FAQs on Disclosure in Director Report for OPC and Small Company

Sushil Kumar Antal 20 Jun 2026 96 Views 0 comment Print Company Law | Articles

The FAQs clarify the disclosure requirements for the Board’s Report of One Person Companies (OPCs) and Small Companies under the Companies Act, 2013 and the Companies (Accounts) Rules, 2014. While Section 134(3) prescribes the general disclosures required in a Board’s Report and Rule 8 specifies additional disclosures for applicable companies, Section 134(3A) and Rule 8A introduce an abridged Board’s Report specifically for OPCs and Small Companies. Further, Rule 8(6) expressly exempts these companies from the detailed disclosure requirements of Rule 8. Accordingly, the Board’s Report of an OPC or Small Company should primarily contain the matters specified in Rule 8A, including the annual return web link, Board meetings, Directors’ Responsibility Statement, fraud reporting, auditor’s remarks, financial highlights, company affairs, material changes, director changes, significant regulatory orders, and related-party disclosures in Form AOC-2. The FAQs also note that disclosures specifically mandated under Section 134(3) may continue to apply where no express exemption has been provided.

Question: Which provisions of the Companies Act, 2013 and the Companies (Accounts) Rules, 2014 prescribe the contents of the Board’s Report?

Answer: The contents of the Board’s Report are primarily governed by Section 134 of the Companies Act, 2013 and the Companies (Accounts) Rules, 2014.

1. Section 134(3) of the Companies Act, 2013specifies the matters that are required to be disclosed in the Board’s Report. It contains the statutory disclosures relating to the state of the company’s affairs, annual return, directors’ responsibility statement, particulars of loans, guarantees and investments, related party transactions, conservation of energy, risk management policy, CSR, fraud reporting by auditors, and other prescribed matters.

2. Rule 8 of the Companies (Accounts) Rules, 2014prescribes additional matters to be included in the Board’s Report of companies to which the rule applies. These include disclosures relating to financial performance, changes in the nature of business, details of directors and key managerial personnel, internal financial controls, material orders of courts and regulators, and other specified matters.

Question: Is there any separate provisions for the OPC and small company for contents of director report

Answer: Yes. Section 134(3A), inserted with effect from 31 July 2018, empowered the Central Government to prescribe an abridged Board’s Report for One Person Companies (OPCs) and Small Companies. Pursuant to this provision, Rule 8A of the Companies (Accounts) Rules, 2014 was inserted by the Companies (Accounts) Amendment Rules, 2018 with effect from 31 July 2018. Rule 8A specifically prescribes the matters to be included in the Board’s Report of an OPC or a Small Company.

Question: Is it mandatory for a One Person Company or a Small Company to include all the disclosures specified under Section 134(3) of the Companies Act, 2013 and Rule 8 of the Companies (Accounts) Rules, 2014 in its Board’s Report?

Answer: No. A distinction needs to be made between the disclosures prescribed under Section 134(3) of the Companies Act, 2013 and those prescribed under Rule 8 of the Companies (Accounts) Rules, 2014.

Section 134(3) lays down the matters that are generally required to be disclosed in the Board’s Report. Subsequently, Section 134(3A), inserted with effect from 31 July 2018, empowered the Central Government to prescribe an abridged Board’s Report for One Person Companies (OPCs) and Small Companies.

Pursuant to this provision, Rule 8A of the Companies (Accounts) Rules, 2014 was inserted by the Companies (Accounts) Amendment Rules, 2018 with effect from 31 July 2018. Rule 8A specifically prescribes the matters to be included in the Board’s Report of an OPC or a Small Company.

Further, Rule 8(6) expressly provides that the provisions of Rule 8 shall not apply to an OPC or a Small Company. Accordingly, such companies are exempt from the detailed disclosure requirements prescribed under Rule 8.

Therefore, an OPC or a Small Company is not required to include all the disclosures specified under Rule 8. Instead, its Board’s Report is required to contain the matters prescribed under Rule 8A.

However, the exemption from Rule 8 does not automatically exempt an OPC or a Small Company from disclosures specifically mandated under the Companies Act, 2013. Accordingly, disclosures required under Section 134(3) and other provisions of the Act, to the extent applicable and where no specific exemption has been granted, should continue to be included in the Board’s Report.

Therefore, the Board’s Report of an OPC or a Small Company should contain:

1. The matters specifically prescribed under Rule 8A;

2. The disclosures required under Section 134(3)to the extent applicable to the company; and

3. Any other disclosures required under the Companies Act, 2013 or other applicable rules.

An OPC or a Small Company is not required to comply with all the disclosure requirements prescribed under Rule 8 of the Companies (Accounts) Rules, 2014, as Rule 8 itself is inapplicable to such companies by virtue of Rule 8(6). Their Board’s Report is primarily governed by Rule 8A. Nevertheless, disclosures specifically required under Section 134(3) of the Companies Act, 2013 and other applicable provisions of the Act must continue to be made unless a specific exemption is available.

Author view –

There are two possible views on this issue. However, a purposive interpretation of the law suggests that an OPC or a Small Company may not be required to reproduce all disclosures specified under Section 134(3) in addition to the matters prescribed under Rule 8A.

Section 134(3A), inserted with effect from 31 July 2018, provides that:

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

The legislative intent behind introducing Section 134(3A) was to simplify compliance requirements and reduce the disclosure burden for OPCs and Small Companies. Pursuant to this provision, Rule 8A was inserted in the Companies (Accounts) Rules, 2014 prescribing a concise list of matters to be included in the Board’s Report of such companies. Simultaneously, Rule 8(6) was inserted to exempt OPCs and Small Companies from the detailed disclosure requirements contained in Rule 8.

A comparison of Rule 8A with Section 134(3) shows that several matters specified in Rule 8A substantially overlap with disclosures otherwise required under Section 134(3). If an OPC or Small Company were required to provide every disclosure under Section 134(3) in addition to the matters prescribed under Rule 8A, the concept of an “abridged Board’s Report” envisaged under Section 134(3A) would largely become redundant.

Therefore, a purposive interpretation would suggest that Rule 8A is intended to provide a simplified disclosure framework for OPCs and Small Companies, and that such companies may prepare their Board’s Report based on the matters specified therein, together with only those additional disclosures under Section 134(3) that are specifically applicable and cannot reasonably be regarded as having been dispensed with by the abridged reporting framework.

However, it should also be noted that neither Section 134(3A) nor Rule 8A expressly overrides or excludes the application of Section 134(3). Accordingly, a conservative legal view may still be that disclosures specifically mandated under Section 134(3) continue to apply unless a specific exemption has been granted.

Conclusion: While the literal interpretation may support continued applicability of Section 134(3), the stronger purposive argument is that the introduction of Section 134(3A) and Rule 8A was intended to provide an abridged Board’s Report for OPCs and Small Companies and to avoid duplication of disclosures. Therefore, Rule 8A should be regarded as the primary framework governing the contents of the Board’s Report of an OPC or Small Company, subject to such specific statutory disclosures as remain expressly applicable.

Question: What are the contents of the Board’s Report of a One Person Company or a Small Company?

Answer: Pursuant to Section 134(3A) of the Companies Act, 2013 read with Rule 8A of the Companies (Accounts) Rules, 2014, the Board’s Report of a One Person Company and a Small Company is required to be prepared in an abridged form based on the standalone financial statements of the company.

Rule 8A(1) requires the Board’s Report to contain the following particulars:

1. The web address, if any, where the annual return referred to in Section 92(3) has been placed;

2. Number of meetings of the Board held during the year;

3. Directors’ Responsibility Statement as referred to in Section 134(5);

4. Details in respect of frauds reported by the auditors under Section 143(12), other than those reportable to the Central Government;

5. Explanations or comments by the Board on every qualification, reservation, adverse remark or disclaimer made by the auditor in the audit report;

6. The state of the company’s affairs;

7. Financial summary or highlights;

8. Material changes from the date of closure of the financial year in the nature of business and their effect on the financial position of the company;

9. Details of directors appointed or resigned during the year; and

10. Details of significant and material orders passed by regulators, courts or tribunals impacting the going concern status of the company and its future operations.

Further, Rule 8A(2) requires the Board’s Report to contain particulars of contracts or arrangements with related parties referred to in Section 188(1) in Form AOC-2.

Accordingly, an OPC or Small Company is required to comply with the simplified disclosure requirements prescribed under Rule 8A instead of the more extensive disclosure requirements applicable to other companies under Rule 8 of the Companies (Accounts) Rules, 2014.

PENALTY FOR NON COMPLIANCE

Question: What are the consequences if a OPC or Small Company does not comply with Rule 8A of the Companies (Accounts) Rules, 2014 while preparing its Board’s Report?

Answer: Rule 8A of the Companies (Accounts) Rules, 2014 prescribes the matters that are required to be included in the Board’s Report of a One Person Company or a Small Company. Non-compliance with Rule 8A would result in the Board’s Report not being prepared in the manner prescribed under the Companies Act, 2013.

However, Rule 8A itself does not prescribe any specific penalty for its contravention. In such a case, the relevant penal provision is Section 134(8) of the Companies Act, 2013, which deals with contravention of the provisions relating to the Board’s Report

Section 134(8) [Substituted vide Companies (Amendment) Act, 2020 dated 28.09.2020 with effect from 21.12.2020] provides that:

“If a company is in default in complying with the provisions of Section 134, the company shall be liable to a penalty of ₹3,00,000, and every officer of the company who is in default shall be liable to a penalty of ₹50,000.”

Since Rule 8A has been prescribed pursuant to Section 134(3A) for the purpose of compliance with Section 134, failure to include the matters required under Rule 8A may be regarded as a non-compliance with the provisions governing the Board’s Report and may attract the penalty prescribed under Section 134(8).

FINANCIAL SUMMARY / HIGHLIGHTS OF THE COMPANY

Question: What should be mentioned in the Board’s (Director’s) Report regarding “Financial Summary or Highlights” pursuant to Rule 8A(1)(g) of the Companies (Accounts) Rules, 2014?

Answer: Rule 8A(1)(g) of the Companies (Accounts) Rules, 2014 requires the Board’s Report of a One Person Company and a Small Company to include a financial summary or highlights of the company for the financial year under review. Although the Rule does not prescribe a specific format, the disclosure should generally provide a concise summary of the company’s financial performance and position. The following particulars are commonly included:

Total Revenue / Turnover
Profit Before Tax (PBT)
Profit After Tax (PAT)
Amount transferred to Reserves, if any
Dividend declared or recommended, if any
Earnings per Share (where applicable)
Any other significant financial highlights considered relevant by the Board

Illustrative disclosure-

Financial Summary / Highlights of the Company

The financial performance of the Company for the financial year ended March 31, 20XX is summarized below:

*Particulars*	*Current* *Financial* *Year* *(2026)*	*Previous* *Financial* *Year* *(2025)*
Revenue from Operations	XXX	XXX
Other Income	XXX	XXX
Profit/loss before Depreciation, Finance Costs, Exceptional items and Tax Expense	XXX	XXX
Less: Depreciation/ Amortisation/ Impairment	XXX	XXX
Profit /loss before Finance Costs, Exceptional items and Tax Expense	XXX	XXX
Less: Finance Costs	XXX	XXX
Profit /loss before Exceptional items and Tax Expense	XXX	XXX
Add/(less): Exceptional items	XXX	XXX
Profit /loss before Tax Expense	XXX	XXX
Less: Tax Expense (Current & Deferred)	XXX	XXX
Profit /loss for the year (1)	XXX	XXX
Total Comprehensive Income/loss (2)	XXX	XXX
Total (1+2)	XXX	XXX
Balance of profit /loss for earlier years	XXX	XXX
Less: Transfer to Debenture Redemption Reserve	XXX	XXX
Less: Transfer to Reserves	XXX	XXX
Less: Dividend paid on Equity Shares	XXX	XXX
Less: Dividend paid on Preference Shares	XXX	XXX
Less: Dividend Distribution Tax	XXX	XXX
Balance carried forward	XXX	XXX

For a dormant/non-operational company, the following simplified disclosure may be used:

Financial Summary / Highlights of the Company

During the financial year under review, the Company had no significant business operations. The financial position of the Company is summarized below:

*Particulars*	*Amount (₹)*
Total Income	XXX
Profit/(Loss) Before Tax	XXX
Profit/(Loss) After Tax	XXX

The Company has complied with all applicable statutory requirements during the year.

STATE OF THE COMPANY’S AFFAIRS

Question: What should be mentioned in the Board’s (Director’s) Report regarding “State of the Company’s Affairs” pursuant to Rule 8A(1)(f) of the Companies (Accounts) Rules, 2014?

Answer: Rule 8A(1)(f) of the Companies (Accounts) Rules, 2014 requires the Board’s Report of a One Person Company and a Small Company to contain a disclosure regarding the “state of the company’s affairs.”

The term “state of the company’s affairs” has not been specifically defined under the Companies Act, 2013 or the Rules made thereunder. However, the disclosure is generally intended to provide the members with a brief overview of the company’s business operations, performance, and overall position during the financial year under review.

The disclosure may include, as applicable:

The nature and status of the company’s business activities;
Significant business developments during the year;
Operational performance and achievements;
Expansion, diversification, or new projects undertaken;
Major contracts or business opportunities secured;
Challenges faced by the company and steps taken to address them;
General assessment of the company’s financial and operational position; and
Future outlook or prospects of the business.

The disclosure should be concise yet sufficient to enable members to understand the overall condition and progress of the company during the financial year.

Illustrative disclosure-

General Clause (for an operating company)

State of the Company’s Affairs

During the financial year under review, the Company continued to carry on its business activities satisfactorily. The overall performance of the Company during the year was in line with the expectations of the management.

The Company recorded a total revenue of ₹_____ as against ₹_____ in the previous year and earned a profit/(loss) after tax of ₹_____ as compared to ₹_____ in the previous year.

The management continues to focus on operational efficiency, cost optimization, regulatory compliance and sustainable growth. The Directors are optimistic about the future prospects of the Company and expect improved performance in the coming years.

For a Trading/Service Company

State of the Company’s Affairs

During the year under review, the Company was engaged in its principal business activities and continued to provide its products/services to its customers. The business operations of the Company remained satisfactory.

The Directors are pleased to report that the Company has maintained stable operations during the year and continues to explore opportunities for expansion and business development.

For a Non-Operational/Dormant Company

State of the Company’s Affairs

During the financial year under review, the Company did not undertake any significant business activity. The Company has maintained its statutory compliances and continues to evaluate suitable business opportunities.

The management is exploring avenues for commencing/expanding business operations and remains committed to safeguarding the interests of the stakeholders.

Drafting Note: The disclosure under Rule 8A(1)(f) should briefly describe the Company’s operational status, business performance, achievements, challenges, and future outlook. It is generally kept concise and should be consistent with the financial highlights disclosed elsewhere in the Board’s Report.

WEB ADDRESS OF ANNUAL RETURN

Question: What should be mentioned in the Board’s (Director’s) Report regarding the “Web Address of Annual Return” pursuant to Rule 8A(1)(a) of the Companies (Accounts) Rules, 2014?

Answer: Rule 8A(1)(a) of the Companies (Accounts) Rules, 2014 requires the Board’s Report of a One Person Company or a Small Company to disclose the web address, if any, where the annual return referred to in Section 92(3) of the Companies Act, 2013 has been placed.

Section 92(3) provides that a copy of the annual return shall be placed on the website of the company, if any, and the web link of such annual return shall be disclosed in the Board’s Report.

Accordingly, where an OPC or Small Company maintains a website and has hosted its annual return on such website, the Board’s Report should specify the exact web address or hyperlink where the annual return can be accessed by members and other stakeholders.

Where the company does not have a website, the disclosure may state that the company does not maintain any website and therefore the requirement of providing the web address of the annual return is not applicable.

Illustrative disclosure-

Where the company maintain a website, the following disclosure may be made:

Web Address of Annual Return

Pursuant to the provisions of Section 92(3) of the Companies Act, 2013 read with Rule 8A(1)(a) of the Companies (Accounts) Rules, 2014, the Annual Return of the Company as on March 31, 20XX is available on the website of the Company and can be accessed at:

https://www.abccompany.com/annual-return

The Annual Return for the financial year ended March 31, 20XX, in Form MGT-7, has been placed on the website of the Company and is available at:

https://www.abccompany.com/investors/annual-return-mgt-7

Where the company does not maintain a website, the following disclosure may be made:

Web Address of Annual Return

The Company does not maintain any website. Accordingly, the provisions relating to placing the Annual Return on the website of the Company under Section 92(3) of the Companies Act, 2013 are not applicable.

Practical Note: After the amendment to Section 92(3), companies are generally required to place a copy of the annual return on their website, if any, and disclose the web link in the Board’s Report. Where no website exists, it is advisable to make a suitable disclosure in the Board’s Report.

NUMBER OF MEETINGS OF THE BOARD

Question: What should be mentioned in the Board’s (Director’s) Report regarding the “Number of Meetings of the Board” pursuant to Rule 8A(1)(b) of the Companies (Accounts) Rules, 2014?

Answer: Rule 8A(1)(b) of the Companies (Accounts) Rules, 2014 requires the Board’s Report of a One Person Company or a Small Company to disclose the number of meetings of the Board held during the financial year.

The purpose of this disclosure is to inform the members about the frequency with which the Board met during the year and discharged its governance and management responsibilities.

The Rule requires disclosure of the number of Board meetings held during the financial year. Although Rule 8A does not expressly require details of attendance of directors at such meetings, many companies voluntarily provide the dates of meetings and attendance particulars as a matter of good governance.

The disclosure should generally specify:

The total number of Board meetings held during the financial year; and
Optionally, the dates on which such meetings were held.

Illustrative disclosure-

Number of Board Meetings

During the financial year ended March 31, 20XX, ____ (Number) meeting(s) of the Board of Directors of the Company were held.

The details of the Board Meetings held during the year are as under:

*S. No.*	*Date of Board Meeting*
1.	DD/MM/YYYY
2.	DD/MM/YYYY
3.	DD/MM/YYYY
4.	DD/MM/YYYY

The intervening gap between any two meetings did not exceed the period prescribed under the Companies Act, 2013 and the rules made thereunder.

Short-form disclosure (commonly used by Small Companies and OPCs):

Board Meetings

During the financial year ended March 31, 20XX, ____ (Number) meeting(s) of the Board of Directors were held. The provisions relating to the frequency of Board Meetings were complied with in accordance with the requirements of the Companies Act, 2013.

Practical Note: For a One Person Company (OPC) having only one director on its Board, the disclosure may be modified suitably since the provisions relating to Board Meetings under Section 173 are not applicable in the same manner as for other companies.

For a Small Company, Section 173(5) of the Companies Act, 2013 provides certain relaxations regarding the minimum number of Board Meetings. However, irrespective of the number of meetings actually held, Rule 8A(1)(b) requires the Board’s Report to disclose the number of Board Meetings held during the financial year. The company should ensure that the disclosure is consistent with the Board Meeting records and minutes maintained under the Act.

DIRECTORS’ RESPONSIBILITY STATEMENT AS REFERRED TO IN SUB-SECTION (5) OF SECTION 134

Question: What should be mentioned in the Board’s (Director’s) Report regarding the “Directors’ Responsibility Statement” as referred to in Section 134(5) of the Companies Act, 2013 pursuant to Rule 8A(1)(c) of the Companies (Accounts) Rules, 2014?

Answer: Rule 8A(1)(c) of the Companies (Accounts) Rules, 2014 requires the Board’s Report of a One Person Company or a Small Company to contain the Directors’ Responsibility Statement as referred to in Section 134(5) of the Companies Act, 2013.

Section 134(5) requires the Directors to confirm certain matters relating to the preparation of financial statements, maintenance of accounting records, safeguarding of assets, prevention and detection of fraud, application of accounting policies, internal financial controls, and compliance with applicable laws.

Illustrative Disclosure-

Directors’ Responsibility Statement

Pursuant to the provisions of Section 134(5) of the Companies Act, 2013, the Board of Directors hereby confirms that:

(a) in the preparation of the annual accounts for the financial year ended March 31, 20XX, the applicable accounting standards had been followed along with proper explanation relating to material departures, if any;

(b) the Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31, 20XX and of the profit/loss of the Company for the year ended on that date;

(c) the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

(d) the Directors had prepared the annual accounts on a going concern basis;

(e) the Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Practical Note: Unlike certain other disclosures under Rule 8A, Rule 8A(1)(c) does not merely require a summary. It specifically requires inclusion of the Directors’ Responsibility Statement as referred to in Section 134(5). Therefore, the Board’s Report should contain the complete statement covering all the matters specified in Section 134(5) of the Companies Act, 2013.

DETAILS IN RESPECT OF FRAUDS REPORTED BY AUDITORS UNDER SUB-SECTION (12) OF SECTION 143 OTHER THAN THOSE WHICH ARE REPORTABLE TO THE CENTRAL GOVERNMENT

Question: What should be mentioned in the Board’s (Director’s) Report regarding the “details in respect of frauds reported by auditors under Section 143(12) of the Companies Act, 2013, other than those which are reportable to the Central Government” pursuant to Rule 8A(1)(d) of the Companies (Accounts) Rules, 2014?

Answer: Rule 8A(1)(d) of the Companies (Accounts) Rules, 2014 requires the Board’s Report of a One Person Company or a Small Company to disclose the details of frauds reported by the auditor under Section 143(12) of the Companies Act, 2013, other than those which are reportable to the Central Government.

Section 143(12) requires an auditor to report to the Central Government where he has reason to believe that an offence involving fraud is being or has been committed against the company by its officers or employees and the amount involved exceeds the prescribed threshold. In cases where the fraud amount is below the prescribed threshold, the auditor is required to report the matter to the Audit Committee or the Board of Directors, as the case may be, and the details of such fraud are required to be disclosed in the Board’s Report.

Accordingly, where the auditor has reported any fraud to the Board under Section 143(12) read with Rule 13 of the Companies (Audit and Auditors) Rules, 2014, the Board’s Report should disclose the following particulars:

Nature of the fraud;
Approximate amount involved;
Parties involved, where appropriate;
Impact of the fraud on the company;
Remedial action taken by the company; and
Measures adopted to prevent recurrence of such fraud.

If no fraud has been reported by the auditor under Section 143(12) during the financial year, the Board’s Report may contain a suitable negative statement.

Illustrative disclosure-

Where no fraud has been reported

Frauds Reported by Auditors

During the financial year under review, the Statutory Auditors of the Company have not reported any instance of fraud committed in the Company by its officers or employees under Section 143(12) of the Companies Act, 2013 which is required to be disclosed in the Board’s Report under Rule 13 of the Companies (Audit and Auditors) Rules, 2014.

Where frauds have been reported by the auditors (other than those reportable to the Central Government), the following clause may be used:

Frauds Reported by Auditors

During the financial year under review, the Statutory Auditors have reported the following fraud(s) under Section 143(12) of the Companies Act, 2013, which are not reportable to the Central Government:

1. Brief particulars of the fraud: __________________________

2. Approximate amount involved: ₹__________________________

3. Parties involved: _____________________________________

4. Remedial action taken by the Company: ____________________

5. Present status of the matter: ___________________________

The Board has taken appropriate corrective measures and strengthened internal controls to prevent recurrence of such instances.

Practical Note: The disclosure requirement under Rule 8A(1)(d) applies only where the auditor has reported a fraud to the Board or Audit Committee under Section 143(12). Frauds that are required to be reported by the auditor directly to the Central Government are outside the scope of this clause. In practice, many OPCs and Small Companies include a negative confirmation stating that no such fraud has been reported during the year.

EXPLANATIONS OR COMMENTS BY THE BOARD ON EVERY QUALIFICATION, RESERVATION OR ADVERSE REMARK OR DISCLAIMER MADE BY THE AUDITOR IN HIS REPORT

Question: What should be mentioned in the Board’s (Director’s) Report regarding the “explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report” pursuant to Rule 8A(1)(e) of the Companies (Accounts) Rules, 2014?

Answer: Rule 8A(1)(e) of the Companies (Accounts) Rules, 2014 requires the Board’s Report of a One Person Company or a Small Company to contain the explanations or comments of the Board on every qualification, reservation, adverse remark, or disclaimer made by the Statutory Auditor in his Audit Report.

The objective of this disclosure is to provide the members with the Board’s perspective on matters highlighted by the auditor and to explain the circumstances leading to such observations. The Board should address each qualification, reservation, adverse remark, or disclaimer separately and provide a clear explanation or justification.

The disclosure should generally include:

The auditor’s observation or qualification;
The reasons for such qualification, reservation, adverse remark, or disclaimer;
The Board’s explanation or comments thereon;
Corrective action taken or proposed to be taken by the company; and
The present status of the matter, wherever relevant.

Where the auditor’s report does not contain any qualification, reservation, adverse remark, or disclaimer, the Board’s Report may contain a suitable negative statement.

Illustrative disclosure-

Where the Auditor’s Report is unmodified (most common situation)

Auditors’ Report and Board’s Comments Thereon

The Statutory Auditors’ Report on the financial statements of the Company for the financial year ended March 31, 20XX does not contain any qualification, reservation, adverse remark or disclaimer. Accordingly, no explanation or comments of the Board of Directors are required under Rule 8A(1)(e) of the Companies (Accounts) Rules, 2014.

Where the Auditor’s Report contains qualifications/remarks

Auditors’ Report and Board’s Comments Thereon

The Statutory Auditors have made the following qualification/reservation/adverse remark/disclaimer in their Audit Report:

Auditor’s Observation:

[Reproduce the qualification/reservation/adverse remark/disclaimer or provide a summary thereof.]

Board’s Explanation/Comments:

The Board of Directors submits that [provide reasons, justification, corrective actions taken, future course of action, and management’s explanation regarding the matter].

The Board is taking necessary steps to address the concerns raised by the Statutory Auditors and to ensure compliance with the applicable provisions of law and accounting standards.

Where there are multiple qualifications

Auditors’ Report and Board’s Comments Thereon

The observations made by the Statutory Auditors in their Report are dealt with as under:

*Auditor’s Qualification/Remark*	*Board’s Explanation/Comments*
Qualification No. 1
Qualification No. 2
Qualification No. 3

The Board believes that the explanations provided above adequately address the observations made by the Statutory Auditors.

Drafting Note: Rule 8A(1)(e) corresponds to the requirement contained in Section 134(3)(f) of the Companies Act, 2013. The Board is required to provide comments on every qualification, reservation, adverse remark, or disclaimer appearing in the Auditor’s Report. Mere reproduction of the auditor’s observation without the Board’s explanation would not satisfy the requirement of the Rule. Where the auditor’s report is clean or unmodified, a simple statement to that effect is generally sufficient.

MATERIAL CHANGES FROM THE DATE OF CLOSURE OF THE FINANCIAL YEAR IN THE NATURE OF BUSINESS AND THEIR EFFECT ON THE FINANCIAL POSITION OF THE COMPANY

Question: What should be mentioned in the Board’s (Director’s) Report regarding the “material changes from the date of closure of the financial year in the nature of business and their effect on the financial position of the company” pursuant to Rule 8A(1)(h) of the Companies (Accounts) Rules, 2014?

Answer: Rule 8A(1)(h) of the Companies (Accounts) Rules, 2014 requires the Board’s Report of a One Person Company (OPC) or a Small Company to disclose material changes from the date of closure of the financial year in the nature of business and their effect on the financial position of the company.

The purpose of this disclosure is to inform the members about significant events or developments that have occurred after the close of the financial year but before the date of the Board’s Report, which may have a material impact on the company’s business operations or financial position.

The disclosure should generally cover:

The nature of the material change or event;
The date or period during which the change occurred;
The impact of such change on the company’s business operations;
The financial implications of the change, if ascertainable; and
Any measures taken or proposed to be taken by the management in response to such change.

Examples of material changes may include:

Commencement or discontinuance of a significant line of business;
Expansion, diversification, or restructuring of operations;
Acquisition or disposal of substantial assets;
Major borrowings or repayment of significant liabilities;
Significant contracts entered into or terminated;
Natural calamities, litigation, or regulatory actions materially affecting the business;
Any other event having a material effect on the financial position of the company.

Illustrative disclosure-

Where no material change has occurred (most common)

Material Changes Affecting the Company

There have been no material changes or commitments affecting the financial position of the Company which have occurred between the end of the financial year of the Company to which the financial statements relate and the date of this Report.

Further, there has been no change in the nature of business of the Company during the aforesaid period.

Where there is a change in the nature of business

Material Changes Affecting the Company

Subsequent to the close of the financial year and up to the date of this Report, the Company has expanded/modified its business activities by commencing the business of _____________ in addition to its existing business activities.

The Board believes that the aforesaid change will provide new growth opportunities and strengthen the Company’s business operations. The estimated financial impact of the said change is expected to be positive and is being evaluated by the management.

Except as stated above, no other material changes or commitments affecting the financial position of the Company have occurred between the end of the financial year and the date of this Report.

Where a significant event has affected the financial position

Material Changes Affecting the Company

After the close of the financial year, the Company entered into ____________ / disposed of ____________ / raised additional funds amounting to ₹__________ / suffered a significant loss due to ____________.

The aforesaid event has had/is expected to have an impact on the financial position of the Company to the extent of ₹__________. The management has taken appropriate measures to address the situation and safeguard the interests of the stakeholders.

Other than the above, no material changes or commitments affecting the financial position of the Company have occurred between the end of the financial year and the date of this Report.

Drafting Note: Rule 8A(1)(h) specifically requires disclosure of:

1. Material changes in the nature of business, if any; and

2. Their effect on the financial position of the Company, occurring after the balance sheet date and before the date of the Board’s Report.

Where there is no such change, a negative confirmation clause is generally included.

THE DETAILS OF DIRECTORS WHO WERE APPOINTED OR HAVE RESIGNED DURING THE YEAR

Question: What should be mentioned in the Board’s (Director’s) Report regarding the “details of directors who were appointed or have resigned during the year” pursuant to Rule 8A(1)(i) of the Companies (Accounts) Rules, 2014?

Answer: Rule 8A(1)(i) of the Companies (Accounts) Rules, 2014 requires the Board’s Report of a One Person Company or a Small Company to disclose the details of directors who were appointed or have resigned during the financial year.

The purpose of this disclosure is to inform the members about changes in the composition of the Board during the year under review.

The disclosure should generally include:

Name of the director appointed or resigned;
DIN (optional but commonly disclosed);
Designation (Director, Managing Director, Whole-time Director, etc.);
Effective date of appointment or resignation; and
Brief particulars of the change, if considered necessary.

Illustrative disclosure-

Where there were changes in the Board during the year

Directors and Key Changes in the Board

During the financial year under review, the following changes took place in the composition of the Board of Directors of the Company:

Appointments

/Ms. ____________ (DIN: ____________) was appointed as Director of the Company with effect from ____________.
/Ms. ____________ (DIN: ____________) was appointed as Director of the Company with effect from ____________.

Resignations

/Ms. ____________ (DIN: ____________) resigned from the office of Director with effect from ____________. The Board places on record its appreciation for the valuable services rendered by him/her during the tenure of association with the Company.
/Ms. ____________ (DIN: ____________) resigned from the office of Director with effect from ____________.

The composition of the Board is in compliance with the provisions of the Companies Act, 2013.

Where no Director was appointed or resigned during the year

Directors

There was no change in the composition of the Board of Directors during the financial year under review. None of the Directors of the Company was appointed or resigned during the year.

Drafting Note: Rule 8A(1)(i) requires disclosure only of Directors appointed or resigned during the year. If there are changes after the close of the financial year but before the date of the Board’s Report, those may also be disclosed separately under “Events Occurring After the Balance Sheet Date” or “Changes in Directors after the Financial Year End”, as applicable.

THE DETAILS OR SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS IMPACTING THE GOING CONCERN STATUS AND COMPANY’S OPERATIONS IN FUTURE

Question: What should be mentioned in the Board’s (Director’s) Report regarding the “details of significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and company’s operations in future” pursuant to Rule 8A(1)(j) of the Companies (Accounts) Rules, 2014?

Answer: Rule 8A(1)(j) of the Companies (Accounts) Rules, 2014 requires the Board’s Report of a One Person Company or a Small Company to disclose the details of significant and material orders passed by regulators, courts, or tribunals which impact the going concern status of the company and its future operations.

The objective of this disclosure is to inform members and stakeholders about any regulatory, judicial, or quasi-judicial orders that may have a substantial effect on the company’s ability to continue its business operations or materially affect its future prospects.

The disclosure should generally include:

Name of the regulator, court, or tribunal passing the order;
Date of the order;
Brief description of the matter;
Nature and effect of the order on the company;
Impact on the company’s going concern status and future operations; and
Steps taken or proposed to be taken by the company in response to the order.

Examples of such orders may include:

Orders for winding up, insolvency, or liquidation proceedings;
Orders imposing substantial penalties or restrictions on business activities;
Cancellation, suspension, or non-renewal of critical licenses, registrations, or approvals;
Orders restraining the company from carrying on certain business operations;
Significant environmental, tax, or regulatory orders affecting the viability of the business; and
Any other order having a material impact on the company’s future operations.

Illustrative disclosure-

Where no such orders have been passed (most common)

Significant and Material Orders Passed by Regulators or Courts

During the financial year under review and up to the date of this Report, no significant or material orders were passed by any Regulator, Court, Tribunal or other statutory authority which could impact the going concern status of the Company or materially affect its future operations.

Where such orders have been passed

Significant and Material Orders Passed by Regulators or Courts

During the financial year under review, the following significant and material order was passed by the ____________ [Name of Regulator/Court/Tribunal]:

Particulars of the Order

Authority: ______________________
Order No. and Date: ______________
Brief Description of the Matter: ______________________

Impact on the Company

The aforesaid order has an impact on the Company’s business operations/financial position to the extent of ______________________.

Management’s Response

The Company has taken/is taking appropriate steps, including filing an appeal/complying with the directions contained in the order, and is continuously monitoring the matter. The management believes that the impact of the order has been adequately addressed and necessary measures have been initiated to safeguard the interests of the Company and its stakeholders.

Where proceedings are pending but no material order affecting going concern has been passed

Significant and Material Orders Passed by Regulators or Courts

Certain legal and regulatory proceedings are pending against the Company in the ordinary course of business. However, no significant or material order has been passed by any Regulator, Court or Tribunal during the financial year or thereafter which would impact the going concern status of the Company or materially affect its future operations.

Practical Note: Only significant and material orders that affect the company’s going concern status or future operations are required to be disclosed under Rule 8A(1)(j). Routine notices, assessments, inspections, show-cause notices, or ordinary litigation matters that do not materially affect the company’s operations generally need not be reported under this clause. Where no such order has been passed, it is advisable to include a negative confirmation in the Board’s Report.

PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES REFERRED TO IN SUB-SECTION (1) OF SECTION 188 IN THE FORM AOC-2

Question: What should be mentioned in the Board’s (Director’s) Report regarding the “particulars of contracts or arrangements with related parties referred to in Section 188(1) in Form AOC-2” pursuant to Rule 8A(2) of the Companies (Accounts) Rules, 2014?

Answer: Rule 8A(2) of the Companies (Accounts) Rules, 2014 provides that the Board’s Report of a One Person Company or a Small Company shall contain the particulars of contracts or arrangements with related parties referred to in Section 188(1) of the Companies Act, 2013 in Form AOC-2.

Section 188(1) deals with specified related party transactions such as:

Sale, purchase, or supply of goods or materials;
Selling or otherwise disposing of, or buying, property;
Leasing of property;
Availing or rendering of services;
Appointment of any agent for purchase or sale of goods, materials, services, or property;
Appointment to any office or place of profit in the company, its subsidiary company, or associate company; and
Underwriting the subscription of any securities or derivatives of the company.

Accordingly, where the company has entered into contracts or arrangements covered under Section 188(1), the particulars thereof are required to be disclosed in Form AOC-2, which is to be attached to or form part of the Board’s Report.

The disclosure in Form AOC-2 generally includes:

Name of the related party;
Nature of relationship;
Nature of the contract or arrangement;
Duration of the contract or arrangement;
Salient terms and value of the transaction;
Date of approval by the Board;
Amount paid as advances, if any; and
Justification for entering into the transaction, wherever required.

Illustrative disclosure-

Where there are no transactions requiring disclosure in Form AOC-2 (most common)

Related Party Transactions

All related party transactions entered into during the financial year were in the ordinary course of business and on an arm’s length basis. Accordingly, the disclosure of particulars of contracts or arrangements with related parties in Form AOC-2 as prescribed under Section 134(3)(h) of the Companies Act, 2013 read with Section 188(1) thereof and Rule 8A(2) of the Companies (Accounts) Rules, 2014 is not applicable to the Company.

The details of related party transactions as required under the applicable accounting standards have been disclosed in the notes forming part of the financial statements.

Where disclosure in Form AOC-2 is required

Related Party Transactions

During the financial year under review, the Company entered into certain contracts/arrangements/transactions with related parties which were not in the ordinary course of business and/or were not on an arm’s length basis and therefore required disclosure under Section 188(1) of the Companies Act, 2013.

The particulars of such contracts or arrangements entered into by the Company with related parties referred to in Section 188(1) of the Act are furnished in Form AOC-2 annexed to this Report as Annexure – ___ and forms an integral part of this Report.

Practical Note: A mere related party transaction does not automatically require disclosure in Form AOC-2. Form AOC-2 is required only for:

1. Contracts or arrangements not at arm’s length basis; or

2. Material contracts or arrangements at arm’s length basis that require disclosure under the applicable provisions and Form AOC-2 requirements.

Further, where there are no transactions covered under Section 188(1) requiring disclosure, it is a common and accepted practice to include a negative statement in the Board’s Report stating that Form AOC-2 is not applicable.

DETAILS OF ESTABLISHMENT OF VIGIL MECHANISM

Question: What should be mentioned in the Board’s (Director’s) Report regarding the details of establishment of a Vigil Mechanism pursuant to the proviso to Section 177(10) of the Companies Act, 2013, and is this requirement applicable to an OPC or a Small Company?

Answer: The proviso to Section 177(10) of the Companies Act, 2013 provides that the details of the establishment of a vigil mechanism shall be disclosed by the company on its website, if any, and in the Board’s Report.

However, the requirement to establish a vigil mechanism arises only for those companies specified under Section 177(9) of the Companies Act, 2013. Section 177(9) mandates the establishment of a vigil mechanism by:

1. Every listed company;

2. Companies which accept deposits from the public; and

3. Companies which have borrowed money from banks and public financial institutions in excess of ₹50 crore.

Accordingly, only companies falling within the scope of Section 177(9) are required to establish a vigil mechanism and consequently disclose its details in the Board’s Report under the proviso to Section 177(10).

In the case of an OPC or Small Company, the requirement to establish a vigil mechanism is generally not applicable, since such companies ordinarily do not fall within the categories specified under Section 177(9). Therefore, they are generally not required to disclose the details of a vigil mechanism in their Board’s Report.

However, if an OPC or Small Company happens to satisfy any of the conditions prescribed under Section 177(9), such as having borrowings from banks and public financial institutions exceeding ₹50 crore, it would be required to establish a vigil mechanism and make the requisite disclosure in its Board’s Report.

Illustrative disclosure-

Where Vigil Mechanism is not applicable

Vigil Mechanism

The Company does not fall within any of the classes of companies specified under Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014. Accordingly, the provisions of Section 177(9) and Section 177(10) of the Companies Act, 2013 relating to the establishment of a Vigil Mechanism are not applicable to the Company and the Company is not required to formulate a Vigil Mechanism/Whistle Blower Policy.

Where Vigil Mechanism has been adopted

Vigil Mechanism / Whistle Blower Policy

Pursuant to the provisions of Section 177(9) and Section 177(10) of the Companies Act, 2013, the Company has established a Vigil Mechanism and adopted a Whistle Blower Policy for directors and employees to report genuine concerns, unethical behaviour, actual or suspected fraud, or violation of the Company’s code of conduct.

The mechanism provides adequate safeguards against victimization of persons who use such mechanism and ensures direct access to the appropriate authority for addressing concerns. During the year under review, no person was denied access to the Vigil Mechanism and no complaint was received under the said mechanism.

The Whistle Blower Policy is available on the website of the Company at ____________ [web-link], if applicable.

Alternative disclosure where no complaints were received

Vigil Mechanism / Whistle Blower Policy

The Company has adopted a Vigil Mechanism/Whistle Blower Policy in accordance with the provisions of Section 177(10) of the Companies Act, 2013. The policy provides a framework for reporting concerns relating to unethical conduct, actual or suspected fraud, or violation of applicable laws and regulations.

The Board affirms that the Vigil Mechanism functions effectively and that no complaint was received during the financial year under review.

The Whistle Blower Policy is available on the website of the Company at ____________ [web-link], if applicable.

Practical Note: For most OPCs and Small Companies, the requirement is not applicable. Further, Rule 8A of the Companies (Accounts) Rules, 2014 does not specifically require disclosure regarding a vigil mechanism. Therefore, unless the company falls within the ambit of Section 177(9), no disclosure regarding a vigil mechanism is ordinarily required in the Board’s Report. The disclosure obligation under the proviso to Section 177(10) is consequential to the requirement of establishing a vigil mechanism under Section 177(9).

DISCLOSURE UNDER SECTION 197(12) READ WITH RULE 5 OF THE COMPANIES (APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL) RULES, 2014.

Question: What should be mentioned in the Board’s (Director’s) Report regarding disclosure under Section 197(12) read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, and is this requirement applicable to an OPC or a Small Company?

Answer: Section 197(12) of the Companies Act, 2013 provides that every listed company shall disclose in the Board’s Report such particulars of employees and remuneration as may be prescribed.

Pursuant thereto, Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 prescribes various disclosures relating to the remuneration of directors, key managerial personnel (KMP), and employees.

The principal disclosures under Rule 5 include:

1. Ratio of the remuneration of each director to the median remuneration of employees;

2. Percentage increase in remuneration of each director, Chief Executive Officer, Chief Financial Officer, Company Secretary, or Manager;

3. Percentage increase in median remuneration of employees;

4. Number of permanent employees on the rolls of the company;

5. Average percentile increase in salaries of employees other than managerial personnel compared with managerial remuneration;

6. Affirmation that remuneration is as per the remuneration policy of the company; and

7. Details of employees receiving remuneration in excess of the prescribed limits under Rule 5(2) and Rule 5(3).

Applicability to OPCs and Small Companies

Although Section 197(12) refers to disclosures prescribed under Rule 5, Rule 5(1) specifically applies only to every listed company.

Further, Rule 5(2) and Rule 5(3), which require disclosure of particulars of employees drawing remuneration above prescribed thresholds, are generally applicable to companies required to prepare a Board’s Report under the Act. However, the Ministry of Corporate Affairs has provided significant relief through amendments over time, and the primary intent of Section 197(12) remains focused on listed companies.

In the case of an OPC or Small Company, the disclosures prescribed under Rule 8A of the Companies (Accounts) Rules, 2014 do not include any requirement relating to Section 197(12) or Rule 5.

Moreover, Section 197 principally regulates managerial remuneration in public companies and listed companies. Most OPCs and Small Companies are private companies and do not ordinarily fall within the class of companies for which the detailed disclosures under Rule 5(1) were intended.

Practical Position: For an OPC or Small Company:

Disclosure under Rule 5(1) relating to remuneration ratios and percentage increases is generally not applicable.
Disclosure of employee particulars under Rule 5(2) and Rule 5(3) is generally not required unless the company falls within the specific scope of those provisions.
Rule 8A does not require any disclosure regarding managerial remuneration.

Illustrative Disclosure-

Non-Applicability Clause (Recommended for OPCs and Small Companies)

Disclosure under Section 197(12) read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014

Disclosure pursuant to Section 197(12) of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is not applicable to the Company. Accordingly, the particulars relating to the ratio of remuneration of directors to the median remuneration of employees and other prescribed details under the said Rule are not required to be disclosed in this Report.

Alternative Disclosure (Where Company Chooses to Voluntarily State the Position)

The provisions of Section 197(12) of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 relating to disclosure of remuneration ratios and other prescribed particulars are not applicable to the Company being a Small Company / One Person Company. Accordingly, no disclosure in this regard is required to be furnished.

Practical Note: – Generally, an OPC or a Small Company is not required to provide the disclosures prescribed under Section 197(12) read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in its Board’s Report. Further, Rule 8A governing the Board’s Report of OPCs and Small Companies does not prescribe any such disclosure. Therefore, in most cases, these requirements are not applicable to an OPC or a Small Company.

REMUNERATION OR COMMISSION RECEIVED BY MANAGING DIRECTOR / WHOLE-TIME DIRECTOR FROM HOLDING OR SUBSIDIARY COMPANY

Question: What should be mentioned in the Board’s (Director’s) Report regarding remuneration or commission received by a Managing Director or Whole-time Director from the holding or subsidiary company under Section 197(14) of the Companies Act, 2013, and is this requirement applicable to an OPC or a Small Company?

Answer: Section 197(14) of the Companies Act, 2013 provides that a Managing Director (MD) or Whole-time Director (WTD) of a company who receives any commission from the company and is also in receipt of any remuneration or commission from its holding company or subsidiary company shall disclose such remuneration or commission in the Board’s Report.

The purpose of this disclosure is to ensure transparency regarding remuneration received by managerial personnel from multiple companies within the same corporate group.

Accordingly, where a Managing Director or Whole-time Director receives remuneration or commission from the holding company or subsidiary company in addition to remuneration or commission from the company, the Board’s Report should disclose:

Name of the Managing Director or Whole-time Director;
Designation;
Name of the holding company or subsidiary company from which remuneration or commission has been received;
Nature of remuneration or commission received; and
Amount of remuneration or commission received during the financial year.

Applicability to OPCs and Small Companies

There is no specific exemption available to OPCs or Small Companies from the disclosure requirement contained in Section 197(14). However, the disclosure becomes relevant only when all the following conditions are satisfied:

1. The company has a Managing Director or Whole-time Director;

2. The company has a holding company or subsidiary company; and

3. Such MD or WTD receives remuneration or commission from the holding company or subsidiary company.

In practice, many OPCs and Small Companies do not have a Managing Director or Whole-time Director, or do not form part of a holding-subsidiary structure. Consequently, the requirement is frequently not applicable in practice, though it is not exempted by law.

Illustrative disclosure where applicable

Disclosure under Section 197(14) of the Companies Act, 2013

Pursuant to Section 197(14) of the Companies Act, 2013, Mr. A, Managing Director of the Company, received remuneration of ₹_____ from the Holding Company, M/s XYZ Limited, during the financial year ended 31 March 20XX. The details of such remuneration have been duly noted by the Board.

Pursuant to Section 197(14) of the Companies Act, 2013, Mr. A, Whole-time Director of the Company, received commission of ₹_____ from M/s XYZ Limited, the Holding Company of the Company, during the financial year under review.

Illustrative disclosure where not applicable

Disclosure under Section 197(14) of the Companies Act, 2013

During the financial year under review, none of the Managing Directors or Whole-time Directors of the Company received any remuneration or commission from the holding company or subsidiary company. Accordingly, the provisions of Section 197(14) of the Companies Act, 2013 are not applicable.

Where No Such Remuneration or Commission is Received

Disclosure pursuant to Section 197(14) of the Companies Act, 2013

During the financial year under review, none of the Managing Director(s) or Whole-time Director(s) of the Company received any remuneration or commission from the Holding Company or Subsidiary Company of the Company. Accordingly, no disclosure is required under Section 197(14) of the Companies Act, 2013.

Where Remuneration is Received from Holding Company

Disclosure pursuant to Section 197(14) of the Companies Act, 2013

Mr./Ms. __, Managing Director / Whole-time Director of the Company, received remuneration amounting to ₹ from ____________ Limited, the Holding Company of the Company, during the financial year ended ____________. The details of such remuneration are in compliance with the provisions of Section 197(14) of the Companies Act, 2013.

Where Remuneration is Received from Subsidiary Company

Disclosure pursuant to Section 197(14) of the Companies Act, 2013

Mr./Ms. __, Managing Director / Whole-time Director of the Company, received remuneration amounting to ₹ from ____________ Limited, a Subsidiary Company of the Company, during the financial year ended ____________. The details of such remuneration are disclosed pursuant to Section 197(14) of the Companies Act, 2013.

Practical Note: Section 197(14) requires disclosure in the Board’s Report whenever a Managing Director or Whole-time Director receives remuneration or commission from the holding company or subsidiary company. No specific exemption is available to OPCs or Small Companies. Therefore, if the conditions specified in Section 197(14) are satisfied, the disclosure is required even in the case of an OPC or a Small Company. If no such remuneration or commission is received, a suitable negative statement may be included in the Board’s Report.

EXPLANATIONS OR COMMENTS ON QUALIFICATIONS, RESERVATIONS OR ADVERSE REMARKS IN SECRETARIAL AUDIT REPORT

Question: What should be mentioned in the Board’s (Director’s) Report regarding explanations or comments on qualifications, reservations or adverse remarks in the Secretarial Audit Report under Section 134(3)(f) read with Section 204 of the Companies Act, 2013, and is this requirement applicable to an OPC or a Small Company?

Answer: Section 134(3)(f) of the Companies Act, 2013 requires the Board’s Report to contain explanations or comments by the Board on every qualification, reservation, adverse remark or disclaimer made by the auditor in his report and by the Company Secretary in Practice in his Secretarial Audit Report.

The Secretarial Audit Report is required to be annexed to the Board’s Report under Section 204(1) by such classes of companies as are prescribed under Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

Accordingly, where a company is required to obtain a Secretarial Audit Report under Section 204 and such report contains any qualification, reservation, adverse remark or disclaimer, the Board’s Report should provide specific explanations or comments on each such observation.

The disclosure should generally include:

The qualification, reservation, adverse remark or disclaimer made by the Secretarial Auditor;
Reasons for the non-compliance or observation;
The Board’s explanation or justification;
Corrective action taken or proposed to be taken; and
Present status of compliance.

Applicability to OPCs and Small Companies

The requirement under Section 134(3)(f) in relation to the Secretarial Audit Report becomes relevant only if the company is required to obtain a Secretarial Audit Report under Section 204.

Generally, an OPC or a Small Company is not required to obtain a Secretarial Audit Report under Section 204 because such companies do not ordinarily fall within the prescribed classes of companies covered under Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. Therefore, in most cases:

No Secretarial Audit Report is required for an OPC or Small Company;
Consequently, there is no occasion to provide comments on qualifications, reservations, adverse remarks or disclaimers contained therein.

However, if an OPC or Small Company falls within any class of companies for which Secretarial Audit is mandatory under Section 204 and Rule 9, then:

1. The Secretarial Audit Report must be annexed to the Board’s Report; and

2. The Board must provide explanations or comments on every qualification, reservation, adverse remark or disclaimer contained in such report in accordance with Section 134(3)(f).

As per Rule 9, Secretarial Audit is mandatory for:

1. Every listed company;

2. Every public company having:

- Paid-up share capital of ₹50 crore or more; or
- Turnover of ₹250 crore or more;

3. Every company having outstanding loans or borrowings from banks or public financial institutions of ₹100 crore or more.

Illustrative disclosure

Where Secretarial Audit is Not Applicable

Secretarial Audit

The provisions of Section 204 of the Companies Act, 2013 relating to Secretarial Audit are not applicable to the Company. Accordingly, no Secretarial Audit Report has been obtained for the financial year under review.

Where Secretarial Audit Report Contains No Qualification

Secretarial Audit

Pursuant to the provisions of Section 204 of the Companies Act, 2013, the Secretarial Audit Report for the financial year ended ____________ was obtained from Mr./Ms. ____________, Practising Company Secretary.

The Secretarial Audit Report does not contain any qualification, reservation, adverse remark or disclaimer and therefore no explanation or comment of the Board is required under Section 134(3)(f) of the Companies Act, 2013.

Where Secretarial Audit Report Contains Qualification / Adverse Remark

Secretarial Audit

The Secretarial Audit Report issued by Mr./Ms. ____________, Practising Company Secretary, contains the following qualification/reservation/adverse remark:

“____________________________”

Board’s Explanation:

The qualification was primarily due to ____________________________. The Company has taken necessary corrective measures and has implemented appropriate systems and controls to ensure compliance with the applicable provisions of law. The management is committed to preventing recurrence of such instances in future.

Where Multiple Qualifications Exist

Secretarial Audit

The qualifications/reservations/adverse remarks contained in the Secretarial Audit Report and the explanations of the Board thereon are as follows:

Sr. No. | Qualification / Reservation / Adverse Remark | Board’s Explanation
1 | ____________________ | ____________________
2 | ____________________ | ____________________
3 | ____________________ | ____________________

Practical Note: For most OPCs and Small Companies, the requirement is not applicable because they are generally not required to obtain a Secretarial Audit Report under Section 204. Consequently, no disclosure under Section 134(3)(f) regarding qualifications, reservations or adverse remarks in a Secretarial Audit Report is ordinarily required. However, if Secretarial Audit is applicable to the company, the Board must provide explanations or comments on every qualification, reservation, adverse remark or disclaimer made by the Secretarial Auditor.

COMPOSITION OF AUDIT COMMITTEE AND REASONS FOR NON-ACCEPTANCE OF AUDIT COMMITTEE RECOMMENDATIONS

Question: What should be mentioned in the Board’s (Director’s) Report regarding the composition of the Audit Committee and reasons for non-acceptance of Audit Committee recommendations under Rule 8(5)(viii) of the Companies (Accounts) Rules, 2014 read with Section 177 of the Companies Act, 2013, and is this requirement applicable to an OPC or a Small Company?

Answer: Rule 8(5)(viii) of the Companies (Accounts) Rules, 2014 requires the Board’s Report to disclose:

1. The composition of the Audit Committee; and

2. Where the Board has not accepted any recommendation of the Audit Committee, the reasons therefor.

The purpose of this disclosure is to provide transparency regarding the functioning of the Audit Committee and the extent to which its recommendations have been considered by the Board.

Accordingly, where applicable, the Board’s Report should contain:

Names and designation of the members of the Audit Committee;
Position held by each member (Chairperson/Member);
Confirmation regarding compliance with Section 177;
Details of recommendations of the Audit Committee not accepted by the Board, if any; and
Reasons for such non-acceptance.

Applicability to OPCs and Small Companies

This requirement is generally not applicable to OPCs and Small Companies for two reasons:

(A) Rule 8 itself does not apply

Rule 8(6) of the Companies (Accounts) Rules, 2014 expressly provides that:

“The provisions of this rule shall not apply to One Person Company and Small Company.”

Since the disclosure regarding Audit Committee composition and non-acceptance of recommendations is contained in Rule 8(5)(viii), an OPC or Small Company is exempt from this specific disclosure requirement.

(B) Audit Committee itself is generally not applicable

Section 177(1) requires constitution of an Audit Committee only by:

Every listed public company; and
Such classes of companies as may be prescribed under Rule 6 of the Companies (Meetings of Board and its Powers) Rules, 2014.

Rule 6 generally covers certain public companies meeting specified thresholds of paid-up capital, turnover, borrowings, debentures or deposits. An OPC is not a public company and cannot be listed. Similarly, a Small Company is generally a private company falling below prescribed financial thresholds. Therefore, in most cases:

An OPC is not required to constitute an Audit Committee.
A Small Company is not required to constitute an Audit Committee.

Practical Position- For an OPC or Small Company:

Rule 8(5)(viii) is not applicable because Rule 8 itself is excluded by Rule 8(6);
Section 177 generally does not require constitution of an Audit Committee;
Consequently, no disclosure regarding Audit Committee composition or non-acceptance of Audit Committee recommendations is ordinarily required in the Board’s Report.

Illustrative disclosure

Where Audit Committee is Not Applicable

Audit Committee

The provisions of Section 177 of the Companies Act, 2013 relating to the constitution of an Audit Committee are not applicable to the Company. Accordingly, the Company is not required to constitute an Audit Committee and no disclosure in this regard is required.

Where Audit Committee Has Been Constituted and All Recommendations Were Accepted

Audit Committee

The Company has constituted an Audit Committee in accordance with the provisions of Section 177 of the Companies Act, 2013. The composition of the Audit Committee as on the date of this Report is as under:

*Name of Member*	*Designation in Committee*
Mr./Ms. ____________	Chairperson
Mr./Ms. ____________	Member
Mr./Ms. ____________	Member

During the financial year under review, all recommendations made by the Audit Committee were accepted by the Board of Directors.

Where Any Recommendation Was Not Accepted by the Board

Audit Committee

*Name of Member*	*Designation in Committee*
Mr./Ms. ____________	Chairperson
Mr./Ms. ____________	Member
Mr./Ms. ____________	Member

During the financial year under review, the Audit Committee recommended ____________________________. However, after considering the overall business requirements and financial implications, the Board did not accept the said recommendation for the following reasons:

The Board believes that the decision taken was in the best interests of the Company and its stakeholders.

Simplified Disclosure

Audit Committee

The Company has constituted an Audit Committee in accordance with the applicable provisions of the Companies Act, 2013. During the year under review, all recommendations made by the Audit Committee were accepted by the Board.

Practical Note: The disclosure regarding the composition of the Audit Committee and reasons for non-acceptance of Audit Committee recommendations under Rule 8(5)(viii) read with Section 177 is generally not applicable to an OPC or a Small Company. This is because Rule 8 is expressly excluded for OPCs and Small Companies by Rule 8(6), and such companies are ordinarily not required to constitute an Audit Committee under Section 177.

DISCLOSURE RELATING TO ISSUE OF SHARES WITH DIFFERENTIAL RIGHTS

Question: What should be mentioned in the Board’s (Director’s) Report regarding disclosure relating to issue of shares with differential rights under Section 43(a)(ii) read with Rule 4(4) of the Companies (Share Capital and Debentures) Rules, 2014, and is this requirement applicable to an OPC or a Small Company?

Answer: Section 43(a)(ii) of the Companies Act, 2013 permits a company limited by shares to issue equity shares with differential rights as to dividend, voting or otherwise, subject to compliance with Rule 4 of the Companies (Share Capital and Debentures) Rules, 2014.

Rule 4(4) specifically provides that where a company issues shares with differential rights, the Board’s Report for the financial year in which such shares are issued shall contain prescribed disclosures relating to the issue.

The Board’s Report should disclose, inter alia:

1. Total number of shares allotted with differential rights;

2. Details of the differential rights relating to voting rights and dividends;

3. Percentage of such shares of the total post-issue equity share capital and percentage of voting rights carried by such shares;

4. Price at which such shares have been issued;

5. Particulars of promoters, directors or key managerial personnel to whom such shares are issued;

6. Change in control, if any, consequent to the issue of such shares;

7. Diluted Earnings Per Share pursuant to the issue of such shares; and

8. Pre and post issue shareholding pattern along with voting rights.

Applicability to OPCs and Small Companies

The disclosure requirement under Rule 4(4) is transaction-based and not company-type based. Therefore, there is no exemption available to OPCs or Small Companies from this requirement. However, the disclosure becomes relevant only if the company has actually issued shares with differential rights during the financial year.

In practice:

An OPC cannot issue shares with differential rights because an OPC can have only one member. Consequently, this disclosure would ordinarily not arise in the case of an OPC.
A Small Company may issue shares with differential rights, subject to compliance with Section 43 and Rule 4. In such a case, the prescribed disclosures under Rule 4(4) should be included in the Board’s Report.

It is important to note that this disclosure requirement arises from Rule 4(4) of the Companies (Share Capital and Debentures) Rules, 2014 and is independent of Rule 8 or Rule 8A of the Companies (Accounts) Rules, 2014. Therefore, the exemption available to OPCs and Small Companies from Rule 8 does not affect this disclosure requirement.

Illustrative Disclosure-

Where no Shares with Differential Rights have been issued

Issue of Shares with Differential Rights

During the financial year under review, the Company has not issued any shares with differential rights as to dividend, voting or otherwise. Accordingly, the disclosure requirements prescribed under Rule 4(4) of the Companies (Share Capital and Debentures) Rules, 2014 are not applicable.

Where Shares with Differential Rights have been issued

Issue of Shares with Differential Rights

During the financial year under review, the Company issued ________ equity shares with differential rights in accordance with Section 43(a)(ii) of the Companies Act, 2013 read with Rule 4 of the Companies (Share Capital and Debentures) Rules, 2014. The details of the issue are as under:

1. Total number of shares allotted with differential rights: ____________;

2. Details of differential rights relating to voting rights/dividend/other rights:
________________________________;

3. Percentage of shares with differential rights to the total post-issue equity share capital:
____________%;

4. Price at which such shares were issued:
₹____________ per share;

5. Particulars of promoters, directors or key managerial personnel to whom such shares were issued:
________________________________;

6. Change in control, if any, consequent to the issue:
________________________________;

7. Diluted Earnings Per Share pursuant to the issue of such shares:
₹____________ per share;

8. Percentage of voting rights held by holders of shares with differential rights vis-à-vis the total voting rights of the Company:
____________%.

Practical Note: Where shares with differential rights are issued during the financial year, the Board’s Report must contain the disclosures prescribed under Rule 4(4) of the Companies (Share Capital and Debentures) Rules, 2014. There is no specific exemption for OPCs or Small Companies. However, since an OPC ordinarily cannot issue such shares, the requirement is generally relevant only for Small Companies that have issued shares with differential rights.

DISCLOSURE RELATING TO ISSUE OF SWEAT EQUITY SHARES

Question: What should be mentioned in the Board’s (Director’s) Report regarding disclosure relating to issue of Sweat Equity Shares under Section 54 of the Companies Act, 2013 read with Rule 8(13) of the Companies (Share Capital and Debentures) Rules, 2014, and is this requirement applicable to an OPC or a Small Company?

Answer: Section 54 of the Companies Act, 2013 permits a company to issue Sweat Equity Shares to its directors or employees at a discount or for consideration other than cash for providing know-how, intellectual property rights, value additions, or similar benefits.

Rule 8(13) of the Companies (Share Capital and Debentures) Rules, 2014 provides that where Sweat Equity Shares are issued, the Board’s Report of the company shall disclose the prescribed particulars of such issue.

Accordingly, the Board’s Report for the financial year in which Sweat Equity Shares are issued should contain the following particulars:

1. Class of director or employee to whom the Sweat Equity Shares were issued;

2. Class of shares issued as Sweat Equity Shares;

3. Number of Sweat Equity Shares issued to directors, key managerial personnel, employees, or other employees;

4. Reasons or justification for the issue;

5. Principal terms and conditions for the issue, including pricing formula;

6. Total number of shares arising as a result of the issue;

7. Percentage of Sweat Equity Shares of the total post-issued and paid-up share capital;

8. Consideration (including non-cash consideration) received or benefit accrued to the company;

9. Diluted Earnings Per Share (EPS) pursuant to the issue of Sweat Equity Shares; and

10. Such other particulars as may be prescribed under Rule 8(13).

Applicability to OPCs and Small Companies

There is no exemption under Section 54 or Rule 8(13) for OPCs or Small Companies. The disclosure requirement is event-based and becomes applicable whenever Sweat Equity Shares are issued by the company. However, certain practical aspects should be noted:

In case of an OPC

An OPC can issue Sweat Equity Shares subject to compliance with the provisions of the Act. However, since an OPC has only one member and generally has a simple ownership structure, issuance of Sweat Equity Shares is uncommon. Nevertheless, if an OPC issues Sweat Equity Shares, the disclosure under Rule 8(13) would be required.

In case of a Small Company

A Small Company may issue Sweat Equity Shares in accordance with Section 54. If such shares are issued during the financial year, the disclosures prescribed under Rule 8(13) must be included in the Board’s Report.

Further, this disclosure requirement arises under the Companies (Share Capital and Debentures) Rules, 2014 and is independent of Rule 8 or Rule 8A of the Companies (Accounts) Rules, 2014. Therefore, the exemption available to OPCs and Small Companies from Rule 8 of the Companies (Accounts) Rules does not affect this requirement.

Illustrative Disclosure-

Where no Sweat Equity Shares have been issued

Issue of Sweat Equity Shares

During the financial year under review, the Company has not issued any Sweat Equity Shares under Section 54 of the Companies Act, 2013. Accordingly, the disclosure requirements prescribed under Rule 8(13) of the Companies (Share Capital and Debentures) Rules, 2014 are not applicable.

Where Sweat Equity Shares have been issued

Issue of Sweat Equity Shares

During the financial year under review, the Company issued Sweat Equity Shares in accordance with the provisions of Section 54 of the Companies Act, 2013 read with Rule 8 of the Companies (Share Capital and Debentures) Rules, 2014. The details of the issue are as follows:

1. Class of shares issued as Sweat Equity Shares: ____________;

2. Class of directors or employees to whom such Sweat Equity Shares were issued:
________________________________;

3. Number of Sweat Equity Shares issued to directors, key managerial personnel, employees and other persons:
________________________________;

4. Reasons or justification for the issue:
________________________________;

5. Principal terms and conditions of the issue, including pricing formula:
________________________________;

6. Total number of shares arising as a result of the issue:
________________________________;

7. Percentage of Sweat Equity Shares of the total post-issued and paid-up share capital:
____________%;

8. Consideration received or benefit accrued to the Company:
________________________________;

9. Diluted Earnings Per Share (EPS) pursuant to the issue of Sweat Equity Shares:
₹____________ per share.

Practical Note: Where an OPC or Small Company issues Sweat Equity Shares during a financial year, the Board’s Report must contain the disclosures prescribed under Rule 8(13) of the Companies (Share Capital and Debentures) Rules, 2014. There is no specific exemption available to OPCs or Small Companies from this disclosure requirement. However, if no Sweat Equity Shares have been issued during the year, no disclosure is required.

DISCLOSURE RELATING TO EMPLOYEE STOCK OPTION SCHEME (ESOP)

Question: What should be mentioned in the Board’s (Director’s) Report regarding disclosure relating to Employee Stock Option Scheme (ESOP) under Rule 12(9) of the Companies (Share Capital and Debentures) Rules, 2014, and is this requirement applicable to an OPC or a Small Company?

Answer: Section 62(1)(b) of the Companies Act, 2013 permits a company to issue shares to its employees under an Employee Stock Option Scheme (ESOP), subject to compliance with Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014.

Rule 12(9) specifically provides that the Board’s Report shall disclose the details of the ESOP scheme in operation during the financial year.

Accordingly, where a company has granted stock options under an ESOP scheme, the Board’s Report should disclose the following particulars:

1. Options granted;

2. Options vested;

3. Options exercised;

4. Total number of shares arising as a result of exercise of options;

5. Options lapsed;

6. Exercise price;

7. Variation of terms of options, if any;

8. Money realized by exercise of options;

9. Total number of options in force;

10. Employee-wise details of options granted to:

- Key Managerial Personnel;
- Any employee who receives a grant of options amounting to 5% or more of options granted during the year; and
- Any employee who was granted options equal to or exceeding 1% of the issued capital of the company at the time of grant;

11. Diluted Earnings Per Share (EPS) pursuant to issue of shares under the scheme.

Applicability to OPCs and Small Companies

There is no specific exemption under Rule 12(9) for OPCs or Small Companies. However, the practical applicability differs:

(A) One Person Company (OPC)

As per the proviso to Section 62(1)(b), an ESOP may be issued to employees other than promoters and directors holding more than 10% of the equity shares, subject to certain exceptions. Since an OPC can have only one member and typically has no employee ownership structure, implementation of an ESOP scheme is generally impractical. Accordingly, the disclosure requirement rarely arises in the case of an OPC.

(B) Small Company

A Small Company can validly implement an ESOP scheme under Section 62(1)(b). If the company has granted stock options during the year, the disclosures prescribed under Rule 12(9) must be included in the Board’s Report.

Illustrative Disclosure-

Where No ESOP Scheme Exists

Employee Stock Option Scheme (ESOP)

During the financial year under review, the Company has not implemented any Employee Stock Option Scheme under Section 62(1)(b) of the Companies Act, 2013 read with Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014. Accordingly, the disclosure requirements prescribed under Rule 12(9) are not applicable to the Company.

Where ESOP Scheme Exists (General Disclosure)

Employee Stock Option Scheme (ESOP)

During the financial year under review, the Company has implemented an Employee Stock Option Scheme in accordance with Section 62(1)(b) of the Companies Act, 2013 read with Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014.

The details of the ESOP Scheme are as under:

1. Options granted during the year: ____________

2. Options vested during the year: ____________

3. Options exercised during the year: ____________

4. Options lapsed/forfeited during the year: ____________

5. Total number of shares arising as a result of exercise of options: ____________

6. Exercise price per option: ₹____________

7. Variations in terms of options, if any: ____________

8. Money realized by exercise of options: ₹____________

9. Total number of options outstanding at the end of the year: ____________

10. Diluted Earnings Per Share pursuant to issue of shares under ESOP: ₹____________

11. Employee-wise details of options granted to:

- Senior managerial personnel: ____________
- Any other employee receiving significant grants: ____________

The Scheme is being administered in accordance with the applicable provisions of the Companies Act, 2013 and the rules made thereunder.

Practical Note: Where an ESOP scheme has been implemented and options have been granted, vested, exercised, lapsed, or remain outstanding during the financial year, the Board’s Report must contain the disclosures prescribed under Rule 12(9) of the Companies (Share Capital and Debentures) Rules, 2014. There is no specific exemption available to OPCs or Small Companies. However, in the absence of an ESOP scheme, no disclosure is required.

DISCLOSURE WHERE VOTING RIGHTS UNDER EMPLOYEE SHARE ACQUISITION SCHEME ARE NOT EXERCISED DIRECTLY BY EMPLOYEES

Question: What should be mentioned in the Board’s (Director’s) Report regarding disclosure where voting rights under an Employee Share Acquisition Scheme are not exercised directly by employees under Rule 16(4) of the Companies (Share Capital and Debentures) Rules, 2014, and is this requirement applicable to an OPC or a Small Company?

Answer: Section 67(3)(b) of the Companies Act, 2013 permits a company to provide money for the purchase or subscription of its own shares or shares in its holding company through a scheme for the benefit of employees, commonly referred to as an Employee Share Acquisition Scheme (ESAS), subject to compliance with Rule 16 of the Companies (Share Capital and Debentures) Rules, 2014.

Rule 16(4) of the Companies (Share Capital and Debentures) Rules, 2014 provides that where the voting rights are not exercised directly by the employees in respect of shares to which the scheme relates, the Board’s Report shall disclose the particulars prescribed under the Rule.

The objective of the disclosure is to ensure transparency regarding the manner in which voting rights attached to shares acquired under the scheme are exercised.

Where applicable, the Board’s Report should disclose:

1. The names of the persons who hold voting rights directly or indirectly on behalf of the employees;

2. The basis on which such persons exercise voting rights;

3. The percentage of voting rights exercisable by such persons; and

4. Such other relevant particulars regarding the exercise of voting rights under the scheme.

Applicability to OPCs and Small Companies

There is no specific exemption available to OPCs or Small Companies from the disclosure requirement under Rule 16(4). However, the requirement becomes applicable only if all the following conditions are satisfied:

1. The company has implemented an Employee Share Acquisition Scheme under Section 67(3)(b);

2. Shares are held under the scheme for the benefit of employees; and

3. The voting rights attached to such shares are not exercised directly by the employees.

In practice:

An OPCis highly unlikely to have an Employee Share Acquisition Scheme because of its single-member structure and limited ownership framework.
A Small Companymay implement such a scheme, though it is uncommon.
If the scheme exists and voting rights are exercised through trustees or other intermediaries rather than directly by employees, the disclosure under Rule 16(4) becomes mandatory.

Where no Employee Share Acquisition Scheme Exists

Employee Share Acquisition Scheme / Voting Rights Disclosure

During the financial year under review, the Company has not implemented any Employee Share Acquisition Scheme or Employee Stock Option Scheme involving trust mechanism or indirect holding of shares. Accordingly, the provisions of Rule 16(4) of the Companies (Share Capital and Debentures) Rules, 2014 are not applicable to the Company.

Where Scheme Exists but Voting Rights are Not Exercised Directly by Employees

Employee Share Acquisition Scheme / Voting Rights Disclosure

During the financial year under review, shares under the Employee Share Acquisition Scheme / Employee Stock Option Scheme, as applicable, are held through a trust / designated mechanism and the voting rights in respect of such shares are not exercised directly by the employees.

In accordance with Rule 16(4) of the Companies (Share Capital and Debentures) Rules, 2014, the voting rights in respect of such shares are exercised by the appointed trustee / authorized person in accordance with the provisions of the Scheme.

The Company ensures that the Scheme is administered in a fair and transparent manner and in compliance with applicable provisions of the Companies Act, 2013 and rules made thereunder.

Simplified Disclosure Format

Employee Share Acquisition Scheme / Voting Rights

Pursuant to Rule 16(4) of the Companies (Share Capital and Debentures) Rules, 2014, voting rights in respect of shares issued under the Employee Share Acquisition Scheme / ESOP Scheme are not exercised directly by employees and are exercised through the designated trustee/authorized mechanism in accordance with the Scheme.

Practical Note: Where a company operates an Employee Share Acquisition Scheme and the voting rights attached to shares under the scheme are not exercised directly by employees, the Board’s Report must contain the disclosures prescribed under Rule 16(4) of the Companies (Share Capital and Debentures) Rules, 2014. No specific exemption is available to OPCs or Small Companies. However, since such schemes are uncommon in OPCs and Small Companies, the requirement is rarely encountered in practice.

DISCLOSURE ON CORPORATE SOCIAL RESPONSIBILITY (CSR)

Question: What should be mentioned in the Board’s (Director’s) Report regarding Corporate Social Responsibility (CSR) under Section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, and is this requirement applicable to an OPC or a Small Company?

Answer: Section 135 of the Companies Act, 2013 mandates Corporate Social Responsibility (CSR) compliance for companies meeting the prescribed financial thresholds. Pursuant to Section 135(4) and Rule 8 of the Companies (CSR Policy) Rules, 2014, the Board’s Report is required to contain an annual report on CSR activities in the format prescribed under the CSR Rules.

Applicability of CSR Provisions

CSR provisions become applicable to every company, including a private company, OPC, or Small Company, if during the immediately preceding financial year it satisfies any one of the following criteria:

Net worth of ₹500 crore or more; or
Turnover of ₹1,000 crore or more; or
Net profit of ₹5 crore or more.

Accordingly, there is no blanket exemption for OPCs or Small Companies from CSR provisions. However, considering the financial thresholds prescribed under Section 135:

An OPC is highly unlikely to meet the CSR thresholds in practice.
A Small Company is also unlikely to satisfy the net worth or turnover thresholds because of the limits prescribed under Section 2(85). However, a Small Company may theoretically become subject to CSR if it satisfies the net profit criterion and otherwise continues to qualify as a Small Company.

Therefore, applicability of CSR depends on satisfaction of Section 135 thresholds and not on the status of the company as an OPC or Small Company.

Further, this disclosure requirement arises under the Companies (CSR Policy) Rules, 2014 and is independent of Rule 8 or Rule 8A of the Companies (Accounts) Rules, 2014. Therefore, the exemption available to OPCs and Small Companies from Rule 8 of the Companies (Accounts) Rules does not affect this requirement.

What should be disclosed in the Board’s Report?

Where CSR provisions are applicable, the Board’s Report should contain the Annual Report on CSR in the format prescribed under Rule 8 of the Companies (CSR Policy) Rules, 2014, including:

1. Brief outline of the CSR Policy;

2. Composition of the CSR Committee (where applicable);

3. Web-link where CSR Policy, CSR Committee composition, and approved CSR projects are disclosed;

4. Details of CSR expenditure required and spent during the year;

5. Details of ongoing and other CSR projects;

6. Amount unspent, if any, and treatment thereof;

7. Reasons for not spending the prescribed CSR amount, if applicable;

8. Responsibility statement of the CSR Committee/Board regarding implementation and monitoring of CSR Policy.

For companies not required to constitute a CSR Committee under Section 135(9), the functions of the CSR Committee may be discharged by the Board of Directors, and the disclosure should be modified accordingly.

Illustrative Disclosure

Where CSR Provisions Are Not Applicable

Corporate Social Responsibility (CSR)

The provisions of Section 135 of the Companies Act, 2013 relating to Corporate Social Responsibility are not applicable to the Company as the Company does not fall within the prescribed thresholds as specified under Section 135(1) of the Act.

Accordingly, the Company is not required to:

Constitute a CSR Committee; or
Undertake CSR activities; or
Make disclosures under the CSR Policy Rules, 2014, including Annual CSR Report.

During the financial year under review, the Company was not required to spend any amount towards CSR activities.

Where CSR is Applicable (If Thresholds Are Met)

Corporate Social Responsibility (CSR)

Pursuant to Section 135 of the Companies Act, 2013 read with the Companies (CSR Policy) Rules, 2014, the Company was required to undertake CSR activities during the financial year.

The Company has duly constituted a CSR Committee and formulated a CSR Policy approved by the Board.

The Annual CSR Report containing the details of CSR expenditure and activities undertaken during the year forms part of this Board’s Report as Annexure – ___.

The summary of CSR expenditure is as follows:

Amount required to be spent: ₹__________
Amount actually spent: ₹__________
Amount unspent, if any: ₹__________
Manner of spending (project-wise details): ______________________

In case of any unspent CSR amount, the Company has transferred/shall transfer the same to the appropriate fund in accordance with Section 135(5) / 135(6), as applicable.

Practical Note: There is no specific exemption for an OPC or a Small Company from the CSR disclosure requirements under Section 135 of the Companies Act, 2013. If the company satisfies the CSR applicability thresholds prescribed under Section 135, it must include the prescribed CSR disclosures and the Annual Report on CSR Activities in its Board’s Report. However, since most OPCs and Small Companies do not meet the prescribed financial thresholds, the CSR provisions are generally not applicable to them in practice.

DISCLOSURE OF AMOUNT RECEIVED FROM DIRECTOR OR RELATIVE OF DIRECTOR OF A PRIVATE COMPANY

Question: What should be mentioned in the Board’s (Director’s) Report regarding the disclosure under the proviso to Rule 2(1)(c)(viii) of the Companies (Acceptance of Deposits) Rules, 2014, and is this requirement applicable to an OPC or a Small Company?

Answer: Rule 2(1)(c)(viii) of the Companies (Acceptance of Deposits) Rules, 2014 provides that any amount received by a company from:

a director of the company; or
a relative of a director of a private company,

shall not be treated as a deposit, provided that the person from whom the money is received furnishes to the company, at the time of giving the money, a declaration in writing that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others.

The proviso to Rule 2(1)(c)(viii) further provides that:

The company shall disclose the details of such unsecured loan in the Board’s Report.

Further, the exemption from being treated as a deposit is available only if the promoters furnish a declaration to the company that the amount is not being given out of funds acquired by them by borrowing or accepting loans or deposits from others.

Accordingly, where a company has received an unsecured loan from its promoters, the Board’s Report should disclose:

The amount of unsecured loan received from promoters;
Confirmation that the promoters have furnished the requisite declaration that the funds have not been raised through borrowing or acceptance of loans or deposits from others; and
A statement that the amount is treated as exempt from deposits under Rule 2(1)(c)(viii).

Applicability to OPCs and Small Companies

There is no exemption available to OPCs or Small Companies from the proviso to Rule 2(1)(c)(viii). The disclosure requirement is transaction-based and becomes applicable whenever:

1. The company receives an unsecured loan from its promoter(s);

2. Such loan is brought in pursuant to a stipulation of a bank or financial institution; and

3. The company seeks to avail the exemption under Rule 2(1)(c)(viii).

Therefore:

An OPC receiving such promoter funding must make the disclosure.
A Small Company receiving such promoter funding must also make the disclosure.

The fact that an OPC or Small Company prepares an abridged Board’s Report under Section 134(3A) read with Rule 8A does not override this specific disclosure requirement because it arises under the Companies (Acceptance of Deposits) Rules, 2014 and is linked to the exemption from the definition of “deposit”.

Illustrative Disclosure

Where No Such Borrowings Exist

Disclosure under Rule 2(1)(c)(viii) of the Companies (Acceptance of Deposits) Rules, 2014

During the financial year under review, the Company has not accepted any loans or borrowings which fall under the ambit of Rule 2(1)(c) (viii) of the Companies (Acceptance of Deposits) Rules, 2014 requiring written declaration from the lender. Accordingly, the disclosure requirement under Rule 2(1)(c)(viii) is not applicable to the Company.

Where Borrowings exist and Declaration is obtained

Disclosure under Rule 2(1)(c)(viii) of the Companies (Acceptance of Deposits) Rules, 2014

During the financial year under review, the Company received an unsecured loan of ₹_____ from its promoter(s) pursuant to a stipulation imposed by __________ Bank/Financial Institution in connection with the credit facilities availed by the Company.

The promoter(s) have furnished the requisite declaration confirming that the amount so brought in has not been raised by borrowing or accepting loans or deposits from any other person. Accordingly, the said amount is not treated as a deposit in terms of Rule 2(1)(c)(viii) of the Companies (Acceptance of Deposits) Rules, 2014.

The details of such unsecured loan have been duly disclosed in this Report in compliance with the proviso to Rule 2(1)(c)(viii) of the said Rules.

Practical Note: Where an OPC, Small Company, or any other company receives an unsecured loan from its promoter(s) pursuant to a stipulation of a bank or financial institution and claims exemption under Rule 2(1)(c)(viii) of the Companies (Acceptance of Deposits) Rules, 2014, the details of such loan must be disclosed in the Board’s Report. No specific exemption is available to OPCs or Small Companies from this disclosure requirement. If no such loan has been received during the year, no disclosure is required.

PENALTIES FOR NON-DISCLOSURE IN THE BOARD’S (DIRECTOR’S) REPORT BY AN OPC OR SMALL COMPANY

The penalties for non-disclosure in the Board’s (Director’s) Report by an OPC or Small Company can be broadly classified into three categories:

Sr. No.	Disclosure Requirement	Relevant Provision	Penalty for Non-Compliance
1	Contents prescribed under Rule 8A (Web address of annual return, Board meetings, Directors’ Responsibility Statement, frauds, state of affairs, financial summary, material changes, directors appointed/resigned, significant orders, etc.)	Section 134(3A) read with Rule 8A of the Companies (Accounts) Rules, 2014	Section 134(8) – Company: ₹3,00,000; Officer in default: ₹50,000
2	Form AOC-2 (Related Party Transactions)	Section 134(3)(h) read with Section 188(1) and Rule 8A(2)	Section 134(8) – Company: ₹3,00,000; Officer in default: ₹50,000 (Board’s Report non-compliance)
3	Explanations/comments on qualifications in Secretarial Audit Report	Section 134(3)(f) read with Section 204	Section 134(8) – Company: ₹3,00,000; Officer in default: ₹50,000
4	Remuneration/commission received by MD/WTD from holding or subsidiary company	Section 197(14)	No specific penalty prescribed. Generally Section 450 may apply – Company: ₹10,000 plus ₹1,000 per day (max ₹2,00,000); Officer: ₹10,000 plus ₹1,000 per day (max ₹50,000). Alternative view: Section 134(8) may also be invoked because disclosure is required in Board’s Report.
5	Vigil Mechanism disclosure	Proviso to Section 177(10)	If applicable and not disclosed, Section 178(8) may apply for contravention of Section 177 – Company: ₹5,00,000; Officer in default: ₹1,00,000.
6	Issue of Shares with Differential Rights	Section 43(a)(ii) read with Rule 4(4) of the Companies (Share Capital and Debentures) Rules, 2014	No specific penalty under Rule 4(4). Generally treated as Board’s Report non-compliance – Section 134(8).
7	Sweat Equity Shares disclosure	Section 54 read with Rule 8(13) of the Companies (Share Capital and Debentures) Rules, 2014	No specific penalty prescribed. Generally Section 134(8).
8	ESOP disclosure	Section 62(1)(b) read with Rule 12(9) of the Companies (Share Capital and Debentures) Rules, 2014	No specific penalty prescribed. Generally Section 134(8).
9	Employee Share Acquisition Scheme disclosure	Section 67(3)(b) read with Rule 16(4) of the Companies (Share Capital and Debentures) Rules, 2014	No specific penalty prescribed. Generally Section 134(8).
10	Disclosure of unsecured loan received from director/relative of director	Proviso to Rule 2(1)(c)(viii) of the Companies (Acceptance of Deposits) Rules, 2014	No specific penalty prescribed for non-disclosure in Board’s Report. Generally Section 134(8).
11	CSR disclosure and Annual CSR Report	Section 135 read with CSR Rules	Failure to make disclosure in Board’s Report may attract Section 134(8). Separate CSR violations may attract consequences under Section 135.
12	Composition of Audit Committee and reasons for non-acceptance of recommendations	Rule 8(5)(viii) read with Section 177	Generally not applicable to OPC/Small Company due to Rule 8(6). If applicable and omitted, Section 177/178(8) and/or Section 134(8) may apply.

Practical Summary

For an OPC or Small Company, almost all disclosure defaults in the Director’s Report ultimately fall into one of the following:

Nature of Default	Likely Penalty Provision
Non-compliance with Rule 8A or Section 134 disclosures	Section 134(8) – Company ₹3,00,000; Officer ₹50,000
Non-compliance with Section 177/Vigil Mechanism provisions	Section 178(8) – Company ₹5,00,000; Officer ₹1,00,000
Disclosure provision where no specific penalty is prescribed (e.g., Section 197(14), Rule 4(4), Rule 8(13), Rule 12(9), Rule 16(4), Rule 2(1)(c)(viii))	Generally Section 134(8) (stronger view) or Section 450 (alternative view) depending upon the nature of default and adjudicating authority’s interpretation

*****

Author’s View: Since these disclosures are specifically required to be included in the Board’s Report, omission of such disclosures generally results in a non-compliant Board’s Report, and therefore Section 134(8) is likely to be the primary penalty provision in most cases, unless the underlying section itself prescribes a specific penalty.

Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the author whatsoever and the content is to be used strictly for informational and educational purposes. While due care has been taken in preparing this article, certain mistakes and omissions may creep in. the author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.