1. COMPANIES ACT 2013 – Urgent & Important actions before March 15
By CS Makarand Joshi

2. Coverage of Session Borrowings / Deposit
Allotment of Shares / Securities
Fixed Assets
Group Company Loans
Other Loans / Investments
CSR
Related Party Transactions
Remuneration to Directors
ROC Filings

3. Borrowing

4. Who can approve borrowing?
Board of Directors can approve borrowing
Board can delegate this power to committee or to MD
If borrowing exceeds paid up capital + free reserves, it requires prior special resolution
All the resolutions [shareholders / directors] to be filed with ROC

5. Charge – secured loan Means an interest or lien created on –
Property or
Asset of a company or
Any of its undertaking
as a security and includes mortgage
Now requires charge registration for lien on FD or pledge of shares
Charge on vehicle is also required to be registered.

6. What if not complied?
If charge is not registered – secured lender is at part with unsecured lender
Penatly = 100,000 – 500,000 + imprisonment of 6 months
If borrowing made without special resolution, borrowing may be considered as ultra vires

7. Summary
Check that all borrowings has board resolution AND filed with ROC
Check that charges is registered for all secured loans
Check that borrowing is within limits or Special Resolution is filed with ROC

8. Deposit

9. Repayment of Deposits
Deposits as on 1 April 2014 to be repaid till 31 March 2015
Deposit under Old act or Under New Act?
Penalty for non repayment = 1cr >10 cr + officer liable for imprisonment >7 years and
fine 25 lacs>2cr

10. What is ‘deposit’ under acceptance of deposit rules?
The major highlights of this definition are –
This is an inclusive definition. It says ‘deposit’ includes any receipt of money by way of deposit or loan or any other form, by a company, but does not include.....
There are 14 exclusions from the definition of deposit
Here any other manner has to be read in the context of receipt either as deposit or loan.

11. What are 14 exclusions?
Any amount received from government or from any other source whose repayment is guaranteed by central government
Any amount received from foreign source, so long as it is in compliance with Foreign Exchange Management Act
Any loan or facility received from Bank
Any loan or financial assistance received from public financial institutions
Any amount received against issue of commercial paper or any other instrument issued under guidance of RBI

12. What are 14 exclusions? Any amount received from any other company
Any application money received under this act, against issue of any securities [so long as the allotment is done in 60 days of receipt of money]
Any amount received from Director of the Company [however the amount received should not be out of borrowed funds]
Any amount received against issue of secured bond or debentures OR Any amount received against issue of compulsory convertible bond or debentures [bond should be convertible into shares within a period of 5 years]

13. What are 14 exclusions?
Any security deposit received from employee of the company [not exceeding 12 months salary]. This deposit should be non interest bearing.
Any non interest bearing amount received or held in trust [by the company]
Any amount received in the course of and for the purpose of business of the company –
as an advance for the supply of goods or provisions of services accounted for in the manner, provided that such advance is appropriated against supply of goods or services within a period of 365 days from acceptance of deposit

14. What are 14 exclusions?
as advance accounted for in any manner, received in connection with consideration for property
as security deposit for performance of contract for supply of goods or services
as advance under long term projects for supply of capital goods
any amount brought by promoters in pursuance of stipulation imposed by the lending institution
any amount accepted by a Nidhi Company in accordance with section 406 of the Companies Act 2013.

15. Does it mean, if any amount falls under either category it is not deposit?

16. Acceptance of Deposit
Private Company can take deposit only upto 25% of paid up capital + free reserves, if –
Credit rating is obtained
deposit insurance is obtained
Special Resolution is passed
Only Public companies with min. networth of Rs.100 Cr or turnover of Rs.500 can accept Public Deposit [other than shareholders]
Limits may be relaxed to 100% of paid up capital for private companies!!

17. What is the solution?
Let money received fall under any of 14 exemptions
ELSE
Repay the Deposits before March 15 OR
Convert Promoters Money into Capital and accept Deposit
Seek extension of time from CLB for repayment of Deposit

18. Compliances
On or before 30th Day of June, return of deposit – Registrar in Form DPT-3
Depositing on or before 30th April of each year not less 15% of the amt maturing during the financial year and following year in a scheduled bank to be maintained separately as deposit repayment reserve
The Amt so deposited shall not be used for any purpose other than for repayment.

19. Share Capital

20. Share Capital Allotment Shareholders Rights Issue Bonus Issue
Outsiders
Public offer
Private Placement
Sweat Equity
ESOP
Others

21. Share Capital All Shares to be offered on rights basis; ELSE
It is Private Placement
Private Placement requires - Special Resolution + valuation report
Private Placement offer document!!!
Separate Bank account required in private placement
Funds can not be used till allotment is completed
Any mis statement in Offer document can be alleged as ‘Fraud’

22. What if loan is getting converted into Equity / Preference ?

23. What to do with respect to Share Application money carry forward from earlier years?

24. Prohibition of Loans, Guarantees and Securities

25. Prohibited Loan/ Guarantee/ Security
Section 185 prohibits loans / guarantee/ security to director or person in whom director is interested
Such loans can not be given
This section has become effective from 12 September 2013

26. What is the consequence of default?
For Company granting loan fine 5-25 lacs
For director / entity receiving loan – imprisonment upto 6 months OR fine 5-25 lacs
If director does not disclose his interest – vacation of directorship
Loan granted may be considered as ultra vires and person granting it may be personally responsible
Directors personal default in his duties

27. Section 185
Provisions of section 185 prohibits loan / security guarantee given by any company to following entities –
Director of lending company
Director of holding company of lending company
Partner/ relative of such director
Firm in which such director is partner
Firm in which relative of such director is partner
Private company in which such Director is a Director or member

28. Section 185
Body corporate at general meeting of which not less than 25% of total voting power may be exercised or controlled by such director or by two or more such directors together;
Body corporate, the board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company

29. How to comply with Section 185?

30. How to comply with Section 185?
Loan from company other than prohibited entity
Loan from exempted entities
Change Shareholding / Directorships
Don’t take loan. Take investment
Don’t take loan. Take business advance
Merge entities
Convert companies into LLP
Convert Partnership Firms to Company and change shareholding / directorship

31. Directors of Operating Companies Are different
Model - 1
Investment Company
Operating Company I
Operating Company 2
Directors of Operating Companies Are different
Operating Cos provide loan to each other

32. Model - 2 1] A can provide to B & C 2] B & C can provide each other
Investment cum operating Company [A]
Operating Company I [B]
Operating Company 2 [C]
Directors of all Companies Are different
1] A can provide to B & C
2] B & C can provide each other
3] B & C can not provide A

33. Whether section 185 covers all book debts?

34. Exemption:
Any loan given to MD as part of employee benefits OR under some scheme approved by shareholders
Advance loan, give guarantee or provide security in respect of loan made by any person to wholly owned subsidiary
Give guarantee or provide security in respect of loan made by any bank or financial institution to subsidiaries companies
NBFC can give loans/ provide guarantee / security
If borrowing party is anybody other than prohibited list

35. Investments, And Permitted Loans, Guarantees and Securities

36. Comparison Nature of Transaction Section 179 Section 185 Section 186
Investments
Applicable wrt to every investment
Not applicable
Applicable wrt every investment made in securities of body corporate
Lending
Applicable wrt to all loans
Applicable if loan is given to director or person in whom director is interested
Applicable wrt to all loan
Guarantee
-do-
Security

37. What is Investment?
Laying of money in such a manner that it would produce some revenue [dictionary meaning]
It may include following –
Shares,
Debentures
Property [which is not purchased for business]
Fixed Deposit is investment? – Yes, it can be said as Investment for the purpose of section 179

38. Investments – Who can approve?
Every Investment requires approval of the Board of Directors
If loans / investments / guarantee/ security made in excess of 100% of free reserves or 60% of paid up capital + free reserves, it requires prior approval of shareholders
Approval of public financial institutions, in certain cases, is required
Every such Board / Shareholder resolution to be filed with ROC

39. Loans and Investments
Limits on Investment /Loan /Guarantee /Security Given(186)
Interest rate note lower than yield on Govt. Security
Applicable even to private limited company
Applicable even for loan given to employees
Requires approval of board – to be filed with ROC
Register to be maintained

40. Loans and Investments
Special Resolution and Board resolution to be filed with ROC
Exemption:
Loan given or guarantee or security provided by holding company to wholly owned subsidiary or joint venture company
Investment in shares by holding company to its wholly owned subsidiary company.
This section shall not apply to NBFC

41. Summary Check that all loans carry interest
Check that none of the loan is in violation of section 185
Check that Shareholding / Directorship is organized to cope up with se. 185
Check if your company is becoming NBFC?

42. Fixed Assets

43. Assets All ‘investments’ in assets should be made in company’s name
Motor Car?
Agricultural Land?
Depreciation to be changed on useful life from next financial year

44. Disposal of Assets
Any disposal/ lease / sell of undertaking OR substantial undertaking of the Company requires Special Resolution
Undertaking includes – property / investment / business undertaking
Undertaking = undertaking in which investment of the company exceeds 20% of its net worth OR
Undertaking which generates 20% of total income of the Company as per last financial year
This section does not apply to company, where selling and leasing property is an Ordinary Course of Business

45. What if special resolution is not obtained?

46. Disposal of Assets
Buyer will not be impacted if he proves that he acted in good faith
If buyer is aware about this non compliance, title will be faulty
It is subject to litigation
If you are acquiring property from the Company, get this special resolution passed and filed with ROC

47. Check if all assets are in the name of the Company.
Summary
Check if all assets are in the name of the Company.
Check if there is any sale of undertaking by your client.

48. Related Party Transactions

49. Approach TOWARDS Related Party Transaction
Scope is widened
Transactions to be at arms length And in Ordinary Course
If not in ordinary Course OR if not at arms length –requires approval of board and may be Special Resolution of Shareholders
Interest Directors not to participate at board meetings
Related Party shareholders not to vote at General Meeting
Transactions with Wholly Owned Subsidiary Exempted

50. Remuneration to Directors

51. Remuneration Board and Shareholder approval essential
Require compliance of schedule V
Appt of Non Resident MD /WTD requires CG approval
No remuneration restriction on private company, if –
no default in payment of debts
Disclosure is required in the annual report
Interested Directors should not vote [section 166]
Related Shareholders can vote [Se. 188 does not cover these transactions]

52. Is it mandatory to have Managing Director?

53. Liabilities Every working Director/ KMP is officer in default
Director made accountable is officer in default
If there is no working Director, all Directors will be officer in default
Non executive / independent Directors are liable for acts / omissions occurred with his knowledge attributable through broad process

54. What if company has passed resolution before 31 March 2014 for appointment of MD?

55. Summary Ensure that Directors Salary from 1 April 2015 is approved
Ensure that every company has at least one MD / WTD

56. Corporate Social Responsibility

57. Who is covered under CSR?
Every company having:
Net worth of Rs. 500 crore or more, or
Turnover of Rs crore of more, or
Net profit of Rs. 5 crore or more during 3 previous financial year
Foreign company havg branch office or project office are also included

58. How much to be spend?
At least 2 % of the average net profits of the company made during the three immediately preceding financial years
Profit to be calculated as prescribed under section 198 of the Act

59. What if not spend?
The reason for same shall be mentioned in Board report
Section 450?
Duties of Director

60. Monitoring and Reporting of CSR Spending
MONITORING - CSR Committee to formulate and recommend CSR Policy, recommend amount to be spent and monitor the CSR policy
REPORTING:
In Board report as per prescribed format
In case of foreign company, the balance sheet to contain as annexure

61. Ensure that CSR is spent on prescribed causes
Summary
Ensure that CSR is spent on prescribed causes

62. Type of Company -
What is the relevance?

63. Importance of Type of Companies
Small Company –
Need not prepare Cash Flow Statement,
Need not do rotation of Auditor
Does not require certification of A/R by PCS u/s 92(1)

64. Holding / Subsidiary / Associate
Holding Subsidiary requires consolidation
Books of Associate to be consolidated with Holding
Holding – Subsidiary – enjoys exemption u/s. 185, 186 and 188
Subsidiary – Subsidiary – no exemption
Holding – Associate – no exemtion

65. Changes with respect to Directorships

66. Directorships Max. number of Directorship per person is 15
Resident Director is mandatory
Non filing of Fin. Statement or A/R makes director disqualified and his existing offices would vacate
Non attendance of BM for 12 months – VACATION
Appt of – Woman / Independent directors
Appointment of CS / CFO
Appointment of one level below KMP to be intimated to ROC

67. Appointment of Different Auditors

68. Auditors Disqualification norms changed
Restriction on Number of audits
Auditor Rotation [3 yrs transition]
Appointment of Internal Auditor
Appointment of Cost Auditor
Appointment of Secretarial Auditor

69. Companies (Indian Accounting Standards) Rules, 2015
Ministry has issued Companies (Indian Accounting Standards) Rules,
The Cos., may comply for the accounting period on or after st April, 2015 with the comparatives for the periods ending on 31st March, 2015 or thereafter
Mandatory for the following Cos., for the accounting period on or after 1st April, 2016 with the comparatives for the periods ending on 31st March, 2016 or thereafter
Equity or debt listed or are in process of being listed on any stock exchange in India or outside AND net worth of Rs. 500 cr or more
Cos., other than above AND net worth of Rs. 500 cr or more
holding, subsidiary, joint venture or associate companies of above mentioned Cos.

70. Companies (Indian Accounting Standards) Rules, 2015
Mandatory for the following Cos., for the accounting period on or after 1st April, 2017 with the comparatives for the periods ending on 31st March, 2017 or thereafter
Equity or debt listed or are in process of being listed on any stock exchange in India or outside AND net worth les than Rs. 500 cr or more
Cos., other than above AND net worth of Rs. 250 cr or more but less than Rs. 500 cr
holding, subsidiary, joint venture or associate companies of above mentioned Cos.

71. Audit Report
Apart from reporting items as per sec- 143, other imp items to be disclosed
Impact of pending litigations on financial position
material foreseeable losses, if any, on long term contracts including derivative contracts
Delay in transferring amt to IEPF

72. Annual Return Other Imp contents
Principal business activities along with % to total turnover of the Company
Total turnover and networth
Details of promoters, directors, key managerial personnel along with changes therein since the close of the previous financial year15. Details of all board & committee meeting along with details of attendance
Details of attendance of all directors in board and committee meetings

73. Annual Return
Details of remuneration of whole-time & managing directors, manager and key managerial personnel in terms of
Salary & perquisites
Stock option and sweat equity
Commission
Details of remuneration of other directors in terms of
Sitting fee
commission
Amount spent on Corporate Social Responsibility
Limits under sections 186 i.e. Loan and investment by company and section 180 (1)(c) i.e. Restrictions on powers of board

74. Directors Report Other Imp contents Extract of Annual return
Statement on declaration given by Independent directors as per section 149(6)]
Related party transaction as per section 188
A statement indicating development and implementation of a risk management policy for the Company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company
Details of Deposits

75. Directors Report
Details of significant and material orders passed by the Regulators or courts or tribunals impacting the going concern status and company’s operations in future Disclosures in respect of voting rights not exercised directly by the employees in respect of shares to which the scheme relates (67(3)(c)
Issue of equity shares with differential rights ( Rule 4(4) of chapter Share Capital and Debentures) 2014
Provision of money by company for purchase of its own share by employees or by trustees for the benefit of employees. ( Rule 16(4) of chapter Share Capital and Debentures) 2014

76. Other Important Matters

77. Other Important Matters
Change in Financial Year
Alteration of Articles of Association of the Company
Updation of Statutory Registers
Writing date of entering minutes in minute book
Various Policies to be adopted by the Companies
Mandatory Forms filing with ROC

78. List of Forms to be filed with ROC
DPT 4 – Deposit
MGT 14 – For MBP 1 / Loan / Investment / Borrowing
MGT 14 – For special resolution for AOA alteration / Borrowing in excess of cap + reserves / appt of MD / WTD
MGT 14 – adoption of accounts / directors report
ADT 1 – Appointment of Auditor
23 AC /23 ACA – Balance Sheet / Profit and Loss
20B – Annual Return
MR 1 – appointment of CS / CFO / MD
DIR 12 - appointment of CS / CFO / MD

79. New Act
New Challenges
New Approach
Brand NEW SOLUTIONS

80. Change in approach…Change in Solutions
Shift from shareholder protection to stakeholder protection
Strengthening of doctrine of constructive notice
Change in Solutions
More capital intensive companies?
Self sufficient companies?
All transactions at arms length?
Strict AND Timely Compliances

81. Actions Required for Pvt. Co.

82. Actionable for Private company
Printing of CIN, website, mail id, phone, fax, registered office on letterhead and official publication
Induction of new directors
Appointment of CS (?)/ MD / WTD
Appointment of Internal Auditor
Policy for related party transaction
Articles of Association needs revision
Borrowing in excess of paid up capital + reserves require special resolution to be filed with ROC
Repayment of deposit in 1 year

83. Actionable for Private company
Every borrowing / loan / investment requires prior board resolution and interest to be charged
Private Company can not give loan/ guarantee / security to another entity in which Director is interested
Minutes/ Registers / Share Certificates to be maintained
Statutory Registers to be maintained in new format [since incorporation]
ROC filing to be maintained up to date without any delay
Every Director to mention his DIN / Address etc in correspondence
Constitute CSR Policy and Spend 2% of avg. profits

84. Lets help industry to be better governed
THANK YOU.
Lets help industry to be better governed