Queries on Secretarial Audit

The present paper elaborates five most common queries relating to the Secretarial Audit. It relates to the applicability, number of audits, a PCS may undertake, scope of the audit and penal provisions.

1. ABC Pvt Ltd. was incorporated in the year 2010 as Private Company. Its paid up capital is Rs 35 crore, but the annual turnover for the financial year ended on 31^stMarch, 2016, first time crossed from Rs 240 crores to Rs 300 crores. XVY Ltd, a public company, controls the composition of the Board of Directors of ABC Pvt Ltd, hence in terms of Section 2(87) of Companies Act, 2013, ABC Pvt Ltd is treated as subsidiary company of XYZ Ltd. A newly appointed Company Secretary of ABC Pvt Ltd suggested the Board of Directors to get the Secretarial Audit of this company. Whether the Secretarial Audit of a Private Limited Company is mandatory as per the provisions of the Companies Act, 2013.

Section 204(1) of the Companies Act, 2013 (CA 2013) provides secretarial audit for bigger companies. In terms this section, "Every listed company and a company belonging to other class of companies as may be prescribed shall annex with its Board's report made in terms of sub-section (3) of section 134, a secretarial audit report given by a company secretary in practice, in such form as may be prescribed'.

Transferee-Co. can change its name as per Amalgamation Scheme without adhering to Companies Act

Where scheme of amalgamation provided that name of transferee company would be deemed to have been changed to name of transferor company then there is no need to follow the procedures and rules laid down under Companies Act for such change of name.

Facts

·         In pursuant to a scheme of amalgamation sanctioned under Section 391 of CompaniesAct, 1956 (corresponding to section 230 of Companies Act, 2013), it was decided that name of transferee company would be deemed to have been changed to name of transferor company.

·         However, Regional director raised an objection that Transferee Company should follow the procedures laid down under Section 21 of Companies Act, 1956 (corresponding to section 13 of Companies Act, 2013) for such name change even if scheme of amalgamation itself provides for such change.

The High Court held that-

·         Section 391 is a complete Code under which the Court can sanction a Scheme of amalgamation containing all the alterations required in the structure of the Company for the purpose of carrying out the Scheme.

·         In the instant case, scheme was passed through the procedure laid down under Section 391 and approved by the majority of the shareholders.

·         Hence, there was no need to follow the repetitive procedures laid down under Section 21 for name change when sanctioned scheme of amalgamation itself provide for the same- Michelin India (P.) Ltd. v. Michelin India Tamilnadu Tyres (P.) Ltd. [2015] 60 taxmann.com 220 (Madras)

Rules uploaded on MCA portal under Companies Act, 2013 won't be effective until their publication in gazette; HC

Bombay High Court questions application of Rules framed under Companies Act, 2013 from 1-4-2014, without they being notified in Gazette

The Bombay High Court held as under:
1)The website of the Ministry of Corporate Affairs3 has, on its front page, a link to a single scanned PDF file entitled "COMPANIES ACT 2013 - STATEMENT OF NOTIFICATION OF RULES".4 Some 21 rules are listed. They are all said to be effective 1st April 2014. Several of these are not yet gazette.

2)A question was raised that how any such rules can be made effective on this basis where a ministry simply puts up some scanned document under the signature of one of its officers but sans any publication in the official gazette. That publication is not an idle formality. It has a well-established legal purpose. That purpose is not and cannot be achieved in this ad-hoc manner.

3)Therefore, till such time as these rules are gazetted, or there is some provision made for the dispensation of official gazette notification, none of the rules in the Ministry of Corporate Affairs PDF document that are not yet gazetted can be said to be in force. - WADALA COMMODITIES LTD., IN RE [2014] 45 taxmann.com 245 (Bombay)

MCA notifies Rules under Companies Act, 2013

The Ministry of Corporate Affairs has notified 11 Rules under Companies Act, 2013. They will be effective from April 1, 2014. The major sections of Companies Act, 2013 have already been notified on March, 26, 2014. The salient features of these Rules are as under:

1)  New Definitions: It incorporates definitions of ‘Certifying Authority’, ‘digital signature’, ‘Digital Signature Certificate’,  ‘electronic Mail’, ‘electronic mode’ , electronic record’, ‘electronic Registry’.

2)  One person company (‘OPC’): Only a natural person who is an Indian citizen and resident shall be eligible to incorporate a OPC.

3)  Cessation of OPC status: OPC’s status shall be ceased if-

a)  Its paid up capital exceeds fifty lakh rupees or

b)  Its average annual turnover exceeds two crore rupees.

4) Penalty: The OPC or any of its officer will be liable for penalty of upto Rs 10,000 and further a fine of Rs 1,000 per day if they contravenes any of the provisions of these rules.

5) Prospectus:  Following reports shall be required to be filed along with the Prospectus:

a) Auditor’s report on profits and losses and assets and liabilities.

b) The reports of preceding five financial years relating to profits and losses of the enterprise. Reports can be filed for less than five financial years if the enterprise was in existence for lesser period.

c) Auditor’s report in respect of business of the enterprise.

6) Annual Return: Every company is required to prepare its annual return in Form No. MGT.7. Companies satisfying the following criteria are required to certify its Annual Return from a Company Secretary in practice:

(i)    listed companies or

(ii)   Companies having paid-up share capital of Rs 10 crore or more or

(iii)  Companies with turnover of Rs 50 crore or more.