Related Party Transaction Under Companies Act, 2013 (Section- 184,188 & 189)
ACS Divesh Goyal
Section: 184 Disclosures of Interest by Directors:
(1) Every Director Shall disclose his Concern or interest in any
- company
- Companies
- Body Corporate
- Firms
- Other Associations of Individuals
by giving a Notice In Writing In Form MBP 1.
- At First BM in which he participate as director
AND
- Thereafter, At First BM of Every Financial Year
OR
- Whenever, Any change come in the Disclosure already made, then First BM held after such change.
Note:It is Duty of Director to give notice of interest, so it can be take note at the meeting held immediately after the date of Notice. (Rule)
2. Every Director of Company Who is any way Whether,
- With Body Corporate in which such director or such director in association with any other director
i. Hold More than 2% of Shareholding or
ii. Is a Promoter or
iii. Manager,
iv. CEO of the body corporate
- With a Firm or Other Entity in which, such director
i. Is a Partner,
ii. Owner or member
Shall disclose nature of his interest at the meeting of Board in which such contract or arrangement is discussed and shall not participate in such meeting.
Note:
- If director or director associated with other director hold 2% or less than 2% of shareholding interest in other body corporate than this section will not apply.
- If company enter into such contract without getting disclosure from the director and with participation of director than such contract shall be voidable at the option of the company.
Conclusion of 184:
- If Directors give disclosures under this section it will help to create trust of stake holders on company and will show loyalty of directors and will help in growth of company, because all transaction will be for growth of company and its stake holders.
Section: 188 RELATED PARTY TRANSACTION:
Applicability:
- This is applicable for Private Company and Public Company.
Approval:the Transaction of a company with Related Parties which are Not in the Ordinary Course of Business and which is Not on Arm Length Price require following approval for Entering into Such Transactions with Related Party:-
1- Board Approval
- For enter into transactions mention under this section Consent of Board of Directors is Require by Passing of Resolution in the Meeting of Board of Directors.
Note:Such resolution can't be pass by circulation of resolution to the Board of Directors.
2- General Meeting
For entering Transactions with related parties mention below SR is required to be passed in GM:
- When Paid up Share Capital of Company is 10 Crore or More. or
| NATURE OF RELATED PARTY TRANSACTION | THRESHOLD LIMIT |
| Sale, purchase or supply of any goods or materials directly or through appointment of agents (or) | Exceeding 25% of Annual Turnover |
| Selling or otherwise disposing of, or buying, property of any kind directly or through appointment of agents (or) | Exceeding 10% of Net worth |
| Leasing of property of any kind (or) | Exceeding 10% of Annual Turnover OR Exceeding 10% of Net worth |
| Availing or rendering of any services directly or through appointment of agents (or) | Exceeding 10% of Net worth |
| Appointment to any office or place of profit in the company, its subsidiary company or associate company (or) | Monthly Remuneration Exceeding Rs. 2.5 lakhs |
| Remuneration for underwriting the subscription of any securities or derivative | Exceeding 1% of Net worth |
Note:*Turnover and Net worth as per Audited Financial Statement of Preceding Financial Year.
* If any member is interested in any transaction, than such member shall not cast vote in meeting regarding such resolution.
* Exemption:No resolution is required to be passed by WOS, when Special Resolution is passed by holding company to enter into transaction with Wholly Own Subsidiary Company.
* Every Transaction enter into section 188 shall be enter into Director Report along with Justification.
Voidable Contract (Section 188 (3) :
According to the section 188, sub section (1), any contact or arrangement must be passed through Board Meeting or Shareholders Meeting, as case may be,
Suppose, the Contact has been made but the approval has not taken either in the Board Meeting or Shareholders Meeting within 3 months from the date of Contract, In that case the Contract shall be voidable at the option of the Board.
In case of Loss in Result of Contract:
If a director or employee entered into any contract and arrangement in contravention of provision of this section then company can proceed against such director and employee for recovery of any loss sustained by it from such contract.
Penalty:
Any director who enter any contact or any employee who is authorized to enter any contact make any default for compliance of this provisions shall be penalized in case of:
Listed Company:-
- Imprisonment for a term which may extend to 1 Year
OR
- fine which shall not be less than 25000/-but which may extend Rs. 5,00,000/- or
- Both
Unlisted Company: – Fine which shall not be less than 25000/- but which may extend Rs. 5,00,000/- or both
FOR LISTED COMPANIES CORPORATE GOVERNANCE IN LISTED COMPANIES:
Note:
1. Clause 49 (VII)as given in Part-B shall be applicable to all PROSPECTIVE Transactions.
2. All EXISTING Material related party contracts& arrangements as on 17th April, 2014,which will continue beyond 31st March 2015, Shall be require Share Holder Approval in the First GM held after 01st October, 2014.But companies may get approval of share holder even before 01st Oct, 2014.
Meaning of Related Party Transaction under clause 49:
- A related party transaction is a transfer of resources, services or obligations between a company and a related party, regardless of whether a price is charged.
- A 'Related Party' is a person or entity that is related to the company. Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party,directly or indirectly, in making financial and/or operating decisions and includes the following:
Material Related Party Transaction:if the transaction / transactions to be entered into individually or taken together with previous transactions during a financial year
Exceeds 5% percent of the annual turnover OR
20% percent of the net worth of the company
As per the last audited financial statements of the company,whichever is higher.
- All Related Party Transactions shall require prior Approval of the Audit Committee.
- All material Related Party Transactions shall require Approval of the Shareholders through Special Resolution and the related parties shall abstain from voting on such resolutions.
Disclosures of Related Party Transactions:
- Company shall disclose policy of dealing with related party Transactions on its
- Website AND
- In the Annual Report
- Details of Material Related Party Transaction shall be disclosed quarterly along with the compliance report on Corporate Governance.
Section 189: Register of Contract and Arrangement in Director are interested
- Every Company shall maintain one or more register in Form MBP-4
- Giving separately the particulars of Contract or arrangement to which section 184(2) or188 applies.
- After entering the particulars, such register shall be Placed before the next Board Meeting and Signed by all the directors Present at the meeting.
- Entry shall be made in chronological order, authenticated by Company secretary of Company and person authorized by board.
- The register shall be kept at the registered office of the Company and preserved permanently.
- Members may also take extracts from this register
*Exemption:
- No entry required to be done in register if contract is for sale, purchase or supply of goods, material or services , the value of such materials or the cost of such services does not exceed Rs. 5 lakh in the aggregate in any year.
- Any contract or arrangement by banking company for the collection of bills in the ordinary course of its business.
- Where in any company or companies or Bodies corporate in which a director together with any other director holds 2% or less of the paid-up share capital.
Check Point for Section 188:
If company going to enter in contract or arrangement with related parties as mention in section 2(76) for the transaction mention under section 188(1) following is the procedure:
- First Check party is Related as per section 2(77)
- Second check Transaction cover under section 188(1) If both the conditions mention above is satisfied then:
- Call a Board Meeting:
a) Consent of Board of Director by Passing of Board Resolution for contract
b) Issue notice of General Meeting, if require
- Passing of Special Resolution in GM, if require
- Filling of Resolution with Roc within 30 days
- Disclosure of transaction with complete justification in Board of Directors Report
- Entry of such transaction in register maintain under section 189
- Register shall be place before next BM and signed by all the directors present at the meeting
(Author can be reached at csdiveshgoyal@gmail.com )
Deposits Under New Companies Act and requirement of Filing DPT-4
ACS Divesh Goyal
DEPOSITS UNDER NEW COMPANIES ACT ARE A CRITICAL ISSUE FOR ALL COMPANIES, MOSTY FOR PRIVATE LIMITED COMPANIES. ON EVERY ISSUE RELATED TO DEPOSITS THERE ARE MANY VIEWS.REQUIREMENT OF DPT-4
COMPANY LAW UPDATE:
Why old loan from shareholders, relatives & other individuals be treated as deposits in DPT4?
1) Deposit for the purpose of sec 74 shall be as per new co act & deposit rules. Such definition states that loan from shareholders, relatives & other individuals who are not directors at the time of giving loan, shall be treated as deposits.
2) Again, the intention of inclusion of sec 74 to new co act is that all deposits as per old act should be identified & reported to ROC by 30th June (30th August Now) & repay by 31st March, 2015.
3) Had the intention of the new companies Act were to use definition of deposits as per Co Act, 1956, it would have expressly stated so.
4) Also note that Section 74 states that deposit as on commencement of this Act i.e. 1st April, 2014, it does not states deposits as on 31st March, 2014. The definition of deposits as on 1.4.2014 should be used. How can we apply definition of deposits as per Old Act on 1.4.2014.
5) Lastly, to avoid disputes & to avoid risk of crores of penalty, it is better to recognize these as deposits, file in DPT 4 & return the loan by 31.3.2015 as per sec 74.
FAQ'S
Q 1. A question arises, if any loan is received by a Co. from shareholder or director's relative under Co Act, 1956, should we include these as deposit in Form DPT4 or not?
Answer: Yes, include these as deposits in Form DPT4.
Q 2. How TO FILE DPT 4?
Answer: As per MCA web site,
- Form DPT4 is an attachment Form as it is given in attachment category under download forms.
- It will be attached with Form GNL 2 along with auditor certificate (Form for submission of documents with the Registrar).
- Auditors report in Old format under Companies Act, 1956 will also be attached with this form.(Format is given below.)
Attachments to Form DPT-4 includes:
1. Auditor's certificate;
2. List of depositors indicating name, address, amount deposited, repaid during the year and outstanding, interest due, paid and payable as at the close of the Financial Year and separately indicating deposits not yet matured, matured, claimed and paid and matured, claimed but not paid and matured but not claimed for payment. List of deposits matured, cheques issued but not yet cleared to be shown separately. The details required to be annexed is very much identical to the details required under to be given under Return of deposits.
Q 3. Is Loan will be treated as Loan?
Answer: YES, LOAN CAN BE TREATED AS DEPOSITS
- Loan is covered under definition of deposits under Company Act, 2013 read with the Companies (acceptance of deposit) Rules, 2014.
- Definition of the term "deposits" under Companies (acceptance of deposit) Rules, 2014, states the following:
a.) If loan is received from any other company by any co., it will not cover deposits.
b) If loan is received by any company (both Public & Private) from directors, it will not be covered as deposits provided director gives a declaration that loan is out of own fund(not by taking loan) .
c) However, if loan is received from shareholders or director's relative by any co, these will be covered as deposits.
d) If loan is received from other individuals by any company (both Public & Pvt), these will be covered as deposits.
Q 4. Intention of Ministry behind section 74?
Answer :
i) The meaning of the term "deposit" under sec 74 under Co Act, 2013 will be as per sec 2(34) of the Co Act, 2013. Hence, these will be
included as deposits in Form DPT4.
included as deposits in Form DPT4.
ii) The intention of introduction of sec 74 is to repay all old deposits within one year time or extended time. MCA wants that all deposits accepted have to follow new Act & New Rules.
iii) This view can also be supplemented by the fact that legislature is giving enough time i.e. 1 year time to repay the deposits existing on 1st
April, 2014 to comply with new Act & New Rules.
April, 2014 to comply with new Act & New Rules.
MY VIEWS ON SOME POINTS:
- If a Private Company accepted any amount from its director before 31st March, 2014. From 1st April, 2014 this amount will be treated as Deposits and Private Company require filing form- DPT-4 as per procedure given above.
- If Company accepted application money before 31st march 2014 then from 1st April 2014 it will treat as deposit or not have 2 Two views:
- Ist: Company can assume this amount as deposit and have to file DPT-4 and repay upto 31st March, 2015.
- IInd: Company can repay this amount before 15june, 2014,(with in 60+15 days from applicability of this section).
- Where loan/deposits were not falling in the definition of Deposits under Companies (Acceptance of Deposits) Rules, 1975 on 31.03.2014 and now the loan/deposits falls in the definition of deposits under Companies (Acceptance of Deposits) Rules, 2014:
Answer: DPT-4 requires to be file and require to repay amount upto 31st March, 2015 AND DPT-3 to be filed from 30.06.2015onwards.
- DPT-3 is applicable for companies who have deposits as on 31.03.2014 and now those deposits falls in the definition of deposit under Companies (Acceptance of Deposit) Rules, 2014.
5. However, DPT-4 is a one-time form, this being applicable for this year only (30.06.2014). In fact, the section 74 will lose its relevance after one year of the commencement of Act. It is through DPT-4, ROC will keep a track of those companies which need to repay loan/deposit before 31.03.2015.
DRAFT FORMAT OF AUDITOR CERTIFICATE
TO WHOMSOEVER IT MAY CONCERN
This is to certify that M/S XYZ PRIVATE LIMITED, having CIN No. U17110MH1996PTC104672 has accepted *deposits from relatives of the directors of the company and associate firm. Total deposits outstanding as on 1st April, 2014 amounts to Rs. 1,10,000/- received from 5 (Five) Depositors. Details of the party wise deposits are enclosed in Annexure -1.
We further certify that, as explained to us by the management, these deposits do not bear any maturity date. We were further explained that no interest is payable on the Deposits as indicated in the said Annexure.
We have verified the records maintain by the Company for these deposits and details as given in Annexure are found to be true and correct.
FOR ABC & CO
Chartered Accountants
Firm Registration No.
ABC –Proprietor
(Membership No. )
Place: Mumbai
Date: 16.06.2014
*The company had taken these Unsecured Loans prior to 1st April 2014 and at the time of receipt these were not deposits Pursuant to Rule 2 (b) ( ix) of Companies (Acceptance of Deposits) rules 1975.Further the above List of Depositors does not include sums accepted from other Companies and Directors, which is not a Deposit as per Rule 2(c)(vi) and Rule 2(c)(viii) respectively of Companies (Acceptance of Deposits) Rules, 2014.
(Author can be reached at csdiveshgoyal@gmail.com )
Procedure for acceptance of Deposit by Private company
ACS Divesh Goyal
1. Call Board Meeting:• To pass resolution for acceptance of deposit from members
• Approve Draft DPT-1 (Circular)
• Appoint a Trustee
• Call General Meeting
• Authorize Director or Secretary for further process
2. Call General Meeting
• Pass Ordinary Resolution for acceptance of deposit
• Pass Ordinary Resolution for acceptance of deposit
3. File form MGT-14 with ROC within 30 days of passing of resolution:
• Attach Notice, Minute and CTC of Resolution
• Attach Notice, Minute and CTC of Resolution
4. File DPT-1 with ROC at least 30 days before issue of circular, signed by BOD or Person Authorize by Board.
5. Enter into contact with Insurance Company at least 30 days before issue of Circular.
6. Execute Deposit Trust Deed at least 7 days before issuing of circular.
7. Issue Circular (DPT-1) to members through registered post, courier or through Electronic mode.
- Company MAY issue circular in DPT-1 through advertisement also.
- Company MAY issue circular in DPT-1 through advertisement also.
8. Within 21 days of Acceptance of Deposit company will issue receipt of deposit to Depositor. Receipt will be signed by Person Authorized by Board of Director.
9. Make Entry in register within 7 days of issue of receipt.
10. Company will create charge on assets of company equal to amount of
deposit unsecured by insurance.
deposit unsecured by insurance.
11. File CHG-1 Within 30 days of Creation of Charge.
NOTE:
1. Private Company can accept deposits from member's up to 25% of paid-up share capital + Free reserve.
1. Private Company can accept deposits from member's up to 25% of paid-up share capital + Free reserve.
2. Company before 30th April each will deposit at least 15% of amount of deposit, whether secured or unsecured, maturing during the year or next financial year in deposit repayment reserve account, maintain with Schedule Bank.
3. Company Before 30th June every year will file DPT-3 with ROC, containing information there in as on 31st March, duly audited by Auditor of company.
4. No trustee can be removed after the issue of circular/advertisement and before the expiry of his term except with the consent of all the Directors Present at a meeting of Board.
5. T & C of Deposit cannot be altered after the issue of circular/ Advertisement or acceptance of Deposit.
6. A panel Rate of Interest 18% shall be payable on nonpayment of matured deposits.
(Author can be reached at csdiveshgoyal@gmail.com )
Procedure for acceptance of Deposit by Public company
Posted In Company Law | 1 Comment »
CS Divesh Goyal
Sec- 76 of Companies Act 20131. Call Board Meeting:
- To pass resolution for acceptance of deposit from members
- Approve Draft DPT-1 (Circular)
- Appoint a Trustee
- Call General Meeting
- Authorize Director or Secretary for further process
2. Call General Meeting
- Pass Ordinary Resolution for acceptance of deposit, if deposit with in limit of section 180(1)(c )
3. File form MGT-14 with ROC within 30 days of passing of resolution:
- Attach Notice, Minute and CTC of Resolution
4. File DPT-1 with ROC at least 30 days before issue of circular, signed by BOD or Person Authorize by Board.
5. Enter into contact with Insurance Company at least 30 days Before issue of Circular.
6. Execute Deposit Trust Deed at least 7 days before issuing of circular.
- Issue Circular (DPT-1) to members through registered post, courier or through Electronic mode.
- Issue circular in DPT-1 through advertisement also (in one English News Paper and one Vernacular Language).
- Put Copy of Advertisement on website of company, if any.
- Within 21 days of Acceptance of Deposit company will issue receipt of Deposit to Depositor. Receipt will be signed by Person Authorized by Board of Director.
- Make Entry in register within 7 days of issue of receipt.
- Company will create charge on assets of company equal to amount of deposit unsecured by insurance.
- File CHG-1 within 30 days of Creation of Charge.
NOTE:
- Public Company can accept deposits from members up to 10% of paid-up share capital + Free reserve.
Public Company can accept deposits from Public up to 25% of paid-up share capital + free reserve.
Company before 30th April each will deposit at least 15% of amount of deposit, whether secured or unsecured, maturing during the year or next financial year in deposit repayment reserve account, maintain with Schedule Bank.
Company Before 30th June every year will file DPT-3 with ROC, containing information there in as on 31st March, duly audited by Auditor of company.
No trustee can be removed after the issue of circular/advertisement and before the expiry of his term except with the consent of all the Directors Present at a meeting of Board.
T & C of Deposit cannot be altered after the issue of circular/ Advertisement or acceptance of Deposit.
A panel Rate of Interest 18% shall be payable on non-payment of matured deposits.
(Author can be reached at csdiveshgoyal@gmail.com )
Brief Procedure For Change Of Name under Companies Act 2013
CS Divesh Goyal
1. Call the Board Meeting:- Pass a resolution of Change of Name of Company
- Authorize to any Director or Secretary to make Application to ROC
- File Form INC-1 with ROC along with:
- Copy of Board Resolution
- Give 6 names in Form
- ROC will process the form, if will find name is ok will give name to company, this name will be available to company for 60 days from the date of application.
- Hold Board Meeting:
- Call a General Meeting
- Issue Notice of General Meeting
- Authorize to any Director or Secretary to make Application to ROC
- Hold General Meeting- Pass Special Resolution
- File Form MGT-14 with in 30 days of passing of Resolution along with
- Minutes of meeting
- Notice of Meeting
- CTC of Resolution
- Altered AOA & MOA
- File Form INC-27 with ROC within 30 days of passing of Resolution along with:
- Minutes of Meeting
- Optional Attachment if any
- Registrar will issue Fresh Certificate of Incorporation.
- Make necessary changes in all registers and records name of Company.
(Author can be reached at csdiveshgoyal@gmail.com )
Brief Procedure for Increase in Authorize Capital under Companies Act 2013
CS Divesh Goyal
INCREASE IN AUTHORIZE CAPITAL GOVERN BY SECTION 61.PROCEDURE
- First check is there any provision in AOA regarding increase in capital, if there is provision in Article then it's ok, But If there is no provision in AOA then first Alter AOA.
- Hold a Board Meeting
- To Get approval of Directors for Increase in Capital
- Call EGM
- Hold a EGM
- Pass Ordinary Resolution for increase in authorize capital
- File form MGT-14 with ROC within 30 days of passing of resolution:
- Attachments:
- Notice of EGM
- CTC of OR
- Altered MOA
- File form SH-7 with roc within 30 days of passing of Ordinary Resolution
- Attachment:
- Notice of EGM
- CTC of OR
- Altered Moa
- ROC will check the Box and will approve to increase in authorize capital.
(Author can be reached at csdiveshgoyal@gmail.com )
Procedure for Incorporation of A Company Limited By Shares Under Companies Act, 2013
CS Divesh Goyal
1. To register a company, you need to first apply for a Director Identification Number (DIN) which can be obtained by filing e-Form for acquiring the DIN. Form DIR 3.2. Acquire or register for DSC and register yourself as a user in the relevant user category, such as registered and business user.
3. Apply for the name of the company to be registered by filing Form INC-1 for the same.
4.After receiving the letter of name approval from the MCA fill the form INC-7 for application or declaration for incorporation of a company.
- Documents to be attached-
- MOA Table A
- AOA table F ,
- Declaration by Professionals in INC- 8
- Affidavit from Subscribers and first directors in INC 9
- Verification of signature of subscribers in Form INC 10, Proof of residential address.
5. Fill the form INC-22 within 30 along with form INC-7 for giving notice of situation of registered office. Attachments –
- Address Proof like electricity or telephone bill and NOC of use of property.
6. Fill Form DIR -12 for particulars of appointment of Directors and the key managerial personnel. Once the form has been approved by the concerned official of the Ministry, you will receive an email regarding the same and the status of the form will get changed to Approved.
7. A company having a share capital shall not commence any business or exercise any borrowing powers unless—
- a declaration is filed by a director in form INC10 and verified in such manner as may be prescribed, with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him and the paid-up share capital of the company is not less than five lakh rupees in case of a public company and not less than one lakh rupees in case of a private company on the date of making of this declaration;
- Such Declaration has to be filed in Form INC-21 within 180 days of receiving th Certificate of Incorporation.
(Author can be reached at csdiveshgoyal@gmail.com )
Procedure For Private Placement Of Shares Under Companies Act 2013
CS Divesh Goyal
Section (1)(c) read with Sec-42 of Companies Act 20131. Check Provision in Article regarding Private Placement
2. Call Board Meeting:
• To Prepare Offer Letter
• Make Proposal for Private Placement
• Prepare list of persons to whom option will be given
• Call EGM
• To Prepare Offer Letter
• Make Proposal for Private Placement
• Prepare list of persons to whom option will be given
• Call EGM
3. Call EGM:
• Pass SR- will be valid for 12 month
• If not completed PP in 12 Month pass another SR
• Approve Draft Offer Letter by SR
• Pass SR- will be valid for 12 month
• If not completed PP in 12 Month pass another SR
• Approve Draft Offer Letter by SR
4. File MGT-14 with ROC
Attachments:
- Notice of EGM
- CTC of SR
- Minutes
Attachments:
- Notice of EGM
- CTC of SR
- Minutes
5. Issue offer letter in PAS-4 within 30 days of record of name of persons:
• Application form serially numbered
• Address to the persons to whom the offer is made
• Application form serially numbered
• Address to the persons to whom the offer is made
6. Prepare complete record of Private Placement in PAS-5
7. File PAS-4 + PAS-5 with ROC within 30 days of issue of offer letter in GNL-2
8. Make Allotment of shares within 60 days of receipt of Money from the persons to whom right was given.
9. Called BM for allotment of shares
10. File PAS-3 with Roc within 30 days if Allotment.
Attachments:
- List of Allottees
- BR for allotment of share
Attachments:
- List of Allottees
- BR for allotment of share
11. File Form MGT-14 along with Resolution pass in Board meeting for allotment of shares.
12. Issue Share Certificates.
NOTE:
o An offer can be made under a Private Placement Offer Letter to not more than 200 people. Not just the limitation of allotment to 200 people but even an invitation to subscribe cannot be made to more than 200 people. The 200 people limit excludes Qualified Institutional Buyers and Employees and the limit of 200 people is calculated individually for each kind of security. Obviously, there cannot be a public announcement of such offers.
• The application form has to be numbered and addressed specifically to the person to whom the offer is made along with the Offer Letter. Allotments can be made only to such persons
• The value of the Offer per person shall not be less than INR 20,000 of 'face value' of securities. The payment for subscription should be through the bank account of the person subscribing to the securities and the company should keep a record of the bank account from where such payments have been received. No cash transaction is permitted. The money so received shall be kept in a separate bank account of the company and utilised only for allotment (or repayment).
• The price of the security has to be justified and the inference is that, it requires a valuation report by a Registered Valuer (can be a company secretary, chartered accountant or a cost accountant)
• Non-compliance can lead to a penalty of INR 2 crores or the amount involved in the offer, whichever is higher.
(Author can be reached at csdiveshgoyal@gmail.com )
Change of Classification at Service Receivers End
Dr. Sanjiv Agarwal
The nature of taxable services at the service provider's end decides the classification of taxable services by the service provider as per the provisions of section 65A of the Finance Act, 1994. Based on such classification, service provider obtains the service tax registration, pays service tax and files service tax return. The same classification is used for cenvat credit purpose. The issue which is being discussed is whether the classification of taxable services can be questioned and by the Department at the service receiver's end, when it comes to Cenvat credit or otherwise? For example, if a chartered accountant has rendered some service, for a chartered accountant service provider, it is chartered accountant's services but at the service receiver's end, can it be treated as management consultancy service or some other service ? The disputes arise or may arise at the receiver's end when it avails cenvat credit since there are sixteen services on which 100 percent cenvat credit is allowed under Rule 6(5) of the Cenvat Credit Rules, 2004.
Further, it is also true that service tax has been paid by service provider under 'Management Consultant Service' and returns filed in form ST-3 under the said classification by service provider . Hence, once the classification of service provider under the category of Management Consultant's services has been accepted by the Department and service tax paid thereon is also accepted, it is not open to Department to deny the credit of the said service tax paid to the at the service receiver's end. Department can not dispute this, ie, for changing the classification
or for that matter denying the credit. This also gets substantiated from the ratio of following judgments/CBEC Instructions —
(i) Sarvesh Refractroies Pvt Ltd v. CCE & C 2007 (218) ELT 488 (SC)
(ii) CCE & C v. Purity Flexpack Ltd 2008 (223) ELT 361 (Gujarat)
(iii) CCE & C v. MDS Switchgear Ltd. 2008 (229) ELT 485 (SC)
(iv) Hindustan Lever Ltd. -2000 (121) ELT 437 (T)
(v) Hindustan Coca Cola Beverages Pvt. Ltd. v. CCE, Meerut-II (2010) 19 STR 280 (Cestat New Delhi).
(vi) Manikgarh Cement v. CCE, Nagpur (2010) 20 STR 600 (Cestat, Mumbai)
(vii) CBEC Circular No. 877/18/2008-CX dated 17.11.2008-2008 (232) ELT T-3A-45
In Pacific Exports v. CCE, Ahmedabad, (2013) 31 STR 14 (Cestat, Ahmedabad), on rejection of a refund claim due to wrong classification of service, it was held that it is settled law that re-classification of services cannot be done at recipient's end.
The classification of taxable service can not be altered at the recipient end. The classification of service as provided by service provider to receiver may never have been disputed and challenged at the end of service provider of such service, and in such cases it could not be challenged at the receiver end being out of jurisdiction.
Compliances to Be Taken Care Of By Private Company under Companies Act 2013
CS Divesh Goyal
♣ MEANING OF PRIVATE COMPANYAs per Section 2(68) "Private Company" means a company having a minimum paid-up share capital of ONE LAKH rupees or such higher paid-up share capital as may be prescribed, and which by its articles,—
(i) Restricts the right to Transfer its Shares;
(ii) Limits the Number of its Members to 200; and
(iii) Prohibits any Invitation to the Public to Subscribe for any SECURITIES of the Company;
NOTE: – 1. Joint holders shall be counted as one.
- (A) Employees holding shares; and
(B) Person formerly in employment were, who members during such employment and still
Continue to be the members shall not be counted in the limit of 200.
NOTE: Require to Alter Article of Association of Private companies. Alterations:
- Increase limit of Maximum number of members to 200.
- Remove clause 'Prohibit any invitation or acceptance of deposit from person other than its Member, Director and Relatives.
♣ FINANCIAL YEAR
As per Section 2(41), now financial year of a Company can only be of APRIL to MARCH and
Exception: only a Company or body corporate, which is a holding company or a subsidiary of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, may have different financial year subject to approval of Tribunal.
NOTE: Transitional Phase: – A transitional period of 2 years is allowed for compliance with this
♣ CIN to be Mentioned on Printed Stationery of the Company (Section 12(3)(c):
Every Company shall get its Name, Address of registered office and the Corporate Identity Number (CIN) along with telephone number, fax number, if any, e-mail and website etc., printed on all its business letters heads, billheads, invoices, letter papers and in all its notices and other official publications.
PENALTY: – Company and officer in default shall be liable to a penalty off Rs. 1000/- per day not exceeding Rs. 1,00,000/-.
IMMEDIATE ACTIONS TO BE TAKEN:-
You need to get fresh Letterheads, bills and other papers printed in accordance with the above provisions.
♣ DEPOSITS(Section 73-76)
Now a Private Company cannot Accept Deposits from Relatives of Directors, Shareholders as was allowed under Companies Act, 1956 unless Section 73 of the Companies Act, 2013 and Companies (Acceptance of Deposit) Rules, 2014 are complied with.
As per Section 74(1)(a) and Companies (Acceptance of Deposit) Rules, 2014 every company who has accepted deposit before commencement of Companies Act, 2013 has to file a return in Form DPT-4 within 3 months from commencement of Companies Act, 2013 and further it has to be repaid within 1 year from commencement of this Act.
PENALTY:- Company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to Rs. 10,000/- and where the contravention is continuing one, with a further fine which may extend to Rs. 1,000/- for every day after the first during which the contravention continues.
IMMEDIATE ACTIONS TO BE TAKEN:-
NOTE
1. If company Accepted Any Deposit Under Previous Act:
- Require to file form DPT-4 till 30th June, with the registrar a statement of all the deposit accept by the company, and amount which remain unpaid along with amount of interest.
- Such amount is to be repaid before 31st March, 2014 or on the date when such payment is due whichever is earlier. (If not able to repay then make application to Tribunal, now power delegated to CLB).
- Amount which is received from director of the company shall be not be considered as deposit only if:
The director from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others.
- Passing of Ordinary Resolution if accept from members But is accepting deposits from public Special Resolution require.
Deposits From the Members: shall not exceed 25% per cent of the aggregate of the paid up share capital and free reserves of the company. The amount of 25% limit is to be computed considering such deposit together with the amount of deposits outstanding as on the date of acceptance or renewal of such deposits.
♣ ALLOTMENT OF SECURITIES (Section 42, 62)
Now a Private Company has to offer share to its existing shareholders before allotting shares to outsiders. Further if the company wants to allot shares directly to persons other than its existing shareholders then it has to pass a Special Resolution and has to comply with the provisions of Private Placement (Section 42), according to which various compliances are to be some of them are listed below:-
- Giving offer letter
- Maintenance of records pertaining to offer letter
- Filing of offer letter to ROC in case of issue through private placement in form PAS-4
- Minimum investment to be made by a person is 20,000/-
- Justification of price including premium, in the explanatory statement of Special Resolution.
- Return of allotment to be filed in form PAS-3.
- In case Company is not able to allot securities within 60 days of receipt of application money, it shall be repaid within 15 days from the date of completion of 60 days otherwise pay 12% interest per annum.
NOTE:if the securities for which application money or advance for such securities was received cannot be allotted within sixty days from the date of receipt of the application money or advance for such securities and such application money or advance is not refunded to the subscribers within fifteen days from the date of completion of sixty days, such amount shall be treated as a deposit under these rules
PENALTY: - If the company makes violation of section 42, i.e. in making private placement then the company, promoters and directors shall be liable to a penalty which may extend to amount of Offer or Rs. 2 Crore whichever is higher. Further the company shall return the money within 30 days of order imposing the penalty.
IMMEDIATE ACTIONS TO BE TAKEN:-
If Company wants to allot shares to persons other than shareholders do let us know in advance so that we can assist you in the documentation, formalities and procedural aspects.
♣ CORPORATE SOCIAL RESPONSIBILITY (Section 135)
Now a Private Company having,
a. Net worth of Rs. 500 crore or more, or
b. Turnover of Rs. 1000 crore or more, or
c. Net profit of Rs. 5 crore or more
shall contribute 2% of its net profit in CSR activities as mentioned in rules pertaining thereto and shall also have a CSR committee Consisting of MINIMUM 3 Directors (2 in case of a private company), with at least 1 Independent Director. However, in case of Private Company the criteria of independent Director shall not apply.
PENALTY: – Company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to Rs. 10,000/- and where the contravention is continuing one, with a further fine which may extend to Rs. 1,000/- for every day after the first during which the contravention continues.
IMMEDIATE ACTIONS TO BE TAKEN:-
If your Company falls in any of the above criteria then CSR committee is to be established and such Committee shall recommend to the Board a CSR policy and the amount of expenditure to be incurred on the activities.
♣ CERTIFICATE OF COMMENCEMENT OF BUSINESS(Section 11)
Now, Every Company has to file a declaration through any of its director that minimum paid up capital as prescribed is maintained by the company and the subscribers have brought in their subscription amount as agreed before commencement of any business activity or exercising any borrowing power by the company. Such declaration has to be filed with Registrar of companies within 180 days from date of Incorporation in e-form INC-21.
PENALTY: – Company shall be liable to a penalty which may extend upto Rs. 5000 and every Officer in default shall be liable to a penalty of Rs. 1000/- per day. Further ROC may initiate actions for striking off the Company also.
♣ MEETINGS OF BOARD OF DIRECTORS (Section 173)
Frequency of Meeting:
- First Meeting: First Meeting of Board of Directors within 30 (Thirty) days from the date of Incorporation of company.
- Subsequent Meetings:
- One person Company, Small company and Dormant company:
- At least one meeting of Board of directors in each half of calendar year
- Minimum Gap B/W two meetings at least 90 days.
- Other than Companies mentioned above:
- Minimum No. of 4 meetings of Board of Director in a calendar year
- Maximum Gap B/W two meetings should not be more the 120 days.
Calling of Meeting: Meeting of Board of Director should be called by giving 7 days notice to
Directors at his registered address through:
- By hand delivery
- By post
- By Electronic means
Meeting at shorter Notice: A meeting of Board of Directors can be called by shorter notice subject to the conditions:
- If the company is require to have independent director:
- Presence of at least one Independent director is required.
- In case of absence, decision taken at such meeting shall be circulated to all the directors, and
- shall be final only on ratification thereof by at least one Independent Director
If the company doesn't require to have independent director: The meeting can be called at a shorter notice without any conditions to be complied with
PENALTY: – Company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to Rs. 10,000/- and where the contravention is continuing one, with a further fine which may extend to Rs. 1,000/- for every day after the first during which the contravention continues.
IMMEDIATE ACTIONS TO BE TAKEN:-
Notice of every Board Meeting is to be prepared and to be given to every Director at least 7 days before the meeting.
♣ Maximum Number of Directorships (Section 165)
As per Section 165 NO Person, after the commencement of this Act, shall hold office as a director, including any alternate directorship, in more than 20 companies at the same time. Further provided that a person can become Director in maximum 10 Public Companies.
*For this purpose, Private companies who are either holding or subsidiary of Public company shall be taken as public company. A company may by passing special resolution at its general meeting reduce the limit of directorships of its directors.
NOTE: Transitional Phase: – A transitional period of 1 year is allowed for compliance with this requirement.
PENALTY: - Person contravening the aforesaid provisions shall be liable to a minimum fine of Rs. 5000/- which may extend up to Rs. 10,000/- per day.
IMMEDIATE ACTIONS TO BE TAKEN:-
It should be checked whether any person has Directorships more than aforesaid, then he should comply with this provision before 31st March, 2015 to avoid penalty.
♣ Company to have Board of Directors (Section 149)
Every company must have at least one director who has stayed in India for a minimum period of 182 days during the previous calendar year.
♣ Resignation of Director (Section 168)
Now, apart from the company, Director also has to file a form (DIR-11) with ROC intimating his resignation indicating reasons therefore, attaching the notice of resignation along with proof of dispatch.
PENALTY: – Company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to Rs. 10,000/- and where the contravention is continuing one, with a further fine which may extend to Rs. 1,000/- for every day after the first during which the contravention continues.
IMMEDIATE ACTIONS TO BE TAKEN:-
Whenever, a person resigns from the Board he shall inform the professional so that necessary formalities like obtaining digital signature and filing of form with MCA could be done.
DIN to be mentioned with Director's Signature (Section 158)
Now, Director's name & DIN (Director Identification Number) has to be mentioned with their signature on all the documents to be signed in the capacity of director.
PENALTY: – Company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to Rs. 10,000/- and where the contravention is continuing one, with a further fine which may extend to Rs. 1,000/- for every day after the first during which the contravention continues.
IMMEDIATE ACTIONS TO BE TAKEN:-
One should ensure that DIN is written, wherever he is signing as Director of the Company.
♣ Restriction on Non-Cash Transaction Involving Directors (Section 192)
No Company shall enter into an arrangement with Director, Director of Holding, Subsidiary or Associate Company or with a person connected with him by which:-
he acquires from company any assets for consideration other than cash or vice-versa.
However, such arrangement can be made if approved by the company in general meeting by way of prior ordinary resolution.
PENALTY: – Company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to Rs. 10,000/- and where the contravention is continuing one, with a further fine which may extend to Rs. 1,000/- for every day after the first during which the contravention continues.
♣ Section 188: RELATED PARTY TRANSACTIONS
Except with the consent of Board of Directors given by a resolution and in certain cases prior approval by way of special resolution, no company shall enter into any contract or arrangement with a related party with respect to following transactions:
(a) Sale, purchase or supply of any goods or materials;
(b) Selling or otherwise disposing of, or buying, property of any kind;
(c) Leasing of property of any kind;
(d) Availing or rendering of any services;
(e) Appointment of any agent for purchase or sale of goods, materials, services or property;
(f) Such related party's appointment to any office or place of profit in the company, its subsidiary company or associate company; and
(g) Underwriting the subscription of any securities or derivatives thereof, of the company.
NOTE: If paid up share capital of company is 10 crore or More then Company require Shareholders
Approval in General Meeting by passing of Special Resolution.
MEANING OF RELATED PARTY:
"Related party as per Section 2(76)", with reference to a company, means—
i. a director or his relative;
ii. a key managerial personnel or his relative;
iii. a firm, in which a director, manager or his relative is a partner;
iv. a private company in which a director or manager is a member or director;
v. a public company in which a director or manager is a director or holds along with his relatives, more than two per cent. of its paid-up share capital;
vi. any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;
vii. any person on whose advice, directions or instructions a director or manager is accustomed to act:
Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity;
viii. any company which is—
- a holding, subsidiary or an associate company of such company; or
- a subsidiary of a holding company to which it is also a subsidiary;
ix. such other person as may be prescribed;
PENALTY: Any Director or any other employee of the company who has entered into or authorized the contract or arrangement in violation of provisions of this section shall be punishable with minimum fine of Rs. 25,000/- which may extend up to Rs. 5,00,000/-.
SECTION 184- DISCLOSURE OF INTEREST
Every director shall at first meeting of Board in which he participates and thereafter every first meeting of board shall disclose his concern or interest in any company or companies or bodies corporate (including shareholding interest), firms or other association of individuals, by giving a notice in writing in Form MBP 1.
Every director of a company who is in any way whether directly, or indirectly concerned or interested in contract
- With body corporate in which such director or such director in association with any other director holds more than 2% shareholding of that body corporate, or is a promoter, manager, CEO of that body corporate or
- With a firm or other entity in which, such director is a partner, owner or member.
Shall disclose the nature of his concern or interest at the BM in which the contract or arrangement is discussed and shall not participate in such meeting.
PENALTY:
If a director contravenes the provisions of this section he shall be punishable with imprisonment for a term which may extend to 1 year or with fine min Rs. 50,000-Rs. 1, 00,000.
IMMEDIATE ACTIONS TO BE TAKEN:-
One should inform the Company his interest or concern in every first meeting of Board and at the Board meeting held after when there is change in interest or concern.
GENERAL:
- All notices shall be kept at the registered office and such notices shall be preserved for a period of eight years from the end of the financial year to which it relates and shall be kept in the custody of the company secretary of the company or any other person authorized by the Board for the purpose.
- According to Section 179 (3) (k), the Board of Directors of a company shall exercise the power to take note of the disclosure of director's interest and shareholding.
- According to Section 117(3) (g) of the Act resolutions passed in the sub section (3) of section 179 shall be filed with Registrar within 30 days of passing the resolution in Form MGT -14.
Thus it is necessary for all the companies to obtain declaration in Form MBP 1 from all its directors and has to file the same with MCA in form MGT 14 within 30 days of the first Board Meeting in the financial year.
SECTION 185: LOAN TO directors
APPLICABILITY:
- This section now applies to all companies including private companies also.
- *Save as otherwise provided in this Act
Provided that nothing contained in this sub-section shall apply to—
(a) The giving of any loan to a managing or whole-time director—
(i) As a part of the conditions of service extended by the company to all its employees; or
(ii) Pursuant to any scheme approved by the members by a special resolution; or
(b) A company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the bank rate declared by the Reserve Bank of India.
Explanation.—For the purposes of this section, the expression "to any other person in whom director is interested" means—
(a) Any director of the lending company, or of a company which is its holding company or any partner or relative of any such director;
(b) Any firm in which any such director or relative is a partner;
(c) Any private company of which any such director is a director or member;
(d) Any body corporate at a general meeting of which not less than twenty five per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or
(e) Any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.
PENALTY :
In case of contravention, the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, and the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person, shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both.
SECTION 186: LOANS AND INVESTMENT BY COMPANY
APPROVAL:No Company Shall Directly or Indirectly without Board Resolution
Board Approval: Company can give loan or guarantee or providing any security or the acquisitionby Passing of Unanimous Board Resolution at the meeting of Board of Directors, when limit does not exceed:
60% of Paid up share capital + Free Reserve + Security Premium Account
OR
- 100% of Free Reserve + Security Premium Account, Whichever is more.
General Meeting Approval: Where any Loan & Guarantee or providing any security or the acquisition exceeds the limit mention above then prior approval of Shareholder by passing of Special Resolution requires.
Public Financial Institution Approval: Prior Approval of Concerned Public Financial Institution is Require if term loans subsisting is(Aggregate of L, I, G & S already made along with L, I, G & S proposed to be made)exceed the limit mention above.
Provided that, No approval of PFI is required if there is no default made by company on repayment of loan installment or payment of interest there on as per T&C of such loan to the Public Financial Institution.
PENALTY:
If a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to two years and with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees.
SECTION 117: RESOLUTIONS AND AGREEMENTS TO BE FILED WITH ROC
A copy of every resolution or any agreement, in respect of matters specified in sub section (3) together with the explanatory statement under section 102, if any, annexed to the notice calling the meeting in which the resolution is proposed, shall be filed with the Registrar within thirty days of the passing or making thereof in Form MGT-14:
The provisions of this section shall apply to—
(a) Special resolutions;
(b) Resolutions which have been agreed to by all the members of a company, but which, if not so agreed to, would not have been effective for their purpose unless they had been passed as special resolutions;
(c) any resolution of the Board of Directors of a company or agreement executed by a company, relating to the appointment, re-appointment or renewal of the appointment, or variation of the terms of appointment, of a managing director;
(d) resolutions or agreements which have been agreed to by any class of members but which, if not so agreed to, would not have been effective for their purpose unless they had been passed by a specified majority or otherwise in some particular manner; and all resolutions or agreements which effectively bind such class of members though not agreed to by all those members;
(e) resolutions passed by a company according consent to the exercise by its Board of Directors of any of the powers under clause (a) and clause (c) of sub-section (1) of section 180;
(f) Resolutions requiring a company to be wound up voluntarily passed in pursuance of section 304;
(g) Resolutions passed in pursuance of sub-section (3) of section 179; an
(h) Any other resolution or agreement as may be prescribed and placed in the public domain.
PENALTY:
If a company fails to file the resolution or the agreement under sub-section (1) before the expiry of the period specified under section 403 with additional fee, the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default, including liquidator of the company, if any, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
SECTION 179(3): POWER EXERCISABLE BY BOARD:
- The Board of Directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorized to exercise and do.
In exercising such power or doing such act or thing, the Board shall be subject to the provisions of this Act, or the memorandum or articles, or regulations made by the company in general meeting:
- POWERS TO BE EXERCISED ONLY AT BOARD MEETING:
- UNDER THE ACT:
- Make calls on shareholders in respect of money unpaid on their shares;
- Authorize buy-back of securities under section 68;
- Issue securities, including debentures, whether in or outside India;
- Borrow monies;
- Invest the funds of the company;
- grant loans or give guarantee or provide security in respect of loans;
- Approve financial statement and the Board's report;
- Diversify the business of the company;
- Approve amalgamation, merger or reconstruction;
- Take over a company or acquire a controlling or substantial stake in another company;
- UNDER RULES:
- Make political contributions;
- Appoint or remove key managerial personnel (KMP);
- Take note of appointment(s) or removal(s) of one level below the Key Management Personnel;
- Appoint Internal auditors and secretarial auditor;
- Take note of the disclosure of director's interest and shareholding;
- Buy, sell investments held by the company (other than trade investments), constituting five percent or more of the paid up share capital and free reserves of the investee company;
- Invite or accept or renew public deposits and related matters;
- Review or change the terms and conditions of public deposit;
- Approve quarterly, half yearly and annual financial statements or financial results as the case may be.
NOTE:
- The power to invest, borrow and grant loan / guarantee / security can be exercised by a committee duly authorize by the board.
- The resolution in pursuance of powers of the board mentioned above shall be filed with the registrar in form MGT-14 within 30 days of passing such resolution.
SECTION 128(1): BOOKS OF ACCOUNT, ETC., TO BE KEPT BY COMPANY
Every company shall prepare and keep at its registered office books of account and other relevant books and papers and financial statement for every financial year, including that of its branch office or offices, if any, and such books shall be kept on accrual basis and according to the double entry system of accounting.
Provided that all or any of the books of account aforesaid may be kept at such other place in India as Board of Directors may decide and where such a decision is taken, the company shall, within 7 days thereof, file with the Registrar a notice in writing giving the full address of that other place.
Provided further that the company may keep such books of account or other relevant papers in electronic mode in such manner as may be prescribed.
As per Sec 128(5), books of account of every company relating to a period of atleast eight financial years immediately preceding a financial year, or where the company had been in existence for a period less than eight years, in respect of all the preceding years together with the vouchers relevant to any entry in such books of account shall be kept in good order.
PENALTY:
If the managing director, the whole-time director in charge of finance, the Chief Financial Officer or any other person of a company charged by the Board with the duty of complying with the provisions of this section, contravenes such provisions, such person shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees or with both.
MISC. PENALTIES:
SECTION 447: Every person found guilty of fraud shall be punishable with minimum 6 months and maximum 10 years imprisonment which may extend to ten years and shall also be liable to minimum fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud.
SECTION 448: Every person making a false statement shall also be liable under Section 447.
SECTION 450: PENALTY WHERE NO SPECIFIC PENALTY IS PROVIDED
Where no specific penalty is provided in law for any default, the company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to Rs. 10,000/- and where the contravention is continuing one, with a further fine which may extend to Rs. 1,000/- for every day after the first during which the contravention continues.
SECTION 451: PENALTY IN CASE OF REPEATED DEFAULTS
If a company or an officer of a company commits an offence punishable either with fine or with imprisonment and where the same offence is committed for the second or subsequent occasions within a period of three years, then, that company and every officer thereof who is in default shall be punishable with twice the amount of fine for such offence in addition to any imprisonment provided for that offence.
WORK TO BE DONE NOW
- Require to Alter Article of Association of Private companies.
Alterations:
- Increase limit of Maximum number of members to 200.
- Remove clause 'Prohibit any invitation or acceptance of deposit from person other than its Member, director and relatives.
- Require to Pass Board Resolution to fix Financial Year of Company from April to March, If Financial year is different
Get fresh Letterheads, bills and other papers printed in By mention Name, Address of registered office and the Corporate Identity Number (CIN) along with telephone number, fax number, if any, e-mail and website etc.
Private Company can't accept deposits from other then its members and directors.
(If company accepting deposit from director then, the director from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others)
- If company accepted any deposit under previous act:
- Require to file form DPT-4 till 30th June, with the registrar a statement of all the deposit accept by the company, and amount which remain unpaid along with amount of interest.
- Such amount is to be repaid before 31st March, 2014 or on the date when such payment is due whichever is earlier. (If not able to repay then make application to Tribunal, now power delegated to CLB).
- Require to file form DPT-3 till 30th June, with the Registrar, A return of Deposits.
- Now companies have to create charge on vehicle loan also.
Now company if going to allot shares to existing share holders require to issue offer letter and follow the procedure mention in section 62.
If company falls in any of the criteria mention in section 135 then CSR committee is to be established and such Committee shall recommend to the Board a CSR policy and the amount of expenditure to be incurred on the activities.
Require to give 7 days' notice to call Board Meeting.
If any person is director in more than 20 companies then he have to give resignation from the companies above 20 till 31st march, 2015.
Every company must have at least one director who has stayed in India for a minimum period of 182 days during the previous calendar year.
Whenever, a person resigns from the Board he shall inform the ROC in form DIR-11.
Mention the DIN of Director on every document where signature is done by director.
Every director shall at first meeting of Board in which he participates and thereafter every first meeting of board shall disclose his concern or interest in any company or companies or bodies corporate (including shareholding interest), firms or other association of individuals, by giving a notice in writing in Form MBP 1.
Thus it is necessary for all the companies to obtain declaration in Form MBP 1 from all its directors and has to file the same with MCA in form MGT 14 within 30 days of the first Board Meeting in the financial year.
(Author can be reached at csdiveshgoyal@gmail.com )
Hospital is entitled to claim sec. 11 relief from income arising from pharmacy, an integral part of hospital
IT : Where assessee, a charitable society registered under section 12A, was running a hospital, income earned by it from its pharmacy being integral to main object of running hospital, could not be excluded from computing income eligible for exemption under section 11
Leave encashment payments are deductible on basis of 'actual' payment under sec. 43B, says ITAT
IT : Depreciation on goodwill which is an asset as per section 32 is allowable as held by Tribunal in series of earlier years
IT : Where assessee furnished a detailed working in respect of indirect expenses, but Assessing Officer added back same as disallowable expenditure under section 14A without recording any satisfaction that working provided by assessee was not proper, disallowance was to be deleted
IT : Leave encashment payment is an allowable expenditure on actual payment basis
Are they really independent ?
Independent directors are now a crucial part of Indian company law
CS Divesh Goyal
Let me now turn your attention to the role of independent directors in a company, an issue that has become increasingly important after the Enron and the Satyam scandals. Earlier Clause 49 of the listing agreement mandates appointment of independent directors on Board of listed Companies. With the passage of the new Companies Act of 2013, the concept of independent directors has found place in the Companies Act itself. The requirements prescribed under the Companies Act 2013 seem to be much more stringent than that of the listing agreement.As I will discuss below, India's new company law has recognized independent directors as a vital facet in the operation of a company. Independent directors are considered to be the watchdogs of a company. Independent Director is the first and foremost "independent watchdog." As watchdogs the board of directors are appointed in a company to oversee its business and funds to protect the shareholders. They should be free of all external influences. To ensure their complete autonomy, an independent director should not have any material or pecuniary relationship with the company.
Hon'ble Minister Sachin Pilot Said, "We as a government can only provide the regulatory mechanism. We can only give an environment where good corporate governance takes place," he said. "Today, we have about 8.5 lakh companies and about two-third companies which are family-owned. So, the role of independent directors becomes all the more important. The companies are large and public funds are invested and independent directors play a crucial role," he said.
Meaning/Definition of Independent Director:
The Companies Act, 2013, for the first time, defines an "independent director". Interestingly, the definition in Section 2(47) is similar to the one provided in the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, a regulation applicable only to listed companies. The principle of impartiality is embedded in this definition. As per Section 2(47), "independent director" means an independent direct or referred to in sub- section (5) of section 149, an independent director can only be a person:
→ who is not a managing director, whole-time director, or a nominee director;
→ who is not or was not a promoter of the company or its holding, subsidiary, or associate company;
→ who is not related to the promoters or the directors of the company, its holding, subsidiary, or associate company; and
→ who has or had No Pecuniary Relationship with the company,
- its holding, subsidiary or associate company or
- their promoters, or directors, during the two immediately preceding financial years or during the current financial year
→ None of whose relatives has or had pecuniary relationship or transaction with the company,
- its holding, subsidiary or associate company, or
- their promoters, or directors, amounting to
- Two per cent (2%) or more of its Gross Turnover OR
- Two per cent (2%) or more of Total Income OR
- Fifty Lakh Rupees (Rs. 50 Lakh) OR
- such higher amount as may be prescribed,
- whichever is LOWER,
- During the two immediately preceding financial years or during the current financial year;
→ who, neither himself nor any of his relatives:
- holds or has held the position in company or its holding, subsidiary or associate company in any of the three immediately preceding financial years in which he is proposed to be appointed as
- Key Managerial Personnel OR
- Employee of the company
- is or has been An EMPLOYEE or PROPRIETOR or a PARTNER, of-
- Firm of Auditors or
- Company Secretaries in Practice or
- Cost Auditors of the company or its holding, subsidiary or associate company in any of three immediately preceding financial years in which he is proposed to be appointed, of:
OR
- Any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company Amounting to TEN PER CENT (10%). OR More of the Gross Turnover of Such Firm
- Holds together with his relatives Two Per Cent (2%) . or more of the total voting power of the company OR
- is a Chief Executive or director, by whatever name called, of any NONPROFIT ORGANIZATION
- that receives Twenty-Five Per Cent (25%) or more of its receipts from the
v Company, any of its promoters, directors OR
v its holding, subsidiary or associate company OR
- That holds Two Per Cent (2%). or more of the total voting power of the company;
- is a Material Supplier, Service Provider or Customer or A Lessor Or Lessee of the company;
→ Who is above 21 years of age.
→ Who shall Possess appropriate skills, experience and knowledge in one or more fields of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations or other disciplines related to the company's business.
Applicability of Companies: Below mention companies are require to appoint Independent Director:
EXPLANATION:
1. The criteria specified for Unlisted Public Companies shall be applicable for the first year and shall continue to apply to that company in subsequent years during The Tenure Of The Independent Director even if the paid up share capital or turnover, or borrowings/deposits,as the case may be, fall below the limits specified therein.
COMPOSITION OF INDEPENDENT DIRECTORS:
EXPLANATION:
EXPLANATION:1. Any fraction contained in the 1/3rd number shall be rounded off as one.
2. A company belonging to any class of companies for which a higher number of independent directors:
- Required due to composition of its audit committee, such higher number of independent directors shall be applicable to it.
- Has been prescribed in or under the law/regulations governing such class of companies, shall comply with the requirements specified in such law/regulation.
{Example: As per Rule Unlisted Public Company should have minimum 2 Independent Directors, if company fulfills any of three conditions mentioned above. If the company touches the criteria given in sub rule- 6 of Companies (Registration Offices and Fees) Rules, 2014for constitution of Audit Committee, such Company constitutes Audit Committee. If Company appoints 5 directors as member of Audit Committee so as per Section 177 of Company Act, 2013 majority of directors should be Independent directors. In our case will be 3 (form 5 Majority 3). So "As per rule unlisted company should have 2 Independent directors but because of composition of Audit Committee our company requires to appoint Minimum 3 Independent Director".
PROCEDURE FOR APPOINTMENT OF INDEPENDENT DIRECTOR:
1. Appointment process of independent directors shall be independent of the company management
2. Passing of Resolution at the Meeting of Share holders {Ordinary Resolution in GM)
3. Explanatory Statement attached to the notice of the meeting for approving the appointment of independent director shall include a statement that in the opinion of the Board, the independent director proposed to be appointed fulfils the conditions specified in the Act and the rules made there under.
4. The company shall issue a Formal Letter of appointment to independent director, which shall mention:
- the term of appointment
- the expectation of the Board from the appointed director
- the fiduciary duties along with accompanying liabilities
- he Code of Business Ethics of company
- the remuneration, mentioning periodic fees, reimbursement of expenses for participation in the Boards and other meetings and profit related commission, if any
5. The Letter of appointment along with the detailed profile of independent director shall be disclosed on the websites of the company and the Stock exchanges.
6. The Letter of appointment along with the detailed profile of independent director shall be submitted with Stock Exchanges not later than one working day from the date of such appointment.
DECLARATION BY INDEPENDENT DIRECTOR: Every independent director shall give a declaration that he meets the criteria of independence as provided in the Section 149(6) of Companies Act, 2013:
- At the First Board Meeting in which he participates as a director Or
- At the first board meeting in every financial year Or
- At the first meeting held after whenever there is any change which may affect his status as an independent director
TENURE OF INDEPENDENT DIRECTOR:
Explanation:
- For Companies Act, 2013 Tenure of Independent Director, as On the Date of Commencement of Act shall not be counted as term under section 149 (11).
- For Listing Agreement Independent Director who has already served as ID for 5 year or more years as on October 1, 2014, shall be eligible for appointment of ONLY ONE MORE TERM on completion of term as on October1, 2014.
REMUNERATION TO INDEPENDENT DIRECTOR:
- Independent director shall not be entitled to any stock option.
- May receive Remuneration by way of Sitting Fees which shall not exceed 1,00,000/- and Reimbursement of Expenses for participation in the Board and other meetings
- Profit related commission as may be approved by the share holders by passing of resolution in General Meeting.
RESIGNATION:
- An Independent Director may resign from his office by giving a notice in writing to the Company.
- The Board on receipt of such notice shall file same with Registrar in Form DIR- 12 within 30 days from the date of receipt of such notice.
- The Company shall also place the fact of such resignation in Director Report laid in the immediately following general meeting by the Company.
- A director shall also forward a copy of resignation in DIR-11 within 30 days.
REMOVAL:
- A Company may, by ordinary resolution, remove a director, before the expiry of his period after giving a reasonable opportunity of being heard.
- A special notice is required for any resolution, to remove a director under this section, or to appoint somebody in place of a director so removed.
- The vacancy shall be filled within a period of not more than 180 days.
Intermittent vacancy of an Independent Director: Provided further that any INTERMITTENT VACANCY of an Independent director shall be filled-up by the Board of Directors at the earliest but not later than
- Immediate Next Board Meeting OR
- 3 (Three) Months from the date of Such Vacancy, Whichever Is Later:
LIMIT ON NUMBER OF DIRECTORSHIP:
Separate Meeting of Independent Director:
The independent directors of the companys hall hold at least one meeting in a year, without the attendance of non-independent directors and members of management. All the independent directors of the company shall strive to be present at such meeting.
The meeting shall:
(a) Review the performance
- of non-independent directors and the Board as a whole;
- of the Chairperson of the company,
(b) Assess the quality, quantity and timeliness of flow of information between the company management and the Board that is necessary for the Board to effectively and reasonably perform their duties.
RE-APPOINTMENT OF INDEPENDENT DIRECTOR:
- Require Special Resolution in General Meeting and Disclosure of such re-appointment in Directors Report.
- On the basis of Report of Performance Evaluation.
LIMIT OF NUMBER OF MEMBERSHIP IN COMMITTEE BY INDEPENDENT DIRECTOR:
For the purpose of considering the limit of companies Private Company & Foreign Company & Section-8 Company are excluded.
Points to be note:
- The Provisions relating to Rotation of Directors shall not be applicable to Independent Directors.
- An independent director shall be held liable, only in respect of such acts of omission or commission by a company, which had occurred with his knowledge,
Attributable through Board processes and with his consent or connivance or where he had not acted diligently.
Manner to select Independent Director:The Act, 2013 has described the manner or procedure for selection of ID's under section 150.This section says that selection of an ID shall be done from a Data Bank maintained by anybody, institute or association, as may be notified by the Central Government, containing names, addresses and qualifications of persons who are eligible and willing to act as ID. It also says that the appointment of an ID shall be approved by the company in general meeting and the explanatory statement indicating the justification behind appointing such person, attached with the notice of general meeting.
Realizing the importance and argent need for the independent directors in the corporate world Chamber of Indian Micro Small & Medium Enterprises (CIMSME) has taken a proactive initiative to address the requirement for suitable independent directors for companies by hosting a dedicated portal.
www.indianindependentdirectors.org
This will create a single window opportunity to the prospective independent directors to post their particulars in conformity with the rules framed under the new Companies Act 2013.Indianindependentdirectors.org is proposing to create the data of eligible independent directors which will be used by the eligible companies to have capable and qualified independent directors as per their requirement.
Indianindependentdirectors.org will contact the companies which requires to appoint Independent directors as per the provisions of the Companies Act 2013, to select and appoint the Independent Directors out of the databank managed by Indianindependentdirectors.org
Indianindependentdirectors.org proposes to conduct initial Due diligence of the information provided by the persons desirous to be enrolled under the databank at Indianindependentdirectors.org. The profile of the persons will be hosted on the website of Indianindependentdirectors.org only after initial Due diligence by the expert team. The details about the due diligence process are also placed under DUE DILIGENCE PROCESS.
Any company desirous to select any person as independent director from this data bank must carry out its own due diligence before appointment of any person as an independent director and the Chamber maintaining the databank or any State/ Central Government shall not be responsible for the person chosen for appointment on its board as independent director out of this databank.
CONCLUSION:
The Act empowers independent directors with proper checks and balances, so that such extensive powers are not exercised in an unbridled manner, but in a rational and accountable way. The changes are a step in the right direction. They should enhance CORPORATE GOVERNANCE and ensure the management and affairs of the companies are conducted in the interest of stakeholders. It is expected that these changes will thwart corporate scandals in future and insulate shareholders interest.
However it is also important to keep in mind that good corporate governance is not just the outcome of appropriate selection and effective functioning of ID's. Every director, whether independent/non- independent, executive/non-executive has a distinct role in the functioning of the company. It is only when the entire board functions effectively which results to good corporate governance and benefit minority as well as majority shareholder in its long term which maintains a good corporate image in the market.
From the above we can conclude that Independent Directors have a very big role to play in Corporate. The Provisions have been made stringent & compliance to these is also becoming difficult. The Independent Director definition is also not very clear as the pecuniary relationship is not defined. The Government should give precise definition which can bring about clarity.
(Author can be reached at csdiveshgoyal@gmail.com )
Changes made in Wealth Tax Return Form for Assessment Year 2014-15
CA Pradeep Kumar
CBDT wide its notification No. 32/2014 dated 23.06.2014 has amended the Wealth–Tax Rules, 1957. As per notification electronic filing of wealth tax return under the digital signatures has been made mandatory except in cases of individual or HUF assessees to whom provisions of tax audit are not applicable. A new wealth tax return form i.e. "Form BB" is prescribed for filling of wealth tax return in respect of Assessment Year 2014-15 & any other subsequent assessment year. Manual "Form BA" is to be used in respect of assessment year 2013-14 & earlier assessment years.
Following substantive changes has been incorporated in the New Form:-
1. Jewellery Items:-
Following disclosure about Jewellery Items is to be made in a separate schedule of wealth tax return:-
(i) Description of jewellery item;
(ii) Gross Weight;
(iii) Net weight of precious metal;
(iv) Description & weight of precious or semi -precious stones
(v) Value of each precious or semi- precious stone and total value of all such stones.
(vi) Total value of jewellery as per Schedule III
(vii) Name of Registered Valuer
(viii) Registration Number of Valuer
(ix) Date of Report by Valuer
2. Other Properties:- From Assessment Year 2014-15 detail of all assets whether movable or immovable other than:-
(i) Assets as defined under wealth tax act & are liable to wealth tax;
(ii) Assets claimed as exempt;
(iii) Assets located outside India;
(iv)Assets used for Business or Profession which is subject to audit under section 44AB;
to be filed up in the wealth tax return by Individual or HUF assessees.
It seems to be very strange that in the new form CBDT has required the Wealth Tax Assessees to disclose the particulars of properties/assets which are not covered under the definition of asset under section 2(ea) of Wealth Tax Act,1957.
(The author, Pardeep Kumar, is a Chartered Accountant from Rohtak, Haryana. He can be reached at pardeep.kumar2@escorts.co.in)
Mandatory E-Filing of Wealth Tax Return and FAQ
Vide Notification No. 32/2014 dated 23-06-2014, CBDT has made mandatory filing of Wealth Tax Return only by electronic means for certain persons including Company and an assessee being individual or HUF who is liable to audit u/s 44AB.
From Assessment Year 2014-2015 onwards, Company and an assessee being individual or HUF who is liable to audit u/s 44AB are required to furnish Form BB (Return of Net Wealth) electronically under digital signature. Some of the important points are:
- New wealth tax return form BB (E-Filing) shall be applicable from assessment year 2014-15 for Years Prior to this Form BA will continue to remain applicable.
- E filing of wealth tax return is mandatory for all type of persons for assessment year 2014-15 onwards except for Individual / HUF to whom provision of section 44AB (tax audit) is not applicable in assessment year 2014-15.
- Individual / HUF to whom provision of section 44AB (tax audit) is not applicable in assessment year 2014-15 may file wealth tax return on paper form.
- Exemption to Individual / HUF from e-filing of form BB is granted only for AY 2014-15.so from next year (AY 2015-16) all person are required to e file wealth tax return with digital signature.
- Form BB shall not be accompanied by any document i.e.- statement of computation of tax payable, valuation report of registered valuer, proof of tax or interest deposit.
FAQ on Wealth Tax
Q. What is Wealth tax and on whom and when it is applicable?
A. Wealth Tax is applicable on Individual, HUF and a company if the net wealth of such person exceeds Rs. 30 Lakh. Wealth tax is charged @ 1% on net wealth exceeding Rs. 30 Lakh.
Q. What is the meaning of net wealth?
A. Net wealth means assets minus debt incurred for such asset.
Q. What is the meaning of asset as per Wealth Tax Act?
A. Asset includes:
- Motor Cars (Other than used by the assessee in the business of running them on hire or used by the assessee as stock in trade)
- Yachts, boats and aircrafts (other than used by the assessee for commercial purposes)
- Jewellery, bullion, furniture, utensils or any other article made wholly or partly of gold, silver, platinum or any other precious metal. (other than used by the assessee as stock in trade)
- Any building or land (with some exceptions like):
o One residential home is exempt from Wealth Tax or urban land measuring 500 sqm or less.
o Any residential property which has been let out for a minimum period of 300 days in the previous year
o Any house occupied by the assessee for the purpose of any business or profession carried on by him
o Commercial establishments or complexes
- Cash in excess of Rs. 50000 in case of individual or HUF
- Deemed Assets i.e assets transferred without consideration to family etc.
- Assets of minor child barring some exception
- Value of assets in partnership firm to be clubbed with the assets of partner
Q. What is the last date of filing return?
A. Last date to file the return is:
- 31st July for Individuals or HUF
- 30th Sep for Company and individual or HUF whose accounts are required to be audited u/s 44AB
Q. what can happen if I do not pay the tax or file the return?
A. Penalties:
- Belated or revised return can be filed within one year from the end of assessment year after paying 1% per month of tax as penalty for delay.
- Penalty upto 100% of tax in case of non-payment of wealth tax
- Penalty upto 500% of tax in case of concealment of wealth tax
- In case of willful default, imprisonment upto 7 years can be imposed
(Author CA Rahul Jain is Partner in Delhi Based CA firm RPMD & Associates and can be reached at info@rpmd.in)
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