Introduction
The
Board’s Report is an important document of Annual Report in which the Board
gives a complete review of the performance of the company during the year under
review and other information. There is no restriction to put any matter in the
Board’s Report, if the Board intends to mention it. However, certain matters,
as part of statutory compliance, needs to be put in the Board’s Report in
terms of the Companies Act, 2013 and the Listing Agreement (for listed
company).
The
Board’s Report is to be prepared based on the stand alone financial
statements of the Company and it should contain a separate section wherein
a report on the performance and financial position of each of the
subsidiaries, associates and joint venture companies
included in the consolidated financial statement is presented.
In the
previous Companies Act, 1956 there was a separate section 217 which related to
‘Board’s Report’. In the new Companies Act, 2013, section 134 corresponds to
the earlier section 217. However, apart from section 134, a lot of other
sections of the Companies Act, 2013 make it mandatory to disclose certain facts
in the Board’s Report.
The
Board’s Report for the financial year 2014-15 shall be made for the first time
in terms of the provisions of the new Companies Act, 2013. The listed companies
shall further incorporate certain additional contents in the Board’s Report for
the first time in compliance of the revised Listing Agreement post amendment to
Clause 49 of the Listing Agreement w.e.f. 01.10.2014.
The
following article consolidates the contents to be disclosed in the Board’s
Report as per the provisions of the Companies Act, 2013 read with the Rules
framed thereunder and in terms of the Listing Agreement.
CONTENTS
TO BE DISCLOSED IN TERMS OF COMPANIES ACT, 2013
As per
Section 134(3) of the Companies Act, 2013 read with Companies (Accounts) Rules, 2014, the Board’s Report shall
include:
(a) The
extract of the annual return as provided under sub-section (3) of
section 92 –in prescribed Form MGT-9;
(b) Number
of meetings of the Board;
(c) *
Directors’ Responsibility Statement as per section 134(5);
(d) A
statement on declaration given by independent directors under sub-section (6)
of section 149;
(e) In
case of a company covered under sub-section (1) of section 178, company’s
policy on director’s appointment and remuneration including criteria for
determining qualifications, positive attributes, independence of a director and
other matters provided under sub-section (3) of section 178;
(f) Explanations
or comments by the Board on every qualification, reservation or adverse remark
or disclaimer made-
(i) by
the auditor in his report; and
(ii) by
the company secretary in practice in his secretarial audit report;
(g)
Particulars of loans, guarantees or investments under section 186;
(h)
Particulars of contracts or arrangements with related parties referred to in
sub-section (1) of section 188 in the prescribed Form AOC-2;
(i) The
state of the company’s affairs;
(j) The
amounts, if any, which it proposes to carry to any reserves;
(k)The
amount, if any, which it recommends should be paid by way of dividend;
(l) Material
changes and commitments, if any, affecting the financial position of the
company which have occurred between the end of the financial year of the
company to which the financial statements relate and the date of the
report;
(m) **
The conservation of energy, technology absorption, foreign exchange earnings
and outgo, in the manner as prescribed in Rule 8(3) of the Companies (Accounts)
Rules, 2014 [Chapter IX];
(n) A
statement indicating development and implementation of a risk management policy
for the company including identification therein of elements of risk, if any,
which in the opinion of the Board may threaten the existence of the company;
(o) The
details about the policy developed and implemented by the company on corporate
social responsibility initiatives taken during the year;
(p) In
case of a listed company and every other public company having paid-up share
capital of twenty five crore rupees or more, calculated at the end of the
preceding financial year, a statement indicating the manner in which formal
annual evaluation has been made by the Board of its own performance and that of
its committees and individual directors;
(q) **
Such other matters as may be prescribed.
* As per Section 134(5) of the Companies Act,
2013, the Directors’ Responsibility Statement shall state that—
(a) in
the preparation of the annual accounts, the applicable accounting standards had
been followed along with proper explanation relating to material departures;
(b) the
directors had selected such accounting policies and applied them consistently
and made judgments and estimates that are reasonable and prudent so as to give
a true and fair view of the state of affairs of the company at the end of the
financial year and of the profit and loss of the company for that period;
(c) the
directors had taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of this Act for
safeguarding the assets of the company and for preventing and detecting fraud
and other irregularities;
(d) the
directors had prepared the annual accounts on a going concern basis;
(e) the
directors, in the case of a listed company, had laid down internal financial
controls to be followed by the company and that such internal financial
controls are adequate and were operating effectively; and
(f) the
directors had devised proper systems to ensure compliance with the provisions
of all applicable laws and that such systems were adequate and operating
effectively.
Explanation-
For the purposes of this clause, the term “internal financial controls” means
the policies and procedures adopted by the company for ensuring the orderly and
efficient conduct of its business, including adherence to company’s policies,
the safeguarding of its assets, the prevention and detection of frauds and
errors, the accuracy and completeness of the accounting records, and the timely
preparation of reliable financial information.
** Such other matters as may prescribed has been given in Rule 8 of the Companies
(Accounts) Rules, 2014
Rule 8 of
the Companies (Accounts) Rules, 2014:
Rule
8(1): The Board’s Report shall be prepared based on the stand alone financial
statements of the company and the report shall contain a separate section
wherein a report on the performance and financial position of each of the
subsidiaries, associates and joint venture companies included in the
consolidated financial statement is presented.
Rule
8(2): The Report of the Board shall contain the particulars of contracts or
arrangements with related parties referred to in sub-section (1) of section 188
in the Form AOC-2.
Rule
8(3): The report of the Board shall contain the following information and
details, namely:-
(A)
Conservation of energy -
(i) the
steps taken or impact on conservation of energy;
(ii) the
steps taken by the company for utilising alternate sources of energy;
(iii) the
capital investment on energy conservation equipments;
(B)
Technology absorption -
(i) the
efforts made towards technology absorption;
(ii)the
benefits derived like product improvement, cost reduction, product development
or import substitution;
(iii) in
case of imported technology (imported during the last three years reckoned from
the beginning of the financial year)-
(a) the
details of technology imported;
(b) the
year of import;
(c) whether
the technology been fully absorbed;
(d) if
not fully absorbed, areas where absorption has not taken place, and the reasons
thereof; and
(iv) the
expenditure incurred on Research and Development.
(C)
Foreign exchange earnings and Outgo -
The
Foreign Exchange earned in terms of actual inflows during the year and the
Foreign Exchange outgo during the year in terms of actual outflows.
Rule 8(4)
Every listed company and every other public company having a paid up share
capital of twenty five crore rupees or more calculated at the end of the
preceding financial year shall include, in the report by its Board of
directors, a statement indicating the manner in which formal annual evaluation
has been made by the Board of its own performance and that of its committees
and individual directors.
Rule 8(5)
In addition to the information and details specified in sub-rule 8(4), the
report of the Board shall also contain –
(i) the
financial summary or highlights;
(ii) the
change in the nature of business, if any;
(iii)the
details of directors or key managerial personnel who were appointed or have
resigned during the year;
(iv) the
names of companies which have become or ceased to be its Subsidiaries, joint
ventures or associate companies during the year;
(v) the
details relating to deposits, covered under Chapter V of the Act,-
(a)
accepted during the year;
(b)
remained unpaid or unclaimed as at the end of the year;
(c)
whether there has been any default in repayment of deposits or payment of
interest thereon during the year and if so, number of such cases and the total
amount involved-
(i) at
the beginning of the year;
(ii)
maximum during the year;
(iii) at
the end of the year;
(vi) the
details of deposits which are not in compliance with the requirements of Chapter
V of the Act;
(vii) the
details of significant and material orders passed by the regulators or courts or
tribunals impacting the going concern status and company’s operations in
future;
(viii)
the details in respect of adequacy of internal financial controls with
reference to the Financial Statements.
Apart
from the above, certain other sections of the Companies Act, 2013 as well,
mandates some disclosures to be made in the Board’s Report which are as under:
|
S. No.
|
Section
|
Disclosure
|
|
1.
|
Section 43 read with Rule 4(4)
of the Companies
(Share Capital and Debentures) Rules, 2014 [Chaper IV]
|
Disclose the details of equity
shares with differential rights, as per the Rule, in the Board’s Report for
the financial year in which the issue of equity shares with differential
rights was completed.
|
|
2.
|
Section 54 read with Rule 8(13)
of the Companies (Share Capital and Debentures) Rules, 2014
|
Disclose the details of sweat
equity shares, as per the Rule, in the Board’s Report for the year in which
the shares are issued.
|
|
3.
|
Section 62(1)(b) read with Rule
12(9) of the Companies (Share Capital and Debentures) Rules, 2014
|
Disclose details of Employees
Stock Option Scheme, as per the Rule.
|
|
4.
|
Proviso to Section 67(3) read
with Rule 16(4) of the Companies (Share Capital and Debentures) Rules, 2014
|
Disclose details of voting
rights not exercised directly by the employees in respect of shares to which
the scheme for provision of money for purchase of or subscription for shares
by employees or by trustees for the benefit of employees, as per the Rule.
|
|
5.
|
Third proviso to Section 131 (not
yet enforced)
|
Disclose detailed reasons for
revision of financial statement or report of the Board, in the Board’s Report
in the relevant financial year in which such revision is being made.
|
|
6.
|
Section 135(2)
|
Composition of the Corporate
Social Responsibility (CSR) Committee.
|
|
7.
|
Section 135(4)(a) read with
Rule 8(1)/9 of the Companies (Accounts) Rules, 2014 [Chapter IX]
|
Disclose contents of the CSR
Policy in the Board’s Report and on the company’s website, if any, as per annexure
attached to the Companies (Corporate Social Responsibility Policy) Rules,
2014.
|
|
8.
|
Second proviso to Section
135(5)
|
If the company fails to spend
the requisite amount on CSR activities, the Board shall in its report specify
the reasons for not spending the amount.
|
|
9.
|
Section 149(10)
|
An Independent Director shall
hold office for a term upto 5 consecutive years but shall be eligible for
re-appointment on passing of special resolution and disclosure of such
appointment in the Board’s Report.
|
|
10.
|
Section 177(8) read with Rule 6
of the Companies
(Meetings of the Board and its Powers) Rules, 2014 [Chapter
XII]
|
Disclose the composition of an
Audit Committee, where applicable, and where the Board has not accepted any
recommendation of the Audit Committee, the same shall be disclosed in the
report alongwith the reasons therefor.
|
|
11.
|
Proviso to Section 177(10)
|
Disclose details of
establishment of Vigil Mechanism.
|
|
12.
|
Section 178(3)
|
Nomination and Remuneration
Committee shall formulate a policy relating to the remuneration for the
directors, KMPs and other employees and such policy shall be disclosed in the
Board’s Report.
|
|
13.
|
Section 197(14)
|
Subject to the provisions of
section 197, any director who is in receipt of any commission from the
company and who is a managing or whole-time director of the company shall not
be disqualified from receiving any remuneration or commission from any
holding company or subsidiary company of such company subject to its
disclosure by the company in the Board’s report.
|
|
14.
|
Section 204(1)
|
Every listed company and every
public company having a paid-up share capital of fifty crore rupees or more
OR turnover of two hundred fifty crore rupees or more, shall annex with its
Board’s report, a secretarial audit report, given by a company secretary in
practice, in Form MR-3.
|
|
15.
|
Section 204(3)
|
Explain in full any
qualification or observation or other remarks made by the company secretary
in practice in his Secretarial Audit Report pursuant to section 204(1).
|
CONTENTS
TO BE DISCLOSED IN TERMS OF LISTING AGREEMENT
Listed
companies shall in addition disclose the following in the Board’s Report in
terms of the Listing Agreement
|
S. No.
|
Particulars
|
Clause No. of Listing Agreement
|
Where
|
|
1.
|
Details of shares lying in the
suspense account
|
5.A.(I).g/ (II).h
|
In Annual Report
|
|
2.
|
i) In
case the shares are delisted, it shall disclose the fact of delisting,
together with reasons thereof
ii) In
case the securities are suspended from trading, explain the reason thereof
iii)
The name and address of each stock exchange at which the issuer’s securities
are listed and also confirm that Annual Listing Fee has been paid to each of
the exchange.
|
32 (iii)b.i to iii
|
In Director’s Report
|
|
3.
|
If
there are material variations between the projections and the actual
utilisation/ profitability made by the Company in its prospectus or letter of
offer or object/s stated in the explanatory statement to the notice for the
general meeting for considering preferential issue of securities, the company
shall furnish an explanation therefore in the advertisement and shall also
provide the same in the Directors’ Report
|
43(3)
|
In Director’s’ Report
|
|
4.
|
Criteria
for performance evaluation of Independent Directors, as laid down by the
Nomination and Remuneration Committee.
|
49.II.B.5.b
|
In Annual Report
|
|
5.
|
The
remuneration policy relating to the remuneration of the directors, key
managerial personnel & other employees and the evaluation criteria laid
down by Nomination & Remuneration Committee
|
49.IV.B.4
|
In Annual Report
|
|
6.
|
Details
of familiarization programme for Independent Directors
|
49.II.B.7.b
|
Web link shall be disclosed in
Annual Report
|
|
7.
|
The
details of establishment of vigil mechanism (Whistle Blower Policy)
|
49.II.F.3
|
In the Board’s Report
|
|
8.
|
Policy
for determining ‘material’ subsidiaries
|
49.V.D
|
Web link shall be disclosed in
Annual Report
|
|
9.
|
Policy
on dealing with related party transactions
|
49.VIII.A.2
|
In Annual Report
|
|
10.
|
Declaration
of CEO regarding compliance by Board members and Senior management personnel
|
49.II.E.2
|
In Annual Report
|
|
11.
|
Remuneration of Directors
|
49.VIII.C.1/2/3/4
|
In Annual Report
|
|
12.
|
Where
in the preparation of financial statements, a treatment different from that
prescribed in an Accounting Standard has been followed, the fact shall be
disclosed in the financial statements, together with the management’s
explanation as to why it believes such alternative treatment is more
representative of the true and fair view of the underlying business
transaction in the Corporate Governance Report.
|
49.VIII.B
|
In the Corporate Governance
Report forming part of the Board’s Report.
|
|
13.
|
⇒ All pecuniary relationship or transactions
of the non-executive directors vis-a- vis the company shall be disclosed.
⇒ In addition to the disclosures required
under the Companies Act, 2013, the following disclosures on the remuneration
of directors shall be made in the section on the Corporate Governance of the
Annual Report:
a. All elements of remuneration
package of individual directors summarized under major groups, such as
salary, benefits, bonuses, stock options, pension etc.
b. Details of fixed component
and performance linked incentives, along with the performance criteria.
c. Service contracts,
notice period, severance fees.
d. Stock option details, if any
– and whether issued at a discount as well as the period over which accrued
and over which exercisable.
⇒ The company shall publish its criteria of
making payments to non-executive directors in its annual report.
Alternatively, this may be put up on the company’s website and reference
drawn thereto in the annual report.
⇒ The company shall disclose the number of
shares and convertible instruments held by non-executive directors in the
annual report.
|
49.VIII.C.1/2/3/4
|
In the section on the Corporate
Governance Report forming part of the Board’s Report.
|
|
14.
|
Contents of Management
Discussion and Analysis report
|
49.VIII.D
|
As part of the Director’s
Report or as an addition thereto forming part of the Annual Report
|
|
15.
|
Disclosure of relationships
between directors inter-se
|
49.E.2
|
In Annual Report
|
|
16.
|
Report on Corporate Governance
|
49.X.A/49.XI.B read with Annex.
XII & XIII
|
Separate section in the Annual
Report as a part of the Board’s Report
|
|
17.
|
Certificate from either the
auditors or practicing company secretaries regarding compliance of conditions
of corporate governance
|
49.XI.A
|
Certificate to be annexed with
the Director’s Report
|
|
18.
|
Business Responsibility Reports
in the suggested format
|
55
|
As part of Annual Report
|
Further,
listed companies are also required to disclose the following in terms of the
Companies Act, 2013:
→ As per
Section 197(12) of the Companies Act, 2013 read with Rule 5 of the Companies
(Appointment and Remuneration of Managerial Personnel) Rules, 2014 [Chapter
XIII], every listed company shall disclose in the Board’s report, the ratio of
the remuneration of each director to the median employee’s remuneration and
such other details as given in Rule 5 of the Companies (Appointment and
Remuneration of Managerial Personnel) Rules, 2014 [Chapter XIII].
Rule 5 of
the Companies (Appointment and Remuneration of Managerial Personnel) Rules,
2014 is as under:
Rule
5(1): Every listed company shall disclose in the Board’s report-
(i) the
ratio of the remuneration of each director to the median remuneration of the
employees of the company for the financial year;
(ii) the
percentage increase in remuneration of each director, Chief Financial Officer,
Chief Executive Officer, Company Secretary or Manager, if any, in the financial
year;
(iii) the
percentage increase in the median remuneration of employees in the financial
year;
(iv) the
number of permanent employees on the rolls of company;
(v) the
explanation on the relationship between average increase in remuneration and
company performance;
(vi)
comparison of the remuneration of the Key Managerial Personnel against
the performance of the company;
(vii)
variations in the market capitalisation of the company, price earnings ratio as
at the closing date of the current financial year and previous financial year
and percentage increase over decrease in the market quotations of the shares of
the company in comparison to the rate at which the company came out with the
last public offer in case of listed companies, and in case of unlisted
companies, the variations in the net worth of the company as at the close of
the current financial year and previous financial year;
(viii)
average percentile increase already made in the salaries of employees other
than the managerial personnel in the last financial year and its comparison
with the percentile increase in the managerial remuneration and justification
thereof and point out if there are any exceptional circumstances for increase
in the managerial remuneration;
(ix)
comparison of the each remuneration of the Key Managerial Personnel against the
performance of the company;
(x) the
key parameters for any variable component of remuneration availed by the
directors;
(xi) the
ratio of the remuneration of the highest paid director to that of the employees
who are not directors but receive remuneration in excess of the highest paid director
during the year; and
(xii)
affirmation that the remuneration is as per the remuneration policy of
the company.
Explanation-
For the purposes of this rule-
(i) the
expression “median” means the numerical value separating the higher half of a
population from the lower half and the median of a finite list of numbers may
be found by arranging all the observations from lowest value to highest value
and picking the middle one;
(ii) if
there is an even number of observations, the median shall be the average of the
two middle values.
Rule
5(2): The Board’s report shall include a statement showing the name of every
employee of the company, who-
(i) if
employed throughout the financial year, was in receipt of remuneration for that
year which, in the aggregate, was not less than sixty lakh rupees;
(ii) if
employed for a part of the financial year, was in receipt of remuneration for
any part of that year, at a rate which, in the aggregate, was not less than
five lakh rupees per month;
(iii) if
employed throughout the financial year or part thereof, was in receipt of
remuneration in that year which, in the aggregate, or as the case may be, at a
rate which, in the aggregate, is in excess of that drawn by the managing
director or whole-time director or manager and holds by himself or along with
his spouse and dependent children, not less than two percent of the equity
shares of the company.
Rule
5(3): The statement referred to in sub-rule (2) shall also indicate –
(i)
designation of the employee;
(ii)
remuneration received;
(iii)
nature of employment, whether contractual or otherwise;
(iv)
qualifications and experience of the employee;
(v) date
of commencement of employment;
(vi) the
age of such employee;
(vii)the
last employment held by such employee before joining the company;
(viii)
the percentage of equity shares held by the employee in the company within the
meaning of clause (iii) of sub-rule (2) above; and
(ix)
whether any such employee is a relative of any director or manager of the
company and if so, name of such director or manager:
Provided
that the particulars of employees posted and working in a country outside
India, not being directors or their relatives, drawing more than sixty lakh
rupees per financial year or five lakh rupees per month, as the case may be, as
may be decided by the Board, shall not be circulated to the members in the
Board’s report, but such particulars shall be filed with the Registrar of
Companies while filing the financial statement and Board Reports.
Thanks & Regards
csnikhilkalra@gmail.com
No comments:
Post a Comment