Director Identification Number [DIN]

Director identification Number [DIN] is a unique identification number allotted to an individual. Once allotted the DIN will remain valid during the life time of the individual. Provisional DIN can be used for e-filing until the DIN is approved and activated by the MCA - DIN cell. Provisions pertaining to DIN are specified u/s 153 to 159 of the companies Act 2013.

Form DIN - 1

Form towards application of DIN is DIN - 1 (u/s 153). The fees is Rs.100. Provisional DIN will be valid only for the period of 60 days. The Central government shall within one month from the receipt of the application allot DIN to the applicant. (Section 154)

No person who already has a Director identification Number shall apply for another DIN. (Section 155)

Form DIN-2
Within 1 month from the date of receiving the DIN every director should intimate the details about the DIN to Company with the help of form DIN-2 (Section 156).

Form DIN-3

within one week 15 days from the receipt of intimation from a Director vide DIN-2 the Company must file form DIN-3 by paying applicable fees. Every company, within fifteen days of the receipt of intimation from the director, shall furnish the Director Identification Number to the registrar. 

If a company fail to furnish Director identification within a period specified under Section 403, the company shall be punishable with fine which shall not be less than Rs.25,000/- but which may extend to Rs.1,00,000/- and every officer of the company who is in default shall be punishable with fine which shall not be less than Rs.25,000/- but which may extend to Rs. 1,00,000/- (Section 157)

Penalties

If any individual or director of a company, contravenes any of the provisions of section 152, section 155 and section 156, such individual or director of the company shall be punishable with imprisonment for a term which may extend to six months or with fine which may extend to Rs.50,000/- and where the contravention is a continuing one, with a further fine which may extend to Rs.5,000/- for every day after the first day during which the contravention continues. (Section 159)

Related party transactions - Section 188 of Companies Act 2013

Section 188 is applicable to Private and Public Limited companies.

As on the date of publication of this article this section was not made applicable and hence various conditions on paid up capital or Turnover has not been specified by the Central Govt. 

The term related party as referred in this section has been defined as 

“Related party”, with reference to a company, means—

1. a director or his relative;
2. a key managerial personnel or his relative;
3. a firm, in which a director, manager or his relative is a partner;
4. a private company in which a director or manager is a member or  director;
5. a public company in which a director or manager is a director or holds along with his relatives, more than two per cent. of its paid-up share capital;
6. anybody corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;
7. any person on whose advice, directions or instructions a director or manager is accustomed to act: Provided that nothing in sub-clauses 6 and 7 shall apply to the advice, directions or instructions given in a professional capacity;
8. any company which is—(A) a holding, subsidiary or an associate company of such company; or (B) a subsidiary of a holding company to which it is also a subsidiary;
9. such other person as may be prescribed;

Transactions

The restriction applies to the below mentioned contract or arrangement with Related Party. 

1-  Sale, purchases or supply of any goods or materials.

2-  Selling or otherwise disposing of , or buying, property of any kind,

3-  Leasing of property of any kind

4-  Availing or rendering of any services

5- Appointment of any agent for purchases or sale of goods, materials, services or property.

6- Such related party’s appointment to any office or place of profit in the company its subsidiary company or associate company and

7- Underwriting the subscription of any securities or derivatives thereof, of the company

Conditions for Transactions

1- Board Meeting is required

2- Special Resolution is required after prescribed paid of capital or prescribed turnover

3- For Special Resolution, the member who is not related to Transaction may vote.  

Non Applicability of Section 188 (1) of the Companies Act, 2013

When any transaction has been made on the basis of Arm Length basis, this sub section shall not apply for any transaction related to ordinary course of business.

Disclosure Requirement (Section 188 (2))

It is mandatory to disclose every contract with proper justification of therein in the Directors Report.

Voidable Contract (Section 188 (3))

According to the aforesaid sub section (1), any contact or arrangement must be passed through Board Meeting or Shareholders Meeting, as case may be,

Suppose, the Contact has been made but the approval has not taken either in the Board Meeting or Shareholders Meeting within 3 months from the date of Contract, In that case the Contract shall be voidable at the option of the Board.

In case of Loss in result of Contract (Section 188(4))

Where any contract has been entered, and any loss has been occurred due to such contract, the company has power to initiate any proceeding against director or employee who has entered into such contract or arrangement. 

Penalty

Any director who has entered into any contact or any employee who is authorised to enter into any contract makes any default with compliance of this provisions shall be penalized in case of:

• Listed Company:- Imprisonment for a term which may extend to One Year or fine which shall not be less than 25000/- but which may extend Rs. 5,00,000/- or both
• Unlisted Company: – fine which shall not be less than 25000/- but which may extend Rs. 5,00,000/- or both

Section 188 of the Companies Act, 2013 

188. (1) Except with the consent of the Board of Directors given by a resolution at a meeting of the Board and subject to such conditions as may be prescribed, no company shall enter into any contract or arrangement with a related party with respect to—

(a) sale, purchase or supply of any goods or materials;

(b) selling or otherwise disposing of, or buying, property of any kind;

(c) leasing of property of any kind;

(d) availing or rendering of any services;

(e) appointment of any agent for purchase or sale of goods, materials, services or property;

(f) such related party’s appointment to any office or place of profit in the company, its subsidiary company or associate company; and

(g) underwriting the subscription of any securities or derivatives thereof, of the company.

Provided that no contract or arrangement, in the case of a company having a paid-up share capital of not less than such amount, or transactions not exceeding such sums, as may be prescribed, shall be entered into except with the prior approval of the company by a special resolution:

Provided further that no member of the company shall vote on such special resolution, to approve any contract or arrangement which may be entered into by the company, if such member is a related party:

Provided also that nothing in this sub-section shall apply to any transactions entered into by the company in its ordinary course of business other than transactions which are not on an arm’s length basis.

Explanation. — In this sub-section—

(a) the expression “office or place of profit” means any office or place—

(i) where such office or place is held by a director, if the director holding it receives from the company anything by way of remuneration over and above the remuneration to which he is entitled as director, by way of salary, fee, commission, perquisites, any rent-free accommodation, or otherwise;

(ii) where such office or place is held by an individual other than a director or by any firm, private company or other body corporate, if the individual, firm, private company or body corporate holding it receives from the company anything by way of remuneration, salary, fee, commission, perquisites, any rent-free accommodation, or otherwise;

(b) the expression “arm’s length transaction” means a transaction between two related parties that is conducted as if they were unrelated, so that there is no conflict of interest.

(2) Every contract or arrangement entered into under sub-section (1) shall be referred to in the Board’s report to the shareholders along with the justification for entering into such contract or arrangement

(3) Where any contract or arrangement is entered into by a director or any other employee, without obtaining the consent of the Board or approval by a special resolution in the general meeting under sub-section (1) and if it is not ratified by the Board or, as the case may be, by the shareholders at a meeting within three months from the date on which such contract or arrangement was entered into, such contract or arrangement shall be voidable at the option of the Board and if the contract or arrangement is with a related party to any director, or is authorised by any other director, the directors concerned shall indemnify the company against any loss incurred by it.

(4) Without prejudice to anything contained in sub-section (3), it shall be open to the company to proceed against a director or any other employee who had entered into such contract or arrangement in contravention of the provisions of this section for recovery of any loss sustained by it as a result of such contract or arrangement.

(5) Any director or any other employee of a company, who had entered into or authorized the contract or arrangement in violation of the provisions of this section shall,—

(i) in case of listed company, be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees, or with both; and

 (ii) in case of any other company, be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees.

Loan or guarantee given by any company to its directors or group companies.

Many corporate including Pvt Ltd Cos have other related group companies and they transfer money to & from other company as and when require. Stop doing this, even retrospectively from 12th September, 2013 as these can be treated as interest free loan u/s 185 of new company law. Loan has not been defined u/s 185. These transfers can be treated as loan. Any transaction of giving money to be returned with or without interest can be treated as loan. However, fund can be transferred to public ltd co. if less than 25% of total voting power is exercised or controlled by “such director(s)”.

Section 185 of the Companies Act, 2013 has been made operational from 12-09-2013.This sec is applicable for all companies. This sec states that:

No company can advance loan to its “directors” or to “other persons in whom directors are interested”.

 No company can give any guarantee or provide any security in connection with any loan taken by him or such other person.

EXCEPTIONS:

-  the giving of any loan to a managing or whole-time director—

(i) as a part of the conditions of service extended by the company to all its employees; or

(ii) pursuant to any scheme approved by the members by a special resolution; or

-   a company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the bank rate declared by the Reserve Bank of India.

The expression “TO ANY OTHER PERSON IN WHOM DIRECTOR IS INTERESTED” means—

(a) any director of the lending company, or of a company which is its holding company or any partner or relative of any such director;

(b) any firm in which any such director or relative is a partner;

(c) any private company of which any such director is a director or member;

(d) any body corporate at a general meeting of which not less than twenty five per cent. of the total voting power may be exercised or “controlled” by any such director, or by two or more such directors, together; or

(e) any body corporate, the Board of directors, managing director or manager, whereof isaccustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.

“Control” has been defined as to include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholding or management rights or shareholders agreements or voting agreements or in any other manner. [Section 2(g) of the Companies Act, 2013]

IMPRISONMENT & PENALTY UPTO 25 LAKHS :If any loan is advanced or a guarantee or security is given or provided in contravention of the provisions of sub-section (1), the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend totwenty-five lakh rupees, and the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person, shall be punishable with imprisonment which may extend to six months or with finewhich shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both.

COMMENTS: Kindly note the following observations:

1) Existing loan on 12th sep is not affected by above provisions. However, it should not be renewed & should be repaid on due date.

2) If any loan had already been given after 11th sep., you should book it as advance  for property/ purchase of goods/ materials etc. backed by adequate documentation . These should be return as soon as possible.

3) Deposits or advance for property/ purchase of goods, services etc  is not covered.

4) Company in the ordinary course of business can give loan at not below bank rate.

5) Sec 372 of the Companies Act, 1956 is applicable after 11th sep 2013.

6) Above is my opinion only, you may have different opinion.

PRIVATE LTD COMPANIES HAVING TURNOVER UPTO 60 LAKHS SHOULD BE CONVERTED TO LLP

1) LLP is not a company, hence proposed limit of audit of 20 company / CA will not be applicable.

2) As companies Act will not be applicable, you can transfer fund from one LLP to another group LLP.

3) Many of exemption which Pvt Ltd company enjoy under old Companies Act has been withdrawn, which are not applicable to LLP.

4) Compliances under new companies Act for Pvt Ltd Companies has been substantially increased, which are not applicable for LLPs.

5) There is heavy penalty for non compliances under New Company Act. Penalty of rs 50000 is a small amount for a single violation.

6) Cost benefit analysis suggests that these should be converted into LLP.

7) However, as per sec 47(xiiib) of Income tax Act, for tax neutrality of such conversion , turnover of Pvt Ltd company  in any of last 3 years must not exceeds 60 lakhs. So, if turnover exceeds 60 lakhs than such conversion will be subject to income tax.

PRIVATE LTD COMPANIES SHOULD  BE CONVERTED INTO PUBLIC LTD COMPANIES

1) Sec 185 of New Co Act is not applicable to public ltd co at a general meeting of which not less than twenty five per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together

2) We can plan accordingly and take benefit.

3) So, we can convert our existing Pvt Ltd companies to public Ltd companies and take benefits.

THE COMPANIES ACT, 2013
185. (1) Save as otherwise provided in this Act, no company shall, directly or indirectly, advance any loan, including any loan represented by a book debt, to any of its directors or to any other person in whom the director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person:

Provided that nothing contained in this sub-section shall apply to—

(a) the giving of any loan to a managing or whole-time director—

(i) as a part of the conditions of service extended by the company to all its employees; or

(ii) pursuant to any scheme approved by the members by a special resolution; or

(b) a company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the bank rate declared by the Reserve Bank of India.

Explanation.—For the purposes of this section, the expression “to any other person in whom director is interested” means—

(a) any director of the lending company, or of a company which is its holding company or any partner or relative of any such director;

(b) any firm in which any such director or relative is a partner;

(c) any private company of which any such director is a director or member;

(d) any body corporate at a general meeting of which not less than twenty five per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or

(e) any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.

(2) If any loan is advanced or a guarantee or security is given or provided in contravention of the provisions of sub-section (1), the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, and the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person, shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both.

Credits CA NITESH MORE