Refreshing

Companies Act,2013

Nipun Singhvi
Legal Advisor
B.Com.(Hons.), BCCD, LLB, LCS, ACA, IFRS Certified, Forensic Certified,
Con. Bank Audit Certified

11-Sep-19 1
 Disclaimer

• All the views presented here are my personal

and doesn’t in any way are the views of
organisations owned or controlled by me.
Their similarity in any way doesn’t purport to
the views of Institutions and any action taken
based on these views should be your personal
domain with professional advice. No legal
action can be taken for the loss incurred on
action taken relying on the opinion ,advice or
comments made during the presentation.
11-Sep-19 2
 Define
the
un-defined

11-Sep-19 3
(12) “book and paper” and “book or paper” include
books of account, deeds, vouchers, writings, documents,
minutes and registers maintained on paper or in
electronic form;

(18) “Chief Executive Officer” means an officer

of a company, who has been designated as such by it;

(19) “Chief Financial Officer” means a person appointed as the Chief

Financial Officer of a company;

11-Sep-19 4
(51) “key managerial personnel”, in relation to a company,
means—

(i) the Chief Executive Officer or the managing director or

the manager;

(ii) the company secretary;

(iii) the whole-time director;

(iv) the Chief Financial Officer; and

(v) such other officer as may be prescribed;

To Appoint (i to iv) Form No. MR-1

Form No. GNL-3

11-Sep-19 5
(60) “officer who is in default”, for the purpose of any
provision in this Act which enacts that an officer
of the company who is in default shall be liable to
any penalty or punishment by way of imprisonment,
fine or otherwise, means any of the
following officers of a company, namely:—

(i) whole-time director;

(ii) key managerial personnel;

(iii) where there is no key managerial personnel, such director or directors as

specified by the Board in this behalf and who has or have given his or their
consent in writing to the Board to such specification, or all the directors, if no
director is so specified;

(iv) any person who, under the immediate authority of the Board or any
key managerial personnel, is charged with any responsibility including
maintenance, filing or distribution of accounts or records, authorises, actively
participates in, knowingly permits, or knowingly fails to take active steps to
prevent, any default;

11-Sep-19 6
(v) any person in accordance with whose advice, directions or
instructions the Board of Directors of the company is
accustomed to act, other than a person who gives advice to
the Board in a professional capacity;

(vi) every director, in respect of a contravention of any of the

provisions of this Act, who is aware of such contravention by
virtue of the receipt by him of any proceedings of the Board or
participation in such proceedings without objecting to the
same, or where such contravention had taken place with his
consent or connivance;

(vii) in respect of the issue or transfer of any shares of a

company, the share transfer agents, registrars and merchant
bankers to the issue or transfer;

11-Sep-19 7
6. Save as otherwise expressly provided in this Act—

(a) the provisions of this Act shall have effect notwithstanding

Shareholders
Agreement
anything to the contrary contained in the memorandum or
articles of a company, or in any agreement executed by it, or in
any resolution passed by the company in GM or by its Board of
Directors, whether the same be registered, executed or passed, Articles of
as the case may be, before or after the commencement of this Association
Act; and

(b) any provision contained in the memorandum, articles,

agreement or resolution shall, to the extent to which it is
repugnant to the provisions of this Act, become or be void, as the
Companies Act

case may be.

11-Sep-19 8
 RANA KAPOOR ASHOK KAPUR

•Shareholders agreement Vs. AOA

•Shareholders agreement definition “Indian Partners”
•Whether Right to nominate assignable or inheritable ??

11-Sep-19 9
 OYO Rooms raises Rs 630 cr in
funding led by SoftBank

11-Sep-19 10
Disqualification of Directors
He had not been sentenced to imprisonment for any period, or to a fine
exceeding one thousand rupees, for the conviction of an offence under any of the
following Acts, namely:—

(i) the Indian Stamp Act, 1899 (2 of 1899);

(ii) the Central Excise Act, 1944 (1 of 1944);
(iii) the Industries (Development and Regulation) Act, 1951 (65 of 1951);
(iv) the Prevention of Food Adulteration Act, 1954 (37 of 1954);
(v) the Essential Commodities Act, 1955 (10 of 1955);
(vi) the Companies Act, 2013;
(vii) the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
(viii) the Wealth-tax Act, 1957 (27 of 1957);
(ix) the Income-tax Act, 1961 (43 of 1961);
(x) the Customs Act, 1962 (52 of 1962);
(xi) the Competition Act, 2002 (12 of 2003);
(xii) the Foreign Exchange Management Act, 1999 (42 of 1999);
(xiii) the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986);
(xiv) the Securities and Exchange Board of India Act, 1992 (15 of 1992);
(xv) the Foreign Trade (Development and Regulation) Act, 1922 (22 of 1922);
(xvi) the Prevention of Money-Laundering Act, 2002 (15 of 2003);

11-Sep-19 11
SEBI slaps Rs 2 crore fine on NDTV
for IncomeTax violations

11-Sep-19 12
Disqualification of Directors
•Convicted by a court
•6 mnths or > 5 yrs
•7 yrs or > Life Ban
•Insolvent undischarged or applied
•Conviction RPT-188
•Not filed Annual Returns or and F/S for 3 yrs continously
5 yrs
•Deposits, Dividend, Debentures - > 1yr

11-Sep-19 13
11-Sep-19 14
 CLASS ACTION SUITS

11-Sep-19 © Chir Amrit Corporate School 15

 India's 640-Crore Class
Action Suit Against Maggi

11-Sep-19 16
Satyam to pay $125 million to settle
US suit
Mahindra Satyam's $125-mn class
action suit settlement taxable

Satyam scam triggers biggest D&O

claim- 75m$ TATA AIG

11-Sep-19 © Chir Amrit Corporate School 17

 Ultra –vires
AOA/MOA

Resolution void by suppressing facts or

mis-statement

Restrain Directors/Company from acting

Application contrary to act or any other law for time
being in force

Resolution by
Company/Directors
Members

Claim damages/
Compensation/ Auditor/Audit Firm
Demand

Expert/Advisor/
Consultant/Any other
person
11-Sep-19 © Chir Amrit Corporate School 18
 Penalty

Company - Rs.5 lakhs to Rs.25 lakhs

Frivolous Complainant – Rs.1 lakh (Max.)

Insurance Cover

•Professional insurance for Auditors

•Directors & Officers (D & O) policy

11-Sep-19 © Chir Amrit Corporate School 19
 Policing Policies !!!
Policy Private Public
Fraud Prevention
 
Risk Management
 
Related Party
Transactions  
CSR
 
Vigilance Mechanism
 
Nomination &
Remuneration  
Ethics
 
11-Sep-19 20
VIGILANCE MECHANISM Vs. WHISTLE BLOWER POLICY

1. The company shall establish a vigil mechanism for directors and employees to
report concerns about unethical behaviour, actual or suspected fraud or
violation of the company’s code of conduct or ethics policy.

2. This mechanism should also provide for adequate safeguards against victimization
of director(s) / employee(s) who avail of the mechanism and also provide for direct
access to the Chairman of the Audit Committee in exceptional cases.

3. The details of establishment of such mechanism shall be disclosed by the company

on its website and in the Board’s report.

11-Sep-19 21
 What is Fraud?
Section 447 of CA,13
(i) “fraud” in relation to affairs of a company or any body corporate, includes
any act, omission, concealment of any fact or abuse of position committed by
any person or any other person with the connivance in any manner, with
intent to deceive, to gain undue advantage from, or to injure the interests of,
the company or its shareholders or its creditors or any other person, whether
or not there is any wrongful gain or wrongful loss;

(ii) “wrongful gain” means the gain by unlawful means of property to which the person
gaining is not legally entitled;

(iii) “wrongful loss” means the loss by unlawful means of property to which the person
losing is legally entitled.
11-Sep-19 22
 False Statement
If in any return, report, certificate, financial statement,
prospectus, statement or other document required by, or for, the
purposes of any of the provisions of this Act or the rules made
there under, any person makes a statement,—

(a)which is false in any material particulars, knowing it to be false;

or

(b) which omits any material fact, knowing it to be material,

Shall be liable under Section 447.

11-Sep-19 23
India's 640-Crore
Class Action Suit
Against Maggi to be
Heard on Friday

11-Sep-19 24
 MODIFIED
OPINION

QUALIFIED ADVERSE
DISCLAIMER
 Material
Misstatements
+
Pervasive

Confined? Disclosures

Yes No

Specific Items, Substantial Portion of

Elements, the Financial Basic Understanding
Accounts of the F/S Statements
 Material but not pervasive

Sufficient & Appropriate

Audit Evidence
Yes No

Qualified Qualified
Opinion Opinion
Material Misstatements + Pervasive

Sufficient & Appropriate

Audit Evidence
Yes No

Adverse Disclaimer of
Opinion Opinion
Nature of matter giving Auditor’s Judgment about the pervasiveness of
rise to the modification the effects or possible effects on the F/S

Material but not Material and Pervasive

pervasive

Financial statements Qualified Opinion Adverse Opinion

are materially misstated
Inability to obtain Qualified Opinion Disclaimer of Opinion
sufficient appropriate
Audit Evidence
Basis for qualified opinion
As more detailed in note 34 (a) (i) of the
financial statements, no provision has
been made for interest of Rs.74.71
million up to March 31, 2014 (Rs. 74.71
million in the previous year), relating to
earlier years, on the outstanding inter-
corporate deposits taken by the
Company. Had the same been accounted
for, the net loss for
the year ended March 31, 2014 and
accumulated losses as at that date would
have been higher by Rs. 74.71
million (Rs. 74.71 million in the previous
year). Our audit report for the year
ended March 31, 2013 was also qualified
in respect of the above matter.
9/11/2019
Emphasis of Matter
Without qualifying our opinion, we draw
attention to Note 2 (a) which indicates that
the Company has incurred a
net loss of Rs 10,032.44 million during the
year ended March 31, 2014 and as of that
date, the Company’s total
liabilities exceed its total assets by Rs
10,194.76 million. These conditions, along
with other matters as set forth
in Note 2 (a), indicate the existence of a
material uncertainty regarding the
Company’s ability to continue as a
going concern. Management’s plans in this
regard are more fully described in the said
note.
30
 Matter Para

Emphasis of Other Matter

Matter Para
 There is uncertainty relating to a pending exceptional litigation
matter. This is highlighted in the auditor’s report by an Emphasis of
Matter paragraph.
 Directors’ Responsibility Statement (DRS)
Section 134(5)
The DRS shall state that the directors had taken proper and sufficient
care for the maintenance of adequate accounting records in
accordance with the provisions of this Act for safeguarding the
assets of the company and for preventing and detecting fraud and
other irregularities;

Explanation.—For the purposes of this clause, the term “internal

financial controls” means the policies and procedures adopted by the
company for ensuring the orderly and efficient conduct of its business,
including adherence to company’s policies, the safeguarding of its
assets, the prevention and detection of frauds and errors, the
accuracy and completeness of the accounting records, and the timely
preparation of reliable financial information

11-Sep-19 33
Risk Perception

Auditing Standards now a law!!

SA 300 Planning an audit of Financial Statements

SA 315 Identifying and Assessing the Risks of Material

Misstatement through Understanding the Entity and
Its Environment

SA 320 Materiality in Planning and Performing an Audit

SA 330 The Auditor’s Responses to Assessed Risks

SA 450 Evaluation of Misstatements Identified During the

Audit

11-Sep-19 34
 Risk Perception
... A statement indicating development and implementation of a risk management
for the company including identification therein of elements of risk, if any,
which in the opinion of the Board may threaten the existence of the company;
[Section-134 clause (n) : Financial statement, Board's report, etc.]

Management’s perception of risk factors

[Form PAS 4]

Evaluation of internal financial controls and risk management systems;

[Section-177 (4) clause (vii) : Audit Committee]

11-Sep-19 35
 Disclosures
Details of any litigation or legal action pending or taken by any Ministry or
Department of the Government or a statutory authority against any promoter of the
offeree company during the last three years immediately preceding the year of the
circulation of the offer letter and any direction issued by such Ministry or Department
or statutory authority upon conclusion of such litigation or legal action shall be
disclosed

[PAS4 Clause 3(ii) ]

11-Sep-19 36
  Summary of reservations or qualifications or adverse remarks of auditors in the
last five financial years immediately preceding the year of circulation of offer letter
and of their impact on the financial statements and financial position of the company
and the corrective steps taken and proposed to be taken by the company for each of
the said reservations or qualifications or adverse remark
[PAS 4 Clause 3(v) ]

 Details of any inquiry, inspections or investigations initiated or conducted under

the Companies Act or any previous company law in the last three years immediately
preceding the year of circulation of offer letter in the case of company and all of its
subsidiaries. Also if there were any prosecutions filed (whether pending or not) fines
imposed, compounding of offences in the last three years immediately preceding the
year of the offer letter and if so, section-wise details thereof for the company and all
of its subsidiaries
[PAS 4 Clause 3(vi) ]

11-Sep-19 37
11-Sep-19 38
 Financial Statements, Board’s Report etc. (Sec. 134)

(c) Directors’ Responsibility Statement;

....

(f) There shall be attached to statements laid before

a company in general meeting, a report by its Board
of Directors, which shall include the directors had
devised proper systems to ensure compliance with
the provisions of all applicable laws and that such
systems were adequate and operating effectively
...

11-Sep-19 39
 Consideration of Laws and Regulations
(SA 250)

Maintaining a register of significant laws and

regulations with which the entity has to comply
within its particular industry and a record of
complaints (¶ 11).

11-Sep-19 40
 Consideration of Laws and Regulations
(SA 250)

Maintaining a register of significant laws and

regulations with which the entity has to comply
within its particular industry and a record of
complaints (¶ 11).

11-Sep-19 41
 LABOUR (16)

INTELLECTUAL
ENVIRONMENT
PROPERTY
(3)
RIGHTS

GENERAL
LAWS
CAPITAL COMPETITION
MARKETS LAW

FEMA TAX LAW

11-Sep-19 42
11-Sep-19 43
Dormant Company ? Intellectual Property
Investment Company? Rights Structuring

Company

IPR
Operating Investment
Holding

11-Sep-19 44
Sebi imposes Rs 86 cr penalty on DLF (Feb 2015)

Separately, in June 2007, Kimsuk Krishna

Sinha had complained to Sebi saying he was
cheated of Rs.34 crore by Sudipti Estates in
relation to a transaction between them for the
purchase of land, and that he had registered a
first information report (FIR) against Sudipti.
This was also not disclosed in the DRHP.

11-Sep-19 45
 DRUGS &
COSMETICS
LAW

FOREIGN
LAWS eg. SME LAWS
USFDA,UKCPA

INDUSTRIES
SPECIFIC
LAWS

FOOD SAFTY
LEGAL
&
METROLOGY
STANDARDS
ACT
ACT

STAMP LAW

11-Sep-19 46
 Only 6% Maharashtra organisations
have sexual harassment cells

The Sexual Harassment of Women at Workplace

(Prevention,Prohibiton and Redressal) Act, 2013

11-Sep-19 47
11-Sep-19 48
 SECTION 143(2) : PERSONS REQUIRED TO
REPORT FRAUD

STATUTORY AUDITOR INTERNAL AUDITOR

COST AUDITOR TAX AUDITOR
SECRETARIAL AUDITOR
BRANCH AUDITOR
IT ACT VAT ACT
 SECTION 143(2) : PERSONS REQUIRED TO
REPORT FRAUD

ATTEST FUNCTIONS

STATUTORY AUDITOR OTHER THAN

STATUTORY AUDITOR

SILENT (G. N.)*

* REPORT TO STATUTORY AUDITOR

 LANGUAGE AMBIGUITY
SECTION 143(12) RULE 13 FORM ADT-4
COMPANIES (AUDIT&
AUDITOR) RULES,2014

REASONS TO SUSPECTED
BELIEVE OFFENCE
SUFFICIENT INVOLVING
REASONS TO FRAUD
BELIEVE

KNOWLEDGE
 SECTION 143(12)

BRIBERY SA-250
CORRUPTION CONSIDERATION OF
MONEY LAUNDERING LAWS &REGULATIONS
INTENTIONAL IN AN AUDIT OF
NON-COMPLIANCE FINANCIAL
STATEMENTS

FRADULENT ITR TO EVADE TAX ---- REPORT U/s 143(12)

COAL COMPANIES
TELECOM COMPANIES – 2G SCAM
SA - 240
FRAUD

MANAGEMENT EMPLOYEE
FRAUD FRAUD
INTENTIONAL MISSTATEMENT

FRAUDULENT MISSTATEMENTS
FINANCIAL RESULTING FROM
REPORTING MISAPPROPRIATION
OF ASSETS
 Sources of info
 AUDIT COMMITTEE MINUTES
 BOARD MEETING MINUTES
 ENQUIRE FROM MANAGEMENT/TCG
WRITTEN REPRESENTATIONS
(sa 580)

 Accounting Financial control

 Disclosed suspected fraud/fraud
 Assessment of risks disclosed
Illustrative MRL – Appendix 7(GN)
 IMMUNISED
SECTION 143(13) SECTION 456 SECTION 143(15)

IMMUNITY – ACT NO SUIT , 143(12)

DONE IN GOOD PROSECUTION NON-
FAITH OR LEGAL COMPLIANCE
PROCEEDING
SHALL LIE Rs.1- 25 LAKHS
 Saradha Scam
SIT - Indian Penal Code
• 406 Criminal Breach of trust
•409 Criminal Breach of trust
by public servant
•420 Cheating and dishonestly
inducing delivery of property
•120B Criminal Conspiracy
11-Sep-19
SFIO Added
•107 Abetment of Crime
•403 Dishonest misappropriation
of property
•415 Cheating
•418 Cheating with knowledge
that wrongful loss would be
caused
• 419 Impersonation
•477A Falsification of accounts
57
 Fine – Upto 3 times the amount involved
Imprisonment – 6 months to 10 yrs

Public interest involved – Min 3 yrs

11-Sep-19 58
 Section 447 is applicable in 18 sections,
12 out of 18 are active
Section Description of Section
7,8 Incorporation and Formation
34 Criminal liability for misstatements in prospectus
36 Punishment for fraudulently inducing persons to invest money
38 Punishment for personation for acquisition, etc., of Securities
46 Certificate of shares.
56 Transfer and transmission of securities.
140 Removal, resignation of auditor and giving of special notice
206 Power to call for Information, inspect books and conduct inquiries.
212 Investigation into affairs of Company by Serious Fraud Investigation Office
229 Penalty for furnishing false statement, mutilation, destruction of Documents
448 Punishment for false Statement

11-Sep-19 59
 Sec. 22 The Companies Act, 1956.
Rectification of name of company.(1) If, through inadvertence or otherwise, a company
on its first registration or on its registration by a new name, is registered by a name
which, in the opinion of the Central Government, is identical with, or too nearly
resembles, the name by which a company in existence has been previously registered,
whether under this Act or any previous companies law, the first- mentioned company-
(a) may, by ordinary resolution and with the previous approval of the Central
Government signified in writing, change its name or new name; and

(b) shall, if the Central Government so, directs within twelve months of its first
registration or registration by its new name, as the case may be, or within twelve
months of the commencement of this Act, whichever is later, by ordinary resolution and
with the previous approval of the Central Government signified in writing, change its
name or new name within a period of three months from the date of the direction or
such longer period as the Central Government may think fit to allow.

Provided that no application under clause (ii) made by a registered proprietor of a trade
mark after five years of coming to notice of registration of the Company shall be
considered by the Central Government.)
 Sec. 22 The Companies Act, 1956.
(2) If a company makes default in complying with any direction given under clause (b) of
sub- section (1), the company, and every officer who is in default, shall be punishable
with fine which may extend to one hundred rupees for every day during which the
default continues.
 Sec. 16 The Companies Act, 2013.
6. (1) If, through inadvertence or otherwise, a company on its first registration
or on its registration by a new name, is registered by a name which,—
(a) in the opinion of the Central Government, is identical with or too nearly
resembles the name by which a company in existence had been previously
registered, whether under this Act or any previous company law, it may direct
the company to change its name and the company shall change its name or
new name, as the case may be, within a period of three months from the issue
of such direction, after adopting an ordinary resolution for the purpose;
(b) on an application by a registered proprietor of a trade mark that the name is
identical with or too nearly resembles to a registered trade mark of such
proprietor under the Trade Marks Act, 1999, made to the Central Government
within three years of incorporation or registration or change of name of the
company, whether under this Act or any previous company law, in the opinion
of the Central Government, is identical with or too nearly resembles to an
existing trade mark, it may direct the company to change its name and the
company shall change its name or new name, as the case may be, within a
period of six months from the issue of such direction, after adopting an
ordinary resolution for the purpose.
 Sec. 16 The Companies Act, 2013.
(2) Where a company changes its name or obtains a new name
under sub-section (1), it shall within a period of fifteen days from
the date of such change, give notice of the change to the Registrar
along with the order of the Central Government, who shall carry
out necessary changes in the certificate of incorporation and the
memorandum.
(3) If a company makes default in complying with any direction
given under sub-section (1), the company shall be punishable with
fine of one thousand rupees for every day during which the
default continues and every officer who is in default shall be
punishable with fine which shall not be less than five thousand
rupees but which may extend to one lakh rupees.
 Common Law Remedy Vs. CA 2013
Civil Remedy in case of Remedy in Case of Registered
Unregistered Trademark Trademark
• Prior User • Application U/S 16 of CA
• Cogent and Continues user 2013
Evidence
• Trademark Registration
• Approch Highcourt/District
Court(AA) Certificate As Powerful
• Time Consuming and Costly Evidence
• Remedy Under Civil Law • Cost effective
(Passing off) and Trade Marks
Act, 1999 (Infringement) is
always available subject to
Limitation Act.
Vardhaman Crop Nutrient Pvt Ltd Vs. UOI
•Vardhaman Fertilizers and Seeds Pvt. Ltd incorporated
in 1987
•Using Brand “Vardhaman” Since 1991 for It’s Products
•Registered Trademark Since 2007
•Vardhaman Crop Incorporated in 2009
•Using Brand Since 2011

•Effects of the same Name

•Confusion and Deception
•Loss of Business
•Loss of Reputation and Goodwill
•421 Companies with prefix Vardhaman (Def. Plea)
•Remedy
•Filed Application U/S 22 of CA 1956
•RD ordered in favour of Applicant
•Order confirmed by SB and DB in High Court
11-Sep-19 66
 Illustrative Engagement letter

NOC from previous auditor

SA 720 – Consideration of other documents

containing financial statements

Internal Financial Control - Audit fee separate

Networking firms/affiliated partners

Pending litigations & forseeable losses

Peer Review
11-Sep-19 67
 111-112, University Plaza,
Nr Vijay Cross Roads,
Navrangpura
380 009

+91 79 30615933
+91 93275 55933
+91 98290 31411

nipunsinghvi@yahoo.com
nipun@cogitolegal.com

Ahmedabad | Mumbai |Delhi |Jodhpur |Jaipur

Nipun Singhvi
B.Com.(Hons.), BCCD, LLB, LLM (Corporate), LCS, ACA, IFRS Certified,
Forensic Certified, Con. Bank Audit Certified
11-Sep-19 68