New Delhi, April 14

The Company Law Committee (CLC), whose third report submitted in March 2022 is now public, has called for review of the provisions concerning the resignation of auditors. It has also recommended that obligations of a resigning auditor as prescribed in the UK Companies Act 2006 be “borrowed” for Indian legislation purposes.

In its 95-pages report, the CLC, Chaired by MCA Secretary Rajesh Verma, has particularly noted that there is a need for a resigning auditor to assure the shareholders and other stakeholders that, in her opinion, there is nothing in the company’s accounts that need to be brought to their notice, and that her resignation is an independent decision.

“The auditor shall be under an explicit obligation to make detailed disclosures before resignation and should specifically mention whether such resignation is due to non-cooperation from the auditee company, fraud or severe non-compliance, or diversion of funds. Moreover, if such information comes to light after the resignation of an auditor but has not been disclosed in the resignation statement, suitable action may be taken against the resigning auditor,” the CLC report said.

Non-audit services

The CLC has recommended an amendment to the Companies Act (Section 144) to enable the Central government to prescribe a differential list of prohibitions on availing non-audit services or total prohibition of the same for such class or classes of companies where public interest is inherent, as may be prescribed.

The Committee was of the opinion that differing classes of companies may be permitted to avail differing non-audit services from their auditors.

Mandate joint audits

The CLC has also suggested that Companies Act 2013 be amended to enable the Central government to mandate joint audits for such class or class of companies as may be prescribed by the government. In the case of a joint audit, the provisions concerning the extent of liability of individual auditors should also be prescribed in the Companies Act 2013, the CLC has recommended.

It maybe recalled that CLC was set up in September 2019 to make recommendations to the Government inter alia on changes aimed at facilitating and promoting greater ease of doing business in India and effective implementation of the Companies Act, 2013, the Limited Liability Partnership Act, 2008 and the Rules.

This third Report recommends various changes to the Companies Act, 2013 to recognise new concepts, expedite corporate processes, improve compliance requirements, and remove ambiguities from existing provisions. The Report also includes recommendations to enable producer organisations to incorporate under the Limited Liability Partnership Act, 2008.

In all, 24 major recommendations have been made by CLC in its third report.

Recommendations

The recommendations include Prohibiting companies from recording trusts on their register of members;

Allowing companies to hold general meetings in virtual, physical or hybrid modes; Creating an electronic platform for maintenance of statutory registers by companies; Clarifying provisions relating to Investor Education and Protection Fund; Strengthening the National Financial Reporting Authority;

Reviewing and strengthening the audit framework and introducing mechanisms to ensure the independence of auditors; Standardising the manner for auditors to provide qualifications; Recognising and providing an enabling framework for the constitution of Risk Management Committees; Clarifying the tenure of independent directors;

Revising provisions relating to the disqualification and vacation of the office of directors; Clarifying the procedure for the resignation of key managerial personnel; and Strengthening the provisions relating to mergers and amalgamations.

The CLC has also recommended that certain companies be allowed to revert to the financial year followed in India; Facilitating certain companies to communicate with their members in only electronic form;

Recognising issuance and holding of fractional shares, Restricted Stock Units and Stock Appreciation Rights; Easing the requirement of raising capital in distressed companies; Replacing the requirement of furnishing affidavits with the filing of self- certification/ declaration; Clarifying the inclusion of ‘free reserves’ while determining the limit for buying back of a company's equity.

The CLC had also recommended Recognising Special Purpose Acquisition Companies and allowing such companies, which are incorporated in India, to list on permitted exchanges; Prohibiting the conversion of co-operative societies into a company; Modernising enforcement and adjudication activities through electronic mode;Strengthening the incorporation and governance framework for Nidhis; Removing ambiguities from present provisions under the Companies Act, 2013 through changes of drafting & consequential nature.

comment COMMENT NOW