CA CS – Suresh Agarwal April 23, 2015 Board’s Report and Annual Return

2 Government Investors Shareholders Society “Fine” appears 189 times, “penalty” 41 times, “Prosecution” 24 times and “Imprisonment”76 times in the Companies Act 2013 Opportunity ?? Enhanced Responsibility Towards Management Audit Committee Independent Directors Auditor Promoters

Board’s Report – At a Glance 3 Rule no.8 Form No.AOC-2 Other Sections Referred92, 149, 178, 186, 188 Corresponding Sections of 1956 Act215, 216, March 2014 Table of sections notified by MCA vide Notification File No. 1 l 15/2013-CI.V 1 April 2014Circular No.07/ April 2014Circular No.08/2014

 Global Practices  Increased involvement of the Board & accountability  Transparency / Increased disclosure to the shareholders  Increased certification by directors  This report follows a ‘comply or explain’ approach  It is more self regulated than regulated  Involvement of various department for example Company Secretary, Finance and HR etc.  Stringent penalty and provision in case of Non-Compliance  Quality and Quantity of disclosures have been made extensive. Board’s Report u/s 134 of Companies Act 2013 Key Drivers for change 4

Applicability - All companies, irrespective of their size and type Effective Date -Financial year starting on or after April 1, 2014 (MCA circular No. 08/2014 dt. April 4, 2014) Basis of Report-Standalone Financials Board’s Report - General provisions 5

Signing – The Chairperson, if authorized by the Board or Two directors including a managing director or One director (in case of OPC) Abridged – Salient features by listed companies (no format) Board’s Report Penalty Company – Minimum - Rs. 50,000 Max. 25 Lacs Officers – Imprisonment upto three years or fine as above or both General provisions

Compliance of all Applicable Laws Risk Management Internal Financial Control Related Party Transaction CSR Directors Responsibility Board Performance Evaluation. Fraud Explanation to Audit Observation Remuneration of Managerial Personnel Nomination and Remuneration Policy New Disclosures under Board’s Report 7

Board to periodically review compliance reports of all laws applicable to the company as well as steps taken by the company to rectify instances of non-compliances.. (Clause 49(II)(D)(3) of Listing Agreement) 8 Financial statement, Board’s report, etcSection 134 Directors’ Responsibility Statement – Company has proper systems in place to ensure compliance to all applicable laws and that the same are operating effectively Mandatory Secretarial AuditSection 204 Listed and large public companies – Mandatory to get a secretarial audit done every year – Qualification in secretarial audit report to be explained in directors’ report Compliances of all applicable laws

The Mandate on Risk Management 9 Financial statement, Board’s report, etcSection 134 Directors’ Report – (All companies) Company has defined and implemented a risk management policy and identified all risks which can threaten the existence of a company Mandatory Secretarial AuditSection 204 Independent directors shall satisfy themselves on the integrity of financial information and that financial controls and the systems of risk management are robust and defensible

The mandate on Internal Financial Controls 10 Various contexts to IFC in Companies Act 2013 Section 134 (5) (e) Requires that 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. Section 143 (3) Requires that the Auditors’ Report to state that whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls. Section 177 (4) Requires that every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board which shall, inter alia, include evaluation of internal financial controls. Schedule IV – Code for Independent Directors Requires that the independent directors shall satisfy themselves on the integrity of financial information and that financial controls and the systems of risk management are robust and defensible.

Mandate on Related Party Transactions(RPT) 11 Identification of Related Party Section 2(76) & 2(77) Detailed list of Related Parties to be identified for the purpose of Section 188 Role of Audit CommitteeSection 177 Approval or any subsequent modification of transactions of the company with related parties Framework for approval of Related Party TransactionsSection 188 Financial statement, Board’s report, etc. Section 134 Directors’ Report (All companies)- To disclose the particulars of contracts or arrangement with related parties referred to in Section 188(1)

Corporate Social Responsibility Composition of CSR Committee Contents of CSR Policy Annual report on CSR In case of failure to spend 2% of Net profit, specify the reasons for not spending the amount 12

Directors Responsibility Statement 13

Directors & KMPs  Changes in directors and key managerial personnel  Statement of declaration of independence by independent directors  Appointment of independent director(s) for another term  Directors retiring by rotation  Reason for resignation by directors Contents - Requirements in detail [Section 134(3)(d) & 149(7), 149(10), 168(1), Chapter IX Rule 8(5)(iii)]

Directors & KMPs Remuneration  Details of commission / remuneration to any MD / WTD by holding or subsidiary company  In case of payment of remuneration beyond permissible limit by the companies having inadequate / no profit, followings under head “Corporate Governance”  All elements of remuneration including fixed, PLI etc.  Performance criteria  Service contracts, notice period severance fees  Stock option details, if any Contents -Requirements in detail [Section 197(14), Sch. V, Part II, Section II]

Other remuneration related disclosures [ For listed companies only]  Ratio of remuneration of each director to median remuneration of employees  Percentage increase in remuneration of each director and KMPs  Percentage increase in the median remuneration of employees  Number of permanent employees  Relationship between average increase in remuneration and company performance  Comparison of remuneration of KMPs against company performance  Average percentile increase in salary of employees, other than managerial personnel, comparison with percentile increase in managerial remuneration and justification  Ratio of remuneration of the highest paid director to the highest paid employee (only if exceeds the director’s remuneration)  Policy compliance affirmation Contents - Requirements in detail [Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rule 2014]

Audit Committee  Composition of the Audit Committee  Any recommendation, not accepted by the Board and reason for non acceptance. [Section 177(8)] Details of establishment of Vigil Mechanism  Policy on Vigil Mechanism  Operative effectiveness Contents - Requirements in detail Section 177(8) and [Proviso to Section 177(10), Listing Agreement Clause 49 (II)(B)(5)(F)]

Policy on Directors and, Remuneration Policy  Policy on directors’ appointment and remuneration including criteria for determining qualification, positive attributes, independence of a directors.  A policy relating to the remuneration of directors KMPs and other employees. Contents - Requirements in detail [Section 134(3)(e), 178(3), Listing Agreement 49(IV)(B)(4)]

A report on the performance and financial position of each of the subsidiary, associate and joint ventures included in the consolidated financial statement Name of entities which have become/ ceased to be subsidiaries joint ventures or associates to be disclosed Contents - Requirements in detail Section 134(3)(q), Rule 8(1), 5 of the Companies (Accounts) Rules, 2014]

Extracts of the annual return  Basic Details – Name, CIN, registered office address, category, listing status etc.  Principle Business Activity (contributing ≥ 10% ) -  Scope - description of main products/ services, NIC code, percentage of total turnover  Details of holding companies, subsidiary and associates  Scope – standard details (name, CIN, relationship and applicable section)  Shareholding pattern (similar to Cl 35)  Comparison between beginning of year and closing of year  Name-wise details of Promoters, top 10 shareholders, directors and KMPs incl. opening and closing, and date-wise changes in the holding and reasons for such changes Contents - Requirements in detail

Extracts of annual return cont.…  Indebtedness (Secured, unsecured and deposits)  Principal amount, Interest due but not paid and interest accrued but not due. Opening, closing and overall changes (date-wise not required  Remuneration of WTD/ MD, and KMPs  Salary, Perquisites (under Income Tax Act 1961), ESOPs, Sweat Equity, Commission, others  Remuneration of Independent and other Non-Executive directors  Sitting Fees, Commission and others  Penalty, Punishment and Compounding  Relevant section, details, amount, authority, status of appeal, if any Contents - Requirements in detail [Section 134(3)(a), 92(3), Rule 12(1) of the Companies (Management and Administration) Rules, 2014, and Form MGT 9]

Particulars of Loan, Guarantees or Investments under Section 186  No specific format of reporting prescribed  Only the transactions / companies where the section apply need to report  The details may contain the following  Name of the entity and relationship  Nature of transaction (loan, guarantees, investments)  Amount  Principal terms and other details Contents - Requirements in detail [Section 134(3)(g)]

Details of significant and material orders by regulators, courts, tribunals impacting the going concern status and company’s operation in future Contents - Requirements in detail [Section 134(3)(q), Rule 8(5)((vii) of the Companies Accounts Rule 2014]

Contents - Other Requirements (Existing)  Financial summary or highlights  Transfer to any reserve  Proposed dividend  ESOP disclosures  Post financial year material events till the date of the report  Certificate of compliance of conditions of corporate governance  Explanation / comment on qualification / remark / reservation / disclaimer in the auditors’ report  Particulars of employees drawing remuneration beyond threshold limits

 Conservation of energy, technology absorption, foreign exchange etc.  Directors responsibility statement  State of affairs of the company  Change in the nature of business, if any  Disclosure about differential voting right shares  Disclosure about Sweat Equity Shares  Industry specific disclosures  IPO fund utilization Contents - Other requirements (existing) cont.…

26 Draft Board Report Content for the financial year (1/2) Particulars Year ended 31 st March 2015 Year ended 31 st March 2014 Turnover Profit/(Loss) Before taxation Less: Tax Expenses Profit/(Loss) after Tax Add: Balance B/F from the previous year Balance Profit/(Loss) C/F to the next year Financial Highlights(Standalone and Consolidated) 1.State of Company’s Affairs and Future Outlook 2.Change in nature of business, if any 3.Dividend 4.Amounts Transferred to Reserve 5.Change in Share Capital, if any 6.Disclosure regarding Issue of Equity Shares with Differential Rights 7.Disclosure regarding issue of Employee Stock Options 8.Disclosure regarding issue of Sweat Equity Shares 9.Extract of Annual Return 10.Number of Board Meetings 11.Particulars of Loan, Guarantees and Investments under Section Details of Loans 13.Details on Investment 14.Details of Guarantee/ Security Provided: 15.Particulars of Contracts or Arrangements with Related Parties 16.Explanation to Auditor’s Remarks 17.Material Changes Affecting the Financial Position of the Company

27 Draft Board Report Content for the financial year (2/2) 18.Conservation of Energy, Technology, Absorption, Foreign Exchange Earnings and Outgo 19.Details of Subsidiary,Joint Venture or Associates 20.Risk Management Policy 21.Details of Directors and Key Managerial Personnel 22.Details of significant &material orders passed by the regulators or courts or tribunal 23.Voluntary Revision of Financial Statement or Board Report 24.Statement in Respect of Adequacy of Internal Financial Control with Reference to the Financial Statements 25.Deposits 26.Receipt of any commission by MD/WTD from a company or for receipt of commission/ remuneration from its Holding or subsidiary 27.Declaration by Independent Auditor 28.Re-appointment of Independent Auditor 29.Secretarial Audit Report 30.Corporate Social Responsibility (CSR) Policy 31.Audit committee 32.Statement Indicating the Manner in which Formal Annual Evaluation has been made by the Board of its own performance, its directors and that of its committees 33.Nomination & Remuneration Committee policy 34.Disclosure on Establishment of a Vigil Mechanism 35.Corporate Governance 36.Managerial Remuneration 37.Disclosure under Sexual harassment of Women at Workplace(Prevention, Prohibition & Redressal ) Act Fraud Reporting (Required by Companies Amendment bill, 2014) 39.Statutory Auditors 40.Cost Auditors 41.Management Discussion and Analysis Report 42.Directors Responsibility Statement

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Thank You Suresh Kumar Agarwal FCA, FCS