The Government has said that companies incorporated with a name containing the expression “electoral trust”, and approved in accordance with the procedure laid down in the Electoral Trusts Scheme, 2013, and to whom licence is granted under Section 25 of the Companies Act, 1956, shall be exempt from the provisions of clause (b) of sub-sections (1) and (2) of section 293A of the 1956 Act.

This section has since been replaced by sub-section (1) of section 182 of the Companies Act, 2013. This order, dated November 7, 2013, issued by the Ministry of Corporate Affairs, is yet to be published in the Gazette of India .

More clarity on ‘group company’

The Reserve Bank of India, vide AP (DIR Series) Circular No. 68 dated November 1, 2013, has incorporated the definition for ‘group company’ in the Foreign Direct Investment policy.

‘Group company’ means two or more enterprises that, directly or indirectly, are in a position to:

exercise 26 per cent or more of voting rights in abother enterprise; or

appoint more than 50 per cent of members of the Board of directors in the other enterprise.

The RBI has also since amended the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 through the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Sixteenth Amendment) Regulations, 2013.

KMPs can authenticate documents

Authentication of documents, proceedings and contracts: Section 54 of the 1956 Act provides inter alia that, unless explicitly stated otherwise, a document or proceeding requiring authentication by a company may be signed by a director, manager, secretary or other authorised officer of the company. Section 21 of the 2013 Act, however, mentions that such documents requiring authentication by, or contracts made by or on behalf of, a company, may be signed by any key managerial personnel (KMPs)or officer of the company duly authorised by the Board. Accordingly, under the 2013 Act, KMPs, which also include the company secretary and such other persons, can authenticate the documents and proceedings.

Widening the related party scope

AS 18 requires companies to report its related party transactions with details including names of the parties, their relationship, description of volume and nature of transaction, and so on. However, AS 18 does not require companies to specifically disclose the basis of pricing of related party transactions. Ideally, there is no specific mention for the auditors to report on whether the related party transactions disclosed in the financial statements are at an arms’ length basis.

Currently, there are certain identified transactions under the Companies Act 1956 that require auditors to comment on whether these transactions are carried out at “prevailing market prices”. The Companies Act, 2013 now talks about “arm’s length” instead of “prevailing market prices”, and the ambit of transactions covered under the relevant section has been widened. This will need to be assessed once we have more clarity on the actual requirements under the 2013 Act.

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