R. Balasubramanian Practising Company Secretary Corporate Laws Week - ICAI.

Corporate Laws Week - ICAI

KMP AND PRE-CERTIFICATION OF FORMS - COMPANIES ACT, 2013

R. BalasubramanianPractising Company Secretary


KEY MANAGERIAL PERSONNEL


KMP – WHY NEEDED? KMP denotes the executive management of

the Company. They are the first point of contact between

the Company and its stakeholders. They are persons responsible for

implementing the decisions of the Board. The New Act has realised the need of

recognising them. Chapter XIII of the Companies Act, 2013

read with Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 deals with the said provisions.


KMP – WHO ARE THEY?Under Section 2(51) of the Act: CEO or the Managing Director or the

Manager; Company Secretary Whole Time Director Chief Financial Officer Such other officer as may be prescribed.

The above definition is a modified version of definition of ‘Officers in default’ as per Companies Act, 1956 (Section 5)


KMPManaging Director: Defined under Section 2(54) of the Act. A person who is entrusted with the

substantial powers of the management of the Company and includes a Director occupying the position of Managing Director.

Whole Time Director: Defined under Section 2(94) of the Act. A Director in the Whole-time employment of

the Company.


KMPManager: Defined under Section 2(53) of the Act. An individual who, subject to the

superintendence, control and direction of the Board of Directors, has the management of the whole, or substantially the whole, of the affairs of a Company.


KMPCEO / CFO: Defined under Section 2(18)(19) of the

Act. They are officers of the Company who

has been designated such by it.

Company Secretary: Defined under Section 2(24) of the Act. Means a Company Secretary as defined

under the Company Secretaries Act, 1980.


KMP – WHO NEEDS TO COMPLY? All Listed Companies All Public Companies with paid up capital of

Rs. 10 Crores or more shall have Whole Time KMP. MD / CEO/Manager or in their absence, a WTD. CS CFO

All Companies (irrespective of Public or Private) with paid up capital of Rs. 5 Crores or more shall appoint a Whole Time Company Secretary.


OTHER CONDITIONS FOR KMPFor Appointment of MD / WTD / Manager:(applicable for all Companies, when they appoint) None of the above officials can be appointed for

a term exceeding 5 years at a time. Appointment should be approved by the Board

as well as the Shareholders. Should be more than 21 years and less than 70

years old. Should be a resident in India (Stay in India for a

continuous period of not less than twelve months immediately preceding the date of his appointment).


REMUNERATION FOR MD/ WTD/ MANAGERGoverned by Sections 196, 197 and Schedule

V.

Provisions dealing with remuneration in Section 196 (4) & (5) is not applicable for Private Companies w.e.f. 5th June, 2015.

Schedule V: 2 PartsPart 1: Eligibility (Applicable for all Companies)Part 2: Remuneration (Applicable only to Public Companies)


REMUNERATION FOR MD/ WTD/ MANAGERFor Public Companies:If the Company is profitable: Scenario 1 – 11% of Net Profits:

Overall remuneration (including Directors) not to exceed 11% of the net profits of the Company.

For each MD / WTD/ Manager – not in excess of 5% of the profits.

For all MD/WTD/Manager put together – not in excess of 10% of the profits.

Scenario 2 – More than 11% of Net Profits: Shareholders Approval. Central Government Approval subject to Schedule V.


REMUNERATION FOR MD/ WTD/ MANAGERFor Public Companies:If the Company is not profitable: Scenario 1 – As per Schedule V:

As per limits given in Schedule V. Shareholders approval is also required.

Scenario 2 – More than limits in Schedule V:Shareholders Approval.Prior approval of Central Government.


REMUNERATION FOR MD/ WTD/ MANAGER

Limits as per Schedule V for Companies having inadequate profits:

Where the Effective Capital is

Limit of Yearly Remuneration

Negative or Less than Rs. 5 Crores

Rs. 30 Lakhs

Rs. 5 Crores and above but less than Rs. 100 Crores

Rs. 42 Lakhs

Rs. 100 Crores and above but less than Rs. 250 Crores

Rs. 60 Lakhs

Rs. 250 Crores and above

Rs. 60 Lakhs plus 0.01% of the effective capital in excess of Rs. 60 Crores.The above limits shall be doubled if shareholders pass a Special

Resolution.


WHAT CONSTITUTES EFFECTIVE CAPITAL?As per Schedule V:Effective capital computed as aggregate of: Paid up capital (excluding application money) Reserves and Surplus (excluding revaluation

reserve) Securities Premium Long term debt and Deposits repayable after one

year.As reduced by: Investments Accumulated Losses Preliminary Expenses not written off.


ITEMS INCLUDED IN REMUNERATION

Definition: Any money or its equivalent given or passed to any person for services rendered by him and includes perquisites as defined under the Income-tax Act, 1961. (Section 2(78)).

Salary Fees Commission Perquisites Rent Free accommodation,

Reimbursement of expenses, etc


ITEMS NOT INCLUDED IN REMUNERATIONAs provided in Section 197: Sitting fees of Directors (not exceeding

Rs. 1 Lakh per Board Meeting). Any services rendered in professional

capacity, in the opinion of Nomination and Remuneration Committee or in their absence, in the opinion of the Board.

D & O Insurance premium will not form part of remuneration unless the Director is found guilty


ITEMS NOT INCLUDED IN REMUNERATIONAs provided in Schedule V: Contribution to PF, Superannuation Fund, Annuity

Fund to the extent they are not taxable. Gratuity payable at a rate exceeding half a month’s

salary for each completed year of services. Encashment of Leave. Children Education Allowance: Upto Rs. 12,000/-

per month per child to a max. of 2 children. Holiday passage for children studying outside India

or family staying abroad: Once in a year in Economy or Once in 2 years in First Class.

Leave Travel Concession: In accordance with the rules specified by the Company.


CONDITIONS FOR CEO/ CFO/ CS No prescribed qualification for a CFO / CEO No time period for appointment unlike MD /

WTD / Manager No limits on Remuneration. To be appointed by means of Board Resolution. Listed Companies should disclose in their

Board’s Report among other things: Comparison of the remuneration of (each of)

the Key Managerial personnel against the performance of the company.

Detailed disclosures in Board’ Report as given in the Rules.


ROLE OF CFOCFO: Neither Role nor Eligibility nor

Remuneration terms given in the Act. Companies are free to frame their own

rules for the same. However, form filing is made mandatory

when appointment is made. CFO shall sign the financial statements,

in addition to the Directors and Company Secretary as per Section 134(1).


ROLE OF CS Section 205 read with Rule 10 of the

Companies (Appointment and Remuneration of Managerial Personnel) Rules, specifies the duties and functions of CS.

Some important duties:Facilitate Board / General / Committee

meetings.To represent before various authorities.To assist the Board to conduct the affairs.To ensure compliance of Secretarial

Standards.


OTHER CONDITIONS FOR KMP A Whole Time KMP cannot hold office in

more than one Company except its Subsidiary at the same time.

A Whole Time KMP holding office in more than one Company at the same time, shall within a period of six months, choose one Company in which he wishes to continue.

A Company can appoint a MD if he is already a MD / Manager of another Company subject to approval by all the Directors.


PRE-CERTIFICATION OF E-FORMS


PRE-CERTIFICATION Certification of correctness of any

document by a practising professional before it is filed with Registrar.

It was introduced to avoid registration delays and eventually evolved to check the correctness of the documents.

It acts as a pre-emptive check to ensure that the particulars stated in the form are true and correct.

ROC would rely upon the certification and take the document on record.


PRE – CERTIFICATIONSome important forms wherein pre-certification is mandatory except for Small and One Person Companies:

INC-22 – Change in Registered Office CHG-1 – Creation / Modification of

Charges MGT-14 – Filing of Resolutions /

Agreements SH-7 – Increase in Share Capital PAS-3 – Allotment of Shares DIR-12 – Changes in Board / KMP MR-1 – Return of Appointment of MD


THINGS TO CHECK FOR PRE-CERTIFICATION Preferably get a Letter of Engagement

for unknown new Clients; Maintain the copies of forms filed

including the attachments, either physically or electronically.

Preferably affix the DSC of the Authorised signatory of the Company in your presence.

Ensure that the attachments are visible. Check the originals before attesting the

photocopies.


PENAL PROVISIONS

Penal provisions under sections 447, 448 and 449 of Companies Act, 2013 & MCA circular (Circular No. 10/2014 dated 07.05.2014).


PENAL PROVISIONS:Section 447 (Punishment for Fraud) Imprisonment from 6 months to 10

years. Fine upto 3 times the amount involved.

Section 448 (Punishment for False Statement)

Punishable under Section 447.

Section 449 (Punishment for False Evidence):

Imprisonment from 3 to 7 years with fine which may extend to Rs. 10 Lakhs.


PENAL PROVISIONSAs per MCA circular no. 10/2014 The Regional Director or the Registrar as the

case may be, shall conduct a quick inquiry against the professionals who certified the form and signatory thereof including an officer in default.

The Regional Director will submit his report to the Ministry who shall refer the matter to the concerned professional Institute for initiating disciplinary proceedings.

The Ministry shall also debar the concerned professional from filing any document on the MCA portal in future.


OTHER PRACTICAL ISSUES Some forms do not need the DSC of

Professional, even though the attachment shall concern the professional. Eg: CRA-4.

Due to technical issues, in some cases, we can even modify the form without removing the Digital signatures of the signatories.

Some attachments do not require pre-certification as per the instruction kit but the Ministry insists on the same. Eg: DIR-3.

DSC of the signatories as well as the professionals are not in the custody of the concerned persons.


THANK YOU!

R. BalasubramanianPractising Company SecretaryPh: (0) 99411 80826Email: [email protected]

R. Balasubramanian Practising Company Secretary Corporate Laws Week - ICAI.

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Transcript of R. Balasubramanian Practising Company Secretary Corporate Laws Week - ICAI.