Cos Act 2013 : Important changes you need to know : Part II

Important provisions post implementation of Cos Act on 26^th March 2014 : Part II

                    Cs. Mohan Kumar. Company Secretary, Chennai 

In this article, let us look at the important Sections & provisions from Sec. 149 to Sec. 470. Also we can look at some other incidental points including what are the areas a Professional need to understand first in this Act.

1.       Section 149 :

A Company can have upto 15 Directors in its Board; if it wants to increase it further, it can do so by passing a Special Resolution.

Specified Companies (To be notified in Rules) to have One women Director in the Board..

Every company shall have at least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year.

Independent Directors

Definition being provided.  Apart from listed Company, specified Public Companies to have Independent Directors.

Declarations to be obtained from Ind. Directors at the first instance of their appointment and annually thereafter – they need to confirm that they comply with the criteria of “Independent Director”

Independent Directors are not entitled to stock options.

They shall hold office for 5 years at a time; entitled for another 5 year term on passing of Special resolution. Not entitled to continue beyond 10 years. Cooling of period of 3 years required before being appointed again.

2.       Section 152 – Appointment of Directors

Consent to act as Director to be obtained even for Private Limited Companies.

3.       Section 160 –  Right of persons other than retiring Director to contest

A member other than retiring Director who wish to contest for Directorship need to pay Rs. 1,00,000 as Security deposit, which will be refunded to him only if gets elected or atleast gets 25 % of votes.

4.       Section 161 –Appointment of Alternate Director

Alternate Director may be appointed where the Original Director is absent from India for more than 3 months.

5.       Section 164:  Disqualification of Director

If a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of 7 years or more, he shall not be eligible to be appointed as a director in any company.

6.       Section 165 : Number of Directorships

A person can be a Director in a maximum of 20 Companies, out of which 10 can be Public Companies.

A company may, by special resolution, specify any lesser number of companies in which a Director of the company may act as Directors (Not sure how far this is going to practically used..)                         

7.       Section 168 : Resignation of Directors

Directors while resigning shall send a copy of resignation to ROC

8.       Section 170 : Register of Directors and Key Managerial Personnel

Company to keep a register of Directors and Key Managerial personnel and shall write details about them including the shares held by them in its Holding, Subsidiary and Associate Companies.

9.       Section 173: Meetings of Board

i)                    First board meeting : To be held within 30 days of incorporation.

ii)                   For all Companies, Time gap between 2 Board Meetings should not exceed 120 days. (Similar to Listing agreement); Exceptions – One person Company, Small Company and Dormant Company – They can conduct 2 meetings in an year.

          iii)          Participation of Directors in Board Meeting can be either:

                              a) in person    

                              b) Video conferencing     

                              c) Audio Visual means

iv) Length of Board meeting notice – shall be sent not less than 7 days in advance– to every Director at his Registered address with the Company.

v) Shorter Notice for Board meeting– permitted for urgent business – provided at least one Independent Director (if any) must be present. If Independent Director could not be present, decision taken at the meeting to be circulated to all the Director and Final only when ratified by at least one Independent Director.

Physical presence of Director – Every Director to attend a minimum of 1 meeting per year physically ie: Not through Video Conferencing or audio visual means.

10.  Section 174: Quorum

Participation of the Directors by video conferencing or by other audio visual means shall also be counted for the purposes of quorum.

11.   Section 175: Circular resolution

Circular resolution- If 1/3 of Directors ask it to be passed in Board meeting, matter cannot be passed through Circular resolution and shall be transacted in a Board meeting only.

  

12.   Section 177: Audit Committee

Listed Companies and other prescribed Companies to have Audit Committee, with minimum 3 Directors, majority of them being Independent Directors.

 Every listed company or such class or classes of companies, as may be prescribed shall establish a vigil mechanism for directors and employees to report genuine concerns

13.   Section 178: Nomination and Remuneration Committee

Listed Companies and other prescribed Companies shall constitute the Nomination and Remuneration Committee consisting of three or more Non-Executive Directors out of which not less than one-half shall be Independent Directors.

14.   Section 188: Related Party transactions

Central Government approval is dispensed with for Related party transactions. Shareholders’ approval required for many Related party transactions.

Related party Transactions entered in its ordinary course of business & on an arm’s length basis is exempt from this provision.

15.   Section 196: Appointment of MD, WTD

MD, WTD who are appointed in a Company – Their age shall be above 21 years & less than seventy years. 70 years can be relaxed by passing Special resolution.

16.   Section 203: Appointment of KMP

Specified Companies shall have

i)                    MD or CEO or Manager or in their absence, Whole time Director

ii)                   Company Secretary

iii)                 Chief Financial Officer

Certain restrictions are imposed by this section for a person holding the dual role of Chairman and Managing Director.

A person can be appointed as Chairman & MD only if the articles authorize or if the Company does not carry on multiple businesses. Further, Companies doing multiple businesses & which has appointed separate CEO for each business can have a Chairman cum Managing Director. 

17.   Section 204: Secretarial audit

Secretarial audit to be applicable for bigger Companies (Rules to give the kind of Companies for which Secretarial audit is applicable).

18.   Section 211 & 212: Serious Fraud Investigation office

Central Govt shall establish Serious Fraud Investigation office to investigate into the affairs of the Company. It has powers to investigate into the affairs of the Company.

19.   Section 228: Investigation of affairs of Foreign Companies

Even the affairs of Foreign Companies can be investigated by Serious Fraud Investigation office under this Section.

20.   Section 381:

Every Foreign Company shall in each Calendar year prepare a Balance sheet and Profit and Loss account and deliver a copy of it to ROC.

21.   Section 455: Dormant Company

A Company formed for future project or hold an asset & which does not have any significant A/c transaction can utilize this Section . It can make an application to ROC to be declared as Dormant Company. It can hold minimum Directors, pay fees and retain Company status. It can be active company again on making an application to ROC.

If a Company has not filed Balance sheet and Profit and Loss Account for 2 years, ROC can itself move a Company into Dormant Status.

Other Important matters:

1.       All schedules of the Act are notified.

2.       Rules are yet to be notified, which is expected to be done soon. As we are aware, unless the Rules are notified, it is difficult to implement the Act.

3.       The analysis made in Part I  (Published earlier) & Part II (This analysis) has been done considering the Act that was published in Official Gazette. Central Govt may change any of the provisions of the Act utilizing the power it has under Sec. 467, in which case the analysis done by us here needs to be re- drafted/ changed depending upon the portions changed by Central Govt.

4.       The Sections that are yet to be notified are mostly pertaining to NCLT or other funds that will be created under the Act later and other Sub sections where Tribunal (NCLT) is referred to.

5.       Professionals are requested to first read and understand fully the provisions pertaining to Sec. 1 to 205.  These sections contain the heart and soul of the Act.