10 Company Law Amendments effective from 01st April 2021

Ten (10) Amendments – Companies Act, 2013 Effective from 01st April 2021 F.Y. 2021-22

In this editorial author shall discuss all the amendment under Companies Act, 2013 which came into effect from 01^st April 2021 and impact financial year 2021-22.

Many amendments has been made by MCA and Govt in last financial year I.e. 2020-21. However, out of those amendments many amendments are effective from 01^st April 2021.

Amendment 1:

CHANGE IN DEFINITION OF SMALL COMPANY:

The Companies (Specification of Definitions Details) Amendment Rules, 2021 passed on 1st February 2021. Definition of Small Company has been changed by these amendments.

This Rules came into effect from 1^st April 2021

IMPACT ON DEFINITION:

‘‘Small Company’’ means a company, other than a public company,—

Having i.e the paid-up capital should Rs. 2 Crore or more or the turnover as per last statement of profit & loss should Rs. 20 Crore or more. If any of the given limits crossed at any point of time then such a Company shall be out of the  preview of a Small Company.

Amendment 2:

AMENDMENT IN CONCEPT OF ONE PERSON COMPANY:

The Companies (Incorporation) Second Amendment Rules, 2021 passed on 1st February 2021, through these rules MCA has made amendment in many provisions of One Person Company like:

This Rules came into effect from 1^st April 2021

1. NRI can incorporate One Person Company in India.

2. It is not mandatory to convert One Person Company in other type of company irrespective of Turnover.

3. OPC can convert in other type of Company any time after incorporation without any transition period.

4. Process of OPC in other type of Company has been completed amended.

Amendment 3:

AMENDMENT IN DEFINITION OF LISTED COMPANY:

The Companies (Specification of Definitions Details) Second Amendment, Rules 2021 passed on 19th February 2021. This Rules came into effect from 1^st April 2021.

Definition of Listed Company has been changed by this amendment: Following companies shall not be considered as Listed Company-

a. Public companies which have not listed their equity shares on a recognized stock exchange but have listed their –

{i) non-convertible debt securities issued on private placement  basis  in terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008; or

(ü) non-convertible redeemable preference shares issued on private placement basis in terms of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013; or

(iii) both categories of (i) and (u) above.

b. Private companies which have listed their non-convertible debt securities on private placement basis on a recognized stock exchange in terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008;

c. Public companies which have not listed their equity shares on a recognized stock exchange but whose equity shares are listed on a stock exchange in a jurisdiction as specified in sub-section (3) of section 23 of the Act.”.

Amendment 4:

APPLICABILITY OF NEW CARO:

Ministry of Corporate Affairs has notified the Companies (Auditor’s Report) Order, 2020 (CARO, 2020) which shall be applicable for the eligible companies for the financial year commencing on or after 1st April, 2021.

There are in total 21 clauses in CARO 2021 in comparison to 16 clauses in CARO 2016. As 1 old clause deleted, 1 clause is merged with other and 7 new clauses are inserted.

Therefore, while preparing the auditor report for the f.y. 2021-22, Auditors have to use the new CARO.

Amendment 5:

FINANCIAL STATEMENT (SCHEDULE III) WITH NEW CLAUSES:

The Ministry of Corporate Affairs vide Notification dated 24 March 2021 has amended Schedule III to the Companies Act, 2013, which shall be effective from the 1st day of April 2021 for f.y. 2021-22.

Ministry by this amendment has added many new disclosures in Notes to accounts of Balance Sheet and P&L like:

i. Rounding off of figures

ii. Shareholding of Promoters

iii. Trade payable ageing Schedule

iv. Trade receivables ageing schedule

v. Title deeds of Immovable Property not held in name of the Company

vi. Disclosure on revaluation of Assets

vii. Disclosure on Loans/ Advance to Directors/ KMP/ Related parties

viii. Details of Benami Property held

ix. Details of Borrowing

x. Wilful Defaulter

xi. Relationship with Struck off Companies

xii. Registration of charges or satisfaction with Registrar of Companies

xiii. Compliance with number of layers of companies

xiv. Disclosure of Ratios

xv. Undisclosed Income (Reconciliation of Income Tax and Companies Act)

xvi. CSR Disclosure

Amendment 6:

AMENDMENT IN DISCLOSURES OF DIRECTORS REPORT:

The Ministry of Corporate Affairs vide Notification dated 24 March 2021 has amended Companies (Account) Amendment Rules, 2021, which shall be effective from the 1st day of April 2021 for f.y. 2021-22.

First Amendment in Rule 3 i.e. Manner of Books of Account to be Kept in Electronic Mode. in Rule 3, in sub-rule (1) the proviso shall be inserted:

New Proviso: Provided that for the financial year commencing on or after the 1st day of April, 2021, every company which uses accounting software for maintaining its books of account, shall use only such accounting software which has a feature of:-

• Recording audit trail of each and every transaction,
• Creating an edit log of each change made in books of account along with,
• The date when such changes were made and
• Ensuring that the audit trail cannot be disabled.

Audit Trail means, an audit trail is defined as a step-by-step sequential record which provides evidence of the documented history of financial transactions to its source. An auditor can trace every step of, the financial data of a particular transaction right from the general ledger to its source document with the help of the audit trail.

Provision of Audit Trail, Rules shall come into effect from 01^st April, 2022.

Second Amendment in Rule 8 i.e. Matters to be Included in Board’s Report. In rule 8, sub rule 5 after clause x, two new clauses added.

New Clauses: (applicable w.e.f. 01.04.2021)

(xi) the details of application made or any proceeding pending under the Insolvency and Bankruptcy Code, 2016 during the year along with their status as at the end of the financial year.

(xii) the details of difference between the amount of the valuation done at the time of one time settlement and the valuation done while taking loan from the Banks or Financial Institutions along with the reasons thereof.

Disclosure on above mentioned two clauses are required to give in Directors Report of Companies along with other disclosures.

Amendment 7:

AMENDMENT IN DISCLOSURES OF AUDITORS REPORT:

The Ministry of Corporate Affairs vide Notification dated 24 March 2021 has amended Companies (Audit and Auditors) Amendment Rules,, 2021, which shall be effective from the 1st day of April 2021 for f.y. 2021-22 except clause (g).

Amendment in Rule 11 i.e. Other Matters to be Included in Auditors Report. In Rule 11.

• Existing clause (d) shall be omitted.
• New Clause (e), (f) & (g) inserted.

New Clause:

(e) (i) Whether the management has represented that, to the best of it’s knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the company to or in any other person(s) or entity(ies), including foreign entities (“Intermediaries”), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the company (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;

(ii) Whether the management has represented, that, to the best of it’s knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been received by the company from any person(s) or entity(ies), including foreign entities (“Funding Parties”), with the understanding, whether recorded in writing or otherwise, that the company shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; and

Note: Auditor have to check the details in notes to account and take a representation from director about such clause and check all the transaction of Company in respect of loan and advance received by company & their respective documents.

(iii) Based on such audit procedures that the auditor has considered reasonable and appropriate in the circumstances, nothing has come to their notice that has caused them to believe that the representations under sub-clause (i) and (ii) contain any material mis-statement. (applicable w.e.f. 01.04.2021)

(f) Whether the dividend declared or paid during the year by the company is in compliance with section 123 of the Companies Act, 2013. (applicable w.e.f. 01.04.2021)

(g) Whether the company has used such accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has been operated throughout the year for all transactions recorded in the software and the audit trail feature has not been tampered with and the audit trail has been preserved by the company as per the statutory requirements for record retention.]

Amendment 8:

ANNUAL RETURN OF ONE PERSON COMPANY AND SMALL COMAPNY:

The Companies (Management and Administration) Amendment Rules, 2021 passed on 05nd March 2021. This Rules came into effect immediately on publication of same in official gazette and applicable for f.y. 2020-21.

Amendment in Rule 11 i.e. “Annual Return”: in rule 11 sub rule 1 has been substituted

New Rule:

Every company shall file its annual return in Form No.MGT-7 except

• One Person Company (OPC) and
• Small Company.

One Person Company and Small Company shall file annual return from the financial year 2020-2021 onwards in Form No.MGT-7A.

Amendment 9:

INTRODUCTION OF E-FORM CSR-1 :

Ministry of Corporate Affairs has launched CSR-1 form on their website w.e.f. 1st April 2021. E-form CSR-1 is required to be filed pursuant to Section 135 of the Companies Act, 2013 and Rule 4 (1) and (2) of the Companies (Corporate Social Responsibility Policy) Rules, 2014 by followings:

√ Registered Public Trust

√ Registered Society

√ Section 8 Company

UNIQUE CSR REGISTRATION NO:

Every entity who is covered under these rules, who intends to undertake any CSR activity, shall register itself with the CG by filing the e-form CSR-1 with the ROC w.e.f. 01 April 2021. On filing of CSR -1, one ‘Unique CSR Registration Number’ shall be generated by the system automatically.

Amendment 10:

NEW ANNEXURE OF CSR WITH DIRECTORS REPORT:

MCA has introduced “Companies (Corporate Social Responsibility Policy), Amendment Rules, 2021. These rules came into effect on 22 January 2021, as the same has been published in the official gazette on the same date. Therefore, these amended rules are applicable on the financial year 2020-21 (subject to specific date of some rules).

Directors Report:

The Company shall annex with its Board Report an annual report on CSR in format of Annexure-I (for f.y. 2020-21) or in Annexure II (w.e.f. fy 2021-22).

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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at [email protected]).

Disclaimer: The entire contents of this document have been prepared based on relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a piece of professional advice and is subject to change without notice. I assume no responsibility for the consequences of the use of such information.