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Companies Act 2013 Role & Responsibilities of Directors, Independent Directors, KMP Ashish Makhija Advocate LLM (USA), LLM (India), FCA, FCMA Standing.

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Presentation on theme: "Companies Act 2013 Role & Responsibilities of Directors, Independent Directors, KMP Ashish Makhija Advocate LLM (USA), LLM (India), FCA, FCMA Standing."— Presentation transcript:

1 Companies Act 2013 Role & Responsibilities of Directors, Independent Directors, KMP Ashish Makhija Advocate LLM (USA), LLM (India), FCA, FCMA Standing Counsel for the Official Liquidator Attached to High Court of Delhi 1 Member of:

2 Looking Back Companies Act 1956  658 Sections (Effectively 881 Sections)  16 Schedules  66 Definitions  34 set of Rules & Regulations 2

3 Looking Forward Companies Bill 2009  426 Sections  No Schedules  93 Definitions  Phrase “as may be prescribed” appeared “235 times” in the Bill 3

4 Looking Forward Companies Act 2013  470 Sections  7 Schedules  95 Definitions  Phrase “as may be prescribed” appears “346 times” in the Act  46 sections of Part IX A of Companies Act, 1956 relating to Producer Companies will continue to apply even after Companies Act, 1956 is repealed 4

5 Companies Act Status  President’s Assent on 29th August 2013  98 Sections notified on 12th September 2013  Removal of Difficulties order issued on 20th September 2013 regarding implementation of Sections 24, 58 and 59  Schedule VII & Section 135 notified on 27 th February 2014  183 Sections notified on 26 th March 2014  Companies 1 st (Removal of Difficulties) Order, 2014 regarding clarification on Section 2(76), the definition of related party  Companies 2 nd (Removal of Difficulties) Order, 2014 regarding clarification on Section 92, the limit on Certification of Annual Return 5

6 Companies Act Status Clarification No. 1 – General Circular 15/2013 dated  S. 2(68) – MoA, AoA filed till can be registered as per definition of private company under CA 1956  S.102 – Notices of general meetings issued on or after must comply with additional requirements as prescribed in S. 102  S.133 – Existing Accounting Standards notified shall continue to apply till new one are notified u/s 133  S.180 – Resolutions can be passed as ordinary resolution if general meeting notice has been issued prior to

7 Companies Act Status Clarification No. 2 – General Circular 16/2013 dated  “It is clarified that w.e.f , the relevant provisions of CA 1956, which correspond to the provisions of 98 sections of CA 2013 brought in force on , cease to have effect from that date.” 7

8 Companies Act Status  Applies to whole of India  Central Government will notify date of applicability  Different dates may be appointed for different provisions  Applies to all banking, insurance and electricity companies also so long provisions are not inconsistent with Special Acts. 8

9 Understanding Layout  Divided in to 29 chapters  Incorporation, MoA, AoA – Chapter II – Sections 3 to 22  Prospectus – Chapter III – Sections 23 to 42  Share Capital – Chapter IV – Sections 43 to 72  Public Deposits – Chapter V – Sections 73 to 76  Registration of Charges – Chapter VI – Sections 77 to 87  Management & Administration – Chapter VII – Sections 88 to 122  Dividend – Chapter VIII – Sections 123 to 127 9

10 Understanding Layout  Accounts – Chapter IX – Sections 128 to 138  Audit & Auditors – Chapter X – Sections 139 to 148  Directors, Board & Remuneration – Chapters XI, XIII, XIII – Sections 149 to 205  Inspection, Investigation – Chapter XIV – Sections 206 to 229  Mergers – Chapter XV – Sections 230 to 240  Oppression and Mismanagement – Chapter XVI – Sections 241 to 246  Registered Valuers – Chapter XVII – Section

11 Understanding Layout  Removal of Names of Companies – Chapter XVIII – Sections 248 to 252  Revival – Chapter XIX – Sections 253 to 269  Winding –up – Chapter XX – Sections 270 to 378  Companies Authorized to Register Under the Act – Chapter XXI – Sections 366 to 374  Foreign Companies – Chapter XXII – Sections 379 to 393  Government Companies – Chapter XXIII - Sections 394 & 395  Registration Offices & Fees – Chapter XXIV – Sections 396 to 404  Companies to furnish Information – Chapter XXV – Section 405  Nidhis – Chapter XXVI – Section

12 Understanding Layout  NCLT – Chapter XXVII – Sections 407 to 434  Special Courts – Chapter XXVIII – Sections 435 to 446  Miscellaneous - Chapter XXIX – Sections 447 to 470  Schedule I – Table A to I  Schedule II – Depreciation  Schedule III – Balance Sheet  Schedule IV – Code for Independent Directors  Schedule V – Managerial Personnel  Schedule VI – Infrastructural Projects  Schedule VII – Activities for CSR Policy 12

13 Definitions Companies Act, 1956Companies Act, 2013 Board of Directors S. 2(6)--"Board of directors" or "Board", in relation to a company, means the Board of directors of the company; S. 2(10)-- “Board of Directors” or “Board”, in relation to a company, means the collective body of the directors of the company; DirectorS. 2(13)-- "director" includes any person occupying the position of director, by whatever name called S. 2(34)-- “director” means a director appointed to the Board of a company

14 Definitions Companies Act, 1956Companies Act, 2013 Interested Director S. 287(1)(b) "interested director" means any director whose presence cannot, by reason of section 300, count for the purpose of forming a quorum at a meeting of the Board, at the time of the discussion or vote on any matter. Broader Criterion specified— 1.Holding Directorship or is a partner of a firm 2.More than 2% membership 3.Relative is a director, member, partner in a firm S. 2(49) “interested director” means a director who is in any way, whether by himself or through any of his relatives or firm, body corporate or other association of individuals in which he or any of his relatives is a partner, director or a member, interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into by or on behalf of a company;

15 Definitions Companies Act, 1956Companies Act, 2013 Key Managerial Personnel Not definedS. 2(51) “key managerial personnel”, in relation to a company, means— (i) the Chief Executive Officer or the managing director or the manager; (ii) the company secretary; (iii) the whole-time director; (iv) the Chief Financial Officer; and (v) such other officer as may be prescribed;

16 Definitions Companies Act, 1956 Companies Act, 2013 Managing Director S. 2(26)-- "managing director" means a director who, by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of directors or, by virtue of its memorandum or articles of association, is entrusted with substantial powers of management which would not otherwise be exercisable by him, and includes a director occupying the position of a managing director, by whatever name called S. 2(54)-- “managing director” means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.

17 Definitions Companies Act, 1956 Companies Act, 2013 OfficerS. 2(30)-- "officer" includes any director, manager or secretary or any person in accordance with whose directions or instructions the Board of directors or any one or more of the directors is or are accustomed to act. S. 2(59)-- “officer” includes any director, manager or key managerial personnel or any person in accordance with whose directions or instructions the Board of Directors or any one or more of the directors is or are accustomed to act.

18 Definitions Companies Act, 1956 Companies Act, 2013 Officer in Default S. 2(31)-- "officer who is in default", in relation to any provision referred to in section 5, has the meaning specified in that section. S. 2(60)-- “officer who is in default”, for the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any penalty or punishment by way of imprisonment, fine or otherwise, means any of the following officers of a company, namely:— (i) whole-time director; (ii)key managerial personnel; (iii)where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified; ……………..Contd.

19 Definitions Companies Act, 1956 Companies Act, 2013 Officer in Default S. 2(60)-- “officer who is in default”, (iv) any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorises, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default; (v) any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in a professional capacity;

20 Definitions Companies Act, 1956 Companies Act, 2013 Officer in Default S. 2(60)-- “officer who is in default”, (vi) every director, in respect of a contravention of any of the provisions of this Act, 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; (vii) in respect of the issue or transfer of any shares of a company, the share transfer agents, registrars and merchant bankers to the issue or transfer

21 Definitions Companies Act, 1956 Companies Act, 2013 Related Party Not definedS. 2(76)-- “related party”, with reference to a company, means— (i) a 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 a member or director; (v) a public company in which a director or manager is a director or holds along with his relatives, more than two per cent. of its paid-up share 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;

22 Definitions Companies Act, 1956 Companies Act, 2013 Related Party S. 2(76)-- “related party”—………Contd (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) a holding, subsidiary or an associate company of such company; or (B) a subsidiary of a holding company to which it is also a subsidiary; (ix) such other person as may be prescribed;

23 Independent Directors (S. 149) Following Companies to have Independent Directors Every listed public company Class of companies – Public Companies satisfying any one of the following criterai as per last audited balance sheet Paid-up share capital of Rs. 10 Crore or more Turnover of Rs. 100 Crores or more In aggregate outstanding loans, debentures and deposits, exceeding Rs 50 Crores

24 At least one-third of the total number of directors must be independent directors One year transition period granted to comply with these provision Casual vacancy to be filled in not later immediate next Board meeting or 3 months of vacancy, whichever is earlier. If a company ceases to fulfil any of the criteria in Rule 4 for 3 consecutive years it shall be exempted from complying with these provisions until such time as it meets such conditions Independent Directors (S. 149)

25 Disclosure of Independence—First Board Meeting & thereafter at the first meeting of the Board in every financial year or whenever there is any change in the circumstances which may affect his status as an independent director, give a declaration that he meets the criteria of independence Nominee Director appointed by banks/ financial institutions/ government/or any other persons shall not be treated as Independent Directors Not entitled to any stock option and may receive remuneration by way of fee provided under sub-section (5) of section 197, Reimbursement of expenses for participation in the Board and other meetings and profit related commission as may be approved by the members. Independent Directors (S. 149)

26 Term of Office  For five consecutive years  Shall be eligible for reappointment on passing of a special resolution by the company and disclosure of such appointment in the Board's report. Maximum Tenure  Two consecutive terms  shall be eligible for appointment after the expiration of three years of cessation  shall not during the said period of three years, be appointed in or be associated with the company in any other capacity, either directly or indirectly Independent Directors (S. 149)

27  No Retrospective effect: Any tenure of an independent director on the date of commencement of this Act shall not be counted as a term  Liability: He shall be held liable, only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently. Independent Directors (S. 149)

28 Manner & Selection of Independent Directors (S. 150)  Independent director may be selected from a data bank containing names, addresses and qualifications of persons who are eligible and willing to act as independent directors, maintained by any body, institute or association, as may by notified by the Central Government  The Agency shall put on their website for the use by the company making the appointment of such directors:  The responsibility of exercising due diligence before selecting a person from the data bank referred to above, as an independent director shall lie with the company  The appointment of independent director shall be approved by the company in general meeting as provided in sub-section (2) of section 152

29 Independent Directors  The explanatory statement annexed to the notice of the general meeting called to consider the said appointment shall indicate the justification for choosing the appointee for appointment as independent director.  Section 152(5)—Explanatory statement shall include a statement that in the opinion of the Board, he fulfils the conditions specified in this Act for such an appointment.(152(5))  Section 161(2)--no person shall be appointed as an alternate director for an independent director unless he is qualified to be appointed as an independent director under the provisions of this Act:

30  Independent Director shall not be counted for the strength under Retirement by Rotation u/s 152(6)  Section 173(3)  Board Meeting on Shorter Notice subject to the condition, at least one independent director, if any, shall be present at the meeting  in case of absence of independent directors from such a meeting of the Board, decisions taken at such a meeting shall be circulated to all the directors and shall be final only on ratification thereof by at least one independent director, if any. Independent Directors

31 Committees  Audit Committee Section 177(2)  Requirement :Every Listed Company  Minimum 3 Directors with majority Independent  Nomination And Remuneration Committee And Stakeholders Relationship Committee.  every listed company and such other class or classes of companies, as may be prescribed shall constitute the Nomination and Remuneration Committee consisting of three or more non-executive directors out of which not less than one-half shall be independent directors  CSR Committee—Atleast one Director on committee should be independent-Section 135

32 Independent Directors – Companies Act 2013 Independent Director defined [S.149(6)]  Integrity certificate  Disqualifications  Qualifications  Other than Nominee Director, Managing Director or Whole-time Director Integrity & Experience  In the opinion of the Board is a person of integrity and possesses relevant experience and expertise 32

33 Independent Directors – Companies Act 2013 Disqualifications  Not a promoter of the company, holding, subsidiary or associate companies  Not related to promoters or directors of the company, holding, subsidiary or associate companies  No pecuniary relationship  Company, holding, subsidiary or associate company  Promoters or directors of such companies  During 2 immediately preceding financial years or during current financial year 33

34 Independent Directors – Companies Act 2013 Disqualifications  None of the relatives has or had pecuniary relationship or transaction with  Company, holding, subsidiary or associate company  Promoters or directors of such companies  Transaction should not be more than 2 % or more of its gross turnover or total income or Rs. 50 lakhs or such higher amount as may be prescribed, whichever is lower  During 2 preceding financial years or during the current FY 34

35 Independent Directors – Companies Act 2013 Disqualifications  Neither himself nor any of his relatives  Is or was a KMP or Employee of company, holding, subsidiary or associate company in any of the 3 FY immediately preceding the financial year in which he is proposed to be appointed  Is or was an employee or proprietor or partner  of a firm of auditors or company secretaries or cost auditors of the company or its holding, subsidiary or associate company  any legal or consulting firm that has or had any transactions of 10% or more of the gross turnover of such firm  In any of the 3 FY immediately preceding the financial year in which he is proposed to be appointed 35

36 Independent Directors – Companies Act 2013 Disqualifications  Holds with relatives 2% or more of the total voting power of the company  Chief Executive or Director, by whatever name called, of any non-profit organization that  receives 25% or more of its receipts from that company or any of its promoters, directors, or holding, subsidiary or associate company  Holds more than 2% or more of the total voting power of the company 36

37 Independent Directors – Companies Act 2013 Qualifications  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 company’s business Declaration by Independent Director at first meeting after appointment and first meeting every FY or whenever there is change in status Company and Independent Director to abide by Schedule IV 37

38 Independent Directors – Companies Act 2013 Remuneration  No stock options  Sitting Fee  Upto Rs. 1 Lakh as decided by Board  Reimbursement of expenses for attending board meeting  Profit related commission, as approved by members 38

39 Independent Directors – Companies Act year term, renewable for another 5 year by special resolution then 3 year cooling off period Term to start afresh – present tenure not to be counted Making Independent directors liability proof unless fraud done with knowledge attributable through board processes, consent and connivance or not acting diligently Creation of panel or data bank by authorized institutions Procedure of selection – ‘as may be prescribed’ 39

40 Schedule IV CODE FOR INDEPENDENT DIRECTORS  Acts as a guide to professional conduct for independent directors I. Guidelines of professional conduct II. Role and functions III. Duties IV. Manner of appointment V. Re-appointment VI. Resignation or removal VII. Separate meetings VIII. Evaluation mechanism

41 Schedule IV Guidelines of Professional Conduct An independent director shall:  uphold ethical standards of integrity and probity;  act objectively and constructively while exercising his duties;  exercise his responsibilities in a bona fide manner in the interest of the company;  devote sufficient time and attention to his professional obligations for informed and balanced decision making;  not allow any extraneous considerations that will vitiate his exercise of objective independent judgment in the paramount interest of the company as a whole, while concurring in or dissenting from the collective judgment of the Board in its decision making;

42 Schedule IV Guidelines of Professional Conduct  not abuse his position to the detriment of the company or its shareholders or for the purpose of gaining direct or indirect personal advantage or advantage for any associated person;  refrain from any action that would lead to loss of his independence;  where circumstances arise which make an independent director lose his independence, the independent director must immediately inform the Board accordingly;  assist the company in implementing the best corporate governance practices.

43 Schedule IV Role & Functions The independent directors shall: (1) help in bringing an independent judgment to bear on the Board’s deliberations especially on issues of strategy, performance, risk management, resources, key appointments and standards of conduct; (2) bring an objective view in the evaluation of the performance of board and management; (3) scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance; (4) satisfy themselves on the integrity of financial information and that financial controls and the systems of risk management are robust and defensible; (5) safeguard the interests of all stakeholders, particularly the minority shareholders;

44 Schedule IV Role & Functions (6) balance the conflicting interest of the stakeholders; (7) determine appropriate levels of remuneration of executive directors, key managerial personnel and senior management and have a prime role in appointing and where necessary recommend removal of executive directors, key managerial personnel and senior management; (8) moderate and arbitrate in the interest of the company as a whole, in situations of conflict between management and shareholder’s interest.

45 Schedule IV-Duties The independent directors shall—  undertake appropriate induction and regularly update and refresh their skills, knowledge and familiarity with the company;  seek appropriate clarification or amplification of information and, where necessary, take and follow appropriate professional advice and opinion of outside experts at the expense of the company;  strive to attend all meetings of the Board of Directors and of the Board committees of which he is a member;  participate constructively and actively in the committees of the Board in which they are chairpersons or members;.

46 Schedule IV-Duties  He shall strive to attend the general meetings of the company;  where they have concerns about the running of the company or a proposed action, ensure that these are addressed by the Board and, to the extent that they are not resolved, insist that their concerns are recorded in the minutes of the Board meeting;  keep themselves well informed about the company and the external environment in which it operates;  not to unfairly obstruct the functioning of an otherwise proper Board or committee of the Board;  pay sufficient attention and ensure that adequate deliberations are held before approving related party transactions and assure themselves that the same are in the interest of the company

47 Schedule IV-Duites  He shall ascertain and ensure that the company has an adequate and functional vigil mechanism and to ensure that the interests of a person who uses such mechanism are not prejudicially affected on account of such use;  He shall report concerns about unethical behaviour, actual or suspected fraud or violation of the company’s code of conduct or ethics policy;  He shall be acting within his authority, assist in protecting the legitimate interests of the company, shareholders and its employees;  He shall not disclose confidential information, including commercial secrets, technologies, advertising and sales promotion plans, unpublished price sensitive information, unless such disclosure is expressly approved by the Board or required by law

48 Schedule IV Manner of Appointment (1)Shall be independent of the company management; (2)while selecting independent directors the Board shall ensure that there is appropriate balance of skills, experience and knowledge in the Board so as to enable the Board to discharge its functions and duties effectively. (3)The appointment of independent director(s) of the company shall be approved at the meeting of the shareholders. (4)The explanatory statement attached to the notice of the meeting for approving the appointment of independent director shall include a statement that in the opinion of the Board, the independent director proposed to be appointed fulfils the conditions specified in the Act and the rules made thereunder and that the proposed director is independent of the management.

49 Schedule IV Appointment Letter The appointment shall be formalised through a letter of appointment, which shall set out :  the term of appointment;  expectation of the Board from the appointed director;  Board-level committee(s) in which the director is expected to serve and its tasks;  the fiduciary duties that come with such an appointment along with accompanying liabilities;

50 Schedule IV Appointment Letter The appointment shall be formalised through a letter of appointment, which shall set out :  provision for Directors and Officers (D and O) insurance, if any;  the Code of Business Ethics that the company expects its directors and employees to follow;  the list of actions that a director should not do while functioning as such in the company; and  the remuneration, mentioning periodic fees, reimbursement of expenses for participation in the Boards and other meetings and profit related commission, if any.

51 Schedule IV Manner of Appointment & Re-Appointment  The terms and conditions of appointment of independent directors shall be open for inspection at the registered office of the company by any member during normal business hours.  The terms and conditions of appointment of independent directors shall also be posted on the company’s website  Re-appointment:  The re-appointment of independent director shall be on the basis of report of performance evaluation.

52 Schedule IV Resignation or removal (1) Shall be in the same manner as is provided in sections 168 and 169 of the Act. (2) Shall be replaced by a new independent director within a period of not more than one hundred and eighty days from the date of such resignation or removal (3) Where the company fulfils the requirement of independent directors in its Board even without filling the vacancy created by such resignation or removal, as the case may be, the requirement of replacement by a new independent director shall not apply.

53 Schedule IV Separate Meetings (1) At least one meeting in a year, without the attendance of non- independent directors and members of management; (2) All the independent directors of the company shall strive to be present at such meeting; (3) The meeting shall review the performance of : (a) non-independent directors and the Board as a whole; (b) the Chairperson of the company, taking into account the views of executive directors and non-executive directors; (c) And shall assess the quality, quantity and timeliness of flow of information between the company management and the Board that is necessary for the Board to effectively and reasonably perform their duties.

54 Schedule IV Evaluation Mechanism (1) The performance evaluation of independent directors shall be done by the entire Board of Directors, excluding the director being evaluated. (2) On the basis of the report of performance evaluation, it shall be determined whether to extend or continue the term of appointment of the independent director.

55 Creation of databank for Independent Directors--Rules  A body authorised by CG shall create and maintain a data bank of persons willing and eligible to be appointed as independent director  data bank shall be placed on the website of the Ministry of Corporate Affairs or on any other website  The data bank shall contain following details in respect of persons as Independent Directors  (a) DIN (Director Identification Number);  (b) the name and surname in full;  (c) income-tax PAN ;  (d) the father’s name and mother’s name and Spouse’s name (if married) ;

56 Small Shareholders (S. 151) Small Shareholders  Applicable to Listed Companies  Listed Company may have one director elected by small shareholders as may be prescribed  Small Shareholders means a shareholder holding shares of nominal value of not more than twenty thousand rupees or such other sum as may be prescribed.  Rule 7 of the Companies (Appointment and Qualification of Directors) Rules, 2014

57 Databank (e) the date of Birth; (f) gender; (g) the nationality; (h) the occupation; (i) full Address with PIN Code (present and permanent); (j) phone number; (k) id; (l) the educational and professional qualifications; (m) experience or expertise, if any;

58 Databank (n) any legal proceedings initiated or pending against such person; (o) the list of limited liability partnerships in which he is or was a designated partner along with – (i)the name of the limited liability partnership; (ii) the nature of industry; and (iii) the duration- with dates;

59 Databank (p) the list of companies in which he is or was director along with - (i) the name of the company; (ii) the nature of industry; (iii) the nature of directorship – Executive or Non-executive or Managing Director or Independent Director or Nominee Director; and (iv) duration – with dates.

60 Databank  Disclaimer ---that a company must carry out its own due diligence before appointment of any person as an independent director and “the agency” shall not be held responsible for the accuracy of information or lack of suitability of the person whose particulars form part of the databank.  Application under DIR-1 if anyperson wishes to include his name in Database of Independent Directors  Reasonable fee  The person whose name is in database shall intimate the agency within 15 days regarding any changes in his particulars

61 Key Managerial Personnel  Section 2(51) “key managerial personnel”, in relation to a company, means— (i) the Chief Executive Officer or the managing director or the manager; (ii) the company secretary; (iii) the whole-time director; (iv) the Chief Financial Officer; and (v) such other officer as may be prescribed;  Key Managerial Personnel be treated as following:  Officer- S. 2(59)  Officer in default- S. 2(60)  Related Party- S. 2(76)

62 Key Managerial Personnel S. 203  Appointment of KMP Every company belonging to such class or classes of companies as may be prescribed shall have the following whole-time key managerial personnel,— (i) managing director, or Chief Executive Officer or manager and in their absence, a whole-time director; (ii) company secretary; and (iii) Chief Financial Officer :

63 Key Managerial Personnel S. 203  Return be filed with ROC within 60 days of appointment in MR. 1  Class of Companies— Rule 8 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, Listed company and Public company having a paid-up share capital of Rs. 10 Crore or more shall have whole-time key managerial personnel.

64 Return of Appointment  RETURN OF KEY MANAGERIAL PERSONNEL [S. 170(2)]  A return containing such particulars and documents as may be prescribed, of the directors and the key managerial personnel shall be filed with the Registrar within thirty days in DIR.12 from the appointment of every director and key managerial personnel, as the case may be, and within thirty days of any change taking place.  Return of Appointment-Rule 3 of Rules  A Company shall file a return of appointment of a MD, WTD, Manager, CEO, CS, CFO within 60 days of appointment with the Registrar in Form No. MR. 1

65 Procedure of Appointment. Procedure of Appointment  Pass a Board Resolution  File Form MGT. 14 for registering of resolution of appointment of KMP and taking on record the disclosure of interest from the proposed KMP  File DIR. 12 within 30 days of appointment  File MR. 1 as the return of appointment to the Central Government within 60 days of appointment  In case the listed company wishes to seek approval for waiver of excess remuneration, appointment or re-appointment in cases of losses in Form MR. 2

66 Key Managerial Personnel (S. 203)  Limit on number of positions  Whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time. He can be a director of any other company with the permission of the Board.  Unanimous consent of all directors for the aforesaid resolution  Special notice has to be given to all the directors then in India.  Vacancy in office  the resulting vacancy shall be filled-up by the Board at a meeting of the Board within a period of six months from the date of such vacancy.  Penalty on contravention of Section 203  Company with fine not less than Rs. 1 Lacs which may extend to Rs. 5 Lacs  Every Director & KMP who is in default with fine which may extend to Rs. 50,000/- and where contravention is a continuing one, with a further fine which may extend to Rs for every day after the first during which the contravention continues.

67 Key Managerial Personnel REGISTER OF KEY MANAGERIAL PERSONNEL [S. 170(1)]  Every company shall keep at its registered office a register containing such particulars of its directors and key managerial personnel as may be prescribed, which shall include the details of securities held by each of them in the company or its holding, subsidiary, subsidiary of company’s holding company or associate companies. Register of contracts or arrangements in which directors are interested [S. 189]  Every Company shall keep such register  Every KMP shall within 30 days of his appointment or relinquishment of his office disclose to company the particulars specified in sub-section (1) of section 184  Relating to his concern or interest in the other associations which are required to be included in the register  Shall be kept at Registered office & be placed in every Board meeting & open for inspection during business hours  Be kept open for inspection at general meeting  Every director who fails to comply with the provisions of this section and the rules made thereunder shall be liable to a penalty of twenty-five thousand rupees.

68 Duties & Liabilities of KMP Section 21—Authentication of Documents or contracts (a) a document or proceeding requiring authentication by a company; or (b) contracts made by or on behalf of a company, may be signed by any key managerial personnel or an officer of the company duly authorized by the Board in this behalf Section 92(1)(e)—Annual return Annual return should specify  the details of KMP alongwith changes therein related with previous financial year  Remuneration of KMP Section 102—Explanatory Statement  Should disclose the nature of concern or interest, financial or otherwise, if any, in respect of each items of KMP  If any benefit accrued due to non-disclosure KMP shall compensate the same to company  If default in complying then every promoter, director, manager or other key managerial personnel who is in default shall be punishable with fine which may extend to fifty thousand rupees or five times the amount of benefit accruing to the promoter, director, manager or other key managerial personnel or any of his relatives, whichever is more

69 Section 192--Prohibition on forward dealings in securities of company by director or key managerial personnel. KMP shall not buy in the company, or in its holding, subsidiary or associate company—  a right to call for delivery or a right to make delivery at a specified price and within a specified time, of a specified number of relevant shares or a specified amount of relevant debentures; or  a right, as he may elect, to call for delivery or to make delivery at a specified price and within a specified time, of a specified number of relevant shares or a specified amount of relevant debentures.  Imprisonment for a term which may extend to two years or with fine which shall not be less than Rs1 lakh but which may extend to Rs5 lakh or with both Section 195--Prohibition on Insider trading of securities  KMP of a company shall not enter into insider trading  Imprisonment for a term which may extend to five years or with fine which shall not be less than Rs5 lakh but which may extend Rs25 crore or three times the amount of profits made out of insider trading,whichever is higher,or with both. Duties & Liabilities of KMP

70 Key Managerial Personnel  Effect of being a KMP  Cannot become a Auditor  if relative is a KMP of the Company  If he himself is a KMP in preceding 3 financial years  Right to be heard at Audit Committee Meetings  Section 177(7)—KMP shall have the right to be heard in the meetings of the Audit Committee when Auditor considers its report but shall not have the right to vote.  Section 178--The Nomination and Remuneration Committee shall--  Recommend to the Board a policy, relating to the remuneration for the key managerial personnel  Ensure that remuneration to KMP shall involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goals

71 Key Managerial Personnel  Disclosure in Board’ Report as under Rules  comparison of the remuneration of the Key Managerial Personnel against the performance of the company  comparison of the each remuneration of the Key Managerial Personnel against the performance of the company

72 Directors  Who is a Director?  Section 2(34)-- “director” means a director appointed to the Board of a company  When a Director shall become interested  Section 2(49) “interested director” means a director who is in any way, whether by himself or through any of his relatives or firm, body corporate or other association of individuals in which he or any of his relatives is a partner, director or a member, interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into by or on behalf of a company;

73 Minutes of Meetings (S. 118) Prepared and signed  Board or Committee – Chairman of the meeting or next meeting Kept within 30 days of conclusion of board meeting Dissents to be recorded with names of directors dissenting Chairman enjoys absolute discretion as regards inclusion or exclusion of any matter in the minutes – defamatory, irrelevant, detrimental to the interest of the company. 73

74 Board Meetings  First Board Meeting within 30 days  4 Board Meetings every year by each company  Gap between two meetings - not more 120 days  Board Meeting through Video Conferencing or audio visual means  Minimum 7 days’ notice  Quorum – higher of 1/3rd or 2 74

75 Directors (S.149) Minimum  Public – 3  Private – 2  OPC – 1 Maximum – 15 To appoint more than 15, Special Resolution is required One director to be ordinarily resident in India – 182 days in India in preceding financial year 75

76 Directors (S. 149) At least one Women Director  Listed Company  Public Company having  PUC – Rs 100 Crores or more; or  Turnover – Rs. 300 Crores or more Listed Companies to comply within one year of commencement of this provision Other Public Companies to comply within 3 years of commencement of this provision 76

77 Directors (S. 165) Maximum number of directorship (S.165)  Overall 20 including private companies  Directorship in Public Companies cannot exceed 10  Private Companies, which are subsidiary or holding of a public company, will be counted in the figure of 10 meant for public companies  Includes Alternate Directorship also  Director to choose companies within one year if he holds directorships in more companies  Intimate Company and Registrar of his resignation due to Section

78 Directors 1/3rd directors to be independent  Listed Companies  Public Companies  PUC – Rs. 100 Crores or more; or  Turnover –Rs. 300 Crores or more;  Aggregate of loans, borrowings, debentures, deposits – Exceeding Rs. 200 Crores Existing Companies – To comply within 1 year 78

79 Directors (S. 164) Disqualification  If he is of undischarged insolvent  He has applied to be adjudicated as an insolvent  He has been convicted by a court of any offence, whether involving moral turpitude or otherwise and sentenced in respect thereof to imprisionment for not less than six months and a period of 5 years has not elapsed  If a person is convicted and sentenced for seven years or more, then he cannot become a director in any company  Order disqualifying him for appointment has been passed by Court or Tribunal  Has not paid for qualification shares & 6 months have elapsed 79

80 Directors (S. 164) Disqualification  If a person is convicted of offence dealing with related party transactions under section 188 acontinous period of 3 financial yearst any time during the last preceding 5 years  Has not taken DIN No  Is a director of a Company which has :  Not filed Filed financial statements or annual returns for any continous period of 3 financial years  Failed to repay deposits accepted or intersts thereon 80

81 Directors(S. 164) Disqualification provisions under Rules  Every Director shall inform to the Company about his disqualification in form DIR-8 before appointment or re-appointment  If Company fails to file the financial statements or annual return or repay its deposits or redeem its debentures it shall intimate ROC in Form DIR-9  If Company fails to file DIR-9 within 30 days officers of the Company u/s 2(60) shall be officers in default  Application for removal of disqualification be made in Form DIR-10

82 Directors (S. 167) Vacation of Office by a Director (a) If disqualified under section 164; (b) he absents himself from all the meetings of the Board of Directors held during a period of twelve months with or without seeking leave of absence of the Board; (c) he acts in contravention of the provisions of section 184 relating to entering into contracts or arrangements in which he is directly or indirectly interested; (d) he fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested, in contravention of the provisions of section 184; (e) he becomes disqualified by an order of a court or the Tribunal;

83 Directors (S. 167) Vacation of Office by a Director (f) he is convicted by a court of any offence, whether involving moral turpitude or otherwise and sentenced in respect thereof to imprisonment for not less than six months: Provided that the office shall be vacated by the director even if he has filed an appeal against the order of such court; (g) he is removed in pursuance of the provisions of this Act; (h) he, having been appointed a director by virtue of his holding any office or other employment in the holding, subsidiary or associate company, ceases to hold such office or other employment in that company.

84 Duties of Directors Section 166  Subject to the provisions of this Act, a director of a company shall act in accordance with the company’s articles.  A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interest of the company.  A director of a company shall exercise his duties with due and reasonable care, skill and diligence.  A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company. 84

85 Duties of Directors (Section 166)  A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates.  A director of a company shall not assign his office and any assignment so made shall be void.  Any director who contravenes the provisions of this section shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees. 85

86 Resignation (S. 168)  Acceptance of Resignation by the Board is not mandatory  Director resigning to intimate the Registrar within 30 days of his resignation  Resignation takes effect from the date on which notice is received by the company or the date specified by the director, whichever is later 86

87 New Definitions Board of Directors [2(10)]  Means the collective body of the directors of the company Director [2(34)]  Director means the director appointed to the Board of Directors of the Company Director under Companies Act, 1956 [2(26)]  Director includes any person occupying the position of a director by whatever name called 87

88 New Definitions Control [2(27)]  Includes  Right to appoint majority of the directors  Control the management or policy decision  By person or persons, acting individually or in concert, directly or indirectly  By virtue of shareholding or management rights, or shareholders agreement or voting agreements or in any other manner 88

89 New Definitions Interested Director [2(49)]  Means  A Director, who is in any way, himself or  Through any of his relatives or firm, body corporate or another association of individuals in which he or any of his relatives is a partner, director or a member  Interested in a contract or arrangement or proposed contract or arrangement  Entered into or proposed to be entered into by or on behalf of the company 89

90 New Definitions Managing Director [2(54)]  Director entrusted with substantial powers of the management of the company  Includes a director or occupying the position of a managing director, by whatever name called  By virtue of an agreement, articles, board or shareholder’s resolution 90

91 New Definitions Officer in default [2(60)]  Whole-time Director  Key Managerial Personnel  No KMP, then specified director, else all directors  Any person who –  under the immediate authority of the Board or any key managerial personnel  Is charged with any responsibility including maintenance, filing or distribution of accounts or records  Authorizes, actively participates in, knowingly permits, or knowingly fails to take actives steps  To prevent any default 91

92 New Definitions Officer in default [2(60)]  Any person in accordance with whose advice, directions or instructions, the Board is accustomed to act (Excludes advice given in a professional capacity)  Every Director, who is aware of such contravention by virtue of receipt of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention takes place with his consent or connivance  Share Transfer Agents, Registrars and Merchant Bankers, in respect of issue or transfer of any shares 92

93 New Definitions Related Party [2(76)]  Director or his relative  KMP or his relative  Firm in which a Director, Manager or relative is partner  Private Company in which a Director or Manager is a member or director  Public Company in which a Director or Manager is a director or holds more than 2% either himself or through his relatives  Body Corporate or Person – Company is accustomed to act under their direction – Excludes Professional Advise 93

94 New Definitions Related Party [2(76)]  Holding, Subsidiary or Associate Company  Subsidiary of a holding company to which it is also a subsidiary  Such other person, as may be prescribed a director or key managerial personnel of the holding, subsidiary of such company or his relative; 94

95 New Definitions Relative [2(77)]  Members of HUF  Husband and wife  Related in a manner as may be prescribed  8 categories prescribed  Father (Step Father), Mother (Step Mother), Son (Step Son), Son’s wife, Daughter, Daughter’s husband, Brother (Step Brother), Sister (Step Sister)  14 Removed – Father’s father, Father’s mOther, Mother’s father, Mother’s mother, Son’s son, Son’s daughter, Son’s son’s wife, Son’s daughter’s husband, Daughter’s son, Daughter’s Son’s wife, Daughter’s daughter, Daughter’s daughter’s husband, Brother’s wife, Sister’s husband 95

96 New Definitions Small Company [2(85)]  Other than a Public Company  PUC does not exceed 50 lakhs or as may be prescribed (not exceeding 5 Crores)  Turnover does not exceed Rs. 2 Crores or prescribed amount (not exceeding Rs. 20 Crores)  Not applicable to holding or subsidiary company or licensed company (Section 8) 96

97 Directors Minimum  Public – 3  Private – 2  OPC – 1 Maximum – 15 To appoint more than 15, Special Resolution is required One director to be ordinarily resident in India – 182 days in India in preceding financial year 97

98 Directors At least one Women Director  Listed Company  Public Company having  PUC – Rs 100 Crores or more; or  Turnover – Rs. 300 Crores or more Listed Companies to comply within one year of commencement of this provision Other Public Companies to comply within 3 years of commencement of this provision 98

99 Directors Maximum number of directorship (S.165)  Overall 20 including private companies  Directorship in Public Companies cannot exceed 10  Private Companies, which are subsidiary or holding of a public company, will be counted in the figure of 10 meant for public companies  Includes Alternate Directorship also  Director to choose companies within one year if he holds directorships in more companies  Intimate Company and Registrar of his resignation due to Section

100 Directors 1/3rd directors to be independent  Listed Companies  Public Companies  PUC – Rs. 100 Crores or more; or  Turnover –Rs. 300 Crores or more;  Aggregate of loans, borrowings, debentures, deposits – Exceeding Rs. 200 Crores Existing Companies – To comply within 1 year 100

101 Nominee Director  Not defined in Companies Act, 1956  Companies Act 2013  A director nominated by any financial institution pursuant to law, agreement or appointed by Govt. or any other person to represent its interests 101

102 Duties Subject to the provisions of this Act, a director of a company shall act in accordance with the company’s articles. 2. A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interest of the company. 3. A director of a company shall exercise his duties with due and reasonable care, skill and diligence. 102

103 Duties 4. A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company. 5. A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates. 6. A director of a company shall not assign his office and any assignment so made shall be void. 103

104 Duties  Any director who contravenes the provisions of this section shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees. 104

105 Resignation (S. 168)  Acceptance of Resignation by the Board is not mandatory  Director resigning to intimate the Registrar within 30 days of his resignation  Resignation takes effect from the date on which notice is received by the company or the date specified by the director, whichever is later 105

106 Board Meetings  First Board Meeting within 30 days  4 Board Meetings every year by each company  Gap between two meetings - not more 120 days  Board Meeting through Video Conferencing or audio visual means  Minimum 7 days’ notice  Quorum – higher of 1/3rd or

107 Audit Committee (S. 177) Listed Company Other Public Company having  PUC of Rs. 100 crores or more  Borrowings of Rs. 200 crores or more Audit Committee  3 Directors – Independent directors in majority  Majority of directors shall be financially literate  Reconstituted within one year 107

108 Audit Committee  Terms of Reference  Auditor Appointment  Review independence and performance of Auditor  Examination of financial statement  Related Party Transaction  Scrutiny of Inter-corporate loans and investments  Valuation of undertakings  Internal Control  End Use of Public Funds 108

109 Audit Committee  Vigil Mechanism [S. 177(9)]  Listed Company  Class of companies  Deposit from Public ;and  Borrowings from Banks and Fis in excess of Rs. 50 crore  To report genuine concerns of directors and employees  Safeguard against victimization of whistle blower 109

110 Powers of Board (S.179)  Resolution at Board Meetings only – Additional business  Approving Financial Statement and Board Report  Diversification of Business  Approving Amalgamation, merger or reconstruction  Takeover or Acquisition in another company  Issue of Securities  to make political contributions;  to fill a casual vacancy in the Board;  to enter into a joint venture or technical or financial collaboration or any collaboration agreement; 110

111 Powers of Board (S.179)  Resolution at Board Meetings only – Additional business  to commence a new business;  to shift the location of a plant or factory or the registered office;  to appoint or remove key managerial personnel (KMP) and senior management personnel one level below the KMP;  to appoint internal auditors; to adopt common seal;  to take note of the disclosure of director’s interest and shareholding; 111

112 Powers of Board (S.179)  Resolution at Board Meetings only – Additional business  To sell investments held by the company (other than trade investments), constituting five percent or more of the paid – up share capital and free reserves of the investee company;  to accept public deposits and related matters and;  to approve quarterly, half yearly and annual financial statements. 112

113 CSR S. 135 – Every company  Net worth – 500 crores or more  Turnover – 000 crores or more  Net Profit – 5 Crores or more  Constitute CSR Committee of 3 directors – at least one to be independent director  Board Report to disclose constitution of CSR Committee 113

114 CSR Committee Formulate and Recommend to Board CSR Policy Recommend the amount of expenditure to be incurred Monitor CSR Policy Board to ensure spent of at least 2% of average net profits of the company made during 3 immediately preceding financial years Preference to be given to local areas Failure to spend – give reasons 114

115 Board’s Report 115  Board Report to include  Extract of Annual Return  Number of board meetings  Directors’ Responsibility Statement  Statement on declaration given by Independent Directors  Company’s policy on directors’ appointment and remuneration  Comments on Qualifications, Reservations, Adverse Remark or Disclaimer

116 Board’s Report 116  Board Report to include  Conservation of Energy, Technology Absorption, Foreign Exchange Earnings & Outgo  Listed Company and Public Company with PUC of 25 Crores or more – Manner of annual evaluation by Board, Committees and Directors  Particulars of contracts, arrangements with related parties as per Form AOC-2  CSR Initiatives as per Section 135 & Rules made thereunder

117 Board’s Report 117  Board Report to include  Directors or KMP appointed during the year  Deposit details  Significant and Material orders passed by the Regulators or courts or tribunals impacting the going concern status and company’s operations in future  Details in respect of adequacy of internal financial controls with reference to the Financial Statements

118 Copies of Audited Financial Statements Companies to send copies of Financial Statements to all members at least 21 days before the meeting. Listed Companies –  May not send copies to all members unless demanded  Statement containing salient features of documents in prescribed form is sent as per Form AOC-3  Inspection to be allowed  To be placed on website 118

119 Copies of Audited Financial Statements Filing of Financial Statements with RoC within 30 days of AGM If not adopted at AGM, file unadopted Financial Statements OPC to file within 180 days of the close of Financial Year If AGM not held, statement of facts and reasons to be filed with RoC Failure to file – Company – Rs. 1000/ per day – Max. 10 lakhs MD/CEO/Director in charge or else all board members – Imprisonment – 6 months or fine – Min 1 Lakh, Max. 5 lakhs or both 119

120 Manner of Circulation of Financial Statement Listed Companies and Public Companies having net worth of more than Rs 1 Crore & Turnover more than Rs. 10 Crore the financial statement may be sent By electronic mode to members whose shareholding is in demat form and whose ids are registered with Depository Otherwise to non-demat holders who have consented in writing for receiving in electronic form In all other cases, by despatch of physical copies through Post, Regd. Post, Speed post or Courier 120

121 Thank you for your patience! Ashish Makhija #


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