In the fourth series of company law amendments, I am posting some more sections which also includes Director amendments. You can read these amendments both in paragraph and tabular form.
Audit
committee
The section 177 of 2013 Act acknowledges the significance
of an audit committee and entrusts it with extra roles and responsibilities.
Though, the
fact that the 2013 Act is not wholly in accord with the requirements of clause
49 of the equity listing agreement, cannot be unseen. Whereas most of the
requirements including establishment of a ‘vigil mechanism’ for directors and
employees to report real concerns, that are similar to the requirements of
clause49 of the equity listing harmony have been incorporated in the 2013 Act,
the differences are as follows:
As per the 2013 Act, the audit
committee should have majority of independent directors.
Chairman of the audit committee
need not be an independent director.
A majority of the members of the
audit committee should be financially literate, i,e. should have the capability
to read and understand the financial statements.
Every listed company and the
following class (es) of companies as set in the draft rules should establish a
vigil mechanism for directors and employees to report real concerns such as :*
- Companies
which accept deposits from the public
- Companies
which have borrowed money from banks and public financial institutions over and
above fifty crore rupees
Nomination
and remuneration committee and stakeholders relationship committee
The section
178(1) of 2013 requiring constituting
the nomination and remuneration committee by every listed company and the
following group of companies as set in the draft rules:
(A) Every
listed company
(B) Every
other public company that has a paid-up capital of 100 crore INR or more or
which has, in cumulative, outstanding loans or borrowings or debentures or
deposits over and above 200 crore INR.
The
Nomination and Remuneration Committee is required to make and suggest to the
Board of Directors, the company’s policies, regarding the remuneration for the
directors, key managerial personnel and other employees, criteria for
determining qualifications, positive attributes and independence of a director.
In addition
as per the section 178(5) of 2013 Act, a board of a company that has in excess
of 1000 shareholders, debenture-holders, deposit-holders and any other security
holders at any time during a financial year is required to comprise a
Stakeholders Relationship Committee.
Contributions to charitable funds and political parties
As per the section
181 of 2013 Act the authority of making contribution to ‘bona fide’ charitable
and other funds is planned to be available to the board subject to certain
limits. As per the existing requirement of section 293 of the 1956 Act, such power
could only be exercised in the general meeting in case of public companies and
subsidiaries of public companies as per the 1956 Act.
In
addition, according to the section 182
of 2013 Act, the limits of contribution to political parties is proposed to be extended
to 7.5% of the average net profits during the
three immediately preceding financial years from the existing limit of 5% under the 1956
Act.
Disclosure
of interest by director
The section 184 of 2013 Act sets
similar requirements regarding the disclosure of interest by the
director as contained in the existing section 299 of the 1956 Act. The barely alteration
that could be identified is where a contract or arrangement entered into by the
company without disclosure of interest by director or with participation by a
director who is concerned or interested in any manner, directly or indirectly,
in the contract or arrangement, shall be voidable at the choice of the company.
Loans and
investments by a company
The section
186 of 2013 Act mentions that companies can make investments only
through two layers of investment companies subject to exceptions which includes
company registered outside India. There are no such restrictions which are
currently imposed under the 1956 Act.
Further, the
exemption available from the provisions of section 372A of the 1956 Act to
private companies as well as loans or investment given or made by a holding
company to its subsidiary company are no longer available under the 2013 Act.
Related
party transactions
Most of the
provisions under Section 188 of 2013 Act are pretty similar to the requirements
under sections 297 and 314 of the 1956 Act. Some of key changes envisaged in
the 2013 Act include the following:
Need for central government sanction
has been done away with.
The 2013 Act has widened the sphere
of transactions such as leasing of property of any type, appointment of any
agent for purchase and sale of goods, material, services or property.
Cash at current market price has
now been substituted with ‘arm’s length transaction’ which has been defined in
the section.
Transactions entered into with associated
parties now to be included in the board’s report along with explanation for
entering into such contracts and arrangements.
Penalty for contravention of the
provisions of section 297 was covered in general provisions in the 1956 Act.
However, this is now covered specifically in the section itself which now
extends to imprisonment.
Central
government may set extra conditions.
Key
Points
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S.No.
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Particulars
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As per Companies Act 1956
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As per Companies Act 2013
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1
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Vacation of office of Director
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Director shall vacate his office, if he fails to attend all the
meeting of board for consecutive period of three months
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Director shall vacate his office, if he fails to attend all the
meeting of board for consecutive period of 12 months
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2
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Resignation of director
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No fact of resignation required in the next AGM of the company
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In case of resignation of any director, the board should place
the fact of such resignation in next general meeting of the company
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3
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Nomination and remuneration committee and stakeholders
relationship committee
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No provision regarding this in old companies act
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The section 178(1) of
2013 Act requiring constituting the nomination and remuneration
committee by every listed company and the following group of companies as set
in the draft rules. In addition as per the section 178(5) of 2013 Act, a
board of a company that has in excess of 1000 shareholders,
debenture-holders, deposit-holders and any other security holders at any time
during a financial year is required to comprise a Stakeholders Relationship
Committee
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4
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Contributions to charitable funds and political parties
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The authority of making contribution to ‘bona fide’ charitable
and other funds could only be exercised in the general meeting in case of
public companies and subsidiaries of public companies
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The authority of making contribution to ‘bona fide’ charitable and
other funds is planned to
be available to the board subject to certain limits
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5
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Limits of contribution to poliitical parties
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The limits of contribution to political parties is 5%
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The limits of contribution to political parties is proposed to
be extended to 7.5% of the average net
profits during the three immediately preceding financial years
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6
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Disclouse of interest by director
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Contract or arrangement entered into by the company without
disclosure of interest by director or with participation by a director who is
concerned or interested in any manner, directly or indirectly, in the
contract or arrangement, shall be not be voidable at the choice of the company
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Contract or arrangement entered into by the company without
disclosure of interest by director or with participation by a director who is
concerned or interested in any manner, directly or indirectly, in the
contract or arrangement, shall be voidable at the choice of the company
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7
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Loans and investments by a company
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Companies can make investments without such restrictions
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Companies can make investments only through two layers of
investment companies subject to exceptions which includes company registered
outside India
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8
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Related party transactions - CG approval
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Approval of central government required
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CG approval is no longer required
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9
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Related party transactions - method
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Cash at current market price
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Arm's length transaction
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10
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Transactions with associated parties
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Transactions entered into with associated parties not to be
included in the board’s report
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Transactions entered into with associated parties now to be
included in the board’s report
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