Indian Companies Act 2013

IAIP and NSE India organized a speaker event in Mumbai titled “New Era for Investor Community and Indian Corporate Sector” on May 31, 2014. The speaker was Sai Venkateswaran, Partner and Head of Accounting Advisory Services for KPMG India.

The session began with Sonia Gandhi, member IAIP introducing Sai and giving a brief overview of his accomplishments. Sai then took over and began with a brief overview of the revised Companies Act, 2013, which replaces the erstwhile Companies Act, 1956 and is aimed at providing better Corporate Governance standards and higher protection to the Investors especially Minority Investors.

The Companies Act 2013 received the assent of the President of India in August 2013. The Act came into force on September 12, 2013 with only 98 provisions notified. In March 2014, the MCA stated that another 183 sections would be notified from April 1, 2014.

Companies Act 2013 is more concise with 470 sections as compared to its predecessor, which had about 777 sections (including amendments). The currently active sections cover most of the daily operations of a Company. The sections pertaining to Restructuring, Reorganization and mergers of companies are not yet active. The National Company Law Tribunal (NCLT) is expected to be operational soon.

Broadly speaking the Companies Act 2013 has enacted the following changes over its predecessor:

1) Changes in the Reporting Framework

a. Mandatory filing of Consolidated Financial statements for all unlisted companies.

b. Change in definition of Subsidiary and Associates (equity Share capital and convertible preference capital to be considered while defining the above)

c. Directors of listed and certain unlisted public companies to discuss internal financial controls.

d. Companies to have greater flexibility to depreciate assets over their “useful lives” as opposed to using standard rates of Schedule 14.

e. Increased emphasis on accompanying disclosures.

2) Higher accountability for the Auditors (3 year time frame for compliance)

a. Mandatory rollover of Auditors every 10 years (applicable retrospectively). Auditors to be initially appointed for a period of 5 years.

b. Prohibits auditors from providing certain non-audit services to companies.

c. Auditors to report on internal financial controls, financial transactions and other matters expected to have an adverse effect.

d. Auditors to report all fraudulent activities (confirmed, suspected as well as immaterial) to the Central Government within 60 days.

3) Increased