GOD SAVES THOSE WHO SAVE THEMSELVES is a famous phrase which aptly applies to CS and CA Professionals when they need to face the challenges posed by the Companies Act, 2013 and its voluminous rules and future notifications /clarifications expected to come periodically from the Government. Compounding applications will not be of any use in future as the penalties are very heavy and in most of the cases there is a minimum penalty with hefty fine. Even the appellate Authority will plead helplessness though they may have the intention to help some companies which are in pathetic financial state of Affairs. Here is a case where the medicine is bitter than the disease itself. We need to ensure that the Companies do not fall into any kind of Non Compliance disease. We professionals who are legal doctors are to see that the Company maintains a Healthy Compliance Calendar through out its existence. How do we achieve ˜Zero Tolerance™ on non compliance/part compliance or ˜No Worry Attitude™ in respect of various provisions of the new Act through out the year. As a practicing professional should we have to switch over to monthly retainership instead of doing it on a quarterly/yearly basis for the sake of ensuring proper compliance and timely advise to the management?
I would like to touch only upon certain crucial aspects of practice.
We professionals focus on the following areas in our career as Company Law Practitioners.
- Consultations and giving opinions to Clients
- Search reports on Charge Matters mainly to banks
- Certification of various MCA21 forms
- Guiding in preparing Board reports, notices, Explanatory Statements, Resolutions, minutes and maintenance of Statutory Registers
- Pro active approach and not a post mortem approach
- Do’s and Don’ts to start with.
1. CONSULATATIONS AND GIVING OPINION TO CLEINTS
Most of the professionals who have been practicing more than five years should have a fair knowledge on Companies Act, 1956. Now all the professionals would need to have a Book which gives a comparative analysis of the both the Acts. If we look at Companies Act, 2013, we find that MCA has done an excellent exercise. Some of the exercise looks like a normal Party election manifesto – a cut and paste job of the old one.
a. Retaining most of the vibrant and revenue earning provisions of the Old Act
b. removing redundant provisions
c. Some sections are merged into one single Section and
d. Lot of definitions are brought in so as to bring in more clarity.
Some of the provisions are verbatim of the old Act. We could also see stringent penal provisions for non compliance and violations. They have made Professionals more accountable for each and every omissions and commissions committed under the Act.
Bearing this in mind, we need to be careful and vigilant in the following main areas. Before giving an opinion, we need to apply the following rules.
1. Read the New Act and the rules word by word.
2. Read the Old Act and see what changes they have brought in. (The confidence level would go up as we are familiar with the old Act.)
3. Read Interlinking Sections of the Act which have a bearing on the Section we are dealing with.
4. Read the relevant articles if available on the internet.
Let us take the case of ˜Buy Back™ under the new Act. Two specific amendments have been brought in under the Act.
1. There is a leave period of three years from the date of default of repayment of deposit, interest etc. during which one cannot go for buy back.
2. The Company loses the opportunity of buy back of shares if it has not complied with the provisions of Section 92, 123, 127 and 129.
So one has to read the above sections and form his own opinion on the subject before advising the Company to go for a buy back.
Since the offences committed under Section 68 relating to Buy back is non compoundable, the Professional will put the Company at great risk if adequate precautions are not taken in giving opinion.
2. SEARCH REPORT ON CHARGE MATTERS
For any contraventions in respect of charges, the penalty is not less than Rs. 1 lac and could extend upto Rs.10 lacs for the Company and every officer of the Company is also punishable with a fine of Rs.25,000/- to Rs.1 lac and an imprisonment which may extend upto six months. Any violation on charge matters becomes a non compoundable offence. A professional who takes the responsibility of filing returns and giving search reports may fall under Section 60(iv) of the Companies Act, 2013. If the search reports are normally done by assistants and goes to the professional only for signature, he is int big problem for any contraventions.
3. CERTIFICATION OF VARIOUS MCA21 FORMS
This is one area where the professional predominantly survives. All the draft MCA e-Forms which I have seen clearly states that Attention is also drawn to the provisions of Section 448 of the Companies Act, 2013 which provides for punishment for false statement and false certification.
False statement or False certification either due to ignorance, idiocy, urgency to certify and uploading compulsions due to pressure from the management, not taking adequate precautions, depending entirely on the trainees/staff and allowing them to freely use the DSC of the professionals, without taking the relevant papers, undertakings/docs from the management etc. would amount to ˜Fraud™ under Section 447 and invites imprisonment and financial damages.
Section 447 and 448 are very harsh on the professionals and is really a wake up call. It is ˜Quality™ and ˜Quantity™ that would matter from 1st April, 2014 onwards.
So as a professional what precautions should we take? If a Professional handles 100 to 200 clients, even one or two rouge companies would be sufficient for his downfall. The ICSI and the will not mercy on him nor will the appellate authority or the Professional Institutes to which he belongs and shall strictly go by the rule book and the genuine supportive documents he produces. Hence before certifying a Form, one should observe the following rules
1. I shall not certify a Form unless I have all the supporting documents in original duly signed by the Directors which would match with his specimen signatures. In case the documents are very important and vital, signature from the notary public is essential.
2. The second rule is that I shall not delegate the authority to certify a Form to my juniors or if I allow, I shall be present.
3. I shall maintain a log book of all the forms duly signed by me and prepared by my assistant. The log book should be signed by the Assistant and me for each form.
4. My DSC will be password protected and the DSC etoken will be under lock and Key.
5. All the supporting papers, the form and the SRN shall be kept under Lock and Key after uploading the Documents.
6. I should be in a position to refuse to certify a form if my terms put forth are not acceptable to the client and which means thereby losing him.
All the above rules should be strictly followed and the professional should have an Index of events for all his clients which he needs to verify at the end of the financial year when he has to guide the management to prepare the Board report and the Annual return.
It has become a general practice not to put the resolution number and just ˜0™ and give a date of Board Meeting (may be two or three years old) which gives a general permission for authorizing the Director to affix his DSC. In order to make the Director more accountable, the professional should insist or guide the management that a specific resolution should be passed for authorization.
To bring in more clarity we could adopt the following method
1. If an event is based on Board resolution and a compliance to file a form is required then a resolution authorizing the Director could be passed in that Board Meeting.
2. If any event is based on an General Meeting, then the authorization could be taken up in the Board Meeting convening the General Meeting
3. In all other cases, the authorization resolution could be passed in the beginning of the financial year.
This will ensure more transparency and accountability on the part of the Director specifically for each Form.
4. GUIDING IN CONDUCTING MEETINGS, PREPARATION OF NOTICES, RESOLUTIONS, EXPLANATORY STATEMENTS, MINUTES AND MAINTENANCE OF STATUTORY REGISTERS
Notice through the electronic Mode and Meetings through Video conferencing have come with a small rider. The period of notice shall not be less than seven days. It has to be strictly observed even if the Directors happen to be husband and wife whom they meet day in day out at their residence. The penalty for not conducting proper Board meetings attracts a penalty of Rs.25,000/-.
There are certain things which cannot be discussed in a meeting through video conferencing. The matters to be mentioned in a meeting through video conferencing are quite different from a normal meeting.
Statutory registers could be maintained electronically but some of the registers should be signed – whether there will provisions to sign digitally or we need to take hard copies and get the signatures of the directors? Clarifications will come from MCA on all these issues over a period of time
5.PRO ACTIVE APPROACH AND NOT A POST MORTEM APPROACH
The professional should always a Proactive approach instead of a Post mortem approach so as to avoid the impending catastrophe of Non compliance and Violations on certain stringent provisions laid down under the Act.
i. The Company should not default in repayment of deposit, Interests and statutory payment like bonus, gratuity etc. which will have bearing on ˜Issue of Bonus shares™
ii. No adverse comments by the Auditors relating to financials for ˜Buy back of shares™
iii. Proper compliance of Section 92, 123, 127 and section 129 in order to qualify for buying back of securities.
iv. The Promoter cannot come and say and I have brought in the money, used it up and now please allot shares. There is a set of procedures to be followed before allotment of shares.
We, as professionals have the responsibility of preparing the checklist of things well in advance and advise the management that the Company should not be a defaulter in all these areas and be vigilant always. All sensible Companies will certainly seek the guidance of the professional not on an yearly basis but on a monthly basis. This would ensure the management not only timely compliance but proper compliance. The professional should be brave enough to discard the clients who are not cooperative and who show utter disregard to the pains and risks he is taking on behalf of the clients. Money is always assured for good work.
6.DO’S AND DON’TS TO START WITH
Company Law Practitioners should immediately send the following message to their respective clients :
1. Please do not bring in money either from the promoters or from others by way of share Capital.
2. Please do not bring in any money by way of unsecured loans.
3. Please do not enter into Interested Contracts.
4. Please do not sell the Assets beyond the threshold limits.
5. Please do not convene meetings without proper notice.
6. Please do not delay your statutory payments and be a defaulter.
7. Please do not make one of the group companies bear the expenditure of others.
8. Please do not create any book debt in the Books of Accounts by making the Company to pay on your behalf.
The above items should be done only under the supervision and guidance of the professional.
There is only one ˜Do™:
Do consult your consultant to find out the procedure before venturing into any of the acts mentioned above and also the initial start up activities effective from 1.4.2014 to conform to certain compliance within the first quarter.
Last but not the least, a professional should have one or two of knowledgeable colleagues who could really guide in risky areas and help the co professionals. The same person who has guided in one area may seek guidance in other areas where one has already dealt with. The professional should attend seminars conducted by the respective institute he belongs not merely to gain credit hours but to gain knowledge. The Professional Institutes also have the responsibility to help the professionals in conducting good and vibrant seminars very frequently in this regard and not aiming at how much to make money out of seminars. This knowledge sharing helps a professional in the long run. Time has come for the professional to keep inventing new ideas , pick up useful tips from his colleagues, share his ideas with others so that that each one of us could continue with our secretarial work with lot of passion and fun without fear in the new era of Companies Act, 2013.