STEPS TO INCORPORATE COMPANY (FILING OF DIFFERENT FORMS)

STEP-1  DSC

The basic step to Company incorporation is to get DSC made for all the Directors.

The Information Technology Act, 2000 provides for use of Digital Signatures on the documents submitted in electronic form in order to ensure the security and authenticity of the documents filed electronically. This is the only secure and authentic way that a document can be submitted electronically. As such, all filings done by the companies under MCA21 e-Governance programme are required to be filed with the use of Digital Signatures by the person authorised to sign the documents.

Names of Certifying Agency-Names of Certification Agency (CA) from where DSC can be acquired are 

STEP-2 ACQUIRE DIRECTOR IDENTIFICATION NUMBER

The concept of a Director Identification Number (DIN) has been introduced for the first time with the insertion of Sections 266A to 266G of Companies (Amendment) Act, 2006. As such, all the existing and intending Directors have to obtain DIN within the prescribed time-frame as notified.

INCOME TAX PAN IS MANDATORY, so before applying of DIN a person must have his PAN number. Details on PAN and DIN must be same.

Step by step Process for DIN application

As per the revised procedure for DIN Allotment, any person intending to apply for DIN shall have to make an application in e-Form DIR 3 and should follow the following procedure:

1)      E-Form DIR -3 has to follow the offline e-Filing process i.e. the form can be downloaded from MCA 21 portal and thereafter be filled up without internet connection. The connection is required only for validating the form.

2)     Attach the photograph and scanned copy of supporting documents i.e. proof of identity¹, and proof of residence² as per the guidelines. Physical documents are not required to submit at DIN cell.

3)    All Documents should be verified by CA/CS/CMA.

4)     Name of person proposed to be the directors, address of directors and other details should be correctly filed.

Issue which arises is that details of Directors as given in DIN should match with that which is filled in INC 7 but it is not necessary that the address in address proof as sent for DSC is same in address proof as required in INC 7.

So, plan accordingly that address required for each of the forms should be the same in at least one of document required.

These documents should not be more than 2 months old. In bank statement, passbook print of transactions in last two months is to be attached.

                                                                                                                                          

1.   Identity Proof:

·         In case of Indian nationals- Income-tax PAN is a mandatory requirement for proof of identity.

·        

       In case of foreign nationals- passport is a mandatory requirement for proof of identity.

        Proof of identify enclosed with e-Form DIR-3 should also contain the date of birth of the applicant and the same should match the date of birth filled in the application form. In case the proof of identify does not indicate the Date of Birth then additional proof of Date of Birth, duly certified/ attested, should be attached.

         

        2.      Address Proof:

·           Passport, Election (voter identity) card, and Ration card, driving license, electricity bill, telephone bill or aadhaar

                                                                                                                                             

5)     The e-Form shall have to be digitally signed and shall be uploaded on MCA21 portal.

6)     Upon upload, pay the fees for DIR 3 e-Form. Only electronic payment of the fees shall be allowed (i.e. Net banking / Credit Card etc.). No challan payment will be accepted under revised procedure of DIN allotment.

7)     The applicant is required to get himself/herself registered on the MCA21 Portal to obtain login id, which is necessary for payment of the fees. After obtaining the login-id, Login to the MCA21 portal and click on ‘e-Form upload’ link available under the ‘e-Forms’ tab for uploading the e-Form DIR 3.  E-Form DIR -3 will be processed only after the DIN application fee is paid upon upload and successful payment.

8)     In case Form DIR-3 is signed by a practicing professional and details have not been identified as potential duplicate, Approved DIN shall be generated and if the details have been identified as potential duplicate, Provisional DIN shall be generated.

9)  In case Form DIR-3 is signed by an applicant or by the Managing Director/ existing director of the Company in which the applicant is a Director or the Company Secretary in full time employment of the Company, or details have been identified as a potential duplicate, provisional DIN shall be generated.

Processing of e-Form DIR 3

10)  In case, DIR-3 gets certified by the professional ( i.e. CA/ CS/ CWA in whole time practice), the DIN will be approved by the system immediately online(in case it is not potential duplicate). In case of signing by any other signatory (i.e. director/ Managing Director/ secretary of the company with which applicant is to be associated), the MCA DIN cell will examine the e Form DIR-3 and same shall be disposed of within one or two days.

11)   After the DIN getting approved, Approval Letter must be downloaded from MCA21.

12)   It may be a person has already DIN number, but it mismatches with the Income Tax PAN. If PAN detail is wrong, correct the details by applying to Income Tax Authorities or if details of DIN are wrong, file DIR -6

13)   Director is required to download and fill up e-Form DIR-6 for such changes and follow the same process for uploading the same as mentioned for e-Form DIR-3. The requested change is taken into the system on verification of the proof enclosed with the application for change request. In the case of change in applicant’s name, gazette notification is must with form DIR-6. Married women, who are having Id proof with their maiden name, can submit marriage certificate along with application. Verification as per Form DIR-7 of Companies Act 2013 also needs to be attached to Form DIR-6 as it is a mandatory attachment now. All documents are to be verified by the professional.

14)  There are no fees charged for DIR 6. Form is accepted by STP mode if name, father’s name or date of birth is changed, for other cases, potential duplicacy arises and the form is processed by MCA officials.

15) But, to file DIN -6 for change in DIN particulars, DIFFERENT ADDRESS PROOF IS REQUIRED unlike DIR 3 for application of DIN number.

16) Address proofs like bank statements, electricity bill, telephone bill, utility bills etc. shall be attached. In case of Indian director/ designated partner, documents should not be older than 2 months from the date of filing of the e-Form.

17)   In case of foreign director/ designated partner, address proof should not be older than 1 year from the date of filing of the e-Form.

18)   Copy of verification by the director/ designated partner is mandatory to attach if the e-Form.

19) In case of proofs which are in languages other than Hindi/ English, the proofs should be translated in Hindi / English from professional translator carrying his details (name, signature, address) and seal.

STEP-3 REGISTER DSC

Third step is to register DSC of the person authorized to sign E-forms on MCA21 or click on the linkhttp://www.mca.gov.in/DCAPortalWeb/dca/MyMCALogin.do?method=setDefaultProperty&mode=36

STEP-4 APPLY FOR RESERVATION OF NAME (S.4(4))

1)   As per section 4(4) of Companies Act, 2013 read with rule 9 of Companies Incorporation Rules, 2014, application is to be made to registrar for reservation of name. 6 names can be proposed after checking its availability at MCA21 and as per guidelines given in the said rules.

2)  While applying for a name in the Form INC -1, using Digital Signature Certificate (DSC), the applicant shall be required to verify that:

• ·He is a promoter (proposed first subscriber to the MoA) and is authorized by the other proposed first subscribers to sign and submit he application.
• He has gone through the provisions of Companies Act, 2013, the Rules there under and prescribed guidelines framed there under in respect of reservation of name, understood the meaning thereof.
• · He has used the search facilities available on the portal of the Ministry of Corporate Affairs (MCA) i.e., www.mca.gov.in/MCA21 for checking the resemblance of the proposed name(s) with the companies and Limited Liability Partnerships (LPs) respectively already registered or the names already approved. He has also used the search facility for checking the resemblances of the proposed names with registered or applied trademarks.
• The proposed name(s) is/are not in violation of the provisions of Emblems and Names (Prevention of Improper Use) Act, 1950 as amended from time to time;
• ·The proposed name is not offensive to any section of people, e.g., proposed name does not contain profanity or words or phrases that are generally considered a slur against an ethnic group, religion, gender or heredity (vi) the proposed name(s) is not such that its use by the company will constitute an offence under any law for the time being in force.
• He has complied with al the mandated requirements of the respective Act/regulator, such as IRDA, RBI, SEBI, MCA etc. (applicable only in case proposed name includes words like Insurance, Bank, Stock Exchange, Venture Capital, Asset Management, Nidhi, Mutual Fund, Finance, Investment, Leasing, Hire purchase etc. or any combination thereof)
• To the best of his knowledge and belief, the information given in the application and its attachments is correct and complete, and noting relevant o this form has been suppressed.
• He undertakes to be fully responsible for the consequences, in case the name is subsequently found to be in contravention of Section 4 of the Act, rules made there under and the prescribed guidelines.

3)      Following documents have to be attached to INC – 1:

•  Copy of Board resolution of the existing company or foreign holding company as a proof of no objection
• ·Copy of direction from Central Government, if name is changed due to direction received from the Central Government
• Trademark or authorization to use trade mark, if the name of the company is based on trade mark or application for deed of assignment or a copy of application of registered trademark.
• In case the proposed name contains such word or expression for which the approval of Central Government is required, a copy of Central Government’s approval.
• ·         Proof of relation.
• ·         In principal approval from the concerned regulator wherever is applicable.
• ·         NOC from sole proprietor/ partners/ other associates.
• ·         NOC from existing company ,
• ·         Copy of affidavit in case of proposed name includes phrase ‘Electoral Trust’
• ·         Resolution of unregistered companies in case of Chapter XXI (Part I) companies,
• ·         Order of competent authority.
• ·         NOC as required in Rule 8(4)

4)    Validity of Name approved by ROC: As per section 4(5), maximum time for which name will be available has been prescribed in the law itself under section 4(5). The name will be valid for a period of 60 Days from the date on which the application for Reservation was made.

5)  Where after reservation of name, it is found that name was applied by furnishing wrong or incorrect information, then, –

• if the company has not been incorporated, the reserved name shall be canceled and the person making application shall be liable to a penalty which may extend to one lakh rupees;
• ·if the company has been incorporated, the Registrar may, after giving the company an opportunity of being heard 

a)   either direct he company to change its name within a period of three months, after passing an ordinary resolution;

b)      take action for striking of the name of the company from the register of companies; or

c)  make a petion for winding up of the company. [Section 4(5)] Rule 8 of The Companies (Incorporation) Rules 2014 contain provisions relating to undesirable names and Rules 9 has provisions relating to reservation of name.

6)    Object of company incorporation should be mentioned carefully as the same should be the first object of memorandum of association; or else eform INC 7 will be rejected on this ground of mis-match. 

Note:

The applicant cannot start business or enter into any agreement, contract, etc. in the name of the proposed company until and unless a certificate of registration is issued by the registrar of companies as per the provisions of the Companies Act, 2013 and the rules made there under.

7)   BE CAREFUL WHILE GIVING THE DETAILS OF PROPOSED DIRECTOR because after reservation of name, i.e. while filing INC – 7, details of promoter as given in e-form INC 1 can be changed but details of director cannot be changed. You will have to wait for 60 days, i.e. expiry of the name and have to file e-form INC 1 with new directors as proposed.

STEP-5 DRAFTING AND PRINTING OF MEMORANDUM AND ARTICLES OF ASSOCIATION

1)    After ascertaining name availability from the Registrar of Companies steps should be taken to get the memorandum and articles of association for the proposed company drafted and printed. The memorandum of a company limited by shares shall be in Tables – A in Schedule – I of the Companies Act, 2013.

2)    A public company limited by shares may adopt all or any of the regulations contained in model articles of association registered along with its memorandum of association.

3)     The model articles of a company shall be in Tables – F in Schedule – I of the Companies Act, 2013 as may be applicable to the company. A company may adopt all or any of the regulations contained in the model articles applicable to such company. There is no concept of “other objects” now. Main object can be at maximum 4 (not given in law but practically followed); where first object should be clearly the same as mentioned in eform INC 1.

4)    The memorandum and articles shall be in conformity with the provisions of Section 4 and 5 of the Companies Act 2013.

5)   If the promoters plan to get the securities of the proposed company listed with one or more designated stock exchanges, it is advisable to send the draft of the memorandum and articles of association to those stock exchanges for their scrutiny and suggestion to the effect whether they would like to have certain articles incorporated therein in compliance with the provisions of the Listing Agreements of the stock exchanges.

6)     In subscriber’s page:

Name, Fathers name, Address, Designation and Occupation along with number of Equity shares proposed to be subscribed is to be given.

7)      In Witness Column:

“I witness to subscribers who have subscribed and signed in my presence. Further I have verified their Identity Details for their identification and satisfied myself of their identification particulars as filled in”

Sign

CA ………………..,

Membership No. ………

Address, Mob.-

Occupation: Chartered Accountant is given.

 STEP-6 FILLING OF COMPANY INCORPORATION FORM

1)    As per Rule-12 of Companies (Incorporation) Rules, 2014, application for incorporation of a private and Public company, with the Registrar, within whose jurisdiction the registered office of the company is proposed to be situated, shall be filed in Form no. INC 7 [Rule 12 to 18] along with Form no. INC.22 for situation of registered office of the Company, (as the case selected in form no. INC 7) and DIR -12.

2)   Form is required to be filed within 60 days as the name is reserved only for this time period.

3)      Stamp Duty is payable online as it exceeds Rs. 100/-

5)   In point 3(c.) of INC 7, i.e. Whether the address for correspondence will be the address for Registered of the company should be given YES, otherwise NO.

• According to Section 7 of the Companies Act, 2013 all document related to incorporation shall be filed be filed before the registrar, in whose jurisdiction registered office of a company is proposed to be situated. A Registrar may have jurisdiction over several states or only a part of a state.
• INC 7 is for registering a company. Here details of work to be done by a company, promoter, directors, number of shares to be subscribed, etc is to be filed along with many documents.
• As per Rule-16(1) of Companies (Incorporation) Rules, 2014, Particulars of every subscriber to be filed with the Registrar at the time of incorporation:

a)      Name (including surname or family name) and recent Photograph affixed and scan with MOA and AOA,

b)      Father’s/Mother’s/ name,

c)       Nationality,

d)      Date of Birth

e)      Place of Birth (District and State)

f)       Educational qualification:

g)      Occupation:

h)   Income-tax permanent account number:

i)    Permanent residential address and also Present  address (Time since residing at present address and address of previous residence address (es) if stay of present address is less 24 than one year) similarly the office/business addresses.

j)        E-mail id of Subscriber;

k)      Phone No. of Subscriber;

l)        Fax no. of Subscriber (optional)

m)    Proof of Identity:

For Indian Nationals:

·         PAN Card (mandatory) and any one of the following

·         Voter’s identity card

·         Passport copy

·         Driving License copy

·         Unique Identification Number (UIN)

For Foreign nationals and Non Resident Indians:

·         Passport

·         Residential proof such as Bank Statement, Electricity Bill, Telephone / Mobile Bill:

·         Provided that Bank statement Electricity bill, Telephone or Mobile bill shall not be more than two months old.

·         Proof of nationality in case the subscriber is a foreign national.

n)      If the subscriber is already a Director or Promoter of a Company(s), the particulars relating to:

·         Name of Company

·         Corporate Identity Number

·         Whether Interested as a Director or Promoter

·         Documents required to be filed:

1)     Memorandum of Association as per Table A of schedule I
2.)    Articles of association as per Table F of Schedule I

Declaration in Form No.INC-8 by Professionals

(As per Rule-14 of Companies (Incorporation) Rules, 2014, Pursuant to section 7(1) (b) and rule 14 of the Companies (Incorporation) Rules, 2014:

Require to take a Declaration from Professionals Like: ( CS-CA-CWA), Giving declaration that, all the requirements of Companies Act, 2013 and the rules made there-under relating to registration of the company under the Act and matters precedent or incidental thereto have been complied with. On Stamp Paper, Value of Stamp Paper as per the State stamp Act (State: Where register office of Company will be situated). Instead of Stamp Paper, Stamp Tickets can also be used.

Professional will sign the declaration and will mention Date, Place and Membership No.

3)   Affidavit from each of the subscriber to the Memorandum in Form No.INC-9 as per Rule-15 of Companies (Incorporation) Rules, 2014, (an affidavit from each of the subscribers to the memorandum and from persons named as the first directors, if any, in the articles that AFFIDAVIT FROM SUBSCRIBERS AND FIRST DIRECTORS IN INC 9

Declaration is that:

I have not been convicted of any offence in connection with the promotion, formation or management of any company during the preceding five years; and

I have not been found guilty of any fraud or misfeasance or of any breach of duty to any company under this Act or any previous company law during the preceding five years; and

All the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of my knowledge and belief.

•  INC 9 must be on Stamp Paper, Value of Stamp Paper as per the State stamp Act.
• Declaration should be signed, Dated and Place
• Proof of residential address

For verification of signature of subscribers [Pursuant to rule 16 (1)(q) of companies (Incorporation) Rules, 2014 in form no.INC – 10

•      NOC in case there is change in the promoters (first subscribers to Memorandum of Association)
•    proof of Identity (the particulars of name, including surname or family name, residential address, nationality and such other particulars of every subscriber to the memorandum and the particulars of the persons mentioned in the articles as the first directors of the company along with proof of identity, as may be prescribed, and in the case of a subscriber being a body corporate, such particulars as may be prescribed;)
•       Entrenched Articles of Association, if any.

Note: Where the articles contain the provisions for entrenchment, the company shall give notice to the Registrar of such provisions in Form No. INC.7, as the case may be, along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014 at the time of incorporation of the company.

•       PAN Card (in case of Indian national)
•      Copy of certificate of incorporation of the foreign body corporate and proof of registered office address
•    Certified true copy of board resolution/consent by all the partners authorizing to subscribe to MOA
•       Optional attachment, if any
•      Shapatpatra can be sent where signature is made by Director/ Promoter in Hindi.

1)   As per Rule-17 of Companies (Incorporation) Rules, 2014, the particulars of each person mentioned in the articles as first director of the company and his interest in other firms or bodies corporate along with his consent to act as director of the company shall be filed in Form No.DIR-12 along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014. Along with the above details in the Form no.INC.7, Form no. DIR 12 to be filed with the following attachments:

• Declaration by first director in Form INC-9 is mandatory to attach in case of a new company.
• Declaration of the appointee Director, in Form DIR-2;
• Interest in other entities of director it is mandatory to attach in case number of entities entered is more than one. Only a declaration can be filed that interest of directors is taken on record by company.
• Optional attachment(s), if any

     INC-22 FOR GIVING DETAILS OF REGISTERED OFFICE

1)      As per Rule 25 of Companies (Incorporation) Rules, 2014, verification of registered office shall be filed in Form No.INC.22 along with the fee.

2)    Section 12(2) of the Companies Act, 2013 states that the Company shall furnish to the Registrar verification of its registered office within a period of thirty days of its incorporation in such manner as may be prescribed.

3)    Section 12(4) of the Companies Act, 2013 states that Notice of every change of the situation of the registered office, verified in the manner prescribed, after the date of incorporation of the company, shall be given to the Registrar within fifteen days of the change, who shall record the same.

Attachments:

·         Proof of Registered Office address (Conveyance/Lease deed/Rent Agreement along with the rent receipts) etc.; or

·         (the notarized copy of lease / rent agreement in the name of the company along with a copy of rent paid receipt not older than one month; or the authorization from the owner or authorized occupant of the premises along with proof of ownership or occupancy authorization, to use the premises by the company as its registered office); and

·         Copies of the utility bills as mentioned above (not older than two months) (the proof of evidence of any utility service like telephone, gas, electricity, etc. depicting the address of the premises in the name of the owner or document, as the case may be, which is not older than two months)

·         List of all the companies (specifying their CIN) having the same registered office address, if any;

·         Optional attachment, if any

4)   On receipt of the aforementioned documents, the office of the Registrar of Companies will scrutinize them and if they are found complete in all respects, the Registrar will register the company and generate a CIN. If the Registrar finds any defect or deficiency in any of the documents or forms, the Registrar will send an electronic communication pointing out he defects and after the deficiencies are removed, the Registrar will register the company.

5)    After the registration of the company, the Registrar will issue under his hand and seal of his office, the Certificate of Incorporation in the name of the company and send it electronically. One may also take printout of the Certificate of Incorporation generated online. The date mentioned by the Registrar in the Certificate of Incorporation shall be the date of incorporation of the company, on which date the company will be considered to have come into existence as a legal entity separate from its subscribers.

6)  The Certificate of Incorporation shall be in From INC – 1 of the Companies (Incorporation) Rules, 2014.

AFTER THIS APPROVAL, THE COMPANY IS READY TO RUN & PROSPER.

Should you have any query or any input on articles then please connect with me.

* Inputs on  improvement of Article are welcome.

Writer – CS Akash Vij 

Email ID: Akashvij20@gmail.com

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility, therefore users of this information are expected to refer to the relevant existing provisions of applicable Laws. The information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. In no event shall i be liable for any Direct, Indirect, Special or Incidental Damage resulting from, arising out if or in connection with the use of the information. This is only a knowledge sharing initiative and author do not intend to solicit any business or profession.

   

AMENDMENT TO SCHEDULE V OF COMPANIES ACT 2013

Ministry of Corporate Affairs  vide its notification dated September 12, 2016 amended Schedule V of the Act, 2013 through which limits of obtaining approval of Central Government in case of absence or inadequacy of profits are relaxed further . The said notification is effective from the date of its publication in official gazette. for full notification refer http://www.mca.gov.in/Ministry/pdf/Notification_12092016.pdf

Difference between old and new provisions (Amended provision) of Schedule V of Companies Act 2013 are mention in below table, for understanding amendments are marked in red fonts.

S. No.	Old Provision	New Provision
1.	Schedule V -> Part I -> Appointments-> para (a) -> sub paragraph (vi) Companies Act 2013;	Schedule V -> Part I -> Appointments-> para (a) -> sub paragraph (vi) The Companies Act 2013 ( 18 of 2013)or any previous company  law
2.	Schedule V -> Part II -> Remuneration -> Section II -> Remuneration payable by companies having no profit or inadequate profit without Central Government approval: Where in any financial year during the currency of tenure of a managerial person, a company has no profits or its profits are inadequate, it may, without Central Government approval, pay remuneration to the managerial person not exceeding the higher of the limits under (A) and (B) given below:— (A) (1) (2)` Where the effective capital is Limit of yearly remuneration payable shall not exceed (Rupees)  Negative or less than 5 crores 30 lakhs  5 crores and above but less than 100 crores 42 lakhs 100 crores and above but less than 250 crores 60 lakhs  250 crores and above 60 lakhs plus 0.01% of the effective capital in excess of Rs. 250 crores: (B) In the case of a managerial person who was not a security holder holding securities of the company of nominal value of rupees five lakh or more or an employee or a director of the company or not related to any director or promoter at any time during the two years prior to his appointment as a managerial person, — 2.5% of the current relevant profit: Provided that if the resolution passed by the shareholders is a special resolution, this limit shall be doubled: Provided further that the limits specified under this section shall apply, if— (i) payment of remuneration is approved by a resolution passed by the Board and, in the case of a company covered under sub-section (1) of section 178 also by the Nomination and Remuneration Committee; (ii) the company has not made any default in repayment of any of its debts (including public deposits) or debentures or interest payable thereon for a continuous period of thirty days in the preceding financial year before the date of appointment of such managerial person; (iii) a special resolution has been passed at the general meeting of the company for payment of remuneration for a period not exceeding three years; (iv) a statement along with a notice calling the general meeting referred to in clause  (iii)is given to the shareholders containing the following information, namely:-	Schedule V -> Part II -> Remuneration -> Section II Remuneration payable by companies having no profit or inadequate profit without Central Government approval: Where in any financial year during the currency of tenure of a managerial person, a company has no profits or its profits are inadequate, it may, without Central Government approval, pay remuneration to the managerial person not exceeding the limits under (A) and (B) given below:— (A) (1) (2)` Where the effective capital is Limit of yearly remuneration payable shall not exceed (Rupees) Negative or less than 5 crores 60 lakhs 5 crores and above but less than 100 crores 84 lakhs 100 crores and above but less than 250 crores 120 lakhs  250 crores and above 120lakhs plus 0.01% of the effective capital in excess of Rs. 250 crores: B) In case of a managerial person who is functioning in a professional capacity, no approval of Central Government is required, if such managerial person is not having any interest in the capital of the company or its holding company or any of its subsidiaries directly or indirectly or through any other statutory structures and not having any, direct or indirect interest or   related to the directors or promoters of the company or its holding company or any of its subsidiaries at any time during the last two years before or on or after the date of appointment and possesses graduate level qualification with expertise and specialised knowledge in the field in which the company operates: Provided that any employee of a company holding shares of the company not exceeding 05% of its paid up share capital under any scheme formulated for allotment of shares to such employees including Employees Stock Option Plan or by way of   qualification shall be deemed to be a person not having any interest in the capital of the company; Provided further that the limits specified under items (A) ant (B) of this section shall apply, if‑ (i) payment of remuneration is approved by a resolution passed by the Board and.. in the case of a company covered under sub-section (1) of suction 178 also by the Nomination and Remuneration Committee; (ii) the company has not committed any default in repayment of any of its debts (including public deposits) or debentures or interest payable thereon for a continuous period of thirty days in the preceding financial year before the date of appointment of such managerial person and in case of a default, the company obtains prior approval from secured creditors for the proposed remuneration and the fact of such prior approval having been obtained is mentioned in the explanatory statement to the notice convening the general meeting; iii) an ordinary resolution or a special resolution, as the case may be, has been passed for payment of Remuneration as per the limits laid down in item (A) or a special resolution has been passed for payment of remuneration as per item (13), at the general meeting of the company for a   period not exceeding three years. (iv)a statement along with a notice calling the general meeting referred to in clause (iii) is given to the shareholders containing the following information, namely:- All other points are same as before.
3.	Earlier there was no definition of  Statutory Structure	Now following line has been added Explanation: For the purposes of Section II of this part, “Statutory Structure” means any entity which is entitled to hold shares in any company formed wider any statute.

CONCLUSION

1)  Under the existing Schedule V of  Companies Act, 2013, in case of default in repayment of debts, public deposits, debentures or interest thereon for a period of 30 days , then the limits of remuneration prescribed under Part II of Section II Schedule V of Companies Act, 2013 does not apply. Now, under the amended schedule, in case of default, the Company may pay remuneration to its managerial personnel under the limits prescribed under Part II of Section II Schedule V of Act, 2013 subject to approval of secured creditors.

2) Under the amended Schedule V of Companies Act, 2013, sub-Para (vi) of para (a) of Part I of Schedule V of  Companies Act, 2013 has been amended by replacing the words “Companies Act, 2013” with the words “the Companies Act, 2013 (18 of 2013) or any previous company law”. Till now, person who had been convicted with imprisonment or penalty under “Companies Act, 1956 or any earlier company law” was still eligible for appointment as a managerial person under Section 196 of the Act, 2013. But with the proposed amendment, scope of ineligibility has been widened to include the person who had been convicted under the “Companies Act, 2013 or any previous company laws”

3) Obtaining approval of Central Government is a time consuming process, therefore the proposed increase in the limits of the Schedule V of Companies Act, 2013 would provide relief to most of the companies because companies are approaching year end.

4) Exclusion of remuneration of Professional Directors from the control of Central Government is a welcome step by the Ministry of Corporate Affairs and would help the companies to retain good talent.

5) The amended Schedule V of  Companies Act, 2013 seems to give a better picture on the approval of secured creditors which is proposed under the Companies (Amendment) Bill, 2016. However, it is important to mention that the approval of secured creditor is required prior to passing of special resolution. Therefore, clarity would be needed by Ministry of Corporate Affairs on the approval of secured creditor with respect to existing applications which have already passed special resolution and there is default in repayment of debts i.e. whether such defaulter companies can take approval of secured creditor post-facto or the same shall be prior to passing of special resolution.

6) Now Schedule V of  Companies Act 2013 requires prior consent of secured creditor in case of default in repayment of debt. Therefore, a question may also arise why the secured creditor would give his consent to the proposed remuneration in case of default in his repayment of debts. Thus, in our view, going forward it would be extremely difficult for defaulter companies to seek consent of lenders for payment of minimum remuneration to managerial personnel.

Should you have any query then please connect with me.

Writer – CS Akash Vij 

Email ID: Akashvij20@gmail.com

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