Key Highlights of Companies Bill, 2013

  1. —  Uniform Financial Year for all the Companies i.e from April to March. (Exception where in approval from the National Company Law Tribunal have been granted).
  2. —   A Private Company can now have maximum of 200 members.
  3. —   Concept of One person Company have been introduced. (But the Company can only be incorporated as a Private Company).
  4. —   Object Clause of Memorandum of Association need not be divided into Main, Ancillary and Other Objects Clause.
  5. —   All types of securities are governed by Bill.
  6. —   The money raised by the Company through prospectus, cannot be used for any other purpose other than the purpose for which it was raised unless a special resolution have been passed and the said proposal is published by way of an advertisement. Otherwise an exit opportunity shall be provided to the existing shareholders of the Company.
  7. —  The prospectus has to be more detailed.
  8. —  If a Company, listed or unlisted, makes an offer to allot or invites subscription, or allots, or enters into an agreement to allot, securities to 50 or such higher number as may be prescribed, whether the payment for the securities has been received or not or whether the Company intends to list its securities or not on any recognized stock exchange in or outside India, the same shall be deemed to be an offer to the public and shall accordingly be governed by the provisions provided in this regard by the Securities And Exchange Board of India(SEBI). 
  9. —   There is no provision for issue of shares at a discount (other than issue of Sweat Equity Shares).
  10. —  The provisions of clause related to further issue of capital will now be applicable to all type of companies.
  11. —   Apart from existing shareholders, if the Company having share capital at any time proposes to increase its subscribed capital by issue of further shares, such shares may also be offered to employees by way of ESOP, subject to the approval of shareholders by way of Special Resolution. 
  12. —  Buyback provisions eased. Companies can buy back its shares even if it has defaulted in repayment of deposit or interest payable thereon, redemption of debentures or preference shares or payment of dividend to any shareholder or repayment of any term loan or interest payable thereon to any financial institution or bank, provided that such default has been remedied and three years have lapsed after such default ceased to subsist.  
  13. —  NBFCs not to be covered by the provisions relating to acceptance of deposits. They will be governed by the Reserve Bank of India rules on acceptance of deposits.
  14. —   Companies can accept deposits only from its members after seeking permission of its shareholders at a general meeting.  
  15. —  Certain public companies, as prescribed, can accept deposits from persons other than its members, subject to conditions such as credit rating.
  16. —   Bill provides for registering of all types of charges.
  17. —   Certification of Annual Return by practicing company secretary mandatory in case of companies with prescribed paid up capital and turnover.
  18. —   First annual general meeting of a company shall be held within nine months from the closure of its first financial year .
  19. —  Postal Ballot to be applicable on all Companies, whether listed or not.
  20. —  Every company has to follow the Secretarial Standards while preparing the minutes of board and general meeting.
  21. —   Listed companies required to file a return in a prescribed form with the Registrar regarding any change in the number of shares held by promoters and top 10 shareholders of such company, within 15 days of such change.
  22. —   Listed public companies to prepare a report, in the manner as may be prescribed, on each annual general meeting including the confirmation that meeting was convened, held and conducted as per the Act and the Rules made thereunder.
  23. —  Interim dividend declared by a Company in a current financial cannot exceed the average rate of dividend of the preceding three years if a company has incurred loss up to the end of the quarter immediately preceding the declaration of such dividend.
  24. —   Transferring of a fixed percentage of profits to reserve before declaration of dividend is not mandatory in the Bill.
  25. —   Financial Statements shall include Balance Sheet, Profit & Loss Account and Cash Flow Statement collectively.
  26. —   Provisions for re-opening or re-casting of the books of accounts of a company provided.
  27. —  The National Advisory Committee on Accounting Standards renamed as The National Financial Reporting Authority.
  28. —  The authority to advise on Auditing Standards and Accounting Standards.
  29. —  Every company is required at its first annual general meeting (AGM) to appoint an individual or a firm as an auditor. The auditor shall hold office from the conclusion of that meeting till the conclusion of its sixth AGM and thereafter till the conclusion of every sixth meeting. The appointment of the auditor is to be ratified at every AGM.
  30. —  Individual auditors are to be compulsorily rotated every 5 years and audit firm every 10 years in listed companies & certain other classes of companies, as may be prescribed.
  31. —   Prescribed class or classes of companies to have atleast one woman director.
  32. —   At least one director should be a person who has stayed in India for a total period of not less than 182 days in the previous calendar year.
  33. —  At least one-third of the total number of directors of a listed public company should be independent directors. Existing companies to get a transition period of one year to comply.
  34. —   Companies can have maximum of 15 directors.
  35. —  A person can hold directorship of up to 20 companies, of which not more than 10 can be public companies. The number 20 to include Private Companies aswell.
  36. —   A director can participate in a board meeting through video conferencing or other audio visual mode as may be prescribed.
  37. —  A notice of not less than 7 days in writing is required to call a board meeting. The notice of meeting to be given to all directors, whether he is in India or outside India by hand delivery post or electronic means.
  38. —   Every company with more than 1,000 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 is a non-executive director and such other members as may be decided by the board.
  39. —  In a private company, an interested director cannot vote or take part in the discussion relating to any matter in which he is interested.
  40. —  The provisions related to inter-corporate loans and investments (section 372A of Companies Act, 1956) has been extended to include loans and investments to any person. 
  41. —  Loans can be given to a Director without seeking permission of the Central Government.
  42. —   No central government approval required for entering into any related party transactions.
  43. —   No approval of the central government required for appointment of any director or any other person to any office or place of profit in the company or its subsidiary.
  44. —  The Bill prohibits insider trading in the company. 
  45. —  The Bill provides provisions related to Corporate Social Responsibility (CSR).
  46. —  Provisions relating to the appointment of managing director/whole time director/manger to apply to a private company.
  47. —   The Bill provides for provision related to secretarial audit in certain prescribed class or classes of companies.
  48. —  The Bill prescribes the functions of a company secretary.
  49. —   The conditions under which the Registrar can remove the name of a company from his record have been changed.
  50. —  The Registrar of Companies has been empowered to file an application with the Tribunal for restoration of the name of a company where the company was struck off inadvertently or on the basis of the incorrect information.
  51. —  The manner of declaring a company sick and process of its revival and rehabilitation has been completely rationalized.
  52. —   Any document or returns required to be filed under this Bill, if not filed within prescribed time, have to be filed within a period of 270 days on payment of such additional fees as may be prescribed.
  53. —   New definition of Nidhi Company prescribed.
  54. —   The person to be appointed as President of the Tribunal shall be the judge of the High Court for atleast 5 years, as opposed to the Companies Act 1956, where no term has been prescribed for High Court Judge to be appointed as President; the only condition was that the person should be qualified for being a judge of high court.
  55. —  The National Company Law Appellate Tribunal shall now consist of a combination of technical and judicial members not exceeding 11, instead of 2 as provided in the Companies Act 1956.
  56. —  The Bill makes provision for cross border amalgamations between Indian companies and companies incorporated in the jurisdictions of such countries as may be notified from time to time by the central government.


Service Tax under reverse charge- A happy hunting ground for Revenue Audit

Provision of service is the taxable event for service tax although Point of Taxation Rules (POTR) governs the timing of tax. Usually the provider of service is liable to discharge service tax liability unless it is otherwise earmarked for recipient of service. It is comparatively easy to keep a track on service tax liability arises on income but to detect service tax liability under reverse charge basis one needs to give a deep dive in the expenditure statement of a business entity.

Position up to June 30, 2012

Import of any service and limited number of specified services such as insurance auxiliary service, sponsorship service, services pertaining to transportation of goods by road, service of distribution of mutualfundbymutualfund distributor or agent etc. were covered under recipient based service tax, popularly known as service tax paid under reverse charge basis. A close look of the then position revealed that apart from importation of service and Goods Transport Service (GTA) all other services covered under reverse charge basis have limited impact on the routine transactions of the business entities.Moreover,methods of computation of tax were also simple since limited conditions were attached to such computation.

Position from July 1, 2012 on wards

Services that are used by almost all the business entities on a regular basis, such as works contract, security service, car rental service, work force supply service etc are now under the coverage of reverse charge mechanism.

Top of it for some of the services such as Insurance Auxiliary, sponsorship service, services rendered by advocate etc. recipient is liable to pay full service tax and for other services such as car rental, supply of work force, works contract etc. recipient is liable to pay a portion of the tax.

Moreover  partial tax liability is also varies from service to service, e.g. car rental without abatement liability under reverse charge is 40% and with abatement liability is 100%, works contract liability under reverse charge is 50% whereas the same for supply of work force is 75%.

Not only that, one should, need to verify the status of the service provider and the service recipient, in other words, one need to enquirewhether the service provider is a corporate entity or not, whether service recipient is an individual or business entity or corporate entity before apply the rule of reverse tax mechanism to discharge the tax liability.

Manifolds challenges:

  • Tracking of payments that are liable to tax under reverse charge basis.

Manual tracking of payments, which will trigger service tax exposure, is not possible for any sizable business operation. Accounting software is required to be upgraded by putting relevant patches that will help business entity to arrest the payments, vulnerable to service tax.

  • Obtaining registration and compliance of law.

Business entities, which are purely in manufacturing/trading operation and were never before under the service tax net, may require to take fresh registration under service tax and require to comply the relevant provisions of the law, such as payment of tax, filing of return, facing service tax audit etc. Moreover, for appropriate discharge of service tax liability many factors such as nature of service, whether service vendor is availing abatement or whether service vendor is availing cenvat credit needs to be verified. Any short payment of tax will lead to payment of interest and penalty apart from litigation.

  • Payment of tax in cash

Unique feature of service tax, paid under reverse charge mechanism is that the payment has to be made in cash. Business entity cannot touch the accumulated cenvatcredit to discharge the service tax liability. It will definitely have an impact on the cash flow specifically for that entity that does not have any (or less) service tax/excise duty appetite. It will certainly hit bottom line of the pure trading company since trading company does not have any service tax liability to set off the credit.

  • No threshold limit

There is no shelter available to escape the service tax liability under reverse charge basis. Even for a payment of a   single rupee, business entity is required to discharge its service tax liability under reverse charge. It will cause immense hardship for small business entities that were enjoying tax shelter under the threshold limit regime.

  • Eligibility of cenvat credit

In view of the amended definition of input service, eligibility of cenvat credit on service tax paid under reverse charge basis is required to be assessed case-to-case basis.

  • Vendor classification

Applicability of service tax under reverse charge depends on the status of the vendor as well. Most of the cases if the provider of service is a corporate entity, payment of service tax under reverse charge mechanism will not be applicable. Master record of vendors is required to be configured accordingly to avoid compliance lapses.

  • Handling of service tax audit.

Last but not the least is handling of service tax audit under the new tax regime.  Business entities are prone to commit error to comply such complex procedures. The department is also knows this and thus they will focus more on this area, which will eventually become breeding grounds for litigations.


Way forward:

  • Review  of expenditure statement to identify payments, which will be liable to service tax under reverse charge basis.
  • Analyse the impact of such payment on additional cash out flow, cenvat credit and profitability of the company.
  • Explore solutions if any to minimise the impact.
  • Upgrade accounting software to make it compatible to new changes.
  • Closely monitor  Vendor  master file
  • Conduct periodic internal review to ensure that the business entity is not in the wrong side of the law.
  • Educate in house people who are dealing with payments.

Curtsy:  Ca. Subhasis Banerjee (

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