COMPLIANCE OF APPOINTMENT OF COMPANY SECRETARY, SERETARIAL AUDIT & DUTIES OF COMPANY SECRETARY UNDER NEW COMPANIES ACT 2013

Ministry of Corporate Affairs has introduced Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. Rule 8 of the said rules read with section 203 of Companies Act, 2013, regulates the appointment of Company Secretaries. Further MCA has introduced rule 8A  vide notification No. G.S.R. 390(E) dated 9th June 2014

Salient features of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are as follows :

Appointment of Key Managerial Personnel

Rule 8

-          Every listed company,  and

-          Every other public company having a paid-up share capital of ten crore rupees or more shall have whole-time key managerial personnel.

 Above rule 8 restricts the employment of Company Secretaries to every listed company and to every other public company having a paid-up share capital of Ten Crore rupees or more.

  Appointment of Company Secretaries in companies not covered under rule 8

Rule 8A . A company other than a company covered under rule 8 which has a paid up share capital of five crore rupees or more shall have a whole-time company secretary. 

Above Rule 8A makes the appointment of Company Secretary mandatory for a Private company having paid up share capital of five crores rupees or more.

Secretarial Audit Report

Rule 9. (1) For the purposes of sub-section (1) of section 204, the other class of companies shall be as under—

(a)		Every public company having a paid-up share capital of fifty crore rupees or more; or
(b)		Every public company having a turnover of two hundred fifty crore rupees or more.

Duties of Company Secretary

Rule 10. The duties of Company Secretary shall also discharge, the following duties, namely:—

(1)		to provide to the directors of the company, collectively and individually, such guidance as they may require, with regard to their duties, responsibilities and powers;
(2)		to facilitate the convening of meetings and attend Board, committee and general meetings and maintain the minutes of these meetings;
(3)		to obtain approvals from the Board, general meeting, the government and such other authorities as required under the provisions of the Act;
(4)		to represent before various regulators, and other authorities under the Act in connection with discharge of various duties under the Act;
(5)		to assist the Board in the conduct of the affairs of the company;
(6)		to assist and advise the Board in ensuring good corporate governance and in complying with the corporate governance requirements and best practices; and
(7)		to discharge such other duties as have been specified under the Act or rules; and
(8)		such other duties as may be assigned by the Board from time to time.

The Companies Act, 2013 has done away with the requirements of compliance certificate for small companies and pre certification of certain E-forms and Secretarial Audit is mandatory only for big Companies. 

COMPANY LAW SATTLEMENT SCHEME (CLSS), 2014

OPPORTUNITY FOR DEFAULTING COMPANIES AND ITS DIRECTORS

Due to stricter regime for defaulting companies with higher additional feeas per New Companies Act 2013 and on representation by defaulting companies MCA has given one time opportunity by declaring CLSS 14 (company law settlement scheme-2014).  In this Scheme MCA gives immunity for prosecution to directors of defaulting companies and gives an opportunity by condoning the delay in filing annual reports, financial statement and related documents due for filing on or before 30/06/2014 and charging reduced fee. Such defaulting companies can avail this one time opportunity to e- file these documents before15/10/2014.

SALIENT FEATURES

v  Scheme is valid for two months from 15th August 2014 to 15th October 2014

v  The defaulting Company shall for filing of belated documents by paying only normal fee plus 25% of additional fee payable.

v  Application for issue of Immunity Certificate after filing of belated documents and after they are approved by MCA has to be E-Filed and such application form will be available on MCA Portal from 1st September, 2014. Such Application may be filed without any fee but before 15.01.2015 ( not later than 3 months from the date of the closure of the scheme )

v  Immunity from prosecution of the directors of defaulting companies

v  Avoid disqualification under section 164(2) of the companies act, 2013 of all the directors.

v  Scheme applicable for all forms due to be filed till 30/06/2014 i.e 23AC, 23ACA, 23AC-XBRL, 23ACA-XBRL, 20B, 66, 23B, 21A due till 30/06/2014

v  The defaulting inactive companies 

a)    Can apply to get themselves as dormant Company by filing MSC -1 at 25% fee, OR

b)    Can apply for striking off the name by filing FTE at 25% of fee payable

Provisions relating to Notice of General Meetings as per New Companies Act, 2013

The provisions relating to notice of General meetings as per New Companies Act :

Ø  Every company except one Person Company shall hold Annual General meeting in each year in addition to any other meetings and notice calling the meeting shall mention the same.

Ø  The gap between two Annual General Meetings should not be more than 15 months.

Ø  In the case of first Annual General meeting, it should be held within 9 months from the close of the financial year and in all other cases within 6 months from the close of the financial year.

Ø  Every AGM shall be called during business hours (between 9am to 6Pm) on any day which shall not be a National holiday

Ø  Every AGM shall be held at the registered office or at such other place but within the registered office location.

Purpose and importance of the Proper Notice

Ø  The purpose of the Notice with specified length is to enable a member of the company to read, understand the financial statements, performance and to raise any questions on the state of affairs and to enable members to issue special notice to the company for certain resolutions as per provisions of Section 115

Ø  Any improper notice invalidates proceedings of General meetings and puts the approvals at the General meetings to nullity for want of proper notice.

Ø  However any accidental omission to give notice or non receipt by any member or any other person entitled to receive notice shall not invalidate the proceedings – Sec.101 (4) or Section 111 for circulation of members’ resolutions.

Persons entitled to receive Notice

As per Section 101(3) provides that Notice of every meeting shall be given to:

Ø  Every member of the company

Ø  Legal representative of decease member & Assignee of insolvent member

Ø  Auditor of the company

Ø  Every director of the company.

The Length of notice and Shorter Notice

 A notice calling a General meeting has to be in writing and to be given at least 21 Clear Days before the meeting date. The new Act has added the expression “clear days”. It means day of giving of notice and day of the meeting are to be excluded.

The new Act permits issuance of notice by electronic mode. Sec.101 (1)

A shorter notice of less than 21 Clear Days is valid for calling a General Meeting if consent is given by not less than 95% of the members entitled to vote at such meeting and such consent can be either in writing or by electronic mode. Sec.101(1)

Contents of the notice and Statements to be annexed to the Notice:

Section 101(2) provides that every valid notice calling the meeting shall specify the place, date, day and time and it should contain a statement of the business to be transacted at such meeting.

Section 102 provides that a statement setting out material facts for each item of special business to be transacted at the General meeting shall be annexed and contain the following particular details:

Ø  Nature of concern or interest whether financial or other wise of every director, Manager, Key Managerial personnel(KMP) and their relatives

Ø  Any other information which facilitates better understanding of the businesses to be transacted

Ø  In the case of special business to be transacted relates to or affects any other company, then the extent of shareholding in that other company of the promoters, directors, Manager, KMP of the company, if the extent of such shareholding is not less than 2% (earlier it was 20% ).

In the case of AGM any business other than the Ordinary Business shall be Special Business Section 102(2). Ordinary Business is:-

Ø  Considering the financial statements with Auditors’ report & Directors’ report

Ø  Declaration of dividend

Ø  Appointment of directors retiring by rotation    

Ø  Appointment of Auditors and fixation of their remuneration

Consequences of non disclosure of material facts in Notice

Any benefits which accrued as a result of such non disclosure/insufficient disclosure to

Promoter, Director, Manager or any other KMP who are in fiduciary position will not only be liable to compensate the company for the loss but also be liable for the consequences under other acts.

A criminal/civil action can be launched for breach of trust/misappropriation/cheating etc.

  

Section 102(5) provides a fine up to Rs. 50,000/- or 5 times of the profit accruing to promoter, director, manager or an KMP whichever is more can be levied on the defaulting officer in case of failure to comply with the provisions of section 102(1),

  

Conclusion & Precaution:

Penal provisions in the New Companies Act 2013 provide for strict abeyance of provisions and ensure transparency from the promoters/directors/Mangers/ Key Managerial Personnel in drafting of notice and disclosure of material facts of any item of special business to be transacted. 

New Form No. 3CD - Important changes

The CBDT has notified new Form No. 3CD prescribing some new clauses and substituting some existing clauses  requiring the  tax auditors to furnish more and detailed information . The new Form 3CD requires reporting of all disallowable payments even if they are not debited to profit and loss account. The additional/amended reporting as prescribed in the new Form No. 3CD are as under:

(1)			Registration number in case of indirect tax liability [clause 4]:
			To  furnish the registration No(s). if Assessee is liable to pay indirect taxes (like excise duty, service tax, sales tax, customs duty, etc.) or any other identification number allotted .
(2)			Relevant clauses of section 44AB , under which audit has been conducted to be reported. [clause 8]
(3)			Address at which books of account are kept  to be reported. [clause 11(b)]
(4)			Nature of documents examined by the tax auditor,to be specified. [clause 11(c) ]
(5)			Change in method of accounting/stock valuation [clause 13 and  14]:
			The impact on financial statements to be reported for the changes in method of accounting and method of stock valuation.
(6)			Transfer of land/building for less than stamp duty value [clause 17]:
			The details of land or building transferred by assessee for less than stamp duty value (under section 43CA or under section 50C) to be reported .
(7)			To Report deduction under Sections 32AC/35AD/35CCC/35D[clause 19].
(8)			Disallowances even if they are not debited to profit and loss account [clause 21 ] to be reported for  the following disallowable payments:
		(i)			Disallowance for TDS default under Section 40(a)
		(ii)			Disallowance for cash payments above Rs. 20000 under section 40A(3)
		(iii)			Disallowance for provision for gratuity under section 40A(7)
		(iv)			Disallowance under Section 40A(9)
		(v)			Particulars of any liability of a contingent nature
		(vi)			Amount of deduction inadmissible under section 14A wrt expenses on exempt incomes.
		(vii)			Interest inadmissible under the proviso to section 36(1)(iii)

(9)		Deemed income under Section 32AC Investment Allowance [clause 24 ]:
		To report  deemed income which results from sale or transfer of new asset, (if asset was acquired and installed by the assessee for the purpose of claiming deductions under Section 32AC) within a period of five years from the date of its installation.
(10)		Receipt of unlisted shares [clause 28]:
		To report all unlisted shares received by assessee either for inadequate consideration or without consideration in view of section 56(2)(viia).
(11)		Issue of shares above fair market value [clause 29]:
		To report  all transactions of issue of shares where consideration received by assessee exceeds its fair market value in view of section 56(2)(viib).
(12)		Speculation business losses as referred to in Section 73 [clause 32(c)]
(13)		Losses incurred as referred to in Section 73A from business specified under section 35AD to be reported. [clause 32(d)]
(14)		To Reporting deductions claimed under Sections 10A/10AA [clause 33]:
(15)		Compliance with TCS (Tax collected at source) provisions in addition to TDS provisions. [clause 34(a)]
(16)		To report on the Timely Filing of TDS and TCS Returns. [clause 34(b)]
(17)		TAN no. of Assessee-in-default if  liable to pay interest, the interest payable and interest actually paid under Section 201(1A) or 206C(7) to be reported [clause 34(c) ].
(18)		Dividend Distribution Tax [clause 36 ]:
		To report the following reductions as referred to in Section 115-O(1A):

i)		Dividend received by domestic company from its subsidiary, and
ii)		The amount of dividend paid to any person for or on behalf of the New Pension System Trust referred to in Section 10(44).

(19)

Cost Audits Service Tax Audit Qualification [clause 37,38 and 39]:

(i)		Cost audit:  The attachment of copy of cost audit report along with Form has been substituted with reporting only the qualifications in cost audit report BUT even when audit cost was carried out voluntarily..
(ii)		Cost Audit under Central Excise Act : The attachment of copy of cost audit report along with Form has been substituted with reporting of qualifications in cost audit report .
(iii)		Special Audit under Service Tax(If any service-tax audit is carried out in relation to valuation of taxable services): To report any qualifications made in relation to valuation of taxable services.

(20)		Comparative Ratios [clause 40].:
		To report total turnover and ratios of preceding financial year as well in addition to  current year figures ,
(21)		Demand raised or refund issued under any other tax laws (other than Income Tax Act, 1961 and Wealth Tax Act, 1957): [clause 41] to be reported along with details of relevant proceedings. Contributed by CA Sarthak Ahuja