Audit - Important Provisions of Companies Act in 2018-19 1

Organised
by
ACCOUNTING AND AUDITING COMMITTEE
of
BOMBAY CHARTERED ACCOUNTANTS’ SOCIETY
Presentation
by
Paresh H. Clerk
BANSI S. MEHTA & CO.
1 Evolution and Objective of the Companies (Amendment) Act, 2017
[the 2017 Amendment Act]
2
Evolution and Objective of the Companies (Amentment) Act, 2019
[the 2019 Amendment Act]
3 Important Provisions under the Amendment
Holding Company
Subsidiary Company
Associate Company
Associate Company
Financial Year
Financial Statement
Bansi S. Mehta & Co. 2

September 6, 2019
Company Incorporation
Significant Beneficial Ownership
Company Deposits
Managerial Remuneration
Loan to Directors
Audit Committee

September 6, 2019
Declaration of Dividend
Corporate Social Responsibility
Registration of Charges
Audit and Auditors - Resignation of auditor

NFRA
Fines to Penalties and Others

September 6, 2019
Constitution of Introduction of Referred to
Company Law The Companies Standing Report
Committee (Amendment) Committee on submitted by
Bill, 2016 Finance (SCF) SCF
7
16 March October
2015 December
2016 2012
2016
Bill passed by 27 19
Passed by
Loksabha July December
Rajya Sabha
2017 2017
Presidential 3 January Notified Various

Assent 2018 dates
September 6, 2019
Objective
The 2017 Amendment Act broadly aims at:

 Addressing difficulties in implementation owing to stringent compliance requirements;
 Some of those were addressed by way of Rules, now in the provisions of the Act
 Facilitating ease of doing business in order to promote growth with employment;
 Harmonisation with the Accounting Standards, the Securities and Exchange Board of
India Act, 1992 and the regulations made thereunder, and the Reserve Bank of India Act,
1934 and the regulations made thereunder;
 Rectifying omissions and inconsistencies in the Act

September 6, 2019
Constitution/ Companies Introduction of
Report of (Amendment) Companies Companies Companies
Committee Ordinance, (Amendment) (Amendment) (Amendment)
2018 Bill, 2019 Ordinance, 2019 Second
Ordinance, 2019
12 21
January February
July/ 2 Nov 4 Jan 2019 2019
August 2018 2019
2018
27 Passed by 30
Introduction of the Bill passed by
July Rajya July 2019
Companies Lok Sabha
2019 Sabha
(Amendment) Bill,
2019
31 July
Presidential 2019
Assent
September 6, 2019
Objective
The 2019 Amendment Act broadly aims at:
 To review the existing provisions of the Act dealing with offences

 Continue for serious offences (Non-compoundable)
 Technical and procedural lapses shifted to ROC (compoundable)
 To make recommendations to promote better corporate compliance;
September 6, 2019 Bansi S. Mehta & Co. 8

 Section 2 (46)
 “Holding company”, in relation one or more other companies,
means ‘a company of which such companies are subsidiary
companies.’
 An explanation is added - for the purpose of this definition, a
company includes body corporate
 Implications –
• to ascertain the status of a foreign holding company and to
determine the applicability of the Act.
• Corrects the disconnect between the definition of a subsidiary
company and holding company
 Effective from 9 February 2018

 Section 2 (87)
 “Subsidiary company” or “subsidiary” in relation any other company
(that is to say the holding company), means a company in which the
holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total share capital
total voting power either at its own or together with one or more of its
subsidiary companies:
****Provided that such class or classes of holding companies as may be

prescribed shall not have layers of subsidiaries beyond such numbers as
may be prescribed……..
 Effective from 7 May 2018

 Section 2(6) – Effective from 7 May 2018
 “Associate company”, in relation to another company, means ‘a
company in which that other company has a significant influence, but
which is not a subsidiary company of the company having such
influence and includes a joint venture company.’
 AS 23 defines the term “associate” as ‘an enterprise in which the
investor has significant influence and which is neither a subsidiary nor a
joint venture of the investor.’
 Under AS 23, ‘significant influence’ is power to participate in the
financial and/ or operating policy decisions of the investee but not
control over those polices.
o If an investor holding, directly or indirectly, through subsidiary(ies), 20% or
more of the voting power of the investee, it is presumed that it has significant
influence

September 6, 2019
 The term ‘significant influence’ is explained to be control of at
least twenty per cent of total share capital voting power, or control
of or participation in business decisions under an agreement.
The term joint venture is also explained to mean ‘a joint

arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the arrangement’.
 Effective from 7 May 2018

 Section 2(41)
 Uniform FY - April to March is introduced – a period ending
 Exceptions :
 Companies incorporated on or after the 1st day of January of a
year to have the period ending on the 31st day of March of the
following year as its FY, that is period of more than twelve
months.
 Holding company or a subsidiary or associate company of a
company incorporated outside India and which is required to
follow a different financial year for consolidation of its accounts
outside India, Central Government on application may allow any
period (this period need not be of a year)
Companies Amendment Act, 2017 Associate
Companies Amendment Act, 2019 Company of a Company incorporated outside
“Central Government “ has been substituted for India from now onwards can apply to Tribunal
the words “the Tribunal” - Effective 2 Nov 2018 for a different Financial Year – Effective 9 Feb
2018
September 6, 2019
Financial Statement is defined to include :
 Section 2(40)
Profit and Loss
account/Income
Balance Sheet and Expenditure
Account
Any
Statement of explanatory
Cash Flow
Change in Equity, Note annexed
Statement
if applicable to, or forming
part of
 Financial Statement with respect to One Person Company, Small company and
Dormant company as also private company, if it is a start-up, may not include the
Cash Flow statement

 Section 129
Financial Statements
to give true and to comply with to be as per

fair view of the accounting Schedule III of
state of affairs of standards the Companies
the Company Act, 2013
Companies Amendment Act, 2017
While preparing the consolidated financial statements, the main
concern was whether to include associate companies or not, if a
company does not have subsidiary. After the amendment, the
concern gets addressed as the term “associate companies” (20 %
Voting power) is inserted in addition to the subsidiaries – the
explanation that ‘subsidiary includes associate company and joint
September 6, 2019 venture’ is deleted - 7 May 2018
Section 134(1) – Effective from 31 July 2018
Approval of Financial Statements
To be signed by:
 Chairperson or 2 directors (incl 1 MD)
 CEO (even if he is not a director)
 CFO
 CS

September 6, 2019
Companies (Incorporation) 3rd Amendment Rules, 2018
Rule / Date Particulars / Amendment
Rule 3 One Person Company (OPC)
27 July 2018  The term ‘resident in India’ would now mean a person who has
stayed in India for a period of not less than 182 days during the
immediately preceding financial year (FY) (earlier it was
calendar year);
 For the purposes of this Rule, while counting the number of
days of stay of a director in India for the FY 2018-19, any
period of stay from 1st January 2018 till the date of notification
of this Rule should also be counted.
Rule 15 Declaration from Subscribers and 1st Directors
27 July 2018 A declaration (earlier Affidavit) has to be submitted by each of the

Subscribers to the Memorandum and each of the 1st Directors
named in the Articles in Form No.INC-9.
Companies (Incorporation) 4th Amendment Rules, 2018
Rule 23A Declaration at the time of commencement of business
18 Dec  These Rules require that the declaration under section 10A (as inserted by the Companies
2018 (Amendment) Ordinance, 2018) by a director should be in Form INC- 20A and the
contents of the said form shall be verified by a Company Secretary or a Chartered
Accountant or a Cost Accountant, in practice;
 In case of a company pursuing objects requiring registration or approval from any
sectoral regulators such as RBI, SEBI etc., the registration or approval, as the case may
be, from such regulator shall also be obtained and attached with the declaration.
Rule 41 Application under Section 14 for conversion of public company into private
company
18 Dec  The company should within 60 days of passing a special resolution should file e- Form
2018 No. RD-1 along with the requisite documents;
 At least 21 days before the date of filing of the application advertise in Form INC 25A,
in a vernacular newspaper in the principal vernacular language in the district and in
English language in an English newspaper, widely circulated in the State in which the
registered office of the company is situated.
Significant Beneficial Ownership…
Rules notified to meet requirements under Section 90 (Investigation of

Beneficial Ownership of shares in certain cases) of the Act.
 The Rules
• states that “significant beneficial owner” (SBO) means an individual referred to
in Section 90 holding ultimate beneficial interest of not less than 10% but whose
name is not entered in the register of members of a company as the holder of
such shares
• provide procedure for filing declaration of beneficial interest by the significant
owner, for filing of return and maintenance of register of companies on such
declaration
• provide forms for filing the declaration and return.

…Significant Beneficial Ownership…
Rules have been amended to bring more clarity, instill transparency and
accountability in corporate set up
 Definition of SBO revised. The determination of individual as SBO is now based
on direct and indirect holding of right or entitlement in the reporting entity. The
Rules lays down the explanations in this regard.
 Definitions such as reporting company, control, majority stake have been inserted.
 Every reporting company has to take necessary steps to find out if there is any
individual who is a SBO and identify him and cause him to make a declaration in
Form BEN-1 within 90 days from the date of commencement of the Amendment
Rules and within 30 days in case of fresh acquisition or change in SBO.
 The reporting company should report the disclosure of SBO received from SBO to
Registrar in Form BEN-2, within 30 days of receipt

…Significant Beneficial Ownership…
Exemptions
 Investor Education and Protection Fund
 Its Holding reporting company (as per details reported in Form
BEN-2)
 CG, SG or any local Authority;
 Reporting company, or a body corporate, or an entity, controlled by
the CG or by any SG or partly by the CG and partly by one or more
SGs;
 SEBI registered Investment Vehicles such as mutual funds, AIF,
REITs, InVITs regulated by the SEBI
 Investment Vehicles regulated by RBI or IRDAI or PFRDAI
Companies (Acceptance of Deposits) Amendment Rules, 2018 –
Effective from 15 August 2018
Rule 4 Form and particulars of advertisements or circulars.
 A certificate of the statutory auditor of the company is required
to be attached in Form DPT-1, stating that the company has not
committed default in the repayment of deposits or in the
payment of interest on deposits accepted either before or after
payment of interest on deposits accepted, and
 In case a company had committed a default in the repayment of
deposits accepted or in the payment of interest on such deposits,
a certificate of the statutory auditor of the company is required
to be attached in Form DPT-1, stating that the company had
made good the default and a period of 5 years has lapsed since
the date of making good the default as the case may be.

Companies (Acceptance of Deposits) Amendment Rules, 2019

Rule 5 Manner and extent of deposit insurance
This Rule is omitted
Rule 13 Maintenance of liquid assets and creation of Deposit
Repayment Reserve (DRR) Account
The amount in DRR cannot below 20%, of the amount of
deposits maturing during the FY

Companies (Acceptance of Deposits) Amendment Rules, 2019

Rule 2 Definitions
27th January Any amount received by a company from ‘Real Estate Investment Trusts’
2019 will not be treated as Deposits.
Rule 16 Return of deposits to be filed with the Registrar
27th January It has clarified that, every Company other than Government company must
2019 report ‘Deposit or particulars of Transaction not considered as deposit or
both’ in e-form DPT-3
Rule 16A Disclosures in the Financial Statement (FS)
27th January  Every Company other than Government Company, is required to file a
2019 “onetime return” of outstanding receipt of money or loan by a Company
which are not considered as Deposits, from 1st April 2014 till the date
of publication of Amendment Rules in the Official Gazette.
 Reporting should be done within 90 days from 22 Jan 2019 (revised to
31 March 2019) in e-form DPT-3 i.e. by 21st April 2019 (revised to
within 30 days of deployment of DPT 3)

 Companies (Appointment and Remuneration of Managerial Personnel)
Amendment Rules, 2018
Rule 6 Application to the CG
12 September The heading has been substituted and it now reads as ‘Parameters for
2018 consideration of remuneration’
Rule 7 Fees
12 September Sub-rule (2) pertains to conditions for companies (other than listed companies
2018 and subsidiary of a listed company) to pay remuneration to its managerial
personnel, in the event of no profit or inadequate profit beyond ceiling
specified in Section II, Part II of Schedule V (i.e. 11 %) without the approval
of CG approval. This sub-rule is deleted
FormMR-2
12 September Application to the CG for approval of appointment or reappointment and
2018 remuneration or increase in remuneration or waiver for excess or over
payment to managing director or whole time director or manager and
commission or remuneration to directors under the provisions of Chapter XIII
is substituted Bansi S. Mehta & Co. 25
September 6, 2019
Amendment to Schedule V
Schedule V pertains to conditions to be fulfilled for the appointment of a
Managing Director (MD) or Whole-time Director (WTD) or a manager
without the approval of the CG. Among other matters, amendment to
Schedule V pertains to –
 Offence under the various Acts to be considered for disqualification of
appointment now includes the following Acts-
 Insolvency and Bankruptcy Code, 2016
 Goods and Services Tax Act, 2017
 Fugitive Economic Offenders Act, 2018
 If any person is a managerial person in more than one company he will be
eligible to be appointed as a MD,WTD or Manager in the company.
 If any special resolution has been passed by the shareholder, they can fix
any remuneration (earlier double) in excess of the limit prescribed in
Section II of part II of Schedule V
Amendment to Schedule V
 If any company makes any default in repayment of its debt, then the
company should obtain prior approval from secured creditors before
obtaining the approval in the general meeting.
 A sick company for whom a scheme of revival or rehabilitation has been
ordered by the Board for Industrial and Financial Reconstruction or
National Company Law Tribunal, may for a period of 5 years from the date
of sanction of scheme of revival, may pay any remuneration to its
managerial persons
 A company in a Special Economic Zone can pay any amount of
remuneration to its managerial person.
 Calculation of ‘Net Profits’ should additionally exclude any amount
representing unrealized gains, notional gains or revaluation of assets.
 As per 197(16), to mention in Audit report whether provisions of sec
197 are complied with
Section 185 (2) of Companies Act, 2013 –Effective from 7 May 2018
Loan can be given by company to any person in whom directors are interested
after fulfilling the conditions
Conditions
Loans are utilised by the

Special Resolution In
borrowing company for
General Meeting
its principal business

 Amendment to Sec 177 - Effective from 7 May 2018
 Board of every Listed Public Company and such other classes
should constitute an Audit Committee (AC)
 Transaction (involving an amount upto Rs. 1 crore) is voidable

at the option of the AC, if entered without its approval and not
ratified subsequently
 AC could give recommendations to Board for transactions not

covered u/s. 188 in case it does not approve the transaction
 No approval of AC in case of RPTs between Holding Company

and Wholly Owned Subsidiary (other than those referred to in
u/s. 188)

 Section 123 - a proviso is added to provide that certain items such as
unrealised gains, notional gains or revaluation of assets and any fair value
changes, should be excluded while computing profits.
 Interim Dividend -
 Section 123(3) has now been substituted which clarifies that interim
dividend can be paid both during the financial year as well as at any time
between closure of financial year and holding of AGM.
 It is also clarified that interim dividend can be paid out of either surplus in
the profit or loss account or out of profits of that financial year.

CSR SPEND IN FINANCIAL YEAR
 At least 2% of the average net profits of the company made during for
immediately preceding Financial Year.
 The section postulates that “net profit” shall be calculated in accordance with
the provisions of section 198.
 Company shall give preference to the local area and areas around it where it
operates, for spending the amount earmarked for CSR activities
 Where the company fails to spend such amount, the Board shall, in its report,
specify the reasons for not spending the amount.

September 6, 2019
CSR Expenditure
Shall include Shall not include
All expenditure including contribution to Any expenditure on an item not in

corpus, the projects or programs relating to conformity or not in line with
CSR activities approved by the Board on the activities mentioned in Schedule VII
recommendation of its CSR Committee of the Act.

Section 135 – Changes under the 2019
Amendment Act
 the calculation of 2% of average profits for the entities wherein 3

immediately preceding financial years have not elapsed, such
companies shall take immediately preceding financial years since
incorporation.
 For Example:
A company incorporated in 2017 has earned net profit of Rs. 5
Crore in FY 2018-19 CSR would be applicable for such companies
in FY 2019-20 to take 2 % average of net profits u/s 198 of FY
2017-18 and FY 2018-19 and spend in FY 2019-20.

September 6, 2019
 Fund Transfer on non-utilisation of CSR spent is
introduced
 The company to transfer the unspent amount to a fund under Schedule
VII, or
 If a company holds amount for ongoing projects, then such amount be
transferred to Unspent Corporate Social Responsibility A/c within a
period of 30 days from the end of financial year
 Spend the same within 3 years for the project.
 If the company fails to spend for ongoing project within a period of
3 years of transfer to Unspent CSR A/c, the same be transferred to
fund under schedule VII within 3 days of closure of Financial Year.

Illustration:
Scenario Results
If a company fails to spend CSR amount The company to transfer on or before 30

for FY 2019-20 as on 31st March 2020 September 2020 to the Funds as
mentioned in Schedule VII, say
Contribution to PM National Relief Fund
If a company is holding the unspent • To open an account Unspent Corporate
amount for ongoing project for FY 2019- Social Responsibility A/c and transfer
20 as on 31st March 2020 the unspent amount of CSR before
30th April 2020.
• Such amount to be spent within 3
years from the date of transfer i.e., on
or before 30 April 2023
If a company fails to spend amount in Then the company shall transfer on or
unspent CSR A/c-for a period of 3 years. before 30 April 2023 to the Funds as
mentioned in Schedule VII. Ex:
Contribution to PM National Relief Fund

September 6, 2019
Companies (Incorporation) 3rd Amendment Rules, 2018
Rule 8 Satisfaction of Charge
5 July 2018  A company or charge holder should within a period of 300
days (earlier 30 days) from the dae of the payment or
satisfaction in full of any charge registered under Chapter
VI, give intimation of the same to the Registrar in Form No.
CHG-4 alongwith the Fee
Rule 12 Condonation of delay and rectification of register of charges
5 July 2018 Where the satisfaction of the charge is not filed within a period
of 300 days (earlier 30 days) from the date on which such
payment of satisfaction, the Registrar will not register the same
unless the delay is condoned by the Central Government.
Rule / Date Amendment
Rule 3 Manner and procedure of selection and appointment of auditors

etc.
7 May The requirement of ratification of appointment of statutory auditors at
2018 every Annual General Meeting (AGM) till the 6th meeting is
done away with.
Rule 9 Liability to devolve on concerned partners only
7 May This Rule has been omitted
2018
Rule 10A
7 May Statutory Auditors Report should, instead of ‘adequate internal

2018 financial control systems’, state about the existence of ‘internal
financial controls with reference to FS
Rule 14 Remuneration of the Cost Auditor
7 May Instead “Cost accountant in practice”, the words “Cost accountant” has
2018 been substituted

 Appointment of an ‘auditor;’ is for a period of 5 years
 Several cases of auditor resignations before end of term – In many cases,

resignations were given after year end and towards conclusion of the audit
 MCA has issued notices in several such cases to audit firms
 ICAI has in Dec 2018 issued “Implementation Guide on resignation or withdrawal

from an engagement to perform audit of FS”
 In case of resignation, specific reasons to be communicated

Implementation Guide on resignation or withdrawal from an engagement to
perform audit of FS – ICAI (Dec 2018)
 May depend on stage of completion of the audit
 If the audit is substantially completed, he may decide to disclaim an

opinion and explain the scope of limitation
 The auditor should describe the circumstances while giving the reasons for
resignation suitably, instead of mentioning ambiguous reasons such as
other pre-occupation or personal reasons or administrative reasons or
health reasons or mutual consent or unavoidable reasons.

As per IG of ICAI, some valid reasons could be:
 Non payment of fees
 inability to obtain sufficient appropriate audit evidence,;
 Possible effects on the FS of undetected misstatements, if any,

could be both material and pervasive;
 If the matter is related to a material misstatement of the FS
that relates to specific amounts in the FS (including
quantitative disclosures), the auditor should include a
description and quantification of the financial effects of the
misstatement, unless Impracticable Cannot legally continue as
auditor
 Legal advice may be sought, if required

 Notified on 21 March 2018, 1 Oct 2018, 24 Oct 2018
 Rules notified on 13 Nov 2018
Functions:
 Make recommendations on Accounting / Auditing Policies and
Standards (after receiving ICAI recommendations)
 Monitor / enforce compliance with Accounting and Auditing
Standards
 Oversee quality of service of the profession associated with
ensuring compliance with such standards and suggest measures for
improvement in quality of service
 Other functions – as maybe prescribed

Powers to investigate:
 Either suo-moto or
 On reference made by CG (for prescribed class of companies / persons) into

matters of Professional or Other misconduct by any CA or firm of CAs
 Professional Misconduct: as per Sec 22 of CA Act
 Other misconduct: unrelated to profession which can bring disrepute to the

profession
Punishment for both types of misconduct:
Penalty (Rs.) Other penal actions

Individual Not less than 1 lakh Debarring member or
Upto 5 times the fees firm from practice for
Firm Not less than 10 lakhs minimum 6 months and
Upto 10 times the fees not exceeding 10 years

Applicability (as per Rules)
 Companies whose securities are listed in India or outside
 Unlisted public companies: (if as on 31st March of preceding year)
 paid-up capital of not less than ₹ 500 Crs, or
 annual turnover of not less than ₹ 1,000 Crs, or
 Aggregate o/s loans, debentures, deposits of not less than ₹ 500

Crs
 Insurance companies, banking companies, etc.
 A body corporate outside India, which is a subsidiary or associate

company, if the income or net worth of such subsidiary or associate
company exceeds 20% of the consolidated income or consolidated
net worth of the Indian Co.

Functions: (in addition to those mentioned in sec 132)
Rule 4:
 Maintenance of details of Auditors of companies covered (annual return to
be filed by auditors by 30th April) (1st such return within 30 days from
deployment at MCA website)
 Promote awareness on compliance of accounting and auditing standards (to
constitute advisory committees, study groups, task force, etc.)
 Co-operate with national and international organisations of independent
audit regulations
Rule 7:
 Review FS of companies
 Direct such companies or its auditor to provide further information,

explanation or documents
 May require personal presence of the officers of the company and its
auditor
Functions: …
Rule 8:
 Review working papers (including audit plan and other documents and
communications related to audit)
 Evaluate sufficiency of quality control system and manner of
documentation
 Perform other testing of audit supervisory and quality control procedures
 Require an auditor to report on: its own governance practices and internal
processes to promote audit quality, protect its reputation and reduce risk
Rule 9:
 On basis of review, direct an auditor to take measures for improvement of
audit quality;
 Monitor improvements made by the auditor and take such action as
deemed fit;
 Refer cases to QRB for overseeing quality of service
Functions: …
Rule 10: Power to investigate
 If authority has received reference for investigation fromCG or
 Has decided to investigate on the basis of its compliance or

oversight activities
 Has decided to undertake suo-moto investigation after
recording reasons in writing;
It SHALL forward the matter to its Investigation Division
If during investigation there is evidence that there is any non-
compliance of the Act / Rules which may involve Fraud of Rs. 1
crores or more, it shall report to the CG

Meanings
Fine Penalty
Fine is a sum of money demanded Penalty is a punishment for

as a penalty by a court of law or infringement of a law, rule, or
other authority contract.
Fine is imposed when any Penalty is imposed when Company

compounding application / petition made non-compliance and adjudicating
filed with NCLT or any court authority directly impose
Additional fees is only a fee paid by Company for filing of form it is neither
Fine nor Penalty.
The Amendment Act of 2019 Certain Offences has shifted from
Fine to Penalties
• Registrar of Companies (ROC) and Regional Director (RD) can

now impose penalties
• Directly after issuing SCN
• Instead of going to Court or NCLT for imposing fines, or for
following procedure for compounding of offences.
… Fine to Penalties …
Offences are re-categorised as defaults carrying civil liabilities which would be subject to an in-house
adjudication mechanism
S. Section Nature of default Post ordinance

No.
1. Section 53(3) Prohibition of issue of  Non-compliance to result in the company and

shares at a discount any officer in default being liable to a penalty,
Prohibition of issue of instead of being punishable with fine or
shares at a discount imprisonment or with both.
 Quantum-
• Extend to an amount equal to the amount
raised through the issue of shares at
discounts
Rs. 5,00,000/-
Which ever is less of above
• The Company shall also be liable to refund
all monies received with interest @ 12% per
annum from the date of issue of such shares.

No.
2. Section 64(2) Failure/delay in filing  Non-compliance to result in the company and
notice for alteration of any officer in default being liable to a penalty,
share capital instead of being punishable with fine.
Notice to be given to  Quantum-
Registrar for • penalty of Rs. 1,000/- for each day, or
alteration of share • Rs. 5,00,000/-
capital • lower of the above
3. Section 92(5) Failure/delay in filing Non-compliance to result in:
annual return  The company and every officer who is in default
Annual return being liable to a penalty, instead of being
punishable with fine; and
 Quantum-
• Penalty of Rs. 50,000/-, and
• In case of continuing failure, with a further
penalty of Rs. 100/- for each day;
• Subject to maximum of Rs. 5,00,000/-

No.
4. Section 102(5) Attachment of a  Non-compliance to result in every promoter,
statement of special director, manager or other key managerial
Statement to be business in a notice personnel who is in default being liable to a
annexed to notice calling for general penalty, instead of being punishable with fine.
meeting  Quantum-
• penalty of Rs . 50,000/- or
• 5 times amount of benefit accruing to the
promoter, director, manager or other KMP
or any of his relative.
• higher of the above
5. Section 105(3) Default in providing a  Non-compliance to result in every officer in

declaration regarding default being liable to a penalty of Rs. 5,000/-,
Proxies appointment of proxy instead of being punishable with fine.
in a notice calling for
general meeting

No.
6. Section 117(2) Failure/Delay in filing  Non-compliance to result in the penalty
Certain resolutions  The quantum
Resolutions and • for the company-
Agreements to be filed • Rs. 500/- for each day subject to maximum of
Rs. 25,00,000/- and
• for every officer who is in default including
liquidator if any is liable-
• Rs. 50,000/-
• In case of continuing failure with further
penalty of Rs. 5,000/- for each day
7. Section 121(3) Report on Failure/Delay in filing  Non-compliance to result in the penalty
annual general meeting Report on AGM by  Quantum
public listed company • for the company-
• Rs. 1,00,000/-
penalty of Rs. 500/- for each day
• Subject to maximum of Rs. 5,00,000/- and
• for every officer who is in default is liable-
• Not less than Rs. 25,000/-
penalty of Rs. 500/- for each day

No.
8. Section 137(3) Failure/Delay in filing Non-compliance to result in:
financial statement  The quantum of penalty for the company-
Copy of financial • Rs. 1,00,000/-
statement to be filed • In case of continuing failure with further
with Registrar penalty of Rs. 100/- for each day
• Subject to maximum of Rs. 5,00,000/- and
 The quantum of penalty for the MD and the CFO
and in their absence any other director who is
charged by the Board of Directors to comply
with Sec 137 is liable for penalty of the same
amount applicable to the company.
9. Section 140(3) Failure/Delay in filing  Non-compliance to result in the auditor being
statement by auditor liable to a penalty, instead of being punishable
Removal, resignation after resignation with fine.
of auditor and giving  The quantum of penalty for the auditor-
of special notice • Rs. 50,000/- or
• Remuneration of Auditor
• Lower of the Above
 In case of continuing failure with further penalty
of Rs. 500/- for each day

No.
10. Section 157(2) Failure/Delay by  Non-compliance to result in the company and
company in informing every officer in default being liable to a penalty,
Company to inform DIN of director instead of being punishable with fine.
Director Identification  The quantum of penalty for the company-
Number to Registrar • Rs. 25,000/-
• In case of continuing failure with further penalty
 The quantum of penalty for every officer who is in
default is liable-
• Not less than Rs. 25,000/-
• In case of continuing failure with further penalty

No.
11. Section 159 Contraventions  Non-compliance with Section 152 (Appointment
Punishment for related to DIN of directors), Section 155 (Prohibition to obtain
Contravention – in more than one Director Identification Number)
respect of DIN and Section 156 (Director to intimate Director
Identification Number) to result in any
individual or director of a company in default
being liable to a penalty, instead of being
punishable with fine or imprisonment.
 The quantum of penalty extends to Rs. 50,000

and where default is continuing one, with a
further penalty which may extend to Rs. 500 for
each day.
12. Section 165(6) Accepting  If a person accepts appointment as a director in

directorships beyond contravention of sub-section (1) of Section 165
Number of specified limits such person to be liable to a penalty of Rs. 5000
Directorships for each day after the 1st during which such
contravention continues, instead of being
punishable with fine.

No.
13. Section 191(5) Payment to director  Non-compliance to result in the director of the
not to be made on company being liable to a penalty of Rs.
Payment to Director loss of office 1,00,000, instead of being punishable with fine.
for Loss of Office,
etc., in connection
with transfer of
undertaking, property
or shares
14. Section 197(15) Managerial  Non-compliance to result in any person in

remuneration default being liable to a penalty of Rs. 1,0,000
Overall maximum and where any default has been made by a
managerial company the company is liable to a penalty of
remuneration and Rs. 5,00,000, instead of being punishable with
managerial fine.
remuneration in case
of absence or
inadequacy of profits

No.
15. Section 203(5) Appointment of  Non-compliance to result in the company, every
Appointment of Key KMPs in certain class director and key managerial personnel of the
Managerial Personnel of company who is in default being liable to a
companies penalty, instead of being punishable with fine.
 The quantum of penalty for the company-
• Rs. 5,00,000/-
 The quantum of penalty for every officer who is
in default is liable-
• Rs. 1,00,000/-
16. Section 238(3) Registration of the  Non-compliance to result in the director being
Registration of the offer of scheme liable to a penalty of Rs. 1,00,000, instead of
offer of scheme involving transfer of being punishable with fine.
involving transfer of shares
shares

No.
17. Section 446B Lesser penalties for  Non-compliance to result in penalty which is not
Lesser penalties for OPC and small more than one-half of the penalty specified in
OPC and small companies such sections.
companies
… Fine
… Fine to Penalties … to Penalties …
S. Section Nature of default Impact

No.
1. 454(3) Adjudication of The adjudicating officer shall also give the direction of
Penalties making good of the default at the time of levying penalty.
2. 454(8) Adjudication of Default would occur when the company or the officer in
Penalties default would fail to comply with the order of the
adjudicating officer or RD as the case may be.
3. 454A Penalty for A new section has been inserted to provide where a penalty
repeated default in relation to a default has been imposed on a person under
the provisions of CA 2013, and the person commits the
same default within a period of three years from the date of
order imposing such penalty, passed by the adjudicating
officer or RD as the case may be, it or he shall be liable for
the second and every subsequent defaults for an amount
equal to twice the amount provided for such default under
the relevant provision of CA 2013.
 Before Amendment default can be made good by

petition in NCLT by filing compounding application
Suo Moto or after receipt of notice form ROC / MCA.
And, After Amendment ROC may start levying
penalty by issuing Show Cause Notice without any
petition to NCLT or any other authorities.
 Issue of securities in dmat form by unlisted public companies
 Disqualification of Independent Directors
 Copy of resignation of Director to be forwarded by him
 Valuation under the Companies Act

 Shifting of powers from the National Company Law Tribunal (the "NCLT") to
the Central Government for any alteration having the effect of conversion of a public
company into a private company.
 Section 5 of the Amendment, the applications are now required to be filed with the
Central Government instead of the NCLT

September 6, 2019

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Organised

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Significant Beneficial Ownership

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Corporate Social Responsibility

Audit and Auditors - Resignation of auditor

Fines to Penalties and Others

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Presidential 3 January Notified Various

The 2017 Amendment Act broadly aims at:

 Facilitating ease of doing business in order to promote growth with employment;

 Rectifying omissions and inconsistencies in the Act

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The 2019 Amendment Act broadly aims at:

 To review the existing provisions of the Act dealing with offences

 To make recommendations to promote better corporate compliance;

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****Provided that such class or classes of holding companies as may be

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The term joint venture is also explained to mean ‘a joint

 Effective from 7 May 2018

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to give true and to comply with to be as per

Approval of Financial Statements

 Chairperson or 2 directors (incl 1 MD)

 CEO (even if he is not a director)

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Rule 15 Declaration from Subscribers and 1st Directors

27 July 2018 A declaration (earlier Affidavit) has to be submitted by each of the

Rules notified to meet requirements under Section 90 (Investigation of

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Rule / Date Particulars / Amendment

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Rule / Date Particulars / Amendment

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Loans are utilised by the

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 Transaction (involving an amount upto Rs. 1 crore) is voidable

 AC could give recommendations to Board for transactions not

 No approval of AC in case of RPTs between Holding Company

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Shall include Shall not include

All expenditure including contribution to Any expenditure on an item not in

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 the calculation of 2% of average profits for the entities wherein 3

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If a company fails to spend CSR amount The company to transfer on or before 30

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Rule 12 Condonation of delay and rectification of register of charges

Rule 3 Manner and procedure of selection and appointment of auditors

7 May Statutory Auditors Report should, instead of ‘adequate internal

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 Several cases of auditor resignations before end of term – In many cases,

 MCA has issued notices in several such cases to audit firms

 ICAI has in Dec 2018 issued “Implementation Guide on resignation or withdrawal