Salient features of the Companies Act, 2013

The Companies Act of 1956 laid down the rules, regulations, mechanisms,
provisions about Companies, directors of the companies, memorandums articles of
association, defined a company, its constitution, management, members, capital
and functioning, debentures etc. The whole procedure of company formation, its
fees, procedures, name, and constitution, motive behind the company, its share
capital, general board meetings, management and administration of the company
is laid down by the Companies Act of 1956 which was divided into 26 Chapters and
13 parts. The Companies Act has been amended from time to time as a response
to the changing national and international business environment.
The Companies Act, 2013 was enacted on the 30th of August, 2013. The Companies
Act of 2013 simplifies a lot of regulatory and procedural aspects that were in place
by the Act of 1956. The Companies Act of 2013 has 29 Chapters, 470 Sections and
7 Schedules.
The Chapter I consists of only two sections which are preliminary titles and
definitions. The statutes governing the formation of a company are enlisted in the
Chapter II, from Sec. 3 to Sec. 22. This Chapter covers all aspects relating to
incorporating a company and other allied matters limited to bringing about the
company in existence.
The Chapter III, from Sec. 23 to Sec. 42 talks of allotment of Securities and
Prospectus. This is divided into two parts with the first part dealing with Public offer
and the second with private placement. This chapter also accrues liability and lays
down penalizing provisions for fraudulent misrepresentations.
Chapter IV deals with Share Capital and Debentures. It enlists all the regulations
and procedures, kinds of share capital, the natures of such shares, rights and
powers of shareholders etc. It starts with defining the kinds of share capital in Sec.
43 and ends with the Power to nominate under Sec. 72. The Chapter V, from Sec.
73 to Sec. 76A speaks of acceptance of deposits by companies. Prohibition on
acceptance of deposits from public, repayment of deposits and damages for fraud.
The Chapter VI, from Sec. 77 to Sec. 87. pertain to registration of charges. The
management and administration of the company are governed by the Secs. 88 to
122 of the Companies Act, 2013, the chapter VII of the Companies Act. Chapters
VIII and IX have the statutes governing declaration and payment of dividend and
Accounts of Companies respectively.
Chapter X of the Companies Act, 2013, Sec. 139 to Sec. 148 lays down the criteria
for auditing and appointment of auditors while the criteria for qualifications and
appointment of directors are laid down in the Chapter XI, Sec. 149 to Sec. 152.
The functioning of the board, quorum of meetings, powers of the board, and
restrictions on the powers of the board are enumerated in the Chapter XII of the
Companies Act, 2013. Sec. 173 to Sec. 195. Appointment and remuneration of
managerial personnel is governed by the Sections 196 to 205 in the Chapter XIII.
The sections relating to inspection, enquiry and investigation of the assets of the
Company are in the Chapter XIV; Inspection, Enquiry and investigation starting from
the Sec. 206 to Sec. 229.
Chapter XV, Compromises, arrangements and amalgamations Sec. 230 to Sec. 240.
This Chapter provides for mergers and amalgamations of both Indian companies
with Indian companies and international companies with Indian companies.
The Chapter XVI, Sec. 241 to 246, provides for prevention of oppression and
mismanagement. It provides a section for application to tribunals in cases of
oppression. It gives the right to claim relief in case there is oppression. It also
defines the powers of the tribunal. Chapter XVII, Sec. 247 talks of registered
valuers.
Under the Chapter XVIII, Removal of names of companies from the register of
companies. Sec. 248 to Sec. 252, the Registrar is given powers to remove the name
of a company from the register of companies in cases of dissolved companies etc.
Chapter XIX, Revival and rehabilitation of sick companies, Sec. 253 to Sec. 269. This
chapter lays down the procedure and test for determination of sickness of a
company, clauses for application for revival and rehabilitation. It also outlines the
power of the tribunal in assessing damages against delinquent directors or such
other issues.
Section 270, Chapter XX talks of winding up and the modes of winding up which is
further divided into the part 1, Sec. 271 to Sec. 303 – Winding up by the tribunal;
part 2, Sec. 304 to Sec. 323 – Voluntary winding up; part 3, Sec. 324 to Sec. 359 –
provisions applicable to every mode of winding up; part 4, Sec. 359 to Sec. 365 –
Official Liquidators.
There are two parts to the Chapter XXII; Under Part 1, Companies authorized to
register under the Companies Act, 2013 while Part 2 talks of Winding up of
unregistered companies.
Chapter XXII talks of the standing of the Companies incorporated outside India. The
aspects relating to application of this act to foreign companies, the documents to
be delivered, debentures, fees for registration and also punishment in case of
contravention of any of the rules laid down. Chapter XXIII, Sec. 394 and Sec. 395;
Annual reports on Government Companies and where one or more state
governments are a member of the company.
The Chapter XXIV lays down the proceduralities of Registration, Office, fees,
evidence, inspection, filing etc. Sec 402 talks of the application of provisions of the
Information Technology Act, 2000.
Chapter XXVII National Company Law Tribunal and Appellate Tribunal. Sec. 407 to
Sec. 434. This is a very crucial Chapter which chalks out the procedures for the
establishment of the tribunals for resolution of disputes arising in the Company law
domain. The Orders of Tribunal, the benches of tribunal, Power to punish for
contempt, delegation of powers are all enlisted in this chapter. The Section 430
bars the civil court from adjudicating on matters pertaining to Company Law.
Chapter XXVIII Special courts Sec. 435 to Sec. 446. This is also a very important
Chapter whih provides for the establishment of Alternate Dispute Resolution
mechanisms like mediation and conciliation panels and appointment of
prosecutors.
The Chapter XXIX, has the miscellaneous statutes from Sec. 447 to Sec. 470 which
include punishment for fraud, misrepresentation, false statement, false evidence
as well as adjudication of penalties.

Major changes after the Companies Act, 2013

Class action suits for Shareholders: The Companies Act 2013 has introduced new
concept of class action suits with a view of making shareholders and other
stakeholders, more informed and knowledgeable about their rights.
More power for Shareholders: The Companies Act 2013 provides for approvals
from shareholders on various significant transactions.
Women empowerment in the corporate sector: The Companies Act 2013 stipulates
appointment of at least one woman Director on the Board (for certain class of
companies).
Corporate Social Responsibility: The Companies Act 2013 stipulates certain class of
Companies to spend a certain amount of money every year on activities/initiatives
reflecting Corporate Social Responsibility.
National Company Law Tribunal: The Companies Act 2013 introduced National
Company Law Tribunal and the National Company Law Appellate Tribunal to
replace the Company Law Board and Board for Industrial and Financial
Reconstruction. They would relieve the Courts of their burden while simultaneously
providing specialized justice.
Fast Track Mergers: The Companies Act 2013 proposes a fast track and simplified
procedure for mergers and amalgamations of certain class of companies such as
holding and subsidiary, and small companies after obtaining approval of the Indian
government.
Cross Border Mergers: The Companies Act 2013 permits cross border mergers, both
ways; a foreign company merging with an India Company and vice versa but with
prior permission of RBI.
Prohibition on forward dealings and insider trading: The Companies Act 2013
prohibits directors and key managerial personnel from purchasing call and put
options of shares of the company, if such person is reasonably expected to have
access to price-sensitive information.
Increase in number of Shareholders: The Companies Act 2013 increased the
number of maximum shareholders in a private company from 50 to 200.
Limit on Maximum Partners: The maximum number of persons/partners in any
association/partnership may be up to such number as may be prescribed but not
exceeding one hundred. This restriction will not apply to an association or
partnership, constituted by professionals like lawyer, chartered accountants,
company secretaries, etc. who are governed by their special laws. Under the
Companies Act 1956, there was a limit of maximum 20 persons/partners and there
was no exemption granted to the professionals.
One Person Company: The Companies Act 2013 provides new form of private
company, i.e., one Person Company. It may have only one director and one
shareholder. The Companies Act 1956 requires minimum two shareholders and
two directors in case of a private company.
Entrenchment in Articles of Association: The Companies Act 2013 provides for
entrenchment (apply extra legal safeguards) of articles of association have been
introduced.
Electronic Mode: The Companies Act 2013 proposed E-Governance for various
company processes like maintenance and inspection of documents in electronic
form, option of keeping of books of accounts in electronic form, financial
statements to be placed on company’s website, etc.
Indian Resident as Director: 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: The Companies Act 2013 provides that all listed companies
should have at least one-third of the Board as independent directors. Such other
class or classes of public companies as may be prescribed by the Central
Government shall also be required to appoint independent directors. No
independent director shall hold office for more than two consecutive terms of five
years.
Serving Notice of Board Meeting: The Companies Act 2013 requires at least seven
days’ notice to call a board meeting. The notice may be sent by electronic means
to every director at his address registered with the company.
Duties of Director defined: Under the Companies Act 1956, a director had fiduciary
(legal or ethical relationship of trust) duties towards a company. However, the
Companies Act 2013 has defined the duties of a director.
Liability on Directors and Officers: The Companies Act 2013 does not restrict an
Indian company from indemnifying (compensate for harm or loss) its directors and
officers like the Companies Act 1956.
Rotation of Auditors: The Companies Act 2013 provides for rotation of auditors and
audit firms in case of publicly traded companies.
Prohibits Auditors from performing Non-Audit Services: The Companies Act 2013
prohibits Auditors from performing non-audit services to the company where they
are auditor to ensure independence and accountability of auditor.
Rehabilitation and Liquidation Process: The entire rehabilitation and liquidation
process of the companies in financial crisis has been made time bound under
Companies Act 2013 which was not the case earlier.