CS Rahul Harsh

CS Rahul HarshComparative Analysis of The Companies (Amendment) Bill, 2016, & Companies Act, 2013 (Part –2)

The Central government on Wednesday, 16th of March, 2016 introduced in the Lok Sabha a The Companies (Amendment) Bill, 2016, to further amend the Companies Act, 2013 as part of efforts to address difficulties faced by stakeholders and improve the ease of doing business in the country.

The Part 1 of this article was published on this website and can be viewed at this link :

http://taxguru.in/company-law/comparative-analysis-of-companies-amendment-bill-2016-companies-act-2013-part-1.html

In this series, I am analyzing the proposed amendments with the existing provisions in the Companies Act, 2013. The Part – 2 of the series deals with amendments with respect to Annual return, Financial Statements, General Meetings, Postal ballot, CSR & Auditors.

Sr. No.SectionExisting ProvisionsProposed AmendmentsRemarks
192Annual return:
(1) Every company shall prepare a return (herein after referred to as the annual return) in the prescribed form containing the particulars as they stood on the close of the financial year regarding—(a) its registered office, principal business activities, particulars of its holding, subsidiary and associate companies;(b) its shares, debentures and other securities and shareholding pattern;(c) its indebtedness;(d) its members and debenture-holders along with changes therein since the close of the previous financial year;(e) its promoters, directors, key managerial personnel along with changes there in since the close of the previous financial year;(f) meetings of members or a class thereof, Board and its various committees along with attendance details;(g) remuneration of directors and key managerial personnel;(h) penalty or punishment imposed on the company, its directors or officers and details of compounding of offences and appeals made against such penalty or punishment;

(i) matters relating to certification of compliances, disclosures as may be prescribed;

(j) details, as may be prescribed, in respect of shares held by or on behalf of the Foreign Institutional Investors indicating their names, addresses, countries of incorporation, registration and percentage of shareholding held by them; and

(k) such other matters as may be prescribed,and signed by a director and the company secretary, or where there is no company secretary,by a company secretary in practice:

Provided that 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.

(3) An extract of the annual return in such form as may be prescribed shall form part of the Board’s report

In section 92 of the principal Act,—(i) in sub-section (1),—

> clause (c) shall be omitted;

> in clause (j), the words “indicating their names, addresses, countries of incorporation, registration and percentage of shareholding held by them” shall be omitted;

Ø after the proviso, the following proviso shall be inserted, namely:—

“Provided further that the Central Government may prescribe abridged form of annual return for One Person Company and small company.”;

(ii) for sub-section (3), the following sub-section shall be substituted, namely:—

“(3) 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.”

The Amendment Proposes to remove the requirement for companies to provide the details of their indebtedness in the Annual Return, The details of FII regarding their names, addresses, countries of incorporation, registration and percentage of shareholding held by them.
The Amendment also proposes that the Central Government may prescribe abridged form of annual return for One Person Company and small company.
The Companies will be required to 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
293Return to be filed with Registrar in case promoters’ stake changes
Every listed company shall file a return in the prescribed form with the Registrar with respect to change in the number of shares held by promoters and top ten shareholders of such company, within fifteen days of such change.
Section 93 of the principal Act shall be omitted.The Requirement of Filing a return by a listed company with ROC regard Change in number of shares held by promoters and top ten shareholders of such company has been proposed to be removed.
394Place of keeping and inspection of registers, returns, etc.
(1) The registers required to be kept and maintained by a company under section88 and copies of the annual return filed under section 92 shall be kept at the registered officeof the company:Provided that such registers or copies of return may also be kept at any other place inIndia in which more than one-tenth of the total number of members entered in the register of members reside, if approved by a special resolution passed at a general meeting of the company and the Registrar has been given a copy of the proposed special resolution in advance:Provided further that the period for which the registers, returns and records are required to be kept shall be such as may be prescribed.(3) Any such member, debenture-holder, other security holder or beneficial owner or any other person may—(a) take extracts from any register, or index or return without payment of any fee; or(b) require a copy of any such register or entries therein or return on payment of such fees as may be prescribed.
Ø in sub-section (1), in the first proviso, the words “and the Registrar has been given a copy of the proposed special resolution in advance” shall be omitted;

Ø in sub-section (3), the following proviso shall be inserted, namely:—

“Provided that particulars of the register or index or return as may beprescribed shall not be available for inspection under sub-section (2) or for taking extracts or copies under this sub-section.”

 

 

Ø The requirement of filing Special resolution passed for the purpose of keeping the registers maintained u/s 88 and copies of annual return filed U/s 92 at a place other than the registered office of the company has been proposed to be removed.

 

496Annual general meeting
Every annual general meeting shall be called during business hours, that is, between 9 a.m. and 6 p.m. on any day that is not a National Holiday and shall be held either at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situate:Provided that the Central Government may exempt any company from the provisions of this sub-section subject to such conditions as it may impose.
In section 96 of the principal Act, in sub-section (2), in the proviso, for the words

“Provided that”, the following shall be substituted, namely:—

“Provided that 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

The amendments propose that AGM of an Unlisted Company may be held at any place in India if consent is given in writing or by electronic mode by the members in advance. This provides a major relief to the unlisted companies as they can now held AGM anywhere in India subject to the consent by its members.
5100(1)Calling of extraordinary general meeting

(1) The Board may, whenever it deems fit, call an extraordinary general meeting ofthe company.

 

In section 100 of the principal Act, in sub-section (1), the following proviso shall be inserted, namely:—

“Provided that an extraordinary general meeting of the company, other than of the wholly owned subsidiary of a company incorporated outside India, shall be held at a place within India.”

6101(1)Notice of meeting

(1) A general meeting of a company may be called by giving not less than clear twenty-one days’ notice either in writing or through electronic mode in such manner as may be prescribed:

Provided that a general meeting may be called after giving a shorter notice if consent is given in writing or by electronic mode by not less than ninety-five per cent of the members entitled to vote at such meeting.

 

In section 101 of the principal Act, in sub-section (1), for the proviso, the following proviso shall be substituted namely:—

“Provided that a general meeting may be called after giving shorter notice than that specified in this sub-section if consent, in writing or by electronic mode, is accorded thereto—

(i) in the case of an annual general meeting, by not less than ninty – five percent. of the members entitled to vote there at; and

(ii) in the case of any other general meeting, by members of the company—

(A)holding, if the company has a share capital, not less than ninty-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 ninety-five per cent. of the total voting power exercisable at that meeting.

Provided further that 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, those members shall be taken into account for the purposes of this sub-section in respect of the former resolution or resolutions and not in respect of the latter.

The amendments provide further clarification regarding holding of AGM and EGM at a shorter Notice subject to the conditions provided.
7110 Postal ballot

(1) Not withstanding anything contained in this Act, a company—

(a) shall, in respect of such items of business as the Central Government may, by notification, declare to be transacted only by means of postal ballot; and

(b) may, in respect of any item of business, other than ordinary business and any business in respect of which directors or auditors have a right to be heard at any meeting, transact by means of postal ballot, in such manner as may be prescribed, instead of transacting such business at a general meeting.

In section 110 of the principal Act, in sub-section (1), the following proviso shall be inserted, namely:—

“Provided that any item of business required to be transacted by means of postal ballot under clause (a), may be transacted at a general meeting by a company which is required to provide the facility to members to vote by electronic means under section 108, in the manner provided in that section.”.

8117Resolutions and agreements to be filed.

(1) A copy of every resolution or any agreement, in respect of matters specified in sub-section (3) together with the explanatory statement under section 102, if any, annexed to the notice calling the meeting in which the resolution is proposed, shall be filed with the Registrar within thirty days of the passing or making thereof in such manner and with such fees as may be prescribed within the time specified under section 403:

Provided that the copy of every resolution which has the effect of altering the articles and the copy of every agreement referred to in sub-section (3) shall be embodied in or annexed to every copy of the articles issued after passing of the resolution or making of the agreement.

(2) If a company fails to file the resolution or the agreement undersub-section (1) before the expiry of the period specified under section 403 with additional fee, the company 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, including liquidator of the company, if any, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

(3) The provisions of this section shall apply to—

(a) special resolutions;

(b) resolutions which have been agreed to by all the members of a company, but which, if not so agreed to, would not have been effective for their purpose unless they had been passed as special resolutions;

(c) any resolution of the Board of Directors of a company or agreement executedby a company, relating to the appointment, re-appointment or renewal of the appointment, or variation of the terms of appointment, of a managing director;

(d) resolutions or agreements which have been agreed to by any class of members but which, if not so agreed to, would not have been effective for their purpose unless they had been passed by a specified majority or otherwise in some particular manner; and all resolutions or agreements which effectively bind such class of members though not agreed to by all those members;

(e) resolutions passed by a company according consent to the exercise by itsBoard of Directors of any of the powers under clause (a) and clause (c) of sub-section(1) of section 180;

(f) resolutions requiring a company to be wound up voluntarily passed inpursuance of section 304;

(g) resolutions passed in pursuance of sub-section (3) of section 179; and

(h) any other resolution or agreement as may be prescribed and placed in the public domain.

In section 117 of the principal Act—

(i) in sub-section (2),—

(a) for the words “not be less than five lakh rupees”, the words “not beless than one lakh rupees” shall be substituted;

(b) for the words “one lakh rupees”, the words “fifty thousand rupees”shall be substituted;

(ii) in sub-section (3),—

(a) clause (e) shall be omitted;

(b) in clause (g), in the proviso, the word “and” shall be omitted and the following proviso shall be inserted, namely:—

“Provided further that nothing contained in this clause shall apply to a banking company in respect of a resolution passed to grant loans, orgive guarantee or provide security in respect of loans under clause (f) of sub-section (3) of section 179 in the ordinary course of its business; and”.

The amendment proposes to decrease the penalty for not filing resolutions & agreements with the registrar of companies.

Ø The penalty for company for not filing will be Rs. One lakh instead of Rs. Five Lakhs.

Ø The penalty on every officer of the company who is in default, including liquidator of the company, if any, shall be punishable with fine which shall not be less than fifty thousand rupees instead of rupees one lakhs.

9123(3)Declaration of dividend

The Board of Directors of a company may declare interim dividend during any financial year out of the surplus in the profit and loss account and out of profits of the financial year in which such interim dividend is sought to be declared:

Provided that 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 the immediately preceding three financial years.

 

The 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:

Provided that 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 theaverage dividends declared by the company during immediately preceding three financial years.”

10129(3)Where a company has one or more subsidiaries, it shall, in addition to financial statements provided under sub-section (2), prepare a consolidated financial statement of thecompany and of all the subsidiaries in the same form and manner as that of its own whichshall also be laid before the annual general meeting of the company along with the laying of its financial statement under sub-section (2):

Provided that the company shall also attach along with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiary or subsidiaries in such form as may be prescribed:

Provided further that the Central Government may provide for the consolidation of accounts of companies in such manner as may be prescribed.

Explanation.—For the purposes of this sub-section, the word “subsidiary” shall include associate company and joint venture.

In section 129 of the principal Act, for sub-section (3), the following sub-section shall be substituted, namely:—

“(3) Where a company has one or more subsidiaries or associate companies, it shall, in addition to financial statements provided under sub-section (2), prepare a consolidated financial statement of the company and of all the subsidiaries and associate companies in the same form and manner as that of its own and in accordance with applicable accounting standards, which shall also be laid before the annual general meeting of the company along with the laying of its financial statement under sub-section (2):

Provided that the company shall also attach along with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiary or subsidiaries in such form as may be prescribed:

Provided further that the Central Government may provide for the consolidation of accounts of companies in such manner as may be prescribed.”.

The Amendment proposes that a company should also prepare and attach along with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiary or subsidiaries.
This shall provide the stakeholders a bird’s eye view of the consolidated financial statements.
11130Re-opening of accounts on court’s or Tribunal’s orders.
– New Subsection – 3 Inserted.
after sub-section (2), the following sub-section (3) shall be inserted, namely: —

“(3) No order shall be made under sub-section (1) in respect of re-opening of books of account relating to a period earlier than eight financial years immediately preceding the current financial year:

Provided that where a direction has been issued by the Central Government under the proviso to sub-section (5) of section 128 for keeping of books of account for a period longer than eight years, the books of account may be ordered to be re-opened within such longer period.”.

The amendment proposes that No order shall be made under subsection (1) in respect of re-opening of the books of accounts related to period earlier that eight FY immediately preceding the current financial year.

And in case there is a direction by CG U/s 128(5) for keeping the books of accounts for a period longer than eight years, the books of accounts may be re-opened with in such longer period.

REFERENCE TO SUBSECTION 1:

A company shall not re-open its books of account and not recast its financial statements, unless an application in this regard is made by the Central government, the Income-tax authorities, the Securities and Exchange board, any 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—

(i) the relevant earlier accounts were prepared in a fraudulent manner; or period,

(ii) the affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of financial statements.

12132(4)(c)(c)-IIMatters related to Investigation and penalty to Chartered Accountants by NFRA

the National Financial Reporting Authority shall—

(a) have the power to investigate, either suomotu or on a reference made to it bythe Central Government, for such class of bodies corporate or persons, in such manner as may be prescribed into the matters of professional or other misconduct committed by any member or firm of chartered accountants, registered under the Chartered Accountants Act, 1949:

Provided that no other institute or body shall initiate or continue any proceedings in such matters of misconduct where the National Financial Reporting Authority has initiated an investigation under this section;

(b) have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit, in respect of the following matters, namely:—

(i) discovery and production of books of account and other documents, at such place and at such time as may be specified by the National Financial Reporting Authority;

(ii) summoning and enforcing the attendance of persons and examining them on oath;

(iii) inspection of any books, registers and other documents of any person referred to in clause (b) at any place;

(iv) issuing commissions for examination of witnesses or documents;

(c) where professional or other misconduct is proved, have the power to makeorder for—

(A) imposing penalty of—(I) not less than one lakh rupees, but which may extend to five timesof the fees received, in case of individuals; and

(II) not less than ten lakh rupees, but which may extend to ten timesof the fees received, in case of firms;

In section 132 of the principal Act, in sub-section (4), in clause (c), in sub-clause(A), in item (II), for the words “ten lakh rupees”, the words “five lakh rupees” shall be substituted.The Amendments proposes to relax the penalty on CA Firms by NFRA in case after investigation under section 134 they are found guilty of professional misconduct. The existing penalty is proposed to be decreased from Rs. 10 lakhs to Rs. Five lakhs but which may extend to ten times of the fees received in case of such firms.
13134(1)Financial statement, Board’s report, etc

FULL SUB SECTION HAS BEEN PROPOSED TO BE REVISED :

134(1) The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board atleast by the chairperson of the company where he is authorized by the Board or by two directors out of which one shall be managing director and the Chief Executive Officer, if he is a director in the company, the Chief Financial Officer and the company secretary of the company, wherever they are appointed, or in the case of a One Person Company, only by one director, for submission to the auditor for his report thereon.

For sub-section (1), the following sub-section shall be substituted, namely: —

“134(1) The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board by the chairperson of the company where he is authorized by the Board or by two directors out of which one shall be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the company secretary of the company, wherever they are appointed, or in the case of One Person Company, only by one director, for submission to the auditor for his report thereon.”;

As per the proposed amendments The Financials are now also required to be signed by the CEO of the company even if he is not a director of the company where ever he/she is appointed.
14134(3)There shall be attached to statements laid before a company in general meeting, a report by its Board of Directors, which shall include—

(a) the extract of the annual return as provided under sub-section (3) of section 92;

(b) number of meetings of the board;

(c) Directors’ responsibility Statement;

(d) a statement on declaration given by independent directors under sub-section(6) of section 149;

(e) in case of a company covered under sub-section (1) of section 178, company’spolicy on directors’ appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under sub-section (3) of section 178;

(f) explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made—

(i) by the auditor in his report; and

(ii) by the company secretary in practice in his secretarial audit report;

(g) particulars of loans, guarantees or investments under section 186;

(h) particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in the prescribed form;

(i) the state of the company’s affairs;

(j) the amounts, if any, which it proposes to carry to any reserves;

(k) the amount, if any, which it recommends should be paid by way of dividend;

(l) 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 companyto which the financial statements relate and the date of the report;

(m) the conservation of energy, technology absorption, foreign exchange earnings and outgo, in such manner as may be prescribed;

(n) a statement indicating development and implementation of a risk management policy for the company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company;

(o) the details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year;

(p) in case of a listed company and every other public company having such paid-up share capital as may be prescribed, a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and thatof its committees and individual directors;

(q) such other matters as maybe prescribed.

• for clause (a), the following clause shall be substituted, namely: —

“(a) the web address, if any, where annual return referred to in sub-section (3) of section 92 has been placed;”

in clause (p), for the words “annual evaluation has been made by the Board of its own performance and that of its committees and individual directors”, the words “annual evaluation of the performance of the Board, its Committees and of individual directors has been made” shall be substituted;

• after clause (q), the following provisos shall be inserted, namely: —

“Provided that where disclosures referred to in this sub-section have been included in the financial statements, such disclosures shall be referred to instead of being repeated in the Board’s report:

Provided further that where the policy referred to in clause (e) or clause (o) is made available on company’s website, if any, it shall be sufficient compliance of the requirements under such clauses if the salient features of the policy and any change therein are specified in brief in the Board’s report and the web-address is indicated therein at which the complete policy is available.”

• after sub-section (3), the following sub-section shall be inserted, namely: —

“(3A) The Central Government may prescribe an abridged Board’s report,for the purpose of compliance with this section by a One Person Company or small company.”.

The amendment proposes that:

1.A company may also provide the web address of the annual return instead on providing the extract of annual return in the board’s report.

2. In case of policies as provided under clause (e) on directors appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under sub-section (3) of section 178; and for policies required under clause (o) w.r.t the details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year, it shall be sufficient compliance if the web link of the complete policy is provided along with their salient features and any change in the policies are specified in brief in the Board’s Report instead of providing the detailed texts of the same. This amendment also decreases the content of the board report and seeks to focus on the changes in the policies rather than making the reports comprehensive.

3. Newly Inserted Subsection 3A Provides that the CG may prescribe a shorter version of Board’s report for OPC and Small companies.

 

15135Corporate Social Responsibility

(1) Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be anindependent director.

• in sub-section (1),—

for the words “any financial year”, the words “the immediately preceding financial year” shall be substituted;

• the following proviso shall be inserted, namely: —

“Provided that where a company is not required to appoint an independent director under sub-section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or more directors.”

 

The proposed amendment provides clarification with regards to the financial year for the eligibility of a company to comply with CSR and also give clarification regarding the criteria of appointment of ID in company which are not require appointing them but are eligible to form a CSR committee.
16136Right of member to copies of audited financial statement:

(1) Without prejudice to the provisions of section 101, a copy of the financial statements, including consolidated financial statements, if any, auditor’s report and everyother document required by law to be annexed or attached to the financial statements, which are to be laid before a company in its general meeting, shall be sent to every member of the company, to every trustee for the debenture-holder of any debentures issued by the company, and to all persons other than such member or trustee, being the person soentitled, not less than twenty-one days before the date of the meeting:

Provided that in the case of a listed company, the provisions of this sub-section shall be deemed to be complied with, if the copies of the documents are made available for inspection at its registered office during working hours for a period of twenty-one days before the date of the meeting and a statement containing the salient features of such documents in the prescribed form or copies of the documents, as the company may deem fit, is sent to every member of the company and to every trustee for the holders of any debentures issued by the company not less than twenty-one days before the date of the meeting unless the shareholders ask for full financial statements:

Provided further that the Central Government may prescribe the manner of circulation of financial statements of companies having such net worth and turnover as may be prescribed:

Provided also that a listed company shall also place its financial statements including consolidated financial statements, if any, and all other documents required to be attached thereto, on its website, which is maintained by or on behalf of the company:

Provided also that every company having a subsidiary or subsidiaries shall,—

(a) place separate audited accounts in respect of each of its subsidiary on itswebsite, if any;

(b) provide a copy of separate audited financial statements in respect of each ofits subsidiary, to any shareholder of the company who asks for it.

(2) A company shall allow every member or trustee of the holder of any debentures issued by the company to inspect the documents stated under sub-section (1) at its registered office during business hours.

(3) If any default is made in complying with the provisions of this section, 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.

 

Section 136 along with proposed amendments can be reproduced as follows:

(1) Without prejudice to the provisions of section 101(Omitted), a copy of the financial statements, including consolidated financial statements, if any, auditor’s report and every other document required by law to be annexed or attached to the financial statements, which are to be laid before a company in its general meeting, shall be sent to every member of the company, to every trustee for the debenture-holder of any debentures issued by thecompany, and to all persons other than such member or trustee, being the person so entitled, not less than twenty-one days before the date of the meeting:

Provided that Substituted with

“Provided that if the copies of the documents are sent less than twenty-one days before the date of the meeting, they shall, notwithstanding that fact, be deemed to have been duly sent if it is so agreed by ninety-five per cent of the members entitled to vote at the meeting:

Provided further that in the case of a listed company, the provisions of this sub-section shall be deemed to be complied with, if the copies of the documents are made available for inspection at its registered office during working hours for a period of twenty-one days before the date of the meeting and a statement containing the salient features of such documents in the prescribed form or copies of the documents, as the company may deem fit, is sent to every member of the company and to every trustee for the holders of any debentures issued by the company not less than twenty-one days before the date of the meeting unless the shareholders ask for full financial statements:

Provided further Provided also that the Central Government may prescribe the manner of circulation of financial statements of companies having such net worth and turnover as may be prescribed:

Provided also that a listed company shall also place its financial statements including consolidated financial statements, if any, and all other documents required to be attached there to, on its website, which is maintained by or on behalf of the company: for the fourth proviso, the following provisos shall be substituted, namely:—

‘Provided also that every listed company having a subsidiary or subsidiaries shall place separate audited accounts in respect of each of subsidiary on its website, if any:

Provided also that a listed company which has a subsidiary incorporated outside India (herein referred to as “foreign subsidiary”)—

(a) where such foreign subsidiary is statutorily required to prepare consolidated financial statement under any law of the country of its incorporation, the requirement of this proviso shall be met if consolidated financial statement of such foreign subsidiary is placed on the website of the listed company;

(b) where such foreign subsidiary is not required to get its financial statement audited under any law of the country of its incorporation and which does not get such financial statement audited, the holding Indian 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.”

Provided also that every company having a subsidiary or subsidiaries shall,—

(a) place separate audited accounts in respect of each of its subsidiary on its website, if any;

(b) provide a copy of separate audited financial statements in respect of each ofits subsidiary, to any shareholder of the company who asks for it.

(2) A company shall allow every member or trustee of the holder of any debenturesissued by the company to inspect the documents stated under sub-section (1) at its registeredoffice during business hours.

Inserted:“Provided 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 of the company who asks for it.”.

(3) If any default is made in complying with the provisions of this section, the company shall be liable to a penalty of twenty-five thousand rupees and every officer of the companywho is in default shall be liable to a penalty of five thousand rupees.

The major change proposed here is:

 

A company can send copies of the financial statements, including consolidated financial statements, if any, auditor’s report and every other document required by law to be annexed or attached to the financial statements, which are to be laid before a company in its general meeting, with in a period less than 21 days before the date of meeting if company has received consent from 95 % of the members entitled to vote.

 

20137(1)

 

Fourth Proviso

Copy of financial statement to be filed with Registrar.
Provided also that a company shall, along with its financial statements to be filed withthe 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.
In section 137 of the principal Act, in sub-section (1), after the fourth proviso, the following proviso shall be inserted, namely:—

‘Provided also that in the case of a subsidiary which has been incorporated outside India (herein referred to as “foreign subsidiary”), which is not required to get its financial statement audited under any law of the country of its incorporation and which does not get such financial statement audited, the requirements of the fourth proviso shall be met if the holding Indian listed company files such unaudited financial statement along with a declaration to this effect and where such financial statement is in a language other than English, along with a translated copy of the financial statement in English.’

Companies having foreign subsidiaries are required to file financial statements to the ROC. The amendments propose to provide that in case the financial statements of subsidiary companies are not required to be audited as per the law of the country of incorporation then in such case the holding company may file the unaudited financial statements along with a declaration to this effect.
21139Appointment of auditors
(1) Subject to the provisions of this Chapter, every company shall, at the first annual general meeting, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth annual general meeting and thereafter till the conclusion of every sixth meeting and the manner and procedure of selection of auditors by the members of the company at such meeting shall be such as may be prescribed:Provided that the company shall place the matter relating to such appointment for ratification by members at every annual general meeting:
In section 139 of the principal Act, in sub-section (1), the first proviso shall be omitted.The requirement of Ratification of Appointment of Auditors by the members at every AGM is proposed to be removed.
22140Removal, resignation of auditor and giving of special notice.
If the auditor does not comply with sub-section (2), he or it shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees.
In section 140 of the principal Act, in sub-section (3), for the words “fifty thousand rupees”, the words “fifty thousand rupees or the remuneration of the auditor, whichever is less,” shall be substituted.The provision regarding penalty to auditor for non-compliance section 140 is proposed to be changed.
23141(3)(d)Eligibility, qualifications and disqualifications of auditors.

141(3)(d) a person who, or his relative or partner—

(i) is holding any security of or interest in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company:

Provided that the relative may hold security or interest in the company of face value not exceeding one thousand rupees or such sum as may be prescribed;

(ii) is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of such amount as may be prescribed; or

(iii) has given a guarantee or provided any security in connection with the Indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, for such amount as may be prescribed;

(I) any person whose subsidiary or associate company or any other form of entity, is engaged as on the date of appointment in consulting and specialised services as provided in section 144.

In section 141 of the principal Act, in sub-section (3),—

(i) in clause (d), the following Explanation shall be inserted, namely:—

‘Explanation—For the purposes of this clause, the term “relative” means the spouse of a person; and includes a parent, sibling or child of such person or of the spouse, financially dependent on such person, or who consults such person in taking decisions in relation to his investments.

for clause (i), the following clause shall be substituted, namely: —

‘(i) 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.

Explanation. —For the purposes of this clause, the term “directly or indirectly” shall have the meaning assigned to it in the Explanation to section 144.

The Term Relative has now been explained in the proposed amendments.
24143(1)Powers and duties of auditors and auditing standards
143(1) 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.
143(3) The auditor’s report shall also state-Clause i : whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls;
in sub-section (1), in the proviso, for the words “its subsidiaries”, at both the places, the words “its subsidiaries and associate companies” shall be substituted;

in sub-section (3), in clause (i), for the words “internal financial controls system”, the words “internal financial controls with reference to financial statements” shall be substituted;

The Auditor Shall now have right of access to the records of all SUBSIDIARIES AND ASSOCIATE COMPANIES of a company.

Further Amendments will be discussed in Part 3 of this series.

Author: CS Rahul Harsh is a company secretary in Employment from Kolkata and can be contacted at: csrahulharsh@gmail.com

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Category : Company Law (2996)
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Tags : Companies Act (1523) Companies Act 2013 (1277)