Transcript Document

COMPANIES ACT, 2013 –
Analysis of important
provisions

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21st May 2014
Akshay K Gupta
Companies
Bill,
2008
introduced
on 23.10.2008
2008
2009
Report on SCF on
Companies Bill, 2009 was
introduced in Lok Sabha
on 31.08.2010
2010
Companies Bill, 2008 lapsed due
to dissolution of Lok Sabha;
reintroduced on 03.08.2009 as
Companies Bill, 2009. Bill
referred to Standing Committee
on Finance [SCF]
2011
Companies Bill, 2012 as
amended approved by
Lok Sabha on 18th Dec,
2012
2012
2013
Companies
Bill
2011
introduced in Lok Sabha
on 14th Dec 2011
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Approved by Rajya
Sabha on 8th Aug 2013 –
renamed
Companies
Bill 2013
2
Harshad
Mehta
scam
Satyam
Scam in
2oo9
Global Trust
Bank in
2003
 Could
the scams have
been averted if there
had been stricter
regulatory scrutiny of
directors and auditors?
 Should a company be
forced to rotate its
auditors?
 Should there be a
greater liability on
auditors to deter such
scandals?
The erstwhile Companies
Act, 1956 was seeming
quite ineffective at handling
present day challenges of
growing industry. Hence, the
new Companies Act, 2013
was introduced to provide
the answers to the above
questions.
Re-enacting the Companies Act, 1956
THE OBJECTIVE
To increase investor
protection.
Transparency
through increased
reporting framework
Wider Director and
Management
Responsibility.
Higher Auditor
Accountability.
Creating flexibility
and simplicity in the
formation and
maintenance of
companies.
Growth through
Corporate Social
Responsibility
agenda.
Adopt IT and Modern
Business and Financial
Practices
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President’s assent on 29th August 2013
Law to be operational in phases
• 98 sections notified on 12th September 2013 –
• 1 + 183 sections notified w.e.f. 1.4.2014. 187 yet to be notified
• corresponding sections of Companies Act, 1956 ceased to have
effect from that date
• No transitional provisions
• Rules Notified for all important chapters w.e.f. 1.4. 2014 except X
chapters including NCLT and NFRA
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Companies Act 2013 …
 Huge amount of law has been moved into Rules

Several sections consolidated into single section
‘prescribed’
416 times
‘Imprisonment’
76 times
‘Special
Resolution’
74 times
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‘Prosecution’
25 times
‘Approval
from CG’
15 times
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 30 Aug
2013: Companies Act, 2013 notified in Gazette
 12 Sept 2013: 98 sections / sub sections come into force
 26 Sept 2013: Removal of difficulties
 27 Feb 2014: Section 135, Schedule VII and Companies
(CSR Policy) Rules, 2014 to come into force from 1st
April 2014
 26 Mar 2014: Commencement Notification CA, 2013
 27 Mar 2014: Nomenclature of Various Forms, IEPF
unclaimed and unpaid amounts and Investor Awareness
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No 15 dated 13 Sept 2013: Clarification on notification of 12 Sept
for sections 2(68), 102, 133 and 180
No 16 dated 18 Sept 2013: Clarification that old sections
corresponding to 98 sections cease to be operative
No 18 dated 19 Nov 2013: Clarification on applicability of sec
372A of the old Act vis-à-vis sec 185
No 19 dated 10 Dec 2013: Clarification on applicability of sec
182(3)
No 20 dated 20 Dec 2013: Clarification with regard to holding of
shares or exercising power in fiduciary capacity
No 3 dated 14 February 2014: Clarification with regard to section
185
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25 Mar 2014
28 Mar 2014
29 Mar 2014
1 Apr 2014
1 Apr 2014
4 Apr 2004
Clarification section 180 of CA 2013
Online payment of stamp duty and court
fees
Roll out plan of various forms
Table of Fees
Dissemination of Information CA 2013
Accounting and Auditing Provisions from
FY commencing 1.4.2014
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One person company, Dormant company, Small Company
Mandatory Corporate Social Responsibility (CSR)
Mandatory Cash Flow and Consolidated Financial Statements
Mandatory rotation of auditors
Higher reporting responsibilities for auditors
More onerous penalties for auditors
Mandatory retirement of independent directors and pecuniary
relationships ruled out
National Financial Reporting Authority
Related Party Transactions (incl. loans) – stricter norms
Non-judicial approval of mergers
Class action suits, etc.
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Woman Director & Small shareholders Representation
Directors & Annual Report Disclosures
Key Managerial Persons Mandatory and Responsibility
Internal Audit mandatory
Secretarial Audit & Cost Audit
NCLT and Appellate Tribunal- No CLB
Shares with Differential Rights
E VOTING
Stringent Deposit Rules
Registered Valuers
Method of Depreciation
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New Definitions in the Bill
Associate
Company
Small &
Dormant
Company
Control
Auditing
Standard
Related Party
CEO & CFO
Financial
statement
Global/Indian
Depository
Receipt
Independent
Director
Key Managerial
Personnel
Promoter
Deposit
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‘Associate Company’ means a company in which another
company has Significant Influence, but not a subsidiary
company. Includes joint venture company.
‘Significant Influence’- control of at least 20% of total share
capital or of business decisions under an agreement
‘Control’ include right to appoint majority of directors or to
control the management or policy decisions exercisable by one
or more persons in concert by virtue of their shareholdings,
management rights or voting rights etc.
‘Subsidiary Company’- a company in which the holding
company; (a) controls the composition of the Board; or (b)
controls more than 50% of total share capital along with
subsidiaries
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‘Promoter’ means a person- (a) who is named as such in
prospectus and annual return; or (b) control over affairs of the
company as shareholder, director or otherwise; or (c) on whose
advice, instructions or directions the Board is accustomed to
act.
‘Key Managerial Person’- (i) CEO or MD or Manager; (ii)
Company Secretary; (iii) Whole Time Director; (iv) CFO and
(v) as may be prescribed.
Every Listed company and Public company with paid up
capital 10 crore or more to have KMPs
‘Chief Executive Officer’ an officer of company designated as
such
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‘Chief Financial Officer’ appointed
as CFO
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Means a company which has only one person as member
Requires only one member being a natural person Indian citizen
and resident in India –
o MOA to indicate name of another person who shall become a member in
o
o
o
o
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case of death / disability of subscriber (written consent).
In case of death of single member of the company, the other person whose
name is stated as a nominee shall become a member
Not to exceed paid up capital Rs. 50 lakh OR turnover Rs. 2 crore
One person One OPC only
Not to engage in NBF Investment activity and investment in securities
Minimum 1 director maximum 15 directors
Name to be mentioned as “_____ OPC Ltd”
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Annual return to be signed by the company secretary, or
in absence of CS, by the director of the company.
OPC need not hold AGM
Can not be formed for charitable purposes (Sec 8) and
for NBFC activities
No approval required for conversion of Private Co to
OPC and vice versa. Compulsory conversion to Private
or Public company if limits crossed
Board meeting if more than one director to be held once
in each half of calendar year, gap between meetings not
less than 90 days
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•
Recognised as private company for all purposes.
•
In case of One Director resolutions to be recorded in minute
book of board and general meetings and to be signed and dated
•
Financial Statements (FS) need not include Cash Flow
•
FS can be signed by only 1 director
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Defined as ‘a company, other than a public company
whose —
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Paid up capital up to 50 lakhs ( till up to 5 crores) or
Turnover up to 2 crores (till up to 20 crores)
Does not apply to Holding / Subsidiary Co with charitable
objects (formed under Clause 8) or a company or body
corporate governed by any special Act.
FS not to include Cash Flow Statement.
Rotation of Auditors does not apply
Annual return to be signed by the CS, or where there is no
CS, by the director of the company.
Simpler rules for filing Annual Report and Board Meeting
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(same as OPC)
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Application can be made to Registrar to obtain such status
Such company should have no significant accounting
transactions other than payment of fees, allotment of shares,
statutory payments, payment to maintain office records
If Company fails to file FS for 2 consecutive years, application
can also be made to obtain status of ‘Dormant’ company.

Shall have minimum number of directors, file “Return of
Dormant Company” annually, inter-alia, indicating financial
position duly audited by a chartered accountant in practice in
Form MSC-to the Registrar to retain its dormant status
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May become an active company on an application made and
accompanied by such documents and fee as prescribed.
Can be useful to form a company for a future project or to
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hold an asset or intellectual property
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As per Sec 8 of the Act (corresponding to sec 25 of old Act)
Can be private / public
Words ‘limited’ or ‘private limited’ can be removed
Firm can be member of such companies
Provisions of MoA / AoA can be altered only with CG approval
Can be amalgamated with another company registered under this
section and having similar objects
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Private Company [2(68)]
•
•
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Having minimum paid up capital of 1 lakh
Restricts transferability of shares
Limits number of members to 200 (except OPC)
Prohibits invitation to public for subscription to any securities
Condition of 1956 Act to have a restriction in AoA prohibiting invitation or
acceptance of deposits has been removed.
Public Company [2(71)]
• Includes any private company if such company is a subsidiary of another
company (though the Articles contain clauses relevant for a private
company i.e. restriction on transfer of shares and limits members to 100)
• May necessitate such private company to comply with other sections of
the Act like no. of directors, capital, section 185, etc.
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Debentures [2(30)]
• Definition includes any instrument evidencing a debt;
• This can cover even ICDs, Bills and requirement of creation of
Debenture Redemption Reserve and rules for maintenance of liquid
assets may apply.
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Turnover [2(91)]
• Defined to mean the aggregate value of the realisation of amount
due from the sale, supply or distribution of goods or on account of
services rendered or both by a company.
• Since the words used are ‘realisation of amount due’, whether
adjustment needed for opening / closing receivables to determine
the turnover?
• Seems that the above definition would not affect preparation of
financial statements
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Free Reserves [2(43)]
• Such reserves which as per latest audited BS are available for
distribution of dividend. Proviso states that following to be
excluded:
• any amount representing unrealized gains, notional gains or
revaluation of assets (whether shown as reserve or otherwise) or
• Any change in carrying amount of an asset or liability recognised in
equity, including surplus in PL on measurement of asset or liability
at fair value
Implication of ‘unrealized gains’? – adjustment for receivables, AS 11
restatement, etc.?
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Sec 43: restriction on kinds of capital to be issued
Sec 101-116: Notice for GM, explanatory statement, passing of
resolution by Postal Ballot (for > 50 members)
Sec 73/74: Deposits from members subject to conditions
Sec 184: interested director not to vote / participate in BM
Sec 185: loans to directors, etc.
Sec 186: Limits for intercompany investments and loans
Sec 192/195: restrictions on non-cash transactions with directors
and prohibition on insider trading
Sec 152: Consent to act as director to be filed with RoC
Sec 196: Appointment of managerial personnel
Sec 203: Appointment and tenure of managerial personnel
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Books of Account can be in electronic form
 To be preserved for 8 years (or longer in case of any investigation)
 Rules mention that they shall be retained completely in the format as
originally generated
 To be kept on accrual basis
 Books open for inspection
 Uniform financial end (April – March) (exception only for subsidiaries
of foreign companies with prior approval)
 MD, CFO, responsible for the above
Section 133: CG to prescribe Accounting Standards
Section notified on 12 Sept 2013 and clarification issued that AS issued
under existing Companies (AS) Rules, 2006 to be followed till NFRA
formed and new set of AS issued.
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As per section 2(40), Financial Statement includes:
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•
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•
Balance Sheet
Statement of Profit and Loss
Cash Flow Statement
Consolidated Financial Statements (CFS) in case a company has
Subsidiaries (subsidiary includes associate company or Joint
Ventures)
If CFS not required as per AS, it shall be sufficient to comply
provisions on CFS in Schedule III.
• Statement of changes in Equity, if applicable
• Any explanatory note/s forming part of above.

Cash Flow necessary for all companies (except OPCs)
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Associate Company [sec 2(6)]
• Company in which there is Significant Influence i.e. control of at
least 20% of total share capital or of business decisions under an
agreement
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Subsidiary Company [sec 2(87)]
• Controls composition of BOD
• Exercises or controls more than ½ of total share capital (
aggregate of paid up equity and convertible preference share
capital)
Definitions different from those given by notified AS
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Preparation of Cash Flow  As per AS 3
• Which method to follow: Direct or Indirect?
• Several inconsistencies between AS 3 and Schedule III
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Preparation of CFS  As per AS 21 / AS 23 / AS 27
•
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AS 21 applicability as per extended definition of ‘subsidiary’
Company having only Associates or JVs
• CFS as per AS 21 or AS 23?
• Equity method or proportionate consolidation?
• Getting information as per Schedule
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Particulars
Case I
Case II
Case III
Equity capital ( Total 100)
ConvertiblePreference capital (Total
200)
100
30
0
100
200
200
230
200
200
% holding in total paid up capital
% holding in equity shares
67%
100%
77%
30%
67%
0%
Subsidiary as per Companies Act?
Subsidiary as per AS 21?
Associate as per AS 23?
Yes
Yes
NA
Yes
No
Yes
Yes
No
No
Under Companies Act 2013
Subsidiary
Subsidiary
Subsidiary
Under AS
Subsidiary
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Associate
No consolidation
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Schedule III to the Act lays down format for FS
• Similar to Schedule VI (as revised)
• Contains additional format and guidance for CFS
Transitory Provisions for AS. Specified in 1956 Act to apply till notified
under 2013 Act.
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Reopening of FS
• By court order
• Voluntary revision up to 3 preceding years (on application made to
Tribunal)
• Detailed reasons to be given in Directors’ Report
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FS to be signed by CFO, plus Chairman or 2 directors (incl.
MD or CEO) and secretary
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 Constitution
of CSR Committee:
By every company having following criteria:
• net worth of Rs.500 crores or more or
• turnover of Rs. 1,000 crores or more or
• net profit of Rs. 5 crores or more
 CSRC will consist of 3 or more directors with at least 1 ID.
 Responsibility of CSRC:
• To formulate & recommend to the Board CSR policy.
• To ensure 2% of avg. net profits of 3 past yrs is spent.
• To explain the reasons for non-spending by Board.
• To monitor CSR policy.
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Sec 135, Schedule VII and CSR Rules deal with CSR
Schedule VII (as amended) lays down specified activities to be
undertaken by company for CSR
CSR spending also applicable to:
o Foreign companies
o Indian branches and project offices of foreign companies
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Net Profit: defined to mean NP as per FS and excludes:
o Profits generated outside India through branches and subsidiaries
o Dividend received from other companies also undertaking CSR activities
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To exit CSR spending, 3 consecutive years of non-applicability
required
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CSR expenditure to exclude those incurred in normal course of
business
Group CSR or joint CSR projects permitted
Only for projects or activities in India
Expenditure for capacity building costs of on personnel or those
of implementing agencies qualifies, but capped @ 5 % of total
CSR expenditure
Political contributions excluded
Surplus from CSR activities to be ploughed back (not to be
included in profits)
CSR policy and activities to be displayed on website
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Current Provisions
•
•
•
•
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As per life of asset (AS 6) or rates prescribed by Sch. XIV
Schedule XIV prescribes rates (SLM and WDV) so as to write off 95
% of the cost of an asset
Separate rates for Double/Triple shift
Assets costing < 5,000  100 % depreciation
As per Companies Act, 2013
• Schedule II lays down useful life to compute depreciation
• Useful life is the period over which an asset is available for use
by an entity
• Residual life not to be more than 5 %
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Companies divided into 3 classes:
• Class I: Prescribed class of companies which comply with
prescribed AS  can adopt different useful lives/residual
values if an appropriate justification is given for the same
• Class II: Companies regulated by other law, e.g., electricity
companies  Rates/residual values prescribed by regulatory
body
• Class III: Other companies
– Assets cannot have useful life longer than and residual value
higher than that prescribed in schedule II.
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For Intangible assets, provisions of AS to be followed
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Component-wise determination of useful life – where cost of
any part of the asset is significant to the total cost of the asset
and useful life of that part is different from the useful life of
the remaining asset, useful life of that significant part to be
determined separately
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Extra shift depreciation to be increased by 50 % or 100 %
No specific provision for 100 % rate on assets below Rs. 5,000
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Transitional Provisions
• Carrying amount of the asset on that date to be depreciated over the
remaining useful life
• If remaining useful life NIL, after retaining residual value, the
remaining carrying amount to be recognized in retained earnings
Issues
• Different useful life for components – Ind-AS 16 compliant
• Significant components to be identified
• In case of revaluation, whether ICAI GN can still be followed to
withdraw excess depreciation from Revaluation Reserves? –
seems no
• Transitional provision requiring remaining carrying value to be
depreciated over remaining useful life can provide very harsh
outcomes
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Board can contribute to Bona-fide charitable and other funds
If contribution in any financial year exceeds 5 % of average net
profits for 3 preceding financial years, prior permission of
members necessary
Contributions can also be made to political parties only if
following conditions are satisfied (sec 182):
o Contribution to such political party shall not exceed 7.5% of the average
net profit of the last three years. AND
o Resolution stating such contribution should be passed by the board.
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Expenditure incurred by a company on advertisement in any publication or
souvenir of a political party or for the advantage of a political party, it shall
also be deemed be a political contribution
Amount of such contribution made during the financial year should be duly
disclosed in the PL along with the name of the political party to whom such
contribution is made.
o Circular 19 dt. 10 Dec 2013 requires only contributions made to ‘Electoral
Trust Companies’ or directly to political parties
o ‘Electoral Trust Companies’ will be required to disclose details of amounts
received and amounts contributed
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Penalty for non-compliance:
•
Against Company: fine upto 5 times the contribution
• Against Officer: Besides fine as above, Imprisonment upto 6 months
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Recently incorporated Electoral Trusts:
o Janhit Electoral Trust  Vedanta group
o People’s Electoral Trust  Reliance group
o Satya Electoral Trust  Bharti group
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Till 30th November 2013, 30 more applications received by
RoC for Electoral Trusts
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Exemption also available u/s 13B of IT Act if it donates 95 %
of donations received to any registered political party
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Dividend allowed out of profits for the year or accumulated profits
or both
Depreciation to be provided in both cases as per Schedule II
No provision to declare dividend without providing for full
depreciation
Transfer to reserves at option of company
Interim dividend can be declared out of CY profits or PL surplus
If loss in the current FY up to the end of earlier quarter when interim
dividend is declared – rate cannot exceed average of last 3 yrs
Rules issued for dividend out of reserves
for last 3 years, Rate not to exceed average rate etc.
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No dividend to be declared if company fails to comply with
provisions related to acceptance and repayment of deposits
 Dividend to be transferred to separate bank acount with in five
days of declaration.
 Transfer to IEPF for Unpaid Dividend:
• Along with unpaid / unclaimed dividend, company reqd to
transfer all the shares on which dividend has remained
unpaid /unclaimed to the (IEPF)
As per rules transfer of shares not required for shares
held in demat form and dividend encashed for any 1 out
of 7 years
• Claimant of shares transferred as above entitled to claim
from IEPF as per laid downAKG
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Securities premium to be applied for permitted purposes
 Utilization of securities premium for any other purpose would
entail compliance with provisions relating to reduction of
capital
 For classes of companies to be prescribed in the Rules,
utilization of securities premium for the following purposes
will require such a company to ensure that the AS prescribed
have been complied:
• Issue of bonus equity shares
• Writing off the expenses of or the commission paid on any
issue of equity shares
• Buy-back of shares or other securities
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Fully paid Bonus shares can be issued out of:
o Free reserves
o Securities premium account or
o Capital Redemption Reserve
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No bonus shares out of reserves created by revaluation of assets
Bonus shares can be issued only if:
o Authorized by AOA and approved in general meeting;
o No default in payment of interest and principal in respect of fixed deposits
or debt securities issued;
o No default in payment of statutory dues of employees;
o Once announced, decision cannot be reversed
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Deposit includes any receipt of money, but does not include:
• deposit accepted from any other company
• Share application (up to 60 days)
• Deposit from directors
• Loans from banks, institutions etc.
• Secured or Fully Convertible debentures (with in 5 years)
• Advance for supplies and services to be appropriated in 365
days
• Advance for property and capital goods etc. to be adjusted as
such
• Security deposit for performance of contract for supply of
goods or services
• Promoters or relatives contributions per bank or FI stipulation
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
Deposit may be accepted from members by passing resolution
in general meeting:
• By issuing and filing of
circular showing financial position, credit
rating obtained and other particulars in Form DPT-1
• Providing deposit insurance to the extent of Rs. 20000 per depositor
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• Depositing at least 15% of deposits maturing during current and
next financial year in a scheduled bank
Public company having net worth > 100 crores or turnover > 500
crores only would be allowed to raise funds through Public deposits
Deposits can be accepted subject to compliance of above Rules and
subject to conditions which includes:
• Obtaining Credit Rating
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 Existing Deposits on 1.4.2014 to be repaid with in 12 months
or due date whichever earlier unless comply with new Act and
Rules and continue repayment as per original schedule.
 Statement of Existing Deposits in Form DPT-4
 Terms and Limit of Deposits:
 No Deposit repayable on demand or earlier than six months.
Short term business deposits up to 10% of paid-up capital and
reserves for 3 to 6 months
 Deposits from members not to exceed 25% of paid up capital
and free reserves and 10% only if eligible to accept deposit
from public also.
 Deposits from public not to exceed 25%of paid up capital and
free reserves
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Corresponds to sec 295 of the 1956 Act
Section 185 already operational from 12th Sept 2013
Section applies to any loan given directly or indirectly to any
director or to any person in whom director is interested or give
guarantee in connection with any loan;
‘any person in whom director is interested’ includes :
o Director of lending company and its holding company or any
relative or partner of such director
o Any firm in which director or his relative is partner
o Private company in which director is member or director
o Company in which not less than 25 % of the total voting
power maybe exercised or controlled by any such directors or,
o The Board or MD is accustomed to act on directions or
instructions of Board or of AKG
any directors of the company. 64

Changes from sec 295:
o Exemption to private limited companies removed i.e. section applies to all
companies
o Section does not contain any remedial proviso (like approval of central
govt. etc.)

Exemption now available only for loans:
o Given to Managing Director (as part of service conditions or approved by
special resolution)
o Company giving loans in ordinary course of business (i.e. NBFCs).
Interest not less than Bank Rate
o Loans provided to and guarantees for wholly owned subsidiary company
o Guarantees for loans to subsidiary from banks or financial institution.
Such loans to be used for principal business activity

Penalty of Rs. 5 lakhs to 25 lakhs
AKG and imprisonment of 6 months
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
Section 186 prohibits investments through more than 2 layers of
investment companies;
o Exemption if the company acquires another company outside India and such
other company has investment subsidiaries beyond 2 layers;

Subject to sec 185, limit for loan or investments is higher of:
o 60 % of paid up share capital, free reserves & securities premium or
o 100 % of free reserves and securities premium
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If limit exceeded, prior approval of members by SR
Section corresponds to section 372A of current Act
SR not required for Loans to, security or guarantee given and
subscription to securities issued by wholly owned subsidiary
No Loan below rate of interest than the prevailing yield of 1, 2,5
and 10 yrs. Govt. security closest to the tenor of loan
To disclose in FS loan or guarantee
given and purpose of utilization
AKG
66





Director to disclose interest in corporates (including
shareholding interest), firms, AOP in Form MBP-1
Register of loan or guarantee given, security provided and
acquisition of securities in Form MBP-2
All investment, loan and guarantee with unanimous approval
of the Board and approval of PFI if default in repayment
No investment, loan or guarantee if default in repayment of
deposit or interest thereon
Exemptions to Banking Insurance, Housing Finance and
NBFCs
AKG
67



Very detailed definition for RPT
Definition more wider than AS 18 ‘Related Parties’

Relative[2(77)]: means any one who is related to another if:

o they are members of a HUF;
o They are husband and wife or
o One person is related to another as under:
o Father, Mother, Son, Sons Wife, Daughter, Daughters Husband, Brother,
Sister (including steps)
AKG
69

Related Party [2(76)]: means:
o A director or KMP or his relative;
o Firm in which a director, manager or his relative is a partner;
o A private co in which a director/manager is a director or holds along
o
o
o
o
with his relatives, more than 2% of paid up share capital;
Any body corporate whose BOD, MD is accustomed to act in
accordance with the advice, directions or instructions of a director or
manager; (other than in professional capacity)
any person on whose advice, directions or instructions of a director
or manager is accustomed to act; (other than in professional
capacity)
Any company which is a holding, subsidiary or an associate
company of such company or
Director and KMP of holding company and their relatives
AKG
70
Reporting of RPT as per AS 18, for DTP u/s 40A(2)(b) of Income Tax different
from Companies Act, 2013
AKG
71



Can be done only with consent of BoD for:
a) Sale, purchase of supply of goods and materials;
b) Selling or otherwise disposing of or buying, property of any kind;
c) Leasing of property of any kind;
d) Appointment of agent for purchase/sale of goods, materials & services
e) Such related party’s appointment to any office or place of profit in the
company, its subsidiary or associate;
f) Underwriting the subscription of any securities or derivatives thereof
Interested Director not to remain present during discussions
Agenda of Board to Disclose:
o Name and nature of relationship,
o Material terms of the contract or arrangement;
o Any advance paid or received for the contract or arrangement;
o Any other information relevant for
G the Board to take a decision.
72

Can be done only by Special Resolution for:
o Company having paid-up capital of Rs. 10 crore or more. For other companies:
o for Transactions > 25% of annual turnover for contracts/arrangements in (a) and
(e);
o Selling or Buying Property exceeding 10% of net worth
o leasing exceeding 10% of net worth or turnover
o Availing or rendering services exceeding 10% of the net worth
o Appointment to any office or place of profit at monthly remuneration > Rs. 2.5
lakh
o Underwriting subscription of any securities exceeding 1 % of the net worth

Any RP cannot vote on such a special resolution

Section does not apply to transactions entered into by the company in its
ordinary course of business other than transactions which are not on arm’s
length basis.
AKG
73
Cos Act,
1956
Cos. Act,
2013
IT Act,
1961
Cos. Act,
1956
Cos. Act,
2013
IT Act,
1961
Members of HUF
Husband/ wife
Father
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
Yes
Mother's father
Son's son/ daughter
Daughter's husband
Yes
Yes
Yes
No
No
Yes
No
Yes
Yes
Mother (including step mother)
Yes
Yes
Yes
Son's daughter's husband
Yes
No
No
Son (including step-son)
Yes
Yes
Yes
Daughter's son
Yes
No
No
Yes
Yes
Yes
Daughter's Son's wife
Son's son's wife
Yes
No
No
Yes
Brother (including step
brother)
Yes
Yes
Yes
Daughter's daughter
Yes
No
No
Sister (including step
sister)
Yes
Yes
Yes
Daughter's daughter's
husband
Yes
No
No
Son's wife
Yes
Yes
Yes
Son's daughter's husband
Yes
No
No
Father's father
Father's mother
Mother's mother
Yes
Yes
Yes
No
No
No
Yes
Yes
No
Daughter's Son's wife
Brother's wife
Sister's husband
Yes
Yes
Yes
No
No
No
No
Yes
Yes
Cases of Relative
Daughter (including step
daughter)
Covered as RP as per AS 18
Cases of Relative
AKG
74


Additional /
Alternate /
Casual
Vacancy
Small
Shareholder
Representative
Director
Managing
Director /
Whole time
Director
Directors
Woman
Director
Independent
Director
AKG
76
Pre – Requisites
Sec.152:
• DIN continues to be
mandatory pre –
requisite. Application
in Form DIR-3 and
DIR-4. Changes in
Form DIR-6 and 7.
One Person One DIN
only.
• Consent in the form
DIR-2 to company
and by company in
DIR-12 be filed with
the Registrar within
30 days
Retirement by
Rotation Sec.152:
• 1/3 of 2/3 every year
• ID not liable
Number of
Directorship Sec.165:
• Maximum 20
• Maximum 10 for
public companies
(incl holding or
subsidiaries of
public companies)
AKG
Authority to Appoint:
• General Meeting
• Board of Directors
(Additional/ Alternate/
Nominee/ Casual
Vacancy)
• Lending financial
institutions through
the board
• Promoter/ CG
• NCLT
• BIFR
77








If of unsound mind, un-discharged or insolvent
If convicted for imprisonment for not less than 6 months &
period of 5 years has not lapsed or convicted for the period not
less than 7 years.
If convicted of an offence dealing with related party transaction
for last 5 years.
If court or tribunal orders for disqualification.
If there is non-payment for calls for period exceeding 6 months.
If FS of company not filed for 3 consecutive years.
If there is non-repayment of deposits or interest or debentures or
payment of dividend for the period of 1 year.
Additional disqualifications as maybe prescribed by AOA of
Private Company
AKG
78






To act in accordance with provisions of Act and AOA
To act in good faith to promote objects of the company for
benefit of members, employees, community and protection of
environment
To exercise duties with due and reasonable care, skill,
diligence and independent judgment
Not to involve in conflicting interest with that of company
Shall not achieve or attempt to achieve undue gain for himself,
relatives and associates. Liable to repay such undue gain if
found guilty apart from penal provisions
Shall not assign his office. Assignment shall be void
AKG
79

If disqualifications incurred after appointment

If he absents from all meetings of the Board for 12 months with
or without obtaining Leave of Absence

Fails to disclose his interest in any contract or arrangement in
which he is directly or indirectly interested or contravene
Related Party Transaction rules in section 184
Additional reasons as maybe prescribed by AOA of a private
company

AKG
80




Notice in writing
Effective from date of receipt or specified date whichever is
later.
Company to intimate within 30 days from the date of receipt of
notice in DIR-12 and post on website
Director to also forward the copy of resignation with reasons to
ROC within 30 days in Form DIR-11.
Removal of Director – Right to represent in General Meeting
AKG
81


One Person Company
Min No. of Director:- 1
Maxi No. of Directors:15
Public Company
Min No. of Directors:- 3
Max No. of Directors:15
Private Company
Min No. of Directors:-2
Max No. of Directors:15
(Maximum number of Directors may be increased by passing a Special
Resolution)
AKG
83
Women Director – at least one
Sec.149(1)
 Listed Company (within 1 year)
 Every other public companies with
paid – up capital of Rs. 100 crores
or more; or Turnover of Rs. 300
crores or more (latest audited FS)
First Director Sec. 152(1)
(If no provisions exists in the Articles subscribers to the Memorandum shall
be considered as First Directors.)
Small Shareholder’s
Representative Director in a
Listed Company Sec. 151
 Suo Moto.
 Upon a notice of not less 1000
or 1/10 of small shareholders
whichever is lower.
Resident Director
At least 1 director who has stayed
in India for a total period of not less
then 182 days in the previous
calendar year
The Act provides 1 Year transition period for existing companies to
comply with the above.
AKG
84









Make Calls
Authorize buy – back and Issue Securities in or outside India
Approve FS Quarterly or HY Results and Director’s Report
Diversify the business, approve M &A
To make Political contributions
Appoint or remove KMP and Take note of appointment or
removal of one level below KMP
Take note of disclosure of directors interest and shareholding
Buy, sell investments of 5 % or more of paid up capital and
free reserves
Acceptance, renewal of public deposits and related matters
AKG
85
• To borrow monies
• To invest the funds of the
company
• To grant loans or give
guarantee or provide
security
Note: - The above powers can be delegated to Committee, MD,
Manager or Principal Officer.
AKG
86
Sell, Lease or dispose whole or Substantially
whole undertaking
Invest compensation from mergers or
amalgamation in trust securities
Borrow in excess of paid up capital + free
reserves, temporary loans from banks in ordinary
course except special resolution specifying can
required
AKG
87
Remit or give time for debt due from director.
No cash transaction with the director of holding
,subsidiary or associate company or person
connected with such director
Above restrictions are now applicable to Private company also.
AKG
88







Sec 149: An independent director in relation to a company, means a
director other than a managing director or a whole time director or a
nominee director.
1/3rd of the total number of directors to be ID – applicable to Listed
Companies
i.
Two ID in Public Companies having –
 Turnover of Rs. 100 crore or more, OR
 Paid up share capital of Rs. 10 crores or more, OR
 In aggregate, outstanding loans or borrowings or debentures or
deposits, exceeding Rs. 50 crores.
Two terms of 5 years each
Reappointment after a cooling off period of 3 years
Prospective applicability of period of appointment
AKG
90

Qualification Of Independent Directors
•
•
•
•
•
•
•
•
•


Person of Integrity with relevant expertise & experience
Independence from promoter / management group
No pecuniary relationships for self
No pecuniary relationships for relatives amounting to 2% or more or
Rs.50 lakhs whichever is higher.
Not KMP or employee relationship in last 3 years
No Audit/CS/CMA relationship
No legal/consulting relationship earning 10% or more
Nominee Directors not considered as independent
Skills, Experience and knowledge in fields of finance, law,
management, sales, marketing, administration, research, corporate
governance, technical operations or other related disciplines
Declaration for above criteria at first meeting and annually.
Schedule IV gives Code of Conduct
for IDs
AKG
91
Remuneration
• ID shall not be entitled to any stock option and may receive
remuneration by way of sitting fee, reimbursement of expenses
for participation in the BOD and other meetings and profit
related commission as may be approved by the members
Separate
meetings
• ID of the company are required to hold at least one meeting in a
year without the attendance of non-independent directors and
members of management
Alternate
Director
• Only an ID can be appointed as an alternate director to an
independent director.
Retirement by
Rotation
• ID excluded from the Directors liable to retire by rotation
Transitional
Provision
• 1 year
AKG
92


Independent Directors liable only in respect of such acts or
omission / commission which had occurred with his knowledge
attributable through Board processes and with his consent or
connivance or where he had not acted diligently
Selection of IDs maybe from a data bank maintained by a body to
be notified by CG
• Responsibility of Company to do the Due Diligence before making final
appointment
AKG
93


•
•
•
•
•
•
First meeting of BOD - within 30 days of incorporation
Time gap between 2 consecutive meetings not to exceed 120 days
Participation in BOD meeting allowed through Video Conferencing
(VC) or other audio visual means
Matters Not to be dealt by VC: Approval of final Accounts, board
Report, Prospectus, Merger etc. and Audit Committee meeting for
Accounts
7 days’ notice for BOD meeting
BOD meeting may be called at a shorter notice to transact urgent
business, if at least 1 ID is present at such meeting.
 Decision taken at such meeting in absence of an ID is final only
on ratification thereof by at least 1 ID
AKG
95

•
•
•
Quorum
The quorum for BOD meeting is 1/3rd of its total strength or 2
directors, whichever is higher
Participation of directors by VC or other audio visual means
also to be counted for the purposes of quorum
Where at any time the number of interested directors is 2/3rd
or more of the total strength of the BOD, the number of
directors who are not interested directors and present at the
meeting, being not less than 2, shall be the quorum
AKG
96


Audit
Committee
CSR
Committee
BOARD
COMMITTEES
Nomination &
Remuneration
Committee
Stakeholders
Relationship
Committee
AKG
98

•
•

Applicability
Every Listed Company
Every other Public company:1. Having paid up capital of Rs. 10 crores or more; or
2. Which have in aggregate, outstanding loans or borrowings
or debentures or deposits exceeding Rs. 50 crores
3. Having Turnover of Rs. 100 crore or more
Constitution
Shall consist of a minimum of 3 directors with Independent
directors forming a majority.
AKG
99

Role and Responsibility
•
To recommend appointment and remuneration of auditors
To review and monitor the auditor’s independence and
performance and effectiveness of audit process
To examine financial statement and the auditors’ report
To approve or modify any related party transactions
To scrutinize inter-corporate loans and investments
To value undertakings or assets of the company
To evaluate internal financial controls and risk management
system
To monitor the end use of funds through public offers, etc.
•
•
•
•
•
•
•
AKG
100
Applicability: (sec 135)

For all companies having:
• net worth of Rs. 500 crores or more; or
• turnover of Rs.1,000 crores or more; or
• net profit of Rs.5 crore or more during any Financial Year.

Constitution:
Minimum 3 directors of which at least 1 shall be ID
Role & Responsibility:

•
•
•
To formulate and recommend to BOD, a CSR policy for undertaking
permissible activities.
To recommend the amount of expenditure to be incurred on CSR activities.
To monitor the CSR Policy.
AKG
101






Now, appointment to be done once for 5 years from conclusion
of that meeting (counted as first) to conclusion of sixth AGM
Ratification to be done every year by ordinary resolution. If
not ratified Board shall appoint another auditor
Mandatory retirement after 5 years in case of individual and 10
years in case of firms
Rotation applicable to all listed companies and: following
class of companies, excluding OPC and Small companies – (a)
Public Companies paid up capital 10 crores or more;
(b) Private companies paid up capital 20 crores or
more ; (c) Companies below aforesaid threshold but
having public borrowingsAKGRs. 50 crore or more
103



Transition provision  to comply within 3 years
Rotation applicability –rules require:
• Retrospective application – period before commencement
to be counted
• Incoming auditor/audit firm if in same network of audit
firm shall not be eligible
• Break of continuous Five years required for reappointment
• Partner in-charge and signed FS of the company if partner
in another firm, such firm shall also be ineligible
• In case Joint Auditors the rotation may be in manner that
both do not complete term in same year
Company (members) can alsoAKGdecide that audit partner or team
104
be rotated at regular intervals or joint auditor be appointed
 Audit Committee or the Board shall consider qualifications
and experience of proposed auditor in commensurate to the
size and requirements of the company
 Shall consider pending proceedings against the auditor relating
to professional conduct before ICAI or another authority
 Appointment on recommendation of Audit Committee / Board
 Incoming Auditor to submit certificate that –
(a) Eligible for appointment and not disqualified under the Act,
CA Act and rules and regulations thereunder
(b) Proposed appointment is as per terms under the Act
(c) Proposed appointment is with in limits laid down in the Act
AKG
105
(d) List of proceedings against the firm disclosed is correct




The Notice to Registrar about Appointment of Auditor shall be
in Form ADT-1 with in 15 days of the meeting appointing
CAG to appoint auditor in Government companies with in 180
days of beginning of financial year, who shall hold office till
conclusion of AGM
First Auditors to be appointed by Board with in 30 days of
incorporation, if not – to inform members who shall appoint
with in next 60 days in EGM
Casual vacancy to be filled by Board with in 30 days. In case
of resignation by members in EGM with in 3 months and to
hold office till next AGM
AKG
106

Maximum number of companies in which a person can be
appointed auditor is 20 companies (includes public and
private).
Audit of SFS and CFS to be counted separately?
•
Some statistics (As per MCA/ICAI)

Number of Companies In India
Active Companies
10,66,102
7,05,699
Number of CAs required
35,285
CAs in full-time practice
98,863
Ratio of requirement to availability
2.80 times
Ratio of requirement to availability (if all
companies considered)
AKG
1.85 times
107
Eligibility for appointment as auditor:
 Individuals who should be a Chartered Accountant
 A firm with majority of partners practicing in India. Only CA
Partners shall be eligible to sign
 Limited Liability Partnership (LLPs) if it meets the criteria
similar to the firm.
AKG
108
Disqualification:
The following persons are disqualified for appointment as
auditor :
• A body corporate
• An officer or employee of the company
• A person who is a partner, or who is in the employment of an
officer or employee of the company
AKG
109
Disqualification:
 Holding of Security  A person who or his relative or partner holds
any security or interest in the company, its subsidiary, holding or
associate company or subsidiary of such holding company (relative
allowed to hold security of FV up to an amount of Rs. 1 lakh).
Corrective action may be taken with in 60 days by auditor
 Indebtedness  A person or his relative or partner is indebted to the
company its subsidiary, holding or associate company or subsidiary
of such holding company in excess of Rs. 5 lakh
 Also applicable to guarantee given or security provided in
connection of indebtedness of third person in excess of Rs. 1 lakh
AKG
110



Business Relationship  A person or firm not eligible if it directly or
indirectly, has business relationship with the company, its subsidiary,
holding or associate company or subsidiary of such holding company or
associate company.
• Business relationship defined as any transaction for commercial
purpose - except those (a) in the nature of professional services
permitted to be rendered by an auditor; (b) in the ordinary course of
business of the company at arm’s length price- like sale of products
or services to the auditors as customers in the business of
telecommunications, airlines, hospitals, hotels and similar businesses
Relative’s employment  A person whose relative is a director or is in
employment of the company as a director or KMP.
Fraud  A person convicted by a court of an offence involving fraud
and 10 years have not been lapsedAKG
from the date of such conviction 111
Besides audit, only such services can be provided as approved by
Board of Directors or Audit Committee.
The following services are however specifically not permitted:
•
Accounting and book keeping services;
•
Internal audit;
•
Design and implementation of any financial information
system;
•
Actuarial services, Investment advisory / banking services;
•
Outsourced financial services and
•
Management services,
•
Other kind of services to be prescribed
AKG
112

Restrictions apply to Audit firm, its partners, its parent,
subsidiary or associate company or any other entity in
which the firm or any of its partner has significant
influence / control or whose name / trade name / brand is
used by the firm or any of its partners.

IFAC Code of Ethics defines ‘management services’ as
‘assistance for carrying out such services for the company
which are the responsibilities of the management’.
AKG
113
Transition provision: If the prohibited services are being rendered
auditor needs to comply before the end of the first financial year
after enactment of the Act
Some Issues
• Whether tax representation services covered by above
restriction?
• Whether restriction applies to subsidiaries outside India?
• Whether ICAI networking guidelines need to be modified?
AKG
114

Auditor appointed may be removed from his office before
expiry of his term:
• By passing a special resolution at the general meeting, and
• After obtaining previous approval of the Central Government. To apply
in Form ADT-2 with in 30 days of Board Meeting


An auditor who has resigned from the company has to file a
statement in Form ADT-3 indicating reasons and other facts
with regard to his resignation within 30 days with Company
and registrar.
NCLT may direct change of auditors, if it believes that :
•
•

Auditor has acted in a fraudulent manner, or
Abetted or colluded in any fraud in relation to the company or its
directors or officers
NCLT may pass the order suo-moto,
or on application of
AKG
115
AUDIT
REPORTING
AKG
116
Additional Requirements
• Observations or comments on financial transactions or matters having
adverse effect on the company’s functioning (No need to report this in
thick bold & italics)
• Whether the company has adequate internal financial controls in place
and operative effectiveness of such controls;
• If any frauds against the company by any of its officers, or employees,
are noticed by the auditor, the auditor shall report the same to the CG,
within such time / manner as may be laid by rules (see next slide)
• Other matters as may be prescribed:
Auditing Standards to be followed as formulated by ICAI and notified by
NFRA
AKG
117
Additional Requirements …
Other matters prescribed as per draft rules:
• Whether the company has disclosed the effect, if any, of pending litigations
on its financial position;
• Whether the company has made provision, as required under any law or
accounting standards, for material foreseeable losses, if any, on long term
contracts including derivative contracts;
• Whether there has been a delay in depositing money into the Investor
Education and Protection Fund by the company
• Reporting similar to CARO will also be notified later u/s 143(11)
Audit Reporting under Companies Act, 2013 and requirements of SA 700 series
will ensure that audit reports are at least 5-7 pages long –
AKG
118
Reporting for Fraud
In case auditor has sufficient reason and information to believe that an
offence involving fraud which is likely to materially affect the company,
is being or has been committed against the company by officers or
employees of the company, report to be given to CG immediately (but
not later than 60 days) after obtaining comments of Audit Committee or
Board in Form ADT-4 addressed to Secretary, MCA
 Materially defined to mean:
• Fraud(s) that is/are happening frequently;
• Fraud(s) where the amount involved or likely to be involved is not less
that 5 % of net profit or 2 % of turnover of the company for preceding
financial year
AKG
119
Reporting for Fraud: …
 In cases where the fraud(s) is not material, report to be given to the
audit committee or Board
 The Audit Committee or Board has to give reply to auditors in writing
about the steps taken to address the fraud(s) including systemic issues
 If auditor not satisfied with the above action, he can report to CG also
AKG
120

Access to books of accounts kept at registered office and at
any other place in India.

Compulsory attendance of Auditor at every AGM

Auditor of holding company shall also have the right of access
to the subsidiaries’ books of accounts so far as it relates to the
consolidation. No such provision currently.
•
This right will be very useful in cases where the subsidiaries’ operations
are substantial in the Consolidated results of the company.
AKG
121
o Auditor is now:
• Watchdog for Management
• Blood Hound for Government !!
• Whistle blower for public
o India will also become a strong contender for the
world record on length of audit reports !!
AKG
122
PENAL
PROVISIONS
AKG
123


For any contravention regarding appointment / rotation,
powers / duties, prohibited services  fine of 25,000 to 5
lakhs
For willful contraventions,
• Fees received to be refunded
• Imprisonment and fine of 1 lakh to 25 lakhs
• Liable for damages to company, statutory authorities and other persons
for loss arising out of incorrect or misleading statements


For audits carried out by a firm, if it is proved that any
partner/s has acted in fraudulent manner, the above liability
shall be joint and several.
In case of criminal liability, liability other than fine, only on
concerned partner who abetted or colluded in fraud
AKG
124

Action by NFRA
• Suo-moto action can be taken against firm / member
• Penalty – for individuals 1 lakh to 10 times fees received. For
firms – 10 lakhs to 10 times fees received
• Debarring member or firm from practice for 6 months to 10 years


Class Actions: members or depositors or any class of them
can claim damages or compensation for improper and
misleading statements
Currently, company is liable u/s 232 for a fine upto Rs.5,000,
and the auditor is liable u/s 233 for a fine upto Rs 10,000.
AKG
125
 Currently,
CARO requires an auditor to comment on internal audit
system being commensurate with the size and nature of business
for specified cos.
 As per Act, prescribed companies shall be required to appoint an
Internal Auditor.
 Companies prescribed are:
o Listed
o Public - with paid up capital > 50 crores, turnover > 200 crores, borrowing
> 100 crores
o Private- with turnover > 200
banks/FIs/deposits > 100 crores
 Internal
crores
or
o/s
borrowings
from
auditor shall be a chartered accountant or a cost
accountant or such other professional as may be decided by the
Board – Audit Committee or Board to decide manner, scope,
AKG
126
periodicity, methodology








NFRA will be a quasi-judicial body
To oversee compliance of accounting and auditing standards
To oversee quality of service of professionals associated with
preparation of financial statements
As a quasi judicial body – complete with Appellate Authority, has
powers of a civil court
Professional misconduct of CAs also comes under NFRA
Is the role of ICAI now restricted to?
• To conduct Exams and
• To hold CPE programs
• To formulate AS / Ind AS and SA (subject to NFRA approval
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129
As per Draft Rules:
 Stringent terms for appointment of members of NFRA
 NFRA will have 3 committees – Committee on AS, Committee on SA
and Committee for Enforcement
 Power to conduct investigations or quality reviews against audit firms
which conducts:
• audit of 200 companies or more in a year;
• audit of 20 or more listed companies;
• company or companies (including listed company or companies),
having net worth > 500 crores or paid up capital > 500 crores or
annual turnover > 1,000 crores as on 31st March of immediately
preceding financial year ; or
• company or companies having securities listed outside India
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






Increased focus on role of auditor in recent times
Companies Act 2013 lays done several additional restrictions,
responsibilities and penalties for an auditor etc. (including class
action suits)
Audits are becoming very challenging
Adequate and advance planning necessary
All firms esp. Small and Medium sized firms will have to fast
gear up for Rotation and other additional responsibilities
Globally also, auditor role and reporting is undergoing a change
If proper audits not done, auditor will have to face FRRB, QRB,
NFRA, ICAI, MCA, Class Action Suits, etc.
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NFRA
Fraud
Reporting
Mandatory
Rotation
Maximum
audits - 20
Restricted
scope of
services
Increased
Penalties
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

Where valuation is required to be made under the Act, in respect of any
property, stocks, shares, debentures, securities or goodwill or other assets
or of net worth of a company or its liabilities, such valuation shall be done
by a registered valuer
Scope
 Any valuation under the Companies Act 2013 to be done by registered
valuer. Illustratively;
• Valuation of further issue of shares
• Valuation of properties / assets of the company for non cash consideration
• Valuation report in respect of shares, properties etc. for compromise and
arrangement
• Valuation for purposes of minority squeeze out
• Voluntary winding up – valuation of assets
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As per Draft Rules following persons are the registered valuer:
a) CA / CS / Cost Accountant in whole time practice or any other person
holding qualification as MCA may recognize
b) Merchant Banker registered with SEBI
c) Member of Institute of engineers in whole time practice
d) Member of Institute of architects in whole time practice etc.
Person referred to in (a) and (b)  Financial Valuation
Person referred to in (c) and (d)  Technical Valuation
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

Additional disclosures:
• Extract of the Annual Return in Form MGT 9
• Number of meetings of BoD,
• Listed and prescribed class of companies - Policy on directors appointment,
remuneration and annual evaluation of the performance of the BOD,
committee and individual directors, Statement on declaration given by ID,
• Related party contracts, certain loan / guarantees / investments in Form
AOS-2;
• Development and implementation of a Risk Management Policy and CSR
• For listed Company statement for laid down internal financial controls and
that such internal financial controls are adequate and were operating
effectively
• For all companies – System for ensuring compliance with all applicable
laws
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As per Rules, to also include:
• Boards Report on Stand alone Financial Statement and separate section
for performance and financial position of subsidiaries, associates and
joint ventures
• Conservation of Energy, Technology Absorption, Foreign Exchange
earnings and Outgo, CSR policy
As per SA 720 ‘Auditors’ Responsibility in relation to other information in
documents containing audited financial statements’, Information contained
to Directors Report needs to be cross verified with Financial Statements
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

Annual Return Sec(92) in Form MGT 7: Additional information
required:
•
Principal Business Activities
•
Particulars of its holding, subsidiary and associate companies;
•
Certification of compliances;
•
Remuneration of directors and key managerial personnel;
•
Meetings of members or a class thereof, Board and its various
committees along with the attendance details;
•
Penalty or punishment imposed on the company, its directors or
officers and details of compounding of offences and appeals made
against such penalty or punishment;
•
Matters relating to certification of compliances, disclosures as may be
prescribed;
•
Details, as may be prescribed, in respect of shares held by or on
behalf of the Foreign Institutional Investors indicating their names,
addresses, countries of incorporation, registration and percentage of
shareholding held by them;
•
such other matters as may be prescribed
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•
•
Annual return of listed and companies with paid up
capital > 10 crores or turnover > 50 crores to be
certified by Company secretary in Form MGT- 8
Changes of more than 2% in holding of promoters
and top ten shareholders in listed companies to be
reported in Form MGT -10 with in 15 days of such
change
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Annual General Meeting (AGM) Sec (96)
First AGM of a company shall be held within 9 months
from the closure of its first financial year instead of 18
months as currently prescribed.
In other cases with in six months of accounts closing
and gap between two meetings not more than 15
months
Report on AGM Sec(121)
Listed public companies has to prepare and file a report
in Form MGT 15, on each AGM including the
confirmation that meeting was convened, held and
conducted as per the Act and the Rules made
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thereunder.
•
•
•
Resolutions Requiring Special Notices Sec(115)
Special notice to move a resolution can be moved by:such number of members holding not less than 1% of total
voting power
OR
holding shares on which such aggregate sum of not less
than Rs 5 lakh has been paid-up.
Currently, there was no such requirement in the Act.
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•
Quorum for meeting Sec(103)
In case of a meeting of a public company the act provides
for following quorum:
No. of members as on date
of meeting
Quorum
Upto 1,000
5 members personally present
More than 1,000 but upto
5,000
15 members personally present
Exceeding 5,000
30 members personally present
Currently, the quorum was 5 persons irrespective of number of
shareholders.
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

• Several changes in M&A provisions
• In most cases, permissions of High Court dispensed with and
NCLT given those powers
• Application
for compromise or arrangement involving
corporate debt restructuring to include report by auditor that
its fund requirements after debt restructuring will conform to
the liquidity test based on estimates provided by the Board.
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As per Companies Act, 1956
INDIAN COMPANY
FOREIGN
COMPANY
MERGER
As per Companies Act, 2013
INDIAN COMPANY
FOREIGN
COMPANY
MERGER
NOTE:- The above Merger/ Amalgamation is subject to RBI approval, both
inbound and outbound between Indian and foreign companies.
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•
•
Fast Track Mergers:
•Fast Track merger permissible between small companies
and between holding and WOS without the approval of
NCLT. This will facilitate quicker internal reorganization.
Treasury Stock:
Holding of shares in its own name or in the name of trust
whether through subsidiary or associate companies by the
transferee company as a result of the compromise or
arrangement will not be allowed and any such shares shall
be cancelled / extinguished
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Merger of listed company into unlisted company.
• Merger of Listed Company into Unlisted Company will
not automatically result in listing of Transferee company.
•
•
Parent / promoter will get opportunity to increase their
stake in unlisted companies where they hold substantial
holding by purchasing stake of minority shareholders at
fair value determined by the RV
Merger of listed transferor co into unlisted transferee co there is an option to the transferee co to continue as an
unlisted co.
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•
Application to be made and scheme filed with NCLT for:
o Reduction of share capital;
o Compromise / arrangement with creditors and members;
o Merger/amalgamation of companies
•
Prohibition on making investments through more than two layers
of investment cos
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
Application for compromise or arrangement involving Corporate
Debt Restructuring (CDR) to include:
 Valuation report on its shares and assets
 Report by auditor that its fund requirements after debt
restructuring will conform to the liquidity test based on
estimates provided by the Board
Clear
provision that no scheme will be allowed by NCLT unless the
same is in compliance with notified AS (including unlisted
companies)
 Certificate to be filed by auditor for the same
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

Only persons holding not less than 10% of the shareholding or
having outstanding debt not less than 5% of the total outstanding
debt - can raise objections to the scheme.
(Currently any shareholder, creditor or other interested person can
raise objection)
Tribunal may dispense with calling of a meeting where creditors or
class of creditors, having 90% in value, agree and confirm, by way
of affidavit, to the scheme.
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
The illiterate of the 21st century will not be those who cannot
read and write, but those who cannot

It is not the strongest of the species that survive, nor the
most intelligent, but the one most responsive to change.
Charles Darwin
 If
you don't have a strategy, you're part of someone
else's strategy.
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Alvin Toffler
[email protected]
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