Signing and Certification – Secretarial Audit Compliance Management and Due Diligence Important Questions

Question 1.
Pioneer Fisheries Ltd. has borrowed an amount of INR 50 crore from a financial institution. The annual general meeting of the Company was held on 1st September, 2015. Examining the provisions of Companies Act, 2013, state as to who will sign and certify the annual return while filing the same with the Registrar of Companies after the Annual General Meeting.
Answer:
1. As per section 92 of the Act, every company shall prepare a return in E-form MGT 7 containing the required particulars as they stood on the close of the financial year and signed by a director and the company secretary, or where there is no company secretary, by a company secretary in practice.

2. The annual return, filed by a listed company or, by a company having paid-up capital of ten crore rupees or more or turnover of fifty crore rupees or more, shall be certified by a company secretary in practice (Form No. MGT 8), stating that the annual return discloses the facts correctly and adequately and that the company has complied with all the provisions of this Act.

3. Here, it may be noted that borrowed amount is not any criteria for deciding about the authority/eligibility of the person to sign and certify the annual return.

Thus, in the absence of information about whether the company falls under the listing or paid up share capital or Turnover category discussed above, it would be difficult to decide whether its annual return shall be signed and certified by a practising company secretary or not.

Question 2.
Fabulous Ltd. is in the process of finalisation of its annual return. It is a listed company with paid-up capital of INR 1 crore. The company seeks your advice on the following:
(1) Who will sign the return on behalf of the Company?
(2) What are the requirements of certification of annual return by a Practising Company Secretary?
Answer:
(1) As per section 92 of the Companies Act, 2013, every company shall prepare its annual return containing the required particulars as they stood on the close of the financial year and shall be signed by a director and the Company Secretary, or where there is no Company Secretary, by a company secretary in practice. Whereas in case of One Person Company and small company, the annual return shall be signed by the Company Secretary, or where there is no Company Secretary, by the director of the company.

(2) Every listed company, or a company with paid up share capital of 10 crore or more or a company with turnover of ₹ 50 crore or more, shall be required to get a certificate by the Practicing Company Secretary (PCS) stating the facts that the requirements of the Companies Act, 2013 and rules thereto have been complied with and Annual Return discloses the facts correctly and adequately.

Question 3.
XYZ Ltd. has not filed Annual return for the financial year 2017-18. Write a note on the consequences of non-filing of Annual Return by the company in relation to a Director of the company, as per provisions laid under the Companies Act, 2013.
Answer:
Consequences on the Director of XYZ Ltd. for Non-filing of Annual Return:
As per section 92 of the Companies Act, 2013, XYZ Ltd. is required to file a copy of annual return with the Registrar, within sixty days from the date on which the annual general meeting of the company was held for the financial year 2017-18.

If the company has not filed its Annual Return from the date by which it should have been filed with fee and additional fees, every officer including director of the company, who is in default shall be liable to a penalty of fifty thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day during which such failure continues subject to a maximum of two lakh rupees. [Section 92(5) of Companies Act, 2013]

If the company has not filed its financial statement or Annual Return for continuous period of three financial years, then every person who is or has been director of that company shall not be eligible for reappointment as Director of that company or appointed in any other company for a period of five years from the date on which the said company fails to do so[Section 164(2) of Companies Act, 2013].

Question 4.
Who will pre-certify the following e-forms? Explain the compliance for certification of following e-forms by Practicing Professional.
(a) GNL-1
(b) DPT-3
(c) MGT-14
(d) AOC 4
(e) DIR 3 & DIR 3-KYC.
Answer:

GNL-1 GNL-1-(Form for filing an application seeking approval from Registrar of Companies in e-form GNL-1 for different purposes under Companies Act, 2013): Optional pre-certification by the Chartered Accountant or the Company Secretary or as the case may the Cost Accountant in whole-time practice.
DPT-3 DPT – 3 (Return of deposits) certification by Auditors of the company as attachment and signed by the Authorised person of the company and shall be filed by company on or before the 30th day of June of every year.
MGT-14 MGT-14 pre-certification by the Chartered Accountant or the Company Secretary or as the case may be the Cost Accountant, in whole-time practice; shall be filed with Registrar within thirty days of the passing of resolution pursuant to sections 94(1), 117(1) of the Companies Act, 2013.
AOC-4 AOC-4 – (For filing financial statement and other documents with the Registrar) certification by the Chartered Accountant or the Company Secretary or as the case may be by the Cost Accountant, in whole-time practice.
DIR- 3 E-form DIR-3 shall be signed and submitted electronically by the applicant using his or her own Digital signature certificate and shall be verified digitally by a company secretary in full time employment of the company or by the managing director or director or CEO or CFO of the company in which the applicant is intended to be appointed as director in an existing company.
DIR-3- KYC Every individual who holds a Director Identification Number (DIN) as on 31st March of a financial year as per these rules shall, submit e-form DIR-3-KYC for the said financial year to the Central Government on or before 30th September of immediate next financial year. The DIN holder and a professional (CA/CS/CMA) certifying the form are the two signatories in form DIR-3 KYC.

Question 5.
You have been engaged as a Practicing Company Secretary by XYZ Limited, an unlisted company having a turnover of INR 75 crore for certification of annual return of the company for the year 2018-19. The annual return is signed by the Chief Executive Officer of the Company. State the provisions of the Companies Act, 2013 and the Rules made thereunder as to signing and certification of annual return. Is it mandatory to file the annual return if the annual general meeting is not held in a particular year?
Answer:
1. As per section 92 of the Act, every company shall prepare a return in E-form MGT 7 containing the required particulars as they stood on the close of the financial year and signed by a director and the company secretary, or where there is no company secretary, by a company secretary in practice.

2. The annual return, filed by a listed company or, by a company having paid-up capital of ten crore rupees or more or turnover of fifty crore rupees or more, shall be certified by a company secretary in practice (Form No. MGT 8), stating that the annual return discloses the facts correctly and adequately and that the company has complied with all the provisions of this Act.

3. Here, it may be noted that borrowed amount is not any criteria for deciding about the authority/eligibility of the person to sign and certify the annual return.

Thus, in the absence of information about whether the company falls under the listing or paid up share capital or Turnover category discussed above, it would be difficult to decide whether its annual return shall be signed and certified by a practising company secretary or not.

Question 6.
Write Short Note on: “Authentication of Documents”.
Answer:
1. As per the Rule 8(1), (2) & (5) of Companies (Registration Office and fee) Rules, 2014 provides that all electronic forms are required to be authenticated by authorised signatories using digital signatures. The e-forms are required to be authenticated on behalf of the company by the Managing Director or Director or Company Secretary or other key managerial personnel. In case of any change in directors or company secretary, the form relating to appointment of such directors or company secretary is required to be filed by continuing director or secretary of the company.

2. As per Rule 8(6) of Companies (Registration Office and fee) Rules, 2014, scanned image of documents must be of the original signed documents relevant to the e-forms and the scanned document image shall not be left blank without bearing actual signature of authorised person.

3. As per rule 8(7) of Companies (Registration Office and fee) Rules, 2014, the person signing the form and the professional certifying the form are responsible to ensure that all the required attachments relevant to the form have been attached completely and legibly to the forms or applications or returns filed as per the Act and the rules.

Question 7.
What are the points to be kept in mind with regard to pre-certification?
Answer:
Following points to be kept in mind with regard to pre-certification:
1. Exercising due care, diligence and skill, while performing the duty of pre-certification.

2. Sound application of mind in verifying the averments made in the respective forms after due consideration of the provisions of the Act read with the relevant rules.

3. A Company Secretary in practice should thoroughly read the requirements of the provisions of the Act, the Rules made there under and familiarize himself with the actual practices that are followed in this regard before undertaking the work of pre-certification of forms.

4. Ensure that letter of engagement/Board Resolution authorizing the professional for the particular assignment by the company is obtained.

5. Maintain a physical/scanned copy of all documents verified (subject to confidentiality requirement).
Obtain the signature(s) of the authorised signatories on the e-forms in presence of the professional.
Ensure that all relevant documents and attachments in the form are legible & visible.

Question 8.
List out do’s and don’ts while filling and filing of e-forms.
Answer:
Do’s while filling and filing of e-forms:
1. Ensure that latest version of the e-forms has been downloaded from the MCA Website.

2. DIN is mandatory for e-filing of documents. Therefore, the professional should ensure that the details related to DIN of the Directors has been updated on the MCA Portal.

3. Digital Signature is mandatory and same shall be registered on the MCA Portal before it first use.

4. Check Master Data of the company before filing any documents.

5. Before filling of e-forms, the professional should go through the instruction kit of the respective e-form provided by the MCA on MCA-21 portal.

6. The attachments to the e-forms should be complete and all pages of the attachment should be page numbers and shall be attached in order.

7. Option for revision/cancellation of e-forms is not available on MCA Portal once it is taken on Record.

8. Keep track of the various events of the clients company and en-courage companies to keep the updated filing to avoid regulatory actions.

9. Use various inbuilt utilities like “PREFILL” and complete the form by clicking on “CHECK’’ and “PRE-SCRUTINY” options.

10. Check the date of resolution and minute book, which authorizes the Director/Secretary before filling the date of resolution in the form.

Don’ts while filling and filing of e-forms:
1. Don’t wait for the last days or the due date of the filing of e-forms.

2. Don’t fill up the forms in hurry, ensure that the all the entries in the forms are correct and as per the supporting documents to be attached.

3. Don’t forget to pay the filing fees before the expiry date of the challan as non-payment of fees liable for cancellation of transaction.

Question 9.
What are common errors in e-filing?
Answer:
Following are common errors in e-filing:

  • Digital signature is not registered/expired.
  • Payment of challan not done before the expiry date.
  • Duplicate Payments has been made.
  • Excess size of the form.
  • Approval status of e-forms in not verified.
  • Status of resubmission of e-forms
  • Use of outdated version of e-form.
  • Incorrect particulars in the e-form.
  • Using older versions of Adobe and Java.

Question 10.
Write short note on: “Preparation before Certification”.
Answer:
Following points needed to be ensured before undertaking the work relating to Pre-certification and should thoroughly read the requirements of the provisions of the Companies Act, 2013 and Rules made there under and familiarize himself with the actual practices the following:

  • Ensure that Letter of Engagement/Board Resolution authorizing the professional for the assignment by the company to be obtained.
  • Maintain a physical/scanned copy of all documents verified (subject to confidentiality requirement).
  • Ensure that all relevant documents and attachments are legible & visible.
  • Verification of the documents from the original records of the company.
  • Correctness of the records and the material departure from the facts.
  • The form to be digitally signed by the Director or person authorized by the company.

Question 11.
Write short note on: “Register of Certification”.
Answer:
1. For the purpose of maintaining quality of attestation/certification services provided by Company Secretaries in Practice, every Practicing Company Secretary should maintain a register regarding attestation/ certification services provided by him.

2. The Practicing Company Secretary should maintain the register for the all attestation/certification services, which includes:

  • Signing of Annual Return (MGT-7).
  • Certification of Annual Return (MGT-8).
  • Issue of Secretarial Audit Report (MR-3).
  • Certification of E-forms of MCA under Companies Act, 2013 & LLP Act, 2008.
  • Internal Audit of Depository Participants/portfolio Manager/ Stock Broker.
  • Annual Compliance auditor under SEBI (Research Analyst) Regulations, 2014.
  • Issue of certificate of Securities Transfers in compliance with the Listing Agreement with Stock Exchanges.
  • Conduct of Internal Audit of Operations of the Depository Participants.
  • Corporate Governance Certification under SEBI (LODR) Regulations, 2015.
  • Register of various reports issued.

Question 12.
What services are included in Peer Review by Company Secretaries in Practice?
Answer:
The peer review includes the following services by the company secretaries in practice:

  • Certification/Signing of Annual Return pursuant to section 92 of the Companies Act, 2013.
  • Issuance of Secretarial Audit Report in terms of section 204 of the Companies Act, 2013.
  • Issuance of Certificate of Securities Transfers in Compliance with the – LODR with Stock Exchanges.
  • Conduct of Internal Audit of Operations of the Depository Participants.
  • Compliance Certification under SEBI LODR.
  • Attestation services of Form AOC 4, MGT 7, DIR 12, SH 7 and PAS 3 filed with the ROC.
  • Such other services as decided by the Council of ICSI under the scope of peer review from time to time.

Thus, every Company Secretaries in Practice/Firm should maintain adequate records and documents evidencing that pre-certification/attestation have done with due care and diligence.

Question 13.
What documents to be obtained/verified before certification of Annual Return by Company Secretary in Practice?
Answer:
Documents to be Obtained/Verified before Certification of Annual Return by Company Secretary in Practice:
1. Memorandum and Articles of Association.

2. Forms & receipts filed with the Registrar of Companies.

3. Statutory Registers:

  • Record of Private Placement under PAS-5 (Section 42)
  • Register of Members (Section 88)
  • Shareholders -MGT-1
  • Debenture holders-MGT-2
  • Register of Directors & their Shareholding (Section 170)
  • Register of Key Managerial Personnel (Section 170)
  • Register of Related Party Contracts under MBP -4 (Section 188)
  • Register of Loan and Investment under SH-12 (Section 186)
  • Register of Deposit (Sections 73 and 76 read with rule 14)
  • Register of Charge under CHG-10 (Section 85)
  • Register of Securities
  • Register of Employee Stock Option under SH-6 (Section 62)
  • Register of Buyback under SH-10 (Section 68)
  • Register of Sweat Equity shares under SH-3 (Section 62)

4. Minutes of the Meetings:

  • Board Meeting.
  • General Meeting.
  • Committee Meeting.
  • Creditors Meeting
  • Debenture holders.
  • Postal ballot minutes.

5. Notices and agenda papers for convening meetings of the Board and Committees thereof.

6. Attendance Registers of all meetings.

7. Copy of Latest Financial Statements along with the Boards Report and Auditors Reports.

8. Copy of Notice of Annual General Meeting/Extraordinary General meetings / Postal Ballots / Court convened meetings / Creditors meetings and debenture holders meeting.

9. Board Resolution for any type of corporate actions taken by the Company.

10. Corporate Action Forms filed by the Company with Depositories.

11. Shareholding pattern and its break up.

12. List of Promoters.

13. Indebtedness Certificate signed by Company Secretary/ CFO/Statutory Auditors of the Company.

14. Other Statutory Registers and Records.

Question 14.
Whether non-filing of Annual Return is a Compoundable offence?
Answer:
1. Offence in respect of default in filing Annual Return is compoundable (section 441), in accordance with the procedure laid down in the Code of Criminal Procedure, 1973 for compounding of offences.

2. If any company fails to file its annual return under section 92 (4), before the expiry of the period specified therein, such company and its every officer who is in default shall be liable to a penalty of Ten thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day during which such-failure continues, subject to a maximum of two lakh rupees in case of company and fifty thousand in case of an officer who is in default.

Question 15.
Write short Note on: “Filing of Annual Return in absence of Annual General Meeting’’.
Answer:
1. As per section 92(4) of Companies Act, 2013: Where no Annual General Meeting is held in a particular year, the Annual Return has to be filed within 60 days from the last day on which the meeting should have been held together with the statement specifying the reasons for not holding the annual general meeting, with such fees or additional fees as may be prescribed, within the time as specified, under section 403.

2. As per section 403 if the Annual return under section 92 is not filed within the due date the same can be filed on payment of additional fee as may be prescribed, which shall not be less than one hundred rupees per day and different amounts may be prescribed for different classes of companies.

3. However, where there is default on two or more occasions in submitting, filing, registering or recording of the document, fact or information, it may, without prejudice to any other legal action or liability under this Act, be submitted, filed, registered or recorded, as the case may be, on payment of a higher additional fee, as may be prescribed.

4. Management cannot escape from the responsibility of filing the return, if the Annual General Meeting is not held. Similarly the responsibility cannot be abandoned even if the company is in operative.

5. The obligation on the part of management to file the returns and can be relinquished only when the company is wound-up or its name struck- off from the Register maintained by the Registrar of Companies.

Question 16.
What are the professional misconduct in relation to members of the Institute in service?
Answer:
A member of the Institute (other than a member in practice) shall be deemed to be guilty of professional misconduct, if he, being an employee of any company, firm or person:

  • Pays or allows or agrees to pay, directly or indirectly, to any person any share in the emoluments of the employment undertaken by him.
  • Accepts or agrees to accept any part of fees, profits or gains from a lawyer, a Company Secretary or broker engaged by such company, firm or person or agent or customer of such company, firm or person by way of commission or gratification.

Question 17.
What are the professional misconduct in relation to members of the Institute generally under first schedule of Company Secretaries Act, 1980?
Answer:
A member of the Institute, whether in practice or not, shall be deemed to be guilty of professional misconduct, if he:
1. Not being a Fellow of the Institute, acts as a Fellow of the Institute.

2. Does not supply the information called for, or does not comply with the requirements asked for, by the Institute, Council or any of its Committees, Director (Discipline), Board of Discipline, Disciplinary Committee, Quality Review Board or the Appellate Authority.

3. While inviting professional work from another Company Secretary or while responding to tenders or enquiries or while advertising through a write up, or anything as provided for in items (6) and (7) of Part I of this Schedule, gives information knowing it to be false.

Question 18.
What are the consequences of non-filing of Annual Return for the Director of Company?
Answer:
1. As per section 92 of Companies Act, 2013, in case the company has not filed its Annual Return from the date by which it should have been filed with fee and additional fees, every officer who is in default shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day during which such failure continues, subject to a maximum of two lakh rupees in case of company and fifty thousand in case of an officer who is in default.

2. As per section 164(2) of Companies Act, 2013, in case the company has not filed its financial statement or Annual Return for continuous period of three financial years, then every person who is or has been director of that company shall not be eligible for re-appointment as Director of that company or appointed in any other company for a period of five years from the date on which the said company fails to do so.

3. As per section 448 of Companies Act, 2013, if in Annual Return any Director or any Person makes a statement:
(a) which is false in any material particulars, knowing it to be false; or

(b) which omits any material fact, knowing it to be material, any person who is found to be guilty of fraud involving an amount of atleast ten lakh rupees or 1% of turnover of the company, whichever is lower shall be punishable with imprisonment for a term which shall not be less than 6 months but which may extend to 10 years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud.

Under section 245 of Companies Act, 2013, class of shareholders or depositors may file an application with the Tribunal alleging that the management or conduct of the affairs of any company are being conducted in a manner prejudicial to the interest of the company, its members or depositors. Such class action may include suite against the company, its directors, officers, experts or any other person for wrongful or fraudulent act. The order passed by the Tribunal shall be binding on the Company, its directors and officers.

Question 19.
Write Short Note on: “Consequences of non-filing of Annual Return on Company”.
Answer:
1. If the company has not filed its Annual Return by which it should have been filed with fee and additional fees, the company shall be punishable with fine which shall not be less than ten thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day during which such failure continues, subject to a maximum of two lakh rupees in case of company and fifty thousand in case of an officer who is in default.

2. As per section 271 of Companies Act, 2013, if the Company has defaulted in filing Annual Returns for the immediately preceding five financial years, the Company may be wound up by the Tribunal.

  • As per section 455(1) of Companies Act, 2013, if the Company has not filed its Annual Return for last two financial years, it will be termed as “inactive company”.
  • As per section 455(4) of Companies Act, 2013, if the Company has not filed its Annual Return for two financial years consecutively, the Registrar shall issue notice to the Company and enter its name in the Register of Dormant Companies.
  • Provisions and procedure for compounding of offences, which are punishable under Companies Act, 2013 are stipulated under section 441.

Secretarial Audit Compliance Management and Due Diligence ICSI Study Material