w hat director’s should know about their responsibilities under companies act practicing company...
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WHAT DIRECTOR’S SHOULD KNOW ABOUT
THEIR RESPONSIBILITIES
UNDER COMPANIES ACT
Practicing Company Secretary, Indore
Central Council Member, The ICSI
A paradigm shift for the corporate
Prominent Influencers to the New Company Law
The Influencers
IPO Scam
Satyam
Stock Market Scams Sahara
Speak Asia
Vanishing Company
“Governance Initiatives”
“NOWHERE”
Satyam Vada Dharmam Chara
- Taittariya Upanishad
“Forever speak the truth and follow the dharma”
Truth : Disclosure of Actual State of Affairs
(Transparency in operations and transactions)
Dharma: “ Dharma is for the stability of
society, the maintenance of social order
and the general well being and progress of
humankind.”
-Karan Parva of the Mahabharata. Verse -58 in Chapter 69
CAN I DESIGNATE NON BOARD MEMBER AS “DIRECTOR”
Section 2 (34) Definition of director is notified – exhaustive
"director" means a director appointed to the Board of a company
He has to be appointed as a Director Only directors who are appointed by the Board will be
directors No person other than appointed as such will hold
designation as irectors Whether such non Board members describing himself
as director will be guilty of the following; Fraud definition includes concealment of any
fact False statement means making any statement
by person knowing it is false
DUTIES OF DIRECTOR
The Director Shall
act in accordance with Articles good faith to promote objects of the Co for the benefit
of stakeholders exercise due & reasonable care & independent
judgment not involve in a situation which lead to conflict of
interest with the company not attempt to secure undue advantage or gain for
him or his related parties not assigned his office
If he contravenes above duties, he may be liable for fine between 1 lakh – 5 lakhs
DIRECTOR’S ID NO - DIN
DIN FORM
S
DIR 3Application for
obtaining DIN
DIR 5cancellation or
surrender of DIN
DIR 6changes
in particul
ars of DIN
APPLICATION FOR ALLOTMENT OF DIN – FORM DIR-3
Before appointment of DirectorApply electronically in Form DIR-3PAN is must for DIN Verification in the format of DIR 4 in
form of AffidavitDigital Signature Certificate(DSC)
INTIMATION OF CHANGES IN PARTICULARS OF DIN - DIR-6
Form DIR-6 - within 30 days of any change
Verification in the format of DIR 7 in form of Affidavit
Digitally signedIntimate the change(s) to Companies in
within fifteen days of such change.
CANCELLATION OR SURRENDER OF DIN - DIR 5
No provisions in CA – 1956 Application in DIR-5 – who has never been
appointed as director and his DIN has never been used
The Regional Director shall cancel or deactivate the DIN if –
It is found to be duplicated It was obtained by fraudulent means Death of the individual person of unsound mind adjudicated an insolvent
Notice for Double DIN
INCORPORATION RULES & FILING
• Application for reservation of NameFORM NO. INC.1
• Application for Incorporation of Company
FORM NO. INC.7
• Notice of situation or change of situation of registered office
FORM NO. INC.22
APPOINTMENT OF DIRECTORS & KMP
APPOINTMENT
Directors KMP
MD or
CEO or Manager
and in
their
absenc
e WTD
Company Secretary
CFO
APPOINTMENT
OF DIRECT
ORS/ KMP
Form -DIR-12
Filing- within 30
daysAttachmen
t- -consent in
DIR 2-Interest in
other entities
-Resolution
Form- MR-1
Filing- within 60
daysAttachmen
t- -Board
resolution-consent to act as KMP-certificate
by the Nominatio
n and Remunerati
on Committee,
if any
CESSATION OF DIRECTOR
CESSATION / RESIGNATION OF DIRECTOR
DIR-11 Notice of
Resignation of Director
DIR-12Cessation of Director &
KMP
FORM DIR-11
Filing- Filed by director Within 30days
from the date of
resignation by his own
DSC
NOTICE OF RESIGNATI
ON OF DIRECTOR
S
Attachment-
- Resignation Letter
- Proof of Dispatch
- Acknowledgement received
from company, if
any
FORM DIR-12
Filed by Company
30days from resignation
Mention the same with reason in Directors
Report
Place on the Website, if
any
Attachment-
1.Evidence of Cessation
2.Board Resolution
DISQUALIFICATION OF
DIRECTORS
Form DIR-8 before his appointment – Consent to Act as Director
fails to file the financial statements or annual returns, repay any deposit, interest, dividend, redeem its debentures – for 3 FY
The company shall immediately file Form DIR-9 to the Registrar - names and addresses of all the directors of the company during the relevant financial years
LIMIT ON NUMBER OF DIRECTORSHIPS
Maximum no of director
ship
Director including alternate director:
20 companie
sKMP :
1 Company except
its subsidia
ry as KMP
independent
director 7
companies
Maximum no of public companies (including private companies - holding or subsidiary of public company) in which person can be appointed as a director shall not exceed TEN.
whole time director of listed company can be independent director in not more than THREE listed companies.
A director shall not be a member in more than TEN committees or act as Chairman of more than FIVE committees across all companies in which he is a director.
‘U’ AS INDEPENDENT DIRECTOR
Declaration of Independence at 1st
BMAt least one separate
meeting in a yearAbide by the code of
conduct of Independent Director
CA 2013 Vs Listing Agreement
WOMEN DIRECTOR Section 149 read with Rule 3 of Companies
(appointment and qualifications) Rules 2014.
Applicability:-
Every Listed Company – within 6 months Every public Company – within 1 year
i. Paid up share capital Rs. 100 crore or more or
ii. Turnover of Rs. 300 crore or more Companies set up under New Act - within 6
months of Incorporation !!
DISCLOSURE OF INTEREST - MBP 1
Every director shall give disclosure of interest to a company, in writing in form MBP 1 in First BM of FY / after every changeList of public/private limited company(ies) / bodies corporate (includes a company incorporated outside india) of which I am a director / MD / WTD / Promoter / CEO / CFO / Manager / SecretaryList of private company(ies), in which I am a member
List of public companies in which I am, along with my relative holding more than 2% of paid up share capital
List of firms / LLPs / association of individuals / other entities in which I am a partner / sole proprietor / owner / member List of firms / LLPs in which any of my relatives (mention the relation) is a partner/sole proprietor
List of companies in which I am a member in the committee/sub committee of the board of directors
List of relatives
Details of securities held by me in the company, its holding company, subsidiaries, fellow subsidiaries or associate company
BOARD RESOLUTIONS PASSED U/S 179 (3)make calls in respect
of unpaid money
buy-back of securiti
es
Issue of securiti
es
grant loans
or give guarant
ee or provide securit
y
invest funds
borrow monies
approve
financial
statement &
Board’s report
diversify
business
approve
amalgamation, merger
or reconstruction
take over a compa
ny
ISSUE OF
SECURITIES
Bonus issue
Right issuePrivate
Placement
IPO
ALLOTMENT OF SECURITIES
PAS-3• Return of Allotment • Filing- 30 days
PAS-4• Private Placement Offer Letter • File LoO with ROC in Form GLN-2
PAS-5• Record of a private placement
offer
CHARGES & FILING
FORM CHG 1• creation,
modification of charge
• Filing- 30 days
FORM CHG 4• satisfaction
of charge• Filing- 30
days
FORM CHG 8 • Application
for extension of time for filing
• When creation, modification not filed within-300days
• satisfaction -30days
Annual Return
Board’s ReportAnnexure of MGT-9
Form MGT-7 & 8
Annual Filing
ADDITIONAL DISCLOSURES IN BOARD REPORT
Company’s policy on director appointment & remuneration including criteria for qualifications
Comments on adverse remarks in auditor’s report and secretarial audit
Particulars of loans, guarantees or investments
Particulars of contracts & arrangements - RPTs
Particulars of defaults in repayment of deposits or interest thereon
Statement on development and implementation of policies for risk management
policy developed and implemented by the company on corporate social responsibility CSR
formal evaluation of performance of the board, its committees and individual directors
Internal Financial Controls and Controls over compliance with all applicable laws
Statement on declaration by independent director
Ratio of the remuneration of each director to the median employee's remuneration
Establishment of vigil mechanism Change in the nature of business
BOARD COMMITTEE’S
Listed and prescribed companies are required to constitute the following Board committees –
Audit committee Nomination and Remuneration committee Corporate Social Responsibility committee Stakeholder Relationship committee
• Loan to DirectorsSection 185
• Loan and Investment by CompanySection 186
• Related Party TransactionsSection 188
Consult before doing
RELATED PARTY TRANSACTIONS
All Related Party Transactions (RPTs) which are at arm’s length and in the ordinary course of business shall require the approval of the audit committee. I
In case of listed companies, as per amended Clause 49 with effect from 1 October 2014, prior approval of audit committee required for all material RPTs.
In case of Private and Public Limited Companies, approval of Board and Shareholders require Section 188
stringent penalties, including imprisonment for directors of listed companies and any other employee of the company in case of violation.
“Jimbo, we have to be extremely careful in our relationship….
because of us our madams should not become related parties”
PENALTY PROVISIONS
FRAUD – SECTION 447
“fraud” in relation to affairs of a company or any body corporate, includes
any act, omission, concealment of any fact, abuse of position committed by any person or any other person with the connivance in any manner,
with intent to deceive to gain undue advantage from or to injure the interests of, the company or its
shareholders or its creditors or any other person whether or not there is any wrongful gain or wrongful
loss; (ii) “wrongful gain” means the gain by unlawful means of
property to which the person gaining is not legally entitled; (iii) “wrongful loss” means the loss by unlawful means of
property to which the person losing is legally entitled. Reporting of fraud to be done to CG
OFFENCES & PENALTIES UNDER THE ACT
Imprisonment of 6 months – 10 years & fine upto 3 times of amount involved is provided for offences like fraud, false statement, false evidence.
Wrongful withholding of property including cash: fine between 1 lacs – 5 lacs plus delivery or refund of property & all benefits derived from it.
General penalty provision: fine upto Rs 10,000 & continuing fine of Rs 1000 per day
Repeated defaults within 3 years: amount of fine will be doubled plus imprisonment if provided
Filing of forms & documents is to be done within 300 days with additional fees. There might be penalties & fines thereafter.
COGNIZABLE OFFENCES & BAIL
Following offences specified in S 212 (6) are cognizable & No bail can be granted unless the public prosecutor is given an opportunity to oppose:
Furnishing of false or incorrect particulars at the time of incorporation Mis-statement or omission in the prospectus Deliberate or reckless statement, promise or forecast with a view to
induce other person to acquire, dispose of or underwrite the securities of the company
Personation for acquisition of securities Issue of duplicate share certificate with the intention to defraud Wrongful transfer of shares by a depository with an intention to
defraud Concealment or mis-statement of debt by an officer in the matter of
reduction of capital Abetment to commission of fraud by Auditor Carrying the business of the company for a fraudulent or unlawful
purpose Furnishing false statement, mutilation and destruction of documents Fraudulent application for removal of name Fraud
PROSECUTION & PENALTIES – DIRECTORS &
OFFICERS Contravention of duties by director fine between 1 lakh
– 5 lakhs. (s 166) Offence relating to submission of false information in
respect of formation or after formation of the Company will be treated as fraud – S 7 (5) & (6)
Imprisonment and fine prescribed for offence of tampering of minutes of the meeting (S 118 (12) )
Non compliance of disclosure of interest & participation in meeting provisions imprisonment upto 1 year &/or Fine Rs 50 thousand to 1 lacs. (S 184(4) ). The office of director also stands vacated. (S 167(1) c & d)
If a Company contravenes the provisions relating to KMP - fine of Rs. 50,000/- and continuing contravention further fine which of Rs. 1,000/- for every day.
PROSECUTION & PENALTIES – DIRECTORS & OFFICERS
Every officer of the company which has not complied with the order of the tribunal under section 245 for class action - imprisonment for a term of 3 years and with fine which Rs. 25,000/- upto Rs. 1,00,000/-.
Failure to distribute Dividend – Director – Imprisonment upto 2 years, Mini Fine Rs 1000 per day. Co shall be liable to pay simple interest @18% pa
Non Transfer of Unpaid Dividend –Company Fine – 5 lacs – 25 lacs, Officer Fine – 1 lacs – 5 lacs. S 124 (7)
Issue of duplicate share certificate fraudulently – penalty to company upto 5 times of FV of shares - upto 10 times or Rs 10 Cr which ever is higher. S 46 (5)
AAA COMPLIANCE
Compliance in Letter
Compliance in Letter
& Spirit
Filing the Gap
JAI HIND