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COMPANIES ACT, 2013 Coverage - Chapter IX

COMPANIES ACT, 2013 Coverage - Chapter IX. Presentation by: K K Tulshan. Content. Introduction Sections and Rules Detailed provisions Comparison. 2. Sections under Chapter IX. Section 128 to Section 138 Books of account, etc. to be kept by company Financial statement

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COMPANIES ACT, 2013 Coverage - Chapter IX

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  1. COMPANIES ACT, 2013Coverage - Chapter IX Presentation by: K K Tulshan

  2. Content • Introduction • Sections and Rules • Detailed provisions • Comparison 2

  3. Sections under Chapter IX Section 128 to Section 138 Books of account, etc. to be kept by company Financial statement Re-opening of accounts on Court’s or Tribunal’s orders Voluntary revision of financial statements or Boards’ report Constitution of National Financial Reporting Authority Central Government to prescribe accounting standards Financial statement, Board’s report etc. Corporate Social Responsibility Right of member to copies of audited financial statement Copy of financial statement to be filed with Registrar Internal audit 3

  4. Rules under Chapter IX The Companies (Accounts) Rules, 2014 Rule 1: Short tile, extent & commencement Rule 2: Definitions Rule 3: Manner of books of account to be kept in electronic mode Rule 4: Conditions regarding maintenance and inspection of certain financial information by directors Rule 5: Form of statement containing salient features of financial statements of subsidiaries Rule 6: Manner of consolidation of accounts Rule 7: Transitional provisions with respect to Accounting Standards Rule 8: Matters to be included in Board’s report Rule 9: Disclosures about Corporate Social Responsibility (“CSR”) policy Rule 10: Statement containing salient features of financial statements Rule 11: Manner of circulation of financial statements in certain cases Rule 12: Filing of financial statements and fees to be paid thereon Rule 13: Companies required to appoint internal auditor The Companies (Corporate Social Responsibility Policy) Rules, 2014 Rule 1: Short tile, extent & commencement Rule 2: Definitions Rule 3: CSR Rule 4: CSR activities Rule 5: CSR committees Rule 6: CSR policy Rule 7: CSR expenditure Rule 8: CSR reporting Rule 9: Display of CSR activities on its website 4

  5. Detailed provisions

  6. Detailed provisions • Section 128: Books of account, etc. to be kept by company (corresponds to S 209 of the Companies, 1956) • Every company shall prepare and keep at its registered office books of account (Sec 2(13)) and other relevant books and papers and financial statement for every financial year which give a true and fair view of the state of the affairs of the company, including that of its branch office or offices (Sub Section (1)). • such books shall be kept on accrual basis and according to the double entry system of accounting • Board of Directors may decide to be keep aforesaid books & papers at some other place in India also but should be intimated in writing to the registrar within seven days giving the detail of such address. • Company may keep such books of account or other relevant papers in electronic mode in the manner as may be prescribed (New provision). • If a company has a branch office in India or outside India, proper summarized returns should be sent by the branch at the registered office of the Company or at a place as decided by the BOD. (Sub Section (2)) • Books of account and other papers shall be open for inspection by any director subject to the conditions as may be prescribed (Sub Section (3)). 6

  7. Detailed provisions • Books of account together with vouchers to be maintained for a period of not less than eight financial years immediately preceding a financial year or for longer period as per the order of CG under Chapter XIV (Inspection, Inquiry and Investigation). (new provision).(Sub Section (5)) • Managing director, the whole time director in charge of finance, CFO or any other person of a company charged by the board with the duty to comply this provision, for non compliance of this Section, shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees or with both. (Sub Section (6)) • Rule 3 - Manner of books of account to be kept in electronic form • The books of account and other relevant books and papers maintained in electronic mode shall remain accessible in India so as to usable for subsequent reference and shall be retained in the format in which they were originally generated (unaltered) • The information in electronic record of the document shall be capable of being displayed in a legible form • There shall be proper system for storage, retrieval, display or printout of the electronic records as the Audit Committee or the Board of may deem appropriate • Back up server in India • Information to RoC 7

  8. Detailed provisions • Rule 4 - Conditions regarding maintenance and inspection of certain financial information by directors • The summarized return of the books of account of the company kept and maintained outside India shall be sent to the registered office at quarterly intervals, which shall be kept and maintained at registered office of the company and kept open to directors for inspection. • The company shall produce such financial information to the director within fifteen days of the date of receipt of the written request. 8

  9. Detailed provisions • Section 129: Financial statement (corresponds to S 210, 211 & 212 of the Companies Act, 1956) • The financial statements shall give a true and fair view of the state of affairs of the company or companies, comply with the accounting standards notified under section 133 and shall be in form or forms as may be provided for different class or classes of companies in Schedule III (Forms and General Instructions for preparation of Balance Sheet and Statement of Profit and Loss of a company). • Above sub section is not applicable to any insurance or banking company or any company engaged in the generation or supply of electricity or any other class of company for which a form of financial statement has been prescribed in or under relevant act. • At every annual general meeting of a company, the board of directors of the company shall lay before such meeting financial statements for the financial year. • Where a company has one or more subsidiaries, it shall also prepare a consolidated financial statement of the company and of all subsidiaries in the same form and manner as that of its own which shall also be laid before the annual general meeting of the company. For this sub-section, the word subsidiary shall include associate company and joint venture (New provision). • In addition to CFS, the company shall also attach a separate statement in form AOC-1 containing the salient features of the financial statement of its subsidiary/subsidiaries/associate company/joint venture 9

  10. Detailed provisions • Where the financial statements of a company do not comply with the accounting standards, the company shall disclose the deviation from accounting standards in them, along with its reason and financial effects, if any. • If a company contravenes the provisions of this section, the MD, the whole-time director in charge of finance, the CFO or any other person responsible for complying with the requirements of this section and in the absence of all of these, all the directors shall be punishable with imprisonment for a term which may extend to one year or with fine amounting to Rs.50,000- 5,00,000, or with both. 10

  11. Detailed provisions • Section 130: Re-opening of accounts on court’s or Tribunal’s orders-New Provision (Section not notified till date) • A company shall not re-open its books of account and not recast its financial statements, unless an application in this regard is made by the Central Government, the Income-tax authorities, the Securities and Exchange Board, any other statutory regulatory body or authority or any person concerned and an order is made by a court of competent jurisdiction or the Tribunal to the effect that:- • The relevant earlier accounts were prepared in a fraudulent manner • The affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of financial statements 11

  12. Detailed provisions • Section 131: Voluntary revision of financial statements or Board’s report – New provision (Section not notified till date) • If it is appears to the directors of the company that the financial statement or the report of the Board do not comply with the applicable provisions of Sections 129 or 134, they may revise the aforesaid in respect of any of three preceding financial years after obtaining the approval from Tribunal on an application made by the company in such form and manner as may be prescribed.. These can not be revised more than once in a financial year. • The detailed reasons for revision of such financial statement or report shall also be disclosed in the Board’s report in the relevant financial year in which such revision is being made. 12

  13. Detailed provisions • Section 132: Constitution of National Financial Reporting Authority – corresponds to Sec 210A of the 1956 Act (Section not notified till date) • The Central Government may, by notification, constitute a National Financial Reporting Authority to provide matters relating to (a) accounting and auditing standards (b) quality and (c) professional conduct. • The NFRA shall consist of a chairperson, who shall be a person of eminence and having expertise in accountancy, auditing, finance or law to be appointed by the CG and such other members not exceeding fifteen consisting part time and full time members as may be prescribed. • Powers of the National Financing Reporting Authority: • to investigate, either suomotu or on a reference made to it by the CG, for such class of bodies corporate or persons, into the matters of professional or other misconduct committed by any member or firm of Chartered accountants. Once the investigation is initiated by NFRA, no other institute or body shall initiate any proceeding in such matter. • have the same powers as are vested in a civil court under the code of civil procedure,1908, while trying a suit in respect of discovery & production of books of account and other documents, issuing commissions for examination of witnesses or documents. 13

  14. Detailed provisions • c) where professional or other misconduct (same meaning as given in Sec 22 of the Chartered Accountants Act, 1949) is proved, have the power • To make the order for imposing penalty (for individual: Rs.1,00,000 to 5 times of the fees received and for firms: 10,00,000 to 10 times of the fees received) • Debarring the member or the firm from practice as a member of ICAI. • Any person aggrieved by any order of NFRA may prefer an appeal before the Appellate Authority constituted under this section. • The Central Government may, by notification, constitute an Appellate Authority consisting of a chairperson and not more than two members for hearing appeals arising out of the orders of NFRA. • The accounts of NFRA shall be audited by CAG and to be forwarded along with the audit report to the CG annually. 14

  15. Detailed provisions • Section 133: Central Government to prescribe accounting standards (corresponds to S 211 of the Companies Act, 1956) • The Central Government may prescribe the standard of accounting or any addendum thereto, as recommended by the ICAI in consultation with and after examination of the recommendation made by the National Financial Reporting Authority (NFRA). • Rule 7 of The Companies (Accounts) Rules, 2013 • The standards of accounting as specified under the Companies Act, 1956 shall be deemed to be the accounting standards until specified by the CG u/s 133 • Till the time NFRA is constituted by the CG, CG may consider recommendations of National Advisory Committee on accounting standards constituted u/s 210A of the Companies Act, 1956 15

  16. Detailed provisions • Section 134: Financial statement, Board’s report, etc. (corresponds to S 215, 216 & 217 of the Companies Act, 1956) • The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the board and submitted to the auditors for their report. The authentication has to be done by the chairperson of the company where he is authorised by the Board or by two directors out of which one shall be managing director and the Chief Executive Officer, if he is a director in the company, the CFO and the CS of the company, wherever they are appointed. • Auditors’ report shall be attached to every financial statement. • Additional disclosures in Board’s report to be laid before a company in general meeting :- • Extract of the annual return as provided u/s 92 (3) – New requirement • Number of meetings of the Board - New requirement • Directors’ responsibility statement • Statement of declaration by independent directors u/s 149(6) -New requirement • Company’s policy on directors appointment/remuneration - New requirement • Explanations or comments by the board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report and by the company secretary in practice in his secretarial audit report. • Particulars of loans, guarantee, investment, related party contracts, implementation of risk management policy, policy developed on Corporate Social Responsibility, statement of formal evaluation of the performance of the Board and its committees in case of listed and public companies (New requirements) 16

  17. Detailed provisions • Director’s Responsibility Statement shall state : • The applicable AS had been followed in the preparation of the annual accounts with proper explanation relating to material departures • Prudent accounting policies are followed consistently so as to give true and fair view of the state of affairs of the company • Director had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this act for safeguarding the assets of the company, and for preventing and detecting the frauds and other irregularities. • Directors had prepared the annual accounts on going concern basis. • Additional disclosures in Director’s Responsibility Statement (for listed company): • Directors had laid down internal financial controls to be followed by the company and that such internal controls are adequate and were operating effectively • Directors had devised proper systems to ensure compliance with the provisions of all applicable laws. • Penalty for non Compliance • Fine (50,000 to 25,00,000) for the Company, and • Fine (50,000 to 5,00,000) or/and imprisonment upto 3 years for all officers in default of the Company 17

  18. Detailed provisions • Section 135: Corporate Social Responsibility – New provision • Every company having:- • - Net worth of 500 crores or more, or • - Turnover of 1000 crores of more, or • - Net profit of 5 crores or more, during any financial year shall constitute a CSR Committee of the Board having consisting of minimum 3 Directors of which at least 1 shall be Independent Director. • Board’s report u/s 134 (3) shall disclose the composition of the CSR Committee. • CSR Committee shall • Formulate & recommend to the board, CSR policy which shall indicate the activities to be undertaken as specified in Sch VII • Recommend the amount of expenditure • Monitor the policy from time to time • The Board of every company referred to above shall after taking into account the recommendations made by CSR Committee: • - Approve the CSR Policy for the company and disclose contents of such policy in its report and also place it on the company’s website, and • - Ensure that the activities as are included in CSR Policy of the company are undertaken by the company 18

  19. Detailed provisions • Board of every company shall ensure that the company spends, in every financial year, at least 2% of average net profit of the company made during 3 preceding financial years, in pursuance of its CSR policy. • If Company fails to spend such amount, the Board shall, in its report made, specify the reasons for not spending the amount. • Average net profit shall be calculated in accordance with the provisions of section 198 (Calculation of profit for managerial remuneration) 19

  20. Detailed provisions Rule 3: CSR Every company including its holding or subsidiary, and a foreign company defined under clause (42) of section 2 of the Act having its branch office or project office in India which fulfills the criteria specified in sub-section (l) of section 135 of the Act shall comply with the provisions of section 135 of the Act and CSR rules Rule 4: CSR activities The CSR activities shall be undertaken by the company, as per its stated CSR Policy, as projects or programs or activities (either new or ongoing) which are approved by the CSR committee, through a registered trust or a registered society or a company established by the company, its holding or subsidiary or associate company under section 8. Rule 5: CSR committees an unlisted public company or a private company covered under sub-section ( I ) of section I35 which is not required to appoint an independent director pursuant to sub-section (4) of section 149 of the Act, shall have its CSR Committee without such director a private company having only two directors on its Board shall constitute its CSR Committee with two such directors with respect to a foreign company covered under these rules, the CSR Committee shall comprise of at least two persons of which one person shall be as specified under clause (d) of sub-section (1) of section 380 of the Act and another person shall be nominated by the foreign company 20

  21. Detailed provisions Rule 6: CSR policy The CSR Policy of the company shall, inter-alia, include the following, namely - A list of CSR projects or programs which a company plans to undertake falling within the purview of the Schedule VII of the Act, specifying modalities of execution of such project or programs and implementation schedules for the same; and monitoring process of such projects or programs Rule 7: CSR expenditure CSR expenditure shall include all expenditure including contribution to corpus, for projects or programs relating to CSR activities approved by the Board on the recommendation of its CSR Committee, but does not include any expenditure on an item not in conformity or not in line with activities which fall within the purview of Schedule VII of the Act. Rule 8: CSR reporting The Board's Report of a company covered under these rules pertaining to a financial year commencing on or after the 1st day of April, 2014 shall include an annual report on CSR containing particulars specified in Annexure. 21

  22. Detailed provisions • Section 136 Right of Members to copies of Audited Financial Statements • Copy of FS to be sent to all the members including CFS and all other documents required by the law to be annexed or attached to the financial statement, if any, not less than 21days before the date of meeting. • Also place above statements on its website (New Provision) • In case of all listed companies and such public companies which have a net worth of more than Rs. 1 crore and turnover of more than Rs. 10 crore, the financial statements may be sent by electronic mode to such members whose shareholding are in dematerialised form or who have positively consented in writing for receiving by electronic mode; and by despatch of physical copies by any other recognised mode of delivery as specified under section 20 of the Act, in all other cases. • Company having subsidiary / subsidiaries shall – • Place separate audited accounts for each subsidiary on its website • Provide a copy of audited FS of subsidiary to any shareholder who asks for it • Penalty for Default – • Company – Rs. 25000 • Officer – Rs. 5000 22

  23. Detailed provisions • Section 137 Copy of FS to be filed with registrar • Copy of FS including CFS and other documents shall be filed with the Registrar within 30 days of General Meeting with fees or additional fees. • Un‐adopted accounts shall be considered as provisional. • Accounts adopted at adjourned meeting shall be filed within 30 days of adjourned meeting. • OPCs to file within 180 days from closure of FY. • If the AGM is not held, FS along with a statement of facts & reason for not holding the AGM shall be filed with Registrar. 23

  24. Detailed provisions • Section 138 Internal Audit (New Provision) • Such class or classes of companies, as may be prescribed, shall be required to appoint an internal auditor, who shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board. CG may prescribe the manner and intervals in which internal audit shall be conducted and reported to the Board. • Rule 13 Companies required to appoint internal auditor • The following class of companies shall be required to appoint an internal auditor or a firm of internal auditors, namely:- • every listed company • every unlisted public company having • paid up share capital of fifty crore rupees or more during the preceding financial year; or • turnover of two hundred crore rupees or more during the preceding financial year; or • outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year; or • outstanding deposits of twenty five crore rupees or more at any point of time during the preceding financial year; and • every private company having • turnover of two hundred crore rupees or more during the preceding financial year; or • outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year 24

  25. Comparison

  26. Comparison of new sections with old sections 26

  27. Comparison of new sections with old sections 27

  28. Comparison of new sections with old sections 28

  29. Comparison of new sections with old sections 29

  30. Comparison of new sections with old sections 30

  31. Comparison of new sections with old sections 31

  32. Comparison of new sections with old sections 32

  33. Thank You 33

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