The Presentation explores practical solutions to the problems under Indian Companies Act, 2013 being faced by corporates. The focus is on micro level solutions on the basis of proviso, rules and notifications. Ease of doing business and compliance of the law is main spirit whole suggesting solutions.

1. Organizers: Chandigarh Chapter of Institute of
Chartered Accountants of India
DATE: 03.09.2014
TIME: 5.00 PM TO 9.00 PM
VENUE: HOTEL ORBIT, CHANDIGARH
TEAM AGBians

2. • Every DIN need to be compulsorily
preceded by DSC
• Number of supporting documents
increased
• Every supporting document need to
be notarized or apostiled
• Affidavit and Signature Verification
Form
• No Physical Letter from DIN Cell
only E-mail to DIN applicant
TEAM AGBians

3. • Always procure superior Class (3)
digital signature as these can be
used everywhere
• Careful Analysis of Documents
and notable discrepancies in
supporting documents
• Signature Verification Form – get
it attested by Notary not bank
• Don’t wait for DIN letter rather
take note of it from Challan
TEAM AGBians

4. • Commencement of Business
Certificate has become
compulsory for all
• This takes time because of
receipt of subscription money
and auditor’s appointment
• Payment of Stamp Duty on INC-
21
• Signature Verification Form of
all subscribers
TEAM AGBians

5. • Keep Rubber Stamp and letter
head ready even before
Incorporation
• Immediately apply for PAN
• Open Bank Account with PAN
acknowledgement
• Keep Auditor appointment related
both side papers ready even before
Incorporation
• Preserve Signature Verification
Forms of all subscribers submitted
at the time of INC TEAM AGBians

6. • Only at Arms Length Price
(ALP)
• Only in Ordinary Course of
Business (OcoB)
• With the approval of
uninterested directors
• With the approval of
uninterested shareholders
TEAM AGBians

7. Second Proviso: “Provided further
that no member of the
company shall vote….”
• Induct Independent Shareholders
– two or five
• Convene EGM and get the OR
passed for prior period with limits
not exceeding prescribed limits
• In the same EGM, get the SR
passed for double limits and
submit form 14.
TEAM AGBians

8. The solution revolves around third
proviso:
“Provided also that nothing in
this sub-section shall apply to
any transaction entered into
by the Company in its
Ordinary Course of Business
other than transactions which
are not at arm’s length basis.”
TEAM AGBians

9. PROCUREMENT -
GOODS/SERVICES
• Taking three competitive
quotes from unrelated parties,
OR
• Taking Fair Price Certificate
from expert of respective field,
AND
• Disclose the same in Audit
Committee / Board
TEAM AGBians

10. SALE – GOODS or SERVICES
Third proviso: In case of
transaction under OCoB:
• Keep the price same as
offered to outside parties
• Get the same noted by
Audit Committee / Board
TEAM AGBians

11. RPTs - not at ALP and /or non
OCoB
In Case of Big Public Limited
Companies:
• Induct Independent Directors
• Get it Noted by AC and Board
• Convene EGM and pass SR with
liberal limits, submit form and
get the same noted subsequently
by AC and Board
TEAM AGBians

12. • My Client has reported substantial amount
in DPT 4.
• The Company is short of funds and may
not be able to refund the money in full on
or before 31st March, 2015
• Banks may not lend money for repayment
of unsecured loans and other such entries
• My Client though should have but has not
reported amount in DPT 4 and I am
intending to resign as Auditor.
TEAM AGBians

13. • If you have filed DPT-4 then make plan
to pay off the money – no settlement
other than pay off allowed
• If you have not filed DPT-4 but Financial
Statements are yet to be finalized, then
make triangles / change nomenclature /
adjustment by way of correspondence
prior to 31st March, 2014
• Check Loan approval letters form FI /
Banks – about the condition in relation to
unsecured loans
• Advances from Customers
• Deposit from Employees
TEAM AGBians

14. • Funding Options are very
limited in SME Businesses
• Organized Sector is not
interested in extending funds
to them
• Most of the Balance Sheet do
not generate Internal accruals
on YoY basis
• Windows of Soft Fundings
being used till now have been
closed
TEAM AGBians

15. • Don’t pay Interest if Unsecured
Loan is being provided by
Shareholders / Non Shareholders
(and get covered in R2(c) (xi)
• Take Unsecured Loan from Directors
along with Declaration. “…that
amount is not being given out of the
funds acquired by him by
borrowing or accepting loans or
deposits from others.” R2 (c )(viii)
• Remember the word “gift” is not
there
TEAM AGBians

16. • …..and new Triangles - Being
Developed
• …..get the stipulation inserted by
lending FI or a bank . R2 (c )(xiii). Then
unsecured loan can be taken not only
form promoters but also from their
relatives (clause is silent about
payment of interest)
• Caution: Desist loan from any other
company if any Director is interested
in that despite clause R2 (c )(vi)
because of Section 185 but triangles
are not banned.
TEAM AGBians

17. • There are so many methods of valuation –
not easy to finalize suitable method –
experts are not available to guide and
advise
• What to do where few shareholders are not
traceable for the reasons known to all
professionals
• The Offer Document for Private Placement
is too lengthy. My clients are not ready to
shell out fees matching with efforts.
• Even Right Issue is cumbersome – What of
few shareholders don’t agree to subscribe
shares?
TEAM AGBians

18. • In case of small clients – this is
always better to adopt right issue
than preferential issue
• You Know transfer of shares routes
is still available without much
restrictions – rather easier than
previous Act.
• Valuation Issues – See lack of
experts as opportunity rather than
bottleneck
• Non-traceable shareholders are not
problem rather they are solutions
TEAM AGBians

19. • Compliance Management Cost of
keeping the Company alive has
increased under new Companies
Act, 2013
• …and still there is threat of
penalties and my client is not
ready to increase the fee of
professional services
• Getting regular calls from my
clients for converting private
limited companies into
partnerships
TEAM AGBians

20. ALTERNATIVES AVAILABLE
• Convince the Client to Continue: As
Incorporating New Company has become
difficult
• FTE Scheme: Put the papers under Fast
Track Exit Scheme
• Dormant Company: Let the Company
become Dormant till provisions are eased
out (5 years max.)
• Shelf Company: Keep the Company as
Shelf Company and change the
management – make money
TEAM AGBians

21. • ….the purpose of clause (a) of sub-
section (1), the depreciation shall be
provided in accordance with the
provisions of Schedule II.
• Clause 1, Part A of Sch.II Dep is
systematic allocation of the depreciable
asset over its useful life – prescribed in
PART C
• …Depreciable amount is cost of an asset
less its residual value.
• What to do in case of more than one shift?
• What to do in case of existing assets?
TEAM AGBians

22. FIXED ASSETS, AGING AND DEPRECIATION
• Relax…… Working can start after 1st
April, 2015 if not started already
(29.08.14)
• In case, life of asset is different from
prescribed in Schedule or residual value
of asset is more than 5% of its value -
Keep logical explanation along with
technical reasoning ready with special
reference in Notes.
• Read Clause 6 of Schedule II
• Real action lies here – calculate
remaining life, calculate residual value
and much more
TEAM AGBians

23. LOANS TO DIRECTORS,ETC. S185
• Money flow from one company to
another company restricted
• In India, Banks shy away from
providing loans to Medium and
Small Companies.
• Restricted to Director as well as
any other person in whom
Director is interested including
body corporate
• Sever punishment on both the
parties 5-25 and upto 6m or 5-25
TEAM AGBians

24. LOANS TO DIRECTORS, ETC. S185
First Proviso “Nothing contained in
this sub-section apply to…
(a) Loan to MD/WTD
– as part of condition of service
extended to all its employees
– Scheme approved by members
by way of special resolution
(b) Company in OcoB at RoI of
more than Bank Rate (because of
this reason NBFCs have become
more costly in grey market)
TEAM AGBians

25. LOANS TO DIRECTORS, ETC. S185
R10ChXII
(1) To WOS – Loan, Security or
guarantee
(2) To Subsidiary – Guarantee given or
security provided in respect of any
loan made by bank or FI
Remember
 Loan should be utilized for principal
business activities only
 Guarantee / Security against any
loan extended by NBFC is violation
TEAM AGBians

26. LOANS AND INVESTMENT BY COMPANY S186
• More than two layers not allowed
• 60% of PuC+FR+SP or 100% of FR+SP
• Cumbersome and Repetitive Disclosure requirement
– In Explanatory Statement to EGM (3)
– In Financial Statement (4)
– In Director’s Report
• Cumbersome Eligibility / Approval Process
– RoI not less than BR matching with tenure
– No Default in repayment of Loan, Deposit or
interest
– Consent of PFI (5)
– Unanimous Consent of Board (5)
• Register Requirement (9)
• Heavy Penalties – Co – upto 5L Every Officer 25K to 1L
and upto 2yrs
TEAM AGBians

27.  Remember – This is only procedural
Section whereas Section 185 is
Driving Section
 There is no restriction on Investments
only compliance required
 Overseas acquisition allowed even
beyond two layers of investments
 Nothing in this Section shall apply
 Loan or guarantee or security - In
case of NBFC/HFC/BC/IC or on
companies providing Infrastructural
facilities
TEAM AGBians

28. CONSOLIDATED FINANCIAL STATEMENTS S129(3)
• CFS Required wherever one or
more subsidiaries
• MORE WORRISOME : Explanation
in Section: The definition of
Subsidiary includes associate
company and joint venture
• CFS will require separate and
Parallel system
• CFS need to be audited
separately by separate auditor
• Not only current year figures but
comparative figures of last year
also required
TEAM AGBians

29. CONSOLIDATED FINANCIAL STATEMENTS S129(3)
 Change shareholding if your client
wish so and come out of CFS
 Relax for the time being – CFS will be
required for 2014-15 onward
 This is an opportunity – as Schedule
III mention very brief detail about
CFS –whosoever is innovative
enough will get referral practice
 Fees will happen only for
reproducing data in different format
without digging deep into books
 Take clue from CFS of Listed entity
and You will become expert
TEAM AGBians

30. FORM MGT 14 – OH MY GOD? S117(3) and S179(3)
• Most Frequent Form – Even More
Frequent than Board Meeting
• Not only for resolutions but also
for agreements
• Not only resolution but
explanatory statement is also
required (Does it mean explanatory
statement required for BM also)
• Heavy Penalties for Non-filing and
late filing (beyond 270 plus
mandatory period) Co 5L to 25L
Every Office 1L to 5L
TEAM AGBians

31. FORM MGT 14 – OH MY GOD? S117(3) & S179(3)
 Earlier we used to keep on BM date
open and used to insert resolutions in
same meeting – urgent need to change
the habit even in small company
 Instead of EGM, plan carefully and
insert resolutions in AGM in one go
 Same MGT 14 can be used for bundle
of resolutions if the date of Meeting is
same
 Remember penalties are very heavy –
time to tighten the belt
TEAM AGBians

32. • Collecting Information about Pain Areas of Individual
Members on monthly Basis
• Sending the same to RC and CC of ICAI for onward
submission to MCA
• Submitting Memorandum on Practical Difficulties to
MCA every month – based on experience of members
if ICAI guidelines allows to do so.
• Even repeating unresolved difficulties is advised who
knows – some other officer might deal file and may be
sympathetic this time.
• While preparing memo – keep MSME in mind for
providing logic – rather submit one copy of Ministry of
MSME for follow up with MCA
TEAM AGBians

33. Through follow up Memorandum: Strive for relaxation
in:
• Section 144 - Auditor not to render certain services -
Exemption under Section 144 in case of OPC and
Small Companies – allowing S. Auditors to provide
all sorts of Services
• S138 Internal Auditor – Not to allow employee to be
Internal Auditor – in public limited companies with
PuC of less than 50 cr or turnover of 500 cr or
borrowings of 100 cr.
• Related Party Transactions need more relaxation –
latest relaxation has rather made it more
complicated. TEAM AGBians

34. Ajay Garg
Team AGBians
agbcorplegal@gmail.com
www.agbcorplegal.com
09811386723