Published on March 14, 2014
COMPARISON OF THE NEW & OLD COMPANY LAW By: Saugata Palit
BACKGROUND • The Companies Act, 2013 (2013 Act) was assented by the President of India on 29 August 2013 and published in the Official Gazette on 30 August 2013. • The 2013 Act has been developed with a view to enhance self–regulation, encourage corporate democracy and reduce the number of required Government approvals.
PRIVATE COMPANY [Sec 2(68)ii] Old Company law New Company Law • Minimum number of members required is 2 and maximum restricted to 50. • Muinimum number of members required remains unchanged but the maximum number increased to 200(excluding the employees of the company).
ONE PERSON COMPANY[Sec 2(62)] Old Company law New Company Law • No such company existed earlier. • One Person Company means a company which has only one member • An OPC can be formed under any of below categories : ▫ Company limited by guarantee. ▫ Company limited by shares
SMALL COMPANY [Sec 2(85)] Old Company law New Company Law • No such provision existed earlier. • paid up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crores rupees • turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees
DORMANT COMPANY[Sec 455] Old Company law New Company Law • There was no relaxation under the law to treat them at a different footing than the active Companies of the same class. They were required to file forms as usual, hold board meetings at prescribed intervals and so on so forth. • Dormant status does not come automatically. An application for the same has to be made as stated herein for obtaining the status of Dormant Company. • Maximum Period to continue with status of Dormant Company is 5 years.
DIRECTORS OF THE COMPANY • A director of a company can be resident or non-resident • Where no provision is made in the AOA of the company for the appointment of the first director, the subscribers to the MOA who are individuals are deemed to be the first directors of the company and in case of OPC an individual being member is deemed to be its first director • No person shall be appointed as a director of a Company unless he has been allotted DIN
NUMBER OF DIRECTORS IN A COMPANY Old Company law New Company Law • Minimum number of directors for a public company is 3 and for a private company 2. • Maximum number 12 • Minimum number for both public and private companies remains the same and for an OPC is 1. • Maximum number is 15.
NUMBER OF DIRECTORSHIPS A PERSON CAN HOLD Old Company law New Company Law • Maximum number was 15. • Maximum number is 20. • The maximum number of public companies (including private companies that are either holding or subsidiary of a public company) in which a person can be appointed as a director cannot exceed 10.
RESIDENT DIRECTOR Old Company law New Company Law • No such requirement was there. • 1 of the directors who is resident in India i.e. a person who has stayed in India for at least 182 days or more in the previous calendar year.
WOMAN DIRECTOR Old Company law New Company Law • No such provision existed. • Such prescribed class of companies as mentioned to have at least 1 woman director.
INDEPENDENT DIRECTORS [clause 149(5)] Old Company law New Company Law • No such clause existed. • Every listed public company to have at least one-third of the total directors as independent directors.
PROSPECTUS AND ALLOTMENT OF SECURITIES
PROSPECTUS AND ALLOTMENT OF SECURITIES Old Company law New Company Law This is a new provision and no corresponding section could be found • It provide the way in which public or private co may issue securities • It is to be noted that section 23(a) and 23(b) are not yet specified 23(a)- private placement of shares by public companies 23(b)- issue of shares by private companies
POWER OF SEBI Old Company law New Company law • Powers of SEBI • It provides the provision for administration and regulation of SEBI in relation to: ▫ Issue and transfer of securities ▫ Non payment of dividend • By listed companies, or those companies which intends to get their stocks listed • Scope widened
DOCUMENT CONTAINING OFFER OF SECURITIES FOR SALE TO BE DEEMED PROSPECTUS Old Company law New Company law • Document containing offer of shares or debentures for sale to be deemed prospectus • Any document which the offer for sale of securities is made to the public, it shall, be deemed to be a prospectus and all sections for the same, shall be applicable to it • It is to be noted that section 25(3) has been notified • This sub section brings out additional info in the prospectus
PUBLIC OFFER OF SEC TO BE IN DEMAT Old Company law New Company law • Applicable to every listed co making an initial public offer of any security for a sum of rs 10 crores and more • Applicable to every company making public offer and such other class of public companies as may be prescribed • Other co may issue securities in physical or demat form
ADVERTISE-MENT OF PROSPECTUS Old Company law New Company law • Where any prospectus is published as a newspaper ad, it can do away with specification of the contents of memorandum or signatories thereto or the no of shares subscribed by them • Ad of prospectus published in any manner shall specify the contents of its MOA : and ▫ Objects ▫ Liability of members ▫ Share capital ▫ Subscriber details ▫ Capital structure
SHELF PROSPECTUS Old Company law New Company law • Only public financial institutions public sector or scheduled banks whose main object is financung is allowed to issue SP • Any class of companies prescribed by SEBI may file SP with ROC ▫ At the stage of 1 year of securities ▫ Period of validity of 1 year ▫ Date of opening becomes commencing date • Prior to any subsequent offer under which SP, co to file with ROC • Option to refund money
RED HERRING PROSPECTUS Old Company law New Company law • Information Memorandom (IM) • IM now RHP • Co proposing to make an offer of securities • Rhp may be issued prior to issue of prospectus • RHP to be filled with roc atleast 3 days prior to opening of subscription of list and offer • Upon closing of the offer the details of information to be lied with ROC and SEBI
ISSUE OF APPLICATION FORMS FOR SECURITIES. Old Company law New Company law • Matters to be stated and reports to be set out in prospectus • New section corresponds to sec56(3) • Form was required to be accompanied by memorandum containing such salient features of prospectus was prescribed • Every form of application issued for purchase of any securities shall be accomplished by an abridged prospectus • Talks about abridged prospectus • Section 33(a) has been notified ▫ This sub case brings out the provision for penalties in case of default
CRIMINAL LIABILITY FOR MIS STATEMENT IN PROSPECTUS Old Company law New Company law • Earlier Penal provision was only for untrue statements only • Any statement which is untrue or misleading in form of context or inclusion or omission likely to mislead • Section 447 (punishment for fraud) invoked • Persons who have authorized the issue of such prospectus shall also be criminally liable • Escape mechanism if the person can prove that such statement or omission was ▫ Immaterial ▫ Had reasonable ground to believe
CIVIL LIABILITY FOR MIS STATEMENT IN PROSPECTUS Old Company law New Company law • The option to withdraw on becoming aware of any untrue statement after issue of prospectus and before allotment has been dispensed with-Sec 62(3)(b) • Civil liability in case of prospectus issued for all types of securities • Where prospectus issued with an intention to defraud every person liable under this section shall be personally liable without any limitation for the loses incurred for the loses incurred by any person who has subscribed • It is to be noted that section 35(1)(e) which deals with inclusion of experts in the gamut has not been notified
ALLOTMENT OF SECURITIES BY COMPANIES Old Company law New Company law • Prohibition of Allotment unless Minimum Subscription Recd (Sec 69) • Return as to Allotments (Sec 75) • Only pertaining to Shares • Where no minimum amount has been subscribed and money received the amount needs to be refunded to all applicants within 30 days from date of issue of prospectus • Co. having a share capital on allotment of securities (earlier only shares) file a return of allotment with ROC • Rs 1000/- penalty for each day of continuing default • It is to be noted that section 39(4) relating to Return of Allotment has not been notified.
AUDITING STANDARD IN INDIA
AUDITING STANDARDS IN INDIA Old Company law New Company Law Section 224: • No provision related to rotation of auditor. Section 226: • A person shall be CA or firm of CA Internal audit: • No provision except reference in CARO. • Mandatory auditor rotation and joint auditors • Non-audit services • . The 2013 Act now moves a step forward and mandates the appointment of an internal auditor who shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company
Old Company law New Company Law Section 227: • every auditor of a company shall have a right of access at all times to the books of account and vouchers of the company. • CARO required to report on internal control matter relating to the inventory, fixed assets and sale of goods and services. • CARO required to report of any fraud on or by the company has been noticed or reported during the year. Auditing standards: • The Standards on Auditing have been accorded legal sanctity in the 2013 Act and would be subject to notification by the NFRA. Auditors are now mandatorily bound by the 2013 Act to ensure compliance with Standards on Auditing.
MERGERS & AQUSITIONS
Comparison of the Old & New Company Law Old Company law New Company Law • . Under the Companies Act 1956 section 230 any shareholder, creditor or any ‘interested party’ may object to the scheme of the arrangement before a Court if he thinks that that the proposed scheme is adverse to his interests. • 2. Under the Companies Act 1956, foreign companies could be amalgamated into an Indian company, but the reverse is not permissible i.e. an Indian company cannot merge with a foreign company. • According to the new law, a person must hold at-least 10 % shares or at least 5% of the total debt outstanding to the company in order to object to a merger. • The new Companies Act, 2012 allows for merger both ways as this would encourage cross border transactions.
Old Company law New Company Law • Under Old companies law, schemes of arrangement have to be mandatorily approved by the High Court which has jurisdiction over the concerned companies involved but this procedure was too long. • Under the old companies law, no takeover can be a part of any compromise or arrangement involving a merger or amalgamation. • But the New law grants jurisdiction to the National Comapny Law Tribunal which has been established to curb the time taken to approve the schemes of arrangement and would lead to greater efficiency, fairness and apt regulation. • But, under the new act, a scheme of compromise or arrangement involving a merger/amalgamation may include a takeover offer.
Corporate Social Responsibility Under the companies act 1956, there was no provision for CSR initiatives but the New companies act 2012 made CSR compulsory for the companies :- •Having net worth of rupees 500 crore or more, or turnover of rupees 1000 crore or more. •A net profit of rupees 5 crore or more during any financial year. •Every financial year atleast 2% of the average net profits of last 3 years to be spent on CSR activities, otherwise reason for not spending to be given in Board's Report. •Every qualifying company has to appoint a CSR Committee to formulate and recommend a CSR policy and its working also.
POWER TO REMOVE DIFFICULTIES
POWER TO REMOVE DIFFICULTIES • The central government will have the power to exempt or modify provisions of the 2013 Act for a class or classes of companies in public interest. • Relevant notification shall be required to be laid in draft form in Parliament for a period of 30 days. • The2013 Act further states no such order shall be made after the expiry of a period of five years from the date of commencement of section 1 of the 2013 Act [section 470 of 2013 Act].
INSIDER TRADING AND PROHIBITION ON FORWARD DEALINGS • The 2013 Act for the first time defines ‘insider trading and price-sensitive information and prohibits any person including the director or key managerial person from entering into insider trading [section 195 of 2013 Act].
It is generally understood that insider trading includes the following: • Trading by insiders while in possession of unpublished price sensitive information; • Trading by persons other than insiders while in possession of unpublished price sensitive information where the information either was given in breach of an insider’s fiduciary duty to keep it confidential ; • Communicating or tipping material, non-public information to others, including recommending the purchase or sale of a security while in possession of such information.
INFORMATION TO SEBI IN CASE OF VIOLATION OF SEBI (PROHIBITION OF INSIDER TRADING) REGULATIONS, 1992 • In case it is observed by the Compliance Officer that there has been a violation of the Regulations by any Specified Person/ an Employee, he/she shall forthwith inform the the Board as the case may be about the violation. • The penal action will be initiated on obtaining suitable directions from the Board, as the case may be
REGULATORY •NCLT •NFRA •SFIO
NCLT • The MCA has setup the National Company Law Tribunal which is a single window institution for corporate justice. • A number of quasi-judicial forums and tribunals like Debts Recovery Tribunal (DRT), Securities Appellate Tribunal (SAT), Company Law Board (CLB), Board for Industrial and Financial Reconstruction (BIFR) were established to provide speedier and specialized fora for dispensation of justice. • Therewith including approval for merger, corporate reorganization , capital reduction , extension of final year etc. • NCLT was needed considering the laws on corporate insolvency and other such provisions with regards to company law prevailing in industrially advanced countries
MERITS OF NCLT •DEPTH •SPEED
NFRA • Through Section 132 of the Companies Act, 2013, the Central Government has introduced a new regulatory authority named as National Authority for Financial Reporting known as National Financial Reporting Authority (NFRA) with wide powers to recommended, enforce and monitor the compliance of accounting and auditing standards. • NFRA shall be responsible for monitoring and enforcing compliance of auditing and accounting standards and for that purpose, oversee the quality of professions associated with ensuring such compliances.
The Objectives of National Financial Reporting Authority • Make recommendations on formulation of accounting and auditing policies and standards for adoption by companies, class of companies or their auditors; • Monitor and enforce the compliance with accounting standards, monitor and enforce the compliance with auditing standards; • Oversee the quality of service of professionals associated with ensuring compliance with such standards and suggest measures required for improvement in quality of service • Perform such other functions as may be prescribed in relation to aforementioned objectives.
SFIO The Serious Fraud Investigation Office (SFIO) is an organization working under Ministry of Corporate Affairs. The office was established by the Government of India Resolution dated 2003 to investigate corporate frauds. The SFIO is a multi- disciplinary organization under Ministry of Corporate Affairs, consisting of experts in the field of accountancy, forensic auditing, law, information technology, investigation, company law, capital market and taxation for detecting and prosecuting or recommending for prosecution white-collar crimes/frauds
The SFIO will normally take up for investigation only such cases, which are characterized by: The possibility of investigation leading to or contributing towards a clear improvement in systems, laws or procedures. The SFIO shall investigate serious cases of fraud received from Department of company Affairs.
The SFIO shall be headed by a Director and consist of experts of following fields • Banking, • Corporate Affairs, • Taxation, • Forensic auditing, • Capital Market, • Information Technology, • Law, or (here as ‘or’ and ‘and’ both) • Other fields.
References • Wikipedia • Youtube • MCA official website • Economic Times official website
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