Cos Act Amendment Bill practical, easy to implement: Sharma

Q: A lot of amendments going through as was widely expected of course reporting of fraud and related party transactions etc. What is your first take on the amendments that we have seen go through the Lok Sabha today?

A: We expected a lot more through these amendments but at least there are a few in place which probably makes that more practical and easier to implement. A couple of key ones I would highlight from Grant Thornton’s perspective. First being with respect to related party transaction it has been a relief to align some of the provisions with the same requirements. Clause 49 was revised and now audit committee can give an omnibus approval, which means a onetime approval for transaction approval limit that was not there in the Companies Act.

So companies act actually provided transaction by transaction approval by the audit committee for the related party transactions. So it made it very complicated for a public company or listed company who had more flexibility with the same requirements as compared to the companies act. So, that just aligns the requirements to the SEBI requirement which is good.

The other one which was highlighting at this point and obviously we have got to read the fine print is in relation to the fraud reporting. Auditors were supposed to previously prior to this amendment report every possible fraud to the government. It could have been even a minor expense being fraud by a junior employee which means like Rs 100 and that needs to be reported to the central government obviously taking a lot of time, effort from everyone’s side to report, to analyse, to investigate and file a report with the government.

Obviously it would have been very difficult; the government is bringing in through this amendment at threshold. We don’t know what the threshold is yet which obviously is going to get prescribed through the rules but at least there will be a threshold up to which the reporting needs to be done only through the board of directors or audit committee. So that is going to be a big relief.

Q: I want you to throw light also on the amendments that relate with the winding up of companies. To what extent will they make the procedure now; a little simpler, will we see easier winding up and as a result will we actually see more companies file for the winding up option?

A: I think so but I am yet to get into the details of that but that is what I believe. I would agree to that.

Q: Any other amendments that you think really stand out, that will immediately have an impact on the way we are seeing auditors deal with the situation right now?

A: Other than these two, there were a couple of corrections made and there is a punishment provided for violation of law with respect to acceptance of deposit, which is good. The other big change I would say is changing the special resolution requirement for related party transaction to an ordinary resolution requirement. So, previously three fourths had to agree to really approve a related party transaction which could have been really difficult in a situation where the minority numbers are very small but at least all these resolutions which are more than 50 percent seems to be more practical to me.