FINAL COURSE SUPPLEMENTARY STUDY PAPER ( PART I) ON CORPORATE AND ALLIED LAWS

Transcription

1 FINAL COURSE SUPPLEMENTARY STUDY PAPER ( PART I) ON CORPORATE AND ALLIED LAWS [A discussion on the various notifications significant circulars and clarifications issued from 1st November, 2015 to 31 st October, 2016] (Relevant for students appearing for May 2017 examinations and onwards) BOARD OF STUDIES THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA This Supplementary Study Paper (Part I) has been prepared by the faculty of the Board of Studies of the Institute of Chartered Accountants of India. Permission of the Council of the Institute is essential for reproduction of any portion of this paper. Views expressed herein are not necessarily the views of the Institute.

2 This Supplementary Study Paper has been prepared by the faculty of the Board of Studies of the Institute of Chartered Accountants of India with a view to assist the students in their education. While due care has been taken in preparing this Supplementary Study Material, if any errors or omissions are noticed, the same may be brought to the attention of the Director of Studies. The Council of the Institute is not responsible in any way for the correctness or otherwise of the amendments published herein. THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form, or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior permission, in writing, from the publisher. Website : Department/Committee : Board of Studies bosnoida@icai.org Price : ISBN No. : Published by : The Publication Department on behalf of The Institute of Chartered Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha Marg, New Delhi , India Printed by : Typeset and designed at Board of Studies. ii

3 A WORD ABOUT SUPPLEMENTARY The liberalisation and globalisation of our economic policies in tune with the global changes brought several reforms in the Corporate and Allied Laws of our country. A scheme of wellstructured Corporate and Allied Laws is sine qua non for the corporate growth. These laws are being amended and fine tuned from time to time in accordance with the changes that are taking place within the country as well as outside. This process will continue to be more dynamic in times to come, vibrant for corporate growth, infusing more capital into the country and at the same time protecting and safeguarding the interests of various stakeholders. At the Final Level, Paper 4 deals with the Corporate and Allied Laws consisting of two sections i.e. Section A relating to Company Law and Section B dealing with Allied Laws. Section A of the Paper covers the Companies Act, 2013 with specific reference to section 123 and onwards. The Companies Act, 2013 has come into effect on 30 th August, 2013 stating that different dates may be appointed for enforcement of different provisions of Companies Act, 2013, through various notification. As of now, different provisions of the Companies Act, 2013 have been notified with effect from different dates and also various legislative developments in the Act and Rules have been made by the Ministry for implementation and Administration of the Act. Whereas in order to meet with various economic challenges, many amendments have been made by the concerned authority or department in the various other corporates laws which falls within the purview of other Allied Laws covered under the Section B of the paper. For this paper since lots of amendments have taken place in last one year and to acquaint the students with these legislative amendments, the Board of Studies has prepared a Supplementary Study Paper (Part I) on Corporate and Allied Laws. This supplementary contains various legislative amendments, significant circulars and clarification issued by the Ministry of Corporate Affairs, the Securities Exchange Board of India, Reserve Bank of India, and the Ministry of Finance, issued from 1st November, 2015 to 31 st October, Besides, for easy and quick understanding of the students, this Supplementary also gives the reference of the Page numbers of the relevant provisions available in the exiting Study Material of January 2016 edition. This publication is very important to the students to update themselves with these relevant amendments pertaining to the Corporate and Allied Laws. The reference of relevant page numbers with the respective amendments will help the students to know where the changes are made so that students may bring into line the changes in the prevailing provisions. This Publication is relevant and applicable for students appearing in May 2017 examinations and onwards. iii

4 The Board of Studies has been instrumental in imparting theoretical education for the students of Chartered Accountancy Course. The distinctive characteristic of the course i.e. distance education, has emphasized the need for bridging the gap between the students and the Institute and for this purpose, the Board of Studies has prepared this supplementary study paper (Part I) at the final level, an educational input for the benefit of students. In case you need any further clarification/guidance with regard to this publication, please send your queries at Happy Reading and Best Wishes for the forthcoming examinations! iv

5 GUIDELINES TO READ SUPPLEMENTARY This supplementary is a compilation of various legislative amendments issued from 1 st November 2015 to 31 st October 2016 falling with in the ambit of Corporate and Allied Laws. The Legislative amendments have been presented in a lucid manner. Students are advised to read the supplementary along with the Study Material of January 2016 edition. Sections in the Supplementary have been incorporated in the same order and under same heading as given in the Study Material so as to enable the students to identify the additions/deletions/modifications in the Study Material. Reference of page numbers given in the supplementary will aid the students to trace the relevant sections in the study material. v

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7 CONTENTS SECTION A : COMPANY LAW Chapter 1: Declaration and Payment of Dividend Chapter 2: Accounts and Audit Chapter 3: Appointment and Qualification of Directors Chapter 4: Appointment and Remuneration of Managerial Personnel Chapter 5: Meetings of Board and its Powers Chapter 6: Inspection Inquiry and Investigation Chapter 7: Compromises, Arrangements and Amalgamations... Nil Chapter 8: Prevention of Oppression and Mismanagement Chapter 9: Revival and Rehabilitation of Sick Companies... Nil Chapter 10: Winding Up Chapter 11: Chapter 12: Chapter 13: Chapter 14: Producer Companies... Nil Companies Incorporated Outside India... Nil Offences and Penalties... Nil E-Governance... Nil Chapter 15: National Company Law Tribunal and Appellate Tribunal Chapter 16: Special Courts Chapter 17: Miscellaneous Provisions Chapter 18: Corporate Secretarial Practice-Drafting of Resolution, Minutes, Notices and Reports... Nil SECTION B : ALLIED LAWS Chapter 19: The Securities and Exchange Board of India Act, Chapter 20: The Securities Contracts (Regulation) Act, Nil vii

8 Chapter 21: The Foreign Exchange Management Act, Chapter 22: The Competition Act, Chapter 23: Overview of Banking Regulation Act, 1949, The Insurance Act, 1938, The Insurance Regulatory and Development Authority Act, 1999, The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, Chapter 24: Prevention of Money Laundering Act, Chapter 25: Interpretation of Statutes, Deeds & Documents... Nil viii

9 SECTION A: COMPANY LAW

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11 1 DECLARATION AND PAYMENT OF DIVIDEND Notification of Section 124 The Ministry of Corporate Affairs vide Notification S.O (E) dated 5 th September, 2016 appointed 7 th September, 2016 as the effective date on which the provisions of section 124 of the Companies Act, 2013 shall come into enforcement. Section 124 of the Companies Act, 2013 deals with the provisions related to management of the unpaid dividend account. Unpaid Dividend Account 124. (1) Declared dividend not paid or claimed to be transferred to the special account: Where a dividend has been declared by a company but has not been paid or claimed within thirty days from the date of the declaration to any shareholder entitled to the payment of the dividend, - the company shall, within seven days from the date of expiry of the said period of thirty days, transfer the total amount of dividend which remains unpaid or unclaimed to a special account to be opened by the company in that behalf in any scheduled bank to be called the Unpaid Dividend Account. (2) Preparing of statement of particulars of the unpaid dividend: The company shall, within a period of ninety days of making any transfer of an amount under sub-section (1) to the Unpaid Dividend Account, prepare a statement containing the names, their last known addresses and the unpaid dividend to be paid to each person and place it on the web-site of the company, if any, and also on any other web-site approved by the Central Government for this purpose, in such form, manner and other particulars as may be prescribed. (3) Default in transferring of amount: If any default is made in transferring the total amount referred to in sub-section (1) or any part thereof to the Unpaid Dividend Account of the company, - it shall pay, from the date of such default, interest on so much of the amount as has not been transferred to the said account, at the rate of twelve per cent per annum and the interest

12 accruing on such amount shall ensure to the benefit of the members of the company in proportion to the amount remaining unpaid to them. (4) Apply for payment of claimed amount: Any person claiming to be entitled to any money transferred under sub-section (1) to the Unpaid Dividend Account of the company may apply to the company for payment of the money claimed. (5) Transfer of unclaimed amount to Investor Education and Protection Fund (IEPF): Any money transferred to the Unpaid Dividend Account of a company in pursuance of this section which remains unpaid or unclaimed for a period of seven years from the date of such transfer shall be transferred by the company along with interest accrued, if any, thereon to the Fund established under section 125(1) and the company shall send a statement in the prescribed form of the details of such transfer to the authority which administers the said Fund and that authority shall issue a receipt to the company as evidence of such transfer. (6) Transfer of shares to IEPF: All shares in respect of which dividend has not been paid or claimed for seven consecutive years or more shall be transferred by the company in the name of Investor Education and Protection Fund along with a statement containing such details as may be prescribed: Right of owner of shares transferred to IEPF to claim from IEPF: Provided that any claimant of shares transferred above shall be entitled to claim the transfer of shares from Investor Education and Protection Fund in accordance with such procedure and on submission of such documents as may be prescribed. Explanation For the removal of doubts, it is hereby clarified that in case any dividend is paid or claimed for any year during the said period of seven consecutive years, the share shall not be transferred to Investor Education and Protection Fund. (7) In case of contravention: If a company fails to comply with any of the requirements of this section, the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees. Earlier law- Corresponding section 205A and 205B of the Companies Act, 1956 were in enforcement as this section 124 of the Companies Act, 2013 was not notified. Reference of Page number of earlier existing section in the study material- 1.6 Notification of Section 125 The Ministry of Corporate Affairs vide Notification S.O. 125(E) dated 13 th January, 2016 appointed 13 th January, 2016 as the date on which the provisions of section 125(5), 125(6) 2

13 [except with respect to the manner of administration of the Investor Education and Protection Fund] and 125(7) of the Companies Act, 2013 have come into force. Further, Ministry of Corporate Affairs vide Notification S.O (E) dated 5 th September, 2016 appointed 7 th September, 2016 as the date on which the remaining sub-sections of section 125 of the Companies Act, 2013 have been notified and bought into force. Section 125 of the Act deals with the Investor Education and Protection Fund (IEPF). This fund shall be utilized for refund of unclaimed and unpaid amounts, promotion of investors' awareness and protection of the interests of investors etc. in accordance with provisions of section 125 of the Companies Act, Provisions given are as follows: 125. (1) Establishment of Fund: The Central Government shall establish a Fund to be called the Investor Education and Protection Fund (herein referred to as the Fund). (2) Credit of amount to the fund: There shall be credited to the Fund the following amounts (a) Amount given by the Central Government- the amount given by the Central Government by way of grants after due appropriation made by Parliament by law in this behalf for being utilised for the purposes of the Fund; (b) Donations by the Central Government- donations given to the Fund by the Central Government, State Governments, companies or any other institution for the purposes of the Fund; (c) Amount of Unpaid Dividend Account- the amount in the Unpaid Dividend Account (UDA) of companies transferred to the Fund under section 124(5); (d) Amount of the general revenue account of the Central Government- the amount in the general revenue account of the Central Government which had been transferred to that account under section 205A(5) of the Companies Act, 1956 (1 of 1956), as it stood immediately before the commencement of the Companies (Amendment) Act, 1999 (21 of 1999), and remaining unpaid or unclaimed on the commencement of this Act; (e) Amount in IEPF- the amount lying in the Investor Education and Protection Fund under section 205C of the Companies Act, 1956; (f) Income from investments- the interest or other income received out of investments made from the Fund; (g) Amount received through disgorgement or disposal of securities- Amount received through disgorgement or disposal of securities under section 38(3) shall be credited to the IEPF provided under section 38(4); (h) Application money- the application money received by companies for allotment of any securities and due for refund; (i) Matured deposits- matured deposits with companies other than banking companies; 3

14 (j) (k) (l) Matured debentures- matured debentures with companies; Interest- interest accrued on the amounts referred to in clauses (h) to (j); Amount received from sale proceeds- sale proceeds of fractional shares arising out of issuance of bonus shares, merger and amalgamation for seven or more years; (m) Redemption amount- redemption amount of preference shares remaining unpaid or unclaimed for seven or more years; and (n) Other amount- such other amount as prescribed the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, Exception- Provided that no such amount referred to in clauses (h) to (j) shall form part of the Fund unless such amount has remained unclaimed and unpaid for a period of seven years from the date it became due for payment. (3) Utilization of the Fund: The Fund shall be utilised for (a) (b) (c) (d) (e) the refund in respect of unclaimed dividends, matured deposits, matured debentures, the application money due for refund and interest thereon; promotion of investors education, awareness and protection; distribution of any disgorged amount among eligible and identifiable applicants for shares or debentures, shareholders, debenture-holders or depositors who have suffered losses due to wrong actions by any person, in accordance with the orders made by the Court which had ordered disgorgement; reimbursement of legal expenses incurred in pursuing class action suits under sections 37 and 245 by members, debenture-holders or depositors as may be sanctioned by the Tribunal; and any other purpose incidental thereto, in accordance with such rules as prescribed under the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, Provided that the person whose amounts referred to in clauses (a) to (d) of sub-section (2) of section 205C transferred to Investor Education and Protection Fund, after the expiry of the period of seven years as per provisions of the Companies Act, 1956 (1 of 1956), shall be entitled to get refund out of the fund in respect of such claims in accordance with rules made under this section. Explanation. The disgorged amount refers to the amount received through disgorgement or disposal of securities. (4) Application to the authority for payment: Any person claiming to be entitled to the amount referred in sub-section (2) may apply to the authority constituted under sub-section (5) for the payment of the money claimed. 4

15 (5) Constitution of authority for administration of fund: The Central Government shall constitute, by notification, an authority for administration of the Fund consisting of a chairperson and such other members, not exceeding seven and a chief executive officer, as the Central Government may appoint. (6) Handling of the Fund: The manner of administration of the Fund, appointment of chairperson, members and chief executive officer, holding of meetings of the authority shall be in accordance with such rules as may be prescribed under the Investor Education and Protection Fund Authority (Appointment of Chairperson and Members, holding of meetings and provision for offices and officers) Rules, (7) Providing of resources from central government to administer the fund: The Central Government may provide to the authority such offices, officers, employees and other resources in accordance with the Investor Education and Protection Fund Authority (Appointment of Chairperson and Members, holding of meetings and provision for offices and officers) Rules, (8) Authority to work in consultation with CAG of India: The authority shall administer the Fund and maintain separate accounts and other relevant records in relation to the Fund in such form as may be prescribed after consultation with the Comptroller and Auditor-General of India. (9) Right of the authority to spend the money: It shall be competent for the authority constituted under sub-section (5) to spend money out of the Fund for carrying out the objects specified in sub-section (3). (10) Audit of the fund: The accounts of the Fund shall be audited by the Comptroller and Auditor- General of India at such intervals as may be specified by him and such audited accounts together with the audit report thereon shall be forwarded annually by the authority to the Central Government. (11) Preparation of the annual report by authority: The authority shall prepare in such form and at such time for each financial year as may be prescribed its annual report giving a full account of its activities during the financial year and forward a copy thereof to the Central Government and the Central Government shall cause the annual report and the audit report given by the Comptroller and Auditor-General of India to be laid before each House of Parliament. Earlier law- Corresponding section 205C of the Companies Act, 1956 was relevant and applicable as this section 125 of the Companies Act, 2013 was not notified. Reference of Page number of earlier existing section in the study material

16 2 ACCOUNTS AND AUDIT Amendment in Rule 6 vide the Companies (Accounts) Amendment Rules, 2016 read with section 129. The Ministry of Corporate Affairs vide Notification G.S.R. 742(E) dated 27 th July, 2016 amended the Companies (Accounts) Rules, 2014 by enforcement of the Companies (Accounts) Amendment Rules, Amendment has been made in Rule 6 which deals with the manner of consolidation of accounts. According to the amendment the second proviso of the principal rule have been substituted with the following- Provided further that nothing in this rule shall apply in respect of preparation of consolidated financial statements by a company if it meets the following conditions:- (i) it is a wholly-owned subsidiary, or is a partially-owned subsidiary of another company and all its other members, including those not otherwise entitled to vote, having been intimated in writing and for which the proof of delivery of such intimation is available with the company, do not object to the company not presenting consolidated financial statements; (ii) it is a company whose securities are not listed or are not in the process of listing on any stock exchange, whether in India or outside India; and (iii) its ultimate or any intermediate holding company files consolidated financial statements with the Registrar which are in compliance with the applicable Accounting Standards. Earlier Law- In rule 6, the second proviso was as follows- "Provided further that nothing in this rule shall apply in respect of preparation of consolidated financial statement by an intermediate wholly-owned subsidiary, other than a wholly-owned subsidiary whose immediate parent is a company incorporated outside India: Provided also that nothing contained in this rule shall. subject to any other law or regulation, apply for the financial year commencing from the 1st day of April, 2014 and ending on the 31st March, 2015, in case of a company which does not have a subsidiary or subsidiaries but has one or more associate companies or Joint ventures or both, for the consolidation of financial statement in respect of associate companies or joint ventures or both, as the case may be." Reference of Page number of the relevant Rule in the study material

17 Notification of Section 130 & 131 The Ministry of Corporate Affairs vide Notification S.O (E) dated 1 st June 2016 notified sections 130 and 131 of the Companies Act, 2013 with effect from the date of publication of the notification. (i) Re-opening of Accounts on Court s or Tribunal s Orders 130. (1) Apply to court for re-opening of accounts- 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- (a) (b) (c) (d) 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 (i) the relevant earlier accounts were prepared in a fraudulent manner; or (ii) the affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of financial statements: Provided that the court or the Tribunal, as the case may be, shall give notice to the Central Government, the Income-tax authorities, the Securities and Exchange Board or any other statutory regulatory body or authority concerned and shall take into consideration the representations, if any, made by that Government or the authorities, Securities and Exchange Board or the body or authority concerned before passing any order under this section. (2) Revised accounts shall be final: Without prejudice to the provisions contained in this Act the accounts so revised or re-cast under sub-section (1) shall be final. Earlier law- This section was not notified. It s a new section in the Companies Act, (ii) Voluntary Revision of Financial Statements or Board s Report 131. (1) Preparation of revised financial statement or revised report: If it appears to the directors of a company that (a) (b) the financial statement of the company; or the report of the Board, do not comply with the provisions of section 129 or section 134, they may prepare revised financial statement or a revised report in respect of any of the three preceding financial years after obtaining approval of the Tribunal on an application made by the company in such form 7

18 and manner as may be prescribed and a copy of the order passed by the Tribunal shall be filed with the Registrar: Tribunal to serve the notice: Provided that the Tribunal shall give notice to the Central Government and the Income tax authorities and shall take into consideration the representations, if any, made by that Government or the authorities before passing any order under this section: Provided further that such revised financial statement or report shall not be prepared or filed more than once in a financial year: Reason for revision to be disclosed: Provided also that 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. (2) Limits of revisions: Where copies of the previous financial statement or report have been sent out to members or delivered to the Registrar or laid before the company in general meeting, the revisions must be confined to (a) the correction in respect of which the previous financial statement or report do not comply with the provisions of section 129 or section 134; and (b) the making of any necessary consequential alternation. (3) Framing of rules by the Central Government in relation to revised financial statement or director's report: The Central Government may make rules as to the application of the provisions of this Act in relation to revised financial statement or a revised director's report and such rules may, in particular (a) (b) (c) make different provisions according to which the previous financial statement or report are replaced or are supplemented by a document indicating the corrections to be made; make provisions with respect to the functions of the company's auditor in relation to the revised financial statement or report; require the directors to take such steps as may be prescribed Earlier law- This section was not notified. It s a new section in the Companies Act, The Companies (Removal of Difficulties) Second Order, 20I6 Section 133 of the Companies Act, 2013 deals with the power of the Central Government to prescribe the accounting standards. Vide 2nd Order S. O. 1227(E), dated 29th March 2016 in section 133 of the Companies Act, 20l3 the following proviso has been inserted to the section- 8

19 Provided that until the National Financial Reporting Authority is constituted under section 132 of the Companies Act, 2013 (18 of 2013), the Central Government may prescribe the standards of accounting or any addendum thereto, as recommended by the Institute of Chartered Accountants of India, constituted under section 3 of the Chartered Accountants Act, 1949 (38 of 1949), in consultation with and after examination of the recommendations made by National Advisory Committee on Accounting Standards Constituted under section 210A of the Companies Act, This order shall be deemed to have come into force from the 1 st April, Earlier law- No proviso to section 133 in the Principal Act. This is newly inserted proviso. Reference of Page number of relevant section in the study material Amendment in Rule 8 vide the Companies (Accounts) Amendment Rules, 2016 read with section 134. The Ministry of Corporate Affairs vide Notification G.S.R. 742(E) dated 27 th July, 2016 amended the Companies (Accounts) Rules, 2014 by enforcement of the Companies (Accounts) Amendment Rules, Amendment has been made in Rule 8 of the principal rules which deals with the matters to be included in Board s Report. In rule 8 of the principal rules, in sub-rule (1), for the words and the report shall contain a separate section wherein a report on the performance and financial position of each of the subsidiaries, associates and joint venture companies included in the consolidated financial statement is presented, the words and shall report on the highlights of performance of subsidiaries, associates and joint venture companies and their contribution to the overall performance of the company during the period under report shall be substituted. Earlier Law- In Rule 8 of the principal rules, sub-rule (1) contains the words that the report shall contain a separate section wherein a report on the performance and financial position of each of the subsidiaries, associates and joint venture companies included in the consolidated financial statement is presented. Reference of Page number of relevant Rule in the study material The Companies (Corporate Social Responsibility Policy) Amendments Rules, 2016 read with section 135. Amendment in CSR activities The Central Government hereby further amends the Companies (Corporate Social Responsibility Policy) Rules, 2014 through the enforcement of the Companies (Corporate 9

20 Social Responsibility Policy) Amendments Rules, 2016 vide notification G.S.R. 540(E) dated 23rd May 2016, issued by the Ministry of Corporate Affairs. In the Companies (Corporate Social Responsibility Policy) Rules, 2014 in the Principal rules, in rule 4, for sub-rule (2), the following sub-rule shall be substituted, namely: (2) The Board of a company may decide to undertake its CSR activities approved by the CSR Committee, through- (a) (b) a company established under section 8 of the Act or a registered trust or a registered society, established by the company, either singly or along with any other company, or a company established under section 8 of the Act or a registered trust or a registered society, established by the Central Government or State Government or any entity established under an Act of Parliament or a State legislature : Provided that- if, the Board of a company decides to undertake its CSR activities through a company established under section 8 of the Act or a registered trust or a registered society, other than those specified in this sub-rule, such company or trust or society shall have an established track record of three years in undertaking similar programs or projects; and the company has specified the projects or programs to be undertaken, the modalities of utilisation of funds of such projects and programs and the monitoring and reporting mechanism. Earlier Law Rule 4(2) was as follows: The Board of a company may decide to undertake its CSR activities approved by the CSR Committee through a registered trust or a registered society or a company established under section 8 of the Act by the company, either singly or along with its holding or subsidiary or associate company, or along with any other company or holding or subsidiary or associate company of such other company or otherwise. Provide that if such trust, society or company not established by the company, either singly or along with its holding or subsidiary or associate company, or along with any other company or holding or subsidiary or associate company of such other company shall have an established track record of three years in undertaking similar programmes or projects; The company has specified the project or programs to be undertaken through these entities, the modalities of utilization of funds on such projects and programs and the monitoring and reporting mechanism. Reference of Page number of the relevant Rule in the study material

21 The Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Amendment Rules, 2016 read with section 137 Vide Notification G.S.R. 397(E) dated 4th April, 2016 the Ministry of Corporate Affairs further amends the Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Rules, 2015, through the notification of the Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Amendment Rules, 2016 with effect from 4 th April, In the Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Rules, 2015, in rule 3, for the proviso, the following proviso shall be substituted, namely:- Provided that the companies in banking, insurance, power sector, non-banking financial companies and housing finance companies need not file financial statements under this rule. Earlier Law- As per Rule 3 of the Companies (Filing of Documents and forms in Extensible Business Reporting Language) Rules, 2015 notified vide notification dated 9th September, This notification notified following class of companies which are required to file their financial statement and other documents under section 137 of the Companies Act, 2013 with the registrar using the XBRL taxonomy Following proviso were substituted: Provided that the companies in Banking, Insurance, Power Sector and Non-Banking Financial companies are exempted from XBRL filing." Reference of Page number of the relevant Rule in the study material Amendment in Rule 13 vide the Companies (Accounts) Amendment Rules, 2016 read with Section 138. Ministry of Corporate Affairs vide Notification G.S.R. 742(E) dated 27 th July, 2016 amended the Companies (Accounts) Rules, 2014 by enforcement of the Companies (Accounts) Amendment Rules, Amendment has been made in Rule 13 of the principal rules which deals with the companies which are required to appoint internal auditor. In rule 13 of the principal rules, in sub-rule (1),- (a) in the opening portion, the words or a firm of internal auditors, the words which may be either an individual or a partnership firm or a body corporate shall be substituted; (b) In the Explanation, for item (ii) containing the term "Chartered Accountant" shall mean a Chartered Accountant whether engaged in practice or not.' 11

22 the following item shall be substituted, namely: (ii) the term Chartered Accountant or Cost Accountant shall mean a Chartered Accountant or a Cost Accountant, as the case may be, whether engaged in practice or not. Earlier Law- Rule 13 of the principal rules, sub-rule (1) contains in the opening portion, the words or a firm of internal auditors. In the Explanation, for item; it contains (ii) the term "Chartered Accountant" shall mean a Chartered Accountant whether engaged in practice or not. Reference of Page number of the relevant Rule in the study material The Companies (Removal of Difficulties) third Order Dated 30th June, 2016 Section 139 of the Companies Act, 2013 deals with the appointment of the auditors. Whereas sub-section (2) of Section 139 states the law related to the term of auditor. Vide the Companies (Removal of Difficulties) third Order in section 139, in sub-section (2), for the third proviso, the following proviso shall be substituted, namely:- "Provided also that every company, existing on or before the commencement of this Act which is required to comply with the provisions of this sub-section, shall comply with requirements of this sub-section within a period which shall not be later than the date of the first annual general meeting of the company held, within the period specified under sub-section (1) of section 96, after three years from the date of commencement of this Act." This order shall be deemed to have come into force 1 st April, Earlier Law- In section 139, in sub-section (2), following third proviso have been substituted- "Provided also that every company, existing on or before the commencement of this Act which is required to comply with provisions of this sub-section, shall comply with the requirements of this sub-section within three years from the date of commencement of this Act:" Reference of Page number of relevant section in the study material Notification of Second proviso to section 140 (4) and section 140 (5) Section 140 of the Companies Act, 2013 deals with the Removal, Resignation of Auditor and Giving of Special Notice. This section was notified on 1st April, 2014 except the second proviso to sub-section (4) and sub-section (5) of the said section. 12

23 Ministry of Corporate Affairs vide Notification S.O. 1934(E) notifies Second proviso to subsection (4) and sub-section (5) of section 140 with effect from 1st June, Following are the notified sections- (1) Second Proviso to section 140 (4) On satisfaction of Tribunal that the right deliberated to the auditor are being abused: Provided further that if the Tribunal is satisfied on an application either of the company or of any other aggrieved person that the rights conferred by this sub-section are being abused by the auditor, then, the copy of the representation may not be sent and the representation need not be read out at the meeting. (2) Sub-section (5) to section 140 On satisfaction of Tribunal that the auditor of a company has acted in a fraudulent manner etc: Without prejudice to any action under the provisions of this Act or any other law for the time being in force, the Tribunal either suo motu or on an application made to it by the Central Government or by any person concerned, if it is satisfied that the auditor of a company has, whether directly or indirectly, acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its directors or officers, it may, by order, direct the company to change its auditors: Requirement for change of auditor: Provided that if the application is made by the Central Government and the Tribunal is satisfied that any change of the auditor is required, it shall within fifteen days of receipt of such application, make an order that he shall not function as an auditor and the Central Government may appoint another auditor in his place: Ineligibility of auditor to be appointed: Provided further that an auditor, whether individual or firm, against whom final order has been passed by the Tribunal under this section shall not be eligible to be appointed as an auditor of any company for a period of five years from the date of passing of the order and the auditor shall also be liable for action under section 447. Explanation I. It is hereby clarified that the case of a firm, the liability shall be of the firm and that of every partner or partners who acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its director or officers. Explanation II. For the purposes of this Chapter the word auditor includes a firm of auditors. Earlier Law- Second proviso to section 140 (4) and section 140 (5) of the Companies Act, 2013 were not notified. Reference of Page number of relevant section in the study material

24 The Companies (Removal of Difficulties) Order, 2016 Vide Order S.O.1226 (E) dated 29 th March, 2016, Central Government hereby makes the following order to remove the difficulties regarding compliance with the provisions of subsection (11) of section 143 in so far as they relate to consultation with National Financial Reporting Authority till the period it is duly constituted under section 132 of the Companies Act, The provisions contained in section 143 of the Companies Act, 2013 provides for powers and duties of auditors and auditing standards that has come into force on the 1st April, Sub-section (11) of section 143 of the said Act provides that the Central Government may, in consultation with the National Financial Reporting Authority, by general or special order, direct, in respect of such class or description of companies, as may be specified in the order, that the auditor s report shall also include a statement on such matters as may be specified therein; In the Companies Act, 2013, in section 143, in sub-section (11), the following proviso shall be inserted to remove the said difficulties, namely "Provided that until the National Financial Reporting Authority is constituted under section 132, the Central Government may hold consultation required under this sub- section with the Committee chaired by an officer of the rank of Joint Secretary or equivalent in the Ministry of corporate Affairs and the committee shall have the representatives from the Institute of Chartered Accountants of India and Industry Chambers and also special invitees from the National Advisory Committee on Accounting Standards and the office of the Comptroller and Auditor-General". This order shall be deemed to have come into force from the 10th April, Earlier law- No proviso to section 143(11) in the Principal Act. This is newly inserted proviso. Reference of Page number of relevant section in the study material Notification of Section 143(12) amended vide the Companies (Amendment) Act, 2015 The Ministry of Corporate Affairs vide Notification S.O.3388 (E) dated 14th December 2015 through the Companies (Amendment) Act, 2015 amended Sub-section 12 of section 143, and was made effective from 14th December Sub-section 12 shall be substituted with the following: "(12) Notwithstanding anything contained in this section, if an auditor of a company in the course of the performance of his duties as auditor, has reason to believe that an offence of 14

25 fraud involving such amount or amounts as may be prescribed, is being or has been committed in the company by its officers or employees, the auditor shall report the matter to the Central Government within such time and in such manner as may be prescribed: Provided that in case of a fraud involving lesser than the specified amount, the auditor shall report the matter to the audit committee constituted under section 177 or to the Board in other cases within such time and in such manner as may be prescribed: Provided further that the companies, whose auditors have reported frauds under this subsection to the audit committee or the Board but not reported to the Central Government, shall disclose the details about such frauds in the Board's report in such manner as may be prescribed." Earlier Law contained under section 143(12) stated -"Notwithstanding anything contained in this section, if an auditor of a company, in the course of the performance of his duties as auditor, has reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees of the company, he shall immediately report the matter to the Central Government within such time and in such manner as may be prescribed." Reference of Page number of relevant section in the study material Amendment in Rule 13 vide the Companies (Audit and Auditors) Amendment Rules, 2015 Vide Notification G.S.R. 972(E) Dated 14 th December 2015, the Ministry of Corporate Affairs further amended the Companies (Audit and Auditors) Rules, 2014 through the enforcement of the Companies (Audit and Auditors) Amendment Rules, 2015 from the date of its publication in the Official Gazette. Through this amendment Rules, for Rule 13, the following rule shall be substituted- 13. Reporting of Frauds by Auditor and Other Matters: (1) If an auditor of a company, in the course of the performance of his duties as statutory auditor, has reason to believe that an offence of fraud, which involves or is expected to involve individually an amount of rupees one crore or above, is being or has been committed against the company by its officers or employees, the auditor shall report the matter to the Central Government. (2) The auditor shall report the matter to the Central Government as under:- (a) the auditor shall report the matter to the Board or the Audit Committee, as the case may be, immediately but not later than two days of his knowledge of the fraud, seeking their reply or observations within forty-five days; 15

26 (b) on receipt of such reply or observations, the auditor shall forward his report and the reply or observations of the Board or the Audit Committee along with his comments (on such reply or observations of the Board or the Audit Committee) to the Central Government within fifteen days from the date of receipt of such reply or observations; (c) in case the auditor fails to get any reply or observations from the Board or the Audit Committee within the stipulated period of forty-five days, he shall forward his report to the Central Government along with a note containing the details of his report that was earlier forwarded to the Board or the Audit Committee for which he has not received any reply or observations; (d) the report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealed cover by Registered Post with Acknowledgement Due or by Speed Post followed by an in confirmation of the same; (e) the report shall be on the letter-head of the auditor containing postal address, address and contact telephone number or mobile number and be signed by the auditor with his seal and shall indicate his Membership Number; and (f) The report shall be in the form of a statement as specified in Form ADT-4. (3) In case of a fraud involving lesser than the amount specified in sub-rule (1), the auditor shall report the matter to Audit Committee constituted under section 177 or to the Board immediately but not later than two days of his knowledge of the fraud and he shall report the matter specifying the following:- (a) Nature of Fraud with description; (b) Approximate amount involved; and (c) Parties involved. (4) The following details of each of the fraud reported to the Audit Committee or the Board under sub-rule (3) during the year shall be disclosed in the Board s Report:- (a) Nature of Fraud with description; (b) Approximate Amount involved; (c) Parties involved, if remedial action not taken; and (d) Remedial actions taken. (5) The provision of this rule shall also apply, mutatis mutandis, to a Cost Auditor and a Secretarial Auditor during the performance of his duties under section 148 and section 204 respectively. ] 16

27 Earlier Law-Rule 13 of the principal rules states - Reporting of frauds by auditor. (1) For the purpose of sub-section (12) of section 143, in case the auditor has sufficient reason to believe that an offence involving fraud, is being or has been committed against the company by officers or employees of the company, he shall report the matter to the Central Government immediately but not later than sixty days of his knowledge and after following the procedure indicated herein below: (i) (ii) auditor shall forward his report to the Board or the Audit Committee, as the case may be, immediately after he comes to knowledge of the fraud, seeking their reply or observations within forty-five days; on receipt of such reply or observations the auditor shall forward his report and the reply or observations of the Board or the Audit Committee alongwith his comments (on such reply or observations of the Board or the Audit Committee) to the Central Government within fifteen days of receipt of such reply or observations; (iii) in case the auditor fails to get any reply or observations from the Board or the Audit Committee within the stipulated period of forty-five days, he shall forward his report to the Central Government alongwith a note containing the details of his report that was earlier forwarded to the Board or the Audit Committee for which he failed to receive any reply or observations within the stipulated time. (2) The report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealed cover by Registered Post with Acknowledgement Due or by Speed post followed by an in confirmation of the same. (3) The report shall be on the letter-head of the auditor containing postal address, address and contact number and be signed by the auditor with his seal and shall indicate his Membership Number. (4) The report shall be in the form of a statement as specified in Form ADT-4. (5) The provision of this rule shall also apply, mutatis mutandis, to a cost auditor and a secretarial auditor during the performance of his duties under section 148 and section 204 respectively. Reference of Page number of relevant Rule in the study material The Companies (Auditor s Report) Order, 2016 Vide Order S.O.1228 (E) dated 29 th March, 2016, the Ministry of Corporate Affairs issued the Companies (Auditor s Report) Order, 2016 in consultation with the committee constituted under proviso to section 143(11) of the Companies Act, This order shall in addition, contains the matters specified in paragraphs 3 and 4 of the Companies (Auditor s Report) Order, It may be applicable on every report made by the auditor under section 143 of 17

28 the Companies Act, 2013 on the accounts of every company audited by him, to which this order applies, for the financial years commencing on or after 1 st April, Earlier Law- This order is in supersession of the Companies (Auditors s Report) Order, 2015 published vide Notification no. S.O.990 (E) dated 10 th April, Reference of Page number of relevant order in the study material

29 3 APPOINTMENT AND QUALIFICATIONS OF DIRECTORS Notification of Section 169(4) Section 169 of the Companies Act, 2013 deals with the removal of Directors. This section was notified on 1st April, 2014 except sub-section (4). The Ministry of Corporate Affairs vide Notification S.O. 1934(E) notifies sub-section (4) to section 169 with effect from 1st June, Notified Section 169(4) is as follows: (4) On serving of notice of a resolution to remove director: Where notice has been given of a resolution to remove a director under this section and the director concerned makes with respect thereto representation in writing to the company and requests its notification to members of the company, the company shall, if the time permits it to do so, (a) in any notice of the resolution given to members of the company, state the fact of the representation having been made; and (b) send a copy of the representation to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representation by the company), and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company s default, the director may without prejudice to his right to be heard orally require that the representation shall be read out at the meeting: Provided that copy of the representation need not be sent out and the representation need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the Tribunal is satisfied that the rights conferred by this subsection are being abused to secure needless publicity for defamatory matter; and the Tribunal may order the company s costs on the application to be paid in whole or in part by the director notwithstanding that he is not a party to it. Earlier Law-Section 169(4) was not notified. Reference of Page number of relevant section in the study material