J Sagar Associates (JSA) partner Lalit Kumar has set out the important new sections of the Companies Act that were yesterday announced by the MCA and would be notified and come into force on 1 April.

(a)    Important definitions such as the financial year (which says that the financial year of a company will be from April 1 to March 31), independent director, one person company, Serious Fraud Investigation Office, small company have been notified.

(b)    Amongst the important sections and provisions that have been notified relate to;

(i)                articles of association of a company which also includes the provisions relating to entrenchment;

(ii)              non-profit companies (which were commonly called Section 25 companies under the Companies Act, 1956) and will now be called Section 8 companies;

(iii)             concept of offer for sale by members of the company;

(iv)             issue of GDR by passing a special resolution;

(v)              private placement of shares (which would mean shares offered to not exceeding 200 persons in each financial year excluding the QIBs and ESOPs issued to employees);

(vi)             kinds of share capital – i.e. two kinds of share capital – equity shares and preference share. Equity share capital is further subdivided into with voting rights and with differential rights as to dividend, voting or otherwise;

(vii)            voting rights on shares – now no distinction has been made between cumulative and non-cumulative preference shares when it comes to giving preference shareholders voting rights on all matters of the company if the dividend is unpaid for 2 years or more;

(viii)          prohibition on issue of shares at discount, however, sweat equity shares are permitted;

(ix)             further issue of share capital – this is where the preferential allotment of shares by the company will be covered;

(x)              issue of bonus shares;

(xi)             restriction on purchase by company or giving of loans by it for purchase of its shares;

(xii)            buy back of shares;

(xiii)          issue of debentures – which will require a special resolution;

(xiv)          acceptance of deposits and most importantly the provisions of Section 74 (1) which requires that in respect of any deposit accepted by a company before the commencement of this new Act, the amount of such deposit or part thereof or any interest due thereon remains unpaid on such commencement will have to repaid;

(xv)            registration of charges;

(xvi)          annual return;

(xvii)         AGM;

(xviii)        notice of general meeting;

(xix)          voting through electronic means;

(xx)            postal ballot;

(xxi)          declaration of dividend;

(xxii)         preparation of financial statements and the board of directors report;

(xxiii)        concept of internal audit in certain classes of companies;

(xxiv)        appointment of auditors and other provisions related thereto, for instance, prohibition of rendering non-audit services;

(xxv)         provisions relating to appointment and qualifications of directors – this includes independent directors and woman directors; duties of directors; resignation of directors; meetings of the board of directors;

(xxvi)        audit committee;

(xxvii)      nomination and remuneration committee and stakeholders relationship committee;

(xxviii)     powers of board of directors (this is corresponding to Section 292 of the Companies Act, 1956);

(xxix)        disclosure of interest by directors;

(xxx)         Section 186- one of the most talked about provisions regarding loan and investment by companies;

(xxxi)        Related party transactions – another much talked about provisions;

(xxxii)      appointment and remuneration of managerial personnel;

(xxxiii)     appointment of KMP;

(xxxiv)     Secretarial audit for certain classes of companies;

(xxxv)      provisions relating to inspection, inquiry and investigation including the SFIO; 

(xxxvi)     Mediation and Conciliation Panel;

(xxxvii)    Dormant companies;

(xxxviii)  prohibition of association of person or partnership or persons exceed a certain number, however, an association of person if formed by professionals who are governed by special Acts is exempted from this restriction.

Delhi boutique firm EZY Laws managing partner Ankit Shrivastava wrote in an email, summarising the changes:

Ministry of Corporate Affairs has issued on 26.3.2014 a Notification, notifying 167 of sections of the Companies Act, 1956, effective from 1st April, 2014. Thus, total 283 sections out of 470 sections have been now notified.

Important Changes

·         One person Company can be incorporated from 1.4. 2014

·         Companies to include CIN no in all important communications like Invoices, etc

·         Courier mode recognized

·         Shares cannot be issued at Discount

·         Many important changes relating to Deposits are given effect

·         Existing deposits to be repaid within one year..

·         Charges can be filed within 300 days with penalty; thereafter need to approach Central Govt. for condonation

·         AGM Can be held on a Public Holiday including Sunday..

·         A person can be a proxy for maximum of 50 people.

·         Consolidation of Financials is mandatory if there are subsidiaries. Financials to be signed by CFO also...

MCA yet to notify Sections relating to

·         NFRA, Investor & Education Protection Fund

·         compromise and arrangement

·          oppression & mismanagement, winding up, sick companies

·         special courts, NCLT

We can expect rules of respective notified section will follow soon.

Companies Act Notification 26 March 2014 by legallyindia