The Game Changer!

1. CMII - ICAI – 27th April, 2014 The Game Changer! Companies Act, 2013 - Anand Bathiya B.Com., A.C.A., LL.B., D.I.S.A.

2. Coverage • Key Points for discussion • ET: 15 mins • Provisions pertaining to Internal Audit • ET: 15 mins • Provisions pertaining to Related Party Transactions • ET: 30 mins • Q&A • ET: 5mins

3. Key Principles of Companies Act • Proactive vs. Reactive • Shareholder vs. Stakeholder • Majority vs. Minority • Third Party Regulation • Transparency and Good Corporate Governance • Hub and Spoke Model

4. Companies Act, 2013

5. Internal Audit • Position under the Act • Section 138 - Internal Auditor shall either be: • a chartered accountant or • a cost accountant, or • such other professional as may be decided by the Board • Section 144 - Statutory Auditor cannot be an Internal auditor of the auditee, its holding company or its subsidiaries.

6. Internal Audit • Position under the Act • Section 177: Audit committee shall recommend appointment of Internal Auditor • Audit committee may call for comments, reports and discuss issues with Internal Auditor

7. Internal Audit • Position under the Companies (Accounts) Rules, 2014 • Rule 13: • Existing companies to have a 6-months transition period.

8. Internal Audit • Position under the Companies (Accounts) Rules, 2014 • Rule 13: The Internal Auditor may or may notbe an employee of the Company. • The term Chartered Accountant shall mean a Chartered Accountant whether engaged in practice or not. • The Audit committee shall formulate the: • a. Scope • b. Functioning • c. Periodicity • d. Methodology

9. Related Party Transactions • - Companies Act, 2013 • - AS – 18 • - Clause 49

10. Related Party Transactions • Companies Act – Approval Mechanism • Section 2(76) of the Act defines ‘Related Party’ • Section 2(77) of the Act defines ‘Relatives’ • Section 188 covers provisions pertaining to Related Parties. (297 and 314) • Rule 15 of Companies (Meeting of Board and its powers) Rules, 2014 • Board resolution required for certain related party transactions • Certain transactions to require special resolution • Special resolutions to be by majority-of-minority rule • Board consent only in a meeting

11. Related Party Transactions * - includes Step relatives as well * - Revised Clause 49 uses the same definition as CA 2013

12. Related Party Transactions

13. Related Party Transactions

14. Related Party Transactions • All transactions by a company having Paid-Up Share Capital of more than INR 10 crores shall mandatorily require majority of minority special resolution!

15. Related Party Transactions • AS-18 RPT is ‘anytime during the year’ as against ‘on the date’ for CA 2013. • AS-18 RPT is ‘transaction based’ as against CA 2013 which is ‘contract based’. • AS – 18 requires name disclosure only if transaction value more than 20%. • AS-18 requires previous year disclosures as well. • AS-18 requires name of related parties irrespective of transactions. • AS -18 consolidated RPT will not include holding-subsidiary transactions.

16. Related Party Transactions • Companies Act – Disclosures • The agenda of the Board meeting shall disclose- • the name of the related party and nature of relationship; • The nature and duration of the contract; • the material terms of the contract; • any advance paid or received; • the manner of determining the pricing; • whether all factors relevant to the contract have been considered, if not, the details of factors not considered; and • any other information relevant or important Notice and Explanatory statement for members to include: • Name of the related party and nature of relationship; • name of the director or key managerial personnel who is related; • nature, material terms, monetary value and particulars of the contract or arrangement; • Other important terms

17. Related Party Transactions • Companies Act – Other provisions • The interested director should not be present when the matter is being discussed. • All such matters shall be referred\disclosed to in the Board’s report along with the justification • Transactions with wholly-owned subsidiaries also covered. • If a person enters in a RPT which is violation of Section 186, then he is disqualified for reappointment. • Schedule IV – Code of Independent Directors includes responsibility on Independent Directors to ensure RPT compliance • Violation would result to i) Indemnification ii) Imprisonment and\or iii) Fine • Every director to disclose his interested entities at: • 1st meeting from his appointment • Every first meeting in the financial year • Whenever there is a change

18. Related Party Transactions • SEBI Clause 49 under Listing Agreement – Coming Soon… • RPT Policy to be formulated for dealing with RPT. • All RPT to require prior approval of Audit Committee. • All material RPT to require majority of minority resolution. • Transactions more than 5% of turnover or 25% of net-worth to be deemed material. • RPT Policy to be uploaded on the website and Annual Report of the Company. • All material RPTs to be disclosed on a quarterly basis to SE.

19. Thank You! Anand Bathiya • anand@shbathiya.com The views expressed herein are individual and personal in nature and neither the organizing body nor the representative firm has endorsed or supports nor rejects the view of the individual. Reliance on matter herein should be after due care and professional advice.