Companies Act, 1956

Background:

As you know that Companies Act, 2013 has been published in the Gazette for public information with the
information that it will become applicable once it is notified by the Central Government (Ministry of Corporate
Affairs) to replace the present Companies Act, 1956. Accordingly, the notification for commencement of 98 sections
of the new Act has been issued by the Ministry of Corporate Affairs (MCA) on 12th September, 2013 to become
applicable from the date of notification, i.e. 12th September, 2013.

We have done a comparative analysis on some of the important provision of Companies Act, 2013 vis a-vis with
Companies Act, 1956.

Analysis:

Name of the Section Companies Act, 1956 Companies Act, 2013

Allotment of securities In the case of private limited A private company may issue securities:
– Not Yet Effective. companies the matters of
further issue are normally  by way of rights issue or bonus issue
protected by appropriate in accordance with the provisions of
clauses in the Articles of this Act; (or)
Association (“AOA”), as  Through private placement by
section 81 is not applicable complying with the provisions of
to private limited Part II of Chapter III.
companies.

Sec 42 read with Part II of Chapter III:

Offer or invitation for subscription of
securities on private placement

A company may, subject to the provisions of

this section, make private placement through
issue of a private placement offer letter.
The offer shall be made to not exceeding 50
persons or such higher number prescribed,
in a financial year.
“Private Placement” means any offer of
securities or invitation to subscribe securities
to a select group of persons by a company
(other than by way of public offer) through
the issue of a private placement offer letter
and which satisfies the conditions specified
in this section. Allotment to be made within

Sec 75: Return of
Allotment
When a company having
share capital allots its
shares, it shall file with the
registrar a return of
allotment within 30 days
from the date of allotment.
Related party Section 297:
transactions – Kinds of contracts
Not Yet Effective. covered
Covered only sale and
purchase of goods,
rendering of services,
underwriting the
subscription of any shares or
debentures.
Central Govt. approval
Where paid up share capital & Members approval by way of a special
of the company exceeds
Rs.1 crore, prior approval of
the Central Govt. required. Further, the member shall not vote at any
60 days.
Note: All monies payable towards
subscription of these securities shall be paid
through cheque or demand draft or other
banking channels but not by cash.
Sec 39: Return of Allotment
When a company having share capital allots
its shares, it shall file with the registrar a
return of allotment in such manner as may
be prescribed.
Sec 188:
Kinds of contracts covered
This Act also covers leasing of property,
appointment of agent for the sale or
purchase, related party’s appointment to any
office or place of profit in the company, its
subsidiary or associate company.
Central Govt. approval
Prior Central Government approval done
away and every related party transaction
to be disclosed in Board’s report along
with the justification. Only Board approval
resolution is required.
such resolution for approving any contract, if
he is a related party.
The transactions entered into in ordinary
course of business are exempted from taking
Board's approval except the transactions
which are not on arm's length basis.
Applicability
It is applicable to contracts between two

Applicability
Not applicable to contracts
between two public
companies.
Loans to Directors – Sec 295:
Effective. Applicability & Approval
Not applicable to private
companies and prior
approval of the Central
Government is required.
Appointment of Sec 260:
Additional Director, The Board shall appoint
Alternate Director – additional director, who
Partly Effective. shall hold office up to the
date of the next Annual
General Meeting of the
Company.
public companies as well.
This section also encompasses the concept
of “office or place of profit”, which was
covered under Sec 314 of the old Act.
Sec 185:
Applicability & Approval
Central Government approval done away
with and applicable to private companies
as well.
Prohibitions
Section 185 prohibits loan including any
loan represented by book debt to its directors
or to any other person in whom the director
is interested or give guarantee or security for
a loan taken by them unless it is given to
MD or whole time director as per terms and
conditions / scheme applicable to all its
employees or pursuant to any scheme which
shall be approved by members as a special
resolution.
Sec 161:
The Articles of a company may confer on its
Board of Directors the power to appoint an
additional director. The person who fails to
get appointed as a Director in a general
meeting cannot be appointed as an
Additional Director by the Board, but he can
be appointed as Director in the General
Meeting by the members.
An alternate director to an independent
director should also satisfy the criteria for
independent directors.
Woman Directorship - Sec 149
Appointment of at least one woman
director on the board of such class of
companies as may be prescribed.
Appointment of at least one director
resident in India, i.e., a director who
has stayed in India for at least 182 days in
the previous calendar year, is made
 mandatory for all companies.
Number of Sec 275: Sec 165:
Directorships – Not No person shall hold office The limit of maximum directorships has
Yet Effective. at the same time as director been increased to 20companies, and
in more than 15 maximum 10 in the case of directorships in
companies. public companies.

The members of a Company may, by

special resolution, specify any lesser number
of Companies in which a director of the
Company may act as directors.

Penalty
In case of default, the
penalty is based on no. of
companies in which more
than the prescribed number
of directorships is held.
Duties of Director – Not specifically provided. Sec 166 provides for the following duties:
Not Yet Effective.
Penalty
In case of default, the penalty is based on no.
of days for which a person continues to be
Director in a company.
 To act in accordance with co.’s AOA
 Act in good faith
 Exercise his duties with due care and
diligence.

A director shall not:

 Involve in any conflicting interest

Quorum for General Sec 174:
Meeting –Effective. For private company: 2
members personally
present
Board meetings – Sec 286:
Not Yet Effective. Notice of Meeting
Notice to be served in
writing to every director in
India, and to his usual
address to every other
director.
with the co.
 Achieve or attempt to achieve any
undue advantage
 Assign his office
Sec 103:
No change
Sec 173:
Notice of Meeting
A notice of not less than 7 days in writing
to every director at his address, and such
notice shall be sent by hand delivery or by
post or by electronic means.
Shorter Notice
Board meeting can be called at a shorter
 notice, provided that at least 1 independent
director is present at the meeting.

Sec 285:Meetings of the Sec 173(1):Hold a minimum number of four

Board of Directors shall be meetings of its Board of Directors every year
held at least once in every 3 in such a manner provided the gap between
months & at least 4 such any two consecutive board meetings should
meetings shall be held in not exceed 120 days.
every year.
The participation of directors in a meeting of
the Board may be either in person or through
video conferencing or other audio visual
means, as may be prescribed, which are
capable of recording and recognising the
participation of the directors and of
recording and storing the proceedings of
such meetings along with date and time.
Annual General Sec 166: Sec 96:
Meeting – Not Yet Time Gap between 2 Time Gap between 2 AGMs.
Effective. AGMs. No Change
Every company shall in
each year hold in addition to
any other meetings a general
meeting as its annual
general meeting and shall
specify the meeting as such
in the notices calling it and
not more than fifteen
months shall elapse between
the date of one annual
general meeting of a
company and that of the
next.
Notice of General Sec 171, 172: Sec 101:
Meeting – The notice of the meeting The notice of the general meeting shall be
Not Yet Effective. shall be sent according to sent 21 clear days before the meeting.
Articles of Association of
the Company. The notice of every General meeting is also
required to be sent to the Directors and
The notice is required to be auditors of the Company under the
sent to: provisions of the new Act.

 Every member of the The notice of General Meeting may also be

company. sent through the electronic mode in such
 Legal representatives manner as may be prescribed.
 of any deceased
member or assignee
of insolvent member.

Passing of Resolution Sec 289: Sec 175:

by Circulation – No resolution shall be This section provides for the delivery of the
Not Yet Effective. deemed to have been duly resolution by way of hand delivery, or by
passed by the Board or post or courier, or through such electronic
committee by circulation, mode as may be prescribed and approved by
unless the resolutions in a majority of the directors or members who
draft along with necessary are entitled to vote on that resolution.
papers are sent to all the
directors, or to members of
the committee at their usual
address in India, and
approved by a majority of
the directors or members
who are entitled to vote on
that resolution.
Explanatory statement Sec 173: Sec 102:
annexed with notice - Applicable if the Articles The notice shall provide the material facts
Effective. specify. concerning each such item of special
The special business business, including the nature of interest or
transacted at the general concern of:
meeting shall have an
explanatory statement  every director and manager if any,
annexed to the notice of the  every other key managerial
meeting, seeking out personnel,
material facts concerning  Relatives of the persons mentioned
each such item of business, above.
including the nature of
interest or concern of
every director and
manager if any.

Where the item of special

business relates to or affects
any other company, and if Where the item of special business relates to
any director or manager or affects any other company, and if any
holds shareholding interest Promoters, Directors, Manager or Key
in that other company of not Managerial Personnel holds not less than
less than 20% of paid up 2% of paid up capital of that other
capital of that other company, such information shall also be set
company,such information out in the statement.
shall also be set out in the
statement.
Transfer & Sec 108: Sec 56:
Transmission of Requirements in order to Requirements in order to register transfer
Shares – register transfer of shares of shares
Not Yet Effective.
 Proper Instrument of
Transfer.
 Duly stamped and No change
executed by or on
behalf of transferor
and transferee.
 Along with
Certificate of Letter
of Allotment if no
such certificate is in
existence.

Time Lines for lodging

Transfer form
Unlisted Company: within 2 Time Lines for lodging Transfer form
months from the date of Unlisted Company: within 60 days from
presentation. the date of execution.

Sec 110:
Transfer in case of partly
paid Shares Sec 56:
No Objection to be obtained Transfer in case of partly paid Shares
from the transferee within 2 No Change.
weeks.
(In case transfer application
is made by transferor alone).

Sec 113:
Every Company shall
deliver Share Certificates/
Debenture Certificate etc.:

 Within 3 months Sec 56:

after the date of Every Company shall deliver Share
allotment. Certificates Debenture Certificate etc.:
 Within 2 months
after the date of  Within 2 months from the date of
application for allotment.
registration of  Within 1 month from the date of
transfer. receipt of instrument of transfer.
 Within 6 month from the date of
allotment in case of debentures
 The Company may register the transfer on
such terms as to indemnity as the Board may
think fit:

 In case instrument of transfer has

been lost

(or)

 The instrument of transfer has not

been delivered within the prescribed
period.

Books of Accounts to Sec 209: Sec 128:

be kept by Company – Every company shall keep Every company shall now be required to
at its registered office prepare and keep at its registered
Not Yet Effective. proper books of account office, financial statements along with
with respect to: books of account and other relevant books
and papers for every financial year including
 All sums of money that of its branch offices if any, and explain
received and the transactions effected both at the
expended by the registered office and its branches.
company and the
matters in respect of The option has been given to companies to
which the receipt maintain books of accounts in electronic
and expenditure take mode.
place.
 All sales and The summarised returns shall now be
purchases of goods made periodicallyinstead of at intervals of
by the company. not more than 3 months.
 The assets and The Central Govt. may direct keeping of
liabilities of the books of accounts for a period longer than
company. 8 years if the company is under
 The books of investigation under Chapter
account of every XIV (Inspection & Investigation).
company relating to
a period of not less
than 8 years
immediately
preceding the current
year together with all
vouchers shall be
preserved.
Auditors & Audit Sec 224: Sec 139:
Committee – Appointment Appointment
Not Yet Effective. Every company shall, at
each AGM, appoint an
auditor to hold office from
the conclusion of that AGM
till the conclusion of the
next AGM.
Every company shall appoint at its first
AGM an individual or a firm as an auditor
who shall hold office from the conclusion of
that AGM till the conclusion of its 6th
AGM, and thereafter till the conclusion of
every 6th meeting.

Every auditor shall The duty to inform the auditor about his
within 30 days of receiving appointment and to file a notice with the
intimation of his Registrar within 15 days of the meeting in
appointment, intimate the which the auditor is appointed is that of
Registrar in writing that he the Company.
has/has not accepted the
offer. Rotation of Auditors
An individual auditor having completed his
more than 1 term (5 years) shall not be
eligible for re-appointment.
An audit firm having completed its term as
auditor for more than 2 terms (10 years)
shall not be eligible for reappointment as
auditor in the same company for the next 5
years.
A transition period of 3 years from the
commencement of this Act has been
provided for companies in existence to
comply with the provision of rotation of
auditor.

In case the company has an audit

committee, then all appointments of
auditors including filling of casual vacancies
shall be made after taking into account the
recommendation of such committee.

Audit Committee
Every public company
having paid-up capital of
not less than five crores of
rupees shall constitute a
committee of the Board
known as "Audit
Audit Committee
The Board of Directors of every listed
company and such other class or classes of
companies, as may be prescribed, shall
constitute an Audit Committee.
The Audit Committee shall consist of a
minimum of three directors with
independent directors forming a majority:
Provided that majority of members of Audit
 Committee" which shall Committee including its Chairperson shall
consist of not less than three be persons with ability to read and
directors and such number understand, the financial statement.
of other directors as the
Board may determine of
which two-thirds of the total
number of members shall be
directors, other than
managing or whole-time
directors.
Not applicable to private
limited companies.
Corporate Social Not Applicable Sec 135:
Responsibility (CSR) Every Company having:
– Not Yet Effective.
 Net worth of Rs. 500 crore or
more (or)
 Turnover of Rs. 1000 crore or
more (or)
 A net profit of Rs. 5 crore or more
during any financial year, shall
constitute a CSR committee of the
Board consisting of 3 or more
directors, of which 1 shall be
independent director.

The Board shall ensure that the company

spends, in every financial year, at least 2%
of the average net profits of the company
made during the 3 immediately preceding
financial years.
Appointment of CFO Not Applicable Section 2 (19) of the Companies Act 2013,
–Effective. defines a Chief Financial Officer as follows:

“Chief Financial Officer” means a person

appointed as the Chief Financial Officer of a
Company.

CFO in Companies Act, 2013

For the purposes of sub-section (1) of

section 203 every listed company and every
other company having a paid-up share
capital of five crore rupees or more shall
have whole-time key managerial personnel.
[As per the Draft Rules]
Every KMP should be appointed by passing
a Board resolution. The terms and conditions
including the remuneration should be
mentioned in the Board resolution for such
appointment.

A whole-time KMP of a Company shall not

hold office in more than one company
except in its subsidiary company at the same
time. A CFO of holding Company can act
as a CFO of subsidiary company also. CFO
shall sign the financial statements.