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Sunday 26 January 2014

Compliance and New reporting requirements under Companies Act 2013 for Listed, Public and Private Companies




I.    Compulsory Reporting Requirements

1.    Consolidated Financial Statement:

Applicable: To all the Companies having one or more subsidiaries.

Subsidiary includes: Associate Companies and Joint Venture Companies

Crux of the point: In addition to the stand alone financial statements prepared by the companies a combined financial statements of the parent company and its subsidiaries is to be prepared.

Challenges in adhering to the Act:

a.    When there is complex group structure in place.
b.    When the Joint venture companies follow different methods of financial reporting.

2.    Cash flow statement:

 

Applicable: To all the Companies except one person companies, small companies and dormant companies


Crux of the point: All the respective companies have to include a Cash Flow Statement in their Annual Financial Statement.

(Rules are yet to specify the list of companies)

3.    Reporting on Fraud: Serious Fraud Investigation Office (SFIO)
Applicable: To all the Companies on satisfying any one of the following:

-      When the Frauds are happening frequently or
-      When the fraud amount involved or is likely to be involved is not less than

o    5% of net profit or
o    2% of the turnover of the company for the preceding financial year.

Fraud: Fraud includes corrupt practices, deceit, conflicts of interest and bribery, also.

4.    Others:

a.    Reporting by Independent Director:

One of the duties of independent director as per Schedule IV is to report concerns about unethical behaviour, actual or suspected fraud or violation of the company’s code of conduct.

b.    Re-opening / restatement of Financial Statements:

Voluntary revision of Financial Statements by Board:

-        The financial statements can be voluntarily revised based on an application by the Board.

-        The accounts of only 3 preceding financial years can be revised.

Revision of Financial Statements by SEBI, Regulatory authorities or Auditors:

-        A legal framework has been put in place for the SEBI, Regulatory Authorities or Auditors to apply for restatement of company’s financial statement if needed.

-        There is no time restriction if the revision has been initiated by the statutory regulatory authorities.

Challenges in adhering:
         
          The tax implication has to be evaluated again by the companies based on the revised financials.

c.    Maintenance of Books of Accounts:

 

The books of accounts and other relevant papers can be maintained in electronic mode in the prescribed manner.


II. Disclosures

1.    Disclosures in the Board of Directors’ Report:

a.    Extract of Annual Return

b.    Number of board meetings

c.    CSR initiatives and policy

d.    Particulars of loans, guarantees, investments etc.

e.    Secretarial Audit Report to be annexed to the Board’s report

f.     Detailed reasons for revision of financial statements - Board’s duty to send revised financial statements to shareholders

g.    Listed company to disclose the ratio of the remuneration paid to directorsand employees.

h.    Receipt of commission by a director from the holding company or subsidiary company

i.      Every related party transaction along with the justification for entering into such transaction has to be disclosed.

j.     Additional information in Directors’ Responsibility Statement

o    For listed companies - directors to  lay down internal financial controls and ensure such controls are adequate and operating effectively

o    Principal business activities, particulars of its holding, subsidiary and associate companies

o    Details of shares, debentures and other securities with shareholding pattern

o    Indebtedness

o    Members and debenture holders with changes therein

o    Promoters, directors, KMP with changes therein

o    Meetings of members or class thereof, board and other committees and details of attendance

o    Penalties imposed on the company, its directors or officers and details of compounding of offence

o    Shares held by FIIs

2.    Disclosures in the Auditor’s Report:

a.    Auditors to conduct a more integrated audit and to give their opinion on the financial reporting and internal controls of the Company.

Compliance and Issues under Legal Metrology Act 2009

Applicability: The Legal Metrology Acts & Rules is applicable to the following people:

Persons Engaged in
-          Manufacturing
-          Retail or Wholesale dealing
-          Repairing of any weight or measure
-          Manufacturing, Importing and/or Packaging any item.
-    Persons who are using any weight or measure in any transaction or Industrial Production or Protection.

Rules made under the Act:

1.    The Legal Metrology (Packaged Commodities) Rules, 2011
2.    The Legal Metrology (General) Rules, 2011
3.    The Legal Metrology (National Standards) Rules, 2011
4.    The Legal Metrology (Numeration) Rules, 2011
5.    The Legal Metrology (Approval of Models) Rules, 2011
6.    The Indian Institute of Legal Metrology Rules, 2011
7.    The Legal Metrology (Government Approved Test Centre) Rules, 2013

Objective of the Act and Rules:

To protect the consumer’s interest by making the originator (manufacturer, packer or importer) of the packaged commodities/ standard weights and measures, accountable for such products manufactured, packed or imported by them, which are meant for consumption by the general public.

Compliance under the Act:

1.    Maximum Retail Price (MRP):
a.    The commodities to have the Maximum Retail Price (MRP) printed on the packages along with the words “inclusive of all taxes”. 
Eg.MRP: Rs. 1999/- (inclusive of all taxes).

b.    MRP once printed cannot be increased.
c.    Certain items may be packed to offer any free quantity provided it is included in the standard size and the MRP is reduced proportionately.
d.    As per the Packaged Commodity Rules, the net content shall not be disclosed if the commodities are given free of cost.

2.    Principal display panel:  Total area of the pack where all the mandatory requirements are specified in one place, on one side of the pack.

a.    No separate sticker should be affixed;
b.    No over writing

3.    Statutory Declarations on Products: The following mandatory declarations shall be made on the packages either at the factory level or at manufacturing level (depot of the factory).
a.    The name and address of the manufacturer or packer or importer.
b.    The common or generic name of the commodity.
c.    The net quantity of the content.
d.    Month and year of manufacturer or packing or import.
e.    Retail sale price: MRP (including all taxes)
f.     Size/dimension of the commodity when relevant.
g.    Name, address and telephone no. of the Consumer complaint Cell.
h.    Marking "GM" for genetically modified food items.
Note: The provisions of Legal Metrology Act are not applicable for the commodities meant for Industrial Use.

4.    Re-stickering: Re-stickering is not permissible. Packers are not permitted to affix individual stickers or labels on the package for altering or making declarations.

Exemption:

However for reducing the MRP, a sticker with revised lower MRP (inclusive of all taxes) may be affixed and the same shall not cover the MRP declaration made by the manufacturer or the packer, on the label of the package.

5.    Import of Products:

a.    To ensure that proper registration is obtained for importing the products.
b.    The pre-packed commodities to carry the specific declarations on their labels as specified in the import policy.
c.    The importer has to comply with all the necessary declaratory compliances before selling, distributing, delivering, displaying or storing the imported goods.

6.    Double stamping

A weight or measure or product manufactured in one state and sold or transferred to another state will require double verification and stamping - both at the end of manufacturing state and at the end of user state.

Non Compliance of the Act:

Penalties:

a.    There are stringent penal consequences in case of violation of the act and rules.
b.    The initial offences are compoundable, while the subsequent offences may lead to criminal prosecution of the officers in default of the Company.

Challenges

a.    There is a lack of practical procedures available for revision of the Maximum Retail Price (MRP) of the products.

b.    There is a lack of procedure with regard to the treatment of imported goods on par with the domestically manufactured goods (Even at the point of import). This lack would render the Packaged Commodity Rules highly impractical, ambiguous and prone to litigation.

c.    The Packaged Commodity rules alone have more than 30 mandatory compliances required to be adhered to by the retailers, apart from various other compliances in the subsequent rules.

d.    It is very difficult to explain the concerned officers when the goods are meant for wholesale, industrial or institutional consumption. The labelling requirements shall not be applicable if the goods are not meant for retail sale. Therefore, the industry is forced to approach the courts to give relief from the ambiguity and inflexibility of legal metrology and labelling law regime in the country.

e.    Import:

a.    The exporter located in a foreign territory would be unaware of the Indian labelling laws therefore such goods are always prone to inadvertent non-compliance.

b.    Similarly when the transactions are not linear (ie. Goods passed on to many buyers through high sea sale agreement) there is very little scope for complying with the labelling laws.

c.    Inorder to comply with the legal metrology if the importer opts to label the imported products in the customs bonded warehouse then the escalated cost shall naturally spread to the end consumer and be indirectly prejudicial to their interest. Thus defeating the whole purpose of the act and the rules.