CPT V24P7-Art1 (Content).pmd - Taxmann

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COMPANY LAW INTRODUCTION 696 Related Party Disclosures and legal provisions 1. In corporate world, the main difficulty is separation of real owners and management. There is possibility that management by using their powers may cheat the investors. So, the compliances to various provisions regarding related party transactions and disclosing the same in financial statements form an integral part from view point of an investor. Related party relationships are normal features of commerce and business houses. Without related party disclosures there is general assumption that transactions reflected in financial statements are consummated on an arm’s length basis between independent parties. Thus, a related party relationship could have an effect on the financial position and operating result of an enterprise. In India, there is complexity of provisions relating to “Related Party Transactions”. Various establishments may be complying with the same under different Acts simultaneously, like the Companies Act, 1956, the SEBI Act and their rules and regulations, Accounting Standard 18 (AS 18), etc. As per different provisions, it is responsibility of corporate houses to keep the stakeholder’s aware of all major corporate developments to help them to take informed decisions. KIRAN MUKADAM CS DIFFERENT PROVISIONS OF RELATED PARTY DISCLOSURES 2. Following are the different provisions regarding related party disclosures:— 2.1 Companies Act, 1956 - August 1 to 15, 2012 u TAXMANN’S CORPORATE PROFESSIONALS TODAY u Vol. 24 u 76 2.1.1 Section 297: Approval of contract by the Board of Directors - A Director who is interested, whether directly or indirectly in a contract or in an arrangement or proposed contract or arrangement entered into or to be entered by or on behalf of the company, shall disclose the nature of his concern or interest at a Board meeting. The Central Government’s previous approval is required, if the company’s paidup capital is more than ` 1 crore. At the same time section 297(2) provides certain exemptions like transactions based on cash and prevailing market price, ordinary business transaction in banking and insurance business, Contract value less than ` 5000 in case of regular trading of goods, materials or services, etc. The company shall enter such contracts or arrangements in register maintained under section 301 within prescribed time-limit. 2.1.2 Section 295: Loans to Directors - The public company cannot extend directly or indirectly loan or give any guarantee or provide any security in connection with loan to any director
or any form in which such Director or any firm in which such director or relative is partner or any private company in which such director is a member or director or any body corporate in which such director holds more than 25% voting power without prior approval of the Central Government. Special disclosure of outstanding amount and maximum amount of loan in the financial statement of the company are required. The restrictions of section 295 cover both direct and indirect transactions relating to loans. 2.1.3 Section 299: Disclosure of interest by Director - Section 299 imposes a duty on a director to disclose his interest in a contract or in an arrangement in which he is interested in through special notice at the time of entering into contract or general notice by the last month of the end of the financial year, in Board meeting of the company. The general notice is given in prescribed Form No. 24AA and its validity is one financial year. The company has to enter such disclosures in the register maintained under section 301. 2.1.4 Section 300: Position of Interested Director - The interested director is prohibited to take part in discussion or voting related to any contract or an arrangement in which he is directly or indirectly interested in. This section only applies to a public company. It helps to avoid personal gain by interested director and promotes impartiality in transactions. 2.1.5 Section 301: Register of contracts, companies and firms in which directors are interested - Section 301 requires that every company shall keep one or more registers in which directors are interested in contract or an arrangement under sections 297 and 299 of the Companies Act, 1956. The entries must be made within seven days from date of board meeting at which the contracts are approved and should be placed in the next board meeting of the board and should be signed by all the Directors present at the meeting. 2.1.6 Section 314: Directors and their relatives not to hold office or place of profit - Section 314 imposes certain restrictions on the holding of office or place of profit in a company by the directors and their associates. As per the following limits of monthly remuneration, the company has to take necessary approvals- Limit of Remuneration Approving Authority (u/s 314) Remuneration to Directors or their relatives is less Board’s Approval than ` 10,000. Remuneration to Directors or their relatives is less Approval from members-within 3 months from the than ` 20,000, but is more than ` 10,000. date of appointment or in the first general meeting after the appointment, whichever is later. Remuneration to Directors or their relatives is less Prior approval of members in a general meeting than ` 2,50,000, but is more than ` 20,000. Remuneration to Directors or their relatives is more Prior approval of members in a general meeting and than ` 2,50,000 approval from the Central Government. Above stated are the necessary disclosures and requirements under the Companies Act, 1956. The practicing Company Secretary certifies the compliances of the same in his compliance certificate issued under section 383A(1) of the Companies Act, 1956, if applicable to company. The statutory auditor gives the comments on above provisions in his statutory audit under the Companies (Auditor Report) Order Rule, 2003 like maintenance of register under section August 1 to 15, 2012 u TAXMANN’S CORPORATE PROFESSIONALS TODAY u Vol. 24 u 77 697
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August 1 to 15, 2012 u TAXMANN’S
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Accounts & Audit 701 707 FOUNDER ED
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INTRODUCTION Vodafone story - 1. On
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and the capital gains on transfer o
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used to introduce new rules of law,
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for earning tax exempt income. Howe
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of the hearing before the Tribunal
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(P.) Ltd.’s (supra) before the IT
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the ITAT Rules, 1946, vis-à-vis th
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Two recent instances of such practi
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ut CIT(A) are not bothered by any s
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say, twice the latter amount or mor
Page 27 and 28: Taxing the Expenditure on Litigatio
Page 29 and 30: PENALTY CHARGES FOR BREACH OF LAW C
Page 31 and 32: Exclusive Owner v. Joint Owner DIRE
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Page 35 and 36: Retrospective Amendments - Courts D
Page 37 and 38: Court and if such party is still ag
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Page 45 and 46: The true profits of the insurance b
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Page 53 and 54: of income as declared by the assess
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Page 85 and 86: RELEVANT GUIDANCE PROVIDED BY THE I
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