PPT ON RECENT AMENDMENTS IN COMPANIES ACT, 2013.pptx

PPT ON RECENT AMENDMENTS IN COMPANIES ACT, 2013.pptx

1. RECENT AMENDMENTS IN COMPANIES ACT, 2013

2. DEFINITION OF SMALL COMPANY – EVOLUTION OVER TIME INVESTMENTS FROM NEIGHBORING COUNTRIES UNDER STRINGENT SCAN OF GOI ADDITIONAL DISCLOSURES IN THE FINANCIAL STATEMENTS OF A COMPANY INDEX

3. INVESTMENTS FROM NEIGHBORING COUNTRIES UNDER STRINGENT SCAN OF GOI

4. FDI related amendment Any entity or a citizen of a country sharing land border with India, which intends to invest in India will need to take prior approval from GOI for investing in the shares of the Company. Here the amendment will come into play in following cases: In case of purchase of shares directly from the Company, or In case of purchase of shares from existing shareholders. Amendments brought by MCA The Indian Company issuing shares needs to enquire about the status of the proposed shareholder. In case the proposed shareholder is from a country sharing land border with India, the Company needs to ensure that prior approval is taken by the proposed shareholder from GOI. Thus, to make sure that approval has been taken, MCA has amended Companies Act by making it mandatory to report compliance of NDI rules. Incorporation: MCA has amended the Companies (Incorporation) Rules, 2014 w.e.f. 01 June, 2022 to ensure that the subscribers belonging to a country sharing land border with India, have obtained the necessary government approval under NDI Rules. Pursuant to the amendment, subscribers need to declare whether they are required to obtain approval from the Government of India (‘ GoI ’) and if applicable the said approval shall be attached along with the Incorporation form i.e. SPICe +.

5. Private placement: In case of private placement, if the proposed allottee is from a country sharing land border with India, it has to attach the government approval along with the private placement offer cum application letter i.e. PAS-4. A declaration regarding applicability of NDI rules is to be given by the proposed allottee in the PAS-4. This amendment is brought vide Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022 effective from 05 May, 2022. Transfer of shares: In case of transfer of shares to a person belonging to or an entity incorporated in a country sharing land border with India, the said person/entity will need to obtain government approval pursuant to NDI Rules, and attach the said approval with the share transfer form i.e. SH-4. The transferee is required to give a declaration regarding applicability of NDI Rules, pursuant to amendment in Companies (Share Capital and Debentures) Rules, 2014 effective from 04 May, 2022. Merger: In case of Merger/compromise/arrangement of an Indian Company with an entity incorporated in a country which shares land border with India, the said entity will need to obtain prior government approval under NDI rules and attach the same with Form CAA-16 and submit it along with the merger application before National Company Law Tribunal. This amendment is brought vide Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2022 effective from 30 May, 2022.

6. Appointment of Director in a Company: Additionally, MCA made it mandatory to obtain security clearance from the Ministry of Home Affairs (MHA), for nationals of a country which shares a land border with India, before becoming a director of an Indian company. The director has to attach the approval along with consent letter i.e. DIR-2. This amendment is brought vide Companies (Appointment and Qualification of Directors) Amendment Rules, 2022 effective from 01 June, 2022. In case of incorporation as well, a declaration is to be given as to whether security clearance has been obtained from MHA, in case the proposed director is a national of a country which shares a land border with India. The said security clearance is required to be attached along with incorporation form pursuant to Companies (Incorporation) Second Amendment Rules, 2022. These rules are effective from June 01, 2022. Application for Director Identification Number (DIN): Where a national of country which shares land border with India, applies for DIN, the individual has to attach the security clearance along with DIN application i.e. DIR-3. A declaration in this regard, has been inserted in the e-Form DIR-3 vide Companies (Appointment and Qualification of Directors) Amendment Rules, 2022 effective from 01 June, 2022.

7. ADDITIONAL DISCLOSURES IN THE FINANCIAL STATEMENTS OF A COMPANY DISCLOSURES TO BE MADE TO THE NOTES OF THE BALANCE SHEET UNDER VARIOUS DIVISIONS OF SCHEDULE III Statement on changes in equity: Prior to the amendment, the companies including NBFCs required to prepare financial statements as per IND AS were required to disclose only balance at the beginning and end of the reporting period along with changes during the current year. Post the amendments in Sch. III, disclosure shall be made regarding the changes in equity due to prior period errors and restated balance at the beginning of the reporting year and similarly disclose the same for the previous reporting period. Additionally, the details of other equity shall also be given for prior reporting period. Disclosure of shareholding of all promoters: Currently, only the shareholding of the shareholders holding more than 5% of the shares is required to be disclosed in the Balance Sheet. After the amendments, a company shall now be required to disclose the shareholding of all promoters. The details shall include change in shareholding taken place during the year. The meaning of the promoter has to be taken from the definition provided in the Act which is different from the definition provided in the SEBI (ICDR) Regulations, 2009. This change has been made to all companies covered under all three Divisions of schedule III.

8. Loans and advances to promoters, directors, key managerial persons (KMP) & related parties: Where the company makes any loan and advances to the promoters, directors, KMPs and other related parties either jointly or severally and such loan/ advances so given are either in the nature of a loan/ advance repayable on demand or without any specific terms or period of repayment, the details of such loans shall be disclosed separately in the financial statements along with the amount of loan and % to total loans and advances. The related parties are those parties as defined under sec. 2(76) of the Act. It is pertinent to note here that while related party disclosures are already required under applicable accounting standards, this may, to some extent, tantamount to be an overlapping of disclosures. Ageing Schedule of trade payables and trade receivables: Companies that failed to make payment to companies under MSME Act, 2006 or which had made any delayed payments to MSME were required to disclose the principal and interest due at the end of the FY, amount of interest paid for delay in payment in the current year, interest accrued and unpaid during the year and amount of interest further remaining to be paid in succeeding years in their balance sheet. Companies covered under all 3 divisions will henceforth be required to provide ageing schedule for trade payables due for the periodicity of 1 year, 1-2 year, 2-3 year & more than 3 years. These include trade payables to MSMEs, disputed dues to MSMEs, and other dues and disputed dues.

9. Disclosure related to funds borrowed from banks and financial institutions: Where the company has borrowings from banks or financial institutions on the basis of security of current assets, it shall disclose whether the quarterly returns or statements of current assets filed by it with the banks or financial institutions are in agreement with the books of accounts. Further, where there is any material mismatch/ discrepancies between the two, then a summary of reconciliation and reasons of material discrepancies needs to be adequately disclosed. In addition to the above, where funds borrowed by a company from a bank or a financial institution for a specific purpose has not used for the same purpose, a disclosure providing details of utilisation of funds shall also be required to be provided. Revaluation of property: The reconciliation of gross and net carrying amount of both intangible and tangible assets at the beginning and end of the reporting period, along with other separate disclosures related to additions, disposals, acquisitions, depreciation, impairment, etc. shall also disclose separately details related to the amount of change due to revaluation, where there is a change of more than 10% in aggregate of the net carrying amount of the asset. The company is also required to disclose whether the plant, property or equipment has been revalued by a registered valuer as defined under rule 2 of Companies (Registered Valuers and Valuation) Rules, 2017.

10. Disclosure of Ratios: The amendment requires the companies covered under division I and II of schedule III to disclose the following ratios: (a) Current Ratio (b) Debt-Equity Ratio (c) Debt Service Coverage Ratio (d) Return on Equity Ratio (e) Inventory turnover ratio (f) Trade Receivables turnover ratio (g) Trade payables turnover ratio (h) Net capital turnover ratio ( i ) Net profit ratio (j) Return on Capital employed (k) Return on investment. The company shall explain the items included in the numerator and denominator for computing the above ratios and an explanation shall be provided for any change in the ratio by more than 25% as compared to the preceding year. To note, amongst these, various ratios such as current ratio, debt-equity ratio, net profits ratio, etc. were required to be disclosed by equity listed entities in their Board’s report under Management Discussion and Analysis Report as per regulation 34(3) r.w. Schedule V to SEBI( Listing Obligations and Disclosure Requirements), 2015.

11. DISCLOSURES REQUIRED IN AN ATTEMPT TO CURB MONEY LAUNDERING Details of Benami Property held: Where any proceedings have been initiated or pending against the company for holding any benami property, the company shall disclose various details of the property including the reasons of not disclosing the same in the books of accounts, details of the proceedings against the company including its nature, status and the views of the company on the same. This amendment covers the companies under the scope of all three divisions of schedule III. Relationship with Struck off Companies: Where the company has any transaction with companies struck off under section 248 of the Act, or under section 560 of the Companies Act, 1956, it shall disclose the name of struck off company, the nature of transactions with this company, balance outstanding and relationship with the struck off the company. The transaction can be in the nature of investment in securities, receivables, payables, shareholding of the struck-off company in the company and any other outstanding balances.

12. Willful Defaulter: A company categorized as a wilful defaulter by any bank or financial institution will be required to disclose details regarding the date of declaration as a wilful defaulter and the amount and nature of defaults. Title deeds of property not held in the company’s own name: If any the title deed of any immovable property (other than in case of lease where the agreement is duly in favour of lessee) is not held in the name of the company, the details related the same is required to be disclosed in the financial statements. This disclosure shall not be required for properties held on lease where the lease agreements are duly executed. In case of joint holding of such property, the disclosure shall be made to the extent of the company’s share thereon. The details of the disclosure includes the gross carrying value, name of the person in whose name property is held, whether such person is a promoter/ director or relative of promoter/director or an employee of the company, since when the property is held by the person and details for the same. If such property is under dispute the same shall also be disclosed.

13. DISCLOSURES TO BE GIVEN IN THE PROFIT AND LOSS STATEMENTS Disclosures related to CSR: Where the company is covered under section 135 of the Companies Act, 2013 (Act), the disclosures shall be made similar to the disclosures in the Board’s Report as required under then Act. In addition to that, a disclosure regarding the details of related party transactions such as, contribution to a trust controlled by the company in relation to CSR expenditure as per relevant Accounting Standards shall also be made.. Where a provision is made with respect to a liability incurred by entering into a contractual obligation, the movements in the provision during the year should be shown separately. The term “provision” shall be construed as a liability. The provision shall be estimated on the basis of past CSR events already conducted by the company. Details of Crypto Currency or Virtual Currency: Where the company has traded or invested in Crypto Currency or Virtual Currency during the financial year, the following needs to be disclosed: (a) profit or loss on transactions involving Crypto or Virtual Currency (b) amount of currency held as at the reporting date (c) deposits or advances from any person for the purpose of trading or investing in Crypto Currency/ virtual currency.

14. Undisclosed Income: Details of any transactions not recorded in the books of accounts that has been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961, shall be disclosed unless there is immunity for disclosure under any scheme. Further, the company shall also state whether the previously unrecorded income and related assets have been properly recorded in the books of account during the year.

15. CONCLUSION As discussed above, the intent of law seems to bring more transparency in reporting by corporates. Though certain disclosures may lead to repetition of information in various places, to avoid the same cross referencing may be done. Surely, the amendments will curb the problem of inadequacy of information in the books of accounts of the company. Further, in the present scenario, amidst the economic breakdown worldwide, many companies may not be able to earn the profits as expected, or might be facing losses as well. In such circumstances, the aforesaid amendments were a necessity.