Companies Act 2013

Raising the bar on Governance

Focus on 6 critical themes

Inclusive CSR Agenda
Increased Reporting Framework
Wider Director and management responsibility
Higher Auditor Accountability
Easier restructuring
Emphasis on Investor Protection

The recently enacted Companies Act, 2013 (the New Act) is a landmark piece of
legislation and likely to have far reaching consequences on all companies incorporated in India.
The erstwhile Companies Act, 1956 was in existence for well over fifty years and was lately
seeming quite ineffective at handling present day challenges of a growing industry and the
complexities related with the growing stakeholders interests.
The New Act promises to substantively raise the bar on governance and in a
comprehensive form purports to deal with some very relevant themes. On the flip side, it appears
to be quite pervasive and thrusts greater responsibility and obligation on the Board of Directors
and Management in Indian companies.
The KPMG in India team takes a closer look at the important changes and developments to
help companies assess the impact and develop a clear strategy on compliance and governance.

Theme 1: Increased Reporting Framework

New definition of subsidiary, associate, Joint Venture company [sections 2(6) and 2(87)]
Holding company
1. Owns/controls > 50% total share capital or exercises control of board subsidiary
company
2. Owns/controls at least 20% total share capital or business decisions under an agreement
associate company
Financial year to be uniform
a. All companies to follow uniform FYE 31 March
b. Exemptions (subject to conditions and approval process) if a company is:
- A holding/subsidiary of a company incorporated outside India; and
- Required to follow a different FYE for consolidation of its accounts outside India
c. Transitional compliance phase: Two years

Mandatory requirement for Consolidated Financial Statement (CFS) [section 129]
a. In addition to standalone financial statements, every company to prepare CFS if it has a:
- Subsidiary; or
- Associate; or
- Joint Venture company

b. No exemption for intermediate holding companies for preparing CFS

Penalty for violation:
Officer in default:
Imprisonment one year;
Fine between INR 50,000 500,000

Revision in Financial Statement [sections 130 and 131]
a. Pursuant to an order made by a court or Tribunal on an application for revision of financial statements made
as under:by the Central Government, Income-Tax, SEBI etc. in the following casesFraudulent financial reporting; or
Mismanaged affairs casting doubt on financial statements; or

by the Directors of a company only in the following cases:Financial statements and Board Report are
non-compliant; and
Voluntary restatement by Directors possible only for the past three years


Changes in Depreciation regulation [section 123(2) and Schedule II]
a. Concept of Useful Life takes prominence over standard mandated rates
b. Justification required where Useful Life Schedule II for prescribed companies. Other cases Useful Life < Schedule
II
c. Applicability of Component Accounting
d. Transitional provision: Depreciate carrying value less residual value over balance life. Adjust net worth if useful life
has been exhausted
Mandatory Internal Audit and reporting on Internal Financial Controls [section 138]
a. Assurance on adequacy and effectiveness of Internal Financial Controls (which includes orderly and
efficient conduct of business, and prevention and detection of frauds and errors) to be given: in Directors and Auditors
report for all listed entities; and
only in Auditors report for all other entities

b. Internal Audit made mandatory for:all listed companies; and
public limited companies with: loans/deposits INR 250 mn ; or
paid up capital INR 100 mn


c. Internal audit to be done only by CAs; or CWAs; or other professionals decided by the Board

Penalty for violation:
1. Company: Fine between INR 50,000 2,500,000
2. Officer in default: Imprisonment up to three years; fine between INR 50,000 500,000


Theme 2: Higher Auditor Accountability
Auditor Appointment and Rotation
a. Maximum 20 audits permitted per individual Auditor/Partner of a firm
b. Instead of reappointment at each AGM, Auditor to be appointed for a block of five years:
- Individual Auditor eligible for appointment of single block of five years; and partnership audit firms to be eligible for
appointment of additional consecutive block of five years
- Auditor to be subject to a five-year cooling period post completion of his previous term
- Incoming Auditor cannot be an associate or a network firm in relation to the outgoing Auditor
- Transitional compliance phase: Three years
- As per draft rules, pre-commencement term to retrospectively apply for computing balance validity of current Auditors
tenure prior to rotation

c. Significant restrictions on non-audit services that can be provided by Auditors. All non-audit services to be
pre-approved by the Board or Audit Committee
d. National Financial Reporting Authority (NFRA) to be the new regulator for Auditors and will have powers to
recommend, enforce and monitor compliance of accounting and auditing standards

Auditors Reporting Responsibility
a. Audit report to cover
1. Observations, comments on financial transactions and adverse matters
2. Qualification or adverse remark on maintenance of accounts
3. Adequacy of internal financial control system and effectiveness
4. Disclosure of effect of pending litigation on financial position
5. Provisions for foreseeable losses on long term/derivative contracts
6. Delays in depositing money into IEPF

b. Report to Audit Committee or Board on fraud committed against company by officers or employees and escalate to
Central Government if:
- happening frequently; or
- amount is material at 5 percent of net profits or 2 percent of turnover; or
- if dissatisfied with action by audit committee or Board on immaterial frauds

Theme 3 Easier Restructuring
Rationalizing Multilayered Structures
a. Maximum of only two Investment SPV company levels permitted between investor company and investee company
Penalty for violation:
1. Company: Fine of INR 25,000 5,00,000
2. Office in default: Imprisonment upto two years; fine INR 25,000 1,00,000
b. Exemption:
- Acquisition of overseas subsidiary with existing multiple layers allowed under foreign law; or
- Multi-layering required under any law in force

Simplifying Procedures for Merger [section 232]
a. National Company Law Tribunal (NCLT) to approve schemes of restructuring companies in place of High Court
b. Auditor to certify that accounting treatment specified in the Scheme conforms with Accounting Standard for listed,
unlisted and private companies
c. Consent of majority Members/ Creditors >75 percent (in value)
d. Merger of listed company into unlisted company allowed subject to:
- Exit opportunity being provided to public shareholders; and
- Valuation is done as per SEBI guidelines

Minority buy-out [section 236]
a. Acquirer holding 90 percent share capital (in value) may notify intent to buy-out balance equity shares
b. Exit valuation to be done by Registered Valuer [section 247]
c. No opportunity provided for minority to dissent

Cross-border Merger [section 234]
a. Merger of Indian company with foreign company and vice-versa now permitted
b. Central Government to make necessary Rules in consultation with RBI and notify permitted jurisdictions
c. Merger to be approved by NCLT
d. Consideration only in cash or Depositary Receipts

Fast-track Merger [section 233]
a. Merger between the following entities possible without NCLT approval:
- Two or more small companies; or
- Holding and wholly owned subsidiary; or
- Prescribed types of companies (list awaited)
b. Declaration of Solvency required to be submitted
c. Consent required from:
- Members owning > 90 percent of total number of shares
- Majority creditors owning 90 percent in value

Share capital reduction [section 66]
a. No share capital reduction permitted in companies that have overdue deposit /interest
b. No buy-back permitted until after three years from remediation of defaults on deposits; preference shares; or term
loans
c. Multiple buy-back within a year not permitted
d. Schemes of arrangement involving buy-back/capital reduction to require Auditors certificate and comply with
conditions of section 66/68

Theme 4: Emphasis on Investor Protection
Related Party Transactions [section 188]
a. Transactions in ordinary course of business on arms-length basis permissible. Central Government approval not
required anymore
b. Board approval required where transactions are either not in the ordinary course of business /not at arms length:
c. Special resolution, where no related party can vote, required for non-arms length transactions or transactions not in
the ordinary course of business where
- Share capital > INR 10 mn; or where
- Sale, purchase of goods, services, leasing of property transaction value exceeds 5% of annual turnover or 20 percent
of net worth
Penalty for violation:
i. Contract may be rendered as void
ii. Directors concerned to indemnify the loss
iii. Director / employee involved can be fined and imprisoned (in case of a listed company)
- Appointment to any office or place of profit in company, subsidiary or associate
monthly reummuneration > INR 100,000
- Remuneration for underwriting subscription of any securities or derivatives remuneration >INR 1 mn
Insider Trading [sections 125, 194, 195]
a. Director/Key Managerial Personnel (KMP) to refrain from forward dealing/ buy options in shares or debentures of
company/ holding company/ subsidiary/ associate
b. No company person (incl. any Director/KMP) with access to non-public price sensitive information to indulge in any
form of insider trading/counseling.

Penalty for violation:
i. imprisonment up to five years; or
ii. fine up to INR 250 mn or three times profits made, whichever is higher; or
iii. both of the above

Oppression and Mismanagement
a. Members or Depositors may notify Tribunal if company conduct is prejudicial to their interests
b. For fraudulent, unlawful or wrongful act; or improper or misleading statements, Class Action Suit can be filed on:
- Company or its Directors; or
- Auditor/audit firm; or
- Expert/advisor/consultant

c. Who can file Class Action Suit:
- 100 or 10 percent of total number of members
- 100 or 10 percent of total number of depositors
- Member(s) holding 10 percent of issued share capital
- Depositor(s) holding 10 percent of outstanding value of deposits

Fraud Risk Mitigation
a. Fraud defined/referred to under various sections and includes:
- Act; or
- Omission; or
- Concealment of fact; or
- Abuse of position
- Considered fraud whether or not there is any wrongful gain or loss

b. Senior Fraud Investigation Officer (SFIO) made statutory body with significant powers
c. Mandatory establishment of vigil-mechanism for directors/ employees to report concerns
Penalty for violation
Imprisonment [3-10 years]; cognizable offence without bail
Theme 5: Wider Director and Management Responsibility
Additional Responsibility on Independent Directors [section 149]
a. Code of Professional Conduct imposing stringent responsibility and accountability
b. Maximum term of five years extendable by another five years subject to a special resolution
c. Retirement by rotation not applicable
d. Liable only for acts with knowledge of and attributable through Board Process and with his consent or connivance or
not having acted diligently
e. Direct/indirect pecuniary/other relationships through relatives not permitted
f. Declaration of Independence mandatory each year.
g. Stock options not permitted. Only sitting fees and profit related commission.
h. Independent directors to hold one annual meeting where no non-independent director, KMP or Senior Management
can attend.

Audit Committee
a. Composition:
- Mandatory for prescribed companies to constitute an Audit Committee
- three directors (majority should be Independent Directors)

b. The Chairperson and majority of the Audit Committee members should have the ability to read and understand
financial statements
c. Responsibilities:
- Recommend appointment, remuneration of auditors and monitor their independence and effectiveness
- Examine financial statements and auditors report thereon
- Approve related party transactions
- Scrutiny of inter-corporate loans and investments
- Undertake asset valuation
- Evaluate internal financial controls and risk management systems
- Monitor end use of funds raised through public offers

Penalty for violation
i. Company: Fine between INR 100,000 500,000
ii. Officer in default: Imprisonment upto one year; fine between INR 25,000 100,000

Content of Directors Report [section 134]
a. All companies to, inter-alia, state:
- Devised proper systems to ensure proper compliance with all applicable laws in India and that this system is operating
effectively.
- Taken proper and sufficient care for maintenance of adequate accounting records for safeguarding assets and
preventing and detecting fraud and other irregularities.
- On development and implementation of a risk management policy

b. Listed and prescribed companies to state:
- Internal financial controls have been laid down and they are operating effectively.
- Manner in which performance evaluation of the Board members have been conducted

Penalty for violation
i. Company: Fine between INR 50,000 2,500,000
ii. Officer in default: Imprisonment upto three years and /or fine between INR 50,000 to INR 500,000

Theme 6: Inclusive CSR Agenda

Obligation Trigger and Calculation

a. Covers all companies in India meeting any one or more of the following conditions:
- Turnover INR10 bn
- Networth NR 5 bn
- Net Profit INR 50 mn

b. CSR contribution to be 2 percent of average net profit before tax for last three financial years
c. Contributions to be made towards causes listed under Schedule VII

Administration and Reporting
a. Board to appoint a three-member CSR committee including one Independent Director
- Committee responsibility:
- Formulate CSR policy;
- Recommend CSR activities;
- Monitor CSR expenditure

b. Mandatory reporting on CSR under section 135
c. Even where companies are not required to appoint Independent Directors under
Penalty for violation
i. Company: Fine between INR 50,000 2,500,000
ii. Officer in default: Imprisonment upto 3 years and / or Fine between INR 50,000 to INR 2,500,000


Impact on various stakeholders

Board of Directors

Accountability to stakeholders well beyond only shareholders
Reporting beyond traditional SOX coverage
Liability on Class Action Suits
Significant penalties on Insider Trading and restatements
Public scrutiny on CSR
Compliance on Related Party Transactions
Mandatory roll-out of whistle-blower vigil mechanism
Mandate on gender diversity

Promoters
Multi-layered structures to be collapsed
Cross-border transactions allowed
Mandatory CSR contribution will affect cash flows
Wider definition of Related Party Transactions
Heavy penalties introduced on Insider Trading
Lower consolidation threshold may invite greater scrutiny [PE Firms to be impacted]
New depreciation rules may affect profitability

CXO and Key Management Personnel

Ease of restructuring
Reporting beyond traditional SOX coverage
Wider definition of Related Party Transactions
Lower consolidation threshold may invite greater scrutiny
New depreciation rules may affect profitability
Liability for Class Action Suits
Significant penalties on Insider Trading and restatements

Independent Directors

Oversee implementation of best corporate governance practices
Safeguard interests of all stakeholders
Ensure adequate and functional vigil mechanism
Determine appropriate levels of remuneration for Directors and KMP
Compliance on Related Party Transactions
Prime accountability on CSR compliance
Liability on Class Action Suits

Audit Committee

Additional rigour on financial reporting
Mandatory internal audit
Reporting beyond traditional SOX coverage
Significant penalties on Insider Trading and restatements
Compliance on Related Party Transactions
Monitoring inter-corporate loans and investments
Evaluation of internal financial controls

Multi National Corporation

Lower thresholds for financial consolidation
Mandatory contribution to local CSR
Wider definition of Related Party Transactions
Ease in cross-border restructuring
Facility of minority buy-out
Liability for Class Action Suits
Board meetings through video conference
One Resident Director mandatory
Additional reporting responsibilities in Boards Report

Penalty for violation:

Penalty for violation:

Penalty for violation:

Imprisonment [3-10 years]; cognizable offence without bail


Oppression and Mismanagement [section 241-246]

Oppression and Mismanagement [section 241-246]

Oppression and Mismanagement [section 241-246]

Oppression and Mismanagement [section 241-246]
a. Members or Depositors may notify Tribunal if company conduct is prejudicial to their interests
b. For fraudulent, unlawful or wrongful act; or improper or misleading statements, Class Action Suit can be filed
on:Company or its Directors; or

Oppression and Mismanagement [section 241-246]
a. Members or Depositors may notify Tribunal if company conduct is prejudicial to their interests
b. For fraudulent, unlawful or wrongful act; or improper or misleading statements, Class Action Suit can be filed
on:Company or its Directors; or









Penalty for violation:
i. Contract may be rendered as void
ii. Directors concerned to indemnify the loss
iii. Director / employee involved can be fined and imprisoned (in case of a listed company)
Penalty for violation:
i. Contract may be rendered as void
ii. Directors concerned to indemnify the loss
iii. Director / employee involved can be fined and imprisoned (in case of a listed company)
Penalty for violation:
i. Contract may be rendered as void
ii. Directors concerned to indemnify the loss
iii. Director / employee involved can be fined and imprisoned (in case of a listed company)
Penalty for violation:
i. Contract may be rendered as void
ii. Directors concerned to indemnify the loss
iii. Director / employee involved can be fined and imprisoned (in case of a listed company)
Penalty for violation:
i. Contract may be rendered as void
ii. Directors concerned to indemnify the loss
iii. Director / employee involved can be fined and imprisoned (in case of a listed company)


























As per draft rules, pre-commencement term to retrospectively apply for computing balance validity of current
Auditors tenure prior to rotation

c. Significant restrictions on non-audit services that can be provided by Auditors. All non-audit services to be
pre-approved by the Board or Audit Committee
d. National Financial Reporting Authority (NFRA) to be the new regulator for Auditors and will have powers to
recommend, enforce and monitor compliance of accounting and auditing standards
Auditors Reporting Responsibility
a. Audit report to cover:




3. Company: Fine between INR 50,000 2,500,000
4. Officer in default: Imprisonment up to three years; fine between INR 50,000 500,000


d. Transitional provision: Depreciate carrying value less residual value over balance life. Adjust net worth if useful life
has been exhausted
Mandatory Internal Audit and reporting on Internal Financial Controls [section 138]
a. Assurance on adequacy and effectiveness of Internal Financial Controls (which includes orderly and
efficient conduct of business, and prevention and detection of frauds and errors) to be given: in Directors and Auditors
report for all listed entities; and
only in Auditors report for all other entities

b. Internal Audit made mandatory for:all listed companies; and
public limited companies with: loans/deposits INR 250 mn ; or
paid up capital INR 100 mn


c. Internal audit to be done only by CAs; or CWAs; or ot


a. Pursuant to an order made by a court or Tribunal on an application for revision of financial statements made
as under:by the Central Government, Income-Tax, SEBI etc. in the following casesFraudulent financial reporting; or
Mismanaged affairs casting doubt on financial statements; or

by the Directors of a company only in the following cases:Financial statements and Board Report are
non-compliant; and
Voluntary restatement by Directors possible only for the past three years



Changes in Depreciation regulation [section 123(2) and Schedule II]
a. Concept of Useful Life takes prominence over standard mandated rates
b. Justification required where Useful Life Schedule II for prescribed companies. Other cases Useful Life < Schedule
II
c. Applicability of Component Accounting



Theme 5: Wider Director and Management Responsibility
Theme 6: Inclusive CSR Agenda

Mandatory Director Appointment
Obligation Trigger and Calculation Administration and Reporting
section 149, in case a company does
a. Covers all companies in India meeting a. Board to appoint a three-member CSR
meet the criteria under section 135, it Company parameters
1 Director
1
1/3rd
Audit
Nomination and
Penalty for violation:
New definition of subsidiary, associate, d. Transitional provision: Depreciate carrying
Resident in
Woman
Independent
Committee
remuneration
Penalty for violation:
i. Company: Fine between
Joint Venture company [sections 2(6) value less residual value over balance life.
any one or more of the following
committee including one Independent
will have to mandatorily appoint one India 182 days
Director
Director
committee
Officer in default:
INR 100,000 500,000
and 2(87)]
conditions:
Director
Independent Director on the Board
Imprisonment one year; Fine between
Adjust net worth if useful life has been Listed





ii. Officer in default: Imprisonment INR 50,000 500,000
exhausted

Turnover INR10 bn

Committee responsibility:
d. In case of failure to spend, reasons to be upto one year; fine between
Holding company

Networth NR 5 bn

Formulate CSR policy;
disclosed. Penalties for non disclosure Unlisted (All)

INR 25,000 100,000
Mandatory Internal Audit and reportingRevision in Financial Statement [sections

Net Profit INR 50 mn

Recommend CSR activities;
Share Capital INR 1 bn




Owns/controls at least
on Internal Financial Controls [sectionContent of Directors Report
Owns/controls >50%
b. CSR contribution to be 2 percent of

Monitor CSR expenditure
Penalty for violation:
20% total share capital or 130 and 131]
total share capital or
138]
i. Company: Fine between
Turnover INR 3 bn


[section 134]
average net profit before tax for last b. Mandatory reporting on CSR under
exercises control of board
business decisions under
a. Pursuant to an order made by a court or an agreement
INR 50,000 2,500,000
a. All companies to, inter-alia, state: a. Assurance on adequacy and
three financial years
section 135
ii. Officer in default: Imprisonment Loan/Debentures/
Tribunal on an application for revision of

Devised proper systems to ensure
effectiveness of Internal Financial
c. Contributions to be made towards
c. Even where companies are not required upto 3 years and / or Fine between
Deposits INR 2 bn



Subsidiary company
Associate company
financial statements made as under:
INR 50,000 to INR 2,500,000
proper compliance with all applicable

Controls (which includes orderly and causes listed under Schedule VII
to appoint Independent Directors under

by the Central Government, Income-
Additional Responsibility on IndependentAudit Committee [section 177]
laws in India and that this system is Financial Year to be uniform
efficient conduct of business, and
Tax, SEBI etc. in the following cases Directors [section 149]
a. Composition:
operating effectively.
prevention and detection of frauds and a. All companies to follow uniform FYE

Fraudulent financial reporting; or errors) to be given:
31 March

Mismanaged affairs casting doubt
6
a. Code of Professional Conduct imposing

Mandatory for prescribed companies to

Taken proper and sufficient care for stringent responsibility and accountability constitute
an Audit Committee
maintenance of adequate accounting

in Directors and Auditors report for all Increased
Inclusive
b. Exemptions (subject to conditions and b. Maximum term of five years extendable

three directors (majority should be records for safeguarding assets and
on financial statements; or
Reporting
listed entities; and
CSR Agenda
approval process) if a company is:
Framework
by another five years subject to a special Independent Directors)
preventing and detecting fraud and

by the Directors of a company only in

only in Auditors report for all other

A holding/ subsidiary of a company Focus on
5
resolution
b. The Chairperson and majority of the Audit other irregularities.
the following cases:
entities
incorporated outside India; and

Financial statements and Board
b. Internal Audit made mandatory for: 1
c. Retirement by rotation not applicable Committee members should have the ability

On development and implementation
d. Liable only for acts with knowledge of and to read and understand financial statements
of a risk management policy

Required to follow a different FYE for Report are non-compliant; and
Wider

all listed companies; and
attributable through Board Process and with c. Responsibilities: b. Listed and prescribed
companies to consolidation of its accounts outside Director

Voluntary restatement by Directors Higher
and
his consent or connivance or not having

Recommend appointment, remuneration

public limited companies with:
state:
India
Auditor
Management
possible only for the past three
acted diligently
of auditors and monitor their

Internal financial controls have been

loans/deposits INR 250 mn ; or Accountability
Responsibility
c. Transitional compliance phase: Two years years
Mandatory requirement for Consolidated

paid up capital INR 100 mn
Changes in Depreciation regulationFinancial Statement (CFS) [section 129]
c. Internal audit to be done only by CAs; or
[section 123(2) and Schedule II]
a. In addition to standalone financial CWAs; or other professionals decided by 6
e. Direct/indirect pecuniary/other relationships independence and effectiveness
laid down and they are operating
through relatives not permitted

Examine financial statements and
effectively.
f. Declaration of Independence mandatory auditors report thereon
critical Themes

Manner in which performance
a. Concept of Useful Life takes prominence statements, every company to prepare the
Board
2
4
each year.

Approve related party transactions evaluation of the Board members
g. Stock options not permitted. Only sitting

Scrutiny of inter-corporate loans and have been conducted.
over standard mandated rates
Emphasis on
CFS if it has a:
Easier
fees and profit related commission.
investments
Investor
b. Justification required where Useful Life Penalty for violation:
Restructuring
Protection

Subsidiary; or
h. Independent directors to hold one annual

Undertake asset valuation
Penalty for violation:
1. Company: Fine between

Associate; or
Schedule II for prescribed companies.
INR 50,000 2,500,000
Other cases Useful Life < Schedule II 3
meeting where no non-independent

Evaluate internal financial controls and i. Company: Fine between
INR 50,000 2,500,000

Joint Venture company
2. Officer in default: Imprisonment
director, KMP or Senior Management can risk management systems
ii. Officer in default: Imprisonment b. No exemption for intermediate holding c.
Applicability of Component Accounting up to three years; fine between
attend.

Monitor end use of funds raised through upto three years and /or fine
between INR 50,000 to INR 500,000
companies for preparing CFS
INR 50,000 500,000
public offers
3
Theme 3: Easier Restructuring
Rationalizing Multilayered Structures d. Merger of listed company into unlisted

Holding and wholly owned subsidiary; 4
a. Maximum of only two Investment SPV
company allowed subject to:
or
Theme 4: Emphasis on Investor Protection 2
company levels permitted between

Exit opportunity being provided to

Prescribed types of companies (list Related Party Transactions [section 188]

Remuneration for underwriting

Auditor/audit firm; or
Theme 2: Higher Auditor Accountability investor company and investee company
public shareholders; and
awaited)
a. Transactions in ordinary course of business subscription of any securities or

Expert/advisor/consultant


Valuation is done as per SEBI
b. Declaration of Solvency required to be on arms-length basis permissible. Central
derivatives remuneration >INR 1 mn c. Who can file Class Action Suit:
Penalty for violation:
Auditor Appointment and Rotation

As per draft rules, pre-commencement guidelines
submitted
Government approval not required anymore

100 or 10 percent of total number of 1. Company: Fine of INR 25,000
Insider Trading [sections 125, 194, 195]
a. Maximum 20 audits permitted per
term to retrospectively apply for
3. Adequacy of internal
4. Disclosure of effect
5,00,000
Minority buy-out [section 236]
c. Consent required from:
b. Board approval required where transactions members
financial control system
of pending litigation on
a. Director/Key Managerial Personnel (KMP) to individual Auditor/Partner of a firm
computing balance validity of current 2. Office in default: Imprisonment

Members owning > 90 percent of total and effectiveness
financial position
a. Acquirer holding 90 percent share are either not in the ordinary course of

100 or 10 percent of total number of upto two years; fine INR 25,000
refrain from forward dealing/ buy options in b. Instead of reappointment at each AGM,
Auditors tenure prior to rotation
business /not at arms length:
depositors
1,00,000
capital (in value) may notify intent to buy-number of shares
shares or debentures of company/ holding Auditor to be appointed for a block of five c.
Significant restrictions on non-audit

Majority creditors owning 90 percent c. Special resolution, where no related party

Member(s) holding 10 percent of issued 5. Provisions for
out balance equity shares
company/ subsidiary/ associate
years:
services that can be provided by Auditors.
foreseeable losses on
6. Delays in depositing
b. Exemption:
b. Exit valuation to be done by Registered in value
can vote, required for non-arms length share capital
b. No company person (incl. any Director/KMP)

Individual Auditor eligible for
All non-audit services to be pre-approved long term/derivative
money into IEPF

Acquisition of overseas subsidiary Share capital reduction [section 66]
transactions or transactions not in the

Depositor(s) holding 10 percent of contracts
Valuer [section 247]
with access to non-public price sensitive appointment of single block of five
by the Board or Audit Committee
with existing multiple layers allowed c. No opportunity provided for minority to a. No
share capital reduction permitted in ordinary course of business where
outstanding value of deposits
information to indulge in any form of insider years; and partnership audit firms
d. National Financial Reporting Authority under foreign law; or
dissent
companies that have overdue deposit /

Share capital > INR 10 mn; or where trading/counseling.
Fraud Risk Mitigation
to be eligible for appointment of
(NFRA) to be the new regulator for
b. Report to Audit Committee or Board on

Multi-layering required under any law Cross-border Merger [section 234]
interest

Sale, purchase of goods, services, leasing a. Fraud defined/referred to under various
additional consecutive block of five Auditors and will have powers to
fraud committed against company by
in force
a. Merger of Indian company with foreign b. No buy-back permitted until after three of
property transaction value exceeds Penalty for violation:
sections and includes:
years
recommend, enforce and monitor
officers or employees and escalate to Simplifying Procedures for Merger i.
imprisonment up to five years; or company and vice-versa now permitted years from remediation
of defaults on 5% of annual turnover or 20 percent of

Act; or
ii. fine up to INR 250 mn or three times

Auditor to be subject to a five-year compliance of accounting and auditing Central
Government if:
[section 232]
b. Central Government to make necessary deposits; preference shares; or term networth
profits made, whichever is higher; or

Omission; or
cooling period post completion of his standards

happening frequently; or
a. National Company Law Tribunal (NCLT) Rules in consultation with RBI and notify
loans
Penalty for violation:
iii. both of the above

Concealment of fact; or
previous term
c. Multiple buy-back within a year not Auditors Reporting Responsibility

amount is material at 5 percent of net to approve schemes of restructuring
permitted jurisdictions
i. Contract may be rendered as void Oppression and Mismanagement

Abuse of position

Incoming Auditor cannot be an
permitted
ii. Directors concerned to indemnify a. Audit report to cover:
profits or 2 percent of turnover; or companies in place of High Court
c. Merger to be approved by NCLT
the loss
[section 241-246]

Considered fraud whether or not there is associate or a network firm in relation

if dissatisfied with action by audit b. Auditor to certify that accounting d. Consideration
only in cash or Depositary d. Schemes of arrangement involving buy-iii. Director / employee
involved can be a. Members or Depositors may notify Tribunal any wrongful gain or loss
to the outgoing Auditor
1. Observations,
2. Qualification or
committee or Board on immaterial
treatment specified in the Scheme
Receipts
back/capital reduction to require Auditors fined and imprisoned (in case of a
if company conduct is prejudicial to their b. Senior Fraud Investigation Officer (SFIO)

Transitional compliance phase: Three comments on financial
adverse remark on
frauds
certificate and comply with conditions of listed company)
transactions and
maintenance of
conforms with Accounting Standard for interests
made statutory body with significant powers years
adverse matters
accounts
listed, unlisted and private companies Fast-track Merger [section 233]
section 66/68

Appointment to any office or place of b. For fraudulent, unlawful or wrongful act; or c.
Mandatory establishment of vigil-mechanism c. Consent of majority Members/ Creditors a.
Merger between the following entities profit in company, subsidiary or associate improper or
misleading statements, Class for directors/ employees to report concerns
>75 percent (in value)
possible without NCLT approval:
Penalty for violation:

Two or more small companies; or
monthly reummuneration > INR 100,000
Action Suit can be filed on:
Imprisonment [3-10 years]; cognizable

Company or its Directors; or
offence without bail
2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved.
2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved.
2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved.



Board of Directors
Accountability to stakeholders well beyond only Promoters
shareholders
Multi-layered structures to be collapsed
Reporting beyond traditional SOX coverage
Cross-border transactions allowed KPMG in India
Liability on Class Action Suits
Mandatory CSR contribution will affect cash flows
Significant penalties on Insider Trading and
Wider definition of Related Party Transactions restatements
Heavy penalties introduced on Insider Trading Ahmedabad
Hyderabad
Public scrutiny on CSR
Lower consolidation threshold may invite greater Safal Profitaire
8-2-618/2
Compliance on Related Party Transactions scrutiny [PE Firms to be impacted]
B4 3rd Floor, Corporate Road,
Reliance Humsafar, 4th Floor
Mandatory roll-out of whistle-blower vigil
New depreciation rules may affect profitability Opp. Auda Garden, Prahlad Nagar
Road No.11, Banjara Hills
mechanism
Ahmedabad 380 015
Hyderabad 500 034
Tel: +91 79 4040 2200
Tel: +91 40 3046 5000
Mandate on gender diversity
Fax: +91 79 4040 2244
Fax: +91 40 3046 5299
Bangalore
Kochi
CXO and Key Management Personnel
Maruthi Info-Tech Centre
4/F, Palal Towers
Ease of restructuring
11-12/1, Inner Ring Road
M. G. Road, Ravipuram,
Reporting beyond traditional SOX coverage Koramangala, Bangalore 560 071
Kochi 682 016
Independent Directors
Wider definition of Related Party Tel: +91 80 3980 6000
Tel: +91 484 302 7000
Oversee implementation of best corporate Fax: +91 80 3980 6999
Fax: +91 484 302 7001
Transactions
governance practices
Lower consolidation threshold may invite Chandigarh
Kolkata
Safeguard interests of all stakeholders greater scrutiny
SCO 22-23 (Ist Floor)
Infinity Benchmark, Plot No. G-1
Ensure adequate and functional vigil Impact on various
New depreciation rules may affect Sector 8C, Madhya Marg
10th Floor, Block EP & GP, Sector V
mechanism
profitability
Chandigarh 160 009
Salt Lake City, Kolkata 700 091
Determine appropriate levels of
stakeholders
Tel: +91 172 393 5777/781
Tel: +91 33 44034000
Liability for Class Action Suits
remuneration for Directors and KMP
Fax: +91 172 393 5780
Fax: +91 33 44034199
Significant penalties on Insider Trading and
Compliance on Related Party Transactions restatements
Chennai
Mumbai
Prime accountability on CSR compliance No.10, Mahatma Gandhi Road
Lodha Excelus, Apollo Mills
Liability on Class Action Suits
Nungambakkam
N. M. Joshi Marg
Chennai 600 034
Mahalaxmi, Mumbai 400 011
Tel: +91 44 3914 5000
Tel: +91 22 3989 6000
Fax: +91 44 3914 5999
Fax: +91 22 3983 6000
Multi National Corporation
Delhi
Pune
Audit Committee
Lower thresholds for financial consolidation Building No.10, 8th Floor
703, Godrej Castlemaine
Additional rigour on financial reporting
Mandatory contribution to local CSR
DLF Cyber City, Phase II
Bund Garden
Gurgaon, Haryana 122 002
Pune 411 001
Mandatory internal audit
Wider definition of Related Party Transactions Tel: +91 124 307 4000
Tel: +91 20 3058 5764/65
Reporting beyond traditional SOX coverage
Ease in cross-border restructuring Fax: +91 124 254 9101
Fax: +91 20 3058 5775
Significant penalties on Insider Trading and
Facility of minority buy-out
restatements
Liability for Class Action Suits
Compliance on Related Party Transactions
Board meetings through video conference
Monitoring inter-corporate loans and
One Resident Director mandatory
investments
Additional reporting responsibilities in Boards Report
Evaluation of internal financial controls Key contact
The information contained herein is of a general nature and is not intended to address the
Sai Venkateshwaran
circumstances of any particular individual or entity. Although we endeavour to provide
accurate Partner and Head
and timely information, there can be no guarantee that such information is accurate as of
the date it is received or that it will continue to be accurate in the future. No one should act on such
Accounting Advisory
information without appropriate professional advice after a thorough examination of the
particular T: +91 22 3090 2020
situation. The views and opinions expressed herein as a part of the Survey are those of the
survey respondents and do not necessarily represent the views and opinions of M: +91 98203
45741
KPMG in India.
E: saiv@kpmg.com
2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved.
The KPMG name, logo and cutting through complexity are registered trademarks or
trademarks of KPMG International.

kpmg.com/in
Printed in India.
2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. All rights reserved.