AUDITOFCOMPANIESFROMTHEPERSPECTIVEOFACOMPANYSECRETARY

R. C. Jain & Associates LLPChartered Accountants

NEEDFORCORPORATELAWCOMPLIANCEAUDIT

• Ensurestimelycompliancesandeliminatesanyun‐intendednoncompliance

• StringentpenalprovisionsunderCompaniesAct,2013

• Lengthyproceduretomakegoodthedefault

ANNUAL COMPLIANCES

• FilingofFinancialStatementsinFormAOC‐4within30daysoftheAGM

• FilingofAnnualReturninFormMGT‐7within60daysfromthedateofAGM

SecretarialCompliances:• EnsurethatMinutesofBoardMeeting,AGM,Extra‐OrdinaryGeneralMeetingarebeingmaintainedasperSS.

• DisclosureofInterestinFormMBP‐1hasbeentakenfromeachDirectorinthefirstBoardMeetingofeachFY

• EnsurethatnoneoftheDirectorsisholdingofficeasaDirectorinmorethan20Companiesatthesametime(Max.no.ofpubliccompaniesshouldnotbemorethan10)

Contd…EnsurethatthestatutoryregistersarebeingupdatedinaccordancewithCompaniesAct,2013‐• Registerofmembers• Registerofcharges• RegisterofDirectors• Registerofcontractsandarrangementsinwhichdirectorsareinterested

Section158‐ ObligationtoindicateDIN• Everypersonorcompany,whilefurnishinganyreturn,informationorparticularsshallmentiontheDirectorIdentificationNumber(DIN)insuchreturn,incasesuchreturn,informationorparticularsrelatetothedirectororcontainanyreferenceofanydirector

• Hence,whentheDirectorssignFinancialsStatementsandallitsannexures,itismandatorytoindicatetheDINofDirectors.

ApplicabilityofAuditCommitteeandNomination&RemunerationCommittee(Section177and178)• EveryListedCompany• AllPublicCompanieshavingpaidupsharecapitalofRs.10Crore ormore

• AllPublicCompanieshavingturnoverofRs.100Crore ormore

• AllPublicCompanieswhichhave,inaggregate,outstandingloans,debenturesanddeposits,exceedingRs.50Crore

VigilMechanism‐ WhistleBlowerPolicy

• EveryListedCompany• Companieswhichacceptdepositsfromthepublic

• CompanieswhichhaveborrowedmoneyfrombanksandpublicfinancialinstitutionsinexcessofRs.50Crore ormore

StakeholdersRelationshipCommitteeA companywhichconsistsofmorethan1000shareholders,debenture‐holders,deposit‐holdersoranyothersecurityholdersatanytimeduringafinancialyear needtoconstituteaStakeholdersRelationshipCommittee.

InternalComplaintsCommittee{underSexualHarassmentofWomenatWorkplace(Prevention,ProhibitionandRedressal)Act,2013}

EveryemployerofaworkplaceshallconstituteaCommitteeknownas“InternalComplaintsCommittee”Further,aspertheamendmentdated31st July,theBoard’sReportofeveryCompanyshallincludea statementthatthecompanyhascompliedwithprovisionsrelatingtotheconstitutionofICCunderthesaidAct.

Section135‐ CorporateSocialResponsibility

ApplicabletoaCompanyhaving‐• NetworthofRs.500crore ormore,or• TurnoverofRs.1000Crore ormoreor• NetprofitofRs.5Crore ormoreinanyofthethreeprecedingFYsEverysuchcompanyhastospendineveryfinancialyearatleast2%oftheaveragenetprofitsofthecompanymadeduringthe3immediatelyprecedingfinancialyears.Also,ifthecompanyfailstospendsuchamount,theBoardshall, specifythereasonsfornotspendingtheamountinitsBoard’sReport.

Event‐based Compliance checks

Section185‐ LoantoDirectorsetc.PostCompanies(Amendment)Act2017,theprovisionsofSection185havebeenmadepartlyprohibitiveandpartlyrestrictive (w.e.f.07th May,2018)

Category A Category BProhibitive to: Restrictive to:

1. Directors  of the  Company 1. Private Company in which any such director is a director/member

2. Directors of a Company which is its Holding Company (“HC”)

2. Any  body corporate at a GM of which at least 25% of the total voting power is exercised or controlled by any such director, or by two or more such directors, together;

3. Any partner of  the Director of the Company/HC 3. Any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.

4. Relative of any Director of the Company/Holding Company

5. Any firm in which any such Director/relative is a partner

POINTSTOBECHECKED‐

IncaseofPrivateCompanies,checkwhethertheexemptionNotificationdated05th June,2015appliestotheCompany?

Section185doesnotapplytoaPrivateCompany ifitfulfillsallofthefollowingconditions:• BodyCorporateshouldnotbeShareholder• BorrowingsfromBank/FinancialInstitution/BodyCorporateis

notexceeding‐‐TwiceofitsPaidupcapital‐Rs.50 crore

whicheverislower• Nodefaultinrepaymentofborrowingsissubsistingattimeof

givingloan

Check whether the loan given is exempted from the provisions of Section 185?

LoansexemptedfromtheprovisionsofSection185‐

• AnyloanmadebyaHCtoits WOS.• Anyguarantee/securityprovided by aHCinrespectofanyloanmadetoitsWOS• AnyguaranteegivenorsecurityprovidedbyaHCtoitssubsidiarycompanyinrespectofloan

madebyanybankorfinancialinstitution

[providedaboveloansareutilizedbyWOS/SubsidiaryCompanyforitsprincipalbusinessactivitiesandnotforfurtherinvestmentorgrantofloan]

• LoantoMD/WTD(asapartofpartofconditionofserviceextendedtoemployeesorpursuanttoaschemeapprovedbymembersbypassingaSpecialresolution)

• LoantoacompanywhichintheordinarycourseofitsbusinessprovidesloansorgivesguaranteesorsecuritiesfortheduerepaymentofanyloanandchargesinterestonsuchloansataratenotlessthanthatprevailingonGovernmentsecurities.(1/3/5yearyield‐ closesttotenoroftheLoan)

Check whether there is any other transaction with the Director which might be considered as a Loan to Director under Section 185?

• SupplyofgoodstoDirectoroncredit• Travellingadvance/conveyanceadvance• AdvancesalarygiventoDirectorInalltheabovecases,theanswershalldependonfactsofthecase.Ithastobefoundoutineachcasewhetherthesaleoncredit/travellingadvance/salaryadvancewasagenuineoneoraloandisguisedasacreditsale/advance.

Section186‐ LoanandInvestmentbyCompanyLimitsunderSection186• 60%ofthepaid‐upsharecapital,freereservesandsecuritiespremiumaccount,or

• 100%offreereservesandsecuritiespremiumaccount

whicheverismore Incasetheloan,guaranteeorsecuritygivenexceedstheabovelimits,checkwhetherpreviousapprovalbywayofSRhasbeenobtainedandthesamehasbeenfiledinFormMGT‐14?

Contd…

• Further, full particulars of the loans given, investment made or guarantee given or security provided and the purpose for which the loan or guarantee or security is proposed to be utilised by the recipient are to be disclosed to the members in the Financial Statement.

CheckwhetherBoardMeetingwasconvenedforgrantingapprovaltotheInvestmentmade/loan/guarantee/securitygiven?

CheckwhetherconsentofalldirectorspresentattheMeetingwasobtained?

CheckwhethertheapprovalofBanks/PFIhasbeenobtained,incaseswhereatermloanissubsisting?(*Notrequiredifthelimitsdonotexceed)

Checkthattheloanhasnotbeengivenatarateofinterestlowerthan prevailingyield1year/3year/5year/10yearGovernmentSecurityclosesttothetenoroftheloan

Checkthatthereisnosubsistingdefaultintherepaymentofdeposits

Deposits‐ Section73to76• AsperSection2(31)"deposit"includesanyreceiptofmoneybywayofdepositorloanorinanyotherformbyacompany,butdoesnotincludesuchcategoriesofamountasmaybeprescribed inconsultationwiththeReserveBankofIndia.

• TheamountswhicharenotconsideredasdeposithavebeenmentionedinRule2(1)(c)oftheCompanies(AcceptanceofDeposits)Rules,2014.

Pointstobechecked‐ WhereanyamounthasbeenreceivedfromaDirector/RelativeofDirector,

checkwhetheradeclarationinwritinghasbeenobtainedfromsuchperson thattheamountisnotbeinggivenoutoffundsacquiredbyhimby borrowingoracceptingloansordepositsfromothers.

Checkwhetherthereisanyadvancereceivedforthesupplyofgoodsorserviceswhichhasnotbeenappropriatedagainstsupplyofgoodsorprovisionofserviceswithinaperiodof365days fromthedateofacceptanceofsuchadvance.

Whereanyamounthasbeenreceivedasanadvancetowards considerationforanimmovablepropertyunderanagreementorarrangement,checkwhethersuchadvancehasbeenadjusted againstsuchpropertyinaccordancewiththetermsofagreementorarrangement.

Section188– RelatedPartyTransactions• AnytransactionwithaRelatedpartywhichisinitsordinarycourseofbusinessandonarm’slengthbasisisoutsidethepurviewofSection188.

• Thereafter,checkwhetherthetransactionwithaRelatedPartyisfallingunderclause(a)to(g)ofsection188(1),ifyescheckthelimitsspecifiedunderrulesforeachtransaction.

Section188– RelatedPartyTransactions• EveryRPTshallbereferredtointheBoard’sreporttotheshareholdersalongwiththejustificationforenteringintosuchcontractorarrangement.

• ItistobenotedthatAOC‐2shallincludedetailsofallRPTintwocategories‐ transactionsnotatarm’slengthbasisandmaterialtransactionsnotatarm’slengthbasis.

Section180‐ BorrowingsLimitsforwhichSRisrequired‐Whenthetotalborrowingsexceedpaid‐upsharecapital+freereserves+securitiespremium(excludingtemporaryloansobtainedfromthecompany’sbankersintheordinarycourseofbusiness)

ThissectionisnotapplicabletoPrivatecompanies.

OTHERIMPORTANTPOINTS‐

• DateofsigningofFinancialStatements,BoardReportetc.

• EnsurethattheFinancialStatementsarecompletei.e.BS,P&L,CashFlowStatement,AuditReport,CARO,NoticeofAGM,DirectorReport,MGT‐9,AOC‐1,AOC‐2etc.(ConsolidatedFinancials– ifapplicable)

THANK YOU!!!THANK YOU!!!