By Simran Jalan (firstname.lastname@example.org)
MCA vide its notification dated July 31, 2018 has brought the Companies (Accounts) Amendment Rules, 2018 which broadly deals with two changes:
- Additional disclosures for companies other than small companies and OPCs;
- Abridged list of contents for small companies and OPCs
Even though the aforesaid amendment in the said Rules have been brought in line with the proposed changes in section 134 of the Companies Act, 2013 (‘CA, 2013’) under the Companies (Amendment) Act, 2017, however, the said amended section has not been enforced till date.
Additional disclosures for companies other than small companies and OPCs:
The additional disclosures required to be made are with respect to:
- Maintenance of cost records in accordance with section 148(1) of the CA, 2013 in case the same is applicable on such company.
- A statement on constitution of Internal Complaints Committee under the Sexual Harassment of the Women at workplace (Prevention, prohibition and Redressal) act, 2013.
Relief for small companies and OPCs:
The Rules state that small companies and OPCs are not required to make the disclosures stated under Rule 8. Instead, as per Rule 8A of the aforesaid Rules, an abridged list of disclosures have been given for small companies and OPCs, which are as follows:
- The web address of the company, where the annual return has been placed;
- Number of meetings of the Boards;
- Director’s Responsibility Statement;
- Details of frauds s reported by auditors to Central Government as per section 143(12) of the CA, 2013;
- Explanations or comments by Board on every observation made by the auditor in his report;
- The state of the Company’s affairs;
- The financial summary or highlights;
- The material changes in the nature of business and its effect on the financial position of the Company;
- The details of appointment/resignation of directors;
- Details of material orders passed by regulators/courts/tribunals which can impact the going concern status of the company and its operations in future;
- The Board’s Report shall also include the particulars of the contract or arrangements entered with related parties as per section 188(1) of the CA, 2013 in the Form AOC-2.
Following the aforesaid change, there are basically three categories of board’s report:
|Category I||Category II||Category III|
|Listed Company and Public Company with PUSC of Rs.25 crores or more||Unlisted Company and every public company with PUSC of less than Rs. 25 crores||Small Companies and OPCs|
|All the matters in the Board’s report as specified in Section 134(3) of the CA, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014 (‘Account Rules’).||All matters in the Board’s report as specified under section 134 (3) of the CA, 2013 read with Rule 8 of the Accounts Rules except for the following:
“a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors;”
“a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors.”
|All the matters in the Board’s report as specified under Rule 8A of the Accounts Rules.|
 PUSC denotes Paid-up Share Capital
If you ever thought your life will be much better and tranquil without a cellphone on you, and without an email to stay connected, well, you may be right, but you cannot function as a director in companies. This is the fallout of the new DIR-3-KYC norms brought by the MCA. The Rules require every director to file the KYC form by 31st August, 2018, post which the Directors’ Identification number (DIN) granted to the director shall be “de activated”. The Rules also lay that such de-activated DIN shall be re-activated only after the person has filed the KYC form.
One of the mandatory requisites of the new KYC form is that the director shall provide his cellphone number, his email id and file the eForm with his/her own digital signature (DSC). If you thought you may provide the cellphone number and email id of your children, or your assistants, you are mistaken, because the form goes on to say that the cellphone number and the email id shall be of the director himself.
Section 153 of the Companies Act makes it mandatory for any prospective director to apply for DIN. While there is nothing in the statute to say that on de-activation of the DIN, the director will lose his office as such, technically called vacation of office, it will not be surprised, if the Government, in its recent impetus to weed out shell companies and dummy directors, barges ahead and challenge the very directorship of such directors whose DINs stood deactivated.
Result – you cannot be a director, unless you have a cellphone number and email id. Legal experts may argue that being director in companies is basic freedom to carry business, as the right to carry business includes the right to carry it in corporate form as well, and there is nothing in the law of the land to make a cellphone or an email an existential necessity. Therefore, if there is a law that forces a corporate professional to have a personal cellphone number/ email- id, the law needs to be questioned.
Not having a personal cellphone is neither an evidence of laity nor anachronism. Several people use a limited insulation from communications technology as a way of life. There is no basis to contend that such persons are not fit to be corporate directors.
It may be argued that the qualifications of a director and the circumstances in which a director automatically vacates his office are all well defined in the law. De-activation of the DIN is not one of such circumstances. It may also be argued that there is an assurance in the MCA DIN rules that the DIN once granted has lifetime validity, and the question of its de-activation does not arise at all.
In order to file this eForm, all directors (Indian and foreign national) will have to obtain/ have their own email id, mobile number, specify the OTP in the eForm and sign with their own DSC. The consequence of false declaration is that the Director shall be liable under section 448 of the Act and under relevant provisions of the Indian Penal Code, 1860 and any other law as applicable, if any statement in the application is found to be false or any material fact is found to be have been omitted.
The MCA rules come in the wake of the Government’s resolve to weed out shell companies and dummy directors. It is apprehended that the 10-lakh odd companies have lots of directors who are men of straw, even though the requirement for DIN was introduced sometime in 2006.
By Pammy Jaiswal (email@example.com)
Partner, Vinod Kothari and Company
By virtue of the enforcement notification of MCA dated 5th July, 2018, the proposed change under section 75 of the Companies (Amendment) Act, 2017 (‘Amendment Act’) relating to section 366 of the Companies Act, 2013 (‘Act, 2013’) has been notified with effect from 15th August, 2018. Further, MCA vide its notification dated 5th July, 2018 has also brought the Companies (Authorised to Register) Second Amendment Rules, 2018 (‘Amendment Rules’). The said Amendment Rules shall also come into force from 15th August, 2018.
The section deals with registration of unregistered entities like partnership firms, LLPs, cooperative societies and such other entities, as a company under the Act, 2013. The amendment paves way for such entities having two or more members to get themselves registered under the Act, 2013 either as a company limited by guarantee, company limited by shares or unlimited companies. Read more