Implications of having ‘Listed NCDs’ / ‘Listed Securities’
Companies Act, 2013 (“Act”) - New Procedural and Substantive Requirements for Non- Banking Finance Companies (private and public) for issue of privately placed non-convertible debentures (“NCDs”)
- Implications
of having ‘Listed NCDs’ / ‘Listed Securities’
Under Section 2 (52) of the Companies Act, 2013, a
‘listed company’ is defined to mean a company which has any of its securities
listed on any recognized stock exchange. Securities will bring within its ambit debentures as
well.
(i) Constitution of the following committees and
additional Corporate Governance Requirements:
Relevant Sections
and Rules
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Brief Particulars
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Relevant details
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Timeframe
for compliance
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S.177 read with
Rule 6 of the Companies (Meetings of Board and its Powers) Rules, 2014[1]
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Constitution of
Audit Committee
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To be appended with
every financial statement.
To consist of at
least 3 directors with independent directors as a majority. The majority of
members of Audit Committee including its chairperson shall be persons with
ability to read and understand, the financial statement.
Existing companies
may reconstitute their Audit Committee to comply with provisions of the Act,
within 1 year of commencement of this Section, i.e. by March 31, 2015
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Existing companies
to comply within 1 year of commencement of this Section, i.e. by March 31,
2015
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S.178 read with
Rule 6 of the Companies (Meetings of Board and its Powers) Rules, 2014
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Constitution of
Nomination and Remuneration Committee
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To consist of 3 or
more non-executive directors of which at least one half shall be independent
directors.
The committee may
also include the chairperson of the company in the capacity of a member, but
the chairperson shall not be appointed as chair of the committee.
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S. 177(9) read with
Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014
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Vigil Mechanism
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This is effectively
a whistleblower protection mechanism. Listed Company to establish this
mechanism for directors and employees to report any genuine concerns.
For companies which
are required to constitute an Audit Committee, including all listed
companies, the Audit Committee will oversee the vigil mechanism. If any
member of the committee has a conflict of interest in a given case, they
should recuse themselves.
Details of such
mechanism to be disclosed on (i) the company’s website, if any, and (ii) in
the Board’s report.
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S.92 read with Rule
11 of Companies (Management and Administration) Rules, 2014
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Annual return
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Every company shall
prepare its annual return in Form No.
MGT.7.
Annual Return to be
certified by practicing company secretary in Form No. MGT.8, stating that the annual return discloses the
facts correctly and adequately and that the company has complied with all the
provisions of the Act
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S.197
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Remuneration
Disclosure in the report of the Board of
Directors, made in terms of Section 134(3) (“Board’s Report”)
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To disclose in the
Board’s Report, the ratio of the remuneration of each director to the median
employee’s remuneration and such other details as prescribed in Rule 5 of the
Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
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S.204 read with Rule
9 of the Companies (Appointment and Remuneration of Managerial Personnel)[2]
Rules, 2014
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Secretarial Audit-
A secretarial audit report to be provided, given by the practising company
secretary
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To be annexed with
the Board’s Report in Form No.MR.3.
It shall be the duty of the company to give all assistance and
facilities to the company secretary in practice, for auditing the secretarial
and related records of the company.
The Board’s Report shall explain in full any qualification or
observation or other remarks made by the company secretary in practice in the
secretarial audit report.
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Section 134(3) read with Rule 8 of the
Companies (Accounts) Rules, 2014[3]
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Director’s
Responsibility Statement- to state that directors has laid down the internal
financial controls to be followed by the company and the same are adequate
and operating effectively.
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“internal
financial controls” means the policies and procedures adopted by the
company for ensuring the orderly and efficient conduct of its business,
including adherence to company’s policies, the safeguarding of its assets,
the prevention and detection of frauds and errors, the accuracy and
completeness of the accounting records, and the timely preparation of
reliable financial information.
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S. 134 read with
Rule 8 of the Companies (Accounts) Rules, 2014
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Disclosure of manner of formal annual evaluation of Board, its
committees and individual directors, and additional disclosures to be made in
Board’s report
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Every listed company and every other public company having a
paid up share capital of twenty five crore rupees or more calculated at the
end of the preceding financial year shall
include, in the report by its Board of directors, a statement indicating the
manner in which formal annual evaluation has been made by the Board of its
own performance and that of its committees and individual directors.
The
Board report is also required to contain such information as is contained in
Rule 8, sub rule (5) as well, as is more particularly set out in Annexure A hereto
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S. 136
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Copy of financial
statements, including consolidated financial statements, if any, auditor’s
report and all documents required by law to be annexed / attached to the
financial statements which are to be laid in a general meeting- inter alia to be sent to every trustee
of a debenture holder.
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Listed companies
shall be deemed to have complied with notice requirement prior to AGM if:
(i)
copies of all financial statements and other documents
required under section 136(1) are made available for inspection at the
registered office during working hours for a period of twenty-one days before the
date of the meeting; AND
(ii)
Form AOC-3 is sent to shareholders
and to every trustee for the holders of any debentures issued by the company
not less than twenty-one days before the date of the meeting, UNLESS
shareholders ask for full financial statements
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Form AOC-3 to be sent to all shareholders and all
trustees of debenture holders not less than 21 days before date of AGM
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S. 136
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Listed company to
place financial statements (including consolidated financial statements if
any) and all other documents required to be attached thereto, on its website
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S. 136 read with Rule
11 of Companies (Accounts) Rules, 2014
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Manner of
circulation of financial statements prior to AGM
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If shareholders ask
for full financial statements: listed companies and such public companies
which have a net worth of more than one crore rupees and turnover of more
than ten crore rupees MAY send financial statements:
(i)
by electronic mode to such members whose shareholding
is in dematerialised format and whose email Ids are registered with
Depository for communication purposes;
(ii)
in any other case, in electronic mode only to such
members who have positively consented in writing for receiving by electronic
mode; or by despatch of physical copies through any recognised mode of
delivery as specified under section 20 of the Act.
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S. 138 read with
Rule 13 of
Companies
(Accounts) Rules, 2014
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Appointment of
Internal Auditor- who may be either a CA or a cost accountant or any other
professional as decided by the Board-
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(i)
the internal auditor may or may not be an employee of
the company;
(ii)
the internal auditor may be a CA, whether engaged in
practice or not.
(iii)
Audit Committee of the company or the Board shall, in
consultation with the Internal Auditor, formulate the scope, functioning,
periodicity and methodology for conducting the internal audit.
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Existing companies
to comply within six months from the commencement of this Section, i.e. by September
30, 2014
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S.139
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Appointment of
Auditors-
Company cannot
appoint or re-appoint:
(a) an individual
as auditor for more than one term of five consecutive years;
and
(b) an audit firm
as auditor for more than two terms of five consecutive years:
Company cannot
re-appoint an individual auditor / audit firm for a period of five years
after the completion of the term(s) stipulated in clause (a) and (b) above,
in the same company.
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Mandatory rotation
of auditors provided.
Time frame of 3
years from the commencement of the Act is provided for to enable compliance
with the same.
The tenure of the
auditors will be counted from the date of the appointment onwards and not
from the commencement of this Act.
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Existing companies
to comply within 3 years from the commencement of this Section, i.e. March
31, 2017
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S.151 read with Companies
(Appointment and Qualification of Directors) Rules, 2014[4]
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Appointment of
Director elected by small shareholders
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“small
shareholders” defined to be a shareholder holding shares of nominal value of
not more than twenty thousand rupees or such other sum as may be prescribed.
Appointment can be
done either by notice by the required number of shareholders or by the listed
company suo moto
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A listed company,
may upon notice of not less than one thousand small shareholders or 1/10th
of the total number of such shareholders, whichever is lower, have a small
shareholders’ director elected by the small shareholders.
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Section 149(1) read
with Rule 3 of Companies (Appointment and Qualification of Directors) Rules,
2014
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Woman Director- At
least one woman director to be on board
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The following class
of companies shall appoint at least one woman director-
(i)
every listed company;
(ii)
every other public company having, as on the last date
of latest audited financial statements -
(a) paid–up share capital of one hundred
crore rupees or more; or
(b) turnover of three hundred crore rupees
or more.
Any intermittent
vacancy of a woman director shall be filled-up by the Board at the earliest
but not later than immediate next Board meeting or three months from the date
of such vacancy whichever is later
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Existing companies
to comply within 1 year of commencement of this Section, i.e. by March 31,
2015 OR within one year from date of notification of the rules, i.e. [date of publication in official gazette to
be inserted]
Companies
incorporated under the Act and falling within prescribed class of companies
to comply within six months from the date of its incorporation
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S.108 read with Rule
20 of Companies (Management and Administration) Rules, 2014
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Voting through
electronic means
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Every listed
company or a company having not less than one thousand shareholders, shall
provide to its members facility to exercise their right to vote at general
meetings by electronic means. Detailed procedures have been provided in this
regard.
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Section 120 read
with Rule 27 of Companies (Management and Administration) Rules, 2014
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Maintenance of
records in electronic form
"records”
means any register, index, agreement, memorandum, minutes or any other
document required by the Act or the rules made there under to be kept by a
company
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(i)
the records shall be maintained in the same formats and
in accordance with all other requirements as provided in the Act or the rules
made there under;
(ii)
the information as required under the provisions of the
Act or the rules made there under should be adequately recorded for future
reference;
(iii)
the records must be capable of being readable,
retrievable and reproducible in printed form;
(iv)
the records are capable of being dated and signed
digitally wherever it is required under the provisions of the Act or the
rules made there under;
(v)
the records, once dated and signed digitally, shall not
be capable of being edited or altered;
(vi)
the records shall be capable of being updated,
according to the provisions of the Act or the rules made there under, and the
date of updating shall be capable of being recorded on every updating.
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Existing companies
to convert data from physical mode to electronic mode within six months from
the commencement of this Section, i.e. by September 30, 2014
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Section 203 read
with Rule 8 of the Companies (Appointment and Remuneration of Managerial
Personnel) Rules, 2014
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Key Managerial
Person (“KMP”)
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Every listed
company shall have the following whole-time key managerial personnel,—
(i) managing
director, or Chief Executive Officer or manager and in their absence, a
whole-time director;
(ii) company
secretary; and
(iii)
Chief Financial Officer
(iv)
Rules also specify
limits as to how many offices a whole time director can hold, details of
which are more particularly set out in Annexure
B hereto
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Whole-time KMP holding office in more than
one company as of April 01, 2014, should ensure that they choose only one
company in which they will continue to hold office of KMP within six months
from the commencement of this Section, i.e. by September 30, 2014
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(ii) Listed Public Companies
Relevant Sections and Rules
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Brief Particulars
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Relevant details
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Timeframe for compliance
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S.121
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Annual General Meeting Report to be prepared in prescribed form
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Report to be filed with the Registrar
within 30 days of conclusion of AGM.
The copy of the report prepared in
pursuance of Section 121, shall be filed with the Registrar in Form No. MGT.15
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Form
No. MGT.15 to be filed within 30 days of conclusion of
AGM.
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S.149 read with Companies (Appointment and
Qualification of Directors) Rules, 2014
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Every listed public company shall have at
least one-third of the total number of independent directors and the Central
Government shall prescribe minimum no. of directors in case of any
class/classes of public companies
Independent Directors
At least 1/3rd of total
directors to be independent directors
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Detailed provisions on independent
directors set out in Annexure C
hereto
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Existing companies to comply within 1 year
of commencement of this Section, i.e. by March 31, 2015.
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S. 178
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Constitution of Stakeholders Relationship
Committee
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The Board of Directors of a company which
consists of more than one thousand shareholders, debenture-holders,
deposit-holders and any other security holders at any time during a financial
year shall constitute a Stakeholders Relationship Committee consisting of
a chairperson who shall be a non-executive director and such other members as
may be decided by the Board.
The Stakeholders Relationship Committee
shall consider and resolve the grievances of security holders of the company.
The chairperson of each of the committees
constituted under this section or, in his absence, any other member of the
committee authorised by him in this behalf shall attend the general meetings
of the company.
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This is not exclusively a requirement for
listed companies alone but rather for all companies having more than one
thousand shareholders, debentureholders etc during a financial year.
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Annexure A
List of additional disclosures in
Board’s Report for listed companies*
As per sub-rule (5)
of Rule 8 of the Companies (Accounts) Rules, 2014, the report of the Board shall also contain -
(i)
the
financial summary or highlights;
(ii) the change in the nature of business, if any;
(iii) the details of directors or key managerial personnel
who were appointed or have resigned during the year;
(iv) the names of companies which have become or ceased to
be its Subsidiaries, joint ventures or associate companies during the year;
(v) the details relating to deposits, covered under
Chapter V of the Act,-
a. accepted during the year;
b. remained unpaid or unclaimed as at the end of the
year;
c.
whether
there has been any default in repayment of deposits or payment of interest
thereon during the year and if so, number of such cases and the total amount
involved-
i.
at
the beginning of the year;
ii.
maximum
during the year;
iii.
at
the end of the year;
(vi) the details of deposits which are not in compliance
with the requirements of Chapter V of the Act;
(vii) the details of significant and material orders passed
by the regulators or courts or tribunals impacting the going concern status and
company’s operations in future;
(viii)
the
details in respect of adequacy of internal financial controls with reference to
the Financial Statements.
*While sub-rule 5 referred to in this Annexure does not specify the
category of companies required to make the additional disclosures stated therein,
it may be construed from the language of the said sub-rule that the additional
disclosure stated therein are required to be made only by listed companies and
every other public company having a paid up share capital of twenty five crore rupees or more
calculated at the end of the preceding financial year.
Annexure B
Summary of provisions on Key Managerial
Personnel
Every listed company
shall have the following whole-time key managerial personnel,—
(i) managing
director, or Chief Executive Officer or manager and in their absence, a
whole-time director;
(ii) company
secretary; and
(iii) Chief Financial
Officer :
Provided that an
individual shall not be appointed or reappointed as the chairperson of the
company, in pursuance of the articles of the company, as well as the managing
director or Chief Executive Officer of the company at the same time after the
date of commencement of the Act unless,—
(a) the articles of
such a company provide otherwise; or
(b) the company does
not carry multiple businesses:
Provided further that
nothing contained in the first proviso shall apply to such class of companies
engaged in multiple businesses and which has appointed one or more Chief
Executive Officers for each such business as may be notified by the Central Government.
Every whole-time key
managerial personnel of a company shall be appointed by means of a resolution
of the Board containing the terms and conditions of the appointment including
the remuneration.
A whole-time key
managerial personnel shall not hold office in more than one company except in
its subsidiary company at the same time:
Provided that nothing
contained in this sub-section shall disentitle a key managerial personnel from
being a director of any company with the permission of the Board:*
Provided further that
whole-time key managerial personnel holding office in more than one company at
the same time on the date of commencement of the Act, shall, within a period of
six months from such commencement, choose one company, in which he wishes to
continue to hold the office of key managerial personnel:
Provided also that a
company may appoint or employ a person as its managing director, if he is the
managing director or manager of one, and of not more than one, other company
and such appointment or employment is made or approved by a resolution passed
at a meeting of the Board with the consent of all the directors present at the
meeting and of which meeting, and of the resolution to be moved thereat,
specific notice has been given to all the directors then in India.
If the office of any
whole-time key managerial personnel is vacated, the resulting vacancy shall be
filled-up by the Board at a meeting of the Board within a period of six months
from the date of such vacancy.
If a company
contravenes the provisions of this section, the company shall be punishable
with fine which shall not be less than one lakh rupees but which may extend to
five lakh rupees and every director and key managerial personnel of the company
who is in default shall be punishable with fine which may extend to fifty
thousand rupees and where the contravention is a continuing one, with a further
fine which may extend to one thousand rupees for every day after the first
during which the contravention continues.
Annexure C
Summary of provisions on Independent
Directors
The following class or classes of companies shall have at
least two directors as independent directors -
(i) the Public Companies having paid up share capital of
ten crore rupees or more; or
(ii) the Public Companies having turnover of one hundred
crore rupees or more; or
(iii) the Public Companies which have, in aggregate,
outstanding loans, debentures and deposits, exceeding fifty crore rupees:
Provided that in case a company covered under this rule
is required to appoint a higher number of independent directors due to
composition of its audit committee, such higher number of independent directors
shall be applicable to it:
Provided further that any intermittent vacancy of an
independent director shall be filled-up by the Board at the earliest but not
later than immediate next Board meeting or three months from the date of such
vacancy, whichever is later:
Provided also that where a company ceases to fulfil any
of three conditions laid down in sub-rule (1) for three consecutive years, it
shall not be required to comply with these provisions until such time as it
meets any of such conditions;
Explanation. - For the purposes of this rule, it is here
by clarified that, the paid up share capital or turnover or outstanding loans,
debentures and deposits, as the case may be, as existing on the last date of
latest audited financial statements shall be taken into account:
[1]
These Rules are stated to come into force
on the day of their publication in the Official Gazette
[2]
These Rules have come into
force with effect from April 1, 2014.
[3]
These Rules have come into
force with effect from April 1, 2014.
[4]
These Rules have come into
force with effect from April 1, 2014.
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