Directors’ Report under Companies Act, 2013 & SEBI (LODR) Regulations, 2015
The Director Report is the part of Annual Report in which the details of Company is mentioned and laid before the Annual General Meeting. It is imperative to consider the provisions of the Companies Act, 2013, Secretarial Standard on Board Meetings and General Meeting and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 relating to the disclosure of contents in the Board’s report and other related matters.
Provisions of Section 134 are applicable only for F.Y. commencing on or after 1st April, 2014.
BASIS OF PREPARATION OF DIRECTORS’ REPORT
The Board’s report shall be prepared based on “stand alone financial statements of the company”.
SIGNING OF DIRECTORS’ REPORT
Section 134(6) state that Board’s report and any annexure thereto shall be signed by the Chairperson, if authorised by the Board of Directors of the Company and where Chairperson is not authorised by Board, then by at least 2 directors, one of whom shall be a Managing Director, if there is no Managing Director then by two directors.
APPROVAL OF DIRECTOR’S REPORT
Section 179(3) states that approval of Board’s report shall be done in meeting of the Board of director only.
This means that approval of Board’s report shall not be done by resolution by circulation or by committee or by a meeting through video conferencing or other audio visual means.
E-FILING OF RESOLUTION
Section 117 states that every public company shall file resolution of approval of Board’s report via E-Form MGT-14 within 30days of passing of Board resolution.
IN CASE OF ONE PERSON COMPANY
In case of a One Person Company, the Board’s report mean a report containing explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report.
CONTENTS OF DIRECTOR’S REPORT
This article endeavor to outline mandatory items of Directors’ Report. However, there is no restriction to put any matter in the Directors’ Report if the directors have the intention to mention therein apart from legal provisions.
COMPANIES ACT, 2013
Section 92(3) read with Section 134 (3) (a)
Extract of Annual Return in Form Mgt-9
Form MGT-9 provides for basic details of the Company such as name, CIN, DOI, Registered Office Address, Principal Business Activities of the Company, Holding, Subsidiary and Associate Company details, Shareholding Pattern, Remuneration of Directors and KMP, Penalties, Punishment, Compounding details etc.
Number of Meeting of the Board during the financial year
Section 134(3)(c) & Section 134(5)
Director Responsibility Statement
The Directors’ Responsibility Statement shall state that—
(a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;
(b) the Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the F.Y. and of the profit and loss for that period;
(c) the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;
(d) the Directors had prepared the annual accounts on a going concern basis; and
(e) the Directors, in the case of a listed company, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively.
Explanation.—For the purposes of this clause, the term “internal financial controls” means the policies and procedures adopted by the company for ensuring the orderly and efficient conduct of its business, including adherence to company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information;
(f) the Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
Statement on declaration given by Independent Directors under sub-section (6) of section 149
Applicable only if there are Independent Directors in the Company.
Provisions related to Independent director are applicable on:
1. Listed public company
2. The public companies having paid up share capital of ten crore rupees or more or
3. The public companies having turnover of one hundred crore rupees or more or
4. The public companies which have in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees.
Nomination and Remuneration policy of company on directors’ appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under sub-section (3) of section 178;
Applicable on company covered under section 178(1)
Provisions of Section 178(3) are applicable on:
1. All public companies with a paid up share capital of ten crore rupees or more or
2. All public companies having turnover of one hundred crore rupees or more or
3. All public companies which have in aggregate, outstanding loans or borrowings or debentures and deposits, exceeding fifty crore rupees or more.
Explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in auditor report and by company secretary in practice in his secretarial audit report.
Particulars of loans, guarantees or investments under section 186
Particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in Form AOC-2
Form AOC-2 deals with particulars of contracts or arrangements with related parties.
The state of the Company’s Affairs
The amounts, if any, which it proposes to carry to any reserves
The amount, if any, which it recommends should be paid by way of dividend
Material changes and commitments, if any, affecting the financial position of the company which have occurred between the end of the F.Y. of the company to which the financial statements relate and the date of the report;
Particulars of the conservation of energy, technology absorption, foreign exchange earnings and outgo
Contents are mentioned in Rule 8(3) of of the Companies (Accounts) Rules, 2014.
A statement indicating development and implementation of a risk management policy for the company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company
The details about the Corporate social responsibility policy (CSR Policy) developed and implemented by the company and initiatives taken during the year
Every company having
(i)net worth of rupees five hundred crore or more,
(ii)Turnover of rupees one thousand crore or more or
(iii)Net profit of rupees five crore or more
during any financial year shall constitute a Corporate Social Responsibility Committee.
A statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors;
In case of a listed company and every other public company having such paid-up share capital of Rs. 25crore or more,
Rule 8(5)(i) of Chapter IX
Separate section on the performance and financial position of each of the subsidiaries, associates and joint ventures companies included in the consolidated financial statements.
Rule 8(5)(i) of Chapter IX
Financial Summary and Highlight for the F.Y. ending 31st March.
Rule 8(5)(ii) of Chapter IX
Change in nature of business, if applicable
Rule 8(5)(iii) of Chapter IX read with Section 168
Details of Director or KMP appointed/resigned during the year, if applicable
Rule 8(5)(iv) of Chapter IX
The name of Company who have become or ceased to be its subsidiaries, joint ventures or associates companies during the year, if applicable
Rule 8(5)(v) of Chapter IX read with read with Chapter V
Details relating to deposits
(a)accepted during the year
(b)remained unpaid or unclaimed as at the end of the year.
(c)whether there has been any default in repayment of deposits or payment of interest thereon during the year and if so, number of such cases and total amount involved:
(i)at the beginning of the year
(ii)maximum during the year
(iii)at the end of the year
Also the details of deposits which are not in compliance with the requirement of Chapter V of the Act.
Rule 8(5)(vi) of Chapter IX
Details of Significant and Material Orders passed, impacting the going concern status and company’s operation in future, by Regulators or courts or tribunals
Rule 8(5)(vi) of Chapter IX
Details of adequacy of Internal Financial Control w.r.t the Financial Statement
Rule 4 of Chapter IV
Disclosure about the shares issued on preferential basis, if any.
Disclosure of voting rights not exercised directly by employees in respect of shares to which any scheme relates(Names of employees, reasons for not voting directly, names of person who is exercising such voting rights, number and percentage of shares, resolution on which votes casted and manner of casting of votes etc.
Rule 8 &12 of Chapter IV
Disclosure about Sweat Equity shares and ESOP Scheme
Disclosure about re-appointment of Independent Directors
Reason for voluntary revision of financial Statement or Board report, if applicable
Composition of Audit Committee and if board has not accepted any recommendation of audit committee, reasons for same.
Details of establishment of Vigil Mechanism, if applicable.
Details of managing or whole-time director who is in receipt of any commission from the company and also receiving any remuneration or commission from any holding company or subsidiary company of such company, if applicable.
Rule 5(1) of Chapter XIII
Every listed company shall specify the ratio of the remuneration of each director to the median employee’s remuneration and such other details as provided in Rule 5(1)
Rule 5 (2) and of Chapter XIII
Every listed company shall include a statement (refer sub-rule 3) showing the names of top ten employees in terms of remuneration drawn and the name of other employees who:
(i)if employed through out the financial year was in receipt of remuneration for that year of one crore and two lakh rupees
(ii) if employed for part of the financial year was in receipt of remuneration for any part of that year of eight lakh and fifty thousand rupees per month. (iii)whether by himself or along with his/their spouses & dependent children holds 2% or more equity shares of the company
Secretarial Audit Report in Form MR-3 shall be annexed with the Board’s Report
Provisions related to Secretarial Audit are applicable on:
1. Listed company
2. Every public companies having paid up share capital of fifty crore rupees or more or
3. Every public companies having turnover of two hundred fifty crore rupees or more.
Section 22 & 28 of the Sexual Harassment of Women at the workplace (Prevention, Prohibition & Redressal) Act, 2013
Number of complaints received and disposed off during the year.
The company should have an Anti Sexual Harassment policy in line with the requirement of the Act and a committee should be settled up to redress the complaints received regarding sexual harassment.
Full particular of cost auditor, along with due date and actual filing of cost audit report by the cost auditor.
SECRETARIAL STANDARD ON BOARD MEETINGS (SS-1)
Para 8 of SS-1
The Annual Report and Annual Return of a company shall disclose the number and dates of Meeting of the Board and committees held during the financial year indicating the number of Meetings attended by each director.
SECURITIES AND EXCHANGE BOARD OF INDIA (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015
Management discussion and analysis report
Schedule V states the matter to be included in Management discussion and analysis report
Explanation for the deviation(s) or variation(s), if any, in the use of proceeds from the objects stated in the offer document or explanatory statement to the notice for the general meeting, as applicable in case of public issue, rights issue, preferential issue etc.
Disclosures of amounts at the year end and the maximum amount
The Top five hundred listed entities based on market capitalization shall formulate a Dividend distribution policy which shall be disclosed in annual report an website.
Related Party Disclosures
Disclosures of amounts at the year end and the maximum amount of loans/ advances/ Investments outstanding during the year.
(i)Loans and advances in the nature of loans to subsidiaries by name and amount.
(ii)Loans and advances in the nature of loans to associates by name and amount.
(iii) Loans and advances in the nature of loans to firms/companies in which directors are interested by name and amount.
(iv) Investments by the loan in the shares of parent company and subsidiary company, when the company has made a loan or advance in the nature of loan.
Same disclosures as applicable to the parent company in the accounts of subsidiary company
Corporate Governance Report
Schedule V states that following disclosure to be included in Corporate Governance Report:
(i)A brief statement on listed entity’s philosophy on code of governance
(ii) Board of directors
(iii) Audit committee
(iv) Nomination and Remuneration Committee
(v) Remuneration of Directors
(vi) Stakeholders'' grievance committee
(vii) General body meetings
(viii) Means of communication
(ix) General shareholder information
(x) Other Disclosures
The corporate governance report shall also disclose
(i) Reasons of non-compliance of any requirement of corporate governance report
(ii)The extent to which the discretionary requirements as specified in Part E of Schedule II have been adopted.
(iii) The disclosures of the compliance with corporate governance requirements specified in regulation 17 to 27 and clauses (b) to (i) of sub-regulation (2) of regulation 46.
Declaration signed by the chief executive officer stating that the members of board of directors and senior management personnel have affirmed compliance with the code of conduct of board of directors and senior management.
Compliance certificate from either the auditors or practicing company secretaries regarding compliance of conditions of corporate governance shall be annexed with the directors’ report.
Disclosures with respect to demat suspense account/ unclaimed suspense account
The listed entity shall disclose the following details in its annual report, as long as there are shares in the demat suspense account or unclaimed suspense account, as applicable: (a) aggregate number of shareholders and the outstanding shares in the suspense account lying at the beginning and end of the year;
(b) number of share holders who approached listed entity for transfer of shares from suspense account during the year;
(c) number of shareholders to whom shares were transferred from suspense account during the year;
(d) that the voting rights on these shares shall remain frozen till the rightful owner of such shares claims the shares.
Section 134(8) states that if company contravenes the provisions of Section 134, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to Rs. 25 lakh and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 5 lakh, or with both.
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