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

• 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

• 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

• 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

• 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

• 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

Second Proviso: “Provided furtherthat no member of thecompany 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

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

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

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

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 withliberal limits, submit form andget the same noted subsequentlyby AC and Board

TEAM AGBians

• 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

• 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 EmployeesTEAM AGBians

• Funding Options are verylimited in SME Businesses

• Organized Sector is notinterested in extending fundsto them

• Most of the Balance Sheet donot generate Internal accrualson YoY basis

• Windows of Soft Fundingsbeing used till now have beenclosed

TEAM AGBians

• Don’t pay Interest if UnsecuredLoan is being provided byShareholders / Non Shareholders(and get covered in R2(c) (xi)

• Take Unsecured Loan from Directorsalong with Declaration. “…thatamount is not being given out of thefunds acquired by him byborrowing or accepting loans ordeposits from others.” R2 (c )(viii)

• Remember the word “gift” is notthere

TEAM AGBians

• …..and new Triangles - BeingDeveloped

• …..get the stipulation inserted bylending FI or a bank . R2 (c )(xiii). Thenunsecured loan can be taken not onlyform promoters but also from theirrelatives (clause is silent aboutpayment of interest)

• Caution: Desist loan from any othercompany if any Director is interestedin that despite clause R2 (c )(vi)because of Section 185 but trianglesare not banned.

TEAM AGBians

• There are so many methods of valuation –not easy to finalize suitable method –experts are not available to guide andadvise

• What to do where few shareholders are nottraceable for the reasons known to allprofessionals

• The Offer Document for Private Placementis too lengthy. My clients are not ready toshell out fees matching with efforts.

• Even Right Issue is cumbersome – What offew shareholders don’t agree to subscribeshares?

TEAM AGBians

• In case of small clients – this isalways better to adopt right issuethan preferential issue

• You Know transfer of shares routesis still available without muchrestrictions – rather easier thanprevious Act.

• Valuation Issues – See lack ofexperts as opportunity rather thanbottleneck

• Non-traceable shareholders are notproblem rather they are solutions

TEAM AGBians

• Compliance Management Cost ofkeeping the Company alive hasincreased under new CompaniesAct, 2013

• …and still there is threat ofpenalties and my client is notready to increase the fee ofprofessional services

• Getting regular calls from myclients for converting privatelimited companies intopartnerships

TEAM AGBians

ALTERNATIVES AVAILABLE

• Convince the Client to Continue: AsIncorporating New Company has becomedifficult

• FTE Scheme: Put the papers under FastTrack Exit Scheme

• Dormant Company: Let the Companybecome Dormant till provisions are easedout (5 years max.)

• Shelf Company: Keep the Company asShelf Company and change themanagement – make money

TEAM AGBians

• ….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

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 moreTEAM AGBians

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

LOANS TO DIRECTORS, ETC. S185

First Proviso “Nothing contained inthis 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

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

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 orinterest

– Consent of PFI (5)

– Unanimous Consent of Board (5)

• Register Requirement (9)

• Heavy Penalties – Co – upto 5L Every Officer 25K to 1Land upto 2yrs

TEAM AGBians

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

CONSOLIDATED FINANCIAL STATEMENTS S129(3)

• CFS Required wherever one ormore subsidiaries

• MORE WORRISOME : Explanationin Section: The definition ofSubsidiary includes associatecompany and joint venture

• CFS will require separate andParallel system

• CFS need to be auditedseparately by separate auditor

• Not only current year figures butcomparative figures of last yearalso required

TEAM AGBians

CONSOLIDATED FINANCIAL STATEMENTS S129(3)

Change shareholding if your clientwish so and come out of CFS

Relax for the time being – CFS will berequired for 2014-15 onward

This is an opportunity – as ScheduleIII mention very brief detail aboutCFS –whosoever is innovativeenough will get referral practice

Fees will happen only forreproducing data in different formatwithout digging deep into books

Take clue from CFS of Listed entityand You will become expert

TEAM AGBians

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

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

• 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 MCATEAM AGBians

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

Ajay Garg

Team AGBians

agbcorplegal@gmail.com

www.agbcorplegal.com

09811386723