Monday, 9 May 2016

Companies Act 2013 and CSR - NCLT

In India corporate sector is regulated by the Companies Act, 1956 and the Companies Act 2013.  Recently, some of the sections of the Companies Act, 1956 has been substituted by the corresponding sections of the Companies Act, 2013 which come into operation in parts since September 2013 onward.  The new Companies Act is divided into 470 section and 7 Schedules, aside this, the new company law remained a vastly delegated legislation with majority of the provisions to be ensured by way of Company Rules to be notified by way of Notifications by the Ministry of Corporate Affairs.


The Companies Act, 2013 introduced sweeping changes in the management and governance of the various types of companies sought to be regulated under the Companies Act, 2013.  The new Companies Act for the first time introduced the concept of ‘One Person Company’ to provide flexibility to individuals/ proprietary concerns to set up their business with limited liability and benefit of corporate structure. It changed the criteria for public and private limited companies, for example now under the Companies Act, 2013 private limited companies can have maximum of 200 shareholders while under the erstwhile provisions of the Companies Act, 1956 the limit was set at 50 members. Other concepts included small company and dormant company.

The Companies Act, 2013 introduced the concept of Corporate Social Responsibility (CSR).  CSR provisions were made applicable to all companies having
net profit of Rs 50 million or net worth of Rs 5,000 million or turnover of 10,000 million criteria and these companies were asked to contribute at least 2% of their average net profits of the three immediately preceding financial years (computed in specified manner) towards CSR activities. However in the initial phase the companies have been given liberty to disclose the reasons for their failure to spend on CSR activities in their Board Report.  The new Companies Act also mandated requirement of resident directors for all companies and women directors in specified companies based on turnover and paid-up capital requirement.  

Provisions related to rotation of Statutory Auditors went sweeping change, as it specified provisions for appointment of Auditors for a term of 5 years but with the provision for annual ratification of Auditors’ appointment by the shareholders at the annual general meeting.  The maximum period for which the auditors/ auditing firm can be an auditor for the Company was limited to 2 consecutive terms of 5 years each.  

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