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New Delhi: The periodicity of rotation for an audit partner should be once in every three years, while for an audit firm it should be once every six years, according to the Institute of Company Secretaries of India recommendations to the ministry of corporate affairs.
At present, there is no such tab on the rotation of audit partner or audit firm under the Companies Act, 1956. However, in the annual general meeting, the shareholders have to appoint the statutory auditors and firm that can be the same auditor and firm as well. The ministry of corporate affairs is seeking suggestions on the corporate governance practices to be followed and would come out with a mandatory code after a year. The corporate governance code would be a mix of these voluntary guidelines and recommendations of India Inc.
According to the ICSI report, a maximum tenure of six years in aggregate should be specified for independent directors. At present, there is no such limit for the independent directors under the Companies Act, 1956. It also mentions that Clause 49 of the listing agreement needs to be suitably amended by specifying positive attributes for independent directors such as integrity, experience and expertise, foresight, managerial qualities and ability to read and understand financial statements.
The report further suggests that the board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors. Apart from this, induction training of directors should be made mandatory covering roles, responsibilities and liabilities of a director. There should be a statement to this effect by the board in the annual report.
The report specifies there should be a clear demarcation of the roles and responsibilities of the chairman of the board and that of the managing director. The role of chairman and CEO should be separated to promote balance of power. Further the report suggests that the secretarial audit should be made mandatory in respect of listed firms
Saturday, December 26, 2009
New perquisite rules- applicable from 1st april,2009
Friends here I am giving full notification of change in perquisite I will upload summery shortly..
INCOME-TAX (THIRTEENTH AMENDMENT) RULES, 2009 - SUBSTITUTION OF RULE 3 AND INSERTION OF RULE 40F
Notification No. 94/2009/F.NO. 142/25/2009-SO (TPL), dated 18-12-2009
In exercise of the powers conferred by section 295 read with sub-section (2) of section 17 of the Income-tax Act, (43 of 1961). The Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namlely :-
(1) These rules may be called the Income-tax (13th Amendment) Rules, 2009.
(2) They shall be deemed to have come into force on the 1st day of April, 2009.
In the Income-tax Rules, 1962, for rule 3, the following shall be substituted, namely: -
"3. For the purpose of computing the income chargeable under the head "Salaries", the value of perquisites provided by the employer directly or indirectly to the assessee (hereinafter referred to as employee) or to any member of his household by reason of his employment shall be determined in accordance with the following sub-rules, namely:—
(1) The value of residential accommodation provided by the employer during the previous year shall be determined on the basis provided in the Table below:
Sl. NO.
Circumstances
Where accommodation is Unfurnished
Where accommodation is furnished
(1)
(2)
(3)
(4)
(1)
Where the accommodation is provided by the Central Government or any State Government to the employees either holding office or post in connection with the affairs of the Union or of such State.
License fee determined by the Central Government or any State Government in respect of accommodation in accordance with the rules framed by such Government as reduced by the rent actually paid by the employee.
determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment) or if such furniture is hired from a third party, the actual hire charges payable for the same as reduced by any charges paid or payable for he same by the employee during the previous year.
(2)
Where the accommodation is provided by any other employer and—
(a) where the accommodation is owned by the employer, or
(i) 15% of salary in cities having population exceeding 25 lakhs as per 2001 census;
(ii) 10% of salary in cities having population exceeding 10 lakhs but not exceeding 25 lakhs as per 2001 census;
(iii) 7.5% of salary in other areas,
in respect of the period during which the said accommodation was occupied by the employee during the previous year as reduced by the rent, if any, actually paid by the employee.
The value of perquisites as determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, refrigerators, other household ap plant or equipment or other similar appliances or gadgets) or if such furniture is hired from a third party, by the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.
(b) where the accommodation is taken on lease or rent by the employer.
Actual amount of lease rental paid or payable by the employer or 15% of salary whichever is lower as reduced by the rent, if any, actually paid by the employee.
The value of perquisite as determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment or other similar appliances or gadgets) or if such furniture is hired from a third party, by the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.
(3)
Where the accommodation is provided by the employer specified in serial number (1) or (2) in a hotel (except where the employee is provided such accommodation for a period not Exceeding in aggregate fifteen days on his transfer from one place to another)
Not applicable
24% of salary paid or payable for the previous year or the actual charges paid or payable to such hotel, which is lower, for the period during which such accommodation is provided as reduced by the rent, if any, actually paid or payable by the employee:
Provided that nothing contained in this sub-rule shall apply to any accommodation provided to an employee working at a mining site or an on-shore oil exploration site or a project execution site, or a dam site or a power generation site or an off-shore site—
(i) which, being of a temporary nature and having plinth area not exceeding 800 square feet, is located not less than eight kilometers away from the local limits of any municipality or a cantonment board; or
(ii) which is located in a remote area:
Provided further that where on account of his transfer from one place to another, the employee is provided with accommodation at the new place of posting while retaining the accommodation at the other place, the value of perquisite shall be determined with reference to only one such accommodation which has the lower value with reference to the Table above for a period not exceeding 90 days and thereafter the value of perquisite shall be charged for both such accommodations in accordance with the Table.
Explanation.—For the purposes of this sub-rule, where the accommodation is provided by the Central Government or any State Government to an employee who is serving on deputation with any body or undertaking under the control of such Government,-
(i) the employer of such an employee shall be deemed to be that body or undertaking where the employee is serving on deputation; and
(ii) the value of perquisite of such an accommodation shall be the amount calculated in accordance with Sl. No. (2)(a) of Table I, as if the accommodation is owned by the employer.
(2)(A) The value of perquisite by way of use of motor car to an employee by an employer shall be determined in accordance with the following Table, namely:—
Sl.No.
Circumstance
Where cubic capacity of engine does not exceed 1.6 liters
Where cubic capacity of engine exceeds 1.6 liters
(1)
(2)
(3)
(4)
(1)
Where the motor car is owned or hired by the employer and—
(a) is used wholly and exclusively in the performance of his official duties;
(b) is used exclusively for the private or personal purposes of the employee or any member of his household and the running and maintenance expenses are met or reimbursed by the employer;
(c) is used partly in the performance of duties and partly for private or personal purposes of his own or any member of his household and—
(i) the expenses on maintenance and running are met or reimbursed by the employer;
(ii) the expenses on running and maintenance for private or personal use are fully met by the assessee.
No value:
Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.
Actual amount of expenditure incurred by the employer on the running and maintenance of motor car during the relevant previous year including remuneration, if any, paid by the employer to the chauffeur as increased by the amount representing normal wear and tear of the motor car and as reduced by any amount charged form the employee for such use.
Rs. 1,800 (plus Rs. 900, if chauffeur is also provided to run the motor car)
Rs. 600 (plus Rs.900, if chauffeur is also provided by the employer to run the motor car)
No value:
Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.
Actual amount of expenditure incurred by the employer on the running and maintenance of motor car during the relevant previous year including remuneration, if any, paid by the employer to the chauffeur as increased by the amount representing normal wear and tear of the motor car and as reduced by any amount charged form the employee for such use.
Rs. 2,400 (plus Rs. 900, if chauffeur is also provided to run the motor car)
Rs. 900 (plus Rs. 900, if chauffeur is also provided to run the motor car)
(2)
Where the employee owns a motor car but the actual running and maintenance charges (including remuneration of the chauffeur, if any) are met or reimbursed to him by the employer and—
(i) such reimbursement is for the use of the vehicle wholly and exclusively for official purposes;
(ii) such reimbursement is for the use of the vehicle partly for official purposes and partly for personal or private purposes of the employee or any member of his household.
No value:
Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.
Subject to the provisions of clause (B) of this sub-rule, the actual amount of expenditure incurred by the employer as reduced by the amount specified in Sl. No. (1)(c)(i) above.
No value:
Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.
Subject to the provisions of clause (B) of this sub-rule, the actual amount of expenditure incurred by the employer as reduced by the amount specified in Sl. No. (1)(c)(i) above.
(3) Where the employee owns any other automotive conveyance but the actual running and maintenance charges are met or reimbursed to him by the employer and
(i). such reimbursement is for the use of the vehicle wholly and exclusively for official purposes;
(ii) such reimbursement is for the use of vehicle partly for official purposes and partly for personal or private purposes of the employee.
No Value :
Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.
Subject to the provisions of clause (B) of this sub-rule, the actual amount of expenditure incurred by the employer as reduced by the amount of
Rs. 900.
Not applicable :
Provided that where one or more motor-cars are owned or hired by the employer and the employee or any member of his household are allowed the use of such motor-car or all of any of such motor-cars (otherwise than wholly and exclusively in the performance of his duties), the value of perquisite shall be the amount calculated in respect of one car in accordance with Sl. No. (1)(c)(i) of Table II as if the employee had been provided one motor-car for use partly in the performance of his duties and partly for his private or personal purposes and the amount calculated in respect of the other car or cars in accordance with Sl. No. (1)(b) of Table II as if he had been provided with such car exclusively for his private or personal purposes.
(B) Where the employer or the employee claims that the motor-car is used wholly and exclusively in the performance of official duty or that the actual expenses on the running and maintenance of the motor-car owned by the employee for official purposes is more than the amounts deductible in Sl. No. 2(ii) or 3(ii) of Table II, he may claim a higher amount attributable to such official use and the value of perquisite in such a case shall be the actual amount attributable to official use of the vehicle provided that the following conditions are fulfilled:—
(a) the employer has maintained complete details of journey undertaken for official purpose which may include date of journey, destination, mileage and the amount of expenditure incurred thereon;
(b) the employer gives a certificate to the effect that the expenditure was incurred wholly and exclusively for the performance of official duties.
Explanation.—For the purposes of this sub-rule, the normal wear and tear of a motor-car shall be taken at 10% per annum of the actual cost of the motor-car or cars.
(3) The value of benefit to the employee or any member of his household resulting from the provision by the employer or services of a sweeper, a gardener, a watchman or a personal attendant, shall be the actual cost to the employer. The actual cost in such a case shall be the total amount of salary paid or payable by the employer or any other person on his behalf for such services as reduced by any amount paid by the employee for such services.
(4) The value of the benefit to the employee resulting from the supply of gas, electric energy or water for his household consumption shall be determined as the sum equal to the amount paid on that account by the employer to the agency supplying the gas, electric energy or water. Where such supply is made from resources owned by the employer, without purchasing them from any other outside agency, the value of perquisite would be the manufacturing cost per unit incurred by the employer. Where the employee is paying any amount in respect of such services, the amount so paid shall be deducted from the value so arrived at.
(5) The value of benefit to the employee resulting from the provision of free or concessional educational facilities for any member of his household shall be determined as the sum equal to the amount of expenditure incurred by the employer in that behalf or where the educational institution is itself maintained and owned by the employer or where free educational facilities for such member of employees' household are allowed in any other educational institution by reason of his being in employment of that employer, the value of the perquisite to the employee shall be determined with reference to the cost of such education in a similar institution in or near the locality. Where any amount is paid or recovered from the employee on that account, the value of benefit shall be reduced by the amount so paid or recovered :
Provided that where the educational institution itself is maintained and owned by the employer and free educational facilities are provided to the children of the employee or where such free educational facilities are provided in any institution by reason of his being in employment of that employer, nothing contained in this sub-rule shall apply if the cost of such education or the value of such benefit per child does not exceed one thousand rupees per month.
(6) The value of any benefit or amenity resulting from the provision by an employer who is engaged in the carriage of passengers or goods, to any employee or to any member of his household for personal or private journey free of cost or at concessional fare, in any conveyance owned, leased or made available by any other arrangement by such employer for the purpose of transport of passengers or goods shall be taken to be the value at which such benefit or amenity is offered by such employer to the public as reduced by the amount, if any, paid by or recovered from the employee for such benefit or amenity :
Provided that nothing contained in this sub-rule shall apply to the employees of an airline or the railways.
(7) In terms of provisions contained in clause (viii) of sub-section (2) of section 17, the following other benefits or amenities and value thereof shall be determined in the manner provided hereunder:
(i) The value of the benefit to the assessee resulting from the provision of interest-free or concessional loan for any purpose made available to the employee or any member of his household during the relevant previous year by the employer or any person on his behalf shall be determined as the sum equal to the interest computed at the rate charged per annum by the State Bank of India, constituted under the State Bank of India Act, 1955 (23 of 1955), as on the 1st day of the relevant previous year in respect of loans for the same purpose advanced by it on the maximum outstanding monthly balance as reduced by the interest, if any, actually paid by him or any such member of his household:
Provided that no value would be charged if such loans are made available for medical treatment in respect of diseases specified in rule 3A of these Rules or where the amount of loans are petty not exceeding in the aggregate twenty thousand rupees:
Provided further that where the benefit relates to the loans made available for medical treatment referred to above, the exemption so provided shall not apply to so much of the loan as has been reimbursed to the employee under any medical insurance scheme.
(ii) The value of travelling, touring, accommodation and any other expenses paid for or borne or reimbursed by the employer for any holiday availed of by the employee or any member of his household, other than concession or assistance referred to in rule 2B of these rules, shall be determined as the sum equal to the amount of the expenditure incurred by such employer in that behalf. Where such facility is maintained by the employer, and is not available uniformly to all employees, the value of benefit shall be taken to be the value at which such facilities are offered by other agencies to the public. Where the employee is on official tour and the expenses are incurred in respect of any member of his household accompanying him, the amount of expenditure so incurred shall also be a fringe benefit or amenity:
Provided that where any official tour is extended as a vacation, the value of such fringe benefit shall be limited to the expenses incurred in relation to such extended period of stay or vacation. The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity.
(iii) The value of free food and non-alcoholic beverages provided by the employer to an employee shall be the amount of expenditure incurred by such employer. The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity:
Provided that nothing contained in this clause shall apply to free food and non-alcoholic beverages provided by such employer during working hours at office or business premises or through paid vouchers which are not transferable and usable only at eating joints, to the extent the value thereof either case does not exceed fifty rupees per meal or to tea or snacks provided during working hours or to free food and non-alcoholic beverages during working hours provided in a remote area or an off-shore installation.
(iv) The value of any gift, or voucher, or token in lieu of which such gift may be received by the employee or by member of his household on ceremonial occasions or otherwise from the employer shall be determined as the sum equal to the amount of such gift:
Provided that where the value of such gift, voucher or token, as the case may be, is below five thousand rupees in the aggregate during the previous year, the value of perquisite shall be taken as "nil".
(v) The amount of expenses including membership fees and annual fees incurred by the employee or any member of his household, which is charged to a credit care (including any add-on-card) provided by the employer, or otherwise, paid for or reimbursed by such employer shall be taken to be the value of perquisite chargeable to tax as reduced by the amount, if any paid or recovered from the employee for such benefit or amenity:
Provided that there shall be no value of such benefit where expenses are incurred wholly and exclusively for official purposes and the following conditions are fulfilled:—
(a) complete details in respect of such expenditure are maintained by the employer which may, inter alia, include the date of expenditure and the nature of expenditure;
(b) the employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duties.
(vi) (A) The value of benefit to the employee resulting from the payment or reimbursement by the employer of any expenditure incurred (including the amount of annual or periodical fee) in a club by him or by a member of his household shall be determined to be the actual amount of expenditure incurred or reimbursed by such employer on that account. The amount so determined shall be reduced by the amount, if any paid or recovered from the employee for such benefit or amenity:
Provided that where the employer has obtained corporate membership of the club and the facility is enjoyed by the employee or any member of his household, the value of perquisite shall not include the initial fee paid for acquiring such corporate membership.
(B) Nothing contained in this clause shall apply if such expenditure is incurred wholly and exclusively for business purposes and the following conditions are fulfilled:—
(a) complete details in respect of such expenditure are maintained by the employer which may inter alia, include the date of expenditure, the nature of expenditure and its business expediency;
(b) the employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duties.
(C) Nothing contained in this clause shall apply for use of health club, sports and similar facilities provided uniformly to all employees by the employer.
(vii) The value of benefit to the employee resulting from the use by the employee or any member of his household of any movable asset (other than assets already specified in this rule and other than laptops and computers) belonging to the employer or hired by him shall be determined at 10% per annum of the actual cost of such asset or the amount of rent or charge paid or payable by the employer, as the case may be, as reduced by the amount, if any, paid or recovered from the employee for such use.
(viii) The value of benefit to the employee arising from the transfer of any movable asset belonging to the employer directly or indirectly to the employee or any member of his household shall be determined to be the amount representing the actual cost of such assets to the employer as reduced by the cost of normal wear and tear calculated at the rate of 10% of such cost for each completed year during which such asset was put to use by the employer and as further reduced by the amount, if any, paid or recovered from the employee being the consideration for such transfer :
Provided that in the case of computers and electronic items, the normal wear and tear would be calculated at the rate of 50% and in the case of motor cars at the rate of 20% by the reducing balance method.
(ix) The value of any other benefit or amenity, service, right or privilege provided by the employer shall be determined on the basis of cost to the employer under an arm's length transaction as reduced by the employee's contribution, if any :
Provided that nothing contained in this clause shall apply to the expenses on telephones including a mobile phone actually incurred on behalf of the employee by the employer.
(8)(i) For the purposes of clause (vi) of sub-section (2) of section 17, the fair market value of any specified security or sweat equity share, being an equity share in a company, on the date on which the option is exercised by the employee, shall be determined in accordance with the provisions of clause (ii) or clause (iii).
(ii) In a case where, on the date of the exercising of the option, the share in the company is listed on a recognized stock exchange, the fair market value shall be the average of the opening price and closing price of the share on that date on the said stock exchange :
Provided that where, on the date of exercising of the option, the share is listed on more than one recognized stock exchanges, the fair market value shall be the average of opening price and closing price of the share on the recognised stock exchange which records the highest volume of trading in the share :
Provided further that where, on the date of exercising of the option, there is no trading in the share on any recognized stock exchange, the fair market value shall be—
(a) the closing price of the share on any recognised stock exchange on a date closest to the date of exercising of the option and immediately preceding such date; or
(b) the closing price of the share on a recognised stock exchange, which records the highest volume of trading in such share, if the closing price, as on the date closest to the date of exercising of the option and immediately preceding such date, is recorded on more than one recognized stock exchange.
(iii) In a case where, on the date of exercising of the option, the share in the company is not listed on a recognised stock exchange, the fair market value shall be such value of the share in the company as determined by a merchant banker on the specified date.
(iv) For the purpose of this sub-rule,—
(a) "closing price" of a share on a recognised stock exchange on a date shall be the price of the last settlement on such date on such stock exchange :
Provided that where the stock exchange quotes both "buy'' and "sell" prices, the closing price shall be the "sell" price of the last settlement;
(b) "merchant banker" means category I merchant banker registered with Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);
(c) "opening price" of a share on a recognised stock exchange on a date shall be the price of the first settlement on such date on such stock exchange :
Provided that where the stock exchange quotes both "buy" and "sell" prices, the opening price shall be the "sell" price of the first settlement;
(d) "recognised stock exchange" shall have the same meaning assigned to it in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
(e) "specified date" means,—
(i) the date of exercising of the option; or
(ii) any date earlier than the date of the exercising of the option, not being a date which is more than 180 days earlier than the date of the exercising.
(9) For the purposes of clause (vi) of sub-section (2) of section 17, the fair market value of any specified security, not being an equity share in a company, on the date on which the option is exercised by the employee, shall be such value as determined by a merchant banker on the specified date.
Explanation.—For the purposes of this sub-rule, `merchant banker' and `specified date' shall have the meanings assigned to them in sub-clause (b) and sub-clause (e) respectively of clause (iv) of sub-rule (8).
(10) This rule shall come into force with effect from the 1st day of April, 2009.
Explanation.—For the purposes of this rule-
(i) "accommodation" includes a house, flat, farm house or part thereof, or accommodation in a hotel, motel, service apartment, guest house, caravan, mobile home, ship or other floating structure;
(ii) "entertainment" includes hospitality of any kind and also, expenditure on business gifts other than free samples of the employers own product with the aim of advertising to the general public;
(iii) "hotel" includes licensed accommodation in the nature of motel, service apartment or guest house;
(iv) "member of household" shall include—
(a) spouse(s),
(b) children and their spouses,
(c) parents, and
(d) servants and dependents;
(v) "remote area", for purposes of proviso to this sub-rule means an area that is located at least 40 kilometres away from a town having a population not exceeding 20,000 based on latest published all-India census;
(vi) "salary" includes the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment, by whatever name called from one or more employers, as the case may be, but does not include the following, namely:—
(a) dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned;
(b) employer's contribution to the provident fund account of the employee;
(c) allowances which are exempted from payment of tax;
(d) the value of perquisites specified in clause (2) of section 17 of the Income-tax Act;
(e) any payment or expenditure specifically excluded under proviso to sub-clause (iii) of clause (2) or proviso to clause (2) of section 17;
(f) lump-sum payments received at the time of termination of service or superannuation or voluntary retirement, like gratuity, severance pay leave encashment, voluntary retrenchment benefits, commutation of pension and similar payments;
(vii) `maximum outstanding monthly balance' means the aggregate outstanding balance for each loan as on the last day of each month.
appendix 2
Section 17 of Income-tax Act, 1961
"Salary", "perquisite" and "profits in lieu of salary" defined.
17. For the purposes of sections 15 and 16 and of this section,—
(1) "salary" includes—
(i) wages;
(ii) any annuity or pension;
(iii) any gratuity;
(iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;
(v) any advance of salary;
(va) any payment received by an employee in respect of any period of leave not availed of by him;
(vi) the annual accretion to the balance at the credit of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule;
(vii) the aggregate of all sums that are comprised in the transferred balance as referred to in sub-rule (2) of rule 11 of Part A of the Fourth Schedule of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under sub-rule (4) thereof; and
(viii) the contribution made by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD;
(2) "perquisite" includes—
(i) the value of rent-free accommodation provided to the assessee by his employer;
(ii) the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer;
Explanation 1.—For the purposes of this sub-clause, concession in the matter of rent shall be deemed to have been provided if,—
(a) in a case where an unfurnished accommodation is provided by any employer other than the Central Government or any State Government and—
(i) the accommodation is owned by the employer, the value of the accommodation determined at the specified rate in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the rent recoverable from, or payable by, the assessee;
(ii) the accommodation is taken on lease or rent by the employer, the value of the accommodation being the actual amount of lease rental paid or payable by the employer or fifteen per cent of salary, whichever is lower, in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the rent recoverable from, or payable by, the assessee;
(b) in a case where a furnished accommodation is provided by the Central Government or any State Government, the licence fee determined by the Central Government or any State Government in respect of the accommodation in accordance with the rules framed by such Government as increased by the value of furniture and fixtures in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the aggregate of the rent recoverable from, or payable by, the assessee and any charges paid or payable for the furniture and fixtures by the assessee;
(c) in a case where a furnished accommodation is provided by an employer other than the Central Government or any State Government and—
(i) the accommodation is owned by the employer, the value of the accommodation determined under sub-clause (i) of clause (a) as increased by the value of the furniture and fixtures in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the rent recoverable from, or payable by, the assessee;
(ii) the accommodation is taken on lease or rent by the employer, the value of the accommodation determined under sub-clause (ii) of clause (a) as increased by the value of the furniture and fixtures in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the rent recoverable from, or payable by, the assessee;
(d) in a case where the accommodation is provided by the employer in a hotel (except where the assessee is provided such accommodation for a period not exceeding in aggregate fifteen days on his transfer from one place to another), the value of the accommodation determined at the rate of twenty-four per cent of salary paid or payable for the previous year or the actual charges paid or payable to such hotel, whichever is lower, for the period during which such accommodation is provided, exceeds the rent recoverable from, or payable by, the assessee.
Explanation 2.—For the purposes of this sub-clause, value of furniture and fixture shall be ten per cent per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment or other similar appliances or gadgets) or if such furniture is hired from a third party, the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the assessee during the previous year.
Explanation 3.—For the purposes of this sub-clause, "salary" includes the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment, by whatever name called, from one or more employers, as the case may be, but does not include the following, namely:—
(a) dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned;
(b) employer's contribution to the provident fund account of the employee;
(c) allowances which are exempted from the payment of tax;
(d) value of the perquisites specified in this clause;
(e) any payment or expenditure specifically excluded under the proviso to this clause.
Explanation 4.—For the purposes of this sub-clause, "specified rate" shall be—
(i) fifteen per cent of salary in cities having population exceeding twenty-five lakhs as per 2001 census;
(ii) ten per cent of salary in cities having population exceeding ten lakhs but not exceeding twenty-five lakhs as per 2001 census; and
(iii) seven and one-half per cent of salary in any other place;
(iii) the value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases—
(a) by a company to an employee who is a director thereof;
(b) by a company to an employee being a person who has a substantial interest in the company;
(c) by any employer (including a company) to an employee to whom the provisions of paragraphs (a) and (b) of this sub-clause do not apply and whose income under the head "Salaries" (whether due from, or paid or allowed by, one or more employers), exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds fifty thousand rupees:
[***]
Explanation.—For the removal of doubts, it is hereby declared that the use of any vehicle provided by a company or an employer for journey by the assessee from his residence to his office or other place of work, or from such office or place to his residence, shall not be regarded as a benefit or amenity granted or provided to him free of cost or at concessional rate for the purposes of this sub-clause;
(iiia) [***]
(iv) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee;
(v) any sum payable by the employer, whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund or a Deposit-linked Insurance Fund established under section 3G of the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948 (46 of 1948), or, as the case may be, section 6C of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), to effect an assurance on the life of the assessee or to effect a contract for an annuity; 1[and]
(vi) the value of any other fringe benefit or amenity (excluding the fringe benefits chargeable to tax under Chapter XII-H) as may be prescribed :
The following sub-clauses (vi), (vii) and (viii) shall be substituted for the existing sub-clause (vi) of clause (2) of section 17 by the Finance (No. 2) Act, 2009, w.e.f. 1-4-2010 :
(vi) the value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee.
Explanation.—For the purposes of this sub-clause,—
(a) "specified security" means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and, where employees' stock option has been granted under any plan or scheme therefor, includes the securities offered under such plan or scheme;
(b) "sweat equity shares" means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called;
(c) the value of any specified security or sweat equity shares shall be the fair market value of the specified security or sweat equity shares, as the case may be, on the date on which the option is exercised by the assessee as reduced by the amount actually paid by, or recovered from the assessee in respect of such security or shares;
(d) "fair market value" means the value determined in accordance with the method as may be prescribed;
(e) "option" means a right but not an obligation granted to an employee to apply for the specified security or sweat equity shares at a predetermined price;
(vii) the amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees; and
(viii) the value of any other fringe benefit or amenity as may be prescribed:
Provided that nothing in this clause shall apply to,—
(i) the value of any medical treatment provided to an employee or any member of his family in any hospital maintained by the employer;
(ii) any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family—
(a) in any hospital maintained by the Government or any local authority or any other hospital approved by the Government for the purposes of medical treatment of its employees;
(b) in respect of the prescribed diseases or ailments, in any hospital approved by the Chief Commissioner having regard to the prescribed guidelines :
Provided that, in a case falling in sub-clause (b), the employee shall attach with his return of income a certificate from the hospital specifying the disease or ailment for which medical treatment was required and the receipt for the amount paid to the hospital;
(iii) any portion of the premium paid by an employer in relation to an employee, to effect or to keep in force an insurance on the health of such employee under any scheme approved by the Central Government or the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), for the purposes of clause (ib) of sub-section (1) of section 36;
(iv) any sum paid by the employer in respect of any premium paid by the employee to effect or to keep in force an insurance on his health or the health of any member of his family under any scheme approved by the Central Government or the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), for the purposes of section 80D;
(v) any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family other than the treatment referred to in clauses (i) and (ii); so, however, that such sum does not exceed fifteen thousand rupees in the previous year;
(vi) any expenditure incurred by the employer on—
(1) medical treatment of the employee, or any member of the family of such employee, outside India;
(2) travel and stay abroad of the employee or any member of the family of such employee for medical treatment;
(3) travel and stay abroad of one attendant who accompanies the patient in connection with such treatment,
subject to the condition that—
(A) the expenditure on medical treatment and stay abroad shall be excluded from perquisite only to the extent permitted by the Reserve Bank of India; and
(B) the expenditure on travel shall be excluded from perquisite only in the case of an employee whose gross total income, as computed before including therein the said expenditure, does not exceed two lakh rupees;
(vii) any sum paid by the employer in respect of any expenditure actually incurred by the employee for any of the purposes specified in clause (vi) subject to the conditions specified in or under that clause :
Provided further that for the assessment year beginning on the 1st day of April, 2002, nothing contained in this clause shall apply to any employee whose income under the head "Salaries" (whether due from, or paid or allowed by, one or more employers) exclusive of the value of all perquisites not provided for by way of monetary payment, does not exceed one lakh rupees.
Explanation.—For the purposes of clause (2),—
(i) "hospital" includes a dispensary or a clinic or a nursing home;
(ii) "family", in relation to an individual, shall have the same meaning as in clause (5) of section 10; and
(iii) "gross total income" shall have the same meaning as in clause (5) of section 80B;
[* * *]
(3) "profits in lieu of salary" includes—
(i) the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto;
(ii) any payment (other than any payment referred to in clause (10), clause (10A), clause (10B), clause (11), clause (12), clause (13) or clause (13A) of section 10), due to or received by an assessee from an employer or a former employer or from a provident or other fund, to the extent to which it does not consist of contributions by the assessee or interest on such contributions or any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.
Explanation.—For the purposes of this sub-clause, the expression "Keyman insurance policy" shall have the meaning assigned to it in clause (10D) of section 10;
(iii) any amount due to or received, whether in lump sum or otherwise, by any assessee from any person—
(A) before his joining any employment with that person; or
(B) after cessation of his employment with that person.
Regards,
CA Akshat Vithalani
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INCOME-TAX (THIRTEENTH AMENDMENT) RULES, 2009 - SUBSTITUTION OF RULE 3 AND INSERTION OF RULE 40F
Notification No. 94/2009/F.NO. 142/25/2009-SO (TPL), dated 18-12-2009
In exercise of the powers conferred by section 295 read with sub-section (2) of section 17 of the Income-tax Act, (43 of 1961). The Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namlely :-
(1) These rules may be called the Income-tax (13th Amendment) Rules, 2009.
(2) They shall be deemed to have come into force on the 1st day of April, 2009.
In the Income-tax Rules, 1962, for rule 3, the following shall be substituted, namely: -
"3. For the purpose of computing the income chargeable under the head "Salaries", the value of perquisites provided by the employer directly or indirectly to the assessee (hereinafter referred to as employee) or to any member of his household by reason of his employment shall be determined in accordance with the following sub-rules, namely:—
(1) The value of residential accommodation provided by the employer during the previous year shall be determined on the basis provided in the Table below:
Sl. NO.
Circumstances
Where accommodation is Unfurnished
Where accommodation is furnished
(1)
(2)
(3)
(4)
(1)
Where the accommodation is provided by the Central Government or any State Government to the employees either holding office or post in connection with the affairs of the Union or of such State.
License fee determined by the Central Government or any State Government in respect of accommodation in accordance with the rules framed by such Government as reduced by the rent actually paid by the employee.
determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment) or if such furniture is hired from a third party, the actual hire charges payable for the same as reduced by any charges paid or payable for he same by the employee during the previous year.
(2)
Where the accommodation is provided by any other employer and—
(a) where the accommodation is owned by the employer, or
(i) 15% of salary in cities having population exceeding 25 lakhs as per 2001 census;
(ii) 10% of salary in cities having population exceeding 10 lakhs but not exceeding 25 lakhs as per 2001 census;
(iii) 7.5% of salary in other areas,
in respect of the period during which the said accommodation was occupied by the employee during the previous year as reduced by the rent, if any, actually paid by the employee.
The value of perquisites as determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, refrigerators, other household ap plant or equipment or other similar appliances or gadgets) or if such furniture is hired from a third party, by the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.
(b) where the accommodation is taken on lease or rent by the employer.
Actual amount of lease rental paid or payable by the employer or 15% of salary whichever is lower as reduced by the rent, if any, actually paid by the employee.
The value of perquisite as determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment or other similar appliances or gadgets) or if such furniture is hired from a third party, by the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.
(3)
Where the accommodation is provided by the employer specified in serial number (1) or (2) in a hotel (except where the employee is provided such accommodation for a period not Exceeding in aggregate fifteen days on his transfer from one place to another)
Not applicable
24% of salary paid or payable for the previous year or the actual charges paid or payable to such hotel, which is lower, for the period during which such accommodation is provided as reduced by the rent, if any, actually paid or payable by the employee:
Provided that nothing contained in this sub-rule shall apply to any accommodation provided to an employee working at a mining site or an on-shore oil exploration site or a project execution site, or a dam site or a power generation site or an off-shore site—
(i) which, being of a temporary nature and having plinth area not exceeding 800 square feet, is located not less than eight kilometers away from the local limits of any municipality or a cantonment board; or
(ii) which is located in a remote area:
Provided further that where on account of his transfer from one place to another, the employee is provided with accommodation at the new place of posting while retaining the accommodation at the other place, the value of perquisite shall be determined with reference to only one such accommodation which has the lower value with reference to the Table above for a period not exceeding 90 days and thereafter the value of perquisite shall be charged for both such accommodations in accordance with the Table.
Explanation.—For the purposes of this sub-rule, where the accommodation is provided by the Central Government or any State Government to an employee who is serving on deputation with any body or undertaking under the control of such Government,-
(i) the employer of such an employee shall be deemed to be that body or undertaking where the employee is serving on deputation; and
(ii) the value of perquisite of such an accommodation shall be the amount calculated in accordance with Sl. No. (2)(a) of Table I, as if the accommodation is owned by the employer.
(2)(A) The value of perquisite by way of use of motor car to an employee by an employer shall be determined in accordance with the following Table, namely:—
Sl.No.
Circumstance
Where cubic capacity of engine does not exceed 1.6 liters
Where cubic capacity of engine exceeds 1.6 liters
(1)
(2)
(3)
(4)
(1)
Where the motor car is owned or hired by the employer and—
(a) is used wholly and exclusively in the performance of his official duties;
(b) is used exclusively for the private or personal purposes of the employee or any member of his household and the running and maintenance expenses are met or reimbursed by the employer;
(c) is used partly in the performance of duties and partly for private or personal purposes of his own or any member of his household and—
(i) the expenses on maintenance and running are met or reimbursed by the employer;
(ii) the expenses on running and maintenance for private or personal use are fully met by the assessee.
No value:
Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.
Actual amount of expenditure incurred by the employer on the running and maintenance of motor car during the relevant previous year including remuneration, if any, paid by the employer to the chauffeur as increased by the amount representing normal wear and tear of the motor car and as reduced by any amount charged form the employee for such use.
Rs. 1,800 (plus Rs. 900, if chauffeur is also provided to run the motor car)
Rs. 600 (plus Rs.900, if chauffeur is also provided by the employer to run the motor car)
No value:
Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.
Actual amount of expenditure incurred by the employer on the running and maintenance of motor car during the relevant previous year including remuneration, if any, paid by the employer to the chauffeur as increased by the amount representing normal wear and tear of the motor car and as reduced by any amount charged form the employee for such use.
Rs. 2,400 (plus Rs. 900, if chauffeur is also provided to run the motor car)
Rs. 900 (plus Rs. 900, if chauffeur is also provided to run the motor car)
(2)
Where the employee owns a motor car but the actual running and maintenance charges (including remuneration of the chauffeur, if any) are met or reimbursed to him by the employer and—
(i) such reimbursement is for the use of the vehicle wholly and exclusively for official purposes;
(ii) such reimbursement is for the use of the vehicle partly for official purposes and partly for personal or private purposes of the employee or any member of his household.
No value:
Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.
Subject to the provisions of clause (B) of this sub-rule, the actual amount of expenditure incurred by the employer as reduced by the amount specified in Sl. No. (1)(c)(i) above.
No value:
Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.
Subject to the provisions of clause (B) of this sub-rule, the actual amount of expenditure incurred by the employer as reduced by the amount specified in Sl. No. (1)(c)(i) above.
(3) Where the employee owns any other automotive conveyance but the actual running and maintenance charges are met or reimbursed to him by the employer and
(i). such reimbursement is for the use of the vehicle wholly and exclusively for official purposes;
(ii) such reimbursement is for the use of vehicle partly for official purposes and partly for personal or private purposes of the employee.
No Value :
Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.
Subject to the provisions of clause (B) of this sub-rule, the actual amount of expenditure incurred by the employer as reduced by the amount of
Rs. 900.
Not applicable :
Provided that where one or more motor-cars are owned or hired by the employer and the employee or any member of his household are allowed the use of such motor-car or all of any of such motor-cars (otherwise than wholly and exclusively in the performance of his duties), the value of perquisite shall be the amount calculated in respect of one car in accordance with Sl. No. (1)(c)(i) of Table II as if the employee had been provided one motor-car for use partly in the performance of his duties and partly for his private or personal purposes and the amount calculated in respect of the other car or cars in accordance with Sl. No. (1)(b) of Table II as if he had been provided with such car exclusively for his private or personal purposes.
(B) Where the employer or the employee claims that the motor-car is used wholly and exclusively in the performance of official duty or that the actual expenses on the running and maintenance of the motor-car owned by the employee for official purposes is more than the amounts deductible in Sl. No. 2(ii) or 3(ii) of Table II, he may claim a higher amount attributable to such official use and the value of perquisite in such a case shall be the actual amount attributable to official use of the vehicle provided that the following conditions are fulfilled:—
(a) the employer has maintained complete details of journey undertaken for official purpose which may include date of journey, destination, mileage and the amount of expenditure incurred thereon;
(b) the employer gives a certificate to the effect that the expenditure was incurred wholly and exclusively for the performance of official duties.
Explanation.—For the purposes of this sub-rule, the normal wear and tear of a motor-car shall be taken at 10% per annum of the actual cost of the motor-car or cars.
(3) The value of benefit to the employee or any member of his household resulting from the provision by the employer or services of a sweeper, a gardener, a watchman or a personal attendant, shall be the actual cost to the employer. The actual cost in such a case shall be the total amount of salary paid or payable by the employer or any other person on his behalf for such services as reduced by any amount paid by the employee for such services.
(4) The value of the benefit to the employee resulting from the supply of gas, electric energy or water for his household consumption shall be determined as the sum equal to the amount paid on that account by the employer to the agency supplying the gas, electric energy or water. Where such supply is made from resources owned by the employer, without purchasing them from any other outside agency, the value of perquisite would be the manufacturing cost per unit incurred by the employer. Where the employee is paying any amount in respect of such services, the amount so paid shall be deducted from the value so arrived at.
(5) The value of benefit to the employee resulting from the provision of free or concessional educational facilities for any member of his household shall be determined as the sum equal to the amount of expenditure incurred by the employer in that behalf or where the educational institution is itself maintained and owned by the employer or where free educational facilities for such member of employees' household are allowed in any other educational institution by reason of his being in employment of that employer, the value of the perquisite to the employee shall be determined with reference to the cost of such education in a similar institution in or near the locality. Where any amount is paid or recovered from the employee on that account, the value of benefit shall be reduced by the amount so paid or recovered :
Provided that where the educational institution itself is maintained and owned by the employer and free educational facilities are provided to the children of the employee or where such free educational facilities are provided in any institution by reason of his being in employment of that employer, nothing contained in this sub-rule shall apply if the cost of such education or the value of such benefit per child does not exceed one thousand rupees per month.
(6) The value of any benefit or amenity resulting from the provision by an employer who is engaged in the carriage of passengers or goods, to any employee or to any member of his household for personal or private journey free of cost or at concessional fare, in any conveyance owned, leased or made available by any other arrangement by such employer for the purpose of transport of passengers or goods shall be taken to be the value at which such benefit or amenity is offered by such employer to the public as reduced by the amount, if any, paid by or recovered from the employee for such benefit or amenity :
Provided that nothing contained in this sub-rule shall apply to the employees of an airline or the railways.
(7) In terms of provisions contained in clause (viii) of sub-section (2) of section 17, the following other benefits or amenities and value thereof shall be determined in the manner provided hereunder:
(i) The value of the benefit to the assessee resulting from the provision of interest-free or concessional loan for any purpose made available to the employee or any member of his household during the relevant previous year by the employer or any person on his behalf shall be determined as the sum equal to the interest computed at the rate charged per annum by the State Bank of India, constituted under the State Bank of India Act, 1955 (23 of 1955), as on the 1st day of the relevant previous year in respect of loans for the same purpose advanced by it on the maximum outstanding monthly balance as reduced by the interest, if any, actually paid by him or any such member of his household:
Provided that no value would be charged if such loans are made available for medical treatment in respect of diseases specified in rule 3A of these Rules or where the amount of loans are petty not exceeding in the aggregate twenty thousand rupees:
Provided further that where the benefit relates to the loans made available for medical treatment referred to above, the exemption so provided shall not apply to so much of the loan as has been reimbursed to the employee under any medical insurance scheme.
(ii) The value of travelling, touring, accommodation and any other expenses paid for or borne or reimbursed by the employer for any holiday availed of by the employee or any member of his household, other than concession or assistance referred to in rule 2B of these rules, shall be determined as the sum equal to the amount of the expenditure incurred by such employer in that behalf. Where such facility is maintained by the employer, and is not available uniformly to all employees, the value of benefit shall be taken to be the value at which such facilities are offered by other agencies to the public. Where the employee is on official tour and the expenses are incurred in respect of any member of his household accompanying him, the amount of expenditure so incurred shall also be a fringe benefit or amenity:
Provided that where any official tour is extended as a vacation, the value of such fringe benefit shall be limited to the expenses incurred in relation to such extended period of stay or vacation. The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity.
(iii) The value of free food and non-alcoholic beverages provided by the employer to an employee shall be the amount of expenditure incurred by such employer. The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity:
Provided that nothing contained in this clause shall apply to free food and non-alcoholic beverages provided by such employer during working hours at office or business premises or through paid vouchers which are not transferable and usable only at eating joints, to the extent the value thereof either case does not exceed fifty rupees per meal or to tea or snacks provided during working hours or to free food and non-alcoholic beverages during working hours provided in a remote area or an off-shore installation.
(iv) The value of any gift, or voucher, or token in lieu of which such gift may be received by the employee or by member of his household on ceremonial occasions or otherwise from the employer shall be determined as the sum equal to the amount of such gift:
Provided that where the value of such gift, voucher or token, as the case may be, is below five thousand rupees in the aggregate during the previous year, the value of perquisite shall be taken as "nil".
(v) The amount of expenses including membership fees and annual fees incurred by the employee or any member of his household, which is charged to a credit care (including any add-on-card) provided by the employer, or otherwise, paid for or reimbursed by such employer shall be taken to be the value of perquisite chargeable to tax as reduced by the amount, if any paid or recovered from the employee for such benefit or amenity:
Provided that there shall be no value of such benefit where expenses are incurred wholly and exclusively for official purposes and the following conditions are fulfilled:—
(a) complete details in respect of such expenditure are maintained by the employer which may, inter alia, include the date of expenditure and the nature of expenditure;
(b) the employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duties.
(vi) (A) The value of benefit to the employee resulting from the payment or reimbursement by the employer of any expenditure incurred (including the amount of annual or periodical fee) in a club by him or by a member of his household shall be determined to be the actual amount of expenditure incurred or reimbursed by such employer on that account. The amount so determined shall be reduced by the amount, if any paid or recovered from the employee for such benefit or amenity:
Provided that where the employer has obtained corporate membership of the club and the facility is enjoyed by the employee or any member of his household, the value of perquisite shall not include the initial fee paid for acquiring such corporate membership.
(B) Nothing contained in this clause shall apply if such expenditure is incurred wholly and exclusively for business purposes and the following conditions are fulfilled:—
(a) complete details in respect of such expenditure are maintained by the employer which may inter alia, include the date of expenditure, the nature of expenditure and its business expediency;
(b) the employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duties.
(C) Nothing contained in this clause shall apply for use of health club, sports and similar facilities provided uniformly to all employees by the employer.
(vii) The value of benefit to the employee resulting from the use by the employee or any member of his household of any movable asset (other than assets already specified in this rule and other than laptops and computers) belonging to the employer or hired by him shall be determined at 10% per annum of the actual cost of such asset or the amount of rent or charge paid or payable by the employer, as the case may be, as reduced by the amount, if any, paid or recovered from the employee for such use.
(viii) The value of benefit to the employee arising from the transfer of any movable asset belonging to the employer directly or indirectly to the employee or any member of his household shall be determined to be the amount representing the actual cost of such assets to the employer as reduced by the cost of normal wear and tear calculated at the rate of 10% of such cost for each completed year during which such asset was put to use by the employer and as further reduced by the amount, if any, paid or recovered from the employee being the consideration for such transfer :
Provided that in the case of computers and electronic items, the normal wear and tear would be calculated at the rate of 50% and in the case of motor cars at the rate of 20% by the reducing balance method.
(ix) The value of any other benefit or amenity, service, right or privilege provided by the employer shall be determined on the basis of cost to the employer under an arm's length transaction as reduced by the employee's contribution, if any :
Provided that nothing contained in this clause shall apply to the expenses on telephones including a mobile phone actually incurred on behalf of the employee by the employer.
(8)(i) For the purposes of clause (vi) of sub-section (2) of section 17, the fair market value of any specified security or sweat equity share, being an equity share in a company, on the date on which the option is exercised by the employee, shall be determined in accordance with the provisions of clause (ii) or clause (iii).
(ii) In a case where, on the date of the exercising of the option, the share in the company is listed on a recognized stock exchange, the fair market value shall be the average of the opening price and closing price of the share on that date on the said stock exchange :
Provided that where, on the date of exercising of the option, the share is listed on more than one recognized stock exchanges, the fair market value shall be the average of opening price and closing price of the share on the recognised stock exchange which records the highest volume of trading in the share :
Provided further that where, on the date of exercising of the option, there is no trading in the share on any recognized stock exchange, the fair market value shall be—
(a) the closing price of the share on any recognised stock exchange on a date closest to the date of exercising of the option and immediately preceding such date; or
(b) the closing price of the share on a recognised stock exchange, which records the highest volume of trading in such share, if the closing price, as on the date closest to the date of exercising of the option and immediately preceding such date, is recorded on more than one recognized stock exchange.
(iii) In a case where, on the date of exercising of the option, the share in the company is not listed on a recognised stock exchange, the fair market value shall be such value of the share in the company as determined by a merchant banker on the specified date.
(iv) For the purpose of this sub-rule,—
(a) "closing price" of a share on a recognised stock exchange on a date shall be the price of the last settlement on such date on such stock exchange :
Provided that where the stock exchange quotes both "buy'' and "sell" prices, the closing price shall be the "sell" price of the last settlement;
(b) "merchant banker" means category I merchant banker registered with Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);
(c) "opening price" of a share on a recognised stock exchange on a date shall be the price of the first settlement on such date on such stock exchange :
Provided that where the stock exchange quotes both "buy" and "sell" prices, the opening price shall be the "sell" price of the first settlement;
(d) "recognised stock exchange" shall have the same meaning assigned to it in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
(e) "specified date" means,—
(i) the date of exercising of the option; or
(ii) any date earlier than the date of the exercising of the option, not being a date which is more than 180 days earlier than the date of the exercising.
(9) For the purposes of clause (vi) of sub-section (2) of section 17, the fair market value of any specified security, not being an equity share in a company, on the date on which the option is exercised by the employee, shall be such value as determined by a merchant banker on the specified date.
Explanation.—For the purposes of this sub-rule, `merchant banker' and `specified date' shall have the meanings assigned to them in sub-clause (b) and sub-clause (e) respectively of clause (iv) of sub-rule (8).
(10) This rule shall come into force with effect from the 1st day of April, 2009.
Explanation.—For the purposes of this rule-
(i) "accommodation" includes a house, flat, farm house or part thereof, or accommodation in a hotel, motel, service apartment, guest house, caravan, mobile home, ship or other floating structure;
(ii) "entertainment" includes hospitality of any kind and also, expenditure on business gifts other than free samples of the employers own product with the aim of advertising to the general public;
(iii) "hotel" includes licensed accommodation in the nature of motel, service apartment or guest house;
(iv) "member of household" shall include—
(a) spouse(s),
(b) children and their spouses,
(c) parents, and
(d) servants and dependents;
(v) "remote area", for purposes of proviso to this sub-rule means an area that is located at least 40 kilometres away from a town having a population not exceeding 20,000 based on latest published all-India census;
(vi) "salary" includes the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment, by whatever name called from one or more employers, as the case may be, but does not include the following, namely:—
(a) dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned;
(b) employer's contribution to the provident fund account of the employee;
(c) allowances which are exempted from payment of tax;
(d) the value of perquisites specified in clause (2) of section 17 of the Income-tax Act;
(e) any payment or expenditure specifically excluded under proviso to sub-clause (iii) of clause (2) or proviso to clause (2) of section 17;
(f) lump-sum payments received at the time of termination of service or superannuation or voluntary retirement, like gratuity, severance pay leave encashment, voluntary retrenchment benefits, commutation of pension and similar payments;
(vii) `maximum outstanding monthly balance' means the aggregate outstanding balance for each loan as on the last day of each month.
appendix 2
Section 17 of Income-tax Act, 1961
"Salary", "perquisite" and "profits in lieu of salary" defined.
17. For the purposes of sections 15 and 16 and of this section,—
(1) "salary" includes—
(i) wages;
(ii) any annuity or pension;
(iii) any gratuity;
(iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;
(v) any advance of salary;
(va) any payment received by an employee in respect of any period of leave not availed of by him;
(vi) the annual accretion to the balance at the credit of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule;
(vii) the aggregate of all sums that are comprised in the transferred balance as referred to in sub-rule (2) of rule 11 of Part A of the Fourth Schedule of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under sub-rule (4) thereof; and
(viii) the contribution made by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD;
(2) "perquisite" includes—
(i) the value of rent-free accommodation provided to the assessee by his employer;
(ii) the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer;
Explanation 1.—For the purposes of this sub-clause, concession in the matter of rent shall be deemed to have been provided if,—
(a) in a case where an unfurnished accommodation is provided by any employer other than the Central Government or any State Government and—
(i) the accommodation is owned by the employer, the value of the accommodation determined at the specified rate in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the rent recoverable from, or payable by, the assessee;
(ii) the accommodation is taken on lease or rent by the employer, the value of the accommodation being the actual amount of lease rental paid or payable by the employer or fifteen per cent of salary, whichever is lower, in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the rent recoverable from, or payable by, the assessee;
(b) in a case where a furnished accommodation is provided by the Central Government or any State Government, the licence fee determined by the Central Government or any State Government in respect of the accommodation in accordance with the rules framed by such Government as increased by the value of furniture and fixtures in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the aggregate of the rent recoverable from, or payable by, the assessee and any charges paid or payable for the furniture and fixtures by the assessee;
(c) in a case where a furnished accommodation is provided by an employer other than the Central Government or any State Government and—
(i) the accommodation is owned by the employer, the value of the accommodation determined under sub-clause (i) of clause (a) as increased by the value of the furniture and fixtures in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the rent recoverable from, or payable by, the assessee;
(ii) the accommodation is taken on lease or rent by the employer, the value of the accommodation determined under sub-clause (ii) of clause (a) as increased by the value of the furniture and fixtures in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the rent recoverable from, or payable by, the assessee;
(d) in a case where the accommodation is provided by the employer in a hotel (except where the assessee is provided such accommodation for a period not exceeding in aggregate fifteen days on his transfer from one place to another), the value of the accommodation determined at the rate of twenty-four per cent of salary paid or payable for the previous year or the actual charges paid or payable to such hotel, whichever is lower, for the period during which such accommodation is provided, exceeds the rent recoverable from, or payable by, the assessee.
Explanation 2.—For the purposes of this sub-clause, value of furniture and fixture shall be ten per cent per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment or other similar appliances or gadgets) or if such furniture is hired from a third party, the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the assessee during the previous year.
Explanation 3.—For the purposes of this sub-clause, "salary" includes the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment, by whatever name called, from one or more employers, as the case may be, but does not include the following, namely:—
(a) dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned;
(b) employer's contribution to the provident fund account of the employee;
(c) allowances which are exempted from the payment of tax;
(d) value of the perquisites specified in this clause;
(e) any payment or expenditure specifically excluded under the proviso to this clause.
Explanation 4.—For the purposes of this sub-clause, "specified rate" shall be—
(i) fifteen per cent of salary in cities having population exceeding twenty-five lakhs as per 2001 census;
(ii) ten per cent of salary in cities having population exceeding ten lakhs but not exceeding twenty-five lakhs as per 2001 census; and
(iii) seven and one-half per cent of salary in any other place;
(iii) the value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases—
(a) by a company to an employee who is a director thereof;
(b) by a company to an employee being a person who has a substantial interest in the company;
(c) by any employer (including a company) to an employee to whom the provisions of paragraphs (a) and (b) of this sub-clause do not apply and whose income under the head "Salaries" (whether due from, or paid or allowed by, one or more employers), exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds fifty thousand rupees:
[***]
Explanation.—For the removal of doubts, it is hereby declared that the use of any vehicle provided by a company or an employer for journey by the assessee from his residence to his office or other place of work, or from such office or place to his residence, shall not be regarded as a benefit or amenity granted or provided to him free of cost or at concessional rate for the purposes of this sub-clause;
(iiia) [***]
(iv) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee;
(v) any sum payable by the employer, whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund or a Deposit-linked Insurance Fund established under section 3G of the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948 (46 of 1948), or, as the case may be, section 6C of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), to effect an assurance on the life of the assessee or to effect a contract for an annuity; 1[and]
(vi) the value of any other fringe benefit or amenity (excluding the fringe benefits chargeable to tax under Chapter XII-H) as may be prescribed :
The following sub-clauses (vi), (vii) and (viii) shall be substituted for the existing sub-clause (vi) of clause (2) of section 17 by the Finance (No. 2) Act, 2009, w.e.f. 1-4-2010 :
(vi) the value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee.
Explanation.—For the purposes of this sub-clause,—
(a) "specified security" means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and, where employees' stock option has been granted under any plan or scheme therefor, includes the securities offered under such plan or scheme;
(b) "sweat equity shares" means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called;
(c) the value of any specified security or sweat equity shares shall be the fair market value of the specified security or sweat equity shares, as the case may be, on the date on which the option is exercised by the assessee as reduced by the amount actually paid by, or recovered from the assessee in respect of such security or shares;
(d) "fair market value" means the value determined in accordance with the method as may be prescribed;
(e) "option" means a right but not an obligation granted to an employee to apply for the specified security or sweat equity shares at a predetermined price;
(vii) the amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees; and
(viii) the value of any other fringe benefit or amenity as may be prescribed:
Provided that nothing in this clause shall apply to,—
(i) the value of any medical treatment provided to an employee or any member of his family in any hospital maintained by the employer;
(ii) any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family—
(a) in any hospital maintained by the Government or any local authority or any other hospital approved by the Government for the purposes of medical treatment of its employees;
(b) in respect of the prescribed diseases or ailments, in any hospital approved by the Chief Commissioner having regard to the prescribed guidelines :
Provided that, in a case falling in sub-clause (b), the employee shall attach with his return of income a certificate from the hospital specifying the disease or ailment for which medical treatment was required and the receipt for the amount paid to the hospital;
(iii) any portion of the premium paid by an employer in relation to an employee, to effect or to keep in force an insurance on the health of such employee under any scheme approved by the Central Government or the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), for the purposes of clause (ib) of sub-section (1) of section 36;
(iv) any sum paid by the employer in respect of any premium paid by the employee to effect or to keep in force an insurance on his health or the health of any member of his family under any scheme approved by the Central Government or the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), for the purposes of section 80D;
(v) any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family other than the treatment referred to in clauses (i) and (ii); so, however, that such sum does not exceed fifteen thousand rupees in the previous year;
(vi) any expenditure incurred by the employer on—
(1) medical treatment of the employee, or any member of the family of such employee, outside India;
(2) travel and stay abroad of the employee or any member of the family of such employee for medical treatment;
(3) travel and stay abroad of one attendant who accompanies the patient in connection with such treatment,
subject to the condition that—
(A) the expenditure on medical treatment and stay abroad shall be excluded from perquisite only to the extent permitted by the Reserve Bank of India; and
(B) the expenditure on travel shall be excluded from perquisite only in the case of an employee whose gross total income, as computed before including therein the said expenditure, does not exceed two lakh rupees;
(vii) any sum paid by the employer in respect of any expenditure actually incurred by the employee for any of the purposes specified in clause (vi) subject to the conditions specified in or under that clause :
Provided further that for the assessment year beginning on the 1st day of April, 2002, nothing contained in this clause shall apply to any employee whose income under the head "Salaries" (whether due from, or paid or allowed by, one or more employers) exclusive of the value of all perquisites not provided for by way of monetary payment, does not exceed one lakh rupees.
Explanation.—For the purposes of clause (2),—
(i) "hospital" includes a dispensary or a clinic or a nursing home;
(ii) "family", in relation to an individual, shall have the same meaning as in clause (5) of section 10; and
(iii) "gross total income" shall have the same meaning as in clause (5) of section 80B;
[* * *]
(3) "profits in lieu of salary" includes—
(i) the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto;
(ii) any payment (other than any payment referred to in clause (10), clause (10A), clause (10B), clause (11), clause (12), clause (13) or clause (13A) of section 10), due to or received by an assessee from an employer or a former employer or from a provident or other fund, to the extent to which it does not consist of contributions by the assessee or interest on such contributions or any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.
Explanation.—For the purposes of this sub-clause, the expression "Keyman insurance policy" shall have the meaning assigned to it in clause (10D) of section 10;
(iii) any amount due to or received, whether in lump sum or otherwise, by any assessee from any person—
(A) before his joining any employment with that person; or
(B) after cessation of his employment with that person.
Regards,
CA Akshat Vithalani
Learn with fun
+91 9974491677
Tuesday, December 22, 2009
Companies Bill,2009 - What is New?
" Companies Bill,2009 - What is New?"
2008 Bill Introduced in LokSabha on 23rd Oct. 2008
2009 Bill INTRODUCED IN LOK SABHA ON 3rd AUGUST 2009
The Bill proposes to have 426 Clauses and 28 CHAPTERS (against 658 section in the Companies Act,1956)
No. of welcome changes
Several New Concepts/Ideas Introduced
It will replace the Companies Act,1956
All Powers of High Court Transferred to Proposed NCLT
Penalties and Punishments are huge
Major Changes
1. All restrictions on Managerial remuneration removed
2. Related Party Disclosure - Disclosure Only . No need for Government approval.
3. OPC (One Person Company) introduced
4. Company prohibited to accept Deposits. However, the Company can accept deposit from the Members.
5. Concept of Key Management Personnel (KMP) Introduced
6. Company should have a Chief Financial Officer ( CFO)
7. Registered Valuers
8. Secretarial Standards
9. Auditing Standards
10. Duties of directors
11. Auditor cannot undertake certain services
12. Dormant Company
13. Independent Directors
14. Board meeting and Notices
15. Importance of Annual return
16. Revival and rehabilitation of sick companies
17. Special Courts
18. Adjudication of Penalties
Few Important Definitions
Financial Year – 1st April to 31st March
“Chief Financial Officer” means a person appointed as the Chief Financial Officer of a company
“relative” with reference to any individual means the spouse, brother, sister and all lineal ascendants and descendants of such individual related to him either by marriage or adoption;
“small company” means a company, other than a public company,—
(i) whose paid-up share capital does not exceed such amount as may be prescribed and the prescribed amount shall not be more than five crore rupees; or
(ii) whose turnover as per its last profit and loss account does not exceed such amount as may be prescribed and the prescribed amount shall not be more than twenty crore rupees:
“key managerial personnel”, in relation to a company, means —
(i) the Managing Director, the Chief Executive Officer or the Manager and where there is no Managing Director or Manager, a whole-time director or directors;
(ii) the Company Secretary; and
(iii) the Chief Financial Officer;
CHAPTER II
INCORPORATION OF COMPANIES
(Clause 3 to 21)
1. One person company (OPC) - Clause 3
It has only one member. Memorandum of a One Person Company shall indicate the name of the person who shall, in the event of the subscriber’s death, disability or otherwise, become the member of the company.
It shall be the duty of the member of a One Person Company to intimate the Registrar the change, if any, in the name of the person.
It will have name of OPC Ltd at the end.
It gives corporate status for the single promoter
Once the Bill is enacted, the existing sole proprietor firms can convert themselves to OPCs with the benefits of limited liability and minimal compliance.
Separate corporate entity that recognizes a promoter to do the business in a big way.
Single entrepreneur can manage his business on his own. So, the key difference between OPC and sole proprietorship is the way liabilities are treated. For instance, in an OPC the promoter’s liability is limited in the event of a default or legal issues. On the other hand, in sole proprietorships, the liability has not been restricted and extends to the individual and his or her entire assets.
Decision
One person can take a decision without waiting for other director’s consent and can be avoided wasting time and energy convincing other directors.
So many other countries already having this kind of one Person Company.
This is one of the welcome changes proposed in the bill.
2. Incorporation of companies.
All monies payable by any member to the company under the memorandum or articles (By subscribing MOA &AOA at the time of incorporation) shall be a debt due from him to the company.
Subscribers of the MOA have to make the money within 180 days unless Registrar got the power to remove the company from the register.
Any person furnishes any false or incorrect particulars of any information or suppresses any material information, of which he is aware in any of the documents filed with the Registrar in relation to the registration of a company, he shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than five thousand rupees but which may extend to one lakh rupees, or with both.
Even after incorporation, the company has been got incorporated by furnishing any false or incorrect information or representation or by suppressing any material fact or information in any of the documents or declaration filed or made for incorporating such company, or by any fraudulent action, the promoters, the persons named as first directors of the company, the persons making declaration shall each be punishable with imprisonment for a term which may extend to one year and with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees.
3. Commencement of business - clause 10
No need to obtain Certificate of Commencement of Business. Declaration has to be filed with in 180 days. Registrar may remove the name of the company from the register if the company is not carrying on business or operations and has not filed the declaration.
The company shall furnish to the Registrar verification of its registered office within fifteen days of its incorporation in such manner as may be prescribed.
4. Alteration of memorandum -clause 12
Change of registered office from one State to another State only requires Central Government's approval.
5. Alteration of articles - clause 13
Conversion
(a) a private company into a public company or a One Person Company, or
(b) a public company into a private company or a One Person Company, or
(c) a One Person Company into a public company or a private company:
any alteration having the effect of conversion of a public company into a private company or a One Person Company shall not take effect except with the approval of the Tribunal which shall make such order as it may deem fit.
CHAPTER III
PROSPECTUS AND ALLOTMENT OF SECURITIES
( Clause 22 to 36)
6. Action to be taken by affected persons - clause 32
Class action is possible in case of misstatement in the prospectus.
A suit may be filed or any other action may be taken by any person, group of persons or any association of persons affected by any misleading statement or the inclusion or omission of any matter in the prospectus.
Penalties and punishments are huge in case of misstatement in the prospectus. Civil and criminal liabilities for the promoters.
7. Global Depository Receipt (GDR) - clause 36
A company may, after passing a special resolution in its general meeting, issue depository receipts to be dealt with in depository mode in any foreign country in such manner, and subject to such conditions, as may be prescribed.
Private company need not file return of allotment – 34(5)
CHAPTER IV
SHARE CAPITAL AND DEBENTURES
Clause 37 to 65)
8. Kinds of share capital - clause 37
Only Two kinds of Capital i.e Equity and Preference.
There is no equity shares with differential rights or non-voting equity shares allowed under section 86 of the companies Act,1956.
9. Prohibition on issue of shares at a discount - clause 47
A company shall not issue shares at a discount. Any share issued by a company at a discounted price shall be void. However, Sweat Equity shares can be issued at a discount subject to the rules.
10. Issue and redemption of preference shares - clause 49
This clause authorizes infrastructural projects to issue preference shares redeemable after a period exceeding 20 years.
11. Debentures - clause 64
The clause provides that a company shall not issue prospectus to more than 500 persons without appointing a debenture trustee.
CHAPTER V
ACCEPTANCE OF DEPOSITS BY COMPANIES
(Clause 66 to 68)
12. Prohibition on acceptance of public deposits - clause 66
Company prohibited accepting Deposits from the Public. However, the Company can accept deposit from the Members.
There is no restriction to invite and accept debentures including unsecured debetures.
Existing deposits shall be repaid within one year from the date commencement of this act or from the date on which such payments are due, whichever is earlier.
Default
In addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with fine which shall not be less than one crore rupees but which may extend to ten crore rupees and every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years or with fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees, or with both.
CHAPTER VI
REGISTRATION OF CHARGES
(Clause 69 to 77)
13. Registration of Charges -clause 69 &70
Charge should be filed with in 30 days. It can be filed with in 300 days from the date of creation with an additional fee.
If the company fails to register the charge within the period , charge holder may apply to the Registrar for registration of the charge along with the instrument created for the charge, in such form and manner as may be prescribed and the Registrar may, on such application, within fourteen days after giving notice to the company, allow such registration on payment of such fee and additional fee as may be prescribed:
Provided that where registration is effected on application of the person in whose favour the charge is created, that person shall be entitled to recover from the company the amount of any fee or additional fee paid by him to the Registrar for the purpose of registration of charge.
CHAPTER VII
MANAGEMENT AND ADMINISTRATION
( Clause 78 – 109)
14. Annual return – Clause 82
Scope of Annual return widened.
It includes meetings of members or Board and its various committees along with attendance details; remuneration of directors and key managerial personnel; penalties or punishment imposed on the company, its directors or officers and details of compounding of offences; matters related to certification of compliances, disclosures; and such other matters as may be prescribed.
It should be signed both by a director and the Company Secretary, or where there is no Company Secretary, by a Company Secretary in whole-time practice:
If the company having such paid-up capital and turnover as may be prescribed, or a company whose shares are listed on a recognised stock exchange, shall also be signed by a Company Secretary in whole-time practice .
One Person Company and small company, the annual return shall be signed by the Company Secretary, or where there is no Company Secretary, by one director of the company.
An extract of the annual return in such form as may be prescribed shall form part of the Board’s Report.
Where a Company Secretary in whole-time practice certifies the annual return otherwise than in conformity with the requirements of this section or the rules made thereunder, such Company Secretary shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees.
15. Annual General Meeting - Clause 85
OPC need not hold an annual general meeting.
First AGM Should be within 9 months from the close of financial year and subsequent AGM should be within 6 months from the close of financial year.
AGM cannot be held on National Holiday. ( Public Holiday in 1956 Act)
Notice of meeting 21 clear days
Notice should be given to the director also
Explanatory statement required for all special business
No Statutory meeting and statutory report required
16. Voting through electronic means - clause 97
Unless the articles provide otherwise, a member may exercise his vote at a general meeting by electronic means subject to rules.
17. Postal ballot - clause 99
Presently, postal ballot procedures only for listed company and specified purpose.
Now, it has been proposed to be extended under the Bill to every company for businesses as may be notified by the Central Government to be transacted only by postal ballot.
18. Report on Annual General Meeting - clause 109
Every Listed companies are required to prepare and file a report on convening, holding and conducting annual general meeting every year within 30 days of its conclusion.
CHAPTER VIII
DECLARATION AND PAYMENT OF DIVIDEND
Clause 110-115)
19 Declaration of Dividend
Dividend can be declared only from the current year profits
Inadequacy or absence of profits in any financial year, the company proposes to declare dividend out of the accumulated profits earned by it in the previous financial year or years and transferred by it to the reserves, such declaration shall be made by a resolution passed at a meeting of the Board with the consent of all the directors and the approval of the financial institutions whose term loans are subsisting, and thereafter in accordance with a special resolution passed by the shareholders at an annual general meeting.
Unpaid dividend can be claimed any time from the IEPF
CHAPTER IX
ACCOUNTS OF COMPANIES
(Clauses 116 to 122)
20. Books of account, etc, to be kept by company - Clause 116
Keeping books of account in electronic mode is authorized. The persons responsible are the CEO/ CFO/ Whole-time director in charge of finance, or any other officer charged by the Board to see to the keeping of the said books. Preservation of such books is 8 years.
21. Annual report - Clause 120
Annual reports including Board's report and its contents have been enlarged. The Board's report should contain following new items like
1. Annual return
2. number of board's meetings held
3. Declaration by independent directors
4. Particulars of inter-corporate loans and investments made
5. Particulars of related party transactions etc
CHAPTER X
AUDIT AND AUDITORS
Clauses 123 to 131
22. Appointments of Auditors - 123
First Auditor should appointed by the Board with one month from the date of incorporation Company unless shareholders have appoint. The company shall inform the auditor concerned of his appointment, and also file a notice of such appointment with the Registrar within fifteen days of the meeting in which the auditor is appointed.
Where at any annual general meeting, no auditor is appointed or re-appointed, the existing auditor shall continue to be the auditor of the company.
23. Auditors - Remuneration to be fixed in the AGM
Every auditor shall comply with the Auditing Standards to be notified by the Central Government. In the meanwhile until such notification, standards specified by ICAI shall be deemed to be the Auditing Standards to be complied with.
24. Disqualifications of auditors – 124(3)
None of the following persons shall be eligible for appointment as an auditor of a company, namely:—
(a) a body corporate;
(b) an officer or employee of the company;
(c) a person who is a partner, or who is in the employment, of an officer or employee of the company;
(d) a person who, or his relative or partner—
(i) is holding any security of the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company, of value in terms of such percentage as may be prescribed;
(ii) is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company; or
(iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, for such amount as may be prescribed;
(e) a person or a firm who has business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company of such nature as may be prescribed;
(f) a person whose relative is in the employment of the company as a director or key managerial personnel;
(g) a person who is in employment elsewhere or a person or firm who holds appointment as an auditor in companies exceeding such number as may be prescribed on the date of his appointment.
25. Auditor not to render certain services - clause 127
• accounting and book-keeping services;
• internal audit;
• designing and implementation of any financial information system;
• actuarial services;
• investment advisory services;
• investment banking services;
• rendering of outsourced financial services; and
• management services.
If the auditor renders any of the above services, he shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees:
Provided that where it is proved that an auditor has knowingly or wilfully contravened any of the provisions of the aforesaid sections, he shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees, or with both.
CHAPTER 11
APPOINTMENT AND QUALIFICATIONS OF DIRECTORS
Clauses 132 to 153
26. Company to have Board of directors· clause 132
Every company shall have a Board of directors. Only individuals can become directors
At least one of the directors should be a person ordinarily resident in India, that is, one who stayed in India for a total of 182 days in a calendar year.
27. Independent director - clause 132
Every listed public company having such amount of paid-up share capital as may be prescribed shall have at the least one-third of the total number of directors as independent directors. The Central Government may prescribe the minimum number of independent directors in case of other public companies and subsidiaries of any public company.
28. Duties of Directors - clause147
New provision in the Bill
1. A director of a company shall act in accordance with the articles.
2. He shall act in good faith in order to promote the objects of the company for the benefit of members as a whole ,and in best interests of the company
3. He shall exercise his duties with due and reasonable care, skill and diligence.
4. He shall not involve in a situation in which he may be have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
5. He shall not achieve or attempt to achieve any undue gain or advantage either to himself or his relatives ,partners or associates
6. He shall not assign his office and any assignment so made shall be void.
Still it can be clearly specified.
Government is also thinking to introduce knowledge test for the directors like KRA, KPA
29. Resignation of director - clause 149
As compared to the existing companies act, this is absolutely makes clarity.
A director may resign from his office by giving a notice in writing to the company and the Board shall on receipt of such notice take note of the same and intimate the Registrar in such manner and in such form as may be prescribed and shall also place the fact of such resignation in the subsequent general meeting held by the company:
Provided that a director may also forward a copy of his resignation to the Registrar in the manner as may be prescribed.
The resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later.
CHAPTER 12I
MEETINGS OF BOARD AND ITS POWERS
(Clauses 154 to 173)
30. Board Meetings - clause 154
After the Incorporation, every company shall hold its first Board meeting within 30 days.
In year 4 Board meetings and time cap between two board meetings should not exceed 120 days.
Participation through video-conferencing or such other electronic means, is possible subject to rules.
Every Board meeting requires a 7 day notice in writing or by electronic means.
To transact urgent business, a Board meeting may be called
at shorter notice subject to the condition that at least one independent director, if any, is present at the meeting.
If such an independent director is absent, the decisions taken at such a Board meeting become effective only on their circulation to all the directors and ratification by at least one independent director.
Circular resolutions passed should be noted at a subsequent Board meeting and thus made part of the minutes of such a meeting.
31. Restrictions on Board’s Power - clause 160
The restrictions contained in section 293 of the Companies Act1956 retained. But the consent of general meeting required is by special resolution and not ordinary resolution. It is for all the Companies.
32. Loan to directors -clause 163
Exempted for MD/ WD
Subject to applicability of all employees or Scheme approved by the members by passing special resolution.
Need some more restrictions.
33. Related party transactions - clause 166
Surely, this one of the welcome step. Shareholders are authorized to decide related party transactions.
The contracts and arrangements with the related party:
- sale, purchase or supply of any goods and services
- selling or otherwise disposing of or buying property of any kind
- leasing property of any kind
- availing or rendering of any services
- appointment of any agents for purchase or sale of goods, materials or services or property
- appointment to any office or place of profit in the company or its subsidiary
underwriting the subscription of any securities or derivatives thereof of the company.
companies having the prescribed paid up capital should obtain prior members' approval by a special resolution.
This clause will not apply if the transaction made on arms’ length basis.
34. Prohibition of insider trading of securities by the directors or KMP - 172
CHAPTER 13
APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL
Clauses 174 to 178)
Appointment of managing director, whole-time director or manager
No company shall appoint or continue the employment of any person as its key managerial personnel who is below the age of twenty-one years or has attained the age of seventy years:
Provided that appointment of a person who has attained the age of seventy years may be made by passing a special resolution;
Board can appoint MD with the consent of all the directors present tat the meeting subject the approval of the members at the ensuing general meeting
35. Remuneration of managerial personnel – Clause 175
There is no restriction for Remuneration. Shareholders should approve the remuneration recommended by the Board of directors.
A managing or whole-time director or a manager of a company may be paid remuneration either by way of a monthly payment or at a specified percentage of the net profits of the company or partly by monthly payment and partly by the percentage of net profits.
Shareholders can decide the remuneration. Government will not interfere in this matter.
This is also one of the welcome changes proposed in the bill.
Clause 176
A director who is neither a whole-time director nor a managing director of a company may be paid remuneration in the form of —
(a) fee for attending meetings of the Board or committees thereof in accordance with the articles; and
(b) profit-related commission with the prior approval of members by a special resolution
36. Appointment of key managerial personnel - Clause 178
Every company belonging to such class or description of companies as may be prescribed shall have whole-time key managerial personnel.
“key managerial personnel”, in relation to a company, means —
(i) the Managing Director, the Chief Executive Officer or the Manager and where there is no Managing Director or Manager, a whole-time director or directors;
(ii) the Company Secretary; and
(iii) the Chief Financial Officer;
A Company Secretary is a KMP along with the Managing Director, the Chief Executive Officer and the Chief Financial Officer.
Whole-time key managerial personnel shall not hold office in more than one company at the same time
37. Application to Tribunal of relief in cases of the oppression and mismanagement - clause 212
Section 397 of 1956 Act has been retained in the Bill.
CHAPTER XV
COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS
Clauses 201 to 211)
38. Merger or amalgamation of certain companies. – 204
Merger or Amalgamation of Two Small Companies or between a holding company and its wholly-owned subsidiary company is made easier.
- Scheme to be prepared
- Notice for any objections
- Scheme should be approved by the members by a special resolution
- Scheme should be approved by three-fourths in value of the creditors
- transferee company shall file a copy of the scheme with the Registrar and the Official Liquidator.
- if the Registrar or the Official Liquidator has no objections or comments to the scheme, the Registrar shall register the same and issue a confirmation thereof to the companies.
- If the Official Liquidator has any objections or comments, he may communicate the same in writing to the Registrar within a period of thirty day
- If scheme is not in public interest or in interest of the creditors or any objections received, registrar may file an application before the Tribunal.
- Tribunal Order and order shall be communicated to the Registrar
A foreign company may merge or amalgamate into a company registered under this Act or vice versa
39. Class Action - clause 216
According to this clause, one or more members or class of members or creditors may file an application before the Tribunal on behalf of the whole of their class alleging that the affairs of a company are being conducted in a manner prejudicial to its interests or the interests of the members or creditors, and to seek necessary remedies
CHAPTER 17I
REGISTERED VALUERS
Clause 218 to 223)
40. Registered valuers
New clauses in the Bill and also new opportunity for the professional.
Valuation is required to be made in respect of any property, stocks, shares, debentures, securities or goodwill or net worth of a company or its assets, it shall be valued by a person registered as a valuer under this chapter.
Any Chartered Accountant, Cost and Works Accountant, Company Secretary or other persons possessing such qualifications as may be prescribed may apply to the Central Government in the prescribed form for being registered as a valuer under this section
Provided that no company or body corporate shall be eligible to apply.
CHAPTER 18
REMOVAL OF NAMES OF COMPANIES FROM THE REGISTER
Clauses 224 to 228)
41. Power of Registrar to remove name of a company from register.
- If the company has failed to commence its business within one year of its incorporation
- If the subscribers have not paid money with in 180 days or if the company has not filed declaration within 180 days
- If the company is not carrying on any business or operation for a period of one year and has not made any application within such period for obtaining the status of a dormant company
Registrar will send the notice to all the directors of his intention to remove the name of the company from the register.
Company can voluntarily by passing a special resolution or consent of seventy-five per cent of the members in terms of share capital may also file an application Registrar for removing the name of the company from the register.
However, application cannot be made certain circumstances like
in the previous three months, the company—
(a) has changed its name;
(b) has traded or otherwise carried on business;
(c) has made a disposal of any properties
(d) has engaged in any other activity
(e) has made an application to the Tribunal for the sanctioning of a compromise or arrangement
CHAPTER 19
REVIVAL AND REHABILITATION OF SICK COMPANIES
(Clauses 229 to 244)
42. Revival and rehabilitation of sick companies - clause 229
1. Application to Tribunal to declare as Sick Company
Where on a demand by the secured creditors of a company representing fifty per cent. or more of its outstanding amount of debt, the company has failed to pay the debt within thirty days of the service of the notice of demand or to secure or compound it to the reasonable satisfaction of the creditors, any secured creditor may file an application to the Tribunal in the prescribed manner along with the relevant evidence for such default, non-repayment or failure to offer security or compound it, for a determination that the company be declared as a sick company..
2. Tribunal Decision
Within 60 days of filing such an application, the Tribunal is bound to determine whether the company is sick or not. The Tribunal's order against the said application of the creditors will hold good for 120 days.
3. Application for revival and rehabilitation
Upon determination of sick company , any secured creditor of the company may file a third application before the Tribunal for company's revival and rehabilitation measures.
4. Appointment of interim administrator
Thereupon follow the appointment of interim Company Administrator / Company Administrator from the panel kept by the Central Government for preparation of a scheme of revival and rehabilitation of the company for Tribunal's sanction.
5. Committee of Creditors
The interim administrator shall appoint a committee of creditors with such number of members as he may determine, but not exceeding seven, and as far as possible a representative each of every class of creditors should be represented in that committee
6. Order of Tribunal.
If the Tribunal sanctions the scheme, it will be implemented or if it is not approved the company is ordered to be wound up.
CHAPTER 20
WINDING UP
( Clauses 245 to 340)
43. Company liquidators and their appointments - clause 250
The provisional liquidator or the Company Liquidator, as the case may be, shall be appointed from a panel maintained by the Central Government consisting of the names of chartered accountants, advocates, company secretaries, cost and works accountants or firms or bodies corporate having such chartered accountants, advocates, company secretaries, cost and works accountants and such other professionals as may be notified by the Central Government or from a firm or a body corporate of persons having a combination of such professionals as may be prescribed and having at least ten years’ experience in company matters and such other qualifications as may be prescribed.
44. Appointment of Official Liquidator – Clause – 334
Winding up of companies by the Tribunal, the Central Government may appoint as many Official Liquidators as it may consider necessary and may also appoint Joint, Deputy orAssistant Official Liquidators to assist him in discharge of his functions.
CHAPTER 27
45. Special Courts - clause 396
All offences under this Act shall be triable only by the special court .
For the purpose of providing speedy trial of offences under this Act, by notification, establish as many special courts as may be necessary by the Central Government.
A special court shall consist of a single judge who shall be appointed by the Central Government with the concurrence of the Chief Justice of the High Court
46. Punishment in case of repeated default -Clause 410
In case of repeated defaults , fine will be twice but prison term remains same.
47 . Adjudication of penalties – 413
The Central Government will appoint adjudicating officers for adjudging penalty under the provisions of this Act.
Registrar may be authorized or some person can be appointed not below the rank of registrar as adjudicating officers
The Adjudicating Officer may, by an order impose the penalty on the company and the officer who is in default stating any non-compliance or any default under the relevant provision of the Act.
The Adjudicating Officer shall, before imposing any penalty, give a reasonable opportunity of being heard to such company and the officer who is in default
Any person aggrieved by an order made by the adjudicating officer may prefer an appeal to the Regional Director.
Appeal shall be filed within sixty days from the date on which the copy of the order made by the adjudicating officer is received by the aggrieved person.
48. Dormant company – clause 414
New provision in the Bill
If there is No significant accounting transaction or an inactive company may make an application to the Registrar to obtain the status of Dormant Company.
The Registrar shall maintain a register of dormant companies
In case of a company which has not filed financial statements or annual returns for two financial years consecutively, the Registrar shall issue a notice to that company and enter the name of such company in the register maintained for dormant companies.
A dormant company shall have such minimum number of directors, file such documents and pay such annual fee as may be prescribed to the Registrar to retain its dormant status in the register and may become an active company on an application made in this behalf
The Registrar shall strike off the name of a dormant company from the register of dormant companies, which has failed to comply with the requirements of this section
Conclusion
As compared to the existing companies act, positively there are some new concepts have been proposed. Central government’s intentions to strengthen shareholder democracy are welcome step. Need some corrections.
by
CA Akshat Vithalani
Learn with fun
+91 9974491677
2008 Bill Introduced in LokSabha on 23rd Oct. 2008
2009 Bill INTRODUCED IN LOK SABHA ON 3rd AUGUST 2009
The Bill proposes to have 426 Clauses and 28 CHAPTERS (against 658 section in the Companies Act,1956)
No. of welcome changes
Several New Concepts/Ideas Introduced
It will replace the Companies Act,1956
All Powers of High Court Transferred to Proposed NCLT
Penalties and Punishments are huge
Major Changes
1. All restrictions on Managerial remuneration removed
2. Related Party Disclosure - Disclosure Only . No need for Government approval.
3. OPC (One Person Company) introduced
4. Company prohibited to accept Deposits. However, the Company can accept deposit from the Members.
5. Concept of Key Management Personnel (KMP) Introduced
6. Company should have a Chief Financial Officer ( CFO)
7. Registered Valuers
8. Secretarial Standards
9. Auditing Standards
10. Duties of directors
11. Auditor cannot undertake certain services
12. Dormant Company
13. Independent Directors
14. Board meeting and Notices
15. Importance of Annual return
16. Revival and rehabilitation of sick companies
17. Special Courts
18. Adjudication of Penalties
Few Important Definitions
Financial Year – 1st April to 31st March
“Chief Financial Officer” means a person appointed as the Chief Financial Officer of a company
“relative” with reference to any individual means the spouse, brother, sister and all lineal ascendants and descendants of such individual related to him either by marriage or adoption;
“small company” means a company, other than a public company,—
(i) whose paid-up share capital does not exceed such amount as may be prescribed and the prescribed amount shall not be more than five crore rupees; or
(ii) whose turnover as per its last profit and loss account does not exceed such amount as may be prescribed and the prescribed amount shall not be more than twenty crore rupees:
“key managerial personnel”, in relation to a company, means —
(i) the Managing Director, the Chief Executive Officer or the Manager and where there is no Managing Director or Manager, a whole-time director or directors;
(ii) the Company Secretary; and
(iii) the Chief Financial Officer;
CHAPTER II
INCORPORATION OF COMPANIES
(Clause 3 to 21)
1. One person company (OPC) - Clause 3
It has only one member. Memorandum of a One Person Company shall indicate the name of the person who shall, in the event of the subscriber’s death, disability or otherwise, become the member of the company.
It shall be the duty of the member of a One Person Company to intimate the Registrar the change, if any, in the name of the person.
It will have name of OPC Ltd at the end.
It gives corporate status for the single promoter
Once the Bill is enacted, the existing sole proprietor firms can convert themselves to OPCs with the benefits of limited liability and minimal compliance.
Separate corporate entity that recognizes a promoter to do the business in a big way.
Single entrepreneur can manage his business on his own. So, the key difference between OPC and sole proprietorship is the way liabilities are treated. For instance, in an OPC the promoter’s liability is limited in the event of a default or legal issues. On the other hand, in sole proprietorships, the liability has not been restricted and extends to the individual and his or her entire assets.
Decision
One person can take a decision without waiting for other director’s consent and can be avoided wasting time and energy convincing other directors.
So many other countries already having this kind of one Person Company.
This is one of the welcome changes proposed in the bill.
2. Incorporation of companies.
All monies payable by any member to the company under the memorandum or articles (By subscribing MOA &AOA at the time of incorporation) shall be a debt due from him to the company.
Subscribers of the MOA have to make the money within 180 days unless Registrar got the power to remove the company from the register.
Any person furnishes any false or incorrect particulars of any information or suppresses any material information, of which he is aware in any of the documents filed with the Registrar in relation to the registration of a company, he shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than five thousand rupees but which may extend to one lakh rupees, or with both.
Even after incorporation, the company has been got incorporated by furnishing any false or incorrect information or representation or by suppressing any material fact or information in any of the documents or declaration filed or made for incorporating such company, or by any fraudulent action, the promoters, the persons named as first directors of the company, the persons making declaration shall each be punishable with imprisonment for a term which may extend to one year and with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees.
3. Commencement of business - clause 10
No need to obtain Certificate of Commencement of Business. Declaration has to be filed with in 180 days. Registrar may remove the name of the company from the register if the company is not carrying on business or operations and has not filed the declaration.
The company shall furnish to the Registrar verification of its registered office within fifteen days of its incorporation in such manner as may be prescribed.
4. Alteration of memorandum -clause 12
Change of registered office from one State to another State only requires Central Government's approval.
5. Alteration of articles - clause 13
Conversion
(a) a private company into a public company or a One Person Company, or
(b) a public company into a private company or a One Person Company, or
(c) a One Person Company into a public company or a private company:
any alteration having the effect of conversion of a public company into a private company or a One Person Company shall not take effect except with the approval of the Tribunal which shall make such order as it may deem fit.
CHAPTER III
PROSPECTUS AND ALLOTMENT OF SECURITIES
( Clause 22 to 36)
6. Action to be taken by affected persons - clause 32
Class action is possible in case of misstatement in the prospectus.
A suit may be filed or any other action may be taken by any person, group of persons or any association of persons affected by any misleading statement or the inclusion or omission of any matter in the prospectus.
Penalties and punishments are huge in case of misstatement in the prospectus. Civil and criminal liabilities for the promoters.
7. Global Depository Receipt (GDR) - clause 36
A company may, after passing a special resolution in its general meeting, issue depository receipts to be dealt with in depository mode in any foreign country in such manner, and subject to such conditions, as may be prescribed.
Private company need not file return of allotment – 34(5)
CHAPTER IV
SHARE CAPITAL AND DEBENTURES
Clause 37 to 65)
8. Kinds of share capital - clause 37
Only Two kinds of Capital i.e Equity and Preference.
There is no equity shares with differential rights or non-voting equity shares allowed under section 86 of the companies Act,1956.
9. Prohibition on issue of shares at a discount - clause 47
A company shall not issue shares at a discount. Any share issued by a company at a discounted price shall be void. However, Sweat Equity shares can be issued at a discount subject to the rules.
10. Issue and redemption of preference shares - clause 49
This clause authorizes infrastructural projects to issue preference shares redeemable after a period exceeding 20 years.
11. Debentures - clause 64
The clause provides that a company shall not issue prospectus to more than 500 persons without appointing a debenture trustee.
CHAPTER V
ACCEPTANCE OF DEPOSITS BY COMPANIES
(Clause 66 to 68)
12. Prohibition on acceptance of public deposits - clause 66
Company prohibited accepting Deposits from the Public. However, the Company can accept deposit from the Members.
There is no restriction to invite and accept debentures including unsecured debetures.
Existing deposits shall be repaid within one year from the date commencement of this act or from the date on which such payments are due, whichever is earlier.
Default
In addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with fine which shall not be less than one crore rupees but which may extend to ten crore rupees and every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years or with fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees, or with both.
CHAPTER VI
REGISTRATION OF CHARGES
(Clause 69 to 77)
13. Registration of Charges -clause 69 &70
Charge should be filed with in 30 days. It can be filed with in 300 days from the date of creation with an additional fee.
If the company fails to register the charge within the period , charge holder may apply to the Registrar for registration of the charge along with the instrument created for the charge, in such form and manner as may be prescribed and the Registrar may, on such application, within fourteen days after giving notice to the company, allow such registration on payment of such fee and additional fee as may be prescribed:
Provided that where registration is effected on application of the person in whose favour the charge is created, that person shall be entitled to recover from the company the amount of any fee or additional fee paid by him to the Registrar for the purpose of registration of charge.
CHAPTER VII
MANAGEMENT AND ADMINISTRATION
( Clause 78 – 109)
14. Annual return – Clause 82
Scope of Annual return widened.
It includes meetings of members or Board and its various committees along with attendance details; remuneration of directors and key managerial personnel; penalties or punishment imposed on the company, its directors or officers and details of compounding of offences; matters related to certification of compliances, disclosures; and such other matters as may be prescribed.
It should be signed both by a director and the Company Secretary, or where there is no Company Secretary, by a Company Secretary in whole-time practice:
If the company having such paid-up capital and turnover as may be prescribed, or a company whose shares are listed on a recognised stock exchange, shall also be signed by a Company Secretary in whole-time practice .
One Person Company and small company, the annual return shall be signed by the Company Secretary, or where there is no Company Secretary, by one director of the company.
An extract of the annual return in such form as may be prescribed shall form part of the Board’s Report.
Where a Company Secretary in whole-time practice certifies the annual return otherwise than in conformity with the requirements of this section or the rules made thereunder, such Company Secretary shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees.
15. Annual General Meeting - Clause 85
OPC need not hold an annual general meeting.
First AGM Should be within 9 months from the close of financial year and subsequent AGM should be within 6 months from the close of financial year.
AGM cannot be held on National Holiday. ( Public Holiday in 1956 Act)
Notice of meeting 21 clear days
Notice should be given to the director also
Explanatory statement required for all special business
No Statutory meeting and statutory report required
16. Voting through electronic means - clause 97
Unless the articles provide otherwise, a member may exercise his vote at a general meeting by electronic means subject to rules.
17. Postal ballot - clause 99
Presently, postal ballot procedures only for listed company and specified purpose.
Now, it has been proposed to be extended under the Bill to every company for businesses as may be notified by the Central Government to be transacted only by postal ballot.
18. Report on Annual General Meeting - clause 109
Every Listed companies are required to prepare and file a report on convening, holding and conducting annual general meeting every year within 30 days of its conclusion.
CHAPTER VIII
DECLARATION AND PAYMENT OF DIVIDEND
Clause 110-115)
19 Declaration of Dividend
Dividend can be declared only from the current year profits
Inadequacy or absence of profits in any financial year, the company proposes to declare dividend out of the accumulated profits earned by it in the previous financial year or years and transferred by it to the reserves, such declaration shall be made by a resolution passed at a meeting of the Board with the consent of all the directors and the approval of the financial institutions whose term loans are subsisting, and thereafter in accordance with a special resolution passed by the shareholders at an annual general meeting.
Unpaid dividend can be claimed any time from the IEPF
CHAPTER IX
ACCOUNTS OF COMPANIES
(Clauses 116 to 122)
20. Books of account, etc, to be kept by company - Clause 116
Keeping books of account in electronic mode is authorized. The persons responsible are the CEO/ CFO/ Whole-time director in charge of finance, or any other officer charged by the Board to see to the keeping of the said books. Preservation of such books is 8 years.
21. Annual report - Clause 120
Annual reports including Board's report and its contents have been enlarged. The Board's report should contain following new items like
1. Annual return
2. number of board's meetings held
3. Declaration by independent directors
4. Particulars of inter-corporate loans and investments made
5. Particulars of related party transactions etc
CHAPTER X
AUDIT AND AUDITORS
Clauses 123 to 131
22. Appointments of Auditors - 123
First Auditor should appointed by the Board with one month from the date of incorporation Company unless shareholders have appoint. The company shall inform the auditor concerned of his appointment, and also file a notice of such appointment with the Registrar within fifteen days of the meeting in which the auditor is appointed.
Where at any annual general meeting, no auditor is appointed or re-appointed, the existing auditor shall continue to be the auditor of the company.
23. Auditors - Remuneration to be fixed in the AGM
Every auditor shall comply with the Auditing Standards to be notified by the Central Government. In the meanwhile until such notification, standards specified by ICAI shall be deemed to be the Auditing Standards to be complied with.
24. Disqualifications of auditors – 124(3)
None of the following persons shall be eligible for appointment as an auditor of a company, namely:—
(a) a body corporate;
(b) an officer or employee of the company;
(c) a person who is a partner, or who is in the employment, of an officer or employee of the company;
(d) a person who, or his relative or partner—
(i) is holding any security of the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company, of value in terms of such percentage as may be prescribed;
(ii) is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company; or
(iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, for such amount as may be prescribed;
(e) a person or a firm who has business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company of such nature as may be prescribed;
(f) a person whose relative is in the employment of the company as a director or key managerial personnel;
(g) a person who is in employment elsewhere or a person or firm who holds appointment as an auditor in companies exceeding such number as may be prescribed on the date of his appointment.
25. Auditor not to render certain services - clause 127
• accounting and book-keeping services;
• internal audit;
• designing and implementation of any financial information system;
• actuarial services;
• investment advisory services;
• investment banking services;
• rendering of outsourced financial services; and
• management services.
If the auditor renders any of the above services, he shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees:
Provided that where it is proved that an auditor has knowingly or wilfully contravened any of the provisions of the aforesaid sections, he shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees, or with both.
CHAPTER 11
APPOINTMENT AND QUALIFICATIONS OF DIRECTORS
Clauses 132 to 153
26. Company to have Board of directors· clause 132
Every company shall have a Board of directors. Only individuals can become directors
At least one of the directors should be a person ordinarily resident in India, that is, one who stayed in India for a total of 182 days in a calendar year.
27. Independent director - clause 132
Every listed public company having such amount of paid-up share capital as may be prescribed shall have at the least one-third of the total number of directors as independent directors. The Central Government may prescribe the minimum number of independent directors in case of other public companies and subsidiaries of any public company.
28. Duties of Directors - clause147
New provision in the Bill
1. A director of a company shall act in accordance with the articles.
2. He shall act in good faith in order to promote the objects of the company for the benefit of members as a whole ,and in best interests of the company
3. He shall exercise his duties with due and reasonable care, skill and diligence.
4. He shall not involve in a situation in which he may be have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
5. He shall not achieve or attempt to achieve any undue gain or advantage either to himself or his relatives ,partners or associates
6. He shall not assign his office and any assignment so made shall be void.
Still it can be clearly specified.
Government is also thinking to introduce knowledge test for the directors like KRA, KPA
29. Resignation of director - clause 149
As compared to the existing companies act, this is absolutely makes clarity.
A director may resign from his office by giving a notice in writing to the company and the Board shall on receipt of such notice take note of the same and intimate the Registrar in such manner and in such form as may be prescribed and shall also place the fact of such resignation in the subsequent general meeting held by the company:
Provided that a director may also forward a copy of his resignation to the Registrar in the manner as may be prescribed.
The resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later.
CHAPTER 12I
MEETINGS OF BOARD AND ITS POWERS
(Clauses 154 to 173)
30. Board Meetings - clause 154
After the Incorporation, every company shall hold its first Board meeting within 30 days.
In year 4 Board meetings and time cap between two board meetings should not exceed 120 days.
Participation through video-conferencing or such other electronic means, is possible subject to rules.
Every Board meeting requires a 7 day notice in writing or by electronic means.
To transact urgent business, a Board meeting may be called
at shorter notice subject to the condition that at least one independent director, if any, is present at the meeting.
If such an independent director is absent, the decisions taken at such a Board meeting become effective only on their circulation to all the directors and ratification by at least one independent director.
Circular resolutions passed should be noted at a subsequent Board meeting and thus made part of the minutes of such a meeting.
31. Restrictions on Board’s Power - clause 160
The restrictions contained in section 293 of the Companies Act1956 retained. But the consent of general meeting required is by special resolution and not ordinary resolution. It is for all the Companies.
32. Loan to directors -clause 163
Exempted for MD/ WD
Subject to applicability of all employees or Scheme approved by the members by passing special resolution.
Need some more restrictions.
33. Related party transactions - clause 166
Surely, this one of the welcome step. Shareholders are authorized to decide related party transactions.
The contracts and arrangements with the related party:
- sale, purchase or supply of any goods and services
- selling or otherwise disposing of or buying property of any kind
- leasing property of any kind
- availing or rendering of any services
- appointment of any agents for purchase or sale of goods, materials or services or property
- appointment to any office or place of profit in the company or its subsidiary
underwriting the subscription of any securities or derivatives thereof of the company.
companies having the prescribed paid up capital should obtain prior members' approval by a special resolution.
This clause will not apply if the transaction made on arms’ length basis.
34. Prohibition of insider trading of securities by the directors or KMP - 172
CHAPTER 13
APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL
Clauses 174 to 178)
Appointment of managing director, whole-time director or manager
No company shall appoint or continue the employment of any person as its key managerial personnel who is below the age of twenty-one years or has attained the age of seventy years:
Provided that appointment of a person who has attained the age of seventy years may be made by passing a special resolution;
Board can appoint MD with the consent of all the directors present tat the meeting subject the approval of the members at the ensuing general meeting
35. Remuneration of managerial personnel – Clause 175
There is no restriction for Remuneration. Shareholders should approve the remuneration recommended by the Board of directors.
A managing or whole-time director or a manager of a company may be paid remuneration either by way of a monthly payment or at a specified percentage of the net profits of the company or partly by monthly payment and partly by the percentage of net profits.
Shareholders can decide the remuneration. Government will not interfere in this matter.
This is also one of the welcome changes proposed in the bill.
Clause 176
A director who is neither a whole-time director nor a managing director of a company may be paid remuneration in the form of —
(a) fee for attending meetings of the Board or committees thereof in accordance with the articles; and
(b) profit-related commission with the prior approval of members by a special resolution
36. Appointment of key managerial personnel - Clause 178
Every company belonging to such class or description of companies as may be prescribed shall have whole-time key managerial personnel.
“key managerial personnel”, in relation to a company, means —
(i) the Managing Director, the Chief Executive Officer or the Manager and where there is no Managing Director or Manager, a whole-time director or directors;
(ii) the Company Secretary; and
(iii) the Chief Financial Officer;
A Company Secretary is a KMP along with the Managing Director, the Chief Executive Officer and the Chief Financial Officer.
Whole-time key managerial personnel shall not hold office in more than one company at the same time
37. Application to Tribunal of relief in cases of the oppression and mismanagement - clause 212
Section 397 of 1956 Act has been retained in the Bill.
CHAPTER XV
COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS
Clauses 201 to 211)
38. Merger or amalgamation of certain companies. – 204
Merger or Amalgamation of Two Small Companies or between a holding company and its wholly-owned subsidiary company is made easier.
- Scheme to be prepared
- Notice for any objections
- Scheme should be approved by the members by a special resolution
- Scheme should be approved by three-fourths in value of the creditors
- transferee company shall file a copy of the scheme with the Registrar and the Official Liquidator.
- if the Registrar or the Official Liquidator has no objections or comments to the scheme, the Registrar shall register the same and issue a confirmation thereof to the companies.
- If the Official Liquidator has any objections or comments, he may communicate the same in writing to the Registrar within a period of thirty day
- If scheme is not in public interest or in interest of the creditors or any objections received, registrar may file an application before the Tribunal.
- Tribunal Order and order shall be communicated to the Registrar
A foreign company may merge or amalgamate into a company registered under this Act or vice versa
39. Class Action - clause 216
According to this clause, one or more members or class of members or creditors may file an application before the Tribunal on behalf of the whole of their class alleging that the affairs of a company are being conducted in a manner prejudicial to its interests or the interests of the members or creditors, and to seek necessary remedies
CHAPTER 17I
REGISTERED VALUERS
Clause 218 to 223)
40. Registered valuers
New clauses in the Bill and also new opportunity for the professional.
Valuation is required to be made in respect of any property, stocks, shares, debentures, securities or goodwill or net worth of a company or its assets, it shall be valued by a person registered as a valuer under this chapter.
Any Chartered Accountant, Cost and Works Accountant, Company Secretary or other persons possessing such qualifications as may be prescribed may apply to the Central Government in the prescribed form for being registered as a valuer under this section
Provided that no company or body corporate shall be eligible to apply.
CHAPTER 18
REMOVAL OF NAMES OF COMPANIES FROM THE REGISTER
Clauses 224 to 228)
41. Power of Registrar to remove name of a company from register.
- If the company has failed to commence its business within one year of its incorporation
- If the subscribers have not paid money with in 180 days or if the company has not filed declaration within 180 days
- If the company is not carrying on any business or operation for a period of one year and has not made any application within such period for obtaining the status of a dormant company
Registrar will send the notice to all the directors of his intention to remove the name of the company from the register.
Company can voluntarily by passing a special resolution or consent of seventy-five per cent of the members in terms of share capital may also file an application Registrar for removing the name of the company from the register.
However, application cannot be made certain circumstances like
in the previous three months, the company—
(a) has changed its name;
(b) has traded or otherwise carried on business;
(c) has made a disposal of any properties
(d) has engaged in any other activity
(e) has made an application to the Tribunal for the sanctioning of a compromise or arrangement
CHAPTER 19
REVIVAL AND REHABILITATION OF SICK COMPANIES
(Clauses 229 to 244)
42. Revival and rehabilitation of sick companies - clause 229
1. Application to Tribunal to declare as Sick Company
Where on a demand by the secured creditors of a company representing fifty per cent. or more of its outstanding amount of debt, the company has failed to pay the debt within thirty days of the service of the notice of demand or to secure or compound it to the reasonable satisfaction of the creditors, any secured creditor may file an application to the Tribunal in the prescribed manner along with the relevant evidence for such default, non-repayment or failure to offer security or compound it, for a determination that the company be declared as a sick company..
2. Tribunal Decision
Within 60 days of filing such an application, the Tribunal is bound to determine whether the company is sick or not. The Tribunal's order against the said application of the creditors will hold good for 120 days.
3. Application for revival and rehabilitation
Upon determination of sick company , any secured creditor of the company may file a third application before the Tribunal for company's revival and rehabilitation measures.
4. Appointment of interim administrator
Thereupon follow the appointment of interim Company Administrator / Company Administrator from the panel kept by the Central Government for preparation of a scheme of revival and rehabilitation of the company for Tribunal's sanction.
5. Committee of Creditors
The interim administrator shall appoint a committee of creditors with such number of members as he may determine, but not exceeding seven, and as far as possible a representative each of every class of creditors should be represented in that committee
6. Order of Tribunal.
If the Tribunal sanctions the scheme, it will be implemented or if it is not approved the company is ordered to be wound up.
CHAPTER 20
WINDING UP
( Clauses 245 to 340)
43. Company liquidators and their appointments - clause 250
The provisional liquidator or the Company Liquidator, as the case may be, shall be appointed from a panel maintained by the Central Government consisting of the names of chartered accountants, advocates, company secretaries, cost and works accountants or firms or bodies corporate having such chartered accountants, advocates, company secretaries, cost and works accountants and such other professionals as may be notified by the Central Government or from a firm or a body corporate of persons having a combination of such professionals as may be prescribed and having at least ten years’ experience in company matters and such other qualifications as may be prescribed.
44. Appointment of Official Liquidator – Clause – 334
Winding up of companies by the Tribunal, the Central Government may appoint as many Official Liquidators as it may consider necessary and may also appoint Joint, Deputy orAssistant Official Liquidators to assist him in discharge of his functions.
CHAPTER 27
45. Special Courts - clause 396
All offences under this Act shall be triable only by the special court .
For the purpose of providing speedy trial of offences under this Act, by notification, establish as many special courts as may be necessary by the Central Government.
A special court shall consist of a single judge who shall be appointed by the Central Government with the concurrence of the Chief Justice of the High Court
46. Punishment in case of repeated default -Clause 410
In case of repeated defaults , fine will be twice but prison term remains same.
47 . Adjudication of penalties – 413
The Central Government will appoint adjudicating officers for adjudging penalty under the provisions of this Act.
Registrar may be authorized or some person can be appointed not below the rank of registrar as adjudicating officers
The Adjudicating Officer may, by an order impose the penalty on the company and the officer who is in default stating any non-compliance or any default under the relevant provision of the Act.
The Adjudicating Officer shall, before imposing any penalty, give a reasonable opportunity of being heard to such company and the officer who is in default
Any person aggrieved by an order made by the adjudicating officer may prefer an appeal to the Regional Director.
Appeal shall be filed within sixty days from the date on which the copy of the order made by the adjudicating officer is received by the aggrieved person.
48. Dormant company – clause 414
New provision in the Bill
If there is No significant accounting transaction or an inactive company may make an application to the Registrar to obtain the status of Dormant Company.
The Registrar shall maintain a register of dormant companies
In case of a company which has not filed financial statements or annual returns for two financial years consecutively, the Registrar shall issue a notice to that company and enter the name of such company in the register maintained for dormant companies.
A dormant company shall have such minimum number of directors, file such documents and pay such annual fee as may be prescribed to the Registrar to retain its dormant status in the register and may become an active company on an application made in this behalf
The Registrar shall strike off the name of a dormant company from the register of dormant companies, which has failed to comply with the requirements of this section
Conclusion
As compared to the existing companies act, positively there are some new concepts have been proposed. Central government’s intentions to strengthen shareholder democracy are welcome step. Need some corrections.
by
CA Akshat Vithalani
Learn with fun
+91 9974491677
Wednesday, December 16, 2009
Interview with CA Sunil talati and CA DDRathi in CNBC The Firm
Anchor: I should also mention here that we had two other members, who were going to join us at this panel Uttam Prakash Agarwal, President of ICAI and OP Vaish, Government Nominee at the ICAI counsel. Unfortunately Mr Agarwal disapproved of the fact that we had another counsel member here on this discussion and decided to leave the discussion seconds before we started.
Uttam Prakash Agrawal, President, ICAI said, “When the President is already with you I do not want that any other council member should be in the discussion. It is our protocol of our Institute, only the President go to the media. I will not be able to continue. If there are other people, its ok but from my own council, I can not. I can not break the rules as a President, other colleague may break the rules and regulations, I can not break as a President. Let other people take the enjoyment on a media level, I cannot. DD Rathi is there I have no problem. He is an outsider; I have no problem but two gentlemen are already in my council. Talati is my good friend, he knows everything. He will give you whatever you want, he is an expert. But on the screen we cannot sit together that is our protocol of the Institute. I am not participating. “
Anchor: Mr OP Vaish then little angered by the comments Mr Agarwal made and not wanting to be part of any controversy also stood up and left just seconds before we started this discussion. Unfortunately the two of them are not here. Mr Agarwal, I was hoping would defend his institute against the many allegations I have. But he is not here to do that, that task now falls upon DD Rathi and Sunil Talati.
Here is a verbatim transcript of an exclusive interview with DD Rathi and Sunil Talati on CNBC-TV18. Also watch the accompanying video.
Q: It has been a really difficult year for the ICAI. What is going on?
Rathi: I take Satyam and Booth capturing as one-off incidence. I am not worried that Satyam happened because not a matter of merely the institute. It is a question of very well organised fraud.
Q: There are symptoms of the malaise that has afflicted ICAI. The inability to redress these situations and the fact that the system has become so political, you now have Booth capturing. This sounds like a political election?
Rathi: Really speaking Satyam fraud institute or no institute, I do not think it could have been avoided. CAs and auditors are not meant for detecting these kinds of frauds. I am saying that when I am not a part of practising fraternity so I must have little more confidence in what I say. But they are one-off incidence. Similarly, booth capturing, it maybe stupid act of one stupid individual, it cannot tarnish the image of great organisation like Institute of CA. But I see more and more challenges coming in FY11, when you will see lot of new regulations coming in like new accounting standards like International Financial Reporting Standards (IFRS).
Q: Is the ICAI equipped to deal with all of that?
Rathi: I think you are better person to respond to that question. But I am a CA with almost over 40 years of experience may not be in practise but of course in the industry and I strongly believe that what a little I could achieve is because of my qualification as a CA and as a member of the institute. I am very much attached to this profession but like anyone else I also feel sorry not because of these two incidence, which took place but a constantly lowering standard of the institute.
Q: Some candidates spent sums of as high as Rs 1 crore in election canvassing or campaigning. What is this, is this crisis of leadership, has this system become so political that we need to re-invent this system of appointing council members? What is going wrong?
Talati: I would put it as a mixed bag. These are aberrations, either you take Satyam or the last instance of Booth Capturing. Institute or any fraternity of chartered accountants should not be blamed for Satyam, it is a total failure of corporate governance and nobody is answering that. We have immediately taken action on that member and got him removed from all the committees. The disciplinary proceedings have started. There is a system which we have to follow, that is going on and not only media and the whole fraternity and citizens of India know that strict action will be taken.
Q: In annual report, there are almost three pages devoted to the yoga camp and to the orientation camp held this year and one small paragraph devoted to Satyam. If this is the importance in your annual report of what is one of the biggest incidents of fraud in corporate India and the way ICAI is dealing with it, this is a very sorry way of redressing this system?
Talati: I appreciate that and that what is the President’s purgative. One particular leader or leadership may or may act in a particular way.
Q: Are you saying it’s a crisis of leadership in this specific instance and not a systemic issue?
Talati: I would say this is a joint responsibility of the entire council.
Q: I have a set of questions that I was going to put to the President of the council. I have spoken to dozens of members of the council and CAs in the last three days and the allegations I hear against the President range from trivia, to absurd to very serious. For instance he asked for the President’s photograph to be put up in every branch Chairman and regional council Chairman’s office and this was put out by a circular. He made a public comment about ICICI’s Bank audit regarding mortgage situations, which was then retracted. A decanting note that came out then from the ICAI against the NACAS’s decision on Forex accounting, that was a serious descanting note because all of corporate India was confused is to why ICAI was taking a contrasting position to what NACAS had put out. I am told that the President and VP are at such loggerheads that they don’t talk to each other any more, just evidence of politics that has entered this institute. I am also told that lakhs of rupees were spent in this jubilee year on yoga camp and a cricket match and like I pointed out all we know of the Satyam report is that it is yet to reach fruition that is one small paragraph?
Talati: The issue of spending lakhs of rupees is one issue and let us not go into a family dispute that arises within the family. The question is of good governance. What is good governance? We have the healthiest of the tradition that council on the fist day gives majority of the powers to the President. In good faith these resolutions are passed and powers are wasted with the President. If one or more presidents are not coming up to the expectations of the fraternity or the council as you pointed out. But that is all in this year 2009 and we are here to correct all those.
Q: So you are saying these problems are only pertinent to this year 2009, this loss of quality only happened this year?
Talati: I won’t put it as a loss of quality. This is a different approach, different attitude and different working style.
Q: Mr Rathi is saying about declining standards?
Q: Is that being followed?
Talati: I am really sorry to say but yes it is not being followed the way public perception is there.
Q: One more question about government nominees. There are eight on the council and they are meant to be there for an oversight, they barely even attend meetings and when they do that is for about 15-20 minutes. They are too busy with their jobs to be able to pay attention. Mr OP Vaish had admitted that to me on phone one day saying that the problem is we are not getting the participation that we need from government nominees and so there is no oversight, do you agree?
Talati: Yes and all of them are not in a position to attend fully and that is where the issue has to be addressed by them more than by us. When they are appointed with good faith by government it is their primary duty to attend.
Q: The next point that I am going to come to is the fact that there is just too much conflict in this entire situation. Would you be comfortable if Securities and Exchange Board of India (SEBI) was run by a broker? If the Chairperson of SEBI was a broker and not Mr Bhave or Mr Damodaran has been the instances in the past, where they are actually public service officials, officials appointed by the government. Would you have that much confidence in SEBI if it was run by a broker? If not which I suspect your answer is going to be Mr Rathi then why should we have confidence in a regulator that is run by the very same fraternity members that it proposes to regulate – Chartered Accountants?
Rathi: The system has worked even before I was born. From that day the system is working or maybe just about the time I was born. Fifty nine years of working, few years of not working up to that standard that doesn’t mean the system is bad. But yes there are key issues, which need to be addressed. Let me clarify, I do not endorse or deny what you said in your opening statement. But I would say if true and I repeat the word ‘if true’ then it is a very sad situation. But I do not know whether it is true or not.
Q: What the booth capturing?
Rathi: Not the booth capturing. The expenses you read out.
Talati: What I am trying to say is if you are focusing only on 2009 events and ignoring what has happened from 1949 to 2008 – it’s highly unfortunate.
Q: How are we concerned with the quality of regulation 15 years ago?
Talati: There is no question of conflict of interest. Chartered accountants are the best people to govern this and the time has proved; the regulators, the challenges have proved.
Q: Would you be confident in a SEBI that is run by a broker?
Q: Would you be confident in a SEBI that is run by a broker?
Talati: It is not a question of what SEBI is doing.
Q: Would you be confident in a market regulator that is run by one of the market participants?
Talati: If a perfect, valid gentleman is a broker and is head of SEBI, I would have not even slightest of the objection. That’s what has been happening all throughout an institute. Best of the professionals from the country are representing the institute.
Rathi: Let us turn it to a more productive side. Whichever maybe the system xyz, ultimately it all boils down to a question of good governance, best ethics and right people being in the place. Merely if you think that you change the regulator and everything will be set right, I will differ with you very respectfully. I feel sad that institute who is in power in my opinion in any case is drastically curtailed. They are not the only one who set accounting standards, they are not the only one who set auditing standards. They have participation but their role is getting diluted and it doesn’t make me happy. The fault could of the institute of council members or somebody else.
Q: Whose fault is then? What is the problem there, if the problem is not conflict what is the problem?
Rathi: What is a council; the members are not the only constituents. Firstly, you have the council members who are to be elected. I think there has to be a quality of a council member.
Q: It was a question I was going to put to Mr Uttam Prakash Agrawal, I am going to now put it to you all.
Rathi: I am not a substitute.
Q: You brought up quality of the professional. CB Bhave, M Damodaran, look at the Insurance Regulatory and Development Authority (IRDA) regulators, they all have long track records of public service, government service all of that. What is the track record of any kind of regulatory service that any of these ICAI Presidents have? They are just practising chartered accountants. In fact the term of one year Vice President and one year is President means that they all very know before they become Vice President and President that they have only two years in a regulatory position, post which they are going to go back to private practise. I am told by many council members included that much of their time is spend furthering their own private interest because they are going to go back to private practise?
Talati: I would just not tolerate this remark. Let me clarify very clearly most of the council member elected are sacrificing their family life, they are sacrificing their professional practise. I am the sufferer; I know how much I have suffered. You are sighting exceptions as a set standard. Let me tell you in journalism – we have yellow journalism, all TV or all media are not bad. So, one particular person or group of people doing something not to the satisfaction of many cannot be blamed on the institution as a whole.
Rathi: How do you improve the quality of council? As I mention one is the council member itself – it has to be a high quality. One of the qualities of course rightly or wrongly has to be popular among the members because he gets elected, he doesn’t get selected. If you add a selection process then all rank holders will automatically become the council members. But let’s recognise that after all individuals set the standards, individual set the rules.
Q: Do we have quality members according to you right now? What do we need to do to ensure we have quality members?
Rathi: We could make the judgement but let me tell you how we can improve the process. Secondly, let us not spare the Electoral College itself. I cited to you one famous quote that “Citizens of the country get the type of government they deserve”. Similarly, the CA members will get the type of council members they deserve.
Talati: I very much appreciate.
Q: But why should India Inc or why should the investing community suffer the consequences of poor electoral choices of chartered accountants?
Talati: Let me say in a happy note that elections have been just over and fraternity this time have been conscious.
Talati: I would say that yes institute is the appropriate and perfect body. Council election and election of Vice President is time tested, repeatedly discussed and decided in council 10 times, in my nine year tenure and we all feel that this system is fine. If at sometime, some people or some good governance is missing it is right time to be awakening.
Regards,
CA. Akshat
Learn With Fun
+91 9974491677
CA. Akshat
Learn With Fun
+91 9974491677
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