Companies Act 2013 – A Milestone in Indian Corporate Regime

Abhinav Gaur, Research Associate

The Companies Bill, 2009 for the first time was introduced on August 3rd 2009.  On August 31, 2010 the Standing Committee presented its report on the Bill. Later, in the winter session of 2011, the central
government withdrew this Bill. Thus, on December 2, 2011, the Bill was re-introduced. The Bill was finally after few Amendments was passed in the Lok Sabha on 18 December 2012. The Companies Bill 2012
was passed in Rajya Sabha on 8 August 2013 (during the monsoon session of the parliament).  With the President’s assent, the Companies Bill 2012 became the Companies Act, 2013.

The Companies Act 2013 although craved its existence for too long years, but better late than never, this Act has been amended several times after extensive debates on its applicability. This Act has given a new hope to the Indian Corporate sector to revive with ever-growing challenges, both domestic and international.

To throw some light, on its few extensively important provisions, under mentioned is a brief of the same.

  • Definition of a Private Company has been changed as the maximum numberof members in a Private Company has been increased from 50 to 200.
  • Small company has been defined as a company other than a public company:-
    • having a paid-up share capital of which does not exceed fifty lakhrupees or such higher amount as may be prescribed notexceedingRs.5crore or
    • having turnover of which does not exceed two crore rupees or suchhigher amount as may be prescribed not exceeding twenty crore rupees.[section 2(85)].
    • Furthermore, various relaxations in terms of reporting requirement, board meetings and procedure for mergers/ amalgamations have been introduced.
    • Substantial additional information, like principal business activities, remuneration of directors and key managerial personnel, etc is required to be given in the Annual Return of a company. Also, in case of a listed company, even if the Annual Return is signed by the Company Secretary in employment of the Company, it is further required to be signed by the Company Secretary in Whole time in practice.
    • A listed company shall not appoint:-
      • An individual as auditor for more than one term of five consecutive years.
      • Hire a law firm to audit for more than two terms of five consecutive years.
      • Auditor appointed shall continue to hold office up till the conclusion
        of 6th meeting.
      • Financial Year of any Company shall end on March 31 and only exceptionis for companies, which are holding / subsidiary of a foreign entity,which require consolidation outside India, they can have a differentfinancial year, but with the approval of Tribunal.
      • The bill provides for establishment of a National Company Law Tribunal and National Company Law Appellate Tribunal consisting of body of technical and judicial members from various fields.
      • The provision relating to the mandatory transfer of profits to reserves for dividend declaration out of profits has been ruled out.
      • Concept of fast track merger without the requirement of a Court Process introduced to facilitate merger between 2 or more “Small Companies” or between holding Company and its wholly owned subsidiary.
      • The declaration of interim dividend can be out of surplus profits or out of current year’s profits. However, if in case the Company has incurred loss up to preceding quarter during the year, the interim dividend cannot be declared out at a rate higher than the average dividend declared by the Company during immediately preceding 3 financial years.
      • Minimum rate of Interest on inter corporate loans to be prevailing rate of interest on dated government securities. Private Companies maynot be able to grant interest free loans.
      • There has to be a minimum of 1 year gap between 2 buy-backs of an unlisted company, whether approved by board of directors or shareholders.
      • Merger and Amalgamation between two small companies have been simplified without requiring the Court process. Also, Merger and Acquisition between an Indian Company and Foreign Company or vice versa has been possible with the permission of RBI. Until now, merger of listed company with unlisted company entailed listing of the unlisted company. However, under the present Act (2013), the unlisted company has an option to continue as unlisted company subject to payment of cash to existing shareholders of listed
        transferor company in accordance with determined valuation.
      • Concept of fast track merger without the requirement of a Court Process introduced to facilitate merger between 2 or more “Small Companies” or between holding Company and its wholly owned subsidiary.
      • Board has to ensure to spend 2% of average profits of last 3 years on CSR. Applicable to Companies having net-worth of INR 500 crore or more or Turnover of INR 1,000 crore or more or net profit of INR 5 crore or more. Company also required constituting CSR committee.

Thus, with changing times and also the needs, it is hoped that the new Companies Act opens up new avenues to success and prosperity for Indian Companies as well as boost up Indian Economy.