10 Important Sections Of Companies Act,2013 That You Must Know
Companies Act 2013 is an Act which regulates incorporation of a company, responsibilities of a company, directors, dissolution of a company. The 2013 Act is divided into 29 chapters containing 470 clauses as against 658 Sections in the Companies Act, 1956 and has 7 schedules.
Here are 10 Important Sections Of Companies Act,2013 That You Must Know -
1. Class Action Suits
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.
Section 245 of the Companies Act, 2013 contains provisions regarding Class Action Suits which are discussed in detail below:
As per Section 245(1) read with Section 245(3), a Class Action Suit may be filed by:
1. Member or members or any class of them, as described below –
- in the case of a company having a share capital,
any 100 or more members of the company, or members equal to or exceeding 10% of the total number of its members, whichever is less, or
any member or members singly or jointly holding atleast 10% of the issued share capital of the company,
subject to the condition that the applicant or applicants has or have paid all calls and other sums due on his or their shares
- in the case of a company not having a share capital, members equal to or exceeding 1/5th of the total number of its members.
2. Depositor or depositors or any class of them, as described below –
any 100 or more depositors of the company, or depositors equal to or exceeding 10% of the total number of its depositors, whichever is less, or
any depositor or depositors singly or jointly holding atleast 10% of the total value of outstanding deposits of the company.
3. The Central Government, if it is of the opinion that the affairs of the company are being conducted in a manner prejudicial to public interest.
2. Corporate Social Responsibility (CSR)
The Companies Act, 2013 has formulated Section 135, Companies (Corporate Social Responsibility) Rules, 2014 and Schedule VII which prescribes mandatory provisions for Companies to fulfil their CSR.
Corporate Social Responsibility (CSR) can be defined as a Company’s sense of responsibility towards the community and environment (both ecological and social) in which it operates. Companies can fulfil this responsibility through waste and pollution reduction processes, by contributing educational and social programs, by being environmentally friendly and by undertaking activities of similar nature.
3. National Company Law Tribunal
The National Company Law Tribunal was setup by the Central Government in 2016 under Section 408 of the Companies Act, 2013. The National Company Law Tribunal has been setup as a quasi-judicial body to govern the companies registered in India and is a successor to the Company Law Board. It is a quasi-judicial authority created under the Companies Act, 2013 to handle corporate civil disputes arising under the Act. It is obliged to objectively determine facts, decide cases in accordance with the principles of natural justice and draw conclusions from them in the form of orders.
4. Fast Track Merger
Fast Track Merger Scheme was introduced in December 2016 under Section 233 of the Companies Act 2013, read with Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. The enactment is considered a solution to the lengthy process involved in mergers earlier, i.e. under the Companies Act of 1956.
5. Cross Border Mergers
Section 234 specifically deals with the cross-border mergers concerning merger or amalgamation of an Indian company with a foreign company and vice-versa.
6. One Person company
Section 2(62) defines one person company as a private company with only one director and one shareholder. However, it can have more than one director, and up to a maximum of 15.
7. Independent Directors
According to sub-section (6) of section 149 of the Companies Act, 2013 an independent director in relation to a company, means a director other than a managing director or a whole-time director or a nominee director,—
(a) who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience;
(b) (i) who is or was not a promoter of the company or its holding, subsidiary or associate company;
(ii) who is not related to promoters or directors in the company, its holding, subsidiary or associate company;
(c) who has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year;
(d) none of whose relatives has or had pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors, amounting to two per cent. or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year;
(e) who, neither himself nor any of his relatives—
(i) holds or has held the position of a key managerial personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed;
(ii) is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of—
(A) a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or
(B) any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent. or more of the gross turnover of such firm;
(iii) holds together with his relatives two per cent. or more of the total voting power of the company; or
(iv) is a Chief Executive or director, by whatever name called, of any nonprofit organisation that receives twenty-five per cent. or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds two per cent. or more of the total voting power of the company; or
(f) who possesses such other qualifications as may be prescribed.
The definition of Independent Director as per Companies Act, 2013 provides quantitative threshold for evaluation of significance of the relationship and considers all pecuniary relationship (both material and immaterial).
8. Dormant Company
Under Section 455 of the Companies Act,2013, a dormant company is a company that has been registered but is not carrying out any “significant accounting transaction.”
As per Companies Act 2013, a company that has been formed and registered under the Act,
a) For a future project or to hold an asset or intellectual property and,
b) Has no significant accounting transaction, is permitted to make an application to the Registrar to obtain the status of a dormant company.
9. National Financial Reporting Authority (NFRA)
National Financial Reporting Authority (NFRA) is an Indian body proposed in under section 132 of Companies Act 2013 for the establishment and enforcement of accounting and auditing standards and oversight of the work of auditors.
10. Issue Of Shares At Discount
Under Section 53 of the Companies Act, 2013 issue of shares at discount is prohibited. However, Section 54 of the act permits the issue of Sweat Equity Shares, at discount.