In my previous article I have discussed in detailed provisions relating to How to Prepare Annual Return (MGT-7). Annual return is an important document, designed to provide information to stakeholders about the company, promoters, members, meetings and remuneration of directors and key managerial persons (KMP).

The intention of legislation under Companies Act, 2013 is to improve corporate governance and empower shareholders. The Act has incorporated a framework which is based on self-regulation but with enhanced disclosures and accountability on the part of companies and their managements.

The certification by directors and Company Secretary / Company Secretary in Practice prima facie establishes the correctness of particulars stated therein (Section 95).

As we know that Annual Return required to be signed by the Directors and Company Secretaries/Practicing Company Secretaries. Certain limits are there under Section 92 to decide the signing of Annual Return and Certification of Annual Return.

But before understanding of limit we should understand the role of Professional and responsibility of professional in preparation of Annual Return.

A. First Lets discuss what are the documents which required to prepare the Annual Return:

  • Memorandum & Article of Association
  • Statutory Registers
    • Register of Members
    • Register of Directors
    • Register of Director Shareholding
    • Register of Key Managerial Personnel
    • Register of Related Party Contracts
    • Register of Loan and Investment
    • Register of Charge
    • Register of Securities
  • Minutes of the Meetings
    • Board Meeting
    • General Meeting
    • Committee Meeting
  • Attendance Sheet of the all Meetings
  • Forms & receipts filed with the Registrar of Companies
  • Indebtedness Certificate signed by Company Secretary/ CFO of the Company.
  • Latest Audited Financial Statement
  • Copy of Notice of Annual General Meeting
  • List of Shareholders as on 1st April and 31st March
  • List of Share Transfers during the Financial Year.
  • Any orders received by the company from the High court or from any other regulatory body
  • List of Promoters

Note:

Except the above mention information, if required professional can take Management Representation letter (MR Letter) from the Company.MR Letter should be suitably drafted.

Responsibility & Duties of Professional: While the Companies Act, 2013 provides a new and significant area of practice for Company Secretaries, it casts immense responsibility on the company secretaries.

WHILE SIGNING ANNUAL RETURN:

Annual Return should be signed by a Director and the Company Secretary, or where there is no company secretary, by a company secretary in practice: Provided that in relation to One Person Company and small company, by the director of the company. While signing the Form MGT-7 (Annual Return) Company Secretary certifies that:

  1. The returns state the facts, as they stood on the date of the closure of the financial year aforesaid correctly and adequately.
  1. Unless otherwise expressly stated to the contrary elsewhere in this Return, the Company has complied with all the provisions of the Act during the financial year.
  1. Whatever is stated in this form and in the attachments thereto is true, correct and complete and no information material to the subject matter of this form has been suppressed or concealed and is as per the original records maintained by the Company.

Let’s discuss all three points one by one:

First: According the point No. 1 The figures mention in Annual Return dated 31.03 is correct and adequately.

Second: In point No. XI in Annual Return Company have to give disclosure “Whether company has made all the Compliances and disclosure during the year” If form select YES that mean PROFESSIONAL IS CERTIFYING THAT not only the things mention in Annual Return along with this Company has complied with the All the provisions of the Companies Act, 2013 during the financial year.

Third: Whatever mentioned in this Annual Return is true, no facts are concealed and as per original record maintained by the Company. According to this point PROFESSIONAL IS CERTIFYING THAT he/shed checked all the original documents relating to the information mentioned in the Annual Return. Like: Minutes, Registers and list of information given in the starting of this Article etc.

WHILE CERTIFYING ANNUAL RETURN:

The PCS shall certify the Annual Return filed by all the Listed Company and every other Company having paid up share capital of Rs. 10 crore or more or turnover of Rs. 50 crore or more in Form No. MGT 8, stating following:

Certificate MGT-8 start with following wordings:

I/ We have examined the registers, records and books and papers of XYZ Limited/Private Limited (the Company) as required to be maintained under the Companies Act, 2013 (the Act) and the rules made there under for the financial year ended on 31st March.

During the aforesaid financial year the Company has complied with provisions of the Act & Rules made there under in respect of:

  1. Its status under the Companies Act, 2013;
  1. Maintenance of REGISTERS/RECORDS & making entries therein within the time prescribed therefore;

[Professional Certify that Company has maintaining the proper statutory registers and made the entry in the Registers in time]

  1. Filing of FORMS and RETURNS as stated in the Annual Return, with the Registrar of Companies, Regional Director, Central Government, the Tribunal, Court or other authorities within/beyond the prescribed time;

[Professional Certify that Company has filed all the relevant form with respective departments during financial year)

  1. Calling/ Convening/ HOLDING MEETINGS of Board of Directors or its committees, if any, and the meetings of the members of the company on due dates as stated in the annual return in respect of which meetings, proper notices were given and the proceedings including the circular resolutions and resolutions passed by postal ballot, if any, have been properly recorded in the Minute Book/registers maintained for the purpose and the same have been signed.

[Professional Certify that Company has hold the Meetings as per provisions of Companies Act, 2013. For the financial year 2015-16 Secretarial Standards compliance also required to be check]

  1. Closure of Register of Members / Security holders, as the case may be.
  1. Advances/Loans to its Directors and/or Persons or Firms or Companies referred in Section 185 of the Act;

[Professional certify that Company has complied with the provisions of Section 185 Loan to Director and person in which director interested (this is one of the most crucial section of Companies Act, 2013)]

  1. Contracts/Arrangements with related parties as specified in section 188 of the Act;

[Check whether any contract with related party or not. If there are any transactions whether they are on arm length price, in ordinary course of business if not then whether company complied with the provisions of Section 188]

  1. Issue or ALLOTMENT OR TRANSFER or transmission or buy back of securities/ redemption of preference shares or debentures/ alteration or reduction of share capital/ conversion of shares/ securities and issue of security certificates in all instances;
  1. Keeping in abeyance the RIGHTS TO DIVIDEND, rights shares and bonus shares pending registration of transfer of shares in compliance with the provisions of the Act
  1. Declaration/ payment of dividend; transfer of unpaid/ unclaimed dividend/other amounts as applicable to the Investor Education and Protection Fund in accordance with section 125 of the Act;
  1. SIGNING OF AUDITED FINANCIAL STATEMENT as per the provisions of section 134 of the Act and report of directors is as per sub – sections (3), (4) and (5) thereof;
  1. constitution/ Appointment/ re-appointments/ retirement/ filling up casual vacancies/ disclosures of the Directors, Key Managerial Personnel and the remuneration paid to them;
  1. Appointment/ Reappointment/ filling up casual vacancies of AUDITORS as per the provisions of section 139 of the Act;
  1. Approvals Required to be taken from the Central Government, Tribunal, Regional Director, Registrar, Court or such other authorities under the various provisions of the Act;
  1. Acceptance/ Renewal/ Repayment of Deposits;
  1. BORROWINGS FROM ITS DIRECTORS, Members, Public Financial Institutions, Banks and Others and Creation/ Modification/ Satisfaction of Charges in that respect, wherever applicable;
  1. LOANS AND INVESTMENTS or Guarantees given or providing of Securities to other bodies Corporate or Persons falling under the provisions of section 186 of the Act ;
  1. ALTERATION of the provisions of the MEMORANDUM and/ or ARTICLES OF ASSOCIATION of the Company;

After studying of above mention duties and responsibilities it is clear that it is not an easy job for the Professionals also to sign and certify the Annual Return. They have to certify that Company has complied with each and every compliance of Companies Act, 2013.

Penalty on the Company Secretary for false statement

Company Secretaries must take care while certifying the annual return. Any failure or lapse on the part of PCS may attract penalty both under

  • the Companies Act 2013; and
  • the Company Secretaries Act, 1980.

Monetary Punishment:

As per sub-section (6) of section 92 of the Act, If a company secretary in practice certifies the annual return otherwise than in conformity with the requirements of this section or the rules made thereunder, he shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees.

Further, company secretary in practice may also attract penalty for false statements under section 448 and 447 of Companies Act, 2013.

Penal Provisions:

In view of this, a company secretary in practice may attract the penal provisions of section 448, for any false statement in any material particulars or omission of any material fact while certifying the Annual Return. However, a person will be penalised under section 448 only in case he makes the statement, which is false in any material particulars, knowing it to be false, or which omits any material fact knowing it to be material.

MCA vide its circular no. 10/2014 dated 07.05.2014 has clarified that Regional director/ ROC would initiate action under section 448 and 449 of the Act in the cases of submitting false or misleading or incorrect information.

Action by ICSI:

PCS may be liable for various actions by Disciplinary Committee of the ICSI as mentioned under section 21B (3) of Company Secretaries Act, 1980, in case, the Committee is of the opinion that a member is guilty of a professional or other misconduct as mentioned in clause 5,6,7,8, and 9 of Part I of second schedule to the act.

Cases u/s 448 and 449 also would be referred to the concerned Institute for conducting disciplinary proceedings against the errant member as well as MCA will debar the concerned professional from filing any document on the MCA portal in future.

Bare Act Language of Section 448

Section 448 provides that if in any return, report, certificate, financial statement, prospectus, statement or other document required by, or for the purposes of any of the provisions of this Act or the rules made thereunder, any person makes a statement, –

(a) which is false in any material particulars, knowing it to be false; or

(b) which omits any material fact, knowing it to be material, he shall be liable under section 447.

Bare Act Language of Section 447

Section 447 deals with punishment for fraud which provides that any person who is found to be guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud. In case, the fraud in question involves public interest, the term of imprisonment shall not be less than three years.

Things to be Covered in MR Letter

  1. Company has maintained all the Registers and Records.
  2. Company has maintained all the Minutes.
  3. Obtain the following Certificate from the Management
  • Indebtedness of Company
  • Number of Shareholder along with Shareholding pattern
  • Transfer and Issue of Shares
  • of Shareholder along with shareholding pattern as on 01.04.2014 & 31.03.2015
  1. Details of Penalty/ Punishment on Company, Director and Officer.
  2. Details of compounding of offence on Company, Director and Officer.
  3. Any other things.

LIMITES OF CERTIFICATION AND SIGNING OF ANNUAL RETURN

Certification of Annual Return by a Company Secretary in practice.

 

As per Provisions of Section 92 of Companies Act, 2013 read with sub rule 2 of Rule 11 Chapter VII, Companies (Management and Administration) Rules, 2014.

a)          all LISTED Companies

b)          Every Company having;

  • Paid-Up share capital of 10 Crore (Ten Crore) rupees or more or
  •  Turnover of 50 Crore (fifty Crore) rupees or more
Signing of Annual Return by a Company Secretary in practice.
As per Provisions of Section 92 of Companies Act, 2013 read with sub rule 2 of Rule 11 Chapter VII, Companies (Management and Administration) Rules, 2014.

a)    All LISTED Companies

b)   All PUBLIC Companies

c)    Private Limited Company having:

  • Paid up share Capital Exceeding 50  lac; or
  • Turnover exceeding 2 Crore
a) One Person Company

b)Small company

(These are the companies exempted from signing of Annual Return by Company Secretary.)

CS Divesh Goyal(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)

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4 responses to “Signing and Certification of Annual Return”

  1. rishabh says:

    And how much does it cost to the company

  2. RAO K V says:

    Many people including some professionals do not understand the major point. MGT 7 is a Reporting format to stakeholder containing some detailed particulars including highlights of non-compliance under the Act,2013 which is not so easy to tell without proper understanding and due diligence/verification of facts and figures and has value for the professional work.It can not be blindly signed as many think it.Accountability and responsibility is always there under the Act. Before the modification of the Form MGT7(before 11.11.2015), it required a mini Secretarial Audit to say all compliance(covering all applicable law)but only after representation to the Govt by the Institute, the MGT7 modified to cover non-compliance/compliance under the Companies Act,2013 specifically. The Certificate is for compliance on certain required matters only and no need to disclose any other things.But AR highlights non-compliance under the Act. This is the difference between AR and CC. So blindly signing it is always bring high risk. – See more at: https://taxguru.in/company-law/annual-return-schedule-companies-act-1956-form-mgt7-form-78-companies-act-2013.html#comment-1876450

  3. Nikhil Ekhe says:

    Dear Divesh,

    Really a nice article. This cautions every PCS while certifying and signing any Annual Return. This also shows the importance of the certification and signing AR.

    However, I have a doubt. whether by taking MR letter from the management of the company, a PCS can be relieved of his penalties under section 92, 447 & 448 of the Act?

    This is because unlike in the earlier Compliance Certificate format, the language in Form MGT 7 does not starts with “Based on the information and clarification provided to us…..”

    In my view even if we take MR Letter, liability of PCS can be reduced but not waived.

    Could you suggest your views?

    Thanks

  4. Mayur shah says:

    Good article

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