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Companies Act, 2013: A Practitioner's Perspective
Committee for Capacity Building of Member in Practice (CCBMP)
The Institute of Chartered Accountants of India (Set up by an Act of Parliament)
New Delhi
© The Institute of Chartered Accountants of India
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form, or by any means, electronic mechanical, photocopying, recording, or otherwise,
without prior permission, in writing, from the publisher.
DISCLAIMER:
The views expressed in this publication are those of author(s). The Institute of Chartered Accountants of
India may not necessarily subscribe to the views expressed by the author(s).
The information cited in this book are drawn from various sources while every efforts have been made to
keep the information cited in this book error free, the Institute or any office do not take the responsibility for
any typographical or clerical error which may have crept in while compiling the information provided in this
book. Further the information provided in this book are subject to the provisions contained under different
Acts and members are advised to refer to those relevant provisions also.
Edition : January, 2019
Committee/Department : Committee for Capacity Building of Members in Practice (CCBMP), ICAI
Email : [email protected]
Website : www.icai.org, www.icai.org.in
Published by : Committee for Capacity Building of Members in Practice (CCBMP) of the
Institute of Chartered Accountants of India, ICAI Bhawan, Post Box No. 7100,
Indraprastha Marg, New Delhi - 110 002.
Printed by : Committee for Capacity Building of Members in Practice (CCBMP), ICAI
January/2019
Foreword
In the fast changing business world, the role of Chartered Accountants is
changing rapidly and gaining more importance. Over a period of time, the
spectrum of services rendered by the Chartered Accountants has extended
beyond conventional accounting, auditing and taxation matters. Today, the
breadth of the services rendered by our members reflects their expertise in
multiple diverse areas. At the same time, high expectations of the
government, business world and society also place huge responsibility on
chartered accountants. It is important for today’s professional to not only
deliver quality services but also strive for excellence in their work and be
updated on the latest developments on matters relating to the profession.
The current economic environment poses many challenges in the financial
and accounting world and Chartered Accountants always plays a pivotal role
in assisting the management and other users of the financial statements. To
help our members to understand the changes those have been made by the
said book on the various aspects of Practitioner with regard to the
Companies Act, 2013, the Committee for Capacity Building of Members in
Practice (CCBMP) of ICAI is bringing out a book titled Companies Act,
2013: A Practitioner’s Perspective. This book will provide a knowledge
base to the Practitioners with regard to the Companies Act, 2013.
I congratulate Chairperson, CCBMP, Vice Chairman, CCBMP and his team
for their efforts in bringing out this book. I sincerely hope that this
publication would help the members in enhancing their knowledge base in
the practice portfolio.
Best Wishes
CA. Naveen N. D. Gupta
President, ICAI
Preface
The enactment of the Companies Act, 2013 (the 2013 Act or the Act) was one
of the most significant legal reforms in India, aimed at bringing Indian
companies law in line with the global standards. The Act introduced
significant changes in the companies’ law in India, especially in relation to
accountability, disclosures, investor protection and corporate governance
The Government considered many of the suggestions made by the Committee
and introduced the Companies (Amendment) Bill 2016 (the 2016 Bill) in the
Lok Sabha in March 2016. It was later referred to the Standing Committee on
Finance for further examination. After considering the suggestions of the
Standing Committee and other related developments, the 2016 Bill renamed
as the Companies (Amendment) Bill 2017 (the 2017 Amendment Bill) was
reintroduced in Lok Sabha and passed in July 2017. The 2017 Amendment
Bill was approved by the Rajya Sabha on 19 December 2017. It got assent
from the Honourable President of India on 3 January 2018 and has been
notified in the Official Gazette of the same date to be an Amendment to the
2013 Act (the 2017 Amendment Act). The 2017 Amendment Act addresses
difficulties in implementation, facilitates ease of doing business helps
achieving better harmonisation with other statutes such as the Reserve Bank
of India Act, 1934 and regulations made thereunder, and rectifies
inconsistencies in the 2013 Act. We compliment the Government of India for
adopting a highly collaborative approach and addressing the various
challenges.
We place on my record my deep sense of gratitude to CA. Jatin Tehri and his
team assisting for preparing the draft of this publication thereby sharing their
relevant experience and expertise amongst members. We appreciate the
efforts put in by the our Central Council Colleagues and other members of
CCBMP & Dr. Sambit Kumar Mishra, Secretary, CCBMP who have provided
necessary support & Inputs for publishing the aforesaid book.
With Best Wishes
CA. Nihar N. Jambusaria
Vice Chairman, CCBMP, ICAI
CA. Kemisha Soni Chairperson, CCBMP, ICAI
1
TABLE OF CONTENTS
KEY HIGHLIGHTS OF COMPANIES (AMENDMENT) ACT 2017 ............................................................... 2
TYPES OF COMPANIES ................................................................................................................................. 25
INCORPORATION OF COMPANY ................................................................................................................ 29
Issue of Shares / Securities: ............................................................................................................................... 35
Procedure for Issuing Sweat Equity Shares .................................................................................................... 37
KEY MANAGERIAL PERSONNEL ................................................................................................................ 41
Meetings & resolutions under Companies Act, 2013 ..................................................................................... 43
Shareholders Meetings Under Companies Act, 2013 ......................................................................................... 50
IMPORTANT DEFINITIONS UNDER THE COMPANIES ACT, 2013......................................................... 53
Definitions Under other sections of the Companies Act, 2013 .......................................................................... 62
PRIVILEGES FOR PRIVATE COMPANY/OPC/SMALL COMPANY ......................................................... 64
Compliances under the Companies Act, 2013 ................................................................................................... 68
Annual and other obligations under the Companies Act, 2013 .......................................................................... 68
Statutory registers: list of statutory registers, books and records required to be maintained by a company under
Companies Act, 2013 ......................................................................................................................................... 79
Other records to be maintained by the companies.............................................................................................. 81
Annual accounts and balance sheet .................................................................................................................... 82
Schedule III for Ind AS ...................................................................................................................................... 86
General instructions for preparation of financial statements .......................................................................... 86
Of a company required to comply with Ind AS” ............................................................................................ 86
Valuation Requirements ................................................................................................................................... 106
Internal Financial Controls ............................................................................................................................... 111
Corporate Social Responsibility ....................................................................................................................... 118
ICAI FAQs ....................................................................................................................................................... 125
Significant concepts/ provisions affecting practicing chartered accountant: .................................................... 128
Appointment of Auditors and related Aspects ................................................................................................. 132
Other Important Aspects .................................................................................................................................. 136
Important Provisions of Penalties under Companies Act 2013 ........................................................................ 140
2
KEY HIGHLIGHTS OF COMPANIES (AMENDMENT) ACT 2017
COMPANIES (AMENDMENT) ACT, 2017
SECTION
NO.
DISCRIPTION OF
SECTIONS
AMENDMENT
Section
2(6)
Definition of ‘Associate
Company’
• Change in explanation of the term ‘significant influence’
under the definition of Associate Company has been proposed.
Significant influence is proposed to mean control of atleast 20% of the voting power or control or participation in business decision under an
agreement. Currently the Act provides for control of at least 20% total share capital.
• Further the term ‘Joint Venture’ has also been defined to
mean a joint arrangement whereby the parties that have joint control
of the arrangement have rights to the net assets of the arrangement.
Section
2(28)
Definition of ‘Cost
Accountant’
Change in definition of ‘cost accountant’ is proposed.
“Cost Accountant” means a person who is a member of the Institute of
Cost and
Works Accountants of India and who holds a valid certificate of
practice.
Section
2(30)
Definition of
‘Debenture’
Under the definition of the term “debenture”, exclusion of
instruments referred to in Chapter III-D of the Reserve Bank of India
Act 1934 and such other instruments prescribed by the Central
Government in consultation with the RBI.
Section
2(41)
Definition of ‘Financial
year’
It has been amended that associate company of a company
incorporated outside India can also apply to the Tribunal for a
different financial year.
Section
2(46)
Definition of ‘Holding
Company’
It has been amended that for the purpose of definition of the term
‘holding company’, the expression “company” will include any body
corporate.
Section
2(49)
Definition of ‘Interested
director’
Definition has been omitted herewith. As the same has reference under
Section 184 of the Act.
Section
2(51)
Definition of ‘Key
Managerial Personnel’
Under the definition of the term “Key Managerial Personnel”, such
other officer not more than one level below the directors who is in
whole time employment and designated as KMP by the Board, being
included.
Section
2(51)
Definition of ‘Net
Worth’
Inclusion of securities premium account and debit or credit balance of
profit and loss account in the calculation of net worth. Accordingly the
Definition has been amended herewith.
Section
2(51)
Definition of ‘Public
Company’
Including the word ‘and’ in the definition for more clarity that a public
company must satisfy both the conditions mentioned in the sub-
section.
3
Section
2(72)
Definition of ‘public
financial institution’
The Central Government notified other institution which has been
established or constituted by or under any Central or State Act other
than the Companies Act, 2013 or previous Company Law after
consultation with the RBI as “public financial institution”.
Section
2(76)
Definition of ‘Related
Party’
Following two amendments being:
• Instead of only a company, any body corporate which is
holding, subsidiary or an associate company of such company or a
subsidiary of a holding company to which it is also a subsidiary or an
investing company or venture of the Company, shall be considered as
a related party.
• “the investing company or the venturer of a company” means
a body corporate whose investment in the company would result in the
company becoming an associate company of the body corporate.
Section
2(85)
Definition of ‘small
company’
• Increase the maximum paid-up share capital amount which
can be prescribed for the purpose of determining a company as a small company from five crore rupees to ten crore rupees and prescribed
turnover amount from twenty crore rupees to one hundred crore
rupees.
• Further turnover should be as per profit and loss account for
the immediately preceding financial year and not as per its last
financial year be considered.
Section
2(87)
Definition of ‘subsidiary
company’
A company will be treated as subsidiary in case the holding company
exercises or controls more than one-half of the total voting power
either at its own or together with one or more of its subsidiary
companies. Previously the Act provides for exercise or control of
more than half of the total share Capital (irrespective of voting power
rights).
Section
2(91)
Definition of ‘Turnover’ Change in the definition of turnover to mean the gross amount of
revenue recognised in the profit and loss account from the sale,
supply, or distribution of goods or on account of services rendered, or
both, by a company during a financial year.
Section 3A Members severally liable
certain cases
Insertion a new section regarding liability of members in case number of members is reduced from statutory minimum, i.e. seven in the case
of public company or two in case of a private company.
This section was there in the Companies Act 1956 but was missing
from the Companies Act 2013.
Section 12 Memorandum • In case of incorporation, name reserved by the ROC shall be valid for 20 days from date of the approval or such other period as
may be prescribed instead of 60 days from the date of application, as
currently provided;
• In case of change in name by an existing company, name
reserved by the ROC shall be valid for 60 days from the date of
approval.
4
Section 7 Incorporation of company At the time of incorporation of the company, declaration by each
subscriber will be required to be attached instead of an affidavit, as
currently provided.
Section 12 Registered office of
company
• Company shall within 30 of its incorporation have registered
office instead of current requirement to have registered office on and
from the fifteenth day of its incorporation.
• Notice of every change of the situation of the registered
office, shall be given to the Registrar within 30 days instead of 15
days, as currently provided.
Section 21 Authentication of
documents, proceedings
Apart from KMP and any officer of the company, it is being amended
that an employee can also be authorized to authenticate documents
and contracts on behalf of the company.
Section 26 Matters to be stated in
Prospectus
Instead of detailed list of contents of the Prospectus, it shall state such information and set out such reports on financial information as may
be specified by SEBI in consultation with the Central Government.
Till the time SEBI specifies the information and reports on financial
information, the regulations made by it under the SEBI Act, 1992, in
respect of such financial information or reports on financial
information shall apply.
Section 35 Civil liability for
Misstatements in
prospectus
section 35 of the Act amended to relieve the Director, promoter etc.
from any civil liability if such person(s) has relied on a misleading
statement made by an expert and he had reasonable ground to believe
and did up to the time of the issue of the prospectus believe, that the
person making the statement was competent to make it and that the
said person had given the consent required and had not withdrawn it.
Section 42 Private placement Though the entire section is being substituted but major changes are: –
• Return of allotment has to be filed within 15 days instead of
30 days.
• Money received under the private placement shall not be
utilized unless the return of allotment (herein Eform PAS-3) is filed
with the ROC.
• Private Placement offer letter shall not contain any right of
renunciation.
Section 47 Voting rights Since a member who is a related party cannot vote on a resolution to
be passed under section 188 of the Companies Act 2013, being
amended to clarify that the right of every member holding equity
shares to vote on all resolutions placed before the meeting would be
subject to subsection (1) of section 188 of the Act.
5
Section 53 Prohibition on issue of
shares at discount
• The words “discounted price” has been replaced with the
word “discount”.
• Further allowed companies to issue shares at a discount to its
creditors when its debt is converted into shares in pursuance of any
statutory resolution plan or debt restructuring scheme in accordance
with any guidelines or directions or regulations specified by Reserve
Bank of India under the Banking Regulation Act, 1949 or the Reserve
Bank of India Act 1934.
Section 54 Issue of Sweat Equity
Shares
Allowed to issue of sweat equity shares at any time after registration
of the company. Currently such shares can be issued only after the
expiry of one year from the date of commencement of business.
Section 54 Further issue of share
capital
•The requirement of compliance with section 42 in respect of the
preferential offer in the section itself. Currently the applicability of
section 42 is provided by the rules.
• Right issue offer letter can be sent through courier also.
Section 73 Prohibition on
acceptance of deposits
from public
• Amendment has been made that an amount being not less than 20%
of the amount of deposits, maturing during the following financial
year be deposited on or before the 30th
day of April each year and kept
in a scheduled bank in a separate bank account to be called deposit
repayment reserve account.
Previously atleast 15% of such amount is required to be deposited and that is also of amount of deposits maturing during a financial year and the financial year next following.
• Further omitting the requirement of providing deposit
insurance.
• Further, companies which had defaulted in repayment of
deposits, can also accept deposits after a period of 5 years from the
date of making good the default.
Section 74 Repayment of Deposits, etc., accepted before
commencement of this
act
Where any amount of deposit or part thereof or interest thereof
remains unpaid on the commencement of the Companies Act 2013,
such amount shall be repaid within 3 years from the date of
commencement or before the expiry of the period for which the
deposit was accepted, whichever is earlier.
Currently the amount was to be repaid within 1 year or before the
expiry of the period for which the deposit was accepted, whichever is
earlier.
Section
76A
Punishment for
Contravention of
Section 73 or Section 76
• Change in the penalty from a fine not less than rupees one
crore to rupees one crore or twice the amount of deposits accepted by the company, whichever is lower.
• Further an officer of the company who is in default shall be
punishable with imprisonment and fine. Earlier it was imprisonment
or fine. In the process, the offence has been made non-compoundable.
6
Section 77 Duty to register charges,
etc.
This section shall not apply to certain charges, as may be prescribed
by the Central Government in consultation with the Reserve Bank of
India.
Section 78 Application for
Registration of charge
The person in whose favour the charge has been created can file the
charge on the expiry of 30 days from the creation of charge where a
company fails to file so. Currently the charge holder can register the
charge only in case the company fails to do so within the period
specified under section 77, which is 300 days.
Section 82 Company to report
satisfaction of charge
Timeline for filing of satisfaction of charge has been increased to 300
days on payment of additional fee so specified under the Companies
Act.
Section 89 Declaration in respect of
beneficial interest in any
share
As per the current law, return of beneficial interest declaration can
also be filed on payment of additional fee within 270 days from the date by which it should have been filed. It has been amended to do
away with the time limit of 270 days and the return can be filed at any time on payment of prescribed additional fee.
For the purpose of declaration of beneficial interest, it has been
amended that beneficial interest in a share includes, directly or
indirectly, through any contract, arrangement or otherwise, the right or entitlement of a person alone or together with any other person to— •
exercise or cause to be exercised any or all of the rights attached to
such share; or
• receive or participate in any dividend or other distribution in respect
of such share.
Section 90 Investigation of
beneficial ownership of
shares in certain cases
The provisions have been revamped. Key changes are as under:
• Every individual, who acting alone or together, or through one or
7
more persons or trust, including a trust and persons resident outside
India, holds beneficial interests, of not less than twenty-five per cent. or such other percentage as may be prescribed, in shares of a company
or the right to exercise, or the actual exercising of significant influence
or control as defined in clause (27) of section 2, over the company
shall make a declaration to the company. The Central Government
may however, prescribe class(es) of persons who shall not be required to make declaration.
• Every company shall maintain a register of the interest declared by individuals as aforesaid and such register shall be open to
inspection of members.
• Every company shall file a return of significant beneficial owners of the company and changes therein with the Registrar.
• Obligation is cast on the company to give notice, in the prescribed manner, to any person whom the company knows or has
reasonable cause to believe to be a significant beneficial owner of the company who is not registered as a significant beneficial owner with the company as required under this section.
• In case information asked is not provided, the Company shall apply to the Tribunal for an order directing that the shares in question
be subject to restrictions with regard to transfer of interest, suspension
of all rights attached to the shares.
• Stringent penalties have been provided for default of this
section including liability for fraud u/s 447.
Section 92 Annual Return • The requirement of MGT-9 i.e. extract of annual return to form part of the Board’s Report has been omitted. Instead, the copy of
annual return shall be uploaded on the website of the company, if any,
and its link shall be disclosed in the Board’s report.
• The Central Government may prescribe abridged form of
annual return for One Person Company (‘OPC’), Small Company and
such other class or classes of companies as may be prescribed.
• omitting the requirement related to disclosing indebtedness
and details with respect to name, address, country of incorporation etc. of FII in the annual return of the company.
• Time limit of 270 days within which annual return could be
filed on payment of additional fee has been done away with. A
company can file the annual return with ROC at any time on payment
of prescribed additional fee.
Section 93 Return to be filed with
Registrar in case
Promoters’ stake
changes
Omission of the section 93 relating to return to be filed with respect to
changes in promoters’ and top ten shareholders’ stake.
8
Section 94 Place of keeping and
inspection of registers,
returns, etc.
• Omitting the requirement of filing of special resolution in advance
with the Registrar of Companies for keeping of the registers and returns at a place other than the registered office of the company.
• Further insertion of clause that such particulars of the register or index or return as may be prescribed shall not be available for
inspection under sub-section (2) or for taking extracts or copies.
Section 96 Annual General Meeting Annual General Meeting (‘AGM’) of unlisted company may be held
at anyplace in India if consent is given is writing or by electronic
mode by all the members in advance.
Section
100
Calling of
Extraordinary General
Meeting
Extraordinary General Meeting (‘EGM’) of wholly owned subsidiary
of a company incorporated outside India can be held outside India. A
company other than wholly owned subsidiary of a company
incorporated outside India must hold EGM at a place within India.
Section
101
Notice of meeting • A General Meeting may be held at a shorter notice if in case of an Annual General Meeting consent in writing or by electronic
mode is given by not less than 95% of the members entitled to vote
and in case of other general meetings consent is given by majority in number of members entitled to vote and who represent not less than 95% of paidup share capital (in case of company having share capital)
or total voting power exercisable at the meeting (in case of company
not having share capital).
• Where any member of a company is entitled to vote only on some resolution or resolutions to be moved at a meeting and not on
the others, then his vote with respect to shorter notice shall only be
counted for the purpose of the resolution on which he can vote.
• Currently for calling both AGM and EGM at shorter notice,
consent of 95% of members entitled to vote at the meeting is required.
Section
110
Postal Ballot To Allow companies which are mandatorily required to provide
electronic voting facility, to transact items in general which, which are
mandatorily required to be transacted through postal ballot.
Section
117
Resolutions and
Agreements to be filed
• Exemption to banking companies from filing resolutions with
respect to grant of loans, giving of guarantee or providing of security
in respect of loans in the ordinary course of its business.
• Omitting the clause (e) of sub-section (3) of the section as the
requirement under the clause is already covered in clause (a).
• The minimum fine for non-filing under this section for
company and officer in default is has been reduced from rupees five
lakh to one lakh rupees and from rupees one lakh to rupees fifty
thousand.
• Time limit of 270 days within which resolutions and
agreements could be filed on payment of additional fee has been done
away with. A Company can file the resolutions and agreements with
9
ROC at any time on payment of prescribed additional fee.
Section
121
Report on annual general
meeting
Time limit of 270 days within which report on annual general meeting
could be filed on payment of additional fee has been done away with.
Now a company can file the report on Annual General Meeting with
ROC at any time on payment of prescribed additional fee.
Section
123
Declaration of dividend • While computing profits any amount representing unrealized gains,
notional gains or revaluation of assets and any change in carrying of
an asset or of a liability on measurement of the asset or the liability at
fair value shall be excluded.
• In the case of inadequate or absence of profits, dividend can
be declared out of accumulated profits earned by the company in previous years and transferred by the company to free reserves
(instead of reserves).
• Board of Directors of a company may declare interim
dividend during any financial year or at any time during the period
from closure of financial year till holding of the annual general meeting out of the surplus in the profit and loss account or out of
profits of the financial year for which such interim dividend is sought
to be declared or out of profits generated in the financial year till the
quarter preceding the date of declaration of the interim dividend.
In case the company has incurred loss during the current financial year
up to the end of the quarter immediately preceding the date of
declaration of interim dividend, such interim dividend shall not be
declared at a rate higher than the average dividends declared by the
company during immediately preceding three financial years.
Section
129
Financial Statement • The explanation providing that subsidiary includes associate
company and joint venture has been deleted. The section has been
amended to provide for consolidation of the accounts of associate
companies in addition to its subsidiaries in the same form and manner as that of its own in accordance with applicable accounting standards.
• The company shall also attach along with its financial
statement, a separate statement containing the salient features of the
subsidiary and associate companies.
10
Section
130
Re-opening of accounts
on court’s or tribunal’s
orders
• In addition to authorities already specified, any other person
concerned shall be given notice before passing an order for re-opening of accounts and the court or the Tribunal shall also take into
consideration the representations made by the other person.
• Order for reopening of accounts can be made upto eight
financial years preceding the current financial year unless there is a
specific direction under section 128(5) from the Central Government
that the books of accounts may be kept for longer period in which case
the books of account may be ordered to be reopened for a longer
period.
Section
132
Constitution of National
Financial Reporting
Authority
• Minimum fine in respect of professional or other misconduct from ten lakh rupees to five lakh rupees.
• Omitting the provisions regarding constitution of separate
Appellate Authority under this section and appeal against any order of
NFRA shall lie before the National Company Law Appellate Tribunal
in the prescribed manner.
Section
134
Financial Statement,
Board’s report, etc.
• CEO whether appointed as a Director or not, will sign the
financial statement, in case there is no chairperson of the Company.
Currently CEO is required to sign, only if he is also acting as a director.
• In case of Board report, the disclosures which have been
provided in the financial statement shall not be required to be
reproduced in the report again and further some reference to it may be
given under the Board Report.
• In place of extract of the annual return, only the web address,
if any, where annual return has been placed shall be mentioned
•Instead of exact text of the policies, key feature of policies along with
its web link shall be disclosed in Board report.
• In respect to performance evaluation, the responsibility of the
Board for carrying the performance evaluation of Board, Directors and
committee has been omitted. It is now required to include in the Board’s report of listed companies and other prescribed public companies that annual evaluation of the performance of the Board, its
Committees and of individual directors has been made.
• Central Government has prescribed abridged Board Report for
small and one person companies.
11
Section
135
Corporate Social
Responsibility
• Eligibility criteria for the purpose of constituting the
corporate social responsibility committee and incurring expenditure
towards CSR be calculated based on immediately preceding financial
year. Currently this eligibility is decided based on preceding three
financial years.
• Further it has been amended that where a company is not required to appoint an independent director, it shall have in its
Corporate Social Responsibility Committee two or more directors.
• It also empower the Central Government to prescribe sums
which shall not be included for calculating ‘net profit’ of a company
under section 135.
Section
136
Right of member to
copies of audited
financial statement
• It has been amended that copies of audited financial statements and other documents can be sent at shorter notice if it is so agreed by
members-
(a) holding, if the company has a share capital, majority in
number entitled to vote and who represent not less than ninety-five per
cent. of such part of the paid-up share capital of the company as gives
a right to vote at the meeting; or
(b) having, if the company has no share capital, not less than
ninetyfive per cent. of the total voting power exercisable at the
meeting.
• It has been amended that only listed companies shall place on
its website, if any the separate audited accounts of its subsidiary or subsidiaries. Currently all companies required to comply this.
• If the foreign subsidiary is statutorily required to prepare consolidated financial statement under any law of the country of its
incorporation, it is proposed that the requirement of posting audited
accounts of subsidiary shall be met if consolidated financial statement of such foreign subsidiary is placed on the website of the listed
company.
• If the foreign subsidiary is not required to get its financial
statement audited, it has been amended that the holding listed
company may place such unaudited financial statement on its website
and where such financial statement is in a language other than
English, a translated copy of the financial statement in English shall
also be placed on the website.
• It has been amended that every company having a subsidiary or
subsidiaries shall provide a copy of separate audited or unaudited
financial statements, as the case may be, as prepared in respect of each
of its subsidiary to any member who asks for it.
12
Section
137
Copy of Financial
Statement to be filed
with Registrar
• The unaudited financial statements of foreign subsidiary
which is not required to get its accounts audited shall be filled
along with a declaration to that effect.
• Time limit of 270 days within which financial statement could
be filed on payment of additional fee has been done away with
under all the sub-sections.
� A company can now file the financial statement with ROC at
any time on payment of prescribed additional fee.
Section
139
Appointment of
Auditors
Omitting the requirement related to ratification of appointment of
auditors by members at every annual general meeting.
Section
140
Removal, Resignation of
Auditor and giving of
special notice
Reduction of the fine in case of failure to file resignation by auditor in
Form ADT-3 to fifty thousand rupees or the remuneration of auditor
whichever is less.
Section
141
Eligibility, Qualification and Disqualifications of
Auditors
It has been amended that a person who, directly or indirectly, renders
any service referred to in section 144 to the company or its holding
company or its subsidiary company will not be eligible for
appointment as Auditor. Currently the restriction is only on the
person, whose subsidiary, associate company or any other form of
entity is engaged as on the date of appointment in consulting and
specialized services as provided in section 144.
Section
143
Powers and duties of
auditors and auditing
standards
• It has been amended to cover associate companies along with
subsidiary companies with respect to right of auditors to have access
to accounts and records.
• The auditor’s report is to include whether internal financial
controls with reference to financial statement are in place and not in
respect of internal financial control system.
Section
147
Punishment for
contravention
• The maximum fine which can be imposed on an auditor has
been revised from rupees five lakh to rupees five lakh or four times
the remuneration of the auditor, whichever is less. If the auditor has contravened provisions knowingly or wilfully with the intention to
deceive the company etc., the amount of fine has been reduced to
minimum of fifty thousand rupees but which may extend to twenty-
five lakh rupees or eight times the remuneration of the auditor,
whichever is less.
• The Liability of Auditor who is convicted of any default, to
pay the damages to any person for loss arising out of incorrect or
misleading statements made in the audit report, has been restricted to only members and creditors of the company. Currently the Auditor is liable to pay damages to any person concerned.
• It has been amended that criminal liability of an audit firm, in
respect of liability other than fine, the concerned partner or partners,
who acted in a fraudulent manner or abetted or, as the case may be,
colluded in any fraud shall only be liable. Currently the criminal
liability is of the partner or partners concerned of the audit firm and
the firm, jointly and severally.
13
Section
149
Company to have
Board of Directors
• The 182 days for determining whether a director is resident in
India shall be computed with reference to the financial year. Currently
it is calculated in reference to previous calendar year.
• Further it has been amended that in case of new companies,
the requirement of period of 182 days shall apply proportionately at
the end of the financial year in which it is incorporated.
• In the definition of Independent Director, the words
‘pecuniary interest’ is substituted by “pecuniary relationship, other
than remuneration as such director or having transaction not
exceeding ten per cent, of his total income or such amount as may be
prescribed.
• While determining the eligibility for appointment as
Independent director, it has been amended to extend the restriction related to pecuniary relationships with respect to relative of a director
to include the following:
(i) is holding any security of or interest in the company, its holding, subsidiary or associate company during the two immediately
preceding financial years or during the current financial year.
Provided that the relative may hold security or interest in the company
of face value not exceeding fifty lakh rupees or two per cent. of the paid-up capital of the company, its holding, subsidiary or associate
company or such higher sum as may be prescribed;
(ii) is indebted to the company, its holding, subsidiary or associate company or their promoters, or directors, in excess of such
amount as may be prescribed during the two immediately preceding
financial years or during the current financial year;
(iii) has given a guarantee or provided any security in connection
with the indebtedness of any third person to the company, its holding,
subsidiary or associate company or their promoters, or directors of
such holding company, for such amount as may be prescribed during the two immediately preceding financial years or during the current
financial year; or
(iv) has any other pecuniary transaction or relationship with the
company, or its subsidiary, or its holding or associate company
amounting to two per cent. or more of its gross turnover or total
income singly or in combination with the transactions referred to in sub-clause (i), (ii) or (iii) above.
• It has been amended to allow the appointment of person as an
independent director, whose relative is an employee during the three
financial years immediately preceding the financial year, in which the
person is proposed to be appointed as Independent Director.
Section
152
Appointment of directors It is proposed to make necessary provisions to provide that in addition
to DIN, a director may hold any other identification as may be
prescribed by the Central Government under section 153.
14
Section
153
Application for
allotment of Director
Identification Number
It has been amended to empower the Central Government to recognize
any other identification number to be treated as director identification
number. It is expected that Central Government will notify either PAN
or Aadhar as DIN.
Section
157
Company to inform
Director Identification
Number to Registrar
Time limit of 270 days within which a company could furnish DIN of all its directors on payment of additional fee has been done away with.
It has been amended that a company can furnish DIN of all directors
to
ROC at any time on payment of prescribed additional fee
Section
160
Right of persons other
than retiring directors to
stand for directorship
The requirement of deposit of rupees one lakh with respect to
nomination of directors shall not be applicable in case of appointment
of independent directors or directors nominated by nomination and
remuneration committee or a director recommended by the Board of
Directors of the Company, in the case of a company not required to
constitute Nomination and Remuneration Committee.
Section
161
Appointment of
Additional director,
Alternate director and
Nominee director
• It has been amended to restrict a person from being appointed
as an alternate director if he is holding directorship in the same
company.
• It is also amended that all companies including a private
company may fill up the causal vacancy by the board and casual
vacancy filled by the Board shall be subsequently approved in the
immediate next general meeting.
Section
164
Disqualifications for
appointment of director
• It has been amended that when a director is appointed in company which is in default of filing of financial statements or annual return or repayment of deposits or pay interest or redemption of debentures or
payment of interest thereon or payment of dividend then such director
shall not incur the disqualification for a period of six months from the date of his appointment
It is also amended to be clarified that disqualification arising due to
conviction by court or order passed by court or tribunal or conviction
related to section 188, shall continue to exist even if appeal or petition
has been filed against the order of conviction or disqualification.
Section
165
Number of Directorship Directorship in a dormant company shall not be included in the limit of
directorships of 20 companies.
Section
167
Vacation of office of
director
• In case a director incurs any of disqualifications under section 164 (2) due to default of filing of financial statements or annual return or repayment of deposits or pay interest or redemption of debentures
or payment of interest thereon or payment of dividend, then he shall
vacate office in all the companies other than the company which is in
default.
• that the director will not vacate office in certain cases where
an appeal is preferred.
Section
168
Resignation of director Form DIR-11 regarding forwarding of copy of resignation by director
to the Registrar made optional.
Section
173
Meetings of Board Participation of directors on restricted items at Board meetings
through video conferencing or other audio-visual means if there is
quorum through physical presence of directors.
15
Section
177
Audit Committee • Instead of every listed company, every listed public company
shall constitute an audit committee.
• It has been amended that related party transactions other than
those prescribed under section 188, if not approved by Audit
committee, will require the approval of Board of Directors.
• In case any transaction involving any amount not exceeding
one crore rupees is entered into by a director or officer of the company
without obtaining the approval of the Audit Committee and it is not
ratified by the Audit Committee within three months from the date of
the
transaction, such transaction shall be voidable at the option of the
Audit Committee and if the transaction is with the related party to any
director or is authorised by any other director, the director concerned shall indemnify the company against any loss incurred by it.
• Approval of audit committee with respect to transactions between a
holding company and its wholly owned subsidiary company will only
be required, if the transactions falls under section 188
Section
178
Nomination and remuneration Committee and
Stakeholders
Relationship Committee
• Instead of every listed company, every listed public company
shall constitute a Nomination and Remuneration Committee (‘NRC’).
• Committee will specify methodology for effective evaluation
of performance of Board and committees and individual directors
either by the Board, NRC or an independent external agency and NRC can review the implementation of evaluation system.
• Non disclosing the policy in the Board’s report, such policy
shall be placed on the website of the company, if any and only the
salient features of the policy and the changes therein need to be
disclosed in the Board’s report.
Section
180
Restrictions on powers of
board
Including securities premium along with paid-up share capital and free
reserves for calculation of maximum limits on borrowing powers of
the Board.
Section
184
Disclosure of interest by
directors
• Omission of minimum penalty with respect to failure by directors to disclose interest.
• It is also amended to exempt body corporate where any
director or two or more of them holds or hold not more than 2% of the
paid-up share capital, from the purview of section 184.
16
Section
185
Loan to directors, etc. A completely new section 185 is introduced. Some of the key changes
are :
• Complete restriction on providing loan, guarantee or security
in connection with loan to any director, director of the holding
company or any partner or relative of any such director or any firm in which any such director or relative in a partner.
• Loan to following parties is allowed subject to special resolution of shareholders and certain other prescribed conditions:
(i) any private company of which any such director is a director
or member;
(ii) any body corporate at a general meeting of which not less than twenty- five per cent. of the total voting power may be exercised
or controlled by any such director, or by two or more such directors,
together; or
(iii) any body corporate, the Board of directors, managing director
or manager, whereof is accustomed to act in accordance with the
directions or instructions of the Board, or of any director or directors,
of the lending company
Currently transactions with aforesaid categories is prohibited
• Current exemption provided under section 185(1) continues
to remain except that when company which in the ordinary course of its business provides loans or gives guarantees or securities for the due
repayment of any loan and in respect of such loans an interest is
charged at a rate not less than the rate of prevailing yield of one year, three year, five year or ten year Government security closest to the
tenor of the loan. The rate of interest is clarified.
• Penalizing defaulting officer in the company along with the
company and director or the other person to whom any loan is
advanced or guarantee or security is given.
Section
186
Loan and investment by
company
• It is to exclude employees from the ambit of this section.
• It is that shareholders’ approval will not be required where a
loan or guarantee is given or where a security has been provided by a
company to its wholly owned subsidiary company or a joint venture
company, or acquisition is made by a holding company, by way of
subscription, purchase or otherwise of, the securities of its wholly
owned subsidiary company.
17
Section
188
Related Party
Transactions
• That the requirement related to restriction on voting by
relatives in the general meeting shall not apply to a company in which
ninety per cent or more members in numbers are relatives of
promoters or related parties.
• Non-ratification of transaction shall be voidable at the option
of the Board or shareholders, as the case may be. This amendment
aims at bringing clarity since currently though ratification is allowed
both by Board or Shareholders but transaction was only voidable at
the option of the Board.
Section
194
Prohibition on Forward
dealings in securities of company by director or
Key Managerial
Personnel
Omission this section.
Section
195
Prohibition on Insider
trading of securities
Omission this section.
Section
196
Appointment of
Managing Director,
Whole-time director or
Manager
• A person beyond the age of seventy years can be appointed as managing director or whole time director or manager even when such
appointment has not been approved by special resolution provided that
the resolution for such appointment is passed with votes cast in favour of the motion exceed the votes, if any, cast against the motion and the
Central Government is satisfied, on an application made by the Board,
that such appointment is most beneficial to the company, the
appointment of the person who has attained the age of seventy years
may be made.
• Appointment of managing director, whole time director or
manager, approval of Central Government shall only be required in
case the appointment is not in accordance with the matters specified in
Part I of Schedule V.
Section
197
Overall maximum
managerial
remuneration and
managerial
• Approval of the Central Government shall not be required at the time of the payment of remuneration exceeding 11% of the net profits of the company.
18
remuneration in case of
absence or inadequacy
of profits
• Company with the approval of shareholders by way of special
resolution can pay the remuneration in excess of individual limits
provided for payment of remuneration to executive or non-executive
directors. Further where the company has defaulted in payment of
dues to any bank or public financial institution or non-convertible
debenture holders or any other secured creditor, the prior approval of
the bank or public financial institution concerned or the non-
convertible debenture holders or other secured creditor, as the case may be, shall be obtained by the company before obtaining the
approval in the general meeting. Currently requirement is of ordinary
resolution and no provision is there for approval of financial
institutions etc.
• In case of loss or inadequacy of profits, remuneration can
only be paid in accordance with Schedule V. This is very important
amendment because currently in case where remuneration is not paid
in accordance with Schedule V, then approval of Central Government
can be obtained but by way of amendment, the provision of approval
has been omitted.
• Relief to director to refund the excess remuneration received
by providing a timeline of two years or such lesser period as may be allowed by the company. Further until such sum is refunded, the
director shall hold it in trust for the company. Consequently it is
proposed to delete the provisions related to waiver of excess remuneration paid to directors with the approval of Central
Government.
• Provision which empowers the Company to waive the recovery of excess remuneration paid to directors provided approval
of company by special resolution within two years from the date the
sum becomes refundable is obtained.
Further where any term loan of any bank or public financial institution
is subsisting or the company has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture
holders or any other secured creditor, the prior approval of the bank or
public financial institution concerned or the non-convertible debenture
holders or other secured creditor, as the case may be, shall be obtained
by the company before obtaining the approval in the general meeting.
• It is also amended that the auditor of the company shall, in his
report under section 143, make a statement as to whether the
remuneration paid by the company to its directors is in accordance
with the provisions of this section, whether remuneration paid to any director is in excess of the limit laid down under this section and give
such other details as may be prescribed.
• To provide relief to the company whose application is
pending for approval before the Central Government under section
197 by making a provision under which on and from the
commencement of the Companies (Amendment) Act, 2017, any
application made to the Central Government under the provisions of
19
this section as it stood before such commencement, which is pending
with that Government shall abate, and the company shall, within one
year of such commencement, obtain the approval in accordance with
the provisions of this section, as so amended.
20
Section
198
Calculation of profits • Credit for profit arising by way of premium on shares or
debentures of the company which are issued or sold by an investment
company as referred to in clause (a) of the explanation to section 186
shall be allowed as credit to the profit and loss account. Currently
such credit is not allowed in case of all companies including investment companies.
• It has been amended that at the time of calculation of profits, credit shall not be given for any amount representing unrealized gains, notional gains or revaluation of assets.
• sums related to excess of expenditure over income, which had
arisen in computing the net profits in accordance with this section in
any year, in so far as such excess has not been deducted in any
subsequent year preceding the year in respect of which the net profits
have to be ascertained, shall be allowed as a deduction.
Section
200
Central Government or
company to fix limits
with regard to
remuneration
Omitting the power of the Central Government to fix the remuneration
within the limits specified in the Act, at such amount or percentage of
profits as it may deems fit.
Section
201
Forms of, and
procedure in relation to,
certain applications
To amend the section as a consequential change to amendment in
section 196.
Section
216
Investigation of
ownership of company
To empower the Central Government to appoint inspectors for
determining true persons who have or had beneficial interest in shares
of a company or who are or have been beneficial owners or significant
beneficial owner of the company.
Section
223
Inspector’s report A copy of inspectors report shall be made available only to members,
creditors or any other person whose interest is likely to be affected, on
their request. Currently any person can request for the copy.
Section
236
Purchase of Minority
Shareholding
Substitution the words ‘transferor company’ with the words ‘company
whose shares are being transferred’ for providing clarity in sub-
sections (4), (5) and (6).
Section
247
Valuation by Registered
Valuers
Dilution the restriction on appointment of a registered valuer by
providing that that registered valuer can be appointed for valuation of an asset in which he has a direct or indirect interest or becomes so
interested during a period of three years prior to appointment as valuer
or three years after valuation of assets.
Currently restriction on appointment of registered valuer for
undertaking valuation of any assets in which he has a direct or indirect
interest or becomes so interested is without any limitation on time.
Section
366
Companies capable of
being registered
Allow conversions of partnership firms, LLP, etc. with two or more
partners into private companies. Currently they must have seven
partners
Section
374
Obligations of companies
registering under this Part
To bring the clarity that upon registration as a company under the
Part-I of Chapter-XXI, a limited liability partnership incorporated
under the Limited Liability Partnership Act, 2008 shall be deemed to
21
have been dissolved under that Act without any further act or deed.
Section
379
Application of Act to
foreign companies
• Clarity with respect to applicability of provisions of the Act to foreign companies by providing that sections 380 to 386 and 392
and 393 shall apply to foreign companies.
• To empower the Central Government to exempt any class of
foreign companies from complying with the aforesaid provisions.
Section
384
Debentures, Annual Return, Registration of
charges, books of account
and their
Inspection
Amending the section for providing applicability of section 135 on
foreign companies.
Section
391
Application of sections
34 to 36 and Chapter
XX
Provisions relating to winding up contained in Chapter XX shall apply
for closure of place of business of a foreign company in India as if it
were a company incorporated in India in case such foreign company
has raised monies through offer or issue of securities which have not
been repaid or redeemed. In other words, if a foreign company has not
raised monies, the provisions relating to winding up will not be
applicable.
22
Section
403
Fee for Filings, etc. • Only document, fact or information required to be submitted
under section 92 (Annual Return) or 137 (Copy of financial statement
to be filed with registrar) may be submitted, after expiry of the period
so provided in those sections, on payment of such additional fee as
may be prescribed which shall not be less than Rs. 100 per day and different amounts may be prescribed for different classes of
companies.
• Further it has been amended that where the document, fact or information, in cases other than sections 92 or 137, is not submitted,
within the period provided in the relevant section, it may, without
prejudice to any other legal action or liability under this Act, be
submitted, filed, registered or recorded, on payment of such additional
fee as may be prescribed and different fees may be prescribed for
different classes of companies.
• It is also amended that where there is default on two or more
occasions in submitting, filing, registering or recording of the
document, fact or information, it may, without prejudice to any other legal action or liability under this Act, be submitted, filed, registered
or recorded, on payment of a higher additional fee, as may be
prescribed and which shall not be lesser than twice the additional fee provided under the first or the second proviso as applicable.
• Further it has been amended that where a company fails or
commits any default to submit, file, register or record any document,
fact or information before the expiry of the period specified in the
relevant section, the company and the officers of the company who are
in default, shall, without prejudice to the liability for the payment of
fee and additional fee, be liable for the penalty or punishment
provided under this Act for such failure or default.
Section
406
Power to modify act in its
application to
‘Nidhis’
• It is proposed to provide that Nidhi” or “Mutual Benefit
Society” means a company which the Central Government may, by
notification in the Official Gazette, declare to be a Nidhi or Mutual
Benefit Society, as the case may be. Currently mutual benefit society is not covered.
• Further exhaustive definition of Nidhi company has been deleted and it is left to the Government to declare a company to be a
Nidhi or Mutual Benefit Society by notification in the Official
Gazette.
• It is also amended to modify the requirements relating to
laying of copy of exemption notification before both Houses of
parliament.
Section Qualification of Following changes are amended with respect to eligibility for technical
23
409 President and Members
of Tribunal
members with respect to the constitution of the National Company
Law Tribunal:
• Instead of Joint Secretary to the Government of India, person
who has been holding the rank of Secretary or Additional Secretary to
the Government of India, will be eligible
• A person of proven ability, integrity and standing having
special knowledge and professional experience of not less than fifteen
years in industrial finance, industrial management, industrial
reconstruction, investment and accountancy will be eligible. Expertise
in other disciplines like law, labour laws, and disciplines related to
management, conduct of affairs, revival, rehabilitation and winding-
up of companies are proposed to be deleted.
Section
410
Constitution of
Appellate Tribunal
In addition to the order of the Tribunal, to bring out the order of the
National Financial Reporting Authority also for appeal before the
National Company Law Appellate Tribunal.
Section
411
Qualifications of
Chairperson and
Members of Appellate
Tribunal
Eligibility for appointment as Technical member is to be brought in
sync with the amendment proposed in section 409.
Section
412
Selection of Members of
Tribunal and Appellate
Tribunal
It has been amended to align with Supreme Court directions with
respect to constitution of Selection Committee.
Section
435
Establishment of Special
Courts
• To authorize Central Government to establish Special Courts for the purpose of speedy trials of offences under the Act. Currently Special Court can be established for trying offences punishable with
imprisonment of two years or more.
• The constitution of Special Court has been changed and will
depend upon the nature of offence
Section
438
Application of Code to
proceedings before
Special Court
Amendment in section 438 of the Act as a consequence of amendments
to section 435.
Section
439
Offences to be
noncognizable
To include member along with shareholders in respect of complaint
with respect to taking cognizance of offences under the Act by the
Court.
Section
440
Transitional provisions To provide that till the time a Special Court is established, the trial of
offences shall be continued with Court of Session or Court of
Metropolitan Magistrate or a Judicial Magistrate of the First Class.
Section
441
Compounding of certain
offences
Enabled the Tribunal to compound offences punishable with fine only
as well as offences punishable with fine or imprisonment. The
provision has now been brought in line with section 621A of the 1956
Act.
24
Section
446A
Factors for determining
level of punishment
New section providing for the following factors which the court or
special court will consider while determining level of punishment:
(a) size of the company;
(b) Nature of business carried on by the company;
(c) Injury to public interest;
(d) Nature of the default; and (e) Repetition of the default.
Section
446B
Lesser penalties for One
Person Companies or
Relief to OPC and Small co., in case of failure to comply with the
provisions of sub-section (5) of section 92 (Annual Return), clause (c)
small companies of sub-section (2) of section 117 (Resolutions and agreements to be
filed), sub-section (3) of section 137 (Copy of financial statement to
be filed with Registrar). In case of default, such company and officer
in default of such company shall be punishable with fine or
imprisonment or fine and imprisonment, as the case may be, which
shall not be more than one-half of the fine or imprisonment or fine and
imprisonment, as the case may be, of the minimum or maximum fine
or imprisonment or fine and imprisonment, as the case may be,
specified in such sections.
Section
447
Punishment for Fraud • Only person guilty of fraud involving an amount of at least
ten lakh rupees or one percent. of the turnover of the company, whichever is lower shall be punishable with imprisonment for a term which shall not be less than 6 months but which may extend to ten
years and shall also be liable to a fine which shall not less than the
amount involved in the fraud but which may extend to three times the
amount involved in the fraud.
• Further that where the fraud involves an amount less than ten
lakh rupees or one per cent. of the turnover of the company,
whichever is lower and does not involve public interest, any person
guilty of such fraud shall be punishable with imprisonment for a term
which may extend to five years or with fine which may extend to
twenty lakh rupees or with both.
Section
458
Delegation by Central
Government of its
powers and functions
Consequent upon omission of sections 194(Forward dealings) and
195(Insider trading), the proviso to sub-section (1) of section 458 is
omitted.
25
TYPES OF COMPANIES
Types of companies that can be formed under the Companies Act 2013 - (hereinafter referred to as
act has remained same as in the Companies Act, 1956 act except one more class of has been added.
The new class of company is "'one person company" (OPC). This section deals with some of the
significant changes with respect to types of companies.
1. "private company" is defined in section 2(68) of the act and it means a company having a minimum
paid-up share capital* as may be prescribed, and which by its articles,—
• Restricts the right to transfer its shares;
• Except in case of one Person Company, limits the number of its members to two hundred:
Provided that where two or more persons hold one or more shares in a company jointly, they shall,
for the purposes of this clause, be treated as a single member:
Provided further that—
- persons who are in the employment of the company; and
- persons who, having been formerly in the employment of the company, were members
of the company while in that employment and have continued to be members after the
employment ceased, shall not be included in the number of members; and
- Prohibits any invitation to the public to subscribe for any securities of the company.
Note: * the requirement of minimum paid-up share capital of one lakh rupees or such higher paid-up
for private company has been removed by the Companies (amendments) Act, 2015 vide notification
f.no. 1/6/2015-cl.v. Dated 29th
May, 2015 w.e.f. 29th
May, 2015.
2. "public company" is defined in section 2(71) of the act and it means a company which -
(a) is not a private company; and
(b) has a minimum paid-up share capital* as may be prescribed
Provided that a company which is a subsidiary of a company, not being a private company, shall be
deemed to be public company for the purposes of this act even where such subsidiary company
continues to be a private company in its articles.
Note: * the requirement of minimum paid-up share capital of five lakhs rupees or such higher paid-
up for public company has been removed by the companies (amendments) act, 2015 vide
notification f.no. 11612015-cl.v. Dated 29th may, 2015 w.e.f. 29th may,2015.
3. "one person company" is defined in section 2(62) of the act it means a company which has only one
person as a member,
4. "government company" is defined in section 2(45) of the act and it means any company in which not
less than fifty-one per cent of the paid-up share capital is held by the central government, or. By any
state government or governments, or partly by the central government and partly by one or more
state governments and includes a company which is a subsidiary of such a government company as
thus defined.
5. "foreign company" is defined in section 2(42) of the act and it means a company or body corporate
which is incorporated outside India which:
• Has a place of business in India whether by itself or through any agent, physically or
through electronic mode; and
26
• Conducts any business activity in India in any other manner.
In case, a foreign company has established a place of business within India, the foreign company is
required to submit documents/details under section 380(1) with registrar within 30 days of
establishment of such place of business within India. Alterations and changes in these
documents/details are required to be delivered to registrar for registration, a return containing the
particulars of alteration in the prescribed form.
The provision of section 381(1) (account of the foreign company), section 382 (display of name of
foreign company), section 383 (service on foreign company), section 384 (debentures, annual
return, registration of charges, books of account and their inspection), section 392 (punishment for
contravention), section 405(5) (power of central government to direct companies to furnish
information or statistics), apply to such foreign company.
6. "company limited by shares" is defined in section 2(22) of the act, and it means a company having
the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares
respectively held by them.
7. "company limited by guarantee" is defined in section 2(21) of the act and it means a company
having the liability of its members limited by the memorandum to such amount as the members may
respectively undertake by the memorandum to contribute to the assets of the company in the event
of its being wound up. Such company could be a "company limited by guarantee and not having
share capital" or a "company limited by guarantee and having a share capital”.
8. "small company" is defined in section 2(85) of the act, and it means a company other than a public
company in which-
• paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as
may be prescribed which shall not be more than ten Crore rupees; and
• turnover of which as per profit and loss account for the immediately preceding financial
year does not exceed two Crore rupees or such higher amount as may be prescribed which
shall not be more than one hundred Crore rupees:
Provided that nothing in this clause shall apply to-
- a holding company or a subsidiary company;
- a company registered under section 8; or
- a company or body corporate governed by any special act.
Hence public company(including deemed public company), holding company, section 8 companies
and companies governed by special act will not fall in small companies.
9. "unlimited company" is defined in section 2(92) of the act and it means a company not having any
limit on the liability of its members. The liability of a member extends to the whole amount of
company's debts and liabilities but the member will be entitled to claim contribution from other
members
10. "producer company" - as per section 465(1) of the act, the provisions of part ix a of the Companies
Act, a956 shall be applicable mutatis mutandis to a producer company in a manner as if the
Companies Act, '1956 has not been repealed until a special act is enacted for producer companies.
Hence related provisions of the Companies Act, 1956 are reproduced below:
Producer company is defined in section 581aa of the Companies Act, 1956 and it means a body
corporate having objects or activities specified in section 581b and registered as producer' company
under this act.
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11. Companies with licence under section 8(1)
A. where it is proved to the satisfaction of the central government that a person or an association
of persons proposed to be registered under this act as a limited company:
• has in its objects the promotion of commerce, art, science, sports,
education, research, social welfare, religion, charity, protection of
environment or any such other object, and
• intends to apply its profits, if any, or other income in promoting its objects,
� intends to prohibit the payment of any dividend to its members,
The central government may, by license, allows that person or association of persons to
be registered may be registered as a company with limited liability, without the addition
to its name of the word "limited" or the word "private limited".
B. The association may thereupon be registered accordingly and on registration shall enjoy all
the privileges and (subject to the provisions of this section) be subject to all the obligations,
of limited companies.
12. Holding & subsidiary company
According to section 2(46) "holding company" in relation to one or more other companies, means a
company of which such companies are subsidiary companies; [explanation.—for the purposes of
this clause, the expression "company" includes any Body Corporate;]
According to section 2(87)"subsidiary company" or "subsidiary" in relation to any other company
(that is say the holding company) means a company in which the holding company-
• that other controls the composition of its board of Directors; or
• exercises or controls more than one-half of the total voting power either at its own or
together with one or more of its subsidiary companies:
Explanation: With the advent of Companies (Amendment) Act, 2017 effective from 7th
May 2018
the total share capital was substituted by total voting power. Hence shareholders having voting
power will come under amid.
Provided that such class or classes of holding companies as may be prescribed shall not have layers
of subsidiaries beyond such numbers as may be prescribed.
Explanation- For the purposes of this clause.-
• A company shall be deemed to be a subsidiary company of the holding company even if
the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary
company of the holding company;
• The composition of a company's board of Directors shall be deemed to be controlled by
another company if that other company by exercise of some power exercisable by it at
its discretion can appoint or remove all or a majority of the Directors;
• The expression "company" includes any body corporate;
• "layer" in relation to a holding company means its subsidiary or subsidiaries;
13. Associate and Joint Venture Company
According to Section 2(6) "associate company", in relation to another company, means a company
in which that other company has a significant influence, but which is not a subsidiary company of
the company having such influence and includes a joint venture company.
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*Explanation.—For the purpose of this clause:
a) the expression "significant influence" means control of at least twenty percent of total
voting power, or control of or participation in business decisions under an agreement;
b) the expression "joint venture" means a joint arrangement whereby the parties that have
joint control of the arrangement have rights to the net assets of the arrangement;
* Inserted by Companies (Amendment) Act, 2017 w.e.f. 7th
May 2018.
14. "dormant company" is defined in section 455(1) of the act :
Where a company is formed and registered under this act for a future project or to hold an asset or
intellectual property and has no significant accounting transaction, such a company or an inactive
company may make an application to the registrar in such manner as may he prescribed for
obtaining the status of a dormant company.
For the purpose of this section,
I. "Inactive company" means a company which has not been carrying on any business or
operation, or has not made any significant accounting transaction during the last two
financial years, or has not filed financial statements and annual returns during the last two
financial years;
II. "Significant accounting transaction" means any transaction other than-
a. Payment of fees by a company to the registrar;
b. Payments made by it to fulfil the requirements of this act or any other law;
c. Allotment of shares to fulfil the requirements of this act; and
d. Payments for maintenance of its office and records.
Further as per section 455(4) of the act, in case of a company which has not filed financial
statements or annual returns for two financial years consecutively, the registrar shall issue a notice
to that company and enter the name of such company in the register maintained for dormant
companies.
As per section 455(5) of the act, a dormant company shall have such minimum number of Directors,
file such documents and pay such annual fee as may be prescribed to the registrar to retain its
dormant status in the register and may become an active company on an application made in this
behalf accompanied by such documents and fee as may be prescribed.
As per section 455(6) of the act, the registrar shall strike off the name of a dormant company from
the register of dormant companies, which has failed to comply with the requirements of this section.
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INCORPORATION OF COMPANY
• Section 3 states that a company may be formed for any lawful purpose by-
- seven or more persons, where the company to be formed is to be a public company;
- two or more persons, where the company to be formed is to be a private company; or
- one person, where the company to be formed is to be One Person Company that is to say, a
private company,
by subscribing their names or his name to a memorandum and complying with the requirements
of this Act in respect of registration.
• A company formed may be either—
- Company limited by shares; or - Company limited by guarantee; or - Unlimited
company.
• If at any time the number of members of a company is reduced,
- in the case of a public company- below seven,
- in the case of a private company- below two,
and the company carries on business for more than six months while the number of members is
so reduced, every person who is a member of the company during the time that it so carries on
business after those six months shall be severally liable for the payment of the whole debts of
the company contracted during that time, and may be severally sued therefor.
• If a Company is incorporated where subscribers to memorandum exceeds seven members, in
that case Company needs to append physical MOA & AOA with the Form INC-32 (As per
Companies Incorporation Rules, 2014)
Nomination by the Subscriber or Member of One Person Company.-
For the purposes of first proviso to sub-section (1) of section 3 –
1. The subscriber to the memorandum of a One Person Company shall nominate a person, after
obtaining prior written consent of such person, who shall, in the event of the subscriber’s
death or his incapacity to contract, become the member of that One Person Company.
Further:
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o the person nominated may, withdraw his consent by giving a notice in writing to such sole
member and to the One Person Company Provided that the sole member shall nominate
another person as nominee within fifteen days of the receipt of the notice of withdrawal
o Where the sole member of One Person Company ceases to be the member in the event of
death or incapacity to contract and his nominee becomes the member of such One Person
Company, such new member shall nominate within fifteen days of becoming member, and
the company shall file with the Registrar an intimation of such cessation and nomination in
Form No INC.4 along with the fee within thirty days of the change in membership and with
the prior written consent of the person so nominated in Form No.INC.3
Procedural Aspects With Regard To Incorporation
• Memorandum of Association: The memorandum of a company shall state—
- Name Clause
- Situation Clause
- Object Clause
- Liability Clause
- Capital Clause
- Nomination Clause (In case of OPC Company)
• Articles of Association: The articles of a company shall contain the regulations for management
of the company. The articles of a company shall be in respective forms specified in Tables, F, G,
H, I and J in Schedule I as may be applicable to such company.
- The Form in Table F is applicable in the case of companies limited by shares;
- The Form in Table G is applicable to companies limited by guarantee having a share
capital;
- The Form in Table H is applicable to the companies limited by guarantee not having a
share capital;
- The Form in Table I is applicable to unlimited companies having share capital; -
The Form in Table J is applicable to unlimited companies not having share capital.
Documents and information required for registration , namely:-
• e MOA & e AOA (SPICE Forms INC-33,34), MOA, AOA
• Declaration from the subscribers to the Memorandum not convicted of any offence during the
preceding five years
• The address for correspondence like utility bill or rent receipts/ rent agreement till its registered
office is established;
• Particulars of subscribers - name, including surname or family name, residential address,
nationality and such other particulars of every subscriber to the memorandum along with proof
of identity, and in the case of a subscriber being a body corporate, such particulars as may be
prescribed;
• Particulars of first directors of the company- names, including surnames or family names, the
Director Identification Number, residential address, nationality and such other particulars
including proof of identity as may be prescribed; and
• The Registrar on the basis of documents and information shall register and issue a certificate of
incorporation with PAN & TAN embedded on it.
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• Registrar shall allot to the company a Corporate Identity Number, which shall be a distinct
identity for the company and which shall also be included in the certificate.
• Preservation of Documents of Incorporation at its registered office till its dissolution under this
Act.
• Punishment under section 447 for furnishing false or incorrect information at the time of
Incorporation
Formation of Companies with Charitable Objects, etc. (Section – 8)
• A person or an association of persons proposed to be registered under this Act as a limited
company to the satisfaction of the Central Government -
- has in its objects the promotion of commerce, art, science, sports, education, research,
social welfare, religion, charity, protection of environment or any such other object;
- intends to apply its profits, if any, or other income in promoting its objects; and
- intends to prohibit the payment of any dividend to its members, the Central Government
may, by licence issued in such manner as may be prescribed, Rule 19. License under section
8 for new companies
Forms required to be filed for Incorporation of Section 8 Companies
Form No. INC-12 Application along with fees for incorporating a company with limited
liability under sub-section (1) of section 8 without the addition to its
name of the word “Limited”, or as the case may be, the words “Private
Limited”
Form No. INC-13 Memorandum of association of the proposed company
Draft AOA
Form No. INC-14 Declaration by professional
Form No. INC-15 Declaration by each of the persons making the application
• The company registered shall enjoy all the privileges and be subject to all the obligations of
limited companies.
• A firm may be a member of the company registered under this section.
• i. A company shall not alter the provisions of its memorandum or articles except with the
previous approval of the Central Government.
ii. A company may convert itself into company of any other kind only after complying with
conditions as may be prescribed:
a. pass a special resolution at a general meeting for approving such conversion.
b. The explanatory statement annexed to the notice shall include:
- the date of incorporation of the company;
32
- the principal objects of the company;
- the reasons for such change;
- altered objects and the reasons for the alteration;
- what are the privileges or concessions currently enjoyed by the company;
- details of impact of the proposed conversion on the members of the company.
c. A certified true copy of the special resolution along with a copy of the Notice convening
the meeting including the explanatory statement shall be filed with the Registrar in Form
No.MGT.14 along with the fee
d. The company shall file an application in Form No.INC.18 with the Regional Director
with the fee along with Form No. MGT.14
e. A copy of the application with annexure as filed with the Regional Director.
• Rule 20. License for existing companies.-
Form No. INC-12
Application along with fees for incorporating a company with limited
liability under sub-section (1) of section 8 without the addition to its
name of the word “Limited”, or as the case may be, the words “Private Limited”
Application shall be accompanied by the following documents,
namely:- o memorandum and articles of association
o Form No. INC-14
o financial statements, Board’s reports, audit reports
o statement showing detail of assets and the liabilities as on the
date of the application or within thirty days preceding that date;
o estimate of the future annual income and expenditure for next
three years
o certified copy of the resolutions passed in general/ board
meetings o Form No. INC-15
Form No. INC-26 Company shall, within a week from the date of making the application
to the Registrar, publish a notice at his own expense, and a copy of the
notice o at least once in a vernacular newspaper o on the websites
notified by the Central Government.
The Registrar shall, after considering the objections, if any, received by it within thirty days
from the date of publication of notice, decide whether the license should or should not be
granted.
The licence shall be in Form No.INC.16. or Form No.INC.17
The Registrar may direct the company to insert in its memorandum, or in its articles, or partly
in one and partly in the other, such conditions of the license as may be specified by the
Registrar in this behalf.
• The Central Government may, by order, revoke the licence granted to a company
Provided the company is given a reasonable opportunity of being heard;
Provided further that a copy of every such order shall be given to the Registrar.
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• If a company makes any default in complying this section, the company shall, be punishable
with fine which shall not be less than ten lakh rupees but which may extend to one crore rupees
and the directors and every officer of the company who is in default shall be punishable with
imprisonment for a term which may extend to three years or with fine which shall not be less
than twenty-five thousand rupees but which may extend to twenty-five lakh rupees, or with
both:
Provided that when it is proved that the affairs of the company were conducted fraudulently,
every officer in default shall be liable for action under section 447.
COMMENCEMENT OF BUSINESS ETC.
• A company incorporated after the commencement of the Companies and having a share capital
shall not commence any business or exercise any borrowing powers unless-
- a declaration is filed by a director within a period of one hundred and eighty days of the
date of incorporation of the company;
- The company has filed with the Registrar a verification of its registered office.
• In case of any default in complying with the requirements of this section, Company shall be
liable to a penalty of fifty thousand rupees and every officer who is in default shall be liable to a
penalty of one thousand rupees for each day during which such default continues but not
exceeding an amount of one lakh rupees.
• Where no declaration has been filed with the Registrar within a period of one hundred and
eighty days of the date of incorporation of the company and the Registrar has reasonable cause
to believe that the company is not carrying on any business or operations, he may, initiate action
for the removal of the name of the company from the register of companies.
REGISTERED OFFICE OF COMPANY
• A company shall, within thirty days of its incorporation, have a registered office
• The company shall furnish to the Registrar verification of its registered office within a period of
thirty days of its incorporation in such manner as may be prescribed. - verification shall be filed
in Form No.INC.22 along with the fee, and - documents to be attached in the form:
a. the title of the premises of the registered office in the name of the company; or
b. the notarized copy of lease or rent agreement in the name of the company along with a
copy of rent paid receipt not older than one month;
c. the authorization from the owner or authorized occupant of the premises and
d. the proof of evidence of any utility service not older than two months.
• Every company shall-
- paint or affix its name, and the address of its registered office, - have its name engraved in
legible characters on its seal;if any
- get its name, address of its registered office and the Corporate Identity Number
- have its name printed on hundies, promissory notes, bills of exchange and such other
documents
• Notice of every change of the situation of the registered office within thirty days
ALTERATION OF MEMORANDUM OF ASSOCIATION
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The memorandum of association of a company may be altered in the following respects:
- By changing its name [Sections 13(2)].
- By altering it in regard to the State in which the registered office is to be situated [Section
13(4) & (7)].
- By altering its objects [Section 13 (1) & (9).
- By altering its share capital (Section 61).
- By re-organising its share capital (Sections 230 to 237). - By reducing its capital
(Section 66).
COPIES OF MEMORANDUM, ARTICLES, ETC., TO BE GIVEN TO MEMBERS
• A company shall, on request by a member, within seven days of the request and payment of fees
shall send a copy of each of the following documents, namely:-
- the memorandum;
- the articles; and
- every agreement and every resolution
• If a company makes any default the company and every officer of the company shall be liable
for each default, to a penalty of one thousand rupees for each day during which such default
continues or one lakh rupees, whichever is less.
35
ISSUE OF SHARES / SECURITIES:
• There are certain restrictions w.r.t. time lines within which securities are to be allotted after the
company has received Share Application money. Law also provides for time limits within
which share certificates are to be issued.
• In terms of Section 179 of the Companies Act, 2013 the power to issue securities have been
vested on the Board of Directors of the company by way of passing resolution at meetings of
the Board.
• Shares could be issued through several routes namely:
• Public through prospectus( also known as public offer),or
• Through private placement [Section 42 read with Rule 14 of Companies (Prospectus and
Allotment of securities) Rules , 2014] .
• Through a rights issue [Section 62(1)(a)]or a Bonus issue [Section 63], and
• In case of a listed company or a company which intends to get its securities listed, with the
provision of the SEBI Act, 1992 and the rules & regulations made there under.
It is to be noted that Share/Securities be made within 60 days of the Receipt of Application money
and if the Company fails to do so shall refund the amount within 15 days of expiry of the 60 days
shall be considered as Deposits[As per Companies (Acceptance of Deposit) Rules, 2014] along with
Interest of 12 % Per annum.
Offer or Invitation for Subscription of Securities on Private Placement. [Section 42 read with Rule
14 of Companies (Prospectus and Allotment of securities) Rules , 2014]
• Private placement shall be made only to a select group of persons who have been identified by
the Board (herein referred to as "identified persons"), whose number shall not exceed fifty or
such higher number as may be prescribed(herein Two Hundred) [excluding the qualified
institutional buyers and employees of the company being offered securities under a scheme of
employees stock option in terms of provisions of clause (b) of sub-section (1) of section 62], in
a financial year subject to such conditions as may be prescribed.
• Every identified person willing to subscribe to the private placement issue shall apply in the
private placement and application issued to such person alongwith subscription money paid
either by cheque or demand draft or other banking channel and not by cash.
• For this purposes a company shall not make an offer or invitation. to subscribe to securities
through private placement unless the proposal has been previously approved by the
shareholders of the company, by a special resolution. for each of the offers or invitations.
• No fresh offer or invitation under this section shall be made unless the allotments with respect
to any offer or invitation made earlier have been completed or that offer or invitation has been
withdrawn or abandoned by the company.
• Monies received on application under this section shall be kept in a separate bank account in a
scheduled bank and shall not be utilised for any purpose other than—
36
(a) for adjustment against allotment of securities; or
(b) for the repayment of monies where the company is unable to allot securities.
• No company shall release any public advertisements or utilise any media, marketing or
distribution channels or agents to inform the public at large about such an issue.
• A private placement offer cum application letter shall be in the form of an application in [Form
PAS-4] serially numbered and addressed specifically to the person to whom the offer is made
and shall be sent to him, either in writing or in electronic mode, within thirty days of recording
the name.
• Records of Private Placement be maintained in Form PAS-5 and be filed with Respective
Registrar in Form GNL-2 within thirty days of Recording of Private Placement.
• A company making an private offer shall allot its securities within 60 days from the date of
receipt of the applications.
• A company making any allotment of securities under this section, shall file with the Registrar a
return of allotment (Form PAS-3) within fifteen days from the date of the allotment in such
manner as may be prescribed, including a complete list of all allottees, with their full names,
addresses, number of securities allotted and such other relevant information.
• A company shall not utilise monies raised through private placement unless allotment is made
and the return of allotment is filed with the Registrar of Companies.
• A company shall issue private placement offer cum application letter only after the relevant
special resolution or Board resolution has been filed in the Registry.
• Also that in case of offer or invitation for non-convertible debentures, where the proposed
amount to be raised through such offer or invitation exceeds the limit as specified in clause (c)
of sub-section (1) of section 180, it shall be sufficient if the company passes a previous special
resolution only once in a year for all the offers or invitations for such debentures during the
year.
• Any private placement issue not made in compliance of the provisions of section shall be
deemed to be a public offer and all the provisions of this Act and the Securities Contracts
(Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992 shall be
applicable.
Sweat Equity Shares (Section 54)
• As per Section 2(88) "sweat equity shares" means such equity shares as are issued by a
company to its directors or employees at a discount or for consideration, other than cash, for
providing their know-how or making available rights in the nature of intellectual property rights
or value additions, by whatever name called.
• Sweat equity shares can be issued to:
37
i. Permanent employee of the company who has been working in India or outside India, for
atleast the last one year;
ii. Director of the company, whether a whole time Director or not;
iii. Employee or Director above of a subsidiary of the company, in India or outside india, or of a
holding company of the company.
� Sweat equity shares are issued for value additions of the Director or Employee. Value additions
mean actual or anticipated economic benefits derived or to be derived by the Company from an
Expert or Professional from providing know-how or making available rights in the nature of
intellectual property rights.
For sweat equity shares to be issued, the employee’s renumeration for value addition should not
have been paid or included in the normal remuneration payable, under the contract of
employment or monetary consideration payable under any other contract.
Procedure for Issuing Sweat Equity Shares
Sweat equity shares issued by a company belong to a class of shares already issued by the company.
Hence, the rights, limitations, restrictions and provisions which are applicable to equity shares are
applicable to sweat equity shares and the holders of sweat equity shares rank pari passu with other
equity shareholders.
Issue of sweat equity shares must be authorised by a special resolution passed by the company. The
resolution must specify the number of shares, the current market price, consideration and the class
or classes of Directors and employees to whom such equity shares are to be issued.
The following explanatory statements need to be attached to the notice of meeting for passing
special resolution:
Date of Board meeting at which the proposal for issue of sweat equity shares was approved;
i. The reason or justification for the issue;
ii. The class of shares under which sweat equity shares are intended to be issued;
iii. The total number of shares to be issued as sweat equity;
iv. The class or classes of Directors or employees to whom such equity shares are to be
issued;
v. Principal terms and conditions on which sweat equity shares are to be issued, including
basis of valuation;
vi. Time period of association of such person with the company;
vii. The name and details of the Directors or Employees to whom the sweat equity shares will
be issued and their relationship to Promoters / Key Managerial personnel of the company;
viii. Price at which sweat equity shares are proposed to be issued;
ix. Consideration including consideration other than cash, if any to be received for the sweat
equity;
x. Details of ceiling on managerial renumeration, if any, be breached by issuance of such
sweat equity and how is it proposed to be dealt with;
xi. Statement to the effect that the company shall conform to the applicable accounting
standards; xii. Diluted earnings per share pursuant to the issue of sweat equity securities,
calculated in accordance with the applicable accounting standards;
Right Issue of Shares; [Section 62(2)(1)a]:
38
• Right issue does not required approval of Shareholders through Special Resolution, the Board of
Directors can pass a Board Resolution u/s 62(1)(a) to offer the shares to the existing
Shareholders of the Company in proportion to their current paid-up shareholding
• Where at any time, a company having a share capital proposes to increase its subscribed capital
by the issue of further shares, such shares shall be offered to persons who, at the date of the
offer, are holders of equity shares of the company in proportion, as nearly as circumstances
admit, to the paid-up share capital on those shares by sending a letter of offer subject to the
following conditions, namely:
• the offer shall be made by notice specifying the number of shares offered and limiting a time not
being less than fifteen days and not exceeding thirty days from the date of the offer within
which the offer, if not accepted, shall be deemed to have been declined;
• Unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to
include a right exercisable by the person concerned to renounce the shares offered to him or any
of them in favour of any other person; and the notice shall contain a statement of this right;
• After the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation
from the person to whom such notice is given that he declines to accept the shares offered, the
Board of Directors may dispose of them in such manner which is not dis-advantageous to the
shareholders and company;
• The notice shall be dispatched through registered post or speed post or through electronic mode
or through any other mode to all the existing shareholders at least three days before the opening
of the issue.
Preferential Allotment of Securities:
• Referring the provisions of Section 62(1) (c) preferential allotment of shares, Rule 13 of
Companies (Share Capital and Debentures) Rules, 2014and Rule 14 of Companies (Prospectus
and Allotment of Securities) Rules, 2014 concerning to the Preferential allotment of Shares of
the Company also makes an endeavor to light up on provisions and process of allotment of
shares through Preferential allotment of shares, difference between Private Placement of Shares
& Preferential allotment of shares etc.
• Through preferential allotment of shares company can issue following type of shares /
securities:
- Issuance of Equity shares.
- Issuance of Fully or partly convertible debentures
- Issuance of any other securities convertible into equity shares
• Conditions For Preferential Allotment Of Shares:
- Offer to be previously approved by Special Resolution:
The proposed offer of shares or invitation to subscribe shares has been previously approved
by the shareholders of the company, by a Special Resolution, for each of the Offer of
Invitation.
39
- Authorization in Article of Association:
There should be authority in AOA of the Company to issue shares/ securities through PAS.
If such power is absent then amend the clauses of AOA to insert power to PAS.
- Maximum No. of persons to whom offer can be made:
a. An offer can be made under a Private Placement Offer Letter to not more than 200
people in a financial year.
b. Not just the limitation of allotment to 200 people but even an invitation to subscribe
can’t be made to more than 200 people.
c. The 200 people limit excludes Qualified Institutional Buyers and Employees and the
limit of 200 people is calculated individually for each kind of security.
d. The restriction of 200 member would be reckoned individually for each kind of shares /
security i.e. (equity share, preference share or debenture).
• Finalization of name of Allottees:
As per rule 13(2)(d) Company have to mention the the names of the proposed Allottees and the
percentage of post preferential offer capital that may be held by them in the explanatory
statement to be issued for the General Meeting.
• E. Offer Letter (PAS -4):
The Company shall prepare the offer letter in form PAS-4 and maintain the complete record of
PAS in form PAS-5. In case of any preferential offer made by a company to one or more existing
members only then no need to prepare offer letter in PAS-4 format and no need to prepare PAS-5. �
Time period for completion of the Allotment:
The allotment of securities on a preferential basis shall be completed within a period of twelve
months from the date of passing of the special resolution. If the allotment of securities is not
completed within twelve months from the date of passing of the special resolution, another
special resolution shall be passed for the company to complete such allotment thereafter.
OR
The company making an offer or invitation under this section shall allot its securities within
sixty days from the date of receipt of the application money. Whichever is earlier.
• Valuation Report:
The price of shares or other securities to be issued on preferential basis shall not be less than the
price determined on the basis of valuation report of a registered valuer.
• Application Form:
The offer letter shall be accompanied by an application form serially numbered and addressed
specifically to the person to whom the offer is made and shall be sent to him, either in writing or
in electronic mode, within thirty days of recording the names of such persons at extra ordinary
general meeting.
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• No further offer till completion of earlier offer: The requirements or provision of sub-section (3)
of Section-42 shall apply in respect of offer or invitation of each kind of Shares / security and no
offer or invitation of another kind of security shall be made unless allotments with respect to
offer or invitation made earlier in respect of any other kind of security in completed.
• Value of Offer and invitation: The value of the Offer per person shall not be less than INR
20,000 of ‘face value’ of securities. The shareholder can accept less value of shares.
- Separate Bank Account:
Except in case of issue of shares for cash or consideration other than cash the following
provisions required to follow:
- The payment for subscription should be through the bank account of the person subscribing
to the Shares / security
- The Company should keep a record of the bank account from where such payments have
been received.
- The money so received shall be kept in a separate bank account of the company and utilized
only for allotment (or repayment).
• Other Conditions:
- The offer letter shall be sent to persons, either in writing or in electronic mode
- The Company shall not release any public advertisements or utilize any media, marketing or
distribution channels or agents to inform the public at large about such an offer.
- There is no condition in the Act or rule regarding minimum gap between two offers. A
company can come with new offer after completion of earlier offer.
- There is no condition in the Act or rule regarding maximum Number of Preferential
allotment of shares in a financial year
NOTE:
Any offer or invitation not in compliance with the provisions of this section shall be treated as a
public offer and all provisions of this Act, and the Securities Contracts (Regulation) Act, 1956 (42
of 1956) and the Securities and Exchange Board of India Act, 1992 (15 of 1992) shall be required to
be complied with
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KEY MANAGERIAL PERSONNEL
“Key Managerial Personnel”, in relation to a company, means—
• the Chief Executive Officer or the managing director or the manager;
• the company secretary;
• the whole-time director;
• the Chief Financial Officer;
• Such other officer, not more than one level below the directors who is in whole-time
employment, designated as key managerial personnel by the board; and
• such other officer as may be prescribed;
Companies Are Mandatorily Required To Appoint Key Managerial Personnel
As per Section 203 of the Companies Act, 2013 read with the Companies (Appointment and
Remuneration of Managerial Personnel) Rules, 2014, the following class of Companies, namely
• Every listed company, and
• Every other public company having paid up share capital of Rs. 10 Crores or more
shall have the following whole-time key managerial personnel,—
a. Managing Director, or Chief Executive Officer or manager and in their absence, a
wholetime director;
b. Company secretary; and
c. Chief Financial Officer
Further, as per recently notified Rule 8A of the Companies (Appointment and Remuneration of
Managerial Personnel) Rules, 2014, a company other than a company which is required to appoint a
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whole time key managerial personnel and which is having paid up share capital of Rs. 5 Crores or
more shall have a whole time Company Secretary.
MANNER OF APPOINTMENT OF KMP
• Every whole-time key managerial personnel of a company shall be appointed by means of a
resolution of the Board containing the terms and conditions of the appointment including the
remuneration.
• If the office of any whole-time key managerial personnel is vacated, the resulting vacancy shall
be filled-up by the Board at a meeting of the Board within a period of 6 months from the date of
such vacancy.
PENALTY FOR CONTRAVENTION
On Company: Fine which shall not be less than Rs. 1,00,000/- but which may
extend to Rs. 5,00,000/-
On every director and key
managerial personnel of the
company who is in default
Fine which may extend to Rs. 50,000/- and where the
contravention is a continuing one, with a further fine which may
extend to Rs. 1,000/- for every day after the first during which the
contravention continues.
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MEETINGS & RESOLUTIONS UNDER COMPANIES ACT, 2013
A. Meetings of board of Directors under the Companies Act, 2013
Section 173 of the Act deals with Meetings of the Board and Section 174 deals with quorum.
• The Act provides that the first Board meeting should be held within thirty days of the date of
incorporation.
• In addition to the first meeting to be held within thirty days of the date of incorporation,
there shall be minimum of four Board meetings every year and not more one hundred and
twenty days shall intervene between two consecutive Board meetings.
• In case of One Person Company (OPC), small company and dormant company, at least one
Board meeting should be conducted in each half of the calendar year and the gap between
two meetings should not be less than Ninety days.
First board meeting
Within thirty days from the date of its incorporation and may be convened at any time and place, on
any day.
Subsequent board meetings
At least 4 board meetings should be held every year and there should not be gap of more than 120
days between two consecutive board meetings and may be convened at any time and place, on any
day.
One Person Company, small company and dormant company shall convene a board meeting at least
once in half calendar year and gap between two meetings shall not be less than 90 days. Further, in
the case of section 8 companies (companies formed with charitable objects), board of Directors, of
such companies shall hold at least one meeting within every six calendar months.
Director shall vacate office if he absents himself from all the board meetings held during a period of
twelve months with or without leave approval (section 167). A board meeting attended by any
Director, whether in person or through video conferencing or audio visual means shall suffice the
requirement of section 167.
Where there is quorum in a meeting through physical presence of Directors, any other Director may
participate through video conferencing or other audio visual means in such meeting on any matter
specified therein.
Notice of Board Meetings
• The Act requires that not less than seven days notice in writing shall be given to every
director at the registered address as available with the company. The notice can be given by
hand delivery or by post or by electronic means.
• In case the Board meeting is called at shorter notice, at least one independent director shall
be present at the meeting. If he is not present, then decision of the meeting shall be
circulated to all directors and it shall be final only after ratification of decision by at least
one Independent Director.
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• Every officer of the company whose duty is to give notice under this section and who fails to
do so shall be liable to a penalty of twenty-five thousand rupees.
Quorum for Board Meetings: Section 174
• One third of total strength or two directors, whichever is higher, shall be the quorum for a
meeting.
• If due to resignations or removal of director(s), the number of directors of the company is
reduced below the quorum then, the continuing Directors may act for the purpose of
increasing the number of Directors to that required for the quorum or for summoning a
general meeting of the Company and for no other purpose.
• Where at any time the number of interested directors exceeds or is equal to two thirds of the
total strength of the Board of Directors, the number of directors who are not interested
directors and present at the meeting, being not less than two, shall be the quorum during
such time.
• Where a meeting of the Board could not be held for want of quorum, then, the meeting shall
automatically stand adjourned to the same day at the same time and place in the next week
or if that day is a national holiday, till the next succeeding day, which is not a national
holiday, at the same time and place.
Passing of Resolution by Circulation: Section 175
• A company may pass the resolutions through circulation. The resolution in draft form
together with the necessary papers may be circulated to the directors or members of
committee at their address registered with the company in India or through electronic means.
• The said resolution must be passed by majority of directors or members entitled to vote.
• If more than one third of directors require that the resolution must be decided at the meeting,
the chairperson shall put the resolution to be decided at the meeting.
• The resolution passed through circulation be noted at a subsequent meeting and made part of
the minutes of such meeting.
Defects in Appointment of Directors not to Invalidate Actions Taken: Section 176
• All acts done by directors shall be valid notwithstanding that it is subsequently noticed that
his appointment was invalid by reason of any defect or disqualifications or had terminated
by virtue of the provisions of Companies Act or the articles of the company.
Provided that nothing in this section shall be deemed to give validity to any act done by the
director after his appointment has been noticed by the company to be invalid or to have
terminated.
Disclosure in Board Report
No. of Board Meeting held during the previous year to be mentioned in Board Report.
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Board meetings through video conferencing or audio visual means (Rule 3)
The participation of Directors in a meeting of the board may be either in person or though video
conferencing or other audio visual means provided the meeting should be recorded and stored
properly. Major responsibility has been cast upon the chairman of the company and the company
secretary.
Any Director who intends to participate in the meeting through electronic mode may intimate about
such participation at the beginning of the calendar year and such declaration shall be valid for one
year.
Provided that such declaration shall not debar him from participation in the meeting in person in
which case he shall intimate the company sufficiently in advance of his intention to participate in
person.
Matters not to be dealt in meeting through video conferencing (Rule 4)
The following matters shall not be dealt with in any meeting held through video conferencing or
other audio visual means:
• The approval of the annual financial statements;
• The approval of the board’s report;
• The approval of the prospectus;
• The audit committee meetings for consideration of accounts; and
• The approval of the matter relating to amalgamation, merger, demerger, acquisition, and
takeover.
Notice of meeting
• Notice of the board meeting shall be given to all Directors, whether he is in India or outside
India by hand delivery or post or electronic means and shall be sent to postal address or
email address registered with the company. At least 7 days’ notice in writing shall be
required.
• Meeting of the board may be held at a shorter notice to transact urgent business matters
subject to the condition that at least one independent Directors from such a meeting shall be
circulated to all the Directors and shall be final only on rectification thereof by at least one
independent Director.
• Proof of sending Notice and Delivery shall be maintained by the company for three years
from the date of the Meeting.
• Every officer of the company whose duty is to duty is to give notice and who fails to do
shall be liable to a penalty of Rs.25, 000/-.
Quorum for meeting
• 1/3rd
of total strength or 2, whichever is higher. Directors participating through video
conferencing shall also be counted for the purpose of quorum [section 174(1)]. Further, in
case of section 8 companies, quorum for meeting should be either 8 members or 25% of
total strength whichever is less, provided that the quorum shall not be less than 2 members
• Where at any time the number of interested Directors exceeds or is equal to two thirds of the
total strength of the board of Directors, the number of Directors who are not interested
Directors and present at the meeting, being not less than two, shall be the quorum during
such time. [Section 174(3)].
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• Where a meeting of the board could not be held for want of quorum, then, unless the articles
of the company otherwise provide, the meeting shall automatically stand adjourned to the
same day at the same time and place in the next week or if that day is a national holiday, till
the next succeeding day, which is not a national holiday, at the same time and place.
*Interested Director means a Director within the meaning of section 184(2) of the
Companies Act, 2013.
*Shall not apply in case of a Private Limited Company as per Exemption notification dated
5th
June 2015.
• If there is a vacancy in the board and number of continuing Directors reduced below the
quorum fixed by the act, the remaining Directors may hold meeting for the following
purposes:
i. Increasing the number of Directors to that fixed for the quorum, or
ii. Summoning a general meeting of the company.
• For calculation of quorum any fraction of a number shall be rounded off as one and total
strength shall not include Directors whose places are vacant.
B. Various committees of the board
Audit committee and its provisions: (section 177)
• Audit committee shall be mandatory for every listed public company and other public
companies shall have atleast two Directors as Independent Directors having paid-up share
capital of Rs.10 Crore or more or turnover of Rs.100 Crore or more or aggregate
outstanding loans, debentures and deposits exceeding of Rs.50 Crore based on last audited
financial statements of the company.
• As per Companies Act, 2013, the audit committee shall consist of a minimum of three
Directors with independent Directors forming a majority.
• As per SEBI LODR Regulations 2015, chairperson of the audit committee should be
independent and at least 2/3rd
of the members of audit committee shall be independent
Directors.
• Majority of members including chairperson shall have ability to read and understand the
financial statements. As per SEBI LODR Regulation 2015, all members of audit committee
shall be financially literate and at least one member shall have accounting or related
financial management expertise.
• As per SEBI LODR Regulations 2015 Company Secretary shall act as the secretary to the
audit committee.
• In case of Listed Companies meeting shall be 4 times in a year and gap should not be more
than 4 months. Quorum should be 2 members or 1/3rd
of strength. Minimum 2 independent
Directors should be present.
• The Board’s report under sub-section (3) of section 134 shall disclose the composition of an
Audit Committee and where the Board had not accepted any recommendation of the Audit
Committee, the same shall be disclosed in such report along with the reasons therefore.
Every audit committee shall act in accordance with the terms of reference specified in
writing by the board which shall include:
i. The recommendation for appointment, remuneration and terms of appointment of
auditors of the company;
ii. Review and monitor the auditor’s independence and performance, and effectiveness of
audit process;
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iii. Examination of the financial statement and the auditor’s report thereon;
iv. Approval or any subsequent modification of transactions of the company with related
parties. Audit committee may make omnibus approval for related party transactions
subject to few conditions;
v. Scrutiny of inter-corporate loans and investments;
vi. Valuation of undertakings or assets of the company, whenever it is necessary;
vii. Evaluation of internal financial controls and risk management systems;
viii. Monitoring the end use of funds raised through public offers and related matters.
The audit committee shall have authority to investigate into any matter in relation to item
mentioned above and for this purpose shall have power o obtain professional advice from
external sources and have full access to information contained in the records of the company.
Nomination and remuneration committee and its provisions: [section 178(1)]
• Nomination and remuneration committee is mandatory for every listed company and other
public company having paid up share capital of Rs.10 Crore or more or turnover of Rs.100
Crore or more or aggregate outstanding loans, debentures and deposits exceeding of Rs.50
Crore based on last audited financial statements of the company.
• Such committee shall consist of three or more non-executive Directors out of which not less
than one half shall be independent.
• Chairperson of the company (whether executive or non-executive) may be appointed as a
member of such committee.
• Said committee will evaluate of every Director’s performance and shall identify persons
who are qualified to become Directors and senior management in accordance with the
criteria laid down, recommend to the board their appointment and removal.
• The committee shall formulate criteria for determining qualifications, positive attributes,
and independence of Directors and remuneration for Directors, key managerial personnel
and other employees. While formulating the policy, the committee shall ensure the level and
composition of remuneration is reasonable and sufficient to attract, retail & motivate the
Directors and relationship of remuneration to performance is clear and meets appropriate
performance benchmarks.
• The detailed policy shall be disclosed in the board’s report.
The stakeholders relationship committee and its provisions: [section 178(5)]
• A company has more than 1,000 share holders, debenture holders and any other security
holders at any time during a financial year shall constitute such committee consisting of
chairperson who must be non-executive Director and such other members as may be decided
by board of Directors.
• Stakeholders relationship committee shall consider and resolve the grievances of security
holders of the company.
C. Meetings of shareholders
Annual general meeting (AGM) – (section 96)
• Provisions of annual general meeting are applicable to every company other than one Person
Company.
• First AGM to be held within 9 months from closure of first financial year and in any other
case, within a period of six months, from the date of closing of the financial year. Further,
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the gap between two meetings shall not be more than 15 months. Registrar may, for special
reason, give extension up to 3 months for holding AGM except first AGM.
• AGM to be held between business hours, that is, 9 am and 6 pm on any day except national
holiday and shall be held at registered office or other place within the city, town or village in
which the registered address of the company is situated.
• AGM may be called by giving not less than clear 21 days’ notice either in writing or by
electronic mode in such manner as may be prescribed in the rules, provided AGM may be
called after giving a shorter notice if consent is given in writing or electronic mode by not
less than 95% of total members entitled to vote at such meeting.
• Statutory auditor’s attendance is mandatory unless otherwise exempted by the company.
• In the case of a private company, 2 members personally present shall constitute quorum. In
the case of a public company, quorum for meetings is as under:
Number of members Quorum
>=1,000 5 members personally present
>1,000 &<=5,000 15 members personally present
>5,000 30 members personally present
• A person cannot act as proxy on behalf of members exceeding 50 members and holding in
aggregate not more than 10% of total capital carrying voting rights. However, a member
holding more than 10% such share may appoint a single person as proxy and such person
shall not act as proxy for any other person or shareholder.
• Every listed company or a company having not less than 1,000 shareholders shall provide to
its members electronic voting facility.
• Every listed company to prepare a report on each AGM, containing confirmation that
meeting was convened, held and conducted. Also, listed company is required to file the
same with the registrar of companies within 30 days from the date of conclusion of AGM.
Failure to submit that report attracts fine on company of Rs.1 lakh minimum which may
extend to Rs.5 lakh and on every defaulting officer of Rs.25,000 minimum which may
extend to Rs.1 lakh.
• In case of default in holding AGM, tribunal may call AGM on application of any member of
the company.
• Annual general meeting of an unlisted company may be held at any place in India if consent
is given in writing or by electronic mode by all the members in advance.
• If any default is made in holding AGM, the company who is in default shall be punishable
with fine which may extend to Rs.1 lakh and in the case of continuing default, with a further
fine which may extend to Rs.5,000 for every day during which such default continues.
Extraordinary general meeting
• The board may, whenever it deems fit, call an extra-ordinary general meeting of the
company.
• The board shall, at the requisition made by,
a) In the case of a company having a share capital, such number of members who hold, on the
date of the receipt of the requisition, not less than one-tenth of such of the paid-up share
capital of the company as on that date carries the right of voting;
b) In the case of a company not having a share capital, such number of members who have, on
the date of the receipt of the requisition, not less than one-tenth of the total voting power of
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all the members having on the said date a right to vote, call an extraordinary general meeting
of the company.
D. Resolution under the Companies Act, 2013
The Companies Act, 2013 does not define the term resolution. A company being an artificial
person, any decision taken by the company shall be in the form of resolution. Ordinary, special
& unanimous resolution. The act generally specify the matters in respect of which resolutions
are required to be passed by the members in general meetings or Directors in board meeting and
are given below:
Ordinary resolution: section 114(1)
A resolution shall be an ordinary resolution if the notice required under the act has been duly
given and it is required to be passed by the votes cast, whether on a show of hands, or
electronically or on a poll, as the case may be in favour of the resolution, including the casting
vote, if any, of the chairman, by members who, being entitled so to do, vote in person, or where
proxies are allowed, by proxy or by postal ballot, exceed the votes, if any, cast against the
resolution by members, so entitled and voting. Special resolution: section 114(2)
A resolution shall be a special resolution when-
1. The intention to propose the resolution as a special resolution has been duly specified in the
notice calling the general meeting or other intimation given to the members of the
resolution;
2. The notice required under the act has been duly given; and
3. The votes cast in favor of the resolution, whether on a show of hands, or electronically or on
a poll, as the case may be, by members who, being entitled so to do, vote in person or by
proxy or by postal ballot, are required to be not less than three times the number of the
votes, if any, cast against the resolution by members so entitled and voting.
Unanimous resolution
Other than ordinary resolution and special resolution, there is also a concept of unanimous
resolution which requires the approval of all the members present and voting without a single
vote cast against it.
Example: as per section 162(1) of the Companies Act, 2013 which states that “at a general
meeting of a company, a motion for the appointment of two or more persons as Directors of the
company by a single resolution shall not be moved unless a proposal to move such a motion has
first been agreed to at the meeting without any vote being cast against it.”
Passing of resolution by circulation
As per section 175(1), companies may pass resolution through circulation. The said resolution
may be circulated in draft, together with necessary papers, if any, to all the Directors or
members of the committee at their address registered with the company in India by hand
delivery or courier/post or through email/fax. The same must be approved by majority of
Directors or members, who are entitled to vote on the resolution. A resolution passed through
circulation shall be noted at a subsequent meeting and made part of minutes of such meeting. If
more than 1/3rd
of Directors require the resolution must be decided at the meeting, the
chairperson shall put the resolution to be decided at a meeting of the board.
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SHAREHOLDERS MEETINGS UNDER COMPANIES ACT, 2013 GENERAL MEETING
• Every Company, other than One Person Company (OPC), must hold a general meeting in each
year apart from other meetings as Annual General Meeting (AGM).
• The AGM must be held within six months from the closing date of financial year. A notice of
not less than clear 21 days either in writing or through electronic mode has to be sent to all
members.
- notice of a meeting shall specify the place, date, day and the hour of the meeting and shall
contain a statement of the business to be transacted at such meeting.
- notice of every meeting shall be given to
a. every member of the company, legal representative of any deceased member or the
assignee of an insolvent member;
b. the auditor or auditors of the company; and
c. every director of the company.
• Every Company, apart from OPC, must have to hold in addition to other meetings, by giving a
notice about the meeting, not more than 15 months in between the date of AGM to the next.
• A Company may hold its first AGM within the period of 9 months from closing of its first
financial year otherwise in other cases within the period of 6 months.
• Every AGM shall be called during business hour i.e. 9.00 a.m. to 6.00 p.m. on any day except
national holiday and shall be held at registered office or other place in which the registered
office of the company is situated.
• AGM can be held anywhere in India for Unlisted Co. provided consent of all members being
taken.
APPROVAL OF FINANCIAL STATEMENTS AT AGM
• According to Section 129(2), at every AGM, Board of Directors of the company shall lay before
the meeting financial statement for the financial year.
• Moreover Section 129(3) says, where the company has one or more subsidiaries, then they have
to prepare in addition to the statement under section 129(2) a consolidated financial statement
and of all subsidiaries in same format and also present before the AGM of the Company with
the prescribed statement under section 129(2).
• There is no provision for extension of 1st AGM but in other cases it can be extended for period
of three months by ROC. However, if such first AGM is not held, NCLT can order holding of
General Meeting under section 97 of the Act. Application for extension of time should be
submitted electronically in E-FORM No.61.
BUSINESS TO BE TRANSACTED AT AGM
As per section 102(2) of the Companies Act, 2013, the following businesses may be transacted
during AGM:-
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• Ordinary Business [Section 102(2)], i.e.
- Consideration of financial Statements and reports of board of directors and Auditors.
- Declaration of any Dividend
- Appointment of directors in place of retiring one
- Appointment of and Fixation of the remuneration of the auditors.
• Special Business [Section 102(b)]:
Apart from the above businesses, the rest are deemed to be a Special business, transacted during
the AGM.
DEFAULTING IN HOLDING ANNUAL GENERAL MEETING
• If a Company not holding an Annual General Meeting as per Section 96, or not complying with
any direction of the Central Government, then the Company and its every officer come in the
Category under Section 99 of the Company Act, 2013 and punishable with fine which may
extend to Rs. 100,000 and in case of continuing default, it may extend to Rs. 5000 for every day.
EXTENSION FOR HOLDING AGM
• The Registrar of Companies (ROC) may extend the period within which the AGM (not being
the first AGM) shall be held, not exceeding 3 months under section 96(1).
• Application for extension of time should be submitted electronically in e-form GNL-1.
• However, if such first AGM is not held, NCLT can order holding of General Meeting under
section 97 of the Act.
CALLING OF EXTRAORDINARY GENERAL MEETING
• Board shall proceed to call EGM at the requisition made by members holding on the date of
receipt of requisition atleast 1/10 of share capital carrying voting right in case of company
having share capital.
• In case of company not having share capital, such number of members who have, on the date of
receipt of the requisition, not less than 1/10 of total voting power.
• If Board fail to proceed to call an EGM within in a period of twenty one day from the date of
receipt of valid requisition in regard to any matter on a day not later than 45 days from the date
of receipt of such requisition, the meeting may be called and held by requisitionists themselves
within a period of three months from the date of requisition.
• Requisition shall set out the matter for which meeting is to be called and shall be signed by
requisitionsts and shall be sent to the registered office of the Company.
QUORUM: (Sec 103)
• In case of Public Company if on date of meeting:
- Members <_ 1000 then 5 members personally present.
- Members>1000 but upto 5000 then 15 members personally present.
- Members>5000 then 30 members personally present.
• In case of Private Company 2 members personally present shall constitute quorum.
Articles may provide larger quorum
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• If quorum is not present within half an hour
- then meeting shall adjourned in same day in the next week on same time and place or such
other time and place as board may determine
Provided atleast 3 days notice is required to be given to members either personally or by
newspapers advertisement in English and one vernacular language having circulation at the
place where registered office of the company is situated. In case of absence of quorum at
adjourned meeting, the members present shall be quorum.
- Meeting called by requisition shall be canceled in case of absence of quorum.
APPOINTMENT OF CHAIRMAN OF GENERAL MEETING (Sec 104)
• Members personally present at the meeting shall elect one of themselves to be the Chairman
thereof on show of hands.
• In case of poll is demanded, it shall be taken forthwith in accordance with provisions of this Act
and the Chairman elected on show of vote shall be chairman until some other person is elected
as a result of poll and that other person shall be chairman for rest of the meeting.
PROXIES (Sec 105)
• Member entitled to attend and vote at a meeting of company shall be entitled to appoint another
person as proxy to attend and vote at the meeting. Proxy shall not have right to speak and vote
except on a poll.
• A person can act as proxy of maximum 50 members if their aggregate holding is not exceeding
10 % of total share capital of company caring voting rights. A member who holds more than 10
% of total share capital carrying voting rights may appoint a single person as his proxy but that
proxy shall not act as proxy of other person. Appointment of proxy shall be in form MGT-11.
• Notice of Meeting shall contain a statement that a member entitled to attend and vote is entitled
to appoint a proxy or where that is allowed, one or more proxies to attend and vote instead of
him and that proxy need not be member. Default of mentioning of such statement every officer
of company in default shall be liable to fine upto Rs. 5000.
• Provisions in articles requiring longer period then 48 hours before the meeting for a depositing
of proxy or other document relating to proxy with company shall be deemed as 48 hours.
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IMPORTANT DEFINITIONS UNDER THE COMPANIES ACT, 2013
Under section 2 of the Companies Act, 2013
In this act, unless the context otherwise requires,—
• “abridged prospectus" means a memorandum containing such salient features of a prospectus
as may be specified by the securities and exchange board by making regulations in this behalf;
• “accounting standards" means the standards of accounting or any addendum thereto for
companies or class of companies referred to in section 133;
Section 133 reads
The central government may prescribe the standards of accounting or any addendum thereto, as
recommended by the institute of chartered accountants of India, constituted under section 3 of
the chartered accountants act, 1949, in consultation with and after examination of the
recommendations made by the national financial reporting authority.
Provided that until the national financial reporting authority is constituted under section 132 of
the Companies Act, 2013 , the central government may prescribe the standards of accounting
or any addendum thereto, as recommended by the institute of chartered accountants of India,
constituted under section 3 of the chartered accountants act, 1949 (38 of 1949), in consultation
with and after examination of the recommendations made by national advisory committee on
accounting standards constituted under section 210A of the Companies Act, 1956".
• “auditing standards “means the standards of auditing or any addendum thereto for
companies or class of companies referred to in sub-section (10) of section 143;
Section 143 sub-section (10) reads
The central government may prescribe the standards of auditing orany addendum thereto, as
recommended by the institute of chartered accountants of India, constituted under section 3 of
the chartered accountants act, 1949, in consultation with and after examination of the
recommendations made by the national financial reporting authority:
Provided that until any auditing standards are notified, any standard or standards of auditing
specified by the institute of chartered accountants of India shall be deemed to be the auditing
standards.
• “body corporate” or “corporation” includes a company incorporated outside India, but does not
include—
- A co-operative society registered under any law relating to co-operative societies; and
- Any other body corporate (not being a company as defined in this act), which the
central government may, by notification, specify in this behalf;
• “book and paper" and “book or paper" include books of account, deeds, vouchers, writings,
documents, minutes and registers maintained on paper or in electronic form; � “books of
account" includes records maintained in respect of—
- All sums of money received and expended by a company and matters in relation to
which the receipts and expenditure take place;
- All sales and purchases of goods and services by the company;
- The assets and liabilities of the company; and
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- The items of cost as may be prescribed under section 148 in the case of a company
which belongs to any class of companies specified under that section;
• “Chartered Accountant" means a chartered accountant as defined in clause (b) of sub-section
(1) of section 2 of the chartered accountants act, 1949 (38 of 1949) who holds a valid
certificate of practice under sub-section (1) of section 6 of that act;
• “chief executive officer" means an officer of a company,
• “chief financial officer” means a person appointed as the chief financial officer of a company;
• “company" means a company incorporated under this act or under any previous company law;
• “company secretary" or “secretary” means a company secretary as defined in clause (c) of sub-
section (1) of section 2 of the company secretaries act, 1980 (56 of 1980) who is appointed by
a company to perform the functions of a company secretary under this act;
• “company secretary in practice" means a company secretary who is deemed to be in practice
under sub- section (2) of section 2 of the company secretaries act, 1980 (56 of 1980);
• “contributory" means a person liable to contribute towards the assets of the company in the
event of its being wound up,
Explanation.- for the purposes of this clause, it is hereby clarified that a person holding fully
paid-up shares in a company shall be considered as a contributory but shall have no
liabilities of a contributory under the act whilst retaining rights of such a contributory;
• "control" shall include the right to appoint majority of the Directors or to control the
management or policy decisions exercisable by a person or persons acting individually or in
concert, directly or indirectly, including by virtue of their shareholding or management rights
or shareholders agreements or voting agreements or in any other manner;
• “ Cost Accountant" means a cost accountant as defined in clause (b) of sub-section (1) of
section 2 of the Cost and Works Accountants Act, 1959 and who holds a valid certificate of
practice under sub-section (1) of section 6 of that Act;]
• '"Debenture" includes debenture stock, bonds or any other instrument of a company evidencing
a debt, whether constituting a charge on the assets of the company or not; Provided that—
- the instruments referred to in chapter iii-d of the reserve bank of India act, 1934 (2 of
1934); and
- such other instrument, as may be prescribed by the central government in consultation
with the reserve bank of India, issued by a company, shall not be treated as debenture;]
• "deposit" includes any receipt of money by way of deposit or loan or in any other form by a
company, but does not include such categories of amount as may be prescribed in consultation
with the reserve bank of India;
• "depository" means a depository as defined in clause (e) of sub-section (1) of section 2 of the
depositories act, 1996 (22 of 1996);
55
• "Director" means a Director appointed to the board of a company;
• "dividend" includes any interim dividend;
• "document" includes summons, notice, requisition, order, declaration, form and register,
whether issued, sent or kept in pursuance of this act or under any other law for the time being
in force or otherwise, maintained on paper or in electronic form;
• “employees’ stock option” means the option given to the Directors, officers or employees of a
company or of its holding company or subsidiary company or companies, if any, which gives
such Directors, officers or employees, the benefit or right to purchase, or to subscribe for, the
shares of the company at a future date at a pre-determined price;
• “expert" includes an engineer, a valuer, a chartered accountant, a company secretary, a cost
accountant and any other person who has the power or authority to issue a certificate in
pursuance of any law for the time being in force;
• "financial statement" in relation to a company, includes-
- A balance sheet as at the end of the financial year;
- A profit and loss account, or in the case of. A company carrying on any activity not
for profit, an income and expenditure account for the financial year;
- Cash flow statement for the financial year;
- A statement of changes in equity, if applicable; and
- Any explanatory note annexed to, or forming part of, any document referred to in
sub-clause (i) to sub-clause (iv):
Provided that the financial statement, with respect to one person company, small company
and dormant company, may not include the cash flow statement;
• “financial year", in relation to any company or body corporate, means the period ending on the
31st day of march every year, and where it has been incorporated on or after the 1st day of
January of a year, the period ending on the 31st day of march of the following year, in respect
whereof financial statement of the company or body corporate is made up:
Provided that on an application made by a company or body corporate, which is a holding
company or a subsidiary or associate company of a company incorporated outside India and
is required to follow a different financial year for consolidation of its accounts outside India,
the Central Government* may, if it is satisfied, allow any period as its financial year,
whether or not that period is a year:
Provided also that any application pending before the Tribunal as on the date of
commencement of the Companies (Amendment) Ordinance, 2018 shall be disposed of by
the Tribunal in accordance with the provisions applicable to it before such commencement.
*Substituted by the Companies (Amendment) Ordinance, 2018 dated 02th November, 2018.
56
• "free reserves" means such reserves which, as per the latest audited balance sheet of a
company, are available for distribution as dividend:
Provided that-
- Any amount representing unrealised gains, notional gains or revaluation of assets,
whether shown as a reserve or otherwise, or
- Any change in carrying amount of an asset or of a liability recognized in equity,
including surplus in profit and loss account on measurement of the asset or the liability
at fair value,
- Shall not be treated as free reserves;
• "global depository receipt" means any instrument in the form of a depository receipt, by
whatever name called, created by a foreign depository outside India and authorised by a
company making an issue of such depository receipts;
• “Independent Director" means an independent Director referred to in sub-section (5) of section
149;
Note: the above should be read as sub-section (6) of section 149 and under section 149(6)
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,—
a. Who, in the opinion of the board, is a person of integrity and possesses relevant
expertise and experience;
b. (i) who is or was not a promoter of the company or its holding, subsidiary or
associate company;
(ii) who is not related to promoters or Directors in the company, its holding, subsidiary or
associate company;
c. who has or had no pecuniary relationship, other than remuneration as such Director or
having transaction not exceeding ten per cent of his total income or such amount as
may be prescribed, with the company, its holding, subsidiary or associate company, or
their promoters, or Directors, during the two immediately preceding financial years or
during the current financial year;
d. none of whose relatives—
- is holding any security of or interest in the company, its holding, subsidiary or
associate company during the two immediately preceding financial years or during
the current financial year:
Provided that the relative may hold security or interest in the company of face value
not exceeding fifty lakh rupees or two per cent of the paid-up capital of the
company, its holding, subsidiary or associate company or such higher sum as may
be prescribed;
- is indebted to the company, its holding, subsidiary or associate company or their
promoters, or Directors, in excess of such amount as may be prescribed during the
two immediately preceding financial years or during the current financial year;
- has given a guarantee or provided any security in connection with the indebtedness
of any third person to the company, its holding, subsidiary or associate company or
their promoters, or Directors of such holding company, for such amount as may be
prescribed during the two immediately preceding financial years or during the
current financial year; or
57
- has any other pecuniary transaction or relationship with the company, or its
subsidiary, or its holding or associate company amounting to two per cent or more
of its gross turnover or total income singly or in combination with the transactions
referred to in sub-clause (i), (ii) or (iii);]
e. who, neither himself nor any of his relatives—
- holds or has held the position of a key managerial personnel or is or has been
employee of the company or its holding, subsidiary or associate company in any of
the three financial years immediately preceding the financial year in which he is
proposed to be appointed :
Provided that in case of a relative who is an employee, the restriction under this
clause shall not apply for his employment during preceding three financial years;
- is or has been an employee or proprietor or a partner, in any of the three financial
years immediately preceding the financial year in which he is proposed to be
appointed, of—
i. a firm of auditors or company secretaries in practice or cost auditors of the
its holding, subsidiary or associate company amounting to ten per cent or
more of the gross turnover of such firm;
ii. holds together with his relatives two per cent or more of the total voting
power of the company; or
- is a chief executive or Director, by whatever name called, of any non-profit
organisation that receives twenty-five per cent or more of its receipts from the
company, any of its promoters, Directors or its holding, subsidiary or associate
company or that holds two per cent or more of the total voting power of the
company; or
f. who possesses such other qualifications as may be prescribed.
• "Indian depository receipt" means any instrument in the form of a depository receipt created by
a domestic depository in India and authorised by a company incorporated outside India making
an issue of such depository receipts;
• "key managerial personnel", in relation to a company, means-
- The chief executive officer or the managing Director or the manager;
- The company secretary;
- The whole-time Director;
- The chief financial officer;
- Such other officer, not more than one level below the Directors who is in whole-time
employment, designated as key managerial personnel by the board; and
- Such other officer as may be prescribed;
• "listed company" means a company which has any of its securities listed on any recognised
stock exchange;
58
• "manager" means an individual who, subject to the superintendence, control and direction of
the board of Directors, has the management of the whole, or substantially the whole, of the
affairs of a company, and includes a Director or any other person occupying the position of a
manager, by whatever name called, whether under a contract of service or not;
• "managing Director" means a Director who, by virtue of the articles of a company or an
agreement with the company or a resolution passed in its general meeting, or by its board of
Directors, is entrusted with substantial powers of management of the affairs of the company
and includes a Director occupying the position of managing Director, by whatever name called.
Explanation.- for the purposes of this clause, the power to do administrative acts of a routine
nature when so authorised by the board such as the power to affix the common seal of the
company to any document or to draw and endorse any cheque on the account of the company
in any bank or to draw and endorse any negotiable instrument or to sign any certificate of
share or to direct registration of transfer of any share, shall not be deemed to be included
within the substantial powers of management;
• "member" in relation to a company, means-
- The subscriber to the memorandum of the company who shall be deemed to have agreed to
become member of the company, and on its registration, shall be entered as member in its
register of members;
- Every other person who agrees in writing to become a member of the company and whose
name is entered in the register of members of the company;
- Every person holding shares of the company and whose name is entered as a beneficial
owner in the records of a depository;
• "net worth" means the aggregate value of the paid-up share capital and all reserves created out
of the profits , securities premium account and debit or credit balance of profit and loss
account, after deducting the aggregate value of the accumulated losses, deferred expenditure
and miscellaneous expenditure not written off, as per the audited balance sheet, but does not
include reserves created out of revaluation of assets, write-back of depreciation and
amalgamation;
• "officer" includes any Director, manager or key managerial personnel or any person in
accordance with whose directions or instructions the board of Directors or any one or more of
the Directors is or are accustomed to act;
• "officer who is in default", for the purpose of any provision in this act which enacts that an
officer of the company who is in default shall be liable to any penalty or punishment by way of
imprisonment, fine or otherwise, means any of the following officers of a company, namely:-
- Whole-time Director;
- Key managerial personnel;
- Where there is no key managerial personnel, such Director or Directors as specified by the
board in this behalf and who has or have given his or their consent in writing to the board to
such specification, or all the Directors, if no Director is so specified;
- Any person who, under the immediate authority of the board or any key managerial
personnel, is charged with any responsibility including maintenance, filing or distribution of
59
accounts or records, authorises, actively participates in, knowingly permits, or knowingly
fails to take active steps to prevent, any default;
i. Any person in accordance with whose advice, directions or instructions the board
of Directors of the company is accustomed to act, other than a person who gives
advice to the board in a professional capacity;
ii. Every Director, in respect of a contravention of any of the provisions of this act,
who is aware of such contravention by virtue of the receipt by him of any
proceedings of the board or participation in such proceedings without objecting to
the same, or where such contravention had taken place with his consent or
connivance;
- In respect of the issue or transfer of any shares of a company, the share transfer agents,
registrars and merchant bankers to the issue or transfer;
• "postal ballot" means voting by post or through any electronic mode;
• "promoter" means a person-
- Who has been named as such in a prospectus or is identified by the company in the annual
return referred to in section 92; or
- Who 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 board of Directors of the
company is accustomed to act:
Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a
professional capacity;
• "prospectus" means any document described or. Issued as a prospectus and includes a red
herring prospectus referred to in section 32 or shelf prospectus referred to in section 31 or any
notice, circular, advertisement or other document inviting offers from the public for the
subscription or purchase of any securities of a body corporate;
• "related party", with reference to a company, means-
- A Director or his relative;
- A key managerial personnel or his relative;
- A firm in which a Director, manager or his relative is a partner;
- A private company in which a Director or manager [or his relative] is a member or Director;
- A public company in which a Director or manager is a Director and holds along with his
relatives, more than two percent of its paid-up share capital;
- Anybody corporate whose board of Directors, managing Director or manager is accustomed
to act in accordance with the advice, directions or instructions of a Director or manager;
- Any person on whose advice, directions or instructions a Director or manager is accustomed
to act:
Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or
instructions given in a professional capacity;
60
- Any company which is-
i. A holding, subsidiary or an associate company of such company; or
ii. A subsidiary of a holding company to which it is also a subsidiary;
- Such other person as may be prescribed;
Note: sub-clause (viii) of clause (76) of section 2 shall not apply with respect to section 188, to
a private company – vide notification f.no. 1/2/2014-cl.i dated 5th june, 2015.
Under companies (specification of definitions details) rules, 2014, sub-rule 3, related party -
for the purposes of sub-clause (ix) of clause (76) of section 2 of the act, a Director other than
an independent Director, or key managerial personnel of the holding company or his relative
with reference to a company, shall be deemed to be a related party.
• "relative", with reference to any person, means anyone who is related to another, if— -
they are members of a hindu undivided family;
- they are husband and wife; or
- one person is related to the other in such manner as may be prescribed
Under companies (specification of definitions details) Rules, 2014, sub-rule 4
List of relatives in terms of clause (77) of section 2
A person shall be deemed to be the relative of another, if he or she is related to another in the
following manner, namely:-
1. Father: provided that the term “father” includes step-father.
2. Mother: provided that the term “mother” includes step-mother.
3. Son: provided that the term “son” includes step-son.
4. Son’s wife.
5. Daughter
6. Daughter’s husband
7. Brother: provided that the term “brother” includes step-brother;
8. Sister: provided that the term “sister” includes step-sister.
• "remuneration" means any money or its equivalent given or passed to any person for services
rendered by him andincludes perquisites as defined under the income-tax act, 1961 (43 of 1961);
• “securities” means the securities are defined in clause (h) of section 2 of the securities contracts
(regulation) act, 1956 (42 of 1956);
Section 2(h) of securities contracts (regulation) act defines "securities" as follows:
"securities” include -
- Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a
like nature in or of any incorporated company or other body corporate.
� derivative
� units or any other instrument issued by any collective investment scheme to the
investors in such schemes.
61
� security receipt as defined in clause (zg) of section 2 of the securitisation and
reconstruction of financial assets and enforcement of security interest act, 2002.
� units or any other such instrument issued to the investors under any mutual fund
scheme.
Explanation.- for the removal of doubts, it is hereby declared that "securities" shall not
include any unit linked insurance policy or scrips or any such instrument or unit, by
whatever name called, which provides a combined benefit risk on the life of the persons and
investment by such persons and issued by an insurer referred to in clause (9) of section 2 of
the insurance act, 1938.
� any certificate or instrument (by whatever name called) issued to an investor by any
issuer being a special purpose distinct entity which possesses any debt or receivable,
including mortgage debt, assigned to such entity, and acknowledging beneficial interest
of such investor in such debt or receivable, including mortgage debt, as the case may be.
- Government securities.
� such other instruments as may be declared by central government to be securities;
• "Sweat equity shares" means such equity shares as are issued by a company to its Directors or
employees at a discount or for consideration, other than cash, for providing their know-how or
making available rights in the nature of intellectual property rights or value additions, by
whatever name called;(89) "total voting power" in relation to any matter, means the total
number of votes which may be cast in regard to that matter on a poll at a meeting of a company
if
all the members thereof or their proxies having a right to vote on that matter are present at the
meeting and cast their votes;
• "turnover' means the aggregate value of the realization of amount made from the sale, supply or
distribution of goods or on account of services rendered, or both, by the company during a
financial year;
• "whole-time Director" includes a Director in the whole- time employment of the company;
Under companies (specification of definitions details) rules, 2014, sub-rule 2(k)–
"executive Director" means a whole time Director as defined in clause (94) of section 2 of the
act.
• words and expressions used and not defined in this act but defined in the securities contracts
(regulation) act, 1956 (42 of 1956) or the securities and exchange board of India act, 1992 (15
of 1992) or the depositories act, 1996 (22 of 1996) shall have the meanings respectively
assigned to them in those acts.
62
DEFINITIONS UNDER OTHER SECTIONS OF THE COMPANIES ACT, 2013
Section 31 - “shelf prospectus” means a prospectus in respect of which the securities or class of
securities included therein are issued for subscription in one or more issues over a certain period o
without the issue of a further prospectus.
Section 32 - "red herring prospectus" means a prospectus which does not include complete
particulars of the quantum or price of the securities included therein.
Section 42 'private placement"means any offer or invitation to subscribe or issue of securities to a
select group of persons by a company (other than by way of public offer) through private placement
offer-cum-application, which satisfies the conditions specified in the section.
Section 43 - explanation – for the purposes of this section, -
i. “equity share capital”, with reference to any company limited by shares, means all share
capital which is not preference share capital;
ii. “preference share capital”, with reference to any company limited by shares, means that
part of the issued share capital of the company which carries or would carry a preferential
right with respect to –
(a) Payment of dividend, either as a fixed amount or an amount calculated at a fixed rate,
which may either be free of or subject to income-tax; and
(b) Repayment, in the case of a winding up or repayment of capital, of the amount of the
share capital paid- up or deemed to have been paid-up, whether or not, there is a
preferential right to the payment of any fixed premium or premium on any fixed scale,
specified in the memorandum or articles of the company;
Capital shall be deemed to be preference capital, notwithstanding that it is entitled to either or
both of the following rights, namely:-
(a) That in respect of dividends, in addition to the preferential rights to the amounts
specified in sub- clause (a) of clause (ii), it has a right to participate, whether fully or to
a limited extent, with capital not entitled to the preferential right aforesaid;
(b) That in respect of capital, in addition to the preferential right to the repayment, on a
winding up, of the amounts specified in sub-clause (b) of clause (ii), it has a right to
participate, whether fully or to a limited extent, with capital not entitled to that
preferential right in any surplus which may remain after the entire capital has been
repaid.
Section 96(2) explanation- for the purposes of this sub- section, “national holiday" means and
includes a day declared as national holiday by the central government.
Section 134(5)(e) - explanation- for the purposes of this clause, the term “internal financial
controls” means the policies and procedures adopted by the company for ensuring the orderly and
efficient conduct of its business, including adherence to company's policies, the safeguarding of its
assets, the prevention and detection of frauds and errors, the accuracy and completeness of the
accounting records, and the timely preparation of reliable financial information;
Section 151 - explanation- for the purposes of this section "small shareholders" means a shareholder
holding shares of nominal value of not more than twenty thousand rupees or such other sum as may
be prescribed.
Section 185(2) - explanation- for the purposes of this section, the expression "to any other person in
whom Director is interested" means-
63
a. any private company of which any such Director is a Director or member;
b. any body corporate at a general meeting of which not less than twenty-five per cent. of the
total voting power may be exercised or controlled by any such Director, or by two or more
such Directors, together; or
c. any body corporate, the Board of Directors, managing Director or manager, whereof is
accustomed to act in accordance with the directions or instructions of the Board, or of any
Director or Directors, of the lending company.
Section 188-explanation-in this sub-section,-
a. The expression "office or place of profit" means any office or place-
- Where such office or place is held by a Director, if the Director holding it receives
from the company anything by way of remuneration over and above the remuneration
to which he is entitled as Director, by way of salary, fee, commission, perquisites, any
rent-free accommodation, or otherwise;
- Where such office or place is held by an individual other than a Director or by any
firm, private company or other body corporate, if the individual, firm, private company
or body corporate holding it receives from the company anything by way of
remuneration, salary, fee, commission, perquisites, any rent-free accommodation, or
otherwise;
b. The expression "arm's length transaction" means a transaction between two related parties
that is conducted as if they were unrelated, so that there is no conflict of interest.
Section 205 - explanation- for the purpose of this section, the expression "'secretarial standards"
means secretarial standards issued by the institute of company secretaries of India constituted under
section 3 of the company secretaries act, 1980 (56 of 1980) and approved by the central government.
Also the Secretarial Standards issued by the Institute of Company Secretaries of India(ICSI) needs
to be followed by the Companies(SS-I, SS-II & SS-III).
Section 455 -explanation- for the purposes of this section,-
- "inactive company” means a company which has not been carrying on any business or
operation, or has not made any significant accounting transaction during 'the last two financial
years, or has not filed financial statements and annual returns during the last two financial years;
- "significant accounting transaction” means any transaction other than-
� payment of fees by a company to the registrar;
� payments made by it to fulfill the requirements of this act or any other law;
� allotment of shares to fulfill the requirements of this act
64
PRIVILEGES FOR PRIVATE COMPANY/OPC/SMALL COMPANY
Sr.
No.
Section under
Companies
Act 2013
Section under
Companies Act
1956
Description
1 2(68) 3(1)(iii) Minimum paid-up capital Rs. 1 lakh (w.e.f. 29.05.2015,
minimum paid capital requirement is removed)
2 3(1) 12 Need only 2 persons to form a private company
3 58 111(11) & (13) Restricted right of appeal to CLB/NCLT against refusal
to transfer shares
4 67(2) 77(2) & No prohibition on a private company to provide
financial assistance to any one for purchasing or
subscribing for shares of the company or its holding
company
5 103 174 Minimum quorum for company meetings – 2 members
in person (as against 5 members for public company)
6 149(1) 252 Minimum number of Directors is two
7 149(1)
Second
proviso
Rule 3 of the companies (appointment and
qualification) rules, 2014 exempts private company
from having a woman Director unless it is subsidiary
of public company
8 149(4) Not mandatory to have Independent Directors for
private company unless it is subsidiary of public
company
9 152(6) 255 Retirement of Directors by rotation not mandatory for
private company unless it is subsidiary of public
company and the articles provide for the retirement of
Directors at every annual general meeting.
10 160(1) 257 Provisions relating to election of new candidates in
place of retiring Directors shall not apply to private
company unless it is subsidiary of public company
11 161(4) 262 Provision of filling up casual vacancy not applicable
for private company unless it is subsidiary of public
company
12 164(3) 274(1) Private company can provide special disqualification
for appointment of Director
13 167(4) 283 Private company can provide additional grounds for
vacating office of Director
14 190 302 Provisions re. Contract of employment or
memorandum of terms of employment of managing
Director/wholetime Directors to be kept- not
applicable to a private company
15 197 198,309-311 Ceiling on overall managerial remuneration, restriction
on payment of remuneration to Directors or increase
their remuneration unless it is subsidiary of public
company
65
16 197-198 349-350 Determination of net profits and depreciation for
managerial remuneration shall not apply to private
company unless it subsidiary of public company.
New exemptions notified: (vide notification no. GSR 464 (e) dated 5-6-2015
17 2(76)(viii) Shall not apply to private company unless it is
subsidiary of public company with respect to section
188
18 43 & 47 85-90 Only 2 kinds of share capital & voting rights of
Sr.
No.
Section under
Companies
Act 2013
Section under
Companies Act
1956
Description
shareholders – shall not apply where memorandum or
articles so provide
19 62(1)(a) & 62
(2)
81 If consent from 90% of members of a private company
received in writing or electronic mode. Shorter period
for acceptance of offer and dispatch of notice of offer,
is allowed. I.e. Can be closed before 15 days
20 62(1)(b) 81 Only ordinary resolution required against special
resolution, for approval of ESOP
21 67 77 Restriction on loan for buying its own shares not
applicable to private companies, not having investment
by body corporate in its share capital and borrowing
from Banks/FIs less than 2 times paid capital but not
more than Rs. 50 Crore s and no default in repayment
of borrowings from banks/FIs
22 73 (2) 58a Private company can accept deposits from members,
not exceeding paid-up capital and free reserves.
However prescribed details are required to be filed
with ROC. (also refer further exemptions allowed vide
notification dated 15-92015, detailed herein below)
23 101 to 107
&109
171-178
&181183
Provision related to notice of meetings and related
matters shall not apply if articles so provide
24 117(3)(g) For private company, no need to file form mgt 14, for
resolutions u/s. 179(3)
25 141(g) 226 The ceiling of 20 companies, on number of companies
an auditor can audit, does not include audit of Private
Companies. Unless it is subsidiary of public company.
Having paid-up capital less than Rs. 100 Crore s
26 160 257 Notice of candidature, security deposit (Rs. 100,000/-)
for appointment of a director (other than retiring
director) not applicable to a private company unless it
is subsidiary of public company
27 162 263 Individual resolution not required for appointment of
more than 1 directors in case of a private company
66
28 180 Restrictions on the powers of the board for the matters
specified in section 180, not applicable to private
companies unless it is subsidiary of public company.
29 184(4) In case of private companies, interested director is
allowed to participate in the board meeting, after
disclosing interest in the matter to be discussed by the board meeting.
Note: such director not to be counted in quorum
[section 174 (3) explanation]
30 185 295,296 Restrictions on loans to directors/relatives etc. Not
applicable to private companies, not having investment
by body corporate in its share capital and borrowing
from banks/FIs less than 2 times paid capital but not
more than Rs. 50 Crore s and no default in repayment
of borrowings from Banks/FIs body corporate should
not be shareholder
31 Second
proviso to
A related party member of a private company is
allowed to vote on special resolution to approve
Sr.
No.
Section under
Companies
Act 2013
Section under
Companies Act
1956
Description
section 188(1) contracts or arrangement
32 196(4) & (5) Provisions of sections 196(4) & (5) shall not apply to a
private company
The private companies, while complying with above exceptions (17-32), shall ensure that the
interests of their shareholders are protected (as per clause 2 of the aforesaid notification dated 5-06-
2015)
New exemptions notified: (vide notification dated 5th
June 2015)
1 73(2) 58(a) Private company can accept deposit from relative of
director. However, a declaration to be given in writing
by the person that the amount given is not from funds
borrowed by him and disclosure to be made in board’s
report
Note 1 in addition to the above, a small company will have following additional privileges:
1 2(40) - Financial statement of a small company shall not
include cash flow statement
2 92(1) - Annual return to be signed by the director and
company secretary or where there is no company
secretary by a company secretary in practice
3 173(5) - Small company may hold one board meeting in each
half year and the gap between the two meetings shall
not be less than ninety days
67
Note 2 in addition to be above privileges 1-32, an OPC will have following additional privileges:
1 2(40) - Financial statement of an one person company (OPC)
shall not include cash flow statement
2 3(1) - Need only 1 person to form an OPC
3 4(1)(f) - Facility to name a nominee in the memorandum of
association, who shall become the member of the
company, on death of the subscriber or his being
incapacitated to contract. Facility to change the
nominee. Nominee can also resign.
4 92(1) - Annual return to be signed by the director, where there
is no company secretary
5 96(1) - OPC not required to hold annual general meeting
6 122 - Exempted from section 98 and sections 100 to 111
(both inclusive), containing provisions relating to
general meetings.
7 134 - The financial statements to be signed by only one
director and the report of the board of directors to be
attached to the financial statements shall mean a report
containing explanations or comments by the board on
every qualification, reservation or adverse remark or
disclaimer made by the auditor
8 137(1) - The OPC shall file a copy of the financial statements
duly adopted by its members, along with all the
documents, which are required to be attached thereto,
within 180 days from the closure of the financial year
9 149(1)(a) - OPC shall have minimum one director only
Sr.
No.
Section under
Companies
Act 2013
Section under
Companies Act
1956
Description
10 152(1) - Subscriber to the memorandum of association shall be
the first director of the company until the directors are
appointed
68
COMPLIANCES UNDER THE COMPANIES ACT, 2013
ANNUAL AND OTHER OBLIGATIONS UNDER THE COMPANIES ACT, 2013
Obligations under the Companies Act, 2013 with respect to e-filing of forms, returns and documents
with registrar of companies
The Companies Act, 2013 (“the act”) provides for and casts an obligation on companies
incorporated under the act to file various forms, returns and documents under various provisions
with the registrar of companies of companies (ROC)/Regional Director (RD)/ Central Government
(CG) in an electronic mode within the prescribed time along with the prescribed fees or with
payment of additional fees in the event of delayed filing.
Ministry of corporate affairs (MCA) has introduced e-governance project MCA-21 which is
designed to fully automate all processes related to proactive enforcement and compliance of legal
requirements under the act. The major component of this project are front office and back office.
The front office is administered through the portal www.MCA.gov.in since September 30, 2006. As
the Companies Act, 2013 has become operative, new forms have been prescribed. In case the
facility is not available to upload the form, you may use the manual form and attach the same to
general e-form e.g. GNL-2 or such other prescribed form as specified in circular no. 17 dated June
11, 2014 read with circular no. 6/2014 dated march 28, 2014.
Various documents, return etc. That are required to be filed with the ROC could be categorized as
under:
• Forms required to be filed once in a year – annual filed obligations; and
• Forms required to be filed from time-to time with ROC/CG as provided under the act based
on specific event – event based filing obligations.
Annual Filing Obligations:
A. Annual Return under section 92
i. The annual return, as on the financial year end, has to be filed with the ROC in an
electronic mode within 60 days of the holding of the annual general meeting (AGM);
ii. Where AGM has not been held, the return is required to be filed within 60 days from
the date on which the (AGM) should have been held together with the statement
specifying the reasons for not holding the annual general meeting with such fees or
additional fees as may be prescribed.
iii. The return is to be duly signed by a Director and the company secretary, or where there
is no company secretary, by a company secretary in practice. In relation to One Person
Company and small company, the annual return shall be signed by the company
secretary, or where there is no company secretary, by the Director of the company.
Provided further that the Central Government may prescribe abridged form of annual
return for "One Person Company, small company and such other class or classes of
companies as may be prescribed. The annual return in the format prescribed is to be
attached as per section 92;
iv. Every company shall place a copy of the annual return on the website of the company,
if any, and the web-link of such annual return shall be disclosed in the Board's report.
v. An extract of annual return shall form part of board’s report. Refer mgt-9
vi. The annual return filed by a listed company or by a company having paid-up capital of
Rs 10 Crore s or more or turnover of Rs. 50 Crore s or more shall be credited by
company secretary in practice in form MGT-8.
69
vii. Copies of all annual returns and copies of all certificates and documents required to be
annexed thereto shall be preserved for a period of 8 years from the date of filing with
the registrar.
Note: in case of an adjourned (AGM), the annual return incorporates the date of the original
meeting.
Description E-Form
Annual return MGT-7
Practicing CS certificate MGT-8
Foreign company u/s. 384(2) FC-4
Extract of annual return MGT-9
B. Filing of financial statements with registrar, under section 137 [E-Form no. AOC-4]
a) For companies other than OPC
i. Financial statement to be adopted at AGM;
ii. Copy of ** financial statements including balance sheet, statement of profit & loss, cash
flow statement, statement of changes in equity, Directors report and auditor’s report along
with form no. Aoc-4, to be e-filed with the ROC within 30 days of the date of the AGM;
iii. Where an AGM is not held, copy of financial statements to be e-filed within 30 days from
the last day on or before which the meeting ought to have been held and a statement of the
fact and of the reasons thereof to be filed along with the balance sheet.
iv. Where balance sheet, etc., is laid before but not adopted at the AGM or the AGM was
adjourned without adopting the financial statement, a statement of the fact and reasons
thereof was filed along with balance sheet, etc. To be filed within 30 days of the date of
AGM. However, the registrar shall take the unaudited balance sheet filed as ‘provisional’
till the audited financial statements are filed.
v. Company shall, along with its financial statements to be filed with registrar, attach the
accounts of its subsidiary or subsidiaries which have been incorporated outside India and
which have not established their place of business in India.
b) For OPC
A one person company shall file a copy of the financial statements duly adopted by its
member within 180 days from the closure of the financial year.
Note: company cannot file any other forms with ROC nor can CA/CS/Cost Accountant sign
forms (except specified forms) unless the company has filed balance sheet, statement of
profit & loss, and annual return up to-date.
Accounts of the subsidiary (ies) need to be attached where applicable.
** As per circular no. 6/2014 dated march 28, 2014, all forms specified in table a of the said
circular will have to be filed for financial year 2013-14. No new notification issued in this
respect till May 31, 2015.
Description E-Form (Under Companies Act,
1956)
**Form for filing balance sheet and other documents with the registrar FORM 23AC
**Form for filing profit and loss account and other documents with the
registrar
FORM 23ACA
70
*Form for filing XBRL* documents in respect of balance sheet and
other documents with the registrar
FORM 23AC-
XBRL
*Form for filing XBRL * document in respect of profit and loss FORM 23ACA-
account and other documents with the registrar XBRL
Annual filing forms (from financial year 2014-15)
Description E-FORM (Under
Companies Act,
2013)
Form for filing annual return by a company FORM MGT - 7
Form for filing financial statement and other documents with the
registrar
FORM AOC - 4
Form for filing consolidated financial statements and other documents
with the registrar
FORM AOC -
4(CFS)
Form for filing XBRL document in respect of financial statement and
other documents with the registrar.
FORM AOC - 4
XBRL
Addendum for rectification of defects or incompleteness. FORM GNL - 4
*following class of companies are required to file their accounts in XBRL format. MCA has
prescribed separate forms for the same.
• All companies listed in India and their subsidiaries;
• All companies having a paid-up capital of Rs. 5 Crore s and above;
• All companies having a turnover of Rs 100 Crore s or above;
• All companies who were required to file their financial statements for F.Y. 2013-14
using XBRL mode.
• However, banking companies, insurance companies, power companies, power
companies, Non-Banking Financial Companies (NBFC) are exempted from XBRL
filing till further instructions from MCA.
** as per circular no. 6/2014 dated march 28, 2014, all forms specified in table a of the said
circular will have to be filed for financial years up to F.Y. 2013-14.
Event based filing obligations
Approval services
Description E-FORM
Form for filing application or documents with central government FORM CG-1
Form of intimation of appointment of cost auditor by the company to
central government
FORM CRA-2
Approval services (regional Director)
Description E-FORM
Application to regional Director for conversion of section 8 company
into company of any other kind
FORM INC 18
Application for confirmation by regional Director for change of
registered office of the company within the state from the jurisdiction
of one registrar to the jurisdiction of another registrar within same
state
FORM INC 23
Memorandum of appeal FORM ADJ
71
Form for filing application to regional Director FORM RD-1
Form for filing petitions to central government (RD) FORM RD-2
Application for removal of auditor(s) from his/ their office before
expiry of term
FORM ADT-2
Approval services (registrar of companies)
Description E-FORM
Application by company to ROC for removing its name from register
of companies
FORM STK-2
Application for approval of the central government for change of name FORM INC 24
Form for filing an application with registrar FORM GNL-1
Application to registrar for obtaining the status of dormant company FORM MSC-1
Application for seeking status of active company FORM MSC-4
Application for grant of license under section FORM INC-12
Change services
Description E-FORM
Application form for reservation or change of a name FORM INC-1
Annual accounts along with the list of all principal places of business
in
India established by foreign company
FORM FC-3
Return of alteration in the charter, statute or memorandum and articles
of association, address of the registered or principal office and
Directors and secretary of a foreign company
FORM FC-2
Particulars of appointment of managing Director, Directors, manager
and sectary and the changes among them or consent of candidate to act
as a managing Director or Director or manager or secretary of a
company and/or undertaking to take and pay for qualification shares
FORM DIR-12
Notice of situation or change of situation of registered office FORM INC-22
Advertisement to be published in the newspaper for licence for existing
companies
FORM INC-26
Conversion of public company to private company and vice versa FORM INC-27
Notice of consolidation, division, etc. Or increase in share capital or
increase in number of members
FORM SH-7
Notice of situation or change of situation or discontinuation of
situation, of place where foreign register shall be kept
FORM MGT-3
Changes in shareholding position of promoters and top ten share
holders
FORM MGT-10
(TO BE FILED AS
AN
ATTACHMENT
TO E-FORM GNL
2)
Form of proxy form FORM MGT-11
One person company – nominee consent form FORM INC-3
72
One person company – change in member/nominee FORM INC-4
Charge management
Description E-FORM
Appointment or cessation of receiver or
manager
FORM CHG-6
Particulars for creation or modification
of charges (other than those related to
debentures)
FORM CHG-1
Particulars for satisfaction of charges FORM CHG-4
Particulars for registration of charges for
debentures
FORM CHG-9
Application to CG for extension of time
for filing particulars of charge
FORM GNL-8
Details of
persons/Directors/charged/specified
officer in default.
FORM GNL-3
Company Registration
Description E-FORM
New version – simplified proforma for incorporating company
electronically (spice) – with mandatory pan & tan application included
SPICE
E-memorandum of association (spice) SPICEMOA
E-articles of association (spice AOA) SPICEAOA
Application form for availability or reservation of a name through E
web based form
RUN (Reserved
Unique Name)
Conversion of OPC to company
- Intimation of exceeding threshold FORM INC-5
- Application for conversion FORM INC-6
Application for incorporation of company (part 1 company and
company with more than seven subscribers)
FORM INC-7
Declaration by professionals FORM INC-8
Affidavit from the subscribers FORM INC-9
Verification of signature of subscriber FORM INC-10
Application by a company for registration under section 366 FORM URC-1
Information to be filed by foreign company FORM FC-1
Formation of section 8 company
Application for grant of licence under section 8 FORM INC-12
Draft memorandum of association FORM INC-13
Declaration by professional FORM INC-14
Declaration by applicants FORM INC-15
Public notice FORM INC-19
73
Intimation to registrar of revocation or surrender of licence issued
under section
FORM INC-20
Registration of existing companies
Application by a company for registration under section 366 FORM URC-1
Form of notice of interest by Director u/s 184(1) board resolution in
regard to Form MBP-1to be filed in (for public limited companies)
FORM MBP 1
FORM MGT 14
Compliance Related Filing
Description E-FORM
Compliance related to share capital and debentures
Advertisement giving details of notice of special resolution for varying
the terms of any contract referred to in the prospectus or altering the
objects for which the prospectus was issued
FORM PAS-1
Information memorandum FORM PAS-2
Return of allotment FORM PAS-3
Letter of offer (public offer) FORM SH-8
Private placement offer letter format FORM PAS-4
Share certificate format FORM SH-1
Debenture trust deed FORM SH-12
Securities transfer form FORM SH-4
Nomination form FORM SH-13
Cancellation or variation of nomination FORM SH-14
Notice for transfer of partly paid securities FORM SH-5
Return in respect of buy-back of shares FORM SH-11
Certificate of compliance in respect of buy-back of securities FORM SH-15
Declaration of solvency FORM SH-9
Other Compliances
Registration of special resolution(s) and agreement(s) FORM MGT-14
Information by auditor to registrar for appointment/reappointment FORM ADT-1
Application for removal of auditor(s) from his / their office before
expiry of term
FORM ADT-2
Notice of resignation by the auditor FORM ADT-3
Report to the central government FORM ADT-4
Return of appointment of managing Director or whole time Director or
manager
FORM MR-1
Form for submission of documents with registrar of companies FORM GNL-2
Statement of amounts credited to investor education and protection
fund
FORM 1 INV
Form for filing cost audit report and other documents with the central
government
Form of application to the central government for appointment of cost
auditor.
FORM-23C
74
Information by cost auditor to central government FORM-23D
Form for filing cost audit report with the central government. FORM CRA-4
Statement of unclaimed and unpaid amounts to be transferred to the
investor Education and Protection Fund
IEPF Form-6
Form for filing XBRL document in respect of cost audit report and
other documents with the central government
FORM I-XBRL
Form for filing XBRL document in respect of compliance report and
other documents with the central government
FORM A-XBRL
Compliance related to acceptance of deposits
Circular in the form of advertisement inviting deposits FORM DPT-1
Format for deposit trust deed FORM DPT-2
Return of deposits FORM DPT-3
Statement regarding deposits existing on the commencement of the act FORM DPT-4
Compliance related to management and administration
Declaration by the registered owner of shares who does not hold
beneficial interest in such shares
FORM MGT-4
Declaration by the registered owner of shares who hold beneficial
interest in shares but whose name are not appeared in the register of
member
FORM MGT-5
Return of registered in respect of declaration u/s 89 received by the
company
FORM MGT-6
Annual return FORM MGT-7
Extract of Annual Return FORM MGT-9
Report by listed company after AGM (Form MGT-15) shall contain the following (see rule 31
of companies (management & administration) rule, 2014:
The report shall contain the details in respect of the following namely:-
i. The day, date, hour and venue of the AGM.
ii. Confirmation with respect to appointment of chairman of the meeting:
iii. Number of member, attending the meeting;
iv. Confirmation with respect to compliance of the act and the rules, secretarial standards
made thereunder with respect to calling, convening and conducting the meeting;
v. Business transacted at the meeting and result thereof;
vi. Particulars with respect to any adjournment, postponement of meeting, change in venue;
and
vii. Any other points relevant for inclusion in the report.
Compliance related to Nidhi Rules, 2014
Description E-FORM
Return of statutory compliances FORM NDH-1
Application for extension of timed FORM NDH-2
Half yearly return FORM NDH-3
Description E-form
75
Annual
report on
corporate
social
responsibility
(CSR)
activities
to be
includ
ed in the
board’s
report
Annexure – companies (corporate social responsibility policy) rules, 2014, section
135 of the Companies Act, 2013. Schedule vii:
Annexure
Format for the annual report on CSR activities to be included in the board’s report
1. A brief outline of the company’s CSR policy, included overview of projects or
programmes proposed to be undertaken and a reference to the web-link to the
CSR policy and projects or programs.
2. The composition of the CSR committee.
3. Average net profit of the company for the last three financial years.
4. Prescribed CSR expenditure (two per cent of the amount as in item 3 above) 5.
Details of CSR spent during the financial year:
a) Total amount to be spent for the financial year;
b) Amount unspent, if any;
c) Manner in which the amount spent during the financial year is detailed
below.
1 2 3 4 5 6 7 8
Sr.
No
.
CSR
project
of
activit
y
identifi
ed
Secto
r in
whic
h the
proje
ct is
cover
ed
Projects
or program
mes (1)
local area or
other (2)
specify
the state
and district
where
projects
or
program
mes was
undertak
en
Amount
outlay (budget)
project
or/
program
mes wise
Amount
spent on
the
projects
or
programm
es
subheads: (1) direct
expenditu
re on
projects
or
programm es.
(2)overhe
ads:
Cumulat
ive
expendit
ure up to
the
reporting
period
Amount
spent
direct or
through
implemen
ting
agency
1.
2.
3.
*give details of implementing agency:
6. In case the company has failed to spend the two per cent of the average net profit of the last three financial years or any part thereof, the company shall provide
the reasons for not spending the amount in its board report.
7. A responsibility statement of the CSR committee that the implementation
and monitoring of CSR policy, is in compliance with CSR objectives and policy of the company.
Sd/- Sd/- Sd/-
76
(chief executive officer or managing Director or
Director)
(chairman CSR
committee)
(person specified under clause (d) of sub-
section (1) of section
380 of the act)
(wherever applicable)
Description E-FORM
Particulars of person(s) or Director (s) or charged or specified for
the purpose of clause (f) or (g) of section 5
FORM GNL-3
Notice of the court or the company law board order FORM INC 28
Statement containing salient features of the financial statement of
subsidiaries/associate companies/joint ventures
FORM AOC-1
Form for disclosure of particulars of contracts/ arrangements entered
into by the company u/s. 188(1)
FORM AOC-2
Form of abridged financial statement FORM AOC-3
Form of return to be filed with the registrar FORM MGT-6
Investor services
Description E-FORM
Form for filing complaint(s) against the company Investor
Complaint
Form
Provisions related to managerial personnel
Description E- FORM
For of application to the central government for approval of
appointment or reappointment and remuneration or increase in
remuneration or waiver for excess or over payment to managing or
whole-time Director(s) or manager and commission or
remuneration or expression of opinion to Directors.
FORM MR-2
Form GNL-4 (addendum)
Description E- FORM
Form for filing addendum for rectification of defects or
incompleteness
GNL 4
Conversion into Limited Liability Partnership (LLP) Form
Description E-FORM
Form for intimating to registrar of companies of conversion of the
company into limited liability partnership (llp)
FORM 14
77
Director Identification Number (DIN)
Description E-FORM
Application for allotment of Director FORM DIR-3
Intimation of Director identification number by the company to the
registrar din services
FORM DIR-3C
Verification of applicant for application for din FORM DIR-4
Application for surrender of din FORM DIR-5
Intimation of change in particulars of Director to be given to the
central government
FORM DIR-6
Application for KYC of Directors FORM DIR-3 KYC
Other compliances related to Director
Intimation by Director FORM DIR-8
Report by the company to registrar for intimating the
disqualification of the Director
FORM DIR-9
Form of application for removal of disqualification of Directors FORM DIR-10
Notice of resignation of a Director to the registrar FORM DIR-11
Refund e-form
Description E-FORM
Application for requesting refund of fees paid FORM REFUND
Other forms which need to be filed as per the companies (misc.) Rules, 2014
Description E-FORM
Application to registrar for obtaining the status of dormant
company
FORM MSC-1
Return of dormant companies FORM MSC-3
Application for seeking status of active company FORM MSC-4
Informational services
Description E-FORM
Notice of address at which books of account are maintained FORM AOC-5
Form for filing report on annual general meeting FORM MGT-15
Investor services
Description E-FORM
Investor complaint form Directly through
MCA website, No
form prescribed
Serious complaint form Directly through
MCA website, No
form prescribed
Registration of digital signature
78
The verification of credentials of authorized signatories and professional is carried out
during e-filing. MCA-21 system has sophisticated electronic pre-scrutiny facilities that can
verify the credentials of the signatory prior to acceptance of electronic documents.
Therefore, documents that are digitally signed by the authorized signatories/professionals
will be accepted by the system only once registered with MCA.
Step-by step process for registration of signature of Director/secretary/professional
i. Step1: go to the website of MCA 21 services http://www.MCA.gov.in/mca21/ ii.
Step 2: go to the tab to register your digital signature
iii. Step 3: select Director/secretary/professional under quick link, specify details as
requested, connect the DSC to computer and register the DSC.
Pan is mandatory for manager, secretary and practicing professional for DSC registration
purpose.
The information submitted by the professionals at the time of registering the digital
signature certificate (DSC) is verified by information in database and that submitted by the
respective professional institute.
Online Payment Facility
Presently the online payment facility for payment of registration fees and stamp duty with
registrar of companies (ROC) is available for majority of the forms. Refer table of fees’ as
prescribed by companies (registration of offices and fees) rules, 2014 ministry of corporate
affairs (MCA) has made online payment of fees compulsory.
79
STATUTORY REGISTERS: LIST OF STATUTORY REGISTERS, BOOKS AND RECORDS REQUIRED TO BE
MAINTAINED BY A COMPANY UNDER COMPANIES ACT, 2013
Sr.
No.
Relevant sections Register/books/returns Inspection Fees/charges for
inspection, if any
1 187(3) Register of investments not held in its own name
by the company (form
MBP-3)
Members and
debenture holder
Without any fees
2 73 and 74 read
with rule 14 of the
companies
(acceptance of
deposits) rules,
2014, & rbi
directions
Registers of deposits Not open for
inspection entry
shall be made
within 7 days from
the date of issuance
of the receipt
NA
3 68(9) read with rule 17(12) of
companies (share
capital &
debentures) rules,
2014
Register of securities
bought back (form sh10)
Not open for
inspection
NA
4 85 read with rule
10 of company
(registration of charges) rules,
2014
Register of charges
(form CHG-7)
a) Member or a
creditor
b) Any other
person
a) Without
any fees
b) On
payment of
requisite fee
5 88(1) read with rule 3 of the
companies
(management and
administration)
rules, 2014
Register of members
(form MGT-1)
a) Member,
debenture
holder, other
security holder
or
beneficial owner
b) Any other
person
a) Without any fees
b) On payment of requisite fees
6 88(2) read with
rule 6 of the
companies
(management and
administration)
Index to members a) Member,
debenture
holder, other security holder
or
beneficial owner
b) Any other
person
a) Without any
fees
b) On payment
of requisite
fees
80
7 88(1) read with
rule 4 of the
companies
(management and
administration)
rules, 2014
Register of debenture
holders
(form MGT-2)
a) Member,
debenture
holder, other security holder or
beneficial owner
b) Any other
person
a) Without any
fees
b) On payment
of requisite
fees
8 88(2) Index of debenture
holders/ other security
holders.
a) Member,
debenture
holder, other
security holder
or
a) Without any
fees
b)On payment
of
beneficial owner
b) Any other
person
requisite fees
9 88(4) Foreign register of
members or debenture
holders (form MGT-3)
a) Member,
debenture holder,
other security
holder or beneficial owner
b) Any other
person
a) Without any fees
b) On payment
of requisite
fees
10 88(3) Register and index of
beneficial owner
a) Member,
debenture holder, other security
holder or
beneficial owner
b) Any other
person
a) Without any
fees
b) On payment
of requisite
fees
11 118/119 read with
(rule 26 of the companies
(management and
administration rule,
2014)
Minutes books of
general meetings
Member a) Without any fees if asked
soft copy of
minutes of
general
meeting of
preceding 3
financial years
b) Max. Rs.10
per page for
photocopies
12 128 Proper books of account and cost records and
other relevant books and
papers and financial
statements for every
year
Directors of the
company
Na
81
13 189 read with rule
16 of the
companies (meeting of boards and its power rules,
2014)
Register of contracts with related party and
contracts and bodies etc.
In which Directors are
interested (form MBP-4)
Member On payment of
requisite
14 170/171 Register of Director/
managing
Director/manager
Member Without any
fees
15 186 read with rule
16 of the
companies (meeting of boards
and its power rules,
2014
Register of loans made,
guarantees given,
securities provided or
investment made and
acquisition made by the
company (form MBP-2)
Member On payment of
requisite fees
16 46(2) read with
rule 6 (3) (a) of the
companies (share
cap & deb) rule,
2014
Register of renewed and
duplicate share
certificates (form SH-2)
Not open for
inspection
Na
17 581-zl (7) read with section 465 of
Companies Act,
2013
Register of particulars of
investments of producer
companies
Member Na
18 54 read with rule
8(14) of companies
(share capital and debentures) rules,
2014 and ss-4
Register of sweet equity shares options (FORM
SH-3)
Member/employees Without any fees
19 62 read with rule
12(10) of companies (shares
capital and
debentures) rules,
2014 and ss-44
Register of employee
stock options (FORM
SH-6)
Member/employees Without any fees
OTHER RECORDS TO BE MAINTAINED BY THE COMPANIES
Sr.
No.
Relevant section Register/books/returns Inspection Fees/charges for
inspection, if
any
1 189(1) read with rule 9 of the companies
(meeting of boards
and its power rules,
2014)
Notice of disclosure of
interest (form MBP-1)
Director of the
company
Without
fees
any
82
2 190 Copy of contract of
employment with
managing Director or
whole time Director
Member Without
fees
any
3 42(7) read with rule
14(3) of companies
(prospectus and
allotment of
securities) rules, 2014
Records of a Pvt.
Placement offer (FORM
PAS-5)
Directors of the
company
Without
fees
any
4 74(1) read with rule
20 of companies
(acceptance of
deposits) rules, 2014
Statement regarding
deposits existing on the
commencement of the
act options (form DPT-
4)
Depositors Without
any fees
ANNUAL ACCOUNTS AND BALANCE SHEET
• Sections 209-223 of the old act of 1956 concerning accounts have been replaced by new
chapter ix- accounts of companies along with the companies (accounts) rules, 2014. The
rules are to be read along with Chapter IX of the new 2013 act.
• “Books of accounts” are defined for the first time in section 2(13) of Companies Act, 2013
(“the new act”) Companies Act, 1956 (“the old act).
• Section 2(13) defines “ books of account” to include records maintained in respect of-
i. All sums of money received and expended by a company and matters in relation to
which the receipts and expenditure take place;
ii. All sales and purchases of goods and services by the company;
iii. The assets and liabilities of the company; and iv. The items of cost as may be
prescribed under section 148 in the case of a company which belongs to any class of
companies specified under that section.
• There is a new definition of “financial statement” in section 2(40) of the new act in place
of profit & loss & balance sheet described in section 211 of the old act. “Financial
statements” are required to give true and standards”. These financial statements are
required to be prepared, audited and adopted by the shareholder.
• “Financial statements” include (i) the balance sheet (ii) the statement of profit and loss or
in the case of company carrying on any activity not for profit, an income and expenditure
account for the financial year (iii) the cash flow statement (the statement of changes in
equity and (v) notes to accounts.
• Therefore, now it is mandatory for all companies to also prepare the cash flow statement if
applicable as per accounting standards and the statement of changes in equity and have the
same audited.
• The guidance for preparation & presentation of statement of changes in equity is available
in Ind AS 1.
• The cash flow statement may not be prepared for OPC (One Person Company) and small
company and dormant company. It is important to note the word “may”. It implies that
OPC, small companies and dormant companies have an option at their discretion to
prepare the “cash flow statement.”
83
• OPC are private companies and those which have only one shareholder and have net
worth not exceeding Rs. 50 lakh and average annual income (3 years average) of not
exceeding Rs. 2 Crore . A small company is defined in section 2(85) of the new act, as one
which is not a public company, presently not having a paid up capital exceeding Rs. 50
lakh but not more than Rs. 10 Crore and turnover as per profit and loss account for
immediately preceding financial year last balance sheet not exceeding Rs. 2 Crore or such
higher amount as may be prescribed which shall not be more than Rs. 100 Crore . Holding
& subsidiary companies, section 8(old section 25companies) and those governed by
special acts are not to be treated as small companies. Section 455 of the new act defines a
dormant company as one which is having no significant accounting transactions during
the last two financial years, or has not filed financial statements and annual returns during
the last two financial years.
• The financial statements shall be for every financial year. “Financial year” has been
defined u/s 2(41) of the new act to mean the period ending 31st march every year. In case
of a new company incorporated after 1stJanuary of the year, it shall be 31
st march next in
the following financial period within 2 years of commencement of the new act. There is an
exception which may be granted by the Central Government where the Indian company is
a holding or a subsidiary company of a company incorporated outside India and is
required to follow different financial year for consolidation of accounts outside India.
• A new feature of chapter ix is consolidation of accounts. All provisions relating to
preparation & audit of accounts as applicable to the standalone financial statements are
applicable to the consolidated financial statements.
• Consolidation shall be done of all subsidiaries, associate companies and joint venture
companies as per sub-section (3) of section 129 of the new act. Financial statements shall
be in the form provided for in Schedule III to the new act.
• Schedule III also gives “general introduction for the preparation of consolidated financial
statements”. This introduction is very broad and it appears that consolidation will have to
be done as per AS (“Accounting Standard”) - 21. AS-21 gives detailed guidelines for
consolidation. The ministry of corporate affairs vide general circular no. 39 dated
14.10.2014 has clarified that disclosures made on its standalone financial statements need
not be repeated in consolidated financial statements only disclosures relevant to
consolidated financial statements should be given.
“Subsidiary company” is defined in section 2(87) read with section 2(27) defining control
of the new act. Subsidiary company in relation of any other company (holding company)
means a company in which the holding company controls the composition of the board of
Directors or controls more than half of the total voting power either on its own or together
with one or more of its subsidiary companies. “Associate company” in relation to another
company means a company in which that other company has “significant influence” and
includes a JV company. “Significant influence” means control of at least 20 of total voting
power, or control of or participation in business decisions under an agreement. The
expression "joint venture" means a joint arrangement whereby the parties that have joint
control of the arrangement have rights to the net assets of the arrangement. It is
significant to note that the while voting power would relate to Members having voting
Rights be taken into consideration. Further, under the new act, a company having no
subsidiary but having an associate and/or a joint venture company is required to prepare
consolidated financial statements. Under the listing agreement, listed companies were
required to prepare consolidated financial statements only if it had subsidiary (ies).
• Apart from consolidation, section 129(3) of the new act also requires that a separate
statement containing the salient features of the financial statement of the subsidiaries,
associates and joint ventures be attached to the holding company’s financial statements.
This statement is required to be in form AOC-1, which has two parts, part ‘a’-subsidiaries
84
and part “b”-associates easily extracted from the financial statements of the subsidiaries,
associates and joint ventures.
• The old act did not provide for reopening of the annual financial statements and restating
or revision of the financial statements. A circular of the department of company affairs for
restating of accounts issued by the ministry provided for restating of accounts due to
mistake (not arising out of fraud or mismanagement) and for the limited purpose of
complying with the technical requirements of the laws viz. Income-tax act, etc. Under the
new act, there are two independent provisions, section 130 relating to reopening of the
financial statements on court’s or tribunal’s order and section 131 relating to voluntary
revision of the financial statements or the board report.
Reopening of accounts
• Section 130 of the new act provides that accounts shall not be reopened and financial
statements shall not be recast by a company unless an application has been made by the
central government, income tax authority, SEBI and other statutory regulatory body or
authority or any person concerned and an order is made by a court of competent
jurisdiction or the tribunal to the effect that:
- The relevant earlier 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 the financial statements.
Provided that the court or the Tribunal, as the case may be, shall give notice to the
Central Government, the Income-tax authorities, the Securities and Exchange Board or
any other statutory regulatory body or authority concerned and shall take into
consideration the representations, if any, made by that Government or the authorities,
Securities and Exchange Board or the body or authority concerned before passing any
order under this section.
• These provisions have far reaching consequences and an order passed under section 130
of the new act could potentially reopen all accounts and financial statements for up to 8
previous years [up to 8 years, as books of account are required to be maintained u/s.
128(5), unless, there is an order for maintenance of records for longer period].
• Sub-section (2) of section 130 provides that accounts so revised or recast shall be final. It
appears that there is no requirement to revise the Directors’ report, auditors’ report or
adopt the same in a general meeting. The revised or recast accounts which would be final
as per sub-section (2) would be submitted to the tribunal and be subject to such further
directions or orders of the tribunal.
Voluntary revision of the financial statements or the board report
• This is an altogether new provision which did not exist in the old act. Section 131 of the
new act provides that the board of Directors may voluntarily revise the financial
statements or the board report where it finds that the financial statements do not comply
with the provision of section 129 of the new act [briefly, section 129 of the new act
provides that the statement of profit and loss, the balance sheet and the cash flow
statement give a true and fair view of the affairs of the company and they are prepared as
per the notified accounting standards] and/or the board report does not comply with
section 134 of the new act. The revision can be done for 3 preceding financial years. The
company is required to obtain approval of the tribunal before taking up the voluntary
revision.
85
• Before passing any order, it is provided that a notice needs to be given to the central
government and the income-tax authorities and their representation considered.
• The second proviso of section 131 of the new act restricts the revision to only once in a
financial year. However, sub-section 2 of section 131 puts a further restriction on the
ability of the board of Directors to revise financial statements or the board report in a
situation where the audited accounts have been sent to members or delivered to the
registrar or laid before the annual general meeting. The sub-section provides that the
revision in such cases must be confined to
a) Corrections in respect of previous financial statement or board report wherein they
do not comply with the provision of section 129 or section 134 and
b) The making of any necessary consequential alteration”.
• Sub-section (3) of section 131 of the new act provides for rules relating to the compliances
post the revision of accounts & Directors’ report. The rules are also required to make
provisions with respect to the role and function of the company’s auditors in relation to
the revised financial statements or report. The companies (accounts) rules, 2014 has not
prescribed any such rule till date.
“Specific rules have been framed for the manner in which books to be kept in electric
mode – rule 3 of the companies (accounts) rule, 2014 manner of books of account to be
kept in electronic mode.
• The books of account, other relevant books & papers maintained in electronic mode shall
remain accessible in India for subsequent reference, retained completely in the same
format in which they were originally generated, sent or received, unaltered, &present
accurate information. The information received from branch offices shall not be altered
and kept in a manner where it shall depict what was originally received from the branches;
documents shall be capable, of being displayed in a legible form.
• There shall be proper system for storage, retrieval, display or printout of the electronic
records as the audit committee, if any, or the board may deem appropriate and such
records shall not be disposed of or rendered unusable, unless permitted by law.
• The backup of the books of account and other books and papers maintained in electronic
mode, including at a place outside India, if any, shall be kept in servers physically located
in India on a periodic basis. The company shall intimate to the registrar on an annual basis
at the time of filing of financial statements, details of service provider, ip address of the
service provider and where the books are maintained on “cloud,” such address as provided
by the service provider.
86
SCHEDULE III FOR IND AS
Notification No. G.S.R. 404(e), dated 6th
April, 2016
In exercise of the powers conferred by sub-section (1) of section 467 of the Companies
Act, 2013 (18 of 2013), the central government hereby makes of following amendments to
Schedule III of the said act with effect from the date of publication of this notification in
the official gazette, namely:-
2. In the Companies Act, 2013 (hereinafter referred to as the principal act) in
Schedule III, for the heading “general instructions for preparation of balance sheet
and statements of profit and loss of a company” the following shall be substituted,
namely:-
“Division I
Financial statements for a company whose financial statements are required to comply with the
companies (accounting standards)
General instructions for Preparation of Balance Sheet and
Statement of Profit and Loss of a company”
3. In the principal act, in Schedule III, at the end, the following shall be inserted,
namely:-
“Division II
Financial statements for a company whose financial statements are drawn up in compliance of the
companies (Indian accounting standards) rules, 2015
GENERAL INSTRUCTIONS FOR PREPARATION OF FINANCIAL STATEMENTS
OF A COMPANY REQUIRED TO COMPLY WITH IND AS”
1. Every company, to which Indian accounting standards apply, shall prepare its financial
statements in accordance with this schedule or with such modification as may be required
under certain circumstances.
2. Where compliance with the requirements of the act including Indian accounting standards
(except the option of presenting assets and liabilities in the order of liquidity as provided by
the relevant Ind AS) as applicable to the companies require any change in treatment or
disclosure including addition, amendment, substitution or deletion in the head or sub0head
or any changes inter se, in the financial statements or statements forming part thereof, the
same shall be made and the requirements under this schedule shall stand modified
accordingly.
3. The disclosure requirements specified in this schedule are in addition to and not in
substitution of the disclosure requirements specified in the Indian accounting standards.
Additional disclosures specified in the Indian accounting standards shall be made in the
notes or by way of additional statement or statements unless required to be disclosed on the
face of the financial statements. Similarly, all other disclosures as required by the
87
Companies Act, 2013 shall be made in the notes in addition to the requirements set out in
this schedule.
4. (i) notes shall contain information in addition to that presented in the financial statements
and shall provide where required-
a) Narrative descriptions or disaggregation’s of items recognized in those
statements; and
b) Information about items that do not qualify for recognition in those
statements.
(ii) Each item on the face of balance sheet, statement of changes in equity and statement of
profit and loss shall be cross-referenced to any related information in the notes. In preparing
the financial statements including the notes, a balance shall be maintained between
providing excessive detail that may not assist users of financial statements and not providing
important information as a result of too much aggregation.
5. Depending upon the turnover of the company, the figures appearing in the financial
statements shall be rounded off as below:
Turnover Turnover rounding off
(i) Less than one hundred Crore
rupees
To the nearest hundreds, thousands, lakhs or millions,
or decimals thereof.
(ii) One hundred Crore rupees or
more
To the nearest, lakhs, millions or Crore s, or decimals
thereof.
Once a unit of measurement is used, it should be used uniformly in the financial statements.
6. Financial statements shall contain the corresponding amounts (comparatives) for the
immediately preceding reporting period for all items shown in the financial statements
including notes except in the case of first financial statements laid before the company after
incorporation.
7. Financial statements shall disclose all ‘material items, i.e., the items if they could,
individually or collectively, influence the economic decisions that users make on the basis
of the financial statements. Materiality depends on the size or nature of the item or a
combination of both, to be judged in the particular circumstances.
8. For the purpose of this schedule, the terms used herein shall have the same meanings
assigned to them in Indian Accounting Standards.
9. Where any act or regulation requires specific disclosures to be made in the standalone
financial statements of a company, the said disclosures shall be made in addition to those
required under this schedule.
Note: this schedule sets out the minimum requirements for disclosure on the face of the financial
statement, .i.e. balance sheet, statement of changes in equity for the period, the statement of
profit and loss for the period (the term ‘statement of profit and loss’ has the same meaning as
‘profit and loss account’) and notes. Cash flow statement shall be prepared, where applicable, in
accordance with the requirements of the relevant Indian accounting standard.
88
Line items, sub-line items of sub-totals shall be presented as an addition or substitution on the
face of the financial statements when such presentation is relevant to an understanding of the
company’s financial position or performance or to cater to industry or sector-specific disclosure
requirements or when required for compliance with the amendments to the Companies Act,
2013 or under the Indian accounting standards.
Part I – balance sheet
Name of the company……………………
Balance sheet as at ………………………..
(Rupees in……………….)
Particulars Note no. Figures as at the
end of current
reporting period
Figures as at the
end of the
previous
reporting period
1 2 3 4
I Assets
(1) Non-current assets
a) Property, plant and equipment
b) Capital work in-progress
c) Investment property
d) Goodwill
e) Other intangible assets
f) Intangible assets under
development
g) Biological assets other than bearer
plants
h) Financial assets
i. Investments
ii. Trade receivables
iii. Loans
iv. Others (to be specified)
i) Deferred tax assets (net)
j) Other non-current assets
(2) Current assets a)
Inventories
b) Financial assets
i. Investments
ii. Trade receivables
iii. Cash and cash equivalents
iv. Bank balances other than (iii) above
v. Loans
vi. Others (to be specified)
c) Current tax assets (net)
d) Other current assets
89
Total assets
Ii. Equity and liabilities
Equity
a) Equity share capital
b) Other equity
Liabilities
(1) Non-current liabilities a)
Financial liabilities
i. Borrowings
ii. Trade payables iii. Other
financial liabilities
(other than those specified in
item (b), to be specified)
b) Provisions
c) Deferred tax liabilities (net)
d) Other non-current liabilities
(2) Current liabilities
a) Financial liabilities
i. Borrowings
ii. Trade payables
iii. Other financial liabilities
(other than those specified
in item (c)
b) Other Current Liabilities
c) Provisions
d) Current Tax Liabilities (net)
Total equity and liabilities
See accompanying notes to the financial statements
Statement of Changes in Equity
Name of the company………………………….
Statement of changes in equity for the period ended ………………………………
(Rupees in ……………………..)
A. Equity Share Capital
Balance at the beginning of
Reporting Period
Changes in Equity Share
Capital during the year
Balance at the end of the
Reporting Period
90
B. Other equity
Share Appli
catio
n
mone
y
pendi
ng
allot
ment
Equit y
comp
onent of
compoun
d finan
cial
instru
ment
s
Reserves and surplus Debt Instru
ment
Throu gh
Other
Comp
rehens
ive
Incom
e
Equity Instru
ment
Throu gh
Other
Comp
rehens
ive
Incom
e
Effec tive
Porti
on Of
cash
flow Hedg
es
Re-
Valu
ation
Surpl
us
Exchang
e
Differen
ces on
Translat
ing the
Financia
l
Stateme
nts of a
Foreign
Operatio
n
Other Items
Of
other
Comp
rehens
ive
Incom
e
Specif
y
Natur
e
Mone
y
Recei
ved
Again
st
Share
Warra
nts
T o
t
a
l
Capit al
Reser
ve
Securi ties
Premi
um
Reser
ve
Other Reser
ves
(speci
fy
Natur
e)
Retain
ed
Earnin
gs
Balance
at
t
he
beginnin
g of the
reporting
period
Changes
in
accountin
g policy
or
pr
ior period
errors
Restated balance
at
t
he
beginnin
g of the
reporting
period
Total
compreh ensive
income
for the
year
91
Dividend
s
Transfer
to retained
earnings
Any
other
change
(to be
specified
)
Balance at the end
of the
reporting
period
Note: Re-measurement of defined benefit plans and fair value changes relating to own credit risk of
financial liabilities designated at fair value through profit or loss shall be recognized as a part of
retained earning with separate disclosure of such items along with the relevant amounts in the notes
Notes:
General instructions for preparation of balance sheet
1. An entity shall classify an asset as current when-
a) It expects to realize the asset, or intends to sell or consume it, in its normal operating
cycle;
b) It holds the asset primarily for the purpose of trading;
c) It expects to realize the asset within twelve months after the reporting period; or
d) The asset is cash or a cash equivalent unless the asset is restricted from being
exchanged or used to settle a liability for at least twelve months after the reporting
period.
An entity shall classify all other assets as non-current.
2. The operating cycle of an entity is the time between the acquisition of assets for processing
and their realization in cash or cash equivalents. When the entity’s normal operating cycle is
not clearly identifiable, it assumed to be twelve months.
3. An entity shall classify a liability as current when-
a) It expects to settle the liability in its normal operating cycle:
b) It holds the liability primarily for the purp0ose of trading;
c) The liability is due to be settled within twelve months after the reporting period; or
d) It does not have an unconditional right to defer settlement of the liability for a t least
twelve months after the reporting period. Terms of a liability that could, at the
option of the counterparty, result in its settlement by the issue of equity instruments
do not affect its classification.
An entity shall classify all other liabilities as non-current.
4. A receivable shall be classified as a trade receivable’ if it is in respect of the amount due on
account of goods sold of services rendered in the normal course of business.
5. A payable shall be classified as ‘trade payable’ if it is in respect of the amount due on
account of goods purchased or services received in the normal course of business.
6. A company shall disclose the following in the notes:
92
A. Non-current assets
I. Property, plant and equipment
(i) Classification shall be given as:
a) Land
b) Buildings
c) Plant and equipment
d) Furniture and fixtures
e) Vehicles
f) Office equipment
g) Bearer plants
h) Others (specify nature)
(ii) Assets under lease shall be separately specified under each class of assets.
(iii) A reconciliation of the gross and net carrying amounts of each class of assets at
the beginning and end of the reporting period showing additions, disposals,
acquisitions through business combinations and other adjustments and the related
depreciation and impairment losses or reversals shall be disclosed separately.
II. Investment property
A reconciliation of the gross and net carrying amounts of each class of property at
the beginning and end of the reporting period showing additions, disposals,
acquisitions through business combinations and other adjustments and the related
depreciation and impairment losses or reversals shall be disclosed separately.
III. Goodwill
A reconciliation of the gross and net carrying amount of goodwill at the beginning
and end of the reporting period showing additions, impairments, disposals and
other adjustments.
IV. Other intangible assets
I. Classification shall be given as:
a) Brands or trademarks
b) Computer software
c) Mastheads and publishing titles
d) Mining rights
e) Copyrights, patents, other intellectual property rights, services and
operating rights.
f) Recipes, formulae, models, designs and prototypes.
g) Licenses and franchises.
h) Others (specify nature)
Ii a reconciliation of the gross and net carrying amounts of each class of assets at the
beginning and end of the reporting period showing additions, disposals,
acquisitions through business combinations and other adjustments and the
related amortization and impairment losses or reversal shall be disclosed
separately.
V. Biological assets other than bearer plants
93
A reconciliation of the carrying amounts of each class of assets at the beginning
and end of the reporting period showing additions, disposals, acquisitions through
business combinations and other adjustments shall be disclosed separately.
VI. Investments
(i) Investments shall be classified as:
a) Investments in equity instrument;
b) Investments in preference shares;
c) Investments in government or trust securities;
d) Investments in debentures or bonds;
e) Investments in mutual funds;
f) Investments in partnership firms; or
g) Other investments (specify nature).
Under each classification, details shall be given of names of the bodies
corporate that are- i. Subsidiaries,
ii. Associates,
iii. Joint ventures, or
iv. Structured entities,
In whom investments have been made and the nature and extent of the
investment so made in each such body corporate (showing separately
investments which are partly-paid). Investments in partnership firms along
with names of the firms, their partners, total capital and the shares of each
partner shall be disclosed separately.
(ii) The following shall also be disclosed:
A. Aggregate amount of quoted investments and market
value thereof;
B. Aggregate amount of unquoted investments; and C.
Aggregate amount of impairment in value of
investment.
VII. Trade receivables
(i) Trade receivables shall be sub-classified as;
a) Secured, considered good;
b) Unsecured considered good; and
c) Doubtful.
(ii) Allowance for bad and doubtful debts shall be disclosed under the
relevant heads separately.
(iii) Debts due by Directors or other officers of the company or any of them
either severally or jointly with any other person or debts due by firms or
private companies respectively in which any Director is a partner or a
Director or a member should be separately stated.
VIII. Loans
(i) Loans shall be classified as-
a) Security deposits;
b) Loans to related parties (giving details thereof); and
c) Other loans (specify nature).
(ii) The above shall also be separately sub- classified as-
a) Secured, considered good;
b) Unsecured, considered good; and
c) Doubtful.
94
(iii) Allowance for bad and doubtful loans shall be disclosed under the
relevant heads separately.
(iv) Loans due by Directors or other officers of the company or any of them
either severally or jointly with any other persons or amounts due by firms
or private companies respectively in which any Director is a partner or a
Director or a member should be separately stated.
IX. Bank deposits with more than 12 months maturity shall be disclosed under ‘other
financial assets;
X. Other non-current assets: other non-current assets shall be classified as-
i. Capital advances; and
ii. Advances other than capital advances;
(1) Advance other than capital advances; shall be classified as:
1. Security deposits;
2. Advances to related parties (giving details thereof); and
3. Other advances (specify nature).
(2) Advances to Directors or other officers of the company or any of them
either severally or jointly with any other persons or advances to firms or
private companies respectively in which any Director is a partner or a
Director or a member should be are of the nature of a financial asset as per
relevant Ind AS, these are to be disclosed under ‘other financial assets’
separately.
Others (specify nature).
B. Current assets
I. Inventories:
(i) Inventories shall be classified as:
a) Raw materials;
b) Work-in-progress;
c) Finished goods;
d) Stock-in-trade (in respect of goods acquired for trading);
e) Stores and spares;
f) Loose tools; and
g) Others (specify nature).
(ii) Goods-in-transit shall be disclosed under the relevant sub-head of inventories.
(iii) Mode of valuation shall be stated. II. Investment:
(i) Investment shall be classified as-
a) Investment in equity instruments;
b) Investment in preference shares;
c) Investment in government or trust securities;
d) Investment in debentures or bonds;
e) Investment in mutual funds;
f) Investments in partnership firms; and
g) Other investments (specify nature).
Under each classification, details shall be given of names of the bodies corporate that are-
a) Subsidiaries
b) Associates,
c) Joint ventures, or
d) Structured entities,
In whom investments have been made and the nature and extent of the investment so made
in each such body corporate (showing separately investments which are partly-paid).
(ii) The following shall also be disclosed-
95
a) Aggregate amount of quoted investments and market value thereof;
b) Aggregate amount of unquoted investments;
c) Aggregate amount of impairment in value of investments. III.
Trade receivables:
(i) Trade receivables shall be sub-classified as:
a) Secured, considered goods;
b) Unsecured considered good; and
c) Doubtful.
(ii) Allowance for bad and doubtful debts shall be disclosed under relevant heads
separately.
(iii) Debts due by Directors or other officers of the company or any of them either
severally or jointly with any other person or debts due by firms or private companies
respectively in which any Director is a partner or a Director or a member should be
separately stated.
IV. Cash and cash equivalents: cash and cash equivalents shall be classified as
a) Balances with banks (of the nature of cash and cash equivalents);
b) Cheques, drafts on hand;
c) Cash on hand; and
d) Others (specify nature) V. Loans:
a) Security deposits;
b) Loans to related parties (giving details thereof); and
c) Others (specify nature).
(iv) The above shall also be sub-classified as-
a) Secured, considered good;
b) Unsecured, considered good; and
c) Doubtful.
(v) Allowance for bad and doubtful loans shall be disclosed under the relevant heads
separately.
(vi) Loans due by Directors or other officers of the company or any of them either
severally or jointly with any other person or amounts due by firms or private
companies respectively in which any Director is a partner or a Director or a member
shall be separately stated.
VI. Other current assets (specify nature): this is an all-inclusive heading, which incorporates
current assets categories. Other current assets shall be classified as-
(i) Advances other than capital advances
(1) Advances other than capital advances shall be classified as; (a)
Security deposits;
(b) Advances to related parties (giving details thereof);
(c) Other advances (specify nature);
(2) Advances to Directors or other officers of the company or any of them either severally
or jointly with any other persons or advances to firms or private companies
respectively in which any Director is a partner or a Director or a member should be
separately stated.
(ii) Others (specify nature)
C. Cash and bank balances
The following disclosures with regard to cash and bank balance shall be made:
(a) Earmarked balances with banks (for example, for unpaid divided) shall be
separately stated.
(b) Balances with banks to the extent held as margin money or security against the
borrowings, guarantees, other commitments shall be disclosed separately.
96
(c) Repatriation restrictions, if any, in respect of cash and bank balances shall be
separately stated.
D. Equity
I. Equity share capital: for each class of equity share capital;
(a) The number and amount of shares authorized;
(b) The number of shares issued, subscribed and fully paid, and subscribed but
not fully paid;
(c) Par value per share;
(d) A reconciliation of the number of shares outstanding at the beginning and at
the end of the period;
(e) The rights, preferences and restrictions attaching to each class of shares
including restrictions on the distribution of dividends and the prepayment of
capital;
(f) Shares in respect of each class in the company held by its holding company or
its ultimate holding company including shares held by subsidiaries or
associates of the holding company or the ultimate holding company in
aggregate;
(g) Share in the company held by each shareholder holding more than five per
cent. Shares specifying the number of shares held;
(h) Shares reserved for issue under options and contracts or commitments for the
sale of shares or disinvestment, including the terms and amounts;
(i) For the period of five years immediately preceding the date at which the
balance sheet is prepared-
Aggregate number and class of shares allotted as fully paid up pursuant to
contract without payment being received in cash;
Aggregate number and class of shares allotted as fully paid up by way of
bonus shares; and
Aggregate number and class of shares bought back;
(j) Term of any securities convertible into equity shares issued along with the
earliest date of conversion in descending order starting from the farthest such
date;
(k) Calls unpaid (showing aggregate value of calls unpaid by Directors and
officers):
(l) Forfeited shares (amount originally paid up).
II. Other equity:
(i) Other reserves shall be classified in the notes as- (a) Capital redemption
reserve;
(b) Debenture redemption reserve;
(c) Share options outstanding account; and
(d) Others – (specify the nature and purples of each reserve and the amount in
respect thereof);
(additions and deductions since last balance sheet to be shown under each of the
specified heads).
(ii) Retained earnings represents surplus i.e. Balance of the relevant column in the
statement of charges in equity:
(iii) A reserve specifically represented by earmarked investments shall disclose the
fact that it is so represented;
(iv) Debit balance of statement of profit and loss shall be shown as a negative
figure under the head ‘retained earnings’. Similarly the balance of ‘other
equity’, after adjusting negative balance of retained earnings, if any, shall be
97
shown under the head ‘other equity’ even if the resulting figure is in the
negative; and
(v) Under the sub-head ‘other equity’, disclosure shall be made for the nature and
amount of each item.
E. Non-current liabilities
I. Borrowings:
(i) Borrowings shall be classified as-
(a) Bonds or debentures
(b) Term loans
i. From banks ii.
From other parties
(c) Deferred payment liabilities
(d) Deposits
(e) Loans from related parties
(f) Long term maturities of finance lease obligations
(g) Liability component of compound financial instruments
(h) Other loans (specify nature);
(ii) Borrowing shall further be sub-classified as secured an unsecured. Nature of security
shall be specified separately in each case.
(iii) Where loans have been guaranteed by Directors or others, the aggregate amount of
such loans under each head shall be disclosed.
(iv) Bonds or debentures (along with the rate of interest, and particulars of redemption or
conversion, as the case may be) shall be stated in descending order of maturity or
conversion, starting from farthest redemption or conversion date, as the case may be.
Where bonds/debentures are redeemable by installments, the date of maturity for this
purpose must be reckoned as the date on which the first installment becomes due;
(v) Particulars of any redeemed bonds or debentures which the company has power to
reissue shall be disclosed;
(vi) Terms of repayment of term loans and other loans and other loans shall be stated; and
(vii) Period and amount of default as on the balance sheet date in repayment of
borrowings and interest shall be specified separately in each case.
II. Provisions: the amount shall be classified as- (a) Provision for employee benefits; and
(b) Others (specify nature.
III. Other non-current liabilities;
(a) Advances; and
(b) Others (specify nature)
F. Current liabilities
I. Borrowings:
(i) Borrowings shall be classified as-
(a) Loans repayable on demand
i. From banks
ii. From other parties
(b) Loans from related parties
(c) Deposits
(d) Other loans (specify nature);
(ii) Borrowings shall further be sub-classified as secured and unsecured. Nature of
security shall be specified separately in each case;
98
(iii) Where loans have been guaranteed by Directors or others, the aggregate amount
of such loans under each head shall be disclosed;
(iv) Period and amount of default as on the balance sheet date in repayment of
borrowings and interest, shall be specified separately in each case.
II. Other financial liabilities: other financial liabilities shall be classified as-
(a) Current maturities of long-term debt;
(b) Current maturities of finance lease obligations;
(c) Interest accrued;
(d) Unpaid dividends
(e) Application money received for allotment of securities to the extent refundable
and interest accrued thereon;
(f) Unpaid matured deposits and interest accrued thereon;
(g) Unpaid matured debentures and interest accrued thereon; and
(h) Others (specify nature
‘Longterm debt’ is a borrowing having a period of more than twelve months at the
time of origination.
III. Other current liabilities:
The amounts shall be classified as-
(a) Revenue received in advance;
(b) Other advances (specify nature); and
(c) Others (specify nature)
IV. Provisions: the amounts shall be classified as- (i) Provision for employee
benefits; and
(ii) Others (specify nature)
G. The presentation of liabilities associated with group of assets classified as held for sale
and non-current assets classified as held for sale shall be in accordance with the relevant
Indian accounting standards (Ind AS).
H. Contingent liabilities and commitments (to the extent not provided for)
1) Contingent liabilities shall be classified as-
a) Claims against the company not acknowledged as debt;
b) Guarantees excluding financial guarantees; and
c) Other money for which the company is contingently liable.
2) Commitments shall be classified as-
a) Estimated amount of contracts remaining to be executed on capital account and
not provided for;
b) Uncalled liability on shares and other investments partly paid; and
c) Other commitments (specify nature)
I. The amount of dividends proposed to be distributed to equity and preference shareholders
for the period and the related amount per share shall be disclosed separately. Arrears of
fixed cumulative dividends on irredeemable preference share shall also be disclosed
separately.
J. Where in respect of an issue of securities made for a specific purpose the whole or part of
amount has not been used for the specific purpose at the balance sheet date, there shall be
indicated by way of note how such unutilized/amounts have been used or invested.
99
7. When accompany applies an accounting policy retrospectively or makes a restatement of
items in the financial statements or when it reclassifies items in its financial statements, the
company shall attach to the balance sheet, a “balance sheet” as at the beginning of the earliest
comparative period presented.
8. Share application money pending allotment shall be classified into equity or liability in
accordance with relevant Indian accounting standards. Share application money to the extent
not refundable shall be shown under the head equity and share application money to the extent
refundable shall be separately shown under ‘other financial liabilities’.
9. Preference shares including premium received on issue, shall classified and presented as
equity or liability in accordance with the requirements of the relevant Indian accounting
standards. Accordingly, the disclosures and presentation requirements in this regard applicable
to the relevant class of equity or liability shall be applicable mutatis mutandis to the
preference shares. For instance, redeemable preference share shall be classified and presented
under ‘non-current liabilities’ as borrowings and the disclosure requirements in this regard
applicable to such borrowings shall be applicable mutatis mutandis to redeemable preference
shares.
10. Compound financial instruments such as convertible debentures, where split into equity and
liability components, as per the requirements of the relevant Indian accounting standards, shall
be classified and presented under the relevant heads in ‘equity and liabilities’.
11. Regulatory deferral account balances shall be presented in the balance sheet in accordance
with the relevant Indian accounting standards.
Part ii – statement of profit and loss
Name of the company…………………………….
Profit and loss statement for the year ended………………………………………
Sr.
No.
Particulars Note
No.
Figures as at
the end
current
reporting
period
of Figures as at
the end of the
previous
reporting
period
I. Revenue from operations XXX XXX
II. Other income XXX XXX
III. Total revenue (1+1) XXX XXX
IV. Expenses: XXX XXX
Cost of materials consumed XXX XXX
Purchases of stock-in-trade XXX XXX
Changes in inventories of finished
goods work-in-progress and stock-in
trade
XXX XXX
Employee benefits expense finance
costs
XXX XXX
Depreciation and amortization expense XXX XXX
Other expenses XXX XXX
100
Total expenses XXX XXX
V. Profit before exceptional and
extraordinary items and tax (iii-iv)
XXX XXX
VI. Exceptional items XXX XXX
VII. Profit/loss before tax (v-vi) XXX XXX
VIII. Tax expense:
(1) Current tax
(2) Deferred tax
XXX XXX
IX. Profit (loss) for the period from
continuing operations (vii-viii)
XXX XXX
X. Profit/loss from discontinued
operations
XXX XXX
XI. Tax expense of
discontinuing operations
XXX XXX
XII. Profit/loss from discontinued
operations (after tax) (x-xi)
XXX XXX
XIII. Profit (loss) for the period (ix + xii) XXX XXX
XIV. Other comprehensive income
A (i) items that will not be reclassified
to profit or loss (ii) income tax relating to items that will not be
Reclassified to profit or loss
XXX XXX
B (i) item that will be reclassified to
profit or loss
B (ii) income tax relating to items that
will be reclassified to profit or loss
XV. Total comprehensive income for the period (xiii+xiv)
(comprising profit (loss) and other
comprehensive income for the period)
XXX XXX
XVI. Earnings per equity share
(for continuing operation):
1. Basic
2. Diluted
XXX XXX
XVII. Earnings per equity share
(for discontinued operation):
1. Basic
2. Diluted
Diluted
XXX XXX
XVIII. Earnings per equity share (for
discontinued & continuing operation):
1. Basic
2. Diluted
XXX XXX
101
See accompanying notes to the financial statement
General instructions for preparation of statement of profit and loss
1. The provisions of this part shall apply to the income and expenditure account, in like
manner as they apply to a statement of profit and loss.
2. The statement of profit and loss shall include:
1. Profit or loss for the period;
2. Other comprehensive income for the period.
The sum of (1) and (2) above is total comprehensive
3. Revenue from operations shall disclose separately in the notes.
a) Sale of products (including excise duty);
b) Sale of services; and
c) Other operating revenues.
4. Finance costs: finance costs shall be classified as-
(a) Interest;
(b) Dividend on redeemable preference shares:
(c) Exchange differences regarded as an adjustment to borrowings costs; and
(d) Other borrowings costs (specify nature)
5. Other income: other income shall be classified as-
(a) Interest income;
(b) Dividend income; and
(c) Other non-operating income (net of expenses directly attributable to such
income.
6. Other comprehensive income shall be classified into A) Items that will not be
reclassified to profit or loss (i) Changes in revaluation surplus;
(ii) Re-measurements of the defined benefit plans;
(iii) Equity instruments through other comprehensive income;
(iv) Fair value changes relating to own credit risk of financial liabilities
designated at fair value through profit or loss;
(v) Share of other comprehensive income in associates and joint ventures, to the
extent not to be classified into profit or loss; and (vi) Others (specify
nature).
B) Items that will be reclassified to profit or loss;
(i) Exchange differences in translating the financial statements of a foreign
operation;
(ii) Debt instruments through other comprehensive income;
(iii) The effective portion of gains and loss on hedging instruments in a cash flow
hedge;
(iv) Share of other comprehensive income in associates and joint ventures, to the
extent to be classified into profit or loss; and (v) Others (specify nature).
7. Additional information: a company shall disclosed by way of notes, additional
information regarding aggregate expenditure and income on the4 following items:
(a) Employee benefits expense [showing separately (i) salaries and wages, (ii)
contribution to provident and other funds, (iii) share based payments to employees,
(iv) staff welfare expenses]. (b) Depreciation and amortization expense;
(c) Any item of income or expenditure which exceeds one per cent of the revenue
from operations or Rs. 10,00,000, whichever is higher, in addition to the
consideration of ‘materiality’ as specified in clause 7 of the general instructions
for preparation of financial statements of a company;
(d) Interest income;
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(e) Interest expense;
(f) Dividend income;
(g) Net gain or loss on sale of investments;
(h) Net gain or loss on foreign currency transaction and translation (other than
considered as finance cost);
(i) Payments to auditor as (a) auditor, (b) for taxation matters, (c) for company law
matters, (d) for other services, € for reimbursement of expenses;
(j) In case of companies covered under section 135, amount of expenditure
incurred on corporate social responsibility activities; and
(k) Details of items of exceptional nature;
8. Changes in regulatory deferral account balances shall be presented in the statement of
profit and loss in accordance with the relevant Indian accounting standards.
Part III – general instructions for the preparation of consolidated financial statements
1. Where a company is required to prepare consolidated financial statements, i.e.,
consolidated balance sheet, consolidated statement of changes in equity and
consolidated statement of profit and loss, the company shall mutatis mutandis follow the
requirements of this schedule as applicable to a company in the preparation of balance
sheet, statement of changes in equity and statement of profit and loss. In addition, the
consolidated financial statements shall disclose the information as per the requirements
specified in the applicable Indian accounting standards notified under the companies
(Indian accounting standards) rules 2015, including, including the following namely:-
(i) Profit or loss attributable to ‘non-controlling interest’ and to ‘owners of the parent’
in the statement of profit and loss shall be presented as allocation for the period
attributable to non-controlling interest’ and owners of the parent’ shall be presented
in the statement of profit and loss as allocation for the period. The aforesaid
disclosures for ‘total comprehensive income shall also be made in the statement of
changes in equity. In addition to the disclosure requirement in the India accounting
standard, the aforesaid disclosures shall also be made in respect of other
comprehensive income’.
(ii) "Non-controlling interest” in the balance sheet and in the statement of changes in
equity, within equity, shall be presented separately from the equity of the ‘owners of
the parent’.
(iii) Investments accounted for using the equity method.
2. In consolidated financial statements, the following shall be disclosed by way additional
information:
Name of the
entity in
the
Net assets, i.e. Total
as- sets minus total
liabilities
Share in profit or loss Share in other
comprehensive
income
Share in total
comprehensive income
As %
of
consolidated
net assets
Amount
Rs.
As % of
consolidated
profit or
loss
Amount
Rs.
As % of
consolidated
profit or
loss
Amount
Rs.
As % of
consolidated
profit or
loss
Amount
Rs.
103
1 2 3 4 5 6 7 8 9
Parent
Subsidiaries
Indian
1
2
3
Foreign
1
2
3
.
.
Non
controlling
interests in
all
subsidiaries
associates
(investment as per the
equity
method)
Indian
1
2
3
.
.
Total
3. All subsidiaries, associates and joint ventures (whether Indian or foreign) will be
covered under consolidated financial statements.
4. An entity shall disclose the list of subsidiaries or associates or joint ventures which have
not been consolidated in the consolidated financial statements along with the reasons of
not consolidating.
Disclosure in Directors’ report
The board’s report is a vital document of annual report in which the Directors of a company gives
review of the performance of the company under the board report, there is no restriction to put any
matter. However, certain matters as part of statutory compliance, needs to be put in as per the
Companies Act, 2013 and the SEBI LODR Regulations, 2015 (for listed company).
The board’s report is to be prepared based on the standalone financial statements of the company
and it should contain a separate section wherein a report on the performance and financial position
of each of the subsidiaries, associates and joint venture companies included in the consolidated
financial statement is presented.
104
A. Section 134 of Companies Act, 2013 read with companies (account) rules, 2014 provides for the
contents to be disclosed in the board’s report. The board’s report shall include:
1. The web address, if any, where annual return referred to in sub-section (3) of section 92 has
been placed..
2. Number of meetings of the board;
3. Directors’ responsibility statement;
4. Details in respect of frauds reported by auditors under sub-section (12) of section 143 other
than those which are reportable to the central government;
(a) details in respect of frauds reported by auditors under sub-section (12) of section
143 other than those which are reportable to the Central Government;
5. A statement on declaration given by independent Directors under sub-section (6) of section
149;
6. In case of a company covered under sub-section (1) of section 178, company’s policy on
Director’s appointment and remuneration including criteria for determining qualifications,
positive attributes, independence of a Director and other matters.
7. Explanations or comments by the board on every qualification, reservation or adverse
remark or disclaimer made by the auditor in his report and by the company secretary in
practice in his secretarial audit report;
8. Particulars of loans, guarantees or investments under section 186;
9. Particulars of contracts or arrangements with related parties in form aoc-2;
The state of the company’s affairs;
The amount, if any, which it proposes to carry to any reserves;
The amount, if any, which it recommends should be paid by way of dividend;
Material changes and commitments, if any, affecting the financial position of the company
which have occurred between the end of the financial year of the company to which the
financial statements relate and the date of the report;
10. The conservation of energy, technology absorption, foreign exchange earnings and outgo, in
the manner (the foreign exchange earned in terms of actual inflows during the year and the
foreign exchange outgo during the year in terms of actual outflows).
11. A statement indicating development and implementation of a risk management policy for
the company including identification therein of elements of elements of risk, if any, which
in the opinion of the board may threaten the existence of the company;
12. The details about the corporate social responsibility committee (constitution), policy
developed and implemented by the company on corporate social responsibility initiatives
taken during the year.
13. In case of a listed company and every other public company having paid-up share capital of
twenty five Crore rupees or more, calculated at the end of the preceding financial year, a
statement indicating the manner in which formal annual evaluation of the performance of
the Board, its Committees and of individual Directors has been made.
B. In addition to above the board report should also include the below information as per rule 8 of
the companies (accounts) rules, 2014:
1. The financial summary of highlights
2. The change in the nature of business, if any;
3. The details of Directors or key managerial personnel who were appointed or have resigned
during the year;
4. The names of companies which have become or ceased to be its subsidiaries, joint ventures
or associates companies during the year;
5. The details relating to
a. Deposits accepted during the year,
b. Remained unpaid or unclaimed as at the end of the year;
105
c. Whether there has been any default in repayment of deposits or payment of interest
thereon during the year and if so, number of such cases and the total amount involved –
(i) at the beginning of the year; (ii) maximum during the year; (iii)at the end of the year;
6. The details of deposits which are not in compliance with the requirements of acceptance of
deposit rules;
7. The 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;
8. The details in respect of adequacy of internal financial controls with reference to the
financial statements.
The board’s report shall be prepared based on the standalone financial statements of the
company and shall report on the highlights of performance of subsidiaries, associates and
joint venture companies and their contribution to the overall performance of the company
during the period under report.
9. A disclosure, as to whether maintenance of cost records as specified by the Central
Government under sub-section (1) of section 148 of the Companies Act, 2013, is required
by the Company and accordingly such accounts and records are made and maintained.
10. A statement that the company has complied with provisions relating to the constitution of
Internal Complaints Committee under the Sexual Harassment of Women at Workplace
(Prevention, Prohibition and Redressal) Act, 2013.
11. Statement regarding Compliance of Applicable Secretarial Standards.
C. The Directors report should also include the below information as per the relevant sections of
the act:
1. Section 149(10) of the act – disclosure on reappointment independent Director.
2. Section 177(9) of the act – disclosure on establishment of vigil mechanism.
3. Section 197(12) of the act – disclosure on ratio of the remuneration of each Director to the
median employees remuneration and such other details as may be prescribed shall be
disclosed in the board’s report.
4. Section 197(14) of the act – disclosure about receipt of any commission by MD/WTD from
a company
5. Section 204 of the act – secretariat audit report (form mr-3)
6. Section 177(8) of the act – disclosure on composition of the audit committee. Further, if the
board has not accepted any recommendation of the audit committee, the same shall also be
disclosed along with reasons therefore.
7. Section 131 of the act - voluntary revision of financial statement or board’s report.
8. Section 67(3) read with rule 16 of companies (share capital & debentures) rules, 2014 –
disclosure in respect of voting rights not exercised by the employees in respect of shares to
which the scheme relates.
9. Sections 43, 54,62 (1)(b) read with rules 4(4), 8(13) & 12(9) of companies (share capital &
debentures) rules, 2014 – disclosure on issue equity shares with differential rights, sweat
equity, esos etc.
10. Regulation 34 of SEBI (listing obligation and disclosure requirements ) regulation 2015-
corporate governance disclosure requirements (listed company)
11. Furnish explanation for variation as specified in sub-regulation (3) of regulation 32 of SEBI
(listing obligations and disclosure requirements) regulations 2015
12. Section 168 of the Companies Act, 2013 – fact of resignation of Director also to be
disclosed in Director’s report.
13. Section 135 of the Companies Act, 2013 – board’s report to contain the composition and the
policy as well as reasons for failure to spend the prescribed amount of two per cent as part
of corporate social responsibility expenditure.
106
VALUATION REQUIREMENTS Section 247. Valuation by Registered Valuers.
Where a valuation is required of any property, stocks, shares, debentures, securities or goodwill or
any other assets or net worth of a company or its liabilities under the provision of this Act, it should
be valued by a person having such qualification and experience and registered as valuer in such
manner, and appointed by the audit committee or in its absence by the Board of Directors of that
company.
Who is Valuer?
“Valuer” means a person registered with the authority in accordance with these rules and the term
“registered valuer” shall be construed accordingly.
Valuation by a Registered Valuer will be required in following situations:
Sections as per
Companies Act 2013
Valuation Requirement/
Purpose
Details
Section 62 (1) (c) Issue of new shares If any company proposes to issue new shares
(except a rights issue to existing shareholders or
to employees under employees stock options),
the price of such shares should be determined by
the valuation report of a Registered Valuer.
Section 192 (2) Non cash transaction
with directors
In case of sale or purchase of any asset involving
a company and the directors of the company (or
its holding, subsidiary or associate company) or a
person connected with the Director for
consideration other than cash, the value of the
assets has to be calculated by a Registered
Valuer.
Section 230 (2) & (3)
and Section 232
Compromises,
Arrangements and
Amalgamations
In case of a compromise or arrangement between members (such as in mergers or amalgamations)
or with creditors (such as in corporate debt
restructuring),a valuation report in respect of shares, property or assets, tangible and
intangible, movable and immovable of the
company, or a swap ratio report by a Registered
Valuer is required.
In case of mergers, the directors are also required
to circulate a report to members specifying, inter
alia, any special valuation difficulties.
Section 236 Purchase of minority
share holding
In case an acquirer or person acting in concert
with the acquirer acquire 90% or more of the
equity capital in a company, they can offer to the
minority shareholder (or the minority shareholder
can offer to the acquirer) to acquire the minority
shareholding at a valuation determined by the
Registered Valuer.
Section 281 (1) (a) and Section 305 (2)
(d)
Winding up of a
company
A valuation of assets of the company prepared by
the Registered Valuer is required in case of
winding up voluntarily or otherwise.
107
Registered Valuers
Under the Companies Act 2013, the Central Government (or any authority, institution or agency
notified by it) will maintain a register to be called as Register of Valuers.
• Eligibility for Register Valuer:
The following persons will be eligible to apply for being registered as a valuer.
- is a valuer member of a registered valuers organization;
- is recommended by the registered valuers organization of which he is a valuer member for
registration as a valuer;
- has passed the valuation examination under rule 5 within three years preceding the date of
making an application for registration under rule 6;
- possesses the qualifications and experience as specified in rule 4;
- is not a minor;
- has not been declared to be of unsound mind;
- is not an undercharged bankrupt, or has not applied to be adjudicated as a bankrupt;
- is a person resident in India;
- has not been convicted by any competent court for an offence punishable with imprisonment
for a term exceeding six months or for an offence involving moral turpitude, and a period of
five years has not elapsed from the date of expiry of the sentence:
Provided that if a person has been convicted of any offence and sentenced in respect thereof
to imprisonment for a period of seven years or more, he shall not be eligible to be registered;
- has not been levied a penalty under section 271J of Income-tax Act, 1961 (43 of 1961) and
time limit for filing appeal before Commissioner of Income-tax (Appeals) or Income-tax
Appellate Tribunal, as the case may be has expired, or such penalty has been confirmed by
Income-tax Appellate Tribunal, and five years have not elapsed after levy of such penalty;
and
- is a fit and proper person
• Qualifications and Experience:
An individual shall have the following qualifications and experience to be eligible for
registration under rule 3, namely:-
- post-graduate degree or post-graduate diploma, in the specified discipline, from a University
or Institute established, recognised or incorporated by law in India and at least three years of
experience in the specified discipline thereafter; or
- a Bachelor's degree or equivalent, in the specified discipline, from a University or Institute
established, recognised or incorporated by law in India and at least five years of experience
in the specified discipline thereafter; or
- membership of a professional institute established by an Act of Parliament enacted for the
purpose of regulation of a profession with at least three years experience after such
membership and having qualification mentioned at clause (a) or (b).
• Valuation Examination:
108
- The authority shall, either on its own or through a designated agency, conduct valuation
examination for one or more asset classes, for individuals, who possess the qualifications
and experience, and have completed their educational courses as member of a registered
valuers organisation, to test their professional knowledge, skills, values and ethics in respect
of valuation.
- The authority shall determine the syllabus for various valuation specific subjects or assets
classes for the valuation examination on the recommendation of one or more Committee of
experts constituted by the authority in this regard.
• Application for certificate of registration:
An individual eligible for registration as a registered valuer may make an application to the
authority in Form-A of Annexure-II along with a non-refundable application fee of five
thousand rupees in favour of the authority.
• Conditions of Registration:
Maintenance of Records: maintain records of each assignment undertaken by him for at least
three years from the completion of such assignment;
- at all times possess the eligibility and qualification and experience criteria as specified under
rule 3 and rule 4;
- at all times comply with the provisions of the Act , these rules and the Bye-laws or internal
regulations, as the case may be, of the respective registered valuers organisation;
- in his capacity as a registered valuer, not conduct valuation of the assets or class(es) of
assets other than for which he/it has been registered by the authority;
- take prior permission of the authority for shifting his/ its membership from one registered
valuers organisation to another;
- take adequate steps for redressal of grievances;
- comply with the Code of Conduct (as per Annexure-I of these rules) of the registered
valuers organisation of which he is a member;
• Conduct of Valuation:
- The registered valuer shall, while conducting a valuation, comply with the valuation
standards as notified or modified under rule 18:
Provided that until the valuation standards are notified or modified by the Central
Government, a valuer shall make valuations as per-
a. internationally accepted valuation standards;
b. valuation standards adopted by any registered valuers organisation.
- The registered valuer may obtain inputs for his valuation report or get a separate valuation
for an asset class conducted from another registered valuer, in which case he shall fully
disclose the details of the inputs and the particulars etc. of the other registered valuer in his
report and the liabilities against the resultant valuation, irrespective of the nature of inputs or
109
valuation by the other registered valuer, shall remain of the first mentioned registered
valuer.
- The valuer shall, in his report, state the following:-
a. background information of the asset being valued;
b. purpose of valuation and appointing authority;
c. identity of the valuer and any other experts involved in the valuation;
d. disclosure of valuer interest or conflict, if any;
e. date of appointment, valuation date and date of report;
f. inspections and/or investigations undertaken;
g. nature and sources of the information used or relied upon;
h. procedures adopted in carrying out the valuation and valuation standards followed;
i. restrictions on use of the report, if any;
j. major factors that were taken into account during the valuation;
k. conclusion; and
l. caveats, limitations and disclaimers to the extent they explain or elucidate the limitations
faced by valuer, which shall not be for the purpose of limiting his responsibility for the
valuation report.
• Cancellation or suspension of certificate of registration or recognition:
The authority may cancel or suspend the registration of a valuer or recognition of a
registered valuers organisation for violation of the provisions of the Act, any other law
allowing him to perform valuation, these rules or any condition of registration or
recognition, as the case may be in the manner specified in rule 17.
• Punishment:
If a valuer contravenes the provisions of this section or the rules made thereunder, the valuer
shall be punishable with fine which shall not be less than twenty-five thousand rupees but
which may extend to one lakh rupees
Provided that if the valuer has contravened such provisions with the intention to defraud the
company or its members, he shall be punishable with imprisonment for a term which may
extend to one year and with fine which shall not be less than one lakh rupees but which may
extend to five lakh rupees.
Where a valuer has been convicted he shall be liable to-
- refund the remuneration received by him to the company; and
- pay for damages to the company or to any other person for loss arising out of incorrect
or misleading statements of particulars made in his report.
• Effectiveness of Rules/ Transitional Provisions
The Companies (Registered Valuers and Valuation) Rules, 2017 shall come into force with
effect from 15th July, 2017.
However Any person who may be rendering valuation services under the Act, on the date of
commencement of these rules, may continue to render valuation services without a certificate of
registration under these rules upto 31st January, 2019
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Provided that if a company has appointed any valuer before such date and the valuation or any
part of it has not been completed before 2[31st January, 2019], the valuer shall complete such
valuation or such part within three months thereafter.
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INTERNAL FINANCIAL CONTROLS
Meaning of Internal Financial Control
Meaning of IFC is not defined anywhere in CA 2013 except in section 134(5)(e) that too only for
the purpose of that clause. According to explanation of said section, “internal financial controls”
means the policies and procedures adopted by the company for ensuring the orderly and efficient
conduct of its business, including adherence to company’s policies, the safeguarding of its assets,
the prevention and detection of frauds and errors, the accuracy and completeness of the accounting
records, and the timely preparation of reliable financial information.
Objective of Internal Financial Control
- Primary objective of IFC to identify opportunities for improvement and to draw up
recommendations & good practices that can be used as a benchmark to develop or
strengthen internal control systems and enhance the reliability of financial statements.
- Efficiency and effectiveness in operations
- Prevention and detection of fraud and error
- Safeguarding of assets
- Accuracy and completeness of accounting records
- Reliability of Financial Reporting
Life Cycle of Internal Financial Control
Advantages of a robust internal financial control system:
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By placing more accountability and responsibility on the Board and Audit Committee with respect
to internal financial controls, the 2013 Act is attempting to align the corporate governance and
financial reporting standards with global best practices. With adequate and effective internal
financial controls, some of the benefits that the companies would experience include:
• Senior Management Accountability
• Improved controls over financial reporting process
• Improved investor confidence in entity's operations and financial reporting process
• Promotes culture of openness and transparency within the entity
• Trickling down of accountability to operational management
• Improvements in Board, Audit Committee and senior management’s engagement in
financial reporting and financial controls
• More accurate, reliable financial statements
• Making audits more comprehensive
Legal Provisions under Companies Act, 2013
• Director’s Responsibility
Sub-section 5 of section 134 of the Companies Act, 2013 requires Directors’ responsibility
statement to state that directors, in the case of listed company:
- had laid down internal financial controls to be followed by the company; - that
such internal financial controls are adequate and; - that such controls were
operating effectively.
Sub-section 3 of section 134 of the Companies Act, 2013 requires to attach the Board Report
with the statements laid before Company in general meeting, which should include:
- Statement indicating
- development and implementation of
- risk management policy
- for the Company
- including identification therein of element of risk, if any
- which, in the opinion of the Board may threaten the existence of the Company
Rule 8(5)(viii) of Companies (Accounts) Rules, 2014 requires the board report to contain:
- details in respect of adequacy of internal financial controls - with reference to -
the financial statements.
Schedule IV to Companies Act, 2013 read with sub-section 8 of section 149 of the said Act,
requires Independent Directors to:
- Satisfy themselves
- on the integrity of financial information and
- that financial controls and systems of risk management are robust and defensible
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• Statutory Auditors’ Responsibility
Sub-section 3 of section 143 of the Companies Act, 2013 prescribed that the Auditor’s Report
shall state whether:
- the Company has
- adequate internal financial controls system
- in place and
- the operating effectiveness of such controls
Rule 10A of the Companies (Audit and Auditors) Rules, 2014 requires auditor to state about
existence of adequate internal financial controls system and its operating effectiveness in
their reports for the financial years commencing on or after 1st April, 2015.
• Responsibility of Audit Committee
Section 177(4)(vii) requires an Audit Committee to evaluate the internal financial controls and
risk management systems of the Company.
Schedule II – rate of depreciation – the Companies Act, 2013
As per Schedule II along with section 123 of the Companies Act, 2013 – useful lives to compute
depreciation,
As per part a
(i) In case of such class of companies, as may be prescribed and whose financial statements
comply with the accounting standards prescribed for such class of companies under section
133, the useful life of an asset shall not normally be different from the useful life and the
residual value shall not be different from that as indicated in part c, provided that if such a
company uses a uses a useful life or residual value which is different from the useful life or
residual value indicated therein, it shall disclose the justification for the same.
(ii) In respect of other companies, the useful life of an asset shall not be longer than the useful
life and the residual value shall not be higher than that prescribed in part c.
(iii) For intangible assets, the provisions of the accounting standards mentioned under sub-para
(i) or (ii), as applicable, shall apply.
As per part b
The useful life or residual value of any specific asset, as notified for accounting purposes by a
regulatory authority constituted under an act of parliament or by the central government shall be
applied in calculating the depreciation to be provided for such asset irrespective of the requirement
of this schedule.
As per part c
Subject to parts a and b above, the following above the useful lives of various tangible assets.
Nature of assets Useful
years
life in
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I Building [NESD]
A Buildings (other than factory buildings) rcc frame structure 60
B Building (other than factory buildings) other than rcc frame
structure
30
C Factory buildings 30
D Fences, wells tube wells 5
E Others (including temporary structure, etc.) 3
Ii Bridges, culverts, bunders, etc. [NESD]
Iii Roads [NESD]
A Carpeted roads
I Carpeted roads –rcc 10
Ii Carpeted road – other than rcc 5
B Non-carpeted roads 3
Iv Plant and machinery
A General rate applicable to plant and machinery not covered under
special plant and machinery
a) Plant and machinery other than continuous process plant not
covered under specific industries
15
b) Continuous process plant for which no special rate has been
prescribed under (ii) below [NESD]
8
(ii) Special plant and machinery
(a) Plant and machinery related to production and exhibition of
motion picture films
1. Cinematograph films – machinery used in the production and
exhibition of cinematograph films, recording and reproducing
equipment, developing machines, printing machines, editing
machines, synchronisers and studio lights except bulbs
13
2. Projecting equipment for exhibition of films 13
(b) Plant and machinery used in glass manufacturing
1. Plant and machinery except direct fire glass melting furnaces –
recuperative and regenerative glass melting furnaces
13
2. Plant and machinery except direct fire glass melting furnaces –
moulds [NESD]
8
3. Float glass melting furnaces [NESD] 10
(c) Plant and machinery used in telecommunications [NESD]
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1. Towers 18
2. Telecom transceivers, switching centers, transmission and other
network equipment
13
3. Telecom – ducts, cables and optical fiber 18
4. Satellites 18
(e) Plant and machinery used in exploration, production and
refining oil and gas [NESD]
1. Refineries 25
2. Oil and gas assets (including wells), processing plant and
facilities
25
3. Petrochemical plant 25
4. Storage tanks and related equipment 25
5. Pipelines 30
6. Drilling rig 30
7. Field operations (above ground) portable boilers, drilling tools,
well-head tanks, etc.
8
8. Loggers 8
(f) Plant and machinery used in generation, transmission and
distribution of power [NESD]
1. Thermal/gas/combined cycle power generation plant 40
2. Hydro power generation plant 40
3. Nuclear power generation plant 40
4. Transmission lines, cables and other network assets 40
5. Wind power generation plant 22
6. Electric distribution plant 35
7. Gas storage and distribution plant 30
8. Water distribution plant including pipelines 30
(g) Plant and machinery used in manufacture of steel
1. Sinter plant 20
2. Blast plant 20
3. Coke ovens 20
4. Rolling mill in steel plant 20
5. Basic oxygen furnace converter 25
(h) Plant and machinery used in manufacture of non-ferrous metals
1. Metal pot line [NESD] 40
2. Bauxite crushing and grinding section [NESD] 40
3. Digester section [NESD] 40
4. Turbine [NESD] 40
5. Equipment for calcination [NESD] 40
6. Copper smelter [NESD] 40
7. Roll grinder 40
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8. Soaking pit 30
9. Annealing furnace 30
10. Rolling mills 30
11. Equipment for scalping, slitting, etc. [NESD] 30
12. Surface miner, ripper dozer, etc., used in mines 25
13. Copper refining plant [NESD] 25
(i) Plant and machinery used in medical and surgical operations
[NESD]
1. Electrical machinery, x-ray and electrotherapeutic apparatus and
accessories thereto, medical, diagnostic equipment, namely,
catscan, ultrasound machines, ecg monitors, etc.
13
2. Other equipment’s. 15
(j) Plant and machinery used in manufacture of pharmaceuticals and
chemicals [NESD]
1. Reactors 20
2. Distillation columns 20
3. Drying equipments/centrifuges and decanters 20
4. Vessel/storage tanks 20
(k) Plant and machinery used in civil construction
1. Concreting, crushing, piling equipments and road making
equipments
12
2. Heavy lift equipments-
Cranes with capacity of more than 100 tons
Cranes with capacity of less than 100 tons
20
12
3. Transmission line, tunneling equipments [NESD] 10
4. Earth-moving equipments 9
5. Others including material handling/pipeline/welding equipments
[NESD]
12
(l) Plant and machinery used in salt works [NESD] 15
V. Furniture and fittings [NESD]
(i) General furniture and fittings 10
(ii) Furniture and fittings used in hotels, restaurants and boarding
houses, schools, colleges and other educational institutions,
libraries; welfare centers; meeting halls, cinema houses; theatres
and circuses, and furniture and fittings let out on hire for use on
the occasion of marriage and similar functions.
8
Vi. Motor vehicles [NESD
1. Motor cycles, scooters and other mopeds 10
2. Motor buses, motor lorries, motor cars and motor taxies used in a
business of running them on hire
6
3. Motor buses, motor lorries and motor cars other than those used in
a business of running them on hire
8
4. Motor tractors, harvesting combines and heavy vehicles 8
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5. Electrically operated vehicles including battery powered or fuel
cell powered vehicles
8
Vii. Ships [NESD]
1. Ocean-going ships
(i) Bulk carriers and liner vessels 25
(ii) Crude tankers, product carriers and easy chemical carriers with or
without conventional tank coatings.
20
(iii) Chemicals and acid carriers:
(a) With stainless steel tanks
(b) With other tanks
25
20
(iv) Liquefied gas carriers 30
(v) Conventional large passenger vessels which are used for cruise
purpose also
30
(vi) Coastal service ships of all categories 30
(vii) Offshore supply and support vessels 20
(viii) Catamarans and other high speed passenger for ships or boats 20
(ix) Drill ships 25
(x) Hovercrafts 15
(xi) Fishing vessels with wooden hull 10
(xii) Dredgers, tugs, barges, survey launches and other similar ships used
mainly for dredging purposes
14
2. Vessels ordinarily operating on inland waters-
(i) Speed boats 13
(ii) Other vessels 28
Viii. Aircrafts or helicopters [NESD] 20
Ix. Railways sidings, locomotives, rolling stocks, tramways and railways used
by concerns, excluding railway concerns [NESD]
15
X. Ropeway structures [NESD] 15
Xi. Office equipment [NESD] 5
Xii. Computers and data processing units [NESD]
(i) Servers and networks 6
(ii) End user devices, such as, desktops, laptops, etc. 3
Xiii. Laboratory equipment [NESD]
(i) General laboratory equipment 10
(ii) Laboratory equipments used in educational institutions 5
Xiv. Electrical installations and equipment [NESD] 10
Xv. Hydraulic works, pipelines and sluices [NESD] 15
Notes
1. “Factory buildings” does not include offices, godowns and staff quarters.
2. Where during any financial year, any addition has been made to any asset, or where any
asset has been sold, discarded, demolished or destroyed, the depreciation on such assets
shall be calculated on a pro rata basis from the date of such addition or, as the case may be,
up to the date on which such asset has been sold, discarded, demolished or destroyed.
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3. The following information shall also be disclosed in the accounts, namely:- (i) Depreciation
methods used; and
(ii) The useful lives of the assets for computing depreciation, if they are different from
the life specified in the schedule.
4. Useful life specified in part c of the schedule is for whole of the asset. Where cost of a part
of the asset is significant to 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 pat shall be determined
separately.
5. Depreciable amount is the cost of an asset, or other amount substituted for cost, less its
residual value. Ordinarily, the residual value of an asset is often insignificant but it should
generally be not more than 5% of the original cost of the asset.
6. The useful lives of assets working on shift basis have been specified in the schedule based
on their single shift working. Except for assets in respect of which no extra shift
depreciation is permitted (indicated by NESD in part c above), if an asset is used for any
time during the year for double shift, the depreciation will increase by 50% for that period
and in case of the triple shift the depreciation shall be calculated on the basis of 100% for
that period.
7. From the date this schedule comes into effect, the carrying amount of the asset as on that
date-
(a) Shall be depreciated over the remaining useful life of the asset as per this schedule;
(b) After retaining the residual value, shall be recognized in the opening balance of
retained earnings where the remaining useful life of an asset is nil.
8. “Continuous process plant” means a plant which is required and designed to operate for
twenty-four hours a day.
CORPORATE SOCIAL RESPONSIBILITY.
Introduction
Section 135 of the Companies Act, 2013 read with Companies (Corporate Social Responsibility
Policy) Rules, 2014 dealing with the provisions of corporate social responsibility (CSR).
Corporate social responsibility (CSR, also called corporate conscience, corporate citizenship, social
performance, or sustainable responsible business/responsible business) is a form of corporate self-
regulation integrated into a business model. CSR policy functions as a built-in, selfregulating
mechanism whereby a business monitors and ensures its active compliance with the spirit of the law,
ethical standards, and international norms. In some models a company’s implementation of CSR
goes beyond compliance and engages in actions that appear to further some social good, beyond the
interests of the company, and that which is required by law.
CSR is a process with the aim to embrace responsibility for the company’s actions and encourage a
positive impact through its activities on the environment, consumers, employees, communities,
stakeholders, and all other members of the public sphere who may also be considered stakeholders.
The term “corporate social responsibility” became popular in the 1960s and has remained term used
indiscriminately by many to cover legal and moral responsibility more narrowly construed.
Application to the companies
Section 135 of the Companies Act 2013 makes it mandatory for following companies to comply
with CSR provisions:
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� Every company having net worth of rupees five hundred Crore or more,
or � Every company having turnover of rupees one thousand Crore or more, or
� Every company having net profit of rupees five Crore or more.
It is to be noted that the Applicability be considered for the immediate preceding financial
year.
Action points to comply with CSR provisions
- Constitute a CSR committee of the board consisting of three or more Directors, out of which
at least one Director shall be an independent Director;
Provided that in case of an unlisted public company or a private company which is not
required to appoint an independent Director pursuant to section 149(4) of the act, shall have
its CSR committee with two or more such Director;
- Disclose the composition of the CSR committee in the board’s report under sub-section (3)
of section 134;
- After taking into account recommendations made by the CSR committee, approve the CSR
policy for the company.
- Disclose contents of such policy in its report and also place it on the compnay’s website, if
any, in such manner as may be prescribe; and
- Ensure that the activities as are included in CSR policy of the company are undertaken by
the company;
- Give preference to the local area and areas around it where the company operates, for
spending the amount earmarked for CSR activities;
- If the company fails to spend the CSR amount, the board shall, in its report made under
clause (0) of sub-section (3) of section 134, specify the reasons for not spending the amount;
- Net profit not to include profit arising from any overseas branch and dividends from other
company;
- Every foreign company operating in India fulfilling the criteria to fulfill CSR regulations; -
Entities eligible for CSR spending – India only:
a) A company established under section 8 of the act or a registered trust or a registered
society, established by the company, either singly or along with any other company, or
b) A company established under section 8 of the act or a registered trust or a registered
society, established by the central “government or state government or any entity
established under an act of parliament or a state legislature:
If, the board of a company decides to undertake its CSR activities through a company
established under section 8 of the act or a registered trust or a registered society, other than
those specified herein, such company or trust or society shall have an established tract
record of three years in undertaking similar programmes or projects; and the company has
specified the projects or programmes to be undertaken the modalities of utilization of funds
of such projects and programs and the monitoring and reporting mechanism.”
- A company is allowed to collaborate with other companies for CSR activities;
- CSR spending or salary paid to the employees who render their services for CSR will be
part of administrative overheads and cannot exceed 5% of total CSR expenditure, apart from
that CSR that be4nefits only the employees of the company and their families shall not be
considered as CSR activities;
- Political contribution is not a CSR spending.
Functions of CSR committee
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- Formulate and recommend to the board, a CSR policy indicating activities to be undertaken
by the company as specified in schedule vii to the Companies Act 2013; - Recommend the
amount of expenditure to be incurred on the CSR activities.
- Monitor CSR policy of the company from time-to-time.
The board of a company may decide to undertake its CSR activities approved by the CSR
committee, through
(a) A company established under section 8 of the act or a registered trust or a registered society,
established by the company, either singly or along with any other company, or
(b) A company established under section 8 of the act or a registered trust or a registered society,
established by the central government or state government or any entity established under an
act of parliament or a state legislature:
Provided that – if, the board of a company decides to undertake its CSR activities through a
company established under section 8 of the act or a registered trust or a registered society,
other than those specified in this sub-rule, such company or trust or society shall have an
established track record of three years in undertaking similar programmes or projects; and
the company has specified the projects or programmes to be undertaken, the modalities of
utilisation of funds of such projects and programmes and the monitoring and reporting
mechanism.
CSR spending
The board shall ensure that the company spends, in every financial year, at least 2% of the average
net profits of the company made during the three immediately preceding financial years, in
pursuance of its CSR policy.
Any financial year
“any financial year” referred under sub-section (1) of section 135 of the act read with rule 3(2) of
companies CSR rules 2014 implies any of the three preceding financial years’ (clarification vide
MCA general circular no. 21/2014).
What does not constitute CSR spending?
Rule 4 of the companies (corporate social responsibility policy) rules, 2014, requires that the CSR
activities that shall be undertaken by the companies for the purpose of section 135 of the act shall
exclude activities undertaken in pursuance of its normal course of business.” The rule also specifies
that CSR projects or programmes or activities that benefit only the employees of the company and
their families shall not be considered as CSR activities in accordance with the requirements of the
act. Such programmes or projects or activities that are carried out as a pre-condition for setting up a
business, or as part of a contractual obligation undertaken by the company or in accordance with any
other act or as a part of the requirement in this regard by the relevant authorities cannot be
considered as a CSR activity within the meaning of the act. Similarity, the requirements under
relevant regulations or otherwise prescribed by the concerned regulations as a necessary part of
running of the business, would be considered to be the activities undertaken in the ‘normal course of
business’ of the company and, therefore, would not be considered CSR activities.
Calculation of net profit
For the purposes of CSR spending,” average net profit” shall be calculated in accordance with the
provisions of section 198 is to be calculated following manner:
Net profit as per profit and loss account XXX
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Add: bounties and subsidies received from and government, or any public
authority constituted or authorized in this behalf, by any government, unless
and except in so far as the central government otherwise directs (if not
credited to profit and loss account).
XXX
Less : following items (if credited to profit and loss account):
(a) Profits by way of premium on shares or debentures of the company, which are issued or sold by the company;
(b) Profits on sales by the company of forfeited shares:
(c) Profits of a capital nature including profits from the sale of the undertaking or any of the undertaking of the company or of any part thereof;
(d) Profits from the sale of any immovable property or fixed assets of a capital nature comprised in the undertaking or any of the undertakings of the company, unless the business of the company consists, whether
wholly or partly, of buying and selling any such property or assets: provided that where the amount for which any fixed asset is sold exceeds the written down value thereof, credit shall be given for so much of the excess as is not higher than the difference between the original cost of that fixed asset and its written down value;
(e) Any change in carrying amount of an asset or of a liability reconginsed
in equity reserves including surplus in profit and loss account on
measurement of the asset or the liability at fair value.
XXX
Less: usual working charges and other expenses as stated in sub-section (4) of
section 198 (if not debited to profit and loss account)
XXX
Add: following items (if debited to profit and loss account):
(a) Income –tax and super-tax payable by the company under the incometax act, 1961, or any other tax on the income of the company not falling under clauses (d) and (e) of sub section (4);
(b) Any compensation, damages or payments made voluntarily, that is to say, otherwise than in virtue of a liability such as is referred to in clause (m) of sub-section (4);
(c) Loss of a capital nature including loss on sale of the undertaking or any of the undertakings of the company or of any part thereof a not including any excess of the written-down value of any asset which is
sold, discarded, demolished or destroyed over its sale proceeds or its scrap value;
(d) Any change in carrying amount of an asset or of a liability recognised
in equity reserves including surplus in profit and loss account on
measurement of the asset or the liability at fair value.
XXX
Implications of the income-tax act, 1961
The finance (no. 2) act, 2014 has amended the provisions of section 37 of the income-tax act 1961 to
provided that for the purposes of section 37(1) any expenditure incurred by an assessee on the
activities related to corporate social responsibility referred to in section 135 of the Companies Act,
2013 shall not be deemed to have been incurred for the purpose of business and hence shall not be
allowed as deduction under section 37 of the income-tax act, 1961.
However, the CSR expenditure which is of the nature described in sections 30 to 36 of the income-
tax act 1961 shall be allowed deduction under those sections subject6 to fulfillment of conditions, if
any, specified therein. This apart, if the CSR spending is made by way of donation to a permitted
entity, the same can be allowed as deduction under section 80g of the income-tax act, 1961.
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Permitted CSR activities
Sr.
No.
Description of activities Benefit available under the income-tax
1961 (apart
section 80G)
act,
from
1. Eradicating hunger, poverty and malnutrition, promoting health
care including preventive health care and sanitation and making
available safe drinking water;
35AC
2. Promoting education, including special education and
employment enhancing vocation skills especially among children,
women, elderly, and the differently able any livelihood
enhancement projects;
35AC
3. Promoting gender equality, empowering women, setting up
homes and hostels for women and orphans; setting up old age
homes, day care centers and such other facilities for senior
citizens and measures for reducing inequalities faced by socially
and economically backward group;
35AC
4. Ensuring environmental sustainability, ecological balance,
protection of flora and fauna, animal welfare, agro forestry,
conservation of natural resources and maintaining quality of soil,
air and water;
35AC,
35CCB
5. Protection of national heritage, art and culture including
restoration of buildings and sites of historical importance and
works of art; setting up public libraries; promotion and
development of traditional and handicraft;
35AC
6. Measures for the benefit of armed forces veterans, war widows,
and their dependents;
35AC
7. Training to promote rural sports, nationally recongised sports, para
olympic sports and olympic sports;
35AC
8. Contribution to the prime minister’s national relief fund or any
other fund set up by the central government for socio-economic
development and relief and welfare of the scheduled castes, the
scheduled tribes, other backward classes, minorities and women;
35AC
9. Contributions or funds provided to technology incubators located
within academic institutions which are approved by the central
government;
35 (2AA),
35AC
10. Rural development projects. 35CCA,
80GGA
Essence of CSR
1. Activities undertaken in pursuance of the CSR policy must be relatable to schedule vii to the
Companies Act 2013. The entries in the said schedule vii must be interpreted liberally so as
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to capture the essence of the subjects enumerated in the said schedule. The items enlisted in
the amended schedule vii of the act are broad-based and are intended to cover a wide range
of activities as illustratively mentioned in the annexure.
2. CSR activities should be undertaken by the companies in project / programme mode. One-
off events such as marathons/awards/charitable contribution / advertisement/ sponsorships
of tv programmes, etc. Would not be qualified as part of CSR expenditure.
3. Expenses incurred by companies for the fulfillment of any act/statute of regulations (such as
labour laws, land acquisition act etc.) Would not count as CSR expenditure under the
Companies Act, 2013.
4. Salaries paid by the companies to regular CSR staff as well as to volunteers of the
companies (in proportion to companies’ time/hours spend specifically on CSR) can be
factored into CSR project cost as part of the CSR expenditure.
5. “Any financial year” referred under sub-section (1) of section 135 of the act read with rule
3(2) of companies CSR rule, 2014, implies any of the three preceding financial years’.
6. Expenditure incurred by foreign holding company for CSR activities in India will qualify as
CSR spend of the Indian subsidiary if, the CSR expenditures are routed through Indian
subsidiaries and if the Indian subsidiary is required to do so as per section 135 of the act.
7. ‘registered trust’ (as referred in rule 4(2) of the companies CSR rules, 2014 would include
trusts registered under income-tax act 1961, for those states where registration of trust is not
mandatory.
8. Contribution to corpus of trust/society/section 8 companies. Etc. Will qualify as CSR
expenditure as long as (a) the trust/society/section 8 companies, etc. Is created exclusively
for undertaking CSR activities or (b) where the corpus is created exclusively for a purpose
directly relatable to a subject covered in schedule vii to the act.
ICAI’s Guidance Note
The ICAI has come out with guidance note on CSR effective may 15, 2015 in view of this, faqs
issue by the ICAI as an interim guidance to the members stand withdrawn.
The objective of the guidance note is to provide guidance on recognition, measurement,
presentation, and disclosure of expenditure on activities relating to CSR.
The guidance note does not deal with identification of activities that constitute CSR activities, but
only provides guidance on accounting for expenditure on CSR activities in line with the
requirements of the generally accepted accounting principles including the applicable accounting
standards. The provisions of the act clearly lay down that the expenditure on CSR activities is to be
disclosed only in the board’s report in accordance with the rules made there under. In view of this,
no provision for the amount which is not spent, i.e., any shortfall in the amount that was expected to
be spent as per the provision of the act on CSR activities and the amount actually spent at the end of
a reporting period may be made in the financial statements. However, if a company has already
undertaken certain CSR activity for which a liability has been incurred by entering into a contractual
obligation, then in accordance with the generally accepted principles of accounting, a provisions for
the amount representing the extent to which the CSR activity was complete during the year, needs to
be recognized in the financial statements.
Where a company spends more than that required under law, a question arises as to whether the
excess amount ‘spent’ can be carried forward to be adjusted against amount to be spent on CSR
activities in future period. Since ‘2% of average net profits of immediately preceding three years’ is
the minimum amount which is required to be spent under section 135(5) of the act the excess
amount cannot be carried forward for set off against the CSR expenditure required to be spent in
future.
In case the expenditure incurred by the company is of such nature which may give rise to an ‘asset’,
a question may arise as to whether such an asset should be recognized by the company in its balance
sheet. In this context, it would be relevant to note the definition of the tem asset as per the
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framework for preparation and presentation of financial statements issued by the ICAI. An asset is a
resource controlled by an enterprise as a result of past events from which future economic benefits
are expected to flow to the enterprise. Hence, in cases where the control of the asset is transferred by
the company, e.g., a school building is transferred to a gram panchayat for running and maintaining
the school, it should not be recognized as asset in its books and such expenditure would need to be
charged to the statement of profit and loss as and when incurred. Where a company retains the
control of asset then it would need to be examined whether any future economic benefits accrue to
the company. Invariably future economic benefits from a CSR asset would not flow to the company
as any surplus from CSR cannot be included by the company in business profits in view of rule 6(2)
of the companies (corporate social responsibility policy) rules, 2014.
In some cases a company may supply goods manufactured by it or render services as CSR activities.
In such cases, the expenditure incurred should be recognized when the control on the goods
manufactured by it is transferred or the allowable services are rendered. The goods manufactured by
the company should be valued in accordance with the principles prescribed in accounting standard
(as) 2, valuation of inventories. The services rendered should be measured at cost. Indirect taxes
(like excise duty, service tax, vat or other applicable taxes on the goods and services so contributed
will also form part of the CSR expenditure.
Where a company receives a grant from others for carrying out CSR activities, the CSR expenditure
should be measured net of the grant.
Any surplus arising out of CSR project or programme or activities shall be recognized in the
statement of profit and loss as income and since this surplus cannot be a part of business profits of
the company, the same should immediately be recognized as liability for CSR expenditure in the
balance sheet and recognized as a charge to the statement of profit and loss.
Accordingly, such surplus would not form part of the minimum 2% of the average net profits of the
company made during the three immediately preceding financial years in pursuance of its corporate
social responsibility policy.
From the perspective of better financial reporting and in line with requirements of Schedule III to
the Companies Act 2013, it is recommended that all expenditure on CSR activities, that qualify to be
recognized as expense should be recognized as a separate line item as CSR expenditure’ in the
statement of profit and loss. Further, the relevant note should disclose the break-up of various heads
of expenses included in the line item ‘CSR expenditure’.
The notes to accounts relating to CSR expenditure should also contain the following:
a) Gross amount required to be spent by the company during the year.
b) Amount spent during the year on:
In cash Yet to be paid in cash Total
(i) Construction/ acquisition
of any asset
(ii) On purposes other than (i)
above
The above disclosure, to the extent relevant, may also be made in the notes to the cash flow
statement, where applicable.
Details of related party transactions, e.g., contribution to a trust controlled by the company in
relation to CSR expenditure as per accounting standard (as) 18, related party disclosures.
Where a provision is made (the company has incurred liability), same should be presented as per the
requirements of Schedule III to the Companies Act 2013. Further, movements in the provision
during the year should be shown separately.
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ICAI FAQS
Corporate laws & corporate governance committee ICAI has come out with frequently asked
questions on the provisions of corporate social responsibility under section 135 of the Companies
Act 2013 which are reproduced hereunder.
1. Whether CSR expense is a capital expenditure or a revenue expenditure treatment in books of
account.
In case the expenditure incurred by the company is of such nature which may give rise to an asset, it
should be recognized by the company in its balance sheets, provided the control over the asset is
with the company and future economic benefits are expected to flow to the company. Where any
CSR asset is recognized in its balance sheet, the same may be classified under natural head (e.g.
Building, plant & machinery, etc.) With specific subhead of ‘CSR asset’ if the expenditure satisfied
the definition of asset. For example, a building used for CSR activities where the beneficial interest
has not been relinquished for lifetime by a company and from which any economic benefits flow to
a company, may be recognized as CSR building for the purpose of reflecting the same in the balance
sheet. If an amount spent on an asset has been shown as CSR spend, then the depreciation on such
asset cannot be claimed as CSR spend, then the depreciation on such asset will not be included for
CSR spend even if the asset is capitalized in the books of account and depreciation charges thereon.
Where expenditure does not give rise to an asset as explained above, the same may be treated as
expenditure of revenue nature and dealt with in accordance with faq 4 below.
Disclosure of CSR spend
Item 5(a) of the general instructions for preparation of statement of profit and loss under Schedule
III to the Companies Act 2013, requires that in case of companies covered under section 135, the
amount of expenditure incurred on ‘corporate social responsibility activities’ shall be disclosed by
the by way of a note to the statement of profit and loss. The note should also disclose the details
with regard to the expenditure incurred in construction of a capital asset under a CSR project.
2. Whether CSR spends are to be shown in books of account under a separate CSR head or are they
to be included under the normal heads of accounts or are they to be shown in the notes to
accounts.
All expenditure on CSR activities that qualifies to be recognized as expense may either be
recognized as a separate line item as ‘CSR expenditure’ or under natural heads of expenses in the
statement of profit and loss with disclosers of the break-up and the total amount spent on CSR
activities during the year. Some of the items which are charged to the profit & loss account in the
normal course, meeting the criteria for CSR expenditure would also be eligible to be considered as
CSR expenditure. Disclosure of CSR spend is already covered in answer to question no. 1 above.
3. Please give illustrations of certain types of CSR spending apart from CSR spends which are
easily identifiable by the company.
The following are examples of expenditures can be classified as CSR expenditure if it is within the
areas covered by schedule vii and is as per CSR policy approved by the company’s board of
Directors. These are only illustrations and companies are required to apply facts and circumstances
in each case for categorization of such spends.
a) Any company supplying its goods or services manufactured/provided by it free of cost or at a
concessional rate to people affected by natural calamities like flood, earthquake, etc.
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b) A company decides that for every pack of pencils sold by the company, rupees 0.50 will go
towards education of a girl child. The amount earmarked from such sale will not be
automatically considered as CSR and only such of the amounts which are spent will qualify to
be considered as CSR spend.
c) Spending in technical and vocational training for skill building based on training cum
apprenticeship results in enhancing the employability of such trainees. Cost of such expenses
such as stipend, faculty, infrastructure costs, etc. Will be included as CSR activities. It will not
deprive the company which is providing such training to hire a trainee from that pool of talent.
However, if such training is provided to existing employees then it shall not qualify as CSR.
4. Will CSR spend be an appropriation or a charge on p&l.
In general, the CSR spend amount need to be appropriated unless otherwise its incurred by the
company as part of its normal business activity which also qualifies for CSR activity, in which
case, it will continue to be charged to p&l in the normal course.
5. Are overseas branch profits / losses included in net profit for calculating CSR spend? Net
profit for the purpose of calculating CSR spend shall not include any profit arising from any
overseas branch or branches of the company, whether operated as a separate company or
otherwise. In addition any dividend received from other companies in India which are
covered under and complying with the provisions of section 135 of the act as well as any
dividend received from a company incorporated outside India shall also be excludedfrom the
net profit. This is built on the rationale that CSR spend outside India does not qualify as
CSR spend under section 135 of the Companies Act 2013. As a corollary, income earned
outside India shall also not be considered for determining CSR spend in India.
6. How do we treat CSR spending in the ordinary course of business vs. CSR expense not
incurred in the ordinary course. Does it include CSR spending that also includes employees
of the company or their families who are also beneficiaries of such CSR spend?
CSR activities shall exclude activities undertaken in pursuance of its normal course of business.
For example, an electricity distribution company connecting the last house in a village cannot
classify such expense as CSR. Similarly a tea plantation company planting trees and shrubs in
close proximity to such tea plantations cannot be classified as CSR spending since they are in
the ordinary course of business of such businesses. Similarly, programmes or projects or
activities that are carried out as a pre-condition for setting up a business or as part of a
contractual obligation undertaken by the company or in accordance with any other law, should
not be considered as CSR. Such spending on installation of rain water harvesting or a device to
prevent pollution which are mandatorily required to be carried out by law shall not qualify as
CSR spend. Such requirements under relevant regulations prescribed as a necessary part of
running of the business, would be considered to be the activities undertaken in the normal
course of business’ of the company and, therefore, would not be considered CSR activities. CSR
projects or programmes or activities that benefit only the employees of the company and their5
families shall not be considered as CSR. However, programme or activities that are for the
benefit of all, but, which also include some employees or their families will still be considered
as CSR as long as such benefits are not exclusively for the benefit of such employees. For
example, recreational facilities provided for employees and their families in the employee
quarters shall not be considered as CSR. However, if the company maintains say a stadium for
promotion of sports in a city used by residents of that place and not exclusively by its
employees, then such spending shall be still considered as CSR.
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7. Treatment of shortage in CSR spend and disclosure and possibility of carry forward of
excess spending of CSR. Is there any need for creation of a provision in the event of a
shortage in spending?
Any shortfall in spending in CSR shall be explained in the financial statements and the board of
Directors shall state the amount unspent and reasons for not spending that amount in the Board
Report. Any such shortfall is not required to provide for in the books of account. However, if a
company has already undertaken certain CSR activity for which a contractual liability has been
incurred then, a provision for the requisite amount payable to record that liability needs to be
recognized as per the applicable accounting standards. Any amount excess spent (i.e., more than
2% as specified in section 135) cannot be carried forward to the subsequent years. However, the
company is entitled to disclose in their annual reports of subsequent years any such excess
spending of previous years while giving reasons for not spending in those later years.
8. Is CSR spending required to be done by the company directly or such amounts can be
contributed to charity/ NGO/ section 8 company. Will such contribution qualify as CSR
spend?
Yes. Contribution by the company to such trust, NGOs, etc. Also qualify for CSR spend if it
meets the track record and other criteria as per rule 4(2) of companies (CSR policy) rules, 2014.
9. Net profit calculation methodology – net profit as per section 135 is required to be
calculated as per section 198 of the Companies Act 2013. However, net profits as defined in
the companies (CSR policy) rules, 2014 defines net profit as net profit as per financial
statements prepared in accordance with the act.
Since the rules specify that the net profits are as per provisions of the act and the relevant
section 135 of the act requires such net profits calculation as per section 198 of the Companies
Act the net profit shall be calculated u/s. 198 of the Companies Act. This is based on a
harmonious interpretation of the specific section in the act and the relevant rules framed under
that section.
Companies (corporate social responsibility policy) amendment rules, 2016 – amendment in
rule 4
Notification No. GSR 540(e) [f.no.05/12/2016 –CSR-cell, dated 23-5-2016
In exercise of the powers conferred under section 135 and sub-sections (1) and (2) of section
469 of the Companies Act, 2013 (18 of 2013), the central government hereby makes the
following rules further to amend the companies (corporate social responsibility policy)
rules, 2014, namely:-
1. Short title and commencement
(1) These rules may be called the companies (corporate social responsibility policy)
amendment rules, 2016.
(2) They shall come into force on the date of their publication in the official gazette.
2. In the companies (corporate social responsibility policy) rule shall be substituted,
namely:-
“(2) the board of a company may decide to undertake its CSR activities approved by
the CSR committee, through
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a) A company established under section 8 of the act or a registered trust or a
registered society, established by the company, either singly or along with any
other company, or
b) A company established under section 8 of the act or a registered trust or a
registered society, established by the central government or state government
or any entity established under an act or parliament or a state legislature:
Provided that if, the board of a company decides to undertake its CSR
activities through a company established under section 8 of the act or a
registered trust or a registered society, other than those specified in this sub-
rule, such company or trust or society shall have an established track record of
three years in undertaking similar programmes or projects; and the company
has specified the projects or programmes to be undertaken, the modalities of
utilisation of funds of such projects and programmes and the monitoring and
reporting mechanism.”
SIGNIFICANT CONCEPTS/ PROVISIONS AFFECTING PRACTICING CHARTERED
ACCOUNTANT:
Following are some of the key provisions brought in by the Companies Act 2013 affecting the small
& medium practitioners and CA firms:
� Financial year [section 2(41)]
� Financial statement [section 129 &134]
� Consolidated financial statements [section 129(3)]
� Compliance of accounting standards [section 133]
� Internal audit [section 138 ]
� Appointment of auditor [section 139 & 141]
� Rotation of auditors [section 139(2)]
� Removal and resignation of auditors [ section 140]
� Eligibility of auditor [section 141(2)]
� Disqualification of auditors [section 141(3)]
� Auditors report [section 143(3)]
� Right to access books of account by auditor [section 143(1)]
� Restriction on number of audits [section 141(3)(g)]
� Fraud reporting [section 143(12)]
� Non-audit services- restricted services [section 144]
� Auditors liability -penalty provisions [section 147]
� Class action suits [section 245(1)]
Power, Duties, Liabilities of Company Auditor under Companies Act 2013
• Rights to Access:- According to Section 143(1), every auditor of a company has a right of
access at all times to the books, accounts and vouchers of the company whether kept at the head
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office of the company or elsewhere and also to the returns submitted by the branch office to the
head office. Here the term ‘books’ includes statutory, statistical and costing books.
The Auditor shall be entitled to require from officers of the company such information and
explanation as he may consider necessary for performance of his duties.
- whether loans and advances made by the company on the basis of security have been
properly secured and whether the terms on which they have been made are prejudicial to the
interests of the company or its members;
- whether transactions of the company which are represented merely by book entries are
prejudicial to the interests of the company;
- where the company not being an investment company or a banking company, whether so
much of the assets of the company as consist of shares, debentures and other securities have
been sold at a price less than that at which they were purchased by the company;
- whether loans and advances made by the company have been shown as deposits;
- whether personal expenses have been charged to revenue account;
- where it is stated in the books and documents of the company that any shares have been
allotted for cash, whether cash has actually been received in respect of such allotment, and if
no cash has actually been so received, whether the position as stated in the account books
and the balance sheet is correct, regular and not misleading:
Provided that the auditor of a company which is a holding company shall also have the right of
access to the records of all its subsidiaries in so far as it relates to the consolidation of its financial
statements with that of its subsidiaries.
• Auditor to sign audit reports:- Only the person appointed as auditor of the company may sign
the auditor’s report or authenticate any other document of the company required by law to be
signed or authenticated by the auditor. Any qualifications, observations or comments on
financial transactions matters, which have any adverse effect on the functioning of the company
mentioned in the auditor’s report shall be read before the company in general meeting and shall
be open to inspection by any member of the company.
• Auditor to attend general meeting: It is a prime requirement under section 146, that the company
must send all notices and communication to the auditor, relating to any general meeting, and he
shall attend the meeting either through himself or through his representative, who shall also be
an auditor. Such auditor must be given reasonable opportunity to speak at the meeting on any
part of the business which concerns him as the auditor. As per section 101, notice of general
meeting must be given before 21 days either in writing or through electronic mode to the auditor
in such manner as may be prescribed.
Every notice of a meeting shall specify the place, date, day and the hour of the meeting and shall
contain a statement of the business to be transacted at such meeting.
• Right to remuneration:- On completion of his work an auditor is entitled to his remuneration.
The rights of the auditor cannot be limited or abridged either by articles or resolution of the
members. The remuneration of the auditor of a company shall be fixed in its general meeting or
in such manner as may be determined therein. It must include the expenses, if any, incurred by
the auditor in connection with the audit of the company and any facility extended to him but
does not include any remuneration paid to him for any other service rendered by him at the
request of the company.
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• Power to inspect branch accounts: - According to section 143(8), where the accounts of any
branch office are audited by a person other than the company’s auditor, the company’s auditor
shall be entitled to visit the branch office, if he deems it necessary to do so for the performance
of his duties as an auditor. He shall also have access at all times to the books, accounts and
vouchers of the company maintained at the branch office.
However, in the case of banking companies having a branch office outside India it shall be
sufficient, if the auditor is allowed access to such copies of, and extracts from, the books and
accounts of the branch as have been transmitted to the principal office in India.
• Powers of Comptroller and Auditor–General of India in Case Government Company-
Section143 (5) To 143 (7)
In case of Government Company, the Audit Report among other things, shall include the
directions, if any, issued by the Comptroller and Auditor –General of India (CAG), the action
taken and the impact thereof on the Company’s accounts and financial statement.
The CAG shall have a right to the conduct a supplementary audit of financial statement of the
company and comment upon or supplement such audit report within 60 days from the date of
receipt of the audit report u/s 143 (5).
Provided that any comments given by the CAG upon, or supplement to, the audit report shall be
sent by the company to every person entitled to copies of audited financial statements u/s 136
(1) and also be placed before the annual general meeting of the company at the same time and in
the same manner as the audit report.
The CAG may, by an order, cause test audit to be conducted of the accounts of company
covered u/s 139 (5) or 139 (7) and the provisions of section 19A of the Comptroller and
Auditor-General’s (Duties, Powers and Conditions of Service) Act, 1971, shall apply to the
report of such test audit.
Duties:
The duties of a company auditor under Companies Act 2013 may be discussed under the following
heads:
Make Report: - Section 143 (2) requires the auditor to make a report to the members of the company
on the accounts examined by him and on every financial statement which is required to be laid in the
general meeting of the company. The Audit report should state that to the best of his information
and knowledge, the said accounts and financial statements give a true and fair view of the state of
the company’s affair as at the end of the financial year and the profit or loss and the cash flow for
the year and such other matters as may be prescribed.
Section 143 (3) laid down that auditor’s report shall also state other details which are as under:
- Whether he has sought and obtained all the information and explanations which were
necessary and if not, the details thereof and the effect of such information on the financial
statements.
- Whether, in his opinion, proper books of account as required by law have been kept by the
company and proper returns adequate for the purposes of his audit have been received from
branches not visited by him.
- Whether the branch audit report prepared by a person other than the company’s auditor has
been sent to him.
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- Whether the company’s balance sheet and profit and loss account dealt with in the report are
in agreement with the books of account and returns.
- Whether, in his opinion, the financial statements comply with the accounting standards.
- The observations or comments of the auditors on financial transactions or matters which
have any adverse effect on the functioning of the company.
- Whether any director is disqualified from being appointed as a director under section 164
(2)
- Any qualification, reservation or adverse remark relating to the maintenance of accounts and
other matters connected therewith.
- Whether the company has adequate internal financial controls system in place and the
operating effectiveness of such controls.
Auditing Standards: - According to section 143 (9) & (10) every auditor must comply with the
auditing standards. While the Central Government prescribes the Auditing Standards or addendums
thereto, it shall consult with and take recommendations of the Institute of Chartered Accountants of
India (ICAI) and the National Financial Reporting Authority (NFRA). Till such time the Auditing
Standards are notified by the Central Government, the auditing standards specified by the ICAI are
deemed to be the audit.
Fraud Reporting: - Section 143(12) to 143 (15) & Rule 13: - If an auditor of a company, in the
course of the performance of his duties as auditor, has reason to believe that an offence involving
fraud is being or has been committed against the company by officers or employees of the company,
he shall immediately report the matter to the Central Government within such time and in such
manner as may be prescribed.
Section 143 (12) and Rule 13 provides that if the auditor of a company, in the course of the
performance of his duties as auditor, has reason to believe that an offence involving fraud is being or
has been committed against the company by officers or employees of the company, he shall report
the matter to the Central Government immediately but not later than 60 days of his knowledge and
after following the procedure indicated herein below:
- Auditor shall forward his report to the Board or the Audit Committee, as the case may be,
immediately after he comes to knowledge of the fraud, seeking their reply or observations
within 45 days;
- On receipt of such reply or observations the auditor shall forward his report and the reply or
observations of the Board or the Audit Committee along with his comments (on such reply
or observations of the Board or the Audit Committee) to the Central Government within 15
days of receipt of such reply or observations;
- In case the auditor fails to get any reply or observations from the Board or the Audit
Committee within the stipulated period of 45 days, he shall forward his report to the Central
Government along with a note containing the details of his report that was Power, Duties,
Liabilities of Company Auditor under Companies Act 2013 earlier forwarded to the Board
or the Audit Committee for which he failed to receive any reply or observations within the
stipulated time.
The provision of section 143 applies mutatis-mutandis to Cost Accountants in practice conducting
Cost Audit under section 148 or the Company Secretary in practice conducting secretarial audit
under section 204. If any auditor, cost accountant or company secretary in practice fails to comply
with the provisions of section 143 (12) for reporting of an offence involving fraud, they will be
punished with a fine of minimum Rs. 1 lakh and upto Rs. 25 lakhs but they will not be punished if
Auditor done such reporting in good faith.
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Winding Up: - As per section 305, at the time of voluntary winding up of a company it is a
mandatory requirement that auditor should attach the copy of the audits of the company prepared by
him.
Other Duties: - Besides the above duties, there are other duties of an auditor to be performed in
course of his audit. These are:
- The auditor should give all possible assistance to the inspectors in case of an investigation
of the affairs of the company.
In case an existing company issues prospectus, it should contain a statement of profit & losses for
the last 5 years showing the rate of dividends paid each classes of shares for each year and a
statement of assets & liabilities of the company. It is the duty of auditor to certify all these
statements.
APPOINTMENT OF AUDITORS AND RELATED ASPECTS
• Appointment of first Auditor in case of every Company except government Company or
Company owned/ controlled by Central Government and/or State Government [Section
139(6)]:-
Appointment of first Auditor shall be made by board within 30 days of registration of Company.
If Board fails to appoint the first Auditor within given time then it shall inform to members and
members shall make the appointment of first Auditor within 90 days of information at an EGM.
The First Auditor shall hold office till the conclusion of first AGM.
Note: No time period is mentioned for Board to inform the members about the Non appointment
of first Auditor.
• Appointment of first Auditor in case of government Company or Company owned/ controlled
by Central Government and/or State Government [Section 139(7)]:-
Appointment of first Auditor shall be made by CAG within 60 days of registration of the
Company. If CAG fails to appoint the first Auditor within given time then Board of such
Company shall appoint first Auditor within 30 days. If Board fails to appoint the first Auditor
within given time then it shall inform to members and members shall make the appointment of
first Auditor within 60 days of information at an Extra Ordinary General Meeting. The First
Auditor shall hold office till the conclusion of first AGM.
• Appointment of Subsequent Auditor in case of every Company except government Company
or Company owned/ controlled by Central Government and/or State Government [Section
139(1)]:-
Appointment of Auditor shall be made by members at First Annual General Meeting and every
subsequent Sixth Annual General Meeting. Company shall intimate the Auditor about
appointment. After intimating, Company shall obtain written consent and certificate (in
accordance with the conditions prescribed in section 141) from Auditor. Then, Company is
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required to file a notice with the registrar about the appointment within 15 Days of the meeting
in Form ADT-1.
Note: The Auditor shall hold office for a period of 5 Years.
Note: *If the appointment is not ratified by the members of the company, the Board of Directors
shall appoint another individual or firm as its auditor or auditors after following the procedure
laid down in this behalf under the Act has been done away with.
*The Companies (Audit and Auditors) Second Amendment Rules, 2018 Dated 7th May 2018.
• Conditions for appointment of Subsequent Auditor in case of Listed Companies or companies of
such class [Section 139(2)]:-
If an individual is appointed as an Auditor for 1 term i.e. for 5 consecutive years then that
individual will not be eligible for reappointment for next 5 years from the expiry of his term as
an Auditor of Company.
Whereas, if an audit firm is appointed as Auditor for 2 term i.e. for 10 consecutive years then
that audit firm will not be eligible for reappointment for next 5 years from the expiry of its term
as an Auditor of Company.
Note: Audit firm having common partner to the of audit firm of the Company will not be eligible
for appointment.
Note: Any existing listed Company is required to comply with the above mentioned provisions
within 3 years from the commencement of this act.
• Appointment of Subsequent Auditor in case of government Company or Company owned/
controlled by Central Government and/or State Government [Section 139(5)]:-
Appointment of Auditor shall be made by CAG within 180 days from the commencement of
financial year. The Auditor shall hold office for a till the conclusion of Annual General Meeting.
• Appointment of Auditor in Casual Vacancy in every Company except Govt. Company or
Company owned/ controlled by Central Government and/or State Government [Section
139(8)(i)] :-
If casual vacancy is arising by resignation then vacancy shall be filled by the Company in its
general meeting of members within 3 months from the date of recommendation of the Board.
Whereas casual vacancy is arising by other than resignation then vacancy shall be filled the
Board within 30 days.
The tenure in case of Casual Vacancy is up to the ensuing Annual General Meeting and
thereafter reappointment is subject to approval of the members.
• Appointment of Auditor in Casual Vacancy in case of Govt. Company or Company owned/
controlled by Central Government and/or State Government [Section 139(8)(ii)]:-
Casual vacancy shall be filled by CAG within 30 days. If CAG fails to fill the vacancy within
given time then Board of Directors shall fill the vacancy within 30 days.
• Rotation of Auditors Subject to Members Approval[ Section 139(3)]:-
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- Member can rotate auditing partner and his team for any interval as may be resolved by
members;.
- Audit can be conducted by One or more Auditor(s).
• Audit Committee [Section177] and Role Audit Committee in
appointment of
Auditors[Section139 (11)]:-
Every Listed Company and other Public limited Companies covered under Rule 4 of Companies
(Appointment & Qualification of Directors) shall form Audit Committee consisting of minimum
3 directors. Whereas, Majority of directors should be independent and ability to read &
understand financial statement
Role: Appointment, remuneration and term of appointment of Auditor shall be made after
considering the recommendations of the Audit Committee.
Note: Committee existing before commencement of this act shall be reconstitute within 1 year of
commencement in accordance of above mentioned provisions.
• Duty of Auditor when he or it resign [Section 140(2)]:-
Auditor is required to file a statement specifying the reasons and fact of resignation within 30
days of resignation with ROC (Form ADT-3) and Company or CAG in case of Govt.
Companies.
If Auditor fails to comply with above mentioned provisions then he shall be punishable with fee
of Rs. 50,000- Rs. 500,000.
• Duty of Company in case of representation received from Auditor [Section 140(4)]:-
Company is required to send a copy of the representation to every member and if copy of
representation is not sent then a copy shall be filed with registrar.
• Role of Tribunal in case Auditor found guilty of fraud [Section 140(5)]:
Tribunal may by itself or on application by Central Government/any concerned person order to
change the Auditor. And if the application is made by CG then tribunal shall pass an order
within 15 days of application. In case of final order is passed then the Auditor shall not be
appointed for a period of five years in any other Company and be further liable for monetary as
well as penal punishment.
• Eligibility LLP’s as Auditors [Section141(2)]:
LLP’s can be appointed as Auditors of Company but only chartered accountant partners are
authorized to act and sign on behalf of firm.
• Disqualifications of Auditors [Section 141(3)]:
- If any partner of the person holding interest or security in the Company or its subsidiary, or
of its holding or associate Company or a subsidiary of such holding Company
- If any relative of the person holding interest or security whose face value exceeds Rs. 1000
or such sum as may be prescribed in the Company or its subsidiary, or of its holding or
associate Company or a subsidiary of such holding Company . Note: Relative means
member of HUF, Husband and wife or related with person as may be prescribed
135
- If any relative of the person is a director or employee of director or key managerial
personnel
Note: Director means a director appointed to board of the Company . Note: Key managerial
personnel means CEO/Managing Director/Manager, CS, Whole Time Director, CFO and
such other officer as may be prescribed
- Limit of indebt or guarantee is not mentioned and specified that any amount which may be
prescribed
- If person or firm has business relationship with in the Company or its subsidiary, or of its
holding or associate Company or a subsidiary of such holding Company or associate
Company
- Any person whose subsidiary or associate Company or any other form of entity, is engaged
as on the date of appointment in consulting and specialized services Consulting and
specialized services means-
a. accounting and book keeping services;
b. internal audit;
c. design and implementation of any financial information system;
d. actuarial services;
e. investment advisory services;
f. investment banking services;
g. rendering of outsourced financial services;
h. management services; and
i. any other kind of services as may be prescribed
- Any person convicted by court of offence involving fraud and 10 years has not elapsed from
the date of such conviction
- Person holding appointment as Auditor of more than 20 companies.
- Person in full time employment
• Remuneration of Auditors [Section 142(1)]:-
Remuneration shall be decided by members at a general meeting except for the remuneration of
first Auditor which shall be decided by board.
• Power of Auditor [Section 143(1) Proviso]:-
Auditor of holding Company has the right of access to the records of all subsidiaries in so far as
it relates to the consolidation of its financial statements with that of its subsidiaries.
• Duties of Auditor [Section 143(9),(12),(13),(15) and 146]:-
- Every Auditor need to comply with auditing standard [Section 143(9)].
- Auditor shall report the fraud to the CG within prescribed time and manner and the same
shall not be construed as breach of duty[Section 143(12) & (13)]
- If Auditor fails to comply with above mentioned provisions then he shall be punishable with
fee of Rs. 100,000 Rs. 500,000 [Section 143(15)].
136
- Auditor has to attend general meeting unless exempted by the Company [Section146].
• Auditor not to render certain services [144]:-
Auditor cannot provide following services to the Company, its holding Company or its
subsidiaries, or associate Company :
- Accounting and book keeping service; Internal audit;
- Design and implementation of any financial information system;
- Actuarial services;
- Investment advisory services;
- Investment banking services;
- Rendering of outsourced financial services;
- Management services; and
- Any other kind of consultancy services.
Note: If Auditor is providing such services before the commencement of this act then he has to
comply with the above mentioned provision before the closure of the first financial year after the
date of such commencement.
OTHER IMPORTANT ASPECTS
Class Action Suits
Such number of member or members, depositor or depositors or any class of them, as the case may
be, as are indicated in sub-section (2)* may, if they are of the opinion that the management or
conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of
the company or its members or depositors, file an application before the tribunal on behalf of the
members or depositors for seeking all or any of the following orders, namely:—
a) To restrain the company from committing an act which is ultra vires the articles or
memorandum of the company;
b) To restrain the company from committing breach of any provision of the company's
memorandum or articles;
c) To declare a resolution altering the memorandum or articles of the company as void if the
resolution was passed by suppression of material facts or obtained by misstatement to the
members or depositors;
d) To restrain the company and its Directors from acting on such resolution;
e) To restrain the company from doing an act which is contrary to the provisions of this act or
any other law for the time being in force;
f) To restrain the company from taking action contrary to any resolution passed by the
members;
g) To claim damages or compensation or demand any other suitable action from or against—
- The company or its Directors for any fraudulent, unlawful or wrongful act or
omission or conduct or any likely act or omission or conduct on its or their part;
137
- The auditor including audit firm of the company for any improper or misleading
statement of particulars made in his audit report or for any fraudulent, unlawful or
wrongful act or conduct; or
- Any expert or advisor or consultant or any other person for any incorrect or
misleading statement made to the company or for any fraudulent, unlawful or
wrongful act or conduct or any likely act or conduct on his part;
h) To seek any other remedy as the tribunal may deem fit.
(2) where the members or depositors seek any damages or compensation or demand any other
suitable action from or against an audit firm, the liability shall be of the firm as well as of each
partner who was involved in making any improper or misleading statement of particulars in the
audit report or who acted in a fraudulent, unlawful or wrongful manner.
(3) (i) the requisite number of members provided in sub-section (1) shall be as under:—
(a) In the case of a company having a share capital, not less than one hundred members of the
company or not less than such percentage of the total number of its members as may be
prescribed, whichever is less, or any member or members holding not less than such
percentage of the issued share capital of the company as may be prescribed, subject to the
condition that the applicant or applicants has or have paid all calls and other sums due on
his or their shares;
(b) In the case of a company not having a share capital, not less than one-fifth of the total
number of its members
(ii) The requisite number of depositors provided in sub-section (1) shall not be less than one
hundred depositors or not less than such percentage of the total number of depositors as may be
prescribed, whichever is less, or any depositor or depositors to whom the company owes such
percentage of total deposits of the company as may be prescribed.
(4) in considering an application under sub-section (1), the tribunal shall take into account, in
particular—
(a) Whether the member or depositor is acting in good faith in making the application for
seeking an order;
(b) Any evidence before it as to the involvement of any person other than Directors or officers
of the company on any of the matters provided in clauses (a) to (f) of sub-section (1);
(c) Whether the cause of action is one which the member or depositor could pursue in his own
right rather than through an order under this section;
(d) Any evidence before it as to the views of the members or depositors of the company who
have no personal interest, direct or indirect, in the matter being proceeded under this
section;
(e) Where the cause of action is an act or omission that is yet to occur, whether the act or
omission could be, and in the circumstances would be likely to be—
(i) Authorised by the company before it occurs; or
138
(ii) Ratified by the company after it occurs;
(f) Where the cause of action is an act or omission that has already occurred, whether the act or
omission could be, and in the circumstances would be likely to be, ratified by the company.
(5) if an application filed under sub-section (1) is admitted, then the tribunal shall have regard to the
following, namely:—
(a) Public notice shall be served on admission of the application to all the members or
depositors of the class in such manner as may be prescribed;
(b) All similar applications prevalent in any jurisdiction should be consolidated into a single
application and the class members or depositors should be allowed to choose the lead
applicant and in the event the members or depositors of the class are unable to come to a
consensus, the tribunal shall have the power to appoint a lead applicant, who shall be in
charge of the proceedings from the applicant's side;
(c) Two class action applications for the same cause of action shall not be allowed;
(d) The cost or expenses connected with the application for class action shall be defrayed by
the company or any other person responsible for any oppressive act.
(6) any order passed by the tribunal shall be binding on the company and all its members,
depositors and auditor including audit firm or expert or consultant or advisor or any other person
associated with the company.
(7) any company which fails to comply with an order passed by the tribunal under this section shall
be punishable with fine which shall not be less than five lakh rupees but which may extend to
twenty-five lakh rupees and every officer of the company who is in default shall be punishable
with imprisonment for a term which may extend to three years and with fine which shall not be
less than twenty-five thousand rupees but which may extend to one lakh rupees.
(8) where any application filed before the tribunal is found to be frivolous or vexatious, it shall, for
reasons to be recorded in writing, reject the application and make an order that the applicant
shall pay to the opposite party such cost, not exceeding one lakh rupees, as may be specified in
the order.
(9) nothing contained in this section shall apply to a banking company.
(10) subject to the compliance of this section, an application may be filed or any other action
may be taken under this section by any person, group of persons or any association of persons
representing the persons affected by any act or omission, specified in sub-section (1).
Punishment for Contravention
Section 147. (1) if any of the provisions of sections 139 to 146 (both inclusive) is contravened, the
company shall be punishable with fine which shall not be less than twenty-five thousand rupees but
which may extend to five lakh rupees and every officer of the company who is in default shall be
punishable with imprisonment for a term which may extend to one year or with fine which shall not
be less than ten thousand rupees but which may extend to one lakh rupees, or with both.
(2) if an auditor of a company contravenes any of the provisions of section 139, section 143, section
144 or section 145, the auditor shall be punishable with fine which shall not be less than twenty-
five thousand rupees but which may extend to five lakh rupees 98b[or four times the
remuneration of the auditor, whichever is less]:
139
Provided that if an auditor has contravened such provisions knowingly or wilfully with the intention
to deceive the company or its shareholders or creditors or tax authorities, he shall be punishable
with imprisonment for a term which may extend to one year 98c[and with fine which shall not be
less than fifty thousand rupees but which may extend to twenty-five lakh rupees or eight times the
remuneration of the auditor, whichever is less].
(3) where an auditor has been convicted under sub-section (2), he shall be liable to—
(i) Refund the remuneration received by him to the company; and
(ii) Pay for damages to the company, statutory bodies or authorities or to members or
creditors of the companyfor loss arising out of incorrect or misleading statements of
particulars made in his audit report.
(4) the central government shall, by notification, specify any statutory body or authority or an
officer for ensuring prompt payment of damages to the company or the persons under clause (ii) of
subsection (3) and such body, authority or officer shall after payment of damages to such company
or persons file a report with the central government in respect of making such damages in such
manner as may be specified in the said notification.
(5) where, in case of audit of a company being conducted by an audit firm, it is proved that the
partner or partners of the audit firm has or have acted in a fraudulent manner or abetted or colluded
in any fraud by, or in relation to or by, the company or its Directors or officers, the liability,
whether civil or criminal as provided in this act or in any other law for the time being in force, for
such act shall be of the partner or partners concerned of the audit firm99 and of the firm jointly and
severally:
99a[provided that in case of criminal liability of an audit firm, in respect of liability other than fine,
the concerned partner or partners, who acted in a fraudulent manner or abetted or, as the case may
be, colluded in any fraud shall only be liable.] Auditor not to render certain services.
93 144 . An auditor appointed under this act shall provide to the company only such other services
as are approved by the board of Directors or the audit committee, as the case may be, but which
shall not include any of the following services (whether such services are rendered directly or
indirectly to the company or its holding company or subsidiary company), namely:—
(a) Accounting and book keeping services;
(b) Internal audit;
(c) Design and implementation of any financial information system;
(d) Actuarial services;
(e) Investment advisory services;
(f) Investment banking services;
(g) Rendering of outsourced financial services;
(h) Management services; and
(i) Any other kind of services as may be prescribed :
140
Provided that an auditor or audit firm who or which has been performing any non-audit services on
or before the commencement of this act shall comply with the provisions of this section before the
closure of the first financial year after the date of such commencement.
Explanation.—for the purposes of this sub-section, the term "directly or indirectly" shall include
rendering of services by the auditor,—
(i) 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;
(ii) 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.
IMPORTANT PROVISIONS OF PENALTIES UNDER COMPANIES ACT 2013
Section
No.
Section Description Penalty Description
Section 5 Article of Associations Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
Section
No.
Section Description Penalty Description
contravention continues.
Section 6 Act to override memorandum,
articles, etc.
Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
contravention continues
141
Section 7 Incorporation of Company Any person who is found to be guilty of fraud, shall be
punishable with imprisonment for a term which shall not be
less than six months but which may extend to ten years and
shall also be liable to fine which shall not be less than the
amount involved in the fraud, but which may extend to three
times the amount involved in the fraud.
Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
contravention continues.
Section 8 Formation of Company with
Charitable Objects etc.
Company shall be punishable with fine which shall not be less
than ten lakh rupees but which may extend to one crore rupees
and the directors of the company and every officer of the
company who is in default shall be punishable with
imprisonment for a term which may extend to 3 Years or with
fine which shall not be less than twenty five thousand rupees
but which may extend to twenty five lakhs rupees or with both
Section 9 Effect of Memorandum and
Articles of Association of
Company
Company shall be punishable with fine which shall not be less
than ten lakh rupees but which may extend to one crore rupees
and the directors of the company and every officer of the
company who is in default shall be punishable with
imprisonment for a term which may extend to 3 Years or with
fine which shall not be less than twenty five thousand rupees
but which may extend to twenty five lakhs rupees or with both
Section 21 Authentication of
documents, proceedings
and contracts
Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
contravention continues.
Section 23 Private Placement Offer Letter Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
contravention continues
Section
No.
Section Description Penalty Description
142
Section 25 Document Containing Offer of
Securities for Sale to be Deemed
Prospectus.
The company shall be punishable with fine which shall not be
less than fifty thousand rupees but which may extend to three
lakh rupees and every person who is knowingly a party to the
issue of such prospectus shall be punishable with imprisonment
for a term which may extend to 3 years or with fine which shall
not be less than fifty thousand rupees but which may extend to
three lakh rupees, or with both
Section 29 Public offer of securities to be in
dematerialized form
Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
contravention continues
Section 46 Issue of Duplicate Share
Certificates with an intent to fraud
The company shall be punishable with fine which shall not be
less than 5 times the face value of the shares involved in the
issue of the duplicate certificate but which may extend to 10
times the face value of such shares or ten crore rupees,
whichever is higher and every officer who is found to be guilty
of fraud, shall be punishable with imprisonment for a term
which shall not be less than six months but which may extend
to ten years and shall also be liable to fine which shall not be
less than the amount involved in the fraud, but which may
extend to three times the amount involved in the fraud.
Section 47 Voting Rights Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
contravention continues
Section 51 Payment of Dividend in Proportion
to amount paid.
Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
contravention continues
Section 64 Notice to be given to Registrar for
alteration of share capital
Where a company and any officer of t he company who is in
default contravenes the provisions of sub-section (1), it or he
shall be punishable with fine which may extend to one
thousand rupees for each day during which such default
continues or five lakhs rupees, whichever is less
143
Section 67 Restriction of on purchase by
company or giving of loans by it
for n purchase of shares
The Company shall be punishable with fine which shall not be
less than one lakh rupees but which may extend to twentyfive
lakh rupees and every officer of the company who is in default
shall be punishable with imprisonment for a term which may
extend to 3 years and with fine which shall not be less than one
lakh rupees but which may extend to twenty-five lakh rupees.
Section 73 Prohibition of Acceptance of
Deposits from Public.
Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
Section
No.
Section Description Penalty Description
extend to Rupees five thousand and where the contravention is
continuing one with a further fine which may extend to rupees
five hundred rupees for every day after the first during which
the contravention continues.
Section 89 Declaration in respect of
beneficial interest in any share,
The company and every officer who is in default shall be
punishable with fine which shall not be less than five hundred
rupees but which may extend to one thousand rupees and where
the failure is a continuing one, with a further fine which may
extend to one thousand rupees for every day after the first
during which the failure continues.
Section 92 Annul Return in respect of
Certification of the annual return
other wise than in conformity with
the requirements of section 92 or
the rules made thereunder
Where a Company Secretary in whole- time practice certifies
the annual return otherwise than in conformity with the
requirements of this section or the rules made thereunder, such
Company Secretary shall be punishable with fine which shall
not be less than fifty thousand rupees rupees but which may
extend to five lakhs rupees
Section 93 Return to be filed with Registrar in
case promoters’ stake changes.
Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
contravention continues.
Section 96 Annual General Meeting. Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
contravention continues.
Section
100
Calling of Extra Ordinary General
Meeting.
Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
contravention continues
144
Section
101
Notice of General Meeting Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
contravention continues.
Section
102
Statement to be annexed with the
Notice
Every promoter, director, manager or other key managerial
personnel who is in default shall be punishable with fine which
may extend to fifty thousand rupees or 5 times the amount of benefit accruing to the promoter, director, manager or other key
managerial personnel or any of his relatives, whichever is
more.
Section
103
Quorum of Meetings Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
Section
No.
Section Description Penalty Description
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
contravention continues.
Section
114
Ordinary Resolution or Special
Resolution
Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
contravention continues.
Section
118
Minutes of proceedings of general meeting, meeting of Board of directors and other meeting and resolutions passed by postal ballot.
- Default & Guilty of
Tampering with Minutes.
The company shall be liable to a penalty of twenty-five
thousand rupees and every officer of the company who is in
default shall be liable to a penalty of five thousand rupees.
The person shall be punishable with imprisonment for a term
which may ex tend to two years and with fine which shall not
be less than twenty-five thou sand rupees but which may extend
to one lakh rupees
Section
123
Declaration of Dividend. Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine w hich may extend to one
thousand rupees for every day after the first during which the
contravention continues.
145
Section
129
Financial Statement Where any company contravenes the provisions of this section,
the managing director, the whole-time director in charge of
finance, the Chief Financial Officer or any other person
charged b y the Board with the duty of complying with the
requirements of this section and in the absence of any of the
officers mentioned above, all the directors shall be punishable
with imprisonment for a term which may extend to 1 year or
with fine which shall not be less than fifty thousand rupees but
which may extend to five lakh rupees or with both.
Section
134
Financial Statements, Board
Report etc.
The Company shall be punishable wit h fine which shall not be
less than fifty thousand rupees but which may extend to
twentyfive lakh rupees and every officer who is in default shall
be punishable with imprisonment for a term which may extend
to 3 years or with fine which shall not be less than fifty
thousand rupees but which may extend to five lakh rupees or
with both.
Section
135
Corporate Social Responsibility. Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
contravention continues.
Section
139
Appointment of Auditors. The company shall be punishable with fine which shall not be
less than twenty-five thousand rupees but which may extend to
five lakh rupees and every officer who is in default shall be
punish able with imprisonment for a term which may extend to
Section
No.
Section Description Penalty Description
1 year or with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees or with both.
The auditor shall be punishable with fine which shall not be
less than twenty-five thousand rupees but which may extend to
five lakhs rupees.
Section
140
Removal. Resignation of Auditor and Giving Special Notice- Failure to give notice of
resignation to company and Registrar by the
resigning auditor
The auditor shall be punishable with fine which shall not be
less than fifty thousand rupees but which may extend to five
lakhs rupees.
146
Section
143
Powers and duties of auditors and
auditing standards. The company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer who is in default shall be
punishable with imprisonment for a term which may extend to 1 year or with fine which shall not be less than ten thousand
rupees but which may extend to one lakh rupees or with both.
The auditor shall be punishable with fine which shall not be less
than twenty five thousand rupees but which may extend to five lakhs rupees.
The Auditor, Cost Auditor, Company Secretary in Practice
conducting secretarial audit shall be punishable with fine which
shall not be less than one lak h rupees but which may extend to
twenty-five lakh rupees. (Failure to report to the Central
Govern ment, offence involving fraud committed against the
company by officers or employees of the company, discovered
during the course of performance of the duty)
Section
144
Auditor not to render certain
Services The auditor shall be punishable with fine which shall not be
less than twenty-five thousand rupees but which may extend to
five lakhs rupees.
The company shall be punishable with fine which shall not be
less than twenty-five thousand rupees but which may extend to
five lakh rupees and every officer who is in default shall be
punish able with imprisonment for a term which may extend to
1 year or with fine which shall not be less than ten thousand
rupees but which may extend to one lakh rupees or with both
Section
149
Company to have Board of
Directors.
Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
Section
No.
Section Description Penalty Description
contravention continues.
147
Section
152
Appointment of Directors Such person shall be punishable with imprisonment for a term
which may extend to six months or with fine which may extend to fifty thousand rupees and where the contravention is a continuing one, with a further fine which may extend to five
hundred rupees for every day after the first during with the
contravention continues.
Section155 Prohibition to more than One
Director Indemnification Number.
Such person shall be punishable with imprisonment for a term
which may extend to six months and or with fine which may
extend to fifty thousand rupees and where the contravention is a
continuing one, with a further fine which may extend to five
hundred rupees for every day after the first during with the
contravention continues.
Section
161
Appointment of Additional
Director, alternate Director and
Nominee Director.
Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
contravention continues.
Section
164
Disqualifications for appointment of director.
- Appointment of director, who is disqualified as per the provisions of this section
- Default in complying with any
requirement under this section
by the director.
- Company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees and where the
contravention is continuing one with a further fine which may extend to one thousand rupees for every day after the
first during which the contravention continues.
- The Company and every officer who is in default shall be
punishable with the fine which shall not be less than fifty
thousand rupees but which may extend to five lakhs rupees.
Section
165
Number of Directorship (Exceeds
the Limit)
Such person shall be punishable with fine which shall not be
less than five thousand rupees but which may extend to twenty
five thousand rupees for every day after the first during which
the contravention continues.
Section
168
Resignation of Director Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
contravention continues.
Section
169
Removal of directors The Company and every officer who is in default shall be
punishable with the fine which shall not be less than fifty
thousand rupees but which may extend to five lakhs rupees.
Section
173
Meeting Of Board of Directors. Every officer of the company whose duty is to give notice under
this section and who fails to do so shall be liable t o a penalty of
148
Section
No.
Section Description Penalty Description
twenty-five thousand rupees.
Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
contravention continues.
Section
174
Quorum for Meetings of Board Company and every officer of the company who is in default or such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is continuing one with a further fine which may extend to one thousand rupees for every day after the first during which the
contravention continues
Section
177
Audit Committee The company shall be punishable with fine which shall not be
less than one lakh rupees but which may extend to five lakh
rupees and every officer of the company who is in default shall
be punishable with imprisonment for a term which may extend
to 1 year or with fine which shall not be less than twenty-five
thousand rupees but which may extend to one lakh rupees or
with both.
Section
178
Nomination and remuneration
committee and stakeholders
relationship committee
The company shall be punishable with fine which shall not be
less than one lakh rupees but which may extend to five lakh
rupees and every officer of the company who is in default shall
be punishable with imprisonment for a term which may extend
to 1 year or with fine which shall not be less than twenty-five
thousand rupees but which may extend to one lakh rupees or
with both.
Section
179
Powers of Board Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
contravention continues.
Section
180
Restriction on power of Board Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
contravention continues.
149
Section
184
Disclosure of interest by director. Where a director contravenes such provisions he shall be
punishable with imprisonment for a term which may extend to
1 year or with fine which shall not be less than fifty thousand
rupees but which may extend to one lakh rupees or with both.
Section
185
Loan to Directors etc. The company shall be punishable with fine which shall not be
less than five lakh rupees but which may extend to twentyfive
lakh rupees, and the director or the other person to whom
Section
No.
Section Description Penalty Description
any loan is advanced or guarantee or security is given or
provided in connection with any loan taken by him or the other
person, shall be punishable with imprisonment which may
extend to 6 months or with fine which shall not be less than
five lakh rupees but which may extend to twenty-five lakh
rupees or with both.
Section
186
Loan and Investment by Company The Company shall be punishable with fine which shall not be
less than twenty-five thousand rupees but which may extend to
five lakh rupees and every officer of the company who is in
default shall be punishable with imprisonment for a term which
may extend to 2 years and with fine which shall not be less than
twenty-five thousand rupees but which may extend to one lakh
rupees.
Section
188
Related Party Transactions Any director or other employee of a company, who had entered
into or authorised the contract or arrangement in violation of the provisions of this section shall,—
in case of listed company, be punishable with imprisonment for
a term which may extend to 1 year or with fine which shall not
be less than twenty-five thousand rupees but which may extend to five lakhs rupees, or with both.
Any director or other employee of a company, who had entered
into or authorised the contract or arrangement in violation of
the provisions of this section shall,— in case of any other
company, other than listed company,be punishable with fine
which shall not be less than twenty-five thousand rupees but
which may extend to five lakhs rupees.
Section
196 Appointment of MD, WTD or Manager
Any director or other employee of a company, who had entered
into or authorised the contract or arrangement in violation of
the provisions of this section shall,—
(i) in case of any other company, other than listed company, be
punishable with fine which shall not be less than twenty-five
thousand rupees but which may extend to five lakhs rupees.
150
Section
203
Appointment of Key Managerial
Personnel. Where a company fails to comply with any of the provisions of
this section, it shall be liable to a penalty of one lakh rupees but
which may extend to five lakh rupees and every director and
key managerial personnel who is in default shall be punishable
with fine which may extend to fifty thousand rupees and where
the contravention is a continuing one, with a further fine which
may extend to one thousand rupees for every day after the first
during which the contravention continues.
Section
204
Secretarial audit for Bigger
Companies
Company, every officer of the company or the company
secretary in practice, who is in default, shall be punishable with
fine which shall not be less than one lakh rupees but which may
extend to five lakh rupees.
Section
No.
Section Description Penalty Description
Section
380, 381
Documents to be Delivered and
Accounts by Foreign Company The Foreign company shall be punishable with fine which shall
not be less than one lakh rupees but which may extend to three
lakh rupees and in the case of a continuing offence, with an
additional fine which may extend to fifty thousand rupees for
every day during which the default continues and every officer
who is in default shall be punishable with imprisonment for a
term which may extend to 6 months or with fine which shall
not be less than twenty-five thousand rupees but which may
extend to five lakh rupees or with both.
Section
447
Punishment for Fraud Such person shall be punishable with imprisonment for a term
which shall not be less than 6 months but which may extend to
10 years and shall also be liable to fine which shall not be less
than the amount involved in the fraud, but which may extend to
3 times the amount involved in the fraud. And if the fraud in
question involves public interest the term of imprisonment shall
not be less than 3 years
Section
448
Punishment for false evidence Any Person who makes such a default shall be punishable with
Imprisonment for a term which shall not less than 3 years but
which may extend to 7 years and with fine which may extend to
ten lakh rupees.
Section
455
Dormant Company Company and every officer of the company who is in default or
such other person shall be punishable with fine which may
extend to ten thousand rupees and where the contravention is
continuing one with a further fine which may extend to one
thousand rupees for every day after the first during which the
contravention continues.
Feedback Page
This is the first edition of the book on Companies Act, 2013 by the committee and, obviously,
therefore there is scope for improvement. We intend to make it as useful as possible in its
present format. The Committee, therefore, hopes to keep updating this referential book on a
regular basis in order to make it more functional.
We solicit comments and suggestions from practitioners and others to improve the usefulness
of the Book on Companies Act, 2013. In particular, we will welcome practitioners, and further
areas for inclusion.
Your valuable inputs may be sent to [email protected]
Dr. Sambit Kumar Mishra
Secretary
Committee for Capacity Building of Members in Practice (CCBMP)
The Institute of Chartered Accountants of India (ICAI)
Indraprastha Marg,
New Delhi - 110002