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NOVEMBER 2010ARTICLE

CORRUPTION IS NATURE'S WAY OF RESTORING OUR FAITH IN DEMOCRACY.

Common Mistakes in Annual Filings under Company Law- V. Ahalada Rao, Director B5Consulting Pvt. Ltd.- Khushboo Joshi, Secretarial Executive.

Introduction:

After completion of hectic schedule for Income Tax filings, it is high time to annualfilings under company law, all the compliance officers gear up to meet up thetimelines of annual filings, it is bound that due to work pressure it is so happens thata human brain tend to commit mistakes/errors. Thus, hereunder are portrayed fewcommon mistakes which happen and can be avoided while the company is going in

for annual filings. These mistakes usually ensue in private companies or closely heldcompanies.

Annual Fillings are those fillings which are required to be done in each calendar yearwith the Registrar of Companies, irrespective of whether the Company is carrying onany business or not or the company has conducted its AnnualGeneral Meeting(AGM) or not.

Gist of Annual flings under Company Law:

S.No. Document Section under Time limit e-FormCompanies Act

1 Balance-Sheet SEC.220 within Thirty days from the day AGM Form 23AC to be filed by all Companies

2 Profit & Loss Account SEC.220 within Thirty days from the day AGM Form 23ACA to be filed by all Companies

3 Annual Return SEC.159/160 within sixty days from the day AGM Form 20B to be filed by Companies havingshare capital

4 Annual Return SEC.159/160 within sixty days from the day AGM Form 21A to be filed by companies withoutshare capital

5 Compliance Certificate SEC.383A within Thirty days from the day AGM Form 66 to be filed by Companies having paidup capital of Rs.10

Generic Gaffes:

CATOGERY A: where the company has conducted AGM

(i) Relating to Balance sheet: Under Section 220 of companies Act, 1956,balance sheet figures have to be entered in e Form 23AC, few commonmistakes while filling up, they have been recognized as follows:

� Balance Sheet Abstracts:

Mistake: Not appending of Balance Sheet abstract to the e form 23AC andrather appending it to e form 20B

Legal Position: According to Section 220, After the balance-sheet andthe profit and loss account have been laid before a company at an annualgeneral meeting as aforesaid, there shall be filed with the Registrar withinthirty days from the date on which the balance-sheet and the profit andloss account were so laid or where the annual general meeting of acompany for any year has not been held, there shall be filed with theRegistrar within thirty days from the latest day on or before which thatmeeting should have been held. According to Schedule VI(Part IV) ofCompanies Act, 1956 and vide notification No.G.S,R 388(E) dated15-5-95, Balance Sheet abstracts and company's general business profilehas to specified in the format enumerated thereto.

Apt position: Though the form is being accepted on the portal withoutbalance sheet abstracts as attachment, it is violation of the Act. ThereforeBalance Sheet abstracts as an attachment is mandatory.

� Presentation:

Mistake: presentation of amounts in thousands

Legal position: According to schedule VI of the Companies Act, 1956depending upon the turnover of the company, the figures appearing in thefinancial statements shall be rounded off as below:

Turnover Rounding off

(i) less than one hundred crore To the nearest hundreds,rupees thousands or lakhs, or

decimals thereof.(ii) one hundred crore rupees To the nearest thousands,or more but less than one lakhs or millions, orthousand crore rupees decimals thereof.(iii) one thousand crore rupees To the nearest thousands,or more lakhs, millions or crores, or

decimals thereof.Apt Position: Balance sheet figures shall be presented depending on theturnover of the company and shall be rounded off accordingly.

However the figures relating to annual return in e form 23AC shall bepresented in Rs. and not thousands.

� Balance sheet dates:

Mistake: Date of directors report is former and auditors report date is laterthan that of the directors' report.

Legal Position: The date of auditors report and the directors' report shalleither be the same or the date of the auditors report shall precede directors'report date.

Apt situation: First: Auditors Report date (or as a addendum to DirectorsReport)

Secondly: Directors' Report date

Lastly: Notice of AGM date

� Stamp duty on Proxy Form:

Mistake: Printing of Proxy Form with ''Affix Revenue Stamp of Re.1/-

Legal Position: According to Section 3 and schedule I, entry 52 of IndianStamp Act, 1899:

PROXY empowering any person to vote at any one election of themember sat any one meeting of (a) members of an incorporated companyor other body corporate whose stock or funds is or are divided intoshares and transferable, (b) a local authority, or (c) proprietors, members

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NOVEMBER 2010ARTICLE

CORRUPTION, THE MOST INFALLIBLE SYMPTOM OF CONSTITUTIONAL LIBERTY.

or contributors to the funds of any institution, the liability of payment ofStamp Duty on such Proxy Form extends to Fifteen Paisa only.

Apt Position: Print proxy form with "Affix Revenue Stamp of 15 Paisa"or print the form with "Affix Revenue Stamp" irrespective of the fact thatrevenue stamp of 15 Paisa denomination is no longer in existence.

(ii) Relating to Directors' Report: Under Section 217 of companies Act, 1956, aDirectors' Report has to be primed by the Board which contents importantinformation relating to company and disclosures for presentation before theshareholders, some common mistakes are observed relating to Directors'Report and are described below:

� Signing :

Mistake : signing of directors' report only by one director and not signingby managing director where there is one.

Legal Position: According to the provisions of Section 217 of CompaniesAct, 1956 relating to signing of Directors' Report shall be adhered to strictly,the provisions relating to signing of directors' report it as follows:

- It shall be signed by chairman if he is authorized in that behalf by theboard else

- It shall be signed by TWO directors of the company one of whom shallbe a managing director where there is one

Apt Position: Directors' Report shall be signed by chairman if he isauthorized else by TWO directors of the company one of whom shall bea managing director where there is one or if it is signed by one Director he/she should be chairman of the company.

� Conversation of energy:

Mistake: There is a misconception that this head under directors' report isonly applicable to manufacturing units and thus mentioning under this headas ''Not Applicable" is a mistake by corporates.

Legal Position: According to Sec.217 (1) (e) of Companies Act, 1956,There shall be attached to every balance sheet laid before a company ingeneral meeting, a report by its Board of directors, with respect to theconversation of energy, technology absorption, foreign exchangeearnings outgo in relation to the company.

According to Companies (Disclosure of Particulars in the Report ofBoard of Directors) Rules, 1988, Clause A, every company has todisclose in its report as follows:

(a) energy conservation measures taken ;

(b) additional investments and proposals, if any, being implemented forreduction of consumption of energy ;

(c) impact of the measures at (a) and (b) above for reduction of energyconsumption and consequent impact on the cost of production ofgoods ;

(d) total energy consumption and energy consumption per unit of pro-duction as per Form A of the Annexure in respect of industriesspecified in the Schedule which mentions industries like Textile,Fertilizer, Aluminium, Steel, Refineries, Petro-chemicals and chemi-cals, Cement, Dairy and food processing, Cold storage plant, Elec-tric arc furnaces, Chlor alkali, Edible oil, Engineering, Glass, Jute,Paper, Refractory and pottery, Tea, Tyre, Sugar, Drugs and phar-maceuticals.

Apt Position: The companies for which there is no information availableto be displayed, it has to be mentioned as ''No significant informationavailable'' rather than mentioning ''Not Applicable''. Thus, the companies'which do not fall under Schedule which is mentioned under clause (d)need not give information relating to that aspect else all the companies aremandatorily required to give information pertaining to Clause (a),(b) and(c)which are given hereunder:

(i) energy conservation

(ii) additional investments and proposals.(iii) impact of the measures(iv) total energy consumption

� Earnings outgo:

Mistake: Non disclosure of minute foreign outgo, for Example: travellingexpenses, similarly non disclosure of receipts by the company. Ex-ample: receipts by way of gift.

Legal Position: According to Companies (Disclosure of Particularsin the Report of Board of Directors) Rules, 1988, Clause C, everycompany has to disclose in its report as follows:

Foreign exchange earnings and outgo :

(f) activities relating to exports; initiatives taken to increase exports ;development of new export markets for products and services ; andexport plans ;

(g) total foreign exchange used and earned.

Apt Position: Directors' Report should display all foreign exchangeoutgo and receipts irrespective of the fact that it is not revenue.

(ii) Relating to Annual Return: Under Section 159/160 of companies Act, 1956,an annual report has to be primed by the company which contents informationrelating to company's registration details, Capital structure of the company,shareholders' details, Debenture holders' details and directors details forsubmission with ROC within 60 days of completion of the AGM through e form20B, some common mistakes are observed relating to Auditors' Report and aredescribed below:

� Amount of Secured Loans in Annual Return:

Mistake:

(i) Amount of secured loan which reflects in current Annual Return isexclusive of interest amount added on to the loan amount as on thedate of Balance Sheet.

(ii) Submission of annual return followed by AGM does not reflect theincreased authorized capital where the approval was done in AGM.

(iii) if a company has planned for preferential allotment and passed theresolution approving the same and not reflecting it in annual return isincorrect.

(iv) Non inclusion of Directors name in current year Annual Returnappointed under Section 297 of Companies Act, 1956 in the AGM.

Legal Position: According to Schedule V of Companies Act, 1956, theSecured Loan amount reflected in current Annual Return shall be theamount which shall be inclusive of interest outstanding/accrued but notdue for payment as on the date of current annual return and not on the dateof Balance Sheet. Similarly details regarding the increased authorizedcapital, issued capital and also newly appointed Director on the Boardshall be reflected in current years' annual return since the annual returndetails shall be the one as on the date of Annual Return and not of the dateof Balance Sheet.

Apt Position: Presentation of Secured Loan amount in Annual Returnshall be inclusive of interest outstanding/accrued but not due for paymentas on the date of annual return and shall also reflect the increasedauthorized and issued capital along with the new director details.

� Presentation:

Mistake: presentation of amounts in Lakhs/ Rupees

Legal position: According to Schedule V of Companies Act, 1956 theAnnual Return amounts are to be presented in thousands and not in Rs. orLakhs.

Apt Position: Presentation of Annual return figures in thousands.

However the figures relating to annual return in e form 20B shall bepresented in Rs. and not thousands.

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NOVEMBER 2010ARTICLE

STILL, CORRUPTION AND OPPRESSION ARE FAR TOO COMMON THREATS TO THE DEMOCRATIC SOCIETY.

� Signing:

Mistake: Annual Return is not signed by the company secretary inemployment where the company has as company secretary or managerand is not signed by company secretary in whole time practice whereshares are listed on recognized stock exchange.

Legal Position: According to the provisions of Section 161(1) ofCompanies Act, 1956:(1) The Copy of the annual return filed with theRegistrar under section 159 or 160, as the case may be, shall be signedboth by a director and by the manager or secretary of the company, orwhere there is no manager or secretary by two directors of the company,one of whom shall be the managing director where there is one.

Apt Position: the provisions relating to signing of Annual Return shall beadhered to strictly, the provisions relating to signing of Annual Return is asfollows:

For unlisted/Private companies-

(i) Where the company has a full time Company Secretary or amanager appointed in accordance with Scc.269 of Companies Act,1956, the Annual Return should be signed by the CompanySecretary of the company and by one director of the company.

(ii) Where the company does not have a full time Company Secretaryor a manager appointed in accordance with Sec.269 of CompaniesAct, 1956, the Annual Return should be signed by Two Directors ofthe company one of whom shall be the Managing Director of thecompany where there is one.

For listed companies-

(i) Where the company has a full time Company Secretary or amanager appointed in accordance with Scc.269 of Companies Act,1956, the Annual Return should be signed by the CompanySecretary of the company and by one director of the company andby a Practicing Company Secretary.

(ii) Where the company does not have a full time Company Secretaryor a manager appointed in accordance with Scc.269 of CompaniesAct, 1956, the Annual Return should be signed by Two Directors ofthe company one of whom shall be the Managing Director of thecompany where there is one and by a Practicing CompanySecretary.

Thus, the professionals like Chartered Accountants and Company Secretariesshall take due care that such mistakes shall not be committed while complyingwith annual filings.

CATOGERY B: where the company has not conducted AGM:

Mistake: Due to various reasons the company may not be in a position toplace the audited results in front of shareholders, thus, they do not conductAGM and therefore do not comply with Annual Filings.

Legal Position: According to the provisions of Section 220(3) and Sec-tion 159 of Companies Act, 1956 and the e forms for filing which clearly

indicates for complying with Annual filings even if the AGM of the com-pany is not conducted.

Apt Position: The Company shall comply with the Annual Filings evenif the company has not audited its financial results or has not conducted itsAGM.

Irrespective of the fact that a company has conducted its AGM or not, it isadvised that the company shall do the Annual Filings. The company by showingthe reasons clearly as to not conducting the AGM can do its annual filings, bydoing so it will have the following advantages:

1. It would be looked up to as a Law complying company

2. In future it will not have to pay any additional fees.

3. It can avoid prosecution against it for non compliance.

Some Proactive steps that can be taken by the company to avoid superfluouscompliances by planning it in advance:

1. Declaration of dividend out of reserves: The Company instead oftransferring excess percentage of amount to reserves rather than what isrequired by law, it might so happen that in a year a company could notearn profit and wants to maintain a track of a dividend paying company. Insuch a case the company is advised not to transfer excess percentage toreserves but to maintain a surplus in profit and loss account else it willhave to follow Companies (Declaration of Dividend out of Reserves)Rules, 1975.

2. Statement of Advertisement: According to company's (Acceptance ofDeposits) Rules, 1975, the company cannot accept deposits for more than25% of paid up capital and free reserves after giving an advertisement innewspaper and such an advertisement shall be valid up to six monthsfrom the date of closing of financial year or the date of AGM, whichever isearlier, where the audited balance sheet of the is adopted. Thus, thecompany can file a statement of Advertisement in advance so that thevalidity period does not elapse. If the company in case do not accept anydeposits during the period a nil return of deposits can be filed with ROC onor before 30th June.

Emerging issues: Usage of symbol : the notification number F.NoF.No.03/17/10-Cy dated 26th August, 2010 issued by the Department of Economic Affairs,Ministry of Finance, Government of India, though clearly declares the usage ofsymbol in place of Rs. Re. a circular from Ministry of Company Affairs is calledfor amending the Law for clarification purposes.

Conclusion:

The above discussed were few common mistakes committed while it comes toannual filings. Thus, if the compliance officer takes a modest care while complyingwith the provisions such unwanted mistakes can be avoided. These mistakes seemto be tiny ones but might assemble one day to create unnecessary worries for thecompany. Moreover it is also a duty of a compliance officer to plan in advance, afterkeeping in view various provisions and compliances to be made as to how com-pany can slice down its efforts towards complying with various provisions. Thus,plan and then act.

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