Companies Act

Removal Auditor Term Companies Act 2013: In accordance with the Companies Act, 2013 and associated provisions and rules, it is compulsory for every company to designate an auditor from incorporation to their running out of business. An auditor is a qualified individual who audits the financial part and works for the company. Hence, every company necessitates appointing an auditor. Notably, there are several times when management is not contented with the assistance of the auditor, and this is when the replacement/elimination of the auditor from the company comes into the picture.

There are appointed for a maximum of five (5) years for one term and hold a fixed term in a company. However, sometimes due to some reason, the management council of the Board can decide to remove the auditor before the end of their term.

• What does the word ‘term’ for auditor in a company
• What is the maximum number of terms an auditor can be appointed in a company
• What are the rules or provisions directing the removal of an Auditor before their term
• What is the procedure to remove the auditor
• What are the forms concerned in the elimination of an auditor
• What documents are needed for filing RD-1

What Does the Word ‘Term’ for Auditor in a Company?

The word ‘term’ here signifies the number of years the auditor is designated by affiliates of the company in the Annual General Meeting.

A company can designate for a maximum of five years in one term. This can further be classified as follows:

• All unlisted public companies as well as a listed company holding paid-up share capital of ten crores rupees or more and all private limited companies holding paid-up share capital of fifty crores or more rupees and all companies holding paid-up share capital of below threshold limit mentioned in (a) and (b) above but having public borrowings from banks, public deposits, or financial institutions of fifty crores rupees or more, will not appoint: –
• a person as an auditor for more than one term of five consecutive years
• a firm for audit as an auditor for more than two terms of five consecutive years:
• Again, note that once terms are completed, the same firm and individual shall not be selected for three (3) years in the same company.
• Companies other than the above particularised are free to select the same auditor for the “N” number of terms once their maximum number of terms is expired, which is five (5) years.

What is the Maximum Number of Terms an Auditor can be Appointed in a Company?

As explained above, an auditor can be equipped as follows:-

1. All unlisted public companies as well as a listed company holding paid-up share capital of ten crores rupees or more and all private limited companies holding paid-up share capital of fifty crores or more rupees and all companies holding paid-up share capital of beneath the above-mentioned threshold limit but having public borrowings from banks, public deposits, or financial institutions of fifty crores rupees or more, will not appoint: –
2. a person as an auditor for more than one term of five consecutive years
3. a firm for audit as an auditor for more than two terms of five consecutive years:
4. Again note that once terms are completed same firm and individual shall not be selected for a period of three (3) years in the very same company.
5. Companies other than the above particularised are free to select the same auditor for the “N” number of terms once their maximum number of terms is expired, which is five (5) years.

What are the Rules or Provisions Directing the Removal of an Auditor Before their Term?

According to Section 140(1) of the Companies Act, 2013, the auditor designated under section 139 may be withdrawn from their office before the expiry of their term only by a special resolution of the company, after receiving the previous approval of the Central Government in that behalf in the prescribed manner.

According to Rule 7(1) of Companies (Auditors and Audit) Rules, 2014, the application for removal of the auditor shall be made in Form ADT-2 to the Central Government and shall be accompanied by fees as implemented for this purpose under the Companies (Registration Offices and Fees) Rules, 2014. Also, in accordance with Rule 7(2), the application shall be addressed to the Central Government (powers authorized to Regional Director) within 30 days of the resolution relinquished by the Board.

What is the Procedure to Remove the Auditor?

If a company is not contented with the services of the sanctioned auditor, the company can commence the method for removal of the auditor. The following method is needed: –

• Determining the Board Meeting besides the agenda to be addressed in the meeting.
• Auditor has to be provided with a reasonable possibility of being heard.
• To the Regional Director, the drafting of a petition should be made (through the MCA notification dated 21st May 2014, deleted by the Central government)
• Operating of the Board meeting and judging the petition
• ADT-2 as an attachment for filing of a petition to the Regional Director should be done to e-form RD-1 within thirty (30) days from the passing of the resolution of the Board.
• After receiving approval from the Regional Director, getting the Board meeting for exercising note of the same and passing as well as fixing the Annual General Meeting or Extraordinary General Meeting of members for removal of auditor before their term within sixty days.
• Holding of Extra-ordinary Annual General Meeting/ General Meeting of members and passing of a special resolution for equivalent.
• Once the Special resolution is filled, fill MGt-14 within thirty days from the Special resolution.

What are the Forms Concerned in the Elimination of an Auditor?

Not multiple forms are needed in the removal of auditors before their term; particularly the following forms are asked:-

1. ADT-2
2. RD-1
3. MGT-14

What Documents are Needed for Filing RD-1?

Since already explained that ADT-2 should be attached with e-form RD-1. Following documents are needed to be associated with e-form RD-1:-

1. The ground of attempting removal of auditor
2. Have a check in the during the last three years, whether the accounts have been qualified
3. Date of SRN of notice and appointment of auditor of such appointment
4. Check whether the audit fee has been paid or not.
5. Any other information/attachment is deemed access by the Board of company.

Disclaimer: – The above article is adapted to keep in mind all the basic and important questions while excluding an auditor before their term under the Companies Act, 2013. The author has tried to cover all the basic and essential questions. Under no circumstance, the article shall not be liable for any special, or incidental damage, direct, indirect, resulting from, arising out of, or connected with the application of the information.

Kinds Meetings Companies Act 2013: A meeting is generally a gathering of the members of a company; a meeting plays a vital role in the overall functioning of a company. A meeting must be constituted by two persons at least, but under exceptional circumstances, it can be done by one.

‘Company Meeting’ is generally a coming together of at least two persons to either transact any ordinary or special business for the purpose of the law. These meetings are classified based on who holds the meeting, which is further discussed in this article.

• Meetings Held by Shareholders
• Meetings Held by Directors
• Meetings Held by Creditors
• Meetings Held by Debenture Holders

Meetings Held by Shareholders

Statutory Meeting

Every public company with a share capital must convene a general meeting of the shareholders within not less than 1 month and not more than 6 months after the date on which it is authorised to commence its business. This is the first meeting of the company’s shareholders, and it is held once in the company’s whole life.

Annual General Meeting

In Section 96 of Companies Act 2013, the Annual General Meeting of companies, every public or private company other than a one-person company shall conduct an annual general meeting other than any other form of meeting, and the company shall ensure that there is no gap of 15 months or more between two annual general meetings.

It is required to convene the first AGM within 9 months from the end of the first financial year to decide the overall progress of the company as well as to plan future courses of action.

• Venue: Such meeting is held at a Registered Office of the Company or any other such place in the city where such Registered Office is situated.
• Timings: The meetings are held between 9.00 am – 6:00 pm and not on any public holiday declared by the Central or State Government.
• Quorum of the Meeting:
  • For a Public Company: The quorum of the company shall be 5 directly present in the event if the overall number of members at the meeting date does not surpass 1000, 15 in the case of more than 1000 but less than 5000, and 30 in the event of more than 5000 members at the meeting date.
  • For a Private Company: Only 2 members can make up the quorum of the meeting if they are directly present.
• Time Difference Between Meetings: The gap between the two consecutive meetings should not be more than 15 months. After conducting the first AGM, the subsequent AGMs need to be conducted within 6 months from the end of the financial year. If any urgent circumstances or emergencies arose when the company wasn’t able to perform the AGM, the Tribunal then may grant the extension of 3 months but said extension is not available in the first AGM. Therefore, the first AGM must be conducted within 9 months from the end of the financial year.
• NCLT’s Powers: May call or direct to conduct such meeting u/s 97 of CA’13 when an application is filed by a member if meeting not conducted in due time.
• Penalty for Defaulters: Under section 99 – For Company and every such defaulting Officer – Rs. 1 Lakh, and if the default continues, then Rs. 1000 per day.

Extraordinary General Meeting

A statutory meeting and an annual general meeting of a company are called ordinary meetings.

Any meeting other than these meetings is called an extraordinary general meeting which can be called under section 100 of CA’13. It is held to transact some urgent or special business that cannot be postponed until the next annual general meeting.

It can be called through the following ways –

1. By Board: On a Suo-moto basis, the same can be held in any part of the country.
2. By requisition of eligible members: If the company has Share Capital, then members holding at least 1/10th of such Share Capital, and if not having Share Capital, then members holding at least 10% of the total voting powers in that company can request to call for such meeting. Such notice has to be well written and specify the nature of business, and duly signed by all the members or anyone authorised person acting on behalf of all. And Board needs to call a meeting within 21 days of getting such request or a maximum of 45 days by giving such notice to such members before 3 days of conducting such meeting.
3. By Requisitionists (provided if Board fails to do so): If Board failing to conduct meeting within 45 days, then the members can call for a meeting within 3 months from the original request made to Board at first instance, and here the members have all the rights to have their name on the main list of members and Board can’t deny this, and also need to accept such changes that might have occurred between 21st to 45th day of the date of the notice provided to Board at first instance.
4. By Tribunal under section 98: In which it can conduct the meeting on its own or any request received by the member of such company.

Venue: At Registered Office or any such place in the city where such Registered Office is situated.

Class Meeting

Under the Companies Act, 2013, various kinds of shareholders and creditors hold class meetings under different circumstances. Such meeting is convened by a particular class of shareholders only and only if they think that their rights are being altered or if they want to vary their attached rights, as mentioned under section 48 and 232 of CA’13 also if, under the Mergers and Amalgamation scheme, meetings of particular shareholders and creditors can be convened if their rights or privileges are being varied to their interests in any such company.

Meetings Held by Directors

Meetings of Board of Directors

The directors of a company exercise most of their powers in a joint meeting called the meeting of the Board.

In the case of every company, a meeting of the Board of Directors must be held:

• At least once in every three months, and
• At least four such meetings shall be held every year. [Sec. 285]

In other words, no three months should pass without directors’ meetings being held, and no year should expire without at least four directors’ meetings having been held in it.

The object of this section is to ensure that the Board meetings are held at reasonably frequent intervals so that the directors may be in touch with the management of the company’s affairs.

Meetings of the Committees of Directors

The Board of Directors form certain committees and entrust some of its powers to them. These committees consist of only directors. The delegation of powers to such committees is to be authorised by the Articles of Association and should be according to the provisions of the Companies Act, 2013.

In a large company, routine matters like Allotment, Transfer, and Finance are handled by the Board of directors’ sub-committees. The meetings for such committees are held in the same way as those of Board Meetings.

Meetings Held by Creditors

The meetings of the creditors are held when the company proposes to make a scheme for an arrangement with the company’s creditors. Section 391 to 393 of the Companies Act 2013 gives powers to the company to compromise with the creditors and lay down the procedure of the action.

Meetings Held by Debenture Holders

Meetings of the debenture holders are held as per the conditions contained in the debenture trust deed. These meetings are called from time to time where the interests of debenture holders are involved at the time of reorganisation, reconstruction, amalgamation, or winding up of the company.

The rules and regulations entered in the trust deed relating to the notice of the meeting, the appointment of a chairman of the meeting, passing the resolutions, quorum of the meeting and the writing and signing of minutes.

Dissolution Partnership Firm Settlement Accounts Dissolution: When the relationship between the partners has ended or terminated, then the partnership firm is said to be dissolved. Under such circumstances, the firm ceases to exist. The dissolution of a partnership firm is dissimilar to the dissolution of a partnership. The process of dissolution includes paying off liabilities and disposing of the assets. The firm stops all of its activities, and the partners have no relationship with each other.

• Reasons for the termination of the partnership agreement
• What is the dissolution of the firm as per section 39 of The Partnership Act of 1932?
• In the following ways, the dissolution of the partnership firm can take place
• Settlement of accounts on dissolution

Reasons for the Termination of Partnership Agreement

In the event of the dissolution of a partnership, the termination of the partnership agreement among the partners is due for the following reasons:

1. Admission of a new partner
2. Retirement or death or insolvency of an existing partner
3. Change in the current profit ratio
4. On the accomplishment of a certain venture for which the partnership was formed.
5. On the expiration of the period for which the partnership was formed.

By entering into a new agreement, the existing partners can continue the business. The dissolution of a partnership means a modification in the partnership. The dissolution of a partnership firm means the discontinuation of a firm’s business. Even without the dissolution of the firm, a partnership can be dissolved.

What is the Dissolution of the Firm as per Section 39 of The Partnership Act of 1932?

As per Section 39 of The Partnership Act of 1932, “dissolution of the firm” means dissolution of the partnership between all the partners within the firm.

Following this, a partnership firm is unable to do any kind of business activity. It can only discharge the partners’ claims, pay off the liabilities and do asset disposal for the firm to realize the amount.

In the Following Ways, the Dissolution of Partnership Firm Can Take Place

1. Dissolution by Agreement: If all the partners agree to the dissolution, the firm may be dissolved.
2. Dissolution by notice: When at will a partnership is designed, if any one of the partners provides written notice to the other partners stating their intention of dissolving the firm, then the firm dissolution may occur.
3. Contingent Dissolution: Under this way, the dissolution of a partnership firm may happen based on any one of the following contingencies:
4. If the partnership is established for a fixed term, then at the expiry of the period.
5. On the accomplishment of a certain venture for which the partnership was established.
6. On a partner’s death.
7. On a partner’s insolvency
8. Compulsory Dissolution: The firm’s compulsory dissolution will take place if:
9. One partner or all the partners becomes insolvent.
10. The firm’s business became illegal for some reason.
11. The firm’s business becomes unlawful due to the occurrence of an event.
12. Dissolution by Court: The partnership firm’s dissolution is ordered by the court on the following grounds:
13. When a partner becomes insane,
14. When a partner becomes unable to perform their duties as a partner,
15. When a partner is guilty of misconduct, it is more likely to affect the reputation and business of the firm.
16. When a partner breaches the partnership agreement,
17. When a partner transfers their entire interest or shares in the firm to a third party,
18. When the firm’s business cannot carry on except at a loss,
19. When the court’s opinion about the dissolution of the firm is fair and unbiased on any ground.

Settlement of Accounts on Dissolution

As stated by Section 48 of the Indian Partnership Act of 1932, the following procedure is to be followed to settle accounts between partners after the dissolution of the firm:

1. Losses, including inefficiencies of capital, will be first paid out from the profits, then from the capital, and, if essential, by the individual contribution of the partners in the ratio of their profit-share.
2. The assets of the firm, comprising of any sum contributed by the partners to make up for the insufficiency of capital, will apply in the following manner:

Payment of:

1. The firm’s debts to third parties
2. Advances and loans given by the partners
3. Capital contributed by the partners

If any remains, it is going to be divided among the partners in their profit-sharing ratio.

Procedure Change Companies Act 2013: Under the Parliament of India initiative, the Companies Act was put into effect on August 29th of 2013, after reforming the Companies Act of 1956. It deals with incorporating companies, their responsibilities, and renewed features as a functional.

• Alteration of Company name under Companies Act, 2013
• The ways to Alter names under Companies Act, 2013
• Section 4 under Companies Act, 2013
• Section 16 under Companies Act, 2013
• Rule 29 under Companies Act, 2013
• Which Companies cannot alter names, according to the Companies Act of 2013?
• Steps to Alter Company names
• FAQs

Alteration of Company Name under Companies Act, 2013

The topic of modifying the name of a company is also included in the Companies Act, 2013. Through this process, any limited company can alter its names with the due consent of all members and directors. A solid reason has to be provided along with the necessary documents to complete the process of the name change.

Different sections of the Companies Act of 2013 are dedicated to aiding other purposes. For example, section 13 of the Act deals with an amendment in the Memorandum of Association, whereas Section 14 regulates Articles of Association.

The Ways to Alter names under Companies Act, 2013

Under the Companies Act of 2013, section 13 deals with the change of company names with the approval of the Central Government via a special resolution. After completing the process of incorporation, the company may change their names according to the ways listed below:

• Converting its name from Private to Public
• Converting its name from Public to Private
• Converting its name from XYZ limited to ABC limited

Note: The company with ‘Private’ attached to its name does not need the approval of the Central Government.

Section 4 under Companies Act, 2013

Topics to Consider under Subsection 2

• The name mentioned in the memorandum must match the name of any other existing company that is registered under the Company’s Act.
• The name mentioned in the memorandum must not create any offense under any effective laws.
• The name mentioned in the memorandum must not be unsuitable in the Central Government’s opinion.

Topics to Consider Under Subsection 3

• The company must not be registered with any name that indicates its connection to the patronage of the state government or central government, the local authority, or the corporation.

Section 16 under Companies Act, 2013

Subsection 1

• A company needs to verify its new name that has been registered or re-registered.
• The new name must be unique and different from the name of any other company that exists already.
• The central government must rectify the company’s name.

Subsection 2

• After changing its name, the company must notify the registrar (because he is responsible for changes in the incorporation certificate and the memorandum) and the central government order within 15 days from the verification date.

Subsection 3

• Levying penalty up to Rs.1000 per day and Late Fine on defaulted companies as per the directions issued by the central government.

Rule 29 under Companies Act, 2013

• Change of name should be prohibited to any company that has defaulted in filing the Annual Returns or Financial Statements or any other significant document with the Registrar.
• Any company that has defaulted in repaying the matured deposits or debentures or the interest on deposits cannot complete the name change procedure.
• Sub-section 3 under section 13 requires the process of filing an application in Form INC-24 additional to the fee for change in the company name.
• A fresh certificate of incorporation in Form INC-25 must be issued to the company right after the change of name.

Which Companies Cannot Alter Names, According to the Companies Act of 2013?

Rule 29 under the Companies Rules of 2014 perfectly summarizes the rules applying to the prohibition of the process of the name change for companies that fall under the categories as mentioned below:

1. Companies that have defaulted in filing an annual return in time.
2. Companies that have failed to riposte matured deposits
3. Companies that have defaulted in repayment of matured debentures.
4. Companies that have not paid or have defaulted in paying the additional interest on debentures or deposits.

Steps to Alter Company Names

Step 1: Coordinating a Board Meeting

• The company must pass a board resolution to hold EGM for changing the company’s name (in the same board meeting or a new board meeting) and authorize the Director of the company or the Company Secretary to issue an application confirming the availability of the name proposed.

Step 2: Verifying the availability of the selected name

• Authorized persons such as the Director of the Company or Company Secretary shall confirm the availability of the proposed name by applying to the MCA along with the copy of the Board resolution passed in the meeting.
• Naming Guidelines under the Companies Act 2013 supervise this activity, and simultaneously the incorporation of any new company needs to be noted.
• The company can reserve the proposed name through the Reserve Unique Name web service available on the MCA portal.

Step 3: Congregating a General Meeting

• After receiving the approval of a new name from the MCA, the company should arrange a General Meeting to furnish a special resolution and reflect it on the Memorandum of Association and Articles of Association.

Step 4: Filing a Special Resolution and an Application to the Registrar

• The company should file the documents as stated below with the Registrar of companies:
• The special resolution legislated by the company u/s 13 part (1) in Form MGT-14.
• The application made for the name change in Form No. INC-24 and the additional fee.

The following documents are required to be attached to INC-24.

• A certified copy of the postulates of the General Meetings and name change approval order previously issued by the concerned department or authorities such as RBI, IRDA, SEBI, etc.
• Any such details may be furnished as optional attachments.

Step 5: Securing a fresh Certificate of Incorporation

• As per subsection 3b under Section 12, the company needs an engraving of the company name in readable characters on the company’s seal (if there is any).
• The company must notify the bank where their current account is in operation and the concerned government officials or any authorities such as stock exchanges, Excise Authorities, Tax, or any such parties with whom the company has struck a deal or made investments or secured insurance policies; about the change in the company’s name and intimate them to in the records as well.
• The company must apply for a new PAN and TAN.

FAQ’s on Procedure Change Companies Act 2013

Question 1.
Is Stamp Duty a must for change in MOA?

Answer:
This Act does not consider a new memorandum of association. Where it implies to be so, it is nothing else but a special resolution and, as such, does not need to be stamped.

Question 2.
After the verification of the company name, up to what time is the name available for use by the company?

Answer:
According to the Companies Amendment Act of 2017, in the case of alteration of the name of the company, the name shall be reserved for a duration of 60 days from the date of approval.

Right to Freedom Article 19 Article 22: One of the basic rights enacted in India’s constitution is the right to freedom. For the functioning of Indian democracy, the six fundamental rights set out in the Constitution are considered essential. The right to freedom gives citizens the basic freedom of expression, forming associations, freedom to liberty, freedom to live a dignified life and so on. The scope and any exceptions to these provisions are explained in detail on this page.

• Overview of Right To Freedom
• Importance of Right To Freedom
• Article 19 Under Right To Freedom
• Article 20 Under Right To Freedom
• Article 21 Under Right To Freedom
• Article 21 (a) Under Right To Freedom
• Article 22 Under Right To Freedom
• FAQ’s on Right To Freedom

Overview of Right To Freedom

The right to freedom ensures citizens with the freedom to live dignified life. Articles 19, 20, 21A and 22 of the Indian Constitution make provision for this.

Article Name	Overview of the Article
Article 19	Protection of 6 rights concerning the freedom of: Speech and expression Assembly Association Movement Residence Profession
Article 20	In the event of a conviction for a crime, you will be protected.
Article 21	Personal liberty and the right to life
Article 21A	The right to a basic education
Article 22	In certain circumstances, you may be protected against arrest and detention.

Importance of Right To Freedom

It is important to have the right to freedom because it is a human right. The struggle for freedom from foreign imperialism in India is a struggle to live a life of respect for freedom and freedom and to choose how to live according to the law, to take up employment and business, to speak up and move forward, to live in every area of India and to live safely. India is a national fight against colonialism.

Article 19 Under Right To Freedom

Article 19 guarantees six freedoms and they are

1. Freedom of Expression: The government ensures that everyone in India has freedom of expression. However, in the name of integrity, security, sovereignty, foreign-friendly relations, public policy, defamation or neglect of the Courts the State may restrict freedom of speech.
   Forbidden.
2. Freedom of Association: the government ensures everyone’s freedom to meet peacefully without arms. However, the sovereignty, integrity and interests of the State’s public order may have reasonable restrictions.
3. Freedom to form Associations/Unions/Cooperative Societies: Free trade union/co-operative organisations: State sanctions can be imposed on integrity, security, foreign-friendly relations, public order, slander, and country crimes. This Law provides workers with a fundamental right to form trade unions.
   • The Police Law of 1966 prohibits the formation of syndicates by police officers.
   • Laws limiting the right of employers to form political organisations, including members of the military, intelligence and telecommunications systems.
4. Freedom of Movement: Indian citizens are free to walk about the country. This right can also be restricted in order to protect national security, public order, or potential tribal interests.
5. Housing Freedom: Indian citizens have the freedom to live anywhere in the country. In reality, limits may be applied to safeguard security, public order, or the prospective tribe’s interests.
6. Workplace Freedom: All citizens have the right to work / work / continue working, regardless of whether the work or trade is illegal or immoral. Furthermore, the law does not exclude the enforcement of laws requiring technical or professional qualifications for business or professional training.

Article 20 Under Right To Freedom

• The protection of civilians in punishing criminal crimes is governed by Article 20. It provides the state with three types of personal protection.
• The former criminal code is otherwise known as the former secondary penal code. A person cannot be convicted of an act until the crime is declared legal. This means that this legislation cannot prevail.
• Immunity against preventive containment cannot be used and does not involve testing.
• The law also says that no person can be punished for anything other than the crime laid down by law.
• Multiple Threats: This means that a person can’t be convicted of the same offence more than once.
• Self-repression is prohibited, which means the government will not force a person suspected of a crime to testify against them.

Article 21 Under Right To Freedom

• Without compliance with the procedures provided for in Article 21, nobody may lose his life or freedom. This article offers various options and over the decades, many changes have occurred in the interpretation.
• The right to live in dignity is the Supreme Court.
• In a sense, this is the main right, because all other rights are null and void without this right to life.
• The differences between the police state and a rule of law are clearly demonstrated.

Article 21 (a) Under Right To Freedom

With the 86th amendment to the Constitution, this article was first introduced in 2002. It mandates that all children between the ages of 6 and 14 get free and compulsory education.

Article 22 Under Right To Freedom

• In a few cases, Article 22 provides for protection from arrest and detention. This article covers both citizens and nationals of the country. In the case of arrests, this provision extends certain processes.
• It appears following the arrest of a man. This is not a basic right to arrest or detention.
• This right has the idea of limiting both arbitrary arrest and detention.
• The following protections are provided in this article:
  • Article 22 (1): Each prisoner needs to explain why he is arrested. Furthermore, it cannot be denied the right to consult a lawyer.
  • Article 22 (2): Anyone apprehended shall be taken into custody and placed before a judge within 24 hours.
  • Article 22 (3): No one may be detained for more time than the judge determines.

FAQ’s on Right To Freedom

Question 1.
What are the six rights to freedom?

Answer:
The 6 basic fundamental rights are:
1. Right to equality
2. Right to freedom
3. The right against exploitation
4. The right to freedom of religion
5. Cultural and educational rights
6. The right to constitutional decisions

Question 2.
What are the six freedoms guaranteed by the right to freedom?

Answer:
The 6 freedom that is guaranteed by the right to freedom is Language and performance, Assembly, Association, Protest, Accommodation, Company.

Question 3.
Which article is right to life?

Answer:
Article 21 covers the right to life which states that “no person shall be deprived of his life or personal liberty except according to procedure established by law“.

Difference Between Insolvency and Bankruptcy: Individuals and businesses both are referred to as insolvency. Individual bankruptcy is referred to as bankruptcy, while corporate insolvency is referred to as corporate insolvency. Both terms refer to a situation in which a person or a firm is unable to pay the debt now or in the near future because their assets are worth less than their liabilities. On this page, let’s learn everything about the difference between insolvency and bankruptcy in detail.

• What is Insolvency?
• Reasons for Insolvency
• What is Bankruptcy?
• What is Difference Between Insolvency and Bankruptcy?

What is Insolvency?

Insolvency is a state that can lead to bankruptcy, despite the fact that both phrases refer to enormous debts. In its most basic form, insolvency occurs when a person is unable to repay creditors on time.

Although bankruptcy is a possible remedy to insolvency, this type of situation does not always result in bankruptcy. You may be able to handle your insolvency through alternative methods, such as filing a consumer proposal or taking out a debt consolidation loan, depending on your circumstances.

Reasons for Insolvency

For a number of reasons, individuals and companies can become insolvent, but among the most common are:

• Loss of employment or reduction in wages
• Medical bills for divorce
• Inadvisable utilisation of loans
• Financial mismanagement

What is Bankruptcy?

Bankruptcy is a legal process that gives those who are unable to pay their debts protection and relief. A Licensed Insolvency Trustee will be assigned to liquidate your assets, contact your creditors, and examine your affairs once you file for bankruptcy. You will also have to follow bankruptcy rules, which include going to credit counselling programmes.

You will be discharged from bankruptcy and become solvent once you have fulfilled all required requirements. It usually takes 9 to 21 months to complete the process.

What is Difference Between Insolvency and Bankruptcy?

• Bankruptcy is an action against a person or company who cannot repay the debts that are outstanding.
• A request filed by the debtor, or the creditors, begins the bankruptcy process.
• The entire asset of the debtor may be measured and assessed and used in repaying a portion of the debt remaining.
• If a person or entity cannot pay the debt, it owes its creditors, on time or when and when they have been attributable and due, and is therefore regarded as an “insolvent person” or entity.
• Liquidation is the liquidation of a company or organization. Many entities can initiate procedures leading to liquidation these are:
  1. Company Directors
  2. Regulatory Bodies
  3. Company’s shareholders
  4. Company’s unpaid lender

FAQ’s on Insolvency and Bankruptcy

Question 1.
Is insolvency the same as bankruptcy?

Answer:
Insolvency and bankruptcy might sound the same thing, but it’s not. The financial state is insolvency, while the legal statements and the process are bankrupt.

Question 2.
What is the meaning of insolvency and bankruptcy?

Answer:
Insolvency is a situation resulting from the inability to reimburse debts due to inadequate assets, bankruptcy is a situation where an insolvency reporting authority requests to be declared bankrupt, which shall continue until discharge.

Question 3.
What happens if a person declares bankruptcy in India?

Answer:
If a person declares bankruptcy in India, the court will declare you insolvent and appoint an officer to take responsibility for your property. Until they are sold you cannot touch your property and assets. Your creditors will divide the money to reimburse your loans and debt.

Cross Examination Principles: Cross-examination is the process by which a party appearing before the court asks the party of the opposition witnesses to establish the truthfulness of its claims. These are issues a lawyer addresses to a witness of an opponent in order to receive privileged information from that witness. In this article, let’s learn everything about Cross examination in Indian law detail.

• What is Cross Examination?
• Purpose of Cross Examination
• Witness Examination
• Principles of Cross Examination in India
• Rules for Cross Examination
• Objective of Cross Examination
• Cross Examination of Different Types of Witness
• FAQs on Cross Examination

What is Cross Examination?

The cross-examination of a witness by the opposing party is referred to as the cross-examination. In law, cross-examination is the questioning by an opponent of a witness. Cross-interview is not just about attacking an opponent, but about reinforcing your own case.

Every party has the right to interview a witness made by its adversary in order to determine whether the witness knows what he is testifying and whether he has been shown to have the means to ascertain what he or she is testifying about, and so all his or her memory, motivation and motives may be examined through cross-examination.

Purpose of Cross Examination

The purpose of cross-examination is to assess the witness’ credibility. It has been designed by the law to establish the truth and is certainly one of the most effective tests. This means the situation of the witness regarding his interests, his causes, his inclinations and his prejudice in respect to the parties and the subject of litigation, his means for obtaining the correct and certain knowledge of the facts he attests to how these means have been used, its power in the first instance to determine the facts and its capacity for retention and terminations.

Witness Examination

In accordance with the terms of Section 135 of the Indian Evidence Act, the court has the authority to order or command the witnesses. The evaluation of a witness asks the witness questions about the relevant facts in the case and records the witness statements as proof.

Principles of Cross Examination in India

The method of obtaining truth by cross-examining is as ancient as human nature. Multi-testing is often regarded as the toughest test of a defender’s ability and perhaps requires an exercise of ingenuity over and above his other duties. Cross-examination with credible skills is very difficult to perform.

Rules for Cross Examination

Barristers have a certain level of knowledge of the art and are best able to explain these principles. Cross-examination means proof of an opposing witness before a court of law. This is done in accordance with questions and the following working rules:

• Come as quickly as you can
• Any witness argue not
• Do not ask if there is no good reason
• Don’t jerk around, except when you are so bad in your position and can do anything to improve it
• Don’t ask a question without being quite sure that the answer is good for you
• When a witness obviously lies, leave him alone completely.

Objective of Cross Examination

The purpose of cross-examination is to get something, regardless of how little you can help your own case. When it’s impossible for you to get something that helps your client, try to weaken ‘your opponent’ by a different process. In order to distinguish the truth from misconception, especially when your opponent’s witness is helping with your case.

Cross Examination of Different Types of Witness

The cross examination of different types of witness are explained below:

1. False Witness: Anyone who gives false evidence deliberately is a false witness.
2. Truthful Witness: The true witness is said to be the hardest cross-examination of all. He trusts and wants his proof to be true. The easiest thing to do is to deal with it because it is not wrong. It has no secret meaning and it readily and mentally gives its answers.
3. Witnesses Hostile: A witness who is opposed to the party which calls them and who does not want to tell the truth may have questions to put.
4. Biased Witness: A witness may be biassed if the relationship with his or her cause, or to the parties, is such that he or she can exaggerate or falsify or suppress the truth or state what is false. Violation is what stimulates “a willingness to see and report things as they want, instead of as they are.“
5. Expert Witness: The professional and non-professional expert witness can be classified into two classes. A farmer who is called upon to give proof of a correct method of cure may be considered to be a kind of non-professional course and a doctor called to give proof of a party’s mental condition may be considered a profession.
6. Court Witness: The judge has the power in civil and criminal cases to call and examine witnesses. Both parties can cross-examine them in accordance with Section 165, Evidence Act. This cross-examination is not limited to the matters on which the court has examined him.

FAQs on Cross Examination

Question 1.
Who can cross examine in Indian Law?

Answer:
The Party may cross-examine the witnesses, who have the right to take part in any investigation or trial.

Question 2.
What is the range of cross examination?

Answer:
There is an unlimited range of cross-examination, with the only limitations being that it is “related to the relevant facts.”

Question 3.
What is cross examination of witnesses called by the court?

Answer:
If the witness called by the court objects to the complaint, the witness would have the right to interrogate him.

Section 8 Companies under Companies act of 2013: The primary purpose of Section 8 under the Companies Act of 2013 is to promote the subjects of commerce, science, art, education, social welfare, research, religion, protection of the environment, charity, and such other issues among companies.

Section 8 of the Companies Act of 2013 proposes the successful application of their profits or other incomes to promote its primary aims and forbids any such dividends among their members.

Table of Contents

• Terms and Conditions for Companies
• Significant Features of companies under Section 8
• Advantages of companies under Section 8
• The Steps to incorporate companies under Section 8
• The documents required for incorporation

Terms and Conditions for Companies

1. The Central Government should issue a license following the prescribed method.
2. According to this notice, the Government should approve the Company or partnership or association to register themselves under Section 8 without the attachment of the ‘Private Limited’ title to its name or the addition of only ‘limited’ as per the terms prescribed.
3. After modifying the Company or association or partnership name, the Registrar can register the association, Company, or partnership under Section 8.
4. The Companies registered under Section 8 can register themselves as a non-profit or charitable trust. But even though this Company will fall under the category of a Society or Trust, the only exception is that they will get registered under the Ministry of Corporate Affairs or MCA under the Central Government, unlike ordinary Trusts, which the State Government governs.
5. The companies under Section 8 have various advantages compared to general Societies or Trusts. They possess strong trust between donors, multiple departments of the Government, and other stakeholders.
6. The most crucial feature of this type of Company is the choice of registering themselves without including the titles’ Private Limited’ and ‘Limited’ as per the case.

Significant Features of Companies under Section 8

• Unique License: The companies that register under Section 8 of the Companies Act of 2013 are uniquely licensed by the Government. Their focus is to work with the public and their welfare; hence, sometimes, they receive funds from the general public.
• No Dividend: The companies under Section 8 do not issue bonuses to their partners or members due to restrictions. Hence, they are unable to distribute profits to members legally as a business objective.
• Charitable Aims: The primary objective of Section 8 under the Companies Act of 2013 is to promote commerce, science, art, education, social welfare, research, religion, protection of the environment, charity, and other issues among companies.
• Regulated Liability: The members or partners of a Private Limited or Limited company limited liability as they are registered under Section 8.
• No restrictions on minimum Capital: Unlike any other company, the companies under Section 8 do not need a minimum paid-up share capital to register legally.
• Firms as the sole members: Apart from individual members of the Company, firms are allowed to the members of the Company, as per Section 8 of the Companies Act of 2013.

Advantages of Companies under Section 8

Original Identity

Companies that fall under Section 8 of the Companies Act of 2013 possess an original identity and exist as an entity with a real presence in society.

The Company holds a legal position and has unique potentials to sustain debts in its name. The Company members do not have liability in the case of debts since they are seen as a separate section. Therefore, the Company functions as an individual with its original Identity.

Regulated Liability

Liabilities in the case of companies registered under Section 8 are regulated. The responsibility of members in the subject of the Company’s duties for company debts or partnerships are limited according to law. In simple words, the duties of company members are restricted to the amount of face value of the total shares.

No Additional suffix

Companies under Section 8 of the Act choose to omit suffixes such as Limited and Private Limited, once legalized by the Government.

Benefits on Tax

A company or association under Section 8 may choose to enjoy benefits on taxes if they are registered 12AA and under Section 80G of the IT Act.

No Restrictions on minimum Capital

Under Section 8, there is no minimum value of Capital required for the incorporation of any Private Limited company. According to the law of 2013, Private Limited company starters can build the foundation without any worries about minimum Capital requirements.

Fewer Stamp Duty

During the incorporation of companies under Section 8 of the Companies Act of 2013, the Government provides an array of benefits that reduces the stamp duty of the Company by a great deal.

The Steps to Incorporate Companies under Section 8

Step 1: Producing an application for the desired company name

The foremost step in the process of incorporation of a company is selecting the desired company name and reserving the unique name in section A of the SPICe Plus form. If the Central Registration Centre rejects the name proposed, then the Company needs to re-file the two names as presented within the time limit of 15 days starting from the day of rejection from CRC.

Step 2: Applying for a DSC or Digital Signature Certificate

Since the incorporation process of a company is entirely online from start to finish, a DSC or Digital Signature Certificate is crucial for the signing of forms by the directors as proposed or the company members via electronic means. The use of DSC is obligatory for all companies, their members, shareholders, and directors.

Step 3: Two-Stage filling method the application Form for the process of incorporation

The incorporation process starts once the company name gets verified. Within the time span of twenty days, application filling should be completed.

Stage A: All relevant documents needed for the process must be uploaded online on the SPICe plus site (combining eight records in one). Through this, the company can propose the following:

• Incorporation
• Name reservation
• PAN application
• TAN application
• DIN application
• GSTIN registration
• ESIC registration
• EPFO registration

Stage B: Filling of this Section of the Form needs details like paid-up capital, the total number of members and directors, number of whole shares by members, legalized share capital, registered company address and addresses of members and directors.

MOA and AOA of the company as proposed should be drafted next, followed by the filling of EPFO, and registering ESIC in detail. Filling AGILE and securing GSTIN are the next steps. Lastly, uploading the signature onto the MCA website is an essential step in this process.

The documents that are needed to be attached are:

• A Physical replica of the MOA draft (including the signature of witnesses and members)
• A Physical replica of the AOA draft (including the signature of witnesses and members)
• The Declaration in Form INC-14 by any such practicing professional

Step 4: Issuing the Certificate of Commencement of the Business

As soon as the application of incorporating the said Company has been approved and the Registrar of Companies has produced the Certificate of Incorporation, the Company must file another seeking for the approval of the commencement of business under 180 days from the Company’s incorporation.

Documents Required for Icorporation

As a Private Limited Company

• Aadhaar Card
• PAN Card
• A Photograph of the proposed Director

Identity Proofs (of the members and proposed Director)

• Voter’s Identity Card
• Driving License
• Passport

Address Proofs (of the members and proposed Director)

• Bank Statement
• Electricity bill
• Telephone/ Mobile Bill

Address Proofs for the prime business location (of the proposed company)

• The Rent Agreement, including Rent Slip
• Utility Bills like Telephone bill, Water bill, Gas Bill and Electricity Bill
• Proof of Ownership

 

Provisions of Loan from Directors under Companies Act, 2013: The Companies Act of 2013 discusses the various provisions for companies and the conditions, references, important dates, and other such subjects prescribed by the Ministry of Corporate Affairs.

• Definition of essential terms related to the Companies Act, 2013
• Discussing the most relevant sections of the Act
• Difference between Loan and Deposit
• The ways of lending money to the company by Directors
• Additional Points to Remember

Definition of Essential Terms Related to Companies Act 2013

Loans

When a fixed sum of money is given to another party in exchange for repayment of the aggregate with additional interest, it is known as a Loan. In other words, in general terms, any transaction where a sum of money is issued with the purpose of being reimbursed, inclusive, or exclusive of interest, is known as a Loan.

Deposits

Money receipts or Loan slips placed into banks or any such institutions for the safeguarding of a particular sum of money are called Deposits. The depositor can put these amounts into savings, marketing, or checking accounts and hold the authority to manipulate the placed sum of money after consulting with the bank.

Qualified Companies

Any Public Company that has a Turnover of not lower than Rs. 500 crores and a Net Worth not lower than Rs. 100 crores. The company has to have prior approved consent of the Registrar of Companies in a general meeting through a unique filed resolution before making any requests of acceptance of deposits to the public.

The Two Main Types of Accounts

1. Savings Account: These types of accounts are interest-bearing accounts. The rate of interest of these accounts depends on the bank at which it is deposited. Additionally, there are some restrictions in case of the number of times the user can withdraw an amount from this type of bank account.
2. Current Account: These types of accounts are generally operated by established companies and firms and provide overdraft functions to their users. They are most commonly known as the non-interest-bearing deposits and aid in providing more efficiency to such firms or companies in the banking sphere.

Discussing Most Relevant Sections of Act

• Under Section 179 of the Companies Act of 2013, the subject of taking consent of the Board before borrowing money.
• Under Section 180 of the Companies Act of 2013, the subject of focus is taking consent of company members through a unique resolution in the case of borrowing money or money that is borrowed already by the company that might exceed a sum-total of its owed share of funds and inclusive of security premiums except for temporary loans that are gained from the bankers in the general course of business.

Section 180 does not apply to any Private Company; hence, Private Companies can borrow capital by passing a Board Resolution even when the limit of the borrowed amount has been reached.

Example: Suppose XYZ (Public) and ABC Private Limited both have Rs. 100 crores for Paid-up Share Capital, Rs. 50 crores for Free Reserves, Rs. 20 crores for Security Premiums, and Rs. 5 crores for Present Borrowed Amount:

By way of passing a Board Resolution, the amount to be borrowed will tally up to Rs. 175 crores for both Public and Private Companies.

Yet, if ABC Public Company wishes to borrow above Rs. 175 crores, they need to pass the Special Resolution, but for XYZ Private Limited, they can borrow above Rs. 175 crores without passing any resolutions.

Difference Between Loan and Deposit

Even though in the case of both loans and deposits, the money is lent by one party and received by the other, there is a difference.

• Loan: A Loan is primarily associated with borrowing money for the benefit of the mortgager and according to the mutual agreement between both parties.
• Deposit: A Deposit is associated with benefitting from additional interests, and the repayment is made on demand by following particular instructions.

Note: It is crucial to understand when a receipt is considered as a deposit and a loan and also have knowledge about who is eligible to receive it and from whom.

The Ways of Lending Money to Company by Directors

The ways through which Directors can issue Loans either from their funds or from borrowed funds to the company are listed below:

Lending from Borrowed Funds

1. If the Director is Shareholder: The sum of money received from the director will be handled as deposits from the members and must follow the provisions under Section 73 and the laws of Section 180 of the Companies Act of 2013.
2. If the director is not a Shareholder: The sum of money received from the director will be handled as deposits from the public and must follow provisions under Section 76 read besides the Companies Rules of 2014 (Acceptance of Deposits) and Section 180 of the Companies Act of 2013.

The deposits, in this case, can only be accepted by Eligible companies and attain a credit rating each year. For secured deposits, the company does not need to charge any favorable assets of deposit holders for amounts under the Deposit amount limit.

Lending from Own Funds

When a company accepts a said amount from the director of the company or the relative director of the company out of their private fund, it is handled as a Loan. This said amount does not require to follow any provision under the Sections 73 and Section 78 of the companies Act of 2013.

Although, to be at an advantage from this method, the director of the company or the relative director as per the case, must furnish an original declaration in written form to make this amount obtainable and to clarify that the amount is being issued out of the directors own fund through accepting or borrowing loans or any deposits from other companies.

Note: The company should disclose the details of the amount received from the director or a Board’s Report to apply the conditions of Section 180 of the Companies Act, 2013.

Additional Points to Remember

• All Private Companies and Public Companies should reveal their financial statements in detail through notes and provide the necessary information about the amount accepted from the director or the relative directors in the case of a Private Company.
• All companies except Government companies should file a one-time return of the outstanding receipt of the specific loan amount by the company, which does not fall under the category of deposits according to the Companies Rules of 2014 (Acceptance of Deposit). The receipt, as mentioned before, should be filed within ninety days as specified in the DPT-3 Form (mentioned as April 1st, 2014 to March 31st, 2019 in the Rules) with the additional applicable fees.
• The Loans received from the director may be secured or unsecured.
• The Unsecured Loans by the director do not have interests.
• At the time of acceptance of the deposit, the board must consider the position of the director.

Example: Suppose Mr. X becomes a Director on August 25th, 2019, and is issued a loan of Rs. 100 crores to XYZ Limited on August 03rd, 2019; this will be considered a deposit.

Depreciation Rate Chart as per Companies Act 2013 with Related Law: The depreciation rates under Companies Act, 2013 under Written Down Value (WDV) Method and Straight Lime method (SLM) along with compiled Changes to Schedule II: Useful Lives to Compute Depreciation as per section 123 of Companies Act,2013 are discussed in this article.

• Depreciation Calculator for the Companies Act 2013
• Schedule II: Useful Lives to Compute Depreciation
• Rate Chart for Depreciation as per Schedule II of The Companies Act 2013
• Some Significant Points

Depreciation Calculator for the Companies Act 2013

Straight Line Method (SLM)

One of the simplest methods for calculating depreciation as per the Companies Act is the Straight Line Method or SLM. In this method, the total depreciable amount is allocated evenly every year over the asset’s useful life.

Written Down Value Method (WDV)

It is also popularly regarded as the reducing balance method or declining balance method of calculating depreciation as per the Companies Act. In this method, we charge the depreciation rate on the reducing balance of the asset.

For assets that existed on April 1, 2014, the date of acquisition is taken into account, and the balance sheet worth is depreciated over the remaining usable economic life of the asset.

Suppose the remaining useful life of an asset is zero or nil. In that case, the amount over and above residual value may be recognised in the opening balance of retained earnings or maybe accounted off to the Profit and Loss account.

If a firm implements the Written Down Value (WDV) method of accounting, it must approximate a new percentage of depreciation to depreciate the valuable asset throughout its expected useful life, which is expressed as –

R= 100 x {1 – (s/c) ^1/n}

In which –

1. R is the Depreciation Rate in %;
2. n is the Remaining useful life of the asset in years;
3. s is the Scrap value at the end of the useful life of the asset;
4. c is the cost of the asset/Written down value of the asset.

Note: Upon transition to Schedule II, in the case of existing assets, there will be a different remaining useful life for each asset as the company may have different depreciation rates for individual assets (even within the same class).

Schedule II Useful Lives to Compute Depreciation

Part ‘A’

1. The depreciation system is the systematic allocation of an asset for its useful life for the depreciable amount. The useful life of any asset is the time period over or in which an asset is expected to be available for its use by an entity, or else some number of productions of the similar units are expected to be obtained from the mentioned asset by the entity. The depreciable amount or cost of an asset is actually the cost of an asset or other amount substituted for cost, reduced by its residual value.
2. For this Schedule, the term depreciation includes amortisation.
3. Without preconception to the preceding provisions of paragraph 1, —
   1. The useful life of a financial asset will not typically fluctuate from the useful life indicated in Part C, and the residual value of an asset will not surpass 5% of the individual item’s original or actual cost:

If a firm utilises a useful life that differs significantly from what has indicated in Part C or a residual value that deviates from the limit formulated above, the financial statements will mention such difference and justify this behalf duly supported by technical advice.

In the case of intangible assets, the relevant Indian Accounting Standards (Ind AS) will be applied. Where a company is not needed to comply with the Ind AS (Indian Accounting Standards), it will be complied with the relevant Accounting Standards under Companies (Accounting Standards) Rules of 2006, except for the case of intangible assets (Toll Roads) as created under ‘Build, Own, Operate and Transfer’, ‘Build, Operate and Transfer’, or any other type of public-private partnership route for road-related projects. The amortisation for such cases may be done as discussed below —

Mode of Amortisation

Amortisation Rate = Amortisation Amount / Cost of the Intangible Assets (A) x 100

Amortisation Amount = Cost of the Intangible Assets (A) x Actual Revenue for the Year (B) / Projected Revenue from the Intangible Asset (till the end of the concession period) (C)

Where –

1. Cost of the Intangible Assets (A) is the cost incurred by the company following the accounting standards;
2. Actual Revenue for the year (B) is the Actual revenue (Toll Charges) received during the relevant accounting year;
3. Projected Revenue from the Intangible Asset (C) is the total revenue (projected) from the Intangible Assets as subject to the project lender at the moment of financial closure or agreement.

Note: The amortisation amount or rate should ensure that the entire cost of the intangible asset is amortised over and in the concession period.

Revenue will be verified at the end of each budget year, and estimated revenue shall be efficiently adjusted to reflect such changes, if any, in the estimates leading to the collection at the end of the concession period.

Example

Cost of creation of Intangible Assets	Rs. 500/- Crores
The total period of Agreement	20 Years
Time used for the creation of Intangible Assets	2 Years
Intangible Assets to be amortised in	18 Years

If we assume that the Total revenue to be generated out of the Intangible Assets over the period would be Rs. 600 Crores, in the following way –

The Year Number	Revenue (in Rs. Crores)	Remarks
1st Year	5	Actual
2nd Year	7.5	Estimate *
3rd Year	10	Estimate *
4th Year	12.5	Estimate *
5th Year	17.5	Estimate *
6th Year	20	Estimate *
7th Year	23	Estimate *
8th Year	27	Estimate *
9th Year	31	Estimate *
10th Year	34	Estimate *
11th Year	38	Estimate *
12th Year	41	Estimate *
13th Year	46	Estimate *
14th Year	50	Estimate *
15th Year	53	Estimate *
16th Year	57	Estimate *
17th Year	60	Estimate *
18th Year	67.5	Estimate *
Total Revenue:	600

Where ‘*’ will be actual at the end of the relevant financial year.

Based on this, the charge for the first year or Year 1 would be Rs. 4.16 Crores (approximately) (i.e., Rs. 5 Crores/Rs. 600 Crores × Rs. 500 Crores), which would be applicable to the profit and loss account and 0.83% (i.e., Rs. 4.16 Crores/Rs. 500 Crores × 100) is the amortisation rate for the first year or Year 1.

When an organization estimates the amortisation value for the aforementioned Intangible Assets via any means legally permitted by the applicable Accounting Standards, it must immediately report the amount.

Part ‘B’

In this particular circumstance, regardless of the prerequisites in Schedule II, the useful life or residual value of any specific asset, as made aware for accounting purposes by a Regulatory Authority implemented under an Act of Parliament or by the Central Government, will be used to determine the depreciation to be granted for such entity.

Part ‘C’

In this, subject to Parts A and B above, the following are the useful lives of various tangible assets.

Rate Chart for Depreciation as per Schedule II of The Companies Act 2013

Nature of Assets				Useful Life (In years)	Depreciation Rate
					SLM	WDV
I.	Buildings (NESD)
	(a)	Building (other than factory buildings) with RCC Structure Frame		60	1.58%	4.87%
	(b)	Building (other than factory buildings) except RCC Frame Structure		30	3.17%	9.50%
	(c)	Buildings of factories		30	3.17%	9.50%
	(d)	Wells, tube wells, fences		5	19.00%	45.07%
	(e)	Other (including temporary structures, etc.)		3	31.67%	63.16%
II.	Bridges, bunkers, culverts, etc. (NESD)			30	3.17%	9.50%
III.	Roads (NESD)
	(a)	Carpeted Roads
		(i)	Carpeted Roads – RCC	10	9.50%	25.89%
		(ii)	Carpeted Roads – except for RCC	5	19.00%	45.07%
	(b)	Non-carpeted roads		3	31.67%	63.16%
IV.	Plant and Machinery
	(a)	General rate applicable to Plant and Machinery is not covered under Special Plant and Machinery
		(i)	Plant and Machinery other than continuous process plants are not covered under specific industries (NESD)	15	6.33%	18.10%
		(ii)	continuous process plants for which no special rate has been prescribed under (ii) below (NESD)	8	11.88%	31.23%
	(b)	Special Plant and Machinery
		(i)	Plant and Machinery related to the production & exhibition of Motion Picture Films (MPF)
			Cinematograph films—Machinery used in production and exhibition of cinematograph films, recording and reproducing equipment, developing machines, printing machines, editing machines, synchronizers and studio lights except for bulbs	13	7.31%	20.58%
			Projecting equipment for the exhibition of films	13	7.31%	20.58%
		(ii)	Plant and Machinery used for glass manufacturing
			Plant and Machinery except for direct fire glass melting furnaces —Recuperative and regenerative glass melting furnaces	13	7.31%	20.58%
			Plant and Machinery except for direct fire glass melting furnaces —Moulds (NESD)	8	11.88%	31.23%
			Float Glass Melting Furnaces (NESD)	10	9.50%	25.89%
		(iii)	Plant and Machinery used in mines & quarries—Portable underground machinery and earthmoving machinery used in open cast mining (NESD)	8	11.88%	31.23%
		(iv)	Plant and Machinery used in Telecommunications (NESD)
			Towers	18	5.28%	15.33%
			Telecom transceivers, switching centres, transmission & other network equipment	13	7.31%	20.58%
			Telecom – Ducts, Cables and optical fibre	18	5.28%	15.33%
			Satellites	18	5.28%	15.33%
		(v)	Plant and Machinery used in the exploration, production and refining oil and gas (NESD)
			Refineries	25	3.80%	11.29%
			Oil and gas assets (include wells), processing plant and facilities	25	3.80%	11.29%
			Petrochemical Plant	25	3.80%	11.29%
			Storage tanks and related equipment	25	3.80%	11.29%
			Pipelines	30	3.17%	9.50%
			Drilling Rig	30	3.17%	9.50%
			Field operations (above the ground) Portable boilers, drilling tools, well-head tanks, etc.	8	11.88%	31.23%
			Loggers	8	11.88%	31.23%
		(vi)	Plant and Machinery used in the generation, transmission and distribution of power (NESD)
			Thermal/ Gas/ Combined Cycle Power Generation Plant	40	2.38%	7.22%
			Hydro Power Generation Plant	40	2.38%	7.22%
			Nuclear Power Generation Plant	40	2.38%	7.22%
			Transmission lines, cables and other network assets	40	2.38%	7.22%
			Wind Power Generation Plant	22	4.32%	12.73%
			Electric Distribution Plant	35	2.71%	8.20%
			Gas Storage and Distribution Plant	30	3.17%	9.50%
			Water Distribution Plant including pipelines	30	3.17%	9.50%
		(vii)	Plant and Machinery used in the manufacturing of steel
			Sinter Plant	20	4.75%	13.91%
			Blast Furnace	20	4.75%	13.91%
			Coke Ovens	20	4.75%	13.91%
			Rolling mill in steel plant	20	4.75%	13.91%
			Basic oxygen Furnace Converter	25	3.80%	11.29%
		(viii)	Plant and Machinery used in the manufacturing of non-ferrous metals
			Metal pot line (NESD)	40	2.38%	7.22%
			Bauxite crushing and grinding section (NESD)	40	2.38%	7.22%
			Digester Section (NESD)	40	2.38%	7.22%
			Turbine (NESD)	40	2.38%	7.22%
			Equipment for Calcination (NESD)	40	2.38%	7.22%
			Copper Smelter (NESD)	40	2.38%	7.22%
			Roll Grinder	40	2.38%	7.22%
			Soaking Pit	30	3.17%	9.50%
			Annealing Furnace	30	3.17%	9.50%
			Rolling Mills	30	3.17%	9.50%
			Equipment for Scalping, Slitting, etc. (NESD)	30	3.17%	9.50%
			Ripper Dozer, Surface Miner, etc., used in mines	25	3.80%	11.29%
			Copper refining plant (NESD)	25	3.80%	11.29%
		(ix)	Plant and Machinery used for medical and surgical operations (NESD)
			Electrical Machinery, X-ray, electrotherapeutic apparatus and accessories to it, medical, diagnostic equipment, namely, Cat-scan, Ultrasound Machines, ECG Monitors, etc.	13	7.31%	20.58%
			Other Equipment.	15	6.33%	18.10%
		(x)	Plant and Machinery used in manufacturing pharmaceuticals and chemicals (NESD)
			Reactors	20	4.75%	13.91%
			Distillation Columns	20	4.75%	13.91%
			Drying equipment/Centrifuges and Decanters	20	4.75%	13.91%
			Vessel/storage tanks	20	4.75%	13.91%
		(xi)	Plant and Machinery used in civil construction
			Concreting, Crushing, Piling Equipment and Road Making Equipment	12	7.92%	22.09%
			Heavy Lift Equipment—
			–        Cranes with capacity of more than 100 tons	20	4.75%	13.91%
			–        Cranes with capacity of less than 100 tons	15	6.33%	18.10%
			Transmission line, Tunnelling Equipment (NESD)	10	9.50%	25.89%
			Earth-moving equipment	9	10.56%	28.31%
			Others including Material Handling /Pipeline/Welding Equipment (NESD)	12	7.92%	22.09%
		(xii)	Plant and Machinery used for salt works (NESD)	15	6.33%	18.10%
V.	Furniture and fittings (NESD)
	(a)	General furniture and fittings		10	9.50%	25.89%
	(b)	Furniture and fittings used in schools, colleges and other educational institutions, libraries; welfare centres; meeting halls, hotels, restaurants and boarding houses, cinema houses; theatres and circuses; and furniture and fittings let out on hire for use on the occasion of marriages and other such functions.		8	11.88%	31.23%
VI.	Motor Vehicles (NESD)
	(a)	Motor cycles, scooters, mopeds, etc.		10	9.50%	25.89%
	(b)	Motor buses, motor cars, motor taxies and motor lorries used in a business of running them on hire		6	15.83%	39.30%
	(c)	Motor buses, motor cars and motor lorries other than those used in a business of running them on hire		8	11.88%	31.23%
	(d)	Motor tractors, harvesting combines and heavy vehicles		8	11.88%	31.23%
	(e)	Electrically operated vehicles including the battery powered or fuel cell powered vehicles		8	11.88%	31.23%
VII.	Ships (NESD)
	(a)	Ocean-going ships
		(i)	Bulk Carriers & liner vessels	25	3.80%	11.29%
		(ii)	Crude tankers, product carriers & easy chemical carriers with or without conventional tank coatings.	20	4.75%	13.91%
		(iii)	Chemicals and Acid Carriers
			With Stainless steel tanks	25	3.80%	11.29%
			With other tanks	20	4.75%	13.91%
		(iv)	Liquified gas carriers	30	3.17%	9.50%
		(v)	Conventional large passenger vessels that are used for cruise purpose also	30	3.17%	9.50%
		(vi)	Coastal service ships of all categories	30	3.17%	9.50%
		(vii)	Offshore supply and support vessels	20	4.75%	13.91%
		(viii)	Catamarans and other high-speed passenger boats or ships	20	4.75%	13.91%
		(ix)	Hovercrafts	15	6.33%	18.10%
		(x)	Drill ships	25	3.80%	11.29%
		(xi)	Fishing vessels with wooden hulls	10	9.50%	25.89%
		(xii)	Dredgers, barges, tugs, survey launches and other similar ships used mainly for dredging purposes	14	6.79%	19.26%
	(b)	Vessels ordinarily operating on inland waters—
		(i)	Speed boats	13	7.31%	20.58%
		(ii)	Other vessels	28	3.39%	10.15%
VIII.	Aircraft or Helicopters (NESD)			20	4.75%	13.91%
IX.	Railway sidings, locomotives, rolling stocks, tramways and railways used by concerns, excluding railway concerns (NESD)			15	6.33%	18.10%
X.	Ropeway structures (NESD)			15	6.33%	18.10%
XI.	Office equipment (NESD)			5	19.00%	45.07%
XII.	Computers and data processing units (NESD)
	(a)	Servers and networks		6	15.83%	39.30%
	(b)	End-user devices, such as desktops, laptops, etc.		3	31.67%	63.16%
XIII.	Laboratory equipment (NESD)
	(a)	General laboratory equipment		10	9.50%	25.89%
	(b)	Laboratory equipment used in educational institutions		5	19.00%	45.07%
XIV.	Electrical Installations and Equipment (NESD)			10	9.50%	25.89%
XV.	Hydraulic works, pipelines and sluices (NESD)			15	6.33%	18.10%

Some Significant Points

1. “Factory buildings” does not include the offices, godowns and staff quarters.
2. Where, during any financial year, an addition has been made to any asset, or if where any asset has been sold, demolished, destroyed, or discarded, the depreciation on such assets will be calculated on a pro-rata basis from the date of such type of addition or, as the scenario may be, up to the date on which such kind of asset has been sold, demolished, destroyed, or discarded.
3. The following information will also be disclosed in the accounts, that include –
   1. Depreciation methods used; and
   2. The useful lives of the assets for calculating depreciation if they do not match with the useful life specified in Schedule II.
4. Useful life as specified in Part C of Schedule II is for the entire asset. Where the cost of a part of the asset is significant to the total cost of the asset and the useful life of that part is different from the actual useful life of the remaining asset, the useful life of that significant part will be determined separately. The requirement is under subparagraph 4.1. shall be voluntary regarding the financial year commencing on or after April 1, 2014, and mandatory for financial statements regarding financial years beginning on or after April 1, 2015.
5. The useful lives of assets that work on a shift basis are specified in Schedule II based on their single shift working. Leaving for assets in respect of which no extra shift depreciation is permitted (indicated by NESD in Part C above), if an asset is used for any time during the year for a double shift, the depreciation will increase by 50% for that time period. In the case of the triple shift, the depreciation shall be calculated based on 100% for that period.
6. On the date at which this Schedule comes into effect, the carrying amount of the asset as on that particular date –
   1. after retaining the residual value (that can be recognised) in the opening balance of the retained earnings where the remaining useful life of an asset is zero or nil; and
   2. will be depreciated over the remaining useful life of the asset as per Schedule II.
   3. “Continuous process plant” is a plant that is needed and designed to operate for 24 hours a day.

 

 

Internal Audit under Section 138 of Companies Act, 2013: The internal audit assesses a company’s interior control, inclusive of its corporate governance and accounting methods. These audits pledge compliance with laws and regulations and help to maintain precise and timely financial reporting and data collection.

• According to section 138 of the Indian Companies Act, 2013 along with Rule 13 Of Companies (Accounts) Rules 2014
• Significant points

According to Section 138 of Indian Companies Act, 2013 Along with Rule 13 Of Companies (Accounts) Rules 2014

A particular specific class requires the appointment of Internal Auditors of companies. An excerpt of Rule 13 of Companies (Accounts) Rules, 2014 is mentioned below-

“13. Companies required to appoint internal auditor”: The companies which are required to appoint or hire an internal auditor are listed below:

Serial number	Companies required to appoint an internal auditor	Applicability
(a)	Every listed company	Always applicable
(b)	Every unlisted public company	Paid-up share capital during the prior fiscal year is fifty crore rupees or more. Turnover income during the prior fiscal year is two hundred crore rupees or more. Borrowings from public financial institutions or banks during the prior fiscal year exceed the amount of one hundred crore rupees or higher at any point of time. Outstanding deposits during the prior fiscal year is twenty-five crore rupees or more at any point in time.
(c)	All unlisted private company	turnover is of two hundred crore rupees or higher during the prior fiscal year Borrowings from banks or any public financial institutions exceed the margin of one hundred crore rupees or higher at any point of time through the previous fiscal year.

Given that any existing company coming under any of the conditions mentioned above will comply with the necessities of section 138 and the said rule within six months of the foundation of such section.

Clarification: (For the persistence of this rule)

• There is no compulsion regarding the internal auditor being the employee of the company.
• The Audit Committee of the company should consult with the Internal Auditor, formulate the scope, methodology, functioning, and periodicity for conducting the internal audit.
• The Internal auditor might be a Chartered Accountant (CA) or Cost and Works Accountancy (CWA), or any other professional. The duties and responsibilities are specified neither in the rules nor in the Act. So, therefore, even if the regulations and Act state that the appointment of Internal Auditor is mandatory, the same rules and Act also provides the option for the companies to appoint any person as internal auditors”.

Shortcut

I-LCD: I stands for Income, L for Loan, C for Capital, and D for Deposit. This section provides indirect ways and opportunities to all internal auditors, and hence it is known as the auditor’s gift.

Note: In the case of listed companies, I-LCD is always applicable. In the case of unlisted companies (public and private), I-LCD is not always suitable.

Significant Points

• The prior fiscal year is to be considered for the checking of the limits as mentioned above. For example, for checking the applicability of Section 138 of the Indian Companies Act 2013 (Internal Auditor) for the fiscal year 2020-21, the fiscal year 2019-20 is to be taken into attention.
• To easily remember the limits mentioned above, the limit decreasing method in the same proportion should be considered, i.e., the loan is half of the income, capital is half of the loan, and henceforth.
• The listed companies have to obey Section 138 of the companies act 2013 regardless of the above limit.
• For private unlisted companies, there are two limits to check out the section’s applicability, namely, Income and Loan.
• An internal auditor should be a chartered accountant or a cost accountant, or such other professional selected by the board to conduct the company’s Internal Audit of functions and activities.

For easy accessibility, the excerpt of Section 138 of the Companies Act, 2013 is reproduced:

Section 138, Internal audit

1. The mentioned class or classes of companies will be required to appoint an internal auditor, who will be a chartered accountant or a cost accountant, or any other professional decided by the board to conduct an indoor audit of the functions and activities for the corporate.
2. The Central Government, following specific rules, may prescribe the manner and the intervals in which the internal audit will be conducted and reported to the board.