Companies Act, 2013 – A New Era of Compliance Governance

Companies Act, 2013 makes following important changes :

Directors’ duties of care are more specific covering all stakeholders and applicable laws  besides restrictions on personal/ related-party transactions. Board’s report includes more disclosures including CSR initiatives where applicable. KMP (CEO/ MD or Whole-Time Director, CS, CFO, etc) and Independent Directors are mandated for prescribed/ listed companies. Defaulting directors/ KMP attract various liabilities depending on the circumstances.

Auditor’s willful contravention of certain provisions relating to audit report and non-audit services attracts imprisonment and fine. Auditor rotation is another important provision. 

CS’s role, in compliance reporting to the Board, virtually covers any applicable law besides Company law (i.e. from Contract, Securities & Tax Laws to any law relating to Property/ Labour/ Mining/ Industry/ Environment/ Carriage/ Foreign Trade/ FEMA, etc may be relevant). Further, the Act provides for secretarial audits and Annual Return certification in listed and some other companies by CS in practice.   

Moreover, additional Committees of Board (beside Audit Committee), Internal Audit and Vigilance Mechanism in certain companies, Registered Valuers, fraud investigation by SIFO (with powers of search, seizure & arrest) and regulation of accounting & auditing standards by NFRA suggest multi-functional checks.