A Presentation by: Rajeev Goel - nirc@icai BY RAJEEV GOEL.pdf · THE COMPANIES ACT, 2013 A Presentation by: Rajeev Goel B Com (Hons), LLB, FCS, MIMA Corporate Lawyer 93124 09354 [email protected]

THE COMPANIES ACT, 2013

A Presentation by:

Rajeev Goel B Com (Hons), LLB, FCS, MIMA

Corporate Lawyer

93124 09354 [email protected]

mailto:[email protected]

The Companies Act, 2013

Overview of Changes

Accounts, Audit & Auditors

Annual Return

Board’s Report

14 May 2015 Rajeev Goel & Associates



Rules

Circulars

Notifications

Orders

Forms


Standards

• Accounting Standards • Auditing Standards • Secretarial Standards • Cost Auditing Standards • Valuation Standards


Salient Features

• Rules to play very important role

• Elaborate provisions on most of the matters

• Most of the provisions applicable to Private Co.


Salient Features

Provisions relating to Frauds

Wide powers of Central Government for Investigation

Measures for Investor Protections

Class Action Suites

Corporate Social Responsibilities


Salient Features

Stiff punishment provisions, fine and imprisonment

New provisions for Compounding

Specific Punishment provisions for Professionals

Strict provisions for Financial Transactions

Detailed disclosures


Compounding of offences

Offences punishable with fine only are compoundable;

By RD or such other officers where total fine is up to Rs. 5 lac

By Tribunal where total fine is more than Rs. 5 lac

No compounding pending Investigation


Compounding of offences

Offences punishable with fine or imprisonment, or with both may be compounded with permission of Special Court in terms of CrPC

Offences punishable with compulsory imprisonment are not compoundable


Punishment for repeated default

If same offence is committed for second or subsequent occasions within a period of 3 years;

Fine amount double,

In addition to imprisonment, if any


Promoter Promoter means a person: • Named in Prospectus or Annual Return;

• Has control over the affairs of the Company, directly or indirectly, whether as a Shareholder, Director or otherwise; or

• In accordance with whose advice, directions or instructions, the BOD is accustomed to act


Uniform Financial Year

Period ending on 31st March every year

In case of incorporation of a company on or after 1st January, first FY will end on 31st March of subsequent year

Exemption by the Tribunal on the basis of foreign holding/ subsidiaries

Existing Co.s to align within 2 years


Compulsory consolidation of accounts

Compulsory Consolidation of accounts of Subsidiary, Associate and JV Company

Provided further that nothing in Rule 6 shall apply in respect of preparation of consolidated financial statement by an intermediate WOS, other than a WOS whose immediate parent is a company incorporated outside India [Chapter 9, 1st Amendment]


Compulsory consolidation Provided also that nothing contained in this rule shall, subject to any other law or regulation, apply for the financial year commencing from the 1st April, 2014 and ending on the 31st March, 2015,

in case of a company which does not have a subsidiary or subsidiaries

but has one or more Associate Companies or Joint Ventures or both,

for the consolidation of Financial Statement in respect of Associate Companies or Joint Ventures or both, as the case may be [Chapter 9, 1st Amendment]


Compulsory consolidation

Provided also that nothing in this rule shall apply in respect of consolidation of Financial Statement by a Company having subsidiary or subsidiaries incorporated outside India only for the financial year commencing on or after 1st April, 2014 [Chapter 9, 2nd Amendment]


Holding/Subsidiary

Control over composition of the Board

Control over more than 50% of total Share Capital# (on its own or through one or more subsidiaries)

Restriction on layer of subsidiaries

# Paid-up Equity Capital and Convertible Preference Capital


Associate Company

A company in which that other company has a significant influence

‘significant influence’ means: control of at least 20% of total share capital; or

Control of business decisions under an agreement

Not a subsidiary company; and Includes a Joint Venture company


Joint Venture Company

Joint Venture Company not defined under the Act

AS 18 defines a Joint venture as “a contractual arrangement whereby two or more parties undertake an economic activity which is subject to joint control”


Re-opening of Accounts

Company not to re-open its books of accounts and not to re-cast its Financial Statements except

By an Order of the Court or Tribunal on application of Central Government, IT authorities or SEBI, etc., to the effect that:


Re-opening of Accounts

the relevant accounts were prepared in a fraudulent manner; or

the affairs of the company were mismanaged during the relevant period,

casting a doubt on the reliability of financial statements.


Voluntary Revision of Accounts

Revision of Financial Statement or Directors’ Report for last 3 FY, if these do not comply with sections 129 or 134;

Approval of the Tribunal compulsory;

Notice to Central Government and IT authorities, before passing any order

Detailed reason of revision to be given in the Directors’ Report


Voluntary Revision of Accounts

• If Financial Statement or Directors’ Report

• have been circulated to members or filed with ROC or laid before AGM,

• Revisions must be confined to:

• correction in respect of which the previous Financial Statement or Report do not comply with section 129 or 134; and

• Making of any necessary consequential alternation


Internal Auditor

Compulsory appointment

• Every Listed Company • Other Public Co. having:

• Paid-up Capital of Rs. 50 crore or more;

• Turn over of Rs. 200 crore or more;

• Loans from Banks/PFI Rs. 100 crore or more; or

• Deposits of Rs. 25 crore or more 14 May 2015 Rajeev Goel & Associates

Internal Auditor Compulsory appointment

• Private Co.:

• Turn over of Rs. 200 crore or more; or

• Loans from Banks/PFI Rs. 100 crore or more

• Existing Companies to comply within 6 months

• Audit Committee/Board to formulate scope & functioning, etc. of the internal audit


Internal Auditor

Internal Auditor will be a:

Chartered Accountant (whether in practice or not);

Cost Accountant; or

Such Other Professional as may be decided by the Board

May or may not be Company’s employee


Auditors’ Appointment

1st Auditor: By Board within 30 days from the date of incorporation

In case of failure, by EGM within 90 days

Subsequent Auditor: Appointment by AGM for a block of 5 years

Appointment to be ratified at every AGM by way of Ordinary Resolution

If not ratified, Board to appoint auditor [Rule 3/10]

Auditors’ Appointment

Casual vacancy: to be filled by the Board in 30 days;

In case of resignation, by EGM, within 3 months of recommendation by Board

Written Consent & Certificate from Auditors before appointment

Notice of Appointment: To be given by Company to Auditors and ROC within 15 days in ADT-1

Disqualification for Auditors

A body corporate; other than LLP

An Officer or Employee of Co.

Person who is a Partner or in employment of an Officer or Employee of the Co.


Person who, or his Relative or Partner is:

holding security or interest in the Co., subsidiary or holding co., etc. [In case of relative exceeding Rs. 1 lac and corrective action within 60 days]

Indebted to the Company, etc. in excess of Rs. 5 lac

Given a guarantee or provided security in excess of Rs. 1 lac


Person or Firm who, whether directly or indirectly, has business relationship with Co., its Subsidiary, Holding, Associate Co., or Subsidiary of such Holding or Associate Co.

“Business Relationship” shall be construed as any transaction entered into for a commercial purpose, except:

a. commercial transactions which are in the nature of professional services permitted to be rendered by an auditor


b. commercial transactions which are in the ordinary course of business of the company at arm’s length price - like sale of products or services to the auditor, as customer, in the ordinary course of business, by companies engaged in the business of telecommunications, airlines, hospitals, hotels and such other similar businesses.


Person whose relative is a director or KMP of the Co.

Person who is in full time employment elsewhere

Person holding appointment in more than 20 companies

Person convicted of an offence involving fraud and 10 years has not elapsed from conviction

Person whose subsidiary or associate company or any other form of entity, is engaged in consulting and specialised services as provided in section 144


• Where a person appointed as an Auditor of a company incurs any of the disqualifications mentioned in 141(3) after his appointment, he shall vacate his office as such auditor and

• such vacation shall be deemed to be a casual vacancy in the office of the auditor [Section 141(4)]

Auditors’ obligation

Auditors to comply with Auditing Standards

Auditors to attend all General Meetings unless exempt by Co.

Auditor to report to Central Government of any fraud by officer against the Co.

No breach of duty due to such reporting

Compulsory Rotation of Auditors

Not Applicable on OPC and SC

Applicable on the following:

Listed Co.

Other Public Co.: Paid-up Capital of Rs. 10 crore or more;

Private Company: Paid-up Capital of Rs. 20 crore or more;

Companies having borrowing from Bank/FI or Public Deposits of Rs. 50 crore or more



Individual Auditor: After one term of 5 consecutive years

Firm as Auditors: 2 terms of 5 consecutive years

5 years cooling off period

period prior to the commencement of new Act to be counted for compulsory rotation

Existing companies to comply within 3 years



Firm with Common Partner not to be appointed new Auditor

if a partner, who is in charge of an audit firm and also certifies the financial statements of the company, retires from the said firm and joins another firm, such other firm shall also be ineligible to be appointed for a period of five years



New Auditor not to be from the same network of Audit firm

“Same Network” includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control


Auditors not to render certain services

Auditors to provide other services to the Co. only with approval of the BOD/Audit Committee

Auditors not to render certain services, directly or indirectly, to the Company or its Holding or Subsidiary Co.

Auditor to comply before close of first FY after commencement of the Act



Prohibited Services:

1. Accounting and book keeping services

2. Internal Audit

3. Design and implementation of Financial Information System

4. Actuarial services

5. Investment Advisory Services



Prohibited Services:

6. Investment Banking Services

7. Rendering of Outsourced Financial Services

8. Management Services

9. Other services, as may be prescribed



Term “directly or indirectly” shall include rendering of services by the auditor,— in case of auditor being an individual, either himself or through his relative or any other person connected or associated with such individual or through any other entity, whatsoever, in which such individual has significant influence or control, or whose name or trade mark or brand is used by such individual;


Term “directly or indirectly” shall include rendering of services by the auditor,— in case of auditor being a firm, either itself or through any of its partners or through its parent, subsidiary or associate entity or through any other entity, whatsoever, in which the firm or any partner of the firm has significant influence or control, or whose name or trade mark or brand is used by the firm or any of its partners.

Resignation by Auditors

Auditors can resign from the Co. [Section 140]

Auditor to file a statement to the Co. and ROC in Form ADT-2 within 30 days

Failure will attract a file of Rs. 50,000 to Rs. 5 lac

Annual Filing


Annual Filings; The Companies Act, 2013

Provisions of the Companies Act, 2013 to apply on:

Preparation of Financial Statements for Financial Year commencing on or after 1st April, 2014

Board’s Report on such FS

Filing of such FS


Annual Return

• Section 92: Annual Return • Rule 11 of Chapter 7-the Companies (Management & Administration) Rules, 2014: Annual Return Form & Certification by PCS

• Rule 12/7: Extracts of Annual Return to be attached with Board’s Report


Annual Return

• Form MGT-7: Annual Return Form • Form MGT-8: Format for Certification of AR by PCS in case of specified Co.

• Form MGT-9: Extracts of AR to be attached to Board’s Report


Annual Return

Every Co. to prepare Annual Return:

• Particulars as on the close of the FY

• Changes since the close of the previous FY

• Annual Return as on 31.3.2015 to have detail from 1st April, 2014 to 31st March, 2015


Annual Return; Signing

In case of OPC and SC:

by CS; where there is no CS,

by a Director

Other than OPC & SC:

Both by a Director and CS; where there is no CS,

By a PCS


Annual Return; Certification

Compulsory Certification by PCS as per Form MGT-8

In case of Listed Co.; and

Other Co.s with

Paid up of Rs. 10 crore or more; or

Turnover of Rs. 50 crore or more


Annual Return Form; Disclosures

• Category & Sub-category of Co. • Regd. Office & Correspondence Address [e-mail of Dealing Officer]

• Particulars of RTA [e-mail of Dealing Officer of RTA]

• Principal Business Activities of the Co. (All business activities contributing 10% or more of the total turnover)



• Particulars of Holding, Subsidiary, Associate, JV Co.

• Particulars of Equity, Preference, Debentures & Other Securities & Securities Premium

• Turnover and Net worth • Shareholding Pattern

• Promoters • Non-promoters



Shareholding of Promoters including Share Pledge

Changes in Promoters’ Shareholding

Top 10 Shareholders other than Promoters, Directors, etc.

Shareholding of Directors and KMP



Indebtedness: Secured & Un-secured Loans, Deposits

Details of Members, Debenture or other Securities holders; and

Transfers since last close of previous FY



Details of

Promoters (Co.s and Individuals)

Directors

KMP

Other Directorships of Directors and Changes therein

Details of Meetings of Members, Board & its Committees detail of attendance and total Numbers, etc.



Remuneration of Directors and KMP

Values of Salaries and Perquisites given as per Section 17 of the Income Tax Act, 1961

Details of Penalties, Punishment and compounding of offences: Companies and Officers in default

Matters related to Certification of Compliances and Disclosure



Shares held by FII

CSR spend

Details of Inter Corporate Loans and Investments, RPT

Limits u/s 186(2) and 180(1)(c)

Confirmation for Disclosures of Interest by

Directors

Declaration by Independent Directors

Appointment of Auditors


Annual Return; Signing We certify that: a.The Return states the facts, as

they stood on the date of the closure of the financial year aforesaid correctly and adequately

b.The whole of the amount of unpaid/ unclaimed dividend/other amounts as applicable have been transferred to the IEPF in accordance with section 125 of the Act



c.The Company has maintained all the registers as per the provisions of the Act and the rules made there under; and

d.Unless otherwise anything in contrary is stated expressly elsewhere in this Return, the Company has complied with the applicable provisions of the Act during the financial year


Annual Return; Signing In case of Pvt Co.:

e.The Company has not, since the date of the closure of the last financial year with reference to which the last return was submitted or in the case of a first return since the date of the incorporation of the company, issued any invitation to the public to subscribe for any securities of the company


Annual Return; Signing f. Where the annual return discloses

the fact that the number of members, except in case of a one person company, of the company exceeds two hundred, the excess consists wholly of persons who under second proviso to section 2(68)(ii) of the Act are not to included in the reckoning the number of two hundred

g. The Company continues to be a Private Company during the financial year



In case of OPC or SC:

i.The Company continues to be One Person Company/Small Company


Annual Return; Filing

Annual Return to be filed with ROC:

• Within 60 days from the date of AGM

• If AGM is not held within statutory time period, within 60 days from the last date up to which AGM should have been held


Non filing of AR

In case of non-filing of AR:

• Company:

• Fine of minimum Rs. 50,000 and maximum Rs. 5 lac;

• Officer in Default:

• Imprisonment up to 6 months; or

• Fine of minimum Rs. 50,000 and maximum Rs. 5 lac; or

• with both

May 14, 2015 Rajeev Goel & Associates, Advocates

Default by PCS

Section 92(6)-If PCS certifies AR otherwise than in conformity of section 92:

• PCS shall be punishable with fine

• Minimum: Rs. 50,000;

• Maximum: Rs. 5 lac


Board’s Report


Board’s Report

• Section 134: Financial Statement & Board’s Report

• Rule 8 of Chapter 9-The Companies (Accounts) Rules, 2014: Matters to be included in Board’s Report

• Rule 9/9: CSR Disclosures in Board’s Report

• Disclosures under various provisions of the Act and Rules


Board’s Report

• Form AOC-2: Particulars of Related Party Transactions under section 188

• Form MGT-9: Extract of Annual Return

• Annexure to CSR Rules: CSR Policy and implementation, Composition of CSR Committee, Annual Report on CSR Activities


Board’s Report

• Disclosures in Board’s Report based on stand-alone Financial Statements of the Company

• In case of Consolidated Financial Statements: Report [in a Separate Section] on the performance and financial position of each of the subsidiaries, Associates and Joint Venture Companies included in the CFS


Board’s Report; Disclosures

Stand-alone Financial Statements of the Company [section 134(3)]:

• Financial Highlights

• State of Companies Affairs

• Change in Nature of Business of the Company, if any

• Material Changes and Commitments affecting the Financial Position of the Company after Balance Sheet Date



Proposed Dividend

Transfer to Reserves

Requisite detail of Energy Conservation, Technology Absorption, Foreign Exchange Earnings & Outgo as per Rule 8/9

Risk Management Policy

Details in respect of adequacy of Internal Financial Controls with reference to the Financial Statements


Directors’ Responsibility Statement

AS were followed

Selection of Accounting Policies as to give true and fair view

Maintenance of Accounting Records

Going Concern basis

Internal Financial Control, in Listed Co.

Directors’ Responsibility Statement

The Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and such systems were adequate and operating effectively

Board’s Report; Disclosures Explanation on Qualifications,

Reservation, adverse remark or disclaimer made in:

Auditor’s Report ; and

Secretarial Audit Report

No. of Board Meetings

Statement on Independent Directors’ Declaration

In case of Nomination and Remuneration Committee, Co’s Policy on Directors’ Appointment & Remuneration, etc.



Statement on evaluation of performance of the Board, its Committees and individual Directors*

Appointment and Resignation of Directors and KMP

Names of companies which have become or ceased to be its Subsidiaries, Associate or Joint Venture Companies during the year



Details of significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and Company’s operations in future

Requisite detail of Deposits covered under Chapter V of the Act

Detail of Deposits which are not in compliance with Chapter V of the Act

Particulars of Loans & Investments under section 186



Particulars of Related Party Transactions under section 188 as per Form AOC-2

Extract of Annual Return as per Form MGT-9 to be annexed

CSR Policy and implementation, Composition of CSR Committee, Annual Report on CSR Activities as per Annexure to CSR Rules*


Board’s Report; Other Disclosures

Secretarial Audit Report

Requisite disclosures of Managerial Personnel and their Remuneration [Section 197(12) & (14) and Rule 5/13, Schedule V]

Independent Director’s Re-appointment [Section 149 (10) Chapter 11]

Audit Committee: Composition and detail of any recommendation of the Audit Committee not accepted by the Board [Section 177 (8) Chapter 12]



Vigil Mechanism Policy [Section 177 (10) Rule 7/12]

Nomination and Remuneration Policy [Section 178 (3) Chapter-12]

Details of Equity Share with Differential Voting Rights issued/completed during financial year. [Section 43 Rule 4(4)/4]

Details of Sweat Equity Shares issued during financial year [Section 54 Rule 8(13)/4]



Details of ESOPS issued during the financial year [Section 62 (1)(b) Rule 12 (9)/4]

Detail of loans given by the Company for purchase of its shares Section 67(3) Rule 16(4)/4


Board’s Report

• In case of Consolidated Financial Statements: Report [in a Separate Section] on the performance and financial position of each of the subsidiaries, Associates and Joint Venture Companies included in the CFS


Board’s Report; Signing

Board’s Report and every Annexure thereto, to be signed by:

Chairperson of the Co., if authorised by the Board; If he is not so authorised

At least 2 Directors including MD; or

1 Director, in case of only 1 Director


Circulation of FS

A Signed Copy of FS, including CFS, to be issued, circulated or published along with a copy of:

Any Notes forming part of such FS;

Auditor’s Report

Board’s Report


Filing of Financial Statement

Financial Statement to be filed with ROC:

• Within 30 days from the date of AGM

• If AGM is not held within statutory time period, within 30 days from the last date up to which AGM should have been held


Default

In case of contravention of section 134

• Company:

• Fine of minimum Rs. 50,000 and maximum Rs. 25 lac;

• Officer in Default:

• Imprisonment up to 3 years; or

• Fine of minimum Rs. 50,000 and maximum Rs. 5 lac; or

• with both


THANK YOU!

Rajeev Goel & Associates Advocates and Consultants

785, Pocket-E Mayur Vihar-II, NH 24

Delhi 110 091 [email protected]

93124 09354 14 May 2015 Rajeev Goel & Associates

mailto:[email protected]

Documents

A Presentation by: Rajeev Goel - nirc@icai BY RAJEEV GOEL.pdf · THE COMPANIES ACT, 2013 A Presentation by: Rajeev Goel B Com (Hons), LLB, FCS, MIMA Corporate Lawyer 93124 09354 [email protected]