1. Analysis of Companies Act, 2013 & Related Rules CS Ranjeet Pandey - FCS, LL.B. Past Chairman, NIRC- ICSI Ranjeet Pandey & Associates Practising Company Secretary Mobile: 09810558049, 011 – 46074119 e-mail: cs.ranjeet@gmail.com

2. Chapter VII Management & Administration (section 88 – 122) Companies (Management & Administration) Rules, 2014 Forms: MGT1 – MGT14

3. Register of Member (Section 88) Register of Member [Form MGT 1]: New Companies - From the date of Registration. Additional particulars to be maintained within 6 months. Co. not having share capital – details of member, amount of guarantee – compliance in 6 months. Register of Debenture holders (Form MGT 2).

4. Register of Member (Section 88) Maintenance of Register of Members, etc. (Rule 5): Transfer / Transmission – entry within 7 days from BR; Kept at RO – other place by SR or where 1/10 members resides. Changes to be incorporated – within 7 days ; Reason for Changes also to be mentioned; Order of any authority – Reference of Order; Listed Company – Pledge, etc. by promoters – 15 days ; Entries to be authenticated – CS / person authorized (Rule 8);

5. Declaration of Beneficial Interest(Section 89) Declaration in respect of beneficial interest (Rule 9): Registered owner – Declaration in Form MGT4– 30 days; Beneficial Owner – Form MGT 5 – 30 days; Company to file Return in Form MGT6 – 30 days;

6. Annual Return (Section 92) Annual Return signing & Certification:  Annual Return – Form MGT 7 ;  Signing: Director and CS, if no CS by PCS;  Annual Return Certification: Listed Company or by Company having paid-up capital Rs. 10 Crores or turnover Rs. 50 Crores. Certificate in Form MGT8 ;  Not required for Small Companies or OPC.  PCS to certify: AR discloses the facts correctly and adequately; and Company has complied with all the provisions of this Act.

7. Annual Return  Now it will be prepared upto close of FY not AGM.  Extract of the annual return in Form MGT 9 shall be part of the Board’s report. Challenges : Will be very difficult to certify whether AR discloses the facts correctly & adequately; Certification of Compliances of all provisions of the Act. Wrong Certification – from Rs. 50,000/- upto Rs. 5 Lacs. Non-filing default - Non-compoundable offence.

8. Annual Return…. Contents of Annual Return :- Principal business activities; Particulars of its holding, subsidiary and Associate Companies; Promoters, directors, KMP alongwith changes therein; Meetings of members or a class thereof; Board and its various committees along with attendance details ; Remuneration of directors and KMP, penalty or punishment imposed on the company, its directors or officers and details of compounding of offences and appeals made against such penalty or punishment. Matters relating to certification of compliances, disclosures as may be prescribed, Such other matters as may be prescribed.

9. Return on Promoters’ stake Change (Sec. 93)  Listed Company to file Return on Changes of Stake of promoters or top 10 shareholders in Form MGT 10 (Rule 14) ;  Increase or Decrease of 2 % in shareholding;  To be filed to RoC, within 15 days of Change;

10. AGM/EGM  First AGM to be conducted within 9 months from close of FY;  AGM to be called during Business Hours (9 am to 6 pm);  Not allowed on National Holiday;  Quorum: <1000 members – 5 members; 1000-5000 members – 15 members; 5000 or more members – 30 members.  Voting through electronic mode allowed.

11. Notice of AGM/EGM  Notice in electronic mode is allowed.  Shorter Notice – consent of 95 % of members in writing or in electronic mode (Earlier 100% for AGM).  Notice to specify place, day, date, time and statement of business to be transacted.  Notice of AGM is now to be issued to Directors also.

12. AGM/EGM – Other Changes  Meeting adjourned sine die – 3 days notice will be required.  Now a person can act as proxy for members not exceeding 50 or for such number of shares as prescribed.  Demand of Poll by member/proxy - holding shares with Rs.5,00,000/- paid up or such higher amount as may be prescribed (earlier 50,000) or 1/10 th of Capital.

13. E-Voting Voting through electronic means (Section 118, Rule 20):  Listed Company or Company having 1000 or more Shareholders to provide e-voting facility in General Meeting;  ‘‘Voting by electronic means’’ or ‘‘Electronic Voting System’ ’ means a ‘secured system’ based process of display of electronic ballots, recording of votes and number of votes polled in favour or against, such that the entire voting exercised by way of electronic means gets registered and counted in an electronic registry in a centralized server with adequate ‘cyber security’ ;

14. E-Voting Process of e-voting (Section 118, Rule 20):  Notice of the meeting to be sent to members, Auditors & Directors;  Notice by Regd. Post, E-mail, Courier and place it on Website;  Process and manner of voting, Login ID, Password generating process to be given in Notice;  Advertisement in Newspaper, 5 days before beginning of voting period given details of specified matters;  E-voting to remain open for min 1 day or max 3 days, thereafter portal should be blocked forthwith;  Voting should complete 3 days prior to General Meeting;

15. Postal Ballot (Section 110) Provisions of the New Rules:  Time limit prescribed for submission of report of postal ballot (Within 7 days from the last date of receiving postal ballot forms).  Extension in coverage of postal ballot (All companies except OPC and companies having members upto 200 ).

16. Postal Ballot (Section 110) Items to be Transacted through Postal Ballot: 1.Alternation of Object Clause; 2.Alteration of AOA on conversion as Pvt. Ltd. Co.; 3.Shifting of Registered office outside city, town or village ; 4.Change in object of Issue of Prospectus; 5.Issue of Shares with Diff. voting rights u/s 43; 6.Variation in right as per section 48; 7.Buy Back of Shares u/s 68; 8.Election of Director u/s 151; 9.Sale of Undertaking u/s 180; 10.Loan/Guarantee/security u/s 186(3).

17. Board Report – Additional Disclosures Board Report to include:  Extract of Annual Return  Number of Meetings of the Board  Enhanced Directors’ Responsibilities Statement Statement that the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively For listed companies - directors had laid down internal financial controls and such controls were adequate and operating effectively  Declaration of Independent Directors  Policy on Directors’ appointment and remuneration.

18. Board Report – Additional Disclosures Board Report to include:  Explanation on qualification / reservations / adverse remark / disclaimer in Secretarial Audit Report  Particulars of loans, guarantees and investment  Particulars of contract or arrangement with Related Party  Statement relating to Risk Management Policy – development & implementation  CSR policy- development & implementation  Board evaluation, its and committee performance Penalties: Company – Fine not less than Rs. 50 thousand to 25 lakhs Officer – imp. of 3 years or fine not be less than Rs. 50K to 25 lakhs.

19. Chapter XI Appointment & Qualification of Directors

20. Board of Directors Number & Type of Directors (Section 149):  Minimum no. of Directors: Pub Co. 3, Pvt. Co. – 2, OPC - 1;  Maximum No: 15 (Fifteen);  One Women Director mandatory for (Rule 3): Listed Companies – within 1 Year, Public Co- Paid-up Share Capital – 100 Cr or Turnover - 300 Cr. or more – within 1 year. New Co. to comply in 6 months, Vacancy – filled in 3 months,  One Resident Director – Stay in India for 182 days;

21. Independent Directors Number, Tenure, Vacancy, etc.  Listed companies - 1/3 rd of total Director.  Every Public Company (Rule 4): - Paid-up Share Capital – 10 Cr, Turnover - 300 Cr., Loans/ Debentures/ Deposits - exceeding 200 Cr.  Timeline – 1 Year, Vacancy – fill-up by next BM or in 3 month, whichever is later.  Term - 5 consecutive years – 2 Terms (2nd term – SR; Tenure as on date – not to be counted);  After 2 terms - cooling period of 3 years, provided -not associated with company during 3 years period in any capacity, either directly or indirectly.

22. Independent Directors Independent Director – meaning & Criteria – Sec 149(6):  Not an MD or WTD or nominee,  Person of integrity and relevant experience and expertise;  Not a promoter of Co. or holding co. or sub. Co. or associate co,  Not related to promoter,  No pecuniary relationship during preceding 2 Fys  Whose relative has no pecuniary relationship or transaction – 2 % T/o / Income or Rs. 50 lacs, whichever is lower for 2 FYs.  Not holding KMP position or employee during previous 3 FYs;  Not an Employee or proprietor or partner of Auditors/Consulting firm  Not holds 2 % or more voting power;  Not having executive position in NGO, which receives 25 % receipt from Co.  Qualification - Finance, Law, Mgt., Sales, Marketing, Admin, Research, CG, Tech. Operations or other disciplines of Business(R5);

23. Independent Directors  An ID may be selected from data bank (Application – DIR.1) maintained by notified Institute or Association;  Independent Directors shall not be Rotational Directors;  Alternate Director to comply with “Independence” criteria;  Not entitled to any stock option remuneration: Only sitting fee, Re-imbursement of expenses for participation in meetings;  Code for Independent Director (Sch IV);  No liability for Civil of Criminal action - only for acts of omission or commission through Board process;  To give a declaration – 1st time & annual.

24. Directors Appointment of Directors and other provisions:  A listed company may have one Small Shareholders Director holding shares of less than INR 20000 (Sec. 151) – Application by 1000 or 1/10 th members.  No appointment without DIN – Application Form DIR. 3, verification – Form DIR. 4, Surrender of DIN – Form DIR. 5, Modification in DIN Form DIR. 6, Verification – Form DIR. 7, (Rule 9);  Director not act as Director unless Consent to act (Form DIR. 2 ) Director given and filed with ROC in Form DIR. 12 within 30 days - applicable to all Companies (Section 152, Rule 8).  Appointment proposal – 14 days notice, deposit of Rs. 1 Lakh for Contestant – Refund (25% votes) ;

25. Directors Directors – Other major changes:  Attending 1 meeting physically made mandatory.  A person can hold office as a director, in atmost 20 companies & 10 companies can be public limited. Includes Alternate Directorship also.  Members of Co. may by SR specify lesser no. than 20  The Company shall not advance any loan, give guarantee or provide security to any of its directors – earlier allowed with CG approval.

26. Directors Rotation of Directors (Sec. 152(6)]:  First Director to Retire at First AGM;  Rotational - 2/3 rd of total number in Public Co.;  Non-rotational – 1/3 rd Directors;  1/3 rd out of Rotational Directors to Retire in every AGM;  Independent Directors, Additional Director, Small Shareholders Directors not to be counted in Total no. of directors;  Total – 12 Directors, 2/3 rd = 8, 1/3 rd = 2.6 = 3 to retire in each AGM;

27. Directors Additional Directors / Alternate / Casual Vacancy (Sec. 161):  Board may appoint Additional Director – till AGM;  Alternate Director to be appointed, if Director is out of INDIA;  Alternate to ID must be independent himself;  Board may appoint Nominee Director;  Board may fill-up casual vacancy;

28. Directors Other Provisions (Sec. 164):  Director to inform disqualification in Form DIR. 8;  If Company defaulting in filing or payment - Co. to file Form DIR. 9;  Application for Removal of disqualification – Form DIR. 10;  Director resigning – to give notice in writing to Company and copy to the ROC in Form DIR. 11 alongwith the detailed reasons within 30 days.  Return of Appointment / Resignation – Form DIR. 12 – 30 days;

29. Directors Duties of Directors:  Duties for Directors prescribed (section 166): To act as per Articles; To act in good faith, promote objects for benefit of members, interest of Co. / Employees / Shareholders / Community / Environment. Reasonable care, skills, diligence and independence; No undue advantage or gain.  “Internal Financial Controls” and “Systems to ensure compliances with laws” included in DRS.

30. Chapter XII Meeting of Board and its Power (section 173 – 195) Companies (Meeting of Board & its Powers) Rules, 2014 Forms: MBP. 1 – MBP. 4

31. Board Meetings Meeting of Board (Section 173):  First board meeting within 30 days of incorporation;  Atleast 4 board meetings in a year – max gap 120 days between the 2 meetings;  For OPC / small / dormant company atleast 1 meeting in each half with minimum gap 90 days between the meetings.  FIs may prescribed separate requirement for assisted companies to hold meetings:- every month in regard to sick / potentially sick companies every alternate month in regards to companies under substantial expansion / modernization.

32. Board Meetings Notice of the Meetings:  7 days notice in writing to all directors by hand delivery/ electronic means;  Shorter notice – to transact urgent business – at least one independent to be present – else the proceedings circulated to all directors and final only after ratification by at least one independent director, if any.  Fails to give notice – Penalty of Rs. 25,000/-;

33. Resolution by Circulation Resolution by Circulation (Section 289 vs. Section 175):  To be sent by hand / post / courier / electronic means and approved by majority of directors or members of committee.  If not less than 1/3 rd of the directors want any transaction to be conducted at meeting, chairman will have to oblige.  Circular resolution to be noted at subsequent meeting and made part of the minutes.

34. Committees of Board Audit Committee (Sec 177):  Listed + Public Company (Paid-up capital – 10 Cr, T/O – 100 Cr, Borrowing – 50 Cr.) to have audit committee with atleast 3 members (independent directors to be in majority).  Existing Audit Committee - Reconstitution – within 1 year;  Matters to be dealt with by Audit Committee: Recommendation of appointment & Remuneration of Auditors; Review and monitor auditors performance; Examination of Fin. Statement and Auditors Report; Related Party Transactions; Scrutiny of inter-corporate loan & investm’t; Valuation of undertaking or asset; Evaluation of internal fin. Control, & risk mgt system; Monitoring the end use of the funds raised through Public offer;

35. Committees of Board Vigil Mechanism (Sec 177):  A Vigil mechanism in listed Cos & Co. (Accepting Deposits or Borrowing from Bank / FIS more than 50 Cr.).  Whistle blower safeguards - to have direct access to chairperson in exceptional or appropriate cases;  Mechanism to be put on website and in the boards’ report.

36. Committees of Board Nomination & Rem. Committee (Sec. 178):  Listed + Public Company (Paid-up capital – 10 Cr, T/O – 100 Cr, Borrowing – 50 Cr.) shall have 3 or more NEDs of which not less than half to be independent directors.  Chairman of Company whether executive or not, may be appointed on remuneration committee, but not to be chairman of the committee. (New restriction).  Remuneration to Directors / KMP/ SR. Mgt. to have balance between fixed/incentive pay to meet short and long term goals.  Policy to be disclosed in the board’s report.

37. Committees of Board Stakeholders Relationship Committee:  Board of company consisting more than 1000 shareholders / Debentureholders/ depositors and any other security holders any time during F.Y. to have a stakeholders relationship committee  Headed by non-executive director. Other members as board decides.  This committee to consider and resolve the grievances of security holders.

38. Powers of Board Power of Board (Section 292 vs. section 179):  Apart from Sec. 79, items requiring resolution in Meeting: to make political contributions; to appoint or remove KMPs; take note of appointment(s)/removal(s) of one level below KMP; to appoint internal auditors and secretarial auditor ; to take note of the disclosure of director’s interest and shareholding; to buy, sell investments, constituting 5% or more of paid up capital and free reserves of the investee Company; to invite or accept or renew public deposits and related matters; to review or change the terms and conditions of public deposit; to approve quarterly, half yearly and annual financial statements or financial results as the case may be.

39. Powers of Board Restriction on power of Board (Section 293 vs. section 180):  Now applicable to all the Companies.  Power to dispose the undertaking or Borrow or invest money beyond prescribed limit is through Special Resolution now ;  All other provisions are same except inclusion of definition of “Undertaking” – 20% of net worth or generates 20% of total income;

40. Related Party & Related Party Transactions

41. Interested Directors Interested Director - Section 2(49): A director who is in any way, whether by: himself or Through 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;

42. Disclosure of Interest Disclosure of Interest (Section 299 vs. section 184):  Director to disclose at the first meeting of board in which Director participates and in every first Board Meeting of the FY held or whenever there is any change in the disclosures already made.  Disclosure in Form MBP. 1;  All notices shall be kept at RO and be preserved for 8 years and kept in the custody of CS or person authorized by the Board.  Companies to maintain register for Contracts or Arrangements, which directors are interested & for Related Party Transactions.  If director contravenes 184(1) or (2) shall be punishable with imprisonment upto one year or fine min 50,000/- and upto 1,00,000/- or both (earlier fine upto 50,000/-).

43. W HO IS R ELATIVE ?? Member of HUF; Spouse; As per Schedule IA of the CA, 1956 – 22 relations Member of HUF; Husband and wife; As per Companies (Specification of Definition Details) Rules, 2014: Father including Step-father; Mother including Step-mother; Son including Step-son; Son’s wife; Daughter; Daughter’s Husband; Brother including Step-father; Sister including Step-father; Relative under S/6 Relative under S/ 2(77) readwith Rules

44. W HO IS R ELATED P ARTY ?? For a company: Director Directors’ Relative Firm in which director or his Relative is partner Any other partner in such firm Private Company of which Director is a member or Director. For company: New Inclusions Director, a KMP or his relative; Firm & Pvt. Co. - Director, Manager or his relative; A public Co. – director / manager is a director or holds alongwith his relatives more than 2 % of its capital. Any body corporate whose board or MD or Mgr. is accustomed to act – on instructions of a director or manager. Any person on whose advice, directions, or instructions a director or manager is accustomed to act. HCo./SCo./ Associate Co – SI/JVC. Subsidiary of a holding company. Related Party under S/297 Related under S / 2(76) readwith 188

45. W HAT IS R ELATED P ARTY T RANSACTION ?? Sale, purchase or supply of any goods, materials, or services. Underwriting the subscription of any shares in, or debentures of, the company. Sole Selling Agents u/s 294 Place of Profit under section 314. Scope of related transactions widened sale, purchase or supply of any goods or materials; selling or otherwise disposing of, or buying, property of any kind; leasing of property of any kind; availing or rendering of any services; appointment of any agent for purchase or sale of goods, materials, services or property; such related party's appointment to any office or place of profit in the company, its subsidiary company or associate company; and underwriting the subscription of any securities or derivatives thereof, of the company: Existing ProvisionsNew Provision under section 188

46. Implications of Changes in RPTs New section 188 readwith Section 2(76):  Contracts pertaining to sale / lease / purchase of immovable properties are no more exempt.  Contracts with any of the related parties, which are at arm’s length price basis and in the ordinary course business, irrespective of value will be exempted.  Contracts with following, which are not at arm’s length or not in the ordinary of business will also require Board’s Meeting approval: between public companies where director is a Director or holds along with his relatives more than 2% of Paid ‐ up Share Capital. holding / subsidiary / associate / fellow subsidiary; CFO/CS/Manager or their relatives.

47. Implications of Changes in RPTs New section 188 readwith Section 2(76):  No approval of Central Government RPTs or for appointment of a director or any other person to office of profit or for Agents.  Contracts with related parties above prescribed limits, which are not at arm’s length or not in the ordinary course of business will require Shareholder’s approval by SR.  For Shareholders’ meeting - Concept of Interested members introduced - related members can’t vote on such resolutions. In case of WOS, who will vote?  Disclosure with justification to be given in Directors’ Report.

48. Related Party Transactions When Shareholders’ approval will be required:  For every transaction, where paid-up capital of the company exceeds 10 Crores, or,  For section 188(1)(a) to (e) - Transactions of Sale, Purchase, supply of goods or material exceeds 25% of the annual turnover ;  Selling or otherwise disposing of, or buying, property of any kind directly or through agents exceeding 10% of net worth ;  Leasing of property of any kind exceeding 10% of net worth or exceeding 10% of turnover ;  Services – 10% of net worth ;  Place of profit - remuneration exceeding Rs. 2.5 Lacs or,  Underwriting - Fees exceeding 1% of Net Worth.

49. Consequences Consequences if RPTs not ratified by board / General Meeting:  A contract entered into by the company without disclosures under 184(2) or with participation of interested director shall be voidable at the option of the Co.;  The directors concerned shall indemnify the company against any loss incurred by it & Company can recover losses from director or other employee;  A director is disqualified for appointment, if he has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years;  Unlisted Company, Director / employee – fine Rs. 25K to 5 Lacs ;  Listed Company, Director / employee – imprisonment 1 year or fine Rs. 25K to Rs. 5 Lacs or with both.

50. Related Party Transactions Relief to wholly owned subsidiaries:  In case of WOS, the special resolution passed by the holding company shall be sufficient for the purpose of entering into the transactions between wholly owned subsidiary and holding company.

51. Dhanyabaad…… Questions and Suggestions, if any CS Ranjeet Pandey, Practising Company Secretary Past Chairman, NIRC - ICSI #09810558049 cs.ranjeet@gmail.com