PUBLIC POLICY RESEARCH CENTRE

COMPANY LAW

RituRanjan
Trainee at PPRC BBA (I.I.) IV Sem. Email ID- rituranjan06@yahoo.com .

A STUDY ON COMPANY LAW

AGENDA OF STUDY Introduction

o o o o

About Company Law Need of Company Law Regulation of Company Law Departments and ministry associated with Company Law

History of Company Law

o Origin of Company Law

Comparison of Indian company law with the Company law of other countries

o Developed nation U. S. o Company Law of these nations o Comparison between the law of our Companies Act and between other developing nations
New law to be propose

o o o o o o

About new Law Advantages of new law Distinguish between the Company Act 1956 and Company Bill 2011 Major criticism against the new bill Suggestions for further reforms Concluding Remarks

PRESENT COMPANY LAW

CHANGING BUSINESS LANDSCAPE OF INDIA

About Company Law

Law in India is codified and contained in the COMPANY ACT1956. It came into force on 1st April 1956.It is the field of law concerning companies and other business organizations. This includes corporations, partnerships and other associations which usually carry on some form of economic or charitable activity. The most prominent kind of company, usually referred to as a "corporation", is a "juristic person", i.e. it has separate legal personality, and those who invest money into the business have limited liability for any losses the company makes, governed by corporate law. Under the Companies Act, 1956, the term 'company' means a company formed and registered under the Act or an existing company i.e. a company formed or registered under any of the previous company laws". The basic objectives underlying the law are: o A minimum standard of good behavior and business honesty in company promotion and management. o Due recognition of the legitimate interest of shareholders and creditors and of the duty of managements not to prejudice to jeopardize those interests. o Provision for greater and effective control over and voice in the management for shareholders. o A fair and true disclosure of the affairs of companies in their annual published balance sheet and profit and loss accounts. o Proper standard of accounting and auditing. o Recognition of the rights of shareholders to receive reasonable information and facilities for exercising an intelligent judgment with reference to the management. o A ceiling on the share of profits payable to managements as remuneration for services rendered. o A check on their transactions where there was a possibility of conflict of duty and interest. o A provision for investigation into the affairs of any company managed in a manner oppressive to minority of the shareholders or prejudicial to the interest of the company as a whole.

o Enforcement of the performance of their duties by those engaged in the management of public companies or of private companies which are subsidiaries of public companies by providing sanctions in the case of breach and subjecting the latter also to the more restrictive provisions of law applicable to public companies. Company Law deals with all aspects relating to companies such as: Incorporation of companies. Allotment of share and share capital. Memberships in companies. Borrowings by companies. Management and administration of companies. Winding up of companies. In India, the Companies Act, 1956, is the most important piece of legislation that empowers the Central Government to regulate the formation, financing, functioning and winding up of companies. The Act contains the mechanism regarding organizational, financial, and managerial and all the relevant aspects of a company. It empowers the Central Government to inspect the books of accounts of a company, to direct special audit, to order investigation into the affairs of a company and to launch prosecution for violation of the Act. These inspections are designed to find out whether the companies conduct their affairs in accordance with the provisions of the Act, whether any unfair practices prejudicial to the public interest are being resorted to by any company or a group of companies and to examine whether there is any mismanagement which may adversely affect any interest of the shareholders, creditors, employees and others.

Need of company law

We have company laws because without laws the business world would be chaos all over. People would be able to do whatever they wanted to. People could hurt or even divert one another business. That is why the founding fathers of our country came up with the Constitution including the Company Law. Most of the laws are obeyed. When they are not, the company breaking the law is punished. Sometimes laws seem unfair and need to be changed. The government is constantly changing and making new amendment in the company law. The object of company Law are those with which the Company Act, 1956 was passed and summarized as under: 1. To ensure that the activities of the companies are carried on not only in the interest of those directly concern with them also in furtherance of the ultimate end of our economic and social policy which the country has accepted. 2. To fix up minimum standards of business integrity and conduct in the promotion and management of companies affairs. 3. To protect the legitimate interest of the shareholder by ensuring effective participation and control by them. 4. To prevent misconduct and malpractice the part of company management and abuse of power vested in them by general body of shareholder. 5. To enforce proper performance of duties by persons responsible for the management of the companies. 6. To require full and fair discloser of all reasonable information relating to the affairs of the companies. 7. To adjust the right if management vis--vis the shareholders and the other concerned person. 8. To empower the intervene and investigate into the affairs of the company where the business of the company is being carried on in a manner prejudicial to the interest of the shareholders, the company of the general public.

REGULATION OF COMPANIES LAW IN INDIA

In India, the Companies Act, 1956, is the most important piece of legislation that empowers the Central Government to regulate the formation, financing, functioning and winding up of companies. The Act contains the mechanism regarding organizational, financial, and managerial and all the relevant aspects of a company. It empowers the Central Government to inspect the books of accounts of a company, to direct special audit, to order investigation into the affairs of a company and to launch prosecution for violation of the Act. These inspections are designed to find out whether the companies conduct their affairs in accordance with the provisions of the Act, whether any unfair practices prejudicial to the public interest are being resorted to by any company or a group of companies and to examine whether there is any mismanagement which may adversely affect any interest of the shareholders, creditors, employees and others. Registrar of Companies (ROCs) appointed under Section 609 of the Companies Act, covering various States and Union Territories, are vested with the primary duty of registering companies floated in the respective States and the Union Territories and ensuring that such companies comply with the statutory requirements under the Act. Their offices function as registry of records relating to the companies registered with them. The powers vested with the ROCs are: Registration of memorandum and articles. Registration of prospectus. Registration of reduction of capital. Call information or explanation. Seizure of documents. Investigation into affairs of a company. Inspection of books of accounts, etc of companies. To strike off defunct companies from register. Enforcement of duty of company to make returns, etc. to Registrar. Non-disclosure of information in certain cases. Winding up petition by the Registrar. Official Liquidators are the officers appointed by the Central Government under Section 448 of the Companies Act and are attached to the various High Courts. They are under the administrative charge of the respective Regional Directors who supervise their functioning on behalf of the Central Government.

Steps to form a new Company 1. Filing statutory application under Section 211 2. Filing statutory application under Section 212 3. Submitting application under Section 295 4. Criteria/guidelines for registration under IEPF 5. Filing statutory application under Section 58(A) 6. Filing statutory application under Section 294AA

Departments and ministry associated with Company Law

The Companies Act is administered by the Central Government through the Ministry of Corporate Affairs and the Offices of Registrar of Companies, Official Liquidators, Public Trustee, Company Law Board, Director of Inspection, etc. The Registrar of Companies (ROC) controls the task of incorporation of new companies and the administration of running companies. Its Headquarter is at New Delhi, the Regional Directorates at Mumbai, Kolkata, Chennai and Noida, and the Registrars of Companies (ROCs) in States and Union Territories.

The Ministry of Corporate Affairs Securities and Exchange Board of India Ministry of Law, Justice and Company affairs Ministry of Trade and Commerce Ministry of Finance

Associates of Company Law

Origin of Company Law

The development of the company law, in India, owes its origin to the law of companies, as it developed in England. The history of Indian Company Law began with the Joint Stock Companies Act of 1850, providing for the registration of joint stock companies in India. In 1850, the Joint Stock Companies Act of 1850 was passed for the first time providing for the registration of joint Stock companies in India. This act was passed in the lines with English joint stock companies Act of 1844. Under the act of 1850, the Supreme court of Bombay, Calcutta and Madras were authorized to order the. The privileges of limited liability of shareholders was introducing in 1857 by Joint Stock companies act of 1857. A comprehensive Indian companies Act was passed in 1866 consolidating and amending the Laws relating to incorporation, regulation and winding up of trading companies and other associations. Through these acts some of the modern provisions of the company were clearly laid down. First of all, two documents, namely, o (a) the memorandum of association, and o (b) articles of association formed the integral part for the formation of a limited liability company. Secondly, a company could be formed with liability limited by guarantee. Provisions for winding up were also introduced. Thus, the basic structure of the company as we know had taken shape. Then the liability of the directors of a company was introduced by the Directors liability Act, 1890 and the compulsory audit of the companys accounts was enforced under the Companies Act, 1900. The concept of private company was introduced for the first time in the companies Act, 1908 (the earlier ones were called public companies). Two subsequent acts were passed in 1908 and 1929 to consolidate the earlier Acts. Generally recognized principles of accountancy were given statutory force and had to be applied in the preparation of the balance sheet and profit and loss account. On 25th October, 1950 the government of India appointed a company Law committee, on the pattern of Cohen committee in England, under the chairmanship of ShriC.H.Bhabha to report on the working of Companies Act of 1913 and to suggest suitable changes in the context of developing trade and commerce of the country. The committee made an extensive enquiry, recommending major amendments in the company law. The government accepted its recommendation, and the Companies Act, 1956 was passed incorporating provision to meet the social economy needs of the country.

COMPARISON OF INDIAN COMPANY LAW WITH THE COMPANY LAW OF OTHER COUNTRIES

Developed Nation U. S.
The U.S. is often seen as being the paradigmatic case of the shareholder-oriented or market-based approach to corporate governance. Ownership of corporations is dispersed, but involves high engagement from institutional investors, such as pension funds. Corporate boards are small, have a high proportion of outside or independent members, and utilize committees to improve board processes. The internal and external aspects of corporate governance are linked through the monitoring of gatekeepers, such as audit firms, that certify the flow of information from managers to capital markets. And the market for corporate control exerts a final discipline on poorly performing firms, who face a heightened risk of takeover. These different elements are also thought have strong institutional complementarities, operating as a positive and mutually reinforcing system of effective corporate governance. These stylized characteristics of the U.S. model are widely cited as best practices or even a global standard for good corporate governance. The economy of the United States is the world's largest national economy. Its nominal GDP was estimated to be over $15 trillion in 2011,approximately a quarter of nominal global GDP. Its GDP at purchasing power parity is the largest in the world, approximately a fifth of global GDP at purchasing power parity. The U.S. economy also maintains a very high level of output. In 2011, it was estimated to have a per capita GDP (PPP) of $48,387, the 6th highest in the world, thus making U.S. one of the world's wealthiest nations. The U.S. is the largest trading nation in the world. The economy of the United States is a mixed economy and has maintained a stable overall GDP growth rate, a moderate unemployment rate, and high levels of research and capital investment. It has been the world's largest national economy (not including colonial empires) since at least the 1890s. Most of the economy is classified as services. As of 2012, the country remains the world's largest manufacturer, representing a fifth of the global manufacturing output. Of the world's 500 largest companies, 133 are headquartered in the United States. This is twice the total

MAJOR DIFFERENCES:

1. Underlying assumptions:

Under Indian GAAP, Financial statements are prepared in accordance with the principle of conservatism which basically means "Anticipate no profits and provide for all possible losses". Under US GAAP conservatism is not considered, if it leads to deliberate and consistent understatements---revenue recognized when earned or when it is realized or realizable. 2. Format/ Presentation of financial statements: Under Indian GAAP, financial statements are prepared in accordance with the presentation requirements of Schedule VI to the Companies Act, 1956. On the other hand, financial statements prepared as per US GAAP are not required to be prepared under any specific format as long as they comply with the disclosure requirements of US GAAP. 3. Cash flow statement: Under Indian GAAP (AS 3) , inclusion of Cash Flow statement in financial statements is mandatory only for companies whose share are listed on recognized stock exchanges and Certain enterprises whose turnover for the accounting period exceeds Rs. 50 crore. Thus, unlisted companies escape the burden of providing cash flow statements as part of their financial statements. On the other hand, US GAAP (SFAS 95) mandates furnishing of cash flow statements for 3 years - current year and 2 immediate preceding years irrespective of whether the company is listed or not . 4. Depreciation: Under the Indian GAAP, depreciation is provided based on rates prescribed by the Companies Act, 1956. US GAAP , depreciation has to be provided over the estimated useful life of the asset, 5. Long term Debts: Under US GAAP , the current portion of long term debt is classified as current liability, whereas under the Indian GAAP, there is no such requirement and hence the interest accrued on such long term debt in not taken as current liability. 6. Consolidation of subsidiary accounts: Under the Indian GAAP, consolidation of accounts of subsidiary companies is not mandatory. Under US GAAP (SFAS 94), Consolidation of results of Subsidiary Companies is mandatory. COMPANY LAW OF U.K United Kingdom company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directives and court cases, the company is the primary legalvehicle to organise and run business. The United Kingdom was the first country to draft modern corporation statutes,[1] where through a simple registration procedure any investors could incorporate, limit liability to their commercial creditors in the event of business

insolvency, and where management was delegated to a centralised board of directors. Corporate governance in the UK mediates the rights and duties among shareholders, employees, creditors and directors. UK law is "shareholder friendly The general meeting holds a series of minimum rights to change the company constitution, issue resolutions and remove members of the board. In turn, directors owe a set of duties to their companies. Of central importance in public and listed companies is the securities market, typified by the London Stock Exchange. Through the Takeover Code the UK strongly protects the right of shareholders to be treated equally and freely trade their shares.

Corporate governance in India and the UK: A comparative analysis

BASIS Directors duties UK
Codified by the Companies Act, 2006

INDIA
- Currently rely on common law duties. - Codification of directors duties is proposed by the Companies Bill, 2009, though extent of proposed codification is not as extensive as in the UK. - There is no distinction between large and small quoted companies. Half of the board of all quoted companies must comprise of non- executive directors. - If the chairman of the board is an independent director, 1/3rd of the non-executive directors must be independent and if the chairman is not independent, half of the nonexecutive directors must be independent. - Same individual can act as chairman and chief executive. - No requirement for a board evaluation process. - There is no requirement for annual re-election of all directors. Appointment and election of directors is governed by the Companies Act, 1956.

Board composition

Nomination committee

Audit committee

- Half of the board of larger quoted companies must comprise of independent non-executive directors. Smaller quoted companies (below FTSE 350) must have at least two independent nonexecutive directors. - Same individual must not be the chairman and chief executive. - Requires formal, rigorous annual evaluation of board performance, performance of committees and directors. - The search for board candidates should be conducted and appointments made, on merit, against objective criteria and with due regard for the benefits of diversity on the board, including gender. - All directors of FTSE 350 companies must be annually elected by the shareholders. - Nomination committee leads the process for board appointments and makes recommendations to the board. - Must consist of a majority of independent non-executive directors. - Quoted companies must have an audit committee comprising of 3 members. Audit committees of smaller quoted companies need only have 2 members.

Nomination committee is not mandatory, though some companies have voluntarily set up a nomination committee.

- There is no distinction between small and large quoted companies. All quoted companies must have an audit committee comprising of 3 members.

- All members of the audit committee must be independent non-executive directors.

Remuneration committee

- Quoted companies must have a remuneration committee comprising of 3 members (2 members for below FTSE 350 companies) and all members must be independent. - Chairman must be an independent, non-executive director. - The committee should have delegated responsibility of setting remuneration for all executives, the chairman, and recommending level of remuneration for senior management. - The Code discourages all forms of performance-related remuneration for non-executive directors, not only share options.

- Unquoted public companies with a paid up capital of more than Rs. 50,000,000 must also have an audit committee. - 2/3rd of the audit committee must comprise of independent directors. - Remuneration of directors of public companies (listed or unlisted), within specified limits, must be approved by a remuneration committee if the company has no or inadequate profits. - Committee must consist of at least 3 non-executive independent directors including nominee directors.

NEW LAW TO BE PROPOSE

About new Law

First time CSR is included in any enactment, company law anywhere in the world. Reporting is mandatory and companies will have to explain if they cannot perform. As per the Bill, every company with a net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore and above in a fiscal will have to form a CSR Committee, consisting of three or more directors, of which at least one director should be an independent director. The new Bill is a shorter version of the existing half- a-century old Act and tries to harmonies the company law framework with sect oral regulations.

 It makes it mandatory for listed companies to have 33 per cent independent directors and provides for formation of One Person Company, while empowering the government to provide a simpler compliance regime for small companies. There will be a single forum for approval of mergers and acquisitions, whether domestic or with foreign entities. Also the procedure for merger of holding and wholly-owned subsidiaries would be shortened. The bill will make it mandatory for firms to maintain their documents in electronic format. It also introduces the concept of e-governance, makes provision for encouraging ethical corporate behavior and rewards employees for their integrity.

The Bill was first introduced in August 2008, but had to be withdrawn because of the dissolution of the LokSabha. It was again introduced in Parliament in 2009 and sent to the Standing Committee, which presented its report in August 2010. Companies Bill, 2009 consists of 426 Sections, which largely represent the condensed version of the 658 Sections of the Companies Act, 1956. The reduction of 232 Sections in the Companies Bill, 2009 as compared to the Companies Act, 1956 has been made possible by the power to make an unacceptably large number of Government made rules to be prescribed under Companies Bill, 2009. The Companies Bill, 2009 has the words 'as may be prescribed' in 233 places which means the Government can make more than 200 sets of rules.

Aims and Objectives:

The Bill aims at simplification of Company law by: (I) Revising and modifying the Act in consonance with the changes in the National and International economy,

(ii)

Bringing about compactness of company law by deleting the provisions that had become redundant over time and by re-grouping the scattered provisions relating to specific subjects,

(iii)

Re-writing of various provisions of the Act to facilitate easy interpretation,

(iv)

Deleting the procedural aspects from the substantive law and provide to greater flexibility in rule making to enable adoption to the changing economic and technical environment.

Scope, focus and limitations of the project: To analyze the procedural laws prescribed by the central government in the form of Rules. To revise and modify the companies Act, 1956 Harmonization of company law with some of the provisions of SEBI governance norms

Company Bill, 2008 was introduced on 23 October 2008 in the LokSabha to replace existing CompanyAct 1956.

Companies Bill,2009 was reintroduced on 3 August 2009 in the LokSabha to replace existing Companies Act 1956(with modification)

Companies Bill 2011 introduced in the LokSabha on 14 December 2011

Bill was referred to the Standing Committee on Finance of the Parliament for examination and report on 9 September 2009

Report of the SCF on Companies Bill, 2009 was introduced in the LokSabha on 31 August 2010

Advantages of new law

One Person Company

I. The Bill, for the first time, seeks to introduce the concept of One-person Company as one more form of business organization. It is defined as a company which has only one person as a member. II. Clause 3 of the Bill provides for incorporation of One Person Company for any lawful purpose and it enjoys limited liability as applicable to other types of companies. However, the Memorandum of such a company should indicate the name of the person who shall, in the event of the subscribers death, disability or otherwise becomes the member of the company. III. Any change in the name of such a person indicated in the Memorandum should be informed to the Registrar and any such change is considered as an alteration of the Memorandum. IV. One Person Company is not required to hold Annual General Meeting as envisaged in clause 85 of the Bill.

Duties of Director
The Bill by Clause 147 now seeks to define duties of Directors. They are: I. II. To act in accordance with the articles of the company, Act in good faith in order to promote the objects of a company for the benefit of its members, III. IV. V. Exercise duties with due and reasonable care, skill and diligence, Not to place in conflict situation either direct or indirect interest of the company, Not to achieve or attempt to achieve any undue gain or advantage to himself or to his relatives, partners or associates VI. Not to assign the office and assignment so made is void. Contravention of any of the duty is punishable with fine.

The Clause also provides that if any director is found guilty of making any undue gain as aforesaid, he shall be liable to pay an amount equal to that gain, to the company. What is

stated above is a codification of duties of Directors and any deviant behavior will attract penal consequences.

Board Meeting by Video Conferencing

I. The present Bill by clause 154 now provides that the participation of directors in a board meeting may be in person or through video conferencing or other electronic means as may be prescribed. II. System should be capable of recording and recognizing the participation of directors and storing the proceedings of such meetings. The items of business listed in Section 292 of the Act clause 159 of the Bill may come in handy for exclusion from video conferencing. III. Video conferencing is a great facility for transacting business with utmost speed, apart from cost saving and helping the non-resident directors placed as they are in distant places to participate in board meetings from their work place.

Registered Valuer
I. If valuation is required by any of the provisions of the Act in respect of any property, stocks, assets, it should be done by a registered valuer appointed by the audit committee or the Board, in terms of clause 218 of the Bill. II. Any Chartered Accountant, Cost& Works Accountant, Company Secretary or such other persons possessing such qualification as may be prescribed may apply to the Central Govt. III. For being registered as a valuer. Clause 56 of the Bill which deals with further issue of capital by private placement provides that the price of such an issue should be determined by a registered valuer. IV. Clause 201 of the Bill which deals with compromises, arrangements, amalgamations with creditors and members corresponds to sections 391 to 394 of the Act also provides for valuation report in respect of shares, other properties and all assets, tangible and intangible, movable, immovable of the transferor company by a registered valuer.

Setting up of Special Court outside India

I.

In respect of foreign members or debenture holders, the Bill proposes to set up a competent court outside India for rectification of the register. This is a new provision and recognizes the presence of foreign investors in India in corporate securities.

Key Managerial Personnel

The Bill, for the first time, proposes to re-group in relation to a company key managerial personnel consisting of
A. The Managing Director, the Chief Executive Officer or the Manager, a whole-time

director or directors,
B. The Company Secretary, and C.

The Chief Financial Officer.

This means that the Key Managerial Personnel will become liable for penal consequences by virtue of the positions they hold. About 24 clauses in the Bill (excluding winding up provisions) recognize Officer who in Default and this term includes Key Managerial Personnel for imposition of monetary penalties for non compliance of law.

Independent Directors
II. If the chairman of a company is a non-executive chairman, at least one-third of the total strength of the Board should comprise of independent directors and if the chairman is an executive chairman, then the Board should comprise of 50% independent directors. III. The Bill by clause 132 provides that every listed public company having such paid up capital as may be prescribed should have at least one-third of the total number of directors as Independent Directors. IV. The Central Govt. may prescribe the minimum number of independent directors in the case of other public companies and their subsidiaries. V. The companies in existence before the commencement of the new Act will have to comply with the requirement of Independent Director within one year from the commencement of the new Act.

Appointment as Administrator
Under the Companies Act, 1956 no such provision is defined, but in the Companies Bill, 2009 Clause 234(1) is provides that Company Secretary recognized to be included in the panel maintained by the Central Government for appointment as administrator. The Tribunal may direct the company administrator to take over the assets or management of the company.

Company Liquidators
Under the Companies Act, 1956 no such provision of Company Liquidator but in the Companies Bill, 2009 Clause 250(2) provides that company secretary recognized to be included in the panel maintained by the Central Government for appointment as company liquidator who shall be appointed by the Tribunal at the time of the order of winding up. Clause 266(1) provides the assistance Company Liquidator.

Mergers & Amalgamations

The Scope of Clauses 201 to 205 of the Bill which correspond to sections 391 to 394 of the Act have been considerably enlarged so as to include;
A. Compromises or arrangements with creditors and members including take-over

offers and the scheme of debt restructuring together with valuation of shares and other properties of the company,
B. Merger and amalgamation of companies including merger by absorption or merger

by formation of a new company, C. Amalgamation by mutual consent of companies incorporated in the jurisdictions of such countries as may be notified by the Central Govt. This scheme is an improvement over the existing provision in the Act and gives the much needed flexibility to operate the scheme quickly. This Provision is intended to provide for amalgamation of foreign companies with Indian entities and pay for such acquisitions in cash or partly in Indian Depository Receipts.

Constitution of Special Courts

I.

The Central Govt. may by a notification establish as many Special Courts as may be necessary.

II.

The Special Court will consist of single Judge, appointed by the Central Govt. with the concurrence of the Chief Justice of the High Court within whose jurisdiction the Judge will be working.

III.

The Judge of the Special Court, before appointment should be holding the office of a Sessions Judge or an Additional Sessions Judge as he alone can impose punishment by way of imprisonment as authorized by law, as per section 28 of the Criminal Procedure Code, 1973.

IV.

Only serious offences should go to Special court as appearance before the court involves a lot of time and expense and it diverts the attention of the company from its business.

The Company Act 1956 and Company Bill 2011

Back Ground

Companies Act 1956

Companies Bill 2011

Shares of public company are freely transferable. However, contract or arrangement between two or more persons in respect of transfer of securities shall be enforceable as a contract No buy-back up to period of 1 year from the date of preceding buy-back whether approved by BoD or shareholders

Transfer of Shares of public company are shares of Public freely transferable Company

Restriction of further offer of Buy-Back

I case buy-back is made by BoD, no further offers of buyback is permissible within a period of 365 days reckoned from the date of the preceding offer of buy-back No dividend can be declared for any F.Y out of the profit of the company for that F.Y, except

Transfer to reserves

A company to transfer voluntarily a portion of its profits to the reserve considered appropriate, before

after the transfer to the reserves such portion of profit of the company for that F.Y, not exceeding 10% of its profits Declaration of dividend in case of in-adequate profits In case of inadequacy or absence of profit in any F.Y, the company can declare dividend out of the reserve only after complying with the company Rules 1975, wherein the maximum rate of dividend is prescribed as 10%

declaration of any dividend. Mandatory transfer to reserves done away. In case of inadequacy or absence of profit in any F.Y, the company can declare dividend out of the accumulated profits transferred to reserve in accordance with the rules to be prescribed

Restriction on No restriction are provided for declaration of declaring dividend dividend/interim dividend Restriction on step down subsidiary Consolidation of Financial Statement No restriction

Interim dividend may be declared out of the profit of the financial year is made to be declared. Class or classes of holding companies as may be prescribed shall not have layers of subsidies beyond such numbers as may be prescribed In case a company has one or more subsidiaries, it shall in addition to stand alone financial, prepare a consolidated financial statement of all the subsidiaries in the same form and manner as that of its own which shall also be laid before the AGM of the company Where valuation is required to be made under Act, in respect of any property, stock, debentures, securities or goodwill or other assets or net worth, such valuation shall be done by a registered valuer Only Banking Company, NBFC and such other company as the CG may specify, are permitted to accept deposits from the public. A company may accept deposits from its member by passing a resolution in general meeting and subject to compliance of rules and subject to conditions

No existing provisions

Exemptions

No provisions for Registration Valuer.

Eligibility for acceptance of deposit from public and shareholders

Public companies are permitted to accept deposits from public and shareholders in accordance with Companies Rules

Exemptions

Any loan made, guarantee given Any loan or any security provided by;

or any security provided or any investment made by: Banking, insurance, housing finance company, or company established with the object of financing industries enterprises or providing infrastructural facilities, any companies whose principal business was acquisition of share, stock, debentures, or other securities, holding company to its WOS Scope of section A company cannot enter into the contracts relating to Sale, purchase or supply of any goods or materials and services; Underwriting the subscription of any shares, debentures of a company

Banking, insurance, housing finance company, in-ordinary course of their business; Company engaged in the business of financing of companies or of providing infrastructure facilities Investment and lending by NBFC whose principal business is acquisition of securities

A company cannot enter into the contracts relating to Sale, purchase or supply of any goods or materials; Selling or otherwise disposing of, or buying, property of any kind; Leasing of property of any kind; Availing or rendering of any services; Appointment of any agents for purchases or sale of goods, materials, services or property Prior consent of the BoD passed by resolution at board meeting Prior approval of the shareholders, in case the paid up capital of company or transaction amount exceeds prescribed limit Director or his relative Firm in which a directors, manager or his relative is a partner Private company in which a directors or relative is partner Any person under whose advice, directions or instructions a director or manager is accustomed to act

Approval required

Prior consent of the BoD by resolution passed at board meeting Prior approval of the Regional directors, in case the paid up capital of company is exceeding rs 1 crore Director of Company or Relative of such directors A firm in which such directors or relative is partner Private company in which such directors or relative is partner

Specified persons with whom contracts are covered

Exemptions

Purchase/Sales of goods and materials for cash at prevailing market priceor service the cost which does not exceed rs 5000/Public Companies

Any Transaction entered by company in its ordinary course of business other than transaction which are not an arms length basis

Loan to Directors

Private and Public companies No company shall directly or indirectly make any loan including book debt or give any guarantee or provide any security to its director or to any other persons in whom the director is interested The said section does not apply to: Loan to MD/WTD as a part of contract of services extended to all its employees; or Pursuant to scheme approved by members by special resolution Approval by majority representing 3/4th in value of the creditors or members or class thereof present and voting in person or by proxy or by postal ballot Approval of High Court (NCLT) Valuation report to be given to shareholders /creditors along with notice convening meeting Objection to compromise or arrangement be made only by: persons holding >10% of the shareholding or having outstanding debt of >5% of total outstanding debt as per the latest audited balance sheet A Scheme of compromise or arrangement can include buyback of securities, provided itis in accordance for buy-

No Public Company shall Scope of section directly or indirectly make any loan or give any guarantee or provide any security to its directors another certain specified persons, except with the approval of CG The said section does not apply Exemptions to: Private Companies Holding to its subsidiary Banking Companies Approval Required Approval by majority in number representing 3/4th in value of the creditors or members or class thereof present and voting in person or by proxy Approval of High Court (NCLT) No need to give Valuation report to the shareholders / creditors along with notice convening meeting Objection to compromise or arrangement can be made by any shareholder or creditor, as the case may be, irrespective of their shareholding/outstanding debt.

Valuation Report Objection to compromise or arrangement

Buy back of securities by scheme of compromise

A Scheme of compromise or arrangement can include any buyback of securities

/arrangement Takeover Offer A scheme of compromise and arrangement cannot include a takeover offer

Transfer of Listed Company with Unlisted Company

No specific provisions for compromise/ arrangement between a listed transferor company and an unlisted transferee company

Notice of meeting

No specific provisions for serving of notice to Income Tax and other regulators No specific provisions for Fast track merger

Fast Track merger

Merger of Indian Company with Foreign Company

Indian company cannot be merged with Foreign Company

Offer to sell by Minority shareholders to Majority Shareholder Purchase of Minority shareholding by Majority shareholder

No specific provisions for offer to sell by the minority shareholder to the majority shareholders No specific provisions for acquisition of minority shareholders by majority shareholders

back. provisions A scheme of compromise and arrangement May include takeover offer in a prescribed manner. In case of listed companies such takeover offer shall be as per SEBIRegulations In case of compromise / arrangement between a listed transferor company and an unlisted transferee company, NCLT to provide that transferee company shall remain unlisted company until it becomes listed and exit option be given to the shareholders of the transferor company wherein the exit price to be not less than the price under any SEBI Regulations Notice to be served to CG, income-tax authorities, RBI, SEBI, Stock exchanges, CCI,sect oral regulators / authority Fast track provisions made to facilitate merger between two or more small companies or between holding company Approval required of : ROC;Official Liquidator. members or class of members holding at least 90% of total nos. of shares; Foreign company, may with the prior approval of RBI, merges into Indian company or vice versa. The consideration for merger can be in the form of Cash and / or Depository Receipts. This would apply to foreign companies in jurisdictions as notified byCG The minority shareholders of the company may also offer to sell their shares to the majority shareholders at a price determined in accordance with the rules as may be prescribed Acquirer and/or PAC or person/group of persons holding 90% or more of the issued equity capital of the company by virtue of

Grounds for winding up Reduced

Several criteria provided for winding-up of Company by NCLT such as If the company has, by special resolution, resolved that the company be wound up If the company is unable to pay its debt If a company does not commence its business within1 year from its incorporation or suspends its business for awhole year.

Grounds for strike off

A Company may be struck off by ROC if it has reasonable cause to believe that a company is not carrying on business or operations

amalgamation, share exchange, conversion of securities or for another reasons, can purchase the remaining equity shares of the company Minority shareholders may also offer to the majority shareholders to purchase their equity shareholding in the company at the price determined by registered valuer Certain criteria for winding-up by NCLT deleted like minimum number of members falling below prescribed limit, non-commencement of business for 1 year etc. Additional ground provided for winding-up: NCLT is of the opinion that The affairs of the company have been conducted in a fraudulent manner Company was formed for fraudulent and unlawful purpose The persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith A Company may be struck off by ROC for below reasons Subscribers to the memorandum have not paid the subscription money within 180 days from the date of incorporation. Company has failed to commence its business within 1 year of its incorporation; Company is not carrying on any business or operation for 2 immediately preceding financial year and has within such period applied for status of a dormant company

Major criticism against the new bill

The proposed omission of Section383A regarding mandatory appointment of Company Secretary in certain-sized companies is sought to be justified on the plea that there is no such provision for the other professionals. The remedy for such a situation is to enact a provision for them too. The high-powered Sachar Committee on Company Law reforms has, as far back as in 1978, stated in its report thus With a view to achieve the objectives of professionalization, all companies with a paid-up capital of twenty five lakh rupees or more should be required to employ a Chief Accountant or a Financial Controller and (b) a Cost Accountant and an Internal Auditor, if such companies are engaged in manufacturing or other specified activities. Accountant and the Cost Accountant must be members of the Institute of Chartered Accountants of India and the Institute of Cost & Works Accountant of India respectively. Thus a mandate regarding appointment of professionals in companies to man the distinct and specialist functions has found favour with the high-powered committee. Such a mandate cannot be said to impinge or constrict the managerial freedom, especially in the context of, the cases of vanishing companies and fraudhit companies that we continue to witness even today. If the mandatory appointment of a Company Secretary is violative of the managerial freedom of a company, the mandate regarding appointment of Independent Directors is equally violative of shareholder democracy that the Bill is seeking to espouse. Between the two, I would venture to say that it is the mandatory appointment of a Company Secretary that promotes good corporate governance than the mandate regarding Independent Directors, for reasons best known to all! To some extent the damage caused by the removal of Section383A would seem to be curtailed by Clause 178 which requires certain classes/description of companies to be prescribed to have whole-time key management personnel which includes Company Secretary. The Secretarial Compliance Certificate maybe expected to be introduced through delegated legislation in the new regime.

Suggestions for further reforms

The objectives of ushering in good corporate governance, promoting investor protection, providing adequate internal control, ensuring authentic and transparent disclosures by companies in their public documents may be achieved only in letter but in spirit unless some more fundamental and progressive measures are addressed in the new Bill. These are: Prescribing basic educational and professional/management qualifications for company directors; Providing for equitable exercise of voting power at general meetings; Clear definition of basic duties and responsibilities of key managerial personnel leaving details to be compulsorily added by the Boards of companies; Induction of worker/employee director into the Board; Empowering the proxies to speak and vote at general meetings like members; fixing threshold limit of shares to be held to be entitled to speak at general meetings; Ensuring real and requisite independence to the corporate professionals like Practicing Company Secretaries, Chartered Accountants, Cost Auditor etc. to discharge their attest functions properly; Mandatory appointment of duly qualified and well experienced internal auditor with requisite powers to discharge his onerous duties and responsibilities; Strengthening the role of shareholder- associations participation in general meetings; and Submission of a Social Report.

Concluding Remarks by RituRanjan

The Bill seeks to reduce Govt. intervention in the affairs of company by removing controls and approvals but the companies and the directors are expected to function strictly in accordance with the regulatory framework. Failure to do so will attract heavy penalties in the form of fine on the company and a term of imprisonment and fine on the officer who is in default which includes key Managerial personnel. The need to induct Independent Directors in all public companies is intended to bring about professionalization of corporate management and providing outside expertise to the corporate boards. It remains to be seen how the Independent Directors will discharge their fiduciary responsibility in the context of Satyam fiasco. A few changes in the manner of appointment of Independent Directors are required to ensure and protect the Independence of Independent Directors come.

REFRENCES
Web Sites:http://www.icsi.edu/docs/WebModules/LinksOfWeeks/HIGHLIGHTSCOMPANIES%20BILL2011.

file:///I:/PPRC/companies-bill-2009-what-is-new--3993.asp.htm#.T_v1Wd2bDIU

http://www.deloitte.com/assets/Dcom-India/Local%20Assets/Documents

http://www.mca.gov.in/Ministry/pdf/Companies_Act_1956_13jun2011.pdf

http://www.weil.com/news/pubdetail.aspx?pub=4049

http://www.mca.gov.in/MCA21/dca/downloadeforms/Download_eForm_choose.html

Books:-

1. Company Law Athr:- M C Shukla

2. A Text Book of Company Law Gogna,P.P.S