cost audit report

MCA has vide its general circular no. 15/2021 dated 27th September, 2021 extended the time by which the cost auditor is required to submit his report to the Board of Directors of the company to 31st October, 2021.

As per the extant rules, he is supposed to forward his report within 180 days from the closure of the financial year. The company is required to file the cost audit report in form CRA-4 within 30 days of its receipt.

However, where the company has got an extension of time to hold the annual general meeting, then such filing can be done in such extended time.

Copy of the said MCA circular can be found at the MCA site. i.e. http://www.mca.gov.in

VC board meetings

MCA vide its notification dated 15th June, 2021 completely eliminated rule 4 of the companies (meetings of the board and its powers), rules, 2014 which laid down the items which cannot be considered in a video conferencing or audio visual means board meeting. Core items such as approval of financial statements/ board report, approval of prospectus, amalgamation, merger, demerger, acquisition and takeover and audit committee meetings for consideration of accounts.

Now by completely removing this negative list of items which cannot be considered via video conferencing methods, all items can now be taken by this method.

To view the MCA circular please visit their site.

Shops & Establishment regn

MCA has vide its notification dated 7th June, 2021 allowed for registration under shops & establishment act of various states in the same incorporation document as before i.e. SpiCe B+ in Agile Pro. Now in place of Agile Pro form, Agile Pro S form shall be substituted.

Under a single window concept, MCA allows incorporation of a company while at the same time granting tax registrations (PAN/ TAN) GST (if required), Professional tax (depends on the state), PF/ ESIC (mandatory but registration is only for name sake, no returns to be filed until the unit crosses the employee threshold as provides in these statutes), Bank a/c (for a few select banks) and now Shops & Establishment act.

Shops & Establishment act is applicable only for commercial entities employees x number of persons in their unit. It is a local body requirement like from the respectively municipality. Addition of this registration into the MCA portal is a welcome move.

The MCA circular is available at the MCA site.

delhi shops & regn act

Registration under the Delhi Shops & Registration Act, 1954 is now integrated with the company incorporation under MCA portal in sPICe format – i.e. at one step a company can be incorporated as well its PAN/ TAN/ GST/ EPF/ ESIC registrations done. Besides bank a/c opening and professional tax regn under certain state laws are also integrated. First time registrants under the aforesaid Delhi Shops & Registration Act, can avail of this single window facility. It is only when they have to register their other offices or branches that they need to go to a separate portal for the same i.e. https://labourcis.nic.in

The relevant notification is given below:

MCA relaxations – covid

Circular no. 6/2021 – Relaxations in levy of additional fees in filing of forms for companies/ LLPs, which fall due for filing between 1st April, 2021 and 31st May, 2021 can now be filed upto 31st July, 2021 without incurring any additional fee. This does not apply to the charge forms i.e. CHG-1, CHG-4, & CHG-9.

Forms which were due for filing before 1st April, 2021 will continue to incur additional filing fees though.

Circular no. 7/2021 – This applies to charge forms i.e. CHG-1 and CHG-9. This applies where the charge has been created or modified on or before 1/4/21 but the timeline for filing of such forms has not expired as on that date or where the creation or modification date is between 1/4/21 to 31/5/21.

In such cases the period between 1/4/21 to 31/5/21 will not be counted for the purpose of calculating no. of days from date of creation/ modification.

Additional filing fees will accordingly be calculated as if the 1st day after creation/ modification i.e 1/6/21.

This will not apply where the timeline for filing the said forms has already expired as on 1/4/21.

This does not also apply to form CHG-4 which is satisfaction of charges.

Circular no. 8/2021 – Gap between two meetings of board of directors which should normally not exceed 120 days between two consecutive board meetings has been allowed to extend upto 180 days for the quarters April – June 2021 and July – September 2021.

CSR eligibile activity

MCA has vide its circular dated 22nd April, 2021 clarified that CSR spend on setting up makeshift hospitals and temporary covid facilities is an eligible CSR activity.

Companies can therefore do their CSR spend on these activities i.e. setting up makeshift hospitals and temporary covid facilities in collaboration with other parties or with the municipal corporations or health departments of the state.

Copy of the circular can be found at the MCA site.

Audit report rules amndt

MCA has vide its notification dated 24/3/2021 made some amendment to the Companies (Audit & Auditors), Rules, 2014. These amendments come into effect from 1st April, 2021. Salient features of these amendments are :

The para relating to specified bank notes which was introduced post demonetisation has been removed.

Some new paras have been added which has to find place in the Auditors Report from 1/4/2021 which are as follows:

Accounts Rules amendment

MCA has vide its notification dated 24th March, 2021 amended the Companies (Accounts) Rules, 2014 as follows:

Effective from 1st April, 2021 every company which uses accounting software for maintaining its books of account shall use only such accounting software which has a feature of recording audit trail of each and every transaction creating an edit log of each change made in the books of account including the date on which they were made and ensuring that the audit trail cannot be disabled.

Two more paragraphs are to be added in the Directors Report made after 1st April, 2021 and they are as follows:

• details of any application made or pending under the Insolvency and Bankruptcy Code, 2016 and the status at the year end, and
• details of difference between the amount of valuation done at the time of one time settlement and the valuation done while taking loan from banks & financial institutions and the reasons for the same.

Copy of the notification can be found in the MCA site. i.e. http://www.mca.gov.in

managerial remuneration

The Ministry of Corporate Affairs, New Delhi has vide its notification dated 18th March, 2021 amended the Schedule V which pertains to conditions of appointment and remuneration payable to managerial person. This schedule V applies specifically where remuneration needs to be paid to managerial person in companies which does not have profits or has inadequate profits.

The amendment has added “other director or directors” to the category of managerial person under this Schedule. Other directors has been defined to mean non-executive directors or independent directors as an explanation.

The remuneration payable to other director(s) in the case of inadequacy of profits has been fixed on the basis of effective capital of the company. For eg. where the effective capital is negative or less than Rs.50 million then maximum Rs.1.2 million can be paid to the other directors.

Similarly the limits have been placed as under:

Where the effective capital is Rs.50 million and above but less than Rs.1 billion – max Rs.1.7 million can be paid to other directors

Where the effective capital is Rs.1 billion and above but less than Rs.2.5 billion – max Rs.2.4 million can be paid to other directors

Where the effective capital is above Rs.2.5 billion – max Rs.2.4 million + 0.01% of the effective capital in excess of Rs.2.5 billion.

Basically this has been done in order to provide some remuneration to independent directors and attract good talent in companies. Presently independent directors and non executive directors are paid a pittance plus there is onerous responsibility cast on them although they are not in the hot seat of management. This will, hopefully, give a fillip to the position of independent directors in India Inc.

Simultaneously the govt. has also amended sections 149 and 197 of the companies act, 2013 to provide for the same.

Copy of the notification can be found at the MCA site. i.e. http://www.mca.gov.in

annual return for small/ OPC company

MCA has vide its notification dated 5th March, 2021 amended the Companies (Management & Administration) Rules, 2014 as follows:

Rule 11(1) has been amended to provide that every company shall file its annual return of shareholders, directors, loans, etc .in form MGT-7 except small companies and one person companies which shall the same in form MGT-7A. The format of form MGT-7A has been given in the annexure.

Rule 12, which had the heading “Extract of annual return” has been replaced with a new rule having a new heading “Filing of annual return with the Registrar”. The earlier rule 12 required extract of annual return in form MGT-9. That form MGT-9 has ostensibly been eliminated. There is no mention of requirement of posting the contents of MGT-9 in the website of the company. That particular requirement has also apparently been done away with.

The next amendment is in Rule 20 which pertains to voting through electronic means.

A new explanation II has been added to proviso to sub-Rule (2) of Rule 20 which covers basically the definition of agency, cut off date, cyber security, electronic voting system, remote e-voting, secured system, voting by electronic means.

Cut off date means a date not earlier than seven days before the date of the general meeting, for determining eligibility to vote by electronic means or in the general meeting.

Other definitions are technical in nature and therefore not reproduced here.

Copy of the notification can be found on the MCA site. i.e. http://www.mca.gov.in

Simultaneously, the section 92 of the Companies act, 2013 has also been amended vide Companies Amendment Act, 2017 which was notified on 5th March, 2021. Vide this amendment, the requirement of inputting indebtedness of the company as on financial year end date has been removed. Secondly in the case of Foreign Institutional Investors, their names, addresses, countries of incorporation, registration & percentage of shareholding held by them need not be mentioned in the annual return. And then it has brought in a proviso giving powers to the central government to formulate a separate format of annual return for small companies and one person companies.

producer companies

MCA has vide its notification dated 11th February, 2021 notified section 52 of the Companies (Amendment) Act, 2020.

Section 52 of the Companies Amendment Act, 2020, brings to life a new Chapter XXIA which pertains to producer companies. Earlier these provisions were regulated under the old Companies Act, 1956, but now they have been brought into the Companies Act, 2013 proper.

Sections 378A to 378ZU governs the incorporation & administration of producer companies in India, which are a form of farmer co-operatives in the agriculture sector. They are formed by farmers/ producers of agricultural crops and there are strict guidelines regarding their formation, administration, governance, etc.

definition of listed companies

MCA has vide its notification amended the Companies (Specification of Definition Details), Rules, 2014 by introducing a new rule 2A which defines the companies which need not be considered as listed companies. The rule says

“2A. Companies not to be considered as listed companies.- For the purposes of the proviso to clause (52) of section 2 of the Act, the following classes of companies shall not be considered as listed companies, namely:-
(a) Public companies which have not listed their equity shares on a recognized stock exchange but have listed their –
(i) non-convertible debt securities issued on private placement basis in terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008; or
(ii) non-convertible redeemable preference shares issued on private placement basis in terms of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013; or
(iii) both categories of (i) and (ii) above.
(b) Private companies which have listed their non-convertible debt securities on private placement basis on a recognized stock exchange in terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008;
(c) Public companies which have not listed their equity shares on a recognized stock exchange but whose equity shares are listed on a stock exchange in a jurisdiction as specified in sub-section (3) of section 23 of the Act.”.

Section 23(3) of the Act pertains to listing in foreign jurisdictions. So basically all the public companies who have listed only their debt securities without listing their equity securities will not be considered as listed entities. Similarly private companies which listed only their debt securities also will be considered as listed entities anymore.

That takes from these entities, the onerous responsibility of complying with the listing regulations stipulated by SEBI.

Government calls it as an ease of doing business, but ideally, this should have been thought about early on itself i.e. such companies should not have been considered as listed entities ab initio itself.

rights issue

MCA has issued a notification dated 11th February, 2021 wherein they have amended the Companies (Share Capital and Debenture) rules, 2014 by adding a new clause 12A after clause 12.

Basically what the new clause 12A says is that it stipulates that the rights issue offer has to be made for acceptance by the shareholders within 7 days from the date of offer.

Earlier this stipulation was never there in the act or rules. The exact wording of the rule 12A is as follows

12A. Period for notice under sub-clause (i) of clause (a) of sub-section (1) of section 62.- For the purposes of sub-clause (i) of clause (a) of sub-section (1) of section 62, the time period within which the offer shall be made for acceptance shall be not less than seven days from the date of offer.”.

Copy of this notification can be found at the MCA site .i.e. http://www.mca.gov.in

merger/ amalgamation of small companies

MCA has vide its amendment to the Companies (Compromises, Arrangements & Amalgamations) Rules, 2016 provided for easy merger/ amalgamation between two or more start-up companies or one or more start up company with one or more small company.

This comes under section 233 of the companies act, 2013 which provides for an easy procedure for merger/ amalgamation of small companies without going through the cumbersome process of court/ tribunal etc. The process under clause 25 of the above regulations is by no means easy as it still involves considerable paper work, documentation and procedures but compared to the court/ tribunals, it is relatively easier.

So MCA has introduced a new sub clause 1A under clause 25 of the aforesaid Rules to provide for the said easy merger/ amalgamation.

So this is one more avenue for the company secretaries – to guide small companies/ start-up companies in the merger/ amalgamation under section 233 of the companies act, 2013 and the aforesaid regulations.

small company

MCA has vide its notification dated 1st February, 2021 changed the definition of small company in the Companies Act, 2013.

Now small company will be a company which has a paid up share capital and turnover of not more than Rs.20 million and Rs.200 million respectively. Hitherto the limits were Rs.5 million and and Rs.2 million respectively.

Note that both the conditions should be satisfied for a company to be a small company ie.. the paid up share capital should not cross Rs.20 million AND the turnover should not cross Rs.200 million. If a company’s paid up share capital is more than Rs.20 million but the turnover is less than Rs.200 million, then it will still remain a small company.

There are a few benefits of a company being a small company under the companies act, 2013 such as

• No need to prepare Cash flow statement as part of financial statement.
• Where other companies require providing details of remuneration to directors and key managerial personnel, small companies are required to provide details of the only aggregate amount of remuneration drawn by directors in its Annual Return.
• Mandatory rotation of auditor not required.
• An Auditor of small companies is not required to report on the adequacy of the internal financial controls and its operating effectiveness in the auditor’s report.
• Hold only two board meetings in a year.
• Annual Return of the company can be signed by the Company Secretary, or where there is no company secretary, by a single director of the company.
• Lesser penalties for Small Companies.
• Lesser filing fees for Small Companies.

The lesser filing fees for small companies has not been operationalised yet, but it is expected that MCA will bring that soon.