Companies Bill, 2012- Comparative
Analysis
Prepared by: Deepti Thakkar LL.B. and ACS
Sudipto Banerjee LL.M., LL.B. and ACS
CONTENTS
• Private Company
• Public Company
• Further issue of capital
• Powers to be exercised at board meeting
• Restrictions on power of board
• Loans to directors
• Related party transactions
• Loans and investments
• Acceptance of Deposits
STRUCTURE OF BILL
• Companies Act, 1956 (“Act” or “Companies Act”) had some 658 sections and 15 Schedules, Companies Bill, 2012 (“Bill” or “Companies Bill”) has 470 sections and 7 schedules.
• Bill makes changes in the existing provisions, provides clarification(s), introduces new provisions such as:-
One Person Company
Corporate Social Responsibility
Key Managerial Personnel
Independent Director
Class Action
Dormant Company
PRIVATE COMPANY
• Section 3(1) (iii) of the Act, clause 2(68) of the Bill.
• The limit on maximum number of members has been increased from 50 to 200.
• Prohibition on invitation to public to subscribe “shares and debentures” substituted with “securities”.
• Provision for acceptance of deposits from directors or their relatives, as provided under Act, has not been reproduced in the Bill.
PUBLIC COMPANY
• Section 3(1) (iv) of the Act, clause 2(71) of the Bill.
• Provides a clarification that a private company which is a subsidiary of a public company may continue to be a private company in its Articles.
• Clause 58(2)- contracts between shareholders for transfer of shares enforceable.
PUBLIC COMPANY (cont’d…)
SUBSIDIARY
Clause 2(87)
(control by holding/ subsidiary of holding company)
Controls composition of
Board
Exercises/controls more than half of
total paid up capital
ACCEPTANCE OF DEPOSITS
• Section 58A of the Act, Clause 73-76 of the Bill
• Deposits defined under Clause 2(31) of Bill
• Provisions for deposits from members and public provided under Clause 73 & 76 respectively.
• Requirements for Deposits from Members:-
Special Resolution
Issuance of circular to members stating credit rating obtained
Specific provision for deposit redemption reserve account
Provision for deposit insurance
Compliance with Rules as may be prescribed
ACCEPTANCE OF DEPOSITS (cont’d…)
• Requirements for Deposits from Public:-
Public companies with such net worth/ turnover, as may be prescribed, can raise deposits from public. Under Act, Minimum net owned fund of company of 1 crore
Conditions under Clause 73(2) to be complied
Rating from recognised credit rating agency to be obtained
Rules to be prescribed by Central Govt. (CG)
FURTHER ISSUE OF CAPITAL
Section 81 of the Act
1. Not applicable to private company
2. For preferential allotment by company
• Special Resolution
Clause 62 of the Bill
1. Applicable to all companies
2. For preferential allotment
• Special Resolution
• Determination of price by registered valuer
FURTHER ISSUE OF CAPITAL (cont’d…)
Section 81(3) (b)
Increase in capital due to exercise of option attached to loan/debenture:-
• Approved by CG before such issue “or” Rules; And
• Debentures/loans other than issued to /obtained from Govt.- SR to be passed
Clause 62
Increase in capital due to exercise of option attached to loan/debenture:-
• Provided terms of issue approved by SR
POWERS OF BOARD EXERCISED AT BOARD MEETING
• Section 292 of the Act, Clause 179 of the Bill. • Under the Bill, following additional powers to be exercised at
a Board Meeting- • To issue securities, including debentures, within or outside India • to approve financial statement and Board’s report • to diversify the business of the company • to approve amalgamation, merger or reconstruction • to take over a company or acquire a controlling or substantial stake in
another company • any other prescribed matter
Restrictions on Board while delegating their powers given under sub section (2), (3) and (4) of the Act. Under the Bill Board may delegate ‘the powers specified in clauses (d) to (f) on such conditions as it may specify”
RESTRICTIONS ON POWERS OF BOARD
Sale of whole or substantially the whole of undertaking
• Section 293(1)(a) of the Act, Clause 181 of the Bill.
Companies Act, 1956
• Undertaking, substantially the whole undertaking not defined
Companies Bill, 2012
• Quantitative definition provided
• Undertaking: An undertaking in which investment of Company exceeds 20% of NW or which generates 20% revenue of Company
• Substantially the whole of undertaking: 20% of more of value of undertaking
RESTRICTIONS ON POWERS OF BOARD (cont’d…)
• Under section 293 of the Act, consent of company in general meeting is required, whereas clause 180 of the Bill provides that consent by way of special resolution is required.
• Provisions extended to private companies
LOANS TO DIRECTOR
• Section 295 of the Act, Clause 185 of the Bill
• Scope of section widened to include loans and loans represented by book debt.
• Under the Act, prior approval of Central Govt. required for making loans, giving guarantees, providing securities to directors or his relative; firm in which director or relative is partners, etc. Bill has completely ruled out the possibility of giving any loan/ book debt, a guarantee or a security, to any director or to any other person in whom the director is interested, except as provided under proviso to the said clause.
LOANS TO DIRECTOR (cont’d…)
EXEMPTIONS
Companies Act
any loan made, guarantee given or security provided –
-by private company, unless a subsidiary of public company
-by banking company
Loan made by holding company to its subsidiary
any guarantee given or security provided by a holding company in respect of any loan made to its subsidiary
Companies Bill
Giving of any loan to Managing/ whole time director-
a) As a part of condition of service extended to all its employees
b) Pursuant to any scheme approved by members by SR
Company which in due course of business provides loans/gives guarantees/ securities & in respect of such loans charges interest not less than bank rate declared by RBI
RELATED PARTY TRANSACTION
• Section 297 of the Act, Clause 188 of the Bill.
• Additional related parties under the Bill: Key managerial personnel or its relative
public company in which a director or manager is director or holds along with his relatives, more than 2% of its paid-up share capital;
any body corporate whose Board, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;
any person on whose advice, directions or instructions a director or manager is accustomed to act
RELATED PARTY TRANSACTION
Companies Act Companies Bill
Transactions for which approval required: sale, purchase or supply of any goods,
materials or services ; or underwriting the subscription of any
shares in, or debentures of company
Transactions for which approval required: • sale, purchase or supply of any goods
or materials; • selling or disposing of, or buying,
property of any kind; • leasing of property of any kind; • availing or rendering of any services • appointment of any agent forpurchase
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;
• underwriting the subscription of any securities or derivatives thereof, of the company:
RELATED PARTY TRANSACTION (cont’d…)
Under Act, requirement of CG approval for companies entering in to RPT with paid up capital not less than 1crore. Under the Bill, requirement of SR for companies entering in to RPT with prescribed paid up capital/ transactions exceeding prescribed limit.
Board’s Report to contain a disclosure and justification of related party transactions.
Exemptions under Bill:
• No approval required when transaction is in ordinary course and on an arm’s length basis.
LOANS AND INVESTMENTS
Companies Act Section- 372A
Companies Bill Clause 186
Loans, guarantee, security to any body corporate
Loans, guarantee, security to any body corporate or person
Limit: not exceeding:- 60% of (paid up capital + free reserves) or 100% of (free reserves), whichever is more Free Reserves defined under 372A Prior approval of all directors present at BM
Limit: not exceeding:- 60% of (paid up capital + free reserves + securities premium) or 100% of (free reserves + securities premium), whichever is more Free Reserves defined under Clause 2(43)- change in definition Prior approval of all directors present at BM
If exceeds aforesaid limit- prior approval by SR
If exceeds aforesaid limit- prior approval by SR
LOANS AND INVESTMENTS
Companies Bill
Companies Act
LOANS AND INVESTMENTS (cont’d…) • Under the Act, rate of interest on loan is linked to bank rate,
under the Bill, rate of interest linked to prevailing yield of 1 yr, 3 yr, 5yr, 10yr Government Security closest to the tenor of loan
• Definition of Investment Company and Infrastructure Facilities provided under Bill.
• Investment through more than two layers of investment companies prohibited except acquisition of foreign company which has investment subsidiary beyond 2 layers, as per foreign law or subsidiary company making investment to comply with applicable law
Thank You…
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