CHANGES IN DISCLOSURES: A COMPARATIVE ANALYSIS OF COMPANIES ACT 1956 AND 2013

Arbaaz Hussain: B.B.A.LL.B

Adhiraj Gupta: B.A.LL.B

DISCLOSURE NORMS- WHAT ARE THEY?

Disclosure- The act or process of revealing or uncovering.

Disclosure as one of the tenets of corporate governance. It

constitutes an essential requirement for the efficacy of most

of the provisions of company  legislation

Disclosure enhances transparency, helps stakeholders of the

firms and other market participants to act properly.

It prevents asymmetry of information and acts as a

yardstick for managerial performance.

DISCLOSURES IN PROSPECTUS Section 56 of CA’ 1956 provided for matters to be stated and

reports to be set out in prospectus with reference to Part I and II of Schedule II.

CA’ 2013 has reduced the number of items to be specified in prospectus, and the same is contained in the section itself.

Additions made: 26(1) (a)(xi): Particulars relating to gestation period of

project, extent of progress made, deadline for completion and pending litigation by government or statutory body against promoter.

26(1)(c): Disclaimer stating that the contents of the products are not contrary to the provisions of the CA’ 2013, SCRA 1956, SEBI 1992, and the rules made thereunder.

BOARDS REPORT

Section 217 of CA’1956 provided for the attachment of the board’s report to the balance sheet in the general meeting.

The above section also provided for the essential information to be furnished in the board’s report.

Section 134 of the CA’ 2013 specifies for the furnishing of the boards report in the general meeting, and mandates the presence of certain additional information, which was absent in the CA’ 1956.

BOARDS REPORT CONTD. The additional information to be specified are:

Extract of the annual return. Statement of declaration given by independent directors Companies policy on directors appointment and

remuneration in case of constitution of NRC. Explanation or comments by the board on every remark

given by the auditor and the CS in their reports Particulars of loans, guarantees and investments Particulars of contracts with related parties. Statement indicating development and implementation of

risk management policy. Details of policies developed and implemented on CSR.

BOARDS REPORT CONTD.

Directors responsibility statement in the boards report shall include- In the case of listed company, disclosures relating to the

operation and effectiveness of the companies internal financial controls.

Disclosure regarding the operation and effectiveness of the devised system which seeks to ensure compliance with all applicable laws.

Penalty to be imposed in case of contravention of these requirements. Fine amounting to minimum 50,000 which may extend up to

25, 00,000. (For Company) Imprisonment for a term which may extend to three years or

with fine amounting to minimum of Rs. 50,000 which may extend up to Rs. 5 lacs, or with both. (For officers)

ANNUAL RETURN

The CA’1956 made a distinction between the annual return to be filed by a company having share capital, and a company without share capital. (159-160)

Section 161 provided for the procedure to be followed while filing annual return with the ROC, and 162 provided for penalties.

Section 92 of the CA’ 2013 has removed the aforementioned distinction, and has additionally provided for disclosures in the particulars of the annual return.

ANNUAL RETURN CONTD. The additional details to be mentioned are:

The principal business activity of the company, the particulars of its holdings, subsidiary and associated companies.

Matters relating to certification of compliances, disclosures as may be prescribed.

A certification by the company secretary, stating that the statements in the annual return are correct, adequate and true, and that the company has complied with all provisions of the act.

Penalty to be imposed in case of contravention of these requirements. Fine amounting to minimum 50,000 which may extend up to

25, 00,000. (For Company) Imprisonment for a term which may extend to three years or

with fine amounting to minimum of Rs. 50,000 which may extend up to Rs. 5 lacs, or with both. (For officers)

AUDIT COMMITTEE Section 292A of the CA’ 1956 provided for the constitution of

an audit committee, and its functioning only in case of public companies having paid up capital of not less than Rs. 5 crore.

Section 177 of the CA’ 2013 mandated for the constitution of an audit committee in every listed company and such other class or classes of companies.

The additional disclosures to be given are: The Boards report under 134(3) shall disclose the

composition of an audit committee. Non acceptance of recommendation of the audit committee

shall be disclosed in the boards report along with the required reasoning.

The boards report and website of the company shall contain details regarding the establishment of a mechanism to maintain vigilance over the directors and employees.

NOTICE OF MEETINGS Section 173 of CA’ 1956 provided for the attachment of

an explanatory statement to the notice of a meeting for every special business to be conducted in such meeting.

Section 102 of the CA’ 2013 also specifies for the attachment of a statement to the notice with the following additional details: Disclosures relating to the nature and extent of

interest of directors, KMP. Disclosure of the extent of interest of every promoter,

director and KMP in any other company to be affected by the proposed resolution if they hold not less than 2% of paid up shareholding of such other company.

NOMINATION AND REMUNERATION COMMITTEE & STAKEHOLDER COMMITTEE

Schedule XIII of CA’ 1956 provided for the approval of the managerial remuneration by the remuneration committee in a situation where the company had no profits or inadequate profits. The listing agreement contains provisions regarding NRC which are not mandatory.

Section 178 of CA’ 2013 mandates for the creation of Nomination and Remuneration Committee & The Stakeholder Committee.

Policy relating to the remuneration for the directors, KMP and other employees formulated by NRC is to be disclosed in the boards report.

CONSOLIDATED FINANCIAL STATEMENT

Section 211 of the CA’ 1956 provided for the form and

contents of balance sheet and profit and loss account.

Section 129 of the CA’ 2013 provides for the forms and

contents of the financial statements of the company.

Additionally it mandates the preparation of CFS, when a

company has one or more subsidiaries. The company shall

also attach along with its financial statement, a separate

statement containing the salient feature of its subsidiary or

subsidiaries.

CONCLUDING REMARKS

Additional disclosures in the CA’ 2013 will increase

transparency and thereby will result in the enhancement

of stakeholders confidence in the company.

However this disclosure of too much information in the

public may put companies in a competitive

disadvantageous position.

The non-discriminate imposition of stringent penalties

for every contravention seems to be inappropriate.

THANK YOU