1. BATLIBOI & PUROHIT Chartered Accountants

2. Companies Act 2013 Topics: KMP & Directors ( Incl. Independent Directors), Appointment & Remuneration of Managerial Personnel, Declaration & Payment of Dividends (Including Schedule V) CSR Loan to Directors Investment Registers

3. Who is a key Personnel? Sec 2(51): Key Managerial Personnel Chief Executive Officer (CEO) Managing Director (MD) Whole Time Director (WTD) Chief Financial Officer (CFO) Manager Any other officer as may be specified Company Secretary (CS)

4. KMP - Applicability: Listed Company Public Company having Rs. 10 Crores or more of paid up capital (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 Company which is not required to appoint KMP and which has paid up capital of Rs. 5 crores or more Whole time Company Secretary

5. KMP – Appointment and Restriction: Manner of Appointment : Every whole- time key managerial personnel of a company shall be appointed by means of a resolution of the Board containing the terms and conditions of the appointment including the remuneration. In the case of office vacated by such person, the same 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. Restrictions regarding appointment Same person should not act as both Chairman and Managing Director or Chief Executive Officer of the company. Exception to this rule : - Articles of the Company contain provision for appointment of same person - When the company is engaged in multiple business. MCA through notification clarified that public companies having paid- up share capital of Rs. 100 cr. or more and annual turnover of Rs. 1000 cr. or more and have appointed CEO for each multiple business, can have common Chairman and CEO of the Company. A whole time KMP shall not hold office in more than one company at the same time except : Section 203(3) : - In the company’s subsidiary company - As a director of any other company with the permission of the Board. A whole time KMP holding office in more than one company at the same time on the date of commencement of this Act, shall within a period of 6 months choose one company, in which he wishes to continue to hold the office as KMP.

6. KMP – Appointment and Restriction : No Bar to appointing MD or Manager of one company as MD in another company. As per third proviso of Sec-203(3), any person holding the position of MD or Manager of one company can be appointed as MD in another provided that such appointment is approved unanimously by all the Directors of the company at a meeting convened for the purpose. Can the same person hold office of CFO/MD and CS/CFO in the same company? Nothing expressly debars such an arrangement. Positive inference can be drawn from reading of the above sec 203(3) and third proviso. Other provisions regarding KMP A return of every appointment and change in KMP has to be filled with the ROC within 30 days of appointment or change as the case may be. The KMP shall have the right to be heard in the meeting of Audit Committee when it considers audit report but shall not have right to vote. KMPs are prohibited to make forward dealings and insider trading in securities of the company. Compliance of the section is not prospective and it was effective from 1 st April. Penalty for contravention: On company: fine shall not be less than Rs. 1 lakh but which may extend to Rs. 5 lakh. On every KMP or director who is in default: fine up to Rs. 50,000 and Rs. 1,000 for every day of continuous default.

7. Disqualification of WTD, MD or Manager: As per part 1 – Schedule V : A person should satisfy the following conditions: He has not been sentenced to imprisonment for any period or to a fine exceeding Rs. 1,000 for conviction of an offence under 26 Acts listed in Schedule. He had not been detained for any period under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974. If he is drawing managerial remuneration from more than one company subject to the ceiling provided in Schedule V of Part II. He is resident of India. (Resident include a person who has been staying in India for a continuous period of not less than 12 months immediately preceding the date of his appointment ).

8. Key changes made on Board Composition : Other key changes:  Appointment of each director to be voted individually. (Section- 162).  Consent to act as director to be filled with ROC within 30 days otherwise such person shall not be able to act as director (Section- 152).  Directors or members who is interested in any contract can not cast his vote on that matter.  Board of directors shall not appoint a person who fails to get appointed as a director in a general meeting as an additional director. (Section- 161).  Appointment of Alternate Director for a director during his absence from India (Old Act referred to State) for a period of not less than 3 months. (Section- 161). Alternate director for an independent director should be qualified to act as an independent director.  Appointment of Managing Director, Whole Time Director or Manager to be approved by special resolution in a General Meeting.  Provisions relating to appointment of Managing Director is also applicable to Private Companies. Meaning MD, WTD or Manager can not be appointed for a term exceeding 5 years at a time. (Section- 196).  Independent directors not to be included in the total number of directors for the purpose of rotation i.e. 2/3 rd of the total number of directors in the case of public company.

9. Independent directors: (Legal Requirement) As per Companies Act, 1956:  Not applicable to unlisted companies (Both private and public)  As per SEBI Listing agreement which is only applicable to listed company:  If chairman is executive – ½ of total directors.  If chairman is non- executive – 1/3 rd of total directors. (provided non- executive chairman shall not be promoter or related to promoter group) As per Companies Act, 2013:  Requirement: 1/3 or ½ of total directors to be independent in the case of listed company or minimum 2 independent directors in the case of unlisted public company.  Applicability  To all listed Companies (As per SEBI listing agreement)  Companies notified by Central Govt. a) Public company having paid up share capital of Rs. 10 Cr or more, Or b) Public company having turnover of Rs. 100 Cr or more, Or c) Public company have, in aggregate, outstanding loans, debentures and deposits, exceeding Rs. 50 Cr  Transition period to comply the above provision – till 31 st March, 2015.  Vacancy shall be filled- up by the Board with in 3 months from the date of such vacancy or on immediate next board meeting whichever is later.  Out of this provision- when 3 consecutive years are not covered.

10. CSR:  Net profit should be calculated in accordance with section 198 of Companies Act, 2013.  Net profit should be before tax and shall not include profits from overseas branches.  Net profit shall not include any dividend received from other companies in India, which are covered under and complying with the CSR provisions.  Contribution can be given to a trust formed by the Company provided: It is for specific projects or programmes There is monitoring mechanism in place  Company can contribute to unrelated trust having track record of at least 3 years in carrying such activities in related areas.  Company can be out of CSR ambit only if the conditions given are not satisfied for 3 consecutive years.  CSR activities that benefit only the employees of the company and their families shall not be considered as CSR activities.  Contribution directly and indirectly to any political party shall not be considered as CSR activity.

11. CSR:  CSR policy shall include the following: A list of CSR projects, specifying modalities of execution of such project or programs and implementation schedules for the same Monitoring process of such programs and projects CSR policy shall specify that the surplus arising out of the CSR projects or programs shall not form part of the business profits of the company.  Company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities.  If the company fails to spend such amount, the Board shall, in its report specify the reason for not spending the amount.  Whether provision required in the P&L account?

12. Loans to Directors (section 185) Corresponding to sec 295 & 296 of Companies Act, 1956. Save as otherwise provided in this Act, no company shall, directly or indirectly, advance any loan, including any loan represented by a book debt, to any of its directors or to any other person in whom the director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person. This section is already operational from 12 th Sept 2013. However there are exemptions under this section-  Loans to managing or whole time director  As a part of the conditions of service extended by the company to all its employees  pursuant to any scheme approved by the members by a special resolution  A company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the bank rate declared by the Reserve Bank of India.

13. Exemptions under Loans to Subsidiary (1 st April 2014) Any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company Any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company Provided that such loans are utilized by the subsidiary company for its principle business activities.

14. Loans and Investments No company shall directly or indirectly: give any loan to any person or other body corporate give any guarantee or provide security in connection with a loan to any other body corporate or person; and acquire by way of subscription, purchase or otherwise, the securities of any other body corporate Limits exceeding 60% of its paid- up share capital + free reserves + securities premium account or 100% of its free reserves + securities premium account, Whichever is more Excess of limit : prior approval by a special resolution at general meeting shall be necessary

15. Registers  Following is the list of registers which are to be maintained in new format as per Companies Act, 2013 –  Register of charges  Register of members  Register of loans  Register of Directors and KMP  Register of contracts with related party.