ADVOCATES AND CORPORATE LAW

ADVISORS

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CS HIMANSHU HARBOLAAdvocate and Company SecretaryACS, B.A. LL.B (Hons.), PGDIPR, PGDDLTAEmail - corporatejuris@outlook.comMobile: 9818-993-836

754, 2nd Floor, Sukhdev Nagar, Near New Public School, Kotla- Mubarak Pur, Opp. Defence Colony, New Delhi- 03

VAIBHAV AGARWALMT – Legal & SecretarialEmail - vaibhav.corpjuris@outlook.comMobile: 9013-140-137

CORPORATE JURIS

COMPANIES ACT, 2013AN OVERVIEW

An Introduction

Journey so far

Introduction of Companies Bill 2009 in Lok Sabha

Referred to Standing Committee for examination

Dr. J. J. Irani

Committee

Report2005

2009 20

09 Receipt of Standing Committee Report

2010

Laying down of Companies Bill 2011 in Lok Sabha

2011 Referred to Standing

Committee for re-examination

2012

Receipt of Standing Committee Report

Notification of

Sections2013-

2014

201220

122013

Introduction and passage of Bill by Lok Sabha

Introduction and passage of Bill by Rajya Sabha

2013

Receipt of President assent

Implementation in Steps

Section 1 of CA, 2013 empowers Central Government to commence the different provisions of Companies Act 2013 on different dates.

98 Sections NotifiedSections for which rules were not required

CSR NotifiedSection 135 read with Companies (Corporate Social Responsibility Policy) Rules, 2014

Some more Sections Notified

• Incorporation of Companies

• Prospectus & Allotment of Securities

• Dividends• Meetings & Directors• Accounts and Audits

Some Rules Notified• Companies (Incorporation) Rules,

2014• Companies (Prospectus & Allotment

of Securities) Rules, 2014• Companies (Management &

Administration) Rules, 2014• Companies (Accounts) Rules, 2014• Companies (Declaration & Payment

of Dividend) Rules, 2014

SEPTEMBER 12, 2013

FEBRUARY 27, 2014

MARCH 26, 2014

MARCH 27-28, 2014

Companies Act, 2013 NotifiedSection 1 came into effect immediately

AUGUST 30, 2013

SOME CONCEPTS CONCERNING

PROFESSION OF CHARTERED

ACCOUNTANTS

Accounts & Audits

Corporate Social

Responsibility

National Financial Reporting Authority

Dividend Depreciation

ACCOUNTS AND AUDITS

CHAPTER IX AND X OF COMPANIES ACT, 2013

AccountsThe 2013 Act contains a number of provisions which have implications on accounts. Some of these provisions are analysed below.

Consolidated Financial Statements (Section 129)

• CA, 2013: Mandates

preparation of CFS by all

companies having one or

more subsidiaries

(including associates and

joint ventures).

• CA, 1956: No such

requirement.

Financial Year (Section 2(41))

• CA, 2013: FY for all

companies and body

corporates to end on

31st March

• CA, 1956:

Company's /body

corporate's election to

choose FY.

Restatement of Financial Statements (Section 130) – Yet to be notified

• CA, 2013: Mandatory

restatement, in case of fraud

and when a Court/ the

Tribunal passes an order for

restatement; Voluntary

restatement to comply with

accounting standards with

the approval of the tribunal

• CA, 1956: Not allowed

Individual or firm to be appointed for five years, subject to ratification by members in every AGM.

Change of auditors before the five year term would require special resolution after obtaining the previous approval of the Central Government.

TERM OF APPOINTMENT

ROTATION OF AUDITORS

Listed Companies and such class of companies as may be prescribed cannot appoint or reappoint – Audit Firm for more than 2

consecutive terms of 5 years Individual for one term of

5years.

Cooling Period of 5 years.

Prohibition on auditor rendering non-audit services to auditee company/ its subsidiary/ holding company.

Some of such services are as follows: Accounting and book keeping Internal Audit Investment advisory services Investment banking services Management services

Audit & Auditors

NON-AUDIT SERVICES

LISTED COMPANY

Every listed company.

UNLISTED PUBLIC COMPANY

Paid-up Share Capital – Rs. 50 Crore or more during preceding FY.

Turnover – Rs. 200 Crore or more during preceding FY.

Outstanding loans from Banks/PFIs – Rs. 100 Crore or more at any point of time during preceding FY.

Outstanding deposits – Rs. 25 Crore or more during preceding FY.

PRIVATE COMPANY

Turnover – Rs. 200 Crore or more during preceding FY.

Outstanding loans from Banks/PFIs – Rs. 100 Crore or more at any point of time during preceding FY.

Mandatory Internal Audit (Section 138)

Following class of companies shall appoint either Chartered Accountants or Cost Accountants or other professional as may be decided by the Board

CORPOARTE SOCIAL RESPONSIBILITY

SECTION 135 OF COMPANIES ACT, 2013 READ WITH COMPANIES (CORPORATE SOCIAL RESPONSIBILITY POLICY) RULES, 2014 NOTIFIED ON FEBRUARY 27, 2014

Concept & BenefitsCommunities provide licence to operate

Attracting and retaining employees

Communities as suppliers

Enhancing corporate reputation

Reduced regulatory oversight

Business take inputs from nature and society and thus owe responsibility of taking care of them.

“

”

CSR as per Law (Not Exhaustive)

1.Projects or programs relating to activities specified in Schedule VII to the Act

2.Projects or programs relating to activities undertaken by the board of directors of a company (Board)

in pursuance of recommendations of the CSR Committee of the Board as per declared CSR Policy of

the company subject to the condition that such policy will cover subjects enumerated in Schedule VII

of the Act.

Net Worth – Rs. 500 Crore or more

Turnover – Rs. 1000 Crore or more

Net Profit – Rs. 5 Crore or more

ApplicabilityEvery Company meeting any of the following criteria in any financial year

NATIONAL FINANCIAL REPORTING AUTHORITY & NATIONAL FINANCIAL REPORTING APPELLATE AUTHORITY YET TO BE NOTIFIED (SECTION 132)

1.Make recommendations to Central Government on formulation of accounting and auditing standards.

2.Monitor and enforce compliance with accounting and auditing standards.

3.Oversee the quality of service of the professions associated with ensuring compliance with such standards.

4.Investigate into matters of professional or other misconduct committed by any member or firm of Chartered Accountants.

5.Impose penalty and debar such firm or Chartered Accountants from practice, in case where professional or other misconduct is proved.

Section 133 of Companies Act, 2013 empowers Central Government to constitute NFRA and NFRAA to perform following functions:

Constitution, Functions & Powers

DECLARATION AND PAYMENT OF DIVIDENDCHAPTER VIII OF COMPANIES ACT, 2013

A Comparison…Basis Companies Act, 2013 Companies Act, 1956

Whether dividend declaration/payment barred if company

defaulted in repayment of deposits?

Yes No such bar

Whether transfer to reserves compulsory?

No. Discretion of company. Mandatory in accordance with Companies (Transfer of Profit to

Reserves) Rules, 1975.

Transfer of Shares to IEPF after expiry of

seven years

Shares in respect of which unclaimed or unpaid dividend transferred to

IEPF shall also be transferred in the name of IEPF.

No such requirement was there.

Board of Directors

• Accountability to stakeholders beyond only shareholders

• Reporting beyond SOX• Liability on Class Action Suits• Significant penalties on Insider

Trading and restatements• Societal scrutiny on CSR

• Ease of restructuring• Reporting beyond SOX• Wider definition of Related Party

Transactions• New depreciation rules may

affect profitability• Liable for Class Action Suits

• Additional rigor on financial Reporting• Mandatory internal audit• Reporting beyond SOX• Significant penalties on Insider

Trading and restatements• Compliance on Related Party

Transactions

• Oversee implementation of best corporate governance practices.

• Safeguard interests of all stakeholders

• Ensure adequate and functional vigil mechanism.

• Determine appropriate levels of remuneration for Directors and KMP.

• Multi-layered structures to be collapsed

• Cross-border transactions allowed

• Mandatory CSR contribution will affect cash flows

• Wider definition of Related Party Transactions

• Lower thresholds for financial consolidation

• Mandatory contribution to local CSR

• Wider definition of Related Party Transactions

• Ease in cross-border restructuring

• Facility of minority buy-out

Impact on various Stakeholders

Audit Committee

MNCsPromoters

CXO and KMPs

Independent Directors

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