Introduction:
The Directors’ Report, as mandated by Section 134 of the Companies Act, 2013, stands as a crucial document that provides transparency and accountability in the corporate world. It serves as a comprehensive statement of a company’s financial health, its achievements, challenges, and future strategies. The report’s significance cannot be overstated, as it informs stakeholders, shareholders, regulators, and investors about the company’s performance, governance, and commitment to corporate social responsibility.
The checklist provided here outlines the specific particulars that must be included in the Board’s Report, and it highlights the differentiation between One Person Companies (OPC) and Small Companies. It’s imperative for companies, irrespective of their size, to meticulously follow these guidelines to ensure compliance with the legal framework and uphold corporate governance standards. Directors, corporate secretaries, and financial executives are tasked with the responsibility of ensuring that each aspect of the checklist is addressed accurately and comprehensively. In this dynamic and increasingly regulated corporate environment, adherence to these rules is not just a legal requirement; it’s a commitment to integrity, trust, and good business practices.
Checklist on Directors’ Report as per Section 134 of the Companies Act, 2013
Clause of 134(3) | Particulars to be included in Board’s Report [Section 134 (3)] | Whether below Disclosure to be made part in Board Report [134(3) and Rule 8(6)] — | |
| OF OPC | OF SMALL CO. | ||
| a | Web address, if any, where annual return (MGT-7/MGT-7A) has been placed | Yes | Yes |
| b | No. of meetings of the Board | Yes | Yes |
| c | Directors’ Responsibility Statement | Yes | Yes |
| ca | Details in respect of frauds reported by auditors under section 143(12) other than those which are reportable to the CG As per Rule 13(4) [Companies (Audit and Auditors) Rules] following details must be captured – (a) Nature of Fraud with description; (b) Approximate Amount involved; (c) Parties involved, if remedial action not taken; and (d) Remedial actions taken. | Yes | Yes |
| d | Statement on declaration given by ID under Section 149 (6) | NA | NA |
| e | For Co. covered u/s 178(1), Co’s Policy on directors’ Appt. and remuneration including criteria for determining qualifications, positive attributes, independence of a director | NA | NA |
| f(i) | explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report | Yes | Yes |
| f(ii) | explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by PCS in his secretarial audit report | Yes | Yes |
| g | particulars of loans, guarantees or investments u/s 186 | Yes | Yes |
| h | particulars of contracts or arrangements with related parties u/s 188(1) in AOC-2 | Yes | Yes |
| i | state of the company’s affairs | Yes | Yes |
| j | amounts, if any, which it proposes to carry to any reserves | Yes | Yes |
| k | amount, if any, which it recommends should be paid by way of dividend | Yes | Yes |
| l | material changes and commitments, if any, affecting the financial position of the Co. which have occurred between the end of the FY to which the FS relate and the date of the report | Yes | Yes |
| m | conservation of energy, technology absorption, foreign exchange earnings and outgo | Yes | Yes |
| n | statement indicating development and implementation of a risk management policy for Co. including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company; | Yes | Yes |
| o | details about policy developed & implemented by the Co. on CSR initiatives taken during year; | Yes | Yes |
| p | Every listed Co. and every other Pub. Co. having PUSC of 25 Cr or more calculated at the end of preceding FY shall include in its Board report, 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. | NA | NA |
| q | Particulars as per Rule 8 of Companies (Accounts) Rules 2014 (Only Extra Points required under said Rule is covered below) | ||
| Rule 8 (1) | highlights of performance of subsidiaries, associates and joint venture Cos. and their contribution to the overall performance of the company — (standalone financial basis) | NA | NA |
| Rule 8 (3) | following details to be included for 134 (3) (m) – (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. –this sub-rule shall not apply to a government company engaged in producing defence equipment. | Yes | Yes |
| Rule 8 (5) | |||
| ii | the change in the nature of business, if any; | NA | NA |
| iii | the details of directors or KMP who were appointed or have resigned during the year; | NA | NA |
| iiia | a statement regarding opinion of the Board with regard to integrity, expertise and experience (including the proficiency) of the ID appointed during the year. [the expression “proficiency” means the proficiency of the ID as ascertained from the online proficiency self-assessment test conducted by the institute notified under section 150(1)] | NA | NA |
| iv | the names of companies which have become or ceased to be its Subsidiaries, joint ventures or associate companies during the year | NA | NA |
| v | the details relating to deposits– (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] | NA | NA |
| vi | the details of deposits which are not in compliance with the requirements of Chapter V of the Act | NA | NA |
| 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 | NA | NA |
| viii | the details in respect of adequacy of internal financial controls with reference to the Financial Statements | NA | NA |
| ix | a disclosure, as to whether maintenance of cost records [section 148(1)] is required by the Company and accordingly such accounts and records are made and maintained | NA | NA |
| x | a statement that the company has complied with provisions relating to the constitution of Internal Complaints Committee under POSH act | NA | NA |
| xi | the details of application made or any proceeding pending under IBC during the year along with their status as at the end of the financial year | NA | NA |
| 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 | NA | NA |
Conclusion:
In conclusion, the checklist for Directors’ Report under Section 134 of the Companies Act, 2013, underscores the importance of transparency, accountability, and compliance in the corporate world. The checklist serves as a valuable tool for companies, regardless of their size, to ensure that their annual reports meet the legal and regulatory requirements. It also reinforces the principle that corporate governance, ethical practices, and responsible business conduct are integral to sustainable growth and the trust of stakeholders.
As the business landscape continues to evolve, and as regulatory requirements become more stringent, it is essential for companies to embrace these guidelines wholeheartedly. Not only do these disclosures fulfill legal obligations, but they also instill confidence in shareholders, investors, and the general public. Directors and those responsible for preparing the Directors’ Report should approach these guidelines with diligence and commitment to maintaining a high standard of corporate governance.
In an era where corporate social responsibility, ethical practices, and transparency are highly valued, compliance with Section 134 of the Companies Act, 2013, not only safeguards against legal repercussions but also positions the company as a responsible and trustworthy entity in the eyes of the global business community. This checklist is a step in the right direction towards achieving these goals, ensuring that the company’s annual report stands as a testament to its commitment to good governance and sustainable business practices.
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Very useful. much needed