Tuesday, 26 November 2013

Companies Act, 2013: Certain Important Issues

CERTAIN HIGHLIGHTS OF NEWLY APPLICABLE PROVISIONS:


Current scenario:


As we all are aware, Companies Bill, 2012 has become a statute now and immediately after changing status from “Bill” to “Law”, Corporate Ministry issued notification as on 12thday of September, 2013 on the applicability of various sections and now with reference to this notification, 98 sections are in force with immediate effect. Now after this opening, both the paths are in use, one is under Companies act, 1956 and next one is 98 sections of Companies Act, 2013.As corporate sector need to tag on the provisions under both Acts, journey to settle down early by complying with legal requirements is not so far easy. Corporate Ministry isaccelerating its initiatives to make the law applicable part-wise which might lead inconvenience to all the companies including the businesses who are in a process of getting velvet cover of “Company”  


Highlights of some of applicable sections:


Section 2(68) vis-a-vis Section 3(1)(iii):

In Companies Act, 1956, the definition of “Private Limited” was clubbed in Section 3 and was defined under clause (iii) ofsub section 1. Entire section 3 was divided into definition of “company”, “existing company”, “private company and ‘public company”. Definition of “Private Company” was part of section 3. As per the provisions of Section 2(68) of the Companies Act, 2013, one of the major alterations is maximum number of members for Private Limited Company is now increased to 200. Apart from this, there are no alterations in its definition though entire definition has been framed in different way, base is same.


Section 100 vis-a-vis 169:

In light of Section 169 of Companies Act, 196, Extra Ordinary General Meeting had to be called on requisition of members of the Company. There was absence of liberty to Board of Directors to call EGM as and when they think fit to be called for. Now here is a catch! Directors can go and call for EGM whenever it is required, no need to receive any requisitions from members of the Company to convene EGM.


Section 102:

Provisions of section 102 enlighten the special matters to be transacted at the shareholders meeting. There are certain special businesses set out in provisions of section 102 where Companies need to annexe a statement setting out such special business to be transacted at the general meeting. Therefore, it was required for the companies to send the notices of general meeting with such statement consists certain material facts in connection with special items. This is entirely new section introduced by the Government and non-compliance of this sections led to heavy penalties to promoters, directors, manager or other key managerial personnel. Therefore, the companies who dispatched their notices before 12.09.2013 are out of this net of section 102 for this year.    


Section 103:

The provisions of quorum for general meeting are framed in section 103 of Companies 
Act, 2013. Requirement of minimum number of members for general meeting of private limited company is remained unchanged but there is a welcomed change in minimum number of members for quorum for general meeting of public limited company. The companies having the members are up to 1000, the quorum should be 5 members, in case companies having members above 1000 up to 5000, the quorum should be 15 and above 5000 members, quorum should be 30 members. In current scenario, all the companies having a general meeting after 12.09.2013 must ensure to comply with the provisions of section 103. Also Articles of Association of the companies states the requirements about quorum. So it was the requirement for all public limited companies to amend the articles of association first before general meeting.

Section 180 vis-a-vis Section 293:

In accordance with provisions of Companies Act, 1956, there were certain restrictions on Board of Directors to exercise their powers with ordinary resolution. The major change here in now after 12.09.2013, this has changes to special resolution. The catch is the Companies who already has issued notices of general meeting where certain items which require members approval, which provisions shall be considered. Fortunately on next day i.e. 13.09.2013, Ministry issued circular which gives clarity that if companies has issued notices prior to 12.09.2013, they can deal with such items with ordinary resolutions.

Considering some of the changed provisions and increasing complications because of part-wise applicability of law, it is tough to expect positive response from industry sector as well as professionals.  


Now, let’s analyse some hurdles in incorporation procedures:

As Articles of Association of the Company is the most important charter which states internal rules and regulation, the same has to be drafted with utmost care by analysing all the provisions of applicable law. Provisions incorporated in Articles of Association cannot override the provisions of the Act and it has to be in accordance with the Act. Now, companies which are in process of formation, they need to draft Articles of Association in such a way by clubbing the provisions of applicable provisions of Companies Act, 2013 as well as Companies Act, 1956.      


Company formation – procedural aspects:

The formation process starts with the drafting of Memorandum and Articles of Association. As both are the most important pillars of any Company, these are drafted very carefully and after due consideration of provisions of Company Law.

 

 

Some important provisions in Articles of Association:

1.
After the recent notification, there are many sections which are also applicable part-wise and not fully. For example, Section 23 of Companies Act, 2013 which talks about Public Offer and Private Placement. Now this section is in force except the provisions of its sub section 1(b) and sub section 2.

 

2.
The provisions of Share Buy Back are also modified to some extent. Now entire Section 69 is applicable but section 70 is applicable in part-wise i.e. section 70 is applicable except its sub-section 2.

Here some of the challenges could be, in drafting are as follows:

1.
Now while drafting any Articles of Association of the Company, provisions of both the Act are to be consideredand to be incorporated.

 

2.
Till next notification, Articles of Association is to be drafted in such manner which will have entire coverage of existing sections as well as applicable sections under new provisions.

 

3.
In case any new notification comes during the course, then the companies including newly floated after 12.09.2013, they need to again walk for alteration process of Articles of Association.

 

4.
And when the Companies Act, 2013 will be in full force, again all such companies have to go for alteration process which might cause a major disappointment tocorporates.  

 

5.
After the chargeability of such sections, procedural compliances are going to be more complicated in coming future.

Conclusion:

Companies Law is in transformation phase, we can expect more and more complex issues in near future. As a professional, it is our primary duty to convey these procedural aspects to the Management of the Company or to clients in advance. After President’s assent on Companies Bill, Central Government is moving fast to make this law applicable at least in bits and pieces. Further, Companies Rules will be in picture in coming future which might cause majorly the provisions under existing scenario under the Act as well as provisions incorporated in Articles of Association.

 

2 comments:

  1. Informative Article!! .... Major Applicable Sections of Companies Act, 2013 and their challenges are interpreted very well in this article.. Request you to pls issue article on Section 185 and Section 186 of Companies Act, 2013. It will be helpful to Professionals.

    ReplyDelete
  2. Nice article...Keep posting...Liked the simplicity with which matters are made simple and explained.

    ReplyDelete