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Companies Act 2013
Raising the bar on Governance
Focus on 6 critical themes
Inclusive CSR AgendaIncreased Reporting FrameworkWider Director and management responsibilityHigher Auditor Accountability
Easier restructuringEmphasis on Investor Protection
The recently enacted Companies Act, 2013 (the New Act) is a landmark piece of
legislation and likely to have far reaching consequences on all companies incorporated in India.The erstwhile Companies Act, 1956 was in existence for well over fifty years and was lately
seeming quite ineffective at handling present day challenges of a growing industry and the
complexities related with the growing stakeholders interests.The New Act promises to substantively raise the bar on governance and in a
comprehensive form purports to deal with some very relevant themes. On the flip side, it appears
to be quite pervasive and thrusts greater responsibility and obligation on the Board of Directors
and Management in Indian companies.The KPMG in India team takes a closer look at the important changes and developments to
help companies assess the impact and develop a clear strategy on compliance and governance.
Theme 1: Increased Reporting Framework
New definition of subsidiary, associate, Joint Venture company [sections 2(6) and 2(87)]
Holding company
1. Owns/controls > 50% total share capital or exercises control of boardsubsidiarycompany
2. Owns/controls at least 20% total share capital or business decisions under an agreement
associate company
Financial year to be uniforma. All companies to follow uniform FYE 31 Marchb. Exemptions (subject to conditions and approval process) if a company is:- A holding/subsidiary of a company incorporated outside India; and- Required to follow a different FYE for consolidation of its accounts outside Indiac. Transitional compliance phase: Two years
Mandatory requirement for Consolidated Financial Statement (CFS) [section 129]
a. In addition to standalone financial statements, every company to prepare CFS if it has a:- Subsidiary; or- Associate; or- Joint Venture company
b. No exemption for intermediate holding companies for preparing CFS
Penalty for violation:
Officer in default:Imprisonment one year;
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Fine between INR 50,000500,000
Revision in Financial Statement [sections 130 and 131]
a. Pursuant to an order made by a court or Tribunal on an application for revision of financial statements madeas under:by the Central Government, Income-Tax, SEBI etc. in the following casesFraudulent financial reporting; or
Mismanaged affairs casting doubt on financial statements; or
by the Directors of a company only in the following cases:Financial statements and Board Report arenon-compliant; and
Voluntary restatement by Directors possible only for the past three years
Changes in Depreciation regulation [section 123(2) and Schedule II]
a. Concept of Useful Life takes prominence over standard mandated rates
b. Justification required where Useful Life Schedule II for prescribed companies. Othercases Useful Life < ScheduleII
c. Applicability of Component Accountingd. Transitional provision: Depreciate carrying value less residual value over balance life. Adjust net worth if useful lifehas been exhaustedMandatory Internal Audit and reporting on Internal Financial Controls [section 138]
a. Assurance on adequacy and effectiveness of Internal Financial Controls (which includes orderly and
efficient conduct of business, and prevention and detection of frauds and errors) to be given: in Directors and Auditorsreport for all listed entities; and
only in Auditors report for all other entities
b. Internal Audit made mandatory for:all listed companies; and
public limited companies with: loans/deposits INR 250 mn ; or
paid up capital INR 100 mn
c. Internal audit to be done only by CAs; or CWAs; or other professionals decided by the Board
Penalty for violation:
1. Company: Fine between INR 50,0002,500,0002. Officer in default: Imprisonment up to three years; fine between INR 50,000500,000
Theme 2: Higher Auditor AccountabilityAuditor Appointment and Rotation
a. Maximum 20 audits permitted per individual Auditor/Partner of a firmb. Instead of reappointment at each AGM, Auditor to be appointed for a block of five years:- Individual Auditor eligible for appointment of single block of five years; and partnership audit firms to be eligible forappointment of additional consecutive block of five years- Auditor to be subject to a five-year cooling period post completion of his previous term- Incoming Auditor cannot be an associate or a network firm in relation to the outgoing Auditor- Transitional compliance phase: Three years- As per draft rules, pre-commencement term to retrospectively apply for computing balance validity of current Auditorstenure prior to rotation
c. Significant restrictions on non-audit services that can be provided by Auditors. All non-audit services to bepre-approved by the Board or Audit Committeed. National Financial Reporting Authority (NFRA) to be the new regulator for Auditors and will have powers torecommend, enforce and monitor compliance of accounting and auditing standards
Auditors Reporting Responsibilitya. Audit report to cover1. Observations, comments on financial transactions and adverse matters2. Qualification or adverse remark on maintenance of accounts3.Adequacy of internal financial control system and effectiveness4. Disclosure of effect of pending litigation on financial position5. Provisions for foreseeable losses on long term/derivative contracts
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6. Delays in depositing money into IEPF
b. Report to Audit Committee or Board on fraud committed against company by officers or employees and escalate toCentral Government if:- happening frequently; or- amount is material at 5 percent of net profits or 2 percent of turnover; or- if dissatisfied with action by audit committee or Board on immaterial frauds
Theme 3 Easier RestructuringRationalizing Multilayered Structuresa. Maximum of only two Investment SPV company levels permitted between investor company and investee companyPenalty for violation:
1. Company: Fine of INR 25,0005,00,000
2. Office in default: Imprisonment upto two years; fine INR 25,0001,00,000
b. Exemption:
- Acquisition of overseas subsidiary with existing multiple layers allowed under foreign law; or
- Multi-layering required under any law in force
Simplifying Procedures for Merger [section 232]a. National Company Law Tribunal (NCLT) to approve schemes of restructuring companies in place of High Courtb. Auditor to certify that accounting treatment specified in the Scheme conforms with Accounting Standard for listed,unlisted and private companies
c. Consent of majority Members/ Creditors >75 percent (in value)d. Merger of listed company into unlisted company allowed subject to:
- Exit opportunity being provided to public shareholders; and
- Valuation is done as per SEBI guidelines
Minority buy-out [section 236]a. Acquirer holding 90 percent share capital (in value) may notify intent to buy-out balance equity sharesb. Exit valuation to be done by Registered Valuer [section 247]c. No opportunity provided for minority to dissent
Cross-border Merger [section 234]
a. Merger of Indian company with foreign company and vice-versa now permittedb. Central Government to make necessary Rules in consultation with RBI and notify permitted jurisdictionsc. Merger to be approved by NCLT
d. Consideration only in cash or Depositary Receipts
Fast-track Merger [section 233]a. Merger between the following entities possible without NCLT approval:
- Two or more small companies; or- Holding and wholly owned subsidiary; or- Prescribed types of companies (list awaited)
b. Declaration of Solvency required to be submittedc. Consent required from:- Members owning > 90 percent of total number of shares- Majority creditors owning 90 percent in value
Share capital reduction [section 66]
a. No share capital reduction permitted in companies that have overdue deposit /interestb. No buy-back permitted until after three years from remediation of defaults on deposits; preference shares; or term
loansc. Multiple buy-back within a year not permittedd. Schemes of arrangement involving buy-back/capital reduction to require Auditors certificate and comply withconditions of section 66/68
Theme 4: Emphasis on Investor Protection
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Related Party Transactions [section 188]a. Transactions in ordinary course of business on arms-length basis permissible. Central Government approval notrequired anymoreb. Board approval required where transactions are either not in the ordinary course of business /not at arms length:c. Special resolution, where no related party can vote, required for non-arms length transactions or transactions not inthe ordinary course of business where- Share capital > INR 10 mn; or where
- Sale, purchase of goods, services, leasing of property transaction value exceeds 5% of annual turnover or 20 percentof net worthPenalty for violation:i. Contract may be rendered as voidii. Directors concerned to indemnify the lossiii. Director / employee involved can be fined and imprisoned (in case of a listed company)- Appointment to any office or place of profit in company, subsidiary or associate
monthly reummuneration > INR 100,000- Remuneration for underwriting subscription of any securities or derivativesremuneration >INR 1 mnInsider Trading [sections 125, 194, 195]a. Director/Key Managerial Personnel (KMP) to refrain from forward dealing/ buy options in shares or debentures ofcompany/ holding company/ subsidiary/ associateb. No company person (incl. any Director/KMP) with access to non-public price sensitive information to indulge in anyform of insider trading/counseling.
Penalty for violation:i. imprisonment up to five years; orii. fine up to INR 250 mn or three times profits made, whichever is higher; oriii. both of the above
Oppression and Mismanagement
a. Members or Depositors may notify Tribunal if company conduct is prejudicial to their interestsb. For fraudulent, unlawful or wrongful act; or improper or misleading statements, Class Action Suit can be filed on:- Company or its Directors; or- Auditor/audit firm; or- Expert/advisor/consultant
c. Who can file Class Action Suit:- 100 or 10 percent of total number of members- 100 or 10 percent of total number of depositors- Member(s) holding 10 percent of issued share capital
- Depositor(s) holding 10 percent of outstanding value of deposits
Fraud Risk Mitigationa. Fraud defined/referred to under various sections and includes:- Act; or- Omission; or- Concealment of fact; or- Abuse of position- Considered fraud whether or not there is any wrongful gain or loss
b. Senior Fraud Investigation Officer (SFIO) made statutory body with significant powersc. Mandatory establishment of vigil-mechanism for directors/ employees to report concernsPenalty for violationImprisonment [3-10 years]; cognizable offence without bail
Theme 5: Wider Director and Management ResponsibilityAdditional Responsibility on Independent Directors [section 149]
a. Code of Professional Conduct imposing stringent responsibility and accountabilityb. Maximum term of five years extendable by another five years subject to a special resolutionc. Retirement by rotation not applicabled. Liable only for acts with knowledge of and attributable through Board Process and with his consent or connivance ornot having acted diligentlye. Direct/indirect pecuniary/other relationships through relatives not permittedf. Declaration of Independence mandatory each year.g. Stock options not permitted. Only sitting fees and profit related commission.
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h. Independent directors to hold one annual meeting where no non-independent director, KMP or Senior Managementcan attend.
Audit Committeea. Composition:- Mandatory for prescribed companies to constitute an Audit Committee- three directors (majority should be Independent Directors)
b. The Chairperson and majority of the Audit Committee members should have the ability to read and understandfinancial statementsc. Responsibilities:- Recommend appointment, remuneration of auditors and monitor their independence and effectiveness- Examine financial statements and auditors report thereon- Approve related party transactions- Scrutiny of inter-corporate loans and investments- Undertake asset valuation- Evaluate internal financial controls and risk management systems- Monitor end use of funds raised through public offers
Penalty for violationi. Company: Fine between INR 100,000500,000ii. Officer in default: Imprisonment upto one year; fine between INR 25,000100,000
Content of Directors Report [section 134]
a. All companies to, inter-alia, state:- Devised proper systems to ensure proper compliance with all applicable laws in India and that this system is operatingeffectively.- Taken proper and sufficient care for maintenance of adequate accounting records for safeguarding assets andpreventing and detecting fraud and other irregularities.- On development and implementation of a risk management policy
b. Listed and prescribed companies to state:- Internal financial controls have been laid down and they are operating effectively.- Manner in which performance evaluation of the Board members have been conducted
Penalty for violationi. Company: Fine between INR 50,0002,500,000ii. Officer in default: Imprisonment upto three years and /or fine between INR 50,000 to INR 500,000
Theme 6: Inclusive CSR Agenda
Obligation Trigger and Calculation
a. Covers all companies in India meeting any one or more of the following conditions:- Turnover INR10 bn- Networth NR 5 bn- Net Profit INR 50 mn
b. CSR contribution to be 2 percent of average net profit before tax for last three financial yearsc. Contributions to be made towards causes listed under Schedule VII
Administration and Reportinga. Board to appoint a three-member CSR committee including one Independent Director- Committee responsibility:- Formulate CSR policy;- Recommend CSR activities;- Monitor CSR expenditure
b. Mandatory reporting on CSR under section 135c. Even where companies are not required to appoint Independent Directors underPenalty for violationi. Company: Fine between INR 50,0002,500,000
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ii. Officer in default: Imprisonment upto 3 years and / or Fine between INR 50,000 to INR 2,500,000
Impact on various stakeholders
Board of Directors
Accountability to stakeholders well beyond only shareholdersReporting beyond traditional SOX coverageLiability on Class Action SuitsSignificant penalties on Insider Trading and restatementsPublic scrutiny on CSRCompliance on Related Party TransactionsMandatory roll-out of whistle-blower vigil mechanismMandate on gender diversity
PromotersMulti-layered structures to be collapsedCross-border transactions allowed
Mandatory CSR contribution will affect cash flowsWider definition of Related Party TransactionsHeavy penalties introduced on Insider TradingLower consolidation threshold may invite greater scrutiny [PE Firms to be impacted]New depreciation rules may affect profitability
CXO and Key Management Personnel
Ease of restructuringReporting beyond traditional SOX coverageWider definition of Related Party TransactionsLower consolidation threshold may invite greater scrutinyNew depreciation rules may affect profitabilityLiability for Class Action SuitsSignificant penalties on Insider Trading and restatements
Independent Directors
Oversee implementation of best corporate governance practicesSafeguard interests of all stakeholdersEnsure adequate and functional vigil mechanismDetermine appropriate levels of remuneration for Directors and KMPCompliance on Related Party TransactionsPrime accountability on CSR complianceLiability on Class Action Suits
Audit Committee
Additional rigour on financial reportingMandatory internal auditReporting beyond traditional SOX coverageSignificant penalties on Insider Trading and restatementsCompliance on Related Party TransactionsMonitoring inter-corporate loans and investmentsEvaluation of internal financial controls
Multi National Corporation
Lower thresholds for financial consolidation
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Mandatory contribution to local CSRWider definition of Related Party TransactionsEase in cross-border restructuringFacility of minority buy-outLiability for Class Action SuitsBoard meetings through video conferenceOne Resident Director mandatory
Additional reporting responsibilities in Boards Report
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Penalty for violation:
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Penalty for violation:
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Penalty for violation:
Imprisonment [3-10 years]; cognizable offence without bail
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Oppression and Mismanagement [section 241-246]
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Oppression and Mismanagement [section 241-246]
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Oppression and Mismanagement [section 241-246]
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Oppression and Mismanagement [section 241-246]a. Members or Depositors may notify Tribunal if company conduct is prejudicial to their interests
b. For fraudulent, unlawful or wrongful act; or improper or misleading statements, Class Action Suit can be filedon:Company or its Directors; or
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Oppression and Mismanagement [section 241-246]a. Members or Depositors may notify Tribunal if company conduct is prejudicial to their interests
b. For fraudulent, unlawful or wrongful act; or improper or misleading statements, Class Action Suit can be filedon:Company or its Directors; or
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Penalty for violation:
i. Contract may be rendered as voidii. Directors concerned to indemnify the lossiii. Director / employee involved can be fined and imprisoned (in case of a listed company)
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Penalty for violation:i. Contract may be rendered as voidii. Directors concerned to indemnify the lossiii. Director / employee involved can be fined and imprisoned (in case of a listed company)
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Penalty for violation:
i. Contract may be rendered as voidii. Directors concerned to indemnify the lossiii. Director / employee involved can be fined and imprisoned (in case of a listed company)
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Penalty for violation:
i. Contract may be rendered as voidii. Directors concerned to indemnify the lossiii. Director / employee involved can be fined and imprisoned (in case of a listed company)
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Penalty for violation:
i. Contract may be rendered as voidii. Directors concerned to indemnify the lossiii. Director / employee involved can be fined and imprisoned (in case of a listed company)
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As per draft rules, pre-commencement term to retrospectively apply for computing balance validity of current
Auditors tenure prior to rotation
c. Significant restrictions on non-audit services that can be provided by Auditors. All non-audit services to bepre-approved by the Board or Audit Committee
d. National Financial Reporting Authority (NFRA) to be the new regulator for Auditors and will have powers to
recommend, enforce and monitor compliance of accounting and auditing standardsAuditors Reporting Responsibilitya. Audit report to cover:
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3. Company: Fine between INR 50,0002,500,0004. Officer in default: Imprisonment up to three years; fine between INR 50,000500,000
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d. Transitional provision: Depreciate carrying value less residual value over balance life. Adjust net worth if useful lifehas been exhaustedMandatory Internal Audit and reporting on Internal Financial Controls [section 138]
a. Assurance on adequacy and effectiveness of Internal Financial Controls (which includes orderly andefficient conduct of business, and prevention and detection of frauds and errors) to be given: in Directors and Auditorsreport for all listed entities; and
only in Auditors report for all other entities
b. Internal Audit made mandatory for:all listed companies; and
public limited companies with: loans/deposits INR 250 mn ; or
paid up capital INR 100 mn
c. Internal audit to be done only by CAs; or CWAs; or ot
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a. Pursuant to an order made by a court or Tribunal on an application for revision of financial statements made
as under:by the Central Government, Income-Tax, SEBI etc. in the following casesFraudulent financial reporting; or
Mismanaged affairs casting doubt on financial statements; or
by the Directors of a company only in the following cases:Financial statements and Board Report arenon-compliant; and
Voluntary restatement by Directors possible only for the past three years
Changes in Depreciation regulation [section 123(2) and Schedule II]
a. Concept of Useful Life takes prominence over standard mandated rates
b. Justification required where Useful Life Schedule II for prescribed companies. Other cases Useful Life < ScheduleII
c. Applicability of Component Accounting
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Theme 5: Wider Director and Management Responsibility
Theme 6: Inclusive CSR Agenda
Mandatory Director AppointmentObligation Trigger and Calculation Administration and Reportingsection 149, in case a company does
a. Covers all companies in India meeting a. Board to appoint a three-member CSR
meet the criteria under section 135, it Company parameters1 Director11/3rd
Audit
Nomination and
Penalty for violation:
New definition of subsidiary, associate,d. Transitional provision: Depreciate carryingResident inWoman
Independent
Committee
remuneration
Penalty for violation:
i. Company:Fine between
Joint Venture company [sections 2(6)value less residual value over balance life.
any one or more of the following
committee including one Independent
will have to mandatorily appoint one India 182 days
Director
Director
committee
Officer in default:INR 100,000500,000
and 2(87)]conditions:
Director
Independent Director on the Board
Imprisonment one year; Fine betweenAdjust net worth if useful life has been Listed
ii. Officer in default: Imprisonment INR 50,000500,000exhausted
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Turnover INR10 bn
Committee responsibility:
d. In case of failure to spend, reasons to be upto one year; fine between
Holding company
Networth NR 5 bn
Formulate CSR policy;disclosed. Penalties for non disclosure Unlisted (All)
INR 25,000100,000
Mandatory Internal Audit and reportingRevision in Financial Statement [sections
Net Profit INR 50 mn
Recommend CSR activities;
Share Capital INR 1 bn
Owns/controls at least
on Internal Financial Controls [sectionContent of Directors ReportOwns/controls >50%
b. CSR contribution to be 2 percent of
Monitor CSR expenditure
Penalty for violation:20% total share capital or 130 and 131]total share capital or
138]i. Company:Fine betweenTurnover INR 3 bn
[section 134]average net profit before tax for last b. Mandatory reporting on CSR under
exercises control of board
business decisions under
a. Pursuant to an order made by a court or an agreementINR 50,0002,500,000
a. All companies to, inter-alia, state: a. Assurance on adequacy and
three financial yearssection 135
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ii. Officer in default: Imprisonment Loan/Debentures/
Tribunal on an application for revision of
Devised proper systems to ensure
effectiveness of Internal Financial
c. Contributions to be made towardsc. Even where companies are not required upto 3 years and / or Fine betweenDeposits INR 2 bn
Subsidiary company
Associate companyfinancial statements made as under:INR 50,000 to INR 2,500,000
proper compliance with all applicable
Controls (which includes orderly and causes listed under Schedule VII
to appoint Independent Directors under
by the Central Government, Income-
Additional Responsibility on IndependentAudit Committee [section 177]laws in India and that this system is Financial Year to be uniform
efficient conduct of business, andTax, SEBI etc. in the following cases Directors [section 149]
a. Composition:
operating effectively.
prevention and detection of frauds and a. All companies to follow uniform FYE
Fraudulent financial reporting; or errors) to be given:
31 March
Mismanaged affairs casting doubt
6a. Code of Professional Conduct imposing
Mandatory for prescribed companies to
Taken proper and sufficient care for stringent responsibility and accountability constitute
an Audit Committee
maintenance of adequate accounting
in Directors and Auditors report for all Increased
Inclusiveb. Exemptions (subject to conditions and b. Maximum term of five years extendable
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three directors (majority should be records for safeguarding assets and
on financial statements; or
Reportinglisted entities; and
CSR Agenda
approval process) if a company is:Frameworkby another five years subject to a special Independent Directors)
preventing and detecting fraud and
by the Directors of a company only in
only in Auditors report for all other
A holding/ subsidiary of a company Focus on
5
resolutionb. The Chairperson and majority of the Audit other irregularities.
the following cases:
entities
incorporated outside India; and
Financial statements and Board
b. Internal Audit made mandatory for: 1c. Retirement by rotation not applicable Committee members should have the ability
On development and implementation
d. Liable only for acts with knowledge of and to read and understand financial statementsof a risk management policy
Required to follow a different FYE for Report are non-compliant; and
Wider
all listed companies; andattributable through Board Process and with c. Responsibilities: b. Listed and prescribed
companies to consolidation of its accounts outside Director
Voluntary restatement by Directors Higher
andhis consent or connivance or not having
Recommend appointment, remuneration
public limited companies with:
state:India
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Auditor
Managementpossible only for the past threeacted diligently
of auditors and monitor their
Internal financial controls have been
loans/deposits INR 250 mn ; or Accountability
Responsibilityc. Transitional compliance phase: Two years years
Mandatory requirement for Consolidated
paid up capital INR 100 mn
Changes in Depreciation regulationFinancial Statement (CFS) [section 129]c. Internal audit to be done only by CAs; or
[section 123(2) and Schedule II]a. In addition to standalone financial CWAs; or other professionals decided by 6
e. Direct/indirect pecuniary/other relationships independence and effectiveness
laid down and they are operating
through relatives not permitted
Examine financial statements and
effectively.f. Declaration of Independence mandatory auditors report thereon
critical Themes
Manner in which performancea. Concept of Useful Life takes prominence statements, every company to prepare the
Board
24
each year.
Approve related party transactions evaluation of the Board members
g. Stock options not permitted. Only sitting
Scrutiny of inter-corporate loans and have been conducted.over standard mandated rates
Emphasis onCFS if it has a:
Easierfees and profit related commission.
investments
Investorb. Justification required where Useful Life Penalty for violation:
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Restructuring
Protection
Subsidiary; or
h. Independent directors to hold one annual
Undertake asset valuation
Penalty for violation:1. Company: Fine between
Associate; or
Schedule II for prescribed companies.
INR 50,0002,500,000
Other cases Useful Life < Schedule II 3meeting where no non-independent
Evaluate internal financial controls and i. Company:Fine betweenINR 50,0002,500,000
Joint Venture company
2. Officer in default: Imprisonmentdirector, KMP or Senior Management can risk management systems
ii. Officer in default: Imprisonment b. No exemption for intermediate holding c.
Applicability of Component Accounting up to three years; fine betweenattend.
Monitor end use of funds raised through upto three years and /or fine
between INR 50,000 to INR 500,000companies for preparing CFS
INR 50,000500,000
public offers3
Theme 3: Easier RestructuringRationalizing Multilayered Structuresd. Merger of listed company into unlisted
Holding and wholly owned subsidiary; 4
a. Maximum of only two Investment SPV
company allowed subject to:or
Theme 4: Emphasis on Investor Protection2
company levels permitted between
Exit opportunity being provided to
Prescribed types of companies (list Related Party Transactions [section 188]
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Remuneration for underwriting
Auditor/audit firm; or
Theme 2: Higher Auditor Accountabilityinvestor company and investee company
public shareholders; and
awaited)a. Transactions in ordinary course of business subscription of any securities or
Expert/advisor/consultant
Valuation is done as per SEBI
b. Declaration of Solvency required to be on arms-length basis permissible. Central
derivativesremuneration >INR 1 mn c. Who can file Class Action Suit:
Penalty for violation:
Auditor Appointment and Rotation
As per draft rules, pre-commencement guidelines
submitted
Government approval not required anymore
100 or 10 percent of total number of 1. Company: Fine of INR 25,000
Insider Trading [sections 125, 194, 195]a. Maximum 20 audits permitted perterm to retrospectively apply for
3. Adequacy of internal
4. Disclosure of effect
5,00,000
Minority buy-out [section 236]c. Consent required from:
b. Board approval required where transactions membersfinancial control system
of pending litigation on
a. Director/Key Managerial Personnel (KMP) to individual Auditor/Partner of a firmcomputing balance validity of current 2. Office in default: Imprisonment
Members owning > 90 percent of total and effectiveness
financial positiona. Acquirer holding 90 percent share are either not in the ordinary course of
100 or 10 percent of total number of upto two years; fine INR 25,000
refrain from forward dealing/ buy options in b. Instead of reappointment at each AGM,Auditors tenure prior to rotation
business /not at arms length:
depositors1,00,000
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capital (in value) may notify intent to buy-number of shares
shares or debentures of company/ holding Auditor to be appointed for a block of five c.
Significant restrictions on non-audit
Majority creditors owning 90 percent c. Special resolution, where no related party
Member(s) holding 10 percent of issued 5. Provisions forout balance equity shares
company/ subsidiary/ associate
years:services that can be provided by Auditors.
foreseeable losses on
6. Delays in depositing
b. Exemption:b. Exit valuation to be done by Registeredin value
can vote, required for non-arms length share capital
b. No company person (incl. any Director/KMP)
Individual Auditor eligible for
All non-audit services to be pre-approved long term/derivative
money into IEPF
Acquisition of overseas subsidiary Share capital reduction [section 66]
transactions or transactions not in the
Depositor(s) holding 10 percent of contracts
Valuer [section 247]with access to non-public price sensitive appointment of single block of fiveby the Board or Audit Committee
with existing multiple layers allowed c. No opportunity provided for minority to a. No
share capital reduction permitted in ordinary course of business whereoutstanding value of deposits
information to indulge in any form of insider years; and partnership audit firms
d. National Financial Reporting Authority under foreign law; ordissent
companies that have overdue deposit /
Share capital > INR 10 mn; or where trading/counseling.
Fraud Risk Mitigationto be eligible for appointment of
(NFRA) to be the new regulator for
b. Report to Audit Committee or Board on
Multi-layering required under any law Cross-border Merger [section 234]
interest
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Sale, purchase of goods, services, leasing a. Fraud defined/referred to under various
additional consecutive block of five Auditors and will have powers to
fraud committed against company byin force
a. Merger of Indian company with foreign b. No buy-back permitted until after three of
property transaction value exceeds Penalty for violation:sections and includes:years
recommend, enforce and monitor
officers or employees and escalate to Simplifying Procedures for Mergeri.imprisonment up to five years; or company and vice-versa now permitted years from remediation
of defaults on 5% of annual turnover or 20 percent of
Act; orii. fine up to INR 250 mn or three times
Auditor to be subject to a five-year compliance of accounting and auditing CentralGovernment if:
[section 232]b. Central Government to make necessary deposits; preference shares; or term networth
profits made, whichever is higher; or
Omission; or
cooling period post completion of his standards
happening frequently; or
a. National Company Law Tribunal (NCLT) Rules in consultation with RBI and notify
loans
Penalty for violation:iii. both of the above
Concealment of fact; or
previous term
c. Multiple buy-back within a year not Auditors Reporting Responsibility
amount is material at 5 percent of net to approve schemes of restructuring
permitted jurisdictions
i. Contract may be rendered as void Oppression and Mismanagement
Abuse of position
Incoming Auditor cannot be anpermitted
ii. Directors concerned to indemnify a. Audit report to cover:
profits or 2 percent of turnover; or companies in place of High Courtc. Merger to be approved by NCLT
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the loss
[section 241-246]
Considered fraud whether or not there is associate or a network firm in relation
if dissatisfied with action by audit b. Auditor to certify that accounting d. Considerationonly in cash or Depositary d. Schemes of arrangement involving buy-iii. Director / employeeinvolved can be a. Members or Depositors may notify Tribunal any wrongful gain or loss
to the outgoing Auditor
1. Observations,
2. Qualification or
committee or Board on immaterial
treatment specified in the Scheme
Receiptsback/capital reduction to require Auditors fined and imprisoned (in case of a
if company conduct is prejudicial to their b. Senior Fraud Investigation Officer (SFIO)
Transitional compliance phase: Three comments on financial
adverse remark on
frauds
certificate and comply with conditions of listed company)transactions and
maintenance of
conforms with Accounting Standard for interestsmade statutory body with significant powers years
adverse matters
accounts
listed, unlisted and private companies Fast-track Merger [section 233]section 66/68
Appointment to any office or place of b. For fraudulent, unlawful or wrongful act; or c.Mandatory establishment of vigil-mechanism c. Consent of majority Members/ Creditors a.
Merger between the following entities profit in company, subsidiary or associate improper or
misleading statements, Class for directors/ employees to report concerns>75 percent (in value)
possible without NCLT approval:
Penalty for violation:
Two or more small companies; or
monthly reummuneration > INR 100,000
Action Suit can be filed on:
Imprisonment [3-10 years]; cognizable
Company or its Directors; or
offence without bail 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG
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8/10/2019 Companies Act 2013 Raising the Bar on Governance - KPMG
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network of independent member firms affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved.
2013 KPMG, an Indian Registered Partnership and a member firm of the KPMGnetwork of independent member firms affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved.
2013 KPMG, an Indian Registered Partnership and a member firm of the KPMGnetwork of independent member firms affiliated with KPMG International Cooperative (KPMGInternational), a Swiss entity. All rights reserved.
Board of Directors Accountability to stakeholders well beyond only Promoters
shareholdersMulti-layered structures to be collapsed
Reporting beyond traditional SOX coverage
Cross-border transactions allowed KPMG in India Liability on Class Action Suits
Mandatory CSR contribution will affect cash flows
Significant penalties on Insider Trading and
Wider definition of Related Party Transactions restatements Heavy penalties introduced on Insider Trading Ahmedabad
Hyderabad
Public scrutiny on CSR Lower consolidation threshold may invite greater Safal Profitaire
8-2-618/2
Compliance on Related Party Transactions scrutiny [PE Firms to be impacted]
B4 3rd Floor, Corporate Road,Reliance Humsafar, 4th Floor
Mandatory roll-out of whistle-blower vigil
New depreciation rules may affect profitability Opp. Auda Garden, Prahlad NagarRoad No.11, Banjara Hills
mechanism
Ahmedabad380 015Hyderabad 500 034
Tel: +91 79 4040 2200
Tel: +91 40 3046 5000
Mandate on gender diversityFax: +91 79 4040 2244
Fax: +91 40 3046 5299
Bangalore
Kochi
CXO and Key Management PersonnelMaruthi Info-Tech Centre
4/F, Palal Towers Ease of restructuring
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11-12/1, Inner Ring Road
M. G. Road, Ravipuram,
Reporting beyond traditional SOX coverage Koramangala, Bangalore 560 071Kochi 682 016
Independent Directors
Wider definition of Related Party Tel: +91 80 3980 6000Tel: +91 484 302 7000 Oversee implementation of best corporate Fax: +91 80 3980 6999
Fax: +91 484 302 7001
Transactionsgovernance practices
Lower consolidation threshold may invite Chandigarh
Kolkata
Safeguard interests of all stakeholders greater scrutinySCO 22-23 (Ist Floor)
Infinity Benchmark, Plot No. G-1
Ensure adequate and functional vigil Impact on various New depreciation rules may affect Sector 8C, Madhya Marg
10th Floor, BlockEP & GP, Sector V
mechanism
profitabilityChandigarh 160 009
Salt Lake City, Kolkata 700 091
Determine appropriate levels of
stakeholdersTel: +91 172 393 5777/781
Tel: +91 33 44034000
Liability for Class Action Suitsremuneration for Directors and KMP
Fax: +91 172 393 5780
Fax: +91 33 44034199 Significant penalties on Insider Trading and
Compliance on Related Party Transactions restatements
ChennaiMumbai
Prime accountability on CSR compliance No.10, Mahatma Gandhi Road
Lodha Excelus, Apollo Mills
Liability on Class Action SuitsNungambakkam
N. M. Joshi Marg
Chennai 600 034
Mahalaxmi, Mumbai 400 011Tel: +91 44 3914 5000
Tel: +91 22 3989 6000
Fax: +91 44 3914 5999Fax: +91 22 3983 6000
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Multi National CorporationDelhi
Pune
Audit Committee Lower thresholds for financial consolidation Building No.10, 8th Floor
703, Godrej Castlemaine Additional rigour on financial reporting Mandatory contribution to local CSR
DLF Cyber City, Phase II
Bund GardenGurgaon, Haryana 122 002
Pune 411 001
Mandatory internal audit
Wider definition of Related Party Transactions Tel: +91 124 307 4000Tel: +91 20 3058 5764/65
Reporting beyond traditional SOX coverage
Ease in cross-border restructuring Fax: +91 124 254 9101Fax: +91 20 3058 5775
Significant penalties on Insider Trading and
Facility of minority buy-out
restatements Liability for Class Action Suits
Compliance on Related Party Transactions
Board meetings through video conference Monitoring inter-corporate loans and
One Resident Director mandatory
investments
Additional reporting responsibilities in Boards Report Evaluation of internal financial controls Key contact
The information contained herein is of a general nature and is not intended to address the
Sai Venkateshwarancircumstances of any particular individual or entity. Although we endeavour to provide
accurate Partner and Headand timely information, there can be no guarantee that such information is accurate as of
the date it is received or that it will continue to be accurate in the future. No one should act on such
Accounting Advisory
information without appropriate professional advice after a thorough examination of the
particular T:+91 22 3090 2020situation. The views and opinions expressed herein as a part of the Survey are those of the
survey respondents and do not necessarily represent the views and opinions of M:+91 98203
45741
KPMG in India.
2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative (KPMGInternational), a Swiss entity. All rights reserved.
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49/49
The KPMG name, logo and cuttingthrough complexity are registered trademarks or
trademarks of KPMG International.
kpmg.com/inPrinted in India.
2013 KPMG, an Indian Registered Partnership and a member firm of the KPMGnetwork of independent member firms affiliated with KPMG International Cooperative (KPMGInternational), a Swiss entity. All rights reserved.