 pertaining to kinds of share capital is not applicable to a private company, if same is provided in the MOA and AOA of that private company and hence, private company can issue shares with differential voting rights without following the conditions prescribed for issue of shares with differential voting rights.
Q26:    Is it mandatory to issue share certificate under the common seal of the company?
A26:    No, it is not mandatory to issue share certificates under the common seal of the company. As per the Companies (Amendment) Act, 2015 read with Companies (Share Capital and Debentures) Second Amendment  Rules,  2015,  every  share  certificate  shall  be  issued under the common seal, if the company has a common seal.
Q27:    Who is required to sign the share certificate?

A27:    As  per  Section  46  of  the  CA,  2013,  read  with  Rule  5(3)  of  the Companies (Share Capital and Debentures) Rule, 2014, a share certificate can be signed in the following manner:
a.         Company other than OPC:

(i)          If  a  company  has  a  common  seal,  the  share  certificate  is required to be signed by two Directors and Secretary or any person authorized by the Board for the purpose.
(ii)         If a company does not have a common seal, then the share certificates shall be signed by two directors or a Director and the Company Secretary, where the company has appointed a Company Secretary.
b.         OPC:

(i)          If  a  company  has  a  common  seal,  the  share  certificate  is required to be signed by one Directors or a person authorized by the Board of Directors of the company and Secretary or any other person authorized by the Board for the purpose.
            (ii)          If  a  company  does  not  have  a  common  seal,  then  the  share certificates shall be signed by a person in whose presence the seal is required to be affixed.
Q28:     What are the modes available for issue of further shares?

A28:    As per Section 23 of the CA, 2013, following modes are available for issue of further shares:
1.         Public Companies:

a)         Public offer through issue of prospectus;

b)         Private Placement/ Preferential allotment;

c)         Issue of shares to employees under a scheme of employees’
stock option; and

d)         Right issue/ bonus issue

2.         Private Companies:

a)         Right issue/ bonus issue;

b)         Issue of shares to employees under a scheme of employees’
stock option; and

c)         Issue of shares to any person through preferential allotment/
private placement.

Q29:    Can subsidiary company hold shares in its holding company?

A29:    As per Section 19 of the CA, 2013, subsidiary company cannot hold shares in its holding company and any such holding shall be void except in following circumstances:
a)          where the subsidiary company holds such shares as the legal representative   of   a   deceased   member   of   the   holding company;
b)          where  the  subsidiary  company  holds  such  shares  as  a trustee;
c)          where the subsidiary company is a shareholder even before it became a subsidiary company of the holding company.
Q30:     Can a company issue shares at a discount?

A30:    As per Section 53 of CA, 2013, no company shall issue shares at a discount other than issue of sweat equity shares. Any shares issued by a company at a discounted price shall be void.
However,  as  per  the  proposed  Companies  Amendment  Bill,  2016 which is yet to be notified, a company may issue shares at a discount to its creditors when its debt is converted into shares in pursuance of any statutory resolution plan or debt restructuring scheme in accordance with any guidelines or directions or regulations specified by the Reserve Bank of India under the Reserve Bank of India Act,
1934 or the Banking (Regulation) Act, 1949.

Q31:  Is a company required to obtain shareholders’ approval for preferential issue of shares?
A31:    Yes, as per Section 62(1)(c) read with Rule 13(1) of the Company (Share Capital and Debenture) Rules, 2014, a company is required to obtain shareholders’ approval by way of special resolution in the general meeting of the company.
Q32:    What  is  the  maximum  number  of  persons  to  whom  private placement offer can be made?
A32:    As per Section 42 of CA, 2013, a company can issue securities to such persons not exceeding fifty or such higher number as may be prescribed.
As   per   Rule   14   of   Companies  (Prospectus   and   Allotment   of Securities) Rules, 2014, the limit of number of persons to whom the securities are to  be issued cannot exceed two hundred person in aggregate in a financial year.
Q33:    Who  are  exempted  from  being  included  in  the  limit  of  200 persons to whom private placement offer is issued?
A33:    As per Section 42 of CA, 2013 read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, any offer made to the qualified institutional buyers or the employees of the company under the employee stock option scheme are exempted from being considered in determining the maximum limit.
Q34:    Is a share valuation report required in case of  Right Issue of
Shares?

A34:    Share valuation report is not required in case of right issue of shares.
However,  in  case  of  issue  of  shares  to  non-resident, valuation is required to be carried out as per the provisions of FEMA.
Q35:    Can Board of Directors of a company take a decision to issue
Preference Shares?
A35:    No,   as   per   Rule   9(1)(a)   of   Companies   (Share   Capital   and Debentures) Rules, 2014, preference shares can only be issued after obtaining approval of  shareholders through a  special resolution in general meeting. Hence, Board of Directors can only recommend to the shareholders along with a detailed explanatory statement for approval.
Q36:    Can a private company issue debentures to public?

A36:    No,  a  private  company  cannot  issue  debentures  to  public.  The definition of a ‘private company’ as laid down in Section 2 (68) of the CA, 2013 prohibits a company from inviting public to subscribe to any securities issued by it. Given the prohibition to subscription by the public, a private company can issue debentures only through private placement.
Q37:    Is a company required to intimate the ROC post redemption of preference shares?
A37:    Yes, as per Section 64 of the CA, 2013, a company is required to intimate the particulars of redemption to the ROC in Form SH-7 within
30 days of redemption of preference shares.

Q38:    What is the form for filing return of allotment with the ROC post allotment of securities?
A38:    As per the provisions of Section 39(4) of the CA, 2013 read with Rule
12 of the Companies (Prospectus and Allotment of Securities) Rules,
2014, a Company is required to file a return of allotment within 30 days from the date of allotment of shares in Form PAS-3 with the ROC along with the list of allottees.
However,  as  per  the  proposed  Companies  Amendment  Bill,  2016 which is  yet  to  be  notified, in  case  of  allotment of  shares  issued through private placement procedure, the return of allotment shall be filed with the ROC within 15 days from the date of allotment.
Q39:    Is it mandatory to get the securities listed in case of a public offer?
A39:    Yes,  as  per  Section  40  of  the  CA,  2013,  it  is  mandatory  for companies to make an application to one or more recognised stock exchange or exchanges and obtain permission for the securities to be dealt  with  in  such  stock  exchange  or  exchange  before  making  a public offer.
Q40:    Section 40(1) of the CA, 2013 requires a company to make an application to the stock exchanges for listing of securities and obtaining permission prior to making an offer. The requirement under Section 73(1) of the CA, 1956 was only to make an application. Hence, is it now required to obtain prior permission from   the   stock   exchanges  or   is   making   an   application  a sufficient compliance?
A40:    As per Section 40(1) of the CA, 2013, it is specifically provided that every company which desires to make public offer should make an application to one or more stock exchanges and take prior permission for dealing in securities. Hence, company intending to make a public offer is required to make an application and obtain approval of shareholders prior to making an offer.
Q41:    What is the offer period for rights issue?

A41:    As per Section 62(1)(a)(i) of the CA, 2013, the rights issue offer shall be kept open for a minimum period of 15 days and maximum period of 30 days. However, in case of a private company, offer period may be reduced by obtaining consent in writing or through electronic mode of 90% of the members of private company. [This exemption is available to private company vide notification No. GSR 464(E) dated
5th June 2015].

Q42:    Can a company pass the resolution for issue of securities by way of circulation?
A42: As per Section 179(3) of the CA, 2013, resolution with regard to issue of securities should be discussed and passed at a duly convened Board meeting and hence, resolution cannot be passed through circulation.
Q43:   Can a company convert the existing shares into shares with differential voting rights and vice versa?
A43:    No, as per Rule 4(3) of Companies (Share Capital and Debenture) Rules 2014, company cannot convert its existing shares into shares with differential voting rights and vice versa.
Q44:    What  is  meant  by  sweat  equity  shares  and  to  whom  can  a company issue sweat equity shares?
A44:    As per Section 2(88) of the CA, 2013, sweat equity shares means shares issued at a discount or for consideration other than cash to the Directors and employees for providing know-how or making available rights in the nature of intellectual property rights or value addition.
As per Rule 8(1) of the Companies (Share Capital and Debentures) Rules, 2014, sweat equity shares can be issued to employees of the company as classified below:

permanent employee of the Company who has been working in India or outside India, for at least one year;

a Director of the Company, whether a whole time Director or not;

an employee or a director as specified above of a subsidiary or of a holding of the company
Q45:    What is the lock-in period for sweat equity shares?

A45:    As per Rule 8(5) of the Companies (Share Capital and Debentures) Rules,  2014,  sweat  equity  shares  issued  to  the  employees  or Directors of the Company shall be locked-in for a period of 3 years from the date of issue and the same shall be stamped or mentioned in any other prominent manner on the share certificate.
Q46:    What is the cap on issue of sweat equity shares?

A46:    The cap on issue of sweat equity shares is as follows:

(i)          In a year, issue shall not exceed 15% of the existing issued equity share capital or issue value of INR 5 crores whichever is higher;
(ii)         At any time, issue shall not exceed 25% of the total paid up equity capital  of  the  Company  but  a  start-up  company  can  issue  sweat equity shares not exceeding 50% of its paid up capital up to five years  from  the  date  of  its  incorporation  [The  Companies  (Share Capital and Debentures) Third Amendment Rules, 2016].
Q47:  Are all kinds of companies required to obtain approval of shareholders by means of a special resolution for issuing shares under ESOP?
A47:     As per Section 62(1)(b) of the CA, 2013, all companies other than private companies are required to  obtain approval by  means of  a special resolution in general meeting for issuing shares under ESOP. As per notification No. GSR 464(E) dated 5 June 2015, in case of private companies, an ordinary resolution by the shareholders would suffice the requirement for issue of shares under ESOP.
Q48:    Can an employee who is also a promoter of a company eligible to obtain sweat equity shares and employee stock of option?
A48:    As per Rule 12 of Companies (Share Capital and Debentures) Rules,
2014, employee who is also a promoter or person belonging to the
promoter group is specifically excluded from obtaining shares issued under ESOP. In case of a start-up company as defined in notification number  GSR  180(E)  dated  17th February,  2016  issued  by  the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry Government of India, Government of India, this condition shall not apply up to five years from the date of its incorporation or registration. [The Companies (Share Capital and Debentures) Third Amendment Rules, 2016].
However, in case of sweat equity shares, the said exclusion is not specified in the provisions. Thus, an employee who is also a promoter of a company is eligible to get sweat equity shares and not the employee stock option.
Q49:    Will all the employees of the company be eligible to participate in the ESOP?
A49:    No, only those employees as determined by the management of the company shall be eligible to participate in the ESOP.
Q50:    Has Section 66 pertaining to reduction of capital been enforced?

A50:    Section 66 of the CA, 2013 for reduction of capital has been enforced with effect from 15 December 2016 and accordingly, every company is   required   to   follow   the   provisions   prescribed   thereunder   for reduction of share capital.
Q51:    What  is  meant  by  the  term  “Buy  back  of  Shares”  and  funds utilized for buy back?
A51:    “Buy  back”  is  a  concept  by  which  a  company  purchases  its  own shares or other specified securities by following the procedures laid down in Section 68 of the CA, 2013. The company can utilize free reserves, securities premium account  or  proceeds  of  the  issue  of fresh issue shares or other specified securities to purchase its own shares.
Q52:    What is the limit prescribed for buy back of shares?

A52:    As per the provisions of Section 68(2) of the CA, 2013, in case a special resolution has been passed by the members of the company at the general meeting, the company can buy back shares not exceeding 25% of the aggregate of paid-up capital and free reserves of  the company and in case of  buy back of  equity shares in  any financial year, it should not exceed 25% of its total paid-up equity capital in that financial year.
Provided that the company can buy back 10% of the total paid-up equity capital and free reserves after obtaining approval of Board. In such a case, approval of the shareholders’ by means of a special resolution will not be required.
Q53:    Can a company buy back its shares if it is not authorized by its
AOA?

A53:    As per the provisions of Section 68(2) of the CA, 2013, a company cannot buy back its shares if it is not authorized by its AOA.
Q54:    What is the time limit for completion of buy back?

A54:    As per the provisions of Section 68(4) of the CA, 2013, every buy back shall be completed within a period of one year from the date of passing of the special resolution or resolution passed by the Board, as the case may be.
                                                 Directors


Q55:    What is DIN?

A55:    DIN is a unique identification number issued to a prospective director by the DIN cell of Ministry of Corporate Affairs (“MCA”). An individual should hold a DIN before being appointed as a director in any Company.
Q56:    Is it mandatory for a director to hold digital signature?

A56:    A director who is already holding a DIN can obtain a digital signature, though it is not mandatory. If a person is not holding DIN and intends to  be  appointed as  a  Director in  a  Company, he  should obtain a digital signature for making an application for obtaining DIN to the DIN cell.
Q57:    Who can be appointed as director?

A57:    As per the provisions of Section 152 of the CA, 2013, an individual holding  a  valid  DIN  and  not  disqualified from  being  appointed as Director  under  Section  164  of  the  CA,  2013,  is  eligible  to  be appointed as Director. He shall give his consent to act as a director in writing along with the disclosure of his interest and a declaration that he is not disqualified to become a director under CA, 2013.
Q58:    What are the broad steps involved in appointment of a director?

A58:    The broad steps involved in appointment of a director are: Obtain DSC;
Obtain DIN by filing Form DIR-3;

Declaration that he is not disqualified from being appointed as the Director in form DIR-8;
Written consent of director for his appointment in form DIR-2; Interest of the Director if any, in any other entity in form MBP-
1;

Approval of Board of directors by Board Resolution;

Approval    of    Shareholders    by    shareholders    Ordinary
Resolution;

Intimation of appointment of director to ROC in Form DIR-12



Q59:    Can a director be appointed by the Board of a company?

A59:    Although, as per the provisions of Section 152 of the CA, 2013, the directors of the Company are required to be appointed by the shareholders of the Company in general meeting, the Board of the Company,  if  authorised  by  the  AOA  of  the  company  can  appoint director under following circumstances:

Appointment of additional director; Appointment of nominee director; Appointment of alternate director;
Appointment of director for filling casual vacancy

Q60:    What shall be the effective date of resignation of a director?

A60:    As  per  the  provisions  of  Section  168(2)  of  the  CA,  2013,  the resignation of a director shall take effect from the date on which the notice is received by the company or the date specified in the notice, whichever is later.

Q61:    What are the procedures to be carried out by a director at the time of resignation from the company?

A61:    As per the provisions of Section 168 of the CA, 2013 read with Rule
15 and Rule 16 of the Companies (Appointment and Qualification of Directors) Rules, 2014, a director may resign from his office in the following manner:

(i)       by giving a written notice to the Board; and

(ii)       shall  forward a  copy  of  his  resignation along  with  detailed reasons to the ROC in Form DIR-11 within 30 days of resignation.

In case of resignation of a foreign director, such a foreign director can authorize in writing a practising chartered accountant or cost accountant in practice or company secretary in practice or any other resident director of the company to sign Form DIR-11 and file the same on his behalf with the ROC.

The Company on receipt of the notice of resignation from the Director shall:

(i)       take the same on record;

(ii)      intimate the ROC in Form DIR-12 within 30 days; and

(iii)     place the fact of such resignation in the Board’s Report laid in the immediately following general meeting of the company.

Q62:    How long will the director be liable for the offences occurred during his tenure?

A62:    The director shall be liable for the acts / transactions occurred during his   tenure   even   after   resignation   and   disassociation  with   the company.

Q63:    Who   are   KMPs   and   whether   their   appointment   requires additional compliance?

A63:    KMP has been defined under Section 2(51) of the CA, 2013, to mean: Chief Executive Officer or Managing Director or Manager; Company Secretary;
Whole Time Director; Chief Financial Officer
The following companies, are required to appoint KMP and their appointment shall be intimated to the ROC in Form DIR
12 and the return of their appointment shall be filed in Form
MR 1:

Listed company;

Public company having paid up share capital of INR 10 crores or more

Provided that  as  per  Rule  8A  of  the  Companies(Appointment and Remuneration Managerial Personnel), Rules, 2014, a company other than those mentioned above needs to appoint a whole time Company Secretary if its paid-up share capital is rupees five crore or above.
Also, after the Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2016, MR-1 is not required to be filed for Chief Executive Officer, Company Secretary and Chief Financial Officer w.e.f. 30.06.2016.

Q64:    Can a director be removed from the Company?



A64:    Yes,  shareholders  of  the  Company  may  by  passing  an  ordinary resolution in general meeting remove a director, but after giving a reasonable opportunity of being heard pursuant to Section 169 of the CA, 2013. A special notice would be required for passing such resolution. Once shareholders remove a director from the Board, the Board of Directors cannot reappoint him.
                          Board Related Matters


Q65:     Are  all  companies  required  to   hold  Board  Meetings  every quarter?
A65:    As per Section 173 of the CA 2013 and Secretarial Standards 1, all companies – whether private limited companies or public companies are required to hold at least four meetings of its Board of Directors in each  quarter  every  year  where  the  gap  between two  consecutive board meetings is not more than one hundred and twenty days.
As per the notification No. GSR 466 E dated 05 June 2015, in case of a Section 8 company, the Board of Directors of the company shall hold at least one meeting within six calendar months.
In  case of  an OPC, if  there is  only one director on the Board of
Director, the quarterly board meetings are not required to be held.

However, if the OPC has more than one director or in case of small or dormant companies, it  will suffice the requirement, if  they  hold at least  one  meeting in  each  half  of  the  calendar year  and the  gap between two meetings should not be less than ninety days. Further, any business which is required to be transacted at the meeting of the Board of Directors of a company, it shall be sufficient if, in case of such OPC, the resolution by such director is entered in the minutes book.
Q66:    Can a Company restrict a director from participating in a meeting through video conferencing if he has not given an intimation of participating in the video conference meetings at the beginning of the year?
A66:    No,  a  company  cannot  restrict  a  director  from  participating  in  a meeting through video conference if he has not given intimation at the beginning  of  the  year.  An  intimation  given  to  the  company  or chairman on receipt of the notice calling the board meeting would suffice the requirement for attending the meeting through video conferencing.
Q67:     What are the matters which cannot be considered at a meeting held through video conferencing or other audio visual means?



A67:    As  per  Rule  4  of  the  Companies (Meetings  of  the  Board  and  its Powers)  Rules,  2014,  following  matters  shall  not  be  considered through video conferencing or other audio visual means:
(i)                   Approval of annual financial statements;
(ii)                  Approval of board’s report;
(iii)        Approval of prospectus;

(iv)        Audit  Committee  Meetings  for  consideration  of  financial statement including consolidated financial statement, if any, to be approved by the Board of Directors pursuant to Section 134(1) of the CA, 2013;

(v)          Approval of  the  matter  relating to  amalgamation, merger, demerger, acquisition and takeover.
However, as per The Companies (Amendment) Bill, 2016, which is yet to be notified, has proposed participation of Directors on certain items at  Board Meetings through video conference or  other  audio visual  means  if  there  is  quorum  through  physical  presence  of Directors.
Q68:    Is the notice calling for the board meeting required to state that the meeting is being convened at a short notice?
A68:    Yes, as  per Secretarial Standards-1 effective from 1 July 2015, a company is required to state the fact that the board meeting is convened at a short notice in the notice calling the meeting. However, the CA, 2013 is silent in this regard.
Q69:    Can a director interested in the contract participate in the board meeting or  be  counted  for  quorum  as  per  Section  174  of  CA
2013?

A69:    As per provisions of Section 188 of the CA 2013, if any director is directly   or   indirectly, concerned   or   interested   in   a   contract   or arrangement or proposed contract or arrangement then such director shall disclose the nature of his concern or interest at the meeting of the Board in which the contract or arrangement is discussed and shall not participate in such meeting.
However, in case of a private limited company, as per notification No. GSR 464E dated 5th June 2015, an interested director can participate and  vote  in  a  board  meeting  after  disclosing  his  interest  in  the particular transaction. The interested director, will be included for the purpose of determining the quorum of the meeting.
Q70:    Can  meetings  of  the  Audit  Committee  be  held  through  video conference?
A70:    Yes, the meetings of  Audit Committee can be held through video conference except the meeting where financial statements including consolidated financial statements is  considered for approval under Section 134(1) of CA, 2013.
Q71:    Is a company required to obtain approval of the Audit Committee for all the transaction entered into with related parties?
A71:    Yes, as per Section 177 of CA, 2013 read with Rule 6 and 6A of the Companies  (Meetings  of  Board  and  its  Power)  Rules,  2014,  a company is required to obtain approval of the Audit Committee for all the transactions entered into with related parties. Also, the Audit Committee has an option to grant omnibus approval which shall be valid for a period of one financial year.
However, as per the Companies (Amendment) Bill, 2016 which is yet to be notified, proposes to insert following amendments:

Ratification by Audit Committee of transactions involving amount not exceeding INR 1 Crores within 3 months of transaction;
Consequences of non-ratification of the transactions; Exemption from  approval of  audit  committee to  transaction
between a holding company and its wholly owned subsidiary.

Q72:    Which powers of the board are required to be exercised at a duly convened board meeting?
A72:    As per Section 179 of CA, 2013 read with Rule 8 the Companies (Meeting of Board and its Powers) Rules 2014, following powers of the Board can be exercised by means of a resolution passed at a duly convened Board meeting:
(a)        To make calls on shareholders in respect of money unpaid; (b)        To authorise buy back of securities;
(c)         To  issue  securities,  including  debentures,  whether  in  or outside India;
(d)        To borrow monies;

(e)        To invest the funds of the company;
(f)          To grant loans or give guarantee or provide security in respect of loans;
(g)        To approve financial statements and the Board’s report; (h)        To diversify the business of the company;
(i)         To approve amalgamation, merger or reconstruction;

(j)          To take over a company or acquire a controlling or substantial stake in another company;
(k)        To make political contributions;

(l)         To appoint internal auditors and secretarial auditor; (m)      To appoint or remove KMP;
As per the notification dated 5 June 2015, in case of a Section 8
Company, matters referred to in point no. (d), (e)  and (f) may be decided by the Board by circulation instead of at a meeting.
Q73:    Can a private company grant loan to its directors?

A73:    Sec 185 of the CA 2013 restricts loans to directors including private limited companies. However as  per  the  notification dated  6th  Jun
2015, a private company may grant loan to its directors subject to fulfilment of all of the following conditions:

No body corporate has invested in the share capital of the company;

Borrowings from banks/financial institutions/any other body corporate is less than twice the paid up share capital of the company and fifty crores whichever is lower; and

There is no subsisting default in repayment of existing borrowings at the time of the transaction.
Q74.    Can loan be given by a holding company to its wholly owned subsidiary company or a guarantee given or security provided by a holding company to  any loan  made to  its wholly owned subsidiary?
A74:    Yes, as per the proviso to Section 185(1) loan given by a holding company to  its  wholly  owned  subsidiary company  or  a  guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company is exempt from the purview of Section 185 of CA, 2013 provided the same is utilised for the principal business activities by the subsidiary.

Q75:    Is a private company exempt from Section 186 of CA, 2013?

A75:    A private company is not exempt from the applicability of Section 186 of CA, 2013.
Q76:    Is loan to an employee covered within the ambit of Section 186 of the CA, 2013?
A76:    As  per  General Clarification No.04/2015 issued by  the  Ministry of Corporate Affairs dated 10 March 2015, loans and/or advances made by the companies to their employees, other than the managing or who-time director are not governed by the requirement of Section 186 of the CA,2013. This clarification will however, be applicable if such loans/advances to employees are in accordance with the conditions of service applicable to employees and are also in accordance with the remuneration policy, in cases where such policy is required to be formulated.
Further, as per the Companies (Amendment) Bill, 2016 which is yet to be notified, proposes to exclude ‘employees’ from the definition of
‘any person’.

Q77:    Will salary advances made by the Company for only one or two months (without interest) come within the preview of “Loan”?
A77:    There is a difference between advance and loan. Loan is lending of money  with  absolute promise to  repay  whereas advance is  to  be adjusted against supply  of  goods  and  services. Advance given to employees against current month’s salary will not be in the nature of loan and the same will not fall within the purview of Section 186.
Q78:    Is unanimous consent of the board required for entering into a transaction under Section 186?
A78:    Yes,  as  per  Section  186(5)  of  the  CA,  2013,  consent  of  all  the directors present at the meeting is required for entering into a transaction.
Q79:    When is the approval from the public financial institutions not required for entering into transactions under Section 186?
A79:    As per the proviso to Section 186(5) of the CA, 2013, approval of public financial institutions is not required under the below circumstances:

The amount involved in the transaction does not exceed 60%
of  the  paid  up  share  capital,  free  reserves  and  securities
premium account and 100% of its free reserves and securities premium account, whichever is higher; and

There  is  no  default  in  repayment  of  loan  installments  and interest to public financial institutions.
Q80:    What is the due date for making entries in the new format of Register of Loans, Guarantees, Security and Acquisition? Also, is a company required to update the transactions covered under Section 372A of the CA 1956?
A80:    Since, 1 April 2014 it is mandatory for a company to maintain the Register of Loans, Guarantee, Security and Acquisition made by the company in Form MBP-2. Also, as per the clarification issued by MCA vide   Circular   No.   15/2014,  registers   maintained  by   companies pursuant to Section 372A (5) of the CA, 1956 may continue as per the requirement under these provisions and the new format prescribed (MBP-2) shall be used for transactions entered on and from 1 April
2014.

Q81:    Which are the transactions covered under Section 188 of the CA,
2013?

A81:    The following transactions are covered under Section 188 of the CA,
2013:

Sale, purchase or supply of goods or materials;

Sale or disposal of or buying of property of any kind; Leasing of property of any kind;
Availing of or rendering any services;

Appointment  of  an  agent  for  purchase  or  sale  of  goods, materials, services or property;

Related party’s appointment to any office or place of profit in the company or its subsidiary or associate company;

Underwriting of subscription of any securities or derivatives;

Q82:    Can Company provide interest free loans?

A82:    No, the Company shall not provide any loan without interest. As per Section 186(7) of the CA, 2013, no loan shall be given at a rate lower than the prevailing yield of one year, three year, five year or ten year Government Security closest to the tenor of the loan.

Q83:    Which are the transactions that would not require approval of the shareholders under Section 188?
A83:    As per Section 188(1) of the CA, 2013, following transactions do not require approval of the shareholders under Section 188 of the CA,
2013:

Transactions  in  ordinary  course  of  business  and  on  arm’s length basis;

Transactions between holding company and wholly owned subsidiary  company  whose  accounts  are  consolidated  and laid before shareholders at AGM.
Q84:    Can a member of a private company interested in a particular transaction participate and vote at a general meeting?
A84:    Yes, an interested member of a private company can participate and vote  at  general  meeting  on  matters  requiring approval  for  related party transaction pursuant to exemption Notification No. GSR 464(E), dated 05th June, 2015.
Q85:   Can a Director who is also a member of a private company participate and vote at a meeting for the transaction related to payment of remuneration to such directors?
A85:    Yes,  an  interested  Director  who  is  also  a  member  of  a  private company can participate and vote at meeting to approve the transactions related to payment of remuneration to such Director.
Q86:    In what circumstances is the prior approval of Board required for entering into  specified contracts or arrangements with related parties under Section 188?
A86:    As per Section 188 of the CA 2013, Board’s approval is required for the  contracts  or  arrangements  with  related  parties  specified  in Section 188(1) (a) to (g) which are either not in ordinary course of business or not at arm’s length basis. Further, in the case the transactions exceed the prescribed threshold, prior approval by ordinary resolution of the company shall be required for entering into such contract or arrangement with related party.
Q87:    As per the second proviso to Section 188 (1) of the CA, 2013, no member of the company shall vote on such ordinary resolution, to approve any contract or arrangement which may be entered into by the company, if such member is a related party.
What is the meaning of related party in such cases?
A87:    The MCA vide General Circular No. 30/2014 dated 17 July 2014 has clarified that ‘related party’ referred to in the second proviso has to be construed with reference to the contract or arrangement for which the said  ordinary  resolution  is  being  passed.  Thus,  the  term  ‘related party’  in  the  above  context  refers  only  to  such  related  party  with whom the contract or arrangement is being proposed and for which the said ordinary resolution is being passed.
However, as per the Companies (Amendment) Bill, 2016 which is yet to be notified, proposes to remove non-participation of related party shareholder of a public Company, in passing of the resolution of such public  Company in  which  90% or  more  members, in  number,  are relatives or promoters of related parties.
Q88:    Which  are  the  transactions  exempted  from  being  entered  in Register of Contracts and Arrangements in which the directors are interested?
A88:    The following transactions are exempted from being entered in the Register of Contracts and Arrangements in which the directors are interested:
Sale/purchase/supply of  any goods/services, if  the value does not exceed five lakh rupees in the aggregate in any year

Transaction by a banking company for the collection of bills in the ordinary course of its business
Q89:    Which are the different type of companies required to adopt vigil mechanism?
A89: Pursuant to Section 177(9) of the CA, 2013 read with Rule 7 of the Companies (meetings of Board and its Power) Rules, 2014, Vigil Mechanism is required to be adopted by the following companies:

Every listed company;

Companies which accept deposits from the public;

Companies  which  have  borrowed  money  from  banks  and public financial institutions in excess of fifty crore rupees.

        Management and Administration


Q90:    When should a company convene its first AGM?

A90:    As  per  Section 96  of  the  CA,  2013, the  first  AGM  of  a  company should be held within a period 9 months from the date of close of first financial year.
Example – If a company’s financial year ends on 31 March, the first AGM of the company shall be held latest by 31 December of that year.
Q91:    Can AGM be held at a place situated outside the limit of city, town or village in which the Registered Office is situated?
A91:    As per the provisions of Section 96(2) of the CA, 2013, AGM cannot be held at a place situated outside the limit of city, town or village in which   the   Registered   Office   is   situated.   Provided   in   case   of Government  companies,  AGM  can  be  held  at  a  place  which  the Central Government may approve i.e. a Government Company can convene its AGM at a place other than limit of city, town or village in which the Registered Office is  situated if  the  Central Government may approve.
However,  as  per  the  proposed  Companies  Amendment  Bill,  2016 which is yet to be notified, AGM of an unlisted company may be held at any place in India if consent is given in writing or by electronic mode by all the members in advance.
Q92:    Can AGM be convened at shorter notice?

A92:    Yes, as per Section 101(1) of the CA, 2013, AGM can be convened after  giving  a  shorter  notice  subject  to  consent  in  writing  or  in electronic mode is received from 95% of the members entitled to vote thereat.
Q93:    What shall be the Quorum of an AGM?

A93:    As per Section 103 of the CA, 2013, quorum for the AGM of a private limited company is  2  members personally present,  but  in  case  of public limited company, quorum for AGM is based on the number of members in the Company, as stated below:

Quorum required Total number of member in the
Company
(members to be personally present)
5 Less than 1000
15 1000 to 5000
30 More than 5000

Q94:    Can EGM be held at a place situated outside India?

A94:    No, EGM of a company cannot be held outside India.

However,  as  per  the  proposed  Companies  Amendment  Bill,  2016 which is yet to be notified, EGM of a company, other than a wholly owned subsidiary of a company incorporated outside India, shall be held at a place within India.
Q95:    Who can be appointed as proxy?

A95:    As per Section 105 of the CA, 2013, proxy need not be a member of the company and any person can be appointed as a proxy.
Q96:    What are the restrictions on a proxy during the shareholders meeting?
A96:    As per Section 105 of the CA, 2013, at a shareholders meeting, a proxy can vote only through poll and not by show of hands. Also a proxy is not entitled to speak at the meeting.
Q97:    Can a member of Section 8 Company appoint any other person as its proxy?
A97:    No, as per Rule 19 of Companies (Management and Administration) Rules,  2014,  a  member  of  Section  8  Company  can  appoint  only another member of the same company as its proxy.
Q98:    For how many members can a person be appointed as a proxy?

A98:    As  per  Section  105  of  the  CA,  2013,  read  with  Rule  19  of  the Companies (Management and Administration) Rules, 2014, a person can act as proxy on behalf of maximum 50 members and holding voting rights on shares not more than 10% of total share capital.



In case of a person holding proxy for a member, holding voting rights on shares for more than 10% of total share capital, he/she cannot hold a proxy for another member in the same company.
Q99:    Can one member appoint more than one proxy?

A99:    Yes, a person can appoint more than one proxy.

Q100:  When can a proxy be appointed? Can a person be appointed as a permanent proxy for a member?
A100: As per the provisions of Section 105 of the CA, 2013, proxy can be appointed by a member any time after the notice is issued, but the same should reach the company 48 hours before the scheduled meeting. A person cannot be appointed as a permanent proxy for a member.
Q101:  Can a director appointed as a Chairman at the meeting of the Board for the purpose of convening such meeting be considered as a person holding the positon of Chairman of the Company?
A101:  A director appointed as a Chairman at the meeting of the Board for the purpose of convening such meeting cannot be considered as a person holding the positon of Chairman of the company. In case a company  is  willing  to  designate  a  director  as  Chairman  of  the company, a separate resolution with this affect is required and the necessary intimations shall be given to the ROC.
Q102:  What is the period prescribed for preserving the annual returns prepared under the CA, 2013?
A102: Pursuant to Rule 15(3) of the Companies (Management and Administration) Rules, 2014, the Copies of annual returns prepared under  Section  92  and  copies  of  all  certificates  and  documents required to be annexed thereto shall be preserved for a period of eight years from the date of filing with the ROC.
Q103:  What are the requirements of signing of Annual Return?

A103:  Pursuant to the provisions of Section 92 of the CA, 2013 read with
Rule 11 of the Companies (Management and Administration) Rules,
2014, annual return shall be signed in the following manner:

(i)          In case of a Small Company and OPC, the annual return shall be  signed  by  Company  Secretary  or  where  there  is  no Company Secretary, by the Director of the Company.

(ii)         In case of other companies, the annual return shall be signed by a Director and the Company Secretary, or where there is no Company Secretary, by a Practising Company Secretary.
Q104:  What are the certification requirements of Annual Return?

A104:  Pursuant to Section 92(2) of the CA, 2013 read with Rule 11(2) of the Companies   (Management   and   Administration   Rules,   2014,   the Annual Return of the following companies shall be certified by a Company Secretary in whole time practice in Form No. MGT-8:

Every listed company;

Every company having paid up share capital of INR 10 crore or more;

Every company having turnover of INR 50 crore or more

Q105:  Is the extract of the Annual Return required to be attached to
Board’s Report in terms of Section 134 (3)(a) of the CA, 2013?

A105:  An extract of the annual return in form MGT-9 relating to the financial year to which the Board’s Report relates shall be attached therewith in terms of Section 134 (3)(a) of the CA, 2013.
Q106:  In case the AGM is not held, what is the time limit for filing the
Annual Return?

A106:  As per Section 92(4) of the CA, 2013, in case the AGM of a company is not held, the Annual Return has to be filed within 60 days from the last date on which AGM should have been held together with the statement specifying the reasons for not holding the AGM.
Q107:  Which registers should include the index of names?

A107:  As per Section 88(2) of the CA, 2013, the following registers should include an index of names:

Register of members;

Register of debenture holders; Register of any other security holders.
Provided that an index is not mandatory if the number of members
are less than 50

Q108:  What is the duration for preservation of Statutory Registers?



A108:  As per Rule 15 of the Companies (Management and Administration) Rules, 2014, the Statutory Registers are to be preserved in the following manner:
----------------------------------------------

                                                 Accounts
 .
 .
Q109:  What shall be the first financial year of the newly incorporated company or body corporate?
A109:  As per Section 2(41) of the CA, 2013, the first financial year of a company means a period beginning from the date of incorporation and ending on 31 March of the following year.
Q110:  In case any existing auditor incurs disqualifications as per the CA 2013, what is the procedure to be followed for appointment of new auditor? Is the company also required to follow the procedures relating to removal of auditor as prescribed in the CA, 2013?
A110:  As per Section 141(4) the CA, 2013, an auditor once disqualified shall vacate office and which in turn results in casual vacancy. The casual vacancy can be filled by the board of directors within 30 days of such disqualification and the process relating to removal of Auditors is not required to be followed.
It may be noted that the auditor so appointed holds office only till the conclusion of the next AGM.
Q111:  How  does  the  requirement  of  rotation  of  auditor  apply  to  a company having a calendar year end or June Year-end?
A111:  Appointment/re-appointment of auditor takes place at the AGM and is valid until the conclusion of the next AGM irrespective of the year end. The period of five years will be counted from AGM to AGM.
Q112:  Who shall sign the Financial Statements of a Company?

A112:  The Financial Statements of a company is required to be signed as per the provisions of Section 134 of the CA, 2013 by:

The chairperson of the company (if he is authorised by the Board) or by two directors (out of which 1 shall be Managing Director/ Chief Executive Officer if any); and

Chief Financial Officer and Company Secretary wherever they are appointed
However, the Companies (Amendment) Bill, 2016 which is yet to be notified, enables Chairperson if he is authorized or two directors out of which one shall be MD, if any and the CEO, the CFO and the



Company  Secretary,  wherever  they  are  appointed,  to  sign  the financial statements of the company.
Q113:  Can a company maintain books of account in any place other than Registered Office?
A113:  As per the provisions of Section 128 of the CA, 2013 read with Rule
2A  of  the  Companies  (Accounts)  Rules,  2014,  a  company  may maintain books of account and other relevant papers may be kept at such other place in India as the Board of Directors may decide and where such a decision is taken, the company shall, within seven days thereof, file with the  ROC a  notice in Form AOC-5 giving the full address of that other place.
Q114:  If the Notice of the AGM is circulated at a short notice, can the financial statements also be sent along with the notice?
A114:  Yes, a company holding a general meeting after giving a short notice as provided under Section 101 of the CA, 2013 may also circulate financial statements at such short notice.
However, the Companies (Amendment) Bill, 2016 which is yet to be notified,  proposes  to  enable  the  Company  to  send  copy  of  the financial statements at a period lesser than 21 days if 95% of the members entitled to vote at the meeting agrees for the same.
Q115:  What is the duration for preserving the Books of Account?

A115:  As per Section 128(5) of the CA 2013, the books of account shall be preserved  by  the  company  for  8  financial  years  preceding  the financial year.
Q116:  Is  it  required  to  attach  Board’s  Report  to  the  consolidated financial statements?
A116:  Yes, as per Section 134 (3) of the CA, 2013, the Board’s Report shall be attached to the consolidated financial statements.
Q117:  Are the standalone financial statements of the associates/joint ventures required to be placed on the website too?
A117:  As  per  fourth  proviso  to  Section  136(1)  of  the  CA  2013,  every company  having  a  subsidiary or  subsidiaries shall  place  separate audited accounts in respect of each of its subsidiary on its website, if any.  Therefore,  there  is  no  requirement  of  placing  standalone financial statements of associates/joint ventures on the website of the company.


        However,   the   Companies   (Amendment)   Bill,   2016,   inserts   the following provisions w.r.t foreign subsidiary.
If a Listed Company which has a foreign subsidiary and:

If the foreign subsidiary is statutorily required to prepare consolidated financial statement under the law  of  any  country, the requirement shall be met if such consolidated accounts are placed on the website;

If   the  foreign  subsidiary  is   not   required  to   audit  its   financial statements, the Listed Company may place the unaudited financial statement  on  its  website  and  if  the  language  is  not  English,  a translated copy of the same shall be placed on the website.
Q118:  Can  a  branch  office  of  the  company  maintain  its  books  of account in the location of branch office?
A118:  Yes, as per Section 128(2) the CA, 2013, the Company may maintain books of account relating to the transactions effected at the branch office at branch provided summarised returns are periodically sent to the registered office.
Q 119: Whether  the  subsidiary  of  a  company  under  liquidation  is required to consolidate its accounts as per Section 129 of the CA, 2013?
A119:  Since the holding company under liquidation is not required to have the  accounts  prepared  as  per  Section  129  the  CA,  2013,  its subsidiary company’s accounts shall  not  be  consolidated with  the aforesaid  holding  company.  However,  the  reasons  for  not consolidating must be explained in the notes as required by Schedule III.
Q120:  Is   it   required  to   comply  with  Accounting  Standards  while preparing the financial statements?
A120:  Yes, as per Section 129(1) of the CA, 2013, the financial statements should  be  prepared in  accordance with  the  accounting standards. Further, as per Section 129 (5) of the CA, 2013, in case of deviation from accounting standards, the financial statements must disclose the fact  of  such  deviation  and  reasons  for  the  same  along  with  its financial effects.
Q121:  What are the modes available for the company to maintain the books of account?
A121:  The Company may maintain books of  account either physically or electronically.   In   case   the   books   of   account   is   maintained


electronically, the back-up of the books of account and other books and papers of the company shall be kept in servers physically located in India on a periodic basis.
Q122:  Can a company keep the books and registers at a place other than registered office of the company?
A122:  Yes, as per Proviso to Section 128 (1), the books may be kept at such other place in India as the Board of Directors may decide after passing resolution in the duly held Board Meeting of the company.


                                Audit and Auditors


Q123:  Which companies are required to appoint Internal Auditor?

A123: As per Section 138 of the CA, 2013 and Rule 13 of Companies (Accounts) Rules, 2014, the following companies are required to appoint an internal auditor:

listed company;

every unlisted public company having at any point of time during the preceding financial year -
o   paid up share capital of INR 50 crores or more; or
o   turnover of INR 200 crores or more; or
o    outstanding loans or borrowings from banks or public financial institutions for more than INR 100 crores; or

o   outstanding deposits of INR 25 crore rupees or more
every  private  company  having  at  any  point  of  time  during  the preceding financial year -
o   turnover of INR 200 crores or more; or
o   outstanding loans or borrowings from banks or PFI for more than INR
100 crores

Q124:  Who can be appointed as Internal Auditor of the Company?

A124:  As per the provisions of Section 138 of the CA, 2013 read with Rule
13   of   the   Companies   (accounts)   Rules,   2014,   a   “Chartered Accountant” or “Cost Accountant” whether engaged in practice or not, or  such  other  professional  as  may  be  decided  by  the  Board  of Directors of the company can be appointed as internal auditor of the Company.  The  internal  auditor  may  or  may  or  may  not  be  an employee of the company.
Q125:  Can   internal   Auditor   be   appointed   by   way   of   a   circular resolution?
A125:  No,  as  per  Section 179  the  CA,  2013  read  with  applicable rules, Internal  Auditor  shall  be  appointed  at  the  duly  convened  board meeting of the Company.
Q126:  Can the Statutory Auditor and Cost Auditor be the same person or firm?



A126:  As per the proviso to the Section 148(3) the CA, 2013, the person appointed under Section 139 the CA, 2013 as an auditor of the company shall not be appointed for conducting the audit of cost records.
Q127:  When should the first auditors be appointed?

A127:  As  per  Section 139  of  the CA,  2013, the first  auditors should be appointed by the Board within 30 days of the registration of the company and in case of failure of the Board to appoint such auditors, the auditors shall be appointed by the members in general meeting. Further, such auditor shall hold office till the date of the conclusion of the first AGM.
Q128:  What is the term of appointment of an individual and a firm as a statutory auditor?
A128:  As per Section 139(2) the CA, 2013 read with Rule 5 of Companies (Audit and Auditors) Rules, 2014, the following companies shall not appoint an individual as statutory auditor for more than one term of 5 years and a firm as statutory auditor for more than two terms of 5 year each:

Listed company;

All unlisted public companies having paid up share capital of INR 10
Crores or more;

All private limited companies having paid up share capital of INR 20
Crores or more;

All companies having paid up share capital below the threshold limit mentioned in the aforesaid two points, but having public borrowings from financial institutions, banks or public deposits of INR 50 Crores or more
Q129:  Is there any transition period provided for complying with the provisions of Section 139 (2) of the CA, 2013 relating to rotation of auditors?
A129:  As per Companies (Removal of Difficulties) Third Order, 2016 dated
30th June, 2016 issued by the MCA, the classes of companies stated under Q128 are required to comply with the provisions of Section
139(2) the CA, 2013 relating to rotation of auditors not later than the
AGM to be held in the year 2017.

Q130:  Which are the classes of companies required to comply with the provisions relating to rotation of auditors?



A130:  As per Section 139(2) of the CA, 2013 read with Rule 5 and Rule 6 of Companies   (Audit   and   Auditors)   Rules,   2014,   the   following companies are required to rotate their auditors on expiry of the term:

Listed company;

All unlisted public companies having paid up share capital of INR 10
Crores or more;

All private limited companies having paid up share capital of INR 20
Crores or more;

All companies having paid up share capital below the threshold limit mentioned in the aforesaid two points, but having public borrowings from financial institutions, banks or public deposits of INR 50 Crores or more
Q131:  In case of Companies which have already appointed auditors in CA, 1956, how should the period of  5 years and 10 years for rotation of auditors be computed?
A131:  As per Rule 6(3) of the Companies (Audit and Auditors) Rules, 2014, the  period  for  which  the  individual  or  the  firm  has  held  office  as auditor prior to the commencement of the CA, 2013 shall be taken into consideration for the purpose of rotation of auditors.
For example, in case of listed and prescribed companies, if an individual has completed four years as an auditor on April 01, 2014, he can continue for 3 years in the same company.
Further, if the auditor is required to appointed again, he may do so after the cooling period of five years from the completion of term of five years.
Q132:  Can a company remove its auditor?

A132:  As per Section 140(1) of the CA, 2013 read with Rule 7 of Companies (Audit and Auditors) Rules, 2014, a company may remove its auditor before  the  expiry  of  the  term  by  obtaining  prior  approval  of  the Central Government and passing a special resolution in general meeting.
Q133:  Is there limit on the number of audits an auditor may undertake?

A133:  As   per   Section  141(3)(g)  of   the  CA,  2013, an   auditor  cannot undertake audit of more than twenty companies.
In case of private companies, while calculating the limit of 20, one person companies, dormant companies, small companies and private
companies having paid up share capital less than one hundred crore rupees shall be excluded. [Notification No. GSR 464(E), dated 5th June, 2015]
Q134:  Who shall fix the remuneration of Auditors?

A134:  As  per  Section  142(1)  of  the  CA,  2013,  the  remuneration  of  the auditor of a company shall be fixed in its general meeting or in such manner as may be determined by the Board of Directors, which shall include any out of pocket expenses incurred for the purpose and in connection with the audit. Provided further, that the Board may fix the remuneration of the first auditor appointed by it.
Q135: Is it the duty of the auditor to confirm on internal financial controls?
A135:  As per Section 143(3)(i) of the CA, 2013 the auditor is required to state the adequacy of internal financial control systems and its operating effectives.
However, as per the Companies (Amendment) Bill, 2016 which is yet to be notified, it is proposed that the auditors are required to report on Internal Financial Control with reference to financial statements.
Q136:  Who shall appoint an auditor of a Government Company?

A136:  As per Section 143(5) of the CA, 2013, the auditor of a Government Company shall be appointed by the Comptroller and Auditor General of India (“CAG”). Further, w.e.f. 4th September 2014, auditor of any other company owned or controlled directly or indirectly by Central Government or State Government and partly by Central Government and partly by one or more State Governments shall also be appointed by CAG.
Q137:  Which services are not to be rendered by auditor of a company?

A137:  As per Section 144 of the CA, 2013, an auditor shall not provide any of the following services:
(a)        Accounting and Book keeping services

(b)        Internal Audit

(c)         Design   and   implementation  of   any   financial   information system
(d)        Actuarial services

(e)        Investment advisory services


               (f)         Investment Banking services

(g)        Rendering of outsourced financial services

(h)        Management services

Q138:  What are the provisions for Reporting Fraud under CA, 2013?

A138:  The provisions on reporting fraud have been laid down under Section
143(12)  of  the  CA,  2013  and  provides  that  if  the  auditor  of  a company, in the course of the performance of his duties as auditor, has reason to believe that an offence of fraud is being or has been committed against the company by officers or employees of the company, he shall report the matter to the Central Government.
However, as per the Companies (Amendment) Act, 2015 as notified by MCA vide notification dated 14 December 2015, the auditor shall report only those matters to the Central Government which involves or is expected to involve individually an amount of INR One Crore or above.
Q139:  What is the procedure for reporting of frauds of less than rupees one crore?
A139:  As per Rule 13(3) of Companies (Audit and Auditors) Rules, 2014, in case  of  fraud  involving  less  than  one  crore  rupees,  auditor  shall report the matter to the Audit Committee under Section 177 of the CA, 2013 or to the Board immediately within 2 days of his knowledge of the fraud and also the same is required to be disclosed in the Board’s Report.
Q140:  What is the procedure for reporting of fraud under CA, 2013?

A140:  As  per  Section  143  (12)  of  the  CA,  2013read  with  Rule  13  of Companies (Audit and Auditors) Rules, 2014, the procedure for reporting of fraud if the amount of the fraud is equal or more than 1 crore, is as follows:
(i)          auditor  shall  forward  his  report  to  the  Board  or  the  Audit Committee, as the case may be, immediately after he comes to knowledge of the fraud, seeking their reply or observations within 45 days;
(ii)         on  receipt  of  such  reply  or  observations, the  auditor  shall forward his report and the reply or observations of the Board or the Audit Committee along with his comments (on such reply or observations of the Board or the Audit Committee) to



the  Central  Government within  15  days  of  receipt  of  such reply or observations;
(iii)       in case the auditor fails to get any reply or observations from the Board or the Audit Committee within the stipulated period of 45 days, he shall forward his report to the Central Government along with a note containing the details of his report that was earlier forwarded to the Board or the Audit Committee for which he failed to receive any reply or observations within the stipulated time;
(iv)        The report shall be in the form of a statement as specified in Form ADT-4 on the letter-head of the auditor containing postal address,   e-mail   address,   contact   number,   Membership Number and be signed &  sealed by  the auditor and same shall  be  sent  through Registered Post  with  AD/speed post followed by an e-mail in confirmation to the Secretary, MCA of the same.
Q141:  Is an auditor required to attend General Meeting?

A141:  Yes, as per Section 146 of the CA, 2013, an auditor either by himself or through his representative, who is qualified to be an auditor should attend the general meeting, unless exempted by the company.

                                  Secretarial Audit


Q.142. Who can conduct Secretarial Audit and provide the Report?

A142:  Only  a  member  of  the  Institute  of  Company  Secretaries  of  India holding a certificate of practice (company secretary in practice) can conduct Secretarial Audit and furnish the Secretarial Audit Report to the company. [Section 204(1) of CA, 2013].
The  Secretarial Audit  Report  should  be  signed  by  the  Secretarial Auditor who has been engaged by the company to conduct the Secretarial Audit and in case of a firm of Company Secretaries, by the partner under whose supervision the Secretarial Audit was conducted.
Q143:  Which companies are required to undergo Secretarial Audit?

A143:  As  per  Section  204(1)  of  the  CA,  2013  read  with  rule  9  of  the Companies  (Appointment  and  Remuneration  of  Managerial Personnel)  Rules,  2014,  the  following  companies  are  required  to obtain Secretarial Audit Report:
- Every listed company;

- Every public company having a paid-up share capital of fifty crore rupees or more; or
- Every public company having a turnover of two hundred fifty crore rupees or more.
“Turnover” means the aggregate value of the realisation of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year. [Section 2(91)]
Q144:  Whether the Secretarial Audit is voluntary or mandatory as per the provisions of CA, 2013?
A144:  Pursuant  to  the  provisions  of  Section  204  of  the  CA  2013,  it  is mandatory for every listed company and company belonging to class of companies as prescribed under Question No. 143 to annex with its Board’s Report, a Secretarial Audit Report given by a Company Secretary in Practice.
In case of companies which are not covered under Section 204 of the
CA, 2013, it may obtain Secretarial Audit Report voluntarily.
Q145:   What is the format of Secretarial Audit Report?

A145:  As  per  Section  204(1)  of  the  CA,  2013  read  with  Rule  9  of  the Companies  (Appointment  and  Remuneration  of  Managerial Personnel) Rules, 2014, Secretarial Audit Report is required to be provided in the format prescribed in Form MR-3.
Q146:  Is Secretarial Auditor entitled to receive notice of AGM in which his report is to be laid before the members?
A146:  As per Secretarial Standard 2, the notice in writing of every general meeting shall be given to every member of the company as well as to the Directors, Auditors and to the Secretarial Auditor and Debenture Trustees, if any.
Q147:  Is Secretarial Audit applicable to a private company which is a subsidiary of a public company?
A147:  Yes, as per proviso to Section 2(71) of the CA, 2013, the company which is a subsidiary of a company, not being a private company, shall be deemed to be a public company for the purposes of this Act, even where such subsidiary company continues to be a private company in its articles.
Given the above, Secretarial Audit would be applicable to a private company which is a subsidiary of a public company if the prescribed criteria of the paid up share capital or turnover is met.
Q148.  What  are  events  and  actions  required  to  be  reported  by  the
Secretarial Auditor in the audit report?

A148:  Secretarial  Auditor  is  required  to  report  and  provide  details  of specific events and actions occurred during the reporting period having major bearing on the affairs of the Company in pursuant to above  referred laws/  rules  and  regulations. Few  events  are  also given as example in the format of audit report.
Q149:  Can a Practicing Company Secretary certify the Annual Return with qualification?
A149:  A  Practicing  Company  Secretary  can  certify  the  Annual  Return subject to certain reservations/qualifications by way of an annexure to his certificate.
Q150:  How is the Secretarial Auditor appointed?
A150:  As per Rule 8 of the Companies (Meetings of Board and its powers) Rules, 2014, Secretarial Auditor is required to be appointed by means of resolution passed at a duly convened Board meeting.
Q151:  Whether communication to earlier incumbent is required?

A151: Yes, whenever a practicing company secretary is appointed as Secretarial Auditor in place of the existing Secretarial Auditor, he/she should communicate the appointment to the earlier incumbent in writing, in view of the provisions of clause (8) of Part I of the First Schedule to the Company Secretaries Act, 1980.



Q152:  Can a Private Company accept deposit from its members without complying with the provisions applicable to deposits?
A152:  Yes, as per the exemption Notification No. GSR 464(E) of the MCA dated 5th June 2015, a Private Company can accept deposits from its members  not  exceeding  100%  of  aggregate  of  its  paid  up  share capital and free reserve without complying with the provisions of Section 73(2)  (a),  (b),  (c),  (d)  and (e)  of  the CA,  2013 and  such company shall file details of monies so accepted in the manner as may be specified.
Q153:  What is an “eligible company” for the purpose of deposit?

A153:  “Eligible company” refers to every public company having net worth of not less than INR 100 crore rupees or a turnover of not less than INR
500   crore   rupees   and   which   has   obtained   prior   consent   of shareholders in general meeting by means of a special resolution and made respective filings with the ROC before making any invitation to public.
In case, deposit is with respect to the specified limits under Section
180(1)(c)  of  the  CA,  2013, an  ordinary resolution may  suffice the requirement.
Q154.   Does Deposit provisions cover debenture?

A154:




Q155:  Will advance towards annual maintenance service for more than
365 days be treated as a deposit?

A155:  Yes, as per the Companies (Acceptance of Deposits) Rules, 2014, advance towards annual maintenance service for more than 365 days will be treated as a deposit
Q156:  Is share application money pending allotment for more than 60 days treated as a deposit?
A156:  Yes, as per the Companies (Acceptance of Deposits) Rules, 2014, share application money pending allotment for more than 60 days is treated as a deposit.
Q157:  In case deposit is taken from a person who is both a director and a member of the Company, will such receipt of money be treated as deposit or not?
A157:  Any amount received from a person who, at the time of the receipt of the amount, was a director of the company furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing  or   accepting  loans   or   deposits  from   others,   is   not considered as deposit.
In  case  of  private  company,  if  the  amount  is  borrowed  from  its member not exceeding 100% of the paid-up share capital and free reserves  of  the  company, then  it  will  not  be  treated  as  deposits. [Notification No. GSR 464E, dated 5th June, 2015]
Q158:  Is it mandatory for a company to declare dividend?

A158:  No, it is not mandatory for a company to declare dividend.

Q159:  In case a company declares dividend, what shall be the last date of payment of dividend?
A159:  The dividend warrants shall be dispatched by the company-

(i)          in case of Interim Dividend- within 30 days of declaration of dividend in the Board Meeting; and
(ii)        in case of final dividend- within 30 days of its approval in the
AGM.



In case of ECS transfers for distribution of dividend, the transfer shall be made within 30 days of declaration of dividend.
Q160:  Can a company which has inadequate profits  or  has incurred loss  in  the  immediately preceding  financial  year  declare  final dividend out of the accumulated profits of the previous financial years? Also, is there any restriction on the rate of dividend?
A160:  As  per  the  second  proviso  to  Section  123(1)  of  the  CA,  2013,  a company  which  has  inadequate profit  or  has  incurred  loss  in  the immediately preceding financial year may declare dividend out of the accumulated profits of the company. However, as per Rule 3 of Companies (Declaration and Payment of Dividend) Rules, 2014, the rate of dividend shall not exceed the average of the rates at which dividend was declared by the company in the immediately preceding three financial years.
If a company has not declared dividend in any of the preceding three financial years, the restriction on the rate of dividend would not be applicable.
Q161:  Can Board of Directors declare final dividend for the financial year?
A161:  The Board can only recommend the final dividend to the shareholders of the Company for declaration at the AGM.
Q162:  Can dividend be declared to certain class of shareholders only?

A162:  Dividend  can  be  paid  to  any  class  of  shareholders, but  separate resolution  for  declaration  of  dividend  to  each  class  of  shares  is required to be passed at the meeting of the Board or shareholders, as the case may be.
Q163:  Can dividend be paid to certain shareholders of the same class?

A163:  Dividend once declared has to be paid to all the shareholders in a particular class.
Q164:  Can a shareholder whose shares have been transferred to IEPF
claim back his shares?

A164:  As per proviso to Section 124(6) of the CA, 2013 claimant of shares shall be entitled to claim the transferred shares from IEPF and the procedure for that would be specified in the IEPF Rules.
Q165:  When  is  unpaid/  unclaimed  dividend  transferred  to  Unpaid
Dividend Account?

A165:  As  per  Section 124(1) of  the CA,  2013, dividend declared by  the company which remains unpaid/ unclaimed for a period of 30 days from the date of declaration shall be transferred to Unpaid Dividend Account within 7 days from the date of expiry of the said period of 30 days.



          Corporate Social Responsibility


Q166:  Whether  provisions  governing  CSR  are  applicable  to  private
Companies?

A166:  Yes, every company irrespective of Private or Public Limited or a foreign company having its branch office or project office in India having:
•           net worth of INR 500 crores or more

•           turnover of INR 1000 crores or more

•           net profit of INR 5 crores or more

shall  formulate  a  CSR  Committee,  who  shall  determine  the  CSR policy of the company and every such company is required to spend of 2% of average net profits of the company for last 3 years towards CSR.
Q167:  In which activities can a company contribute towards CSR?

A167:  The amount allocated for CSR can be spent for activities specified under Schedule VII of the CA, 2013.
Q168:  Are there any implications of not spending the 2% of average net profits as CSR expenditure?
168:     In case of any shortfall of not spending the 2% of average net profits, the Board is required to be disclosed the same in the Board report along with reasons thereof.

Q169:  What are the applicable provisions for carrying out Compromise and arrangements?
A169:  Compromise and Arrangement between company and its creditors or company and its members shall be done in accordance with the provisions of the CA, 2013.
(MCA vide notification dated 7 December 2016 notified the Section
230  to  240  of  the  CA,  2013  which  deal  with  Compromise  and
Arrangements)

Q170:  Who   are   eligible   to   raise   objections   to   the   scheme   of compromise and arrangement?
A170:  As per the proviso to Section 230(4) of the CA, 2013, objection can be raised only by persons holding 10% or more of shareholding or having debt amounting 5% of the total outstanding debt as per the latest audited financial statement.
Q171:  How do we calculate the ‘shareholding’ and ‘outstanding debt’
while ascertaining the eligibility to object to the scheme?

A171: As per Explanation to Rule 9 of the Companies (Compromise, Arrangements and Amalgamations) Rules, 2016:
‘Shareholding’ means the shareholding of the members of the class who are entitled to vote on the proposal and
‘Outstanding debt’ shall mean all debt owed by the company to the respective class or classes of creditors that remains outstanding as per the latest audited financial statement, or if such statement is more than six months old, as per provisional financial statement not preceding the date of application by more than six months.
Q172:  What is Corporate Debt Restructuring?

A172:  As per explanation to the rule 4 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, corporate debt restructuring means a scheme that restructures or varies the debt obligations of a company towards its creditors.
Q173:  Under what circumstances the meeting of the creditors may be dispensed by the NCLT?



A173:  As per Section 230(9) of the CA, 2013, if 90% of the creditors in value agree and confirm to the scheme by way of affidavit, NCLT may dispense the holding of meeting of creditors or class of creditors.
Q174:  Do we have to comply with Section 230 and Section 232 while carrying out the merger and amalgamation of two or more small companies or between holding and wholly owned subsidiary companies?
A174:  No, Section 233 of the CA, 2013 prescribes to regulate the merger and amalgamation between two or more small companies or between holding and wholly owned subsidiary companies. The powers with regard to the same have been delegated to the Regional Director.
Q175: For how many years the books and papers of amalgamated companies shall be preserved?
A175:  The CA, 2013 does not prescribe any period for preservation of books and papers. However, books and papers of amalgamated companies shall   not   be   destroyed   without   the   approval   of   the   Central Government.
Q176:  What happens in case of merger of listed transferor company into unlisted transferee company?
A176:  As per Section 232(3)(h) of CA, 2013, where the transferor company is a listed company and the transferee company is an unlisted company, then:
(i)          the  transferee company  shall  remain  an  unlisted  company  until  it becomes a listed company.
(ii)         If shareholders of the transferor company decide to opt out of the transferee company, provision shall be made for payment of the value of shares held by them and other benefits n accordance with a pre- determined price formula or after valuation is made and the arrangements may be made by the NCLT.
Q177:  Can   Company   buy   back   its   shares   under   a   scheme   of arrangement without following the conditions prescribed under Section 68 of the CA, 2013?
A177:  No, as per Section 230(10) of the CA, 2013, NCLT shall not approve any scheme of compromise or arrangement in respect of buy-back of securities which is not in compliance with the provisions of Section 68 of the CA, 2013.



Major highlights of Companies Act 2013







  • Consolidated Financials  : It is now mandatory to   declare consolidated  financial statements even for unlisted companies.
  • Like in Sarbanes Oxley Act (SOX), the director’s report should include discussion on adequacy and effectiveness of internal financial controls and operational areas.
  • Depreciation : There is greater flexibility to depreciate assets over their useful lives instead of standard minimum rates.
  •  Now Cash Flow will be a part of Financial Statement in all companies.
  •    Auditors to report on IFC. They will have to report on internal financial controls, financial transactions, and other matters that have or can have adverse impact on the functions of the company. 
  •   The responsibilities of the Board  now include comply with all laws and regulations, monitor the risk management framework of the company, take responsibility for internal controls over financial transactions.
  • It has increased restrictions on loans and guarantees given to entities other than subsidiaries.
  • Minority shareholders have been empowered to take class action suits against the company or directors or auditors.
  •  Act to be read with Rules: Substantial part of this act is in the form of Rules.
  •  The Act introduced the concept of CEO, CFO and KMP.
  •  The Act also introduced concept of one Resident director
  •   Loan taken from shareholders is now treated as deposit. Deposits from shareholders allowed.
  • Companies must provide companies details such as Name, CIN,  Registered Office Address, Email, Phone no. etc. in its documents including Letter Heads  & Other Stationery.
  • Digital signature certificate is now mandatory for all person applying for   DIN.
  • Now Books of Accounts may be kept in Electronic Form.
  • Now any documents & agreements can only be signed by KMP  Or by person authorised by the Board on their behalf.
  •  New definitions such as OPC, Small Companies, Registered Valuer, COB etc. are brought forward in this new versatile Act.
  • For conversion of private company into public company requires approval of NCLT, earlier such power was with central government.
  • Minimum paid up share capitalThe Minimum Capital requirement of Rs.1,00,000 for Private Companies and Rs.5,00,000 for Public Companies has been removed. Therefore, there is no minimum capital to form a company. (For ease of doing business)
  •   Dividend Including provision for writing off past losses/depreciation before declaring dividend for the year. This was missed in the Act but included in the Rules
  •   Reporting of Fraud Enabling provisions to prescribe thresholds beyond which fraud shall be reported to the Central Government (below the threshold, it will be reported to the Audit Committee). Disclosures for the latter category also to be made in the Board’s Report
  • Related party transactions- Board  Empowering Audit Committee to give omnibus approvals for related party transactions on annual basis. (Align with SEBI policy and increase ease of doing business) 
  • Related party transactions – Shareholders Replacing ‘special resolution’ with ‘ordinary resolution’ for approval of related party transactions by non-related shareholders. (Meet problems faced by large stakeholders who are related parties) Exempt related party transactions between holding companies and wholly owned subsidiaries from the requirement of approval of non-related shareholders. (corporate demand) 
  • Common Seal The concept of Common Seal has been made optional.
  • Commencement of Business : Earlier, Public Companies need to file few extra documents to obtain Certificate of Commencement of Business. Now, this filing requirement has been removed.
  • Unclaimed Dividend shall be transferred to Investor Education and Protection Fund. Now, such amount will stay with the company only.
  • The new legislation has more provisions to guard the interests of employees. It mandates payment of two years' salary to employees in case a company shuts operations
  •  To help in curbing a major source of corporate delinquency, the Bill introduces punishment for falsely inducing a person to enter into any agreement with bank or financial institution, with a view to obtaining credit facilities
  • Rules make the earmarking of funds by companies for corporate social responsibility (CSR) spending mandatory. Companies are required to spend at least 2 per cent of their net profit on CSR. The companies will also have to give preference to the local areas of their operation for such spending. If they are unable to meet CSR norms, they will have to give explanations and may even face penalty
  • The Bill has a provision that keeps tabs on exorbitant remunerations for the board of directors and other executives of the companies. This will protect the interest of shareholders as well as
  • The act also makes auditors subject to criminal liability if they knowingly or recklessly omit certain information from their reports
  • Financial year of any company can end only on March 31 and the only exception is for companies which are holding/subsidiary of a foreign entity requiring consolidation outside India.
  • The maximum number of directors in a private company has been increased from 12 to 15, which can be increased further by special resolution
  • Appointment of auditors for five years shall be subject to ratification by members at every annual general meeting. Also, the limit in respect of maximum number of companies in which a person may be appointed as auditor has been proposed as 20
  • Independent directors shall be excluded for the purpose of computing "one-third of retiring directors
  • New companies Act 2013 : Disclosure of political contributions : With the coming into force of the scheme relating to 'Electoral Trust Companies' in terms of section (24AA) of the Income Tax Act, 1961 read with Ministry of Finance Notification No. S.O.309(E) dated 31stJanuary, 2013 i.e. Electoral Trust Scheme 2013, it will be expedient to explain the requirements of disclosure on part of a Company of any amount or amounts contributed by it to any political parties under section 182(3) of the Companies Act, 2013.It is clarified by MCA as under;
(i)
Companies contributing any amount or amounts to an 'Electoral Trust Company' for contributing to a political party or parties are not required to make disclosures required under section 182(3) of Companies Act 2013. It will suffice if the Accounts of the company disclose the amount released to an Electoral Trust Company.
(ii)
Companies contributing any amount or amounts directly to a political party or parties will be required to make the disclosures laid down in section 182(3) of the Companies Act, 2013.
(iii)
Electoral Trust Companies will be required to disclose all amounts received by them from other companies/sources in their   Books of Accounts and also disclose the amount or amounts contributed by them to a political party or parties as required by section 182(3) of Companies Act, 2013.


MGT-14  under companies act 2013 in place of Form 23 under old act

Under Companies Act, 1956, it was section 192 which requires filing of form 23 for registration of prescribed resolutions and agreements with ROC. 

Under Companies Act, 2013, form MGT.14 is to be filed for more than 25 different types of resolutions. 

We can divide the list of Resolutions/Agreements to be filed through form MGT.14 in 4 categories:
1. List of Resolutions/Agreements given in Section 117(3)
2. List of Resolutions given in Section 179(3)
3. List of Resolutions given in rule 8(5) of Companies (Meetings of Board and its Powers) Rules, 2014 read with Section 179(3)

4. Section 94 read with rule 15(6) of Companies (Management and Administration) Rules, 2014


Upgrade your Articles to new companies Act 2013






































All companies are advised to adopt new set of Articles consequent to introduction of new Companies Act 2013


All companies are advised to adopt new set of Articles of Association consequent to introduction of new Companies Act 2013.  Some illustrative reasons are.

1) References to Sections of 1956 Act in entire Articles will have to be changed to corresponding Sections of 2013 Act.
2) Sec.2(68): Prohibition in Articles on invitation to public to subscribe for any shares in or debenture of the private company – [Sec.3(1)(iii)(c) of 1956 Act] omitted in new Act.
3) Sec.5:
a. Articles have to be in the forms specified in Schedule I.
b. Entrenchment provision can be included in Articles.
c. Regulations for management of company may be included.
d. Matters to be prescribed in Rules to be also included in Articles.
4) Sec.20: Electronic mode of service of documents to co./ROC/members recognized. Deemed service of documents after 48 hours to members omitted. Courier & speed post also recognized as mode. Provision of CA 1956 relating to service on joint holders of shares in consequence of death or insolvency of member deleted in 2013 Act.
5) Sec.29: Mandatory issue of shares in demat mode by prescribed companies.
6) Sec.47: Now Articles cannot provide that one member will have only one vote on poll irrespective of no. of shares held by him.
7) Sec.52: Securities premium account cannot be used now for specified purposes as per Accounting Standards.
8) Sec.58(2): Proviso clarifies that any contract or arrangement between two or more persons in respect of transfer of securities shall be enforceable as a contract. Can be included in Articles suitably.
9) Sec.96: Provisions relating to AGM changed: Now even in private co. AGM has to be held only at registered office or within same city or town or village during business hours and not on National Holiday.
10) Sec.103: Quorum requirements changed.
11) Sec.106: Provision of no prohibition on voting rights (other than non-payment of calls or lien on shares) to apply to private co. also.
12) Sec.123 to 125: Provisions of Articles regarding dividend may be aligned as per amended Sections (electronic payment of dividend, payment out of free reserves only, transfer of shares in case of unpaid dividend to IEPF etc.)
13) Sec.180: Restrictions on borrowing powers of Board.
14) Sec.203(1): Proviso states that if Chairman is to be also CEO/MD of the company, suitable provision has to be there in the Articles.
15) Other provisions which may affect Articles:
- Meetings through video conferencing permitted
- Appointment of KMPs (CEO & CFO recognized for the first time)

Important changes in Table F (earlier Table A) for Articles of company limited by shares:
1) Articles 40 to 43 of old Table A dealing with share warrants deleted since not permitted under 2013 Act.
2) Article 54 of old Table A regarding Chairman’s casting vote in general meetings deleted as default provision.
3) Fees to be charged by co. to shareholders for various services (duplicate share certificates, splitting, share transfer fee etc.) increased.
4) Rate of interest on calls in arrears and calls in advance increased.
5) Article II(1): Shares shall be under control of directors.
6) Article II(41): Authority for buy back of shares added.
7) Article II(51): Provision for electronic voting added.
8) Article II(9)(ii): Company’s lien on shares shall also extend to bonus declared on such shares.
9) Article II(23)(i): Nominees of shares also recognized as having title in shares of deceased members.
This is an illustrative list and not exhaustive list. There are so many changes which may affect the Articles.
Sec.5(9) provides that nothing in this Section shall apply to articles of a co. registered under any previous company law unless amended under this Act. Hence at the time of amendment, if any, ROC may insist for making changes as per 2013 Act.
 PC AgrawalVice President (Corporate), Bagla Group


Q1.      What is SPICE?

A1.      SPICE refers to “Simplified Proforma for Incorporating Company Electronically”. It is a simplified integrated process for incorporating a company in Form No. INC-32 along with e-MOA in Form No. INC-33 and e-AOA in Form No. INC-34. It has been recently introduced by the MCA and is effective from 1 October 2016.
Q2:       In case the subscriber to the MOA is a foreign national residing outside India, his signatures and address etc. shall be witnessed by a Notary Public/Embassy/Consulate offices of Embassies as per the Rule 13 of the Companies (Incorporation) Rules, 2014. In such cases, how can the DSC of such a witness be affixed?
A2:      In such cases, SPICe (INC-32) shall be filed along with the manually signed and duly attested MOA and AOA.
Q3:       Whether every company is required to follow the SPICe process for incorporation of a company?
A3:      As per Companies (Incorporation) Fifth Amendment Rules, 2016, all companies except Part I companies and a company having more than
7 subscribers/promoters are required to follow the SPICe process for incorporation with effect from 1 January 2017.
Q4:      Can a company apply for name availability certificate by filing
Form INC-1 prior to filing of SPICe form?

A4:      Yes, an applicant can make an application in Form INC-1 for name availability as per Rule 9 of the Companies (Incorporation) Rules,
2014,  and  file  incorporation  documents  through  SPICe  mode  on
approval of the name. However, such name shall be reserved for a period of 60 days from the date of making an application.
However,  as  per  the  proposed  Companies  Amendment  Bill,  2016 which is yet to be notified, name shall be reserved for a period of 20 days from the date of approval or such other period as may be prescribed shall be substituted.
Q5:      Can a company be incorporated without a registered office?

A5:      Yes,  a  company may  be incorporated without having a  registered office address by  providing an  address for  correspondence in  the incorporation form. However, as per Section 12 of the CA, 2013 read with Rule 25 of the Companies (Incorporation) Rules, 2014 on or from the 15th day of its incorporation and at all time thereafter, a company is required to have a registered office. The company which has not intimated address of its registered office at the time of incorporation is required to intimate to ROC of the same within 30 days of incorporation.
However,  as  per  the  proposed  Companies  Amendment  Bill,  2016 which is yet to be notified, a Company can have its registered office within 30 days of  its incorporation as  against 15 days as  per the present requirement.
Q6:       In   case   of   an   overseas   subscriber   and   director,   are   the documents required to be notarised and apostilled for incorporation of a company?
A6:      As per Rule, 13 of the Companies (Incorporation) Rules, 2014, where the subscriber to the MOA or a director to be appointed is a foreign national residing outside India, the MOA, AOA, proof of identity as well as address proof shall be attested in the following manner which is based on the country where the subscriber/ director reside or the registered office is situated in case of a body corporate being the subscriber:
1.          Residing in a country which is part of the Commonwealth - by a Notary (Public) in that part of the Commonwealth;
2.          Residing in a country which is party to the Hague Apostille Convention, 1961 - by a Notary (Public) and duly apostilled in accordance with the said Hague Convention; and
3.          Residing in a country which is not party to the Hague Apostille Convention, 1961 - the documents shall be notarized before the Notary (Public) of such country and the certificate of the Notary  (Public)  shall  be  authenticated  by  a  Diplomatic or Consular Officer empowered in this behalf under Section 3 of the Diplomatic and Consular Officers (Oaths and Fees) Act,
1948   (40   of   1948)   i.e.   attested  by   Public   Notary   and authenticated by Indian Embassy in the country of residence.
Q7:       What  is  the  due  date  to  intimate  the  ROC  for  change  in  the situation of registered office of the company?
A7:      As  per  Section  12(4)  of  the  CA,  2013  read  with  Rule  27  of  the
Companies (Incorporation) Rules, 2014, notice of every change in the situation of registered office of the company is required to be given to the ROC within 15 days of the change in Form INC-22.
However,  as  per  the  proposed  Companies  Amendment  Bill,  2016 which is yet to be notified, every change in the situation of registered office of the company is required to be given to the ROC within 30 days of the change.
Q8:       What is OPC?

A8:      As per Section 2(62) of the CA, 2013, OPC means a company which has only one person as a member.
Q9:      Can a non-resident become a member of an OPC?

A9:      In terms of Rule 3 of the Companies (Incorporation) Rules, 2014, only a natural person who is an Indian citizen and resident in India is eligible to incorporate an OPC. Therefore, a non-resident cannot become a member or nominee of an OPC.
For the purposes of this rule, the term “resident in India” means a person who has stayed in India for a period of not less than one hundred and eighty two days during the immediately preceding one calendar year.
Q10:    How  many OPCs can  be  incorporated by  a  person or  in  how many OPCs, he shall be eligible to be a nominee?
A10:    As per Rule 3(2) of Companies (Incorporation) Rules, 2014 no person is eligible to incorporate more than one OPC or become nominee in more than one such company.
Rule   3(2)   of   the   Companies  (Incorporation)  Rules,   2014   was substituted vide Notification dated 27 July 2016, Companies (Incorporation) Third Amendment Rules, 2016, as per which a natural person shall not be member of more than an OPC at any point of time and the said person shall not be a nominee of more than an OPC.
Q11:    Can a company registered under Section 8 merge with another company with dissimilar objects?
A11:    As  per  Section  8(10)  of  CA,  2013,  a  company  registered  under Section 8 can only be merged with another Section 8 company which has similar objects.
Q12:    Is a Section 8 company required to seek permission of Central
Government (“RD”) for alteration of its AOA prior to getting the



same approved by the members by means of special resolution in general meeting?
A12:    Yes,  as  per  Section  8  (4)(i)  of  CA,  2013,  Section  8  Company  is required to obtain prior approval of Central Government (power delegated to “RD”) for alteration of its articles. However, members may pass the resolution for alteration of articles prior to the approval, but   it   shall   be   effective  only   post   approval  from   the   Central Government (“RD”).
Q13:    How will the surplus be treated in case of winding up of Section
8 Company?

A13:    As per Section 8(9) of CA, 2013 (applicable w.e.f. 15.12.2016), any asset remaining after satisfaction of the debts will be transferred to another company registered under Section 8 of the CA, 2013 having similar objects, subject to such conditions as the NCLT may impose, or the same may be sold and proceeds thereof will be credited to the Insolvency and Bankruptcy Fund formed under Section 224 of the Insolvency and Bankruptcy Code, 2016.
Q14:    What is Small Company?

A14:    As per Section 2(85) of the CA, 2013, a Small Company, other than public company, means a company where the:
(a)        paid-up share capital of the company does not exceed INR 50
Lakhs or such higher amount as  may be prescribed which shall not be more than five crore rupees; and
(b)         turnover  as  per  its  last  profit  and  loss  account  does  not exceed 2 Crores or such higher amount as may be prescribed which shall not be more than twenty crore rupees:
Note: No higher amount has been prescribed as yet.

Further, holding company, subsidiary company, company registered under Section 8 or a company or body corporate governed by any special act will not be considered as a small company.
However,  as  per  the  proposed  Companies  Amendment  Bill,  2016 which is yet to be notified, the limit of paid up capital and turnover is proposed to  be  increased to  INR  10  Crores and  INR  100  Crores respectively.
Q15:    Is it mandatory for the name of the company to be indicative of the nature of its business?



A15:    No, it is not mandatory for the name to be indicative of the nature of its business.
Q16:    Can a company have multiple and varied objects under its MOA?

A16:    The Object Clause of the MOA of a company defines the objects or business it can carry and there is no bar under Section 4 (1) (c) of CA, 2013 on a company from having multiple objectives. As a matter of  practice, the  authorities do  not  approve more than  four  to  five objects in the Object Clause of the MOA.
However,  as  per  the  proposed  Companies  Amendment  Bill,  2016 which is yet to be notified, the Company may engage in any lawful act or activity for the time being in force. In case, company proposes to pursue any specific objective, MOA shall state the said object for which company is incorporated.
Thus, as per the proposed Companies Amendment Bill, 2016, the question on multiple object or varied object would not arise.
Q17:    Is a company required to alter its AOA as per the new format under the CA, 2013?
A17:    As per the provisions of Section 5(6) of the CA, 2013, AOA of the company shall be in respective forms specified in Table F, G, H, I and J in Schedule I.
Also, as per the provisions of Section 5(9) of CA, 2013, provisions pertaining to AOA shall not apply to the AOA of company registered under  any  previous  company  law  unless  amended under  the  CA,
2013.

It is not necessary, but advisable that subsequent to any amendment to the AOA, the AOA is aligned as per the format specified under the CA, 2013.
Q18:    Is a company required to pass a special resolution for altering its MOA?
A18:    As per the provisions of Section 13(1) of the CA, 2013, a company is required to pass special resolution for altering its MOA except for the alteration of capital clause of MOA which could be altered by passing ordinary resolution as per the provisions of Section 61 of the CA,
2013.

Q19:   Is an approval from Central Government (“RD”) required for alteration of MOA relating to change in place of registered office from one state to another?



A19:    As per Section 13(4) of the CA, 2013, the alteration of MOA relating to change in place of registered office from one state to another shall not have any effect unless it is approved by the Central Government. As the powers of Central Government on this aspect are delegated to RD, the company will have to make an application and obtain the approval from the RD.
Q20:    In case of shifting of registered office from one state to another there is a requirement of filing the order with each of the ROC’s. Is it possible to file two forms with a single CIN?
A20:    No, it is not possible to file order approving the change of registered office with two different ROC’s with the same CIN.
As  per  Section  13  (7)  of  CA,  2013  read  with  Rule  31  of  the Companies   (Incorporation)   Rules,   2014,   the   order   of   the   RD approving the change of registered office from one state to another has to be filed in Form INC-28 with the ROC of each of the state within 30 days from the receipt of the certified copy of the order. Given the practical challenge, that the company cannot file Form INC-
28 twice with the same CIN, the form is required to be filed with the
ROC under whose jurisdiction the registered office was originally situated. The company will then have to file the Form INC-28 again with the new ROC where the registered office of Company is shifted.
Q21:    What is the limit on  the number of  members for  formation of association or partnership of persons?
A21:    Section  464  of  the  CA,  2013  provides  that  no  association  or partnership can be formed with the number of members exceeding hundred (100) subject to the Rules prescribed under the CA, 2013. Rule 10 of Companies (Miscellaneous) Rules, 2014 provides that no association  or  partnership  can  be  formed  with  the  number  of members exceeding fifty (50).
Therefore, the limit of number members for formation of association or partnership of persons is fifty (50).
Q22.     Will the notifications, circulars, rules, orders issued for certain type of companies under Companies Act 1956 still be applicable for those companies under the Companies Act 2013?
A22:    Section 465 (2) of the CA, 2013 provides that the notification, circular, rules, orders issued under CA, 1956, insofar as it is not inconsistent with the provisions of CA, 2013, be deemed to have been done or taken under the corresponding provisions of the CA, 2013. It further



provides that it shall continue to be in force, if it was in force at the commencement of the CA, 2013 and shall have effect as if made, directed, passed, given, taken, executed, issued or done under or in pursuance of the CA, 2013.
Considering the aforesaid, notifications, circulars, rules, orders issued for  certain  type  of  companies  under  the  CA,  1956  will  also  be applicable for those companies under the CA, 2013.
Q23.    Is a Small Company required to prepare Cash Flow Statement?

A23:    As per Proviso to Section 2(40), exemptions have been granted to Small Company, OPC and Dormant Company with effect from 1st April, 2014. Therefore, it is not mandatory for a Small Company to prepare Cash Flow Statement.
Q24:    Is it mandatory for a company to have a common seal?

A24:    No, as per the Companies (Amendment) Act 2015, the companies are not mandatorily required to have common seal. Further, the existing companies may amend their AOA to this effect.

 Capital and Allied Matters


Q25:    Is a private company required to follow the rules pertaining to issue of shares with differential voting rights?
A25:    As per notification No. GSR 464(E), dated 5th June, 2015 issued by MCA, Section 43 pertaining to kinds of share capital is not applicable to a private company, if same is provided in the MOA and AOA of that private company and hence, private company can issue shares with differential voting rights without following the conditions prescribed for issue of shares with differential voting rights.
Q26:    Is it mandatory to issue share certificate under the common seal of the company?
A26:    No, it is not mandatory to issue share certificates under the common seal of the company. As per the Companies (Amendment) Act, 2015 read with Companies (Share Capital and Debentures) Second Amendment  Rules,  2015,  every  share  certificate  shall  be  issued under the common seal, if the company has a common seal.
Q27:    Who is required to sign the share certificate?

A27:    As  per  Section  46  of  the  CA,  2013,  read  with  Rule  5(3)  of  the Companies (Share Capital and Debentures) Rule, 2014, a share certificate can be signed in the following manner:
a.         Company other than OPC:

(i)          If  a  company  has  a  common  seal,  the  share  certificate  is required to be signed by two Directors and Secretary or any person authorized by the Board for the purpose.
(ii)         If a company does not have a common seal, then the share certificates shall be signed by two directors or a Director and the Company Secretary, where the company has appointed a Company Secretary.
b.         OPC:

(i)          If  a  company  has  a  common  seal,  the  share  certificate  is required to be signed by one Directors or a person authorized by the Board of Directors of the company and Secretary or any other person authorized by the Board for the purpose.
            (ii)          If  a  company  does  not  have  a  common  seal,  then  the  share certificates shall be signed by a person in whose presence the seal is required to be affixed.
Q28:     What are the modes available for issue of further shares?

A28:    As per Section 23 of the CA, 2013, following modes are available for issue of further shares:
1.         Public Companies:

a)         Public offer through issue of prospectus;

b)         Private Placement/ Preferential allotment;

c)         Issue of shares to employees under a scheme of employees’
stock option; and

d)         Right issue/ bonus issue

2.         Private Companies:

a)         Right issue/ bonus issue;

b)         Issue of shares to employees under a scheme of employees’
stock option; and

c)         Issue of shares to any person through preferential allotment/
private placement.

Q29:    Can subsidiary company hold shares in its holding company?

A29:    As per Section 19 of the CA, 2013, subsidiary company cannot hold shares in its holding company and any such holding shall be void except in following circumstances:
a)          where the subsidiary company holds such shares as the legal representative   of   a   deceased   member   of   the   holding company;
b)          where  the  subsidiary  company  holds  such  shares  as  a trustee;
c)          where the subsidiary company is a shareholder even before it became a subsidiary company of the holding company.
Q30:     Can a company issue shares at a discount?

A30:    As per Section 53 of CA, 2013, no company shall issue shares at a discount other than issue of sweat equity shares. Any shares issued by a company at a discounted price shall be void.
However,  as  per  the  proposed  Companies  Amendment  Bill,  2016 which is yet to be notified, a company may issue shares at a discount to its creditors when its debt is converted into shares in pursuance of any statutory resolution plan or debt restructuring scheme in accordance with any guidelines or directions or regulations specified by the Reserve Bank of India under the Reserve Bank of India Act,
1934 or the Banking (Regulation) Act, 1949.

Q31:  Is a company required to obtain shareholders’ approval for preferential issue of shares?
A31:    Yes, as per Section 62(1)(c) read with Rule 13(1) of the Company (Share Capital and Debenture) Rules, 2014, a company is required to obtain shareholders’ approval by way of special resolution in the general meeting of the company.
Q32:    What  is  the  maximum  number  of  persons  to  whom  private placement offer can be made?
A32:    As per Section 42 of CA, 2013, a company can issue securities to such persons not exceeding fifty or such higher number as may be prescribed.
As   per   Rule   14   of   Companies  (Prospectus   and   Allotment   of Securities) Rules, 2014, the limit of number of persons to whom the securities are to  be issued cannot exceed two hundred person in aggregate in a financial year.
Q33:    Who  are  exempted  from  being  included  in  the  limit  of  200 persons to whom private placement offer is issued?
A33:    As per Section 42 of CA, 2013 read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, any offer made to the qualified institutional buyers or the employees of the company under the employee stock option scheme are exempted from being considered in determining the maximum limit.
Q34:    Is a share valuation report required in case of  Right Issue of
Shares?

A34:    Share valuation report is not required in case of right issue of shares.
However,  in  case  of  issue  of  shares  to  non-resident, valuation is required to be carried out as per the provisions of FEMA.
Q35:    Can Board of Directors of a company take a decision to issue
Preference Shares?
A35:    No,   as   per   Rule   9(1)(a)   of   Companies   (Share   Capital   and Debentures) Rules, 2014, preference shares can only be issued after obtaining approval of  shareholders through a  special resolution in general meeting. Hence, Board of Directors can only recommend to the shareholders along with a detailed explanatory statement for approval.
Q36:    Can a private company issue debentures to public?

A36:    No,  a  private  company  cannot  issue  debentures  to  public.  The definition of a ‘private company’ as laid down in Section 2 (68) of the CA, 2013 prohibits a company from inviting public to subscribe to any securities issued by it. Given the prohibition to subscription by the public, a private company can issue debentures only through private placement.
Q37:    Is a company required to intimate the ROC post redemption of preference shares?
A37:    Yes, as per Section 64 of the CA, 2013, a company is required to intimate the particulars of redemption to the ROC in Form SH-7 within
30 days of redemption of preference shares.

Q38:    What is the form for filing return of allotment with the ROC post allotment of securities?
A38:    As per the provisions of Section 39(4) of the CA, 2013 read with Rule
12 of the Companies (Prospectus and Allotment of Securities) Rules,
2014, a Company is required to file a return of allotment within 30 days from the date of allotment of shares in Form PAS-3 with the ROC along with the list of allottees.
However,  as  per  the  proposed  Companies  Amendment  Bill,  2016 which is  yet  to  be  notified, in  case  of  allotment of  shares  issued through private placement procedure, the return of allotment shall be filed with the ROC within 15 days from the date of allotment.
Q39:    Is it mandatory to get the securities listed in case of a public offer?
A39:    Yes,  as  per  Section  40  of  the  CA,  2013,  it  is  mandatory  for companies to make an application to one or more recognised stock exchange or exchanges and obtain permission for the securities to be dealt  with  in  such  stock  exchange  or  exchange  before  making  a public offer.
Q40:    Section 40(1) of the CA, 2013 requires a company to make an application to the stock exchanges for listing of securities and obtaining permission prior to making an offer. The requirement under Section 73(1) of the CA, 1956 was only to make an application. Hence, is it now required to obtain prior permission from   the   stock   exchanges  or   is   making   an   application  a sufficient compliance?
A40:    As per Section 40(1) of the CA, 2013, it is specifically provided that every company which desires to make public offer should make an application to one or more stock exchanges and take prior permission for dealing in securities. Hence, company intending to make a public offer is required to make an application and obtain approval of shareholders prior to making an offer.
Q41:    What is the offer period for rights issue?

A41:    As per Section 62(1)(a)(i) of the CA, 2013, the rights issue offer shall be kept open for a minimum period of 15 days and maximum period of 30 days. However, in case of a private company, offer period may be reduced by obtaining consent in writing or through electronic mode of 90% of the members of private company. [This exemption is available to private company vide notification No. GSR 464(E) dated
5th June 2015].

Q42:    Can a company pass the resolution for issue of securities by way of circulation?
A42: As per Section 179(3) of the CA, 2013, resolution with regard to issue of securities should be discussed and passed at a duly convened Board meeting and hence, resolution cannot be passed through circulation.
Q43:   Can a company convert the existing shares into shares with differential voting rights and vice versa?
A43:    No, as per Rule 4(3) of Companies (Share Capital and Debenture) Rules 2014, company cannot convert its existing shares into shares with differential voting rights and vice versa.
Q44:    What  is  meant  by  sweat  equity  shares  and  to  whom  can  a company issue sweat equity shares?
A44:    As per Section 2(88) of the CA, 2013, sweat equity shares means shares issued at a discount or for consideration other than cash to the Directors and employees for providing know-how or making available rights in the nature of intellectual property rights or value addition.
As per Rule 8(1) of the Companies (Share Capital and Debentures) Rules, 2014, sweat equity shares can be issued to employees of the company as classified below:

permanent employee of the Company who has been working in India or outside India, for at least one year;

a Director of the Company, whether a whole time Director or not;

an employee or a director as specified above of a subsidiary or of a holding of the company
Q45:    What is the lock-in period for sweat equity shares?

A45:    As per Rule 8(5) of the Companies (Share Capital and Debentures) Rules,  2014,  sweat  equity  shares  issued  to  the  employees  or Directors of the Company shall be locked-in for a period of 3 years from the date of issue and the same shall be stamped or mentioned in any other prominent manner on the share certificate.
Q46:    What is the cap on issue of sweat equity shares?

A46:    The cap on issue of sweat equity shares is as follows:

(i)          In a year, issue shall not exceed 15% of the existing issued equity share capital or issue value of INR 5 crores whichever is higher;
(ii)         At any time, issue shall not exceed 25% of the total paid up equity capital  of  the  Company  but  a  start-up  company  can  issue  sweat equity shares not exceeding 50% of its paid up capital up to five years  from  the  date  of  its  incorporation  [The  Companies  (Share Capital and Debentures) Third Amendment Rules, 2016].
Q47:  Are all kinds of companies required to obtain approval of shareholders by means of a special resolution for issuing shares under ESOP?
A47:     As per Section 62(1)(b) of the CA, 2013, all companies other than private companies are required to  obtain approval by  means of  a special resolution in general meeting for issuing shares under ESOP. As per notification No. GSR 464(E) dated 5 June 2015, in case of private companies, an ordinary resolution by the shareholders would suffice the requirement for issue of shares under ESOP.
Q48:    Can an employee who is also a promoter of a company eligible to obtain sweat equity shares and employee stock of option?
A48:    As per Rule 12 of Companies (Share Capital and Debentures) Rules,
2014, employee who is also a promoter or person belonging to the
promoter group is specifically excluded from obtaining shares issued under ESOP. In case of a start-up company as defined in notification number  GSR  180(E)  dated  17th February,  2016  issued  by  the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry Government of India, Government of India, this condition shall not apply up to five years from the date of its incorporation or registration. [The Companies (Share Capital and Debentures) Third Amendment Rules, 2016].
However, in case of sweat equity shares, the said exclusion is not specified in the provisions. Thus, an employee who is also a promoter of a company is eligible to get sweat equity shares and not the employee stock option.
Q49:    Will all the employees of the company be eligible to participate in the ESOP?
A49:    No, only those employees as determined by the management of the company shall be eligible to participate in the ESOP.
Q50:    Has Section 66 pertaining to reduction of capital been enforced?

A50:    Section 66 of the CA, 2013 for reduction of capital has been enforced with effect from 15 December 2016 and accordingly, every company is   required   to   follow   the   provisions   prescribed   thereunder   for reduction of share capital.
Q51:    What  is  meant  by  the  term  “Buy  back  of  Shares”  and  funds utilized for buy back?
A51:    “Buy  back”  is  a  concept  by  which  a  company  purchases  its  own shares or other specified securities by following the procedures laid down in Section 68 of the CA, 2013. The company can utilize free reserves, securities premium account  or  proceeds  of  the  issue  of fresh issue shares or other specified securities to purchase its own shares.
Q52:    What is the limit prescribed for buy back of shares?

A52:    As per the provisions of Section 68(2) of the CA, 2013, in case a special resolution has been passed by the members of the company at the general meeting, the company can buy back shares not exceeding 25% of the aggregate of paid-up capital and free reserves of  the company and in case of  buy back of  equity shares in  any financial year, it should not exceed 25% of its total paid-up equity capital in that financial year.
Provided that the company can buy back 10% of the total paid-up equity capital and free reserves after obtaining approval of Board. In such a case, approval of the shareholders’ by means of a special resolution will not be required.
Q53:    Can a company buy back its shares if it is not authorized by its
AOA?

A53:    As per the provisions of Section 68(2) of the CA, 2013, a company cannot buy back its shares if it is not authorized by its AOA.
Q54:    What is the time limit for completion of buy back?

A54:    As per the provisions of Section 68(4) of the CA, 2013, every buy back shall be completed within a period of one year from the date of passing of the special resolution or resolution passed by the Board, as the case may be.
                                                 Directors


Q55:    What is DIN?

A55:    DIN is a unique identification number issued to a prospective director by the DIN cell of Ministry of Corporate Affairs (“MCA”). An individual should hold a DIN before being appointed as a director in any Company.
Q56:    Is it mandatory for a director to hold digital signature?

A56:    A director who is already holding a DIN can obtain a digital signature, though it is not mandatory. If a person is not holding DIN and intends to  be  appointed as  a  Director in  a  Company, he  should obtain a digital signature for making an application for obtaining DIN to the DIN cell.
Q57:    Who can be appointed as director?

A57:    As per the provisions of Section 152 of the CA, 2013, an individual holding  a  valid  DIN  and  not  disqualified from  being  appointed as Director  under  Section  164  of  the  CA,  2013,  is  eligible  to  be appointed as Director. He shall give his consent to act as a director in writing along with the disclosure of his interest and a declaration that he is not disqualified to become a director under CA, 2013.
Q58:    What are the broad steps involved in appointment of a director?

A58:    The broad steps involved in appointment of a director are: Obtain DSC;
Obtain DIN by filing Form DIR-3;

Declaration that he is not disqualified from being appointed as the Director in form DIR-8;
Written consent of director for his appointment in form DIR-2; Interest of the Director if any, in any other entity in form MBP-
1;

Approval of Board of directors by Board Resolution;

Approval    of    Shareholders    by    shareholders    Ordinary
Resolution;

Intimation of appointment of director to ROC in Form DIR-12



Q59:    Can a director be appointed by the Board of a company?

A59:    Although, as per the provisions of Section 152 of the CA, 2013, the directors of the Company are required to be appointed by the shareholders of the Company in general meeting, the Board of the Company,  if  authorised  by  the  AOA  of  the  company  can  appoint director under following circumstances:

Appointment of additional director; Appointment of nominee director; Appointment of alternate director;
Appointment of director for filling casual vacancy

Q60:    What shall be the effective date of resignation of a director?

A60:    As  per  the  provisions  of  Section  168(2)  of  the  CA,  2013,  the resignation of a director shall take effect from the date on which the notice is received by the company or the date specified in the notice, whichever is later.

Q61:    What are the procedures to be carried out by a director at the time of resignation from the company?

A61:    As per the provisions of Section 168 of the CA, 2013 read with Rule
15 and Rule 16 of the Companies (Appointment and Qualification of Directors) Rules, 2014, a director may resign from his office in the following manner:

(i)       by giving a written notice to the Board; and

(ii)       shall  forward a  copy  of  his  resignation along  with  detailed reasons to the ROC in Form DIR-11 within 30 days of resignation.

In case of resignation of a foreign director, such a foreign director can authorize in writing a practising chartered accountant or cost accountant in practice or company secretary in practice or any other resident director of the company to sign Form DIR-11 and file the same on his behalf with the ROC.

The Company on receipt of the notice of resignation from the Director shall:

(i)       take the same on record;

(ii)      intimate the ROC in Form DIR-12 within 30 days; and

(iii)     place the fact of such resignation in the Board’s Report laid in the immediately following general meeting of the company.

Q62:    How long will the director be liable for the offences occurred during his tenure?

A62:    The director shall be liable for the acts / transactions occurred during his   tenure   even   after   resignation   and   disassociation  with   the company.

Q63:    Who   are   KMPs   and   whether   their   appointment   requires additional compliance?

A63:    KMP has been defined under Section 2(51) of the CA, 2013, to mean: Chief Executive Officer or Managing Director or Manager; Company Secretary;
Whole Time Director; Chief Financial Officer
The following companies, are required to appoint KMP and their appointment shall be intimated to the ROC in Form DIR
12 and the return of their appointment shall be filed in Form
MR 1:

Listed company;

Public company having paid up share capital of INR 10 crores or more

Provided that  as  per  Rule  8A  of  the  Companies(Appointment and Remuneration Managerial Personnel), Rules, 2014, a company other than those mentioned above needs to appoint a whole time Company Secretary if its paid-up share capital is rupees five crore or above.
Also, after the Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2016, MR-1 is not required to be filed for Chief Executive Officer, Company Secretary and Chief Financial Officer w.e.f. 30.06.2016.

Q64:    Can a director be removed from the Company?



A64:    Yes,  shareholders  of  the  Company  may  by  passing  an  ordinary resolution in general meeting remove a director, but after giving a reasonable opportunity of being heard pursuant to Section 169 of the CA, 2013. A special notice would be required for passing such resolution. Once shareholders remove a director from the Board, the Board of Directors cannot reappoint him.
                          Board Related Matters


Q65:     Are  all  companies  required  to   hold  Board  Meetings  every quarter?
A65:    As per Section 173 of the CA 2013 and Secretarial Standards 1, all companies – whether private limited companies or public companies are required to hold at least four meetings of its Board of Directors in each  quarter  every  year  where  the  gap  between two  consecutive board meetings is not more than one hundred and twenty days.
As per the notification No. GSR 466 E dated 05 June 2015, in case of a Section 8 company, the Board of Directors of the company shall hold at least one meeting within six calendar months.
In  case of  an OPC, if  there is  only one director on the Board of
Director, the quarterly board meetings are not required to be held.

However, if the OPC has more than one director or in case of small or dormant companies, it  will suffice the requirement, if  they  hold at least  one  meeting in  each  half  of  the  calendar year  and the  gap between two meetings should not be less than ninety days. Further, any business which is required to be transacted at the meeting of the Board of Directors of a company, it shall be sufficient if, in case of such OPC, the resolution by such director is entered in the minutes book.
Q66:    Can a Company restrict a director from participating in a meeting through video conferencing if he has not given an intimation of participating in the video conference meetings at the beginning of the year?
A66:    No,  a  company  cannot  restrict  a  director  from  participating  in  a meeting through video conference if he has not given intimation at the beginning  of  the  year.  An  intimation  given  to  the  company  or chairman on receipt of the notice calling the board meeting would suffice the requirement for attending the meeting through video conferencing.
Q67:     What are the matters which cannot be considered at a meeting held through video conferencing or other audio visual means?



A67:    As  per  Rule  4  of  the  Companies (Meetings  of  the  Board  and  its Powers)  Rules,  2014,  following  matters  shall  not  be  considered through video conferencing or other audio visual means:
(i)                   Approval of annual financial statements;
(ii)                  Approval of board’s report;
(iii)        Approval of prospectus;

(iv)        Audit  Committee  Meetings  for  consideration  of  financial statement including consolidated financial statement, if any, to be approved by the Board of Directors pursuant to Section 134(1) of the CA, 2013;

(v)          Approval of  the  matter  relating to  amalgamation, merger, demerger, acquisition and takeover.
However, as per The Companies (Amendment) Bill, 2016, which is yet to be notified, has proposed participation of Directors on certain items at  Board Meetings through video conference or  other  audio visual  means  if  there  is  quorum  through  physical  presence  of Directors.
Q68:    Is the notice calling for the board meeting required to state that the meeting is being convened at a short notice?
A68:    Yes, as  per Secretarial Standards-1 effective from 1 July 2015, a company is required to state the fact that the board meeting is convened at a short notice in the notice calling the meeting. However, the CA, 2013 is silent in this regard.
Q69:    Can a director interested in the contract participate in the board meeting or  be  counted  for  quorum  as  per  Section  174  of  CA
2013?

A69:    As per provisions of Section 188 of the CA 2013, if any director is directly   or   indirectly, concerned   or   interested   in   a   contract   or arrangement or proposed contract or arrangement then such director shall disclose the nature of his concern or interest at the meeting of the Board in which the contract or arrangement is discussed and shall not participate in such meeting.
However, in case of a private limited company, as per notification No. GSR 464E dated 5th June 2015, an interested director can participate and  vote  in  a  board  meeting  after  disclosing  his  interest  in  the particular transaction. The interested director, will be included for the purpose of determining the quorum of the meeting.
Q70:    Can  meetings  of  the  Audit  Committee  be  held  through  video conference?
A70:    Yes, the meetings of  Audit Committee can be held through video conference except the meeting where financial statements including consolidated financial statements is  considered for approval under Section 134(1) of CA, 2013.
Q71:    Is a company required to obtain approval of the Audit Committee for all the transaction entered into with related parties?
A71:    Yes, as per Section 177 of CA, 2013 read with Rule 6 and 6A of the Companies  (Meetings  of  Board  and  its  Power)  Rules,  2014,  a company is required to obtain approval of the Audit Committee for all the transactions entered into with related parties. Also, the Audit Committee has an option to grant omnibus approval which shall be valid for a period of one financial year.
However, as per the Companies (Amendment) Bill, 2016 which is yet to be notified, proposes to insert following amendments:

Ratification by Audit Committee of transactions involving amount not exceeding INR 1 Crores within 3 months of transaction;
Consequences of non-ratification of the transactions; Exemption from  approval of  audit  committee to  transaction
between a holding company and its wholly owned subsidiary.

Q72:    Which powers of the board are required to be exercised at a duly convened board meeting?
A72:    As per Section 179 of CA, 2013 read with Rule 8 the Companies (Meeting of Board and its Powers) Rules 2014, following powers of the Board can be exercised by means of a resolution passed at a duly convened Board meeting:
(a)        To make calls on shareholders in respect of money unpaid; (b)        To authorise buy back of securities;
(c)         To  issue  securities,  including  debentures,  whether  in  or outside India;
(d)        To borrow monies;

(e)        To invest the funds of the company;
(f)          To grant loans or give guarantee or provide security in respect of loans;
(g)        To approve financial statements and the Board’s report; (h)        To diversify the business of the company;
(i)         To approve amalgamation, merger or reconstruction;

(j)          To take over a company or acquire a controlling or substantial stake in another company;
(k)        To make political contributions;

(l)         To appoint internal auditors and secretarial auditor; (m)      To appoint or remove KMP;
As per the notification dated 5 June 2015, in case of a Section 8
Company, matters referred to in point no. (d), (e)  and (f) may be decided by the Board by circulation instead of at a meeting.
Q73:    Can a private company grant loan to its directors?

A73:    Sec 185 of the CA 2013 restricts loans to directors including private limited companies. However as  per  the  notification dated  6th  Jun
2015, a private company may grant loan to its directors subject to fulfilment of all of the following conditions:

No body corporate has invested in the share capital of the company;

Borrowings from banks/financial institutions/any other body corporate is less than twice the paid up share capital of the company and fifty crores whichever is lower; and

There is no subsisting default in repayment of existing borrowings at the time of the transaction.
Q74.    Can loan be given by a holding company to its wholly owned subsidiary company or a guarantee given or security provided by a holding company to  any loan  made to  its wholly owned subsidiary?
A74:    Yes, as per the proviso to Section 185(1) loan given by a holding company to  its  wholly  owned  subsidiary company  or  a  guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company is exempt from the purview of Section 185 of CA, 2013 provided the same is utilised for the principal business activities by the subsidiary.

Q75:    Is a private company exempt from Section 186 of CA, 2013?

A75:    A private company is not exempt from the applicability of Section 186 of CA, 2013.
Q76:    Is loan to an employee covered within the ambit of Section 186 of the CA, 2013?
A76:    As  per  General Clarification No.04/2015 issued by  the  Ministry of Corporate Affairs dated 10 March 2015, loans and/or advances made by the companies to their employees, other than the managing or who-time director are not governed by the requirement of Section 186 of the CA,2013. This clarification will however, be applicable if such loans/advances to employees are in accordance with the conditions of service applicable to employees and are also in accordance with the remuneration policy, in cases where such policy is required to be formulated.
Further, as per the Companies (Amendment) Bill, 2016 which is yet to be notified, proposes to exclude ‘employees’ from the definition of
‘any person’.

Q77:    Will salary advances made by the Company for only one or two months (without interest) come within the preview of “Loan”?
A77:    There is a difference between advance and loan. Loan is lending of money  with  absolute promise to  repay  whereas advance is  to  be adjusted against supply  of  goods  and  services. Advance given to employees against current month’s salary will not be in the nature of loan and the same will not fall within the purview of Section 186.
Q78:    Is unanimous consent of the board required for entering into a transaction under Section 186?
A78:    Yes,  as  per  Section  186(5)  of  the  CA,  2013,  consent  of  all  the directors present at the meeting is required for entering into a transaction.
Q79:    When is the approval from the public financial institutions not required for entering into transactions under Section 186?
A79:    As per the proviso to Section 186(5) of the CA, 2013, approval of public financial institutions is not required under the below circumstances:

The amount involved in the transaction does not exceed 60%
of  the  paid  up  share  capital,  free  reserves  and  securities
premium account and 100% of its free reserves and securities premium account, whichever is higher; and

There  is  no  default  in  repayment  of  loan  installments  and interest to public financial institutions.
Q80:    What is the due date for making entries in the new format of Register of Loans, Guarantees, Security and Acquisition? Also, is a company required to update the transactions covered under Section 372A of the CA 1956?
A80:    Since, 1 April 2014 it is mandatory for a company to maintain the Register of Loans, Guarantee, Security and Acquisition made by the company in Form MBP-2. Also, as per the clarification issued by MCA vide   Circular   No.   15/2014,  registers   maintained  by   companies pursuant to Section 372A (5) of the CA, 1956 may continue as per the requirement under these provisions and the new format prescribed (MBP-2) shall be used for transactions entered on and from 1 April
2014.

Q81:    Which are the transactions covered under Section 188 of the CA,
2013?

A81:    The following transactions are covered under Section 188 of the CA,
2013:

Sale, purchase or supply of goods or materials;

Sale or disposal of or buying of property of any kind; Leasing of property of any kind;
Availing of or rendering any services;

Appointment  of  an  agent  for  purchase  or  sale  of  goods, materials, services or property;

Related party’s appointment to any office or place of profit in the company or its subsidiary or associate company;

Underwriting of subscription of any securities or derivatives;

Q82:    Can Company provide interest free loans?

A82:    No, the Company shall not provide any loan without interest. As per Section 186(7) of the CA, 2013, no loan shall be given at a rate lower than the prevailing yield of one year, three year, five year or ten year Government Security closest to the tenor of the loan.

Q83:    Which are the transactions that would not require approval of the shareholders under Section 188?
A83:    As per Section 188(1) of the CA, 2013, following transactions do not require approval of the shareholders under Section 188 of the CA,
2013:

Transactions  in  ordinary  course  of  business  and  on  arm’s length basis;

Transactions between holding company and wholly owned subsidiary  company  whose  accounts  are  consolidated  and laid before shareholders at AGM.
Q84:    Can a member of a private company interested in a particular transaction participate and vote at a general meeting?
A84:    Yes, an interested member of a private company can participate and vote  at  general  meeting  on  matters  requiring approval  for  related party transaction pursuant to exemption Notification No. GSR 464(E), dated 05th June, 2015.
Q85:   Can a Director who is also a member of a private company participate and vote at a meeting for the transaction related to payment of remuneration to such directors?
A85:    Yes,  an  interested  Director  who  is  also  a  member  of  a  private company can participate and vote at meeting to approve the transactions related to payment of remuneration to such Director.
Q86:    In what circumstances is the prior approval of Board required for entering into  specified contracts or arrangements with related parties under Section 188?
A86:    As per Section 188 of the CA 2013, Board’s approval is required for the  contracts  or  arrangements  with  related  parties  specified  in Section 188(1) (a) to (g) which are either not in ordinary course of business or not at arm’s length basis. Further, in the case the transactions exceed the prescribed threshold, prior approval by ordinary resolution of the company shall be required for entering into such contract or arrangement with related party.
Q87:    As per the second proviso to Section 188 (1) of the CA, 2013, no member of the company shall vote on such ordinary resolution, to approve any contract or arrangement which may be entered into by the company, if such member is a related party.
What is the meaning of related party in such cases?
A87:    The MCA vide General Circular No. 30/2014 dated 17 July 2014 has clarified that ‘related party’ referred to in the second proviso has to be construed with reference to the contract or arrangement for which the said  ordinary  resolution  is  being  passed.  Thus,  the  term  ‘related party’  in  the  above  context  refers  only  to  such  related  party  with whom the contract or arrangement is being proposed and for which the said ordinary resolution is being passed.
However, as per the Companies (Amendment) Bill, 2016 which is yet to be notified, proposes to remove non-participation of related party shareholder of a public Company, in passing of the resolution of such public  Company in  which  90% or  more  members, in  number,  are relatives or promoters of related parties.
Q88:    Which  are  the  transactions  exempted  from  being  entered  in Register of Contracts and Arrangements in which the directors are interested?
A88:    The following transactions are exempted from being entered in the Register of Contracts and Arrangements in which the directors are interested:
Sale/purchase/supply of  any goods/services, if  the value does not exceed five lakh rupees in the aggregate in any year

Transaction by a banking company for the collection of bills in the ordinary course of its business
Q89:    Which are the different type of companies required to adopt vigil mechanism?
A89: Pursuant to Section 177(9) of the CA, 2013 read with Rule 7 of the Companies (meetings of Board and its Power) Rules, 2014, Vigil Mechanism is required to be adopted by the following companies:

Every listed company;

Companies which accept deposits from the public;

Companies  which  have  borrowed  money  from  banks  and public financial institutions in excess of fifty crore rupees.

        Management and Administration


Q90:    When should a company convene its first AGM?

A90:    As  per  Section 96  of  the  CA,  2013, the  first  AGM  of  a  company should be held within a period 9 months from the date of close of first financial year.
Example – If a company’s financial year ends on 31 March, the first AGM of the company shall be held latest by 31 December of that year.
Q91:    Can AGM be held at a place situated outside the limit of city, town or village in which the Registered Office is situated?
A91:    As per the provisions of Section 96(2) of the CA, 2013, AGM cannot be held at a place situated outside the limit of city, town or village in which   the   Registered   Office   is   situated.   Provided   in   case   of Government  companies,  AGM  can  be  held  at  a  place  which  the Central Government may approve i.e. a Government Company can convene its AGM at a place other than limit of city, town or village in which the Registered Office is  situated if  the  Central Government may approve.
However,  as  per  the  proposed  Companies  Amendment  Bill,  2016 which is yet to be notified, AGM of an unlisted company may be held at any place in India if consent is given in writing or by electronic mode by all the members in advance.
Q92:    Can AGM be convened at shorter notice?

A92:    Yes, as per Section 101(1) of the CA, 2013, AGM can be convened after  giving  a  shorter  notice  subject  to  consent  in  writing  or  in electronic mode is received from 95% of the members entitled to vote thereat.
Q93:    What shall be the Quorum of an AGM?

A93:    As per Section 103 of the CA, 2013, quorum for the AGM of a private limited company is  2  members personally present,  but  in  case  of public limited company, quorum for AGM is based on the number of members in the Company, as stated below:

Quorum required Total number of member in the
Company
(members to be personally present)
5 Less than 1000
15 1000 to 5000
30 More than 5000

Q94:    Can EGM be held at a place situated outside India?

A94:    No, EGM of a company cannot be held outside India.

However,  as  per  the  proposed  Companies  Amendment  Bill,  2016 which is yet to be notified, EGM of a company, other than a wholly owned subsidiary of a company incorporated outside India, shall be held at a place within India.
Q95:    Who can be appointed as proxy?

A95:    As per Section 105 of the CA, 2013, proxy need not be a member of the company and any person can be appointed as a proxy.
Q96:    What are the restrictions on a proxy during the shareholders meeting?
A96:    As per Section 105 of the CA, 2013, at a shareholders meeting, a proxy can vote only through poll and not by show of hands. Also a proxy is not entitled to speak at the meeting.
Q97:    Can a member of Section 8 Company appoint any other person as its proxy?
A97:    No, as per Rule 19 of Companies (Management and Administration) Rules,  2014,  a  member  of  Section  8  Company  can  appoint  only another member of the same company as its proxy.
Q98:    For how many members can a person be appointed as a proxy?

A98:    As  per  Section  105  of  the  CA,  2013,  read  with  Rule  19  of  the Companies (Management and Administration) Rules, 2014, a person can act as proxy on behalf of maximum 50 members and holding voting rights on shares not more than 10% of total share capital.



In case of a person holding proxy for a member, holding voting rights on shares for more than 10% of total share capital, he/she cannot hold a proxy for another member in the same company.
Q99:    Can one member appoint more than one proxy?

A99:    Yes, a person can appoint more than one proxy.

Q100:  When can a proxy be appointed? Can a person be appointed as a permanent proxy for a member?
A100: As per the provisions of Section 105 of the CA, 2013, proxy can be appointed by a member any time after the notice is issued, but the same should reach the company 48 hours before the scheduled meeting. A person cannot be appointed as a permanent proxy for a member.
Q101:  Can a director appointed as a Chairman at the meeting of the Board for the purpose of convening such meeting be considered as a person holding the positon of Chairman of the Company?
A101:  A director appointed as a Chairman at the meeting of the Board for the purpose of convening such meeting cannot be considered as a person holding the positon of Chairman of the company. In case a company  is  willing  to  designate  a  director  as  Chairman  of  the company, a separate resolution with this affect is required and the necessary intimations shall be given to the ROC.
Q102:  What is the period prescribed for preserving the annual returns prepared under the CA, 2013?
A102: Pursuant to Rule 15(3) of the Companies (Management and Administration) Rules, 2014, the Copies of annual returns prepared under  Section  92  and  copies  of  all  certificates  and  documents required to be annexed thereto shall be preserved for a period of eight years from the date of filing with the ROC.
Q103:  What are the requirements of signing of Annual Return?

A103:  Pursuant to the provisions of Section 92 of the CA, 2013 read with
Rule 11 of the Companies (Management and Administration) Rules,
2014, annual return shall be signed in the following manner:

(i)          In case of a Small Company and OPC, the annual return shall be  signed  by  Company  Secretary  or  where  there  is  no Company Secretary, by the Director of the Company.

(ii)         In case of other companies, the annual return shall be signed by a Director and the Company Secretary, or where there is no Company Secretary, by a Practising Company Secretary.
Q104:  What are the certification requirements of Annual Return?

A104:  Pursuant to Section 92(2) of the CA, 2013 read with Rule 11(2) of the Companies   (Management   and   Administration   Rules,   2014,   the Annual Return of the following companies shall be certified by a Company Secretary in whole time practice in Form No. MGT-8:

Every listed company;

Every company having paid up share capital of INR 10 crore or more;

Every company having turnover of INR 50 crore or more

Q105:  Is the extract of the Annual Return required to be attached to
Board’s Report in terms of Section 134 (3)(a) of the CA, 2013?

A105:  An extract of the annual return in form MGT-9 relating to the financial year to which the Board’s Report relates shall be attached therewith in terms of Section 134 (3)(a) of the CA, 2013.
Q106:  In case the AGM is not held, what is the time limit for filing the
Annual Return?

A106:  As per Section 92(4) of the CA, 2013, in case the AGM of a company is not held, the Annual Return has to be filed within 60 days from the last date on which AGM should have been held together with the statement specifying the reasons for not holding the AGM.
Q107:  Which registers should include the index of names?

A107:  As per Section 88(2) of the CA, 2013, the following registers should include an index of names:

Register of members;

Register of debenture holders; Register of any other security holders.
Provided that an index is not mandatory if the number of members
are less than 50

Q108:  What is the duration for preservation of Statutory Registers?



A108:  As per Rule 15 of the Companies (Management and Administration) Rules, 2014, the Statutory Registers are to be preserved in the following manner:
----------------------------------------------

                                                 Accounts
 .
 .
Q109:  What shall be the first financial year of the newly incorporated company or body corporate?
A109:  As per Section 2(41) of the CA, 2013, the first financial year of a company means a period beginning from the date of incorporation and ending on 31 March of the following year.
Q110:  In case any existing auditor incurs disqualifications as per the CA 2013, what is the procedure to be followed for appointment of new auditor? Is the company also required to follow the procedures relating to removal of auditor as prescribed in the CA, 2013?
A110:  As per Section 141(4) the CA, 2013, an auditor once disqualified shall vacate office and which in turn results in casual vacancy. The casual vacancy can be filled by the board of directors within 30 days of such disqualification and the process relating to removal of Auditors is not required to be followed.
It may be noted that the auditor so appointed holds office only till the conclusion of the next AGM.
Q111:  How  does  the  requirement  of  rotation  of  auditor  apply  to  a company having a calendar year end or June Year-end?
A111:  Appointment/re-appointment of auditor takes place at the AGM and is valid until the conclusion of the next AGM irrespective of the year end. The period of five years will be counted from AGM to AGM.
Q112:  Who shall sign the Financial Statements of a Company?

A112:  The Financial Statements of a company is required to be signed as per the provisions of Section 134 of the CA, 2013 by:

The chairperson of the company (if he is authorised by the Board) or by two directors (out of which 1 shall be Managing Director/ Chief Executive Officer if any); and

Chief Financial Officer and Company Secretary wherever they are appointed
However, the Companies (Amendment) Bill, 2016 which is yet to be notified, enables Chairperson if he is authorized or two directors out of which one shall be MD, if any and the CEO, the CFO and the



Company  Secretary,  wherever  they  are  appointed,  to  sign  the financial statements of the company.
Q113:  Can a company maintain books of account in any place other than Registered Office?
A113:  As per the provisions of Section 128 of the CA, 2013 read with Rule
2A  of  the  Companies  (Accounts)  Rules,  2014,  a  company  may maintain books of account and other relevant papers may be kept at such other place in India as the Board of Directors may decide and where such a decision is taken, the company shall, within seven days thereof, file with the  ROC a  notice in Form AOC-5 giving the full address of that other place.
Q114:  If the Notice of the AGM is circulated at a short notice, can the financial statements also be sent along with the notice?
A114:  Yes, a company holding a general meeting after giving a short notice as provided under Section 101 of the CA, 2013 may also circulate financial statements at such short notice.
However, the Companies (Amendment) Bill, 2016 which is yet to be notified,  proposes  to  enable  the  Company  to  send  copy  of  the financial statements at a period lesser than 21 days if 95% of the members entitled to vote at the meeting agrees for the same.
Q115:  What is the duration for preserving the Books of Account?

A115:  As per Section 128(5) of the CA 2013, the books of account shall be preserved  by  the  company  for  8  financial  years  preceding  the financial year.
Q116:  Is  it  required  to  attach  Board’s  Report  to  the  consolidated financial statements?
A116:  Yes, as per Section 134 (3) of the CA, 2013, the Board’s Report shall be attached to the consolidated financial statements.
Q117:  Are the standalone financial statements of the associates/joint ventures required to be placed on the website too?
A117:  As  per  fourth  proviso  to  Section  136(1)  of  the  CA  2013,  every company  having  a  subsidiary or  subsidiaries shall  place  separate audited accounts in respect of each of its subsidiary on its website, if any.  Therefore,  there  is  no  requirement  of  placing  standalone financial statements of associates/joint ventures on the website of the company.


        However,   the   Companies   (Amendment)   Bill,   2016,   inserts   the following provisions w.r.t foreign subsidiary.
If a Listed Company which has a foreign subsidiary and:

If the foreign subsidiary is statutorily required to prepare consolidated financial statement under the law  of  any  country, the requirement shall be met if such consolidated accounts are placed on the website;

If   the  foreign  subsidiary  is   not   required  to   audit  its   financial statements, the Listed Company may place the unaudited financial statement  on  its  website  and  if  the  language  is  not  English,  a translated copy of the same shall be placed on the website.
Q118:  Can  a  branch  office  of  the  company  maintain  its  books  of account in the location of branch office?
A118:  Yes, as per Section 128(2) the CA, 2013, the Company may maintain books of account relating to the transactions effected at the branch office at branch provided summarised returns are periodically sent to the registered office.
Q 119: Whether  the  subsidiary  of  a  company  under  liquidation  is required to consolidate its accounts as per Section 129 of the CA, 2013?
A119:  Since the holding company under liquidation is not required to have the  accounts  prepared  as  per  Section  129  the  CA,  2013,  its subsidiary company’s accounts shall  not  be  consolidated with  the aforesaid  holding  company.  However,  the  reasons  for  not consolidating must be explained in the notes as required by Schedule III.
Q120:  Is   it   required  to   comply  with  Accounting  Standards  while preparing the financial statements?
A120:  Yes, as per Section 129(1) of the CA, 2013, the financial statements should  be  prepared in  accordance with  the  accounting standards. Further, as per Section 129 (5) of the CA, 2013, in case of deviation from accounting standards, the financial statements must disclose the fact  of  such  deviation  and  reasons  for  the  same  along  with  its financial effects.
Q121:  What are the modes available for the company to maintain the books of account?
A121:  The Company may maintain books of  account either physically or electronically.   In   case   the   books   of   account   is   maintained


electronically, the back-up of the books of account and other books and papers of the company shall be kept in servers physically located in India on a periodic basis.
Q122:  Can a company keep the books and registers at a place other than registered office of the company?
A122:  Yes, as per Proviso to Section 128 (1), the books may be kept at such other place in India as the Board of Directors may decide after passing resolution in the duly held Board Meeting of the company.


                                Audit and Auditors


Q123:  Which companies are required to appoint Internal Auditor?

A123: As per Section 138 of the CA, 2013 and Rule 13 of Companies (Accounts) Rules, 2014, the following companies are required to appoint an internal auditor:

listed company;

every unlisted public company having at any point of time during the preceding financial year -
o   paid up share capital of INR 50 crores or more; or
o   turnover of INR 200 crores or more; or
o    outstanding loans or borrowings from banks or public financial institutions for more than INR 100 crores; or

o   outstanding deposits of INR 25 crore rupees or more
every  private  company  having  at  any  point  of  time  during  the preceding financial year -
o   turnover of INR 200 crores or more; or
o   outstanding loans or borrowings from banks or PFI for more than INR
100 crores

Q124:  Who can be appointed as Internal Auditor of the Company?

A124:  As per the provisions of Section 138 of the CA, 2013 read with Rule
13   of   the   Companies   (accounts)   Rules,   2014,   a   “Chartered Accountant” or “Cost Accountant” whether engaged in practice or not, or  such  other  professional  as  may  be  decided  by  the  Board  of Directors of the company can be appointed as internal auditor of the Company.  The  internal  auditor  may  or  may  or  may  not  be  an employee of the company.
Q125:  Can   internal   Auditor   be   appointed   by   way   of   a   circular resolution?
A125:  No,  as  per  Section 179  the  CA,  2013  read  with  applicable rules, Internal  Auditor  shall  be  appointed  at  the  duly  convened  board meeting of the Company.
Q126:  Can the Statutory Auditor and Cost Auditor be the same person or firm?



A126:  As per the proviso to the Section 148(3) the CA, 2013, the person appointed under Section 139 the CA, 2013 as an auditor of the company shall not be appointed for conducting the audit of cost records.
Q127:  When should the first auditors be appointed?

A127:  As  per  Section 139  of  the CA,  2013, the first  auditors should be appointed by the Board within 30 days of the registration of the company and in case of failure of the Board to appoint such auditors, the auditors shall be appointed by the members in general meeting. Further, such auditor shall hold office till the date of the conclusion of the first AGM.
Q128:  What is the term of appointment of an individual and a firm as a statutory auditor?
A128:  As per Section 139(2) the CA, 2013 read with Rule 5 of Companies (Audit and Auditors) Rules, 2014, the following companies shall not appoint an individual as statutory auditor for more than one term of 5 years and a firm as statutory auditor for more than two terms of 5 year each:

Listed company;

All unlisted public companies having paid up share capital of INR 10
Crores or more;

All private limited companies having paid up share capital of INR 20
Crores or more;

All companies having paid up share capital below the threshold limit mentioned in the aforesaid two points, but having public borrowings from financial institutions, banks or public deposits of INR 50 Crores or more
Q129:  Is there any transition period provided for complying with the provisions of Section 139 (2) of the CA, 2013 relating to rotation of auditors?
A129:  As per Companies (Removal of Difficulties) Third Order, 2016 dated
30th June, 2016 issued by the MCA, the classes of companies stated under Q128 are required to comply with the provisions of Section
139(2) the CA, 2013 relating to rotation of auditors not later than the
AGM to be held in the year 2017.

Q130:  Which are the classes of companies required to comply with the provisions relating to rotation of auditors?



A130:  As per Section 139(2) of the CA, 2013 read with Rule 5 and Rule 6 of Companies   (Audit   and   Auditors)   Rules,   2014,   the   following companies are required to rotate their auditors on expiry of the term:

Listed company;

All unlisted public companies having paid up share capital of INR 10
Crores or more;

All private limited companies having paid up share capital of INR 20
Crores or more;

All companies having paid up share capital below the threshold limit mentioned in the aforesaid two points, but having public borrowings from financial institutions, banks or public deposits of INR 50 Crores or more
Q131:  In case of Companies which have already appointed auditors in CA, 1956, how should the period of  5 years and 10 years for rotation of auditors be computed?
A131:  As per Rule 6(3) of the Companies (Audit and Auditors) Rules, 2014, the  period  for  which  the  individual  or  the  firm  has  held  office  as auditor prior to the commencement of the CA, 2013 shall be taken into consideration for the purpose of rotation of auditors.
For example, in case of listed and prescribed companies, if an individual has completed four years as an auditor on April 01, 2014, he can continue for 3 years in the same company.
Further, if the auditor is required to appointed again, he may do so after the cooling period of five years from the completion of term of five years.
Q132:  Can a company remove its auditor?

A132:  As per Section 140(1) of the CA, 2013 read with Rule 7 of Companies (Audit and Auditors) Rules, 2014, a company may remove its auditor before  the  expiry  of  the  term  by  obtaining  prior  approval  of  the Central Government and passing a special resolution in general meeting.
Q133:  Is there limit on the number of audits an auditor may undertake?

A133:  As   per   Section  141(3)(g)  of   the  CA,  2013, an   auditor  cannot undertake audit of more than twenty companies.
In case of private companies, while calculating the limit of 20, one person companies, dormant companies, small companies and private
companies having paid up share capital less than one hundred crore rupees shall be excluded. [Notification No. GSR 464(E), dated 5th June, 2015]
Q134:  Who shall fix the remuneration of Auditors?

A134:  As  per  Section  142(1)  of  the  CA,  2013,  the  remuneration  of  the auditor of a company shall be fixed in its general meeting or in such manner as may be determined by the Board of Directors, which shall include any out of pocket expenses incurred for the purpose and in connection with the audit. Provided further, that the Board may fix the remuneration of the first auditor appointed by it.
Q135: Is it the duty of the auditor to confirm on internal financial controls?
A135:  As per Section 143(3)(i) of the CA, 2013 the auditor is required to state the adequacy of internal financial control systems and its operating effectives.
However, as per the Companies (Amendment) Bill, 2016 which is yet to be notified, it is proposed that the auditors are required to report on Internal Financial Control with reference to financial statements.
Q136:  Who shall appoint an auditor of a Government Company?

A136:  As per Section 143(5) of the CA, 2013, the auditor of a Government Company shall be appointed by the Comptroller and Auditor General of India (“CAG”). Further, w.e.f. 4th September 2014, auditor of any other company owned or controlled directly or indirectly by Central Government or State Government and partly by Central Government and partly by one or more State Governments shall also be appointed by CAG.
Q137:  Which services are not to be rendered by auditor of a company?

A137:  As per Section 144 of the CA, 2013, an auditor shall not provide any of the following services:
(a)        Accounting and Book keeping services

(b)        Internal Audit

(c)         Design   and   implementation  of   any   financial   information system
(d)        Actuarial services

(e)        Investment advisory services


               (f)         Investment Banking services

(g)        Rendering of outsourced financial services

(h)        Management services

Q138:  What are the provisions for Reporting Fraud under CA, 2013?

A138:  The provisions on reporting fraud have been laid down under Section
143(12)  of  the  CA,  2013  and  provides  that  if  the  auditor  of  a company, in the course of the performance of his duties as auditor, has reason to believe that an offence of fraud is being or has been committed against the company by officers or employees of the company, he shall report the matter to the Central Government.
However, as per the Companies (Amendment) Act, 2015 as notified by MCA vide notification dated 14 December 2015, the auditor shall report only those matters to the Central Government which involves or is expected to involve individually an amount of INR One Crore or above.
Q139:  What is the procedure for reporting of frauds of less than rupees one crore?
A139:  As per Rule 13(3) of Companies (Audit and Auditors) Rules, 2014, in case  of  fraud  involving  less  than  one  crore  rupees,  auditor  shall report the matter to the Audit Committee under Section 177 of the CA, 2013 or to the Board immediately within 2 days of his knowledge of the fraud and also the same is required to be disclosed in the Board’s Report.
Q140:  What is the procedure for reporting of fraud under CA, 2013?

A140:  As  per  Section  143  (12)  of  the  CA,  2013read  with  Rule  13  of Companies (Audit and Auditors) Rules, 2014, the procedure for reporting of fraud if the amount of the fraud is equal or more than 1 crore, is as follows:
(i)          auditor  shall  forward  his  report  to  the  Board  or  the  Audit Committee, as the case may be, immediately after he comes to knowledge of the fraud, seeking their reply or observations within 45 days;
(ii)         on  receipt  of  such  reply  or  observations, the  auditor  shall forward his report and the reply or observations of the Board or the Audit Committee along with his comments (on such reply or observations of the Board or the Audit Committee) to



the  Central  Government within  15  days  of  receipt  of  such reply or observations;
(iii)       in case the auditor fails to get any reply or observations from the Board or the Audit Committee within the stipulated period of 45 days, he shall forward his report to the Central Government along with a note containing the details of his report that was earlier forwarded to the Board or the Audit Committee for which he failed to receive any reply or observations within the stipulated time;
(iv)        The report shall be in the form of a statement as specified in Form ADT-4 on the letter-head of the auditor containing postal address,   e-mail   address,   contact   number,   Membership Number and be signed &  sealed by  the auditor and same shall  be  sent  through Registered Post  with  AD/speed post followed by an e-mail in confirmation to the Secretary, MCA of the same.
Q141:  Is an auditor required to attend General Meeting?

A141:  Yes, as per Section 146 of the CA, 2013, an auditor either by himself or through his representative, who is qualified to be an auditor should attend the general meeting, unless exempted by the company.

                                  Secretarial Audit


Q.142. Who can conduct Secretarial Audit and provide the Report?

A142:  Only  a  member  of  the  Institute  of  Company  Secretaries  of  India holding a certificate of practice (company secretary in practice) can conduct Secretarial Audit and furnish the Secretarial Audit Report to the company. [Section 204(1) of CA, 2013].
The  Secretarial Audit  Report  should  be  signed  by  the  Secretarial Auditor who has been engaged by the company to conduct the Secretarial Audit and in case of a firm of Company Secretaries, by the partner under whose supervision the Secretarial Audit was conducted.
Q143:  Which companies are required to undergo Secretarial Audit?

A143:  As  per  Section  204(1)  of  the  CA,  2013  read  with  rule  9  of  the Companies  (Appointment  and  Remuneration  of  Managerial Personnel)  Rules,  2014,  the  following  companies  are  required  to obtain Secretarial Audit Report:
- Every listed company;

- Every public company having a paid-up share capital of fifty crore rupees or more; or
- Every public company having a turnover of two hundred fifty crore rupees or more.
“Turnover” means the aggregate value of the realisation of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year. [Section 2(91)]
Q144:  Whether the Secretarial Audit is voluntary or mandatory as per the provisions of CA, 2013?
A144:  Pursuant  to  the  provisions  of  Section  204  of  the  CA  2013,  it  is mandatory for every listed company and company belonging to class of companies as prescribed under Question No. 143 to annex with its Board’s Report, a Secretarial Audit Report given by a Company Secretary in Practice.
In case of companies which are not covered under Section 204 of the
CA, 2013, it may obtain Secretarial Audit Report voluntarily.
Q145:   What is the format of Secretarial Audit Report?

A145:  As  per  Section  204(1)  of  the  CA,  2013  read  with  Rule  9  of  the Companies  (Appointment  and  Remuneration  of  Managerial Personnel) Rules, 2014, Secretarial Audit Report is required to be provided in the format prescribed in Form MR-3.
Q146:  Is Secretarial Auditor entitled to receive notice of AGM in which his report is to be laid before the members?
A146:  As per Secretarial Standard 2, the notice in writing of every general meeting shall be given to every member of the company as well as to the Directors, Auditors and to the Secretarial Auditor and Debenture Trustees, if any.
Q147:  Is Secretarial Audit applicable to a private company which is a subsidiary of a public company?
A147:  Yes, as per proviso to Section 2(71) of the CA, 2013, the company which is a subsidiary of a company, not being a private company, shall be deemed to be a public company for the purposes of this Act, even where such subsidiary company continues to be a private company in its articles.
Given the above, Secretarial Audit would be applicable to a private company which is a subsidiary of a public company if the prescribed criteria of the paid up share capital or turnover is met.
Q148.  What  are  events  and  actions  required  to  be  reported  by  the
Secretarial Auditor in the audit report?

A148:  Secretarial  Auditor  is  required  to  report  and  provide  details  of specific events and actions occurred during the reporting period having major bearing on the affairs of the Company in pursuant to above  referred laws/  rules  and  regulations. Few  events  are  also given as example in the format of audit report.
Q149:  Can a Practicing Company Secretary certify the Annual Return with qualification?
A149:  A  Practicing  Company  Secretary  can  certify  the  Annual  Return subject to certain reservations/qualifications by way of an annexure to his certificate.
Q150:  How is the Secretarial Auditor appointed?
A150:  As per Rule 8 of the Companies (Meetings of Board and its powers) Rules, 2014, Secretarial Auditor is required to be appointed by means of resolution passed at a duly convened Board meeting.
Q151:  Whether communication to earlier incumbent is required?

A151: Yes, whenever a practicing company secretary is appointed as Secretarial Auditor in place of the existing Secretarial Auditor, he/she should communicate the appointment to the earlier incumbent in writing, in view of the provisions of clause (8) of Part I of the First Schedule to the Company Secretaries Act, 1980.



Q152:  Can a Private Company accept deposit from its members without complying with the provisions applicable to deposits?
A152:  Yes, as per the exemption Notification No. GSR 464(E) of the MCA dated 5th June 2015, a Private Company can accept deposits from its members  not  exceeding  100%  of  aggregate  of  its  paid  up  share capital and free reserve without complying with the provisions of Section 73(2)  (a),  (b),  (c),  (d)  and (e)  of  the CA,  2013 and  such company shall file details of monies so accepted in the manner as may be specified.
Q153:  What is an “eligible company” for the purpose of deposit?

A153:  “Eligible company” refers to every public company having net worth of not less than INR 100 crore rupees or a turnover of not less than INR
500   crore   rupees   and   which   has   obtained   prior   consent   of shareholders in general meeting by means of a special resolution and made respective filings with the ROC before making any invitation to public.
In case, deposit is with respect to the specified limits under Section
180(1)(c)  of  the  CA,  2013, an  ordinary resolution may  suffice the requirement.
Q154.   Does Deposit provisions cover debenture?

A154:




Q155:  Will advance towards annual maintenance service for more than
365 days be treated as a deposit?

A155:  Yes, as per the Companies (Acceptance of Deposits) Rules, 2014, advance towards annual maintenance service for more than 365 days will be treated as a deposit
Q156:  Is share application money pending allotment for more than 60 days treated as a deposit?
A156:  Yes, as per the Companies (Acceptance of Deposits) Rules, 2014, share application money pending allotment for more than 60 days is treated as a deposit.
Q157:  In case deposit is taken from a person who is both a director and a member of the Company, will such receipt of money be treated as deposit or not?
A157:  Any amount received from a person who, at the time of the receipt of the amount, was a director of the company furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing  or   accepting  loans   or   deposits  from   others,   is   not considered as deposit.
In  case  of  private  company,  if  the  amount  is  borrowed  from  its member not exceeding 100% of the paid-up share capital and free reserves  of  the  company, then  it  will  not  be  treated  as  deposits. [Notification No. GSR 464E, dated 5th June, 2015]
Q158:  Is it mandatory for a company to declare dividend?

A158:  No, it is not mandatory for a company to declare dividend.

Q159:  In case a company declares dividend, what shall be the last date of payment of dividend?
A159:  The dividend warrants shall be dispatched by the company-

(i)          in case of Interim Dividend- within 30 days of declaration of dividend in the Board Meeting; and
(ii)        in case of final dividend- within 30 days of its approval in the
AGM.



In case of ECS transfers for distribution of dividend, the transfer shall be made within 30 days of declaration of dividend.
Q160:  Can a company which has inadequate profits  or  has incurred loss  in  the  immediately preceding  financial  year  declare  final dividend out of the accumulated profits of the previous financial years? Also, is there any restriction on the rate of dividend?
A160:  As  per  the  second  proviso  to  Section  123(1)  of  the  CA,  2013,  a company  which  has  inadequate profit  or  has  incurred  loss  in  the immediately preceding financial year may declare dividend out of the accumulated profits of the company. However, as per Rule 3 of Companies (Declaration and Payment of Dividend) Rules, 2014, the rate of dividend shall not exceed the average of the rates at which dividend was declared by the company in the immediately preceding three financial years.
If a company has not declared dividend in any of the preceding three financial years, the restriction on the rate of dividend would not be applicable.
Q161:  Can Board of Directors declare final dividend for the financial year?
A161:  The Board can only recommend the final dividend to the shareholders of the Company for declaration at the AGM.
Q162:  Can dividend be declared to certain class of shareholders only?

A162:  Dividend  can  be  paid  to  any  class  of  shareholders, but  separate resolution  for  declaration  of  dividend  to  each  class  of  shares  is required to be passed at the meeting of the Board or shareholders, as the case may be.
Q163:  Can dividend be paid to certain shareholders of the same class?

A163:  Dividend once declared has to be paid to all the shareholders in a particular class.
Q164:  Can a shareholder whose shares have been transferred to IEPF
claim back his shares?

A164:  As per proviso to Section 124(6) of the CA, 2013 claimant of shares shall be entitled to claim the transferred shares from IEPF and the procedure for that would be specified in the IEPF Rules.
Q165:  When  is  unpaid/  unclaimed  dividend  transferred  to  Unpaid
Dividend Account?

A165:  As  per  Section 124(1) of  the CA,  2013, dividend declared by  the company which remains unpaid/ unclaimed for a period of 30 days from the date of declaration shall be transferred to Unpaid Dividend Account within 7 days from the date of expiry of the said period of 30 days.



          Corporate Social Responsibility


Q166:  Whether  provisions  governing  CSR  are  applicable  to  private
Companies?

A166:  Yes, every company irrespective of Private or Public Limited or a foreign company having its branch office or project office in India having:
•           net worth of INR 500 crores or more

•           turnover of INR 1000 crores or more

•           net profit of INR 5 crores or more

shall  formulate  a  CSR  Committee,  who  shall  determine  the  CSR policy of the company and every such company is required to spend of 2% of average net profits of the company for last 3 years towards CSR.
Q167:  In which activities can a company contribute towards CSR?

A167:  The amount allocated for CSR can be spent for activities specified under Schedule VII of the CA, 2013.
Q168:  Are there any implications of not spending the 2% of average net profits as CSR expenditure?
168:     In case of any shortfall of not spending the 2% of average net profits, the Board is required to be disclosed the same in the Board report along with reasons thereof.



Q169:  What are the applicable provisions for carrying out Compromise and arrangements?
A169:  Compromise and Arrangement between company and its creditors or company and its members shall be done in accordance with the provisions of the CA, 2013.
(MCA vide notification dated 7 December 2016 notified the Section
230  to  240  of  the  CA,  2013  which  deal  with  Compromise  and
Arrangements)

Q170:  Who   are   eligible   to   raise   objections   to   the   scheme   of compromise and arrangement?
A170:  As per the proviso to Section 230(4) of the CA, 2013, objection can be raised only by persons holding 10% or more of shareholding or having debt amounting 5% of the total outstanding debt as per the latest audited financial statement.
Q171:  How do we calculate the ‘shareholding’ and ‘outstanding debt’
while ascertaining the eligibility to object to the scheme?

A171: As per Explanation to Rule 9 of the Companies (Compromise, Arrangements and Amalgamations) Rules, 2016:
‘Shareholding’ means the shareholding of the members of the class who are entitled to vote on the proposal and
‘Outstanding debt’ shall mean all debt owed by the company to the respective class or classes of creditors that remains outstanding as per the latest audited financial statement, or if such statement is more than six months old, as per provisional financial statement not preceding the date of application by more than six months.
Q172:  What is Corporate Debt Restructuring?

A172:  As per explanation to the rule 4 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, corporate debt restructuring means a scheme that restructures or varies the debt obligations of a company towards its creditors.
Q173:  Under what circumstances the meeting of the creditors may be dispensed by the NCLT?



A173:  As per Section 230(9) of the CA, 2013, if 90% of the creditors in value agree and confirm to the scheme by way of affidavit, NCLT may dispense the holding of meeting of creditors or class of creditors.
Q174:  Do we have to comply with Section 230 and Section 232 while carrying out the merger and amalgamation of two or more small companies or between holding and wholly owned subsidiary companies?
A174:  No, Section 233 of the CA, 2013 prescribes to regulate the merger and amalgamation between two or more small companies or between holding and wholly owned subsidiary companies. The powers with regard to the same have been delegated to the Regional Director.
Q175: For how many years the books and papers of amalgamated companies shall be preserved?
A175:  The CA, 2013 does not prescribe any period for preservation of books and papers. However, books and papers of amalgamated companies shall   not   be   destroyed   without   the   approval   of   the   Central Government.
Q176:  What happens in case of merger of listed transferor company into unlisted transferee company?
A176:  As per Section 232(3)(h) of CA, 2013, where the transferor company is a listed company and the transferee company is an unlisted company, then:
(i)          the  transferee company  shall  remain  an  unlisted  company  until  it becomes a listed company.
(ii)         If shareholders of the transferor company decide to opt out of the transferee company, provision shall be made for payment of the value of shares held by them and other benefits n accordance with a pre- determined price formula or after valuation is made and the arrangements may be made by the NCLT.
Q177:  Can   Company   buy   back   its   shares   under   a   scheme   of arrangement without following the conditions prescribed under Section 68 of the CA, 2013?
A177:  No, as per Section 230(10) of the CA, 2013, NCLT shall not approve any scheme of compromise or arrangement in respect of buy-back of securities which is not in compliance with the provisions of Section 68 of the CA, 2013.


Sections Directors relating to Directors can be divided into - Appointment,Meetings,Remuneration

However the above 3 major parts can be divided into 14 sub parts as below


Number of  Directors prescribed for various types of companies- 149(1)













149(1) proviso-women director, 149(3) Resident director 149(4) independent director


149(6) Who can be an independent director


















149(9) Remuneration, 149(10) and (11) tenure and 149(12) liability of Independent Director



Retirement of Directors by Rotation - 152(6)




Loans to Related parties - Sec 185 - parties covered, exceptions, penalty















Section 182 - Limitation on donations to political parties and penalties












Sec 188 - Related Party Transactions






Companies Act restrictions on borrow, lend ,invest in general and transacting with related party 



Companies cannot hide related party deals
The new companies Act is so replete with words such as arrest, imprisonment, fraud and penalty that many joke it was composed by the CBI! So lengthy and complex is the new law that even an offender will be caught unawares by the clause he is breaching. That said, the impact of the new Act is already being felt.
Take the recent disclosures on related party transactions. The rigorous disclosure requirements of Section 188 of the new Act has brought to light something that was hidden in the balance sheet of Cairn India — a 7,500 crore loan it had given to a unnamed related party.
At the next opportunity, shareholders are bound to ask tough questions about the rationale behind the deal — the loan earns an interest of 3.5 per cent a year while even an investment in the dullest fixed deposit scheme in India could return more than double the interest.
Related parties
Section 188 of the Act says any contract or arrangement with a related party would need the approval of the board of directors. For certain companies or transactions, it takes a special resolution.
‘Related party’ has been defined in Section 2(76) and is wide enough to cover anyone even remotely related to the company or any of its key management personnel. The board of directors are supposed to justify the transaction in their report and provide details of it.
If the board’s approval or the special resolution has not been obtained, the board can call the contract null and void. And if any directors are involved, they must pay for the loss.
Penalty and imprisonment clauses are an integral part of Section 188. The section was a bit generally worded and clarifications were sought on when and how the special resolution would be needed. Later, the Ministry of Corporate Affairs (MCA) came out with a general circular, which is even more liberally worded.
It clarified that related party referred to in the second proviso had to be construed with reference only to the contract or arrangement for which the said special resolution was being passed.
Alibaba and MCX
It is stated that when the International Accounting Standards Board (IASB) sold the concept of International Financial Reporting Standards (IFRS) to China, they fell for it hook, line and sinker but were very uneasy about the extensive related party disclosures that were needed.
The recent IPO document filed by Chinese e-tail giant Alibaba proves that China thrives on related party transactions.
In India, the post-mortem audit of the MCX revealed that the exchange entered into agreements with related trading parties, paid about 709 crore to erstwhile promoter Financial Technologies India and group firms without following a proper documentation process and that there were gaps in the way MCX processed related party transactions.
The audit firm expressed doubts whether these agreements were conducted on an arm’s length basis. MCX also entered into related-party transactions with other FT group companies for various ancillary services.
In an economy such as India, there are bound to be a number of related party transactions due to the fact that many businesses are family-owned and trust forms an integral part of other businesses.
The Indian corporate sector has to get its act right on entering into properly documented related party transactions and justifying them. If not, the Companies Act is waiting with Section 188 and the Income Tax Department with its Section 92BA on domestic transfer pricing. The mantra is clear “When in doubt, just disclose it”.
MOHAN R LAVI
The writer is a chartered accountant
(This article was published on July 31, 2014 in The Hindu Business Line)




Managerial Remuneration - Computation as per companies Act 2013



Section 197 of CA 2013 deals with the overall maximum managerial remuneration and managerial Remuneration in case of absence or inadequacy of profits. According to this section, the total managerial remuneration payable by a public company, to its directors, including managing director and whole-time director, and its manager in respect of any financial year shall not exceed eleven per cent. of the net profits of that company for that financial year computed in the manner laid down in section 198 except that the remuneration of the directors shall not be deducted from the gross profits.

Profit before tax as per P&L Statementxxxxxxx
Add the following items if debited to P&L Statement before arriving profit before taxxxxx
Managerial remunerationxxxx
Provision forBad doubtful debtsxxxx
Loss on sale/disposal/discarding of assets.xxxx
Loss on sale of investmentsxxxx
Provision for diminution in the value of investmentsxxxx
fixed assets written offxxxx
Fall in the value of foreign currency monetary assetsxxxx
Loss on cancellation of foreign exchange contractsxxxx
Write off of investments
Provision for contingencies and unascertained liabilitiesxxxx
Lease premium written offxxxx
Provision for warranty spares/suppliesxxxx
Infructuous project expenses written offxxxx
Provision for anticipated loss in case of contractsxxxx
Loss on sale of undertakingxxxx
Provision for wealth taxxxxx
compensation paid under VRSxxxx
Less the following if credited to P&L statement for arriving at profit before tax:xxxx
Capital profit on sale/disposal of fixed assets(the same should be added if the co., business comprimises of buying & selling any such property or asset) and revenue profit (difference between original cost and WDV should not be deducted)xxxx
Profit on sale of any undertaking or its partxxxx
Profit on buy back of sharesxxxx
Profit/discount on redemption of shares or debenturesxxxx
Profit on sale of investmentsxxxx
Compensation received on non-compete agreementsxxxx
Write back of provision for doubtful debtsxxxx
Write back of provision for doubtful advancesxxxx
Appreciation in value of any investmentsxxxx
Compensation received on surrender of tenancy rightsxxxx
Profit on sale of undertakingxxxx
Write back of provision for diminution in the value of investmentsxxxx
Profit on sale of forfeited shares & shares of subsidiary/associated companiesxxxx

MANAGERIAL REMUNERATION ,PAYMENT OF PROFESSIONAL CHARGES TO A NON-WHOLE TIME DIRECTOR
Section 314 of the Companies Act 1956 states that no director of a company shall hold any office or place of profit except with the consent of the company accorded by a special resolution.


The company can pay any fees to a director (Non-whole time director) who has rendered professional services to the company.  In this regard the director should possess the necessary professional qualifications for the practice of the profession.  There must be some personal skill brought to bear upon the rendering of services by the director concerned. 

The Prohibition under Section 314 (1)(a) of the Companies Act 1956 is not applicable to the remuneration/compensation paid for the services of a Professional nature rendered by the director (Non-whole time director) to the company in their Professional capacity.

The prohibition under section 314(1)(a) of the Companies Act 1956 is applicable, in case, where such professional services are rendered by the concerned director to the company on regular retainership basis binding themselves to render such services as and when called upon by the company. (circular No. 14 of 1975, dated 5-6-1975 Department of company affairs).  Therefore, the company is required to get the consent of the shareholders by passing a special resolution in the general meeting.

Such Special resolution can be passed at the general meeting of the company held for the first time after the appointment to such office or place of profit. The Board may therefore pass a resolution at its next meeting fixing the remuneration at Rs.200000 per annum for technical and engineering services rendered by the non-whole time director, such payment being made for a period of ___ years or until further revision.  A Special resolution may be passed at the very next general meeting of the company according sanction to the said payment.

The nature of the company’s business and the type of services to be rendered by the director (non-whole time director) is to be taken into account in application of this section.

As per Section 309 (1) of the Companies Act 1956, any remuneration payable to the directors of the company (including any managing or whole-time director), shall be determined in accordance with and subject to the provisions of Section 198 and this section, if the articles so require, by a special resolution, passed by the company in general meeting and the remuneration payable to such director determined as aforesaid shall be inclusive of the remuneration payable to such director for services rendered by him in any other capacity.

PROVIDED that any remuneration for services rendered by such director in any other capacity shall not be so included if –
(a)  the services rendered are of a professional nature, and
(b)  in the opinion of the Central Government, the director possesses the requisite qualifications for the practice of the profession.

Once the Central Government is satisfied that the director in question possesses the requisite qualification to render professional services, it is not then open to the government to put any restriction on the amount of remuneration payable to such director for his professional work done to the company.

Based on the above, the company can pay remuneration to a non-whole time director towards the professional services rendered by such director to the company in a professional capacity.

A special resolution is required to be passed approving the appointment at the first general meeting of the company to be held after his appointment towards professional services to the company.



SPECIMEN RESOLUTIONS



RESOLUTION TO BE PASSED AT GENERAL MEETING


To consider and if thought fit, to pass with or without modification, the following resolution, as  Special Resolution.

“Resolved that pursuant to Section 314(1)(a) of the Companies Act, 1956 consent of the Company be and is hereby accorded to Sri……………director of the company, for holding in the company office or place of profit as Technical advisor at annual profession fees of Rs…………for a period of ……. years commencing on ……..”.



RESOLUTION TO BE PASSED AT BOARD MEETING:

To approve appointment of Sri………………….. director to an office/place of profit.

“RESOLVED THAT in pursuance of the provisions of Section 314(1)(a) of the Companies Act and subject to the consent of the Company in general meeting, the approval be and is hereby accorded to the appointment of Sri………….. to hold an office or place of profit under the Company as Technical Advisor, for a period of …… years at annual professional fees of Rs………. Per annum.”

Loans to Directors 

Section 185 of the Companies Act, 2013 which deals with Loans to Directors particularly prohibits grant of any loans, giving of guarantee or providing of any security to the directors or any other person in whom the director is interested; otherwise than for given exemptions. It is interesting to note that per se the Companies Act, 2013 is said to be more of self regulatory and liberal as compared to Companies Act, 1956 however, this Section 185 is one section which seems to be more stringent that its previous counterpart –Section 295 of old Act. 
on the overall reading of Companies Act, 2013 it seems that most of the related party transactions herein are relaxed as compared to Companies Act, 1956; with the requirement of Central Government approval at most of the places withdrawn, and more trust exerted on proper disclosures and transparency. However, with reference to the transactions regarding loan, guarantee, and security to directors and other specified persons, the law is certainly more restricted.   
As it stands before clarification by MCA, it does not allow the exemptions with respect to transactions among private limited companies, transactions between holding and subsidiary companies which were exempt under the Companies Act, 1956 and even the provision of undertaking such transaction with the approval of the Central Government is not provided.

MCA clarification on section 185 of the Companies Act 2013  dated 14-feb-2013
Section 372A of the Companies Act, 1956, specifically exempts any loans made, guarantee given or security provided or any investment mode by a holding company to its wholly owned subsidiary. In contrast, section 185 of the Companies Act, 2013 prohibits guarantee given or security provided by a holding company in respect of loans taken by its subsidiary company except in ordinary course of business. 

Considering representations received and to maintain harmony, the MCA has clarified vide circular No. 3/2014 dated 14 February 2014 that till section 372A of the Companies Act, 1956 is repealed and section 186 of the Companies Act, 2013 is notified, any guarantee given or security provided by a holding company in respect of loans made by a bank or financial institution to its wholly owned subsidiary company, exemption as provided in clause (d) of sub-section (8) of Section 372A of the Companies Act, 1956 shall be applicable. This clarification will, however, be applicable to cases where loans so obtained are exclusively utilized by the subsidiary for its principal business activities.



New Companies Act 2013 :Enabling of Inter Coprorate loans and Investments extended to Non Corporates also


Section 186 of the Companies Act, 2013 corresponds to Section 372A of the Companies Act, 1956 and provides for provisions relating to loans and investment by Company. As against Companies Act, 1956, the said provision under Companies Act, 2013 is wider and enables Corporates to make loan, give guarantee or provide security in connection with any loan taken, to any person (including individuals) as against only to bodies corporate as provided under Companies Act, 1956.



Borrow, Lend Or Invest: Beware Of Companies Act 2013



  • Companies restricted from making investments through more than 2 (two) layers of investment subsidiaries.
  • Loans and investments to group companies made difficult.
  • Companies are not permitted to issue treasury stock to a trust with the company as a beneficiary in case of amalgamations.
The Government of India has recently notified Companies Act, 2013 ("CA 2013"), which replaces the erstwhile Companies Act, 1956 ("CA 1956"). In our series of updates on the CA 2013 ("NDA CA 2013 Series"), we are analyzing the key changes and their major implications for stakeholders, by setting out the practical impact of the changes introduced by CA 2013. For a quick look at our analysis so far on the changes brought forth by the CA 2013, please refer to our previous hotlines in this series through this link.
In this hotline, we shall analyse the provisions relating to loans, borrowings and investments under the CA 2013.

KEY CHANGES UNDER THE CA 2013

The provisions relating to loans and borrowings are set out in Chapter XII of the CA 2013 read with the Companies (Meetings of the Board and its Powers) Rules, 2014 ("Rules"). The key changes brought about are:
I. Restriction on investment through more than 2 (two) layers of investment subsidiaries
The CA 1956 did not impose any restrictions on companies which made investments through multiple layers of investment companies. However, Section 186 (1) of the CA 2013 restricts a company from making investment through more than 2 (two) layers of investment companies. An investment company has been defined to mean a company whose principal business is the acquisition of shares, debentures or other securities. These provisions, however, would not apply to (i) a company which acquires any other company in a country outside India, if such other company has investment subsidiaries beyond two layers as per the laws of such country; or (ii) a subsidiary company which has any investment subsidiary for meeting the requirements under any law.
Key Takeaways: The decision to impose a limit on number of investment subsidiaries was taken by the Ministry of Corporate Affairs ("MCA") in the wake of the Purti scam, which exposed the lacunae existing in the Indian corporate regime. Section 186(1) has been introduced with a view to increase transparency in corporate transactions. This restriction is set to significantly affect a variety of corporate transactions in India, especially with respect to companies that operate across multiple sectors with an investment company at the top; a structure common in the real estate and infrastructure sectors. However, since the CA 2013 seems to restrict investment through more than 2 layers of investment companies, it may still be possible to structure investments through companies other than investment companies.
An important concern that has arisen, is regarding the applicability of Section 186 (1) to existing investment structures set up under CA 1956. On plain reading of Section 186(1), it does not appear that the provision was intended to have retrospective operation. Since the CA 2013 does not provide any transitory provisions, it seems unlikely that this provision was intended to apply to existing structures.
II. Restriction on loans to directors and other persons: CA 2013 has made significant changes to the restrictions relating to provision of loan by a company to its directors. The key changes are as follows:
  1. Under CA 1956, loans made to or security provided or guarantee given in connection with loan given to the director of the lending company and certain specified parties required previous approval of the Central Government. However, section 185 of the CA 2013 which has by far been the most debated section of CA 2013, imposes a total prohibition on companies providing loans, guarantee or security to the director or any other person in whom the director is interested.
  2. Whilst the restriction contained in the CA 1956 applied only to public companies, CA 2013, has extended this restriction to even private companies.
Key Takeaways: On plain reading of CA 2013, the restriction on providing loans to any other person in whom a director is interested is worded broadly and would apply to subsidiaries and other companies within the same group with common directors. Such restriction would create significant difficulties for companies which provide loans, or guarantee/ security to their subsidiaries or associate companies for operational purposes. The MCA attempted to address this concern by issuing various circulars which complicated the matters further on account of ambiguous language of the circulars. However, with the enactment of the Rules, companies are now permitted to give loans, guarantee or security with respect to a loan taken by a wholly owned subsidiary, if the loan is utilized by such subsidiary for its principal business activities. This has to be contrasted with the position under the CA 1956, which permitted companies to give loans, guarantee or security to any of its subsidiaries which may be utilized by the subsidiary for any purpose. Further, the CA 2013 does not provide any indication as to what activities would amount to principal business activities of the subsidiary. In view of the above, the ability of associate companies and other subsidiaries to access capital from their parent company shall be restricted. However, CA 2013 permits holding companies to give guarantees or provide security for a loan provided by any bank or financial institution to any of its subsidiaries.
III. Loans and borrowings of the company
Inter corporate loans: Section 186 of the CA 2013 restricts a company from providing loans, giving any guarantee or security, or acquiring any securities of a body corporate, exceeding (i) 60% of its paid up share capital, free reserves and securities premium account or (i) 100% of its free reserves and securities premium account, whichever is more. However, a company may overcome such restrictions by passing a special resolution at a general meeting. These provisions are substantially the same as contained in Section 372A of the CA 1956. However, the following changes have been made in this regard:
  1. Section 372A of the CA 1956 was applicable only to public companies. Section 186 of CA 2013 additionally applies to private companies.
  2. While CA 1956 restricted a company from giving any loans to other body corporates, the CA 2013, restricts companies from providing loans to any person or any other body corporate and hence loans to individuals and other non-corporate entities are also covered.
  3. The CA 2013 requires companies to disclose its loans, investments made, guarantee given or security provided and its purpose, to its members in the financial statement.
The Rules however, prescribe that where loan or guarantee is given, or a security has been provided by a company to its wholly owned subsidiary, or a joint venture company, or an acquisition is made by a holding company, of the securities of its wholly owned subsidiary, the company need not pass a special resolution.
Key Takeaways: The restrictions imposed on inter corporate loans is viewed largely as a move to usher in accountability in corporate transactions. The MCA has attempted to bring the Indian corporate legal regime in line with global best practices, by increasing shareholder participation in affairs that directly affect the finances of the company. CA 2013 also mandates increased disclosure norms to increase transparency in commercial dealings.
The CA 2013 does not indicate that the provisions of Section 186 are retrospective. Rule 13 (1) of the Rules, however, provides that a special resolution would have to be passed within 1 (one) year from the date of notification of these provisions. The true intent of Rule 13 (1) seems unclear, since public companies were already required to pass a special resolution before providing any loans in excess of the specified limits. It is possible to interpret Rule 13 (1) to mean that private companies would be required to pass a special resolution within a period of 1 (one) year if the loans advanced by them exceed the specified limits, even if such loan was taken prior to the enactment of CA 2013. A clarification from MCA would be required to clarify the true import of Rule 13 (1).
Deposits: The provisions relating to deposits are set out in Chapter V of the CA 2013 read with the Companies (Acceptance of Deposits by Companies) Rules, 2014 ("Deposits Rules"). CA 2013, like the CA 1956, provides that a public company can accept deposits from its members and other persons, while private companies can accept deposits only from its members (it should be noted that CA 1956 permitted a private company to accept deposits from members, directors or their relatives also). The definition of "deposit" as provided under the CA 2013 and the Rules specifically indicate that loans obtained by a company shall also be considered to be a deposit.
While the CA 1956 permitted public companies to accept deposits only in compliance with the Companies (Acceptance of Deposits) Rules, 1975, it did not include elaborate requirements for acceptance of deposits by private companies. However, the CA 2013 now states that a company may accept deposits from its members only on fulfillment of certain detailed requirements. Some of the requirements include issuance of a circular to the members of the company, filing of the circular with the Registrar of Companies ("RoC"), maintenance of a separate bank account (deposit repayment reserve account) etc. Every loan made by a member to the company shall be subject to the requirements set forth in Chapter V and the Deposit Rules. However, the Deposits Rules specifically exempt loans provided by directors of a company from the definition of "deposit", if such director furnishes a declaration to the effect that the loan is not being given out of borrowed funds. For more details on the provisions relating to deposits under the CA 2013, please refer to our previous hotline through this link.
Key Takeaways: Private companies would be severely restricted in accepting deposits from its members. While the elaborate requirements under the CA 2013 shall ensure greater accountability and ensure more credibility on the company regarding repayment of deposits, it may be counterproductive as private companies may be unable to easily access capital from their members.
Restriction on companies on giving loans for purchase of its shares: The provisions in the CA 2013 restricting a public company from giving any financial assistance for purchase of its own shares are set out in Chapter IV of the CA 2013 and the Companies ("Share Capital and Debenture") Rules, 2014 ("Debenture Rules"). The following key changes have been made in this regard:
  1. CA 1956 permitted public companies to provide loans for the purchase of fully paid up shares by trustees for and on behalf of the company's employees (employee share scheme). The CA 2013 also permits companies to do so, however subject to a special resolution, and certain other requirements, including the requirement that shares have to be valued by a registered valuer.
  2. Unlike the CA 1956, the CA 2013 does not permit directors holding salaried office or employment to be the beneficiaries of the trust holding the company's shares funded by way of loan from the company.
  3. Voting rights not exercised directly by employees in respect of the employees share scheme is required to be disclosed in the report of the board of directors.
  4. The penalty for non-compliance with these provisions has been substantially increased. The CA 2013 states that an officer in default shall be liable for imprisonment up to 3 (three) years and shall be subject to a fine ranging between INR 100,000 (Rupees one hundred thousand) and INR 2,500,000 (Rupees two million five hundred thousand only);
Key takeaways: The restriction imposed on companies for purchase of its own shares is a basic principle of company law. The object is to prevent a permanent reduction of liquid assets caused due to payment for shares being made from the accumulated assets of the company itself. The CA 2013 has recognized the importance of this provision in protecting the rights of shareholders, and has increased the requirements for transparency in the functioning of the company, by ensuring greater disclosure requirements and enhanced penalties. Further, Section 67 of CA 2013 has also plugged the loophole that existed under Section 77 of CA 1956 on issuance of treasury stock to a trust with the company as a beneficiary in case of amalgamations. Such trusts cannot be created under the CA 2013 since such trusts can only have employees as the beneficiaries.
Debentures: Provisions relating to debentures are set out in Chapter IV of the CA 2013 and the Debenture Rules. CA 2013 has introduced the following key changes to the provisions relating to debentures:
  1. Secured debentures may only be issued by a company subject to the conditions set out in the Debenture Rules. Some important conditions that a company is required to fulfill include:
    • The date of redemption of the secured debentures should not exceed 10 (ten) years from the date of its issue; however, with respect to infrastructure companies, secured debentures may be issued for a term of up to 30 (thirty) years;
    • The charge on the assets or properties should have a value sufficient for repayment of amount of debentures and the interest;
    • A debenture trustee must be appointed before issue of prospectus or letter of offer for subscription of debentures;
    • A debenture trust deed must be executed within 60 (sixty) days of the date of allotment;
  2. CA 1956 made the appointment of a debenture trustee mandatory in every public offer regardless of the number of persons to whom the offer was made. Under the CA 2013, appointment of debenture trustee is compulsory only when the prospectus is issued to more than 500 persons for subscription of debentures.
Key takeaways: The CA 2013 has consolidated the various provisions under CA 1956 regarding the issue of debentures of a company. Secured debentures have become subject to a variety of rules, indicating the shift towards protecting the rights of debenture holders.

CONCLUSION

CA 2013 demonstrates the systemic move towards greater regulation of corporate transactions in India with a view to facilitate increased accountability. CA 2013 has introduced greater disclosure and compliance requirements in regulating access of capital by companies via loans and borrowings. The enhanced standards aim at protecting the rights of the all stakeholders, specifically by facilitating greater shareholder participation when companies obtain / provide loans. However, the move towards increased regulation of corporate loans and borrowings under CA 2013 shall significantly affect the ability of companies (specifically private companies) to access funds.


MEETINGS

For An AGM to be valid the below three conditions need to be satisfied

Other than company called GM, it can be called by NCLT under 97,98


EGM requisitioned by members holding 10% under sec 100













Definition of Relative -spouse, two persons above you - mother and father, two around you- brother and sister and 4 below you- son, sons wife, daughter , daughters husband


Free Reserves


















Subsidiary




Dividend
Accounts


CSR

Audit






Provisions relating to Registration of charges -Comparative study of companies Act 2013 with CA 1956
S.NoParticularsCompanies Act, 1956Companies Act, 2013
1.ReferenceSection 124 to Section 145 of Companies Act, 1956Section 77-87 of the Companies Act, 2013 read with the Companies (Registration of Charges) Rules, 2014
2.DefinitionInclusive definition of Charge given in this Act as “Charge includes a Mortgage”Charge defined as “Charge means an interest or lien created on the property or assets of the Company or both as security and includes a mortgage”.
3.Type of Charges to be registeredSection 125 specifies only 9 types of charges to be registered.Section 77 states that Companies are required to register all types of Charges:
  • within or outside India,
  • on its property or assets or any of its undertakings,
  • whether tangible or otherwise, and
  • situated in or outside India
with ROC within 30 days of its creation.
4.Additional period to register the ChargeSection 125-ROC may allow filing within the additional period of 30 days after the expiry of 30 days from the date of creation on payment of additional fee.Section 77- ROC may on application by the company, allow the registration of chargewithin 300 days (30 days + additional period of 270 days).

Application to be supported by a declaration in Form CHG-10 from the CS or Director that such belated filing will not adversely effect the rights of any creditors of the company.
5.Notice by Registrar in case any person other than Company applies for registration of ChargeThe Charge can be registered by any person interested in the Charge and there was no requirement of sending any notice to the Company.Section 78- In case the Company fails to get the Charge registered, then the person in whose favour the Charge is to be registered may apply to the registrar.

The Registrar shall send 14 days notice to the Company and on not receiving any response after the expiry of 14 days, the registrar shall register the Charge.
6.Modification of ChargeDifferent provisions existed for Modification and for creation.As per Section 77, the same provisions as applicable to Creation of Charge applies to modification.
7.Registration of Satisfaction of ChargesReport satisfaction to the Registrar within a period of 30 days from the date of its SatisfactionSection 82 – ROC may on application by the company, allow the registration of satisfaction of charge within 300 days (30 days + additional period of 270 days) from the date of satisfaction.

Note : As Section 82 specifies that the provisions of sub-section 77(1)  shall , as far as may be apply, to an intimation given under this section, the extension period of 270 days is also being considered for registration of satisfaction of charge.
8.Condonation of delaySection 141- Application to Central Government for extension of time for registration of charge after the expiry of the prescribed period of 60 days from the date of creation or 30 days from the date of satisfaction.Section 87- Application in Form CHG-8 to be filed to the Central Government for extension of time for registration of charge if the charge is not registered within 300 days from the date of its creation/modification/satisfaction.
9.Certificate of registrationNo specific Form was specified for certificate of registration.Rule 6 – Certificate of registration of such charge in Form No.CHG-2

Certificate of modification of charge in Form No. CHG-3

Certificate of registration of satisfaction of charge CHG-5
10.Register of ChargesSection 143- To be maintained by CompanySection 85 read with Rule 10- Company’s Register of charges to be maintained by the Company in Form CHG-7 and

Rule -7, particulars of charges maintained by the Registrar on the MCA portal shall be deemed to be the Register of Charges.
11.Penalty  - Multifold increase in the penalty.Section 142- Default in filing the registration particulars, the company and every officer in default shall be punishable with fine  which may extend to Rs. 5,000/- for every day during the default continues.

Default in complying with any other provisions of this chapter, the company and every officer in default shall be punishable with fine which may extend to Rs. 10,000.
Section 86- Penalty on the company for non-compliance with the provisions of this chapter shall not be less than Rs. 1 Lakh which may extend to Rs. 10 Lakh and on the officer in default, is imprisonment which can extend to 6 months or fine not less than Rs. 25,000 which can extend to Rs. 1 Lakh, or with both.




Dividend




Deposits


If Sec 76 conditions are fulfilled then deposits can be accepeted  by following the procedure under sec 72 

Alteration of Share capital 

If the alteration is within sec 61 then it can be altered by following sec13 procedure. If not then follow sec 67

EGM 

Sec 100 requires 10% requisition - within 15 days take steps for convening with in 45 . else within 90 days requisitionists can call by themselves. if MD does not allow place then as per chettair case it can be anywhere in the city in which RO is situated


Registration of charges

Sec 77 to 87 comprehensively covering the loose ends left over in the older act . Rules specifying forms CHG-1 to 7

Amalgamation

230 and 232 placed under different heads and 233 option given for ease of business