vitta salahkar company law workshop 2020 - icai · 2020. 3. 27. · the year 2013 and 2014 as...

COMPANY LAW WORKSHOP - 2020

VITTA SALAHKAR CA STUDY CIRCLE - EIRC 1 ICAI - EIRC

THE INSTITUTE OF CHARTERED ACCOUNTNTS’ OF INDIAEASTERN INDIA REGIONAL COUNCIL

&VITTA SALAHKAR CHARTERED ACCOUNTNTS’ STUDY CIRCLE-EIRC

extendsa very wark welcome

toall Dignitaries, Guests,Speakers and Deligates

at

Company Law Workshop 2020


ICAI - EIRC 2 VITTA SALAHKAR CA STUDY CIRCLE - EIRC



THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIAEASTERN INDIA REGIONAL COUNCIL

&VITTA SALAHKAR CHARTERED ACCOUNTANTS’ STUDY CIRCLE – EIRC

Programme ScheduleDay 1 : Thursday, 5th March • 5:30 PM to 8:30 PM

Topic : Companies (Auditor’s Report) Order, 2020

Speakers

CA VIVEK NEWATIA CA MOHIT BHUTORIA

Day 2 : Friday, 6th March • 5:30 PM to 8:30 PM

Topic : Recent Changes in Companies Act

Speaker

CA MANOJ BANTHIA

Topic : Compounding of Offences

Speaker

CS MOHAN RAM GOENKA



ContentsMESSAGES

CA Nitesh Kumar More, Chairman, EIRC ..................................................................................................... 6

CA Bishnu Basia, Convenor, Vitta Salahkar CA Study Circle-EIRC .............................................................. 7

CA Mayur Agrawal, Dy. Convenor, Vitta Salahkar CA Study Circle-EIRC .................................................... 7

About Vitta Salahkar ................................................................................................................................... 8

PROFILES

CA Vivek Newatia ........................................................................................................................................ 9

CA Mohit Bhuteria ....................................................................................................................................... 9

CA Manoj Banthia ...................................................................................................................................... 10

CS Mohan Ram Goenka ............................................................................................................................. 10

ARTICLES

Clause by Clause Comparison of the Companies (Auditor’s Report) Order [CARO] ................................ 11

Highlights of CARO 2020By CA Vivek Agarwal ................................................................................................................................... 25

Compounding of Offences U/ S 441By CS Mohan Ram Goenka ......................................................................................................................... 32

Recent Amendment in Companies Act, 2013By CA Mayur Agarwal ................................................................................................................................. 34

Independent Directors Databank –An Intent to Stregthen the Corporate Governance Norms &Role of Independent Director’s Under The Companies Act 2013.By CS Hansraj Jaria ...................................................................................................................................... 41

Critical Aspects of Corporate RestructuringCS Adiyta Purohit ........................................................................................................................................ 47

Applicability of Valuation under Companies Act, 2013.CA Harsha Saraf .......................................................................................................................................... 50



Message –––––––––––––––––––––––––––––From Chairman, EIRC

In today’s global business world, a broad spectrum of economic and regulatory changes are taking usto new levels of strategic and tactical complexity, creating commensurate pressure on enterprises. Inthis environment, it is necessary for the professionals to constantly update their knowledge and skillsto meet the expectations of the stakeholders. It is indeed the responsibility of the professional bodiesto provide members with adequate facilities and opportunities to meet the challenges thrown by thedynamic environment by continuously enhancing their knowledge, skills and professional values.

It gives me immense pleasure to welcome the participants to this 2 Days Seminar on companies Acton 5th & 6th March 2020 being organised by the EIRC of ICAI.

The prime objective of the workshop is to disseminate knowledge on important developments in thefield of Company Law like CARO: 2020, Recent changes in Companies Act, Compounding of Offences.

Iam surethat this programme will helpthe Chartered Accountants to update their knowledge skills. Iam very confident that all the participants of the programme would be benefited by sharing theexperience with the speakers.

I wish the programme a grand success.

CA. Nitesh Kumar MoreChairman, EIRC

Date: 2nd March, 2020Place: Kolkata



Message –––––––––––––––––––––––––––––From ConvenorVitta Salahkar Chartered Accountants Study Circle-EIRC

Dear esteemed professional Colleagues,Seniors and Guests,

I am delighted to welcome you all to the two-Days workshop on Company law organized by EIRC jointly with VittaSalahkar CA Study Circle-EIRC.

I hope that members of our CA fraternity will be benefited by the deliberations to be given by galaxy of learnedspeakers on the different topics of Company law on 5th and 6th March 2020.

I thank all of you from core of my heart for your overwhelming response attending the workshop on Company law.

I congratulate CA Nitesh More Jee for being elected Chairman of EIRC and thank him and his team for giving ourstudy circle an opportunity to be associated jointly with EIRC to organise such an excellent seminar and alsoconvey my sincere thanks to all our executive committee members to make this seminar a grand success.

I wish a happy learning and colourful holi this year to all participants.

With Best Regards,

For and on behalf of Vitta Salahkar Chartered Accountants Study Circle-EIRC

CA Bishnu BasiaConvenor

Message –––––––––––––––––––––––––––––From Deputy ConvenorVitta Salahkar Chartered Accountants Study Circle-EIRC

Dear Professional Colleagues and Guests,

It gives me immense pleasure to welcome you all at this 2 day workshop on Company Law jointly organized byVitta Salahkar CA Study Circle and EIRC- ICAI. We at Vitta Salahkar continuously make efforts to update themembers and professionals with the new development in the legal framework. In our urge to update the memberswe along with EIRC- ICAI have designed this 2 day workshop by bringing in excellent speakers. I would mentionmy regards for the Chairman CA Nitesh More for making us part of this workshop.

At this Knowledge Fair, I am glad to bring this background material before all of you, which will add up to quenchthe hunt of knowledge. I sincerely hope that the delegates will be immensely benefitted from this workshop.

I wish delegates a learning experience and the workshop a great success.

CA Mayur AgrawalDeputy Convenor



About Vitta SalahkarVitta Salahkar Chartered Accountants Study Circle (VSCASC) of EIRC of ICAI is formed under theaegis of the Institute of Chartered Accountants of India (ICAI). We started off in the year 2012 andwe are striving towards the continuous professional education of members of the ICAI to providethem with the strong knowledge base.

Our primary objective is to organize regular group discussions, lecture meetings, seminars andother programs under “Continuing Professional Education” i.e. CPE for benefits of the members ofICAI and our motto is for our members to be updated in all the fields of Direct Taxes, Indirect Taxes,Corporate Laws and other areas of our operations. The background material and Research Mate-rial of Speakers is to be provided to all the members and participants. We also aim to provide ourmembers with a strong support system in terms of the professional education on the most un-touched and important topics in this dynamic changing environment.

It’s our endeavor to have regular meetings for members and invite eminent and experienced speak-ers from different areas for healthy information base.

The Eastern India Regional Council (EIRC) of ICAI had awarded/recognized us with EIRC Awards inthe Year 2013 and 2014 as COMMENDABLE STUDY CIRCLE & HIGHLY COMMENDABLE STUDY CIR-CLE award and in the year 2016 as BEST STUDY CIRCLE award in the eastern region (EIRC) of ICAI.

Our Study Circle has been elevated to 1st Position from 23rd position in the Eastern Region in theyear 2016.

VSCASC regularly communicate with its members through emails, SMS alerts and posts to variousgoogle groups and yahoo groups for updating in the field of Direct Taxes, Indirect Taxes, and Cor-porate Laws and updated about CPE Seminars.



PROFILE

CA MOHIT BHUTERIA

Edn Qualification: FCA, ICAI(Valuation), InsolvencyResolution Professional

Current Professional : Prof Achievements etc:

Managing Partner in A C Bhuteria & Co, CharteredAccountants

1) Stood 1st in Chartered Accountancy Finals in EasternRegion

2) Special Invitee at the Expert Advisory Commitee ofICAI, New Delhi in 2017

3) Member of Corporate Law and Corporate GovernanceCommittee of ICAI for 2018

3) Co opted member in Capital Market Committee ofMerchant Chambers of Commerce for 2015 and 2016and Corporate Law Committee (EIRC,ICAI) for 2013,2015 and 2017

4) Copted Member in Study Group of ICAI on GuidanceNotes and Upgradation of existing AS on the basis ofcorresponding Ind AS and Guidance Note on CARO2016

5) Empanelled as Quality Reviewer, Peer Reviewer andwith FRRB, ICAI

6) Made Presentations on Companies Act foe largenumber of corporates

7) Addressed on Taxation, Company Law, Restructuring,Assurance and Non Banking finance Company issuesat ICAI, ICSI, MCA, Study Circles under ICAI Comptrollerand Auditor General of India (C&AG)and otherplatforms. 8)Handled in aggregate more than 1000Statutory Audits of PSU, Banks, and Private SectorCorporates 9)Represented ICAI before CBI

10) Member of Governing Council

PROFILE

CA VIVEK NEWATIAHe is B.Com. (Hons), B.Sc. Mgmt (LSE), F.C.A., C.I.S.A., I.S.A. (ICAI),Registered Valuer(lBBI)Mr. Newatia has been practising as a Chartered Accountant andPartner in S. Jaykishan, a partnership firm with a reputed trackrecord of over 40 years, since 2003. With over 15 years ofprofessional experience he handles assignments relating todiverse services offered by the firm, inter alia:Statutory, Systems & Forensic Audit,• International Taxation, • Business Valuations, • Mergers andAcquisitions/Amalgamations, • FEMA and consultancy in ERPimplementation, • Tax advisory and structuring for variousclients, • Ind AS conversion, and • Implementation of IFC.1. Educational Background - Mr Newatia has attained his

Bachelor of Commerce (Hons) from St. Xavier’s College,Kolkata. He has also completed his Diploma in Economicsand B.Sc. in Management from the University of London(Lead College: LSE). He is a qualified CISA and a holder ofDiploma in Information Systems Audit from ICAI. Also, hehas successfully completed certificate courses of ICAI onValuation, International Taxation & IFRS. Recently, he hasbeen registered with IBBI as a Registered Valuer for Securitiesor Financial Assets becoming the first to attain thisqualification in the Eastern Region.

2. Current/Past Committee/Group Affiliations - He has beennominated and has served as co-opted member/specialinvitee for various Committees like:• The Committee of International Taxation (ICAI), • ResearchCommittee ICAI, • Corporate & Allied Laws Committee EIRCICAI, and • Executive Committee member for theInternational Fiscal Association - Eastern Region.Presently, Mr Newatia is involved with the 1CAI RegisteredValuers Organisation course as a Faculty Member, as well asserving on the Panel of Experts for Transfer Pricing. He is alsoa member of a study group formed for the purpose ofupdation of existing Accounting Standards and forformulation of study material on notified Ind-AS. Mr. Newatiais a member of the Kolkata Financial Reporting Review Groupestablished for undertaking the review of general purposefinancial statements.

3. Special Mentions: He has served as the President of ViewsExchange Chartered Accountants Study Circle EIRC in the year2014-15. Under his leadership, Views Exchange was awardedas the Best Study Circle in the Eastern Region. He hasparticipated in various seminars as a member faulty to givepresentations and hold discussions on various topics likeValuation, International Taxation, IND AS, IFRS, etc.



PROFILE

CA MANOJ BANTHIA

He is a Chartered Accountant and Company Secretary by

qualification. His in - dept knowledge of company and

securities law and his practical approach to the problems

of his clients has made him one of the most sought after

company law professional in the city. He was the Chairman

of the Eastern Regional Council of the Institute of Company

Secretaries of India in the year 2003. He’has authored

several articles and has been a regular speaker at various

forums. He has also trained the staff and/or officials of

the Ministry of Corporate Affairs on several occasions. He

appears regularly before the Company Law Board, Regional

Directors and ROCs all across the’ country and has regular

interface with the Ministry and its officials spread all over

the country. His clientele include almost every known

Corporate House in the Eastern part of the country.

PROFILE

CS MOHAN RAM GOENKA

Mr. Mohan Ram Goenka is a Practicing Company Secretaryand Insolvency Professional since two decades in the nameof MR & Associates with highly devoted Partner. He is aqualified M. Com., F.C.S., C.F.A., PGDFM and PGDPC. He ishighly goal oriented person with his vision-mission powerswhich has designated his firm on greater heights in thiscurrent dynamic business environment and competitionin the corporate era with his team of experts. He is adynamic trainer and consultant on Corporate Laws,Secretarial Services and Legal Advising on various provisionsof Company Law, Oppression and Mismanagement & Otherrespective Laws and deals with the various aspects ofCorporate Laws, Liquidation and winding up of Companies,Mergers, De-mergers, Amalgamation, Takeover andacquisitions, Corporate Restructuring, CorporateInsolvency Resolution Process (CIRP). He appears /represents the cases before Hon’ble National Company LawTribunal, Regional Director, Registrar of Companies, StockExchanges etc. As such, he has shared his preciousknowledge as Honorary Guest Speaker in various Seminars/ workshops arranged by various professional bodies likeICAI, ICSI and its various chapters and study CirclesMeetings etc. He is a Convenor of “Madhya Kolkata StudyCircle for Members of ICSI” - 1st CPE Study Circle of ICSI-EIRC and also a member of PCS Committee of EIRC-ICSI.



Clause by Clause Comparison of the Companies(Auditor’s Report) Order [CARO]

CARO 2003 2015 2016 2020

ISSUEDATE

EFFECTIVEDATE

Para 3 –(clause byclause)

10 April,2015

Audits of FY 2014-15and onwards

(i) (a) whether thecompany is maintainingproper records showingfull particulars,including quantitativedetails and situation offixed assets;

(b) whether thesefixed assets have beenphysically verified bythe management atreasonable intervals;whether anymaterial discrepancieswere noticed on suchverification and if so,whether the same havebeen properly dealtwith in the books ofaccount;

June 2003

July 2003

(i) (a) whether thecompany is maintainingproper records showingfull particulars,including quantitativedetails and situation offixed assets;

(b) whether thesefixed assets have beenphysically verified bythe management atreasonable intervals;whether any materialdiscrepancies werenoticed on suchverification and if so,whether the same havebeen properly dealtwith in the books ofaccount;

(c) if a substantial partof fixed assets havebeen disposed offduring the year,whether it has affectedthe going concern;

29 March, 2016

Audits of FY 2015-16 andonwards

(i)(a) whether thecompany is maintainingproper records showingfull particulars, includingquantitative details andsituation of fixed assets;

(b) whether these fixedassets have beenphysically verified by themanagement atreasonable intervals;whether any materialdiscrepancies werenoticed on suchverification and if so,whether the same havebeen properly dealtwith in the books ofaccount;

(c) whether the titledeeds of immovableproperties are held inthe name of thecompany. If not, providethe details thereof;

25th February,2020

Audits of FY 2019-20 and onwards

(i)(a) (A) whether the company ismaintaining proper records showingfull particulars, includingquantitative details and situation ofProperty, Plant and Equipment;

(B) whether the company ismaintaining proper records showingfull particulars of intangible assets;

(b) whether these Property, Plantand Equipment have been physicallyverified by the management atreasonable intervals; whether anymaterial discrepancies were noticedon such verification and if so,whether the same have beenproperly dealt with in the books ofaccount;

(c) whether the title deeds of all theimmovable properties. (other thanproperties where the Company isthe lessee and the lease agreementsare duly executed in favour of thelessee) disclosed in the financialstatements are held in the name ofthe company. If not, provide thedetails thereof in the format below;

Desc- Gross Held in Whether Period Reasonripti Carry- the prom- held- for notof pro- ing name oter indicate beingperty Value of director range held in

or their where therelatives aprop- nameor riate of theemplo- comp-yee any*

–– –– –– –– –– *alsoindicate ifin dispute



CARO 2003 2015 2016 2020

(ii) (a) whether physicalverification of inventoryhas been conducted atreasonable intervals bythe management;

(b) are the procedures ofphysical verification ofinventory followed bythe managementreasonable andadequate in relation tothe size of the companyand the nature of itsbusiness. If not, theinadequacies in suchprocedures should bereported;

(ii) (a) whether physicalverification of inventoryhas been conductedat reasonable intervalsby the management;

(b) are the proceduresof physical verificationof inventory followedby the managementreasonable andadequate in relation tothe size of thecompany and thenature of its business.If not, the inadequaciesin such proceduresshould be reported;

(ii) whether physicalverification of inventoryhas been conducted atreasonable intervals bythe management andwhether any materialdiscrepancies werenoticed and if so,whether they have beenproperly dealt with inthe books of account;

(d) Whether the Company hasrevalued its Property, Plant andEquipment (including Right ofUse assets) or intangible assetsor both during the year and, ifso, whether the revaluation isbased on the valuation by aRegistered Valuer; specify theamount of change, if change is10% or more in the aggregate ofthe net carrying value of eachclass of Property, Plant andEquipment or intangible assets;

(e) Whether any proceedingshave been initiated or arepending against the companyfor holding any Benami propertyunder the “Benami Transactions(Prohibition) Act, 1988 andRules made thereunder; if so,whether the Company hasappropriately disclosed thedetails in its financialstatements;

(ii) (a) whether physicalverification of inventory has beenconducted at reasonableintervals by the managementand whether, in the opinion ofthe auditor, the coverage andprocedure of such verification bythe management is appropriate;whether any discrepancies of 10%or more in the aggregate for eachclass of inventory were noticedand if so, whether they have beenproperly dealt with in the booksof account;

(b) whether during any point oftime of the year, the Company hasbeen sanctioned working capitallimits in excess of Rs. 5 crores, inaggregate, from banks or financialinstitutions on the basis ofsecurity of current assets;whether the quarterly returnsor statements filed by theCompany with such banks orfinancial institutions are in



CARO 2003 2015 2016 2020

(c) whether thecompany is maintainingproper records ofinventory and whetherany materialdiscrepancies werenoticed on physicalverification and if so,whether the same havebeen properly dealt within the books of account;

(iii) (a) has the companygranted any loans,secured or unsecured tocompanies, firms orother parties covered inthe register maintainedunder section 301 of theAct. If so, give thenumber of parties andamount involved inthe transactions; and

(b) whether the rate ofinterest and otherterms and conditions ofloans given by the

(c) whether thecompany is maintainingproper records ofinventory and whetherany materialdiscrepancies werenoticed on physicalverification and ifso, whether the samehave been properlydealt with in the booksof account;

(iii) whether thecompany has grantedany loans, secured orunsecured tocompanies, firms orother parties coveredin the registermaintained undersection 189 of theCompanies Act. If so,

(a) whether receipt orthe principal amountand interest are alsoregular; and

(b) if overdueamount is more thanrupees one lakh,

(iii) whether thecompany has grantedany loans, secured orunsecured tocompanies, firms,Limited LiabilityPartnerships or otherparties covered in theregister maintainedunder section 189 ofthe Companies Act,2013. If so,

(a) whether theterms and conditionsof the grant of suchloans are notprejudicial to thecompany’s interest;

(b) whether theschedule of repaymentof principal andpayment of interest has

agreement with the books ofaccount of the Company. If not,give details.

(iii) whether during the year thecompany has made investmentsin, provided any guarantee orsecurity or granted any loans oradvances in the nature of loans,secured or unsecured tocompanies, firms, LimitedLiability Partnerships or anyother parties. If so,

(a) whether during the year thecompany has provided loans orprovided advances in the natureof loans, or stood guarantee, orprovided security to any otherentity [not applicable tocompanies whose principalbusiness is to give loans], if so,indicate-

(A) the aggregate amount duringthe year, and balance outstandingat the balance sheet date withrespect to such loans or advancesand guarantees or security tosubsidiaries, joint ventures andassociates.

(B) the aggregate amount duringthe year, and balance outstandingat the balance sheet date withrespect to such loans or advancesand guarantees or security toparties other than subsidiaries,joint ventures and associates.

(b) whether the investmentsmade, guarantees provided,security given and the terms andconditions of the grant of all loans



CARO 2003 2015 2016 2020

company, secured orunsecured, are primafacie prejudicial to theinterest of the company;and

(c) whether receipt ofthe principal amountand interest are alsoregular; and

(d) if overdue amount ismore than rupees onelakh, whetherreasonable steps havebeen taken by thecompany for recovery ofthe principal andinterest;

(e) has the companytaken any loans, securedor unsecured fromcompanies, firms orother parties covered inthe register maintainedunder section 301 of theAct. If so, give thenumber of parties andthe amount involved inthe transactions; and

(f) whether the rate ofinterest and other termsand conditions of loanstaken by the company,secured or unsecured,are prima facieprejudicial to theinterest of the company;and

whether reasonablesteps have beentaken by thecompany for recoveryof the principal andinterest;

been stipulated andwhether therepayments or receiptsare regular;

(c)if the amount isoverdue, state the totalamount overdue formore than ninety days,and whetherreasonable steps havebeen taken by thecompany for recoveryof the principal andinterest;

and advances in the nature ofloans and guarantees providedare not prejudicial to thecompany’s interest;

(c) in respect of loans andadvances in the nature of loanswhether the schedule ofrepayment of principal andpayment of interest has beenstipulated and whether therepayments or receipts areregular;

(d) if the amount is overdue, statethe total amount overdue formore than ninety days, andwhether reasonable steps havebeen taken by the company forrecovery of the principal andinterest;

(e) whether any loan or advancein the nature of loan grantedwhich has fallen due during theyear, has been renewed orextended or fresh loans grantedto settle the overdues of existingloans given to the same parties;If so, specify the aggregateamount of such dues renewed orextended or settled by fresh loansand the percentage of theaggregate to the total loans oradvances in the nature of loansgranted during the year. [Notapplicable to companies whoseprincipal business is to give loans];

(f) whether the Company hasgranted any loans or advances inthe nature of loans eitherrepayable on demand or withoutspecifying any terms or period ofrepayment; if so, specify theaggregate amount, percentagethereof to the total loansgranted, aggregate amount of



(g) whether payment ofthe principal amountand interest are alsoregular.

(iv) is there anadequate internal cont-rol system commensu-rate with the size of thecompany and the natureof its business, for thepurchase of inventoryand fixed assets and forthe sale of goods andservices. Whether thereis a continuing failure tocorrect major weakne-sses in internal controlsystem.

v) (a) whether the parti-culars of contracts orarrangements referredto in section 301 of theAct have been enteredin the register requiredto be maintained underthat section; and

CARO 2003 2015 2016 2020

(iv) is there anadequate internalcontrol system comm-ensurate with the sizeof the company andthe nature of itsbusiness, for thepurchase of inventoryand fixed assets and forthe sale of goodsand services. Whetherthere is a continuingfailure to correct majorweaknesses in internalcontrol system.

(v) in case thecompany has accepteddeposits, whether thedirectives issued by theReserve Bank of Indiaand the provisions ofsections 73 to 76 orany other relevantprovisions of theCompanies Act and therules framed thereunder, where applicable,have been compliedwith? if not, thenature of contraventionsshould be stated; If anorder has been passedby Company LawBoard or NationalCompany Law Tribunalor Reserve Bank ofIndia or any court orany other tribunal,whether the same hasbeen complied with ornot?

(iv) in respect of loans,investments, guaran-tees, and securitywhether provisions ofsection 185 and 186 ofthe Companies Act, 2013have been compliedwith. If not, provide thedetails thereof.

(v) in case, the companyhas accepted deposits,whether the directivesissued by the ReserveBank of India and theprovisions of sections 73to 76 or any otherrelevant provisions ofthe Companies Act, 2013and the rulesframed thereunder,where applicable, havebeen complied with? Ifnot, the nature of suchcontraventions bestated; If an order hasbeen passed byCompany Law Board orNational Company LawTribunal or ReserveBank of India or anycourt or any othertribunal, whether thesame has beencomplied with or not?

loans granted to Promoters,related parties as defined inclause (76) of section 2 of theCompanies Act, 2013

(iv) in respect of loans,investments, guarantees, andsecurity whether provisions ofsection 185 and 186 of theCompanies Act, 2013 have beencomplied with. If not, providethe details thereof.

(v) in respect of depositsaccepted by the Company oramounts which are deemed tobe deposits, whether thedirectives issued by the ReserveBank of India and the provisionsof sections 73 to 76 or anyother relevant provisions ofthe Companies Act, 2013 andthe rules framed thereunder,where applicable, have beencomplied with? If not, thenature of suchcontraventions be stated; If anorder has been passed byCompany Law Board orNational Company Law Tribunalor Reserve Bank of India or anycourt or any other tribunal,whether the same has beencomplied with or not?



CARO 2003 2015 2016 2020

(b) whether transactionsmade in pursuance ofsuch contracts orarrangements havebeen made at priceswhich are reasonablehaving regard to theprevailing market pricesat the relevant time;(This information isrequired only in case oftransactions exceedingthe value of five lakhrupees in respect of anyparty and in any onefinancial year).

(vi) in case thecompany has accepteddeposits from thepublic, whether thedirectives issued by theReserve Bank of Indiaand the provisions ofsections 58A, 58AA orany other relevantprovisions of the Actand the rules framedthere under, whereapplicable, have beencomplied with. If not,the nature ofcontraventions shouldbe stated; If an orderhas been passed byCompany Law Board orNational Company LawTribunal or Reserve Bankof India or any Court orany other Tribunalwhether the same hasbeen complied with ornot?

(vii) in the case of listedcompanies and/orother companies havinga paid-up capital andreserves exceedingRs.50 lakhs as at thecommencement of the

(vi) where maintenanceof cost records hasbeen specified by theCentral Governmentunder sub-section (1)of section 148 of theCompanies Act,whether such accountsand records havebeen made andmaintained;

(vii) (a) is the companyregular in depositingundisputed statutorydues including provi-dent fund, employees’state insurance,income-tax, sales-Lax,

(vi) whether maintena-nce of (vi) cost recordshas been specified bythe Central Governmentunder sub-section (1) ofsection 148 of theCompanies Act, 2013and whether suchaccounts and recordshave been so made andmaintained.

(vii) (a) whether the (vii)company is regular indepositing undisputedstatutory dues includingprovident fund, emplo-yees’ state insurance,income-tax, sales-tax,service tax, duty of

(vi) whether maintenance ofcost records has be specified bythe Central Government undersub section (1) of section 148 ofthe Companies Act and whethersuch accounts and records havebeen so made and maintained.

(vii) (a) whether the company isregular in depositing undisputedstatutory dues including Goodsand Service Tax, provident fund,employees’ state insurance,income-tax, sales-tax, servicetax, duty of customs, duty of



CARO 2003 2015 2016 2020

financial year concer-ned, or having anaverage annual turn-over exceeding fivecrore rupees for aperiod of threeconsecutive financialyears immediatelypreceding the financialyear concerned,whether the companyhas an internal auditsystem commensuratewith its size and natureof its business;

(viii) where mainten-ance of cost records has

wealth tax, servicetax, duty of customs,duty of excise, valueadded tax, cess and anyother statutory dueswith the appropriateauthorities and if not,the extent of the arrearsof outstanding statutorydues as at the lastday of the financialyear concerned for aperiod of more thansix months from thedate they becamepayable, shall beindicated by the auditor.

(b) in case dues ofincome tax or sales taxor wealth tax or servicetax or duty ofcustoms or duty ofexcise or value addedtax or cess have notbeen deposited onaccount of any dispute,then the amountsinvolved and the forumwhere dispute ispending shall bementioned. (A mererepresentation to theconcerned Departmentshall not constitutea dispute).

(c) whether theamount required to betransferred toinvestor educationand protection fundin accordance with therelevant provisions ofthe Companies Act,1956 ( 1 of 1956) andrules made thereunderhas been transferred tosuch fund within time.

(viii) whether in caseof a company which

customs, duty of excise,value added tax, cessand any otherstatutory dues to theappropriate authoritiesand if not, the extentof the arrears ofoutstanding statutorydues as on the last dayof the financial yearconcerned for a periodof more than sixmonths from the datethey became payable,shall be indicated;

(b) where dues ofincome tax or sales taxor service tax or dutyof customs or duty ofexcise or value addedtax have not beendeposited on accountof any dispute, thenthe amounts involvedand the forum wheredispute is pending shallbe mentioned. (A mererepresentation to theconcerned Departmentshall not be treated asa dispute).

(viii) whether thecompany has defaulted

excise, value added tax, cess andany other statutory dues to theappropriate authorities and if not,the extent of the arrears ofoutstanding statutory dues as onthe last day of the financial yearconcerned for a period of morethan six months from the datethey became payable, shall beindicated;

(b) where statutory dues referredto in sub-clause (a) have not beendeposited on account of anydispute, then the amountsinvolved and the forum wheredispute is pending shall bementioned. (A mere represen-tation to the concerned Depart-ment shall not be treated as adispute).

(viii) (a) whether any transactionsnot recorded in the books of



CARO 2003 2015 2016 2020

been prescribed by theCentral Governmentunder clause

(d) of sub-section (1) ofsection 209 of the Act,whether such accountsand records have beenmade and maintained;

(ix) (a) is the companyregular in depositingundisputed statutorydues including Provi-dent Fund, InvestorEducation and Protec-tion Fund, Employees’State Insurance, Inco-me-tax, Sales-tax,Wealth Tax, Service Tax,Custom Duty, ExciseDuty, cess and anyother statutory dueswith the appropriateauthorities and if not,the extent of thearrears of outstandingstatutory dues as at thelast day of the financialyear concerned for aperiod of more than sixmonths from the datethey became payable,shall be indicated bythe auditor.

(b) in case dues ofIncome tax/ Sales tax/Wealth tax/ Service tax/Custom duty/ Exciseduty/ cess have notbeen deposited onaccount of any dispute,then the amountsinvolved and the forumwhere dispute is

has been registeredfor a period not lessthan five years, itsaccumulated losses atthe end of the financialyear are not less thanfifty per cent ofits net worth andwhether it hasincurred cash lossesin such financial yearand in the immediatelypreceding financialyear;

(ix) whether thecompany has defaultedin repayment of duesto a financial institutionor bank ordebenture holders? Ifyes, the period andamount of default tobe reported;

in repayment of loans orborrowing to a financialinstitution, bank,government or dues todebenture holders? Ifyes, the period and theamount of defaultto be reported (in caseof defaults to banks,financial institutions,and government, lenderwise details to beprovided).

(ix) whether moneysraised by way of initialpublic offer or furtherpublic offer (includingdebt instruments) andterm loans wereapplied for the purposesfor which those areraised. If not, the detailstogether with delays ordefault and subsequentrectification, if any, asmay be applicable, bereported;

account have been surrenderedor disclosed as income during theyear in the tax assessments underthe Income Tax Act, 1961; if so,whether the previously unrecor-ded income has been properlyrecorded in the books ofaccount during the year?

(ix) (a) whether the companyhas defaulted in repayment ofloans or other borrowings or inthe payment of interest thereonto any lender? If yes, the periodand the amount of default to bereported as per the format below:

Nature Name Amount Whether No. of Rem-of of not paid principal days arks,borro- lender* on due or delay ifwing date interest or anyinclud- unpaidingdebtsecur-ities

*lenderwisedetailsto be pr-ovidedin caseof def-aults tobanks,finan-cial ins-titutionsandGovt.

(b) Whether the company is adeclared wilful defaulter by anybank or financial institution orother lender?



CARO 2003 2015 2016 2020

pending shall bementioned.

(A mere representationto the Department shallnot constitute adispute).

(x) whether in case of acompany which hasbeen registered for aperiod not less than fiveyears, its accumulatedlosses at the end of thefinancial year are notless than fifty per centof its net worth andwhether it has incurredcash losses in suchfinancial year andin the immediatelypreceding financial year;

(x) whether thecompany has given anyguarantee for loanstaken by others frombank or financialinstitutions, the termsand conditions whereofare prejudicial to theinterest of thecompany;

(x) whether any fraudby the company or anyfraud on the Companyby its officers oremployees has beennoticed or reportedduring the year; If yes,the nature and theamount involved is tobe indicated;

(c) Whether term loans wereapplied for the purpose forwhich the loans were obtained;if not, the amount of loan sodiverted and the purpose forwhich it is used may bereported.

(d) whether funds raised onshort term basis have beenutilised for long term purposes?If yes, the nature and amountto be indicated.

(e) whether the Company hastaken any funds from any entityor person on account of or tomeet the obligations of itssubsidiaries, associates or jointventures? If so, details thereofwith nature of such transactionsand the amount in each case

(f) whether the Company hasraised loans during the year onthe pledge of securities heldin its subsidiaries, joint venturesor associate companies? If so,give details thereof and alsoreport if the company hasdefaulted in repayment of suchloans raised.

(x) (a) whether moneys raisedby way of initial public offeror further public offer (includingdebt instruments) during theyear were applied for thepurposes for which those areraised. If not, the detailstogether with delays or defaultand subsequent rectification, ifany, as may be applicable, bereported;

(b) whether the Company hasmade any preferential allotmentor private placement of sharesor convertible debentures (fully,partially or optionallyconvertible) during the year andif so, whether the requirementsof Section 42 and Section 62 of



CARO 2003 2015 2016 2020

(xi) whether thecompany has defaultedin repayment of dues toa financial institution orbank or debentureholders? If yes, theperiod and amount ofdefault to be reported;

(xii) whether adequatedocuments and recordsare maintained in caseswhere the companyhas granted loans andadvances on the basis ofsecurity by way ofpledge of shares,debentures and othersecurities; If not, thedeficiencies to bepointed out.

(xi) whether managerialremuneration has beenpaid or provided inaccordance with therequisite approvalsmandated by theprovisions of section 197read with Schedule V tothe Companies Act? Ifnot, state the amountinvolved and steps takenby the company forsecuring refund of thesame;

(xii) whether the NidhiCompany has compliedwith the Net OwnedFunds to Deposits in theratio of 1: 20 to meet outthe liability andwhether the NidhiCompany is maintainingten per cent unencum-bered term deposits asspecified in the NidhiRules, 2014 to meet outthe liability;

the Companies Act, 2013 havebeen complied with and the fundsraised have been used for thepurposes for which the fundswere raised. If not, provide detailsin respect of amount involvedand nature of non-compliance;

(xi) (a) whether any fraud by thecompany or any fraud on theCompany has been noticed orreported during the year; If yes,the nature and the amountinvolved is to be indicated;

(b) whether any report under sub-Section (12) of Section 143 of theCompanies Act has been filed bythe auditors in Form ADT-4 asprescribed under Rule 13 ofCompanies (Audit and Auditors)Rules 2014 with the CentralGovernment?

(c) whether the auditor hasconsidered whistle-blowercomplaints, if any, received duringthe year by the Company?

(xii) (a) whether the NidhiCompany has complied with theNet Owned Funds to Deposits inthe ratio of 1:20 to meet out theliability

(b) whether the Nidhi Companyis maintaining ten per centunencumbered term deposits asspecified in the Nidhi Rules, 2014to meet out the liability;

(c). whether there has been anydefault in payment of interest ondeposits or repayment thereof forany period and if so, the detailsthereof

(xi) whether term loanswere applied for thepurpose for whichthe loans wereobtained;

(xii) whether any fraudon or by the companyhas been noticed orreported during theyear; If yes, the natureand the amountinvolved is to beindicated.



(xiii) whether theprovisions of anyspecial statuteapplicable to chitfund have been dulycomplied with? Inrespect of nidhi/mutual benefitfund/societies;

(a) whether the net-owned funds to depositliability ratio is morethan 1:20 as on thedate of balance sheet;

(b) whether thecompany has compliedwith the prudentialnorms on incomerecognition andprovisioning againsts u b - s t a n d a r d /doubtful/loss assets;

(c) whether thecompany has adequateprocedures forappraisal of creditproposals/requests,assessment of creditneeds and repaymentcapacity of theborrower;

(d) whether therepayment schedule ofvarious loans grantedby the nidhi is based onthe repayment capa-city of the borrower;

(xiv) if the company isdealing or trading inshares, securities,debentures and otherinvestments, whetherproper records havebeen maintained of thetransactions andcontracts and whethertimely entries havebeen made therein;

CARO 2003 2015 2016 2020(xiii) whether all transactionswith the related parties are incompliance with sections 177and 188 of Companies Actwhere applicable and the detailshave been disclosed in theFinancial Statements etc., asrequired by the applicableaccounting standards;

(xiv) (a) whether the companyhas an internal audit systemcommensurate with the size andnature of its business?

(b) Whether the reports of theInternal Auditors for the periodunder audit were consideredby the statutory auditor?

(xiii) whether alltransactions with therelated parties are incompliance with section177 and 188 ofCompanies Act, 2013where applicable andthe details have beendisclosed in theFinancial Statementsetc., as required by theapplicable accountingstandards;

(xiv) whether the com-pany has made anypreferential allotmentor private placement ofshares or fully or partlyconvertible debenturesduring the year underreview and if so, as towhether the require-ment of section 42 ofthe Companies Act,



CARO 2003 2015 2016 2020also whether the shares,securities, debenturesand other investmentshave been held by thecompany, in its ownname except to theextent of the exemption,if any, granted undersection 49 of the Act;

(xv) whether thecompany has given anyguarantee for loanstaken by others frombank or financialinstitutions, the termsand conditions whereofare prejudicial tothe interest of thecompany;

(xvi) whether termloans were applied forthe purpose for whichthe loans were obtained;

2013 have beencomplied with and theamount raised havebeen used for thepurposes for whichthe funds were raised. Ifnot, provide the detailsin respect of theamount involved andnature of non-compliance;

(xv) whether the comp-any has entered intoany non-cash transa-ctions with directors orpersons connected withhim and if so, whetherthe provisions ofsection 192 of Compa-nies Act, 2013 havebeen complied with;

(xvi) whether the comp-any is required to beregistered undersection 45-IA of theReserve Bank of IndiaAct, 1934 and if so,whether the registra-tion has been obtained.

(xv) whether the company hasentered into any non-cashtransactions with directors orpersons connected with him andif so, whether the provisions ofsection 192 of Companies Acthave been complied with;

(xvi) (a) whether the companyis required to be registeredunder section 45-1A of theReserve Bank of India Act, 1934and if so, whether the registrationhas been obtained.

(b) whether the Company hasconducted any Non-BankingFinancial or Housing Financeactivities without a validCertificate of Registration (CoR)from the Reserve Bank of India asper the Reserve Bank of India Act1934

(c) whether the Company is aCore Investment Company (CIC)as defined under the Regulationsby the Reserve Bank of India? Ifso, whether it continues to fulfilthe criteria of a CIC and In casethe company is an exempted orunregistered CIC, whether itcontinues to fulfil such criteria.

(d) Whether the Group has morethan one CIC as part of the Group,If yes, indicate the number of CICswhich are part of the Group.



CARO 2003 2015 2016 2020(xvii) whether thefunds raised on short-term basis have beenused for long terminvestment; If yes, thenature and amount is tobe indicated;

(xviii) whether thecompany has made anypreferential allotment ofshares to parties andcompanies covered inthe Register maintainedunder section 301 of theAct and if so whetherthe price at which shareshave been issued isprejudicial to theinterest of the company;

(xix) whether securityor charge has beencreated in respect ofdebentures issued;

(xx) whether the manag-ement has disclosed onthe end use of moneyraised by public issuesand the same has beenverified;

(xvii) whether the Company hasincurred cash losses in theFinancial Year and in theimmediately preceding Financialyear? If so, state the amount ofcash losses

(xviii) whether there has been anyresignation of the statutoryauditors during the year? If so,whether the auditor has takeninto consideration the issues,objections or concerns raised bythe outgoing auditors?

(xix) on the basis of the financialratios, ageing and expected datesof realisation of financial assetsand payment of financialliabilities, other informationaccompanying the financialstatements, the auditor ’sknowledge of the Board ofDirectors and managementplans, whether the auditor is ofthe opinion that no materialuncertainty exists as on the dateof the audit report that companyis capable of meeting its liabilitiesexisting at the date of balancesheet as and when they fall duewithin a period of one year fromthe balance sheet date.

xx) (a) whether, in respect ofother than ongoing projects, thecompany has transferred unspentamount to a Fund specified inSchedule VII to the CompaniesAct within a period of six monthsof the expiry of the financial yearin compliance with secondproviso to sub-section (5) ofsection 135 of the said Act.

(b) whether any amountremaining unspent under sub-



CARO 2003 2015 2016 2020

(xxi) whether any fraudon or by the companyhas been noticed orreported during theyear; If yes, the natureand the amount involvedis to be indicated.

section (5) of section 135 ofthe Companies Act pursuant toany ongoing project, has beentransferred to special accountin compliance with the provisionof sub-section (6) of section 135of the said Act.

(xxi) whether there have been anyqualifications or adverse remarksby the respective auditors in theCompanies (Auditor’s Report)Order (CARO) reports of thecompanies included in theconsolidated financial state-ments? If yes, indicate the detailsof the companies and theparagraph numbers of the CAROreport containing the qualifica-tions or adverse remarks



HIGHLIGHTS OF CARO 2020

CA VIVEK AGARWAL

CARO 2020 has been issued after consultation with theNational Financial Reporting Authority constituted undersection 132 of the Companies Act, 2013.ApplicabilityCARO 2020 is applicable to every company including aforeign company as defined in clause (42) of Section 2 ofthe Companies Act 2013, excepti. a banking company as defined in clause (c) of section

5 of the Banking Regulation Act, 1949 (10 of1949);ii. an insurance company as defined under the Insurance

Act, 1938 (4 of 1938);iii. a company licensed to operate under section 8 of the

CompaniesAct;iv. a One Person Company as defined in clause (62) of

section 2 of the Companies Act and a small companyas defined in clause (85) of section 2 of the CompaniesAct;and

v. a private limited company, not being a subsidiary orholding company of a public company, having a paidup capital and reserves and surplus not more than onecrore rupees as on the balance sheet date and whichdoes not have total borrowings exceeding one crorerupees from any bank or financial institution at anypoint of time during the financial year and which doesnot have a total revenue as disclosed in Scheduled IIIto the Companies Act (including revenue fromdiscontinuing operations) exceeding ten crore rupeesduring the financial year as per the financialstatements.

Auditor’s report to contain matters specified in paragraphs3 and 4. –Every report made by the auditor under section 143 ofthe Companies Act on the accounts of every companyaudited by him, to which this Order applies, for the financialyears commencing on or after the 1st April, 2019, shall inaddition, contain the matters specified in paragraphs 3 and4, as may beapplicable:Provided this Order shall not apply to the auditor’s reporton consolidated financial statements except clause (xxi) ofparagraph 3.

COMPANIES AUDITOR REPORT ORDER (CARO) RULES,2020 - Analyses

The MCA has issued the Companies (Auditor’s Report)Order, 2020 (CARO 2020), on 25th February 2020. Thisorder has been issued in supersession of the Companies(Auditor’s Report) Order, 2016, and is applicable forreporting on financial statements of companies whosefinancial year commences on or after 1st April 2019. CARO2016 was issued by MCA in supersession of CARO 2015.

Now, the MCA has kept the applicability of CARO 2020 tocompanies same as CARO 2016. The CARO 2020 will notapply to the auditor’s report on consolidated financialstatements except for clause (xxi) of Clause 3 in regard toany qualifications or adverse remarks by the respectiveauditors in the Companies (Auditor’s Report) Order (CARO)reports of the companies included in the consolidatedfinancial statements. If there is any such remark, then theauditor of CFS, has to indicate the details of the companiesand the paragraph numbers of the CARO report containingthe qualifications or adverse remarks. The exemption tosmall companies has been removed and instead CARO 2020has defined small company itself.

The total number of clauses in the new CARO is 21. CARO2020 has enhanced the auditor’s reporting requirementsin certain areas, such as Loans given, application of ShortTerm fund, Long term Funds etc.

The provisions of the CARO 2020 are furnished below:

CARO 2020 is applicable from FY 2019-20 and the mattersspecified therein shall be included in each report made bythe auditor under Section 143 of the Companies Act, 2013on the account of every company to which CARO 2020applies.

Section 143 (11) of the Act stipulates that the CentralGovernment may order for the inclusion of statement onspecified matter in the auditor’s report for specified classor description of companies. Accordingly, CARO 2020 isissued in pursuance of Sec. 143 (11) of Companies Act 2013for inclusion of the matters specified therein in auditors’report. Hence, CARO 2020 should be complied by thestatutory auditor of every company on which it applies.



1. Matters to be included in auditor’s report. - Theauditor’s report on the accounts of a company to whichthis Order applies shall include a statement on thefollowing matters,namely:-

Property, Plant and Equipment [clause 3 (i)]

i. (a) (A) whether the company is maintaining properrecords showing full particulars, includingquantitative details and situation of Property,Plant andEquipment;

(B) whether the company is maintaining properrecords showing full particulars of intangibleassets;

(b) whether these Property, Plant and Equipment havebeen physically verified by the management atreasonable intervals; whether any materialdiscrepancies were noticed on such verificationand if so,whether the same have been properlydealt with in the books ofaccount;

(c) whether the title deeds of all the immovableproperties (other than properties where thecompany is the lessee and the lease agreementsare duly executed in favour of the lessee) disclosedin the financial statements are held in the nameof the company, if not, provide the details thereofin the formatbelow:-

Description Gross Held in Whether Period Reason forof property carrying name promoter, held - not being

value of director indicate held inor their range, name ofrelative where company*or approp-employee riate

–– –– –– –– –– *alsoindicate ifin dispute

(d) whether the company has revalued its Property,Plant and Equipment (including Right of Useassets) or intangible assets or both during the yearand, if so, whether the revaluation is based on thevaluation by a Registered Valuer; specify theamount of change, if change is 10% or more inthe aggregate of the net carrying value of eachclass of Property, Plant and Equipment orintangibleassets;

(e) whether any proceedings have been initiated orare pending against the company for holding anybenami property under the Benami Transactions(Prohibition) Act, 1988 (45 of 1988) and rules

made thereunder, if so, whether the company hasappropriately disclosed the details in its financialstatements;

Comments

The auditor have to comment on Intangible assets alsounder this clause. It was not required in CARO 2016.

The pertinent question is how the records would be keptin case of self-generated Intangible Assets, Goodwill, Logo,trademark etc.

The auditor have to disclose, if there has been anyrevaluation, whether the revaluation has been done byregistered valuer and if the change in net value of the assetis more than 10%, then the amount of change has to beinformed here.

A new reporting on benami cases has also been added.The promoters may not share details of Benami Cases withthe auditors, only Management Representations will do inthat cases.

Inventory [Clause 3 (ii)]

ii. (a) whether physical verification of inventory has beenconducted at reasonable intervals by themanagement and whether, in the opinion of theauditor, the coverage and procedure of suchverification by the management is appropriate;whether any discrepancies of 10% or more in theaggregate for each class of inventory were noticedand if so, whether they have been properly dealtwith in the books ofaccount;

(b) whether during any point of time of the year, thecompany has been sanctioned working capitallimits in excess of five crore rupees, in aggregate,from banks or financial institutions on the basisof security of current assets; whether the quarterlyreturns or statements filed by the company withsuch banks or financial institutions are inagreement with the books of account of theCompany, if not, givedetails;

Comments

CARO 2016 used to ask reporting for material discrepancies,but CARO 2020 has defined materiality to be 10% for eachclass of inventory.

Secondly a new reporting of compliance with workingcapital is required for company having sanctioned limit inexcess of Rs five crore form banks or financial institutions.The auditor is required to report about the quarterlydisclosure made by company to bank. This adds to extra



reporting by auditors who can be held liable if there is agap.

There may be minor difference in details of debtors, stockvaluation etc, Whether Quarterly Debtor confirmation isrequired in verification.

Loan given by Company [Clause 3 (iii)]

iii. whether during the year the company has madeinvestments in, provided any guarantee or security orgranted any loans or advances in the nature of loans,secured or unsecured, to companies, firms, LimitedLiability Partnerships or any other parties, ifso,-

(a) whether during the year the company hasprovided loans or provided advances in the natureof loans, or stood guarantee, or provided securityto any other entity [not applicable to companieswhose principal business is to give loans], ifso,indicate-

(A) the aggregate amount during the year, andbalance outstanding at the balance sheetdate with respect to such loans or advancesand guarantees or security to subsidiaries,joint ventures andassociates;

(B) the aggregate amount during the year, andbalance outstanding at the balance sheetdate with respect to such loans or advancesand guarantees or security to parties otherthan subsidiaries, jointventures andassociates;

(b) whether the investments made, guaranteesprovided, security givenand the terms andconditions of the grant of all loans and advancesin the nature of loans and guarantees providedare not prejudicial to the company’s interest;

(c) in respect of loans and advances in the nature ofloans, whether the schedule of repayment ofprincipal and payment of interest has beenstipulated and whether the repayments or receiptsareregular;

(d) if the amount is overdue, state the total amountoverdue for more than ninety days, and whetherreasonable steps have been taken by the companyfor recovery of the principal andinterest;

(e) whether any loan or advance in the nature of loangranted which has fallen due during the year, hasbeen renewed or extended or fresh loans granted

to settle the overdues of existing loans given tothe same parties, if so, specify the aggregateamount of such dues renewed or extended orsettled by fresh loans and the percentage of theaggregate to the totalloans or advances in thenature of loans granted during the year [notapplicable to companies whose principal businessis to giveloans];

(f) whether the company has granted any loans oradvances in the nature of loans either repayableon demand or without specifying any terms orperiod of repayment, if so, specify the aggregateamount, percentage thereof to the total loansgranted, aggregate amount of loans granted toPromoters, related parties as defined in clause (76)of section 2 of the Companies Act, 2013;

Comments

This paragraph is a major change in CARO 2020, earlier thereporting was only of loan given to parties covered inSection 189 of Companies Act, 2013, but the clause underCARO 2020 covers all loan granted by the company.

If the loan has been granted, the aggregate amount duringthe year has to be reported along with balances at balancesheet date, moreover, the loan given to Subsidiary,Associates and joint ventures has to be reported separatelyand to other separately.

The auditor is also required to report that if any new loanhas been given to settle old loan or there has beenextension in existing loan, the amount and % age of suchloan to total loan has to be reported. This clause will be anissue to many corporates and detailed reporting will beseen in upcoming audit reports.

If there any is any loan repayable on demand or withoutany terms and condition, then same should be disclosedseparately with aggregate amount.

How to document the reasonable steps taken by company/management to recover loans, whether lawyer certificateetc will be required.

Loan to director and investment by the company [Clause3 (iv)]

iv. in respect of loans, investments, guarantees, andsecurity, whether provisions of sections 185 and 186of the Companies Act have been complied with, if not,provide the detailsthereof;



Comments

This clause is same as CARO 2016

Deposits [Clause 3 (v)]

v. in respect of deposits accepted by the company oramounts which are deemed to be deposits, whetherthe directives issued by the Reserve Bank of India andthe provisions of sections 73 to 76 or any other relevantprovisions of the Companies Act and the rules madethereunder, where applicable, have been compliedwith, if not, the nature ofsuchcontraventions be stated;if an order has been passed by Company Law Board orNational Company Law Tribunal or Reserve Bank ofIndia or any court or any other tribunal, whether thesame has been complied with or not;

Comments


Cost Records [Clause 3 (vi)]

vi. whether maintenance of cost records has beenspecified by the Central Governmentundersub-section(1)ofsection148oftheCompaniesActandwhether such accounts and records have been so madeandmaintained;

Comments


Statutory Dues [Clause 3 (vii)]

vii. (a) whether the company is regular in depositingundisputed statutory dues including Goods andServices Tax, provident fund, employees’ stateinsurance, income-tax, sales-tax, service tax, dutyof customs, duty of excise, value added tax, cessand any other statutory dues to the appropriateauthorities and if not, the extent of the arrears ofoutstanding statutory dues as on the last day ofthe financial year concerned for a period of morethan six months from the date they becamepayable, shall be indicated;

(b) where statutory dues referred to in sub-clause (a)have not been deposited on account of anydispute, then the amounts involved and the forumwhere dispute is pending shall be mentioned (amere representation to the concerned Departmentshall not be treated as a dispute);

Comments

This clause is same as CARO 2016 except the goods andservices tax has been added.

Disclosure under Income Tax [Clause 3 (viii)]

viii. whether any transactions not recorded in the books ofaccount have been surrendered or disclosed as incomeduring the year in the taxassessments under theIncome Tax Act, 1961 (43 of 1961), if so, whether thepreviously unrecorded income has been properlyrecorded in the books of account during theyear;

Comments

This is a new clause for reporting in various scheme likeVoluntary Disclosure Scheme, Viwad Se Viswas etc. Theaccounting of disclosures made has to be reported.

If the company reports any figure over here, will thisattract fraud reporting paragraph also. This is to beclarified.

Repayment of Loan [Clause 3 (ix)]

ix. (a) whether the company has defaulted in repaymentof loans or other borrowings or in the payment ofinterest thereon to any lender, if yes, the periodand the amount of default to be reported as perthe formatbelow:-

Nature of Name Amount Whether No. of Remarks,borrowing, of not paid principal days if anyincluding lender* on due or delaydebt date interest orsecurities unpaid

*lenderwisedetails tobeprovidedin caseofdefaultstobanks,financialinstitut-ions andGovt.

(b) whether the company is a declared wilful defaulterby any bank or financial institution or otherlender;

(c) whether term loans were applied for the purposefor which the loans were obtained; if not, theamount of loan so diverted and the purpose forwhich it is used may bereported;



(d) whether funds raised on short term basis havebeen utilised for long term purposes, if yes, thenature and amount to beindicated;

(e) whether the company has taken any funds fromany entity or person on account of or to meet theobligations of its subsidiaries, associates or jointventures, if so, details thereof with nature of suchtransactions and the amount in eachcase;

(f) whether the company has raised loans during theyear on the pledgeof securities held in itssubsidiaries, joint ventures or associatecompanies, if so, give details thereof and alsoreport if the company has defaulted in repaymentof such loansraised;

Comments

This is again detailed reportingrequired in CARO 2020. In CARO2016 it was limited to default inrepayment of loans andborrowing to a financialinstitution, banks, government ordues to debenture holders but inCARO 2020 the reporting is aboutdefault in payment of loan orinterest to any lenders and thereporting has to be done lenderwise in given format.

The Auditor have to Reportwhether all loans has been usedfor the purpose for which it wastaken, term loan and Short-TermLoan, it brings back earlier CAROparagraphs

The Auditor also has to make additional reporting of loantaken to meet obligation of subsidiaries, associates andjoint ventures, as well as loan taken by pledge of shares ofSubsidiary, associates or joint venture.

Utilisation of IPO and further public offer [Clause 3 (x)]

x. (a) whether moneys raised by way of initial publicoffer or further public offer (including debtinstruments) during the year were applied for thepurposes for which those are raised, if not, thedetails together with delays or default andsubsequent rectification, if any, as may beapplicable, be reported;

(b) whether the company has made any preferentialallotment or private placement of shares orconvertible debentures (fully, partially oroptionally convertible) during the year and ifso,whether the requirements of section 42 andsection 62 of the Companies Act, 2013 have beencomplied with and the funds raised have been usedfor the purposes for which the funds were raised,if not, provide details in respect of amount involvedand nature ofnon-compliance;

Comments

This clause is same as CARO 2016 and preferentialallotment clause (xiv)of CARO 2016 has been added here.

Reporting of Fraud [Clause 3 (xi)]

xi. (a) whether any fraud by the company or any fraudon the company has beennoticed or reported during theyear, if yes, the nature and theamount involved is tobeindicated;

(b) whether any reportunder sub-section (12) ofsection 143 of the CompaniesAct has been filed by theauditors in Form ADT-4 asprescribed under rule 13 ofCompanies (Audit and Auditors)Rules, 2014 with the CentralGovernment;

(c) whether theauditor has considered whistle-blower complaints, if any,received during the year by

thecompany;

Comments

This clause is same as CARO 2016 only para b and c areadditional, these are for compliance of Sec 143 andadditional responsibility of whistle blower complaints

Nidhi Company [Clause 3 (xii)]

xii. (a) whether the Nidhi Company has complied with theNet Owned Funds to Deposits in the ratio of 1: 20to meet out theliability;

(b) whether the Nidhi Company is maintaining tenpercent. unencumbered term deposits as specifiedin the Nidhi Rules, 2014 to meet out the liability;



(c) whether there has been any default in paymentof interest on deposits or repayment thereof forany period and if so, the detailsthereof;

Comments

This clause is same as CARO 2016 only para C is additional

Related Party Transaction [Clause 3 (xiii)]

xiii. whether all transactions with the related parties arein compliance with sections 177 and 188 of CompaniesAct where applicable and the details have beendisclosed in the financial statements, etc., as requiredby the applicable accountingstandards;

Comments


Internal Audit [Clause 3 (xiv)]

xiv. (a) whether the company has an internal audit systemcommensurate with the size and nature ofitsbusiness;

(b) whether the reports of the Internal Auditors forthe period under audit were considered by thestatutory auditor;

Comments

This clause has made a comeback, it was not there in CARO2016. The para b of the clause is new, it derives itself fromStandards on Auditing where using the work of InternalAuditors is discussed.

Earlier this clause talked about Internal control relatingto Purchase and sales only, now the scope is very wide

Non Cash Transaction [Clause 3 (xv)]

xv. whether the company has entered into any non-cashtransactions with directors or persons connected withhim and if so, whether the provisions of section 192 ofCompanies Act have been compliedwith;

Comments

This clause is same as CARO 2016 only para C is additional

Register under RBI Act 1934 [Clause 3 (xvi)]

xvi. (a) whether the company is required to be registeredunder section45-IA of the Reserve Bank of IndiaAct, 1934 (2 of 1934) and if so, whether theregistration has beenobtained;

(b) whether the company has conducted any Non-Banking Financial or Housing Finance activitieswithout a valid Certificate of Registration (CoR)

from the Reserve Bank of India as per the ReserveBank of India Act, 1934;

(c) whether the company is a Core InvestmentCompany (CIC) as defined in the regulations madeby the Reserve Bank of India, if so, whether itcontinues to fulfil the criteria of a CIC, and in casethe company is an exempted or unregistered CIC,whether it continues to fulfil suchcriteria;

(d) whether the Group has more than one CIC as partof the Group, if yes, indicate the number of CICswhich are part of theGroup;

Comments

The para a of this clause is same as CARO 2016. The parab to d are new. The auditor is required to report onactivities carried by the company of NBFC, HFC withoutvalid certificates. The Company is a CIC or the number ofCIC in group. This has been asked to be reported afterrecent issues in NBFC,

Cash Losses [Clause 3 (xvii)]

xvii. whether the company has incurred cash losses in thefinancial year and in the immediately precedingfinancial year, if so, state the amount of cash losses;

Comments

This is new reporting requirements of CARO 2020,calculation of cash losses to be done. This is visible fromCash Flow but now separate reporting is also required.

Resignation of Auditors [Clause 3 (xviii)]

xviii. whether there has been any resignation of thestatutory auditors during the year, if so, whether theauditor has taken into consideration the issues,objections or concerns raised by the outgoingauditors;

Comments

CARO 2020 takes auditor resignation more seriously andafter recent increase in numbers of resignation and theirtimings it’s a welcome move, how the auditor has takencare of issues of earlier auditor.

Capable to Meet Liabilities [Clause 3 (xix)]

xix. on the basis of the financial ratios, ageing and expecteddates of realisation of financial assets and payment offinancial liabilities, other information accompanyingthe financial statements, the auditor’s knowledge ofthe Board of Directors and management plans,whether the auditor is of the opinion that no materialuncertainty exists as on the date of the audit reportthat company is capable of meeting its liabilities



existing at the date of balancesheet as and when they falldue within a period of one yearfrom the balance sheetdate;

Comments

CARO 2020 brings additional clauseon capability of company to meetits liability, its again in line withgoing concern reporting which wasmade stringent by SA 570 lately,the above clause give more clarityof cash flows and will give sometension to new companies and itsfund management. The auditorsshould take detail justification forabove and do a walkthrough.

Corporate Social Reporting [Clause3 (xx)]

xx. (a) whether, in respect ofother than ongoing projects, the company hastransferred unspent amount to a Fund specifiedin Schedule VII to the Companies Act within aperiod of six months of the expiry of the financialyear in compliance with second proviso to sub-section (5) of section 135of the saidAct;

(b) whether any amount remaining unspent undersub-section (5) of section135 of the CompaniesAct, pursuant to any ongoing project, has beentransferred to special account in compliance withthe provision of sub- section (6) of section 135 ofthe said Act;

Comments

The Reporting about CSR was missing and now its broughtin by CARO 2020. This clause is again an issue as somecompanies were not taking CSR in true sense and addedresponsibility has been given to auditor.

The major issue is that the section135(5)&135(6) of Companies Act2013 has not yet been notified stillauditors have to report on same.

Justification [Clause 3 (xxi)]

xxi. whether there have beenany qualifications or adverseremarks by the respective auditorsin the Companies (Auditor ’sReport) Order (CARO) reports ofthe companies included in theconsolidated financial statements,if yes, indicate the details of thecompanies and the paragraphnumbers of the CARO reportcontaining the qualifications oradverseremarks.

Comments

The auditor have to give properreasoning for qualification or adverse remarks in auditreport. A new paragraph introduced by CARO 2020

Reasonstobestatedforunfavourableorqualifiedanswers.-

(1) Where, in the auditor’s report, the answer to any ofthe questions referred to in paragraph 3 isunfavourable or qualified, the auditor’s report shallalso state the basis for such unfavourable or qualifiedanswer, as the case maybe.

(2) Where the auditor is unable to express any opinionon any specified matter, his report shall indicate suchfact together with reasons as to why it is not possiblefor him to give his opinion on same

Comments

The above two para again increase the responsibility ofthe auditor in respect to cases where auditor is not able toexpress any opinion on any matter or has to give detailreason for unfavourable or qualified comments on any ofthe para stated above.



Application shall also be filed in Form GNL 1 with theRegistrar of Companies

Offence is compounded on payment or credit, by thecompany or, as the case may be, the officer, to the CentralGovernment of such sum as that Tribunal or the RegionalDirector or any officer authorised by the CentralGovernment, as the case may be, may specify.

Further, the sum, if any, paid by way of additional feeunder sub-section (2) of section 403 shall be taken intoaccount:

For Filling the Compounding Application, generally theNCLT rules are followed and the various formats likeHeading of the applications, Titles, Fact of the Case andthe Affidavit verifying applications and the Memorandumof Appearances, it is better to follow the NCLT Rules.

Documents Accompanying the CompoundingApplications

a) Application in NCLT-1

b) Heading as per NCLT-4

c) Affidavit verifying the Application- NCLT-6

d) Memorandum of Appearance / Vakaltnama

e) Copy of Show Cause Notices, if any, of MCA

f) Latest MOA

g) Latest Annual Report

h) All Correspondences in relation with the said Sectionsas submitted with regulators

i) If suo moto, then that has to be mentionedaccordingly.

j) Justification of the Fact of the cases

k) If the prosecution is going on, then the respectivecourt supporting papers to be annexed with thecurrent status and the leave of the court taken for themove of the Compounding Application or not

To understand the meaning of Compounding, it becomeincumbent to understand the main concept of OFFENCEand COMPOUNDING first.

“Offence” shall mean any act or omission made punishableby any law for the time being in force.

“To compound” means “to settle a matter by a moneypayment, in lieu of other liability.

Compounding in other words is simply as “SETTLEMENTMECHANISM”

WHEN CAN THE OFFENCE BE COMPOUNDED ?

Any offence punishable under the Companies Act 1956 /2013 (whether committed by a company or any officerthereof) can be compounded either before or after theinstitution of any prosecution,

(a) Offence compounded before the institution of anyprosecution,

No prosecution shall be instituted in relation to suchoffence, either by the Registrar or by any shareholderof the company or by any person authorised by theCentral Government against the offender in relationto whom the offence is so compounded.

(b) Offence compounded after the institution of anyprosecution,

The Compounding shall be brought by the Registrarin writing, to the notice of the court in which theprosecution is pending and on such notice of thecompounding of the offence being given, the companyor its officer in relation to whom the offence is socompounded shall be discharged.

HOW CAN THE OFFENCE BE COMPOUNDED ?

Every application for the compounding of an offence shallbe made to the Registrar who shall forward the same,together with his comments thereon, to the Tribunal orthe Regional Director or any officer authorised by theCentral Government, as the case may be.

COMPOUNDING OF OFFENCES U/ S 441

CS MOHAN RAM GOENKA



l) The offence if made good then Ok or the affirmationthat the same has been rectified in the subsequentyear Annual Report.

m) Any Filling Fees with Regional Director of NCLT – NoFees

Authorities involved :-

Offences where maximum amount of fine may be imposedupto Rs. 50,000/- (upto 31.03.2014), upto Rs. 5 lakhs (from01.4.2014 to 01.11.2018) and upto Rs. 25 lakhs (onwards02.11.2018) - By the Regional Director or any officerauthorised by the Central Government,

Offences where maximum amount of fine may be imposedexceeds Rs.50,000/-(upto 31.03.2014), exceeds Rs.5 lakhsexceeds Rs. 25 lakhs - By Tribunal on or after 02.11.2018

Process of Compounding

The Application is processed by the Legal Cell of theRegistrar of Companies and then subsequently forwardedto the appropriate authority on the basis of the Finescalculations— to the Regional Director or to the NCLT- astabled above. We generally submit the Original set ofApplications and one Xerox Copy with the Registrar ofCompanies. After due processing of the Application theFiled up papers in original are sent to the respectiveAuthority. Necessary follow up is to be done in time ofintervals in respective departments in order to know thestatus of the Applications. Once it is send the RegionalDirector of NCLT, then the necessary notices are issued bythe respective authority and the hearing is fixed. We haveto appear on the said date and time with properdocuments and make our submission before the Hon’blemember. After our submission a particular fines is leviedafter compounding of the same and we are give a time offortnight or so as agreed upo to submit the same. In caseof the Regional Director the Fines has to be submitted byMCA portal throught miscellaneous fees by online modeand in case of the NCLT the fined has to be submitted bypay order or DD in the name of PAY & ACCOUNS OFFICER,MINISTRY of CORPOTAE AFFIRS payable at Kolkata********** . Once the payment is clear then therespective authority issue the order and the same has tobe submiited in ONC-28 as stated below.

COMPOUNDING OPTION U/S 441 OF THE ACT DEPENDSON PUNISHMENT INVOLVED IN OFFENCES

OFFENCES TO BE COMPUNDED

(i) Offence punishable with fine only, or

(ii) Offence punishable with fine or imprisonment or both.

OFFENCES NOT TO BE COMPOUNDED

(i) Offence punishable with imprisonment only.

(ii) Offence punishable with both imprisonment and fine.

(iii) Where investigation has been initiated or is pendingagainst the company;

(iv) Where similar offence has been compounded withinlast three years.

Filing of Order with ROC – File e-form INC 28 within 7days from the date on which the offence is so compoundedi.e., Date of Order..

Failure to comply with NCLT / RD Order - (5) Any officeror other employee of the company shall be punishablewith imprisonment for a term which may extend to 6months, or with fine not exceeding Rs. 1,00,000/-, or withboth.

Prosecution to be cleared

Suppose in any of the Section, the regulators has filed theprosecution against the directors and the Company sayfor Example under Section 159/166 for Non Filling ofAnnual Return and balance Sheet Under Companies Act,1956. The same is generally reflected in the CompanyMaster Data in the MCA portal and the bankers ifapproached for any financial assistances direct thecompany to clear such non compliances. In such situationseither to go for compounding as stated above and afterobtaining the order of the Compounding request theregulators to submit the withdrawal applications in therespective court where the prosecutions is filed. Thenecessary appearance by both the party will be done onthe date of the hearing in the respective court and theorder of the due compliances be issued accordingly. TheCompany representative will submit the copy of the Courtorder and request the regulators to rectify the CompanyMaster Data in the MCA Portal, so that the financialassistance, if any, is cleared by the bankers.



Reference Date Topic Description

General 27-06-2019 Filing of DIR-3 It is hereby informed that it is being proposed that everyCircular KYC under the person who has already filed DIR-3 KYC will only be required toNo. 07-2019 Companies complete his/her KYC through a simple web-based verification

Act. 2013 service.http://www.mca.gov.in/Ministry/pdf/GeneralCircular_27062019.pdf

No. NF-11/ 01-07-2019 Last date of It is intimated that NFRA-1 Form has been deployed on the1/2019- filling up website of NFRA (nfra.gov.in) and accordingly the last date of0/o Secy- Form filing the same by the Entities concerned will be 31.7.19.NFRA NFRA — 1 http://mca.gov.in/Ministry/pdf/FormNFRA1_0207019.pdf

S.O. 2269 (E) 01-07-2019 Commencement Substitution of new section for section 406 of the Companiesof Section 81 of Act, 2013. Provision relating to Nidhis and its application, etc.the Companies http://www.mca.gov.in/Ministry/pdf/(Amendment) CommencementNotification_01072019.pdfAct, 2017 w.e.f.15th Aug. 2019

01-07-2019 Form BEN-2 Form BEN-2 (Return to the Registrar in respect of declarationDeployed under Section 90) notified vide the Companies (Significant

Beneficial Owners) second Amendment Rules, 2019 dated 1stJuly 2019 is available for filing purposes now.

General 29-07-2019 Relaxation of It is hereby, informed that the time limit for filing e-form No.Circular additional fees BEN-2 is extended up to 30.09.2019 without payment ofNo. and extension additional fee and thereafter fee and additional fee shall be08-2019 of last dateof payable.

filing of Form http://mca.gov.in/Ministry/pdf/GeneralCircular_29072019.pdfBEN-2

S. O. ––– (E) 14-08-2019 Commencement In exercise of the powers conferred by sub-section (3) ofof few sections section 1 of the Companies (Amendment) Act, 2019 (22 ofof the Companies 2019), the Central Government hereby appoints the 15th day(Amendment) of August, 2019 as the date on which the provisions of sectionsAct, 2019 6, 7 and 8, clauses (i), (iii) and clause (iv) of section 14, sectionw.e.f.15th 20, section 31, sections 33, 34 and 35 and sections 37 and 38 ofAugust, 2019 the said Act shall come into force.

http://mca.gov.in/Ministry/pdf/CommencemntNotification_14082019.pdf

Simplification of 1) With a view to simplify the process for incorporating Sectionprocess of 8 Companies, requirement of prior filing of INC-12 for newIncorporation of section-8 companies is being dispensed with vide theSection 8 Companies(Incorporation) Sixth Amendment Rules, 2019 datedCompanies: 7th June, 2019.2) Henceforth, Section 8 Companies can be

RECENT AMENDMENT IN COMPANIES ACT, 2013



incorporated by either reserving names through Run and filingSPICe thereafter or by directly filing SPICe. Licence No. for asection 8 company shall henceforth be allotted at the time ofincorporation itself.3) In view of the above, all pending INC-12SRNs for new Companies pending at respective ROCs would bemarked as ‘Rejected’ on 15th August 2019. Such applicants maythereafter directly file SPICe for obtaining License Number andfor incorporation of Section 8 Companies.4) Stakeholders whohave already obtained License Numbers and are yet to fileSPICe form for incorporating Sec 8 companies may do so attheir convenience but may please note that the forms shall beprocessed only after a certain time lag to allow for work flowchanges to take effect.5) Those stakeholders who have alreadyfiled SPICe forms which are pending at CRC may kindly awaitprocessing of these forms after the work flow changes take effect.

Changes in The Central Government has made further amendments toAOC-4 Non-XBRL Schedule III to the Companies Act, 2013 vide Notification datedform for NBFC 11th October 2018. As per the said notification, Division III has

been inserted in respect of Financial Statements for a Non-Banking Financial Company (NBFC) whose financial statementsare drawn up in compliance of the Companies (IndianAccounting Standards) Rules, 2015. The changes to AOC-4 Non-XBRL form necessitated by insertion of Division III in ScheduleIII of CA 2013 are under development and the revised formexclusively for such class of companies would be madeavailable for filing purposes soon. Stakeholders may kindly takenote and plan accordingly.

Changes in forms IEPF Second Amendment Rules, 2019 have been notified andrelated to IEPF are available on www.iepf.gov.in. Accordingly IEPF-1, IEPF-2 and

IEPF–4 forms shall be revised, new IEPF–1A shall be availableand IEPF–6 shall be deprecated from 20th August 2019.Stakeholders are requested to plan accordingly.

General 21-08-2019 Clarification It is hereby clarified that:Circular under Sec 232(6) (a) The provision of section 232(6) of the Act enables theNo. of Companies companies in question to choose and state in the scheme an09-2019 Act, 2013 ‘appointed date’. This date may be a specific calendar date or

may be tied to the occurrence of an event such as grant oflicense by a competent authority or fulfillment of anypreconditions agreed upon by the parties, or meeting any otherrequirement as agreed upon between the parties, etc., whichare relevant to the scheme.(b) The ‘appointed date’ identified under the scheme shall alsobe deemed to be the ‘acquisition date’ and date of transfer ofcontrol for the purpose of conforming to accounting standards(including Ind-AS 103 Business Combinations).(c) Where the ‘appointed date’ is chosen as a specific calendardate, it may precede the date of filing of the application forscheme of merger/amalgamation in NCLT. However, if the‘appointed date’ is significantly ante-dated beyond a year fromthe date of filing, the justification for the same would have to



be specifically brought out in the scheme and it should not beagainst public interest.(d) The scheme may identify the ‘appointed date’ based on theoccurrence of a trigger event which is key to the proposedscheme and agreed upon by the parties to the scheme. Thisevent would have to be indicated in the scheme itself uponoccurrence of which the scheme would become effective.However in case of such event based date being a datesubsequent to the date of filing the order with the Registrarunder section 232(5), the company shall file an intimation ofthe same with the Registrar within 30 days of such schemecoming into force.http://mca.gov.in/Ministry/pdf/GeneralCircular_21082019.pdf

General 21-08-2019 Extension time It is hereby, informed that the time limit for filing e-form No.Circular for filing BEN-2 BEN-2 is extended up to 31.12.2019 without payment ofNo. additional fee and thereafter fee and additional fee shall be10-2019 payable.

http://mca.gov.in/Ministry/pdf/GeneralCircular_24092019.pdf

Amendments to The Central Government has made further amendments toSchedule III to the Schedule III to the Companies Act, 2013 vide Notification datedCompanies 11th October 2018. As per the said notification, Division III hasAct, 2013 been inserted in respect of Financial Statements for a Non-

Banking Financial Company (NBFC) whose financial statementsare drawn up in compliance of the Companies (IndianAccounting Standards) Rules, 2015. The changes to AoC-4 Non-XBRL form necessitated by insertion of Division III in ScheduleIII of CA 2013 are under development and the revised formexclusively for such class of companies would be madeavailable for filing purposes soon. Once the form is deployed inMCA21 portal for filing purposes, suitable notice would bepublished and adequate time would be given for filing the formwithout levying additional fee.

Changes in Costing Taxonomy 2019 to cater to the annual filing of CRA-4Costing (Cost audit report) for FY 2018-19 is under development. TheTaxonomy 2019 companies which are required to file CRA-4 (Cost audit report)

for FY 2018-19 are required to use Costing Taxonomy 2019only. Those who have already filed CRA-4 (Cost Audit Report)using the existing Costing Taxonomy 2015 for FY 2018-19 areNOT required to file afresh. However, those companies whichare yet to file their Cost Audit Reports are requested to awaitdeployment of Costing Taxonomy 2019 on MCA21 portal. Oncethe Costing Taxonomy 2019 is deployed, sufficient time wouldbe given for filing CRA-4 without levying additional fee.

General 25-10-2019 Relaxation of It has been decided to relax the additional fees payable byCircular Additional Fee companies on filling form IEPFA-1A upto 31.12.2019 and formNo. 11-2019 and Extension of IEPF-2 upto 30.11.2019.

Last of Filling http://mca.gov.in/Ministry/pdf/GeneralCircular1_25102019.pdfForm IEPFA-1Aand form IEPF-2



General 25-10-2019 Relaxation of It is hereby informed that the Companies (cost records andCircular additional fees audit) Amendment Rules, 2019 and Companies (Filing ofNo. 12-2019 and extension of Documents and Forms in Extensible Business Reporting

last date of filing Language), Amendment Rules, 2019 have been notified onof CRA-4 (cost 15.10.2019 and simultaneously the work of deployment ofaudit report) for costing taxonomy 2019 is under process.In view of above andFY 2018-19 under the difficulties expressed by various stakeholders for extendingthe Companies the last date of filing of CRA-4 (cost audit report), it has beenAct, 2013 decided to extend the last date for filing of CRA-4 (cost audit

report) for all eligible companies for the FY 2018-19, withoutpayment of additional fee till 31st December, 2019.http://mca.gov.in/Ministry/pdf/GeneralCircular_25102019.pdf

General 29-10-2019 Relaxation of Keeping in view the requests received from variousCircular additional fee stakeholders seeking extension of time for filing of financialNo. 13-2019 AOC-4 and MGT-7 statements for the financial year ended 31.03.2019 on account

of various factors , it has been decided to extend the due datefor filing of e-forms AOC-4, AOC (CFS) AOC-4 XBRL upto30.11.2019 and e-form MGT-7 upto 31.12.2019, by companieswithout levy of additional fee.http://mca.gov.in/Ministry/pdf/GeneralCircular_29102019.pdf

General 27-11-2019 Extension of last It is stated that the time limit for filing Form NFRA-2 will be 90Circular date of filing days from the date of deployment of this form on the websiteNo. 14-2019 NFRA-2 of National Financial Reporting Authority (NFRA).

http://mca.gov.in/Ministry/pdf/NFRA_27112019.pdf

General 28-11-2019 Extension of last It is stated that the time limit for filing Form PAS-6 withoutCircular date of filing additional fees for the half-year ended on 30.09.2019 will beNo. 16-2019 Form PAS-6 sixty days from the date of deployment of this form on the

website of the Ministry. http://mca.gov.in/Ministry/pdf/FormPAS6_28112019.pdf

Registration on Registration on Independent Directors’ Databank willIndependent commence on 2nd December, 2019 from 11.30 AM onwardsDirectors’Databank

General 30-12-2019 Relaxation of In continuation to this Ministry’s General Circular No. 12/2019Circular additional fees dated 24.10.2019 it is informed that the last date of filing ofNo. 17-2019 and extension of CRA-4 (cost audit report) for all eligible companies for the

last date of filing Financial Year 2018-19, without payment of additional fee, hasof CRA-4 (cost been further extended till 29.O2.2O2O.audit report) for http://mca.gov.in/Ministry/pdf/Circular17_30122019.pdfFY 2018-19 underthe CompaniesAct, 2013

General 01-12-2020 Extension for In continuation to this Ministry’s General Circular No. 10/2019Circular filing BEN-2 dated 24.10.2019 it is informed that the last date of filing ofNo. 1-2020 BEN-2 is extended up to 31.03.2020.

http://mca.gov.in/Ministry/pdf/Circular1_01012020.pdf



Incorporation (i) Stakeholders may please note that as part of Government ofof new Company India’s Ease of Doing Business(EODB) initiatives, the Ministry of

Corporate Affairs would be shortly notifying & deploying a newWeb Form christened ‘SPICe+’ (pronounced ‘SPICe Plus’)replacing the existing SPICe form.(ii) SPICe+ would be an integrated Web form offering multipleservices viz. name reservation, incorporation, DIN allotment,mandatory issue of PAN, TAN, EPFO, ESIC, Profession Tax(Maharashtra) and Opening of Bank Account. It will alsofacilitate allotment of GSTIN wherever so applied for by theStakeholders. After deployment of SPICe+ web form, RUN shallbe applicable only for change of name of existing companies.(iii) Upon notification & deployment, all new name reservationsfor new companies as well as new incorporations shall beapplied through SPICe+ only(iv) However, incorporation of companies for names reservedthrough the existing RUN service shall continue to be filed inthe existing SPICe eform along with related linked forms asapplicable and if marked under resubmission shall beresubmitted in SPICe eform.(v) Resubmission of SPICe forms submitted prior to date ofdeployment of SPICe+ web form shall also be filed in theexisting SPICe eform and related linked forms as applicable.

General 30-01-2020 Relaxation of It is hereby informed that the two new eforms namely AoC-4Circular additional fees NBFC (Ind AS) and AoC- 4 CFS NBFC (Ind AS) are likely to beNo. 2-2020 and extension of deployed on 31St January, 2020 and 17th February, 2020

last date of respectively. In view of above, it has been decided to extend thefiling of AoC-4 last date of filling of AoC-4 NBFC (Ind AS) and AoC-4 CFS NBFCNBFC (Ind AS) (Ind AS) for FY 2018-19 without payment of additional fees tilland AoC-4 CFS 31st March, 2020.NBFC (Ind AS) http://mca.gov.in/Ministry/pdf/Circular_30012020.pdffor FY 2018-19under the Cos.Act, 2013

General 17-02-2020 Filing of forms Keeping in view the requirements for statutory compliances byCircular in the Registry such companies under the Companies Act, 2013 and to enableNo. 3-2020 (MCA-21) by the compliance of such requirements by such Resolution

IP (IRP or RP or Professionals, it is hereby clarified that the following proceduresLiquidator) shall be followed in respect of all such cases:-appointed underInsolvency The IRP/ RP/ Liquidator would have to first file the NCLT orderBankruptcy approving him as the IRP/RP/Liquidator in form INC-28 on theCode, 2016 MCA21 portal by selecting the option “Others” at serial no.

s(a)(i) from the drop down menu in the form. After filling in theform, the IRP/RP/Liquidator while affixing his DSC, shall choosehis designation as “Others” in the declaration box.

Jurisdictional ROC, shall thereafter examine and approve theINC-28 form so filed if the same is found to be in order. If thefiled Form is not in order, he shall mark the form as under Re-submission / Rejected category as applicable. Once the INC-28



form is approved, only the IP (lRP/ RP/ Liquidator) shallthereafter be allowed to file any form on behalf of thecompany. For all subsequent filings, the IP shall choose hisdesignation as “Chief Executive Officer”(CEO), for the purposeof filing e-forms, in various e-forms.http://mca.gov.in/Ministry/pdf/Circular_17022020.pdf

S.O.(E) 04-02-2020 Commencement In exercise of the powers conferred by sub-section (3) of sectionnotification 1 of the Companies Act, 2013 (18 of 2013), the Centraldated Government hereby appoints the 3rd Day of February, 2020 as03.02.2020 the date on which the provisions of sub-sections (11) and (12)

of section 230 of the said Act shall come into force.http://mca.gov.in/Ministry/pdf/Notification_04022020.pdf

http://mca.gov.in/Ministry/pdf/ShareCapitalRules_16082019.pdfThe Companies (Incorporation) Seventh AmendmentRules, 2019, Dated 28th August 2019In the Companies (Incorporation) Rules, 2014, in theannexure to the said rules, forms RD-1 and RD GNL-5, shallbe substituted.http://mca.gov.in/Ministry/pdf/SeventhAmendmentRules_28082019.pdfThe National Financial Reporting Authority (Amendment)Rules, 2019, Dated 5th September, 2019Form NFRA 2 notified i.e. Annual Return to be filed byauditors with the National Financial Reporting Authority.http://mca.gov.in/Ministry/pdf/NFRA_05092019.pdfThe Companies (Appointment and Qualification ofDirectors) Fourth Amendment Rules, 2019, Dated 30thSeptember, 2019For the financial year ending on 31st March, 2019, theindividual shall submit e-form DIR-3 KYC or web form DIR-3 KYC-WEB, as the case may be, on or before the 14thOctober, 2019.http://mca.gov.in/Ministry/pdf/Companies4thAmendtRules_30092019.pdfThe Companies (Registration Offices and Fees) FifthAmendment Rules, 2019, Dated 30th September, 2019For the financial year ended on 31st March, 2019, no feeshall be payable in respect of e-form DIR-3 KYC or DIR-3KYC-WEB through web service till 14th October, 2019.http://mca.gov.in/Ministry/pdf/Companies5thAmendtRules_30092019.pdfThe Companies (Incorporation) Eighth Amendment Rules,2019, Dated 18.10.2019The amendment is related to Non Active Companies canchange directors in below situations:(a) Cessation of any director or (b) appointment of

directors in such company where the total number ofdirectors are less than the minimum number provided

Nidhi (Amendment) Rules, 2019 Dated 1st July 2019,Effective from 15th August, 2019Form NDH-4 introduced and other amendments. FormNDH-4 will be used for filing application for declaration asNidhi Company and for updation of status by Nidhis.http://www.mca.gov.in/Ministry/pdf/NidhiRules_01072019.pdfCompanies (Significant Beneficial Owners) secondAmendment Rules, 2019, Dated 1st July 2019New Form BEN-2 introduced.http://mca.gov.in/Ministry/pdf/CompaniesSignificantRules_01072019.pdfThe Companies (Amendment) Act, 2019, Dated 31st July2019, Effective from 2nd November, 2018 except fewAll the provisions of companies Amendment Bill, 2018 hasbecome part of the Act now. Few new amendments havebeen made related to provisions of CSR, Demat of Shares,Investigation by SFIO etc.http://mca.gov.in/Ministry/pdf/AMENDMENTACT_01082019.pdfThe Investor Education and Protection Fund Authority(Accounting, Audit, Transfer and Refund) SecondAmendment Rules, 2019, Dated 14th August 2019Effective from 20th August, 2019 except rule 6 which iseffective from 20th September, 2019Based on the representations made by the stakeholders,MCA has revised the aforesaid Rules with respect to transferof shares. The revised rules has further made the processof transfer of dividend/shares to and claiming of refundfrom the Investor Education and Protection Fund (“theFund”) effortless.http://mca.gov.in/Ministry/pdf/IEPFRules_19082019.pdfThe Companies (Share Capital and Debentures)Amendment Rules, 2019, Dated 16th August 2019The Ministry of Corporate Affairs has amended theprovisions relating to issue of shares with Differential VotingRights (DVRs) and Employee Stock Options (ESOPs) videthis amendment rules.



in clause (a) of sub-section (1) of section 149 onaccount of disqualification of all or any of the directorunder section 164. (c) Appointment of any director insuch company where DINs of all or any it’s director(s)have been deactivated. (d) Appointment of director(s)for implementation of the order passed by the Courtor Tribunal or Appellate Tribunal under the provisionsof this Act or under the Insolvency and BankruptcyCode, 2016http://mca.gov.in/Ministry/pdf/CompIncEighthAmndtRules_18102019.pdf

The Companies (Appointment and Qualification ofDirectors) Fifth Amendment Rules, 2019, Dated22.10.2019, Effective from 01.12.2019Amendment is related to compliances required by a personeligible and willing to be appointed as an independentdirector.Every individual – (a) who has been appointed as anindependent director in a company, on the date ofcommencement of the Companies (Appointment andQualification of Directors) Fifth Amendment Rules, 2019,shall within a period of three months from suchcommencement; or (b) who intends to get appointed asan independent director in a company after suchcommencement, shall before such appointment, applyonline to the institute for inclusion of his name in the databank for a period of one year or five years or for his life-time, and from time to time take steps as specified in sub-rule (2), till he continues to hold the office of anindependent director in any company: Provided that anyindividual, including ahttp://mca.gov.in/Ministry/pdf/CmpFifthAmndtRules_22102019.pdfThe Companies (Meetings of Board and its Powers) SecondAmendment Rules, 2019, Dated 18.11.2019The amendment is related to the change in threshold limitof criteria for a contracts or arrangements with respect toclauses (a) to (e) of sub-section (1) of section 188http://mca.gov.in/Ministry/pdf/Comp2Amndt_18112019.pdf

The Companies (Appointment and Remuneration ofManagerial Personnel) Amendment Rules, 2020, Dated03.01.2020, Effective from 01.04.2020Every private company which has a paid up share capitalof ten Crore rupees or more shall have a whole -timecompany secretary. Earlier the limit was 5 Crs.Secretarial Audit shall be applicable for every companyhaving outstanding loans or borrowings from banks or

public financial institutions of one hundred Crore rupeesor more. Additional condition added.http://mca.gov.in/Ministry/pdf/AmdtRules_06012020.pdfThe Companies (Winding Up) Rules, 2020, Dated24.01.2020, Effective from 01.04.2020These rules shall apply to winding up under of CompaniesAct 2013. Detailed procedures, formats and provisions havebeen notified in these rules.http://mca.gov.in/Ministry/pdf/Rules_28012020.pdfThe Companies (Compromises, Arrangements andAmalgamations) Amendment Rules, 2020, Dated03.02.2020A member of the company shall make an application forarrangement, for the purpose of takeover offer in terms ofsub-section (11) of section 230, when such member alongwith any other member holds not less than three-fourthsof the shares in the company, and such application has beenfiled for acquiring any part of the remaining shares of thecompany.http://mca.gov.in/Ministry/pdf/Rules1_04022020.pdfThe Nidhi (Amendment) Rules, 2020, Dated 03.02.2020,Effective from 10.02.2020New Form NDH-1, NDH-2 & NDH-3 has been introduced.http://mca.gov.in/Ministry/pdf/Rules2_04022020.pdfThe National Company Law Tribunal (Amendment) Rules,2020, Dated 03.02.2020Application under section 230 – An application under sub-section (12) of section 230 may be made in Form NCLT-1and shall be accompanied with such documents as arementioned in Annexure Bhttp://mca.gov.in/Ministry/pdf/Rules3_04022020.pdfThe Companies (Incorporation) Amendment Rules, 2020,Dated 18.02.2020, Effective from 23.02.2020SPICe+ form has been notified vide this amendment.http://mca.gov.in/Ministry/pdf/rule_22022020.pdfThe Companies (Incorporation) Amendment Rules, 2020,Dated 18.02.2020, Effective from 23.02.2020SPICe+ form has been notified vide this amendment.http://mca.gov.in/Ministry/pdf/rule_22022020.pdfThe Companies (Auditor’s Report) Order, 2020, Dated25.02.2020, Effective from the financial years commencingon or after the 1st April, 2019Every report made by the auditor under section 143 of theCompanies Act on the accounts of every company auditedby him, to which this Order applies, for the financial yearscommencing on or after the 1st April, 2019, shall inaddition, contain the matters specified in paragraphs 3 and4, as may be applicablehttp://mca.gov.in/Ministry/pdf/Orders_25022020.pdf



INDEPENDENT DIRECTORS DATABANK – AN INTENT TOSTREGTHEN THE CORPORATE GOVERNANCE NORMS & ROLE OFINDEPENDENT DIRECTOR’S UNDER THE COMPANIES ACT 2013.

CS HANSRAJ JARIA

“What I would like to do is to leave behind a sustainable entity of a set of companies that operate in anexemplary manner in terms of ethics, values and continue what our ancestors left behind.”…………Ratan Tata––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

capital of Rs. 10 crores or more; or(ii) thePublic Companies having turnover of Rs.100 crores or more; or(iii) the PublicCompanies which have, in aggregate,outstanding loans, debentures anddeposits, exceeding Rs. 50 crores

Sec. 149(6) It provides for various criteria needs to befulfilled by an ID.

Sec. 149(7) Every ID shall at the first meeting of theBoard in which he participates as a directorand thereafter at the first meeting of theBoard in every financial year or wheneverthere is any change in the circumstanceswhich may affect his status as an ID, give adeclaration that he meets the criteria ofindependence as provided in sub-sec. (6).

Sec. 149(8) The company and ID shall abide by theprovisions specified in Schedule IV – CODEFOR IDs.

Sec. 149(10) An ID shall hold office for a term up to fiveconsecutive years on the Board of acompany, but shall be eligible forreappointment on passing of a specialresolution by the company and disclosureof such appointment in the Board’s report.

Sec. 149(12) An ID, shall be held liable, only in respectof such acts of omission or commission bya company which had occurred with hisknowledge, attributable through Boardprocesses, and with his consent orconnivance or where he had not acteddiligently.

Sec. 149(13) The provisions of sub-sections (6) and (7)of section 152 in respect of retirement ofdirectors by rotation shall not beapplicable to appointment of IDs.

I. INTRODUCTION

The concept of Independent Director (ID), as a part ofCorporate Governance process, has grown up globally,originally on a voluntary basis, followed by mandatedlegal provisions.IDs play a significant role in warrantingrobust Corporate Governance and thereby help inenhancing the corporate image.

An ID is a non-executive director of a company whohelps the company in improving corporate credibilityand governance standards. The term “IndependentDirector” has been defined in the Companies Act 2013(Act), along with several new requirements withregard to their appointment, duties, role, andresponsibilities.

The demand for IDs has significantly increased due tothe mandatory requirements provided underCompanies Act, 2013 and rules thereunder andvarious regulations issued by Securities and ExchangeBoard of India (“SEBI”) with respect to presence ofIDs in the Board of Directors of certain companies.

II. IMPORTANT PROVISIONS UNDER THE COMPANIESACT 2013

Section 149 of the Companies Act, 2013 read withRules of the Companies (Appointment andQualification of Directors) Rules, 2014deals with theappointment of IDs in Companies.

Sec. & Rules Provisions

Sec. 2 (47) “IDs” means an IDs referred to in sub-section (6) of section 149;

Sec. 149(4) Every listed public company shall have atleast 1/3rd of the total number of directorsas IDs

Rule 4 The following class or classes of companiesshall have at least two directors as IDs -(i)the Public Companies having paid up share



Rule 5 An ID shall possess appropriate skills,experience and knowledge in one or morefields of finance, law, management, sales,marketing, administration, research,corporate governance, technicaloperations or other disciplines related tothe company’s business.

Sch – IV, Separate meetings:(1) The IDs of theClause VII company shall hold at least one meeting

in a financial year, without the attendanceof Non-IDs and members ofmanagement;(3) The meeting shall:(a)review the performance of Non-IDs and theBoard as a whole;(b) review theperformance of the Chairperson of thecompany, taking into account the views ofexecutive directors and non-executivedirectors;(c) assess the quality, quantityand timeliness of flow of informationbetween the company management andthe Board that is necessary for the Boardto effectively and reasonably perform theirduties.

Sch – IV, Evaluation mechanism:(1) TheClause VIII performance evaluation of IDs shall be

done by the entire Board of Directors,excluding the director being evaluated.(2)On the basis of the report of performanceevaluation, it shall be determined whetherto extend or continue the term ofappointment of the ID.

IDs shall strive to be present in all the Board meetingsas well as the Committee meetings, of which he / sheis a member, of the Company, as a matter of goodgovernance and practice, so as to guide the Board intaking appropriate decisions and also to prevent themanagement from taking decisions that is likely toaffect the interest of the stakeholders.

III. CRITERIA OF INDEPENDENCE FOR AN ID {Sec. 149(6)}An ID means a director other than a managing directoror a whole-time director or a nominee director, —(a) who, in the opinion of the Board, is a person of

integrity and possesses relevant expertise andexperience;

(b) (i) who is or was not a promoter of the companyor its holding, subsidiary or associatecompany;

(ii) who is not related to promotersor directorsin the company, its holding, subsidiary orassociate company;

(c) who has or had no pecuniary relationship, otherthan remuneration as such director or havingtransaction not exceeding 10% of his total incomeor such amount as may be prescribed, with thecompany, its holding, subsidiary or associatecompany, or their promoters, or directors, duringthe two immediately preceding financial years orduring the current financial year;

(d) none of whose relatives—

(i) is holding any security of or interest in thecompany, its holding, subsidiary or associatecompany during the two immediatelypreceding financial years or during thecurrent financial year:

Provided that the relative may hold securityor interest in the company of face value notexceeding Rs. 50 lakhs or 2% of the paid-upcapital of the company, its holding, subsidiaryor associate company or such higher sum asmay be prescribed;

(ii) is indebted to the company, its holding,subsidiary or associate company or theirpromoters, or directors, in excess of suchamount as may be prescribed during the twoimmediately preceding financial years orduring the current financial year;

(iii) has given a guarantee or provided anysecurity in connection with the indebtednessof any third person to the company, itsholding, subsidiary or associate company ortheir promoters, or directors of such holdingcompany, for such amount as may beprescribed during the two immediatelypreceding financial years or during thecurrent financial year; or

(iv) has any other pecuniary transaction orrelationship with the company, or itssubsidiary, or its holding or associatecompany amounting to 2% or more of itsgross turnover or total income singly or incombination with the transactions referredto in sub-clause (i), (ii) or (iii);

(e) who, neither himself nor any of his relatives—



(i) holds or has held the position of a KMP or isor has been employee of the company or itsholding, subsidiary or associate company inany of the three financial years immediatelypreceding the financial year in which he isproposed to be appointed;Provided that in case of a relative who is anemployee, the restriction under this clauseshall not apply for his employment duringpreceding three financial years.

(ii) is or has been an employee or proprietor ora partner, in any of the three financial yearsimmediately preceding the financial year inwhich he is proposed to be appointed, of—(A) a firm of auditors or company

secretaries in practice or cost auditorsof the company or its holding, subsidiaryor associate company; or

(B) any legal or a consulting firm that hasor had any transaction with thecompany, its holding, subsidiary orassociate company amounting to 10% ormore of the gross turnover of such firm;

(iii) holds together with his relatives 2% or moreof the total voting power of the company;or

(iv) is a Chief Executive or director, by whatevername called, of any non-profit organisationthat receives 25% or more of its receipts fromthe company, any of its promoters, directorsor its holding, subsidiary or associatecompany or that holds two per cent. or moreof the total voting power of the company; or

(f) who possesses such other qualifications as maybe prescribed.

IV. POSITION OF IDs IN COMMITTEES OF THE BOARDSection Rules Name of the Committee Applicability Number of IDs

Sec. 177 Companies AuditCommittee (i) the Public Companies The Committee shall(Meetings of having paid up share consist of a minimum ofBoard and its capital of Rs. 10 crores or three directors with IDsPowers) more; or forming a majority.Rules, 2014 (ii) the Public Companies

having turnover ofRs. 100 crores or more; or(iii) the Public Companieswhich have, in aggregate,outstanding loans,debentures and deposits,exceeding Rs. 50 crores

Sec. 178 Companies Nomination and Same as above The committee shall(Meetings of Remuneration consist of three or moreBoard and its Committee non-executive directorsPowers) out of which not less thanRules, 2014- one-halfshall be IDs(Rule 6)

Sec. 135 Companies CorporateSocial (i) any company withan The Committee(CorporateSocial Responsibility average profit of atleast shallconsist of threeorResponsibility Committee Rs 5 crore; morenon-Policy) Rules,2014 (ii) any company withnet executivedirectors out

worth exceeding Rs 500 ofwhich at leastonecrore; or should be an ID(iii) any company havingturnoverexceedingRs 1,000 crore in thelast threeyears; willhave to mandatorilyallocate 2% of its profitson social welfare.



V. OTHER PROVISIONS UNDER THE COMPANIES ACT2013

1. Any vacancy in the office of ID shall be filled inthe very next Board Meeting or within 3 monthsof such vacancy, whichever is later.

2. A person must be an ID in not more than sevenlisted companies at a time

3. A person can be appointed as an alternatedirector for an ID. But he must be qualified to beappointed as an ID.

4. If the Board meeting is called at shorter noticeso as to transact some urgent business, then thepresence of at least 1 ID is mandatory. Where allthe IDs are absent from such a meeting, decisionstaken at such meeting shall be final only if thesame has been ratified by atleast one ID.

5. IDs who are generally appointed as the Chairmanof the Committees like the Audit Committee,Nomination and Remuneration Committee etc.shall be present in all the General meetings ofthe company to answer the queries and toprovide an assurance to all the shareholders ofthecompany that the business is run in an ethicalmanner.

6. A small shareholder director shall be consideredas an ID, if-

(a) he is eligible for appointment as an ID u/s149 (6),

(b) he gives a declaration of his independent u/s 149(7).

7. The Companies Act, 2013 expressly disallows IDsfrom obtaining stock options and remunerationother than sitting fees and reimbursement oftravel expenses for attending the board and othermeetings. Sitting fees to be paid to IDs forattending the Board Meetings pursuant to Section197(5) which is maximum of Rs.1,00,000/- permeeting is to be decided by the Board. Profitrelated commission may be paid to IDs subjectto the approval of theshareholders.

8. IDs are part of a vigil mechanism in theBoardandvarious Committees of the Board set up bythecompany, in accordance with Companies Act,2013 and rulesmade thereunder,

VI. INDEPENDENT DIRECTOR DATABANK

MCA has vide notification no. G.S.R. 804(E) dated 01stDecember, 2019 introduced new rules called theCompanies (Appointment and Qualification ofDirectors) Fifth Amendment Rules, 2019 for personeligible and willing to be appointed as an ID.

New Rule 6 provides that every individual who is anIDas on 1st December 2019 or who would be appointedas anID on or after 1st December 2019 would berequired to comply withthe following requirementsas per the new enactment:

Requirements Particulars

Registration The ID of every company within 5months of the enactment of thesaidnew regulation would be required toapply to the Indian Institute ofCorporate Affairs (ICA) for inclusion ofhis/her name in the databank of IDsfor one year, five years or life time, tillsuch person holds office asID. The saiddatabank would be maintained by thesaid ICA.(Last date of Registration is30th April, 2020)

Renewal The renewal application shall be madeby the individual to the ICA for afurtherperiod of one year or five yearsas the case maybe within 30 days ofexpiry of the original period ofapplication to the ICA.

Disclosure Every ID shall submit a declaration ofcompliance of sub-rule (1) and sub-rule (2) pertaining to registration andrenewal, to the Board, each time hesubmits the declaration requiredunder sub-section (7) of section 149of the Act.

Self Assessment Every individual whose name is soTest included in the data bank under sub-

rule (1) shall pass an online proficiencyself-assessment test conducted by theICAwithin a period of one year fromthe date of inclusion of his name in thedata bank, failing which, his name shallstand removed from the databank ofthe ICA



Exemption An individual shall not be required tofrom Test (SAT) pass the online proficiency self-

assessment test, when he has servedas a director or KMP, for a total periodof not less than 10 years, as on thedate of inclusion of his name in thedatabank, in one or more of thefollowing, namely:-(a) listed publiccompany; or(b) unlisted publiccompany having a paid-up sharecapital of Rs. 10 crores or more; or(c)body corporate listed on a recognizedstock exchange:(For the purpose ofcalculation of the period of 10 yearsreferred to above, any period duringwhich an individual was acting as adirector or as a KMP in two or morecompanies or bodies corporate at thesame time shall be counted only once.)

Fee Structure For ID Registration :Rs. 5,000 + 18%GST for 1 Year subscriptionRs. 15,000+ 18% GST for 5 Years subscriptionRs.25,000 + 18% GST for Lifetimesubscription

Pass Marks An individual who has obtained a scoreof not less than 60% in aggregate inthe online proficiency self-assessmenttest shall be deemed to have passedsuch test;

Limit on There shall be no limit on the numberAttempts of attempts that could be taken by

anindividual for passing the exam.

Scheme of SAT Total Marks – 100 MarksTotal No. ofMCQs – 50 Total Time Duration – 75Minutes Marks Assigned to EachQuestion – 2 Marks

Steps to appear a) Login into the Databankfor SAT b) Go to the dashboard

c) Take a mock (practice) Testd) Select the slot as per yourconvenience for attempting the teste) Attempt the test as per the slotbookedf) Get test result and reports published

A. CONTENT OF DATA BANK

Under the purview of Rule 3, the data bank of IDswould containthe following details:

(a) DIN (Director Identification Number), ifapplicable;

(b) Income Tax PAN;

(c) The name and surname in full;

(d) The father’s name;

(e) The date of Birth;

(f) Gender;

(g) The nationality;

(h) The occupation;

(i) Full Address with PIN Code (present andpermanent);

(j) Phone number;

(k) E-mail id;

(l) The educational and professional qualifications;

(m) Experience or expertise, if any;

(n) Any pending criminal proceedings as specified inclause (d) of sub-section (1) of section 164;

(o) the list of limited liability partnerships in whichhe is or was a designated partner along with -

(i) The name of the limited liability partnership;

(ii) The nature of industry; and

(iii) The duration- with dates;

(p) The list of companies in which he is or wasdirector along with-

(i) The name of the company;

(ii) The nature of industry;

(iii) The nature of directorship-Executive or Non-executive or Managing Director or ID orNominee Director; and

(iv) Duration - with dates.

B. PROCESS OF REGISTRATION OF IDs

Process in MCA Portal (www.mca.gov.in)

Step – 1 Process in MCA Portal

Step – 2 Go to “ID Databank Registration” sectionunder “MCA Services” and click on “IndividualRegistration.

Step – 3 Enter DIN/PAN/Passport details and click on“Submit”.



Step – 4 Enter email ID and mobile no. (if not pre-populated). Enter Country code and Click on“Send OTP”.

Step – 5 Enter OTP & click on “Verify OTP”.

Step – 6 Upon successful verification, click on“Proceed” button to receive credentials forDatabank in email and mobile.

Process in Databank Portal (https://iica.nic.in)

Step – 1 Login to Independent Director’s Databank

Step – 2 Fill profile with Personal, Educational, andExperience Details and submit declaration.

Step – 3 After submitting details, pay subscription fee.

Step – 4 Download the invoice and the RegistrationCertificate for future reference

C. PROCESS OF REGISTRATION OF CORPORATES

Process in MCA Portal (www.mca.gov.in)

Step – 1 Process in MCA Portal

Step – 2 Go to “ID Databank Registration” sectionunder “MCA Services” and click on “CorporateRegistration”.

Step – 3 Enter CIN details and click on “Submit”.

Step – 4 Email ID will be pre-populated. Click on “SendOTP”.

Step – 5 Enter OTP & click on “Verify OTP”.

Step – 6 Upon successful verification, click on“Proceed” button to receive credentials forDatabank in email.

Process in Databank Portal (https://iica.nic.in)

Step – 1 Login to Independent Director’s Databank

Step – 2 Fill your company details, assign up to 2designated officers, who will have access toDatabank. Accept terms and conditions.

Step – 3 After submitting details, pay subscription fee.

Step – 4 Access and search profiles of IDs by usingseveral options

VII. CONCLUSIONS

The Act empowers the IDs to manage the Companyin order to strengthen Corporate Governance and toexercise strategic oversight over business operationsand they must ensure that such extensive powers arenot exercised in an unbridled manner, but in a rationaland accountable way.

Introductionof ID’s Databank and onlineproficiencyself-assessment examination for IDs withanintent to foster the growth of Corporate Governance,isdefinitely a welcome move for enabling the IDs togear up to the new challenges.



CRITICAL ASPECTS OF CORPORATE RESTRUCTURING

CS ADITYA PUROHIT

MAJOR PROHIBITIVE POINTS TO BE KNOWN BEFOREPLANNING RESTRUCTURING:-

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

• If the arrangement involves listed company then wemust be aware of SEBIcircular dated 03-Jan-2018[CFD/DIL3/CIR/2018/2] wherein the intent is to preventmisuse of schemes with an intent to bypass regulatoryrequirements and most importantlythe amended Para(I)(A)(3)(b) of Annexure I of the circular states:-

“The percentage of shareholding of pre-scheme publicshareholders of the listed entity and the QualifiedInstitutional Buyers (QIBs) of the unlisted entity, in thepost scheme shareholding pattern of the “merged”company on a fully diluted basis shall not be less than25%.”

Hence any restructuring the result of which is may bein violation of the above paragraph may not beapproved.

• Any arrangement by virtue of which any buyback isproposed and may lead to delisting of shares fromrecognised exchanges is involved, may not be intandem with the regulators since Regulation 4 of theSecurities And Exchange Board Of India (Delisting ofEquity Shares) Regulations, 2009 prohibits buyback ofshares which may have been used to comply withRegulation 17 of chapter VI of the DelistingRegulations.

COMPANIES ACT, 2013

Sections 230 to 240 of the Companies Act, 2013 (“CA,2013”) facilitates compromise, arrangements andamalgamations.

While planning for merger followingdates needs to be looked in for betterplanning:-

This article on Corporate Restructuring is written with anintent to provide the reader a perspective on restructuringwith different strokes on operational efficiency.

WHAT IS CORPORATE RESTRUCTURING?

Corporate Restructuring is the process of making changesin the structure of a corporate or an entity havingone ormore business portfolios in order to have a lucrative andprofitable enterprise wherein the very first stage is tovisualise the barriers with respect to the companiesinvolved and a major jist of the law / circulars/ notificationsprohibitive on certain arrangement needs to be looked inbefore execution.Major statutes involved in corporaterestructuring are:-

1) Companies Act, 2013

2) SEBI ACT, 1992

3) SEBI (Substantial Acquisition of Shares and Takeovers)Regulations, 2011

4) SEBI (Delisting of Equity Shares) Regulations, 2009

5) Securities and Exchange Board of India (Issue OfCapital And Disclosure Requirements) Regulations,2018

6) SEBI (Listing Obligations and Disclosure Requirements)Regulations, 2015

7) SEBI (Prohibition of Insider Trading) Regulations, 2015

8) Securities Contracts (Regulation) Rules, 1957

9) Foreign Exchange Management Act 1999 and FDIPolicy

10) Stamp Act

METHODS OF RESTRUCTING

METHODS OFCORPORATE

RESTRCUTURING

Acquisition

Demerger Merger OthersMeans

SharePurchase

AssetPurchase

CapitalReduction

Buyback

AssetPurchase

SlumpSale

SpecifcSale

Merger

NormalMerger

ReverseMerger

Appointed Date:• Date on which assets and liabilities of the

transferor company vest in and standtransferred to the transferee company.



• Accounts on the appointed date which form the basisfor valuation of shares and determination of shareexchange ratio.

• Appointed date relevant for the purpose ofassessment of income of the transferor and transfereecompanies.

• (Can future appointed date be fixed??) REFER REFERMCA General Circular No. 09/2019 dated: 21st August,2019 para6(d).

Effective Date• Date on which scheme is complete & effective i.e.

certified copy of the Court order is filed with Registrarof Company or the last date on which approvals areobtained.

• From the effective date amalgamation becomeseffective and transferor company stands dissolved.However section 232(6) states: The scheme under thissection shall clearly indicate an appointed date fromwhich it shall be effective and the scheme shall bedeemed to be effective from such date and not at adate subsequent to the appointed date.

TO DECLOG NCLT, Central Governementvide NotificationNo. S.O. 4090(E) dated 19th December, 2016 introducedA NEW CONCEPT Fast Track Merger (FTM) whereinRegional Directors, Registrar of Companies and OfficialLiquidator are the authorities whose approval are required.The whole process may take 3-5 months time forcompletion.In Fast Track Merger, a scheme of merger or amalgamationmay be entered into between-i. two or more small companies, orii. a holding company and its wholly-owned subsidiary

company.CRITICAL AREAS OF MERGER/ DEMERGER:-GOVERNMENT SANCTIONS/ APPROVALS INCLUDING RBI/INCOMETAX/ REGIONAL DIRECTOR/ REGISTRAR OFCOMPANIES/ OFFICAL LIQUIDATOR, ETC• ISSUES EXAMINED BY HON’BLE REGIONAL DIRECTOR

BEFORE ISSUING AFFIDAVIT:a) Whether any of the companies are listed on any Stock

Exchange? If so, NOC from exchange is submitted?b) Whether any NRI/foreign investment in the

Companies? If yes, whether necessaryapprovalsobtained and compliance of FEMA/RBI?

c) Whether Employees interest is protected?d) Whether the company belongs to any specific sector,

if yes, sectoral approval granted or not?

e) Whether the companies or its directors havecontravened any provisions of the Companies Act?

f) Whether the companies involved have been inspectedu/s 209A of Companies Act, 1956?

g) Whether Valuation report submitted, if so shareexchange ratio is as per report and accountingprinciples?

h) Whether Accounting Treatment clause is as per AS-14 and in tune with provisions of section 211(3A)/211(3C) of the Act?

i) Whether meeting of class of shareholders/creditorsis conducted?

j) Whether details of related party transactions arefurnished?

k) Whether consideration is made in cash other than thatof shares?

l) Whether provisions of buy back is attracted?m) Whether any reduction of share capital is involved?n) Whether authorized share capital of transferee

company is sufficient?o) Whether any qualification has been made by Statutory

Auditor?p) Whether a listed company is merging with an unlisted

company?q) Whether the promoters holding in listed company is

increased?• ISSUES TO BE EXAMINED BY ROCS:a) Filing Position.b) Any Investor Grievances.c) Any Inspection/ Investigation/ Technical Scrutiny.d) Any Pending Prosecution.e) Anyonefurnishes comments on the scheme.

• ISSUES CONSIDERED BY TRIBUNAL IN A SCHEME OFARRANGEMENT:

a) Compliance with the Provisionsb) Protection of interest - creditors and shareholdersc) Reasonable arrangementd) Scheme in consonance with public interest• ISSUES EXAMINED BY INCOME TAX AUTHORITIES

AND RBI:a) Whether any Tax evasion is there or any pending tax

payment is being compromised?Reserve Bank of India is involved when an NBFC orforeign party is involved and they seek compliancewith reference to respective RBI/ FEMA Laws



However in case of Apex Investments Pvt. Ltd. (1992) CLA20 (Del), the Hon’ble Delhi High Court held that anarrangement for reconstruction or amalgamation isessentially a contract and therefore parties involved arefree to decide:• its terms and conditions• consideration to be paidLIMITED LIABILITY PARTNERSHIP MERGER WITHTHECOMPANY:Under Companies Act, 2013 there is no such provision formerger of an LLP into a Company. However, the Hon’bleNCLT, Chennai Bench in Real Image LLP with and into M/sQube Cinema Technologies Private Limited has approvedthe scheme of amalgamation of an Indian LLP with andinto Indian Company clarifying that Section 60 to 62 ofthe Limited Liability Act, 2008 (“LLP Act, 2008”) and Section230 to 234 of the Companies Act, 2013 deals with themerger, amalgamation and arrangement of two or moreLLPs and companies, respectively.STAMP ACTProvisions levying Stamp duty:-

States wherethere is no specific

entries, but HighCourt have

States where ordered for States wherethere is no payment there is a

specific entry of stamp duty specific entryfor conve- for conveyanceyance on on mergermerger or or demergerdemerger

DELHIMaharashtra, AND Duty may be

Gujarat, UTTAR PRADESH payable as perKarnataka, Supreme Court’s

Madhya judgment inPradesh, Hindustan

West Bengal, Levers LimitedAndhra Pradesh Vs State of

&Rajasthan Maharashtraat Stamp Duty

rates applicablefor Conveyance

Levy of stamp duty

When does the liability to pay stamp duty arise?

Liability to pay stamp duty arises if the Instrument ismentioned in the Schedule of the State Stamp Act and noton transactions.

• Key Definitions under Stamp ActSTAMP DUTY

• A type of tax which Is paid to the Government for thetransaction performed by way of document orInstrument under the provisions of the respectivestate stamp law or under the Indian Stamp Act. 1Q99.

• Stamp Duty Is payable on instruments/documents andnot on transactions

INSTRUMENT[INDIAN STAMP ACT. 1899 - SECTION 2(14)]

• Definition of the term ‘Instrument’ Is very wide.Instrument means any document by which any rightor liability Is. or purports to be created, transferred,limited, extended, extinguished or recorded.

CONVEYANCE[INDIAN STAMP ACT. 1899 - SECTION 2(1 O)]

• Includes a conveyance on sale and every Instrumentby which property, whether movable or Immovable.Is transferred /nfer v/Vos and which Is not otherwisespecifically provided for by Schedule I.

• Stamp Duty ChargeabilityStates namely Maharashtra, Gujarat, Karnataka,Rajasthan, Chhattisgarh, Madhya Pradesh, AndhraPradesh,West Bengal and Uttar Pradesh–haveincluded the merger orders passed by courts in thedefinition of ‘Conveyance’.

Hindustan Lever Vs. State of Maharashtra (2004) 1 CLJ148 (SC) - held that order of the Court is an instrumentconstituting a transfer inter-vivos and therefore, falls withinthe ambit of the definition of conveyanceThe Hon’ble High Court of Calcutta vide its order dated8th February, 2012, in the matterof Emami Biotech Limited(CP. No. 627 of 2011) and ITP Limited (CP No. 398 of2011)and Brijbhumi Agents Private Limited (CP No. 474 of2011) held that an order sanctioninga scheme ofamalgamation or demerger under the Companies Actanswersto the description of the words “instrument” and“conveyance” within the meaning of theIndian Stamp Act,1899 as applicable in the State of West Bengal and is,accordingly, Chargeable to stamp duty.CONCLUSIONTo conclude I can say that whenever we try anyrestructuring we should look at the bottleneck situationand then accordingly plan since it’s never easy to restartand in real life scenarios there are no trials we need to beon our front foot from the commencementof the inningsitself.



Applicability of Valuation underCompanies Act, 2013.

CA HARSHA SARAFIntroduction:The Ministry Corporate Affairs (MCA) has, since October 2017, notified Section 247 of the Companies Act, 2013 andintroduced the Companies (Registered Valuers and Valuation) Rules, 2017 (RV Rules). In order to give the valuationindustry some time for adopting the new regime, the MCA allowed time till 31 January 2019 for existing valuers tocontinue their valuation services and register themselves into a registered valuer.Now, from 31 January 2019 onwards, only a ‘registered valuer’ is permitted to undertake valuation required under theCompanies Act and rules made thereunder. For the first time, the profession of valuers has received a statutory recognitionsimilar to profession of Chartered Accountants, Company Secretary and Insolvency Resolution Professionals and hasbeen subjected to various rules and regulations for governing it.The MCA has designated the Insolvency and Bankruptcy Board of India (IBBI) as the authority for implementing the newregime of registered valuers in addition to the insolvency resolution professionals.Registered Valuers are registered under different asset classes:(i) Land and Building; • (ii) Plant and Machinery • (iii) Securities and Financial AssetsFrom 1 February 2019, no one, other than an IBBI “Registered Valuer”, is authorized to conduct valuations under theapplicable provisions of the Companies Act, 2013. The Insolvency and Bankruptcy Code, SEBI ICDR Regulations, 2018and SEBI (REIT and InvIT).Valuer as a person who is registered under section 247 of the Companies Act, 2013.At the same time the Income Tax Act, 1961 has provision relating to taxability on issue of unquoted equity shares, ifissued at a premium. Only a SEBI Registered Merchant Banker is authorised to undertake such valuation by DiscountedFree Cash Flow Method.Thus issue of Equity Shares by a Company may require dual valuation by an IBBI Registered Valuer as well as a SEBIRegistered Merchant Banker for meeting regulatory requirements of Companies Act and Income Tax Act respectively.Interestingly, though the Companies Act Valuation requirement is of minimum value, the Income Tax valuationrequirement is that of maximum value.

SPECIFIC PROVISIONS UNDER THE COMPANIES ACT, 2013 WHICH REQUIRESVALUATIONREPORT FROM A “REGISTERED VALUER”

Companies Act 2013Sl. Section /Rule Description Particulars1 62(1)(c) with For Further When a company having share capital proposes to increase its subscr-

Rule 13(1) of Issue of ibed share capital by a fresh issue of shares, such shares shall be(Share Capital and Shares offered to:Rules,2014. Debentures) > To Existing shareholders

> Employees under a scheme of Employees’ Stock Option> Any other persons except those mentioned above, ifauthorised by a special resolution: Issue of shares on aPreferential BasisIn all of the above cases, the price of theshares issued must be determined by the valuation reportof aregistered valuer subject to prescribed conditions.

Sl. Section /Rule Description Particulars2 177(4)(vi) Terms of Every Audit Committee shall act in accordance with the terms of

reference of reference specified in writing by the Board which also includesAudit Committee Valuation of undertakings or assets of the company, wherever it is

necessary.



3 230(2)(C)(v) Power to comp- A valuation report in respect of the shares and property and all theromise or make kinds of assets of the company by a registered valuer is to bearrangement disclosed to the Tribunal by affidavit while making an application forwith creditors & compromise or arrangement with the creditor.members

4 232(2)(d) Merger and Where an order has been made by the Tribunal, mergingcompaniesAmalgamation or the companies in respect of which a division is proposed, theof Companies report of the expert with regardto valuation, if any would be

circulated for meeting of creditors/members.5 232(3)(h) Merger and Where under a Scheme of Compromise / Arrangement, the transferor

Amalgamation company is a listed company and the transferee company is anof Companies unlisted company, for exit opportunity to the shareholders of

transferor company, valuation may be required to be made by theTribunal

6 236(2) Purchase of The acquirer, person or group of persons shall offer to the minorityminority shareholders of the company for buying the equity shares held byshareholding them at a price determined on the basis of valuation by a registered

valuer.7 281(1)(a) Submission of Where the tribunal has made a winding up order or appointed a

report by a company liquidator, such liquidator shall submit a report containingCompany the nature and details of the assets of the company including theirLiquidator location and value.

8 Rule 6(1) of Creation of For the purpose of providing security, every company referred to inCompanies security relevant section and every eligible company inviting secured deposits(Acceptance of shall provide for security by way of a charge on its assets as referredDeposit) to in schedule III of the Act excluding intangible assets, the amount ofRules, 2014 such deposits and the interest payable thereon shall not exceed the

market value of such assets as assessed by a registered valuer.9 Rule 8 of Issue of Sweat This rule applies to all companies except listed companies issuing

Companies Equity Shares sweat equity shares to its directors or employees. The rule prescribes(Share capital and that the sweat equity shares shall be issued at a price determined byDebentures) a registered valuer as the fair price giving justification for suchRules, 2014 valuation. Also, the value of the intellectual property or know-how or

any other value additions, for which the sweat equity shares havebeen issued to its directors or employees shall be determined by avaluation report of a registered valuer. If the sweat equity shares areissued for a non-cash consideration, the value of such non-cashconsideration shall be based on a valuation report by a registeredvaluer. Additionally, if the sweat equity shares are issued pursuant toacquisition of an asset, the value of such asset shall also bedetermined based on a valuation report by a registered valuer.

Sl. Section /Rule Description Particulars

10 Rule 16(1)(c) of Provision of The company shall not make a provision of money for the purchase ofthe Companies money by its own shares for the benefits of the employees of the company(Share Capital and company for unless one of the following condition where shares of a company areDebentures) purchase of its not listed on a recognized stock exchange, the value at which theRules, 2014. own shares by shares are to be purchased shall be made by a registered valuer.

employees orby trustee.



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