Legislation UpdatesRules & Regulations

G.S.R. 571(E).—In exercise of the powers conferred under sub-sections (1), (2), (3), (4), (8), (9), (10) and (11) of Section 125 and sub-section (6) of Section 124 read with Section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules, further to amend the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016, namely –

1. (1) These rules may be called the Investor Education and Protection FundAuthority (Accounting, Audit, Transfer and Refund)Second Amendment Rules, 2019.

(2) The provisions of these rules, Other than rule 6 (i), 6 (iv), 6 (v), 6(vi), 6(vii) and 6 (viii), shall come into force with effect from the 20th day of August, 2019.

(3) The provisions of rule 6 (i), 6 (iv), 6 (v), 6(vi), 6(vii) and 6 (viii), shall come into force with effect from the 20th day of September, 2019.

* Please follow the link to read the detailed amendments notified by the Government: NOTIFICATION

Ministry of Corporate Affairs

[Notification dt. 14-08-2019]

Case BriefsHigh Courts

Patna High Court: The Bench of Amreshwar Pratap Sahi, CJ and Ashutosh Kumar, J., directed for a fresh inquiry in the matter of unauthorized payment of salary to the Respondent (Associate Professor) to the tune of Rs 95 lakhs even when there was serious audit objection for the payment of same.

The facts of the case are that 40 colleges of a University were taken over by the State Government in the year 1986 and one amongst such colleges was the college where the respondent was an Associate Professor. He was employed in the 4th phase of such take over which led to serious controversies, claims and counter claims, the matter went to Supreme Court where it was requested to determine the genuineness of the claim of the teachers qua the number of posts sanctioned by the State of Bihar working in different colleges which were taken over by the State of Bihar in the 4th phase. The Justice S.C. Agrawal Commission recommended for inclusion of the names of such persons whose names had been recommended or were in the process of being recommended. The submission of the petitioner is that the name of the Respondent was not mentioned in the list but later because of a composite order being passed, the Division Bench took a view that since the name of Respondent found mention in the list, there was no occasion for any dispute with respect to payment of salary to him.

The Court directed that an inquiry should be held with respect to the genuineness of the claim of the respondent for seeking payment from the University. [Akhilesh v. State of Bihar, 2019 SCC OnLine Pat 249, Order dated 27-02-2019]

Business NewsNews

Seeking to crackdown on shell companies, the government has proposed to remove exemption available to firms with tax liability of up to Rs 3,000 from filing IT returns beginning next fiscal. The Union Budget 2018–19 has rationalised the IT Act provision relating to prosecution for failure to furnish returns. Thus, a managing director or a director in charge of the company during a particular financial year could be liable for prosecution in case of any lapse in filing IT returns for any financial year beginning 01-04-2018. The income tax departments would now track investments by these companies. Also, the focus will be on those firms that show less profit and also those who file IT returns for the first time. There are around 12 lakh active companies in the country, out of which about 7 lakh are filing their returns, including annual audited report, with the Ministry of corporate affairs. Of this, about 3 lakh companies show ‘nil’ income.

The Section 276CC of the Income Tax Act, 1961 provided that if a person wilfully fails to furnish in due time the return of income, he shall be punishable with imprisonment and fine. However, no prosecution could be initiated if the tax liability of an assessee does not exceed Rs 3,000. The government has amended the provision with effect from 01-04-2018 and removed the exemption available to companies. In order to prevent abuse of the said proviso by shell companies or by companies holding benami properties, it is proposed to amend the provisions so as to provide that the said sub-clause shall not apply in respect of a company. The Budget announcement follows the recommendation of the task force on shell companies, which was set up in February, 2017. In the government’s fight against black money, shell companies have come to the fore as they are seen as a potential for money laundering. Till the end of December 2017, over 2.26 lakh companies were deregistered by the MCA for various non compliances and being inactive for long. Since 2017, the apex policy making body of the IT department — the Central Board of Direct Taxes (CBDT), has been sharing with the MCA specific information like PAN data of corporates, Income Tax returns (ITRs), audit reports and statement of financial transactions (SFT) received from banks.

[Source: The BusinessLine]

Legislation UpdatesRules & Regulations

The Government on 21-03-2018 notified the rules for establishment of National Financial Reporting Authority (NFRA) and creation of one post of Chairperson, three posts of full-time Members and one post of Secretary for NFRA. The rules aim at establishment of NFRA as an independent regulator for auditing (one of the key changes brought in by the Companies Act, 2013). In the wake of accounting scams, a need to establish NFRA is felt across various jurisdictions in the world, to enhance investor and public confidence in financial disclosures of companies. The NFRAs’ jurisdiction for investigation of Chartered Accountants u/Section 132 of the Companies Act would extend to listed companies and large unlisted public companies. Also, the Central Government can refer other entities for investigation in cases where public interest is involved. Consequently, the introduction of these rules will result in improved foreign/domestic investments, economic growth, enhancement of globalisation, and further development of the ‘audit profession’.

The Central Government has, in exercise of powers conferred by Section 132 (3) of Companies Act, 2013 (18 of 2013), notified the National Financial Reporting Authority (Manner of Appointment and other Terms and Conditions of Service of Chairperson and Members) Rules, 2018, to be in effect from date of publication in the Official Gazette.

The ‘key highlights’ are as follows

1. Composition of Authority The Authority shall consist of the following persons as appointed by Central Government:-

  • A chairperson — who shall be a person of eminence, ability, integrity and standing with expertise and experience of not less than 25 years in the field of accountancy, auditing, finance or law.
  • Three full time members — who shall be a person of ability, integrity and standing with expertise and experience of not less than 25 years in the field of accountancy, auditing, finance or law.
  • Nine part time members — a person to be eligible, should not have any such financial or other interest as is likely to affect prejudicially his functions as a part time member.

2. Manner of Appointment — The Chairperson and full time member shall be appointed by Central Government on recommendation of search-cum-selection committee (‘the committee’)consisting of :-

  • Cabinet Secy. as Chairperson
  • Principal Secy. to the PM as Member
  • (of Ministry of Corporate Affairs) as Member, who shall be the convener of the committee
  • Chairperson of NFRA (during selection of full time members) as Member
  • Three experts from a panel of experts in the field of accountancy, auditing, finance and law (to be nominated by Central Government) as Members

The committee has to submit the recommendations to the Central Government within 120 days from the date of reference made to it by the Central Government.

The following shall be appointed as part-time members :-

  • One member shall represent the Ministry of Corporate Affairs, and shall not be below the rank of Joint Secy., ex-officio
  • One member shall represent the Comptroller and Auditor General of India, and shall be not be below the rank of Accountant General or Principal Director, ex-officio
  • One member shall represent RBI, and shall not be below the rank of Executive Director, ex-officio
  • One member shall represent SEBI, and shall not be below the rank of Executive Director, ex-officio
  • President, ICAI, ex-officio
  • Chairperson (Accounting Standards Boards), ICAI, ex-officio
  • Chairperson (Auditing and Assurance Standards Board), ICAI, ex-officio
  • Two experts from the field of accountancy, auditing, finance or law.

3. Resignation — A chairperson/member can resign any time, by giving a hand-written letter addressed to the Central Government, provided that unless the government grants permission to relinquish the office sooner, the person resigning shall continue to hold office until expiry of 3 months from date of receipt of the notice or until a successor is appointed or until the expiry of his term in office, whichever is earliest.

4. Removal from office — After giving a reasonable opportunity of being heard and on recommendation of the committee, the Central Government can remove the chairperson/member from office, who has been adjudged insolvent; or has been convicted of an offence of moral turpitude; or has become mentally/physically incapable of acting as chairperson/member; or has acquired any financial/other interest which is likely to affect prejudicially his functions (as a chairperson/member); or has abused his position to render his continuance in office prejudicial to the public interest; provided that the chairperson/interested member shall not be a part of the committee, where the subject matter of cause is against him.

5. Term of Office — The term of office for a chairperson and a full time member shall be 3 years from the date of his entering the office or until he attains 65 years of age, whichever is earlier, and shall be eligible for re-appointment for one more term. For a part time member, he shall hold office for a period, not exceeding 3 years, as specified in his appointment order or the period for which he holds substantive post by virtue of which he has been appointed as the part time member, whichever is earlier, and shall be eligible for re-appointment.

6. Vacancy — In case of a vacancy the Central Government shall appoint the senior most full time member or in his absence or any other full time member to officiate as chairperson.

7. Salary and allowances — The chairperson and a full time member shall be paid Rs 2,50,000 and shall be entitled to such other allowances and benefits similar to a Central Government officer (for a full time member allowances/benefits would be equal to a Central Government officer holding Group ‘A’ post) having the same pay. A part time member (other than ex-office members), shall receive a sitting fee of Rs 6,000 for each meeting he attends, and shall also be entitled to TA, DA similar to a Group ‘A’ officer in Senior Administrative Grade in the Central Government.

8. Other conditions of Service — The terms and conditions for a chairperson/full time member are similar to a Central Government officer of Group ‘A’ post carrying the same pay. A chairperson/full time member cannot practice before the authority after retirement/resignation/removal, and also cannot take up any arbitration work, or accept any employment (for 2 years from the date on which they cease to hold office) in, or connected with the management/administration of, any person who has been a party to a proceeding before the NFRA.

In case of any dispute/questions regarding the interpretation of these rules, the Central Governments’ decision shall be final.

Ministry of Corporate Affairs