COMPANIES ACT 2013

- ANNUAL COMPLIANCES

PUNKAJ JAINChartered Accountants

OUTLINE

The Companies Act 2013 envisages radical changes in the area of Corporate Governance and is set to have far-reaching implications. The new regime is expected to significantly change the manner in which corporates operate in India

Severe consequences for non compliance - The bar for corporate governance has been raised, the penal consequences have been exponentially increased with a large number of sections reserving provisions for the prosecution of directors, officers in default and key managerial personnel

Stricter regime even for unlisted public companies and private companies - There is a clear shift towards closely monitoring unlisted public companies and large private companies with enhanced compliance requirements encompassing disclosures, transparency and governance procedures.

MAJOR COMPLIANCES -ANNUALLY

SECTION APPLICABLE

APPLICABILITY ON COMPANIES BRIEF OF COMPLIANCE

128 All

Consolidation of Accounts: With its subsidiary companies, Associate Companies and joint venture Companies- NOW MANDATORY.The company has to follow Schedule-III for additional information for consolidated financial statements.

149 Listed Company/ Public Company

Independent director:For listed Company: up to 30 September 2014; andFor other Public Company: up to 31 March 2015.

149 AllResident Director:Who had stayed in India for 182 days or more.

149 Listed Company/ Public company

Women Director:For listed Company: up to 30 September 2014; andFor other Public Company: up to 31 March 2015.

165 AllTotal number of Directorship: 20 Companies One Person can hold, out of which not more than 10 companies would be public companies.

COMPANY LAW SETTLEMENT SCHEME,2014

MCA vide General Circular no. 34/2014 involves the following features:

Companies who have not filed their annual reports, financial statements and

related documents due for filing on or before 30/06/2014 can file these documents

before 15/10/2014 and avail of the following :

Pay only 25% of payable additional fee, and

Enjoy immunity from prosecution.

Directors will also not be disqualified under section 164(2) of the companies act, 2013.

NO NEED TO FILE E-FORM MGT-14 

FOR SOME BOARD RESOLUTIONS

After coming into force of this amendment, companies would not required to intimate ROC and file E-form MGT-14 for the following board resolutions.

to take note of the disclosure of director's interest and shareholding;

to buy, sell investments held by the company (other than trade investments), constituting five percent or more of the paid up share capital and free reserves of the investee company;

to invite or accept or renew public deposits and related matters;

to review or change the terms and conditions of public deposit;

to approve quarterly, half yearly and annual financial statements or financial results as the case may be.

to take note of appointment(s) or removal(s) of one level below the Key Management Personnel;

ANNUAL RETURN

ANNUAL RETURN

Section 92 (1)

The Annual Return shall carry

information up to the date of closure

of financial year.(Concept of AGM to

AGM basis AR preparation dispensed).

Section 92 (2)

Certification of Annual Return by

Practicing Company Secretary

mandatory in case of companies with prescribed paid up

capital and turnover.

Section 92 (1) (k)

Signed by a director and the Company

Secretary or where there is no CS by a

PCS. (except for OPC and

Small Companies)

As per Rules: Certification by PCS for Listed Company or a company with: Paid up capital Rs.10 Crore or more

And Turnover of Rs.50Crore or more

Registered office, principal business

activities

Securities and shareholding

pattern

Indebtedness

Members and debenture

holders

Promoters, directors, key

managerial personnel

Meetings of members

Meeting of board and

committees

Remuneration of directors and

KMP

Penalty or punishment &

details of compounding

shares held by or on behalf of

the FII’s

other matters as may be

prescribed.

DISCLOSURES IN ANNUAL RETURN – SECTION 92

Matters relating to Certification of Compliance

Penalties

To Company – penalty of 50 thousand exceeding up to 5 lacs

To officer in default - Imprisonment of Six months or fine of Rs.50K -5 Lacs

CLARIFICATION FOR ANNUAL RETURN

[Circular 22/2014 dated 25.06.2014]

Clarification with regard to format of annual return applicable for

Financial Year 2013-14 and fees to be charged by companies for allowing

inspection of records.

Form MGT-7 shall not apply to annual returns in respect of companies

whose financial year ended on or before 1st April, 2014

These companies may file their returns in the relevant Form applicable

under the Companies Act, 1956.

BALANCE SHEET RELATED COMPLIANCES

FINANCIAL YEAR

Means the period ending on the 31st day of March every year

The National Company Law Tribunal (“NCLT”) shall have the power to allow a different

financial year for companies which are either holding companies or subsidiaries of a company

incorporated outside India so as to enable consolidation of accounts of such companies

Window of 2 year given to align the financials as per new Co’s Act,2013

FINANCIAL YEAR

COMPARISION- FINANCIAL YEAR

Companies Act, 1956 Companies Act, 2013

“Financial Year” means, in relation to any

body corporate, the period in respect of

which any profit and loss account of the

body corporate laid before it in annual

general meeting is made up, whether that

period is a year or not:

“Financial Year” means in relation to any company or body corporate, means the period ending 31st day of the March every year, and where it has been incorporated on or after the 1st day of January of a year, the period ending on 31st day of march of the following year, in respect where of financial statement of the company or body corporate is made up.

ILLUSTRATION

A parent company has unilateral control over all its subsidiaries. Hence, it should

normally be able to obtain their financial statements for the same reporting date

as the parent and use them in the preparation of CFS. However, this may not be

practical for all the associates/joint ventures.

An associate/joint venture incorporated outside India may have non 31 March

year-end, either due to requirement of local regulations or requirement

prescribed by other significant shareholder. Since the parent company does not

have unilateral control over these associates/joint ventures, it may not be in a

position to require them to prepare an additional set of financial statements for

31 March year-end for use in its consolidation.

DEPOSITS

OVERVIEW- DEPOSITS

The section 73 & 74(1) were enforced from 1st April,2014

The sub-section (2) & (3) of Section 74 were enforced from 06th

June ,2014

No distinction between Public & private Company.

The powers under section 73(2) are delegated to Company Law board

vide notification No. SO 1428(E) dated 02.06.2014

The powers under section 74 (2) are delegated to Company Law board

vide notification No. SO 1460(E) dated 06.06.2014

DEPOSITS

Rule 16 of The Companies (Acceptance of Deposit) Rules, 2014 requires that every

company on or before the 30th day of June, of every year, file with the Registrar, a

return in Form DPT-3

Form DPT-3 will be filed as an attachment to Form GNL-2 (Circular No. 09/2014

dated 25.04.2014).

DPT-3 will be pre-certified by auditors of the company (Rule 12(b)(ii) of The

Companies Registration Offices and Fees (Amendment) Rules, 2014)

The computation of Net Worth in Form DPT-3 requires data of latest audited

balance sheet preceding the date of the return i.e. 31.03.2015.

This return of deposit as relevant provision is applicable from 1st April, 2014.

DEPOSITS

As per Section 74(1) of Companies Act, 2013 Return of Deposits in Form DPT -4

within three months from the commencement of Companies Act, 2013 i.e. on or

before 30th June 2014 to be filed by every company.

Form DPT -4 Shall be filed with E-Form GNL-2 which shall also contain List of

Depositors and Auditors Certificate.

The Due date for filing the same was 30th June -2014 (Circular No. 09/2014 dated

25.04.2014) further extended up to 30th June 2014 (Circular No. 27/2014 dated

25.04.2014) .

APPLICABILITY OF

DPT-3 & DPT-4SITUATION FILING

Where loan/deposits were falling in the definition of Deposits under Companies (Acceptance of Deposits) Rules, 1975 on 31.03.2014 and now the loan/deposits also falls in the definition of deposits under Companies (Acceptance of Deposits) Rules, 2014.

DPT-3 & DPT-4(Loan/deposits which are in the Non-Exempted category of definition of deposits under Companies (Acceptance of Deposits) Rules, 2014 need to be repaid before 31.03.2015).

Where loan/deposits were not falling in the definition of Deposits under Companies (Acceptance of Deposits) Rules, 1975 on 31.03.2014 and now the loan/deposits falls in the definition of deposits under Companies (Acceptance of Deposits) Rules, 2014

DPT-4(Loan/deposits which are in the Non-Exempted category of definition of deposits under Companies (Acceptance of Deposits) Rules, 2014 need to be repaid before31.03.2015).(DPT-3 to be filed from 30.06.2015 onwards).

Where loan/deposits were not falling in the definition of Deposits under Companies (Acceptance of Deposits) Rules, 1975 on 31.03.2014 and now the loan/deposit also does not falls in the definition of deposits under Companies (Acceptance of Deposits) Rules, 2014.

DPT-3 & DPT-4 are Not applicable

Where loan/deposits were falling in the definition of Deposits under Companies (Acceptance of Deposits) Rules, 1975 on 31.03.2014 and now the loan/deposits does not falls in the definition of deposits under Companies (Acceptance of Deposits) Rules, 2014.

DPT-3 & DPT-4 are Not applicable

Penalties

To Company – shall pay deposit and interest along with fine Rs. 1 crore to Rs. 10

crores and

To officer in default - Imprisonment up to 7 years or fine Rs. 25 Lakhs to Rs. 2

Crores, or both.

PROPOSED AMENDMENT

Prescribing specific punishments for deposits accepted under the CA 2013.

DEPRICIATION

Companies Act, 1956 Companies Act, 2013

As per Section 350 of the Act the amount of depreciation to be deducted in pursuance of clause (k) of sub-section (4) of section 349 shall be the amount of depreciation on assets as shown by the books of the company at the end of the financial year expiring at the commencement of this Act

Or immediately thereafter and at the end of each subsequent financial year at the rate specified in Schedule XIV:

Section 123(2) provides that the depreciation shall be calculated as per the provisions of schedule II. Schedule II introduced:Depreciation to be based on useful life & residual valueUseful lives of various tangible assets prescribedResidual Value not more than 5% of the original cost of the assetFrom the date Schedule II becomes effective carrying amount of the asset shall be depreciated over the remaining useful life of the asset

COMPARISION- 1956 vs.2013

DEPRICIATION

Depreciation is systematic allocation of the depreciable amount of an

asset over its useful life. Companies Act, 2013 has introduced new

methods for calculating depreciation

Depreciation includes amortization.

Schedule XIV has been replaced with Schedule II for depreciation

calculation.

No bar on using any method to calculate depreciation – Any method used

shall be based on useful life.

MAJOR COMPONENTS:

The depreciable amount of an asset is the cost of an asset or other amount

substituted for cost less its residual value

Useful life may be considered as a period over which:

an asset is available for use; or

as the number of production or similar units expected to be obtained from the asset by the entity; or

specified time after which the assets are planned to be disposed off; or

after consumption of a specified proportion of the future economic benefits embodied in the asset.

Cost of Asset

Residual Value

MAJOR CHANGES AS PER SCHEDULE-II – COMPANIES ACT .2013

Companies act 1956 does not deal with the amortization of intangible Assets but

New Schedule by companies’ act 2014 provide the method to amortize them.

CA,1956 described method and rates of Depreciation and CA,2013 prescribed only

assets’ useful life.

if a Company, being a class of company specifically prescribed by MCA, can adopt a

different useful life longer than what is prescribed in Schedule II.

For other companies, useful life cannot be longer than what is prescribed in

Schedule II.

Depreciation is calculated by considering useful life of asset, cost &

residual value.

Any method WDV or SLM can be used.

If there is any addition to the asset or asset is sold, discarded, demolished

or destroyed then the calculation is made according to the date of such

event.

List of assets cover is more specific in new schedule.

Depreciation method used is to be shown in accounts

CONT:

CONT:

Residual value to be 5% of cost of asset, in CA,1956 no such prescription

New method for double shift and triple shift is prescribed under which addition depreciation of 50% or 100% will be allowed for double and triple shift respectively

The concept of 100% depreciation of assets whose cost is less than Rs. 5000/- is deleted hence under new act it will be depreciated as per other normal provisions of schedule II.

Under act if any component of Asset have significant cost and has useful life other than the assets then is should be considered as separate asset for depreciation.

RATES

Nature of asset - illustrative The Companies Act, 2013

The Companies Act, 1956 Increase

% change Useful Life Deemed

rate

General Plant and Machinery other than continuous process plant 15 6.33% 4.75% 1.58% 33.33%

Continuous process plant 8 11.88% 5.28% 6.60% 124.91%

General furniture and fittings 10 9.50% 6.33% 3.17% 50.08%

Office equipment 5 19.00% 4.75% 14.25% 300.00%

Desktops, laptops, etc. 3 31.67% 16.21% 15.46% 95.35% Electrical Installations and Equipment 10 9.50% 4.75% 4.75% 100.00%

• Depreciable amount to be determined after reducing expected residual value

• Residual value generally not more than 5% of the original cost of the asset

Transition provisions

On transition, the carrying amount of an asset is depreciated as follows:

Over the remaining useful life of the asset as per Schedule II of the

2013 Act; or

Recognized in opening retained earnings when the remaining useful life

of the asset is nil.

HOLDING SUBSIDARY

RELATIONSHIP

HOLDING - SUBSIDIARY

Holding Company is the one which :-Controls composition of the Board of a Co. ; or

Exercises or controls more than 50% of the total paid –up share capital [including equity and preference share capital] of the Co. either on its own or together with one or more of its subsidiary Companies.

Maximum two layers of Investment subsidiaries for prescribed Companies;

Restriction of holding of shares/interest by a subsidiary Co. in Holding Co. u/s 19(1) & 19(2);

Key Impact :-Different from AS 21;

Definition of Control as used in the definition of subsidiary is limited is not as wide as per the separate definition of control to cover control through other mechanisms such as management rights, voting agreements etc.,

ISSUES - HOLDING & SUBSIDIARY

Voting right replaced with total share capital – may lead to non voting capital being counted for this; there is a need for clarity;Particulars Equity Shares

(Voting Rights)Preference Shares

(Non-Voting)Total

Total Share Capital of B Ltd. (Nos.)

1,000,000 600,000 1,600,000

Shares owned by A Ltd.

550,000 100,000 650,000

% Ownership 55% 16.67% 40.625%

CONSOLIDATED FINACIAL

Statements

Consolidated Financial StatementThe Companies Act, 1956 and AS 21 does not requires the Companies to prepare Consolidated

Accounts.

At present, Clause 32 of the Listing Agreement mandates listed Companies to publish its

Consolidated Accounts which is neither required to be laid before the AGM nor to be filed with

ROC.

Under the Companies Act, 2013 where a company has one or more subsidiaries, it shall, in

addition to financial statements, prepare consolidated financial statement of the company and

laid before the annual general meeting of the company.

All subsidiaries, associates and joint ventures will be covered under CFS.

Company shall prepared the Consolidated Financial Statements according to Schedule III of the

Companies Act, 2013 which is in line with revised schedule VI.

All Companies including unlisted and private companies, with subsidiaries will need to prepare

CFS.

LOANS & INVESTMENTS

LOANS TO DIRECTORS [U/s 185]

Applicability :- Pvt. & Public Companies

No Co. shall directly/indirectly make loan [including book debt] or give guarantee/provide

security to its Director/other person in whom director is interested

Exemptions :-

Loan to MD/WTD as part of contract of services extended to all its employees or

pursuant to scheme approved by special resolution of members;

Co. whose ordinary business to provide loan/guarantee/security with charges of interest

not less than RBI rate.

MCA CLARIFICATION ON WITH REGARD TO SECTION 185 and 186 OF THE COMPANIES ACT 2013

Ministry of Corporate Affairs has vide its Circular No. 04/2015, dated 3rd March 2015, has issue clarification on applicability of provisions of section 186 of the Companies Act, 2013 relating to grant of loans and advances by Companies to their employees

According to this circular ‘loans and/or advances made by the companies to their employees, other than the managing or whole time directors (which is governed by section 185) are not governed by the requirements of section 186 of the Companies Act, 2013.

This clarification will, however, be applicable if such loans/advances to employees are in accordance with the conditions of service applicable to employees and are also in accordance with the remuneration policy, in cases where such policy is required to be formulated.

• The Limit is fixed in the Section 186 (2), that 60% of Paid up capital + Free Reserve + Security Premium or 100% of Free Reserve + Security Premium (whichever is More). Applicable to all companies.

• The Sub section (2) of Section 186 makes restriction, but Section 186(3), gives power to the company, that it may give loan, guarantee or provide any security or acquisition beyond the limit but before taking prior approval from Shareholder in the General Meeting.

• Disclosures (u/s 186 (4)) Company to disclose in the Financial Statement the full particulars of the loan given, security provided and guarantee given. The Company shall also disclose in its Report about its utilization.

SECTION 186

CIRCUMSTANCES UNDER WHICH LOAN CAN BE GIVEN???

H Ltd has given a loan of Rs 10 crores to S Ltd. There is neither any common director nor any common shareholder in between these two companies. Assuming that there is neither any common shareholder nor any common director in holding co and subsidiary company, Sec. 185 is not attracted. SUCH LOAN WILL NOT BE COVERED IN CLAUSE (a),(b),(c),(d) & (e) of Section 185 of CA,2013

Clause (a) (as applicable for individual) or Clause (b) (as applicable for Firm), Clause (c) (for Pvt Ltd co., only if director is a director or member), Clause (d) (only if the director either by himself or two or more such directors hold 25% or more of total voting power in the borrowing company, Clause (e) (only if borrowing company /its Board/Directors are accustomed to act as per the Directors of the board/Directors of the lending company. It is very difficult to prove that the board of subsidiary co has not only actually acted, but also accustomed to act as per the Directors of the board/Directors of the lending company.

Loan from foreign parent

The restrictions under sections 185 and 186 of the 2013 Act apply to a company which is providing the loan.

These sections do not prohibit the borrower company from accepting loan from its parent.

Let us assume that an overseas company intends to provide interest free loan to its partly owned Indian subsidiary.

In this case, one may argue that since sections 185/186 do not apply to the foreign company, there is no restriction on the company giving loan to its Indian subsidiary.

Similarly, these sections do not prohibit Indian subsidiary from accepting loan from its foreign parent. Hence, it may be argued that such loan is not in contravention of sections185 and 186 of the 2013 Act. It may be appropriate for the MCA to clarify this.

PROPOSED AMENDMENT

Exemptions under section 185 provided for loans to WOS and Guarantees or securities provided by holding company on loans taken by Subsidiaries from bank.

RELATED PARTY

TRANSACTIONS

RELATED PARTY

A director or his relative;

A Key Managerial Personnel (‘KMP’) or his

relative;

A firm – in which a director, manager or his

relative is a partner;

A private company - in which a director or

manager is a member or director;

A public company: in which a director or

manager is a director or holds along with

his relatives, more than two per cent of its

paid-up share capital;

Any person or any Body Corporate whose

Board is accustomed to act in accordance

with advice of Director or manager.

Senior Management Personnel / Members of

core Management Team of Holding

/subsidiary /Associate Co. one level below

Executive Directors and Functional Heads.

KMP /Director of Holding /subsidiary

/Associate Co.

Holding /subsidiary /Associate Co. of the Co.

Subsidiary of Holding Co. to Co. is

subsidiary

RELATED PARTY TRANSACTION

Company having paid up share capital of 10 crore or more shall not enter

into RPT except with the prior approval of company by a special resolution

Section 188 (2) of the 2013 Act requires that every contract/ arrangement

entered into under section 188 (1) will be referred to in the board report

along with justification.

Transactions covered under the section 188(1) only requires disclosure in

the board report.

Arm's length

Transaction

Arm's length Transaction- Transaction between two related parties

that is conducted if they were unrelated so that there is no conflict of

interest.

Transactions meeting the exemption criteria in third proviso, viz.,

transactions entered into by a company in its ordinary course of

business and at arms’ length price, are completely outside the scope

of section 188(1).

COMPLIANCE

MCA has prescribed Form AOC-2 in the Accounts Rules for disclosure of related

party transactions in the board report.

The form includes disclosure for

all (both material and immaterial) related party transactions which are not on arms’ length basis,

and (

material related party transactions which are on an arms’ length basis. It seems that in prescribing

disclosures at above, the Form AOC-2 has gone beyond disclosures required under the 2013 Act.

This disclosure regarding related party transactions in the board report is

applicable to both listed and non-listed companies.

PROPOSED AMENDMENT

Replacing Special resolution with Ordinary Resolution for approval of related party transactions by non related shareholders.

Empowering Audit Committee to give omnibus approvals for related party transactions on annual basis.

Removal of obtaining non related shareholders approval in case of transaction between Holding Company and Wholly Owned Subsidiaries.

CONCLUSION

PROPOSED AMENDMENTS -

- COMPANIES ACT 2013

For ease of Doing business On demand of Corporate On demand of Auditor

Omitting minimum capital requirement.Making optional and consequential changes in authorization fro execution of documents.

Prohibiting public inspection of Board’s resolution.Rectifying the need of transferring equity shares for which unclaimed/ unpaid dividend has been transferred to the IEPF, even though subsequent dividends has been claimed.Introducing provisions for writing of losses/ depreciation before declaring dividend.

Enabling provisions to prescribe thresholds beyond which fraud shall be reported to the CG. (below threshold it will be reported to Audit Committee).

ANY QUESTIONS ? ?

Compliance is a business enabler and not a burden !!

CA Punkaj Jain7A LGF,NRI Complex, Mandakini, Greater

Kailash -IV

Ph:- 9810286606

Email Id :- oswalpunkaj@gmail.com

Url: www.capoc.in