COMPARATIVE STUDY OF

Companies Bill, 2011 and Companies Bill, 2012

[As Passed by Lok Sabha]

 ♦ Definition of 'financial statement' in clause 2(40) amended to add the words "statement of changes in equity" in clause 2(40). Purpose is to clarify that statement of changes in equity will compulsorily form part of financial statements only for companies to which Ind AS shall apply.

 ♦ Definition of 'key managerial personnel' in clause 2(51) amended - 'Whole-time director' has been included in the definition of the term 'key managerial personnel'. Also definition originally provided that CFO will be KMP "if the Board of Directors appoints him". The words "if the Board of Directors appoints him" created needless confusion and are omitted.

 ♦ Inclusive limb of the definition of "Paid up share capital" or "capital credit as paid-up" in clause 2(64) amended to omit the words "of money" since intention of the inclusive limb is to cover bonus shares and no money is received against bonus shares.

 ♦ Definition of 'promoter' in clause 2(69) amended. Definition originally provided that a person who has control over affairs of the company shall not be regarded as promoter if acting in a merely professional capacity. This exemption withdrawn.

 ♦ Clause 3 amended- To ensure perpetual succession of One Person Company(OPC), clause 3 originally provided that the memorandum of OPC should indicate the name of the person with his prior written consent in the prescribed form who shall become member in the event of the subscriber's death. Clause 3 proposed to be amended to add words "or his incapacity to contract" after "subscriber's death". Purpose is to clarify that nominee mentioned in MOA will become member not only on subscriber's death but also in the eventuality of subscriber's incapacity to contract due to insanity etc.

 ♦ Clause 20(2) provided "under certificate of posting" as one of the permissible means of service of documents on ROC/member by company. The words "under certificate of posting" omitted as UPC discontinued by Postal Department.

 ♦ Clause 23 which originally barred private companies from making rights issues and bonus issues amended to remove the bar.

 ♦ Clause 28(1) originally contained enabling provision permitting existing members to offer only part of their holding of shares to public in an offer for sale. Clause 28(1) amended to clarify that members may offer either whole or part of their holdings of shares to public in offer for sale.

 ♦ Clause 36 (c) inserted to also include punishment for falsely inducing a person to enter into any agreement with bank or financial institution with a view to obtaining credit facilities.

 ♦  Clause 42 amended to define 'private placement' to curb public issues in the garb of private placement.To qualify as 'private placement' offer or invitation not to be made to more than 50 or such higher number of persons as may be prescribed (excluding QIBs and employees offered securities under ESOP) in a financial year. The limit of 50 in a or higher number in a financial year incorporated to prevent companies circumventing the limit by approaching groups of 50 at a time. Thus, Supreme Court's interpretation of section 67 of the Companies Act,1956 in Sahara India Real Estate Corpn. Ltd. v. SEBI [2012] 115 SCL 478/25 taxmann.com 18 has been incorporated.

 ♦ Clause 61(1)(b) amended to provide that Approval of the Tribunal shall be required for consolidation and division of share capital only if the voting percentage of shareholders changes consequent on such consolidation.

 ♦ Time limit for filing annual return in clause 92(4) relaxed from 30 days to 60 days.

 ♦ Clause 130 amended to clarify who can apply to competent court or Tribunal to order re-casting or reopening of company's financial statements. An application in this regard is to be made by any of the following:

(i) The Central Government,

(ii) The Income-tax authorities,

(iii) SEBI,

(iv) Any other statutory regulatory body or authority,

(v) Any person concerned.

 ♦ Clause 132 amended to provide Chairperson and members in Full Time Employment with NFRA shall not be associated with any audit firm including related consultancy firms during the course of their appointment and 2 years after ceasing to hold such appointment.

 ♦ NFRA had jurisdiction over CAs, cost accountants, company secretaries and any other profession as may be prescribed. Clause 132(4) amended. NFRA to have jurisdiction over only CAs.

 ♦ NFRA could impose penalty not exceeding Rs. 1,00,000 in case of CAs and penalty not exceeding Rs. 10,00,000 in case of CA firms. Clause 132 amended to provide that NFRA could impose penalty-minimum Rs. 1,00,000 & Maximum 5 times fees received in case of individual CAs NFRA could impose penalty-minimum Rs. 10,00,000 & Maximum 10 times fees received in case of firms.

 ♦ (Amendment in Clause 135): In the Section on Corporate Social Responsibility (Section 135), which is being introduced as a statutory provision for the first time, the words 'make every endeavour to' have been omitted from its Sub-clause (5). So that the first para of Sub-clause (5) of Clause 135 now reads as follows:

"The Board of every company referred to in sub-section (1), shall ensure that the company spends in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy. The effect of omitting the words 'make every endeavour to' is to make CSR spends mandatory. Also clarified the net profits for this purpose shall be calculate as per Clause 198".

 ♦ Clause 139 amended to provide that Appointment of auditors for five years shall be subject to ratification by members at every Annual General Meeting.

 ♦ Provisions relating to voluntary rotation of auditing partner (in case of an audit firm) modified to provide that members may rotate the partner 'at such interval as may be resolved by members' instead of 'every year'.

 ♦ New Explanation I inserted to clause 140 to clarify that in case of auditor-firm removed by Tribunal under clause 140(5),the liability shall be of the firm of every partner or partners who acted in a fraudulent manner or abetted or colluded in any fraud by or in relation to the company or its directors or officers .All partners shall not be liable but only those partners who acted in a fraudulent manner or abetted or colluded in any fraud by or in relation to the company or its directors or officers.

 ♦ Clause 141(3)(g) amended. The limit in respect of maximum number of companies in which a person may be appointed as auditor is twenty companies. Power proposed to be delegated to Govt. to fix the limit now be taken away.

 ♦ Clause 142 amended to provide that the Board may fix the remuneration of the first auditor appointed by it.

 ♦ Clause 143(6)(a) amended. CAG cannot conduct supplementary audit of Government companies by himself. CAG empowered to conduct supplementary audit only by such person or persons authorized by CAG in this behalf. CAG further empowered to require additional information to be furnished to authorised person or persons for the purposes of such audit on such matter and in such form as CAG may direct.

 ♦ Clause 144 - Provisions relating to restrictions on non-audit services modified to provide that such restrictions shall not apply to associate companies and further to provide for transitional period for complying with such provisions.

 ♦ Clause 147 - Provisions relating to criminal liability of auditors to imprisonment and much higher fine applicable only if auditor knowingly or wilfully contravenes provisions of clause 143, 144 or 145. Auditors convicted for Consequential liability of convicted auditors for knowingly or wilfully contravening said provisions liable to pay damages arises only to company, its shareholders, creditors and tax authorities.Eralier Bill provided liability to pay damages to "any other person interested or concerned in the company".

 ♦ Clause 147(4) provided for joint & several civil and criminal liability of all partners of audit firm and the audit firm where it is proved that the partner/partners of the audit firm are proved to have acted in a fraudulent manner or to have colluded or abetted in a fraud by or in relation to or by the company or its directors or officers. Clause 147(4) amended to provide that all partners would not be liable. Only partners concerned with fraud will be liable in terms of clause 147(4).

 ♦ Companies required to appoint a woman director given time of 1 year from commencement of Companies Act, 2012 to implement these provisions.

 ♦  Clause 149(8) provided that independent directors not entitled to any remuneration except sitting fees, reimbursement of expenses for participating in BOD and other meetings and profit related commission as may be approved by members. Clause 149(8) renumbered as Clause 149(9) and amended to provide that (i) IDs not entitled to stock options (ii) IDs entitled to remuneration in the form of a sitting fee [See clause 197(5)] , reimbursement of expenses for participation in the Board and other meetings; and profit-related commission as may be approved by the members. Purpose is to avoid controversy as to whether profit-related commission to IDs would be outside the purview of limits on managerial remuneration.

 ♦ Clarification included in the Bill to provide that 'Independent Directors' shall be excluded for the purpose of computing 'one third of retiring Directors'. This would bring harmonisation between provisions of Clause 149(12) and rotational norms provided in Clause 152.

 ♦ Clause 152(6) provides that not less than two-thirds of the total number of directors of a public company shall be liable to retire by rotation and be appointed by the company in general meeting. Explanation added to clause 152(6) to clarify that "Total number of directors" for computing the proportion shall not include independent directors, whether appointed under this Act or any other law for the time being in force.

 ♦ Clause 166(5) amended to omit reference to clause 166(7) dealing with criminal liability. Purpose seems to be to obviate the need to enforce civil liability of director making undue gain through a circuitous route of first getting him convicted under clause 166(7) then making him liable to pay up.

 ♦ The office of a director shall become vacant in case he is convicted by a Court of any offence involving moral turpitude or otherwise and sentenced to imprisonment for not less than six months in respect thereof. The office shall be vacated even if he has filed an appeal against the order of such Court However, the above disqualification shall not apply to a director whose case has been disposed off as plea bargaining provided under section 265E of the Cr.PC,1973[clause 167(5)]; Clause 167(5) omitted. Even a plea bargain sentence will be a disqualification.

 ♦ New proviso to clause 178(1) clarifying that the chairperson of the company(whether executive or non-executive) may be appointed as a member of the Nomination and Remuneration Committee but shall not chair the Committee.

 ♦ Clause 186 amended to provide that the rate of interest on inter corporate loans will be the prevailing rate of interest on dated Government Securities. Change in the benchmark minimum interest rates on inter-corporate loans from prevailing bank rate to prevailing G-sec rate.

 ♦ Clause 203 amended to make it compulsory for prescribed classes of companies to also appoint a CFO.

 ♦ Provisions relating to separation of office of Chairman and Managing Director (MD) modified to allow, in certain cases, a class of companies having multiple business and separate divisional MDs to appoint same person as chairman as well as MD. [Clause 203].

 ♦ Clause 236(5) amended to delete words "wholly or partly". Purpose seems to be to clarify that whole of minority holdings will have to be purchased through squeeze out provisions of clause 236.

 ♦ New Clause 245(2) - Where the members or depositors seek any damages or compensation or demand any other suitable action from or against an audit firm , the liability shall be of the firm as well as of each partner who was involved in making any improper or misleading statement of particulars in the audit report or who acted in a fraudulent, unlawful or wrongful manner.

 ♦ If the ROC is satisfied that name struck off either inadvertently or on basis of incorrect information furnished by the company or its directors, which requires restoration in the register of companies, he may with 3 years of passing the order dissolving the company under section 248 file an application before Tribunal seeking restoration of name of such company [New second proviso to clause 252(1)].

 ♦  Clause 434 - Pending proceedings not to be transferred to NCLT as of date of Constitution of NCLT but on such date as notified by Central Govt. The words either de novo or omitted. Tribunal cannot proceed with transferred proceedings de novo but only from date of transfer. New sub-clause (2) added to provide that the Central Govt. may make rules to ensure timely transfer of pending cases from CLB/courts to NCLT.

 ♦ Provisions in respect of removal of difficulty modified to provide that the power to remove difficulties may be exercised by the Central Government up to 'five years' (after enactment of the legislation) instead of earlier up to 'three years'. This is considered necessary to avoid serious hardship and dislocation since many provisions of the Bill involve transition from pre-existing arrangements to new systems. [Clause 470]

 ♦ Section II of Part II of Schedule V deals with remuneration payable by company having no or inadequate profit without approval of Central Government. Accordingly, Clause (B) of Section II of Part II provides for payment by such company of remuneration to managerial personnel not higher of-

(A) exceeding 2.5% of the current relevant profit and

(B) amounts mentioned in Clause (A) if he was not:

(i) a shareholder or

(ii) employee or

(iii) director of the company at any time during the two years prior to his appointment as a managerial personnel. If conditions in clause (B) not satisfied, then payment shall be as per Clause (A) only. Clause (B) amended to make it applicable to a managerial personnel who was not-

(i) a security holder holding securities of the company of a nominal value of Rs. 5,00,000 or more or

(ii) employee or

(iii) director of the company or

(iv) not related to any director or promoter at any time during the two years prior to his appointment as a managerial personnel. Thus, conditions for unrelatedness of managerial personnel under Clause (B) made more stringent. If these stringent conditions not satisfied, then limits in Clause (A) alone will apply and he cannot get the benefit of higher of limits in Clause (A) and Clause (B).