COMPANIES ACT 2013 – Annual Return Certification

and Secretarial Audit- By CS Makarand Joshi

- makarandjoshi@mmjc.in

Evolution of Secretarial Audit Until 2000 – Securities related Audit (Clause 47C) February 2000 – Corporate Governance (Clause 49) Companies (Compliance Certificate) Rules, 2001 (Section 383A)• Unlisted companies with paid-up capital of Rs 10 lakh or more• Required even if company had a Company Secretary in employment

(applicable from December 31, 2002)• Secretarial Audit Report for reconciliation of total admitted capital

with depositories and total issued and listed capital (CA or CS) Annual Return Certification Due Diligence certificates / reports for IPO, open offer, bonus issue,

GDR issue, etc. MCA Voluntary Guidelines, 2009 Secretarial Audit and Annual Return certification (Companies Act

2013)

Two Types of Certifications

Particulars Section 192(1) Section 192(2)

Which companies are covered

All companies except – small / one person company

Listed CompaniesCompany having paid up capital of Rs.10 cr or turnover of Rs.50 cr

Coverage of Certification

Correctness of contents of Annual Return

Overall Compliance of Companies Act 2013

Format MGT 7 MGT 8

What do we certify in section 192 (1)?Format MGT 7 runs in 34 pages and covers

– Details of registered office Details of registrar and transfer agent Principle business activities Details of holding / subsidiary / associate cos Great details about authorized/ subscribed /

paid up capital / debentures / other securities Securities premium details Turnover and Net-worth calculation

What do we certify in section 192 (1)? Shareholding pattern in detail Shareholding pattern of Promoters Changes in promoters shareholding Shareholding pattern of top 10 shareholders Shareholding of Directors / KMP Indebtedness – secured / unsecured / deposit Details of Members / Debentures / security

holder Details of transfers of shares / securities Details of Promoters / KMP / Directors

What do we certify in section 192 (1)? Details of meetings of board / committee/

members Remuneration of Directors and KMP Penalties, Punishments, compounding details Details of forms required to be filed and

status of filing Details of closure of register of security

holder Details of dividend Changes in nominal value of shares

What do we certify in section 192 (1)? Details of inter corporate loans / investments Related party transactions or transactions in

which director was interested Details of resolutions passed by postal ballot Details of CSR Limits u/s 186 vs. actual spending Disclosure of directors IEPF Transfers Maintenance of Statutory Registers Appointment of Statutory Auditors

What do we certify u/s 92(2) Certification that – “annual return states

the facts as at the close of the aforesaid financial year correctly and adequately”

“Company has complied with provisions of the Act & Rules made there under in respect of …. There are 18 points”

Punishment for fraud (Sec 447)

Section 447 states that without prejudice to any liability including for repayment of any debt under the Act or any other law for the time being in force, any person who is found guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud but which may extend to three times the amount involved in fraud

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Punishment for fraud (Sec 447) The Section further states that where the fraud in

question involves public interest, the term of imprisonment shall not be less than three years.

Fraud in relation to affairs of a company or any body corporate, includes any act, ommission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss

Punishment for false statement (Sec 448)

Section 448 states that, save as otherwise provided in the Act, if in any return, certificate, financial statement, prospectus, statement or other document required by the Act or Rules made thereunder, any person makes a statement:

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

(b)Which omits any material fact, knowing it to be material,

He shall be liable under Section 447

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How to handle?

Start training and empowering SME Companies Set compliance system for clients Set the check list of details required Develop excel sheets for various calculations We need lot of data from accounts department Need precise questions and digging for getting

data And cross check that with secretarial records of

the Company Training to team

How to handle?

Ensure that as on 31 March 2015, there are not transactions which are against law

Start compiling details from March 2015 Take declaration from client before

signing annual return Plan your vacations properly !!!

SAR V. Annual Return CertificationParticulars

Annual Return Secretarial Audit

Which companies are covered

All companies except – small / one person company 92 (1);Listed CompaniesCompany having paid up capital of Rs.10 cr or turnover of Rs.50 cr [sec.92(2)]

Listed CompaniesPublic Company –Public Company with paid up capital of Rs.50 crTurnover of Rs.250 Cr

Coverage of Certification

Correctness of contents of Annual ReturnOverall compliance

Compliance of various actAdequate board processesAdequacy of compliance system

Format MGT 7MGT 8

MR 3

Compliance of which acts?

The Companies Act, 2013 (the Act) and the rules made thereunder;

The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made thereunder;

The Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder;

Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder to the extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings;

Compliance of which Acts?

The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’):-

(a) The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;

(b) The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992;

(c) The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;

Compliance of which acts?

(d) The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999;

(e) The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008;

The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with client;

Compliance of which acts?

(g) The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009; and

(h) The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998;

(vi) .............................................................. (Mention the other laws as may be applicable specifically to the company)

Other Laws specifically applicable to the Company Here we are not expected to cover all

applicable laws eg. Shop act, factories act..etc.

If it is Bank – Banking Regulation Act If it is NBFC – NBFC Regulations issued

by RBI If it is Pharma Company – Food and Drug

act etc.

Is PCS fit person to do this audit?

If not we, WHO?

If not now, When?

How can we handle such new acts? Allocate dedicated hours for the study Allocate time for attending seminars on those

laws Invest in good books on those subject Identify key provisions of the laws Identify compliance provisions Identify substantive provisions of the law Meet experts and learn how to check

substantive provisions But good dictionaries of those subject

Board Processes?

Understand from the Company existing Board processes

Have a check list for verification of board process with the provisions of Companies Act, 2013, Listing Agreement [Particularly Clause 49], Secretarial Standards.

This is shared with the Company before starting audit.

If there is any change required in existing processes we suggest that to the Management

Board Processes

Based on the documents like notice, agenda, dispatch proof, minutes, attendance registers etc. we arrive at some conclusions and beyond that we rely on declarations given by the management.

Consistency of implementation of board processes by the company helps us to comment positively on board processes.

Adequacy of legal compliance ‘system’ It is an opinion about ‘system’ It is not a certification of all applicable

laws We should not focus in checking each

and every aspect of every law Rather our focus should be on evaluating

existing system to ensure compliance of laws

And determine ‘adequacy of system’

How to determine there is system and is adequate? Who identifies applicable laws? Whether there is listing of all activities and

scheduling of those activities ? Whether clear identification of consequence of

non compliance is done? Whether the responsibility is fixed for compliance

of each of the activity? What is the process of identifying suitable person

for the discharge of each responsibility? Whether his capability is checked before

assigning the responsibility?

How to determine there is system and is adequate? What is the process to capture compliance of each

activity? What is the process for preservation of documents with

respect to each compliance? What the process of monitoring the compliances being

done at different level? What is the process, frequency and what are the formats

for reporting the exceptions? What is the process for updation of entire legal system?

And who is responsible for it? Who is accountable for verification of various

compliances, what is the frequency and what is reporting method?

Summary

No body can afford to non comply and do business

Will push overall compliance system to the next level

Yes we can do it! And yes we can do it to add grace to Profession! This is a great opportunity for all of us to spread

our wings in other areas of practice Our next generation will be benefited by this CS will be able to position in a overall value

chain of business cycle

THANK YOU.Lets help industry to be better governed