Section 134 of the Act enjoins upon the Board a responsibility to make out its report to the shareholders and attach the said report to financial statements laid before the shareholders at the annual general meeting, in pursuance of Section 129 of the Act.
The Board’s Report is very important communication by the Board of Directors of a company with its shareholders. It serves to inform the shareholders about the performance and various other aspects of the company, its major policies, relevant changes in management, future programmes of expansion, modernization and diversification, capitalization or reserves, etc. It also enables lenders, bankers, government and the public to make an appraisal of the company’s performance and provides an insight into the future growth and profitability of the company.
This article makes an attempt to provide a high level guide on various requirements of Board’s report under Companies Act, 2013 and otherwise.
It is mandatory for the Board of Directors of every company to present financial statement to the shareholders along with its report, known as the “Board’s Report” at every annual general meeting.
Highlights of Board’s Report:
DISCLOSURES PURSUANT TO THE COMPANIES ACT, 2013:
In terms of Sub-section (3) of Section 134, the Board’s Report shall include:
(a) the web address, if any, where annual return referred to in subsection (3) of section 92 has been placed;
(b) Number of meetings of the Board;
(c) Directors’ Responsibility Statement;
(ca) 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;
(d) a statement on declaration given by independent directors under sub-section (6) of section 149;
(e) in case of a company covered under sub-section (1) of section 178, company’s policy on directors’ appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under subsection (3) of section 178;
(f) explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made–
(i) by the auditor in his report; and
(ii) by the secretarial auditor in his report;
(g) particulars of loans, guarantees or investments under section 186;
(h) particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in the prescribed form i.e. Form no. AOC-2;
(i) the state of the company’s affairs;
(j) the amounts, if any, which it proposes to carry to any reserves;
(k) the amount, if any, which it recommends should be paid by way of dividend;
(l) material changes and commitments, if any, affecting the financial position of the company which have occurred between the end of the financial year of the company to which the financial statements relate and the date of the report;
(m) the conservation of energy, technology absorption, foreign exchange earnings and outgo, in such manner as may be prescribed;
(n) a statement indicating development and implementation of a risk management policy for the company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company;
(o) the details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year;
(p) in case of a listed company and every other public company having such paid-up share capital as may be prescribed, a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors;
(q) such other matters as may be prescribed.
The Central Government has been empowered to prescribe an abridged Board’s report, for the purpose of compliance with this section by One Person Company or small company.
Disclosures related to Employees:
As per Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, every listed company shall disclose in the Board’s report-
(i) the ratio of the remuneration of each director to the median remuneration of the employees of the company for the financial year;
(ii) the percentage increase in remuneration of each director, Chief Financial Officer, Chief Executive Officer, Company Secretary or Manager, if any, in the financial year;
(iii) the percentage increase in the median remuneration of employees in the financial year;
(iv) the number of permanent employees on the rolls of company;
(v) average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration;
(vi) affirmation that the remuneration is as per the remuneration policy of the company.
Further the board’s report shall include a statement showing the names of the top ten employees in terms of remuneration drawn.
The Board report shall include the name of every employee, who-
(i) if employed throughout the financial year, was in receipt of remuneration for that year which, in the aggregate, was not less than one crore and two lakh rupees;
(ii) if employed for a part of the financial year, was in receipt of remuneration for any part of that year, at a rate which, in the aggregate, was not less than eight lakh and fifty thousand rupees per month;
(iii) if employed throughout the financial year or part thereof, was in receipt of remuneration in that year which, in the aggregate, or as the case may be, at a rate which, in the aggregate, is in excess of that drawn by the managing director or whole-time director or manager and holds by himself or along with his spouse and dependent children, not less than two percent of the equity shares of the company.
Further such statement shall also indicate the following details:
(a) designation of such employee;
(b) remuneration received;
(c) nature of employment, whether contractual or otherwise;
(d) qualifications and experience of the employee;
(e) date of commencement of employment;
(f) the age of such employee;
(g) the last employment held by such employee before joining the company;
(h) the percentage of equity shares held by the employee in the company within the meaning of clause (iii) of sub-rule (2) above; and
(i) whether any such employee is a relative of any director or manager of the company and if so, name of such director or manager.
Disclosure of commission to managing or whole-time director:
Any director who is in receipt of any commission from the company and who is a managing or whole-time director of the company shall not be disqualified from receiving any remuneration or commission from any holding company or subsidiary company of such company subject to its disclosure by the company in the Board’s report.(Sec 197(14) of the Act).
Re-Appointment of Independent Director:
In terms of section 149(10), an independent director shall hold office for a term up to five consecutive years on the Board of a company, but shall be eligible for reappointment on passing of a special resolution by the company and disclosure of such appointment in the Board’s report.
Change in the composition of the Board:
Any appointment, reappointment or change in the office of a director (including whole-time director, additional director, alternate director or a director filling a casual vacancy) whether by virtue of rotation, resignation, death or otherwise should be indicated in the Board’s Report.
Disqualifications of Directors:
Section 164 of the Act lays down grounds for disqualification of directors. The Section 164(2)(b) mandates that no person who is a director of a company shall be reappointed as a director thereof or be appointed on the Board of any other company for a period of 5 years if the company on which he is a director fails to
(i) File Financial Statements or Annual Return for 3 consecutive financial years or
(ii) Repay deposits or redeem debentures as and when due or
(iii) Pay dividend which has been recommended and declared.
In terms of Section 177(1) of the Act read with rule 6 of Companies (Meetings of Board and its Powers) Rules, 2014 and rule 4 of Companies (Appointment and Qualification of Directors) Rules, 2014, following companies shall constitute an Audit Committee.
(i) every listed company;
(ii) all public companies with a paid up capital of Rs.10 Crores or more;
(iii) all public companies having turnover of Rs.100 Crores or more;
(iv) all public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding Rs.50 Crores or more.
However, the following classes of unlisted public company shall not constitute an Audit Committee:-
(a) a joint venture;
(b) a wholly owned subsidiary; and
c) a dormant company as defined under section 455 of the Act.
Change in Capital Structure of the company:
Board requires the disclosure of any changes in the capital structure of the company during the year
Investor Education and Protection Fund:
The Board should, as a good corporate practice, inform the shareholders about the amounts, if any, which have been transferred during the year to the Investor Education and Protection Fund established under sub-section (2) of section 125 of the Act and the IEPF (Accounting, Audit, Transfer and Refund) Rules, 2016.
Further, the Board’s Report should clearly state the amounts, if any, which were to be transferred to the Investor Education and Protection Fund but have not been so transferred, alongwith the reasons for such failure.
Section 177(9) read with Rule 7 of the Companies (Meeting of Board and its Powers) Rules, 2014 provides that every listed company and the companies belonging to the following class or classes shall establish a vigil mechanism for their directors and employees to report their genuine concerns or grievances-
(a) the Companies which accept deposits from the public;
(b) the Companies which have borrowed money from banks and public financial institutions in excess of fifty crore rupees.
As a good corporate practice, the Board’s Report should also contain disclosures with regard to:
(i) name of the candidate nominated by small shareholders in terms of Section 151 of the Act which states that a listed company may upon notice of not less than one thousand small shareholders or one-tenth of the total number of such shareholders, whichever is lower, have a small shareholder’s director elected by the them.
(ii) name of retiring Auditors and/or the Secretarial Auditors and whether or not they are eligible and willing for reappointment;
(iii) name of Auditors and/or Secretarial Auditors, if any, who resigned during the year;
(iv) reasons for delay, if any, in holding Annual General Meeting together with references to the approval obtained from the Registrar of Companies for extension of time for holding Annual General Meeting pursuant to the Third Proviso to Section 96(1) of the Act;
(v) change in auditor and/or Secretarial Auditors during the year along with the reasons if any;
(vi) appointment of relatives of directors to an office or place of profit;
(vii) special resolutions which were passed by the shareholders in the previous meeting(s) but which have not been acted upon and the reasons therefor.
CREDIT RATING OF SECURITIES:
As a good governance practice the disclosure on credit rating should also be included in the Board’s report.
DISCLOSURE PURSUANT TO THE SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015:
Regulation 32 – Statement of deviation(s) or variation(s):
Companies which have listed their specified securities shall furnish in the directors/Board Report an explanation for any deviation or variation in connection with certain terms of a public issue, rights issue, preferential issue etc.
Management Discussion and Analysis (MDA):
In case of companies which have listed their specified securities, the Report shall include an MDA, either as a part of the Report or as an annexure to the Report.
Certificate on Compliance of conditions of Corporate Governance:
Companies which have listed their specified securities, shall annex with the Report a certificate obtained from either the Statutory Auditor or a practicing Company Secretary regarding compliance of the conditions of corporate governance.
DISCLOSURES PERTAINING TO THE SEXUAL HARASSMENT OF WOMEN AT THE WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013:
The disclosure shall include the following:
1. a statement that the company has complied with the provision relating to the constitution of Internal Complaints Committee under the Sexual Harassment of Women at the Workplace (Prevention, Prohibition and Redressal) Act, 2013.
2. the details of number of cases filed and disposed as required under the Sexual Harassment of Women at the Workplace (Prevention, Prohibition and Redressal) Act, 2013
DISCLOSURES PURSUANT TO DIRECTIONS OF RESERVE BANK OF INDIA:
Non-Banking Financial Companies (NBFCs), a miscellaneous non-banking company and residuary companies shall include report disclosing a compliance with the provisions of RBI directions.
Secretarial Audit Report:
As per provisions of Section 204(1) of Companies Act, 2013, every listed company or every public company having a paid- up share capital of fifty crore rupees or more or every public company having a turnover of two hundred fifty crore rupees or more shall annex with its Board’s report, a Secretarial audit report, given by a company secretary in practice.
Explanations in the Board’s report in response to Auditors’ qualification(s):
The Report shall include explanations or comments on every qualification, reservation or adverse remark or disclaimer made in the Auditor’s Report and the Secretarial Auditor’s Report.
The Board’s Report should be considered, approved and signed at a meeting of the Board, convened in accordance with the provisions of the Act and shall not be dealt – by means of a resolution passed by circulation.
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Source: ICSI portal