Transparency and Disclosures – Company Law Important Questions
During the financial year 2016-17, the board of directors of CARE Automation Services Limited has issued shares to employees under Employees Stock Option Scheme. Ms. Excellent has recently joined the Board of the company and asks you, the Secretary of the company, as to what details are to be disclosed in the Board’s Report for the year ending 31st March 2017 in this regard. Advise her. (December 2017)(4 marks)
As per Section 62( 1)( b) of the Act read with Rule 12(9) of the Companies (Share Capital and Debentures) Rules, 2014 provides that the Board of directors, shall, inter alia, disclose in the Directors’ Report for the year, the following details of the Employees Stock Option Scheme:
(a) options granted;
(b) options vested;
(c) options exercised;
(d) the total number of shares arising as a result of the exercise of option;
(e) options lapsed;
(f) the exercise price;
(g) variation of terms of options;
(h) money realized by exercise of options;
(i) the total number of options in force;
(j) employee wise details of options granted to:
- key managerial personnel;
- any other employee who receives a grant of options in any one year of option amounting to five percent or more of options granted during that year;
- identified employees who were granted an option, during any one year, equal to or exceeding one percent of the issued capital (ex¬cluding outstanding warrants and conversions) of the company at the time of grant.
The Directors Report of Ayush Limited for the financial year ended 31st March 2015 has been dated 15th May 2015, whereas the Auditor’s Report for the same period is dated 16th May 2015. Is this in order? Explain.
(June 2013) (4 marks)
- As per the Section 134(3) (f), there shall be attached to statements laid before a company in general meeting, a report by its Board of Directors, which shall include explanations or comments by the Board on every qualification, reservation, or adverse remark or disclaimer made by the auditor in his report.
- Ideally, the date of the Director’s Report should be on the same date or later than the date of the Auditors Report.
- If the Auditors Report is subsequent to the date of Directors Report it would not be possible for the Board to comply with the requirements of Section 134(3)(f).
Hence, dating of Directors Report earlier than Auditors Report is not in order.
Phosphate Limited has suffered a major loss of I3VR 100 Crore in May 2018 on the dealing of commodity exchange. The annual accounts and Board’s Report for the year 2017-2018 are under finalization. The Chief Financial Officer (CFO) of the company does not want to disclose this loss in the Board’s Report for the Financial Year 2017-18 because this loss does not pertain to said financial year. Is the view of the CFO correct? The Board of Directors seeks your advice in this matter. (June 2018) (4 marks)
- According to Section 128(1) of the Companies Act, 2013, every company shall prepare and keep at its registered office books of account and other relevant books and papers and financial statement for every financial year which gives a true and fair view of the state of the affairs of the company.
- The books and papers and financial statements are said to be given a true and fair view of the financial statements comply with the accounting standard.
- Further, Section 134 (3) provides that a Board’s Report shall include material changes and commitments, if any, affecting the financial position of the company which has occurred between the end of the financial year of the company to which the financial statements relate and the date of the report.
Hence, an appropriate disclosure should be made in the report of the board of directors.
Write a short note on Directors Responsibility Statement. (December 2013) (4 marks)
The board of directors of Charming Limited seeks your advice on the matters to be included in the Directors’ Responsibility Statement forming part of the company’s annual report to shareholders. As the Company Secretary of Charming Limited, advise the Board. (June 2015) (4 marks)
Section 134(5) of the Act specifically provides that the Directors’ Responsibility Statement shall set out the following affirmations:
- in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;
- the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable. and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period;
- the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;
- the directors had prepared the annual accounts on a going concern basis; and
- the directors, in the case of a listed company, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively; and
- the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
Narrate briefly the importance of the Corporate Governance Report and state who can certify such report. (December 2014) (4 marks)
- Corporate Governance safeguards not only the management but the interests of the stakeholders as well and fosters the economic progress of India in the roaring economies of the world.
- The requirement of Corporate Governance for listed entities in India specified by SEBI through the SEBI (LODR) Regulations, 2015.
- The Company shall obtain the certificate from either the Auditors or Practising Company Secretaries regarding the compliance of conditions of corporate governance of the listing regulations and annex the certificate with the director’s report, which is sent annually to all the shareholders of the Company.
- The same certificate shall also be sent to the Stock Exchanges along with the annual report filed by the Company.
- The reference of inclusion of report on corporate governance in the Annual report should be made in the Board’s report and as a good corporate practice, information relating to any non-compliance of the requirements of the Listing Regulations should be incorporated in the Board’s Report.
Pioneer Fisheries Limited has borrowed an amount of INR 50 Crore from a financial institution. The annual general meeting of the company was held on 1st September 2015. Examining the provisions of the Companies Act, 2013, state as to who will sign and certify the annual return while filing the same with the Registrar of Companies after the Annual General Meeting. (June 2016) (4 marks)
1. As per Section 92 of the Companies Act, 2013, every company is required to prepare the Annual Return in Form No. MGT-7 containing the particulars as they stood at the close of the financial year. The Annual Return is to be filed with the Registrar within 60 days from the date on which the Annual General Meeting (AGM) is actually held or from the last day on which AGM should have been held.
2. For foreign companies, the filing is to be done in FC-4 and for other companies, the same is to be done in MGT-7.
3. The signing of Annual Return:
- Under Section 92(1) of the Act, the Annual Return is required to be signed both by a director and the Company Secretary, or where there is no Company Secretary, by a Company Secretary in Practice.
- The Annual Return of One Person Company and Small Compa¬ny shall be signed by the Company Secretary or where there is no company secretary, by the director of the company. The Act authorizes the Central Government.
3. Certification of Annual Return:
- Certification of Annual Return under sub-section (2) of section 92 of the Act read with rule 11(2) of the Companies (Management and Administration) Rules, 2014, the Annual Return of a listed company or of a company having a paid-up share capital of Rs. 10 Crores or more or turnover of Rs. 50 Crores or more shall be certified by a Company Secretary in Practice in Form No. MGT- 8.
- The certificate shall state that the annual return discloses the facts correctly and adequately and that the company has complied with all the provisions of this Act.
- In terms of Section 92(6) of the Companies Act, 2013, if a Company Secretary in Practice certifies the annual return otherwise than in conformity with the requirements of Section 92 or the rules made thereunder, he shall be liable to a penalty of two lakh rupees.
Fabulous Limited is in the process of finalization of its annual return. It is a listed company with paid-up capital of INR 1 crore. The company seeks your advice on the following:
(1) Who will sign the return on behalf of the company?
(2) What are the requirements of certification of annual return by a Prac¬tising Company Secretary? (June 2018) (4 marks)
As per Section 92 of the Companies Act, 2013, every company is required to prepare the Annual Return in Form No. MGT-7 containing the particulars as they stood at the close of the financial year.
The Annual Return is to be filed with the Registrar within 60 days from the date on which the Annual General Meeting (AGM) is actually held or from the last day on which AGM should have been held.
1. Signing of Annual Return: Under section 92(1) of the Act, the Annual Return is required to be signed both by a director and the Company Secretary, or where there is no Company Secretary, by a Company Secretary in Practice. The Annual Return of One Person Company and Small Company shall be signed by the Company Secretary or where there is no company secretary, by the director of the company. The Act authorizes the Central Government.
2. Certification of Annual Return under sub-section (2) of section 92 of the Act read with Rule 11 (2) of the Companies (Management and Administration) Rules, 2014, the Annual Return of a listed company or of a company having a paid-up share capital of Rs. 10 Crores or more or turnover of Rs. 50 Crores or more shall be certified by a Company Secretary in Practice in the Form No. MGT- 8.
Priya, a nominee director on the Board of Aroma Limited, a listed company, informed the Board of directors during a Board Meeting that the next annual report of the company shall contain a ‘Management Discussion and Analysis Report’. You being the Company Secretary have been asked by the Board to prepare the said report. State the matters you would include in the report. (December 2016) (4 marks)
Management Discussion and Analysis:
As part of the Annual Report, the “Management Discussion and Analysis Report” should form part of the Annual Report to the Shareholders.
1. This Management Discussion & Analysis should include discussion on the following matters within the limits set by the Company’s Competitive Position:
(a) Industry structure and developments.
(b) Opportunities and Threats.
(c) Segment-wise or product-wise performance.
(e) Risks and concerns.
(f) Internal control systems and their adequacy.
(g) Discussion on financial performance with respect to operational performance.
(h) Material developments in Human Resources /Industrial Relations front, including a number of people employed.
(i) details of significant changes (i.e. change of 25% or more as com¬pared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefor, including:
- Debtors Turnover
- Inventory Turnover
- Interest Coverage Ratio
- Current Ratio
- Debt Equity Ratio
- Operating Profit Margin (%)
- Net Profit Margin (%), or sector-specific equivalent ratios, as applicable.
1. details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof. (Notified on 9th May 2018, applicable in respect of Annual reports filed for the year ended March 31, 2019, and thereafter).
2. Disclosure of Accounting Treatment:
Where in the preparation of financial statements, a treatment different from that prescribed in an Accounting Standard has been followed, the fact shall be disclosed in the financial statements, together with the management’s explanation as to why it believes such alternative treatment is more representative of the true and fair view of the underlying business transaction
Viral, a person of 21 years of age is pursuing MBA (Finance) courses at a reputed recognized business school. He is not a shat holler of Grow (Pri¬vate) Limited. He wishes to inspect the register of investments in securities not held in the company’s name and an annual return of Grow (Private) Limited. He also wants to make copies thereof. Examining the relevant provisions of the Companies Act, 2013 ‘ lv e, Viral whether he n oi It be successful in this regard. (June 2016) (4 marks)
1. Inspection and Copies of “Register of Investment not held in Company’s Name”:
As per section 187, any shares of securities in which investments have been made by a company are not held by it in its own name, the company shall maintain a register which shall contain such particulars as may be prescribed and such register shall be open to inspection by any member or debenture- holder of the company without any charge during business hours subject to such reasonable restriction as the company may by its articles or in general meeting impose.
As per the given facts of the case, Virat is not a shareholder of Grow (Private) Limited and hence he cannot inspect or make copies of “Register of Investment not held in Company’s Name
2. Inspection and Copies of “Annual Return”:
The register of security holders and their indices, except when they are closed and copies of all the returns shall be open for inspection by any member, debenture-holder, other security holders, or the beneficial owner, during business hours without payment of any fees. Any other person can also inspect the same but on payment of prescribed fees.
Any such member, debenture-holder, other security holders of beneficial owner or any other person may:
(a) Take extract from any register or index or return without payment of any fee; or
(b) Require a copy of any such register or entries therein or return on payment of such fees as may be prescribed.
Thus, Virat can inspect and can also take copies of Annual Return but on payment of prescribed fees even though he is not the shareholder of Grow (Private) Limited.