An
analysis of the important Sections!
The Ministry of Corporate Affairs has notified 98 sections of the new Companies Act, 2013. These sections have come into effect from 12th September 2013. Subsequent to coming into effect of these Sections under the new Act, the corresponding Sections under the Companies Act, 1956 automatically stand repealed. For other Sections, the Companies Act, 1956 still holds good till the relevant sections under the new Act are notified.
In the present write up, we focus light on some of the important
provisions which have been notified for attention of our readers. A
complete list of all the sections which have been notified is also given at the
end of write up for easy and ready reference of our readers.
Many of the sections which have been notified have provisions
similar to that of Companies Act, 1956. However, in some of the Sections new
provisions have been inculcated which demands our immediate attention. Immediately
after notifying these sections, the Ministry has also issued some
clarifications regarding their applicability for stakeholder convenience. We
will discuss on these clarifications also under the relevant sections.
Section 2 – Definitions
Section 2 under Companies Act, 2013 contains 94 definitions out of
which all definitions except 12 definitions have been notified. In a few
definitions, a particular portion has not been notified. A list containing the
details of definitions notified and non-notified is given later at the end of
the write up.
The definition of Private Company given under CA, 2013 is
different from the earlier Act and the new definition has got notified on 12th
of September 2013. The Ministry
on 13th September 2013 has clarified that all incorporation documents being
filed on or after 12.09.2013 must contain the new definition only.
Section 102 – Statement to be annexed
to notice
Section 102 of CA, 2013 corresponds to Section 173 of CA, 1956
which specifies the requirement of annexing a statement alongwith the notice of
general meeting where any special business has to be transacted. The important
changes in this section are:
·
Interest
of not only directors/manager has to be disclosed (as prescribed in CA, 1956)
but also that of every key managerial personnel and relatives of directors,
manager and KMP.
·
Earlier,
with regard to any special business concerning another company, disclosure of
shareholding interest of director/manager in that other company had to be
disclosed if such share holding was more than 20%. Now the percentage has been
changed to 2% and also the same has been made applicable to all promoters,
directors, manager and KMP.
·
CA, 2013
also specifies that if any benefit accrues to any director, manager, promoter
or KMP or their relatives because of non-disclosure or insufficient disclosure,
then the concerned person will be deemed to be holding the amount of benefit in
trust for the company. This is a new specification under CA, 2013.
·
CA, 2013
also contains the penalty clause which provides for a penalty of Rs. 50,000/-
or 5 times the amount of benefit, whichever is more. Earlier no specific
penalty was provided.
·
This Section is
applicable to all companies except to a One Person Company.
Earlier,
Section 170 of CA, 1956 provided that the provisions of section 173 will apply
to private companies only if the Articles do not provide anything otherwise.
MCA has clarified that the provisions of this section will apply
to all notices issued on or after 12th September, 2013.
Section 103 – Quorum for meetings
This section corresponds to section 174 of the CA, 1956 which
prescribes the quorum for general meetings.
Section 103 has prescribed new quorum requirement for public
companies which is as follows:
No. of members as on date
of Meeting
|
Quorum Requirement
|
1000 or less
|
5 members personally present
|
1000-5000
|
15 members personally present
|
More than 5000
|
30 members personally present
|
Section 180 – Restrictions on powers
of Board
This section corresponds to section 293 of CA, 1956 which contains
a list of items which can be transacted by the Board only after obtaining
approval of the shareholders. The important points of difference are:
·
CA, 2013
mandates approval by means of special resolution only.
·
CA, 1956
mandated that approval has to be obtained in a meeting. This requirement seems
to have been dispensed with in CA, 2013 as the word “meeting” has been replaced
with “special resolution”.
·
This Section is applicable to all companies as compared to only
public companies and subsidiaries of public companies as contained in CA, 1956.
MCA has clarified that the provisions of this section will apply
to all notices issued on or after 12th September, 2013.
Section 185 – Loans to Directors etc.
This section corresponds to Section 295 of Companies Act, 1956
which contains provisions regarding giving loans to directors and other
entities in which directors are interested. The main points of difference in
the new Act are:
·
This
Section is applicable to all companies as compared to only public companies and
subsidiaries of public companies as contained in CA, 1956.
·
In CA,
1956 loans were permitted with approval of Central Government. Now, the
transaction is totally prohibited except in following cases:
(a) the giving of any loan to a
managing or whole-time director—
(i) as a part of the conditions of
service extended by the company to all its employees; or
(ii) pursuant to any scheme approved by
the members by a special resolution; or
(b) a company which in the ordinary course of its business
provides loans or gives guarantees or securities for the due repayment of any
loan and in respect of such loans an interest is charged at a rate not less
than the bank rate declared by the Reserve Bank of India.
·
Following
transactions are prohibited subject to exception above:
o Giving of loan, including any loan represented by a book debt
o Giving any guarantee or providing any security in connection with
any loan taken.
·
The above
transactions by the company to following entities are prohibited subject to
exception above:
(a) any director of the lending company, or of a
company which is its holding company or any partner or relative of any such
director;
(b)
any firm in which any such director or
relative is a partner;
(c) any private company of which any such director
is a director or member;
(d) anybody corporate at a
general meeting of which not less than 25% of the total voting power may be
exercised or controlled by any such director, or by two or more such directors,
together; or
(e) anybody corporate, the
Board of directors, managing director or manager, whereof is accustomed to act
in accordance with the directions or instructions of the Board, or of any
director or directors, of the lending company.
Section 192 – Restrictions on
non-cash transactions involving directors
This is a new section introduced under CA, 2013. This Section
contains that a company has to obtain prior approval its members by means of a
special resolution for entering into any agreement relating to acquisition/sale
of assets for consideration other than cash between the company and its
director, or director of holding, subsidiary or associate company or any other
person connected with the director.
The Section also contains that the notice calling the general
meeting should include the particulars of the arrangement along with the value
of the assets involved in such arrangement duly calculated by a registered valuer.
Section 447 to 449 – Punishment for
fraud, false statement and false evidence
Section 447 is a new Section under CA, 2013 which deals
extensively with fraud. Section 447 defines fraud as:
“fraud” in relation to affairs of a company or any body corporate,
includes any act, omission, concealment of any fact or abuse of position
committed by any person or any other person with the connivance in any manner,
with intent to deceive, to gain undue advantage from, or to injure the
interests of, the company or its shareholders or its creditors or any other
person, whether or not there is any wrongful gain or wrongful loss
Penalty for Fraud
Any person who is
found to be guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six months
but which may extend to ten years and
shall also be liable to fine which shall not be less than the amount involved
in the fraud, but which may extend to three times the amount involved in the
fraud.
This section has far reaching consequences as
firstly the penalty is very stringent – imprisonment up to ten years, secondly,
many sections in the Act are linked to this section by providing in those
sections that the penalty is same as that for fraud and thirdly the definition
of fraud is very wide in its connotation. It covers all persons including
directors, employees, professionals etc.
Section 448 and 449 correspond to Section 628 and
629 of the CA, 1956 respectively. There is no change in the sections except that
the penalty has been increased.
Section 450 – Punishment where no
specific penalty or punishment is provided
This section
corresponds to Section 629A of Companies Act, 1956 and provides penalty for
those cases where no specific penalty has been provided in the respective
section or any where else in the Act. In CA, 2013 the amount has been raised to
Rs. 10,000/- plus Rs. 1,000/- for every day of default as against Rs. 5,000/-
plus Rs. 500/- provided in CA, 1956.
This Section has been
notified from 12.09.2013 and it means that now for any contravention under the
Sections of Companies Act, 1956 also, for which no penalty is provided in the
Act, the penalty as provided in CA, 2013 will be applicable.
Author
CS Dhanapal
E-mail :csdhanapal@gmail.com
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