companies act, 2013 analysis and...

Companies Act, 2013

Analysis and Implications

Foreword

D. S. Rawat

Secretary General

ASSOCHAM

4

The Indian corporate sector is passing through

an interesting phase primarily driven by two key

developments. Recently, a newly elected

government has assumed office, paving the way

for fresh optimism in the Indian corporate

sector. The enactment of the Companies Act

2013 is another key event for Indian corporates.

The current economic and regulatory

environment in India is on the threshold of a

major recast. Constant efforts are being made

to amend and adapt the laws to suit the

demands of modern times. The pivotal focus of

all major reforms is directed towards

simplification of the legal system to ensure that

it is easy to understand, implement and enables

business.

Companies Act 2013 is now effective from 1

April 2014. The MCA has already notified 282

sections out of 470 sections and rules relevant

for some of these sections. That means that

several significant key requirements of the new

Companies Act have now become effective.

While it is indeed a positive step forward by the

MCA in implementing the reformative new

company law, it also requires more compliance

and creates some complications for the

professionals and corporates to adopt the new

requirements.

Consequent to the enactment of the Companies

Act, 2013, the SEBI Board has in February

2014, approved the proposals to amend the

corporate governance norms for listed

companies in India. The amendments shall be

applicable to all listed companies with effect

from 1 October 2014.

To provide the holistic outlook regarding

Compliance & Complications under Companies

Act 2013, ASSOCHAM, in partnership with

Grant Thornton, has come out with a study

paper on “Companies Act, 2013 - Analysis and

Implications”

I am sure this study will give a rich insight and

adequate knowledge to all the stakeholders.

We also wish to acknowledge the contribution

made by the expert research team of Grant

Thornton India LLP for their untiring efforts in

preparing an extensive in-depth comprehensive

study.

With best wishes,

Foreword

Vishesh C Chandiok

National Managing Partner

Grant Thornton India LLP

5

The Companies Act, 2013 (‘2013 Act’) was

enacted on 29 August 2013 on accord of

Hon’ble President’s assent, and has the

potential to be a historic milestone as it aims to

improve corporate governance, simplify

regulations, enhance the interests of minority

investors, and for the first time legislates the

role of whistle-blowers. The new law replaces

the nearly 60-year-old Companies Act, 1956

(‘1956 Act’).

The 2013 Act provides an opportunity to catch

up and make our corporate regulations more

contemporary, as also potentially to make our

corporate regulatory framework a model to

emulate for other economies with similar

characteristics. The 2013 Act is more of a rule-

based legislation containing only 470 Sections,

which means that the substantial part of the

legislation will be in the form of Rules. There

are over 180 Sections in the 2013 Act where

rules have been prescribed.

To facilitate the ease of implementation, a

phased approach is being followed by the

Ministry of Corporate Affairs (‘MCA’).

Accordingly, 282 sections have been notified

and are in force as of 01 April 2014. Final Rules

for 19 chapters have also been released by the

MCA, which are applicable with effect from 01

April 2014. The Rules for the remaining

chapters are in draft stage.

Obviously, the intent is towards simplification,

which is critical for India to become more

competitive on the ease of doing business.

Whether this objective is finally delivered will

depend on two things - the rules that

supplement the Act and what they look like,

and the change in attitude towards

enforcement.

6

Governance • At least one woman director

• At least one India resident director

• Independent director (ID) legislated;

roles and responsibilities defined

• Database of IDs to be maintained;

may select IDs from this database

• One-person company permitted

unlike the minimum two before

• Maximum number of directors

increased to 15; any additional

directors only through Special

Resolution

• Maximum 20 directorships per

person; maximum 10 public

companies

• Consolidated financial

statements mandatory for all

Groups, including Unlisted/

Private companies, with more

than one entity; includes

associates or joint ventures;

• Mandatory rotation of audit firm

for listed companies post 10

years

• Financial year for all companies

to be March 31 (exception for

subsidiaries of foreign entities)

• Re-casting and re-statement of

financial statements can be

ordered; Voluntary revision of

financial statements for previous

periods now permitted

• Increased restrictions on non-

audit services provided by

Auditors

Accounts, Audit and Auditors

Independent

director legislated;

roles and

responsibilities

defined

• Auditor to also report on

adequacy of internal financial

controls system and the

operating effectiveness of such

controls

• Auditor to be a whistle-blower

to Central Government, if

becomes aware of any fraud

• The maximum limit of 20

companies per Partner in an

Audit firm

• Prescribed companies to

appoint internal auditor;

manner, period and reporting

to be prescribed by Central

Government

• Significant enhancement of

penalties for auditors

Mandatory rotation

of audit firm for

listed companies

post 10 years

• Stakeholders Relationship

Committee introduced

• Mandatory appointment of

Key Management Personnel

(KMP)

• Directors responsible for

design and operating

effectiveness of internal

financial controls

• Significantly enhanced

penalties for directors

In a nutshell

7

• 2% of the average net profit of

preceding three financial years

to be spent annually on

Corporate Social Responsibility

(CSR) or explain why not;

applicable for companies with

net worth of Rs 500 crore or

more, turnover of Rs 1,000

crore or more, or net profit

more than Rs 5 crore

• Valuations of any property,

stocks, shares, goodwill or any

other assets, net worth of a

company etc. must be

performed by a registered

valuer

• Class action suits introduced as

a remedy for small investors

against wrongful acts

Mergers without

Tribunal approval,

permitted between

two small companies,

or between a holding

company and its

wholly-owned

subsidiary

Large companies

to spend 2% of

average net profit of

preceding three

financial years on

CSR activities or

explain why not

spent

Other provisions

• Establishment of a

National Financial

Reporting Authority

(NFRA), with the objective

of monitoring and

enforcing compliance of

auditing and accounting

standards

• Establishment of vigil

mechanism (whistle-

blowing) in the prescribed

manner by every listed

company

• Deposit accepted (including

interest due) to be repaid

within 1 year from

enactment or from due date

of such payments,

whichever is earlier

Mergers and Restructuring • No more than two layers of

investment companies (certain

exemptions to foreign

acquisitions/ to comply with the

law)

• Mergers without Tribunal approval

permitted between two small

companies or between holding

company and its wholly-owned

subsidiary

• Merger into foreign companies

introduced

• Valuation report mandatory along

with notice to concerned parties in

case of proposed mergers

• Scheme of compromise or

arrangement must be in

line with accounting

standards; auditors'

certificate attesting the

same needed

• 'Reverse merger' of listed

company into unlisted

company now possible;

exit option to be provided

to listed company

shareholders

• Holding of treasury shares

directly or through a Trust,

prohibited

In a nutshell

Governance

9

Key changes and requirements Analysis and implications

Appointment of directors

The 1956 Act provided that the limit for maximum

number of directors be based on its articles or

twelve whichever is lower. The 2013 Act provides

that the company shall have a maximum of fifteen

directors on the Board of Directors (‘Board’) and

appointing more than fifteen directors would

require approval of shareholders through a special

resolution.

The 1956 Act did not prescribe any academic or

professional qualifications for directors. The 2013

Act provides that majority of members of Audit

Committee including its Chairperson shall be

persons with ability to read and understand the

financial statements.

The 2013 Act provides for appointment of at least

one woman director on the Board for such class or

classes of companies as may be prescribed. A

transitional period of one year has been prescribed

to companies for compliance with this provision.

The 2013 Act provides that a company should have

at least one director who has stayed in India for a

total period of not less than 182 days in the

previous calendar year.

The 1956 Act required that a public company can

have one director elected by small shareholders;

however, as per the 2013 Act, this provision is

applicable for listed companies only.

The 2013 Act required prescribed class of

companies to have whole-time KMP, including MD,

CEO, CS and CFO. This was not required under the

1956 Act.

The 2013 Act introduces a new category of a

company, One Person Company (“OPC”), which

should have at least one director.

For the first time, duties of the directors are defined

under the 2013 Act.

• Increasing the maximum limit of directors

would bring in more flexibility and enable

companies to get more experienced and

competent personnel at the Board level.

• Providing for the qualification of the audit

committee members would enable the company

to have quality people on the board to make the

board's functioning more effective.

• The prescribed minimum women representation

on company board, is a step towards making the

top deck more gender sensitive. Companies

must also bear in mind that whilst women

directors can be executive they do not need to

be independent.

• The 182 days limit is consistent with the Income

Tax (“IT”) Act for determining the residential

status of a person.

• Now, the unlisted public companies would not

be required to get a director appointed by small

shareholders.

• The OPC provision enables removing

nominee/ representative directors which were

appointed to meet the minimum director limit

and as such did not provide any benefit to the

company’s structure.

• Similar requirements for woman directors have

been introduced under revised listing

agreement.

Composition of the Board

10


Appointment of directors (Continued)

As per final Rules:

• Listed companies and other public companies

having paid-up capital of Rs 100 crore or more

or turnover of Rs 300 crore or more within six

months from the date of incorporation under

the Act have to appoint a woman director

• Listed company and every other public company

having a paid-up share capital of Rs 10 crore or

more to have whole-time KMP

Disqualification of directors

The 2013 Act includes the following additional

grounds of disqualification:

• A person who has been convicted of an offence

dealing with related party transactions at any

time during the past five years

• Similar to the public companies under the 1956

Act, the directorship in private companies has

also been brought under the ambit of

disqualification on ground for non-filing of

annual financial statements or annual returns for

any continuous period of three years, or failure

to repay deposits (or interest thereon) or redeem

debentures (or interest thereon) or pay declared

dividend and such failure continues for more

than one year.

• Director to vacate office if he remains absent

from all the board meetings held during 12

months

The 2013 Act makes directors’ disqualification

more stringent, including more scrutiny around

related party transactions.

The 2013 Act brings in more stringent provisions

to include such disqualification for the private

companies as well, thereby bringing more

discipline in the Board for private companies.

Action steps

Appointment of Directors

• Companies must put in place a mechanism to assess and periodically monitor foreign travel of its

directors so as to ensure that at least one director meets the 182 days criterion for being considered

as a resident in India.

• Companies should actively start looking for a woman director considering they have only a short

period to comply with this requirements of the 2013 Act.

Disqualification of Directors

• Private companies to review the director's disqualification and ensure compliance for their existing

directors.

• Private companies to consider including disqualification of directors as a part of its articles of

association.


11


Independent directors (‘ID’)

Under 1956 Act, there was no requirement to have

IDs. However, under the Listing Agreement, the

Board of listed entities having non-executive

chairman and executive chairman should comprise

of at least one-third and one-half of the Board as

ID respectively. The 2013 Act proposes that the

Board of listed entities should comprise at least

one-third of the Board as ID.

Transitional Period

The 2013 Act also provides one year period from

the enactment to comply with this requirement.

Other provisions with respect to IDs are discussed

in detail in the following paragraphs.

This provision brings in the ID requirements and

monitoring under the 2013 Act.


12

Board functioning


Notice of Board meeting

The 1956 Act provided that notice of every Board

meeting should be given in writing. However, it did

not specify the period of notice. The 2013 Act

provides that a minimum of seven days notice to

the Board is required to call a Board meeting.

The company may give a shorter notice to transact

urgent businesses, provided at least one ID is

present at the meeting. In case of absence of ID

from such a meeting, decisions taken at the meeting

to be circulated to all the directors and to be made

final only on ratification by at least one ID.

The 2013 Act intends to provide the Board

sufficient time to prepare for the meeting.

Frequency of Board meetings

The 1956 Act required at least one Board meeting

to be conducted in every three calendar months and

four such meetings in a financial year. Further,

Listing Agreement requires at least four meetings in

a year with a maximum time gap of four months

between two meetings.

The 2013 Act, consistent with the Listing

Agreement requirement, provides that the company

should have at least four meetings in a year with a

maximum time gap of 120 days between two

meetings.

The 2013 Act also requires that the first Board

meeting of the company be held within thirty days

of incorporation of the company.

The provision makes the requirements for

frequency of Board meeting similar for public and

listed companies.

Action steps

Companies may need to frame a policy as to what would qualify as an urgent business and related time

window for transacting such urgent business in order to comply with the seven-day notice period

requirement. For example, the items could include – completion of statutory audits and reports thereon.

13

Board functioning


Conduct of the Board meeting

Participation in the Board meeting through

prescribed video conferencing or other audio visual

means is recognised, provided such participation is

recorded and recognised. However, the Central

Government (‘CG’) may prescribe matters to be

discussed at a physically convened Board meeting.

As per final Rules:

MCA has prescribed following items to be

discussed at a physically convened Board meeting

only:

• the approval of the annual financial statements;

• the approval of the Board’s report;

• the approval of the prospectus;

• the Audit Committee Meetings for consideration

of accounts; and

• the approval of the matter relating to

amalgamation, merger, demerger, acquisition and

takeover.

The provision of conducting the Board meetings

through electronic means would bring in more ease

to the Board's functioning.

Audit committee

The 1956 Act required public companies having

paid-up capital of more than Rs 5 crore to

constitute audit committee, consisting of minimum

three directors and two-third of total members to

be directors other than Managing Director (“MD”)

or Whole Time Director (“WTD”) of the company.

Further, similar to the 1956 Act, listed entities are

required to constitute audit committee with two-

third of the members to be IDs. Listing agreement

also states that all members of the audit committee

should be financially literate and at least one should

have accounting or financial management expertise.

As per the 2013 Act, audit committees made

mandatory for listed companies and other

prescribed classes of companies.

The 2013 Act provides that audit committee should

consist of minimum of three directors with IDs

forming majority. Further, the chairperson and the

majority of the members of the audit committee

should have the ability to read and understand the

financial statements (referred as “financially literate”

under the Listing Agreement).

The 2013 Act dispenses with the requirement of

constituting the audit committee of the Board in

case of certain unlisted public companies.

The roles and the activities of the audit committee

have been specifically provided under the 2013 Act.

Pre-approval of all RPTs by the Audit Committees

is a significant change in the current practice

While on most matters, the committee has a monitoring/oversight role, on valuation of undertakings / assets, the primary responsibility seems to be that of the Audit Committee

14

Board functioning


Audit committee

The role of the audit committee includes the

following activities as per the 2013 Act:

a) the recommendation for appointment,

remuneration and terms of appointment of

auditors of the company;

b) review and monitor the auditor’s independence

and performance, and effectiveness of audit

process;

c) examination of the financial statement and the

auditors’ report thereon;

d) approval or any subsequent modification of

transactions of the company with related parties;

e) scrutiny of inter-corporate loans and

investments;

f) valuation of undertakings or assets of the

company, wherever necessary;

g) evaluation of internal financial controls and risk

management systems;

h) monitoring the end use of funds raised through

public offers and related matters.

The revised Listing Agreement enlarges the role of

the audit committee to now additionally also

include:

a. review and monitor the auditor's independence

and performance, and effectiveness of audit

process;

b. approval of the appointment of the

CFO/equivalent review the functioning of the

Whistleblower policy.

The audit committee shall have the authority to

investigate into any matter in relation to the items

specified above or any such matter referred to it by

the Board.

As per final Rules, the threshold for constituting audit committee is as follows:

• Every other public company: - having paid up capital of Rs. 10 crore or more; or

- turnover of Rs. 100 crore or more; or

- outstanding loans or borrowings or debentures; or

- deposits exceeding Rs. 50 crore or more,

as on the date of last audited financial statement.

Action steps

• Unlisted public companies to revisit the need

to continue with an audit committee

requirement.

• Audit committees would need to devise a

mechanism to:

- form a policy for recommendation and

appointment of auditors of the company;

- review and monitor the auditor’s

independence related matters;

- approval and/ or modification of the

related party transactions;

- valuation of undertakings or assets of the

company;

- evaluation of internal financial controls

and risk management systems.

• Audit committee may seek external expert

support to assist them in complying with

their responsibilities

15

Board functioning


Nomination and Remuneration Committee

The 1956 Act did not provide for the constitution

of a Nomination and Remuneration Committee.

Under the revised Listing Agreement, listed entities

shall constitute a Nomination and Remuneration

Committee and such committee should consist of

minimum of three directors, all of whom should be

non-executive directors and at least half shall be

independent directors

The 2013 Act requires all listed companies and

other prescribed classes of companies to constitute

Nomination and Remuneration Committee that

formulates the criteria for selection of the directors,

a policy relating to the remuneration for the

directors, Key Managerial Personnel (“KMP”) and

other employees. Such committee should consist of

three or more non-executive directors and at least

one-half of the members should be IDs.

As per final Rules:

Threshold for nomination and remuneration

committee

• Every other public company (i) having paid up

capital of Rs. 10 crore or more; or (ii) turnover

of Rs. 100 crore or more; or (iii) outstanding

loans or borrowings or debentures or deposits

exceeding Rs. 50 crore or more, as on the date of

last audited financial statement.

This provision will result in mandatory

requirement to constitute Nomination and

Remuneration Committee for prescribed class of

companies. This may result in change in practice

for several companies.

The 2013 Act does not provide any transitional

period for compliance with the constitution of a

Nomination and Remuneration Committee.

Corporate Social Responsibility (CSR) Committee

The 1956 Act did not mandate a company to spend

on CSR activities and consequently, there is no

requirement to constitute a CSR Committee.

The 2013 Act provides that a company meeting

certain conditions, should constitute a CSR

Committee of the Board, consisting of minimum

of three directors.

The CSR Committee should consist of a minimum

of one ID.

The CSR committee should formulate and monitor

CSR policies and discuss the same in the Board’s

report.

This new committee will frame and monitor the

CSR policy of the company and matters incidental

thereto.

The CSR policy would specify the projects and

programs to be undertaken and also their

execution modalities and implementation

schedules.

16

Board functioning


Corporate Social Responsibility (CSR) Committee

As per final Rules:

Criteria for constituting CSR committee is as

follows:

• net worth of Rs 5000 crore or more, or

• turnover of Rs 1000 crore or more or

• net profit of Rs 5 crore or more during any

financial year

The 2013 Act intends to provide the Board

sufficient time to prepare for the meeting.

Stakeholders Relationship Committee

The 1956 Act did not require the constitution of

Stakeholders Relationship Committee. The revised

Listing Agreement requires constitution of the

Stakeholders Relationship Committee to consider

and resolve the grievances of the security holders

of the company.

The 2013 Act requires that a company with more

than 1000 shareholders, debenture holders, deposit

holders and other security holders at any time

during the financial year shall constitute a

Stakeholders Relationship Committee to resolve

their grievances.

The 2013 Act does not prescribe the number of

members of such committee consistent with the

Listing Agreement, however provides that a non-

executive director should be the chairman of such

committee.

The provisions are now same under the 2013 Act

and revised Listing Agreement for listed

companies.

This provision applies to non-listed entities also,

meeting certain prescribed conditions and hence

will be a significant change in practice.

Action steps

CSR Committee

All companies will need to determine the applicability of the CSR criteria and also the activities that may

constitute CSR activities under the 2013 Act, to ensure compliance.

Stakeholders Relationship Committee

A non-listed company with more than 1000 share/debenture or security holders to form stakeholders

relationship committee and include one non-executive director.

17

Board functioning


Board’s report and responsibility statement

The 2013 Act seeks to make the board's report

more informative with extensive additional

disclosures like:

• Extracts of the annual return in prescribed form;

• Recommendations of the audit committee that

are not accepted by the Board and reasons

therefore;

• A statement on declaration by the IDs on their

compliance being IDs;

• Policy developed and implemented by the

company on CSR;

• In case of a listed company, statement indicating

the manner in which annual evaluation has been

made by the Board of its performance, its

committee and individual directors;

• Development and implementation of risk

management policy;

• Policy on director’s appointment and

remuneration, ratio of remuneration to each

director to the median employee’s remuneration;

• Material changes and commitments, affecting

company’s financial position subsequent to the

year end; to which the financial statements relate

and the date of the reports;

• Related party transactions not in the ordinary

course of business and not at arm’s length basis;

The 2013 Act has included the following additional

matters in the Directors’ responsibility statement:

- in case of a listed company, the directors had

laid down internal financial controls to be

followed by the company and they are

adequate and operating effectively;

- the directors have devised proper systems to

ensure compliance with all applicable laws and

such systems are adequate and operating

effectively.

The provision increases the responsibilities and

improves transparency of the functioning of the

Board.

The disclosures may also contain information that

is commercially sensitive and accordingly

companies will need to develop the disclosures

carefully.

The requirements on internal financial controls:

- are similar to global requirements; and

- may require significant efforts and costs to

ensure compliance.

- to ensure orderly and efficient conduct of

business) appear to be onerous, and can be read

to cover:

• not just financial reporting aspects, but also

operational areas

• looks at efficiency of operations

• requires conformation of operating

effectiveness

18

Board functioning


Board’s report and responsibility statement (Continued)

As per the final Rules:

• Every listed Company and every other public

company having a paid up capital ≥ 25 crore at

the end of the preceding financial year shall

include a statement on the annual evaluation

• The Board report should contain the names of

Companies which have become or ceased to be

the subsidiaries, joint venture or associate

company

• The details relating to deposit accepted,

remained unpaid or where default in repayment.

• The details in respect to internal financial

controls with reference to financial statements

The final Rules have introduced the requirements

of reporting on internal financial controls with

reference to financial statements. The final Rules

do not indicate its applicability with respect to

listed companies only (governed by the 2103 Act

though); therefore, this requirement seems to be

applicable to unlisted companies only. Hence, the

scope of reporting seems to be narrower for

unlisted, as compared to listed companies.

Action steps

• Companies to obtain additional information on transactions to be reported to and approved by the

Board.

• The Board to devise a mechanism to evaluate its own annual evaluation and events occurring post

year end

• The "internal financial controls" and its monitoring by the board in the 2013 Act will require

companies to set up appropriate mechanism/ processes/ systems to be able to give such declarations

19

Related parties


Related party transactions

As against the term “relative” defined under the

1956 Act, the 2013 Act defines the term “related

party” for the first time. The term ''related party" as

defined under the revised Listing Agreement is

significantly broader than in the 2013 Act.

The 1956 Act does not mandate specific approval

of the related party transactions ('RPTs') by the

Board/ shareholders. However, revised Listing

Agreement requires that all material RPTs shall also

require approval of the shareholders through special

resolution.

The 2013 Act proposes that all RPTs which are not

in the ordinary course of business or not at arm’s

length basis should be approved by the Board.

The 2013 Act also proposes that for the companies

with the prescribed share capital, no contract or

arrangement or transactions exceeding prescribed

amount, shall be entered into with its related party,

unless, approved by the shareholders of the

company by way of a special resolution. However,

the related party shareholders are not permitted to

exercise their voting rights, in such special

resolution.

The 2013 Act and the revised listing agreement

further mandates that all related party transactions

shall require prior approval of the audit committee.

The 2013 Act also proposes that a company shall

not make investments through more than two layers

of investment companies, unless the investments

are in an overseas company and the company has

overseas subsidiaries and such layers are permitted

under the local law of the company being acquired

or under the law of the acquiring company.

Every contract or arrangement entered into with a

related party shall be referred to in the Board's

report along with the justification for entering into

such contract or arrangement.

In addition to the related parties identified under

the existing notified accounting standards, the 2013

Act proposes to include more related parties than

what has been considered for disclosures in the

financial statement.

Based on the size of capital or the size of

transactions, certain additional companies may

require prior approval of members for related

party transactions.

Company to demonstrate what's arm's length. This

would need to be in sync with domestic transfer

pricing requirements, as well.

For transactions involving promoter related parties,

only non-promoter shareholders can vote.

Ordinary course of business not defined.

No transition period has been provided by the

2013 Act for existing loans and investments

through more than two layers of subsidiaries.

However, interpretation is to apply this

requirement only prospectively.

20

Board functioning


Related party transactions

As per final Rules:

• The term 'relatives' include step relationships and

exclude second generation lineal ascendants and

descendants.

• Threshold for approval of RPTs by shareholders

through special resolution:

- Company having a paid-up share capital of Rs.

10 crore or more; or

- Transaction or transactions to be entered into: i. threshold amount determined as percentage of

turnover /net worth per last audited financial

statements, threshold varies depending on the

nature of related party transactions

ii. relates to appointment to any office or place of

profit at a monthly remuneration exceeding Rs.

2.5 lakh

iii. is for a remuneration for underwriting the

subscription of any securities or derivatives

thereof of the company exceeding 1% of the net

worth.

• Turnover or networth shall be on the basis of

the Audited Financial Statement of the previous

Financial Year

• In case of wholly-owned subsidiary, special

resolution passed by the holding company for

entering into transactions between wholly-owned

subsidiary & holding company would be

sufficient compliance of these provisions.

• Explanatory statement annexed to the notice of

General Meeting shall contain the particulars

regarding related party & transactions.

• Register for recording the contracts &

arrangements with related party in Form MBP 4,

shall be preserved permanently.

Action steps

• Companies to identify all related parties since the scope of such parties has been expanded.

• Companies need to identify whether the expanded list of related parties is consistent with the

application requirement of the accounting standard.

• Companies to assess whether they are covered in the expanded list as identified by the 2013 Act to

require member's approval.

• Resolutions requiring the approval of the members would not have the voting of the concerned

related party voting on such transaction

21

Board functioning


Qualification and composition of independent directors

The concept of ID has been introduced and

defined under the 2013 Act as a director other than

a managing director or a whole-time director or a

nominee director, who:

• is a person of integrity and possesses relevant

experience.

• is not a promoter/a relative of a promoter (or

director) of the company or its

holding/subsidiary/associate company and does

not have pecuniary relationship with the

company/its holding/subsidiary/associate

company / promoters/directors of the company

during the current financial year or during the

two immediately preceding financial years.

• whose relatives do/did not have pecuniary

relationship amounting to 2% or more of the

gross turnover or total income or Rs 50 lakh or

such higher as may be prescribed, whichever is

lower with the company/its

holding/subsidiary/associate company /

promoters/directors of the company in the

current financial year or during the two

immediately preceding years.

• is not a KMP or whose relative is not a KMP, of

the company or its holding/ subsidiary/associate

in the last three years.

• has not been an employee or partner in a firm of

auditors or company secretaries or cost auditors

of the company/its holding/subsidiary/associate

company or in a legal/consulting firm that has or

had any transaction with the company /its

holding /subsidiary/associate company

amounting to 10% or more of the gross turnover

of such firm.

• does not hold more than 2% (individually or with

his relatives) of the total voting power.

• is not Chief Executive Officer or director of

non-profit organization, receiving 25% percent

or more of its receipts from the company/its

promoters/directors/ its holding/subsidiary/

associate company or holds more than 2% of the

voting power.

The definition of the term "IDs" as given under

the 2013 Act is now same as that provided under

the revised Listing Agreement, except for

providing the age limit of more than 21 years as

mandated by the latter.

This difference may result in a director being

qualified as an ID under the 2013 Act, however

disqualified as per the Listing Agreement.

Wider relationships now covered in determining

independence of a director

Other measures are aimed at mitigating actual or

perceived threats to independence and objectivity

of directors

The fixed tenure is aimed at protecting the tenure

of IDs

The Act also provides much needed clarity on the

liability of IDs, which is very welcome

22

Board functioning


Qualification and composition of independent directors

Listed companies shall have at least one-third of the

total number of directors as IDs and the CG may

prescribe the minimum number of IDs for any class

of public companies.

This requirement is to be complied within 1 year:

• by existing listed companies from the date of

enactment of the 2013 Act ; and

• by the prescribed class of public companies from

the date Rules are notified.

As per Final Rules:

Threshold for public companies– (i) share capital of

Rs.10 crore or more or turnover of (ii) Rs100 crore

or more or (iii) aggregate, outstanding loans or

borrowings or debentures or deposits exceeding Rs

50 crore, as per the latest audited financial statement

Term of appointment and other requirements

The ID shall be appointed for a term of up to five

years and be eligible for re-appointment subject to

certain conditions for two such terms. Thereafter,

the ID shall be eligible for appointment after a

cooling off period of three years, subject to certain

conditions.

Alternate director of an ID can be appointed if

such an alternate director is also an ID.

IDs should provide declaration at the date of

appointment and at the first meeting of the Board

in every FY confirming that he meets the criteria of

independence unless there are changes in the

circumstances since last declaration. Currently,

under the Listing Agreement there is no such

requirement to provide any declaration.

In the 1956 Act, an ID may be remunerated by way

of grant of stock options in addition to fees/

commissions. The 2013 Act and the revised Listing

Agreement provide that the ID should not be

remunerated by grant of stock options.

The mandatory rotation period is a significant

change in practice and is aimed at improving

objectivity of the ID. The availability of qualified

personnel to act as ID could pose challenges in

implementation of these provisions.

It is also noted that there is no requirement for ID

rotation in other developed countries.

The provision is aimed at addressing objectivity of

the IDs. However, the 2013 Act does not specify

the implication of outstanding stock options

granted previously to IDs.

With the prohibition of granting stock options to

IDs under the revised Listing Agreement also, this

appears to be consistent now with the 2013 Act.

The 2013 Act provides a guide to professional

conduct for IDs which will provide confidence to

the investor community, particularly minority

shareholders, regulators and companies in the

institution of the independent directors.

23

Board functioning


Term of appointment and other requirements

The 1956 Act did not mandate laying down the

code of conduct. However, under the Listing

Agreement, listed companies are required to have a

code of conduct for all Board members and senior

management of the company, which further

mandates to include the duties of IDs as laid down

in the 2013 Act. The 2013 Act prescribes in a

separate schedule, on Code of conduct applicable

only for IDs.

The 2013 Act provides that CG is empowered to

notify any body or institute or association to

maintain a databank containing particulars of the

IDs such as name, address, qualification.

The provision will improve the efficiency and

effectiveness in selecting qualified personnel.

The time frame during which the data bank has to

be prepared has not been defined.

Action steps

• Potentially, additional public companies may be identified for the requirement of inducting IDs.

• Companies to obtain information from IDs pertaining to them and their relatives to conclude that

the independence criteria is met annually.

• Listed companies will need to assess how they would apply the stricter policy of independence as per

the 2013 Act and the requirements of the Listing Agreement.

• Determine the course of action for directors that may not qualify as independent under the 2013 Act

– such as nominee directors.

• Companies will need to identify outstanding stock options previously granted to IDs and determine

the appropriate course of action.

• The directors need to evaluate as to by when they need to get themselves registered with the data

bank.

24

Other provisions


Number of directorships

The 1956 Act provided for maximum directorship

of not more than fifteen companies. Private

companies, Unlimited companies, Associations not

carrying on business for profit or which prohibit

payment of dividend, Alternate directorships and

Foreign companies were not considered for this

purpose.

The 2013 Act provides that a person cannot have

directorships (including alternate directorships) in

more than twenty companies, including ten public

companies. For this purpose, directorship in private

companies that are either holding or subsidiary

company of a public company shall be regarded as

a public company.

The 2013 Act provides for one year period from the

enactment to comply with this requirement.

The provision increases the number of

directorships from 15 to 20. However, it may

result in many directors already exceeding the

prescribed limits as the directorship in more

companies (excluding foreign companies) and

alternate directorships are counted for this purpose

now.

Increasing the maximum limit of directors would

bring in more flexibility and enable the companies

to get more experience and competent personnel

at the Board level.

Revised Clause 49 is more restrictive on the limit

on number of directorships for IDs i.e. maximum

7 listed companies. Also, a whole time director in

any listed company can serve as an ID in

maximum of 3 listed companies.

Restriction on power of Board

As per the 2013 Act, restriction on power of Board

to exercise specified powers with general meeting

approval extended to private companies. In all cases,

approval of shareholders by a special resolution

made necessary. As per the 1956 Act, it was

applicable for the public companies and the private

companies being the subsidiary of the public

company and there was no mention for the type of

the resolution to be passed at the general meeting.

The Board can act on certain prescribed matters

only after obtaining the consent of the members

by a special resolution.

Private companies would also require to ensure and

enlist the matters that could be transacted by

passing a special resolution.

Resignation

Provisions with respect to resignation of a director

have been specifically provided under the 2013 Act.

It is also mandated for a director to forward a copy

of his resignation along with detailed reasons for

the same to the Registrar in the prescribed manner.

The shareholders and the regulatory bodies can use

this as a tool to assess the issues in governance by

monitoring the reasons for resignation as provided

by the directors.

Action steps

• Companies and their directors will be required to identify their directorships and transition out over

the year if they exceed the limit.

• Companies will also need to identify replacement directors – including IDs.

• The companies need to consider updating their charter documents for incorporating the provisions

with respect to duties and resignation of the directors.

25

Other provisions


Prohibition of insider trading

New clauses have been introduced with respect to

prohibition of insider trading of securities and the

definition of price sensitive information.

No person including any director or KMP of a

company shall enter into insider trading except any

communication required in the ordinary course of

business or profession or employment or under any

law.

While the 1956 Act was silent on insider trading, the

2013 Act on the other hand, lays down provisions

relating to prohibition of insider trading with

respect to all companies This is a step towards

harmonisation between the 2013 Act and the SEBI

Act; more specifically for listed companies;

Any person who violates the clause will be punished

with a cash fine or imprisonment or both.

Whistle Blower Mechanism

Every listed company and prescribed companies

need to establish a vigil mechanism for directors

and employees to report genuine concerns.

As per final Rules, the companies accepting public

deposits and with borrowed money from banks etc.

exceeding Rs 50 crore are covered for this purpose.

Whistleblower mechanism accompanied by anti-

abuse mechanisms would be a step towards better

corporate governance.

Penalties

The 2013 Act proposes significant penalties for

directors for defaults in discharging their duties. The

instances for levying penalties have increased

substantially too. Concept and penal provisions

relating to officer in default is also strengthened.

Penalties and fine provided under the 2013 Act are

upto 3 times of the amount involved and

imprisonment for a term upto 10 years.

This will help to make Company and it officers in

default more liable for their action.

Strengthening the provisions for officers in default

and further making the penal provisions more

rigorous are aimed at protecting the stakeholders’

interest.

Class Action (not yet notified)

Unlike the 1956 Act, the 2013 Act provides for class

action suits, allowing certain members/depositors

with common interest, to file an application in the

National Company Law Tribunal against the

company/its management/its auditors or a section

of its shareholders for damages or compensation if

they are of the opinion that the management or

conduct of the affairs of the company are being

conducted in a manner prejudicial to their interest.

Class Action suit provides empowerment to

minority stakeholders to come together and seek

action against the management, advisors and

auditors of the company for any oppression or

mismanagement. However, in the absence of

significant anti-abuse provisions in the

implementation rules, this can be misused. The new

risks and liabilities will enforce more responsibility

into the role of a director.

Action steps

• The companies need to develop a mechanism for insider trading and price sensitive information.

• The prescribed companies also need to establish and monitor the whistle blower mechanism.

• The companies need to prepare a strong mechanism to ensure adherence to the rules and regulations

as per the 2013 Act so as to avoid the rigorous penalties laid down under the 2013 Act.

Accounts, Audit and Auditors

27

Accounts


Consolidated financial statements and definition of significant influence

The 1956 Act does not require preparation of

consolidated financial statements (‘CFS’). However,

listed entities are required to prepare CFS (as per

SEBI regulations). The 2013 Act mandates

preparation of CFS for all companies which have

one or more subsidiaries. Further, the definition of

a subsidiary as per the 2013 Act includes associates

and joint ventures.

In addition, the 2013 Act:

• prescribes the format (similar to existing revised

schedule VI of the Act) for preparation of CFS

• requires minority interest to be presented

separately within equity on the balance sheet

The 2013 Act defines the term significant influence

as “control of at least 20% of total share capital or

of business decision under an agreement”. This

definition differs from the existing notified

accounting standards, which defines significant

influence as "the power to participate in financial

and/or operating policy decisions of the investee

but not control over those policies".

The final Rules also reiterate the fact that the

consolidated financial statements shall be made in

accordance with the provisions of Schedule III of

the 2013 Act.

The requirement to prepare CFS is largely

consistent with internationally accepted practices.

However, internationally, such requirements apply

only to listed companies; and unlisted intermediate

entities are generally exempted.

The existing Indian and international accounting

practices do not require preparation of CFS when

the company has investments only in associates and

joint ventures (no subsidiaries).

The requirement to present minority as part of

equity is currently not required under the existing

Indian accounting practices. However, the

international practices are consistent with the 2013

Act.

With regards the definition of significant influence,

we note that the standing committee recognised the

difference and concluded that in due course the

accounting standards will get aligned to the

definition in the 2013 Act. However, this change

could potentially result in divergence with

internationally accepted practices.

There will in an increase in efforts and costs, for

example in IT/ ERP systems, without providing

much benefits to privately held companies.

Financial Year

As per the 1956 Act, it is up to a company /body

corporate to choose its financial year. The 2013 Act

provides that the financial year for all companies

and body corporates should end on 31 March.

However, exemption may be granted at the specific

request of the reporting entities where the financial

statements of such entities are required for

consolidation outside India. A transition period of

two years has been provided for this change.

The 2013 Act eliminates the current flexibility in

having a financial year different than 31 March, as

well as in making amendments to the year-end to

suit requirements.

Action steps

• Immediate task is to assess the number of additional financial statements required specially as

consolidation is also required at intermediate levels.

• Identify subsidiaries, JVs and associates as per the revised definition of significant influence which may

be required to be consolidated in the financial statement.

28

Accounts


Restatement of financial statements (Not yet notified)

Under existing accounting practices, a company

cannot restate its previously issued financial

statements to correct for an error or misstatement.

These are corrected in the current period and

disclosed. The 2013 Act provides for the following:

• mandatory restatement: in case of fraud and on

passing an order by a Court/ Tribunal

• voluntary restatement: to comply with ASs

standards with the approval of the tribunal

The concept of restatement is new and is an

internationally required practice. Further, SEBI has

recently mandated that it may require companies to

restate financial statements in case of justified

audit qualifications. Accordingly, the provision

under the 2013 Act will enable the implementation

of the SEBI requirements.

Estimated useful life of assets

The 1956 Act provides for minimum useful lives of

fixed assets. For all companies, the 2013 Act

removes the minimum thresholds and provides

indicative useful lives and residual values under Part

C of Schedule II to the 2013 Act. Any variation

from the indicated life needs to be justified. These

changes need to be applied prospectively. On the

date of this Schedule coming into force, if no useful

life is left for an asset with carrying value, the same

shall be adjusted through opening reserves.

For intangible assets, the provisions of the ASs shall

be applicable, except in case of intangible assets

(Toll Roads) or any other form of public private

partnership route in road projects, where a revenue

based method for amortisation has been prescribed.

A similar method was available under 1956 Act for

Toll Roads (notified in April 2012 separately).

Componentisation of assets is mandatory now.

The 2013 Act has introduced separate category for

industries such as (a) civil construction, (b)

telecommunication, (c) exploration, production and

refining oil and gas, etc.

It appears that the 2013 Act permits companies to

have a useful life which is different from the

prescribed/ indicated life with a justification thereof

in the Financial Statements. This may lead to

different useful life for the same asset by similar

companies.

Mandating different depreciation on the different

components of a single asset will also be a

cumbersome activity for most of the companies

and may significantly impact their Financial

Statements in the initial years of implementation of

the revised policy.

We believe that such provisions are restrictive and

are indirectly pushing companies to follow the

useful life as indicated in the 2013 Act instead of

making an appropriate assessment of the useful life

of the asset.

Deviations from the prescribed lives are allowed but

would need to be justified.

Componentisation will require significant efforts,

since this is to be done from a retrospective effect

Action steps

• Companies need to carefully consider the implications of restatement provisions and its impact, e.g.

where there are audit qualifications, instances of fraud, prior period adjustments etc. • The useful lives of several tangible and intangible assets are significantly lower than the lives

prescribed under erstwhile Schedule XIV. Hence, management shall assess the useful lives based on

the prescribed indicative useful lives and disclosures.

• Companies need to evaluate the existing assets for component assessment and frame the revised

depreciation policy and evaluate the depreciation thereon.

29

Audit and Auditors


Eligibility

Under the 1956 Act, a Chartered Accountant ('CA')

holding a certificate of practice or a firm of CAs

(only) can be appointed as auditor(s) of a company.

The 2013 Act, in addition, proposes that a firm

wherein a majority of the partners practicing in

India are qualified for appointment, may be

appointed to be an auditor of a company. Where a

firm, including a Limited Liability Partnership

(‘LLP’), is appointed as an auditor of a company,

only partners, who are CAs are permitted to act and

sign on behalf of the firm.

The introduction of LLP as an auditor and ability

to work along with partners who are not CAs is a

welcome change and in line with international

practices. This will also pave the way for multi-

disciplinary partnership firms.

Auditor needs to submit eligibility certificate

before proposal of the appointment is taken up.

The company needs to file a form with the

government within 15 days of appointment of

auditors.

Disqualifications

Additional disqualification prescribed:

• Any person who has a 'business relationship' with

the company/ its subsidiary/associate/its holding

company/subsidiary or associate of its holding

company (business relationship disqualification);

• A person whose relative is a non-executive/

executive director or KMP of the company;

• A person who has been convicted by a court for

an offence involving fraud and a period of ten

years has not elapsed from such conviction;

• A person being full-time employee elsewhere;

• A person whose appointment will make him the

auditor of more than 20 companies;

• Any person whose subsidiary or associate or any

other form of entity is engaged in providing non-

audit services as on the date of appointment

• Any person who is holding interest greater than

Rs 1 lakh face value or indebted for greater than

Rs 5 lakh to the company.

As per final Rules, the term ‘business relationships’

is defined to construe any transaction entered into

for a commercial purpose except for:

• professional services permitted for auditors under

the Act and the CA Act

• in the ordinary course of business at arm's length

price

Some of the disqualifications seem to be quite

punitive and may be difficult to implement.

The term 'business relationship' defined through

Rules brings some clarity to the application of the

provisions. However, determination of 'ordinary

course of business' and 'arm's length price' would

also bring some challenges in evaluating and

establishing the same. Further, no cooling off/

transition period has been provided by the 2013

Act.

Further, it seems that the non-audit services may be

provided in the year of the appointment without

affecting eligibility, provided the engagement is

terminated prior to the date of the appointment.

Action steps

Existing auditor's relationships need to be re-evaluated considering the several disqualifications included.

30

Accounts


Tenure and re-appointment of auditors

Auditors appointed in an annual general meeting

(‘AGM’) shall hold office from the conclusion of

that meeting until the conclusion of the ensuing

sixth AGM (subject to ratification by members at

every AGM).

As per the 2013 Act, before the expiry of the term

of appointment, the company may remove the

auditors (subject to special resolution and prior

approval from Central Government ('CG')) and the

auditors, as well, have the right to resign.

Further, the Tribunal (not constituted as yet) either suo-

moto or on an application made to it by CG or by

any person concerned, if it is satisfied that the

auditor has acted in a fraudulent manner or abetted

or colluded in any fraud by the company or in

relation to the company/its directors/officers; may

direct the company to change its auditors. The

auditor, against whom such an order is issued, shall

not be eligible to be appointed as auditor of any

company for five years, together with other penal

actions.

An auditor/ audit firm is eligible for re-

appointment after expiry of five years since

completion of the previous tenure.

An audit firm having common partner (s) with

another firm which has completed its term is not

eligible for re-appointment for a period of five

years from the completion of the other firm’s term.

As per final Rules:

• Rotation requirements apply retrospectively i.e.

period prior to the commencement of the 2013

Act, included in computing 5/10 consecutive

years.

• Incoming auditor/audit firm disqualified for

appointment, if associated with the outgoing

auditor/audit firm under the same network of

audit firms or operating under the same trade

mark or brand.

The provision of five year appointment may result

in effectively protecting the tenure of the auditor

for five years by including stringent provisions on

removal of auditors. While rotation (as discussed

below) affects the long-term continuity of the

company-auditor relationship, the five-year

appointment, brings in stability for a limited

period.

However, the ratification provision results into

annual confirmation of the appointment and

effectively may not provide the tenure protection

in reality.

The Tribunal's authority to suo-moto change the

auditor and consequent ineligibility of such

auditor, to act as an auditor for any company is

quite punitive and could be disruptive to the audit

profession. This could result in disproportionate

punishment for a minor intentional / unintentional

act and could potentially shut down large

accounting firms overnight.

Action steps

Companies to make an assessment of the timing for change of existing auditors in line with the amendments

31

Audit and Auditors


Mandatory rotation

In case of listed companies (or a company

belonging to such class or classes of companies as

may be prescribed) the term of appointment of an

individual auditor/ an audit firm is restricted to a

period of five years/ ten years.

An auditor/ audit firm should mandatorily rotate at

the expiry of the term.

Shareholders, at their discretion, may determine that

an audit partner may rotate at such interval as may

be resolved by them, or that the audit may be

conducted by more than one auditor (joint audit).

There is a transition period of three years, from

date of enactment of the 2013 Act, to comply with

this requirement.

As per final Rules, auditor rotation is made

mandatory for the following class of companies,

excluding one person companies and small

companies:

• unlisted public companies with paid up share

capital of Rs. 10 crore or more;

• private companies with paid up share capital of

Rs. 20 crore or more;

• all companies with borrowings from bank/public

financials institution or public deposit of Rs. 50

crore or more.

Mandatory rotation is a new concept and is

expected to change the Indian audit market

structure significantly as several large companies

have retained their auditors for more than 10 years.

Mandatory rotation could possibly result in both

positive and negative influences on the quality of

the financial reporting processes and on overall

audit quality. Not many jurisdictions have

established mandatory auditor rotation

requirements, accordingly its feasibility and

practicability is debatable because the extent of

information about its potential impact is not

readily available. Further the international practice

so far is of mandatory partner rotation only. While

European Union has very recently issued

requirements for mandatory firm rotation, the

same are applicable to only very large companies

and the rotation period could be up to 20 years.

While the potential benefit of mandatory rotation

is enhanced auditor objectivity, it will also likely

have an effect on overall cost, conduct and timing.

A sudden introduction of such a requirement may

disrupt the audit market and the industry as a

whole. The implications could be far reaching and

cannot be commented at this point in time.

Action steps

Companies to involve audit committees up-front in developing an internal system for assessment of

eligible firms for appointment.

32

Non-audit services


Restricted services

Currently, whether non-audit services can be

rendered to an audit client is determined by

applying the Code of Ethics and the Guidance

Note on Independence of Auditors issued by the

ICAI. Unlike 1956 Act, the 2013 Act contains

specific provisions that prohibit auditors of a

company to render non-audit services to an audit

client (or its holding company or its subsidiary

company)

Prohibited non-audit services include:

• accounting and book keeping services;

• internal audit;

• design and implementation of any financial

information system;

• actuarial services;

• investment advisory services;

• investment banking services;

• rendering of outsourced financial services; and

• management services.

Other restricted services may be further prescribed.

Transition Period

One year from the date of enactment of the 2013

Act.

The list of prohibited services is quite wide and also

vaguely worded. This results in restricting the ability

of an audit firm to provide most non-audit services.

Whilst the provision of some non-audit services to

audit clients can pose a risk, the objectivity of

auditors is not compromised by providing non audit

services to audit clients or their holding companies

provided that auditors comply with independence

standards. Certain non-audit services, for example,

services that pose a risk of self-review do impair

independence; however there are several non-audit

services that do not affect independence. The list

provided under the 2013 Act is subject to wide

interpretation and may limit auditors in providing

valid non-audit services which do not pose any risk

of independence.

It should be noted that the list appears to be more

restrictive than international practices.

Such restrictions are generally applied to all

‘downward affiliates’ of the company, as those

entities could be considered as being subject to

audit (in the context of the parent company’s

financial statements); however, these restrictions

have been extended to the holding company as well.

The requirements appear to be quite onerous and

indeed would appear to prohibit an audit firm from

providing a wide range of services, even when those

are non-material.

The risks associated with the audits increases

significantly, and have a severe impact on the cost

of professional indemnity insurance and hence

costs of audits.

Action steps

• Companies may initiate the process to assess independence of external auditors, with regards to any

non-audit services provided, within the group

• Build and implement a framework for regular monitoring and oversight over all audit and non-audit

services and service providers

• Assess the need to empanel additional service providers; and

• Develop a transition plan to comply with the provisions.

33

Audit and Auditors


Restriction on number of audits

The 1956 Act and the Institute of Chartered

Accountants of India (‘ICAI’) restrict the number

of companies in which a person/ firm can be

appointed as auditor. An individual cannot be

appointed as auditor for more than 30 companies.

Further, an individual cannot be appointed as

auditor for more than 20 public companies and of

which not more than 10 companies should have a

paid up share capital of more than Rs 25 lakh. In

case of a firm, such ceiling is determined for every

partner of the firm.

The 2013 Act restricts the number of audits to 20

companies for an individual/ partner.

The 2013 Act does not provide any restrictions

based on nature/ size of the companies.

Now private companies will also be considered for

calculating the limit of 20 audits per partner.

Class action suits (Not notified)

Unlike the 1956 Act, the 2013 Act provides for class

action suits, which will allow a requisite number of

members or depositors with common interest, in a

matter, to file an application in the National

Company Law Tribunal (‘NCLT’) against the

company/its management/its auditors or a section

of its shareholders for damages or compensation if

they are of the opinion that the management or

conduct of the affairs of the company are being

conducted in a manner prejudicial to their interest.

As per draft Rules, any of the following can file

class action suits:

• 100 members or 10% of the total number of

members whichever is less or any member/(s)

holding ≥ 10% issued share capital; or

• 100 depositors or 10% of the total number of

depositors or any depositor(s) holding ≥10% of

outstanding value of deposits

Class action suit provides empowerment to

minority stakeholders to come together and seek

action against the experts, advisors and auditors of

the company for any oppression or

mismanagement. However, in the absence of

significant anti-abuse provisions in the

implementation rules, this can be misused.

The new risks and liabilities will infuse more

responsibility into the role of an auditor.

34

Audit and Auditors


Reporting requirements

In addition to the 1956 Act reporting requirements,

the 2013 Act includes the following matters for

auditor reporting:

• Adequacy of the internal financial controls system

and the operating effectiveness of such controls

[in a similar context with respect to directors

report, internal financial control has been defined

to mean the policies and procedures adopted by

the company for ensuring the orderly and

efficient conduct of its business, including

adherence to company’s policies, the safeguarding

of its assets, the prevention and detection of

frauds and errors, the accuracy and completeness

of the accounting records, and the timely

preparation of reliable financial information].

• Any qualification, reservation or adverse remark

relating to the maintenance of accounts and other

matters connected therewith.

As per final Rules, additional comments need to be

provided by the auditors in their report for:

• disclosure of the effect of pending litigations;

• provision for material foreseeable losses as

required under any law or accounting standards

on long-term contracts, including derivatives; and

• delay in depositing money into the Investor

Education and Protection Fund

The auditors are subjected to wider and onerous

responsibility of providing a comfort on internal

controls and on operational effectiveness of the

conduct of the business, in addition to the true and

fair opinion on financial statements.

There seems be a focus to bring in global best

practices in terms of reporting by auditors on the

effectiveness of internal control over financial

reporting and maintenance of accounting records.

However, the terms or language highlighted in

these requirements, are subjective and open to

wide interpretations. This may adversely affect the

scope of the audit and can pose significant

implementation challenges.

Further, for unlisted entities the requirements

related to reporting in internal financial controls

apply only to auditors and not to the directors

which is inconsistent with the company's /

director's primary responsibility for implementing

such controls.

Scope of audit inquiries/testing may no longer be

restricted to financial information and may include

more qualitative operational assessments as well.

There may be significant costs associated with

implementation of acceptable internal financial

reporting controls.

Action steps

• Companies to take measures to perform gap analysis of controls currently documented and

implemented vis-à-vis enhanced expectations pursuant to the above amendment.

• Companies to develop a comprehensive internal control framework in consultation with auditors and

audit committee; and

• Companies to develop training programs for effective implementation of internal financial controls,

including training and education of board members.

35

Audit and Auditors


Whistle Blower-Fraud Reporting

The 2013 Act provides that the auditor should

immediately inform the Central Government within

such time and in such manner as may be prescribed,

if he has reason to believe that an offence involving

fraud is being committed or has been committed

against the company by its officers or employees.

As per final Rules: • Auditors to report about the fraud to the Central

Government if sufficient evidence, within 60 days.

• Initial report to be given to Board/Audit Committee for their comments. Time limit for responses set at 45 days. Within 15 days of receipt of comments or expiry of 45 days (in case comments not received), report to be sent to the Central Government.

• Responsibility to report fraud applies equally to secretarial and cost auditors.

The term “Fraud”, as defined under the 2013 Act,

is very wide and perhaps encompasses every act of

omission or commission. It will be interesting to

understand how these requirements will work

considering that auditors are also the gatekeepers

of the accounting and internal controls of the

company. Further, there is no materiality limit set

under the 2013 Act for reporting to the Central

Government. The 2013 Act may require an auditor

to report even trivial matters, making it an

ineffective exercise.

The current language of the Act and the Rules

suggest covering all sorts of frauds which lays

excessive responsibility on the auditors.

The 2013 Act only requires reporting fraud by the

officers or employees on the company. However,

the fraud committed by others on the company

and frauds reported by the company on these or

others is currently not required to be reported.

The fraud reporting by the auditors irrespective of

the materiality and actions taken by the

management would result into confusion and

onerous obligation.

Action steps

Auditors would need to be vigilant to comply with the new requirements and companies should consider

their own whistle-blower policies and procedures and their processes of reporting frauds to the auditors.

36

Audit and Auditors


National Financial Reporting Authority (NFRA) (Not notified)

Under the 2013 Act, the National Financial

Reporting Authority (NFRA) (replaces existing

National Advisory Committee on Accounting

Standards) to make recommendations to the

Central Government on laying down auditing and

accounting standards applicable to companies.

Responsibilities of NFRA are to:

• monitor and enforce compliance with auditing

and accounting standards

• oversee the quality of service of the profession

• investigate matters of professional misconduct by

CAs or firms

The NFRA will have the power to make orders

imposing penalty for professional or other

misconduct by the auditors. No other body shall

initiate proceedings in matters where investigation

has been initiated by the NFRA. It will have the

powers vested in a civil court while trying a suit.

As per the draft National Financial Reporting

Authority Rules, 2013 released, the NFRA structure

to have Committees on Accounting Standards,

Auditing Standards and on Enforcement.

Further, as per the draft Rules, the NFRA shall

undertake investigation or conduct quality review

of audit of following class of companies:

• listed companies

• unlisted companies with net worth or paid up

capital of not less than Rs. 500 crores or annual

turnover not less than Rs.1,000 crores as on 31

March of immediately preceding financial year; or

• companies having securities listed outside India

The constitution of the NFRA and powers being

conferred upon the NFRA will bring in a

significant change to the current structure of

standard setting and monitoring mechanism.

37

Audit and Auditors


Penalties and prosecution

In case if the auditor has contravened any of his

duties, he shall be punishable as below:

• required to refund the remuneration

• pay damages to the company, statutory

bodies/authorities or any other person for losses

arising as a result of incorrect or misleading

statements in his audit report

• pay a fine which shall not be less than Rs 25,000

but which may extend to Rs 5 lakh

Further, if the above contravention is with an

intention to deceive the company/shareholders/

creditors/ tax authorities/other interested party,

then he is also punishable with an imprisonment of

a term up to one year and a minimum fine of Rs 1

lakh, which may extend to Rs 25 lakh.

In case of an audit firm, if it is proved that any

partner has acted in a fraudulent manner or

colluded in any fraud with others, the liability for

such act shall be of the partner and of the firm

jointly and severally and such partner shall also be

punishable in the following manner:

• imprisonment for a term between six months to

ten years. If the matter involves public interest,

the minimum term will be three years; and

• fine for an amount ranging from one to three

times the amount involved in the fraud

Similarly, where any person has subscribed for

securities of a company on any statement included

in the prospectus which is misleading and has

sustained loss or damage as a consequence, the

company and certain specified person (includes

director, promoter and experts) are liable to pay

compensation to that person. Experts may include

auditors.

Where it is proved that a prospectus has been issued

with intent to defraud the applicants for the

securities of a company or any other person, every

person referred to the above shall be personally

responsible, without any limitation of liability, for all

or any of the losses or damages to that applicant/

person.

The term "intention to deceive" or "any other

person concerned or interested in the company",

‘improper or misleading statement of particulars’,

‘any likely act', 'wrongful act or conduct’ are vague

and subject to wide interpretation which might

result in unnecessary litigations.

Potential unlimited liability on auditor may result in

adverse impact on auditing profession and may

give rise to long disputes and increase audit costs.

Also, there could be an unlimited liability to the

firm for an act of a partner. Firm should ideally

have been held liable only when there is systemic

failure in firm's process and hence this seems a

disproportionate punishment for an individual act.

Overall it seems that auditor’s or the audit firm’s

liabilities are significantly disproportionate to the

level of involvement and currently drafted in a

manner which may potentially lead to a litigious

environment.

This requirement results into auditor’s being held

liable to every person and the liability is not limited

to his involvement and work performed. This also

seems disproportionate.

Also, the reference by an expert or advisor or

consultant is very broad and vague and could result

in wide and unintended interpretations of the

intent of the clause.

38

Other Audits


Internal Audit

Internal audit has been mandated for listed and


As per final Rule, Internal Audit is made mandatory

for

- listed companies,

- unlisted public companies with paid up share

capital of Rs 50 crore or more or turnover of Rs

200 crore or more or outstanding loans or

borrowings exceeding Rs 100 crore or

outstanding deposits of Rs 25 crore or more at

any point of time during the last financial year

- private companies with turnover of Rs 200 crore

or more or outstanding loans or borrowings

exceeding Rs 100 crore at any point of time

during the last financial year

Mandatory internal audit requirement will

strengthen the system of internal controls in the

wake of recent corporate frauds.

Cost Audit

Cost audit has been mandated for specified class

of companies.

As per the draft Rules, the companies required to

include cost records in their books of account in

accordance with specified draft Rule shall be

required to get such cost records audited by a cost

auditor.

Further strengthening the requirements of the cost

audit, covering more companies under its ambit

will further discipline manufacturing industries,

which in turn would expand its benefits to larger

groups of people.

Secretarial Audit

Secretarial audit has been mandated for listed and


As per final Rules, secretarial audit is made

mandatory for every public company with a paid up

capital of Rs 50 crore or more or turnover of Rs

250 crore or more.

Mandatory secretarial audit report would be a good

measure to ensure compliance with legal

requirements as any adverse comment in the report

could have significant impact from a regulatory

perspective.

Action steps

Companies need to assess the need to have any of the abovementioned audits and start planning the

appointments of the respective auditors.

Mergers and Restructuring

40

Mergers and restructuring


Notice of meeting

The 2013 Act, requires that notice of meeting for

approval of the scheme of compromise or

arrangement along with other documents shall be

sent to various other regulatory authorities in

addition to Central Government such as:

Income Tax authorities

Reserve Bank of India

SEBI

the Registrar

the Stock Exchanges

the official liquidator

the Competition Commission of India, if

necessary

other sector regulators or authorities, which are

likely to be affected by the compromise or

arrangement

The draft Rules relating to Compromise,

Arrangement and Amalgamations provide the mode

of delivery of notice sanctioning scheme of

compromise or arrangement to the members

and/or creditors of the Company either by hand or

by registered or speed post or by such electronic or

other mode as prescribed in Section 20 of the 2013

Act.

Further, the draft Rules also provide for the

documents and information that has to be annexed

to the notice. The notice should be sent at least four

weeks before the date fixed for the meeting.

Further, the notice for the meeting shall also be

advertised as per the direction of the Tribunal, not

less than fourteen clear days before the date fixed

for the meeting

The existing simple procedure of submitting

documents with Court will become multi-party

with the inclusion of various regulatory authorities.

It will increase the paperwork and the process may

become more cumbersome with the direct

involvement of other regulatory authorities.

Action step

Process will slow down and more planning would be required with respect to time as well as strategy

for pre-scrutiny by various regulators.

41



Treasury shares

The 2013 Act specifically stipulates that any

intercompany investment would have to be

cancelled in a scheme and holding shares in the

name of transferee through a trust would not be

allowed.

The 2013 Act has abolished the practice of

companies to hold their own shares through a

trust, which could provide them liquidity in future,

while still allowing the promoters to retain a

controlling stake over the company.

Approval of scheme through postal ballot

Under the 1956 Act, scheme of compromise /

arrangement needs to be approved by majority

representing 3/4th in value of the creditors and

members or class thereof present and voting in

person or by proxy.

The 2013 Act additionally allows the approval of

the scheme by postal ballot.

This will involve wider participation of the

shareholders of the company in voting and will

protect shareholders interest.

Objection to compromise or arrangement

Under the 1956 Act, any shareholder, creditor or

other “interested person” can object to the scheme

of compromise or arrangement before a court if

such person’s interests are adversely affected.

The 2013 Act states that the objection to

compromise or arrangement can be made only by

persons:

• Holding not less than 10% of shareholding or; • Having debt amounting not less than 5% of the

total debt as per latest audited financial

statements

The new threshold limit for raising objections in

regard to scheme or arrangement will protect the

scheme from small shareholders’ and creditors’

frivolous litigation and objection.

Action steps

Treasury shares

The companies have to look for other options to retain control and to maintain liquidity as post-merger

all the intercompany investment will be cancelled and no further shares will be issued in lieu of the

intercompany investment.

Approval of scheme through postal ballot

Companies while approving scheme through postal ballot should ensure that all the regulations relating

to postal ballot are being complied with and the facility can be availed by all the parties whose interest is

likely to be affected by the proposed scheme.

42



Valuation certificate

The 1956 Act does not mandate disclosing the

valuation report to the shareholders. Though in

practice, valuation reports are included in

documents shared with the shareholders and also to

the Court as part of the appraisal process of the

scheme by the Courts.

The 2013 Act now mandatorily requires the scheme

to contain the valuation certificate. The valuation

report also needs to be annexed to the notice for

meetings for approval of the scheme.

In case of purchase of minority shareholder, the

draft Rules provides that the mode for determining

the price to be paid by the acquirer or person etc.

shall be as per the method specified in the said

Rules separately for listed and unlisted companies.

This will enable the shareholders to understand the

business rationale of the transaction and take an

informed decision.

The valuation report obtained by the company

should be robust as the same will now have to

stand scrutiny of various stakeholders.

Since the methodology has been specified under

the Rules for buying out the minority shareholding,

this gives a sense of protection to the minority

shareholders who were prejudiced by the price they

get in the absence of any such guidelines.

Compliance with accounting standards ('ASs')

The 2013 Act now provides that no scheme of

compromise /arrangement, whether for listed

company or unlisted company shall be sanctioned

unless the company’s auditor certifies that the

accounting treatment of the proposed scheme is in

conformity with the applicable ASs.

Further, the application with respect to reduction of

share capital has to be sent to the Tribunal along

with the auditor’s certificate stating that it is in

compliance with ASs.

The draft Rules clarifies that the accounting

treatment for demerger shall be as per the

conditions stipulated in Section 2(19AA) of the

Income-tax Act, 1961 till the ASs are prescribed for

the purpose of demerger.

The 2013 Act aligns the SEBI requirement which

existed for listed companies for all companies, to

ensure that the scheme aimed to use innovative

accounting treatments for financial re-modeling are

not sanctioned by the Courts.

As the scheme tends to have overriding effect with

respect to accounting treatment (specifically

mentioned in accounting standard 14 with respect

to treatment of reserves), the onus has been

shifted on the auditor to confirm that accounting

standards have been followed.

Action steps

Valuation certificate

Planning would be required for scrutiny of the valuation by all stakeholders.

Compliance with ASs

Auditor will have to be involved to ratify the accounting treatment of the scheme. The Company,

(listed or unlisted), has to obtain an auditor's certificate before proceeding with the filing of scheme

with the regulatory authorities.

43



Merger or amalgamation of company with foreign company

The 1956 Act does not contain provisions for

merger of Indian company into a foreign company

(transferee company has to be an Indian company).

The 2013 Act states that merger between Indian

companies and companies in notified foreign

jurisdiction shall also be governed by the same

provisions of the 2013 Act. Prior approval of

Reserve Bank of India would be required and the

consideration for the merger can be in the form of

cash and or of depository receipts or both.

The 2013 Act will provide an opportunity of

growth and expansion to Indian Company by

permitting amalgamation with foreign company or

vice versa. This will provide opportunity to form

corporate strategies on a global scale. It has to be

seen if the implementation mechanism is smooth

enough.

The 2013 Act suggests that all cross border merger

will now be governed by the said chapter.

Presently, its possible for a foreign company of any

jurisdiction to merge into an Indian company. This

may now be limited to only companies in notified

jurisdiction.

Merger of a listed company into unlisted company

The 2013 Act requires that in case of merger

between a listed transferor company and an unlisted

transferee company, transferee company would

continue to be unlisted until it becomes listed.

Further, the 2013 Act also proposes that transferee

company would have to provide an exit

opportunity.

Listing or delisting regulations, as applicable, under

securities laws would still have to be considered.

Further, it seems that exit opportunity may have to

be provided whether or not the transferor

company choses to list.

Action steps

Merger or amalgamation of company with foreign company

Companies can enter into various arrangements with its foreign related company to increase their

market share and efficiency. However, prior approval of RBI has to be sought.

Merger of a listed company into unlisted company

In a merger of a listed company into an unlisted company, the specific provisions under 2013 Act

would also have to be considered apart from the securities law regulations

44



Fast-track merger

Under the 1956 Act, all mergers and amalgamations

require court approval. The 2013 Act requires that

mergers and amalgamations between two or more

small companies or between holding companies and

its wholly-owned subsidiary (or between such

companies as may be prescribed) does not require

court approval. However, notice has to be issued to

ROC and official liquidator and objections /

suggestions has to be placed before the members.

The scheme needs to be approved by members

holding at least 90% of the total number of shares

or by creditors representing nine-tenths in value of

the creditors or class of creditors of respective

companies.

Once the scheme is approved, notice would have to

be given to the Central Government, ROC and

Official Liquidator.

This will reduce the time consumed in court

proceedings and will result in faster disposal of the

matter.

It will help remove the bureaucratic barriers

involved in court proceedings and in turn simplify

the process.

Presently, it seems that in such fast-track mergers,

there is also no requirement for sending notices to

RBI or income-tax or providing a valuation report

or providing auditor certificate for complying with

the accounting standard.

The 2013 Act does not specify transitional

provisions relating to restructuring in progress and

presently there is a lack of clarity in this regard.

Action steps

• The companies should start evaluating the items requiring mandatory

valuation as per the requirements of the Act and the draft Rules.

• This analysis should be discussed with the Audit Committees and/or BOD

for further action in advance before the final Rules are issued.

Valuations

46

Valuations


Definition of a Registered Valuer

• As per the 2013 Act, all valuations need to be

carried out by a Registered Valuer. For valuation

requirement of a company, the Registered Valuer

shall be appointed by the Audit Committee or in

its absence, by its Board of Directors ('BOD').

• The Draft Rules define "Registered Valuer" and

state that a person to be eligible to act as a valuer,

must register with the Central Government ('CG')

or institution or agency notified by the CG by

filing an application for registration as a valuer.

• Further, the Draft Rules also prescribe the

eligibility to apply for becoming a Registered

Valuer are as follows:

Financial valuation

– a Chartered Accountant, Company Secretary or

Cost Accountant who is in whole-time practice,

or retired member of Indian Corporate Law

Service or any person (Indian citizen only)

holding equivalent Indian or foreign

qualification as the MCA may recognise by an

order.

– a merchant banker registered with the Securities

and Exchange Board of India ('SEBI').

Technical valuation

– a member of the Institute of Engineers and

who is in whole-time practice.

– a member of the Institute of Architects and

who is in whole-time practice.

The persons referred above should have at least five

years of continuous experience post acquiring

membership of respective institutions.

Other persons

– a person or entity possessing necessary

competence and qualification as may be notified

by the CG from time to time.

• Professional opportunities likely to emerge with

the increase in the number of valuation

requirements as per the new concept of

Registered Valuer.

• The Appointment of the Valuer by the audit

committee or the BOD for all the requirements

could be time consuming and may delay the

valuation exercise. The management of the

company should also be empowered to appoint

valuers where the valuation requirement is for

annual updation of value or for internal

evaluation purpose or such other cases.

• In the residuary category of "other persons", the

MCA should consider incorporating finance

professionals such as person holding post-

graduate/ masters degree/ diploma in business

management (MBA) in Finance from India or

equivalent foreign qualification, Chartered

Financial Analyst (CFA) from India or equivalent

foreign qualification, and consulting firms

providing financial advisory services having at

least five years of continuous experience in

offering such services.

Action steps

• The companies should start evaluating the items requiring mandatory valuation as per the

requirements of the Act and the draft Rules.

• This analysis should be discussed with the Audit Committees and/or BOD for further action in

advance before the final Rules are issued.

47


Responsibilities of a Registered Valuer

As per the 2013 Act,

• A valuer is expected to assume the following

responsibilities while carrying out a valuation

engagement:

- must exercise due diligence and care

- must make an impartial, true and fair valuation of

assets that are being valued

- must make the valuation in accordance with the

prescribed rules

- not undertake valuation of assets in which he

has a direct or indirect interest or becomes

interested at any time during or after the

valuation of that asset

• A valuer violating the provisions of the

requirements shall be punishable with a fine of Rs

25,000, extending up to Rs 1 lakh. Additionally, the

valuer shall be liable to refund the remuneration

received from company and pay for damages to the

company or to any other person for loss arising

out of incorrect or misleading statements of

particulars made in the report.

• A valuer, sentenced to a term of imprisonment for

any offence or found guilty of misconduct in his

professional capacity shall be removed from the

register of valuer and he will cease to act as a

valuer.

• In case of intention to defraud the company or its

members, imprisonment, which may extend to one

year, has been additionally provided as a penal

provision.

The draft Rules provide for removal and restoration

of valuers from register maintained by the CG or

any authority, institution or agency notified by the

CG.

Also, as per the draft Rules, a valuer in case aggrieved

by an order of the CG, can file an appeal against the

order to the Tribunal.

The system of valuation will offer more

transparency and fairness which will in turn uplift

the shareholders' confidence.

The law states that the Valuer should exercise due

diligence while performing the valuation. “Due

Diligence” should be more specifically defined in

terms of what additional steps a valuer needs to

follow. Due diligence is a very broad term and

might imply various types of due diligences e.g. tax,

financial or commercial which need specific

expertise which might not be available with the

valuer.

Action steps

Registered Valuers need to be appointed for various valuation requirements; who in turn need to be

vigilant to comply with the provisions.

Valuations

48


Methods of Valuation, as per the Draft Rules

‘Valuation Date’ means the date on which the estimate

of value is applicable which may be different from

the date of the valuation report or the date on which

the investigations were undertaken or completed.

A valuer should keep the following considerations in

mind while providing valuation services:

• Nature of the business and the history of the

enterprise from its inception

• Economic outlook in general and outlook of the

specific industry in particular

• Book value of the stock and the financial

condition of the business

• Earning capacity of the company

• Dividend paying capacity of the company

• Goodwill or other intangible value

• Sales of the stock and the size of the block of

stock to be valued

• Market prices of stock of corporations engaged in

the same or a similar line of business

• Contingent liabilities or substantial legal issues,

within India or abroad, impacting the business

• Nature of instrument proposed to be issued, and

nature of transaction contemplated by the parties

A registered valuer shall decide the approach to

valuation based upon the purpose of the valuation in

accordance with applicable standards, if any and can

choose from Asset, Income and Market Approach.

One or more of the following prescribed methods

or any other method accepted or notified by the

Reserve Bank of India, SEBI or Income Tax

Authorities or that may deem fit to adopt by the

Valuer can be used and justified in the report: − Net Asset Value method

− Market Price method

− Yield method / Profit Earning Capacity Value

(PECV)

− Discounted Cash Flow method (DCF)

− Comparable Companies Multiples methodology

(CCM)

− Comparable Transaction Multiples method (CTM)

− Price of Recent Investment method (PORI)

− Sum of the Parts Valuation (SOTP)

− Liquidation Value

− Weighted Average method

The draft Rules cover most of the frequently used

and universally accepted methods of valuation as

well as permit valuers to apply other methods as

deemed appropriate and justified by the valuer.

Valuations

49

"Contents of the Valuation Report"

Valuation Report - Title [Pursuant to section 247(2)(c) and rule 17.7]

Contents Sub-Contents

1) Valuer Details

2) Description of Valuation Engagement

3) Description of Business/ Asset / Liability being

valued

4) Description of the Information underlying the

Valuation

5) Description of specific Valuation of Assets used

in the Business

6) Confirmation

7) Further it is certified that valuation has been

undertaken after taking into account relevant

conditions/regulations/rules/notifications, if any,

issued by the Central/State Government(s) from

time to time.

8) Valuation Statement :

Date Signature of Valuer

Place

a)Name of the Valuer

b)Address of the Valuer

c)Registration number of the Valuer

d)e-mail ID

a)Name of the client

b)Other intended users

c)Purpose for valuation

a)Nature of business or asset / liability

b)Legal background

c)Financial aspects

d)Tax matters

a)Analysis of past results

b)Budgets, with underlying assumptions

c)Availability and quality of underlying data

d)Review of budgets for plausibility

e)Statement of responsibility for information

received

a)Basis or bases of value

b)Valuation Date

c)Description of the procedures carried out

d)Principles used in the valuation

e)The valuation method used and reasoning

f) Nature, scope and quality of underlying data

g)The extent of estimates and assumptions

together with considerations underlying them

that the valuation has been undertaken in

accordance with these Rules

Valuations

50

Contents of the Valuation report (as per Form No. 17.3) as per the Draft Rules

Apart from this, some key/additional information to be included in the Valuation Report:

i. The valuation report must clearly state the significant assumptions upon which the value is based. When

reporting, there may be instances where there are confidential figures, these must be summarised in a

separate exhibit.

ii. In the valuation report, the Registered Valuer must set out a clear value or range of values along with

the reasoning.

iii. In case the Registered Valuer has been involved in valuing any part of the subject matter of valuation in

the past, the past valuation report(s) should be attached and referred to herein. In case a different basis

has been adopted for valuation (than adopted in the past), the Valuer should justify the reason for such

differences.

Valuations

Instances where valuation is mandated

Some instances where valuation is mandated under the 2013Act:

• Further issue of share capital

• Assets involved in arrangement of non-cash transactions involving directors

• Under scheme of compromise/arrangement or scheme of corporate debt restructuring

• Purchase of minority shareholding

• Shares and assets to arrive at the reserve price for company administrator

• Assets for submission of report by company liquidator

• Interest of any dissenting member under power of company liquidator to accept shares etc., as

consideration for sale of property of company

51

The Associated Chambers of Commerce and Industry of India (ASSOCHAM), India's premier apex

chamber, covers a membership of over 4 lakh companies and professionals across the country.

ASSOCHAM, which started in 1920, is one of the oldest Chambers of Commerce. ASSOCHAM is

known as the “knowledge chamber” for its ability to gather and disseminate knowledge. Its vision is to

empower the industry with knowledge so that they become strong and powerful global competitors with

world-class management, technology and quality standards.

ASSOCHAM is also a “pillar of democracy” as it reflects diverse views and sometimes opposing ideas in

industry group. This important facet puts us ahead of countries like China and will strengthen our

foundations of a democratic debate and better solution for the future. ASSOCHAM is also the “voice

of industry” – it reflects the “pain” of industry as well as its “success” to the government. The Chamber

is a “change agent” that helps to create the environment for positive and constructive policy changes and

solutions by the government for the progress of India.

As an apex industry body, ASSOCHAM represents the interests of industry and trade, interfaces with

Government on policy issues and interacts with counterpart international organisations to promote

bilateral economic issues. ASSOCHAM is represented on all national and local bodies and is, thus, able to

proactively convey industry viewpoints, and also communicate and debate issues relating to public-private

partnerships for economic development.

The road is long. It has many hills and valleys – yet the vision before us of a new resurgent India is

strong and powerful. The light of knowledge and banishment of ignorance and poverty beckons us,

calling each member of the Chamber to serve the nation and make a difference.

The Associated Chambers of Commerce and Industry of India (ASSOCHAM)

5 Sardar Patel Marg, Chankyapuri, New Delhi – 110021

T: +91 11 4655 0555 (Hunting Line); F: +91 11 2301 7008/ 9; W: www.assocham.org

Southern Regional Office

D-13, D-14, D Block, Brigade MM,

1st Floor, 7th Block, Jayanagar,

K R Road, Bangalore - 560070

T: 080 4094 3251-53

F: +91 80 4125 6629

E: [email protected],

[email protected],

[email protected]

ASSOCHAM Western Regional Office

4th Floor, Heritage Tower,

Bh. Visnagar Bank, Ashram Road,

Usmanpura, Ahmedabad - 380 014

T: + 91 79 2754 1728/ 29, 2754 1867

F: + 91 79 300 06352

E: [email protected],

[email protected]

Eastern Regional Office

F 4, "Maurya Centre" 48,

Gariahat Road,

Kolkata - 700019

T: +91 33 4005 3845/41

F: +91 33 4000 1149

E: [email protected]

ASSOCHAM Regional Office - Ranchi

503/D, Mandir Marg-C

Ashok Nagar

Ranchi - 834 002

M: +91 9835 040255

E: [email protected]

About ASSOCHAM

52

Grant Thornton India LLP is a member firm within Grant Thornton International Ltd. It is a leading

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With a partner led approach and sound technical expertise the Firm has extensive experience across

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As a member firm within Grant Thornton International Ltd, the Firm has access to member and

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Jacaranda Marg

DLF Phase II Gurgaon 122 002

T +91 124 462 8000

HYDERABAD 7th floor, Block III

White House

Kundan Bagh, Begumpet Hyderabad 500 016

T +91 40 6630 8200

MUMBAI 16th floor, Tower II

Indiabulls Finance Centre

SB Marg, Elphinstone (W) Mumbai 400 013

T +91 22 6626 2600

PUNE 401 Century Arcade

Narangi Baug Road

Off Boat Club Road Pune 411 001

T +91 20 4105 7000

BENGALURU “Wings”, 1st floor

16/1 Cambridge Road

Ulsoor Bengaluru 560 008

T +91 80 4243 0700

NOIDA Plot No. 19A, 7th Floor,

Sector 16-A,

Noida 201301. T +91 120 7109001

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