CS regulations

Govt. of India has vide its notification dated 17th January 2020 approved the following amendments to the Company Secretaries Regulations 1982

1) Introduction of entrance test (CSEET) in place of Foundation program for CS students
2) Introduction of uniform training structure of 24 months for the students after the Executive program;
3) Gap of 6 months between enrolment and examinations (for both Executive & Professional) for all modules and gap of 4 months between enrolment and examinations for single group or modules;
4) Introduction of Secretarial Executive Certificate for the Executive passed students;
5) Provision of Specialised, Advanced and Refresher course for the members;
6) Orientation program for the members for issuance of Certificate of Practice;
7) Pre-examination tests for enrolment into examinations.

e-CSIN

The Institute of Company Secretaries of India has once again extended the last date for employed company secretaries to obtain their e-CSIN, an online identification number at their portal from 15th January 2020 to 29th February 2020. This is required in case of those company secretaries in respect of whom the erstwhile form 32 under the old companies act or the form DIR-12 under the new companies act was filed with the ministry of corporate affairs. 

company secretary / secretarial audit

MCA has vide its notification dated 3rd January, 2020 allowed private companies with paid up share capital of Rs.10 crores and above to appoint a full time company secretary. Earlier the limit was Rs.5 crores.

It has also mandated that all companies (be it private or public unlisted) and having outstanding borrowings from banks or financial institutions to the tune of Rs.100 crores or more to have a secretarial audit report to be conducted pursuant to section 204 of the companies act, 2013. The cut off for the purpose of reckoning the above limit will be date of audited financials of the company.

The relevant notification is available on the MCA website.

Secretarial standard on General meetings

Salient features of Revised Secretarial Standards for General Meetings – SS2

1)     Applies to a section 8 company also but all other provisions of the Act relating to the General meetings are still applicable to a section 8 company;

2)    In case of a nidhi company, general meeting notice need to be served individually only on members holding shares of face value of more than Rs.1000 or more than 1% of the paid up share capital of the company, whichever is less. For other members, notice is by way of a newspaper notice in a newspaper circulated in the place where registered office is situated and on the notice board of the company;

3)     In case of companies having a website, the notice shall simultaneously be hosted on the website till the conclusion of the meeting. In case of a private company, the notice shall be hosted on the website of the company, if any, unless otherwise provided in the articles. This is an additional compliance even for small private companies which have websites. Nowadays every small company has a website for its promotion etc. The word used here is “shall” instead of “may” so this mandates compliance by all companies having websites. This is an unnecessary burden on the private companies to comply with this requirement. The only alternative they have is to amend the articles to provide that the notice need not be hosted on the website of the company. 

4)    Route map of AGM is not necessary for a closely held private company, where only the Directors and their family members are the shareholders or a wholly owned subsidiary company. This is a welcome relief for the small private companies. The whole purpose of putting route map in the notice was infructuous.

5)    Notice of the annual general meeting shall also specify the serial number of the meeting. By serial number I am assuming the no. of annual general meetings held in a company since its inception.

6)   Consent for shorter notice for the general meeting can be received any time before the meeting commences. It means that consent can be received 10 minutes before the meeting starts also. Government is toting this as “ease of doing business” 

7)   The authority letter from corporates for the annual general meeting shall,

(a)          in case of remote e-voting, be received before close of e-voting;

(b)          in case of postal ballot, shall be received alongwith the postal ballot form; and

(c)          if he is attending the meeting, then the letter should be sent before the commencement of the meeting.

8)   Nidhi companies are not required to provide e-voting facilities to their members;

9)   In case of Nidhi, no member shall exercise voting rights on a poll in excess of 5% of the total voting rights of the equity shareholders;

10)In case of a private company, a member who is a related party is entitled to vote on such resolution. This was always the case under the earlier Companies Act, 1956 also, only it has now been codified in the Standards.

11) The results of the voting at the general meeting needs to be displayed for at least three days at the notice board of the company at its registered office and also its Head Office and Corporate Office wherever it is situated. This is over and above displaying of the results at the company’s website, if any.  Before amendment, the three days’ time limit was not specified. This is another example of compliance overreach.

12) At a poll at the general meeting, it is not necessary that one of the scrutinizer shall be the member of the company.

13) Minutes of the meeting can be maintained in electronic form and it need not have a timestamp.

14) Minutes if they are maintained in loose leaf form, shall be bound periodically, at least once in every three years.

15) Minutes Book shall be kept only at the registered office of the company, not at any other place.

16) No need for minutes to state the conclusion time of the meeting;

17) Most of the other amendments are either rectification of the drafting errors or aligning the standards to be in line with the Act and/ or Rules thereof.

GST Council Decisions - 6th October, 2017

PIB release dated 6th October, 2017

Recommendations made by the GST Council in its 22nd Meeting held today under Chairmanship of the Union Minister of Finance and Corporate Affairs, Shri Arun Jaitley in the national capital.

 Composition Scheme
1.      The composition scheme shall be made available to taxpayers having annual aggregate turnover of up to Rs. 1 crore as compared to the current turnover threshold of Rs. 75 lacs. This threshold of turnover for special category States, except Jammu & Kashmir and Uttarakhand, shall be increased to Rs. 75 lacs from Rs. 50 lacs. The turnover threshold for Jammu & Kashmir and Uttarakhand shall be Rs. 1 crore. The facility of availing composition under the increased threshold shall be available to both migrated and new taxpayers up to 31.03.2018. The option once exercised shall become operational from the first day of the month immediately succeeding the month in which the option to avail the composition scheme is exercised. New entrants to this scheme shall have to file the return in FORM GSTR-4 only for that portion of the quarter from when the scheme becomes operational and shall file returns as a normal taxpayer for the preceding tax period. The increase in the turnover threshold will make it possible for greater number of taxpayers to avail the benefit of easier compliance under the composition scheme and is expected to greatly benefit the MSME sector.

2.      Persons who are otherwise eligible for composition scheme but are providing any exempt service (such as extending deposits to banks for which interest is being received) were being considered ineligible for the said scheme. It has been decided that such persons who are otherwise eligible for availing the composition scheme and are providing any exempt service, shall be eligible for the composition scheme. 

3.      A Group of Ministers (GoM) shall be constituted to examine measures to make the composition scheme more attractive.

Relief for Small and Medium Enterprises

4.      Presently, anyone making inter-state taxable supplies, except inter-State job worker, is compulsorily required to register, irrespective of turnover.  It has now been decided to exempt those service providers whose annual aggregate turnover is less than Rs. 20 lacs (Rs. 10 lacs in special category states except J & K) from obtaining registration even if they are making inter-State taxable supplies of services. This measure is expected to significantly reduce the compliance cost of small service providers.

5.      To facilitate the ease of payment and return filing for small and medium businesses with annual aggregate turnover up to Rs. 1.5 crores, it has been decided that such taxpayers shall be required to file quarterly returns in FORM GSTR1,2 & 3 and pay taxes only on a quarterly basis, starting from the Third Quarter of this Financial Year i.e. October December, 2017. The registered buyers from such small taxpayers would be eligible to avail ITC on a monthly basis.

The due dates for filing the quarterly returns for such taxpayers shall be announced in due course. Meanwhile, all taxpayers will be required to file FORM GSTR-3B on a monthly basis till December, 2017. All taxpayers are also required to file FORM GSTR-1, 2 & 3 for the months of July, August and September, 2017. Due dates for filing the returns for the month of July, 2017 have already been announced. The due dates for the months of August and September, 2017 will be announced in due course.

6.      The reverse charge mechanism under sub-section (4) of section 9 of the CGST Act, 2017 and under sub-section (4) of section 5 of the IGST Act, 2017 shall be suspended till 31.03.2018 and will be reviewed by a committee of experts.

This will benefit small businesses and substantially reduce compliance costs.

7.      The requirement to pay GST on advances received is also proving to be burdensome for small dealers and manufacturers. In order to mitigate their inconvenience on this account, it has been decided that taxpayers having annual aggregate turnover up to Rs. 1.5 crores shall not be required to pay GST at the time of receipt of advances on account of supply of goods. The GST on such supplies shall be payable only when the supply of goods is made.

8.      It has come to light that Goods Transport Agencies (GTAs) are not willing to provide services to unregistered persons. In order to remove the hardship being faced by small unregistered businesses on this account, the services provided by a GTA to an unregistered person shall be exempted from GST.

Other Facilitation Measures

9.      After assessing the readiness of the trade, industry and Government departments, it has been decided that registration and operationalization of TDS/TCS provisions shall be postponed till 31.03.2018.

10.  The e-way bill system shall be introduced in a staggered manner with effect from 01.01.2018 and shall be rolled out nationwide with effect from 01.04.2018. This is in order to give trade and industry more time to acclimatize itself with the GST regime.

11.  The last date for filing the return in FORM GSTR-4 by a taxpayer under composition scheme for the quarter July September, 2017 shall be extended to 15.11.2017. Also, the last date for filing the return in FORM GSTR-6 by an input service distributor for the months of July, August and September, 2017 shall be extended to 15.11.2017.

12.  Invoice Rules are being modified to provide relief to certain classes of registered persons.

These are welcome reliefs especially for the small & medium sector. This sector has had its liquidity completely squeezed with having to deposit the monthly GST and also on reverse charge basis. It had become a double whammy for them.  

In fact there should be only one quarterly GSTR3B form required to be filed with the Government. All other forms i.e. GSTR 1, 2, 3 should be abolished. Too much of information is sought in these forms which had hitherto never happened in the history of tax administration in India. This had become a kind of micro management of the tax payers, which is not at all beneficial for any tax regime. 

IBBI Information Utilities Regulations

IBBI had notified the IBBI (Information Utilities) Regulations, 2017 on 31^st March, 2017. These regulations provided that ordinarily a person should not hold more than 10% of paid up equity share capital or voting power of an information utility, while allowing certain specified persons to hold up to 25%. These further provided that a person may hold up to 51% of paid-up equity share capital or total voting power of an information utility till the expiry of three years from its registration.

IBBI has amended the IBBI (Information Utilities) Regulations, 2017 on 29th September, 2017. According to the amended regulations, a person may, directly or indirectly, either by itself or together with persons acting in concert, hold up to fifty-one percent of the paid-up equity share capital or total voting power of an information utility up to three years from the date of its registration. Further, an Indian company, (i) which is listed on a Stock Exchange in India, or (ii) where no individual, directly or indirectly, either by himself or together with persons acting in concert, holds more than ten percent of the paid-up equity share capital, may hold up to hundred percent of the paid-up equity share capital or total voting power of an information utility up to three years from the date of its registration. However, these amended provisions are be available in respect of information utilities registered before 30th September, 2018.

The amendment requires that more than half of the directors of an information utility shall be Indian nationals and residents in India.

The amendments are effective from 29^th September, 2017. These are available at www.mca.gov.in and www.ibbi.gov.in

Secretarial standard on Board Meetings

Salient features of revised Secretarial Standards -1 Board Meetings

1)      The SS1 is not applicable to section 8 companies (i.e. not for profit companies). However they are required to comply with the provisions of the Act relating to Board meetings;

2)      Board meetings can be held on National Holidays also, including the adjourned Board meetings;

3)      Proof of sending notice and its delivery shall be kept by the company for a period of not less than three years;

4)      Proof of sending agenda and notes on agenda and their delivery shall be maintained by the company for a period of not less than three years;

5)      Company can send notice and agenda by registered post or speed post apart from e-mail, of course. It cannot send by courier.

6)      Four Board meetings to be held in a calendar year with a maximum interval of 120 days between two consecutive meetings. The requirement of holding one meeting in every calendar quarter has been done away with.

7)      In a private company, interested Director shall be eligible to participate in such item after disclosure of his interest.

8)      Quorum for meetings of Committee shall be as specified by the Board. If not specified by the Board then all members of the Committee to be present at the meetings.

9)      Not necessary to maintain separate attendance register for meetings of the Board and Committee;

10)   If attendance register is maintained in loose leaf form, then it shall be binded once in three years;

11)   After a person has ceased to be a Director, he has no right to inspect the attendance register of directors;

12)   The attendance register to be maintained for a period of at least 8 financial years from the last entry made and thereafter destroyed with the approval of the Board.

13)   The company may maintain its minutes in physical or electronic form. No need of timestamp required.

14)   Minutes need not mention the conclusion time of the meeting;

15)   All appointments one level below the KMP level need not be noted by the Board;

16)   Draft minutes need not be sent to the directors who did not attend the Board/ Committee meeting;

Companies (Acceptance of Deposits) Second Amendment Rules, 2017

MCA has brought about an amendment to the Companies (Acceptance of Deposits) Rules vide its Second Amendment Rules of 2017 on 19th September, 2017.

Rule 3(3) of the Rules stated that

“No company referred to in sub-section (2) of section 73 shall accept or renew any deposit from its members, if the amount of such deposits together with the amount of other deposits outstanding as on the date of acceptance or renewal of such deposits exceeds [thirty five per cent] of the aggregate of the [Paid-up share capital, free Reserves and securities premium account] of the company.

[“Provided that a private company may accept from its members monies not exceeding one hundred per cent of aggregate of the paid up share capital, free reserves and securities premium account and such company shall file the details of monies so accepted to the Registrar in such manner as may be specified.”]

It is the proviso to Rule 3(3) that is being amended.

The new proviso allows specified IFSC public company and private company to accept monies from its members not exceeding 100% of the aggregate of paid-up share capital, free reserves and securities premium account and such company shall file details of monies so accepted to the Registrar in form DPT-3.

Explanation to the proviso states that specified IFSC public company is an unlisted public company licensed to operate either by RBI, SEBI, IRDA in an approved international financial services centre located in an approved multi services Special Economic Zone.

Another proviso has been added to this sub-rule viz.

that the maximum limit in respect of deposits to be accepted shall not apply to

1. private company which is a start-up for 5 years from the date of its incorporation, or
2. private company which fulfills all the following conditions, viz.

a) which is not an associate or subsidiary of any other company (i.e. a purely private company)

b) the borrowings of such company from banks or financial institutions or any body corporate is less than twice of its paid up share capital or Rs.50 crores, whichever is less (i.e. if the paid up share capital is Rs.1 lakh, then the borrowings should be less than Rs.2 lakhs or Rs.50 crores, whichever is less. So obviously the borrowings in this case should be less than Rs.2 lakhs)

c) company has not defaulted in repayment of such borrowings.

All the three conditions above has to be satisfied in respect of this second clause of this second proviso.

So basically the relaxation in acceptance of deposits is in favour of IFSC public company and start up private company. In respect of a purely private company the relaxations are dependent on its paid up share capital.

The companies accepting deposits should report the same in form DPT-3.

The amendment is available here

Restriction on no. of layers

MCA has come out with a new rule with effect from 20th September, 2017 which is called the Companies (Restrictions on Number of Layers), Rules, 2017.

As per this Rule, no company shall have more than two layers of subsidiaries. Exemptions are wholly owned subsidiary or subsidiaries. Companies can however acquire more than two layers of subsidiaries outside India as per the laws of such jurisdiction.

Banking company, NBFC, Insurance company and government company is exempted from the provisions of these Rules.

Rule 3 says that the provisions of this rule shall not be in derogation to proviso to section 186(1) of the Act. That proviso says, in the first part that the company can acquire any other company incorporated outside India, if such foreign company has investment subsidiaries beyond more than two layers as per the laws of such country. The (b) portion of the proviso says that a subsidiary company can have investment subsidiary for the purpose of meeting any requirement under any law or rule or regulation thereto. The (b) proviso pertains to the Indian jurisdiction. So basically investment subsidiaries are outside the ambit of this Rule if they are the 2nd layer of subsidiaries.

Rule 4 specifies that where a company has subsidiaries in excess of the limits specified in these Rules, as on the date the Rules come into force, then it shall, within 150 days of these Rules, file with the ROC a form i.e. CRL-1, disclosing the details specified therein in the said Form. It shall not after the commencement of these Rules, have any additional layer of subsidiaries more than what it had on the date of commencement of these Rules. In case one or more layers are reduced after these Rules come into force, the Company shall keep the layers of subsidiaries at that reduced level or at the maximum level specified in these Rules. For eg. if a company has 4 layers of subsidiaries at the commencement date and subsequently one layer has dropped off, the company cannot increase the layer from 3 to 4 merely because it had 4 layers at the commencement date. It should be kept at 3 levels only.

Rule 5 is the penalty clause whereby the fine is Rs.10,000 for the company and every officer in default and if it is a continuing default, then further fine of Rs.1000 per day during the period the contravention continues.

So basically the Rule allows the companies to retain their level of subsidiaries, but not add to it. As and when the companies delete one or more of their subsidiaries, then they should retain it at that level or upto two layers and not increase it further.

The Rules is available at the MCA site at here 

merger/ amalgamations of foreign co with Indian co and vice versa

The Ministry of Corporate Affairs has vide its notification dated 13th april, 2017 amended the Companies (Compromises, Arrangements & Amalgamations) Rules, 2016 by inserting a rule 25A therein. 

Rule 25A provides for merger/ amalgamation of a foreign company with Indian company and vice versa.  In both cases mergers will take place only after obtaining prior approval of the RBI and after complying with the provisions of sections 230 to 232 of the Companies Act, 2013, which deals with mergers and amalgamations. The transferee company, in both cases has to ensure that valuations are done by valuers who are members of recognised professional body in the respective jurisdictions. The valuation should be in accordance with internationally accepted principles on accounting and valuation. 

After obtaining the RBI approval, the companies shall file an application to the Tribunal 

Amendment to Schedule V to the Companies Act, 2013

MCA has vide its notification dated 12th September, 2016 amended the Schedule V to the Companies Act, 2013. The salient features of the amendment are as follows:

1) In Part II, Section II, the limits have been doubled for each slab i.e.

a) where the effective capital is negative or less than Rs.5 crores - Rs.60 lakhs
b) effective capital between Rs.5 crores & above to less than Rs.100 crores - Rs.84 lakhs
c) effective capital between Rs.100 crores & above to less than Rs.250 crores - Rs.120 lakhs
d) effective capital of more than Rs.250 crores - Rs.120 lakhs plus 0.01% of the effective capital in excess of Rs.250 crores.

This is given in section A

2) Section B has been completely changed as follows:

Section B says that in case of a managerial person who is functioning in a professional capacity, no approval of Central Government is required is he is not having any shareholding interest in the company or its holding or subsidiary company directly or indirectly or through any structures and not having any interest or related to directors or promoters of the company or its holding or subsidiary company at any time within two years before his date of appointment. He should also be a graduate with specialisation and expertise in the field in which the company operates. There is a proviso however which states that he does not become disqualified merely because he is allotted shares under ESOP or directors' qualification shares and which is not more than 0.5% of the share capital of the company.

The Section II begins with "where in any financial year during the currency of tenure of a managerial person, a company has no profits or its profits are inadequate, it may, without Central Government approval, pay remuneration to the managerial person not exceeding the limits given in (A) and (B) given below:"

The existing wording below section II says "not exceeding the higher of the limits under (A) and (B) given below"

While (A) does specify some limits like enumerated above depending upon effective capital, (B) does not mention any limits whatsoever.

The existing (B) in Schedule V did have limits which was 2.5% of the effective capital.

So in absence of any limits mentioned in (B) does it mean that the company is free to give any remuneration even above those enumerated in (A) to a managerial person who is professionally qualified and technically competent for the job. This aspect is not clear.

3) There are other conditions such as Nomination cum Remuneration Committee which is retained as it is.

4) Further the company should not have committed any defaults in repayment of debts (including public deposit), debentures or interest thereon for a continuous period of 30 days during the preceding financial year. However where the company has committed a default, the company has to obtain prior approval from the secured creditors for the proposed remuneration and such fact should be mentioned in the explanatory statement. This is a change from the existing provisions.

5) Further the resolution can be an ordinary resolution or special resolution (in case of doubling of limits) in (A) or special resolution in case of (B), in both cases tenure should not be more than 3 years.

6) Then the explanatory statement should contain details which are more or less same as existing provisions.

GST Council and its Secretariat

PIB press release dated 12th September, 2016

The Union Cabinet under the Chairmanship of Prime Minister Shri Narendra Modi has approved setting up of GST Council and setting up its Secretariat as per the following details:  

(a)          Creation of the GST Council as per Article 279A of the amended Constitution;

(b)         Creation of the GST Council Secretariat, with its office at New Delhi;

(c)          Appointment of the Secretary (Revenue) as the Ex-officio Secretary to the GST Council;

(d)         Inclusion of the Chairperson, Central Board of Excise and Customs (CBEC), as a permanent invitee (non-voting) to all proceedings of the GST Council;

(e)          Create one post of Additional Secretary to the GST Council in the GST Council Secretariat (at the level of Additional Secretary to the Government of India), and four posts of Commissioner in the GST Council Secretariat (at the level of Joint Secretary to the Government of India).

The Cabinet also decided to provide for adequate funds for meeting the recurring and non-recurring expenses of the GST Council Secretariat, the entire cost for which shall be borne by the Central Government. The GST Council Secretariat shall be manned by officers taken on deputation from both the Central and State Governments.

The steps required in the direction of implementation of GST are being taken ahead of the schedule so far.

The Finance Minister has also decided to call the first meeting of the GST Council on 22^nd and 23^rdSeptember 2016 in New Delhi.

Report of the Company Law Committee

Some of the recommendations made by the Company Law Committee to streamline further the company law regime in India.

The Companies Law Committee was constituted in June 2015 for examining and making recommendations on the issues arising out of implementation of the Companies Act, 2013. The Committee submitted its report to the Government today.

2.         The Committee was chaired by Secretary, Ministry of Corporate Affairs and consisted of Shri Bharat Vasani, nominee of the Confederation of Indian Industries (CII), Smt. Reva Khetrapal, Judge (Retd.), Delhi High Court, Shri Y.M. Deosthalee, nominee of the Federation of Indian Chambers of Commerce and Industry (FICCI), Dr. A.S. Durga Prasad, President of the Institute of Cost Accountants of India, Shri Manoj Fadnis, President of the Institute of Chartered Accountants of India, Shri Atul Mehta, President of the Institute of Company Secretaries of India, Shri N.S. Vishwanathan, Executive Director from RBI and Shri P.K. Nagpal, Executive Director from SEBI as co-opted members and Joint Secretary (Policy), Ministry of Corporate Affairs as Member Convener.

3.         The Committee had extensive consultations with stakeholders before making its recommendations. More than 2000 suggestions were received during the consultation process.  The stakeholders consulted included all Industry Chambers, Professional Institutes, law firms, financial sector and other regulators. Six broad based groups were set up to review the suggestions received during the public consultation, each group being convened by a member of the Committee, and consisting of subject-matter experts including industry representatives, lawyers, company secretaries, cost accountants, investors’ representatives and chartered accountants.

4.         The Committee has endeavoured to reconcile the competing interests of the various stakeholders keeping in mind the difficulties and challenges expressed by them, and also being mindful of the Government’s objective of furthering ease of doing business, encouraging start-ups and the need for harmonising various laws.  The Committee also kept in mind the need to bring in greater clarity in the Act and Rules and harmonizing the various provisions thereof while making its recommendations.

5.         After exhaustive deliberations, the Committee has proposed changes in 78 sections of the Companies Act, 2013, which along with consequential changes, would result in about 100 amendments to the Act.  Approximately fifty amendments to the Rules have also been proposed. The recommendations cover significant areas of the Act, including definitions, raising of capital, accounts and audit, corporate governance, managerial remuneration, companies incorporated outside India and offences/ penalties.

6.         Some of the key changes proposed are listed below:

a)             Managerial remuneration to be approved by shareholders. [s. 197, 198]

b)             Modify definition of associate company and subsidiary company to ensure that ‘equity share capital’ is the basis for deciding holding-subsidiary relationship rather than “both equity and preference share capital”. [s. 2]

c)             Private placement process to be substantially simplified, doing away with separate offer letter, making valuation details public, details/record of applicants to be kept by company and to be filed as part of return of allotment only, and reducing number of filings to Registrar. [s. 42]

d)            Incorporation process to be made easier and allow greater flexibility to companies: An unrestricted objects clause to be allowed in the Memorandum of Association dispensing with detailed listing of objects, self-declarations to replace affidavits from subscribers to memorandum and first directors; changes also in various Forms. [s. 4, 7]

e)             Provisions relating to forward dealing and insider trading to be omitted from Companies Act. Listed companies are covered under SEBI Act/Regulations. [s. 194, 195]

f)              Companies may give loans to entities in which directors are interested after passing special resolution and adhering to disclosure requirement. [s. 185]

g)             Restriction on layers of subsidiaries and investment companies to be removed. [s. 2(87), 186(1)]

h)             Change in the definition of term ‘relative’ for determining disqualification of auditor [s. 141]

i)               Rationalize penal provisions with reduced liability for procedural and technical defaults. Penal provisions for small companies to be reduced. [ various sections]

j)               No filing fees if financial statements and annual returns filed within prescribed time. [s. 403]

k)             Auditor to report on internal financial controls with regard to financial statements. [s. 143]

l)               Frauds less than Rs. 10 Lakh to be compoundable offences. Other frauds to be continued to be non-compoundable. [s. 447]

m)           Reducing requirement for maintaining deposit repayment reserve account from 15% each for last two years to 20% during the maturing year.

n)             Foreign companies having insignificant/incidental transactions through electronic mode to be exempted from registering and compliance regime under Companies Act, 2013. [s.  379]

o)             Disclosures in the Directors’ Report to be simplified and duplications with SEBI’s disclosure requirements and financial statements to be removed while retaining the informative content for shareholders. [s. 134, Rules]

p)             Increased threshold for unlisted companies for compliance in context of requirement for Independent Directors (IDs), Audit Committee and Nomination and Remuneration Committee. [s. 149, 177, 178]

q)             Test of materiality to be introduced for pecuniary interest for testing independence of ID; thresholds for relatives’ pecuniary interest to be revised to make it more practical. [s. 149]

r)              Requirement for a managerial person to be resident in India for twelve months prior to appointment to be done away with. [Schedule V]

s)              Disclosures in the prospectus required under the Companies Act and SEBI Regulations to be aligned, with a view to make these simpler, by allowing prescriptions to be as per SEBI Regulations. [s. 26]

t)              ESOPs to be allowed to promoters working as employees/directors [s.62, Rules]

u)             Limit on sweat equity to be raised from 25% of paid up capital to 50% for start-ups. [s.54]

v)             Recognition of the concept of beneficial owner of a company proposed in the Act. Register of beneficial owners to be maintained by a company, and filed with the Registrar. [new section]

w)           Provisions with regard to consolidation of accounts to be reviewed and those with respect to attachment of standalone accounts of foreign subsidiaries to be relaxed in certain cases. [s. 129, 136]

x)             Re-opening of accounts to be limited to 8 years. [s. 130]

y)             Mandatory requirement of taking up some items only through postal ballot to be relaxed in case of a company that is required to provide electronic voting at its General Meetings. [s. 110]

z)             Requirement for annual ratification of appointment/continuance of auditor to be removed. [s. 139]

7.         The report is available on the website of the Ministry of Corporate Affairs, www.mca.gov.in, and public comments on the report are invited online till 15 February 2016 on the facility made available specifically for the purpose at the portal.

Fraud reporting

The Ministry of Corporate Affairs has vide its gazette notification dated 14th December, 2015 amended the Rule 13 of the Companies (Audits and Auditors), Rules, 2014 as under.

“13. Reporting of frauds by auditor and other matters:

(1) If an auditor of a company, in the course of the performance of his duties as statutory auditor, has reason to believe that an offence of fraud, which involves or is expected to involve individually an amount of rupees one crore or above, is being or has been committed against the company by its officers or employees, the auditor shall report the matter to the Central Government.

(2) The auditor shall report the matter to the Central Government as under:-
(a) the auditor shall report the matter to the Board or the Audit Committee, as the case may be, immediately but not later than two days of his knowledge of the fraud, seeking their reply or observations within forty-five days;
(b) 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 fifteen days from the date of receipt of such reply or observations;
(c) in case the auditor fails to get any reply or observations from the Board or the Audit Committee within the stipulated period of forty-five days, he shall forward his report to the Central Government along with a note containing the details of his report that was earlier forwarded to the Board or the Audit Committee for which he has not received any reply or observations;
(d) the report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealed cover by Registered Post with Acknowledgement Due or by Speed Post followed by an e-mail in confirmation of the same;
(e) the report shall be on the letter-head of the auditor containing postal address, e-mail address and contact telephone number or mobile number and be signed by the auditor with his seal and shall indicate his Membership Number; and
(f) the report shall be in the form of a statement as specified in Form ADT-4.

(3) In case of a fraud involving lesser than the amount specified in sub-rule (1), the auditor shall report the matter to Audit Committee constituted under section 177 or to the Board immediately but not later than two days of his knowledge of the fraud and he shall report the matter specifying the following:-
(a) Nature of Fraud with description;
(b) Approximate amount involved; and
(c) Parties involved.

(4) The following details of each of the fraud reported to the Audit Committee or the Board under sub-rule (3) during the year shall be disclosed in the Board’s Report:-
(a) Nature of Fraud with description;
(b) Approximate Amount involved;
(c) Parties involved, if remedial action not taken; and
(d) Remedial actions taken.

(5) The provision of this rule shall also apply, mutatis mutandis, to a Cost Auditor and a Secretarial Auditor during the performance of his duties under section 148 and section 204 respectively.”; 

Now onerous duties has been cast on the auditors, cost auditors and secretarial auditors to report frauds and the process for reporting auditors has been laid down in the above notification. 

Non compliance with listing regulations - penalties thereof

SEBI has vide its circular no. CIR/CFD/CMD/12/2015 dated 30th November, 2015 laid down certain uniform fine structure for non compliance with listing regulations regarding non submission of certain periodic disclosures and standard operating procedures for suspension and revocation of suspension of trading of specified securities for such non compliances thereof.

Accordingly for non submission of corporate governance compliance report within the period specified in regulation 27(2) of the listing agreements will entail fine of Rs.1000/- per day of non-compliance till the date of compliance. This is in case of first non compliance. For each subsequent non compliances, it is Rs.2000/- per day of non compliance till the date of compliance.

Similarly it is the same for non submission of shareholding pattern u/r 31 with a further condition specified that if the non compliance continues for more than 15 days, additional fine of 0.1% of the paid up capital of the company or Rs.1 crore, whichever is less.

In case of non submission of the financial results u/r 33 thereof, the fines are Rs.5000/- per day for 1st non compliance and Rs.10000 per day for subsequent non compliances and if the non compliance continues for 15 or more days, then fine structure is as described above.

In case of non submission of annual report u/r 34, if the non compliance continues for five more days, then fine of Rs.1000 per day until the date of compliance for 1st non compliance and Rs.2000/- per day for subsequent non compliances.

Paid up capital is taken as at the beginning of the financial year in which the non compliance occurs.

Further standard operating procedures have been laid down for suspension of trading in case the non compliances under the above mentioned regulations continues for two consecutive quarters and in case of annual report for two consecutive financial years.

The SEBI circular can be found at its website.