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Impact of New Companies Act 2013 on Corporate Governance

The 2013 Companies Act also intends to improve corporate governance by requiring disclosure of nature of concern or interest of every director, manager, any other key managerial personnel and relatives of such a director, manager or any other key managerial personnel and reduction in threshold of disclosure from 20% to 2%. The term ‘key managerial personnel’ has now been defined in the 2013 Act and means the chief executive officer, managing director, manager, company secretary, whole-time director, chief financial officer and any such other officer as may be prescribed.

corporate governance act 2013

1. Annual return under Companies Act 2013

The 2013 Act states that requirement of certification by a company secretary  in practice of annual return will be extended to companies having paid up capital of five crore INR or more and turnover of 25 crore INR or more* (section  92(2) of 2013 Act and the 1956 Act requires  certification only for listed companies).

The information that needs to be  included in the annual return has been increased. The additional information required, includes particulars of holding, subsidiary  and associate companies, remuneration of directors and key managerial personnel, penalty or punishment imposed on the company,  its directors or officers [section  92(1) of 2013 Act].

2. Place of keeping registers and returns

The 2013 Act allows registers  of members, debenture-holders, any other security holders or copies of return, to be kept at any other place in India in which more than one-tenth of members reside [section  94(1) of 2013 Act]. The flexibility in the 1956 Act is limited to a place within the city, town or village in which the registered office is situated.

3. General meetings

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.

Currently, the 1956 Act does not define business hours, which the 2013 Act now defines as between 9 am and 6 pm. 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].

The 2013 Act states that besides director and manager, the nature of concern or interest of every director, manager, any other key managerial personnel and relatives of such director, manager or any other key managerial personnel in each item of special business will also need to be mentioned in the notice of the meeting  [section  102 (1) of 2013 Act]. Also, the threshold of disclosure  of share holding interest in the company to which the business relates of every promoter, director, manager and key managerial personnel has been reduced from 20% to 2% [section  102 (2) of 2013 Act].

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]

A limit has been introduced on the number of members which a proxy can represent. The 2013 Act has introduced a dual limit in terms of number of members, which is prescribed as 50 members and also sets a limit in terms of number of shares holding in the aggregate not more than 10 % of the total share capital of the company carrying voting rights* [section  105 (1) of 2013 Act].

Further, it is relevant to note that private companies cannot  impose restrictions on voting rights of members other than due to unpaid calls or sums or lien [section  106 (1) of 2013 Act].

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].

4. Other matters

Listed companies will be required to file a return with the ROC with respect to the  change in the number of shares held by promoters and top ten shareholders within 15  days of such a change[section 93 of 2013 Act]. This requirement again demonstrates the effort made towards synchronising the requirements under  the 2013 Act and the requirements under  SEBI. Additionally,  on an annual basis, companies are also currently required to make the disclosures with respect to top shareholders under  the Revised Schedule  VI the 1956 Act.

The 2013 Act requires  every company to observe secretarial standards specified by the Institute of Company Secretaries of India with respect to general  and board meetings [section  118 (10) of 2013 Act], which were hitherto not given cognisance under  the 1956 Act. Additionally,  it is also pertinent to note that these standards do not have a mandatory status for the practicing company secretaries.

Disclaimer : This PDF/PPT Research report above is an extract from the full report by prepared by the Pric Waters Cooperhouse (PwC). PwC has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. PwC is not responsible for any errors or omissions in analysis / inferences / views or for results obtained from the use of information contained in this report and especially states that PwC (including all divisions) has no financial liability whatsoever to the user of this report.

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