Board’s Report Contents & Compliance Rules: Companies Act & Rules

Board’s Report under section 134(3) & (4) read with Rule 8 of Companies (Accounts) Rules, 2014

The Board’s Report is a crucial document required under the Companies Act, 2013. It outlines specific contents that must be included, exemptions for certain types of companies, and rules for signing the report. Understanding these guidelines is essential for companies to ensure compliance and avoid penalties.

According to Rule 8 of the Companies (Accounts) Rules, 2014, the Board’s Report shall be prepared based on the standalone financial statements of the company and shall report on the highlights of performance of subsidiaries, associates and joint venture companies and their contribution to the overall performance of the company during the period under report.

According to Sub-rule (6) of Rule 8, This rule shall not apply to One Person Company or Small Company.

Contents of the Board’s Report

I. Sub-section (3) of section 134 of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014 prescribes the following contents of the Board’s Report

(a) The web address (URL), if any, where annual return of the company has been placed;

(b) Number of meetings, including Board Meetings, held during the period under report;

(c) Director’s Responsibility Statement (click here to view details in relation to Director’s Responsibility Statement);

(ca) The details of frauds reported by the auditors under Section 143(12) of the Companies Act, 2013, other than those which are reportable to the Central Government, shall be disclosed;

(d) A statement shall be included in the Board’s Report on the declaration given by the Independent Auditor under Section 149(6) of the Companies Act, 2013;

(e) In the case of a company covered under Section 178(1) of the Companies Act, 2013, the company’s policy on director’s appointment and remuneration shall include criteria for determining qualifications, positive attributes, independence of a director, and other matters provided under Section 178(1) of the Companies Act, 2013;

Note: The above clause (e) shall not applicable to a Government Company;

(f) Explanation or comments by the Board on every qualification reservation or adverse remark or disclaimer made by the auditor in Auditors Report and by the company secretary in his secretarial audit report;

(g) The particulars of loans, guarantees or investments made by a company under Section 186 of the Companies Act, 2013 shall be disclosed;

(h) The Report of the Board shall contain the particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in the Form AOC-2. [Sub-rule (2) of Rule 8];

(i) the state of affairs of the company;

(j) The amount, if any, which the company proposes to carry to any reserves shall be disclosed;

(k) The amount, if any, which the Board recommends should be paid by way of dividends shall be disclosed;

(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, shall be disclosed;

(m) The conservation of energy, technology absorption, foreign exchange earnings and outgo, shall be disclosed in such manner as may be prescribed, except for government companies engaged in producing defence equipment [Sub-rule (3) of Rule 8];

(A) Conservation of energy–

(i) the steps taken or impact on conservation of energy;

(ii) the steps taken by the company for utilising alternate sources of energy;

(iii) the capital investment on energy conservation equipments

(B) Technology absorption-

(i) the efforts made towards technology absorption;

(ii) the benefits derived like product improvement, cost reduction, product development or import substitution;

(iii) in case of imported technology (imported during the last three years reckoned from the beginning of the financial year)-

(a) the details of technology imported;

(b) the year of import;

(c) whether the technology been fully absorbed;

(d) if not fully absorbed, areas where absorption has not taken place, and the reasons thereof; and

(iv) the expenditure incurred on Research and Development.

(C) Foreign exchange earnings and Outgo-

The Foreign Exchange earned in terms of actual inflows during the year and the Foreign Exchange outgo during the year in terms of actual outflows.

(n) A statement indicating the development and implementation of a risk management policy for the company, including the identification of elements of risk, if any, which in the opinion of the board may threaten the existence of the company, shall be included in the Board’s Report;

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

(p) Every listed company and every other public company having a paid up share capital of twenty five crore rupees or more calculated at the end of the preceding financial year shall include, in the report by its Board of directors, 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 [Sub-rule (4) of Rule 8].

(q) such other matters as may be prescribed [***].

II. ***According to Sub-rule (5) of Rule 8  of the Companies (Accounts) Rules, 2014, in addition to  sub-rule (4) of Rule 8 above the report of the Board shall also contain-

(i) the financial summary or highlights;

(ii) the change in the nature of business, if any;

(iii) the details of directors or key managerial personnel who were appointed or have resigned during the year;

(iiia) a statement regarding opinion of the Board with regard to integrity, expertise and experience (including the proficiency) of the independent directors appointed during the year.

Explanation:- For the purpose of this clause, the expression “proficiency” means the proficiency of the independent director as ascertained from the online proficiency self-assessment test conducted by the institute notified under sub-section (1) of section 150.

(iv) the names of companies which have become or ceased to be its Subsidiaries, joint ventures or associate companies during the year;

(v) the details relating to deposits, covered under Chapter V of the Act,-

(a) accepted during the year;

(b) remained unpaid or unclaimed as at the end of the year;

(c) whether there has been any default in repayment of deposits or payment of interest thereon during the year and if so, number of such cases and the total amount involved-

(i) at the beginning of the year;

(ii) maximum during the year;

(iii) at the end of the year;

(vi) the details of deposits which are not in compliance with the requirements of Chapter V of the Act;

(vii) 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;

(viii) the details in respect of adequacy of internal financial controls with reference to the Financial Statements.

(ix) a disclosure, as to whether maintenance of cost records as specified by the Central Government under sub-section (1) of section 148 of the Companies Act, 2013, is required by the Company and accordingly such accounts and records are made and maintained,

(x) a statement that the company has complied with provisions relating to the constitution of Internal Complaints Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 [14 of 2013]

(xi) the details of application made or any proceeding pending under the Insolvency and Bankruptcy Code, 2016 (31 of 2016) during the year alongwith their status as at the end of the financial year.

(xii) the details of difference between 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.

Board’s Report in case of One Person Company (OPC) [Section 134(5)]

In case of a One Person Company, the report of the Board of Directors to be attached to the financial statements under this section shall, mean a report containing explanation or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report.

Signing of Board’s Report [Section 134(6)]

The Board’s Report and any annexures thereto under sub-section (3) shall be signed by-

• its chairperson of the company, if he is authorised by the Board; where he is not authorised,
• shall be signed by at least two directors, one of whom shall be a managing director; or
• by the director where there is one director.

Contravention [Section 134(8)]

If a company is in default in complying with the provisions of section 134,

• the company shall be liable to a penalty of Rs. 3,00,000 (three lakh rupees), and
• every officer of the company who is in default shall be liable to a penalty of Rs. 50,000 (fifty thousand rupees).

Conclusion: The Board’s Report is a crucial aspect of corporate governance, providing valuable insights into the company’s performance and financial position. Adhering to the specified contents and compliance rules is vital for companies to meet their regulatory obligations and maintain transparency in their operations.