MCA amends threshold limits for Related Party Transactions.

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On November 18, 2019 the Companies (Meetings of Board and its Powers) Second Amendment Rules, 2019 (“Amendment Rules“) amended certain threshold limits prescribed by the Rules.

The central government notified the Companies (Meetings of Board and its Powers) Second Amendment Rules, 2019 on 18 November 2019. The amendment rules amend sub-clause 3 of rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014. The amendment rules alter the various transaction thresholds within which the board may authorize a related party transaction without referring the matter to the shareholders pursuant to section 188(1) (Related party transactions) of the Companies Act, 2013.

Rule 15 provides for conditions applicable to the board taking up, discussing and approving a related party contract or arrangement. The first proviso to section 188(1) of the act provides that no contract or arrangement which exceeds certain monetary thresholds, in relation to the company’s paid-up share capital or otherwise, may be entered into without the prior approval of the shareholders by a resolution. The thresholds in relation to this proviso to section 188(1) of the act are prescribed by the rules and have been amended through the amendment rules as follows:

  • For a contract or arrangement in relation to a sale, purchase or supply of any goods, previously the threshold, was the lower of: (1) 10% or more of the turnover of the company; or (2)₹1 billion. The amendment rules have relaxed the threshold and fixed it at 10% or more of turnover of the company.
  • Similarly, for a contract or arrangement for selling or otherwise disposing of, or buying property of any kind, previously the threshold for requiring a shareholder resolution was the lower of: (1) 10% or more of the turnover of the company; or (2)₹1 billion. The amendment rules have relaxed the threshold and fixed it at 10% or more of turnover of the company.
  • The amendment rules has similarly amended the threshold for a contract or arrangement in relation to leasing of property any kind, and in relation to availing or rendering of any services (directly, or through the appointment of an agent). The amendment rules now fix the threshold at 10% or more of turnover of the company.

Accordingly, the ministry has relaxed the thresholds and made it simpler for companies to ensure ease of business, and the ease of entering into related party transactions.

 Nature of Related Party Transactions Earlier Threshold Limit* Amended Threshold Limit*
Sale, purchase or supply
of any goods or material (directly or through an agent).		 Amounting to ten percent (10%) or more of turnover or Rs. 100 Crore, whichever is lower. Amounting to ten percent (10%) or more of the turnover of the company.
Selling or otherwise
disposing of, or buying, property of any kind (directly or through an agent).		 Amounting to ten percent (10%) or more of net worth or Rs. 100 Crore, whichever is lower. Amounting to ten percent (10%) or more of the turnover of the company.
Leasing of property of
any kind.		 Amounting to ten percent (10%) or more of net worth or 10 percent (10%) or more of turnover Rs. 100 Crore, whichever is lower. Amounting to ten percent (10%) or more of the turnover of the company.
Availing or rendering of any services (directly or through an agent) Amounting to ten percent(10%)or more of turnover or Rs. 50 Crore, whichever is lower Amounting to ten percent (10%) or more of the turnover of the company
*limits specified above shall apply for transaction or transactions to be entered into either individually or taken together with the previous transactions during a financial year.
Appointment to any
office or place of profit in the company, subsidiary company or associate company		 Remuneration exceeding
Rs. 2,50,000 per month		 No Change
Underwriting the
subscription of any securities or derivatives of the company		 Remuneration exceeding
one percent (1%) of net worth		 No Change

Insolvency regime for personal guarantors to corporate debtors from December 1

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The provisions for resolution for individuals under the Insolvency and Bankruptcy Code (IBC) is being implemented in a phased manner. On Friday, the corporate affairs ministry said the provision pertaining to personal guarantors to corporate debtors will be in force from December 1
A case is taken up for resolution under the law only after approval from the National Company Law Tribunal.

The insolvency regime for individual guarantors to corporate debtors will be in force from December 1, according to the government.

The provisions for resolution for individuals under the Insolvency and Bankruptcy Code (IBC) is being implemented in a phased manner.

On Friday, the corporate affairs ministry said the provision pertaining to personal guarantors to corporate debtors would come into force from December 1.

The Code provides for a market-driven and time-bound resolution for stressed assets.

A case is taken up for resolution under the law only after approval from the National Company Law Tribunal (NCLT).

In October, Corporate Affairs Secretary Injeti Srinivas said personal insolvency regime would be fully operational in one year.

“In the first phase, personal guarantor to a corporate debtor is almost under commencement. The next would be the fresh start process, basically giving relief to very small borrowers who are not in a position to repay the debt. That may be in another four to six months. Then proprietorship and partnership and others,” he had said.

Source : Economic Times

MCA plans to amend CA Act to remove conflict of interest in audits

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The government, in creating disciplinary mechanisms, could consider bringing in disclosure norms for auditors with respect to non-audit services and fees charged by them

The Ministry of Corporate Affairs is planning to amend the Chartered Accountants Act to build disciplinary mechanisms for removing possible conflicts of interest between audit firms and companies they audit.

The government is also looking at ways to address the gaps in the law with respect to network entities of which audit firms are part.

“We need to strengthen the Chartered Accountants Act. Many entities need to be brought within the regulatory remit to create accountability and transparency,” a senior government official told Business Standard.

 

 

The government, in creating disciplinary mechanisms, could consider bringing in disclosure norms for auditor with respect to non-audit services and fees charged by them

 

Source:  Business Standard

Government mulls ceiling for audit firms amid crack down on lapses

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Governance lapses, negligence has loaded the banks with one of the world’s worst piles of bad debt.
A government-appointed panel on regulating auditors and the networks had suggested that the fee from non-audit services should not be more than 50% of the audit fee.

India is considering tougher rules for audit firms, including a cap on the number of listed companies they can examine, according to a person with knowledge of the matter, as the government seeks to tighten oversight after a recent spate of governance lapses.

In India, 70% of the about 1,800 companies that trade on the National Stock Exchange are audited by firms affiliated to EY, Deloitte & Touche, KPMG and PWC, according to Delhi-based Prime Database. Current rules stipulate that individual auditors can examine accounts of up to 20 companies, though there is no limit on number of audits for the company.

The Big Four in India operate through a network of local chartered accountants firms. One way for them is to partner as a member of a local firm. They can also allow their brand name to be used by sub-licensee of a member local firm. The ministry hasn’t decided if the cap on audits will be at the group level or on each member firm, the person said.

The government is planning to expand the list of services which can’t be offered by statutory auditors under the Companies Act. Currently, statutory auditors can’t offer nine services, directly or indirectly, including internal audit, investment banking, and actuarial services. There is no restriction on providing services such as taxation or restructuring and valuation.

One option is to tweak the present cap on fees that can be generated through offering non-audit services, the person said. This cap, fixed in 2002, says fees from non-audit work can’t be more than the aggregate statutory audit fees. A spokeswoman for the corporate affairs ministry declined to comment.

A government-appointed panel on regulating auditors and the networks had suggested that the fee from non-audit services should not be more than 50% of the audit fee.

Deloitte Ban
Governance lapses and negligence has loaded the nation’s banks with one of the world’s worst piles of bad debt. In some cases, allegations of fund diversion have surfaced, while the founders of some shadow banks have faced accusations of accepting kickbacks in exchange for loans.

The corporate affairs ministry earlier this month sought a ban on Deloitte Haskins & Sells and BSR & Co. for their role as auditors to IL&FS Financial Services, a part of the IL&FS Group that was seized by the government last year after a string of debt defaults.

Deloitte in an emailed statement said it’s fully compliant with Indian audit standards, while BSR said it would defend its position in accordance with the law.

Meanwhile, the banking regulator forbid EY affiliate S. R. Batliboi & Co. from taking on bank audits for a year and, in 2018, the markets watchdog banned the local unit of PricewaterhouseCoopers LLP for two years in relations to work from a decade earlier.

Source: Economic Times

Clarification on Auditor’s Certificate on Return of Deposits-DPT-3

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Clarification on Auditor’s Certificate on Return of Deposits pursuant to Rule 16 of the Companies (Acceptance of Deposits) Rules, 2014

This has reference to Rule 16 of the Companies (Acceptance of Deposits) Rules, 2014 and further amendments.

In this regard, the Ministry of Corporate Affairs vide its letter no. File No: P-01/08/2013- CL-V Vol. VI dated June 24, 2019 has clarified on the matter as under:

  • The Auditor’s Certificate is mandatory only in case of return of deposits.
  • For filing particulars of transactions not considered as deposits information contained therein as on 31st March of that year need not be from the duly audited Financial Statement.
  • Only in case of Return of Deposit information contained therein as on 31st March of that year should be from duly audited financial statement of the company.

Return of Deposits

Also in order to provide guidance to members, the Auditing and Assurance Standards Board of ICAI has issued Illustrative Auditor’s Certificate on Return of Deposits, which is available on the below cited link:

Illustrative Auditor’s Certificate on Return of Deposits as at [state the year end] pursuant to Rule 16 of the Companies (Acceptance of Deposits) Rules, 2014, as amended

(Chairman & Vice Chairman, Auditing and Assurance Standards Board)

June, 26th 2019

Income tax department eyes over Rs 100 bn from ‘struck off’ firms

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The income-tax (I-T) department is estimating tax recovery of over Rs 100 billion from companies that have been struck off from records of the Registrar of Companies (RoC) last year.

The tax department is in the process of filing a petition before the National Company Law Tribunal (NCLT) for restoration of registration in as many as 50,000 such companies.

The RoCs had struck off 300,000 companies after it was found they had not filed their statutory returns. Directors of these companies have been prohibited from holding directorships in any other company.
The move follows Central Board of Direct Taxes’ (CBDT) directive to identify, process and file petition to restore these companies by August 31. The board also asked the Ministry of Corporate Affairs (MCA) not to oppose the restoration application in the tribunal, as such a move would refrain them from launching tax recovery proceedings against these firms.
“Several of these companies are restricted to operate their bank accounts and movable and immovable properties until they are restored. The restoration will compel these firms to make relevant disclosures of credentials under Companies Act, and then accordingly tax proceeding will be initiated for tax recovery,” said an I-T official.

Tax industry experts, too, believe that restoration is essential to recover taxes due from these firms.

“The tax department is contesting the strike off of so-called companies as in several cases there would be pending tax demands that cannot be recovered if the company is not active. Also, even in cases where genuine companies have been struck off, with the best intentions, the companies would not be able to pay the tax dues as all their assets including bank accounts would be non-operational,” said Amit Maheshwari, partner at Ashok Maheshwary & Associates LLP.

The I-T department is of the view that these companies abused their corporate structure by creating multi-layering during  demonetisation for cash deposits. I-T probe also reveals that many individuals have used these firms for siphoning money or converting undisclosed cash to legitimate money post the note ban.

Official data say that 35,000 companies deposited and withdrew cash worth over Rs 170 billion after the note ban, through about 60,000 bank accounts.

It was noticed that the accounts that had negligible balance on November 8, 2016, have seen significant cash deposits and withdrawal during this period.

According to people with knowledge of the matter, along with restoration, the I-T department will also start issuing notices to these firms under Section 179 of the I-T Act, which makes the company’s directors/promoters liable to pay dues on behalf of the firm, without adjudication by the court.

Further, tax recovery officers have been asked to conduct survey operations on select firms where the tax demand is high. In cases where assets or bank accounts are lying abroad, the department will seek the foreign tax authority’s assistance to recover tax claims with the provisions in the relevant treaty, said another senior official.

Sources said that in a meeting of a task force on shell companies set up by the Prime Minister’s Office, on November 30 last year, the director general of corporate affairs (DGCoA) had suggested that the tax department approach RoCs for taking up the matter of reviving these companies. It was also suggested that revenue considerations should weigh in favour of restoring them.

Apart from these companies, another set of above 200,000 firms have been sent notices and action will soon be taken against them. However, the tax department wants MCA to keep them posted before striking off any company, since there could be tax dues.

 Taxing Affair
  • I-T pursuing restoration of 50,000 struck-off companies
  • RoCs had struck off 300,000 companies, prohibited their directors from holding directorship in other firms
  • Tax industry experts believe that restoration is essential for recovery of taxes from these firms
  • Restoration will allow companies to operate bank account, assets
  • After restoration, I-T to issue notices under Section 179 of I-T Act
  • Directors/promoters would be liable to pay tax dues
  • These firms abused corporate structure to facilitate significant cash transactions post note ban

Source: Business Standard

MCA sees Rs 2.8 lakh cr recovery from IBC-led resolution process

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Section 12 (A) of IBC allows for a withdrawal of an insolvency application if 90% of the creditors’ committee (CoC) by voting share approving it.

Terming the current insolvency process and its outcomes as ‘super success, Ministry of Corporate Affairs sees total recovery amount touching Rs 2.8 lakh crore through resolutions with the settlement of two key accounts, including some others — Essar Steel, where financial creditors have approved the resolution and Bhushan SteelNSE 5.27 % and Power.

“The 100 cases that have been settled through resolution accounts, Rs 1.8 lakh crore have been netted which is not a small amount and the accounts sitting on margin (Bhushan Steel and Power & Essar Steel), another Rs 1 lakh crore along with some other mid-sized resolutions can come, so Rs 2.8 lakh crore out of Rs 10 lakh crore of NPA that time is not a small amount, IBC is a super success”, says MCA senior officials on the insolvency processes

In case of Essar Steel, the CoC has approved the resolution process but the process got stuck after operational creditor Standard Chartered moved NCLAT for higher share from the funds. The debt-ridden steel firm had Rs 42,000 crore coming from the resolution plan of global steel major ArcelorMittal.

JSW Steel had revised its offer for Bhushan Power & Steel from Rs 11,000 crore to Rs18,000 crore and later to over Rs 19,000 crore which the CoC had approved.

And it is not just resolution process-led recoveries, the official said pre-resolution processes have also yielded results in 6,500 cases netting Rs 3 lakh crore on dead assets.

“6500 cases settled involving claims of close to Rs 3 lakh crore where they have been have settled before admission. And now after 12 (A) has been introduced, another 100 cases which are at stages of 90% CoC approval are moving towards out of court settlements. Both (in and outside resolutions and NCLT) are happening. About 500 cases have got settled through the court process and 6,500 cases settled even before admission”, said the officials.

Section 12 (A) of IBC allows for a withdrawal of an insolvency application if 90% of the creditors’ committee (CoC) by voting share approving it.

MCA officials dismissed the notion of high haircuts through resolution process. They said: “It (IBC) is super success. There should not be any brouhaha over haircuts. Will anybody pay more than what is the value? Suppose an asset is used for 20 years, there is nothing more to it, there is a Rs 50,000 crore loan, liquidation value is Rs 1,000 crore, so you get (the creditors) Rs 1,000 crore only.”

“Wherever a resolution has taken place, creditors are getting 200% of the liquidation value. So definitely value maximisation is the context, demand and supply will fix the value”, the officials said.

Source: Economic Times