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Inter Law-Audit Amendment (CA, CS, CMA) Nov-2018 Exam.

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Sections Descriptions Name of the Section as in Companies Act

2013 Notified on

1 Short Title & Commencement

NA 23.01.2018

2 Amendment in Section 2 [Except clause (i) & (xiii)]

Definitions 09.02.2018

3 New Section Inserted 3A Members Severally Liable in Certain Cases 09.02.2018

4 Amendment in Section 4 Memorandum 23.01.2018

7 Amendment in Section 21 Authentication of documents, proceedings and contracts.

09.02.2018

9 Amendment in Section 35 Civil liability for mis-statements in prospectus

09.02.2018

11 Amendment in Section 47 Voting rights 09.02.2018

12 Amendment in Section 53 Prohibition on issue of shares at discount. 09.02.2018

14 Amendment in Section 62 Further issue of share capital 09.02.2018

17 Amendment in Section 76A Punishment for contravention of section 73 or section 76

09.02.2018

27 Amendment in Section 100 Calling of extraordinary general meeting 09.02.2018

28 Amendment in Section 101 Notice of meeting 09.02.2018

29 Amendment in Section 110 Postal ballot 09.02.2018

32 Amendment in Section 123 Declaration of dividend. 09.02.2018

34 Amendment in Section 130 Re-opening of accounts on Court‘s or Tribunal‘s orders

09.02.2018

38 Amendment in Section 136 Right of member to copies of audited financial statement

09.02.2018

41 Amendment in Section 140 Removal, resignation of auditor and giving of special notice

09.02.2018

42 Amendment in Section 141 Eligibility, qualifications and disqualifications of auditors.

09.02.2018

43 Amendment in Section 143 Powers and duties of auditors and auditing standards

09.02.2018

44 Amendment in Section 147 Punishment for contravention 09.02.2018

45 Amendment in Section 148 Central Government to specify audit of items of cost in respect of certain companies.

09.02.2018

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Extra Amendment in Rules & Notifications Extra 1 CRC & RUN

Extra 2 SPICe & RUN

Extra 3 Companies engaged in defense production

Extra 4 NFRA Sec 132(3) & (11) notified

Extra 5 Govt Company exemption on AGM

Extra 6 Private Company Exemptions

Extra 7 Rotation of Auditors

Extra 8 Subsidiary Company – 2 layer provision

Extra Amendment in IPCC Business Laws EPF Act Amendments via Finance Act 2017

Gratuity Amendments via Gratuity (Amendment) Act 2018

TERM DEFINITIONS

Short Title & Commencement

(1) This Act may be called the Companies (Amendment) Act, 2017. (2) It shall come into force on such date as the Central Government may, by

notification in the Official Gazette, appoint and different dates may be appointed for different provisions of this Act and any reference in any provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision.

TERM DEFINITIONS

Cost Accountant [Section 2(28)]

“cost accountant” means a cost accountant as defined in clause (b) of subsection (1) of section 2 of the Cost and Works Accountants Act, 1959.

"Cost Accountant" means a cost accountant as defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 and who holds a valid certificate of practice under sub-section (1) of section 6 of that Act; [Substituted via The Companies (Amendment) Act, 2017]

Debenture [Section 2(30)]

“Debenture” includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not;

Proviso (a) the instruments referred to in Chapter III-D of the RBI Act, 1934; and

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TERM DEFINITIONS

(b) such other instrument, as may be prescribed by the CG in consultation with the RBI, issued by a company, shall not be treated as debenture;"

[Inserted via The Companies (Amendment) Act, 2017]

Financial Statement [Section 2(40)] Amendment by Notification

“financial statement” in relation to a company, includes — (i) a balance sheet as at the end of the financial year; (ii) a profit and loss account, or in the case of a company carrying on any activity not

for profit, an income and expenditure account for the financial year; (iii) cash flow statement for the financial year; (iv) a statement of changes in equity, if applicable; and (v) any explanatory note annexed to, or forming part of, any document referred to

in sub-clause (i) to sub-clause (iv):

Provided that the financial statement, with respect to One Person Company, small company, dormant company and private company (if such a company is a start-up) may not include the cash flow statement;

Start-up means a start-up company incorporated under Companies Act 2013 or Companies Act 1956 and recognized as a Start-up in accordance with the notification issued by DIPP, MCI.

.

Financial Year [Section 2(41)]

“financial year”, in relation to any company or body corporate, means (a) the period ending on the 31st day of March every year, and (b) where it has been incorporated on or after the 1st day of January of a year, the

period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up.

Foreign Holding/Subsidiary having different Financial year - Provided that on an application made by a company or body corporate, which is a holding company or a subsidiary or Associate Company [Inserted by Companies (Amendment) Act, 2017] of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year: Provided further that a company or body corporate, existing on the commencement of this Act, shall, within a period of two years from such commencement, align its financial year as per the provisions of this clause.

Holding Company [Section 2(46)]

“holding company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies; Explanation.—For the purposes of this clause, the expression "company" includes any body corporate. [Inserted by Companies (Amendment) Act, 2017]

Interested Director [Section 2(49)]

“Interested Director” means a director who is in any way, whether by himself or through any of his relatives or firm, body corporate or other association of individuals in which he or any of his relatives is a partner, director or a member, interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into by or on behalf of a company;

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TERM DEFINITIONS

[Omitted via The Companies (Amendment) Act, 2017]

Key Managerial Personnel [Section 2(51)]

Key Managerial Personnel, in relation to a company, means— (i) the Chief Executive Officer or the managing director or the manager; (ii) the company secretary; (iii) the whole-time director; (iv) the Chief Financial Officer; and (v) such other officer as may be prescribed; [Omitted via The Companies (Amendment), 2017] (v) such other officer, not more than one level below the directors who is in whole-

time employment, designated as key managerial personnel by the Board; and (vi) such other officer as may be prescribed; [Substituted via The Companies (Amendment), 2017]

Net Worth [Section 2(57)]

Net Worth means the aggregate value of the paid-up share capital and all reserves created out of the profits and securities premium account and debit or credit balance of profit and loss account [Substituted via The Companies (Amendment), 2017] after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation"

Public Company [Section 2(71)]

Public Company means a company which— (a) is not a private company; and [Inserted by Companies (Amendment), 2017] (b) has a minimum paid-up share capital as may be prescribed:

Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles

Public Financial Institution [Section 2(72)]

Public Financial Institution means— (i) the LIC, established u/s 3 of the Life Insurance Corporation Act, 1956; (ii) the IDFC Limited, referred to in section 4A(1)(vi) of the Companies Act, 1956 so

repealed under section 465 of this Act; (iii) specified company referred to in the UTI (Transfer of Undertaking and Repeal)

Act, 2002; (iv) institutions notified by the CG u/s 4A(2) of the Companies Act, 1956 so repealed

under section 465 of this Act; (v) such other institution as may be notified by the CG in consultation with the RBI:

Provided that no institution shall be so notified unless— A. it has been established or constituted by or under any Central or State Act other

than this Act or the previous company law [Inserted by The Companies (Amendment), 2017] or

B. not less than 51% of the paid-up share capital is held or controlled by the CG or by any SG or Governments or partly by the CG and partly by one or more SG;

Related Party [Section 2(76)]

Related Party, with reference to a company, means— (i) a director or his relative; (ii) a key managerial personnel or his relative;

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TERM DEFINITIONS (iii) a firm, in which a director, manager or his relative is a partner; (iv) a private company in which a director or manager or his relative is a member or

director; (v) a public company in which a director or manager is a director and holds along

with his relatives, more than 2% of its paid-up share capital; (vi) any body corporate whose Board of Directors, managing director or manager is

accustomed to act in accordance with the advice, directions or instructions of a director or manager;

(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act: Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity; (viii) any company which is— (A) a holding, subsidiary or an associate company of such company; or (B) a subsidiary of a holding company to which it is also a subsidiary;

(viii) any body corporate which is— (A) a holding, subsidiary or an associate company of such company; (B) a subsidiary of a holding company to which it is also a subsidiary; or (C) an investing company or the venturer of the company Explanation—For the purpose of this clause, “the investing company or the venturer of a company” means a body corporate whose investment in the company would result in the company becoming an associate company of the body corporate. [Substituted via The Companies (Amendment), 2017]

(ix) such other person as may be prescribed;

Small Company [Section 2(85)]

Small Company means a company, other than a public company— (i) paid-up share capital of which does not exceed fifty lakh rupees or such higher

amount as may be prescribed which shall not be more than five crore rupees ` 10 crore [Substituted by The Companies (Amendment), 2017]

(ii) turnover of which as per its last profit and loss account as per profit and loss account for the immediately preceding financial year [Substituted by The Companies (Amendment), 2017) does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees ` 100 crore [Substituted by The Companies(Amendment), 2017]

Provided that nothing in this clause shall apply to— (A) a holding company or a subsidiary company; (B) a company registered under section 8; or (C) a company or body corporate governed by any special Act;

Turnover [Section 2(91)]

Turnover means the aggregate value of the realisation of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year; "Turnover" means the gross amount of revenue recognised in the profit and loss account from the sale, supply, or distribution of goods or on account of services rendered, or both, by a company during a financial year; [Substituted by The Companies (Amendment), 2017].

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TOPIC DETAILED EXPLANATION

Shortfall from Minimum Requirement of Members for a Company Formation

If at any time the number of members of a company is reduced, in the case of a public company, below 7, in the case of a private company, below 2, and the company carries on business for more than 6 months while the number of members is so reduced, every person who is a member of the company during the time that it so carries on business after those 6 months and is cognisant of the fact that it is carrying on business with less than 7 members or two members, as the case may be, shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefor.

TOPIC DETAILED EXPLANATIONS

Application to ROC for Reservation of Name

A person may make an application, in Form INC-1 to the Registrar for the reservation of a name set out in the application as— (a) the name of the proposed company; or (b) the name to which the company proposes to change its name.

Reservation of name through RUN Application (Rule 9 Amended w.e.f 26th January 2018) An application for reservation of name shall be made through the web service available at www.mca.gov.in by using RUN (Reserve Unique Name) along with fee as provided in the Companies (Registration offices and fees) Rules, 2014, which may either be approved or rejected, as the case may be, by the Registrar, Central Registration Centre.

Reservation of Name by ROC

Upon receipt of an application as above, the Registrar may reserve the name for 60 days from the date of the application.Upon receipt of an application as above, the Registrar may, on the basis of information and documents furnished along with the application, reserve the name for a period of 20 days from the date of approval or such other period as may be prescribed. Provided that in case of an application for reservation of name or for change of its name by an existing company, the Registrar may reserve the name for a period of 60 days from the date of approval. [Substituted via The Companies (Amendment), 2017]

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Save as otherwise provided in this Act— (a) a document or proceeding requiring authentication by a company; or (b) contracts made by or on behalf of a company, may be signed by any key managerial personnel or an officer of the company an officer or EMPLOYEE of the company [Substituted via The Companies (Amendment), 2017] duly authorised by the Board in this behalf.

TOPIC DETAILED EXPLANATIONS

Civil Liability to pay damages for the loss caused to others

An investor has subscribed for securities of a company: 1) Acting on any untrue statement in the prospectus AND 2) Has sustained any loss or damage as a consequence thereof,

Civil Liability to pay damages for the loss caused to others Then the company and following persons shall be liable to pay compensation to every person who has sustained such loss or damage: (a) Is a director of the company at the time of the issue of the prospectus; (b) Has authorised himself to be named in the prospectus as a director of the

company; (c) Is a promoter of the company; (d) Has authorised the issue of the prospectus; and (e) Is an expert,

Note: This punishment is in addition to the punishment u/s 36.

Defences available to the concerned person

No person shall be liable as above, if he proves— (a) He withdrew his consent before the issue of the prospectus, and that it was issued

without his consent; or (b) That the prospectus was issued without his knowledge or consent, and that on

becoming aware of its issue, he immediately gave a reasonable public notice that it was issued without his knowledge or consent.

(c) that, as regards every misleading statement purported to be made by an expert or contained in what purports to be a copy of or an extract from a report or valuation of an expert, it was a correct and fair representation of the statement, or a correct copy of, or a correct and fair extract from, the report or valuation; and he had reasonable ground to believe and did up to the time of the issue of the prospectus believe, that the person making the statement was competent to make it and that the said person had given the consent required by sub-

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TOPIC DETAILED EXPLANATIONS

section (5) of section 26(5) to the issue of the prospectus and had not withdrawn that consent before delivery of a copy of the prospectus for registration or, to the defendant's knowledge, before allotment thereunder." [Inserted via The Companies (Amendment), 2017]

TOPIC DETAILED EXPLANATIONS

Voting Rights of Equity Shareholders

Subject to the provisions of section 43 and section 50(2) provisions of section 43, section 50(2) and section 188(1) [Substituted via The Companies (Amendment), 2017].

1. Every member of a company holding ESC, shall have a right to vote on every resolution placed before the company; and

2. His voting right on a poll shall be in proportion to his share in the paid-up ESC of the company.

TOPIC DETAILED EXPLANATIONS

Prohibition Any company shall NOT issue shares at a discount.

Shares issued to be Void

Any share issued by a company at a discounted price discount [Substituted via The Companies (Amendment), 2017] shall be VOID.

Issue of Shares to Creditors at Discount (New Sub-section Inserted)

(2A) Notwithstanding anything contained in sub-sections (1) and (2), a company may issue shares at a discount to its creditors when its debt is converted into shares in pursuance of any statutory resolution plan or debt restructuring scheme in accordance with any guidelines or directions or regulations specified by the Reserve Bank of India under the Reserve Bank of India Act, 1934 or the Banking (Regulation) Act, 1949.". [Added via The Companies (Amendment), 2017].

Penalty on Contravention of the provisions

Where any default is made in complying with the provisions of this section, the punishment shall be as follows:

On Company ` 1,00,000 ≤ Fine ≤ ` 5,00,000

On officer in default Imprisonment ≤ 6 Months or

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TOPIC DETAILED EXPLANATIONS

` 1,00,000 ≤ Fine ≤ ` 5,00,000 or Or Both

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TOPIC DETAILED EXPLANATIONS

Preferential Issue of Shares (See Below for details)

A Company may offer shares to any persons, if it is authorised by a Special Resolution, either for cash or for a consideration other than cash, if the price of such shares is determined by the valuation report of a registered valuer subject to such conditions as may be prescribed of a registered valuer, subject to the compliance with the applicable provisions of Chapter III and any other conditions as may be prescribed. [Substituted via The Companies (Amendment), 2017].

Notice of Rights Issue

The notice shall be despatched through registered post or speed post or through electronic mode to all the existing shareholders at least 3 days before the opening of the issue. The notice referred to above shall be dispatched through registered post or speed post or through electronic mode or courier or any other mode having proof of delivery to all the existing shareholders at least 3 days before the opening of the issue.’’ [Substituted via The Companies (Amendment), 2017]

Exemption Notification – Private Companies: In case 90% of the members of a private company have given their consent in writing or in electronic mode, the periods lesser than 3 days shall apply.

TOPIC DETAILED EXPLANATIONS

Punishment for contravention of Section 73 or 76

Where a company:- 1) Accepts or invites deposits or allows or causes any other person to accept or invite

on its behalf any deposit in contravention of the manner or the conditions prescribed under section 73 or 76 or Rules made thereunder or

2) Fails to repay the deposit or part thereof or any interest due thereon within the time specified under section 73 or 76 or rules made thereunder or such further

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TOPIC DETAILED EXPLANATIONS

time as may be allowed by the Tribunal under section 73, then the punishment shall be as follows:-

On Company

Minimum Punishment

` 1 crore ` 1 crore or twice the amount of deposits

accepted by the Company, whichever is lower

Maximum Punishment

` 10 crores

On officer in default

Imprisonment ≤ 7 Years Or AND

Fine - ` 25 lacs ≤ Fine ≤ ` 2 crores Or Both

Wilful offence by officer in default with the intention to deceive the company or its shareholders or depositors or creditors or tax

authorities

Punishment u/s 447

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TOPIC DETAILED EXPLANATIONS

BOD may call EGM on its own accord

The Board may, whenever it deems fit, call an extraordinary general meeting of the company. Provided that an EGM of the company, {other than of the 100% subsidiary of a company incorporated outside India}, shall be held at a place within India. [Added via The Companies (Amendment), 2017]

TOPIC DETAILED EXPLANATIONS

Length of Notice A general meeting of a company may be called by giving not less than clear 21 days’ notice either in writing or through electronic mode in the following manner.

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TOPIC DETAILED EXPLANATIONS

Short Notice with 95% consent

Provided that a general meeting may be called after giving a shorter notice if consent is given in writing or by electronic mode by not less than 95% of the members entitled to vote at such meeting. [Substituted via The Companies (Amendment), 2017]. Provided that a general meeting may be called after giving shorter notice than that specified in this sub-section if consent, in writing or by electronic mode, is accorded thereto— (i) in the case of an AGM, by not less than 95%. of the members entitled to vote

thereat; and (ii) in the case of any other GM, by members of the company—

(a) holding, if the company has a share capital, majority in number of members entitled to vote and who represent not less than 95%. of such part of the PUSC of the company as gives a right to vote at the meeting; or

(b) having, if the company has no share capital, not less than 95%. of the total voting power exercisable at that meeting.

Provided further that where any member of a company is entitled to vote only on some resolution or resolutions to be moved at a meeting and not on the others, those members shall be taken into account for the purposes of this sub-section in respect of the former resolution or resolutions and not in respect of the latter.

TOPIC DETAILED EXPLANATIONS

When is Postal Ballot Conducted

In spite of anything contained in this Act, a company— (a) SHALL declare the following prescribed items to be transacted only by means of

postal ballot; and (b) MAY, transact any item of business by means of postal ballot (Except Ordinary

Business items and Removal of Auditors & Directors), instead of transacting such business at a general meeting.

Provided that any item of business required to be transacted by means of postal ballot under clause (a), may be transacted at a general meeting by a company which is required to provide the facility to members to vote by electronic means under section 108, in the manner provided in that section. [Added via The Companies (Amendment), 2017].

Mandatory Items to be conducted by Postal Ballot

The following items of business shall be transacted only by means of voting through a postal ballot- (a) Alteration of the Objects clause of the memorandum u/s 13; (b) Alteration of Articles of Association in order to convert a Public company into a

Private Company u/s 14;

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TOPIC DETAILED EXPLANATIONS

(c) Change in place of registered office outside the local limits of any city, town or village u/s 12(5);

(d) Change in objects for which a company has raised money from public through prospectus and still has any unutilized amount out of the money u/s 13(8);

(e) Issue of shares with differential rights u/s 43; (f) Variation in the rights attached to a class of shares or debentures or other

securities u/s 48; (g) Buy-back of shares by a company u/s 68; (h) Election of a small shareholders’ director u/s 151; (i) Sale of the whole or substantially the whole of an undertaking of a company as

specified u/s 180 (1) (a); (j) Giving loans or extending guarantee or providing security in excess of the limit u/s

186.

Topic Detailed Discussion

Section 123(1)(a) Sources out of which Dividend can be paid

Dividend shall be declared or paid by a company for any financial year only — out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2), or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with the provisions of that sub-section and remaining undistributed, or out of both; or both [Substituted by Companies (Amendment) Act, 2017]

1st Proviso Provided that in computing profits any amount representing unrealised gains, notional gains or revaluation of assets and any change in carrying amount of an asset or of a liability on measurement of the asset or the liability at fair value shall be excluded; or [Inserted by Companies (Amendment) Act, 2017]

Section 123(1)(b) Dividend shall be declared or paid by a company for any financial year only — Out of money provided by the Central Government or a State Government for the payment of dividend by the company in pursuance of a guarantee given by that Government.

1st Proviso Transfer to Reserves

A company may, before the declaration of any dividend in any financial year, transfer such percentage of its profits for that financial year as it may consider appropriate to the reserves of the company.

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Topic Detailed Discussion

2nd Proviso Declaration of dividend out of past reserves

Where, owing to inadequacy or absence of profits in any financial year, any company proposes to declare dividend out of the accumulated profits earned by it in previous years and transferred by the company to the reserves transferred by the company to the free reserves [Substituted by Companies (Amendment) Act, 2017], such declaration of dividend shall not be made except in accordance with such rules as may be prescribed in this behalf. (See Next Pages)

Exemption to Government Companies Section 123(1) 2nd Proviso shall not apply to a Government Company in which the entire paid up share capital is held by the Central Government, or by any State Government or Governments or by the Central Government and one or more State Governments.

.

3rd Proviso Dividend only out of free reserves

Provided also that no dividend shall be declared or paid by a company from its reserves other than free reserves. .

4th Proviso Carry forward of previous years Losses and Depreciation

Provided also that no company shall declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against profit of the company for the current year. [Inserted by Companies Amendment Act]

Section 123(2) Computation of Depreciation

For the purposes of computation of profits and deduction of depreciation as above, depreciation shall be provided in accordance with the provisions of Schedule II. .

Section 123(3) Interim Dividend

The Board of Directors of a company may declare interim dividend during any financial year out of the surplus in the profit and loss account and out of profits of the financial year in which such interim dividend is sought to be declared.

Provided that in case the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during the immediately preceding 3 financial years. . The Board of Directors of a company may declare interim dividend during any financial year or at any time during the period from closure of financial year till holding of the annual general meeting out of the surplus in the profit and loss account or out of profits of the financial year for which such interim dividend is sought to be declared or out of profits generated in the financial year till the quarter preceding the date of declaration of the interim dividend.

Provided that in case the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during immediately preceding 3 financial years. [Substituted by Companies (Amendment) Act, 2017] ....

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Topic Detailed Discussion

Section 130(1) Restrictions on 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 the:- 1) Central Government, 2) Income-tax authorities, 3) Securities and Exchange Board, 4) any other statutory regulatory body or authority or 5) 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 1) Central Government, 2) Income-tax authorities, 3) Securities and Exchange Board, 4) any other statutory regulatory body or authority concerned, or any other person

concerned; [Inserted by Companies (Amendment) Act, 2017] 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, or any other person concerned [Inserted by Companies (Amendment) Act, 2017] before passing any order under this section.

Section 130(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.

Section 130(3) No order of re-opening of books of account relating to a period earlier than 8 F.Ys

No order shall be made under sub-section (1) in respect of re-opening of books of account relating to a period earlier than 8 financial years immediately preceding the current financial year.

Provided that where a direction has been issued by the CG under the proviso to section 128(5) for keeping of books of account for a period longer than 8 years, the books of account may be ordered to be re-opened within such longer period. [Inserted by Companies (Amendment) Act, 2017]

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Topic Detailed Discussion

Section 136(1) Circulation of copy of FS.

Without prejudice to the provisions of section 101 [Omitted by Companies (Amendment) Act, 2017] A copy of the financial statements (including consolidated financial statements, if any, auditor’s report and every other document required by law to be annexed or attached to the financial statements), which are to be laid before a company in its general meeting, shall be sent to every member of the company, to every debenture trustee, and to all persons other than such member or trustee, being the person so entitled, not less than 21 days before the date of the meeting.

Exemption Notification - Section 8 (Not for Profit) Companies: In case of “Not for Profit” companies u/s 8 CG has shortened the time limit for circulating Notice u/s 101 and Financial statements u/s 136 from 21 days to 14 days.

Provided that if the copies of the documents are sent less than 21 days before the date of the meeting, they shall, notwithstanding that fact, be deemed to have been duly sent if it is so agreed by members— (a) holding, if the company has a share capital, majority in number entitled to vote

and who represent not less than 95% of such part of the paid-up share capital of the company as gives a right to vote at the meeting; or

(b) having, if the company has no share capital, not less than 95% of the total voting power exercisable at the meeting

[Inserted by Companies (Amendment) Act, 2017]

Abridged Financial Statements In the case of a listed company, the provisions of Section 136 shall be deemed to be complied with, if the copies of the documents are made available for inspection at its registered office during working hours for a period of 21 days before the date of the meeting and a statement containing the salient features of such documents in the Form AOC – 3 “Form of Abridged Financial Statements” is sent to every member of the company and to every trustee for the holders of any debentures issued by the company not less than 21 days before the date of the meeting unless the shareholders ask for full financial statements.

Manner of Circulation The Central Government has prescribed that the following class of companies can circulate FS by EMAIL:

Type of Companies Amount Restriction

1) All Listed Companies No Monetary Limit

2) Public Companies having Net worth > ` 1 crore and

3) Public Companies having Turnover > ` 10 crores

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Putting FS on Website Provided also that a listed company shall also place its financial statements including consolidated financial statements, if any, and all other documents required to be attached thereto, on its website, which is maintained by or on behalf of the company.

Putting FS of subsidiaries on Website Provided also that every company having a subsidiary or subsidiaries shall, — (a) Place separate audited accounts in respect of each of its subsidiary on its website,

if any; (b) Provide a copy of separate audited financial statements in respect of each of its

subsidiary, to any shareholder of the company who asks for it.

Provided also that every listed company having a subsidiary or subsidiaries shall place separate audited accounts in respect of each of subsidiary on its website, if any:

Provided also that a listed company which has a subsidiary incorporated outside India (herein referred to as "foreign subsidiary")— (a) where such foreign subsidiary is statutorily required to prepare consolidated

financial statement under any law of the country of its incorporation, the requirement of this proviso shall be met if consolidated financial statement of such foreign subsidiary is placed on the website of the listed company;

(b) where such foreign subsidiary is not required to get its financial statement audited under any law of the country of its incorporation and which does not get such financial statement audited, the holding Indian listed company may place such unaudited financial statement on its website and where such financial statement is in a language other than English, a translated copy of the financial statement in English shall also be placed on the website.’ [Substituted by Companies (Amendment) Act, 2017]

Section 136(2) Inspection

A company shall allow every member or trustee of the holder of any debentures issued by the company to inspect the documents stated above at its registered office during business hours.

Provided that every company having a subsidiary or subsidiaries shall provide a copy of separate audited or unaudited financial statements, as the case may be, as prepared in respect of each of its subsidiary to any member of the company who asks for it. [Inserted by Companies (Amendment) Act, 2017]

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Topic Detailed Discussion

Section 140(2)(3) Resignation by the Auditor

The auditor who has resigned from the company shall file Form ADT – 3 with the company and the ROC within a period of 30 days from the date of resignation, indicating the reasons and other facts as may be relevant with regard to his resignation.

In case of resignation by the Auditor in a Government Company, Auditor shall file Form ADT – 3 with the C & AG, company and the ROC within a period of 30 days from the date of resignation.

Penalty for non-filing of Form ADT – 3: If the auditor does not comply above, he or it shall be punishable with

Minimum Penalty ` 50,000 OR Auditor’s Remuneration whichever is less

[Inserted via Amendment Act, 2017]

Maximum Penalty ` 5,00,000

.

Topic Detailed Discussion

Section 141(3)(g) a person who is in full time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such appointment or reappointment holding appointment as auditor of more than 20 companies.

Exemption Notification dated 5th June 2015 for Section 141 (3) (g) (a) Private Companies having PUSC < ` 100 Crores. (b) One Person Company u/s 2(62) (c) Dormant Company u/s 455 (d) Small Company u/s 2(85).

Section 141(3)(i) a person who, directly or indirectly, renders any service referred to in section 144 to the company or its holding company or its subsidiary company.

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Topic Detailed Discussion Explanation-For the purposes of this clause, the term "directly or indirectly" shall have the meaning assigned to it in the Explanation to section 144. [Substituted via Amendment Act, 2017]

Topic Detailed Discussion

Section 143(1) Rights of Auditor – Access books & Inquiry

Every auditor of a company shall have a right of access at all times to the books of account and vouchers of the company, whether kept at the registered office of the company or at any other place and shall be entitled to require from the officers of the company such information and explanation as he may consider necessary for the performance of his duties as auditor.

Provided that the auditor of a company which is a holding company shall also have the right of access to the records of all its subsidiaries & Associate Company [Inserted via Amendment Act, 2017] in so far as it relates to the consolidation of its financial statements with that of its subsidiaries & Associate Company [Inserted via Amendment Act, 2017]

Section 143(3)(i) Matters on which Auditor should comment in his Main Audit Report

The auditor’s report shall also state— (a) Whether the company has adequate internal financial controls with reference to

Financial Statements [Substituted via Amendment Act, 2017] in place and the operating effectiveness of such controls.

Section 143(3)(i), shall not apply to a private company:- (a) which is a OPC or a SMALL company; or (b) which has turnover < ` 50 cr. as per latest audited financial statement or

which has aggregate borrowings from banks or financial institutions or anybody corporate at any point of time during the financial year < ` 25 Cr.

.

Section 143(14) CS and CMA also need to report fraud

The provision of Section 143(12) shall also apply, mutatis mutandis, to a Cost Accountant in Practice [Omitted via Amendment Act, 2017] and a Company secretary in Practice during the performance of his duties under section 148 and section 204 respectively.

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Section 147(1) Punishment for contravention of Section 139 to 146 on company and the officer in default

Punishment as follows:-

On Company ` 25,000 ≤ Fine ≤ ` 5 lacs

On officer in default Imprisonment ≤ 1 year or, ` 10,000 ≤ Fine ≤ ` 1 lac or

Both.

.

Section 147(2) Punishment for contravention of Section 139, 143, 144, 145 on the AUDITOR

Punishment as follows:-

Contravention of Section 139, 143, 144, 145

Minimum Penalty ` 25,000

Maximum Penalty

` 5 lacs OR 4 times the remuneration of the Auditor

(whichever is less) [Inserted via Amendment Act, 2017]

If an auditor has contravened such provisions knowingly or willfully with the intention to deceive the company or its shareholders or creditors or tax authorities

Imprisonment ≤ 1 year AND

Minimum Penalty ` 50,000

Maximum Penalty

` 25 lacs OR 8 times the remuneration of the Auditor

(whichever is less) [Inserted via Amendment Act, 2017]

.

Section 147(3) Refund Audit Fees and pay Damages Where an auditor has been convicted under sub-section (2), he shall be liable to— (i) refund the remuneration received by him to the company; and (ii) pay for damages to the company, statutory bodies or authorities or to members or

creditors of the company [Substituted via Amendment Act, 2017] for loss arising out of incorrect or misleading statements of particulars made in his audit report.

Section 147(5) Liability of the partner and of the firm jointly and severally Where, in case of audit of a company being conducted by an audit firm, it is proved that the partner or partners of the audit firm has or have acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to or by, the company or its directors or officers, the liability, whether civil or criminal as provided in this Act or in any other law for the time being in force, for such act shall be of the partner or partners concerned of the audit firm and of the firm jointly and severally. Provided that in case of criminal liability of an audit firm, in respect of liability other than fine, the concerned partner or partners, who acted in a fraudulent manner or abetted or, as the case may be, colluded in any fraud shall only be liable. [Inserted via Amendment Act, 2017]

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Section 148(3)

Appointment of Cost Auditor Cost Audit shall be conducted by a Cost Accountant in Practice [Omitted via Amendment Act, 2017] who shall be appointed by the Board. Provided that a statutory auditor (CA) of the company shall NOT be appointed for conducting the audit of cost records. Provided further that the auditor conducting the cost audit shall comply with the cost auditing standards. Explanation-For the purposes of this sub-section, the expression ‘cost auditing standards’ mean such standards as are issued by the Institute of Cost Accountants of India.

Section 148(5) Qualifications, disqualifications, rights, duties of Cost Auditor The qualifications, disqualifications, rights, duties and obligations applicable to auditors under this Chapter shall, so far as may be applicable, apply to a cost auditor appointed under this section and it shall be the duty of the company to give all assistance and facilities to the cost auditor appointed under this section for auditing the cost records of the company. Provided that the report on the audit of cost records shall be submitted by the cost accountant in Practice [Omitted via Amendment Act, 2017] to the Board of Directors of the company.

Central Registration Centre (CRC) Central Government has established a Central Registration Centre (CRC) u/s 396 having territorial jurisdiction all over India, for carrying out the following functions: - Reservation of name through RUN Application (Rule 9 Amended w.e.f 26th January 2018) An application for reservation of name shall be made through the web service available at www.mca.gov.in by using RUN (Reserve Unique Name) along with fee as provided in the Companies (Registration offices and fees) Rules, 2014, which may either be approved or rejected, as the case may be, by the Registrar, Central Registration Centre.

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2 massive changes brought about by the CG in the incorporation procedure of the Companies.

TOPIC DETAILED EXPLANATION

Unified Single Procedure

Unified Single Procedure for incorporating ALL companies by filing SPICe Forms. Form INC-2 & INC-7 has been eliminated now. Note: Earlier there were 2 parallel procedures for incorporating companies i.e., Long procedure and Short procedure.

The Application for incorporation of a company under this rule shall be in 1) FORM No. INC-32 (SPICe) along with 2) e-Memorandum of Association (e-MOA) in Form No. INC-33 and 3) e-Articles of association (e-AOA) in Form no. INC-34.

Registration fees Registration Fees Waiver for companies. Provided further that in case of companies incorporated, with effect from the 26th day of January, 2018, with a nominal capital of ≤ ` 10 lakhs or in respect of companies not having a share capital whose number of members as stated in the articles of association ≤ 20 members, fee on INC-32 (SPICe) shall NOT be applicable.

TOPIC DETAILED EXPLANATION

Section 129 (6) Section 129 shall not apply to the companies engaged in defence production to the extent of application of relevant Accounting Standard on Segment Reporting.

Topic Detailed Discussion

Section 132(3) Constitution of NFRA

The National Financial Reporting Authority shall consist of a chairperson, who shall be a person of eminence and having expertise in accountancy, auditing, finance or law to be appointed by the Central Government and such other members not exceeding fifteen consisting of part-time and full-time members as may be prescribed. Provided that the terms and conditions and the manner of appointment of the chairperson and members shall be such as may be prescribed. Provided further that the chairperson and members shall make a declaration to the Central Government in the prescribed form regarding no conflict of interest or lack of independence in respect of his or their appointment. Provided also that the chairperson and members, who are in full-time employment with National Financial Reporting Authority shall not be associated with any audit firm

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(including related consultancy firms) during the course of their appointment and two years after ceasing to hold such appointment.

Section 132(11) Appointment of Secretary

The Central Government may appoint a secretary and such other employees as it may consider necessary for the efficient performance of functions by the National Financial Reporting Authority under this Act and the terms and conditions of service of the secretary and employees shall be such as may be prescribed.

TOPIC DETAILED EXPLANATIONS

Place & Time Convening the Annual General Meeting

Exemption Notification – Government Companies: Section 96(2) - Place for holding AGM (Amendment Notification Dated 13th June, 2017) Government Company may hold its AGM at such other place within the city, town or village in which the registered office of the company is situate or such other place as the Central Government may approve in this behalf.

Important Note: All the exceptions, modifications and adaptations shall be applicable to a Government company, Private Company, Section 8 Compnay if it has NOT committed a default in filing of its FS or Annual Return. (Notification dated 13-June-2017)

TOPIC DETAILED EXPLANATIONS

Section 73(2)(a) to (e) Acceptance of Deposits form members

Section 73(2)(a) to (e) shall not apply to a private company - (A) which accepts from its members monies upto 100% of [PUSC + FR + SP] or (B) which is a START-UP, for 5 years from the date of its incorporation or (C) which fulfils all of the following conditions, namely:-

(a) which is not an associate or a subsidiary company of any other company; (b) the borrowings of such a company from banks or financial institutions or any

body corporate is less than Lower of:- 2) 2 X PUSC 3) ` 50 crores; and

(c) such a company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits under section 73.

Provided also that all the companies accepting deposits shall file the details of monies so accepted to the Registrar in Form DPT-3.

Section 92 Annual Return

Every company shall prepare an annual return in the MGT- 7 containing following particulars as they stood on the close of the financial year regarding—

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TOPIC DETAILED EXPLANATIONS f. Managerial Remuneration: Remuneration of directors and key managerial

personnel; Amendment In case of Private Company:- "aggregate amount of remuneration drawn by directors;". - Notification Dated 13th June, 2017

Special Provision for One Person Company & Small Company In relation to One Person Company, Small Company and private company (if such private company is a start-up - Notification Dated 13th June, 2017), the annual return shall be signed by:- 1) The CS, where there is a CS or, 2) The DIRECTOR of the company, where there is no CS.

.

Auditor’s Report on Internal Financial Controls

Section 143(3)(i) – Exemption Notification from Auditor’s Report on Internal Financial Controls Section 143(3)(i), shall not apply to a private company:- (i) which is a OPC or a SMALL company; or which has turnover < ` 50 cr. as per latest audited financial statement AND which has aggregate borrowings from banks or financial institutions or anybody corporate at any point of time during the financial year < ` 25 Cr.

Important Note: All the exceptions, modifications and adaptations shall be applicable to a Government company, Private Company, Section 8 Compnay if it has NOT committed a default in filing of its FS or Annual Return. (Notification dated 13-June-2017)

Topic Detailed Discussion

Section 139(2)(4) Rotation of Auditors

No listed company or a Prescribed Class of Company shall appoint or re-appoint— (a) an individual as auditor for more than one term of 5 consecutive years; and (b) an audit firm as auditor for more than 2 terms of 5 consecutive years:

Prescribed Class of Company: It mean the following classes of companies (excluding one person companies and small companies):

Type of Company Threshold

Listed Company NO limit.

All unlisted Public Companies having PUSC ≥ ` 10 crores

All Private Limited Companies having PUSC ≥ ` 50 crores

All companies having PUSC below 10/50 but having public borrowings from financial institutions, banks or public deposits

Borrowings from FI, Banks or Public Deposits ≥ ` 50 crores

.

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Inter Law-Audit Amendment (CA, CS, CMA) Nov-2018 Exam.

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Topic Detailed Discussion

Subsidiary Company [Section 2(87)]

Subsidiary Company or ―subsidiary, in relation to any other company (that is to say the holding company), means a company in which the holding company— (i) controls the composition of the Board of Directors; or (ii) exercises or controls more than one-half of the total share capital either at its own

or together with one or more of its subsidiary companies: Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.

TOPIC DETAILED EXPLANATIONS

Section 7D, 7E, 7F, 7G, 7H EPFAT replaced with Industrial Tribunal

EPF Appellate Tribunal Constituted u/s 7D of EPF Act 1952 shall be substituted by the Industrial Tribunal constituted by the CG u/s 7A of the Industrial Disputes Act 1947. Also Sec 7E, 7F, 7G, 7H of the EPF Act shall be omitted.

Section Topic

7D Employees’ Provident Funds Appellate Tribunal.

7E Term of office.

7F Resignation.

7G Salary and allowances and other terms and conditions of service of Presiding Officer.

7H Staff of the Tribunal.

.

Section 18A Deemed Public Servant

The authorities referred to in Sec 7A and every inspector shall be deemed to be a public servant within the meaning of Section 21 of the Indian Penal Code.

TOPIC DETAILED EXPLANATIONS

Section 2A

Maternity Leave CG has revised the maternity leave period from 12 weeks to 26 weeks.

Section 4

Maximum Amount of Gratuity CG has revised the Maximum Amount of Gratuity from 10 lacs to 20 lacs.