Monthly Archives: April 2014

General notice of disclosure

Leave a comment

Filed under Uncategorized

FDI in pharma sector

RBI has clarified vide its circular dated 21st April, 2014 that in case of FDI in the pharma sector, “non compete clause” would not be allowed in the agreements except in special circumstances and that too only with the approval of the Foreign Investment Promotion Board. FDI is allowed in pharma sector upto 100% in greenfield investments under the automatic route and 10% in brownfield investments (i.e. investments in existing companies) with the government approval. 

The relevant RBI circular can be accessed here. 

Click to access APDIR124NT0414.pdf

 

Leave a comment

Filed under Uncategorized

Internal Audit

For the first time internal audit has been mandatory for certain class of companies. Rule 13 of the Companies (Accounts) Rules 2014 specifies that 

1) every listed company;

2) every unlisted public company having paid up share capital of Rs.50 crores or more during the preceding financial year OR turnover of Rs.200 crores or more during the preceding financial year OR outstanding loans or borrowings from banks or public financial institutions of Rs.100 crores or more at any point of time during the preceding financial year OR outstanding deposits of Rs.25 crores or more at any point of time during the preceding financial year;

3) every private company having turnover of Rs.200 crores or more during the preceding financial year OR outstanding loans or borrowings from banks or public financial institutions of Rs.100 crores or more at any point of time during the preceding financial year 

SHALL be required to appoint an Internal Auditor or firm of Internal Auditors

Explanation below this Rule clarifies that Internal Auditor may or may not be an employee of the company

The Audit Committee shall in consultation with the Internal Auditor formulate the scope, functioning, periodicity & methodology of Internal Audit. 

Section 138(1) of the Companies Act, 2013 specifies that the internal auditor shall be either chartered accountant or cost accountant or such other professionals as may be decided by the Board to conduct the internal audit of the functions and activities of the company. 

Section 144 prohibits a Statutory Auditor from carrying out the functions of Internal Audit directly or indirectly to the company or its holding company or subsidiary company.

The Companies Act, 2013 has not defined “Internal Audit”  or “Internal Auditors” anywhere in the Act or in the Rules.  

Section 138 gives the leeway that even Company Secretaries can be appointed as Internal Auditors provided the constitution of ICSI allows the company secretaries to provide such services. 

 

 

Leave a comment

Filed under Uncategorized

Directors Report

The contents of the Directors Report as hitherto provided in section 217 of the Companies Act, 1956 has undergone changes in the newly enacted section 134 of the Companies Act, 2013.

The Board of Directors’ Report shall now include:

(a) the extract of the annual return as provided under sub-section (3) of section 92;
(b) number of meetings of the Board;
(c) Directors’ Responsibility Statement;
(d) a statement on declaration given by independent directors under sub-section (6) of section 149;
(e) in case of a company covered under sub-section (1) of section 178, company’s policy on directors’ appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters
provided under sub-section (3) of section 178;
(f) explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made—
(i) by the auditor in his report; and
(ii) by the company secretary in practice in his secretarial audit report;
(g) particulars of loans, guarantees or investments under section 186;
(h) particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in the prescribed form;
(i) the state of the company’s affairs;
(j) the amounts, if any, which it proposes to carry to any reserves;
(k) the amount, if any, which it recommends should be paid by way of dividend;
(l) material changes and commitments, if any, affecting the financial position of the company which have occurred between the end of the financial year of the company to which the financial statements relate and the date of the report;
(m) the conservation of energy, technology absorption, foreign exchange earnings and outgo, in such manner as may be prescribed;(n) a statement indicating development and implementation of a risk management policy for the company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company;

(o) the details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year;

(p) in case of a listed company and every other public company having such paid-up share capital as may be prescribed, a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors;
(q) such other matters as may be prescribed.

The Directors’ Responsibility Statement as hitherto provided in section 217(2AA) of the Companies Act, 1956 has two more paragraphs added to in section 134(5) of the Companies Act, 2013

(5) The Directors’ Responsibility Statement referred to in clause (c) of sub-section (3) shall state that—
(a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;
(b) the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period;
(c) the directors 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 fraud and other irregularities;
(d) the directors had prepared the annual accounts on a going concern basis; and 
(e) the directors, in the case of a listed company, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively.
Explanation.—For the purposes of this clause, the term “internal financial controls” means the policies and procedures adopted by the company for ensuring the orderly and efficient conduct of its business, including adherence to company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information;
(f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Listed companies have to add the last two paragraphs in their Directors’ Responsibility Statement.

The penalties for non compliance are very hefty. It is Rs.50,000 for a company which may extend to Rs.25 lakhs and for every officer in default – imprisonment for a term which may extend to 3 years and with fine of minimum Rs.50,000 per officer which may extend to Rs.5 lakhs per officer.  

Compliances have become now paramount under the new Companies Act, 2013. The only way for companies to secure their compliance is to effectively engage Company Secretaries. 

1 Comment

Filed under Uncategorized

Share Certificates

The provision regarding the time limit for issue of share certificates to members consequent to new/ fresh allotment of shares or transfer/ transmission of securities are to be found in section 56 of the Companies Act, 2013 which has got a heading “Transfer & Transmission of Securities” instead of at section 46 which has the heading “Certificate of Shares”

According to Section 56(4) share certificates have to be issued to members within 

(a) 2 months from the date of incorporation, in case of subscribers to the memorandum; (previously there was no such time limit);

(b) 2 months from the date of allotment of shares in case of any other allotment (previously it was 3 months u/2 113 of CA 1956);

(c) 1 month from the date of receipt of transfer of securities or date of intimation of securities – (here the word used is securities rather than shares, so it includes both shares as well as debentures, previously it was 2 months time limit);

(d) 6 months from the date of allotment of debentures (previously the time limit was 3 months)

Under proviso to section 113(1) of the Companies Act, 1956 companies could apply for an extension of time limit for issue of certificates upon allotment/ transfer of debentures by a further period of 9 months. Now under the Companies Act, 2013, that proviso has been removed, so the above limits under section 56(4) (a) to (d) are absolute and if the company is unable to issue certificates within that period then penalty process is attracted under section 56(6)  which is minimum Rs.25,000/- for the company but may extend to Rs.5.00 lakhs and minimum Rs.10,000/- for every officer which could extend upto Rs.1.00 lakh per officer.

So all the more reason to adopt a strict compliance system to be in consonance with the new norms of the Act.  The only way for companies to ensure that they have a robust compliance system in place is to effectively engage company secretaries. 

 

 

Leave a comment

Filed under Uncategorized

Online payment of stamp duties

The Maharashtra Stamp Authority (Office of Inspector General of Registration and Controller of Stamps) have decided vide their Order dated 15th March 2014 that maximum limit for paying stamp duty by franking shall be Rs.5,000/- for a single document. 

Which means if you want to frank any document with value of stamps on it, and if the value of stamps to be franked is more than Rs.5,000/- then it cannot be franked either at the government stamp office or authorised user like banks etc. or authorised vendor like stamp agents etc. 

Instead government has introduced system of online payment of stamps which is at the following website i.e. 

https://gras.mahakosh.gov.in/echallan/

The site if user driven and there is facility for making payments online i.e. e-payment through internet banking system and also across the bank counter. The above site also gives user guides/ faqs. 

Leave a comment

Filed under Uncategorized

annual general meeting

Section 96 of the Companies Act, 2013 relates to annual general meeting of a company. The change in the 2013 Act compared to the 1956 Act is that annual general meeting can now be held on all days including on Sundays and public holidays but cannot be held on National Holidays as declared by the Government. The Central Government has declared three days as Public Holidays i.e. 15th August – Independence Day, 26th January – Republic Day and 2nd October – Gandhi Jayanti Day. So companies can now hold annual general meetings on all days of the year except these three days as above. Section 96(2)

Further, the business hours have been defined in the Act itself as from 9.00 a.m. to 6.00 p.m. which was not there in the 1956 Act. 

Another new addition to the annual general meeting is that in case of listed companies (Section 121), a report on the annual general meeting, stating therein, a confirmation that the meeting was held and conducted as per the provisions of the Act and the Rules have to be filed with the Registrar within 30 days of the annual general meeting. 

As per Rule 31(1)(c) of the Companies (Management and Administration) Rules, 2014

the report shall contain the details in respect of the following, namely:-

(i) the day, date, hour and venue of the annual general meeting;
(ii) confirmation with respect to appointment of Chairman of the meeting;
(iii) number of members attending the meeting;
(iv) confirmation of quorum;
(v) confirmation with respect to compliance of the Act and the Rules, secretarial standards made there under with respect to calling, convening and conducting the meeting;

(vi) business transacted at the meeting and result thereof;
(vii) particulars with respect to any adjournment, postponement of meeting, change in venue; and
(viii) any other points relevant for inclusion in the report.
(d) the Report shall contain fair and correct summary of the proceedings of the meeting.

Rule 31(1)(b) states that the Report shall be dated and signed by the Chairman, or in case of his inability to sign, by any two directors of the company one of whom shall be a Managing Director, if there is one and the Company Secretary of the company. 

 

 

Leave a comment

Filed under company law

Service of Documents on Members

Section 20(2) of the Companies Act, 2013 provides that a document may be served on a member by sending it him by post or by registered post or by speed post or by courier or by hand delivery at his office or address or by such electronic means as may be specified.

Hitherto delivery by electronic means was not recognised as a mode of delivery of documents by a company to its member. 

Rule 35(4)(a)(i) of Companies (Incorporation) Rules 2014 defines “electronic means”  fax or electronic mail commonly known as e-mail which the member has provided the no. or address thereof from time to time for sending documents to him. This clause includes the e-mail id of the member.

Rule 35(4)(a)(ii) – It further includes posting of an electronic message board or network that the member has designated for these communications, and which transmission shall be validly delivered to the member upon the posting thereof. This clause is not clear – does it mean the various social media platforms like facebook, twitter, linkedin, whatsapp which the member has specified for the purpose.  Obviously the character limitation of some of these platforms will create further problems. 

Rule 35(4)(a)(iii) – other means of electronic communication; The Government has left it open for any further advances in technology. 

 

Rule 35(4)(b) – the electronic transmission should create a record that is capable of retention, retrieval and review and which may thereafter be rendered into a clearly legible tangible form. 

Courier has been defined as documents sent by a courier which provides proof of delivery

 

Leave a comment

Filed under company law

Companies Act, 2013 – commencement provisions

The Ministry of Corporate Affairs has vide its General Circular no. 8/2014 dated 4th April, 2014 clarified that companies whose financial year commenced from 1st April, 2014 shall be governed by the Companies Act, 2013 and those companies whose financial year commenced earlier than 1st April, 2014 i.e. where the financial year was from 1st January 2014 – then in that case the relevant statute would be the Companies Act, 1956. Therefore for the financial year ended 31st March, 2013, the relevant statute that will be applicable is the 1956 Act.  

The relevant last para of the said circular is reproduced hereunder for easy reference.

Although the position in this behalf is quite clear, to make things absolutely clear it is hereby notified that the financial statements (and documents required to be attached thereto), auditors report and Board’s report in respect of financial years that commenced earlier than 1st April, 2014 shall be governed by the relevant provisions/Schedules/rules of the Companies Act. 1956.

A Copy of the circular can be found here i.e.

Click to access General_Circular_8_2014.pdf

 

 

Leave a comment

Filed under company law

Companies Act, 2013 – Table of Fees

The Ministry of Corporate Affairs has published the Table of Fees pursuant to Rule 12 of the Companies (Registration of Offices and Fees) Rules, 2014. Accordingly, the fees payable for registration of documents at the MCA portal are as follows:

For company having nominal share capital

1) of upto Rs.100,000                                                            Rs.200/-

2) above Rs.1 lakh but less than Rs.5 lakhs                          Rs.300/-

3) Rs. 5 lakhs or more but less than Rs.25 lakhs                   Rs.400/-

4) Rs.25 lakhs or more but less than Rs.1 crore                    Rs.500/-

5) Rs.1 crore and above                                                        Rs.600/-

In case of delays in filing documents, the following would be applicable:

Delay of 

1) upto 15 days (in case of section 93, 139 & 157               ONE TIME

2) more than 15 days to 30 days ( in case of section 93, 

139 & 157) and upto 30 days in case of other forms           TWO TIMES of normal filing fee

3) More than 30 days and upto 60 days                              FOUR TIMES of normal filing fee

4) More than 60 days and upto 90 days                              SIX TIMES of normal filing fee

5) More than 90 days and upto 180 days                            TEN TIMES of normal filing fee

6) More than 180 days and upto 270 days                           TWELVE TIMES of normal filing fee

Where the documents were supposed to be filed under the old regime i.e. under the Companies Act, 1956 and are being filed now, the above filing fee schedule will become applicable. 

Where there is a delay in filing of more than 270 days then second proviso to section 403(1) will become applicable. 

The second proviso to section 403(1) and section 403(2) states as follows;

Provided further that any such document, fact or information may, without prejudice to any other legal action or liability under the Act, be also submitted, filed, registered or recorded, after the first time specified in first proviso on payment of fee and additional fee specified under this section.
(2) Where a company fails or commits any default to submit, file, register or record any document, fact or information under sub-section (1) before the expiry of the period specified in the first proviso to that sub-section with additional fee, the company and the officers of the company who are in default, shall, without prejudice to the liability for payment of fee and additional fee, be liable for the penalty or punishment provided under this Act for such failure or default.

What this means is that the document will be accepted for registration with maximum additional fees possible i.e. 12 times of the normal filing fee, but the company and the officers in default will also be liable for the penalty or punishment provided under the Act for such failure or default. 

So, effectively companies have been given leeway of upto 300 days i.e. 30 days normal filing period and 270 days additional filing period within which the documents to be filed failing which the prosecution will kick off and the company and officers are liable to receive show cause notices in this regard. 

ALL THE MORE REASON FOR ALL COMPANIES TO EFFECTIVELY ENGAGE COMPANY SECRETARIES FOR THEIR COMPLIANCE NEEDS. 

 

1 Comment

Filed under company law

Companies Act, 2013 – Transfers and Transmissions

The salient features of the changes in the provisions relating to transfers and transmissions in the Companies Act, 2013.

1) The share transfer form alongwith the share certificates has to be delivered to the company within 60 days from the date of its execution; section 56(1); – this is a new provision, there was no time limit earlier

2) The share certificates have to be delivered within a period of one month (earlier two months) from the date of receipt of the transfer documents – section 56(4)(c)

 

 

Leave a comment

Filed under company law

Companies Act, 2013 – Registered Office

The provisions relating to registered office of a company in the Companies act, 2013 are briefly summarised here. 

1) The company need not have a registered office at the time of its incorporation. All it needs on incorporation, is an address for correspondence;

2) A company, be it a private or a public company cannot commence business upon incorporation, unless it has filed in the prescribed manner verification documents with respect to its registered office with the Registrar;

3) The company shall on and from the 15th day of its incorporation have a Registered Office capable of receiving and acknowledging all communications and notices as may be addressed to it. This is very important because without the Registered Office in place and a verification duly filed thereunder the company cannot commence its business; (Section 12(1))

4) The verification of Registered Office documents should be filed with the Registrar within 30 days of the date of incorporation in prescribed form INC.22; (Section 12(2));

5) Every company shall paint or affix the name and address of its registered office outside of every office or place of business in a conspicious position, legible letters and in local language as well; Section 12(3)(a)

6) Every company shall get the name and address of its Registered Office along with the 21 digit Corporate Identification Number, telephone number, fax, e-mail id, website address, if any printed on its letter heads, business letters, billheads and all its notices and official publications; Section 12(3)(c);

7) Notice of every change in registered office should be given to the Registrar within 15 days of the change (earlier 30 days) Section 12(4);

8) Shifting of registered office outside the local limits of any city, town or village where it is presently situated can be done only with the special resolution of the members and where the jurisdiction of the company is being shifted from one Registrar to another Registrar but within the same State, then confirmation by Regional Director on an application to be filed for that purpose in form INC.23; Section 12(5);

9) Change in registered office from one State to another shall be effective only upon approval of Central Government upon an application made in that behalf in the prescribed form. INC.23; Section 13(4);

10) The verification documents that are required for registered office are the following:

(a) the registered document of the title of the premises of the registered office in the name of the company; or

(b) the notarized copy of lease or rent agreement in the name of the company along with a copy of rent paid receipt not older than one month;
(c) the authorization from the owner or authorized occupant of the premises along with proof of ownership or occupancy authorization, to use the premises by the company as its registered office; and
(d) the proof of evidence of any utility service like telephone, gas, electricity, etc. depicting the address of the premises in the name of the owner or document, as the case may be, which is not older than two months.

 

 

 

 

1 Comment

Filed under company law

Companies Act, 2013 – Commencement of Business

Under the Companies Act, 1956 a private company could start its business immediately upon receiving certificate of incorporation. They were not required to obtained a certificate of commencement of business under section 149 of that Act. 

Now under Section 11 of the Companies Act, 2013, ALL companies cannot commence business or exercise any borrowing powers, unless 

– the subscribers to the memorandum have paid in their subscription monies and a declaration to that effect has been filed with the Registrar and the paid up share capital of the company on the date of declaration is at least Rs.1 lakh for a private company and Rs.5 lakhs for a public company, AND

– the company has filed with the Registrar a verification of its Registered office. 

Section 11(3) further states that where no declaration has been filed within 180 days of the date of incorporation and the Registrar has reason to believe that the company is not carrying on its business or operations, he will initiate action for removal of the company name from the registrar of companies. 

 

3 Comments

Filed under company law

Annual Returns under Companies Act, 2013

The annual returns of shareholders, directors and debts which was made out in Schedule V and covered by section 159 to section 162 of the Companies Act, 1956 is now covered by section 92 of the Companies Act, 2014 and Rule 11 of the Companies (Management and Administration) Rules, 2014

Section 92 of the Act

1) The annual return is now required to be made as at the close of the financial year instead of as at the AGM date as hitherto;

2) It contains substantially more information than what was covered by Schedule V. It covers the following information, viz.

(a) its registered office, principal business activities, particulars of its holding, subsidiary and associate companies;
(b) its shares, debentures and other securities and shareholding pattern;
(c) its indebtedness;
(d) its members and debenture-holders along with changes therein since the close of the previous financial year;

(e) its promoters, directors, key managerial personnel along with changes therein since the close of the previous financial year;
(f) meetings of members or a class thereof, Board and its various committees along with attendance details;
(g) remuneration of directors and key managerial personnel;
(h) penalty or punishment imposed on the company, its directors or officers and details of compounding of offences and appeals made against such penalty or punishment;
(i) matters relating to certification of compliances, disclosures as may be prescribed;
(j) details, as may be prescribed, in respect of shares held by or on behalf of the Foreign Institutional Investors indicating their names, addresses, countries of incorporation, registration and percentage of shareholding held by them; and
(k) such other matters as may be prescribed,

The annual return is required to be signed by a Director AND company secretary or where there is no company secretary, by a company secretary in practice. The format of annual return is in form MGT 7.

A One Person Company and a small company shall have its annual return signed by a company secretary or where there is no company secretary by a Director of the company. 

Small company means a company other than a public company with paid up share capital of upto Rs.50 lakhs OR turnover of Rs.2 crores. The government may specify higher limits for a small company but it cannot exceed paid up share capital of Rs.5 crores or turnover of Rs.20 crores. 

The annual return by a listed company or a public company with paid up share capital of Rs.10 crores or more OR turnover of Rs.50 crores or more shall be mandatorily certified by a Company Secretary in Practice and the Certificate shall in form MGT 8.

An extract of the annual return is required to be attached to and shall form part of the Board report. This form of annual return is in form MGT 9.

The time period for filing the annual return is the same as at present i.e. within 60 days from the date of the annual general meeting. 

To summarise, Annual Return of 

One Person Company/ Small company – to be signed by the Company Secretary and in its absence, Director. 

Companies with paid up capital between Rs.50 lakhs and upto Rs.10 crores OR turnover upto Rs.50 crores – Director and Company Secretary and where there is no Company Secretary, by Company Secretary in Practice.

Listed companies and companies with paid up capital above Rs.10 crores or turnover above Rs.50 crores – certification by a Company Secretary in Practice.   

Section 93

Every listed company is also required to file a return in form MGT.10 regarding changes in the shareholding of promoters and top ten shareholders within 15 days of such change. This is a new requirement under the Companies Act. 

 

 

 

2 Comments

Filed under company law

Key Managerial Personnel and Secretarial Audit

Key Managerial Personnel

The Chapter XIII Rules regarding Managerial Personnel and their Remuneration has been released by Central Government yesterday. As per this Rule 8 of the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014, every listed company and every other public company having a paid up share capital of Rs.10 crores or more shall have whole-time key managerial personnel. 

Key Managerial Personnel as per Section 203 of the Companies Act, 2013 comprises of 

1) managing director or chief executive office or manager or in their absence, a whole time director, 

2) company secretary, and 

3) chief financial officer. 

Private companies have been removed completely from the ambit of appointment of KMP. 

Secretarial Audit – Rule 9

Every listed company AND 

Every other public company having paid up share capital of Rs.50 crores or more OR turnover of Rs.250 crores or more

shall be required to annex along with its Board Report a Secretarial Audit Report duly given by a Company Secretary in Practice. 

Here also private companies have been exempted from the ambit of Secretarial Audit Report. 

 

 

Leave a comment

Filed under company law