Note on Penal Provisions Relating to Clause 41 of Listing Agreement

A Brief Analysis of Clause 41 of the Listing Agreement and its Penal Provisions

 By

CS D Hem Senthil Raj and CS K Vinoth

Introduction:

As per Clause 41 of the Listing Agreement, every company shall submit quarterly, year to date and annual financial results to the stock exchange (SE) in the manner as prescribed under the clause.

Further, the company has an option to submit either audited financial results with audit report or un-audited financial results subject to limited review by statutory auditors quarterly and year to date financial results to the SE within 45 days of end of each quarter (Other than last quarter).

For the last quarter alone the company has an option to submit its audited financial results (both standalone and consolidated) for the entire financial year within 60 days from the end of the financial year.

Further in case of non compliance with the requirement of clause 41 it will be an offence and violation of the provisions of Listing Agreement.

What are the implications in case of Non-compliance with the provisions of Listing Agreement:

In case of non compliance of certain provisions of listing agreement, Securities and Exchange Board of India (SEBI) vide its circular no. CIR/MRD/DSA/ 31/2013 dated September 30, 2013 have implemented the following:

(i)       “Uniform fine structure” for non-compliance of certain clauses of the listing agreement

  (ii) “Standard Operating Procedure” (SOP) for suspension and revocation of suspension of trading in the shares of such listed entities.

ü  The circular inter-alia stipulates imposition of fines as action of first resort (Refer Annexure I)

ü  Transfer to Z group, (Refer Annexure II) 

ü  Freezing of promoter holding and invocation of suspension of trading in cases of subsequent and consecutive defaults. (Refer Annexure III) and procedure for revocation (Refer Annexure IV).

Penal Provision in case of non – compliance of Clause 41 of Listing Agreement:

Clause of listing agreement	Due date of Submission as per Listing Agreement	Commencement of Levy of Penalty	Fine payable for 1st non-compliance	Fine Payable each subsequent and consecutive non-compliance
Clause 41 Non submission of the financial results within period prescribed under this clause	60  days **from the end of quarter (where it is the final quarter)	61st day from the end of quarter	Rs. 5000/- per day till the date of compliance and If non-compliance continues for more than 15 days additional fine of 0.1 % of Paid Up capital* of the entity or Rs. 1 crore, whichever is less.	Rs. 10000/- per day till the date of compliance and If non-compliance continues for more than 15 days additional fine of 0.1 % of Paid Up capital* of the entity or Rs.1 crore, whichever is less.
	45 days from end of quarter for other quarters	46th day from end of quarter.

*paid up capital as on first day of the financial year in which the non compliance occurs.  (This would refer to the listed capital as per Exchange records).

** would be on the basis of company’s financial year end.

Notes:

ü  While analyzing the case for non submission, companies which have submitted incorrect, incomplete or undecipherable report whereby the said report could not be disseminated or taken on record, the same would be treated as non submission and dealt with accordingly.

ü  Computation of fines would commence one day after the due date specified for submission mandated in the Listing Agreement and would continue till the date of submission (including the day of submission). For example, where the last day for submission falls on Saturday, then due date would be the next working day of the exchange (Monday) and the fine in case of non submission, would commence from Tuesday. However, in case the due date falls on a Friday then the computation of fine would commence from Saturday.

ü  The fine amount (including service tax – presently at 12.36%) may be remitted thru electronic transfer or through cheque favouring BSE Ltd. It may be noted that as per SEBI circular all fines collected would be ultimately credited to the BSE Investors Protection Fund.

Creation of a new category "Z" for trading:

If a listed entity commits two or more consecutive defaults in compliance of clause 41 of the listing agreement within 15 days from date of the notice issued, the concerned recognised stock exchange shall, in addition to imposing fine as specified above, move the scrip of the listed entities to "Z" category.

 "Z" Category where trading of shares of non- compliant listed entities shall take place in 'trade for trade' basis.

Suspension of Trading will be done if the company fails to comply with clause 41 of listing agreement with respect to submission of financial results for two consecutive quarters

*****

BY

CS K VINOTH

CS D HEM SENTHIL RAJ

Blog: http://csthenewera.blogspot.in/

Declaration of Beneficial Interest Under CA, 2013

Declaration in respect of Beneficial Interest in any Shares

By

CS K Vinoth & CS D Hem Senthil Raj

Overview:

Section 89 of the Companies Act, 2013 and Chapter VII of The Companies (Management and Administration) Rules, 2014 covers the concept of declaration of beneficial interest in any shares (Including Preference Shares).

Purpose for having Beneficial Interest

The concept of declaration of Beneficial Interest in any shares can be used for any of the following purposes by the companies:

ü  To satisfy the requirement of minimum number of members (i.e.) 2 (Two) in case of a private limited company and 7 (Seven) in case of an unlisted public limited company.

ü  To incorporate or to have a wholly owned subsidiary.

                    Procedure involved in Declaration of Beneficial Interest:

Step -1:

The person or a company (as the case may be), who holds the beneficial interest in any share shall submit the declaration as prescribed by The Companies (Management and Administration) Rules, 2014 in Form MGT 5 along with the covering or request letter to the company in which they hold the beneficial interest within one month from the date of acquisition or change in beneficial interest.

Step-2:

The person or the company (as the case may be), whose name to be entered into the register of members of the company shall submit the declaration as prescribed by The Companies (Management and Administration) Rules, 2014 in Form MGT 4 within one month from the date of acquisition or change in beneficial interest.

Step-3:

On receipt of declaration in Form MGT 4 & 5 by the company, the same shall be placed before the board for approval. The company are also required to intimate the Registrar of companies in e-form MGT 6 (Available in MCA Portal) within one month from the date of receipt of declaration in Form MGT 4 & 5.

Documentation Involved:

  Person or company holding Beneficial Interest in Any Shares:

                        ü  Covering or request Letter intimating the change in acquisition or                   change in beneficial interest.

ü  Form MGT 5.

ü  Proof of Identity of Beneficial Owner/Registered Owner

üInstrument under which beneficial interest is created/transferred/changed.

 Person or Company Name to be registered with the Register of Members:

         ü  Form MGT 4

ü  Proof of identity of Beneficial Owner/Registered Owner

                   Company:

ü Board Resolution for approval of Form MGT 4 & 5.

ü Filing of e-form MGT 6 with the ROC.

ü Updation of Members registers.

(Note to be written in Remarks column as acquisition of beneficial interest or transfer of beneficial interest as the case may be)

Penal Provisions in case of non-compliance of section 89:

                  In case of person:

An person fails to make a declaration under section 89(1)(,(2) & (3) without any reasonable cause, he shall be punishable with fine which may extend to fifty thousand rupees and where the failure is continuing one, with a further fine of one thousand rupees every day.

In case of Company:

If a company fails to file the return within the stipulated time period, the company and every officer of the company who is in default shall be punishable with fine which shall not be less than five hundred rupees and may extend to one thousand rupees and where the failure is a continuing one, with a further fine of one thousand rupees every day.

Frequently Asked Question:

Whether Section 89 and Rules are applicable for Declaration of interest in case of a preference share?

 Yes, the Section and Rules are applicable to any kind of shares and the above said procedure shall be followed.

Whether the procedures specified in this Section and Rules are to be followed in case of companies having dematerialised shares?

 Yes, the procedures are same, however the companies are required to intimate about the request received either acquisition or transfer of beneficial interest, as the case may to be to the Depository Participant for the purpose of updation of register of members.

 Similarly the company shall attach the covering letter to the e-form MGT – 6 to be filed with the ROC by specifying that the shares of the company are held in demat and the company cannot fill the distinctive number, which is the mandatory column in the e-form MGT - 6.

Whether the registered members are entitled to participate and vote in general meeting?

 Yes, even they have right to appoint proxy.

Can the employees or friends or relatives of the beneficial owner shall hold share as registered members on behalf of the beneficial owner?

Yes.

Unanswered Question under Companies Act, 2013:

Whether Section 185 of the CA, 2013 is applicable in case of lending company director who holds more than 25% of equity shares in the public limited (who got loan from lending company) as a registered shareholder on behalf of a beneficial owner?

BY

CS D HEM SENTHIL RAJ

CS K VINOTH

FINANCIAL STATEMENT AND CONSOLIDATED FINANCIAL STATEMENT UNDER CA,2013

FINANCIAL STATEMENTS & CONSOLIDATED FINANCIAL STATEMENTS UNDER COMPANIES ACT, 2013

By

CS D HEM SENTHIL RAJ AND CS K VINOTH

OVERVIEW OF SECTION 129 OF CA, 2013

Section 129 of the Companies Act, 2013 lays down that the financial statements shall give a true and fair view of the state of affairs of the Company or Companies comply with the Accounting Standards and the format of those financial statements shall be as per Schedule III of CA, 2013.

Sub Section (3) of Section 129 of the Companies Act, 2013 mandates every company to prepare a consolidated financial statement for all the Companies having one or more subsidiaries. 

The Financial Statements of the Company shall be laid by the Board of Directors before the shareholders at the Annual General Meeting for each financial year.

Key Points to Note in Subsidiary Definition under CA, 2013:

Subsidiary includes Associate Companies and Joint Ventures both in India and Foreign country.

Applicability of Consolidated Financial Statement (CFS):

ü  Private Limited Company

ü  Public Unlisted Company and

ü  Listed Company

Objective of CFS:

The Concept of CFS was brought with an objective of achieving the true and fair view of reporting the position of the company for the financial year, since the consolidated financial Statements are generally considered as the primary financial statements from an economic entity perspective, whereas the standalone Financial Statements projects only the position of the company in its individual performance and it does not provide the true and fair view to the  shareholders about the overall performance of the company with its subsidiaries.

Synopsis:

Previously listed companies which are having subsidiary companies (Associate or Joint Venture is not included in the definition of Subsidiary Company) are required to prepare the consolidated financial statements under the Securities and Exchange Board of India (SEBI) Regulations.

Now the CA, 2013 mandates every Listed, unlisted public and private limited companies to prepare consolidated financial statements which are having subsidiary companies as defined under Section 2(87) of the Companies Act, 2013, which includes Associate Company and Joint Venture (Both in India and Abroad).

Additional Disclosures:

The Company in addition to the financial statements shall also attach a separate statement containing the salient features of the financial statements of the subsidiaries.

Format of Financial Statement:

The Format of Financial Statement shall be as per Schedule III of the Companies Act, 2013.

General Instruction for the preparation of Consolidated Financial Statement are given in the Schedule III of the CA, 2013 which provides an option to the companies to disclose the list of subsidiaries or associates or joint ventures which have not been consolidated in the consolidated financial statements along with the reason for not consolidating the financial statements.

In case of non-Compliance of Accounting Standards:

The Company shall disclose in its financial statements with regard to any deviation from the accounting standards along with the reasons for such deviation and the financial effects, if any arising out of such deviation.

Penal Provisions for non-compliance of section 129 of CA, 2013:

If any company contravenes with the provisions of section 129 of CA, 2013, the following officials viz.,

a)      Managing Director

b)      Whole Time Director in charge of finance

c)      Chief Financial Officer

d)      Any other person authorized by Board with the duty of complying with this provision.

e)      In the absence of any of the officers mentioned above, all the Directors shall be punishable.

 Details of Punishments:

(i)                 Imprisonment for a term which may extend to one (1) year or

(ii)               Fine which shall not be less than Rs. 50,000/- but which may extend to Rs. 5,00,000/- or

(iii)             With both.

 By

CS K VINOTH

CS D HEM SENTHIL RAJ

NOTE ON SECTION 185 OF CA, 2013

A BRIEF ANALYSIS OF SECTION 185 OF COMPANIES ACT, 2013 – LOAN TO DIRECTORS ETC;

BY CS K VINOTH AND CS D HEM SENTHIL RAJ

OVERVIEW:

Section 185 of the Companies Act, 2013 was notified on 12^th September, 2013 followed by the Companies (Meetings of Board and its Powers) Rules, 2014.

Section 185 of the CA, 2013 is applicable from the day when it got notified and the rules become applicable from the 01^st day of April, 2014 which gives the mandate to every auditor to report the same in their audit report about any contravention or non compliance committed under this section.

As per Section 185 of the Companies Act, 2013 no company shall, directly or indirectly,

advance any loan,

including any loan represented by a book debt,

to any of its directors or to any other person in whom the director is interested or

give any guarantees or provide any security in connection with any loan taken by him or such other person

Explanation to “to any other person in whom the director is interested” means:

(a)   any director of the lending company, or of a company which is its holding company or any partner or relative of any such director;

(b)    any firm in which any such director or relative is a partner;

(c)    any private company of which any such director is a director or member;

(d)   anybody corporate at a general meeting of which not less than twenty-five percent of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together, or

(e)    any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.

EXEMPTED TRANSACTIONS UNDER CA, 2013

Provided that nothing contained in this sub-section shall apply to—

a)           the giving of any loan to a managing or whole-time director—     

 i.  as a part of the conditions of service extended by the company to all its employees; 

or

ii.pursuant to any scheme approved by the members by a special resolution; 

or

b)           a company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the bank rate declared by the Reserve Bank of India (RBI).

  APPLICABILITY:

                  Applicable to both Private and Public Limited Company.

  Key Points to Note:

(1)   Relative of Director is included in the expression “to any other person in whom director is interested”, which prohibits the company to give loans to his/her relative directly or indirectly.

Relative Meaning shall be as per Section 2(77) of the CA, 2013.

(2)   The term “any other body corporate” includes Public Limited Company.

(3)   This section is not applicable in case of any grant of loan to a public limited company where the director/directors together holds less than 25% of total voting powers.

(4)   Any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company is exempted from the requirements under this section, provided that such loans are utilized by the wholly-owned subsidiary for its principle business activities.

(5)   Any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company is exempted from the requirements under this section, provided that such loans are utilized by the subsidiary company for its principle business activities.

Examples:

Mr. A – Director of Company X, Mr. B – Director of Company Y

 Loan/Security/Guarantee provided by Company X to Company Y

When Company X & Y is a Private Limited Company
In case of Common Directors	Section 185 is applicable.
In case of no Common Directors	Section 185 is not applicable.
In case of Director A of Company X is a member of Company Y	Section 185 is applicable.
In case of Director A is a relative of Director B	Section 185 is not applicable.

When X is a Private Limited Company and Y is a Public Limited Company
In case of Common Directors	Section 185 is not applicable; However any Director/Managing Director of Company X exercises control/substantial powers (including decision making powers) in the Board of Company Y, in such a case Section 185 is applicable.
In case of no Common Directors	Section 185 is not applicable.
In case of Director A of Company X is a member of Company Y	Section 185 is applicable only when his shareholding is not less than 25% of the total voting powers exercised or controlled by one or more such directors of Company X.
In case of Director A is a relative of Director B	Section 185 is not applicable.

When both X and Y is a Public Limited Company
In case of Common Directors	Section 185 is not applicable; However any Director/Managing Director of Company X exercises control/substantial powers (including decision making powers) in the Board of Company Y, in such a case Section 185 is applicable.
In case of no Common Directors	Section 185 is not applicable.
In case of Director A of Company X is a member of Company Y	Section 185 is applicable only when his shareholding is not less than 25% of the total voting powers exercised or controlled by one or more such directors of Company X.
In case of Director A is a relative of Director B	Section 185 is not applicable.

In case of Individuals/Firms In case of Director B is a relative of Director A
When Company X lends money to Director B of Company Y	Section 185 is applicable.
In case of Director B is not a relative of Director A
When Company X lends money to Director B of Company Y	Section 185 is not applicable
In case Company X lends money to Partner B (who is relative of Director A) of Firm Y
Section 185 is applicable
In case Company X lends money to Firm Y ( in which Director A is also a partner)
Section 185 is applicable.

IN CASE OF NON-COMPLIANCE OF SECTION 185 – PENAL PROVISIONS UNDER CA, 2013

 Any Contravention of the provisions of Section 185, the Company shall be punishable as under:

The Company shall be punishable:

Fine	Which shall not be less than 5 Lakh Rupees but which may extend to twenty five Lakh Rupees

                   Director or the other person:

Imprisonment

Which may extend to six months or with fine which shall not be less than five Lakh Rupees or which may extend to twenty five Lakh Rupees or with both.

By

CS D HEM SENTHIL RAJ

CS K VINOTH