Transcript Recent amendments in companies act 2013

RECENT AMENDMENTS IN
COMPANIES ACT 2013
COMPANIES ACT 2013 SO FAR
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The Companies Act 2013 got assent of the President of
the country on 29th August, 2013.
The Companies Act, 2013 Published in the Official
Gazette of India. The Act consists of 29 chapters, 470
Sections with 7 Schedules
98 Sections of the Act were notified and made
applicable by the Ministry of Corporate Affairs on 12th
September, 2013
Section 135 (Corporate Social Responsibility) was
notified on 27th February, 2014
CONTD….
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Further 183 sections of the Act were notified on 26th
March’ 2014 and made applicable from 1st April, 2014
A total of 283 sections are notified as of date.
DRAFT NOTIFICATION FOR GIVING EXEMPTION TO
PRIVATE COMPANIES DATED 24.06.2014
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The Ministry of Corporate Affairs exposed a draft
Notification to give exemption to private companies
which is placed before the Parliament and is expected to
be passed after the Budget session is over. The following
exemptions to private companies are being included in
the Draft Notification:
Provisions of Section 2 (76) (vii) – any person on whose
advice, directions or instructions a director or manager is
accustomed to act.
 Section 62- Further issue of share capital proviso has
been added to smoothen the issue.
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Section 73 (2) related to acceptance of depositsshall apply to private company from its members
monies not exceeding 100% of the aggregate paid
up share capital and reserves
 Cap on number of audits (Section 141 (3) (g))
 Provisions of Section 160- relating to Right of
persons other than retiring directors to stand
for directorship
 Provisions
of
Section
180relating
to
Restrictions on powers of Board.
 Provisions
of
Section
162relating
to
Appointment
of
directors
to
be
voted
individually.
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Provisions of Section 184 shall apply with
the exception that interested director may
participate in such meeting where the
contract or arrangement where the director
is interested are discussed, after disclosing
his interest.
CONTD……
Provisions of Section 185 shall not apply to a
private company:
 In whose share capital another body corporate
has invested any money;
 If the borrowings of such a company from banks
or financial institutions or any body corporate is
less than twice of its paid share capital or fifty
crore rupees, whichever is lower;
 Such a company has no default in repayment of
such borrowings subsisting at the time of
transactions under this Act.
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CONTD….
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Second proviso to Section 188- Related
party TransactionProvided further that no member of the
company shall vote on such resolution, to
approve any contract or arrangement
which may be entered into by the company,
if such a member is a related party.
DEFINITION OF SECTION 2 (76)- RELATED
PARTY
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Section 470 invoked by (Companies
Removal of Difficulties) Fifth Order, 2014
dated 09.07.2014 for Removal of difficulty.
The word “AND” has been inserted in place
of ‘OR’
OPTION TO USE DIFFERENT USEFUL LIFE
MCA vide its Notification dated 29.08.2014 has
provided for justification for taking different
useful life.
 (i) The useful life of an asset shall not ordinarily be
different from the useful life specified in Part C and the
residual value of an asset shall not be more than five per
cent. Of the original cost of the asset:
 Provided that where a company adopts a useful life
different from what is specified in Part C or uses a
residual value different from the limit specified above,
the financial statements shall disclose such difference
and provide justification in this behalf duly supported by
technical advice".
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REPORTING ON INTERNAL FINANCIAL
CONTROL U/S 143 (3) (I)
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Ministry of Corporate Affairs has amended Rules vide
Amendment dated 14.10.2014 for Chapter 10 (Audit and
Auditors) of the Companies Act, 2013 and Reporting on
Internal Financial Control u/s 143 (3) (i) of the
Companies Act, 2013 has been deferred for one year i.e.,
upto 31.03.2015. The auditor shall report on the
existence of adequate internal financial control and
its operational effectiveness for the financial years on or
after 01.04.2015.
The auditor may voluntarily report for the year from
01.04.2014 to 31.03.2015.
EXEMPTION FROM PREPARATION OF
CONSOLIDATED FINANCIAL STATEMENT
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Ministry of Corporate Affairs has amended Rules vide
Amendment dated 14.10.2014 for Chapter 9 (Accounts of
Companies) of the Companies Act, 2013 and Exemption
has been provided from preparation of Consolidated
Financial Statement by an Intermediate wholly owned
subsidiary, other than a wholly owned subsidiary whose
immediate parent is incorporated outside India.
Further, any company that does not have subsidiary but
have one or more associates and joint ventures is not
required to prepare Consolidated Financial Statements
for the current financial year ending on 31.03.2015.
COMPANIES AMENDMENT BILL 2014
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Companies Amendment Bill 2014 was passed by the
Lok Sabha and is pending before the Rajya Sabha.
Following are the sections that have been included in
the Companies Amendment Bill, 2014:
Requirement of Minimum capital by a private
company and public company would be prescribed in
the Rules.
 Common Seal is now option.
 Punishment for contravention of Section 73 or Section
76 related to acceptance of deposits in contravention
of the provisions- Fine of Rs. 1 crore to Rs. 10 crore.
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Resolutions and Agreements to be filed (Section
117)- Prohibits public inspection of Board Resolution
filed with the Registrar.
Declaration of Dividend (Section 123)- Includes
provision for writing off past losses/ depreciation before
declaring dividend for the year.
Financial Statement, Board's report, etc. (Section
134)- Incorporates enabling provisions to prescribe that
the fraud that the auditor reports to the Audit
Committee or the Board, the same shall be reported in
the Board's Report;
CONTD…
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Powers and Duties of Auditors and Auditing
Standards- Reporting of Fraud by an Auditor
(Section 143 (12))- Incorporates enabling provisions
to prescribe thresholds beyond which fraud shall be
reported to the Central Government (below the
threshold, it will be reported to the Audit Committee).
Audit Committee (Section 177)- Provides provision
empowering Audit Committee to give omnibus
approvals for related party transactions on annual
basis
CONTD….
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Loan to Directors, etc. (Section 185)- Exemption
to be provided to the following transactions- any
loan made by a holding company to its wholly owned
subsidiary company or any guarantee given or security
provided by a holding company in respect of any loan
made to its wholly owned subsidiary company; or
any guarantee given or security provided by a holding
company in respect of loan made by any bank or
financial institution to its subsidiary company:
Provided that the loans made under clauses (c) and (d)
are utilised by the subsidiary company for its principal
business activities.
CONTD….
Related Party Transactions (Section 188)Replaces 'special resolution' with 'resolution' for
approval of related party transactions by non-related
shareholders.
 Also, Exempts related party transactions between
holding companies and wholly owned subsidiaries
(WOS) from the requirement of approval of nonrelated shareholders‘
 Investigation
into affairs of company by
Serious Fraud Investigation Office (Section
212)- Provides for bail restrictions to apply only for
offence relating to fraud u/s 447, other offences are
bailable
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AMENDMENTS IN SECTION 186
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Ministry of Corporate Affairs has issued Companies
Removal of Difficulty Order, 2015 dated 13th
February, 2015 for addressing the following issue:
1. Regarding qualifying criteria to become small
company, Now to become a small company both the
criteria of paid up share capital and turnover are
required to be met.
2. Providing exemption to a banking company or an
insurance company or a housing finance company for
making acquisition of securities in its ordinary
course of business as per Section 186 (11) (b)
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MCA vide Circular dated 03.03.2015 has issued a
Clarification relating to filing of e-form DIR-I1 &
DIR-12 under the Companies Act, 2013.
MCA vide Circular dated 10.03.2015 has issued a
Clarification with regard to section 185 and 186
of the Companies Act, 2013 - loans and advances
to employees
AMOUNTS RECEIVED BY PRIVATE COMPANIES
PRIOR TO 01.04.2014 ARE EXEMPT
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MCA issued a Circular dated 30.03.2015 and
clarified that amounts received by private companies
from their members, directors or their relatives prior
to 01.04.2014 shall not be treated as deposits under
the Companies Act 2013 and Companies (Acceptance
of Deposits) Rules, 2014 subject to the condition that
relevant private company shall disclose, in the notes
to its financial statement for the financial year
commencing on or after 1st April, 2014 the figure of
such amounts and the accounting head in which
such amounts have been shown in the financial
statement.
AMENDMENTS
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MCA has amended Rules of Chapter V dated
31.03.2015 for returning share application money
pending allotment by 1st June, 2015 and Companies
may accept deposits without deposit insurance
contract till 31.03.2016
Every eligible company shall obtain, at least once in
a year, credit rating for deposits accepted by it in the
manner specified herein below and a copy of the
rating shall be sent to the Registrar of companies.
CLARIFICATION REGARDING LOANS AND
ADVANCES TO EMPLOYEES
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MCA vide Circular dated 09.04.2015 has issued a
Clarification under sub-section (7) of section 186 of the
Companies Act, 2013- Loans and/or advances made by
the companies to their employees, other than the
managing or whole time directors (which is governed
by section 185) are not governed by the requirements
of section 186 of the Companies Act, 2013. This
clarification will be applicable if such loans/advances
to employees are in accordance with the conditions of
service applicable to employees and are also in
accordance with the remuneration policy, in cases
where such policy is required to be formulated
CLARIFICATION WITH REGARD TO PAYMENT
OF MANAGERIAL PERSON
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MCA vide Circular dated 10.04.2015 has issued a
Circular related to Remuneration to managerial
person under Schedule XIII of the Companies Act,
1956 - Clarification with regard to payment for
period.- Managerial person appointed as per
Schedule XIII of the companies Act 1956 may
continue to receive remuneration as per the
provisions of Schedule XIII of the companies Act
1956 for the remaining period of tenure which falls
after 01.04.2014
COMPANIES AUDITOR’S REPORT ORDER
2015
MCA vide Removal of difficulty order dated 10th
April, 2015 has issued Companies Removal of
Difficulty Order, 2015 and prescribed for the following
points:
 It shall apply to every company including a foreign
company as defined in clause (42) of section 2 of the
Companies Act, 2013 (18 of 2013) [hereinafter referred
to as the Companies Act, except - (i) a banking
company as defined in clause (c) of section 5 of the
Banking Regulation Act, 1949 (10 of 1949); (ii) an
insurance company as defined under the Insurance
Act,1938 (4 of 1938):
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(iii) a company licensed to operate under section 8 of the
Companies Act; (iv) a One Person Company as defined
under clause (62) of section 2 of the Companies Act
and a small company as defined under clause (85) of
section 2 of the Companies Act; and (v) a private
limited company with a paid up capital and reserves
not more than rupees fifty lakh and which does not
have loan outstanding exceeding rupees twenty five
lakh from any bank or financial institution and does
not have a turnover exceeding rupees five crore at any
point of time during the financial year.
CONTD..
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Every report made by the auditor under section 143 of
the Companies Act, on the accounts of every company
examined by him to which this Order applies for the
financial year commencing on or after 1st April, 2014,
shall contain the matters specified in paragraphs 3
and 4.
MATTERS TO BE INCLUDED IN THE
AUDITOR'S REPORT
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The auditor's report on the account of a company to
which this Order applies shall include a statement on
the following matters, namely:- (i) (a) whether the
company is maintaining proper records showing full
particulars, including quantitative details and situation
of fixed assets;
(b) whether these fixed assets have been physically
verified by the management at reasonable intervals;
whether any material discrepancies were noticed on
such verification and if so, whether the same have been
properly dealt with in the books of account;
CONTD..
(ii) (a) whether physical verification of inventory has
been conducted at reasonable intervals by the
management;
 (b) are the procedures of physical verification or
inventory followed by the management reasonable and
adequate in relation to the size of the company and the
nature of its business. If not, the inadequacies in such
procedures should be reported;
 (c) whether the company is maintaining proper records
of inventory and whether any material discrepancies
were noticed on physical verification and if so, whether
the same have been properly dealt with in the books of
account;
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(iii) whether the company has granted any loans, secured
or unsecured to companies, firms or other parties covered
in the register maintained under section 189 of the
Companies Act. If so, (a) whether receipt of the principal
amount and interest are also regular; and (b) if overdue
amount is more than rupees one lakh, whether
reasonable steps have been taken by the company for
recovery of the principal and interest;
 (iv) is there an adequate internal control system
commensurate with the size of the company and the
nature of its business, for the purchase of inventory and
fixed assets and for the sale of goods and services.
Whether there is a continuing failure to correct major
weaknesses in internal control system..
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(v) in case the company has accepted deposits, whether
the directives issued by the Reserve Bank of India and
the provisions of sections 73 to 76 or any other relevant
provisions of the Companies Act and the rules framed
there under, where applicable, have been complied with?
If not, the nature of contraventions should be stated; If
an order has been passed by Company Law Board or
National Company Law Tribunal or Reserve Bank of
India or any court or any other tribunal, whether the
same has been complied with or not?
(vi) where maintenance of cost records Government
under sub-section (1) of section been specified by the
Central of the Companies Act, whether has 148 such
accounts and records have been made and maintained:
CONTD….
(vii) (a) is the company regular in depositing
undisputed statutory dues including provident fund,
employees‘ state insurance, income-tax, sales-tax,
wealth tax, service tax, duty of customs, duty of excise,
value added taxes, cess and any other statutory dues
with the appropriate authorities and ii not, the extent
of the arrears of outstanding statutory dues as at the
last day of the financial year concerned for a period of
more than six months from the date they became
payable, shall be indicated by the auditor.
 (b) in case dues of income tax or sales tax or wealth tax
or service tax or duty of customs or duty of excise or
value added tax or cess have not been deposited on
account of any dispute, then the amounts involved and
the forum where dispute is pending shall be mentioned.
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(A mere representation to the concerned Department
shall not constitute a dispute).
 (c) whether the amount required to be transferred to
investor education and protection fund in accordance
with the relevant provisions of the Companies Act,
1956 (1 of 1956) and rules made thereunder has been
transferred to such fund within time.
 (viii) whether in case of a company which has been
registered for a period not less than five years, its
accumulated losses at the end of the financial year are
not less than fifty per cent of its net worth and
whether it has incurred cash losses in such financial
year and in the immediately preceding financial year;
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(ix) whether the company has defaulted in repayment
of dues to a financial institution or bank or debenture
holders? If yes, the period and amount of default to be
reported:
 (x) whether the company has given any guarantee for
loans taken by others from bank or financial
institutions, the terms and conditions whereof are
prejudicial to the interest of the company;
 (xi) whether term loans were applied for the purpose
for which the loans were obtained;
 (xii) whether any fraud on or by the company has been
noticed or reported during the year; If yes, the nature
and the amount involved is to be indicated
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Reasons to be stated for unfavourable or qualified
answers. (1) Where, in the auditor's report, the answer to any of
the questions referred to in paragraph 3 is
unfavourable or qualified, the auditor's report shall
also state the reasons for such unfavourable or
qualified answer, as the case may be.
 (2) Where the auditor is unable to express any opinion
in answer to a particular question, his report shall
indicate such fact together with the reasons why it is
not possible for him to give an answer to such
question.
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