The Indian
corporate sector is very positive since the Modi Govt. has assumed power in the
center. But to maintain the positivism the Govt. has to some policy decision without
delay. The current working of 2013 Companies Act and its impact on corporate
world has brought some new lessons for corporate India. The views expressed by
various CEOs, CFOs, company secretaries, finance and accounting professionals provide
thought-provoking insights which may be useful for Indian Corporate world. We
know that the 2013 Act has introduced several onerous requirements, but the companies
were not provided sufficient time to prepare. As the majority of the sections
and the related rules were notified during the last week of March 2014 and have
an applicability date of 1 April 2014. Moreover, a
considerable number of interpretative issues and concerns continue to arise
from implementation of the new Act.
The new Act
empowers and strengthens shareholders’ democracy. Duties/responsibilities and
liabilities of directors (including independent directors) and auditors have
been significantly enhanced. Now the private companies will be subjected to
several onerous requirements such as preparation of consolidated financial
statements, internal financial control reporting, auditor rotation and approval
of related party transactions, which were hitherto not applicable to such
companies. The Act also has significantly enhanced disclosures to bring greater
transparency in corporate reporting and self-governance. On many matters,
requirement to obtain the Central Government’s approval has been replaced with
the approval by shareholders. The Act further introduced several new concepts
such as corporate social responsibility, requirement for woman director,
rotation of auditors, class action suits, etc. The Modi Govt. should address
the genuine concerns to keep the Indian corporate sector on track.
Recently the
Earnest & Young has done a survey which has highlighted some of the very
crucial points as follows: Regarding the enforcement of only 283 sections out
of total 470 sections, has mixed views. The 47% participants were of the view
that it would have been better to implement all the sections of the 2013 Act at
one go. Immediate application of notified sections leaves companies without any
time to prepare for the new requirement. Overwhelming majority (85%)
participants were of the view that they need minimum three months to one year
time to prepare for new requirements.
Most of the participants
were agreed with the auditor’s reporting on fraud directly to the Central
Government, an overwhelming majority (80%) felt that there should be materiality
limit for such reporting. Reporting of immaterial frauds to the Government may
impose significant additional cost and burden on all parties and yet achieve
nothing. 68% participants were not in favor of applying any or all of the
onerous requirements, e.g., preparation of CFS, internal financial control
reporting, auditor rotation and approval of related party transactions, etc.,
to a private company. 44% participants felt that some of these requirements can
apply to a private company, while 32% participants were of the view that all
these requirements should apply to private companies.
From
participants representing companies with non-31 March year-end, 41% have
already decided to comply with 31 March year-end requirement. There is an
almost equal number, which has not decided its approach yet. 22% participants
want to retain their current financial year (i.e., year-end other than 31
March) and would seek tribunal/ MCA approval for the same. 87% survey participants felt that
minority protection will increase, if all related party transactions not
meeting exemption criteria are approved by special resolution of disinterested
shareholders. However, out of these participants, 26% participants felt that it
may impede business activity and 17% participants were concerned that it will
significantly impede business activity. Out of companies covered under CSR
requirement, 55% have already decided to spend 2% amount of CSR activities.
Approx. 34% companies are waiting for practices to emerge before they take a
call on this matter.
Keeping in
mind the said reflections the govt. should take immediate measures in notifying
the remaining sections of the Companies act 2013 and overview the working of
the notified sections to avoid the worrisome situation.
Source: http://www.moneycontrol.com/news,
Earnest & Young Survey 2014.
