Highlights of recent Clarifications & Amended Rules under the Companies Act, 2013

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Highlights of recent
Clarifications & Amended
     Rules under the
  Companies Act, 2013
                                                          N K Jain
                                              B.Sc., LLB.,DCL,FCS,FCPS
                                                   Corporate Advisor
                               Managing Partner, Global FinServe LLP
       Member , ASSOCHAM National Council for Corporate Affairs & CSR
                     Former Council Member and Secretary & CEO, ICSI

                                                        Cell: 09818348811
                                                 Landline: 0120 - 4263965
                                           E-mail: nkjain1953@gmail.com

1. KMP

   Section 203 of the Act read with Rule 8 of,
    provides that following classes of companies
    shall have whole time (i) MD or CEO/ WTD
    (ii) CS (iii) CFO
       Every Listed Company
       Every Public Limited Company having paid up
        share capital of ₹ 10 crs or more.

Amendment to Rule 8 re.
appointment of CS
   MCA vide its notification dated 9th June 2014
    has provided that a company other than a
    company covered under Rule 8 which has a
    paid up share capital of ₹ 5 crs or more shall
    have a whole-time company secretary.

                  nkjain1953@gmail.com 9818348811   3

2. Chairperson and MD/CEO

   Proviso to Section 203 (1) provides that same
    person shall not be Chairperson and MD or
    CEO at the same time.
   Exception: Companies engaged in multiple
    businesses which has appointed CEO for
    each such businesses as notified by the CG.

Notification dt. 25.07.2014
Sec. 203
   Public companies engaged in multiple
    businesses may appoint an individual as
    Chairperson and MD/CEO at the same time if
    they have:-
   paid up share capital of ₹100 crs +; or
   annual turnover of ₹1000 crs +; and
   have appointed CEO for each such business;

                nkjain1953@gmail.com 9818348811   5

3. Independent Director
Circular dated 09.06.2014
   The bar of “pecuniary relationship” u/s
    149(6)(c) will not attract:-
   transactions by an ID at par/same price as
    payable by a member of the general public.
   fee for attending Board/Committee meetings,
    reimbursement of expenses for attending
    such meetings and profit related commission.

                 nkjain1953@gmail.com 9818348811   6

3. Independent Director
Circular dated 09.06.2014
   If it is intended to appoint existing IDs under
    the new Act, such appointment shall be made
    expressly u/s 149(10)(11) by 31.03. 2015.
   Appointment of an ID for a period of less than
    5 years is permissible but the shorter period
    will be treated as one term.
   Appointment of IDs under new Act need to be
    formalised through a letter of appointment.
    No such requirement for existing IDs.
                  nkjain1953@gmail.com 9818348811   7

4. Resident Director
Circular dt. 26.06.2014
   Sec 149(3) requires every company to have
    at least one director who has stayed in India
    for at least 182 days in the previous CY.
   As Sec.149 has commenced w.e.f. 1st April,
    previous CY would be CY 2014.[136 days]
   Companies incorporated from 1st April to 30th
    Sept should have RD within six months.
   Companies incorporated after 30th Sept to
    have RD from the date of incorporation itself.
                  nkjain1953@gmail.com 9818348811    8

5. Restrictions on Powers of
Board: Circular dt. 25.03.2014
   The ordinary resolution passed u/s 293 of
    CA,1956 prior to 12.09.2013 with reference to
    borrowings/creation of security on the assets
    of the company will be regarded as sufficient
    compliance of the requirements of Sec. 180
    of the CA,2013 for a period of one year from
    the date of commencement of Sec. 180 i.e.
    up to 11.09.2014.[special resolution required
    u/s 180 of CA, 180].
                 nkjain1953@gmail.com 9818348811   9

6. CSR Sec. 135
Notification dt. 27.02.2014
    Activities for CSR Policies-Schedule VII :-
   Eradicating hunger, poverty and malnutrition;
   Promoting health care including preventive
    health care, sanitation, safe drinking water;
   Education, employment enhancing vocation
    skills and livelihood enhancement projects;
   Gender equality, empowering women, homes
    for women, orphans, old aged;
                 nkjain1953@gmail.com 9818348811   10

Corporate Social
Responsibility Sec. 135
   Environmental sustainability, quality of water,
    air & soil, ecological balance, animal welfare;
   National heritage/art/culture, public libraries;
   Benefit of armed forces veterans, war widows
   Promote rural sports, Olympic sports etc.;
   Contribution to PM‟s National Relief Fund;
   Contributions to CG approved technology
    incubators & rural development projects.
   Slum Area Development [added on 6.8.2014]
                  nkjain1953@gmail.com 9818348811   11

Clarifications issued on CSR
vide GC dt. 18.06.2014
   Entries in Sch.VII must be interpreted liberally;
   CSR activities should be undertaken in project or
    programme mode; one off events are unqualified
   Expenses incurred to meet statutory obligations
    would not count as CSR expenditure;
   Salaries paid to regular CSR staff & volunteers
    can be factored into CSR project cost;
   Expenditure incurred by FHC for CSR activities
    in India will qualify for CSR spend of the Indian
    subsidiary if routed through Indian subsidiaries.
                   nkjain1953@gmail.com 9818348811   12

Clarifications issued on CSR
vide GC dt. 18.06.2014
   „Registered Trust‟[Rule 4 (2)] would include
    Trusts registered under IT Act for States
    where registration of Trust is not mandatory;
   Contribution to corpus of a Trust/Society or
    Sec. 8 companies etc. will qualify as CSR
    expenditure as long as:-
   such Trust etc. is created exclusively for
    undertaking CSR activities; or
   where the Corpus is created exclusively for a
    purpose covered in Sch. VII.
                  nkjain1953@gmail.com 9818348811   13

7. Acceptance of Deposits
   Vide notification dt. 06.06.2014, following
    provisions have come into force:
   Sec.74(2) which deals with extension of time
    for repayment of deposits and interest;
   Sec. 74(3) which deals with punishment for
    failure to repay deposits and interest.
   Rule 5(1) of the Deposit Rules have been
    amended to provide that the companies may
    accept the deposits without deposit insurance
    contract till 31st March, 2015.
                 nkjain1953@gmail.com 9818348811   14

Acceptance of Deposits
   As per Sec.74(1)(a) and the Deposit Rules,
    companies were required to file a statement
    under Form DPT-4 regarding deposits
    existing as on the date of commencement of
    the Act by 30.06.2014.
   Vide general circular dt. 30.06.2014, the time
    to file Form DPT-4 with the Registrar has
    been extended up to 31.08.2014 without any
    additional fee.
                  nkjain1953@gmail.com 9818348811   15

8. Definition of “Related Party”
Sec. 2(76)
   “Related Party” with reference to a company
    means:-
   Private company in which a director or
    manager or his relative is a member or
    director;
   Public company in which a director or
    manager is a director and holds along with
    his relatives, more than 2% of its paid up
    share capital;
                 nkjain1953@gmail.com 9818348811   16

RPTs requiring shareholders’
approval u/s188(1) & Rule15(3)
   Rule 15(3) has been substituted vide
    notification dt. 14.08. 2014 with following
    salient features:-
   Threshold limit of paid up share capital of
    ₹ 10 crs has been removed
   Other threshold limits have been revised;
   It would mean that less number of RPTs
    would require shareholders‟ approval.

                  nkjain1953@gmail.com 9818348811   17

RPTs requiring shareholders’
approval u/s188(1) & Rule15(3)
   Sale, purchase or supply of any goods or
    materials directly or through appointment of
    agents exceeding 10% [earlier 25%] of the
    turnover of the company or ₹ 100 crs,
    whichever is lower.

                  nkjain1953@gmail.com 9818348811   18

RPTs requiring shareholders’
approval u/s188(1) & Rule15(3)
   Selling or otherwise disposing of, or buying,
    property of any kind directly or through
    appointment of agents exceeding 10% of net
    worth of the company or ₹ 100 crs,
    whichever is lower.

                  nkjain1953@gmail.com 9818348811   19

RPTs requiring shareholders’
approval u/s188(1) & Rule15(3)
   Leasing of property of any kind exceeding
    10% of the net worth of the company or
    exceeding 10% of the turnover of the
    company or ₹ 100 crs, whichever is lower, as
    mentioned in clause (c) of section 188(1);
   Availing or rendering of any services directly
    or through appointment of agents exceeding
    10% of the turnover [previously net worth] of
    the company or ₹ 50 crs, whichever is lower,
    as mentioned in clause (d) and clause (e) of
                  nkjain1953@gmail.com 9818348811   20

    section 188(1);

General Circular dated 17 July,
2014: Scope of related party
   It is clarified that 'related party‟ referred to in
    the second proviso has to be construed with
    reference only to the contract or arrangement
    for which the said special resolution is being
    passed. Thus, the term 'related party' in the
    above context refers only to such related
    party as may be a related party in the context
    of the contract or arrangement for which the
    said special resolution is being passed.
                   nkjain1953@gmail.com 9818348811    21

General Circular dated 17 July,
2014
    Applicability of Section 188 to corporate
    restructuring/ amalgamations:- It is clarified
    that transactions arising out of Compromises,
    Arrangements and Amalgamations dealt with
    under specific provisions of the Companies
    Act, 1956/Companies Act, 2013, will not
    attract the requirements of section 188 of the
    Companies Act, 2013.

                  nkjain1953@gmail.com 9818348811   22

General Circular dated 17 July,
2014
   Past contracts entered into by companies,
    after making necessary compliances under
    Section 297 of the CA,1956, which already
    came into effect before the commencement
    of Sec.188 of the CA, 2013, will not require
    fresh approval under the said sec.188 till the
    expiry of the original term of such contracts. If
    any modification in such contract is made on
    or after lst April, 2014, the requirements
    under sec.188 will have to be complied with.
                   nkjain1953@gmail.com 9818348811   23

9. E-voting
Circular dt. 17.06.2014
   Sec 108 read with Rule 20 deal with the
    exercise of right to vote by members by
    electronic means to ensure wider shareholder
    participation in the decision making process.
   It has been decided not to treat the relevant
    provisions as mandatory till 31st December,
    2014. [already in force for listed companies
    under listing agreement].

                 nkjain1953@gmail.com 9818348811   24

E-voting
Circular dt. 17.06.2014
   Show of hands not to be allowed in e-voting.
   Participation in the general meeting after e-
    voting allowed but not allowed to vote again.
   Items specified u/r 22(16) can be transacted
    only through postal ballot and not in general
    meeting in spite of e-voting facility.
   Shareholder who neither attends GM nor
    exercises vote through e-voting would not
    have the option to vote through postal ballot.
                  nkjain1953@gmail.com 9818348811    25

10. AR for FY 2013-14
Circular dt 25.06.2014
   U/s 92(1) of the Act read with Rule 11(1), an
    AR is to be prepared in Form MGT-7
    containing particulars as they stood on the
    close of the FY.
   It has been clarified that that Form MGT-7
    shall not apply to ARs in respect of
    companies whose FY ended on or before
    01.04.2014. The companies may file such
    ARs in form applicable u/CA,1956.
                  nkjain1953@gmail.com 9818348811   26

11. Useful Lives to Compute
Depreciation-Schedule II
   Notification dt. 31.03.2014 [w.e.f 01.04.2014]
    amended Sch. II to provide that:-
   The useful life of an asset shall not be longer
    than the useful life specified in Part „C‟ and
    the residual value of an asset shall not be
    more than 5% of original cost of the asset.
   If company uses different limits, justification
    for the difference shall be disclosed in its
    financial statement.
                  nkjain1953@gmail.com 9818348811     27

12. CLSS-2014
Circular dt.12.08.2014
   Failure to file statutory annual documents
    which were due till 30.06.2014 [AR & FSs]
    results in:-
   Higher additional fees
   Enhanced fine
   Disqualification of directors u/s 164(2)
   CLSS-2014 introduced vide GC dt 12th
    August, 2014 w.e.f. 15th August up to 15th
    October,2014.
                 nkjain1953@gmail.com 9818348811   28

CLSS-2014
Circular dt.12.08.2014
   Features:
   Condone delay in filing the documents
   Grant immunity from prosecution
   Reduced additional fee @ 25%
   Opportunity to „inactive companies‟ to get
    them declared as “dormant companies”
   Grant of Immunity Certificate
   Disqualification u/s 164(2) shall apply for
    prospective defaults                            29
                  nkjain1953@gmail.com 9818348811

THANK YOU
                                                        N K Jain
                                             B.Sc, LLB.,DCL,FCS,FCPS
                                               Corporate Advisor
                           Managing Partner, Global FinServe LLP
   Member , ASSOCHAM National Council for Corporate Affairs & CSR
                 Former Council Member and Secretary & CEO, ICSI

                                                 Cell: 09818348811
                                          Landline: 0120 - 4263965
                                    E-mail: nkjain1953@gmail.com

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