The solution is given in Explanation to Rule 3(7) of Companies (Audit and Auditors) Rules, 2014 which states that if the appointment is not ratified by the members of the company, the Board of Directors shall appoint another individual or firm as its auditor following the procedure laid in the Act. Such non-ratification would result in vacancy in the office of the auditor which would be casual. Any casual vacancy in the office of the auditor can be filled by the Board. The management may find out ways to not ratify the appointment of the auditors in AGM, in order to remove the auditors, without seeking prior approval of CG (which is required as per 140(1) of the Act) hampering the independence of auditors. auditor is disqualified u/s 141(3) of the Act.” There is a similar provision in case company does not appoint or reappoint existing auditors in AGM under section 139(10), where, in such a case the existing auditor continues to be the auditor. OR Explanation to sub-rule (7) of Rule 3 of Companies (Audit and Auditors) Rules, 2014 should be deleted and substituted as under: “Explanation.- For the purposes of this rule, it is hereby clarified that, if the appointment is not ratified by the members of the company, the auditor shall be deemed to be remain in office until the expiry of his term of office or unless expressly removed as per the procedure laid down in this behalf under the Act” 3 Audit Section 143 (12) requires the auditor to report to the Central Government (CG) anyfraud committed by employees or officers of the company on the company which comes to his knowledge in the course of his audit. But once any auditor reports such matters to CG, the company normally starts the process of removal of that auditor. As per the Act there is no protection available to the auditor. Removal procedure should not be allowed to such company by statute u/s 140(1) untilthe report of the auditor is taken to a logical conclusion by the authorities (CG). X 143 (12) No
4 Foreign Where a foreign company has a liaison office established in India which does not have any revenue or capital holding, it is mandatory to file Form FC-4. Although under Companies Act 1956 there was a specific clarification stating non requirement of such filing for a Liaison Office. Liaison Office should be exempted from filing Form FC 4 under Companies Act 2013 too. XXII 381 1 No 5 Issues related to SMEs Definition of small company excludes public companies. There are various public companies where the capital / turnover are negligible. Such small Public companies should be included in the definition of a small company to enable them to avail the benefits of a small company. The definition of small company should be amended to include public companies also, which are satisfying the capital and turnover limits. I 2 85 No 6 Raising of Capital, Fund For issue of shares on preferential basis u/s 62(1)(c) compliance is to be made of Rule 13 of Companies (Share Capital and Debentures) Rules, 2014, which is quite exhaustive in itself. Further, sub-rule (1) of Rule 13 says that apart complying with this provision, compliance of section 42 (Private Placement) is also mandatory. This is resulting in unnecessary duplication of compliance and increase in compliance costs. Rule 13(1) of Companies (Share Capital and Debentures) Rules, 2014 should be amended to DELETE the following: “…and such issue on preferential basis should also comply with conditions laid down in section 42 of the Act” IV 62 1 No 7 Raising of Capital, Fund In 1956 Act feeling the need for funds in a private company, amounts received from shareholders, directors and their relatives were not defined to be deposits. Under the 2013 Act a private company Amendment should be made in Companies (Acceptance of Deposit) Rules, 2014. Sub-Clause (viii) of Clause (c) sub-rule (1) of rule 2 should be V 76 1 No
9 Others Filing of Documents with Registrar Rule 7 of Companies (Registration Offices and Fees) Rules, 2014mandatorily requires address of director etc. that is signed by him to be mentioned in every document that is filed with the Registrar Applicability of this rule is leading to overburdening the directors, etc. as mentioning of DIN / Membership No. is sufficient. This requirement should be done away with as many documents do not contain enough space and it just increases the documentation. Rule 7 of Companies (Registration Offices and Fees) Rules, 2014 should be amended do away with the requirement of mentioning the address in such cases XXIV 398 All No 10 Raising of Capital, Fund In case a company offers to receive share monies through private placement a detailed compliance is required u/s 42 read with rules. Non-compliance thereof results in penalty to the extent of amount involved in offer or Rs. 2 Crores whichever is HIGHER. This is an undue hardship when amounts offered could be as less as Rs. 1 Lac. This penalty should be reduced to logical extent. The penalty should be:- Amount involved in offer or Rs. 2 Crores whichever is LESSER. III 42 All No 11 Penal provisions have increased drastically under the new Act and prosecution has been made mandatory under various provisions. Huge penalties have been provided even Penal Provisions should be reduced and soften with specific reference to OPC, Private Companies and their Auditors. For OPC, small and private XXIX 454 All No