Monthly Archives: July 2016

Cost Records & Audit Rules Amndt

MCA has vide notification dated 14th July, 2016 amended the Companies (Cost Records & Audit) Rules, 2014 as follows:

  1. Rule 2(d) has been substituted as follows: “(d) “cost audit report” means the duly signed cost auditor’s report on the cost records examined and cost statements which are prepared as per these rules, including attachment, annexure, qualifications or observations attached with or included in such report;” What has been added is “cost records examined and cost statements which are prepared as per these rules”
  2. Proviso has been added to Rule 6(1) as follows:“Provided that before such appointment is made, the written consent of the cost auditor to such appointment, and a certificate from him or it,as provided in sub-rule (1A), shall be obtained”;
  3. A new sub Rule 6(1A) has been added after Rule 6(1) as follows: “(1A) The cost auditor appointed under sub-rule (1) shall submit a certificate that─(a) the individual or the firm, as the case may be, is eligible for appointment and is not disqualified for appointment under the Act, the Cost and Works Accountants Act, 1959(23 of 1959) and the rules or regulations made thereunder; (b) the individual or the firm, as the case may be, satisfies the criteria provided in section 141 of the Act, so far as may be applicable; (c) the proposed appointment is within the limits laid down by or under the authority of the Act; and (d) the list of proceedings against the cost auditor or audit firm or any partner of the audit firm pending with respect to professional matters of conduct, as disclosed in the certificate, is true and correct.”;
  4. Three new provisos have been added in Rule 6(3) as follows: “Provided that the cost auditor appointed under these rules may be removed from his office before the expiry of his term, through a board resolution after giving a reasonable opportunity of being heard to the Cost Auditor andrecording the reasons for such removal in writing; Provided further that the Form CRA-2 to be filed with the Central Government for intimating appointment of another cost auditor shall enclose the relevant Board Resolution to the effect; Provided also that nothing contained in this sub-rule shall prejudice the right of the cost auditor to resign from such office of the company.”;
  5. A new sub-Rule (3B) added after present Rule 6(3A) as follows: “(3B) The cost statements, including other statements to be annexed to the cost audit report, shall be approved by the Board of Directors before they are signed on behalf of the Board by any of the director authorised by the Board, for submission to the cost auditor to report thereon”;
  6. Rule 6(5) has been substituted as follows: “(5) Every cost auditor shall forward his duly signed report to the Board of Directors of the company within a period of one hundred and eighty days from the closure of the financial year to which the report relates and the Board of Directors shall consider and examine such report, particularly any reservation or qualification contained therein.”; What has been changed is “duly signed report” which was not there in earlier version.
  7. Rule 6(6) has been substituted as follows: “(6) Every company covered under these rules shall, within a period of thirty days from the date of receipt of a copy of the cost audit report, furnish the Central Government with such report alongwith full information and explanation on every reservation or qualification contained therein, in Form CRA-4in Extensible Business Reporting Language format in the manner as specified in the Companies (Filing of Documents and Forms in Extensible Business Reporting language) Rules, 2015 alongwith fees specified in the Companies (Registration Offices and Fees) Rules, 2014.”. What has changed is the XBRL format of the Audit Report.

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Fast track allotment of PAN & TAN

PIB press release dated 22nd july, 2016

For fast tracking the allotment of PAN and TAN to company applicants, Digital Signature Certificate(DSC) based application procedure has been introduced on the portals of PAN service providers M/s NSDL eGov and M/s UTIITSL.  Under the new process PAN and TAN will be allotted within one day after completion of valid on-line application.

Similarly, a new Aadhaar e-Signature based application process for Individual PAN applicants has been made available on the portals of PAN service providers M/s NSDL eGov.

The URL links for the above applications are available in ‘important links’ on the homepage of the departmental website

Introduction of Aadhaar based e-Signature through M/s NSDL eGov in PAN application not only ensures paperless hassle free PAN application process but also seeding of Aadhaar in PAN which will curb the problem of duplicate PAN to a great extent.

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Appointment of Auditors – clarification

The Ministry of Corporate Affairs has vide its order dated 30th June, 2016 issued clarification with respect to rotation of auditors. Section 139 of the Companies Act, 2013 provides that certain class of companies are required to rotate their auditors every five years if it is an individual auditor and every ten years if it is an audit firm. But there was a moratorium for a period of three years from the commencement of the Act, when the rotation of auditors would not apply. Therefore since the Act commenced on 1st April, 2014, the rotation would not apply upto 31st March, 2017. But apparently there was some confusion that when should the appointment of the new auditors take place. To solve the confusion the MCA has issued an order amending the 3rd provisio to section 139(2) as follows:

“Provided also that every company, existing on or before the commencement of this Act which is required to comply with the provisions of this sub-section, shall comply with requirements of this sub-section within a period which shall not be later than the date of the first annual general meeting of the company held, within the period specified under sub-section (1) of section 96, after three years from the date of commencement of this Act.”.

Therefore the auditors will hold office upto the annual general meeting of the financial year 31st March, 2017 and at that AGM, a new auditor would be required to be appointed. This is of course applicable only to those companies to whom rotation of auditors apply as provided in the Rules.

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Amendment to CAD Rules

MCA has vide its notification dated 29th June, 2016 amended the Companies (Acceptance of Deposits), Rules, 2014. The gist of the amendments are as follows:

1)Rule 2(1)(c )(ix) has been amended to provide that “any amount raised by the issue of bonds or debentures secured by  a first charge or a charge ranking pari passu with the  first charge  on any  assets referred to in Schedule III of the Act excluding intangible assets of the company or bonds or debentures compulsorily convertible into shares of the company within ten years:”.

Earlier this limit was five years. So bonds or debentures as above compulsorily convertible within ten years will not be considered as a deposit.

2) A new item of exemption from deposits has been introduced as clause (ixa) as follows:

“(ixa) any amount raised by issue of non-convertible debenture not constituting a charge on the assets of the company and listed on a recognised stock exchange as per applicable regulations made by Securities and Exchange Board of India” –

so NCDs listed on stock exchanges are not deposits within the meaning of the Act and the Rules.

3) Rule 2(1)(c )(xi) has been amended as follows:

“(xi) any non-interest bearing amount received and held in trust;”.

Earlier it was received or held in trust. Now both conditions need to be satisfied i.e. received and held in trust.

4) Rule 2(1)(c )(xii) has been amended as follows: –

additional three items have been added as exemptions viz.

“(e) as an advance towards consideration for providing future services in the form of a warranty or maintenance contract as per written agreement or arrangement, if the period for providing such services does not exceed the period prevalent as per common business practice or five years, from the date of acceptance of such service whichever is less;

(f) as an advance received and as allowed by any sectoral regulator or in accordance with directions of Central or State Government;

(g) as an advance for subscription towards publication, whether in print or in electronic to be adjusted against receipt of such publications; ” –

so all these items will not be considered as deposits and will be exempt from the definition of deposits as per the Act and the Rules.

5) Further in the explanation below the proviso to Rule 2(1)(c )(xii) the words “referred to in the first proviso” has been deleted. This is more of a technical deletion in nature.

6) In Rule 2(1)(c )(xiv) the explanation below this clause has been amended as follows:

Explanation.- For the purposes of this clause, any amount.-
(a) received by the company, whether in the form of instalments or otherwise, from a person with promise or offer to give returns, in cash or in kind, on completion of the period specified in the promise or offer, or earlier, accounted for in any manner whatsoever, or

(b) any additional contributions, over and above the amount under item (a) above, made by the company as part of such promise or offer,
shall be considered as deposits unless specifically excluded under this clause. 

Earlier it read as “shall be treated as a deposit”.

7) Additional exemptions to deposits has been given as follows in Rule 2(1)(c) as follows after sub clause (xiv):

(xv) any amount received by way of subscription in respect of a chit under the Chit Fund Act,1982 (40 of 1982);

(xvi) any amount received by the company under any collective investment scheme in compliance with regulations framed by the Securities and Exchange Board of India

(xvii) an amount of twenty five lakh rupees or more received by a start-up company, by way of a convertible note (convertible into equity shares or repayable within a period not exceeding five years from the date of issue) in a single tranche, from a person.


  1. “start-up company” means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognised as such in accordance with notification number C.S.R. 180(E) dated 17th February, 2016 issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and lndustry;
  2. “convertible note’ means an instrument evidencing receipt of money initially as a debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of the start-up company upon occurrence of specified events and as per the other terms and conditions agreed to and indicated in the instrument.

(xviii)  any amount received by a company from Alternate Investment Funds, Domestic Venture Capital Funds and Mutual Funds registered with SEBI in accordance with regulations made by it.”.

  1. Rule 3(3) has been amended as follows:

(3)  No company referred to in sub-section (2) of section 73 shall accept or renew any deposit from its members, if the amount of such deposits together with the amount of other deposits outstanding as on the date of acceptance or renewal of such deposits exceeds thirty five per cent. of the aggregate of the paid-up share capital and free reserves of the company.

Earlier the limit was 25% of the aggregate of paid up share capital and free reserves of the company.

  1. A proviso has been added to Rule 3(3) as follows:

“Provided that a private company may accept from its members monies not exceeding one hundred per cent of aggregate of the paid up share capital, free reserves and securities premium account and such company shall file the details of monies so accepted to the Registrar in such manner as may be specified.”

  1. Rule 3(8) has been amended as follows:

“(8).- (a) Every eligible company shall obtain at least once in a year, credit rating for deposits accepted by it and a copy of the rating shall be sent to the Registrar of Companies along with the return of deposits in Form DPT-3

(b) The credit rating referred to in clause (a) shall not be below the minimum investment grade rating or other specified credit rating for fixed deposits, from any one of the approved credit rating agencies as specified for Non-Banking Financial Companies in the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 199g, issued by the Reserve Bank of India, as amended from time to time..

Earlier there was no stipulation that the credit rating should be investment grade rating.

  1. Rule 4(2) has been amended as follows:

(2) Every eligible company intending to invite deposits shall issue a circular in the form of an advertisement in Form DPT-1 for the purpose in English language in an English newspaper having country wide circulation and in vernacular language in one vernacular newspaper having wide circulation in the State in which the registered office of the company is situated, and shall also place such circular in the website of the company, if any.

The provision regarding English language newspaper having country wide circulation and the circular to be placed on the company’s website is a new provision.

  1. The proviso to Rule 5(1) has been amended as follows:

“Provided that the companies may accept deposits without deposit insurance contract till the 31st March, 2017 or till availability of a deposit insurance product, whichever is earlier.”

Earlier the time limit was 31st March, 2016.

13.  A new Rule 16A has been added as follows:

“16A. Disclosures in the financial statement.-

(1) Every company, other than a private company, shall disclose in its financial statement, by way of notes, about the money received from the director.

(2) Every private company shall disclose in its financial statement, by way of notes, about the money received from the directors, or relatives of directors.”

  1. An additional paragraph has been added in the Annexure in form DPT-1, which is the advertisement for acceptance of deposits as follows:

“6. DISCLAIMER.- It is to be distinctly understood that filing of circular or circular in the Form of advertisement with the Registrar should not in any way be deemed or construed that the same has been cleared or approved by the Registrar or Central Government. The Registrar or Central Government does not take any responsibility either for the financial soundness of any deposit scheme for which the deposit is being accepted or invited or for the correctness of the statements made or opinions expressed in the circular or circular in the Form of advertisement. The depositors should exercise due diligence before investing in the deposits schemes.”

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Amendment to CARMP Rules

MCA has vide its notification dated 30th June, 2016 amended the Companies (Appointment & Remuneration to Managerial Personnel) Rules, 2014 as follows:

  1. Henceforth form MR-1 is not required to be filed for appointments of CEO, CFO and Company Secretary
  2. Clauses (v), (vi), (vii), (ix), (x) & (xi) of Rule 5(1) has been omitted. Rule 5(1) pertains to disclosure in the Board report by listed companies of the various matters related to remuneration of Key Managerial Personnel. So now by this amendment, companies need not disclose (v) the explanation on the relationship between average increase in remuneration and company performance; (vi) comparison of the remuneration of the Key Managerial Personnel against the performance of the company; (vii) variations in the market capitalisation of the company, price earnings ratio as at the closing date of the current financial year and previous financial year and percentage increase over decrease in the market quotations of the shares of the company in comparison to the rate at which the company came out with the last public offer in case of listed companies, and in case of unlisted companies, the variations in the net worth of the company as at the close of the current financial year and previous financial year;  (ix) comparison of the each remuneration of the Key Managerial Personnel against the performance of the company; (x) the key parameters for any variable component of remuneration availed by the directors; (xi) the ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year;
  3. Rule 5(2) has been amended as follows. Basically Rule 5(2) specifies disclosure of names of employees of the company who are drawing remuneration above a certain specified limit. Now the disclosure is required in respect of .. “the names of the top ten employees in terms of remuneration drawn and the name of every employee”. So additional disclosure of top ten employees have to be given in the Board report and top ten is in respect of the remuneration drawn.
  4. Further the threshold limits in Rule 5(2) have been revised upwards from Rs.60 lakhs per annum to Rs.1.02 crores per annum and from Rs.5.00 lakhs per month to Rs.8.50 lakhs per month.
  5. Form MR-1 has also been revised.


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