New Companies Act 2013 Insight Series V

KPMG FLASH NEWS
KPMG IN INDIA
New Companies Act, 2013 - Insight Series Vol V

24 September 2013
Vol-V: Directors including Related Party Transactions and General Administration

Executive Summary
Related Party Transaction required to be approved by the Board
Scope significantly enlarged; however, transactions entered in ordinary course of business at arms length
terms are not covered.
Central Government approval removed.
Special resolution at general meeting required for prescribed transactions.
Loan to Directors and Other Specified Persons
Prohibited, unless allowed under other provisions of the Act.
Requirement of Central Government approval removed.
Allowable subject to conditions including shareholders approval.
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Loans and Investments by a Company
Restriction on having more than two layers of investment companies for making investment.
General Body approval required for loan to any person as against existing requirement applicable only in case
of loan to other body corporate.
Exemptions available to private limited companies, transactions between holding WOS, Loans given by
investment companies, etc. are removed.
The provisions seem to be applicable to new loan/investment only.
Committees of the Board
Public company with paid-up capital of INR 1000 million or debt of INR 2000 million and all listed companies to
have Audit Committee and Nomination and Remuneration Committee.
Companies with > 1000 stake holders, i.e. shareholder, deposit holders and other security holder at any time
during the financial year, should have Stakeholder Relation Committee.
Restriction on Directors
Purchase/sale of properties by director and others for consideration other than cash requires approval of
members.
Directors or Key Managerial Personnel (KMP) are prohibited from entering into forward contract in shares or
debentures of the company or holding/subsidiary/associate company.
A total bar is placed on insider trading by any director, KMP or other officers of the company.
Others
In cases where there is no sufficient profit, payment of Management Remuneration without approval of Central
Government is significantly relaxed.
Role of Independent Director is significantly increased.
2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved.
Background
In this bulletin, we have dealt with the new concepts
introduced and the changes made to the existing provisions
relating to Directors including Related Party Transactions
and General Administration. We have also discussed
certain other provisions included in the Companies Act,
2013 (the New Act and provisions are referred to as new
provisions), but only to the extent that they impact the
Directors including Related Party Transactions and General
Administration.
The New Act provides that no company shall enter

into specified transactions with a related party without
the consent of the Board of Directors (the Board) and
special resolution at the General Body Meeting (GM)
in relation to the prescribed transactions.
The significant changes are discussed below:
There was no specific definition under the Existing

Act, but different sections gave different meanings
to the term. The only authoritative definition was
available in Accounting Standard -18, being an
accounting standard prescribed under the
Companies (Accounting Standard) Rules 2006.
Overview
We have dealt with certain general issues in detail in
Volume-I which may also impact the discussion under this
bulletin; therefore, the issues and impacts thereof (No.1 and
4) are reproduced below for ready reference (for details
please refer to VolumeI) :
Related Party Definition (new)
The discussion in this bulletin is subject to the rules yet

to be issued by the Ministry of Corporate Affairs (MCA).
We have considered the draft rules relating to the topics
discussed in this bulletin and marked such provisions
with * at the relevant places. It should be noted that
those provisions are still in draft form and may change
in the final rules.
The definition under the New Act is way

beyond all the existing definitions and defines
the term Related Party in the widest possible
manner. In relation to a company the following
are covered by the definition:
Director, KMP and their relatives
Firms in which Director/Manager or his
relative is a partner
Recently, MCA has notified about 98 sections of the

New Act, including some of the provisions dealt in this
bulletin, to be operative wholly or in part with effect from
September 12, 2013. However, corresponding sections
of the Companies Act, 1956 (the existing Act and its
provisions are referred to as the existing provisions)
have not been repealed. MCA has issued a clarification
that the existing provisions corresponding to the 98
notified sections should cease to have effect as of 12
September 2013.
Private
Company
in
which
Director/Manager is a member or director
A director holding even one share in
another company is also covered
Public company in which Director/Manager
is director or holds, along with his relatives,
> 2 percent of paid up share capital
The New Act creates certain procedures to be carried

out through the National Company Law Tribunal (the
NCLT) and approvals to be taken from it. As discussed
in Volume-I there is no clarity about when NCLT will
becomes operational. Therefore, the issue is how those
procedures should be carried out/those approvals
obtained until the time when the NCLT becomes
operational.
Body corporate whose Board or managing

director (MD) or manager are accustomed
to act on advice of Director/Manager, other
than in professional capacity
Any person on whose advice, other than in
professional capacity, the Board, MD or
Manager is accustomed to act
Meeting of Board and its Powers
Holding/Subsidiary/Fellow
Associate company
Related Party Transactions
subsidiary/
Director/KMP of Holding / Subsidiary

/Associate company or his relative*
The existing Act had provisions dealing with transactions in

which the Director is interested. The New Act has continued
with those provisions but titled them as Related Party
Transactions; however, the scope is significantly increased.
_______________
*
In accordance with the draft rules, which may change
Senior management, i.e. member of core

management group one level below the
Executive Director including functional heads of
company or of Holding/Subsidiary/Associate
company*.
All specified transactions should be approved by

the Board at its meeting.
Prescribed details of the specified transaction

being put up before the Board should be
circulated in the notice of the Board meeting*.
Any Director interested in a transaction is not to

remain present in the discussion during the
meeting*.
Directors interest is not defined.
Type of transactions covered
Shareholders Approval
Buying, selling, or otherwise disposing of property
of any kind
Leasing of property of any kind
Additionally, prior approval of the shareholders

through Special Resolution is required for the
following specified transactions:
Appointment as agent for any of above
Appointment to place of profit in company or of

subsidiary/associate of the company.
Entered into by company having paid-up

capital > INR 10 million*. The Existing Act
provided for CG approval.
Involving appointment to place of profit

exceeding monthly remuneration of INR 1
lakh*.
Involving underwriting agreement

remuneration > INR 1 million*.
Involving other transactions if the value of the

transaction in aggregate together with
previous transactions for the financial year
exceeds the higher of
(a) 5 percent of
turnover or (b) 20 percent of net worth as per
last audited financials*.
Thus, all transactions defined above and entered into

with any of the related parties would be regarded as
Related Party Transactions.
However, the provisions discussed below are not

applicable to transactions carried out in the ordinary
course of business of the company provided they are
on an arms length basis, i.e. the transaction as would
have been entered into between two unrelated
parties without any conflict of interest. In other words
the transaction is on terms, including price, which are
not biased by fact of relationship between the parties.
Whether the transaction is at arms length would be a

subjective decision. What the Board may regard to be
arms length may not be so to others, such as a
Transfer Pricing Officer.
There is no clarity whether the Board/Committee of

Directors (Committee) decision should be final or
whether subsequent development will result in the
transaction being treated as a violation of the
provisions.
Greater clarity on this issue is required, otherwise
availing of this exclusion may become very difficult.
_____________
*
The transactions to which the provisions are

applicable are referred to as specified
transactions.
Board Approval
The definition of Relative is narrowed as compared to
the Existing Act and excludes (a) daughters children
and spouse; (b) spouses of sons children (c)
spouses of brother/sister. However, Central
Government (CG) has power for prescribing other
relationships.
The type of transactions covered has significantly

expanded. Besides sale, purchase or supply of any
goods, material or services and underwriting contract
covered under the Existing Act, the new provisions
cover the following transactions involving:
Likely to cover all previous specified

transactions entered into during the
financial year with all the Related Parties
and not only such transactions between
the company and a specific party.
Prescribed details of the proposed specified

transactions should be given in the
explanatory statement attached to the notice
calling the meeting.
________________
*
for

Member, if a related party, should not vote on

special resolutions at the general meeting
Related party is defined in relation to a

company and not with reference to a
transaction or a person. Therefore, it seems
that all the related parties cannot vote,
whether interested in the transaction or not
In case of transaction between holding
company and wholly owned subsidiary
(WOS),
such resolution passed in the
general meeting of the holding company
should be sufficient*.
All specified transactions should be reported in the

Board Report with justification for entering into each
of the relevant transactions.
All Related Party Transactions and their modifications

need to be approved by Audit Committee, if any
It seems that, while all arms length transactions

with Related Parties are not required to seek
approval of the Board or shareholders, they would
still require approval of the Audit committee.
Existing Act allowed entering into such

transactions without approval only in case of
urgent necessity. There is no such requirement
under the new provisions.
Specified loan given by company in the ordinary

course of its business charging interest on loans
at a rate not less than the specified bank rate.
It seems that a specified loan can be given subject

to what is discussed below under the head Loan
and Investment by company.
It should be noted that the provisions relating to

Loan to directors are notified and are operative;
however, the provisions relating to Loan and
Investment by company are not notified. Therefore,
currently it is not clear whether, until the time other
provisions are notified, a specified loan can be
given or not.
Powers of Board to be exercised only at

the meeting of Board
If the transaction is not so ratified, same is

voidable at the instance of the Board and
concerned
director/employee
need
to
compensate the company for loss incurred.
Conviction of a director or a person in relation to

Related Party Transaction during the preceding five
years could be regarded as a disqualification for
appointment as a director.
The Existing Act provided that a public company

should obtain prior approval of CG for directly or
indirectly
granting
any
loan/giving
guarantee/providing security to its directors and other
specified persons (specified loan).
Loan to MD or whole-time director (WD) as a

part of the conditions of service extended by the
company to all its employees or pursuant to any
scheme approved by the members by a special
resolution; or,
________________
*
The exemptions to private company, banking

company and specified loan between holding
company and its subsidiary company are removed
under the New Act. The provisions are also
applicable to private companies.
Loan to Directors, etc.
The New Act provides that except as provided under

other provisions of the New Act, no company should
give specified loans except for the following:
In case a specified transaction is entered into without

prior approval of the Board or special resolution as
applicable, the transaction needs to be ratified by
necessary resolution within three months.
Both the Acts provided that the Board of Directors

can exercise certain powers by means of resolution
passed at a Board meeting. However, the list of such
powers is significantly enlarged in the new
provisions. Some significant additions are as follows:
Issue of securities
Approve financials including board

amalgamation, merger or reconstruction
Commencement of new business* or to diversify

business
Takeover or acquire substantial or controlling

stake in another company
Fill in casual vacancy in board*
Appointment of internal auditor*
________________
*
report,
Removal of KMP, etc.*
Loan and Investment by Company
Enter into JV/collaboration*
The following are the key changes:
Plant location shifting*
Sell investment held if investment sold is 5

percent or more of paid-up share capital and free
reserves of the investee company.
A company cannot make investment through more

than two layers of investment companies subject to
the following exclusions (new):
Acquisition of a company incorporated

outside India if this company has more
layers of investment subsidiaries under the
laws of the relevant country.
The above resolutions are required to be filed with

the Registrar of Companies (the ROC) (new).
Subsidiary
company having a greater

number of investment subsidiaries for the
purposes of meeting the requirements under
any law or under any rule or regulation
framed under any law for the time being in
force.
Restrictions on Powers of Board

Both the Acts have provisions dealing with the Power of
Board which can be exercised only with the consent of
shareholders in a general meeting, except that the
Existing Act required ordinary resolution whereas the
New Act requires special resolution. This provision is
already notified.
The provisions are applicable to investments by

each company. Therefore, two layers need to be
determined in relation to an investing company
and not the ultimate holding company of that
investing company.
The New Act has amended the definition of

subsidiary which provides that certain types of
companies are not to have more than the
prescribed layers of subsidiaries. The above
condition should also be considered over and
above the aforesaid conditions.
The following are the key changes to these provisions:
Under the Existing Act these provisions were not

applicable to private limited companies. Under the
New Act they are made applicable even to private
limited companies.
The disposal of the whole or substantially the whole
of the undertaking of the company continues to be
the same except that the following terms are now
defined:
Undertaking means an undertaking in which the

company invested > 20 percent of its net worth as per
the last audited balance sheet, or which generated 20
peracent of the total income of the company during
the previous financial year (new)
substantially the whole means 20 percent or more of
the value of the undertaking as per the audited
balance sheet of the preceding financial year (new).
Therefore, shareholders approval may not be
required for disposal or assets/undertaking not
meeting the above criteria.
The provision relating to restriction on power to invest

the amount of compensation received by it as a result
of any merger or amalgamation otherwise than in
trust securities is unclear. The existing provisions
dealt with compensation for compulsory acquisition.
The Existing Act restricted a company from giving a

loan to other body corporates or making investment
in other body corporates in excess of the specified
limit of 60 percent of its paid-up share capital, free
reserves and securities premium account, or 100
percent of its free reserves and securities premium
account.
The scope of section is enlarged to include

loans to persons other than body corporates
(new).
The Existing Act provided that free reserves

should be as per the latest audited balance
sheet. No such clarity is provided in the New
Act.
The provisions seem to apply only to new

investments/loans;
therefore,
existing
investments/loans
seem
to
be
impliedly
grandfathered.
_______________
*
The company shall disclose in its financial statements

full particulars of loan/investment/guarantee/security
given and the purpose for which it is given as well as
the purpose for which the recipient of the guarantee
will use it (new).
A company, registered as broker or other
intermediary under section 12 of the SEBI Act and
such class of companies as may be prescribed,
cannot take inter-corporate loan or deposits
exceeding the prescribed limit (new). According to
the rules the prescribed limits would be as notified by
SEBI under the relevant regulations*
The rate of interest on the loan which was linked to

the bank rate under the Existing Act is now linked to
the prevailing yield on approved Government Security
closest to the tenor of the loan.
The existing provisions exempted (a) private limited

companies and (b) loan given or investment made in
WOS from applicability of provisions. Under the New
Act, these exemptions are withdrawn and the new
provisions are applicable to both the categories.
The exemption to investment companies relating to

the giving of loans and providing securities is
withdrawn.
Evaluation of internal financial controls.
Monitoring of end use of proceeds of public

offerings and related matters.
The Existing Act provided that the Audit

Committee recommendation should be binding
on the Board.
Also the Chairman of the
Committee was required to attend the general
meeting. No such provisions are included in the
New Act.
The New Act provides that companies accepting

public deposits or borrowings > INR 500 million
form public financial institutions or banks* and
should have prescribed a vigil mechanism to be
operated through the Audit Committee, if there is
one, or through a designated director.
B. Nomination & Remuneration Committee
All listed companies and public companies with

paid-up capital of INR 1000 million* or debt of
INR 2000 million* are to have a Nomination and
Remuneration Committee*
The Committee should consist of:
Committees of the Board
Minimum three non-executive directors
A. Audit Committee
Independent directors should be in majority
All listed companies and public companies with paidup capital of INR 1000 million* or debt of INR 2000
million* to have an Audit Committee.
Company chairperson cannot be chairperson

of the committee
Audit Committee should be constituted of:
Minimum three directors
Independent directors should be in majority. Also,

majority of directors should have ability to read
and understand financials
Existing committees, if any, to transition and

comply with above within one year
Terms of reference to include certain processes,

the significant being:
Approval of related party transactions and

their modifications.
inter-corporate
Scrutiny of
investments.
_______________
loans
and
Nomination and Remuneration Committee shall

formulate eligibility criteria for directors,
recommend remuneration policy for directors,
KMP and other employees to the Board, and
identify eligible candidates for the post of
Director.
C. Stakeholders Relationship Committee

Companies with > 1000 stake holders, i.e.
shareholders, deposit holders and other security
holders, at any time during the financial year, should
have a Stakeholder Relation Committee
The Chairman of the Committee to be a NonExecutive Director.
The Committee shall consider and resolve

grievances of the security holders of the
company.
__________________
* In accordance with the draft rules, which may change

It seems that the decision to appoint a committee

is to be decided every year.
D. Corporate Social Responsibility Committee

Provisions relating to the Corporate Social
Responsibility (CSR) Committee are already
discussed in Volume IV.
In relation to listed companies, SEBI should have the

power to enforce the above provisions.
These provisions are applicable to unlisted public

companies as well as private companies.
Disclosure of Interest
The provisions are applicable to private limited

companies also.
It is provided that the director interested in a contract

should not participate in the meeting. A private
limited company with two directors may not be able
to comply with the quorum requirement.
In case the contract is entered into without disclosing

interest of a director, the contract will be voidable at
the instance of the company.
Restrictions on Directors/KMP
Non-cash transactions
The New Act provides that the Director of a company

or its holding/subsidiary/associate company or a
person connected with this director should neither
acquire assets from the company nor sell the assets
to the company for consideration other than cash
without approval of shareholders in general meeting
(new). This provision is already notified and in effect.
Other Provisions
In case of the Director of a holding company,

additionally approval of shareholders of holding
company also is required.
Notice of general meeting should include full detail of
the arrangement and valuation of assets as valued by
registered valuer.
If transaction is carried out in contravention, except in
a case where (a) restitution of consideration is not
possible and the company is compensated for loss, or
(b) third party rights are created, the transaction
should be voidable at the instance of the company.
Directors or KMP are prohibited from entering into
forward contract in shares or debentures of the
company or its holding/subsidiary/associate company.
This provision is already notified.
A total bar is placed on insider trading by any director,
KMP or other officers of the company. This provision
is already notified.
Insider trading means:
Dealing in shares by a person having non-public

price sensitive information; or
Communicating such information to any person
The existing provisions required circulation to

members of contract relating to appointment of
MD/WD. The New Act only provides for taking
inspection or taking extract by members.
It is provided that in case the company has defaulted

in payment of specified statutory dues or deposits,
compensation cannot be paid to MD/WD for loss of
office due to transfer of undertaking, etc.*
Appointment and Remuneration

Managerial Personnel
of
The key changes are as follows:
The Board Report of every listed company is to

disclose the ratio of the remuneration of each
director to the median employees remuneration.
Sitting fees to a director for attending meeting of

Board or a committee thereof can be decided by
Board of Directors of the Remuneration Committee
to be an amount < INR 1 lakh per meeting.* A
different sitting fee amount can be decided for
independent directors and for non-independent
directors.*
________________
*In accordance with the draft rules, which may change
Every unlisted company, including private companies,

with paid-up capital of INR 50 million* or more and
listed companies* are to have whole time KMP.
It seems that such companies need to appoint all the

categories of persons included in the definition of
KMP.
KMP can hold office only in one company and in two

companies, if agreed by all the directors. A KMP
holding office in more than one company has to
decide within six months, from notification of section,
in which company he wants to continue.
The Existing Act provided a person convicted for an

offence involving moral turpitude cannot be appointed
as MD/WD/manager.
The New Act provides that a person convicted by

court for any offence and sentenced for a period
exceeding six months cannot be appointed as
MD/WD/Manager.
Provisions
relating
to
Appointment
of
MD/WD/Manager are also made applicable to private
companies.
All listed companies and companies having paid-up

capital of INR 1000 million or more are required to
obtain a compliance report for Practicing Company
Secretary and attach it to the Directors report*.
The New Act provides that a MD/WD receiving any

commission from the company may also receive
remuneration or commission, from holding company
or subsidiary company of such company, subject to
disclosure in the Boards report.
Schedule-V replaces ScheduleXIII of the Existing

Act dealing with appointment of managing/whole time
directors without CG approval. Key changes in the
Schedule are as follows:
Single limit prescribed as compared to

multiple slabs.
Subject to specified conditions, a newly

incorporated company is allowed to pay
higher remuneration than specified in the
Schedule for a period of seven years from
date of incorporation.
Sick company with revival scheme is

allowed to pay remuneration computed at
double the specified limit for five years from
sanction of the Scheme.
Subject to certain conditions, payment of

remuneration higher than the specified limit is
permitted to directors of companies other than listed
companies and subsidiaries thereof without CG
approval.*
Extraordinary General Meeting these provisions

are already notified
The Existing Act provided that persons

requisitioning the meeting should hold at least 10
percent of paid-up capital carrying voting right
relating to the matter to be resolved. The New
Act provides that such persons should hold at
least 10 percent paid-up capital carrying voting
rights.
Requirement of voting power in relation to matter

for which the meeting is called is removed.
Preference shareholders may not be able to

requisition meeting for matters impacting them.
Provisions relating to general meetings:
For calling general meeting at a shorter notice,

the New Act provides for approval of 95% of
members as against approval of members
holding 95 percent of paid-up voting capital
required under the Existing Act. This may pose a
challenge.
One proxy cannot represent more than 50

members or any number below 50 if their
aggregate holding exceeds 10 percent of total
share capital carrying voting rights*
Subject to conditions, separate limit provided

for
non-security/small
security
holder
managerial person, if that provides higher
remuneration than above.
____________
The remuneration payment in excess of the

limits is allowed if it is paid by any other
company taking approval of its shareholders
for such payment and the total managerial
remuneration of such company including
this payment is within limit specified under
Section 197 or if it is paid by a foreign
company.
Management and Administration
Appointment of MD/WD
_____________
The New Act requires that the explanatory

statement be attached to the notice calling a
general meeting for each item of special business
should include the following (these provisions are
already notified):
Disclosure of nature of interest of relatives of

directors/manager/KMP in each resolution
proposed to be passed is additionally
required. Existing Act required such
disclosure
only
in
relation
to
directors/manager.
If the special business relates to or affects
any other company, then shareholding of
promoter, director, manager and KMP in that
company exceeding 2 percent should be
disclosed. Under existing provisions the limit
was 20 percent.
In case any such person derives any benefit
consequent to insufficient disclosures, the
benefit derived needs to be reimbursed to the
company.
Quorum for public company is prescribed to be 530 depending upon number of total members.
The Existing Act prescribed quorum to be 5.
These provisions are already notified.
Listed companies and unlisted companies with >

500 members may provide electronic voting
facilities*.
Demand for poll:
Poll can be demanded by members holding at

least 10 percent in total voting power or share
with paid-up value of at least INR 5 lakhs
The Existing Act provided that members

should hold at least 10 percent of shares
carrying voting right in relation to the
resolution or with paid-up value of INR
50,000.
Requirement of voting power in relation to

matter for which the meeting is called is
removed.
Preference shareholders may not be able

to demand poll even in relation to matters
impacting them.
_______________
*
Under the New Act the requirement of one of the

Scrutineers to be a member is removed.
Postal ballots are not allowed in relation to:
Annual General Meetings
Resolutions allowing Directors/Auditors to

represent before general meeting.
List of businesses mandatorily requiring

resolution through postal ballot is made
applicable to all the companies having > 50
members.
Change in objects for which money is raised

from public and money is not fully utilised is
added as a mandatory business.
Minutes of the meeting need to comply with the

secretarial standards approved by CG.
Listed companies are required to file change in

shareholding of promoters and top ten shareholders
within 15 days of such change.
The New Act provides that a company may maintain

required registers etc. in electronic mode as may be
prescribed. However, the rules, besides prescribing
other things, provide that listed companies and
unlisted companies with members > 1000 shall
maintain registers etc in electronic mode.*
Appointment and Qualification of

Directors
Composition of Board
Maximum number of directors increased from 12 to

15 under the New Act.
Number can be further increased by a special

resolution at GM. The Existing Act required CG
approval for increasing number beyond 12.
Every listed company should have a woman director

within one year and unlisted companies with paid-up
capital of INR 1000 million or more should have a
woman director within three years from date of
notification of section*.
Every company to have at least one director who

has stayed in India for > 182 days in previous
calendar year.
_______________
*
Every listed company, public company having

paid-up capital of INR 1000 million or more or
public company having debt > INR 2000 million
should have 1/3 of total number of directors to be
Independent Directors (IDs)*
Existing companies to comply with the above

requirements within one year from notification of
section or rule, whichever is earlier.
In case of public companies, even if above criteria

are not satisfied subsequently, the provisions
shall continue to apply until end of tenure of the
IDs.*
Nominee directors are not considered Ids.
A small shareholder director providing declaration of

independence is to be considered an ID*.
ID needs to declare to the board that he is

independent at the time of his appointment and also
whenever there is a change that may impact his
independence.
Company and the ID should follow the code given in

Schedule IV.
ID should not be entitled to any stock option.

However ID may receive profit-based commission in
addition to sitting fees.
ID can be appointed for a maximum term of five

years and can be renewed for one more term.
However, appointment thereafter can be only after
expiry of a period of three years of ceasing to be an
ID.
ID should be liable only in respect of those acts by

the company which had occurred with his knowledge
through board processes or with his consent, or
where he had acted negligently.
ID is not liable to retire by rotation
Appointment of Director
Provisions relating to appointment of director under the
New Act are similar to corresponding provisions under the
Existing Act except for the following:
Director Identification
appointment (new).
A new person proposed to be appointed as a director

in place of the retiring director or the member
proposing him needs to deposit INR 1 lakh which
shall be refunded if he is elected or he gets at least
25 percent of valid votes.
Number
is
must
for
Small shareholder director requirement is restricted to

listed companies only to be considered an ID. Under
the Existing Act it was applicable to certain public
companies also.
Provision relating to requirement

qualification shares is removed.
Additional director appointed by the Board to hold

office until the date of the next AGM or the last date
on which the AGM should have been held, whichever
is earlier.
of
holding
A director retiring by rotation and failing to get

reappointed should not be appointed as additional
director.
Independent Director (new)
For ascertaining number of directors liable to

retirement by rotation, total number of directors
is not to include Ids.
CG may notify agencies to maintain database of

willing candidates for appointment as ID.
Disqualification for appointment of Director

Provisions relating to directors disqualification under the
New Act are similar to corresponding provisions under
the Existing Act except for the following:
Conviction for any offence and sentence to

imprisonment for a period of seven years or more
(new).
Conviction for offence relating to Related Party

Transactions at any time during the preceding five
years (new).
The expression ID is defined, specifying their

qualification/restrictions/disqualifications in detail.
_______________
*
_______________
*
In accordance with the draft rules, which may chang
In accordance with the draft rules, which may chang
Being director of a company which has defaulted in

relation to repayment of deposit, redemption of
debenture or payment of dividend declared and such
failure continues for one year or more.
Disqualified for reappointment in that company and

appointment in any other company for five years.
If all the directors resign, the promoter, or in his

absence the CG, can appoint the required
number of directors to hold that office until
directors are appointed in GM.
Other Provisions
Number of companies in which a person can be a

director is increased from 15 under the Existing Act to
20 under the New Act. However, the New Act
provides a sub-limit to the effect that a person cannot
hold directorship in more than ten public companies.
Private company which is a holding/subsidiary

company of a public company should be treated as
public company for computing limit of ten public
companies.
Director of existing companies, not meeting with

above limitation about the number of companies,
should make choice of companies in which he wants
to continue as director and should resign from other
companies. He should be compliant with number of
limitations within one year from notification of section
and inform the Registrar about his choice of
continuation of directorship.
Provisions relating to vacation of office of director

continue to be the same under the New Act except for
the addition of the following reasons for vacation of
office:
Remaining absent from all the meetings held

during a period of 12 months, whether with or
without leave of absence.
Failure to disclose interest in any contract in

contravention of provisions relating to disclosure
of interest.
If all the directors vacate their office the promoter,

or in his absence the CG, can appoint the
required number of directors to hold that office
until directors are appointed in GM.
Provision relating to resignation of director is inserted:
The director continues to be liable, even after

resignation, for events that occurred during his
tenure.
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endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will
continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the
particular situation.
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New Companies Act 2013 Insight Series V

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New Companies Act 2013 Insight Series V

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KPMG FLASH NEWS

New Companies Act, 2013 - Insight Series Vol V

Vol-V: Directors including Related Party Transactions and General Administration

Central Government approval removed.

Special resolution at general meeting required for prescribed transactions.

Loan to Directors and Other Specified Persons

Prohibited, unless allowed under other provisions of the Act.

Requirement of Central Government approval removed.

Allowable subject to conditions including shareholders approval.

Loans and Investments by a Company

The provisions seem to be applicable to new loan/investment only.

Committees of the Board

Role of Independent Director is significantly increased.

The New Act provides that no company shall enter

There was no specific definition under the Existing

Related Party Definition (new)

The discussion in this bulletin is subject to the rules yet

The definition under the New Act is way

Recently, MCA has notified about 98 sections of the

The New Act creates certain procedures to be carried

Body corporate whose Board or managing

Meeting of Board and its Powers

Related Party Transactions

Director/KMP of Holding / Subsidiary

The existing Act had provisions dealing with transactions in

In accordance with the draft rules, which may change

Senior management, i.e. member of core

All specified transactions should be approved by

Prescribed details of the specified transaction

Any Director interested in a transaction is not to

Directors interest is not defined.

Type of transactions covered

Leasing of property of any kind

Additionally, prior approval of the shareholders

Appointment as agent for any of above

Appointment to place of profit in company or of

Entered into by company having paid-up

Involving appointment to place of profit

Involving underwriting agreement

Involving other transactions if the value of the

Thus, all transactions defined above and entered into

However, the provisions discussed below are not

Whether the transaction is at arms length would be a

There is no clarity whether the Board/Committee of

The transactions to which the provisions are

The type of transactions covered has significantly

Likely to cover all previous specified

Prescribed details of the proposed specified

In accordance with the draft rules, which may change

In accordance with the draft rules, which may change

Member, if a related party, should not vote on

Related party is defined in relation to a

All specified transactions should be reported in the

All Related Party Transactions and their modifications

It seems that, while all arms length transactions

Existing Act allowed entering into such

Specified loan given by company in the ordinary

It seems that a specified loan can be given subject

It should be noted that the provisions relating to

Powers of Board to be exercised only at

If the transaction is not so ratified, same is

Conviction of a director or a person in relation to

The Existing Act provided that a public company

In accordance with the draft rules, which may change