Refreshing
Companies Act,2013
Nipun Singhvi
Legal Advisor
B.Com.(Hons.), BCCD, LLB, LCS, ACA, IFRS Certified, Forensic Certified,
Con. Bank Audit Certified
19-Mar-16
1
Disclaimer
• All the views presented here are my personal
and doesn’t in any way are the views of
organisations owned or controlled by me.
Their similarity in any way doesn’t purport to
the views of Institutions and any action taken
based on these views should be your personal
domain with professional advice. No legal
action can be taken for the loss incurred on
action taken relying on the opinion ,advice or
comments made during the presentation.
19-Mar-16
2
Define
the
un-defined
19-Mar-16
3
(12) “book and paper” and “book or paper” include
books of account, deeds, vouchers, writings, documents,
minutes and registers maintained on paper or in
electronic form;
(18) “Chief Executive Officer” means an officer
of a company, who has been designated as such by it;
(19) “Chief Financial Officer” means a person appointed as the Chief
Financial Officer of a company;
19-Mar-16
4
(51) “key managerial personnel”, in relation to a company,
means—
(i) the Chief Executive Officer or the managing director or
the manager;
(ii) the company secretary;
(iii) the whole-time director;
(iv) the Chief Financial Officer; and
(v) such other officer as may be prescribed;
To Appoint (i to iv)
Form No. MR-1
Form No. GNL-3
19-Mar-16
5
(60) “officer who is in default”, for the purpose of any
provision in this Act which enacts that an officer
of the company who is in default shall be liable to
any penalty or punishment by way of imprisonment,
fine or otherwise, means any of the
following officers of a company, namely:—
(i) whole-time director;
(ii) key managerial personnel;
(iii) where there is no key managerial personnel, such director or directors as
specified by the Board in this behalf and who has or have given his or their
consent in writing to the Board to such specification, or all the directors, if no
director is so specified;
(iv) any person who, under the immediate authority of the Board or any
key managerial personnel, is charged with any responsibility including
maintenance, filing or distribution of accounts or records, authorises, actively
participates in, knowingly permits, or knowingly fails to take active steps to
prevent, any default;
19-Mar-16
6
(v) any person in accordance with whose advice, directions or
instructions the Board of Directors of the company is
accustomed to act, other than a person who gives advice to
the Board in a professional capacity;
(vi) every director, in respect of a contravention of any of the
provisions of this Act, who is aware of such contravention by
virtue of the receipt by him of any proceedings of the Board or
participation in such proceedings without objecting to the
same, or where such contravention had taken place with his
consent or connivance;
(vii) in respect of the issue or transfer of any shares of a
company, the share transfer agents, registrars and merchant
bankers to the issue or transfer;
19-Mar-16
7
6. Save as otherwise expressly provided in this Act—
(a) the provisions of this Act shall have effect notwithstanding
anything to the contrary contained in the memorandum or
Shareholders
Agreement
articles of a company, or in any agreement executed by it, or in
any resolution passed by the company in GM or by its Board of
Directors, whether the same be registered, executed or passed,
as the case may be, before or after the commencement of this
Articles of
Association
Act; and
(b) any provision contained in the memorandum, articles,
agreement or resolution shall, to the extent to which it is
repugnant to the provisions of this Act, become or be void, as the
Companies Act
case may be.
19-Mar-16
8
RANA KAPOOR
ASHOK KAPUR
•Shareholders agreement Vs. AOA
•Shareholders agreement definition “Indian Partners”
•Whether Right to nominate assignable or inheritable ??
19-Mar-16
9
OYO Rooms raises Rs 630 cr in
funding led by SoftBank
19-Mar-16
10
Disqualification of Directors
He had not been sentenced to imprisonment for any period, or to a fine
exceeding one thousand rupees, for the conviction of an offence under any of the
following Acts, namely:—
(i) the Indian Stamp Act, 1899 (2 of 1899);
(ii) the Central Excise Act, 1944 (1 of 1944);
(iii) the Industries (Development and Regulation) Act, 1951 (65 of 1951);
(iv) the Prevention of Food Adulteration Act, 1954 (37 of 1954);
(v) the Essential Commodities Act, 1955 (10 of 1955);
(vi) the Companies Act, 2013;
(vii) the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
(viii) the Wealth-tax Act, 1957 (27 of 1957);
(ix) the Income-tax Act, 1961 (43 of 1961);
(x) the Customs Act, 1962 (52 of 1962);
(xi) the Competition Act, 2002 (12 of 2003);
(xii) the Foreign Exchange Management Act, 1999 (42 of 1999);
(xiii) the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986);
(xiv) the Securities and Exchange Board of India Act, 1992 (15 of 1992);
(xv) the Foreign Trade (Development and Regulation) Act, 1922 (22 of 1922);
(xvi) the Prevention of Money-Laundering Act, 2002 (15 of 2003);
19-Mar-16
11
SEBI slaps Rs 2 crore fine on NDTV
for IncomeTax violations
19-Mar-16
12
Disqualification of Directors
•Convicted by a court
•6 mnths or >
5 yrs
•7 yrs or >
Life Ban
•Insolvent undischarged or applied
•Conviction RPT-188
•Not filed Annual Returns or and F/S for 3 yrs continously
•Deposits, Dividend, Debentures - > 1yr
19-Mar-16
5 yrs
13
19-Mar-16
14
CLASS ACTION SUITS
19-Mar-16
© Chir Amrit Corporate School
15
India's 640-Crore Class
Action Suit Against Maggi
19-Mar-16
16
Satyam to pay $125 million to settle
US suit
Mahindra Satyam's $125-mn class
action suit settlement taxable
Satyam scam triggers biggest D&O
claim- 75m$ TATA AIG
19-Mar-16
© Chir Amrit Corporate School
17
Ultra –vires
AOA/MOA
Resolution void by suppressing facts or
mis-statement
Application
Restrain Directors/Company from acting
contrary to act or any other law for time
being in force
Resolution by
Members
Claim damages/
Compensation/
Demand
Company/Directors
Auditor/Audit Firm
Expert/Advisor/
Consultant/Any other
person
19-Mar-16
© Chir Amrit Corporate School
18
Penalty
Company - Rs.5 lakhs to Rs.25 lakhs
Frivolous Complainant – Rs.1 lakh (Max.)
Insurance Cover
•Professional insurance for Auditors
•Directors & Officers (D & O) policy
19-Mar-16
© Chir Amrit Corporate School
19
Policing Policies !!!
Policy
Private
Public




Related Party
Transactions


CSR


Vigilance Mechanism


Nomination &
Remuneration


Ethics


Fraud Prevention
Risk Management
19-Mar-16
20
VIGILANCE MECHANISM Vs. WHISTLE BLOWER POLICY
1.
The company shall establish a vigil mechanism for directors and employees to
report concerns about unethical behaviour, actual or suspected fraud or
violation of the company’s code of conduct or ethics policy.
2. This mechanism should also provide for adequate safeguards against victimization
of director(s) / employee(s) who avail of the mechanism and also provide for direct
access to the Chairman of the Audit Committee in exceptional cases.
3. The details of establishment of such mechanism shall be disclosed by the company
on its website and in the Board’s report.
19-Mar-16
21
What is Fraud?
Section 447 of CA,13
(i) “fraud” in relation to affairs of a company or any body corporate, includes
any act, omission, concealment of any fact or abuse of position committed by
any person or any other person with the connivance in any manner, with
intent to deceive, to gain undue advantage from, or to injure the interests of,
the company or its shareholders or its creditors or any other person, whether
or not there is any wrongful gain or wrongful loss;
(ii) “wrongful gain” means the gain by unlawful means of property to which the person
gaining is not legally entitled;
(iii) “wrongful loss” means the loss by unlawful means of property to which the person
losing is legally entitled.
19-Mar-16
22
False Statement
If in any return, report, certificate, financial statement,
prospectus, statement or other document required by, or for, the
purposes of any of the provisions of this Act or the rules made
there under, any person makes a statement,—
(a)which is false in any material particulars, knowing it to be false;
or
(b) which omits any material fact, knowing it to be material,
Shall be liable under Section 447.
19-Mar-16
23
India's 640-Crore
Class Action Suit
Against Maggi to be
Heard on Friday
19-Mar-16
24
MODIFIED
OPINION
QUALIFIED
ADVERSE
DISCLAIMER
Material
Misstatements
+
Pervasive
Confined?
Yes
Disclosures
No
Specific Items,
Elements,
Accounts of the F/S
Substantial Portion of
the Financial
Statements
Basic Understanding
Material but not pervasive
Sufficient & Appropriate
Audit Evidence
Yes
No
Qualified
Opinion
Qualified
Opinion
Material Misstatements + Pervasive
Sufficient & Appropriate
Audit Evidence
Yes
No
Adverse
Opinion
Disclaimer of
Opinion
Nature of matter giving Auditor’s Judgment about the pervasiveness of
rise to the modification the effects or possible effects on the F/S
Material but not
pervasive
Material and Pervasive
Financial statements
Qualified Opinion
are materially misstated
Adverse Opinion
Inability to obtain
sufficient appropriate
Audit Evidence
Disclaimer of Opinion
Qualified Opinion
Basis for qualified opinion
As more detailed in note 34 (a) (i) of the
financial statements, no provision has
been made for interest of Rs.74.71
million up to March 31, 2014 (Rs. 74.71
million in the previous year), relating to
earlier years, on the outstanding intercorporate deposits taken by the
Company. Had the same been accounted
for, the net loss for
the year ended March 31, 2014 and
accumulated losses as at that date would
have been higher by Rs. 74.71
million (Rs. 74.71 million in the previous
year). Our audit report for the year
ended March 31, 2013 was also qualified
in respect of the above matter.
3/19/2016
Emphasis of Matter
Without qualifying our opinion, we draw
attention to Note 2 (a) which indicates that
the Company has incurred a
net loss of Rs 10,032.44 million during the
year ended March 31, 2014 and as of that
date, the Company’s total
liabilities exceed its total assets by Rs
10,194.76 million. These conditions, along
with other matters as set forth
in Note 2 (a), indicate the existence of a
material uncertainty regarding the
Company’s ability to continue as a
going concern. Management’s plans in this
regard are more fully described in the said
note.
30
Matter Para
Emphasis of
Matter Para
Other Matter
 There is uncertainty relating to a pending exceptional litigation
matter. This is highlighted in the auditor’s report by an Emphasis of
Matter paragraph.
Directors’ Responsibility Statement (DRS)
Section 134(5)
The DRS shall state that 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;
Explanation.—For the purposes of this clause, the term “internal
financial controls” means the policies and procedures adopted by the
company for ensuring the orderly and efficient conduct of its business,
including adherence to company’s policies, the safeguarding of its
assets, the prevention and detection of frauds and errors, the
accuracy and completeness of the accounting records, and the timely
preparation of reliable financial information
19-Mar-16
33
Risk Perception
Auditing Standards now a law!!
SA 300
Planning an audit of Financial Statements
SA 315
Identifying and Assessing the Risks of Material
Misstatement through Understanding the Entity and
Its Environment
SA 320
Materiality in Planning and Performing an Audit
SA 330
The Auditor’s Responses to Assessed Risks
SA 450
Evaluation of Misstatements Identified During the
Audit
19-Mar-16
34
Risk Perception
... A statement indicating development and implementation of a risk management
for the company including identification therein of elements of risk, if any,
which in the opinion of the Board may threaten the existence of the company;
[Section-134 clause (n) : Financial statement, Board's report, etc.]
Management’s perception of risk factors
[Form PAS 4]
Evaluation of internal financial controls and risk management systems;
[Section-177 (4) clause (vii) : Audit Committee]
19-Mar-16
35
Disclosures
Details of any litigation or legal action pending or taken by any Ministry or
Department of the Government or a statutory authority against any promoter of the
offeree company during the last three years immediately preceding the year of the
circulation of the offer letter and any direction issued by such Ministry or Department
or statutory authority upon conclusion of such litigation or legal action shall be
disclosed
[PAS4 Clause 3(ii) ]
19-Mar-16
36
 Summary of reservations or qualifications or adverse remarks of auditors in the
last five financial years immediately preceding the year of circulation of offer letter
and of their impact on the financial statements and financial position of the company
and the corrective steps taken and proposed to be taken by the company for each of
the said reservations or qualifications or adverse remark
[PAS 4 Clause 3(v) ]
 Details of any inquiry, inspections or investigations initiated or conducted under
the Companies Act or any previous company law in the last three years immediately
preceding the year of circulation of offer letter in the case of company and all of its
subsidiaries. Also if there were any prosecutions filed (whether pending or not) fines
imposed, compounding of offences in the last three years immediately preceding the
year of the offer letter and if so, section-wise details thereof for the company and all
of its subsidiaries
[PAS 4 Clause 3(vi) ]
19-Mar-16
37
19-Mar-16
38
Financial Statements, Board’s Report etc. (Sec. 134)
(c) Directors’ Responsibility Statement;
....
(f) There shall be attached to statements laid before
a company in general meeting, a report by its Board
of Directors, which shall include 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
...
19-Mar-16
39
Consideration of Laws and Regulations
(SA 250)
Maintaining a register of significant laws and
regulations with which the entity has to comply
within its particular industry and a record of
complaints (¶ 11).
19-Mar-16
40
Consideration of Laws and Regulations
(SA 250)
Maintaining a register of significant laws and
regulations with which the entity has to comply
within its particular industry and a record of
complaints (¶ 11).
19-Mar-16
41
LABOUR (16)
INTELLECTUAL
PROPERTY
RIGHTS
ENVIRONMENT
(3)
GENERAL
LAWS
CAPITAL
MARKETS
COMPETITION
LAW
FEMA
19-Mar-16
TAX LAW
42
19-Mar-16
43
Dormant Company ?
Investment Company?
Intellectual Property
Rights Structuring
Company
IPR
Holding
19-Mar-16
Operating
Investment
44
Sebi imposes Rs 86 cr penalty on DLF (Feb 2015)
Separately, in June 2007, Kimsuk Krishna
Sinha had complained to Sebi saying he was
cheated of Rs.34 crore by Sudipti Estates in
relation to a transaction between them for the
purchase of land, and that he had registered a
first information report (FIR) against Sudipti.
This was also not disclosed in the DRHP.
19-Mar-16
45
DRUGS &
COSMETICS
LAW
FOREIGN
LAWS eg.
USFDA,UKCPA
SME LAWS
INDUSTRIES
SPECIFIC
LAWS
FOOD SAFTY
&
STANDARDS
ACT
LEGAL
METROLOGY
ACT
STAMP LAW
19-Mar-16
46
Only 6% Maharashtra organisations
have sexual harassment cells
The Sexual Harassment of Women at Workplace
(Prevention,Prohibiton and Redressal) Act, 2013
19-Mar-16
47
19-Mar-16
48
SECTION 143(2) : PERSONS REQUIRED TO
REPORT FRAUD
STATUTORY AUDITOR
COST AUDITOR
SECRETARIAL AUDITOR
BRANCH AUDITOR
INTERNAL AUDITOR
TAX AUDITOR
IT ACT
VAT ACT
SECTION 143(2) : PERSONS REQUIRED TO
REPORT FRAUD
ATTEST FUNCTIONS
STATUTORY AUDITOR
OTHER THAN
STATUTORY AUDITOR
SILENT (G. N.)*
* REPORT TO STATUTORY AUDITOR
LANGUAGE AMBIGUITY
SECTION 143(12)
RULE 13
FORM ADT-4
COMPANIES (AUDIT&
AUDITOR) RULES,2014
REASONS TO
BELIEVE
SUFFICIENT
REASONS TO
BELIEVE
KNOWLEDGE
SUSPECTED
OFFENCE
INVOLVING
FRAUD
SECTION 143(12)
BRIBERY
CORRUPTION
MONEY LAUNDERING
INTENTIONAL
NON-COMPLIANCE
SA-250
CONSIDERATION OF
LAWS &REGULATIONS
IN AN AUDIT OF
FINANCIAL
STATEMENTS
FRADULENT ITR TO EVADE TAX ---- REPORT U/s 143(12)
COAL COMPANIES
TELECOM COMPANIES – 2G SCAM
SA - 240
FRAUD
MANAGEMENT
FRAUD
EMPLOYEE
FRAUD
INTENTIONAL MISSTATEMENT
FRAUDULENT
FINANCIAL
REPORTING
MISSTATEMENTS
RESULTING FROM
MISAPPROPRIATION
OF ASSETS
Sources of info
 AUDIT COMMITTEE MINUTES
 BOARD MEETING MINUTES
 ENQUIRE FROM MANAGEMENT/TCG
WRITTEN REPRESENTATIONS
(sa 580)
 Accounting
Financial control
 Disclosed suspected fraud/fraud
 Assessment of risks disclosed
Illustrative MRL – Appendix 7(GN)
IMMUNISED
SECTION 143(13)
SECTION 456
IMMUNITY – ACT
DONE IN GOOD
FAITH
NO SUIT ,
PROSECUTION
OR LEGAL
PROCEEDING
SHALL LIE
SECTION 143(15)
143(12)
NONCOMPLIANCE
Rs.1- 25 LAKHS
Saradha Scam
SFIO Added
•107 Abetment of Crime
SIT - Indian Penal Code
• 406 Criminal Breach of trust
•409 Criminal Breach of trust
by public servant
•403 Dishonest misappropriation
of property
•415 Cheating
•420 Cheating and dishonestly
inducing delivery of property
•418 Cheating with knowledge
that wrongful loss would be
caused
•120B Criminal Conspiracy
• 419 Impersonation
•477A Falsification of accounts
19-Mar-16
57
Fine – Upto 3 times the amount involved
Imprisonment – 6 months to 10 yrs
Public interest involved – Min 3 yrs
19-Mar-16
58
Section 447 is applicable in 18 sections,
12 out of 18 are active
Section
Description of Section
7,8
Incorporation and Formation
34
Criminal liability for misstatements in prospectus
36
Punishment for fraudulently inducing persons to invest money
38
Punishment for personation for acquisition, etc., of Securities
46
Certificate of shares.
56
Transfer and transmission of securities.
140
Removal, resignation of auditor and giving of special notice
206
Power to call for Information, inspect books and conduct inquiries.
212
Investigation into affairs of Company by Serious Fraud Investigation Office
229
Penalty for furnishing false statement, mutilation, destruction of Documents
448
Punishment for false Statement
19-Mar-16
59
Sec. 22 The Companies Act, 1956.
Rectification of name of company.(1) If, through inadvertence or otherwise, a company
on its first registration or on its registration by a new name, is registered by a name
which, in the opinion of the Central Government, is identical with, or too nearly
resembles, the name by which a company in existence has been previously registered,
whether under this Act or any previous companies law, the first- mentioned company(a) may, by ordinary resolution and with the previous approval of the Central
Government signified in writing, change its name or new name; and
(b) shall, if the Central Government so, directs within twelve months of its first
registration or registration by its new name, as the case may be, or within twelve
months of the commencement of this Act, whichever is later, by ordinary resolution and
with the previous approval of the Central Government signified in writing, change its
name or new name within a period of three months from the date of the direction or
such longer period as the Central Government may think fit to allow.
Provided that no application under clause (ii) made by a registered proprietor of a trade
mark after five years of coming to notice of registration of the Company shall be
considered by the Central Government.)
Sec. 22 The Companies Act, 1956.
(2) If a company makes default in complying with any direction given under clause (b) of
sub- section (1), the company, and every officer who is in default, shall be punishable
with fine which may extend to one hundred rupees for every day during which the
default continues.
Sec. 16 The Companies Act, 2013.
6. (1) If, through inadvertence or otherwise, a company on its first registration
or on its registration by a new name, is registered by a name which,—
(a) in the opinion of the Central Government, is identical with or too nearly
resembles the name by which a company in existence had been previously
registered, whether under this Act or any previous company law, it may direct
the company to change its name and the company shall change its name or
new name, as the case may be, within a period of three months from the issue
of such direction, after adopting an ordinary resolution for the purpose;
(b) on an application by a registered proprietor of a trade mark that the name is
identical with or too nearly resembles to a registered trade mark of such
proprietor under the Trade Marks Act, 1999, made to the Central Government
within three years of incorporation or registration or change of name of the
company, whether under this Act or any previous company law, in the opinion
of the Central Government, is identical with or too nearly resembles to an
existing trade mark, it may direct the company to change its name and the
company shall change its name or new name, as the case may be, within a
period of six months from the issue of such direction, after adopting an
ordinary resolution for the purpose.
Sec. 16 The Companies Act, 2013.
(2) Where a company changes its name or obtains a new name
under sub-section (1), it shall within a period of fifteen days from
the date of such change, give notice of the change to the Registrar
along with the order of the Central Government, who shall carry
out necessary changes in the certificate of incorporation and the
memorandum.
(3) If a company makes default in complying with any direction
given under sub-section (1), the company shall be punishable with
fine of one thousand rupees for every day during which the
default continues and every officer who is in default shall be
punishable with fine which shall not be less than five thousand
rupees but which may extend to one lakh rupees.
Common Law Remedy Vs. CA 2013
Civil Remedy in case of
Unregistered Trademark
• Prior User
• Cogent and Continues user
Evidence
• Approch Highcourt/District
Court(AA)
• Time Consuming and Costly
• Remedy Under Civil Law
(Passing off) and Trade Marks
Act, 1999 (Infringement) is
always available subject to
Limitation Act.
Remedy in Case of Registered
Trademark
• Application U/S 16 of CA
2013
• Trademark Registration
Certificate As Powerful
Evidence
• Cost effective
Vardhaman Crop Nutrient Pvt Ltd Vs. UOI
•Vardhaman Fertilizers and Seeds Pvt. Ltd incorporated
in 1987
•Using Brand “Vardhaman” Since 1991 for It’s Products
•Registered Trademark Since 2007
•Vardhaman Crop Incorporated in 2009
•Using Brand Since 2011
•Effects of the same Name
•Confusion and Deception
•Loss of Business
•Loss of Reputation and Goodwill
•421 Companies with prefix Vardhaman (Def. Plea)
•Remedy
•Filed Application U/S 22 of CA 1956
•RD ordered in favour of Applicant
•Order confirmed by SB and DB in High Court
19-Mar-16
66
Illustrative Engagement letter
NOC from previous auditor
SA 720 – Consideration of other documents
containing financial statements
Internal Financial Control - Audit fee separate
Networking firms/affiliated partners
Pending litigations & forseeable losses
Peer Review
19-Mar-16
67
111-112, University Plaza,
Nr Vijay Cross Roads,
Navrangpura
380 009
+91 79 30615933
+91 93275 55933
+91 98290 31411
nipunsinghvi@yahoo.com
nipun@cogitolegal.com
Ahmedabad | Mumbai |Delhi |Jodhpur |Jaipur
Nipun Singhvi
B.Com.(Hons.), BCCD, LLB, LLM (Corporate), LCS, ACA, IFRS Certified,
Forensic Certified, Con. Bank Audit Certified
19-Mar-16
68