COMPANIES BILL 2009 An effort to highlight the salient features of the Companies Bill, 2009 while displaying improvements it seeks and the conflicts and contradictions it poses Divya Sukumar

Background History of Companies Act, 1956 –Enacted with the object to amend and consolidate the law relating to companies and certain other associations –Empowers the Central Government to regulate formation, financing, functioning and winding up of companies –Administered by central government through ministry of corporate affairs and office of registrar of companies

Need for introduction of Companies Bill, 2009 –Comprehensive revision of the Companies Act, 1956 in 2004 –Number of Companies in India expanded from 30,000 in 1956 to nearly 8 lakhs in 2004, –Modernization of the regulatory structure for the corporate sector –Codify a new law to regulate companies and other corporate entities and –Establish a new benchmark for corporate governance

Objectives of Companies Bill, 2009 – To revise and modify the Companies Act, 1956 – To bring about compactness – To re-write provisions of the Act to enable easy interpretation; and – To delink the procedural aspects from the substantive law

Structure of the Bill Companies Act Companies Bill, Sections 14 Schedules 426 Sections 28 Chapters 24 Amendments

Scope of the New Companies Bill – Classification and Registration of Companies – Management and Board Governance – Related Party Transactions – Minority Interest – Investor Education and Protection – Access to Capital – Accounts and Audit – Mergers and Acquisitions: – Investigation under the Companies Act – Offences and Penalties – Restructuring and Liquidation

The Stages: Bill to Act First reading – Lok Sabha Publication in gazette Standing committee Second reading Third reading Bill in Rajya Sabha

Current stage of Companies Bill – New Bill Introduced in Lok Sabha on August 3, 2009 – Cleared by Union Cabinet – To be tabled at the ensuing winter session for approval – Several New Concepts/Ideas Introduced-Mainly Borrowed from UK Companies Act – Number of sections Reduced from 658 to 426 in the new Bill

Major Highlights – Key managerial personnel defined, and insider trading made criminal offence – Introduction of E-governance – Specific framework and a single forum for merger and acquisitions of companies – Company (except NBFC and banks) prohibited from accepting deposits – Consolidation of financial statements made mandatory – Framework for fair valuation

Limitations – Deposit only from their share holders -abused by giving only one share each to members of public and then getting deposits from them (Clause 66) – Sick company - Company fails to re-pay debt within 30 days (Clause 229) – Paid up share capital can only be shares issued against cash

Concepts Newly Introduced in Companies Bill Small Company – Whose paid-up share capital does not exceed 5 crore rupees (or) – Turnover does not exceed 20 crore rupees One Person Company – Permit entrepreneurship of a single individual – Registered as a private Company – Memorandum to prescribe the name of the successor – “OPC Limited” be suffixed with the name of company – Provision of Annual General Meeting is removed

Managerial Remuneration – No limits on quantum of managerial remuneration and sitting fee paid Independent Director – Listed public company should have at least one-third of the total number of directors as independent directors – No person should be a director of more than 15companies – Maximum number of directors in a company should be 12 Dormant Company – Formed and registered under the Companies Act for a future project – To hold an asset or intellectual property – No significant accounting transaction Concepts Newly Introduced in Companies Bill

Provisions Prohibited – Issuing shares with differential voting right – Issue of shares at a discount other than sweat equity shares Provisions Amended – Provision for minimum capital requirement of public and private companies – Certificate of commencement of business – Statutory meetings

Difference between Bill and Act Companies Act, 1956Chapter I of Part VI – Section 224 – 233B Companies Bill, 2009Chapter X – Clause 123 – 131 ParticularsCompanies Act, 1956Companies Bill, 2009 Limits prescribed on audit assignments Specified under Section 224 (1B) No such restrictions. Maybe incorporated in Rules to the Act. Special resolution on appointment of auditors Special resolution required in case of specified companies No such stipulation Impact on Audit Differences

Companies Act, 1956Companies Bill, 2009 Removal of auditor before expiry of term Prior approval of central government is required Not required Removal of auditor on expiry of term Ordinary resolution with special notice is to be passed aand approval of central government Special resolution is required. Attendance in meeting RightMandatory / Obligation Failure in AGM to appoint auditors Central government may appoint a person to fill the vacancy. Same auditor shall continue to audit until the adoption of the next financials. Note : The clause should specifically prohibit offer of non audit services both directly as well as indirectly which includes internal audit, book keeping and acturial services etc

Companies Act, 1956Chapter I of Part VI (Section ) Companies Bill, 2009Chapter IX (Clause ) ParticularsCompanies Act, 1956Companies Bill, 2009 Financial Year and extension The period for which any profit and loss account is laid before in annual general meeting whether that period is a year or not. Extensions to be granted by registrar The period ending on the 31 st day of March Extensions to be granted by NCLT Companies Bill 2009: Consistent Reporting in line with Income Tax Act Impact on Accounts Differences

Conflict with Existing Law and Regulation Insider Trading – SEBI Act, term ‘Insider ’ not defined – SEBI : Penalty of Rs 25 crores or 3 times the profits from insider trading, whichever is higher, – Bill : Penalty of Rs 5 lakhs to Rs 1 crore or imprisonment up to five years, or both. Delisting of Companies – SEBI Act has imposed strict conditions in respect of delisting of Companies – Bill – No restrictions on companies which can delist themselves

Summary – The new bill comes in the wake of the multi-crore accounting scam in Satyam Computer Services that took the country by storm and uncovered cavernous gaps in the existing corporate governance standards and highlighted the requirement for more tightened rules. – In General, public are losing confidence in corporate entities and government on account of the frequency of such scams, thus it becomes imperative to bring in confidence inspiring changes for strengthening business ethics – The Proposed Landmark legislation contains many marked differences as compared to the Companies act 1956.

THANK YOU Questions Acknowledgements EY office team for their help and support Arjun Gurushankar Ajoy Family and friends