Indian Companies Act 2013 Highlights
In this blog post, I will discuss some of the key features and implications of the Indian Companies Act 2013, which replaced the Indian Companies Act 1956. I will also refer to some of the relevant case law and sections of the Act to illustrate the points.
One-Person Company
The Indian Companies Act 2013 introduces a new concept of one-person company (OPC), which allows a single individual to form a company with limited liability . Section 2(62) defines an OPC as a company that has only one person as a member.
Woman Director
The Indian Companies Act 2013 mandates that every company should have at least one woman director on its board. Section 149(1) prescribes that every listed company and every other public company having paid-up share capital of one hundred crore rupees or more or turnover of three hundred crore rupees or more shall appoint at least one woman director.
Corporate Social Responsibility
The Indian Companies Act 2013 requires that every company with a net worth of Rs. 500 crore or more, or turnover of Rs. 1000 crore or more, or net profit of Rs. 5 crore or more in any financial year should spend at least two percent of its average net profits for the preceding three years on corporate social responsibility (CSR) activities. Section 135 specifies the CSR policy, committee, and reporting requirements for such companies.
Independent Directors
The Indian Companies Act 2013 enhances the role and responsibility of independent directors and provides a code of conduct for them. Section 149(6) defines an independent director as a director who is not a managing director, whole-time director, nominee director, or has any pecuniary relationship with the company or its promoters, directors, senior management, holding company, subsidiaries, or associates. Schedule IV lays down the guidelines for professional conduct, role, functions, duties, and evaluation of independent directors.
Class Action Suits
The Indian Companies Act 2013 introduces a new mechanism of class action suits, which enables a specified number of members or depositors to file a suit against the company, its directors, auditors, or experts for any fraudulent, unlawful, or wrongful act or omission or conduct. Section 245 empowers the National Company Law Tribunal (NCLT) to hear and dispose of such suits and grant relief to the aggrieved parties.
Case Law
Some of the case law that have interpreted and applied the provisions of the Indian Companies Act 2013 are:
- In Shyam Sunder Agarwal v. PNB Housing Finance Ltd. & Ors., (2019) SCC OnLine NCLAT 388, the National Company Law Appellate Tribunal (NCLAT) held that an OPC cannot be converted into a public company by increasing its paid-up share capital beyond fifty lakh rupees or its average annual turnover beyond two crore rupees without altering its memorandum of association and articles of association as per section 18 of the Act.
- In Bharti Airtel Ltd. v. Axis Bank Ltd. & Ors., (2019) SCC OnLine NCLAT 8, the NCLAT held that a woman director appointed as an additional director under section 161(1) of the Act can be regularized as a director by passing an ordinary resolution under section 152(2) of the Act and there is no need to pass a special resolution under section 149(1) of the Act.
- In Voith Paper Fabrics India Ltd. v. Deputy Commissioner Of Income Tax & Anr., (2019) SCC OnLine Del 8032, the Delhi High Court held that CSR expenditure incurred by a company under section 135 of the Act is not deductible as business expenditure under section 37(1) of the Income Tax Act 1961 as it is not incurred for the purpose of carrying on the business of the company.
- In McLeod Russel India Ltd. v. Urmila Devi Bajaj & Ors., (2019) SCC OnLine Cal 4838, the Calcutta High Court held that an independent director is not liable for any act of omission or commission by the company or its board of directors if he was not aware of such act or did not consent to or connive in such act as per section 149(12) of the Act.
- In Pankaj Jain v. ROC & Anr., (2019) SCC OnLine NCLT 372, the NCLT held that a class action suit under section 245 of the Act can be filed only by a specified number of members or depositors as prescribed in section 245(3) of the Act and not by a single member or depositor.
These are some of the highlights of the Indian Companies Act 2013 and its interpretation by the courts. The Act aims to provide a comprehensive and modern framework for the regulation and governance of companies in India. It also seeks to balance the interests of various stakeholders, such as shareholders, creditors, employees, consumers, and society at large.