COMPANIES ACT 2013: CHECKLIST

The Companies Act 2013 comes into force from 1-April-2014 for the Indian corporate. There are sea changes brought in this Act from the earlier one. Let's have a quick browse on the checklist:

WHAT COMPANIES WILL HAVE TO DO?

IMMEDIATELY

• Devise and implement policies on corporate social responsibility and vigil mechanism (if any one of the criteria satisfied ~ networth of Rs.500 crore or more, turnover of Rs. 1,000 crore or more, a net profit of Rs. 5 crore or more during any financial year)
  
• Finalise a new code for independent directors and identify and notify the related parties to their respective accounts departments
  
• Print new stationery, bills, etc, with name, address of the registered office, Company Identification No. (CIN), telephone, fax, email and website
  
• File returns with the Registrar of Companies on changes in top 10 shareholders
  
• Get certificate of independence from directors
  
• Maintain register of key management personnel (KMP)

WITHIN THREE MONTHS

• File returns on public deposits

WITHIN ONE YEAR

• Reconstitute boards with at least one woman director and two independent directors
  
  

CSR - Mandate for India Inc!

Niall Fitzerald, Former CEO, Unilever once said that “Corporate Social Responsibility is a hard-edged business decision. Not because it is a nice thing to do or because people are forcing us to do it because it is good for our business.

1. The Companies Act 2013 requires that every company (private/ public unlisted / listed) with Networth of ≥ INR 500 crore (5 billion) or Turnover of ≥ INR 1,000 crore (10 billion) or Net profit of ≥ INR 5 crore (50 million) during the financial year will constitute a CSR Board committee (CSRC).
   
2. The board will ensure that company spends, in every financial year, at least 2% of its average net profits during the immediately preceding 3 years, in pursuance of CSR policy. The CSR committee will consists of 3 or more directors with atleast 1 independent director. The Board’s report should disclose the composition of CSRC.
   
3. The board will approve the CSR policy and disclose its contents in the board report and place it on the company’s website.
   
4. If the company fails to spend the CSR amount, the Board will, in its report specify the reasons for not spending the amount.
   
5. The Ministry of Corporate Affairs (MCA) has issued “National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business,” for voluntary adoption by companies. In addition, the SEBI has mandated that the top 100 listed entities, based on their market capitalization at the BSE and NSE, should include business responsibility reports as part of their Annual Reports.
   
6. Schedule VII of the Companies Act, 2013 sets out the activities, which may be included by companies in their CSR policies. They relate to:
1. eradicating extreme hunger and poverty
2. promotion of education
3. promoting gender equality and empowering women
4. reducing child mortality and improving maternal health
5. combating HIV, AIDs, malaria and other diseases
6. ensuring environmental sustainability
7. employment enhancing vocational skills
8. social business projects
9. contribution to certain funds such as the Prime Minister’s National Relief Fund and
10. other matters that may be prescribed.

The Impact of the above provisions on India Inc:

• There is no penal provision if a company fails to spend amount on CSR activities. The board will need to explain reasons for non-compliance in its report. The law always needs to be looked at from a “Fish-Eye Lens” perspective (to look everything in tandem rather than in silos). Section 134 (3) (o) requires that the Director’s Report laid before the Company general meeting shall include a statement giving details about the policy developed and implemented by the company on CSR initiatives taken during the year. Further, Section 134 (8) states that if a company contravenes the above provision, the company shall be punishable with a fine of ≥ INR 50,000 but may extend to INR 25,00,000 and every officer of the company who is in default shall be punishable with an imprisonment for a term which may extend to 3 years or a fine which shall be ≥ INR 50,000 but may extend to INR 5,00,000; or both.
  
• Due to determination of average profit as per section 198, actual expenditure on CSR activities for a company may be higher/ lower than 2% of its average profits for the last 3 years determined in accordance with the P&L.
  
• CSR requirements depends on net worth, turnover or net profit criterion, irrespective of whether the company is a public or private company. Every company covered by CSR needs to constitute a CSR committee with at least one independent director. This implies that even a private company will need to have an independent director if it is covered under CSR requirements.
  
• It is not absolutely clear whether a company will need to create provisions in the financial statements towards unspent if it fails to spend 2% of the amount of CSR activities in a particular year. The resolution of this issue may depend of legal/ other consequences, which may follow, if a company fails to spend the requisite amount in a particular year.
  
• As per the news report, when Sachin Pilot, the Corporate Affairs Minister, was asked whether the companies would get any tax benefits from CSR expenditure, he indicated that CSR expenditure is 2% of Profit Before Taxes (PBT) and therefore a kind of benefit is already available by way of deduction from taxable income. However, he mentioned that he will speak to Finance Minister and see what can be done.
  
• Clarification from Central Board of Direct Taxes (CBDT) is awaited to clear the ambiguity surrounding the deductibility of the CSR expense.

I’d like to sign off this post with a quote I read sometime back “When the wind blows there are those that build walls and then there are those that build windmills.”

Social good is a way of conducting business..

Companies Bill 2012 made easy ~ Better Corporate Governance, Stringent Disclosure Norms, CSR and more..

ANALYSIS OF THE NEW COMPANIES BILL 2012 

RELIANCE INDUSTRIES LTD

Posted by ~ Er Tejas Somaiya

Prelude

The Companies Bill 2011 was laid before the Parliament in December 2011 and was referred to Parliament Standing Committee on Finance. The Standing Committee submitted its report in June 2012 and based on Standing Committee's report, the Companies Bill 2011 was amended and was introduced as the new Companies Bill, 2012. The Bill was passed by the Lower House of Parliament on 18th December 2012. The Bill is pending the Upper House of Parliament-the Rajya Sabha and therefore, may undergo further changes.

The Bill is divided into 29 chapters and contains 470 clauses as against 658 sections in the existing Companies Act, 1956.

Corporate Governance: Concept of Independent Directors ("ID") has been introduced for the first time in Company Law. Some of the important points relating to IDs are mentioned below:

• Maximum number of directors has been increased from 12 to 15 directors. Further, no Central Government's permission in required to increase the maximum number of directors beyond 15. RIL's board presently comprises of 12 members with 7 Independent Directors. Thus, one of the clause (of the New Companies Bill) which mandates at least 1/3rd of total number of directors as IDs is already satisfied even if the number is increased to 15 members.
• Appointment of at least one woman director on the board has been made mandatory (for prescribed class or classes of companies). Presently, there is No Woman Director in RIL and hence, it is entitled a transition period of one (1) year for the compliance of this provision.
• Every company shall have at least one director resident in India for at least 182 days in previous calender year, is made mandatory for all companies. At present, all directors can be foreigners not residing in India.
• ID cannot be granted any stock options in companies and this appears to be in direct conflict with Clause 49 read with the applicable SEBI guidelines as per which, IDs may be granted stock options. Stock Options, granted to directors (Executive Directors), shall be included in the remuneration.
• A person cannot be director in more than 20 companies as against 15 companies in the existing Companies Act, 1956 and out of these 20 he cannot be an ID in more than 10 public companies.

Auditors and Accounts: The last audited accounts signatory for RIL includes - Chaturvedi & Shah, Deloitte Haskins & Sells and Rajendra & Co., Chartered Accountants

•  Every company must appoint an individual or a firm as an auditor at the first AGM, who shall hold office till the conclusion of its fifth AGM and thereafter till the conclusion of every fifth meeting. Further, the Bill mandates rotation of individual auditors in every five years and for audit firms every ten years.
• Auditors are prohibited from rendering specified services to the company/ its holding company/ subsidiary company which includes - internal audit, investment banking services, outsourced financial services, actuarial services, investment advisory services and other management services.
• Companies having subsidiaries are required to prepare consolidated financial statement of the company and all subsidiaries; the consolidated financial statements are also required to include financial statements of associate companies and joint ventures.

Corporate Social Responsibility (CSR)

• CSR has been made mandatory for companies with a Net Worth of INR 500 crores (INR 5 billion) or more, or a turnover of INR 1000 crores (INR 10 billion) or more, or a Net Profit of INR 5 crore (INR 50 million) or more during any financial year.
• Such companies must spend 2% of their Average Net Profits the company made during three immediately preceding financial years.
• Such company is required to constitute - Corporate Social Responsibility Committee of the board which shall include three (3) or more directors and one (1) independent director. This committee would formulate and recommend CSR activities to the Board.
  RIL on it's part is committed to 'safety of persons over all production targets'.

Mergers and Amalgamations:

• Merger of Indian company with foreign company is allowed under the New Companies Bill. The Companies Act, 1956 does not permit merger of Indian company into a foreign company.
• Mergers between two small companies or between holding company and it's wholly owned subsidiary has now been simplified without the requirement of the court process. Notice has to be issued to Registrar of Companies (ROC) and Official Liquidator (OL) first and objections/ suggestions have to be taken before the members in general meeting. Objections to such arrangement can be made by persons holding 10 percent of the shareholding or having outstanding debt of at least 5 percent of total outstanding debt as per latest audited financial results.

Serious Fraud Investigation Office (SFIO)

• Central Government shall establish an office called the SFIO to investigate frauds relating to a company; one such instance being SFIO investigating INR 850 crore (INR  8.5 billion) fraud in accounts of Reebok India.
• SFIO is empowered to arrest in respect of certain offences involving frauds. 

The Bill is passed by Loksabha and introduced in Rajyasabha, still waiting to be passed. Post passing by Rajyasabha consent of President of India will be necessary before the Bill becomes an Act.