Companies Act 2013 (New and

amended provisions of 1957 Act)

Prasanna Kumar Das
FCMA
 Basic differences
One Person Company (OPC)
• 1957 Act: No provision. Did not exist.

• 2013 Act: Company which has only one

person (natural person) as it’s member
 Financial Year
• 1957 Act: Companies were permitted to have
financial year ended on date decided by the
Company

• 2013 Act: Companies must have their financial

year ending on 31st March every year
 Formats of financial statements
• 1957 Act: As in Schedule VI

• 2013 Act: As in Schedule III

 Maximum number of partners
• 1957 Act: 10 in banking business and 20 in any
other business

• 2013 Act: As per Rules, subject to maximum

100. Now maximum 50.
 Maximum share holders in pvt limited
company
• 1957 Act: 50 excluding past and present
employees

• 2013 Act: 200 excluding past and present

employees
 Issue of shares at discount
• 1957 Act: Section 79 permitted issue of shares
at a discount

• 2013 Act: Section 53 prohibits issue of shares

at a discount.
However, Section 54 permits issue of ESOPs
(Employee Stock Ownership Plan) to its
employees at a discount
 Security Premium Reserve
• Gain made by a company by issuing shares of a
certain face-value for a price higher than the
said face-value. This security premium is shown
as a reserve in the Balance Sheet.
• 1957 Act: Utilisation of Securities premium
reserve was provided in Section 77A and 78.

• 2013 Act: Utilisation of Securities premium

reserve is provided in Section 52(2)
 Articles of Association
• 1957 Act: Table A applied where Companies
did not adopt their own Articles of Association

• 2013 Act: Table F applies where Companies

Limited by shares does not adopt their own
Articles of Association
 Interest in calls in arrears
• Calls-in-Arrears: When the shareholder fails to pay
the amount of share capital called up within the
stipulated time.
• 1957 Act: In the absence of a clause in the Articles
of Association, maximum interest chargeable on
Calls-in-Arrears was 5 % per annum
• 2013 Act: In the absence of a clause in the Articles
of Association, maximum interest chargeable on
Calls-in-Arrears was 10 % per annum
 Interest in calls in advance
Calls-in-advance-Excess money received by a company
which has been called up. A company can accept call-
in-,advance from its shareholders if authorised by its
Articles. It is when the shareholder pays the amount for
the part of share capital which has not been called up.
• 1957 Act: In the absence of a clause in the Articles of
Association, maximum interest payable on Calls-in-
Advance was 6 % per annum
• 2013 Act: In the absence of a clause in the Articles of
Association, maximum interest payable on Calls-in-
Advance was 12 % per annum
 Minimum subscription
• 1957 Act: As per sec 69, the requirement of
minimum subscription was with respect to
shares only

• 2013 Act: As per Section 39, a company shall

not allot securities unless the amount stated
in the prospectus as minimum subscription
has been subscribed and sum paid
Salient features of the Companies Act
2013
 Classification of Companies
• Private and public , Govt-Non-Govt, Limited by shares and
Limited by guarantees
• One-person company: The 2013 Act introduces a new type of
entity to the existing list i.e. apart from forming a public or
private limited company, the 2013 Act enables the formation
of a new entity a ‘one-person company’ (OPC). An OPC means
a company with only one person as its member [section 3(1)
of 2013 Act].
• Private company: The 2013 Act introduces a change in the
definition for a private company, inter-alia, the new
requirement increases the limit of the number of members
from 50 to 200. [section 2(68) of 2013 Act].
 Small company
• Small company: A small company has been defined as a company,
other than a public company.
– Paid-up share capital of which does not exceed 50 lakh INR or such higher
amount as may be prescribed which shall not be more than five crore INR
– Turnover of which as per its last profit-and-loss account does not exceed
two crore INR or such higher amount as may be prescribed which shall not
be more than 20 crore INR:
• As set out in the 2013 Act, this section will not be applicable to the
following:
– A holding company or a subsidiary company
– A company registered under section 8
– A company or body corporate governed by any special Act [section 2(85)
of 2013 Act]
 Dormant company
• The 2013 Act states that a company can be
classified as dormant when it is formed and
registered under this 2013 Act for a future
project or to hold an asset or intellectual
property and has no significant accounting
transaction. Such a company or an inactive
one may apply to the ROC in such manner as
may be prescribed for obtaining the status of a
dormant company.[Section 455 of 2013 Act]
 Formation of a company-Incorporation
• The 2013 Act mandates inclusion of declaration to the effect that all
provisions of the 1956 Act have been complied with, which is in line with
the existing requirement of 1956 Act.
• Additionally, an affidavit from the subscribers to the memorandum and
from the first directors has to be filed with the ROC, to the effect that
they are not convicted of any offence in connection with promoting,
forming or managing a company or have not been found guilty of any
fraud or misfeasance, etc., under the 2013 Act during the last five years
along with the complete details of name, address of the company,
particulars of every subscriber and the persons named as first directors.
• The 2013 Act further prescribes that if a person furnishes false
information, he or she, along with the company will be subject to penal
provisions as applicable in respect of fraud i.e. section 447 of 2013 Act
[section 7(4) of 2013 Act; Also refer the chapter on other areas]
 Formation of Companies-With charitable
object
• An OPC with charitable objects may be incorporated in accordance
with the provisions of the 2013 Act. New objects like environment
protection, education, research, social welfare etc., have been
added to the existing object for which a charitable company could
be incorporated.
• As against the existing provisions under which a company’s licence
could be revoked, the 2013 Act provides that the licence can be
revoked not only where the company contravenes any of the
requirements of the section but also where the affairs of the
company are conducted fraudulently or in a manner violative of the
objects of the company or prejudicial to public interest. The 2013
Act thus provides for more stringent provisions for companies
incorporated with charitable objects[section 8 of 2013 Act].
 Memorandum of Association
• The 2013 Act specifies the mandatory content for the memorandum of
association which is similar to the existing provisions of the 1956 Act and refers
inter-alia to the following:
– Name of the company with last word as limited or private limited as the case may be
– State in which registered office of the company will be situated
– Liability of the members of the company
• However, as against the existing requirement of the 1956 Act, the 2013 Act
does not require the objects clause in the memorandum to be classified as the
following:
– (i) The main object of the company
– (ii) Objects incidental or ancillary to the attainment of the main object
– (iii) Other objects of the company [section 4(1) of 2013 Act]
• Reservation of name: The 2013 Act incorporates the procedural aspects for
applying for the availability of a name for a new company or an existing
company in sections 4(4) and 4(5) of 2013 Act.
 Articles of association (section 5)
• The 2013 Act introduces the provisions in
respect of the articles of association of a
company. Such provision enables a company to
follow a more restrictive procedure than passing
a special resolution for altering a specific clause
of articles of association. A private company can
include such provisions only if agreed by all its
members or, in case of a public company, if a
special resolution is passed.
 Doctrine of indoor management
• This Doctrine means that at ‘Company’s indoor affairs are
the Company’s problem. It is thus important to people
dealing with a company through its Directors and other
persons.
• It is opposite to Doctrine of Constructive notice- As per
Section 399, any person can electronically inspect, make a
record or get a copy / extract of any document of any
company kept with the ROC on payment of applicable fee.
MoA and AoA are public documents. Any person dealing
with a company must inspect these documents. Even if he
did not read them, the law assumes that he is aware of
contents of these documents.
 Appointment of Directors
Woman Director
• The category of companies which need to comply with
the requirement of having at least of one woman director
are as follows: * [section 149(1) of 2013 Act]
– (i) Every listed company, within one year from the
commencement of second proviso to sub-section (1) of
section 149
– (ii) Every other public company that has paid–up share capital
of one hundred crore rupees or more, or a turnover of three
hundred crore rupees or more within three years from the
commencement of second proviso to sub-section (1) of
section 149
• Objective is to encourage gender diversity. Theis
provision requires the companies to ensure compliance.
 Number of Directors
• The 2013 Act increases the limit for number of directorships
that can be held by an individual from 12 to 15 [section 149(1)
of 2013 Act].
• One director to be resident in India
• A new requirement with respect to directors is that at least
one director to have stayed in India for at least 182 days in the
previous calendar year [section 149(3) of 2013 Act]. This
requirement appears to be a departure from the focus given in
the 2013 Act towards use of electronic mode such as use of
video conferences for meetings and electronic voting. With
the increasing use of electronic media, the need, for a director
to be resident in India for a minimum amount of time,
becomes redundant.
 Independent Director
• One of the significant aspects of the 2013 Act is the effort made
towards incorporating some of the salient requirements mandated by
the SEBI in clause 49 of the listing agreement in the 2013 Act itself.
• To this effect, the 2013 Act requires every listed public company to
have at least one-third of the total number of directors as
independent directors.
• Further, the central government in the rules has prescribed the
minimum number of independent directors in case of the following
classes of public companies* [section 149(4) of 2013 Act].
– (i) Public companies having paid up share capital of 100 crore INR or more;
or
– (ii) Public companies having turnover of 300 crore INR or more
– (iii) Public companies which have, in aggregate, outstanding loans or
borrowings or debentures or deposits, exceeding 200 crore INR
• The 2013 Act also states that companies will have a period of one year
to ensure compliance with the 2013 Act and the Rules that are framed.
 Code for independent Directors
• The 2013 Act includes Schedule IV ‘Code for Independent Directors’
(Code) which broadly prescribes the following for independent
directors:
– Professional conduct
– Role and functions
– Duties
– Manner of appointment
– Reappointment
– Resignation or removal
– Holding separate meetings
– Evaluation mechanism
• The code appears to be mandatory .The code states that an
independent director shall uphold ethical standards of integrity and
probity. However what would constitute ethical behaviour is not
defined and is open to interpretation.
Liabilities of Independent Directors
• The 2013 Act inserted a provision to provide immunity from any civil or
criminal action against the independent directors. The intention and
effort to limit liability of independent directors is demonstrated from
the section 149(12) of the 2013 Act which inter-alia provides that
liability for independent directors would be as under:
– “Only in respect of such acts of omission or commission by a company which
had occurred with his knowledge, attributable through board processes, with
his consent or connivance or where he had not acted diligently.”
• Further, in accordance with the requirement of section 166 (2) of 2013
Act, whole of the board is required to act in good faith in order to
promote the objects of the company for the benefit of its members as
a whole, and in the best interest of the company, its employees, the
shareholders, the community and for the protection of the
environment.
• By virtue of this section the duty of independent directors actually goes
beyond its normal definition and is not restricted to executive directors
only.
 Meetings of Directors
• A company should hold at least 4 meetings of
its Board of Directors to take important
decisions for the Company.
• To ensure that all these decisions are not
taken arbitrarily, quorum for the meeting have
been prescribed. Quorum is 1/3rd of the total
strength or 2 which is higher.
Meetings of Shareholders of companies
• The 2013 Act states that the first annual
general meeting should be held within nine
months from the date of closing of the first
financial year of the company [section 96(1) of
2013 Act], whereas the 1956 Act requires the
first annual general meeting to be held within
18 months from the date of incorporation.
 AGM
• The 2013 Act states that annual general meeting
cannot be held on a national holiday whereas the
annual general meeting cannot be held on a public
holiday as per the existing provisions of section
166(2) of the 1956 Act [section 96(2) of 2013 Act].
• In order to call an annual general meeting at shorter
notice, the 2013 Act requires consent of 95% of the
members as against the current requirement in the
1956 Act which requires consent of all the members
[section 101(1) of 2013 Act].
 AGM-Quorum
• The 2013 Act states that in case of a public
company, the quorum will depend on number
of members as on the date of meeting. The
required quorum is as follows:
– Five members if number of members is not more
than one thousand
– Fifteen members if number of members is more
than one thousand but up to five thousand
– Thirty members if number of members is more
than five thousand [section 103 (1) of 2013 Act]
 AGM
• Listed companies will be required to file with
the ROC a report in the manner prescribed in
the rules on each annual general meeting
including a confirmation that the meeting was
convened, held and conducted as per the
provisions of the 2013 Act and the relevant
rules [section 121 of 2013 Act].
 Different modes of winding up of
companies
Chapter XX of the 2013 Act consisting of sections 270 to 365,
deals with the provisions of winding-up of companies. The 1956
Act prescribes three modes of winding-up. This includes the
following:
– By the court
– Under the supervision of the court
– Voluntary
• As against the existing modes of winding-up as prescribed
by the 1956 Act, the 2013 Act prescribes the following two
modes:
– By the Tribunal
– Voluntary
 Winding up
– The 2013 Act does not acknowledge the distinction
between members voluntarily winding-up and creditors
voluntarily winding-up.
– Additionally, the new grounds for winding-up by
Tribunal are as follows:
• In a situation when the company has acted against the
interests of sovereignty and integrity of India, the security of
the state, friendly relations with foreign states, public order,
decency or morality
• Order has been made under Chapter XIX (Revival and
Rehabilitation of Sick Companies).
• An application has been made by the ROC or any other person
authorised by the central government by a notification under
the 2013 Act.
 Winding up
– The tribunal is of the opinion that the affairs of the
company have been conducted in a fraudulent
manner or the company was formed for fraudulent
and unlawful purposes or the persons concerned in
the formation or management of its affairs have been
found guilty of fraud, misfeasance or misconduct in
connection therewith, and that it is proper that the
company be wound up
– The company has made a default in filing with the
ROC, its financial statements or annual returns for
immediately preceding five consecutive financial years