Unit 8 :

Disclosures under Companies Act 2013

State of Company’s Affairs- S 134(3)(I): The Directors’ report starts with the
financial results of the year which will show the working results for the year
under review, the Net Profit Before Tax (PBT) and the Net Profit After Tax
(PAT) and the appropriation of profit including the transfer to general reserve
which has been left to the Director to decide.
The Report will mention yearly total Sales Turnover and Income and Point out
any problems faced by the company which have affected the profits and
measures which have been taken to improve the working and reduce costs.-

2. Web Link of Annual Return: As per Section 134(3)(a)

The web address, if any, where annual return referred to in sub-section (3) of
section 92 has been placed]

3. Number Of Board Meeting 134(3) (b)

Board Report required to mention the following Details:

• Number of Board Meeting held during the year
• Date of Board Meetings held during the year
• Number and Date of Committee meeting held during the year
• No. of Board Meeting attended by the each Directors during the year

4. Inter Corporate Loans And Investments- 186

There is required to disclose by director in Board’s Report that, the company

has complied with the proviso ions of Section 186 of companies Act, 2013 in
relation to Loan, Investment & Guarantee given by the company during the
financial.

5. Related Party Transaction- 188

There is required to disclose by director in Board’s Report all the related party
transaction entered along with the justification for entering into such contract
and arrangement by the company during financial year.

6. Subsidiaries, JVs or Associate Companies- Rule 8(5)(iv)

The name of Company which has become or ceased to be its subsidiaries, Joint
Venture or associate company during the year

7. Report on performance of subsidiaries, associates companies and joint

ventures:

The Board’s Report shall be prepared based on “STAND ALONE

FINANCIAL STATEMENT OF THE COMPANY”
But the Board’s Report shall contain a Separate section wherein a report on
the performance and financial position of each:
 • Subsidiary
• Associate
• Joint venture companies, including in the consolidated financial statement is
presented.

8. Details of Directors/ KMP/ appointed/ resigned during the year As per Section
134(3)(q) r/w Rule 8(5)(iii) of Companies (Account) Rules, 2014

Board Report required to mention the following Details:

• Director/KMP appointed during the year.
• Director/KMP resigned during the year.

9. Explanation on Auditor Qualification- S 134(3)(f)

Explanation or comments by Board on every qualification, reservation or

adverse remarks or disclaimer made by Statutory Auditor or Secretarial Auditor
(if applicable) in its report.

10. Dividends- S 134(3)(K)

Where it is proposed to pay dividend, Report shall contain the recommendation

of the Board as to the rate of dividend for the year under review for the
approval of members at the AGM.

11. Material Events Occurring After Balance Sheet Date- S 134(3)(L)

Post Balance Sheet Events

Material Changes and Commitments, if any, affecting the Financial position of

the Company which have occurred between the end of financial year of the
Company to which the financial statement relate and the date of the report.
The term material included items, the knowledge of which might influence the
decision of use of financial statement.

12. Transfer To Reserve- S 134(3)(J)

The report of the Board of Directors shall state the amount which it proposes to
carry to any reserve in the Balance Sheet like debenture redemption reserve in
terms of Section 71(13) etc.

13. Risk Management Policy- S 134 93) (n)

A statement indicating development and implementation of a risk management

policy for the company including identification therein of elements of risk, if
any, this in the opinion of the Board may threaten the existence of the company

14. Constitution of Committee- Sexual Harassment at workplace.

Company should make disclosure in Board Report relating to Constitution of

Committee for Sexual Harassment of Women & Workplace.
15. Financial Highlights & Change in the Nature of Business- Rules 8(5)(i) &(ii)

Disclosure on financial summary or highlights and Change in the nature of

business, if any.

16. Voluntary revision of financial statements or Board Report- S131

Detailed reason for revision of such financial statement or Board’s Report to be

disclosed in the Board’s report in the relevant f.y. in which such revision is
being made.

17. Adequate Internal Financial Control- Rule 8(5)(vii)

In case of private limited company board of director is required to comment

only on the adequacy of Internal Financial Control (Sec- 134(5)(e)} and not on
its effectiveness.

18. Conservation of energy, technology absorption & foreign exchange dealing:

Rule8(3)

The report of the Board shall contain the following information and details,
namely:-
A. Conservation of energy–
a. the steps taken or impact on conservation of energy;
b. the steps taken by the company for utilizing alternate sources of
energy;
c. the capital investment on energy conservation equipments;

B. Technology absorption-
a. the efforts made towards technology absorption;
b. the benefits derived like product improvement, cost reduction,
product development or import substitution;
c. in case of imported technology (imported during the last three
years reckoned from the beginning of the financial year)-
i. the details of technology imported;
ii. the year of import;
iii. whether the technology been fully absorbed;
iv. if not fully absorbed, areas where absorption has not
taken place, and the reasons thereof; and
d. the expenditure incurred on Research and Development.

C. Foreign exchange earnings and Outgoing-

The Foreign Exchange earned in terms of actual inflows during the year and
the Foreign Exchange outgo during the year in terms of actual outflows.

19 DIRECTOR RESPONSIBILITY STATEMENT 134(3) (c)

The Directors‘ Responsibility Statement referred to in clause (c) of sub-section

(3) shall State that—
– Accounting Standard
 – Accounting Policy
– Proper and efficient care for three things:
• Going concern Basis
• Adequate Internal Financial Control
• Compliances with all applicable law

20 COST RECORD

If provisions of Cost Record applicable on the Company then company have to

give details in Directors report that Company has maintained proper records
and account of the same as required under the act

Note: All the above disclosures are applicable to all companies except “one person
company” and small company. In case of one person company and small company only
selected disclosures from the above are applicable.

Disclosure and Reporting (Section 92): In the new Act, there is significant transformation
in non-financial annual disclosures and reporting by companies as compared to the earlier
format in the Companies Act, 1956.

Preparation of Annual Return-

 Every company shall prepare Annual Return. Particulars of Annual Return:

 Details of the registered office, principal business activities, particulars of its holding,
subsidiary and associate companies;

 Details of shares, debentures and other securities and shareholding pattern; its
indebtedness;

 Details of members and debenture-holders along with changes therein since the close
of the previous financial year;

 Its promoters, directors, key managerial personnel along with changes therein since
the close of the previous financial year; meetings of members or a class thereof,
Board and its various committees along with attendance details; remuneration of
directors and key managerial personnel; penalty or punishment imposed on the
company,

 Details of the directors or officers and details of compounding of offences and appeals
made against such penalty or punishment;

 Investors indicating their names, addresses, countries of incorporation, registration

and percentage of shareholding held by them

Ownership structure
  The prevailing ownership pattern is a crucial impediment in raising corporate
governance standards in India. There are two sets of issues pertaining to the
ownership structure of the listed companies in India.

 First, there is high concentration of ownership, which gives particular individuals or

families actual or effective control of most companies, even publicly traded
companies.

 For example, the share of promoters in NSE listed companies rose from 47.7 percent
in March 2002 to 57.8 percent in March 2010, but fell subsequently to 53.7 percent in
March 2013. The picture is not very different for the top companies.

 Second, a large number of companies in India are grouped together under the
common control of a single shareholder or family. In other words, not only are most
firms effectively controlled by a promoter group, but the same promoter group often
controls a large number of firms. This pattern of ownership poses challenges for
improving governance, partly because it raises probability of price manipulation.

 Also, by making it easier for the controlling shareholders to use related party
transactions (RPTs) as a vehicle for illegitimate expropriation of corporate value at
the cost of minority shareholders’ interest, this pattern of ownership gives rise to
serious potential conflicts of interest between the promoter group and the minority
investors. So what is the answer?

 Partly with the aim of addressing this situation, the minimum public shareholding
norms were prescribed in August 2010. Accordingly, the listed private and public
sector companies existing as of the date of the circular were required to ensure a
minimum public shareholding of 25 percent (by June 2013) and 10 percent (by
August 2013) respectively.

Related Party Transactions (RPT) (Section 188):

The 2013 Act defines the term “related party” to mean:

(i) A director or his relative

(ii) KMP or his relative

(iii) A firm, in which a director, manager or his relative is a partner

(iv) A private company in which a director or manager is a member or director

(v) A public company in which a director or manager is a director and holds along with his
relatives, more than 2% of its paid-up share capital
(vi) A body corporate whose board, managing director or manager is accustomed to act in
accordance with the advice, directions or instructions of a director or manager, except if
advice/ directions/ instructions are given in the professional capacity

(vii) Any person on whose advice, directions or instructions a director or manager is

accustomed to act, except if advice/ directions/ instructions are given in the professional
capacity.

(viii) A holding, subsidiary or an associate company of such company, or (ix) A subsidiary of

a holding company to which it is also a subsidiary (x) Such other persons as may be
prescribed.

RPT contracts
The new Act requires that no company should enter into RPT contracts pertaining to —

(a) sale, purchase or supply of any goods or materials;

(b) sale or dispose of or buying, property of any kind;

(c) leasing of property of any kind;

(d) availing or rendering of any services;

(e) appointment of any agent for purchase or sale of goods, materials, services or property;

(f) such related party's appointment to any office or place of profit in the company, its
subsidiary company or associate company.

In case such a contract or arrangement is entered into with a related party, it must be referred
to in the Board’s Report along with the justification for entering into such contract or
arrangement. Further, any RPT between a company and its Directors shall require prior
approval by a resolution in general meeting. Violations of these provisions would be
punishable with fine or imprisonment or both.

Board of Directors (Section 166):

The new Act provides that the company can have a maximum of 15 directors on the Board;
appointing more than 15 directors, however, will require shareholder approval.

Further, the new Act prescribes both academic and professional qualifications for directors.
In addition, for the first time, duties of directors have been defined in the Act. The Act
considerably enhances the roles and responsibilities of the Board of Directors and makes
them more accountable. Infringement of these provisions has been made punishable with
fine.

ii. Independent Director (Section 149): The concept of independent directors (IDs) has
been introduced for the first time in the Company Law in India. It prescribes that all listed
companies must have at least one-third of the Board as IDs. IDs may be appointed for a
term of up to five consecutive years. While the introduction of the concept of IDs in the new
Act is a welcome move, it does not appear to sufficiently address the enduring challenges
related to the effectiveness of IDs in the context of concentrated shareholding pattern in most
of the listed companies in India.

Independent Director-

Person of Integrity and possess relevant expertise and experience.

Should not have pecuniary relationship /transaction with the company/its promoters/its
Directors, current FY or previous two FYs.
Central Government may prescribe additional qualifications for IDs.
None of his relatives can have pecuniary transactions with the company or subsidiaries.

Not have held position of KMP or employee.

Interested Director
Section 184 talks about disclosure of interest of director. (a) The director is said to be an
“interested director” if: (i) The director, himself or; his,
(ii) Relatives;
(iii) Firm;
(iv) Body corporate;
(v) Other association of individuals;

(b) is a Partner, director or a member, interested in the contract or arrangement entered

into, by or on behalf of the Company, in which such an “interested director” is a
director.

Disclosure:

1. The director shall disclose his concern or interest in any company or companies or
bodies corporate, firms, or other association of individuals, including his
shareholding, if any, by giving a notice in writing. The director shall not participate
at the meeting of the Board in which such a contract or arrangement is discussed
in which the director is interested.
2. Every Company shall maintain one or more registers furnishing particulars of
company or companies or bodies corporate, firms, or other association of
individuals in which the director is, directly or indirectly, interested.

CSR committee

Corporate Social Responsibility (CSR) (Section 135): The new Act has mandated the profit
making companies to spend on CSR related activities. Every company having net worth of
Rs. 500 crore or more or turnover of Rs. 1000 crore or more or net profit of Rs. 5 crore or
more during any financial year shall constitute a CSR Committee of the Board. In pursuance
of its CSR policy, the Board of every such company–through these committees--shall ensure
that the company spends (in every financial year) at least 2 percent of the average net profits
of the company made during the three immediately preceding financial years.

Audit Committee
Companies Act states that the majority of members of Audit Committee including its

Chairperson should have the ability to read and understand the financial statements.

A listed company cannot appoint or reappoint (a) an individual as auditor for more than one
term of five consecutive years, or (b) an audit firm as auditor for more than two terms of five
consecutive years. To avoid any conflict of interest, the Act has mentioned the services that
an auditor cannot render, directly or indirectly, to the company, which include: accounting
and book-keeping services, internal audit, investment banking services, investment advisory
services, management services etc.

The Audit Committee shall consist of a minimum of 3 directors with independent directors
forming a majority.

Serious Fraud Investigation Office (SFIO) (Section 211):

The Act has proposed statutory status to SFIO.

SFIO is a multi-disciplinary organization under Ministry of Corporate Affairs, consisting of

experts in the field of accountancy, forensic auditing, law, information technology,
investigation,

company law, capital market and taxation for detecting and prosecuting or recommending for
prosecution white-collar crimes/frauds.

Investigation report of SFIO filed with the Court for framing of charges shall be treated as a
report filed by a Police Officer. SFIO shall have power to arrest in respect of certain offences
of the Act, which attract the punishment for fraud. Further, the new Act has a provision for
stringent penalty for fraud related offences.

Class action suits (Section 245):

For the first time, a provision has been made for class action under which it is provided that
specified number of member(s), depositor(s) or any class of them, may file an application
before the Tribunal seeking any damage or compensation or demand any other suitable
action against an BODs/audit firm, if they are of the opinion that the management or
conduct of the affairs of the company are being conducted in a manner prejudicial to the
interests of the company or its members or depositors. The order passed by the Tribunal
shall be binding on all the stakeholders including the company and all its members,
depositors and auditors.

Class action suit can be filed against the:

Company,
Any of its directors
Auditor, including audit firm
Expert or advisor or consultant or any other person