A Director’s Report is an essential document for corporate governance and regulatory compliance under the Companies Act, 2013. It provides an overview of a company’s workings, activities, and performance over a specific period. This guide elaborates on the intricate aspects of this report, its importance, and the mandatory legal provisions related to it.
Director Report is report which is served by Board of Directors of Company with the intention to update about the workings of company of various topic in summary with some topic in brief as well as in sync with compliance under the Companies Act, 2013. Lets start with knowing covering this provision in depth.
What is Director Report?
There is no defined definition of Director Report or Board Report. However, The Companies Act, 2013 defined the definition of Board of Company or Board as means the collective body of the Directors of the company as per Section 2(10) of The Companies Act, 2013.
Hence, one can say, it is a report prepared by Board of Directors where Board states workings of company of various topic in summary with some topic in brief as well as in sync with compliance under the Companies Act, 2013.
Is it mandatory to prepare this report?
Yes, it is mandatory for a Company to prepare Board Report for every Company.
What section deals with Report?
The provision which deals with The Companies Act, 2013 of section 134 along with section 92, 143, 149, 178, 186, 188 and The Companies (Accounts) Rules, 2014 amended from time to time.
What does this report include?
This report Convers below given point as per above The Companies Act, 2013 and The Companies (Accounts) Rules, 2014:-
1. the web address, if any, where annual return referred to in sub-section (3) of section 92 has been placed
2. number of meetings of the Board
3. Directors’ Responsibility Statement;
4. details in respect of frauds reported by auditors, if any
5. a statement on declaration given by independent Director
6. If company has Independent Director then, company’s policy on Directors’ appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters
7. explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made-
- by the auditor in his report, i.e Auditor Report
- by the company secretary in practice in his secretarial audit report
8. particulars of loans, guarantees or investments
9. particulars of contracts or arrangements with related parties
10. the state of the company’s affairs
11. the amounts, if any, which it proposes to carry to any reserves
12. the amount, if any, which it recommends should be paid by way of dividend
13. 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
14. the conservation of energy, technology absorption, foreign exchange earnings and outgo
15. 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
16. the details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year
17. Points to be covered in case of a listed company and every other public company having such paid-up share capital of twenty five (25) crore rupees or more calculated at the end of the preceding financial year
- the financial summary or highlight
- the change in the nature of business, if any
- the details of directors or key managerial personnel who were appointed or have resigned during the year;
- 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
- the names of companies which have become or ceased to be its Subsidiaries, joint ventures or associate companies during the year
- the details relating to deposits, if any
- 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;
- the details in respect of adequacy of internal financial controls with reference to the Financial Statements
- a disclosure, as to whether maintenance of cost records
- 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
- 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.
- 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
- Any other matter as prescribed under law from time to time
Is it mandatory to prepare this report?
Yes, every Company need to comply with preparation this Board Report every Year. There are penal provisions for not preparing report.
When this report is prepared by Company?
This Report is prepared every Year by Company for one FY.
What are important points to remember while preparing this report by a company?
The report of the Board of Directors to be attached to the financial statement
- 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 and where he is not so 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
- 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
- A signed copy of Board Report shall be issued, circulated or published to each and every member of Company.
What if this report is not prepared?
If a company is in default in complying with preparation of Board Report, the company shall be liable to a penalty of three lakh rupees and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.
Conclusion: The Director’s Report serves as a vital tool for stakeholders to understand the company’s performance, strategic direction, and compliance status. Its importance under the Companies Act, 2013, is indisputable. However, preparation and compliance with the report’s guidelines can be challenging. Thus, a thorough understanding of the requirements is crucial for any company, its board of directors, and other stakeholders involved in the process. Failure to comply with these requirements carries significant legal implications and may adversely affect the company’s reputation.
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Disclaimer: – The above article is prepared keeping in mind all the important and basic question as well as provision of section 134 of the Companies Act, 2013 and The Companies (Accounts) Rules, 2014. The author has tried to cover all the important and basic question. Under no circumstance, the author shall not liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.
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