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MCA eases director appointment filing requirements

The relaxation would help address difficulties faced by stakeholders, especially when all directors of a company resign from the board

Press Trust of India  |  New Delhi 

March 8, 2015 Last Updated at 11:16 IST

 

In case of the entire board resigning from a company, the statutory filing about details of new directors' appointment can be made by one of the directors who has quit, according to the Ministry of Corporate Affairs.

The relaxation would help address difficulties faced by stakeholders, especially when all directors of a company resign from the board to make way for appointment of new people, in their place.

Statutory filings under the Companies Act are submitted to the Ministry through MCA 21 portal. In case a director resigns, his or her Digital Signature Certificate (DSC) is de-activated.

DSC is automatically de-activated once an individual files DIR-11 form -- which is resignation notice of a director to the Registrar of Companies.

"...The Registrar of Companies within their respective jurisdictions are authorised, on request from the stakeholders, and after due examination, to allow any one of the resigned director who was an authorised signatory director for the purpose of filing DIR-12 only along with additional fees," the Ministry said in a circular dated March 3.

DIR-12 filing is made to furnish particulars of appointment of directors and the key managerial personnel as well as the changes among them. The same cannot be filed if there is no authorised signatory director at the particular company.

This arrangement would be in place till an alternative mechanism is put in place in MCA 21 system, it added.

The clarification follows several representations about difficulties faced by stakeholders due to DSC de-activation when there is en-massed resignation of all directors before appointment of new people in their places.

Corporate Affairs Ministry is implementing the Companies Act.

 

 

 

 

 

IndAS, governance and audit committee

On February 16, 2015, the Ministry of Corporate Affairs ( MCA) notified the road map for the implementation of IndAS by companies other than the insurance companies, banking companies and NBFCs. IndAS is the set of Indian Accounting Standards fully converged with International Financial Reporting Standards (IFRS). In the first phase, companies ( listed and unlisted) having net worth of ₹ 500 crore or more and their holding, subsidiary, joint venture or associate companies will apply IndAS effective from the financial year commencing on or after April 1, 2016 for the preparation and presentation of IndAS- based comparative figures for the previous year. In the second phase, all listed on or after April 1, 2017. comparative figures for the previous year. Companies whose securities are listed on an SME Exchange are exempted from the mandatory application of IndAS. Any company, which is not mandated to apply IndAS, may choose to apply the same voluntarily effective from the financial year commencing on or after April 1, 2015 with comparative figures for the previous year. The choice is irrevocable. Companies will apply IndAS for presenting both standalone financial statements and consolidated financial statements. If the holding company does not meet the threshold, but any of its subsidiaries, joint ventures or associate companies meet the same, it will adopt IndAS. Similarly, if a holding company meets the threshold, all its subsidiaries, joint ventures and associate companies will adopt IndAS. This might also impact fellow subsidiary companies. The transition date is April 1, 2015 for companies, which are covered in the first phase and uses April 1 to March 31 of the next year as financial year. Thus, there is hardly any time left for IndAS implementation preparation. Implementation of IndAS will bring radical changes in corporate financial reporting practices in India. It brings new and complex concepts and higher level of transparency. It is expected that the application of IndAS will improve the quality of financial reporting. Improved quality of financial reporting improves corporate governance because it helps investors, analysts and other stakeholders to better understand the financial position and performance of the company. However, full benefit of IndAS is derived only when companies take a holistic approach and apply IndAS in true spirit. It is found that in some countries the legacy system shadows the application of IFRS for quite a long period. India has to guard against this risk. The audit committee will have to play a crucial role in implementing IndAS. It should develop the road map for implementation of IndAS and monitor its implementation. It is important that every manager in the company understands IndAS and the right information technology architecture is put in place. Application of IndAS involves significant judgment and estimates. Therefore, it provides significant scope for managing earnings and windowdressing. The audit committee will have to be cautious in approving financial statements. Clause 49 of the Listing Agreement ( SEBI Code of Corporate Governance) specifically requires the audit committee to oversee the company's financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible; and to review, with the management, the annual financial statements and auditor's report thereon, before submission to the board, with particular reference to, among other things, major accounting entries involving estimates based on the exercise of judgment by management. Unfortunately, in most companies, the audit committee's engagement with the management is not as intensive as is desired. The current practice is that the statutory auditor makes a presentation before the audit committee and the audit committee asks some questions to satisfy that the internal control system is effective and the financial statements present a true and fair view. Seldom does the audit committee review, in detail, financial statements and accounting adjustments based on estimates that involve judgment. The current practice has to change with the implementation of IndAS. It is seen that audit failure leads to corporate governance failure. Therefore, it is not wise to depend totally on the auditor's observations on internal controls and judgmentbased estimates. It is said that a good auditor has a sceptical mind. The audit committee should also engage with the management and the auditor with the same questioning approach. In case of detection of management misfeasance and corporate governance failure, the directors cannot defend themselves by taking the plea that they relied on auditor's observations. They will be held guilty for not acting diligently and will face penalty. The audit committee has to go the extra mile whether or not its members are adequately compensated for their additional responsibilities and efforts. Affiliation: Professor and Head, School of Corporate Governance and Public Policy, Indian Institute of Corporate Affairs; Advisor ( Advanced Studies), Institute of Cost Accountants of India; Chairman, Riverside Management Academy Private Ltd E- mail: asish. bhattacharyya@ gmail. com ACCOUNTANCY ASISH K BHATTACHARYYA The audit committee will have to play a crucial role in implementing IndAS The committee seldom reviews financial statements in detail; with IndAS in place, this practice has to change

 

BRIEF CASE Misplaced leniency in land allotments If the terms of allotment of industrial plots are not complied with, state authorities must cancel the allocation and not condone delays repeatedly. The delays cannot be passed over by charging a ' condonation delay fee' on the allottees, the Supreme Court stated in its judgment in Andhra Pradesh Industrial Infrastructural Corporation vs Shivani Engineering Industries. In this case, the corporation allotted industrial plots on condition that the proposed units will be set up within two years of getting possession. However, the corporation granted several concessions like extension of time to start production, change of the nature of industry and was " very generous and liberal" in allowing the unit to use the plot by payment of a condonation delay fee of 3 per cent. The court indicted the corporation for not being diligent while developing the industrial estate. Its officers did not cancel the allotments and take them back as they ought to have done due to the lapse of this unit and several other similarly placed allottees. Therefore, the court ordered a detailed police inquiry against all corporation officers involved in the allotment of plots, repeated extension of deadlines and reluctance to take back the plots. The police shall report its conclusion within four months and also take suitable action against those found guilty. The corporation was directed to withdraw the demand for condonation of delay fee and directed it to take back the plots involved.  New land acquisition law clarified Though there is a raging controversy over the ordinance vis a vis the Land Acquisition Act 2013, the Supreme Court assumes that the law is in force from January 1 last year. Land owners who moved courts under the 1894 Act have changed the tack after the commencement of the new law as in the latest case, Competent Automobiles Ltd vs Union of India. One of the new provisions is that if the land acquired is not taken possession of in five years nor compensation paid, it would revert to the owners. Clarifying the law, the court stated: " Any determination under Section 24( 2) of the 2013 Act must proceed sequentially. First the award under the old law must be clearly established. That award must predate the commencement of the new law on January 1, 2014, by at least five years or more, i. e. the award must have been passed on or before January 1, 2009. This having been established, if possession is found not to have been taken, or compensation not paid, the acquisition proceedings shall be deemed to have lapsed. The government, if it chooses, may re- initiate proceedings in respect of the same land under the 2013 Act." 23 years to decide retrenchment dispute The Supreme Court has dismissed the appeal of Mackinnon Mackenzie Ltd and upheld the ruling of the industrial court and the Bombay High Court which had indicted the firm for retrenching 100 workers without following the labour laws. The litigation took 23 years and therefore the Supreme Court directed the company to pay back wages and continue to pay full wages and arrears to the concerned workers. It shall be done in six weeks. The courts had held that the company, in the business of shipping and travel, had breached the rules under the Industrial Disputes Act and the Maharashtra Prevention of Unfair Labour Practices Act. Its stand that it had suffered losses and wanted to rationalise the wage structure was not substantiated. It did not follow the rule, last come, the first to go, the judgment said.  SC increases compensation 18 times A poultry farm labourer who sustained permanent disability in a road accident was awarded an enhanced compensation of ₹ 4.43 lakh with 9 per cent interest. The accident tribunal had granted only ₹ 25,000. His appeal to the Madras High Court was dismissed on the ground that he had sustained only simple injuries. However, on his further appeal, the Supreme Court criticised the tribunal and the high court for brushing aside the medical evidence. In this judgment, S Perumal vs K Ambika, the court said that though it normally would not interfere in the finding of facts of courts below, it would re- appreciate the evidence when there is serious error in order to render justice to all parties. The Motor Vehicles Act insists that the award must be just and reasonable. " The whole idea is to put the claimant in the same position as he was prior to the accident," the judgment underlined, and asked the insurance company to pay the amount.  Jurisdiction rowin arbitration The Supreme Court has set aside the judgment of the Bombay High Court in an arbitration dispute between a firm in Raichur, Karnataka, and another in Latur, Maharashtra. The dispute was over payment for the sale of cotton dispatched from Raichur and taken delivery in Latur. The Karnataka High Court asked Industrial Facilitation Council, Bangalore, to arbitrate. The award went in favour of the Karnatak firm, M/ s Bhandari Udoy Ltd. The Latur firm challenged the award in Maharashtra, and the district court there decided that the Karnataka court has no jurisdiction to decide the dispute as the consignment was taken delivery in Maharashtra. The Bombay High Court took the same view. The Supreme Court ruled that the high court was wrong as the supply of cotton was made from Karnataka and the Latur firm joined the arbitration proceedings in Bangalore without protest. Railways pay pittance as damages The Delhi High Court has ruled that loss of goods handed over to the public sector Container Corporation of India for transport will be compensated only at the rate of ₹ 50 akg, and not by the value of goods as reflected in the invoice. This is because the corporation is covered by the Railways Act and the liability is limited by it. The decision was given in the case of Brahm Dev vs Container Corporation. In a similar case, the high court remarked that the limit of ₹ 50 was fixed in 1990 and it is not reasonable. The law makers have not taken a second look at the anomalous provision. The court said in the judgment, Rare Earth Overseas vs CCI: " It cannot be lost sight of that Railways enjoy monopoly. There is a need to approach the aspect of such compensation from a holistic perspective, keeping in mind the interest of citizens. It prima facie appears that the government is required to have a relook into the rules from time to time to keep pace with the inflationary trends." A weekly selection of key court orders

 

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A.Rengarajan
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Chennai

Mobile 93810  11200

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Posted by: CS A Rengarajan <csarengarajan@gmail.com>

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