ITS IMPACT ON SECURITIES LAWS · SEBI ACTS, REGULATIONS TO BE IMPACTED BY COMPAIES ACT, 2013 ......

10/4/2013 1

THE COMPANIES ACT, 2013

&

ITS IMPACT ON SECURITIES LAWS

INDEX

10/4/2013 2

PART - A

COMPANIES ACT, 2013

Facts And Figures

Categorization of Rules

Objectives

New Concepts

Novelties

What’s In & Out

Various Entities Under The Act

Enhanced Corporate Governance

Disclosures & Accountability

Tightening Provisions

Some Liberal Provisions

Restructuring

Compliances & Enforcements

PART - B

SEBI ACTS, REGULATIONS TO BE IMPACTED BY

COMPAIES ACT, 2013

New Definitions Impacting SEBI

Cross Referred Terms

Alignment Needed

Changes In SEBI Act

Changes In Depository Act

Changes Needed In Regulations Made By SEBI

Clause 41 Of Listing Agreement

Clause 49 Of Listing Agreement

Changes In M & A

Clauses Of Listing Agreements Other Than Clause

41 & 49

SEBI (Buyback Of Securities) Regulations, 1998

SEBI (Prohibition Of Insider Trading) Regulations,

1992

SEBI (ESOS And ESPS) Guidelines, 1999

SEBI (Substantial Acquisition of Shares &

Takeover) Regulations, 2011

SEBI (Delisting of Equity Shares) Regulations, 2009

SEBI (Issue of Sweat Equity Shares) Regulations,

2002

Various Topics From Companies Act

310/4/2013

“In a time of drastic change, it is the

unlearners who inherit the future.

The learned find themselves equipped to live

in a world that no longer exists”.

ERIC HOFFER

410/4/2013

The Companies Act, 1956

The Companies Act, 2013

A PARADIGM SHIFT FOR THE

CORPORATE

510/4/2013

PART – A

COMPANIES ACT, 2013

610/4/2013

Contemporary

Easy Understandability

Preventive

Adaptable Investor

Protective

Self Regulatory

Business

NEW COMPANIES ACT, 2013

710/4/2013

Facts about the Act

New

35 Definitions

470 Sections 29 Chapters

7 Schedules

Substantial Part of the Act in form of Rules (400 places it has prescribed word)

810/4/2013

CATEGORIZATION OF

RULES

S. No Prescription of With respect to

1. Manner/Form of documents Return of Allotment

Instrument of Transfer statements

Appeal

Secretarial Audit Report

Disclosures

Quarterly Reports

Declarations

Charge Documents

Resignation

Registers

Reports

Takeover Offer Statement

Annual Report

CSR Policy particulars

Notices

Intimation

Applications

License to Company

Verification of Declaration

Documents of Company

Statement by Board

Auditor’s Report

910/4/2013


2 Time limit for various processes Filings

Various processes

3 Manner of Administration Funds

4 Conditions to be complied

Issue

Appointment of auditor

Entering into contract

Various other things

5 Details in Special Resolution

6 Fees

Obtaining copies

Requests

AGM report

Appeals

DIN

Sitting fees

Application

Revised Authorized Capital

Inspections

CATEGORIZATION OF

RULES

1010/4/2013


7. Composition NFRA

Other committees, bodies

8. Class of Companies Processes

Committees

Various other things

9. Appointment of people NFRA

ID

Experts for SFIO

Valuer

Members to mediation &

conciliation panel

10. Procedure of Issue

11. Limits Number of companies

Managerial remuneration

Class action

Number of directors

CATEGORIZATION OF

RULES

1110/4/2013


12. Manner of maintenance Books

Accounts, etc.

13. Documents to be annexed or attached

14. Information to be furnished

15. Manner of certification/authentication

16. Salary, allowances, conditions of service

CATEGORIZATION OF

RULES

10/4/201312

Bringing Flexibility

& Adoption of

Internationally

Accepted Practices

Self Regulation

with more

disclosures

Stringent

Punishment for

violation

Efficient

enforcement of law

Healthy Growth of

India Inc.

Effective protection

for different

sections of Society

RE-ENACTING THE NEW

COMPANIES LAW

10/4/201313

New ConceptsCorporate

GovernanceLiberalization

Disclosures &

Accountability Accounts & Audit

Investor

Protection

Tightening

Provisions Restructuring

Enforcement of

Law- New

Institutions

THE COMPANIES ACT, 2013

1410/4/2013

New Concepts

1510/4/2013

• Introduction of One Person Company

• Stipulation of Woman Director

• Provision of Class Action suits

• Introduction of Registered Valuer

• Fast Track Merger for Holding & Subsidiary Companies

• Cross Border Merger

• Concept of Dormant Company

• Further Use of electronic mode: Maintenance of Documents, Records, Registers,

Books of Accounts, etc. in e-Form

• Meeting through Video Conferencing

•Summary Procedure for Winding up of Company

• Conciliation panel & special courts

•Corporate Social Responsibility

NOVELTIES

1610/4/2013

WHAT’S IN & OUT

IN

• Key managerial personnel

• Resident Director

• Auditor Rotation

• Dormant company

• NFRA

• Vigil mechanism

• SFIO

• Definition of Subsidiary

• Secretarial Audit

• Recasting of Account

• Private Placement

OUT

• Sole selling agents

• Commencement certificate

• Statutory meetings

• Convert share into stock

• Qualification shares

• Treasury stocks

1710/4/2013

Entity Structure Recognized under the law

Access to Capital

Listed

Unlisted

Members

OPC

Private company

Public company

Control

Holding Company

Subsidiary Company

Associate Company

Liability

Limited

Shares

Guarantee

Unlimited

Others

Nidhi Company

Producer Company

Foreign Company

Size

Small Company

Activity

Dormant Company

Government Company

VARIOUS ENTITIES

UNDER THE ACT

1810/4/2013

Independent Directors – Exhaustive Definition, Code of conduct,Performance Evaluation, Separate Meetings of IndependentDirectors, Restricted Tenure, Limited Liability etc. such conceptsadded as to Independent Directors

Provision to spend at least 2% of Average Net Profit on CSR byCompanies meeting a specific criteria

Compulsory rotation of Individual Auditors every 5 years & ofAudit firms every 10 years, cap of 20 Companies for audit by afirm

Quorum of General Meeting of a Public Company to depend uponthe number of its members

ENHANCED CORPORATE

GOVERNANCE

1910/4/2013

Restriction on Insider Trading & Forward Dealing by Directors & KeyManagerial Personnel

Consolidated financial statements of all subsidiaries to be laid before AGMalong with financials, subsidiaries to include Associate companies & JointVentures

For uniformity & better compatibility, Financial year of the Companies can befrom April to March only exceptions: Foreign Holding/ Subsidiary subject toTribunal’s approval)

Mandatory Internal & Secretarial Audit for prescribed Companies

ENHANCED CORPORATE

GOVERNANCE

2010/4/2013

DISCLOSURES & ACCOUNTABILITY

2110/4/2013

Private placement norms made

more stringent

Verification of registered office

address required

Justification of entering into

Related Party Transaction

required to be disclosed in the

Directors Report

TRANSPARENCY & DISCLOSURE

2210/4/2013

Enhanced Disclosures in the

Prospectus , source of

promoters contribution is also

required to be disclosed

Exit opportunity to dissenting

shareholders if the Company

intends to vary the objects as

specified in the Prospectus

Company Investment through

more than 2 layers of

Investment Companies not

allowed (exemptions available)

Disclosure of interest of every

director now mandatory & not

discretionary


2310/4/2013

Duties of Directors towards the

Company now prescribed

Disclosure of the Risk

Management Policy in the Board

Report

The scope of Officer in Default

widened to include RTA, MB to

the issue or Share Transfer

Agents for transfers related to

issue of shares.

Scope of officer in default

widened to include directors

aware of the default by way of

their participation in the board

meeting or receipt of minutes


2410/4/2013

Immunity to Independent & Non-

Executive Directors not being

Promoters or KMPs (Liability only

if the act occurred with their

knowledge attributable through

Board Process)

NBFCs to be governed by the

rules issued by RBI, provisions

relating to acceptance of

deposit will not be applicable

Acceptance of deposit from

members will require shareholders

approval and public can accept

deposits from non- members

subject to certain conditions


2510/4/2013

Apart from the Balance Sheet, P & L auditors are requiredto report on the Cash Flow of the Company

Mandatory Rotation of Auditors Introduced

Restriction in Non Audit functions by Auditor

Now Auditors to Comply with the Auditing Standards alsoalong with the Accounting Standards

AUDIT & AUDITORS

List of some Companies in which Statutory Auditor have been

appointed for more than 5 Years

10/4/2013 26

S.No. Company NameName of Statutory

AuditorYear of Joining Term in Years

1 Dr Reddys Laboratories Ltd BSR & Co 2005 9

2 Wipro BSR & Co 2005 9

3 Colgate-Palmolive (India) Ltd Price Waterhouse 2005 9

4 Crompton Greaves Ltd Sharp & Tannan 2005 9

5 Nestle India Ltd A F Ferguson & Co 2005 8

6 Hero MotoCorp Ltd A F Ferguson & Co 2005 8

7 Adani Power LtdDeloitte Haskins &

Sells2007 7

8 Tech Mahindra LtdDeloitte Haskins &

Sells2006 7

2710/4/2013

Monitor & Enforcing the Compliance of Accounting &Auditing Standards

Power to investigate the matters of Professional or othermisconduct committed by any member of ICAI

No other Institute or Body shall initiate or continue anyproceeding where NFRA has initiated an investigation

In case of misconduct, power to order the penalty of notless than Rs. 1 lakh (Individual) not less than Rs. 10 lakh(Firms)

Debarring the member or the firm from engaging himselfor itself from practice for a period which can extend uptomax. 10 years

NATIONAL FINANCIAL

REPORTING AUTHORITY

2810/4/2013

INVESTOR PROTECTION

Class Action suit empowering minority shareholders

Mandatory Exit Opportunity to the dissenting shareholders in case

of Change of Objects or change in the Prospectus

Shares in respect of which unpaid/unclaimed dividend has beentransferred to IEPF shall also be transferred to IEPF

Person claiming Share/amount in the Unpaid Dividend Account thatgot transferred to IEPF may apply to the authority for the moneyclaimed/Shares

2910/4/2013

TIGHTENING PROVISIONS

Financial year uniform to April- March & further extension restricted

Grant of ESOP to Independent Directors not allowed

Private companies brought under the ambit of provisions relating to Private Placement Norms

Company Investment through more than 2 layers of Investment Companies not allowed (exemptions available)

Provisions related to appointment of Managing Director/ Whole Time Director/Manager shall now also apply to a Private Company.

3010/4/2013


Restriction on forward dealing / insider trading by directors, KMP

Restriction of non-cash transaction by director or its holding , subsidiary or associate person or any person connected with the director

All investments including in property, security or any other assets to be held by company in its own name

Exemption given to private, holding and subsidiary companies lifted in respect of loans and investments

Restriction u/s section 293 of the companies Act, 1956 is applicable to all classes of the companies

3110/4/2013


Provisions for appointment of Managing Director/Whole Time Director/Manager under section 196 applicable to private company

KMP not to hold office in more than one company except in subsidiarycompany at the same time

Secretarial audit mandated for listed and prescribed companies

Strict punishment for fraud by making it cognizable and non - bailable

Now even private cannot give loan to its directors

3210/4/2013


Companies to hold 1st Board meeting within 30 days of incorporation

Draft resolutions along with supporting papers to be circulated to all directorsnot only to those who present in India

Audit committee for listed and prescribed companies

Nomination and remuneration committee for listed and prescribed class of companies

Company with more than 1,000 debenture holder, deposit holders and any other security holders shall constitute a stakeholders relationship committee

3310/4/2013

Bifurcation of the Objects

clause into main, ancillary &

other objects has been

done away with. Only

objects to be stated in MOA

For paying monthly salary

to Non-Executive director

(Some Limits) – (Section

309(4) approval has been

done away with)

For holding the place of

profit by the Director to in

Company or its Subsidiary –

(Section 314 approval has

been done away with)

No approval from Central

Govt. for related party

transaction/loan to whole-time

Director/MD - (Section 295,

297 approval has been done

away with)

Rationalization of

process of removing the

name of Company by

ROC

Summary Procedure for

winding up of Companies

SOME LIBERAL PROVISIONS

3410/4/2013

RESTRUCTURING

Provision for Cross

Border Mergers

Process of revival &

rehabilitation of Sick

Companies overhauled

Abolition of the concept

of treasury shares

Easy merger of Holding &

Subsidiary Companies

3510/4/2013

COMPLIANCES &

ENFORCEMENTS

3610/4/2013

Establishment of National Company

Law Tribunal (NCLT) & Appellate Tribunal

Establishment of Special Courts,

Mediation & Conciliation panel for speedy trial of offences

under the Act

Serious Fraud Investigation Office (SFIO)- A separate

agency for investigation of Company related

frauds

National Financial Reporting Authority

Investor Education & Protection Fund

Registered Valuer

Debenture Trustee

ENFORCEMENT OF LAW -

REDEFINING ROLES

3710/4/2013

Fraud has been defined in the Companies Bill 2013 to clearly identify the defaulters

Stringent Punishment for fraud – imprisonment maximum up to 10 years & fine maximum up to to 3 times of the amount involved

Imprisonment & twice the prescribed penalty in case of repeated defaults committed within a span of 3 years

Offences punishable with fine or imprisonment or both to be compounded only by Special Courts

ENFORCEMENT OF LAW -

REDEFINING ROLES

3810/4/2013

PART – B

SEBI REGULATIONS TO BE AFFECTED

BY COMPANIES ACT, 2013

3910/4/2013

SEBI Act

Depositories Act

ICDR Regulations

Listing Agreement

Insider Trading Regulations

Takeover Code

Buy back Regulations

ESOP Regulations

SEBI REGULATIONS TO BE AFFECTED

BY COMPANIES ACT, 2013

4010/4/2013

This section tries to cover the new terms under Companies

Act, 2013 which have impact on SEBI regulations

NEW DEFINITIONS

IMPACTING SEBI

4110/4/2013

NEW

TERMS

UNDER

COMPANIES

ACT

ICDR SEBI PITBUY

BACKSCRA

LISTING

AGREEMENTSAST ESOP DELISTING

Associate

Company

Auditing

standards

Authorized

capital

Books of

account

NEW DEFINITIONS IMPACTING

SEBI

4210/4/2013

NEW

TERMS

UNDER

COMPANIES

ACT

ICDR SEBI PITBUY

BACKSCRA

LISTING


Called-up-

capital

Charge

Chief

Executive

Officer

Chief

financial

officer


SEBI

4310/4/2013

NEW

TERMS

UNDER

COMPANIES

ACT

ICDR SEBI PITBUY

BACKSCRA

LISTING


Company

liquidator

Control

Expert

Financial

institution


SEBI

4410/4/2013

NEW

TERMS

UNDER

COMPANIES

ACT

ICDR SEBI PITBUY

BACKSCRA

LISTING


Financial

statement

Global

Depository

Receipt

Indian

depository

receipt

Independent

director


SEBI

4510/4/2013

NEW

TERMS

UNDER

COMPANIES

ACT

ICDR SEBI PITBUY

BACKSCRA

LISTING


Issued

capital

Paid-up

share capital

Postal ballot

Promoter


SEBI

4610/4/2013

NEW

TERMS

UNDER

COMPANIES

ACT

ICDR SEBI PITBUY

BACKSCRA

LISTING


Related party

SFIO

Small

company

Subscribed

capital


SEBI

4710/4/2013

NEW

TERMS

UNDER

COMPANIES

ACT

ICDR SEBI PITBUY

BACKSCRA

LISTING


Turnover

Voting right

Whole time

director


SEBI

4810/4/2013

This section tries to cover those terminologies in the Companies Act,

2013 and SEBI Regulations which have cross reference with each other

CROSS REFERRED

TERMS

4910/4/2013

CROSS REFERRED

TERMS

UNDER

COMPANIES

ACT, 2013

SCRA ICDR BUYBACK SAST DELISTING PIT

Abridged

Prospectus

Derivatives

Offer

Documents

Public

Financial

Institutions

5010/4/2013

UNDER

COMPANIES

ACT, 2013


Control

Officer of

Company

Relative

CROSS REFERRED

TERMS

5110/4/2013

UNDER

COMPANIES

ACT, 2013


Director

Body

Corporate

Company

Securities

CROSS REFERRED

TERMS

5210/4/2013

ALIGNMENT

NEEDED

This section tries to cover the points under the Companies

Act, 2013 where alignment is needed to be done by SEBI in the

regulations made by it.

5310/4/2013

UNDER

COMPANIES

ACT, 2013

ICDR

Buy

back Delisting SAST

ESOP

&

ESPS

PIT

Listing

Agreement

Discussion

paper on

CL. 49

Discussion

paper on

CL. 41

Employees’ stock option

Financial year

Holding company

Independent director

ALIGNMENT

NEEDED

5410/4/2013

UNDER

COMPANIES

ACT, 2013

ICDR

Buy

back Delisting SAST

ESOP

&

ESPS

PIT

Listing

Agreement

Discussion

paper on

CL. 49

Discussion

paper on

CL. 41

Interested director

Key

Managerial Personnel

Net worth

Promoter

ALIGNMENT

NEEDED

5510/4/2013

UNDER

COMPANIES

ACT, 2013

ICDR

Buy

back Delisting SAST

ESOP

&

ESPS

PIT

Listing

Agreement

Discussion

paper on

CL. 49

Discussion

paper on

CL. 41

Relative

Subsidiary

company or subsidiary

ALIGNMENT

NEEDED

5610/4/2013

CHANGES IN SEBI

ACT

Insider trading is prohibited under PIT regulations.

Incase of violation penalty is levied under section 15G of the SEBI Act

• Rupees twenty five crore or

• Three times of the amount of the profit made out of the insider trading whichever is higher

The provisions for insider trading have now been incorporated in Companies Act, 2013

• In case of violation imprisonment for the term which may extend to five years or

• With fine which shall not be less than five lakh rupees but which may be extended to two crore fifty lakh

rupees or 3 times the amount of profit made out of insider trading, which ever is higher or with both

The SEBI Act provides for appointment of Adjudicating Officer for adjudicating the violations of insider

trading. Now it will be a violation of Companies Act, 2013 and accordingly will be dealt by court.

5710/4/2013

CHANGES IN

DEPOSITORY ACT

Unclaimed dividend & unclaimed shares to be transferred to IEPF

Amendment to be made in listing agreement & clause 49 to inform the exchange of the amount & shares transferred to IEPF on an annual basis

5810/4/2013

CHANGES NEEDED IN

REGULATIONS MADE

BY SEBI

10/4/2013 59

Description Companies Act, 2013 SEBI (ICDR) Regulations,

2009

Modifications

required

Advertisement

of Prospectus

Section 30

Contents to be included:-

• Objects of Company

• Liability of members

• Amount of share capital of the

company

• Names of the signatories to the

memorandum and the number of

shares subscribed for by them

• Capital structure

Regulation 47

Issuer make a pre-issue

advertisement in specified

newspapers.

Contents as

prescribes under

Companies Act can

be incorporated in

ICDR Regulations.

Issue of

application

forms for

securities

Section 33

Application form shall be

accompanied with abridged

prospectus.

Nothing mentioned for public

issue.

Can be

incorporated in

ICDR.

SEBI (ICDR) Regulations, 2009

10/4/2013 60

Description Companies Act, 2013 SEBI (ICDR) Regulations,

2009

Modifications

required

Private

Placement

Section 42

Following new restriction imposed:

• Only four offers per financial year

allowed.

• Only one offer per calendar quarter

allowed.

• No fresh offer unless existing offer

completed.

• Allotment must within 60 days of

receipt of application money.

Chapter VII deals with

Preferential Allotment and

Chapter VIII deals with QIP

Alignment needed.


Bonus Issue Section 63

•Authorization of members made

mandatory.

•Decision of Board once announced

recommending bonus issue can’t be

withdrawn.

Chapter IX

Provisions for Bonus Issue

provided

New restrictions

needs

incorporation.

10/4/2013 61

Descript

ion

Companies Act, 2013 SEBI (ICDR) Regulations, 2009 Modifications

required

Net

Worth

Section 2(57)

Net worth

=

aggregate value of the paid-up share

capital

+

all reserves created out of the profits

+

securities premium account

-

accumulated losses

-

deferred expenditure

-

miscellaneous expenditure not written off

-

reserves created out of revaluation of

assets, write-back of depreciation and

amalgamation

Regulation 2(1)(v)

Net worth

=

aggregate value of the paid-up

share capital

+

all reserves created out of the

profits

+

securities premium account

-

accumulated losses

-

miscellaneous expenditure not

written off

-

reserves created out of

revaluation of assets

Definition of Net

Worth under SEBI

ICDR Regulations

needs to be

aligned to exclude

deferred

expenditure not

written off and

written-back

amount of

depreciation and

amalgamation.


10/4/2013 62

Description Companies Act, 2013 SEBI (ICDR) Regulations, 2009 Modifications

required

Promoter Section 2(69)

Following additional points are provided:

• A person who is identified by the

company in the annual return.

• A person in accordance with whose

advice, directions or instructions the

Board of Directors of the company is

accustomed to act:

Regulation 2(1)(za)

Definition of Promoter is given.

New provision

of Companies

Act needs to

be

incorporated.

Listed

Company

Section 2(52)

a company which has any of its securities

listed on any recognized stock exchange;

Regulation 2(1)(t)

an issuer whose equity shares

are listed in a recognized stock

exchange;

Definition in

ICDR needs

to be aligned.


6310/4/2013

CLAUSE 41 OF

LISTING AGREEMENT

6410/4/2013

FINANCIAL YEAR

COMPANIES ACT, 2013:

• Financial Year defined for the 1st time;

• Means a period ending on the 31st March every

year;

• where a Company has been incorporated on or

after the 1st January of a year, the period ending on

the 31st March of the following year, in respect

where of financial statement of the company or

body corporate is made up;

• In certain prescribed circumstances, NCLT may

allow for different period as Financial Year.

6510/4/2013

AS PER EXISTING Clause 41 & SEBI DISCUSSION PAPER OF AUG 13

FINANCIAL YEAR

Financial Year means the period of twelve months commencing on the first day of April

every year, provided

•if the duration of FY > 12 months but < 15 months, there shall be 5 quarters in the FY;

•if the duration of FY > 15 months but < 18 months, there shall be 6 quarters in the FY.

ALIGNMENT NEEDED TO BE MADE BY SEBI:

Now, no provision of extension of FY

So, the provisions of 15 months or 18 months and thus 5/ 6 quarters become redundant

List of some Companies whose FY does not end at March 31 of

respective year

10/4/2013 66

S.No. Name of Company FY Ended

1 Nestle India Ltd December 30

2 Ambuja Cements Ltd December 30

3 Bosch Ltd December 30

4 MphasiS Ltd October 31

5 Siemens Ltd September 30

6 MRF Ltd September 30

7 HCL Technologies Ltd June 30

8 Shree Cement Ltd June 30

9Procter & Gamble Hygiene and Health Care

LtdJune 30

6710/4/2013

CONSOLIDATED RESULTS

OF SUBSIDIARIES


Companies with subsidiaries to mandatorily prepare consolidated financial

statements and disclose additional information as prescribed.

Challenging variation: subsidiary to include associate companies as well

as JVs

AS PER EXISTING CLAUSE 41:

A company with subsidiaries :

May submit quarterly consolidated financial results within 45 days from the end

of the quarter; and

while submitting annual audited financial results prepared on stand-alone basis,

it shall also submit annual audited consolidated financial results to the stock

exchange within 60 from the end of the financial year.

6810/4/2013

CONSOLIDATEDRESULTS

OF SUBSIDIARIES

AS PER SEBI DISCUSSION PAPER OF AUGUST 13

Disclosure of half yearly consolidated financial statements in case of variation in the revenue /

total assets / total liabilities / profits (loss) in the consolidated financial results of > 20% as

against the corresponding amounts in the standalone financial results as per the last

annual audited financial statements.

Consolidated results to include reviewed/ audited results of such number of foreign subsidiaries

and/ or JVs which together with the reviewed/ audited results of all Indian subsidiaries/ joint

ventures would constitute > 80% of the consolidated turnover/ net worth/ profit (loss).


Now, JVs also a part of Subsidiaries

Challenging task for Companies to consolidate if they have various JVs-technical/ know how/

investments etc., that too within India or overseas.

So, SEBI need to align/ simplify the consolidation process

6910/4/2013

SIGNATORY AUTHORITY

COMPANIES ACT, 2013: The financial statements to be approved by BOD and then to be signed by:

• Either the Chairman of the Company, where he is authorized by the Board or by 2

directors, being MD & CEO, if he is a director of the Company, and

• the Chief Financial Officer; and

• the Company Secretary

wherever they are appointed

7010/4/2013

AS PER EXISTING CL 41 & SEBI DISCUSSION PAPER OF AUG 13

• The annual audited financial results shall be approved by the BOD

• for submission of the same to the Stock Exchange, it shall be signed by the Chairman or

Managing Director or a whole time director.

• In the absence of all of them, it shall be signed by any other director of the company who is duly

authorized by the Board to sign the financial results.

SIGNATORY AUTHORITY


The Companies Act 2013 prescribes for more stringent signing requirements, so, the same are required

to be aligned as per Companies Act, 2013.

7110/4/2013

ALIGNMENT OF

CLAUSE 49 OF

LISTING AGREEMENT

7210/4/2013


Section 149 (4) Listed public companies to have at least 1/3rd

directors as Independent Directors and CG may prescribe the

minimum number of IDs in case of any class or classes of public

companies.”

COMPOSITION OF THE BOARD-

INDEPENDENT DIRECTORS

AS PER DRAFT RULES:

Rule 11.2. - Slab system proposed to be introduced:

(i) Paid Up Capital Share Capital > Rs 100 Cr; or

(ii) Turnover > Rs 300 Cr; or

(iii) Outstanding loans or borrowings or debentures or deposits > Rs

200 Cr.

Above Public companies to have at least 1/3rd of BOD as IDs.

7310/4/2013

COMPOSITION OF THE BOARD-


PROVISIONS IN EXISTING CLAUSE 49:

Clause 49 (I) (A) – Optimum combination of executive and non executive directors with not less than

50% of BOD comprising of non-executive directors:

• If Chairman is a non- executive director, at least 1/3rd to comprise of Independent Directors.

• If Chairman is an executive director, at least ½ to comprise of Independent Directors.


• The proposed Slabs are applicable for all public companies;

• SEBI will have to categorically mention that in case of listed companies, these slabs shall not be

applicable and Clause 49 shall be applicable on all listed companies, without any demarcation/ slabs.

7410/4/2013

SKILL SET/ EXPERIENCE/

KNOWLEDGE NEEDED

SECTION 149(6)(F) OF COMPANIES ACT, 2013 READ WITH DRAFT RULES:

ID to possess appropriate balance of skills, experience and knowledge in one or more

fields of finance, law, management, sales, marketing, administration, research,

corporate governance, technical operations or other disciplines related to the

company’s business

7510/4/2013

SKILL SET/ EXPERIENCE/

KNOWLEDGE NEEDED


New concept under Companies Act, 2013 & not mentioned in

clause 49


•As per the Discussion Paper of Jan ‘13, SEBI proposes to make

Qualifications/ experience a non mandatory requirement for IDs.

•Non mandatory would not ensure compliance. Its advisable that

SEBI prescribes some of the requisite qualifications/ experience

needed for Independent Director & makes them mandatory.

There should be prescribed Declaration formats

7610/4/2013

DECLARATION OF

INDEPENDENCE


Independent Director to give a Declaration that he meets the criterion of independence:

• At his 1st Board Meeting;

• At the 1st Board Meeting of every FY year;

• Whenever there is any change in the circumstances which may affect his

independence

AS PER DRAFT RULES:

Not yet prescribed

7710/4/2013

DECLARATION OF

INDEPENDENCE


No provisions for this has been provided in Clause 49


• There is no specific format for the Declaration.

• Its advisable that SEBI creates a format for the said declaration, so that there is

uniform reporting and no variations are there

7810/4/2013

SEPARATION OF OFFICES OF

CHAIRMAN &CEO


Same person not be appointed as the Chairman as well as MD/ CEO, unless

(a) AOA provide otherwise; or

(b) The company does not carry multiple businesses

AS PER DRAFT RULES:

Not yet prescribed

7910/4/2013

SEPARATION OF OFFICES OF

CHAIRMAN &CEO




• Although, SEBI proposes to align clause 49 with Companies

Act provisions. But this provision might become problematic

for small companies, which have common CEO & Chairman.

• This provision can be implemented on a slab basis, on the

basis of capital/ market cap etc.

8010/4/2013

REMUNERATION TO



Independent Directors not entitled to any stock options and

may receive remuneration by way of fee, reimbursement of

expenses and profit related commission as may be approved

by the members.

AS PER DRAFT RULES:

Not yet prescribed

8110/4/2013

REMUNERATION TO



Clause 49(I)(B) - All fees/compensation, paid to Independent

Director to be fixed by BODs with prior shareholders approval.

The shareholders’ resolution need to specify the maximum number

of stock options that can be granted to the Independent Director


Now, as per Companies Act, 2013, stock Options cannot be issued to

Independent Directors. So an amendment needed in Clause 49.

A clarification is also needed for Independent Directors

who have already been issued Stock Options, can they

exercise the same?

8210/4/2013

LIABILITY OFINDEPENDENT/

NON-EXECUTIVE DIRECTORS


Independent Directors and Non-executive directors not being promoters or KMP, shall be

liable only in respect of such acts by a company which:

AS PER DRAFT RULES:

Not yet prescribed

Had occurred with his knowledge, and

With his consent or connivance or

Where he had not acted diligently.

8310/4/2013


Although, SEBI proposes to align Clause 49 with Companies

Act, 2013 but it needs to address a concern that with too

many liabilities because now Independent Directors are

needed not just in listed cos., but also in public limited

companies with paid up capital/ turnover/ loans etc crossing

the threshold limits

LIABILITY OFINDEPENDENT/

NON-EXECUTIVE DIRECTORS



8410/4/2013

CHANGES IN M & A

8510/4/2013

Fast-track schemes - Cost and time effective will encourage corporate restructurings for small and group companies;

Cross border merger - Merger of an Indian company with a foreign company.

Threshold for raising objections to a scheme would reduce false objections/ allegations.

Vote through postal ballot would ensure a wider participation of the stakeholders.

CHANGES IN M & A

But on the other side approval from so many authorities of the

Restructuring Scheme under Companies Act, 2013 may reduce the

motion of Restructuring.

8610/4/2013

CHANGES IN M & A

As per Companies Act, 2013 the Valuer Should be Registered Valuer so SEBI might have to replace

the Independent CA with Registered Valuer for Valuation purpose.

In the restructuring of Listed Companies the role of SEBI is very important following are the points

which SEBI should consider, while sanctioning the Scheme of Arrangement –

clarity required from SEBI whether this will be additional requirement other than NOC under

clause 24(f) or this will be covered under clause 24 (f).

Notice of meeting for approval of the scheme of Compromise or Arrangement along with other

documents shall be sent to various other authority including SEBI also in addition to CG.

As per SEBI Circular All Listed companies undertaking a Scheme of Arrangement under

Companies Act (Amalgamation/ Merger/ Reconstruction/ Reduction Of Capital, etc.) are

required to submit valuation report from an Independent CA.

8710/4/2013

SEBI should provide the way how Listed Companies will give exit to the Dissenting

shareholders.

CHANGES IN M & A

NCLT order may confer provision for exit offer to Dissenting Shareholders

Companies Act, 2013 prohibits creation of Treasury or Trust

stock pursuant to the scheme of Compromise/

Arrangement.

8810/4/2013

CHANGES IN M & A

Amount payment or valuation for exit opportunity to the Shareholders of

Transferor Company shall not be less than what has been specified by SEBI

under any regulations?

Section 232(3)(h) of Companies

Act, 2013, required that where the

Transferor Company is a Listed

Company and the Transferee

Company is Unlisted Company,

the transferee Company shall

remain unlisted Company until it

becomes Listed Company.

If the shareholders of the

Transferor Company decide to

exit from Transferee Company,

consideration paid to them shall

be on the basis of a

predetermined price formula or

after a Valuation is made.

8910/4/2013

• Provisions of Section 230 and Section 232 will not apply, on a scheme of merger or amalgamation may

be entered into between

Two or more Small Companies or

between Holding Company and its wholly-owned subsidiary Company or such other Class of

Companies as may be prescribed.

• Section 234 of Companies Act, 2013 provides for cross border merger

CHANGES IN M & A

What will be the additional requirement if Listed Indian Companies will be

either Transferor Company or Transferee Company in a Scheme? SEBI should

provide clarification on this?

Now Clarification is required from SEBI that in case of wholly owned Subsidiary Company

merge with Listed Parent Company, whether NOC under Clause 24 (f) is required or not?

9010/4/2013

OF LISTING

AGREEMENTS OTHER

THAN CLAUSE 41 & 49

10/4/2013 91

Provisions of Companies Act, 2013 relevant for Listing Agreement

S.

N

o.

Description Companies Act,

2013

Listing Agreement Modifications required

1. Issue in

Dematerializat

ion form

Section 29

Every company and

such other class or

classes of public

companies as may be

prescribed shall issue

the securities only in

dematerialized form.

Clause 5A(ii)

It deals with shares which are

issued in physical mode in IPO

and which remains unclaimed.

Such provisions which

deals shares issued in

physical mode can be

done away with.

9210/4/2013

S.

N

o.

Description Companies Act, 2013 Listing Agreement Modifications required

2. Valuation of

shares in M&A

Section 247

Valuation of securities

to be done by

Registered Valuer.

Clause 24(h) read with SEBI

Circular:

Valuation to be done by

Independent Charter Accountant .

Alignment required.


9310/4/2013

S.

No

.

Description Companies Act, 2013 Listing Agreement Modifications

required

3.Change in

Managerial

Persons

Introduction of concept of

KMP

Clause 30 (b)

The Company will promptly notify

the Exchange of any change of

Managing Director, Managing

Agents or Secretaries and

Treasures

Since concept of

Managing Agents

or Secretaries

and Treasures

has been done

away with, it can

be replaced with

KMP.


9410/4/2013

S.

No

.

Description Companies Act, 2013 Listing Agreement Modifications

required

4. Disclosures

in Annual

Report

Introduction of definition of

holding company, subsidiary

company, related party,

associate company

Clause 32

Definition of Parents, subsidiary,

related party and associate taken

from Accounting Standards.

Clause 32 can

take reference of

these definitions

from Companies

Act.


10/4/2013 95

Provisions of Companies Act, 2013 relevant for SEBI (Buyback of

Securities) Regulations, 1998

S.

No

.

Descripti

on

Companies Act, 2013 SEBI (Buyback of Securities)

Regulations, 2009

Modifications

required

1. Modes of

Buyback

Section 68(5)

(a) from the existing

shareholders or security

holders on a proportionate

basis.

(b) from the open market.

(c) by purchasing the securities

issued to employees of the

company pursuant to a

scheme of stock option or

sweat equity.

Regulation 4(1)

(a) from the existing security-holders

on a proportionate basis through

the tender offer.

(b) from the open market through—

(i) book-building process,

(ii) stock exchange;

(c) from odd-lot holders.

Buyback From

Sweat Equity

& ESOP

holders

allowed.

10/4/2013 96

Provisions of Companies Act, 2013 relevant for SEBI (Prohibition of

Insider Trading) Regulations, 1992

Although PIT Regulations have very wide scope but with the promulgation of CA 2013, certain new

definitions have been introduced like Associate Company, Key Managerial Persons, Related Party, etc.,

which may have implication on the PIT Regulations.

Section 195 of CA 2013 provides that no person including any director or key managerial personnel of a

company shall enter into insider trading.

“insider trading” means—

Provisions of PIT Regulations may be aligned with provisions of Section 195.

(i) an act of subscribing, buying, selling, dealing or agreeing to subscribe, buy, sell or deal in any securities by any director or

key managerial personnel or any other officer of a company either as principal or agent if such director or key managerial

personnel or any other officer of the company is reasonably expected to have access to any non-public price sensitive

information in respect of securities of company; or

(ii) an act of counseling about procuring or communicating directly or indirectly any non-public price-sensitive information to any person.

10/4/2013 97

Provisions of Companies Act, 2013 relevant for SEBI (ESOS and ESPS)

Guidelines, 1999

Descriptio

n

Companies Act, 2013 SEBI (ESOS and ESPS)

Guidelines, 1999

Impact

Employee

stock

option

Section 2(37)

“employees’ stock option”

means the option given to

the directors, officers or

employees of a company

or of its holding company

or subsidiary company or

companies, if any, which

gives such directors,

officers or employees, the

benefit or right to

purchase, or to subscribe

for, the shares of the

company at a future date

at a pre-determined price;

Para 2.1(2A) of SEBI ESOP

Guidelines:

“employee stock option” means

the option given to the whole-

time Directors, Officers or

employees of a company which

gives such Directors, Officers or

employees, the benefit or right

to purchase or subscribe at a

future date, the securities

offered by the company at a

predetermined price.

SEBI Guidelines are

stricter.I

In SEBI ESOP Guidelines,

only “permanent

employees” are covered in

the definition of employees.

Whereas in Companies Act,

the term “employees” has

been used. It indicates that

under Companies Act both

permanent as well as non-

permanent employees can

be issued ESOPs.

Under the new Act, IDs

cannot be issued stock

options.

10/4/2013 98

Descriptio

n

Companies Act,

2013

SEBI (ESOS and ESPS) Guidelines, 1999 Impact

Promoter Section 2(69)

Following

additional points

are provided:

•A person who is

identified by the

company in the

annual return.

•A person in

accordance with

whose advice,

directions or

instructions the

Board of

Directors of the

company is

accustomed to

act:

Para 2.1(12) of SEBI ESOP Guidelines:

"promoter" means;

(a) the person or persons who are in over-all control of

the company;

(b) the person or persons who are instrumental in the

formation of the company or programme pursuant to

which the shares were offered to the public;

(c) the persons or persons named in the offer

document as promoter(s). Provided that a director or

officer of the company if they are acting as such only in

their professional capacity will not be deemed to be a

promoter.

Explanation: Where a promoter of a company is a body

corporate, the promoters of that body corporate shall

also be deemed to be promoters of the company.

Since CA 13

has provided

for an

additional

category to be

included in

“Promoters”,

Even SEBI

might have to

bring in

certain

changes


Guidelines, 1999

10/4/2013 99

Descripti

on

Companies Act, 2013 SEBI (ESOS and ESPS)

Guidelines, 1999

Impact

Independ

ent

director

Section 2(47)

“independent director” means an

independent director referred to in

sub-section (5) of section 149; [It

may be noted that independent

director is defined u/s 149(6) and

not 149(5)]

As per Para 2.1(9) of SEBI

ESOP Guidelines:

"independent director" means

a director of the company, not

being a whole time director

and who is neither a

promoter nor belongs to the

promoter group.

Since, now Companies Act,

2013 provides for exclusive

definition of “independent

director”, meaning of this

term under SEBI ESOP

Guidelines needs to be

aligned with Companies Act.

Associat

e

Company

Section 2(6)

“Associate company”, in relation to

another company, means a

company in which that other

company has a significant

influence, but which is not a

subsidiary company of the

company having such influence

and includes a joint venture

company. (20% share capital)

No mention. •The concept of Associate

Companies has been

defined for the 1st time. It

can be added to the SEBI

ESOP Guidelines so as to

enable companies to issue

Stock Options to employees

of its Associate Companies

as well.


Guidelines, 1999

10/4/2013 100

Provisions of Companies Act, 2013 relevant for SEBI (Substantial

Acquisition of Shares & Takeover) Regulations, 2011

NO CHANGE REQUIRED

10/4/2013 101

Provisions of Companies Act, 2013 relevant for SEBI (Delisting of

Equity Shares) Regulations, 2009

NO CHANGE REQUIRED

10/4/2013 102

Provisions of Companies Act, 2013 relevant for SEBI (Issue of Sweat

Equity Shares) Regulations, 2002

NO CHANGE REQUIRED

10310/4/2013

TOPICS FROM COMPANIES

ACT, 2013

Exit Opportunity

10/4/2013 104

• A company, which has raised money from public through prospectus and still has any unutilized amount out of the money so raised, shall not change its objects for which it raised the money unless exit opportunity is given to dissenting shareholders.

Section 13 –Alteration of

Memorandum

• A company cannot vary the terms of a contract referred to in the prospectus or objects for which the prospectus was issued unless exit opportunity is given to dissenting shareholders.

Section 27 –Variation in terms of

contract or objects in prospectus

• The Tribunal may, by order sanctioning the compromise or arrangement , may provide for exit opportunity to dissenting shareholders.

Section 230 –Compromise and

Arrangement

Process and

Procedure

•Amendment to be made in ICDR or SAST??•What if Promoters holding exceeds 75%??

• As per the Draft Rules: Listed Companies, andevery other public company with paid up capital> Rs 100 cr; or turnover > Rs 300 cr.

At least 1 woman director

for prescribed class or

classes of companies. 2nd

proviso to Section 149(1)

• As per Draft Rules: A listed company may suomoto or upon the notice of > 500 or 1/10th of thetotal number of small shareholders, whichever islower, elect a small shareholders’ director fromamongst the small shareholders)

Companies with prescribednumber of smallshareholders or paid upcapital and listedCompanies to have 1director elected by SmallShareholders

Section - 151

WOMAN DIRECTOR & SMALL SHAREHOLDER

DIRECTOR

10/4/2013 105

List of some Companies which have Women Director

10/4/2013 106

S.No. Company Name Women Director Name

1 Asian Paints Ltd Ina Dani

2 Bharat Forge Ltd Lalita D Gupte

3 Exide Industries Ltd Mona Ninad Desai

4 Exide Industries Ltd Supriya Coomer

5 Colgate-Palmolive (India) Ltd Indu Shahani

6 Crompton Greaves Ltd Meher Pudumjee

7 Nestle India Ltd Swati A Piramal

8 Housing Development Finance Corporation Ltd Renu Sud Karnad

WHOLE TIME DIRECTOR

& OFFICER IN DEFAULT

OFFICER WHO IS IN DEFAULT - SECTION 2(60)

• Includes a director in the following instances:

• Whole-time director

• Key Managerial Personnel (KMP)

• In case of no KMP, director as specified by Board who has so consented. If no Director,

then all Directors

• Person with whose advice BOD is accustomed to act, (other than in professional

capacity)

• Every director, in respect of a contravention, who is aware of such contravention by

virtue of the receipt by him of any proceedings of the board or participation in such

proceedings without objecting to the same, or where such contravention had taken place

with his consent or connivance .

“WHOLE TIME DIRECTOR”-SECTION 2(94)

• Includes a Director in the whole-time employment of the Company .

10/4/2013 107

10810/4/2013

At least 1 director to be a person who has stayed in India for at least 182 days in the

previous calendar year

Section 149 (3)

RESIDENT DIRECTOR

10910/4/2013

KEY MANAGERIAL PERSONNEL

KEY MANAGERIAL PERSONNEL

- Section 2(51)

• “key managerial personnel”, in relation to a

company, means—

• CEO or the MD or the manager;

• The company secretary;

• The whole-time director;

• The CFO; and

• Such other officer as may be prescribed

INDEPENDENT DIRECTOR

– SECTION 149

Every listed public Company to have at least one-third of the total number

of directors as Independent Directors (ID)

Central Government to prescribe the minimum number of Independent

Directors in case of any class or classes of public Companies.

(As per Draft Rules: Public Companies having paid up share capital of Rs.

100 cr or more, Public Companies having turnover of Rs. 300 cr or more,

Public Companies which have, in aggregate, outstanding loans or

borrowings or debentures or deposits, exceeding Rs. 200 cr)

Every existing company to have IDs within one year from commencement of

the Act or from the date of notification of the Rules (whichever is first)

10/4/2013 110

10/4/2013111

INDEPENDENT DIRECTOR

BOARD TO ENSURE - Appropriate balance of skills, experience and knowledge inone or more fields of finance, law, management, sales, marketing, administration,research, corporate governance, technical operations other disciplines related to thecompany’s business AND DISCLOSE IN BOARD REPORT

DATA BANK with details of the person eligible and willing to be appointed asindependent director to be prepared by any body, institutions as authorized by CG(as may be notified by CG).

Responsibility of due diligence for appointment of independent directors to beon company.

As per the draft rules :

Name of Independent Directors who are holding directorship as

independent director in beyond 10 Listed Co's

10/4/2013 112

S.No.Name of

Independent

Director

Number Name of Companies

1 R A Shah 14

Asian Paints Ltd,

Atul Ltd,

BASF India Ltd,

Bombay Dyeing & Manufacturing Company Ltd,

Century Enka Ltd

2 Anil Harish 13

Ashok Leyland Ltd,

Hotel Leela Venture Ltd,

Ador Welding Ltd

Unitech Ltd,

Advani Hotels & Resorts (India)

3 Dilip J Thakkar 12

Essar Ports Ltd,

Garware Polyester Ltd

Premier Ltd,

4 R Srinivasan 12

Graphite India Ltd,

Shalimar Paints Ltd,

Sundram Fasteners Ltd,

Williamson Magor & Company Ltd,

TTK Healthcare

NOMINATION AND RENUMERATION

COMMITTEE – SECTION 178

10/4/2013 113

Cl 49 to

be re

aligned

as per

these

Committ

ee

require

ments

1.

• For listed and other prescribed class of Companies

• As per Draft Rules: Nomination and Remuneration Committee of the Board for every listed company, and every other public company having paid up capital of >Rs. 100 cr; or which have outstanding loans or borrowings or debentures or deposits > Rs 200 cr

2.• Shall consist of 3 or more non-executive directors out of which not less

than one half shall be IDs

3.

• The Committee to formulate the criteria for:

• Determining qualifications, positive attributes and independence of directors;

• Recommending to the board a policy relating to remuneration for directors, KMP and other employee.

SHAREHOLDERS GRIEVENCE

COMMITTEE – SECTION 178

10/4/2013 114

Cl 49 to

be re

aligned

as per

these

Committe

e

requirem

ents

Committee

shall

consider

and resolve

the

grievances

of security

holders of

the company

For

companies >

1000

shareholder

s,

debenture-

holders,

deposit-

holders and

other

security

holders at

any time

during a FY

Chairperson

: non-

executive

director and

other

members as

may be

decided by

the Board

AUDIT COMMITTEE – SECTION 177

Every listed company and such other class of company shall constitute an Audit committee. (As per Draft Rules: Audit Committee of the Board for every listed company , and every other public company having paid up capital of Rs. 100 cr or more; or which have, in aggregate, outstanding loans or borrowings or debentures or deposits exceeding Rs. 200 cr)

Committee shall consist of minimum three director with the independent director forming majority

Auditors and KMP have right to be heard in the meeting of committee

Board’s report to disclose

1. Composition of the audit committee and

2. Any recommendation which has not been accepted by the board.

10/4/2013 115

Cl 49 to

be re

aligned

as per

these

Committ

ee

require

ments

AUDIT COMMITTEE…….VIGIL

MECHANISM

Every listed company or such class of companies shall establish a vigil mechanism

As per Draft Rules: Companies which accept deposits from public and Companies which have borrowed money from banks and public financial institutions > Rs 50 Cr

Mechanism facilitates directors and employees to report genuine concerns

Adequate safeguards against victimisation of persons who use such mechanism

Provision for direct access to the chairperson of the audit committee

10/4/2013 116

Whistle

Blower (a

non

mandatory

item as per

Cl 49) is

now made

mandatory,

in the name

of Vigil

Mechanism

RISK MANAGEMENT

Evaluation of internal financial controls andrisk management systems

The Board’s report to contain a statementindicating development and implementation ofrisk management policy. Section 134 (3)(n)

Board Report to contain statement indicating themanner in which formal annual evaluation hasbeen made by the Board of its own performanceand that of its committees and individualdirectors. Section 134 (3)(p)

(As per Draft Rules: This is applicable for everylisted company and public company having paidup share capital of Rs. 25cr or more, calculatedas at the end of the preceding FY)

10/4/2013 117

New

concept…

….SEBI

will have

to make

provision

s for

adequate

disclosur

es

RISK MANAGEMENT

10/4/2013 118

Section 138(1)

Prescribed class of companies shall conduct the internalaudit of the functions and activities of the company.

As per Draft Rules: Every listed company, every publiccompany with paid up share capital > Rs 10 cr, and havingany outstanding loans or borrowings from banks or publicfinancial institutions > Rs. 25 cr or which has accepteddeposits of > Rs. 25 cr at any point of time during the lastfinancial year)

IDs to satisfy themselves about integrity of financialinformation and robust risk management system

11910/4/2013

RELATED PARTY –

NOTIFIED SECTION 2(76)

i. Director or his relative;

ii. A key managerial personnel or his relative

iii. A firm, in which a director, manager or his relative is a partner;

iv. A private company in which a director or manager is member or director ;

v. A public company in which a director or manager is a director or holds along with his relatives more than 2%. Of its paid up

capital

vi. Any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the

advice, directions or instructions of a director or manager;

Challenges for

SEBI:

•RPs Vs PAC

•Relative Vs

Immediate

Relative

•KMP Vs

Designated

employees

12010/4/2013

vii. Any person on whose advice, directions or instructions a director or manager is accustomed to act:

Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice,directions or instructions given in a

professional capacity

viii. Any company which is-

A holding, subsidiary r an associate company of such company ; or

A subsidiary of a holding company to which it is also a subsidiary;

ix. Such other persons as may be prescribed

RELATED PARTY –

NOTIFIED SECTION 2(76)

RELATED PARTY TRANSACTION

– SECTION 188

Board approval required for following additional RPTs:

Companies with the prescribed Capital require approval by Special

resolution for entering into defined related party transactions

10/4/2013 121

Selling or otherwise disposing of, or buying, property of any kind.

Leasing of property of any kind.

Restriction on non cash transaction …(Notified)

Appointment of any agents for purchase or sale of goods, materials, services or property.

Appointment of any related party to any office or place of profit in the company or its subsidiary company or associate company

Contract for underwriting the subscription of securities or derivatives thereof

RESTRICTION ON NON-CASH TRANSACTIONS INVOLVING DIRECTORS APPLICABLE TO:

(NOTIFIED) SECTION 192

• Any Director of a company; or

• Director of the Holding Company; or

• Any person connected with such person

• Director cannot acquire assets for the consideration other than

cash from the company & vice versa without the approval in

general meeting

RESTRICTIONS FOR DIRECTORS

10/4/2013 122

PROHIBITION ON FORWARD DEALING IN SECURITIES (NOTIFIED) SECTION 194

• Director and KMP prohibited w.r.t. to following in a

Company, or its holding, subsidiary or associate Company

–

• Right to call/make for delivery at specified price and

within a specified time, of a specified number of relevant

shares /debentures.

• Right to call for delivery or make delivery at a specified

price and within a specified time, of specified number of

relevant shares/debentures.


10/4/2013 123

Now, it will

have to be

checked

whether any

transaction

by Director/

KMP falls

under this or

not and SEBI

may also

provide the

list of

Transactions

which can fall

under the

Forward

Dealing.

PROHIBITION ON INSIDER TRADING OF SECURITIES

(NOTIFIED) SECTION 195

• Director and KMP shall not enter into act of insider trading concerning

• Subscribing, buying, selling, dealing or agreeing to subscribe, buy,

sell or deal in any securities either as principal or agent if such person

is reasonably expected to have access to any non- public price

sensitive information in respect of securities of company

• Counseling about, procuring or communicating directly or indirectly

any non- public price sensitive information to any person.


10/4/2013 124

TREASURY STOCKS ARE NOT ALLOWED UNDER COMPANIES ACT, 2013.

• Now Section 232(3)(b) of the Companies Act, 2013

provides that Transferee Company shall not as a result

of Compromise Arrangement holds any shares in its

own name or in the name of any Trust whether on its

behalf or on behalf of any of its subsidiary or Associate

Company so this means the Creation of Treasury

stocks is now prohibited under Companies Act, 2013

NO TREASURY STOCKS

10/4/2013 125

There are many a

Listed Companies

in which Treasury

Stocks are

existing so SEBI

should provide

clarification on

the status of such

Treasury Stocks,

which already

exist

RE – OPENING OF ACCOUNTS

• Section 130 : Companies Act, 2013 provides provisions relating

Re-opening or Re-casting of Books of accounts on the Order of

Court or Tribunal

• Company will furnish their application to relevant Court / NCLT

and other authority like CG, Income Tax Authorities, SEBI and

other statutory regulatory body concerned with the application.

• Court / NCLT will also give notice to above mentioned Regulatory

authority for any representation and court will consider their

representation before passing final order.

RE - OPENING OF ACCOUNTS

10/4/2013 126

12710/4/2013

Qualification and experience of person who can act as a Registered Valuer and the basic

of Valuation have been issued by MCA, as per which “Financial Valuation” shall be

carried out by :

REGISTERED VALUER

Section 247 of the Companies Act, 2013 contains the provisions of Registered Valuer as

per which, all sorts of Valuations including property, stock, shares, debentures, securities

or goodwill or any other assets or the net worth of the Company or its Liabilities are to be

done by a RV.

A CA/ CS/ CWA who is

in whole time

practice with > 5

years post

membership

experience.

Indian citizen having

foreign qualification

as the MCA may

recognize by an

order.

A Merchant

Banker

registered

with SEBI

12810/4/2013

Remarks: There are so many provisions under SEBI law where SEBI talks about

Valuation by independent Charter Accountant / Valuer so SEBI will have to

accordingly align the term with provisions of Companies Act, 2013.

SEBI might have to clarify that how registered Valuer perform due diligence

of Listed Company for valuation purpose.

REGISTERED VALUER

12910/4/2013

PROMOTING WELFARE

INITIATIVES

CORPORATE SOCIAL RESPONSIBILITY

13010/4/2013

CORPORATE SOCIAL RESPONSIBILITY(SECTION - 135)

Every Company having net worth of > Rs 500 Cr, or turnover of > Rs 1000Cr or a net profit of > Rs 5 Cr during any FY to constitute a CorporateSocial Responsibility Committee of the Board consisting of > 3 directors,out of which at least 1 to be ID

The Board’s report to disclose the composition of the Corporate SocialResponsibility Committee

13110/4/2013

Based on recommendations from CSR Committee, Board of such Companyto approve the CSR Policy for the Company and disclose contents of suchPolicy in its report and on the Company’s website

Every year in the Board’s Report, details about the policy developed andimplemented by the Company on CSR initiatives taken during the year to beincluded

CORPORATE SOCIAL RESPONSIBILITY(SECTION 135)

13210/4/2013

Board shall ensure that at least two per cent of average net profits of the Company made during three immediately preceding financial years is spent in every financial year on such policy

For spending the amount earmarked for CSR activities the Company shall give preference to the local area and areas around it where it operates.

If a Company fails to provide or spend such amount, the Board to specify reasons for not spending the amount in its report

Companies require to comply with CSR shall give additional Information by way of notes to the Statement of Profit and Loss regarding aggregate expenditure incurred on corporate social responsibility activities.

CORPORATE SOCIAL RESPONSIBILITY(SECTION 135)

As per the analysis of the companies listed on Bombay stock exchange it is

found that :

Average net profit of three

financial years of these

companies amounts:

Approx INR 3,90,000 crore

CSR spending which shall be

2% of such average net profits

amounts:

Approx INR 7800 crore

CYNOSURE TO ALL EYES

List of Companies who are required to make CSR contribution

10/4/2013 134

S.No. Name of CompanyAverage PAT for last 3

Years2 % of Average PAT

1 Reliance Industries Ltd20,443.00

408.86

2 Oil & Natural Gas Corpn Ltd20,271.49

405.43

3 State Bank of India11,358.93

227.18

4 Tata Consultancy Services Ltd10,444.10

208.88

5 NTPC Ltd9,018.17

180.36

6 Infosys Ltd8,009.67

160.19

7 Bharti Airtel Ltd7,624.37

152.49

8 Coal India Ltd7,518.51

150.37

9 ICICI Bank Ltd6,647.37

132.95

Amount in INR Crores

STAKEHOLDER INTEREST PROTECTION

10/4/2013135

10/4/2013136

For protection of shareholders concept of “Class Action suit” inserted

Exit opportunity by the promoters to the dissenting shareholders in caseof variation in the terms of the contracts or in objects of prospectus

Provision for Internal audit of certain companies

Provision for rotation of auditors in listed and in certain other class ofcompanies

Set up of Investor Education and Protection Fund (IEPF) for transferamount lying in unpaid dividend accounts of the company to such fund


Establishment of vigil mechanism to safeguard the interest of stakeholders andto protect the whistleblowers

To minimize risks, certain restrictions has been implied on the board of companywhich were earlier not mentioned in the Companies Act, 1956

Act restricts the non cash transactions involving directors

Prohibition on forward dealing in securities of company by a key managerialpersonnel

Prohibition on insider trading of securities

Establishment of Serious Fraud Investigation Office (SFIO)


10/4/2013137

10/4/2013138

INITIATIVES TOWARDS

TRANSPARENCY AND DISCLOSURE

13910/4/2013

Every listed company to prepare a report on AGM, such report to containconfirmation that the meeting was convened, held and conducted as per theprovisions of the Act / Rules

Board report to disclose managerial remuneration

Requirement for Enhanced Disclosures in prospectus has been incorporated inthe Act of 2013

Return to be filed with registrar in case of promoter’s stake changes

Disclosure of interest of all directors

INITIATIVES TOWARDS


14010/4/2013

Board to disclose all the related party transaction in its report along withnecessary justification.

Contracts with managing and whole time directors required to be kept atregistered office, which shall be open for inspection by members of the company

Director responsibility statement (DRS) in the case of listed companies shallmention that, directors had laid down internal financial controls and had devisesystems to ensure compliance with the applicable law

INITIATIVES TOWARDS


14110/4/2013

DISCLOSURES IN PROSPECTUS (Section 26)

Name and address of CFO

Management perception of Risk Factors, gestation period, progress in

the Project and deadline for completion of the project.

Pending litigation against the promoters by Govt Dept./Statutory Body

during the last 5 years.

Detailed Fact Sheet, mentioning all the basic facts and financials about

the Company and other related persons/entities.

14210/4/2013

DIRECTOR’S RESPONSIBILITY

STATEMENT (Section 134)

DRS to also include the following:

• In the case of listed companies, director had laid down internalfinancial controls which have been complied with.

• The directors had devised systems to ensure compliance withprovisions of applicable laws

PROMOTERS’ STAKE CHANGES(Section 93)

Listed companies required to file Return with the Registrarregarding change in the number of shares held by thePromoters and top ten shareholders within 15 days of change.

14310/4/2013

CONSOLIDATION OF FINANCIAL

STATEMENTS (Sec 129 & 137)

Mandatory requirement of presenting consolidated financial statements

of all subsidiaries including associate and joint venture companies

Mandatory requirements:

Financial statements of the

company

Separate Financial statements of its

subsidiary or subsidiaries

Accounts of Foreign Subsidiaries

14410/4/2013

REPORT ON MANAGERIAL

REMUNERATION (Section 197)

• The ratio of the remuneration of each director to the median employee’s remuneration; and

• Such other details as may be prescribed.

Every Listed Company to disclose in its Board’s Report:

14510/4/2013

VIDEO CONFERENCING MEETING

• The MCA has introduced participation of Directors in the meeting of

the Board/Committee through ‘video conferencing or other audio

visual means’ .

• The following matters shall not be dealt with in any meeting held

through video conferencing or other audio visual means:

To approve the annual financial statements; and

To approve the Board’s report.

14610/4/2013

NOTICE THROUGH ELECTRONIC

MEANS

Section 101 provides that Notice of General Meeting can be send through Electronic Mode also.

There shall be no difference in the text of physical notice and e- notice.

Notice via e-mail to be confirmed by the member at least 30 days prior to dispatch of notice.

Company to use system which confirms the total number of recipients and related record.

14710/4/2013

FRAUD

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: 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.

Any activity in relation to affairs of a company or anybody corporate, includes :

14810/4/2013

SICA

Any Company and Not Only industrial Company can be declared as Sick Company.

Now, the secured Creditors, representing 50% or more of the Debtof the Company and whose debt has failed to pay by the Company within 30 days of service of notice, can apply to the Tribunal

The Criteria of erosion of 50% of the Net worth, for filing an application with BFIR for declaring the Company as sick has been dispensed with.

No such scheme of amalgamation to be approved where it relates to Amalgamation of Sick company, unless it has been approved by shareholder of both the Company by a Special resolution.

14910/4/2013

Thankyou

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