Amendment in Companies (Share Capital and Debentures) Rules - Highlights

The Ministry of Corporate Affairs (MCA) amended Companies (Share Capital and Debentures) Rules, 2014 vide notification dated 19^th July, 2016 by the Companies (Share Capital and Debentures) Third Amendment Rules, 2016. The summary of same is as under:

1.  Now shares with differential rights can be issued after 5 years once the default is made good.

2.  Exemptions to start up :

a.  Sweat Equity Shares can be issued upto  50% of paid up capital upto 5 years from the date of registration/incorporation

b.  ESOP can be issued to the promoters and to director who directly or indirectly, holds more than 10% percent of the outstanding equity shares of the company

3.    Preferential offer of shares can now be partly paid up shares instead of fully paid shares

4.    Preferential offer of convertible securities – Price to be determined

a.  Either at the time of offer of convertible securities or

b.  Not earlier than 30 days from the date holder becomes entitled to apply for shares on the basis of valuation report given not earlier than 60 days from the date holder becomes entitled to apply for shares

 However the decision to be taken at the time of offer itself

5.  SH-7 is required to be filed with ROC for increase in members also

6.  In case of secured debentures, charge can be created on the assets of the company, or its subsidiaries or its holding company or its associates companies

7.  DRR is to be created for outstanding value of debentures

The said notification can be downloaded from the following link :

http://www.mca.gov.in/Ministry/pdf/Rules_19072016.pdf

Amendment under Cost Records and Audit Rules – Highlights

The Ministry of Corporate Affairs (MCA) amended the Companies (Cost Records and Audit) Rules, 2014 vide notification dated 14^th July, 2016 by the Companies (Cost Records and Audit) Rules, 2016. The highlight of same is as under:

Points	Prior	Amendment
Definition	“Cost Audit Report” means the report duly audited and signed by the cost auditor including attachment, annexure, qualifications or observations etc. to cost audit report;	Cost Audit Report” means the duly signed cost auditor’s report on the cost records examined and cost statements which are prepared as per these rules, including attachment, annexure, qualifications or observations attached with or included in such report
Application   of Cost Records	Rule 3 prescribes lndustry / Sector/ Product/ Services for which cost records are applicable. The products and services are divided into Regulated (Table A) and Non Regulated Sector (Table B)	Rule 3 is modified thereby making changes in the Regulated and Non Regulated Sector Regulated Sector (Table A) Inclusion: 1.  Telecommunication Services made available to users  Included-  Activities which requires authorisation or license issued by the Dept. Of Telecommunication, Government of India under Indian Telegraph Act, 1885 (13 of 1885) 2.  Petroleum Products: Included activities regulated by Petroleum and Natural Gas Regulatory Board Deletion : 1.   Company engaged in generation of electricity for captive consumption through captive generation plant. Non-Regulated Sector (Table B) Inclusion: 1.Explosives 2.Iron 3.Mechanical Appliances
Appointment of cost Auditor	Classes of Companies prescribed in Rule 6 should appoint cost auditor within prescribed period	The Cost auditor should provide following before appointment: 1.  Written consent 2.  A certificate to the effect of the following- ·          Eligible and not disqualified for appointment under Companies Act, 2013 and the Costs and Works Accountant Act, 1959 and rules and regulations made thereunder ·         Satisfies the Criteria provided in Section 141 of the Companies Act, 2013; ·         Appointment is within limit as prescribed by the act; List of proceedings pending with respect to professional matters of conduct against auditor as disclosed in certificate is true and correct;
Removal of  Auditor	No such Provision	Proviso inserted for removal of Auditor: Removal of Auditor before expiry of his term By Board Resolution After giving a reasonable opportunity of being heard to the cost auditor After recording the reasons of such removal in writing 2nd Proviso Inserted: ·         Intimation of Removal of Auditor to be filed with Registrar along with intimation of  appointment of another auditor in Form CRA-2 (Copy of Board Resolution for Removal of Auditor to be enclosed)
Approval of Board on annexures of Cost audit report	Not required earlier.	The cost statements including other statements to be annexed to Cost Audit Report shall be approved by the Board before signing by directors on behalf of Board, for submission to the cost auditor for his report thereon.
Cost Audit Report	Submission of Cost audit report by the auditor to the Board of Directors for their Consideration and examination	Submission of duly signed cost audit report to the Board of directors for their consideration and examination
Filing of Cost Audit Report	Submission of cost audit report with the Central Government in form CRA-4	Submission of Cost audit report in Form CRA-4 in Extensible Business Reporting Language Format (XBRL).

Summary:

1. Certain additions/Deletion in industry/Sector/Product/Services for which maintenance of cost records is mandatory

2. Cost Auditor needs to give eligibility certificate at the time of appointment similar to the statutory auditor

3. Board of Directors can remove Cost Auditor before the expiry of his term by passing board resolution after giving reasonable opportunity of being heard and recording the reasons of such removal in writing

4. Cost Audit report alongwith annexures/attachments is required to be approved in the Board meeting

5. Cost Auditor shall forward duly signed report to the Board within 180 days from the close of financial year

6. Cost Audit Report in CRA-4 in now to be filed in XBRL Mode

The said notification can be downloaded from the following link:

http://www.mca.gov.in/Ministry/pdf/Rules_15072016.pdf