Depreciation - Companies Act 2013

Companies Act 2013 [Act] has introduced the concept of useful life and depreciation will be calculated based on the useful life of any asset. Section 123 of the act specifies that depreciation shall be provided in accordance with the provisions of Schedule II. 

Part C of Schedule II has provided useful life of 15 categories of tangible assets. The useful life mentioned under it is different than that of The Companies Act, 1956. Because of this change companies have to expedite the amortisation of asset at higher rate in order to comply with the useful life specified under the Act. No separate rates are prescribed for extra shift depreciation in Schedule II.

The Schedule XIV to the Companies Act, 1956 prescribes the rates of Straight Line Method [SLM] and Written Down Value[WDV] at which depreciation on various assets need to be provided. In Schedule II to the Act, only useful life is provided, therefore appropriate rate of depreciation as per the appropriate method used by it either SLM or WDV needs to be calculate separately.

In Companies Act, 2013 it is clarified that residual value of the asset can not exceed 5% of original cost of the asset. companies are now required to adopt what is known as the ‘component approach’ to compute depreciation on fixed assets. An assets needs to be split in to its components and based on the useful life of each component the depreciation % will be identified.

Appointment of Managing Director

Appointment of Managing Director

1. Every Public company having a paid up share capital of Rs. 5.00 crores or more must appoint a Whole time director or Managing Director. 
2. A managing Director must essentially be a Director of the Company. In case the proposed MD is not a Director he must be appointed as Additional Director.
3. Being an Additional director he will assume the office of Director till the next AGM, wherein he has to be reappointed.
4. Managing director can be appointed for the period of 5 years. [Sec. 317]
5. A copy of Board resolution appointing MD should be filed with the ROC within 30 days. [Sec. 192 (1)]
6. Section 269 applies to every Public Company and Pvt. Co. which is a subsidiary of Pub. Co.
7. After appointment of MD form 25-C should be to be filed as specified u/s 269(2) within 90 days of appointment.
8. In case of omission of filing such form the appointment does not become void.
9. Schedule XIII specifically provides that appointment of MD should be approved by shareholders in General meeting.
10. Approval of Central Govt. is necessary in case the appointment is not according to Sch. XIII. An application in form 25A has to be submitted within 90 days of such appointment. U/s 269(6), even in case Central Govt. rejects the appointment, the individual can continue occupying the position by payment of Fine / Penalty.
11. The above-mentioned provisions do not apply to Pvt. Company.
12. There is no restriction on Remuneration payable to MD of a Pvt. Company.
13. Restrictions on Appointment: An individual cannot be managing director or manager of more than two companies, public or private, where out of two companies at least one is a public company or private company, which is a subsidiary of a public company. An individual may hold the office of managing director or manager in any number of private companies, which are not subsidiaries of public company. But if the office is held in a public company or a private company which is subsidiary of a public company, the same individual can not, in addition thereto, hold the office of managing director in more than one company whether such company is a public company or private company which is subsidiary of public company or any private company. (Section 316) 
14. Terms of Office: The term of office of a managing director must not exceed 5 years at a time. The term, however, may be extended for further period not exceeding 5 years at a time. (Section 317) 
15. It is important to note that the person ceases to be managing director with a censure of directorship on account of his retirement by rotation at the Annual General Meeting. But if such a person is re-elected as director at the AGM and thereby he continues as the director of the company, he shall continue as a managing director also for the period for which he is so elected by the AGM and for the unexpired period of present term of appointment as managing director.
16. Disqualifications for appointment: A managing director must be a director and therefore, all the disqualifications rendering impossibilities for the appointment of a person as director (Section 274) will apply in the case of appointment of a managing director. Section 267 specifically provide that company must appoint or continue the appointment of a person as managing or whole time director who is: 
1. An undischarged insolvent or has at any time been adjudged insolvent; 
2. Suspends or has at any time suspended payment to his creditor or has made a composition with them or 
3. Has at any time been convicted of an offence involving moral turpitude. Meaning of the term moral turpitude: According to American encyclopedia of Law, it comprises anything contrary to justice, honesty, and principle of good morals, an act of baseness, vileness or depravity in the private and social duties, which a man owes to his fellowmen or society in general. The term also comprises anything contrary to the accepted and customary rule of right and duty between humans. 
17. u/s 117(3) of the Companies Act 2013 any resolution of the Board of Directors of a company or agreement executed by a company, relating to the appointment, re-appointment or renewal of the appointment, or variation of the terms of appointment, of a Managing Director needs to be re filed with ROC within 30 days of passing the same.

Buy Back of shares under Companies Act 2013

Section 68(1) of the new Act, deals with the issue of ‘buy-back’. The corresponding provision in the old Act is Section 77A. There has been no significant change in the laws regarding buy-back. The changes have only been in terms of

• the procedure of odd-lots applicable to listed stocks: The same has been done away with and 
• the punishment for contravening the section has been enhanced.

 The old Act provided that any offer of buy-back cannot be made within a period of 365 days reckoned from the date of the preceding offer of buy-back. Under the new Act, this period of 365 days has been provided as one year which has to be reckoned from the date of the closure of the preceding offer of buy-back. Furthermore, Rule 17 of the Companies (Share Capital and Debentures) Rules, 2014 also makes certain deviations from the erstwhile Private Limited Company and Unlisted Public company (Buy Back of Securities) Rules,1999 prescribed under the old Act in respect of buy-back. These are-

1. Vide rule 17(1)(n)(iii) the new Act requires that a report addressed to the Board of directors by the company’s auditors should state that the audited accounts on the basis of which calculation for the purpose of buy-back is made, is not more than six months old from the date of the Offer Document;
2. Rule 17(14) of the Companies (Share Capital and Debentures) Rules, 2014 requires that a Certificate of Compliance in respect of buy-back of securities has to be annexed to the return filed with the Registrar in Form No. SH.11. This Certificate of Compliance has to be signed by two directors of the company including the managing director, if any, certifying that the buy-back of securities has been made in compliance with the provisions of the Act and the rules made thereunder. The above requirement was there in the old Act.

High seas sale

A High Sea Sales contract/ agreement should be signed after dispatch of goods from origin & prior to their arrival at destination. The agreement should be on stamp paper. On concluding the High Sea Sales agreement, the bill of lading (B/L) should be endorsed in favor of the new buyer. In respect of air shipment, High Sea Sales seller should write to the airline / consol agent informing that an High Sea Sales agreement has been established with the High Sea Sales buyer and that the carrier document should therefore be considered as endorsed in favour of the High Sea Sales buyer and further the Import General Maniface (IGM) should be filed by the carrier in the name of the High Sea Sales buyer. If the electronicdata interchange (EDI) system allows name of High Sea buyer to be entered in the system, then there may not be any need to amend the Import General Maniface (IGM). In this case, the bill of entry/exchange (B/E) is filed in the name of the original importer as the IGM is in thisimporter name. However, the bill of entry/exchange (B/E) shows the name of High Sea buyer under a separate head in the B/E format. If the system has no provision for showing the name of High Sea buyer on the B/E, then the IGM should be got amended and B/E filed in the name of the High Sea buyer.

In the case of High Sea Sales, the cargo in freight (CIF) value for calculation of duty is taken to be the High Sea Sales value.

There is a practice followed in customs that in case the High Sea Sales transfer takes place at import invoice value only , the custom would add 4% of  cargo in freight (CIF) value as High Sea Sales loading factor . There have been cases where High Sea sellers have sold at two percent more than import CIF but custom have added 4% of cargo in freight (CIF) as High Sea Sales value addition. Such practice of customs can be challenged at the customs duty is chargeable on genuine transaction value. In High Sea Sales contracts, the High Sea seller may not like to disclose the importvalue to the High Sea buyer. However, the customs can call for the original import invoice, in which case the High Sea seller may have to part with this information. To overcome this, High Sea seller should take on the responsibility of custom clearance and site delivery. After custom clearance, the High Sea seller could withdraw import invoices and only hand over clearance documents with High Sea Sales agreement to the High Sea buyer. The custom bill of entry does not indicate original import value and is prepared on High Sea Sales value.

Sometime High Sea buyers buy goods after their arrival. Such sale are not High Sea Sales. The stamp paper on which the HSS agreement is executed must not bear thestamp paper purchase date as being post cargo arrival date. Such a case can easily be detected by customs as being a post arrival sale.

If the High Sea Sales does not mind disclosing original import values to High Sea buyer, in such case it is better from custom clearance point of view for the seller to endorse the Bill of Lading, invoice , packing list in favour of the High Sea buyer. The endorsement should read “Transferred on High Sea Sales basis to M/S ——– for a sales consideration of (currency and amount in that currency) “. Such endorsement should be stamped and signed by the High Sea seller.

High Sea Sales is considered as a sale carried out outside the territorial jurisdiction of India. Accordingly, no sales tax is levied in respect of High Sea Sales. The CENVAT credit in respect of CVD paid on import is entitled to High Sea buyer.

The bill of lading is considered to be document of title to goods and the sale can be made by endorsement delivery or by mere delivery of a blank bill of lading before the goods cross the customs frontier.

The following is the procedure and the documentation required to make a High Seas Sale:-

• Importer (XYZ) and High Seas buyer (ABC) shall enter into an agreement of sale to effect the sale on high seas of specific goods. 
• The document of title i.e. Bill of Lading shall be endorsed by the XYZ as follows: 

Please deliver to M/s ABC or order

 Place:                              sd/-

 Date:                               XYZ

• It may be noted that airway bill is not a document of title to goods. However, delivery order issued by banker is recognised as a negotiable document. In the Case ofB. M. Shah & Co. (SA no. 139 of 1989 dated 7-2-1992) 
• XYZ to retain a copy of the endorsed Bill of Lading and hand over original Bill of Lading to ABC under covering letter. 
• ABC shall file Bill of Entry and pay customs duty, clearing charges etc. ( The assessable value for the purpose of custom duty would be sale price as mentioned in High Seas Agreement). 
• ABC to arrange for clearance of goods and arrange for transportation. 
• Documents to be kept on record by importer: 
• Purchase order placed on foreign supplier.
• Import licence.
• Foreign supplier’s sale invoice.
• Letter from foreign supplier informing about dispatch of goods and giving the particular of Bill of lading, Packing list etc. 
• Purchase order placed by the High Seas Buyer i.e. High Seas Sale agreement.
• Endorsed copy of Bill of Lading or banker’s delivery order as the case may be.Acknowledged copy of the letter, under which the endorsed Bill of Lading/ Delivery Order has been sent to the High Seas buyer.
• Sales invoice on the buyer.
• Letter by the importer to the customs authorities, intimating that the goods will be cleared by the High Seas buyer.Letter by the High Seas buyer to the customs authorities, intimating  that he being the purchaser, he will be clearing the goods.
• Declaration signed by the High Seas Buyer about fulfilling the obligations attached to import of goods purchased on High Seas.
• A copy of the Bill of Entry filed by High Seas Buyer.
• Letter from High Seas buyer informing that he has taken delivery of the goods, sold under High Seas agreement, from the shipping company.
• Proof of payment received from High Seas Buyer.

Corporate Social Responsibility

Corporate Social Responsibility [CSR]

Under CSR regime companies above certain threshold needs to spend 2% of their average 3 years Net profit towards activities that will bring betterment of society.

The threshold specified under Companies Act 2013 is companies with 

1. at least R.5 crores of net profit in any year or 
2. Rs. 1,000 crore of Turnover or 
3. Rs.500 crore Net worth.

Funds given to political parties and spending towards benefit of companies own empoyees and their families will not count as CSR spending.

Companies are required to have a CSR policy approved by its Board of Directors and must have a monitoring mechanism. CSR policy must be displayed on company's website.

Reverse Charge Mechanism

Services covered under reverse charge system vide Notification No. 30/2012-ST Dated-20^th June, 2012 with effect from 01.07.2012:

#	Description of a Service	Service provider	Service Receiver	Percentage of service tax payable by the person providing service	Percentage of service tax payable by the person receiving the service
1.	Insurance Services: in respect of services provided or agreed to be provided by an insurance agent to any person carrying on insurance business	Insurance Agent	Business man carrying on insurance business	Nil	100
2.	GTA: in respect of services provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road	Goods transport agency	Consignor or Consignee is specified person	Nil	100
3.	Sponsorship: in respect of services provided or agreed to be provided by way of sponsorship	Any person	Body corporate or partnership firm	Nil	100
4.	Arbitral Tribunal: in respect of services provided or agreed to be provided by an arbitral tribunal	Arbitral tribunal	Business entity	Nil	100
5.	Advocate Services: in respect of services provided or agreed to be provided by individual advocate	Individual Advocate	Business entity	Nil	100
5A.	A director of a company: In respect of services provided or agreed to be provided by a director of a company to the said company	A director of a company	To the said company	Nil	100
6.	Support Services: in respect of services provided or agreed to be provided by way of support service by Government or local authority	Government	Business entity	Nil	100
7.	Rent a Cab Service: (a) In respect of services provided or agreed to be provided by way of renting or hiring any motor vehicle designed to carry passenger on abated value. (b) In respect of services provided or agreed to be provided by way of renting or hiring any motor vehicle designed to carry passenger on non-abated value.	Individual/HUF/ Proprietary or partnership firm/AOP	Company under Companies Act, 1956	Nil 60	100 40
8.	Supply of Manpower/ security services: in respect of services provided or agreed to be provided by way of supply of manpower for any purpose	Individual/HUF/ Proprietary or partnership firm/AOP	Company under Companies Act, 1956	25	75
9.	Works Contract Services: in respect of services provided or agreed to be provided by way of works contract	Individual/HUF/ Proprietary or partnership firm/AOP	Company under Companies Act, 1956	50	50
10.	in respect of any taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory	Any person	Any person	Nil	100

 Availment of Cenvat Credit by service receiver:

Service receiver may claim the credit of service tax paid based on the invoice issued by the service provider. For service tax paid on reverse charge, credit may be claimed based on the TR-6 challan by which payment is made. Service receiver will not pay the service tax from cenvat credit under the reverse charge mechanism.

Chief Financial officer [CFO] - Companies Act 2013

Position of CFO under companies Act 2013

• CFO is identified as Key Managerial Personnel u/s 2(19) 
• CFO is identified as ‘officer in default’ u/s 2(59) and 2(60). 
• CFO to be appointed by means of a Board Resolution u/s 203 
• CFO shall not hold office in more than one company unless it is a subsidiary u/s 203(3) 
• CFO to be named in the prospectus or information memorandum for issue of securities u/s 26. 
• CFO is responsible for statements in prospectus, if he authorises the issue. section 34, 35. 
• CFO is directly responsible for maintenance of books of accounts sec. 128(6). 
• CFO is responsible for furnishing ‘true and fair’ view of the state of affairs in the financial statements u/s 129. 
• CFO is responsible for filing financial statements with Registrar of Companies sec. 137. 
• CFO authorises financial statements sec. 134. 
• CFO is responsible for adhering to accounting standards Sec. 133. 
• A director may be appointed as CFO (Table A -77). CFO can be a director. 
• Where a CFO has to authorise a statement, and if the CFO is also a director, he shall authorise the statement as CFO. (Table A – 78)