Companies Act 1956

Introduction Types of Companies

Companies Bill 2012

Background Loopholes: Companies Act 1956

Adaption
Structure Key Highlights

The Companies Act 1956 was enacted with the object to consolidate the existing corporate laws and to provide a new basis for corporate operation in independent India.
With enactment of this legislation in 1956, the act has since provided the legal framework for corporate entities in India. Section 3(1)(i) of the Companies Act, 1956 defines a company as: a company formed and registered under this Act or an existing Company. Characteristics of a company

Separate legal entity Limited liability Perpetual succession Common seal Transferability of shares Separate property

The need for streamlining this Act was felt from time to time as the corporate sector grew in pace with the Indian economy, with as many as 24 amendments taking place since 1956. Major amendments to the Act were made based on recommendations of various committees.
The Companies Bill 2012 is an embodiment of the changes/ revisions required to reflect the new corporate scenario in India. Modernization & regulatory harmony in the wake of corporate scandals (Satyam Saga & Sahara OFCDs issue)

OFCD - Optionally fully-convertible debentures Two firms of Sahara Conglomerate:

Sahara Housing Investment Corporation Sahara India Real Estate Corporation.

These Issued OFCD to collect money from investors. ~23 million people, mostly from villages and small towns subscribed to this scheme. They invested ~24,000 crores rupees in these OFCDs of SAHARA. SEBI Issued warning for violation of OFCD process ( to be completed in 10 days) SAHARA These are unlisted companies, so not under SEBI jurisdiction SEBI OFCD is a security. So under my purview

Singapore-based company MLM company Speak Asia Charged a membership fee is Rs 11,000 for a year. The members were expected to conduct online surveys for clients of the firm. It was reported to violate Section 591 of Companies Act, 1956 This act is applicable on companies incorporated outside India and has established a place of business within the country According to the act, companies who are incorporated outside India and Still doing business in India, must get permission and registration from ROC before doing business in India. Also, later scrutiny found the company is not based in Singapore as they claim but in British Virgin Islands and the real owners are Podium Ring International Ltd. [Business Today] It came as a huge shock that a company, involving financial transactions with 2 million people, could operate in India for so long without any scrutiny

Massive increase in number of Companies from about 30,000 in 1956 to nearly 8 lacs (How many active and compliant!!!)
The existing Companies Act, 1956 is a voluminous document with 781 sections containing provisions that cover aspects which are essentially procedural in nature. This format has also resulted in the law becoming very rigid since any change requires an amendment of the law through the parliamentary process. The law has failed to take into account the changes in the national and international economic scenario speedily.

470 Clauses 29 Chapters

95 Definitions 7 Schedules

Number of permissible members in a private company has been raised to 200 from 50.
The concept of One Person Company has been introduced. Provisions relating to further issue of capital to be applicable to all companies.

Shares cannot be issued at a discount except sweat equity shares.

Time gap between 2 buy-backs shall be minimum 1 year. Any deposit accepted before the commencement of 2012 Act or any interest due thereon to be repaid within 1 year from the commencement of 2012 Act or from the date on which such payments are due, whichever is earlier. Stringent norms provided for acceptance of fresh deposits including creation of deposit repayment reserve account of 15% of the amount of deposits maturing in the Current Year and the next Financial Year.

Directors
The new law also makes its mandatory for companies

that one-third of their board comprises independent directors to ensure transparency. Independent Directors do not own shares in the company. Also, at least one of the board members should be a woman. One of the directors of a company shall be a person who has stayed in India for 182 days or more.

2% of average net profits of last 3 years to be mandatorily spent on Corporate Social Responsibility for specified class of companies.
Mandatory transfer of profits to reserves for dividend declaration done away with. Companies may voluntarily transfer a portion of its profits to reserves. Individual auditors are to be compulsorily rotated every 5 years and audit firm every 10 years in listed companies & certain other classes of companies, as may be prescribed. Inability to pay debts will be considered as criteria for determining a sick company .