Companies Amendment Act 2017

Applicability for Nov 2018 / May 2019 Exams

CA Final (Sec 123 – 148)

Declaration and Payment of Dividend

1) Declaration of dividend [Section 123(1)]
No dividend shall be declared or paid by a company for any financial year except—
a) out of the profits of the company for that year arrived at after providing for depreciation in
accordance with the provisions of sub-section (2), or out of the profits of the company for any
previous financial year or years arrived at after providing for depreciation in accordance with the
provisions of that sub-section and remaining undistributed, or out of both; or Both
 "Provided that in computing profits any amount representing unrealised gains, notional gains or
revaluation of assets and any change in carrying amount of an asset or of a liability on
measurement of the asset or the liability at fair value shall be excluded; or";
b) out of money provided by the Central Government or a State Government for the payment of
dividend by the company in pursuance of a guarantee given by that Government:
 Provided that a company may, before the declaration of any dividend in any financial year,
transfer such percentage of its profits for that financial year as it may consider appropriate to the
reserves of the company:
 Provided further that where, owing to inadequacy or absence of profits in any financial year, any
company proposes to declare dividend out of the accumulated profits earned by it in previous
years and transferred by the company to the reserves, transferred by the company to the free
reserves such declaration of dividend shall not be made except in accordance with such rules as
may be prescribed in this behalf:
 Provided also that no dividend shall be declared or paid by a company from its reserves other
than free reserves.

2) Declaration of Interim dividend [Section 123(3)]

 The Board of Directors of a company may declare interim dividend during any financial year or at
any time during the period from closure of financial year till holding of the annual general
meeting out of the surplus in the profit and loss account or out of profits of the financial year for
which such interim dividend is sought to be declared or out of profits generated in the financial
year till the quarter preceding the date of declaration of the interim dividend:
 Provided that in case the company has incurred loss during the current financial year up to the
end of the quarter immediately preceding the date of declaration of interim dividend, such
interim dividend shall not be declared at a rate higher than the average dividends declared by the
company during immediately preceding three financial years.

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 Accounts and Audit
1) Preparation of Consolidated Financial Statements [Section 129(3)]
 Where a company has one or more subsidiaries or associate companies, it shall also prepare a
CFS (consolidated financial statement) of the company and of all the subsidiaries and associate
companies in the same form and manner as that of its own and in accordance with applicable
accounting standards, which shall also be laid before the AGM.
 Provided that the company shall also attach along with its financial statement, a separate
statement containing the SALIENT FEATURES of the financial statement of its subsidiary or
subsidiaries and associate company or companies in such form as may be prescribed.
 Provided further that the Central Government may provide for the consolidation of accounts of
companies in such manner as may be prescribed. [Substituted by Companies (Amendment) Act,
2017].

2) Re-opening of accounts on court's or Tribunal's orders [Section 130]

a) A company shall not re-open its books of account and not recast its financial statements, unless
an application in this regard is made by the Central Government, the Income-tax authorities, the
Securities and Exchange Board, any other statutory regulatory body or authority or any person
concerned and an order is made by a court of competent jurisdiction or the Tribunal to the effect
that—
i) the relevant earlier accounts were prepared in a fraudulent manner; or
ii) the affairs of the company were mismanaged during the relevant period, casting a doubt on the
reliability of financial statements:
 Provided that the court or the Tribunal, as the case may be, shall give notice to the Central
Government, the Income-tax authorities, the Securities and Exchange Board or any other
statutory regulatory body or authority concerned or any other person concerned and shall take
into consideration the representations, if any, made by that Government or the authorities,
Securities and Exchange Board or the body or authority concerned or the other person concerned
before passing any order under this section.
b) Without prejudice to the provisions contained in this Act the accounts so revised or re-cast under
sub-section (1) shall be final.
c) No order shall be made under sub-section (1) in respect of re-opening of books of account
relating to a period earlier than eight financial years immediately preceding the current financial
year:
 Provided that where a direction has been issued by the Central Government under the proviso to sub-
section (5) of section 128 for keeping of books of account for a period longer than eight years, the books
of account may be ordered to be re- opened within such longer period.

3) Constitution of National Financial Reporting Authority [Section 132]

(1) The Central Government may, by notification, constitute a National Financial Reporting Authority
to provide for matters relating to accounting and auditing standards under this Act.
(2) Notwithstanding anything contained in any other law for the time being in force, the National

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 Financial Reporting Authority shall—
a) make recommendations to the Central Government on the formulation and laying down of
accounting and auditing policies and standards for adoption by companies or class of companies
or their auditors, as the case may be;
b) monitor and enforce the compliance with accounting standards and auditing standards in such
manner as may be prescribed;
c) oversee the quality of service of the professions associated with ensuring compliance with such
standards, and suggest measures required for improvement in quality of service and such other
related matters as may be prescribed; and
d) perform such other functions relating to clauses (a), (b) and (c) as may be prescribed.
(3) The National Financial Reporting Authority shall consist of a chairperson, who shall be a person of
eminence and having expertise in accountancy, auditing, finance or law to be appointed by the
Central Government and such other members not exceeding fifteen consisting of part-time and
full-time members as may be prescribed:
 Provided that the terms and conditions and the manner of appointment of the chairperson and
members shall be such as may be prescribed:
 Provided further that the chairperson and members shall make a declaration to the Central
Government in the prescribed form regarding no conflict of interest or lack of independence in
respect of his or their appointment:
 Provided also that the chairperson and members, who are in full-time employment with National
Financial Reporting Authority shall not be associated with any audit firm (including related
consultancy firms) during the course of their appointment and two years after ceasing to hold
such appointment.
(4) Notwithstanding anything contained in any other law for the time being in force, the National
Financial Reporting Authority shall—
a) have the power to investigate, either suo motu or on a reference made to it by the Central
Government, for such class of bodies corporate or persons, in such manner as may be prescribed
into the matters of professional or other misconduct committed by any member or firm of
chartered accountants, registered under the Chartered Accountants Act, 1949:
 Provided that no other institute or body shall initiate or continue any proceedings in such matters
of misconduct where the National Financial Reporting Authority has initiated an investigation
under this section;
b) have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while
trying a suit, in respect of the following matters, namely:—
i) discovery and production of books of account and other documents, at such place and at such
time as may be specified by the National Financial Reporting Authority;
ii) summoning and enforcing the attendance of persons and examining them on oath;
iii) inspection of any books, registers and other documents of any person referred to in clause (b) at
any place;
iv) issuing commissions for examination of witnesses or documents; (c) where professional or other
misconduct is proved, have the power to make order for—
(A) Imposing penalty of—

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(I) not less than one lakh rupees, but which may extend to five times of the fees received, in case of
individuals; and
(II) not less than Five lakh rupees, but which may extend to ten times of the fees received, in case of
firms;
(B) debarring the member or the firm from engaging himself or itself from practice as member of the
Institute of Chartered Accountant of India referred to in clause (e) of sub-section (1) of section 2
of the Chartered Accountants Act, 1949 for a minimum period of six months or for such higher
period not exceeding ten years as may be decided by the National Financial Reporting Authority.
Explanation.- For the purposes of his sub-section, the expression "professional or other
misconduct" shall have the same meaning assigned to it under section 22 of the Chartered
Accountants Act, 1949.
(5) Any person aggrieved by any order of the National Financial Reporting Authority issued under
clause (c) of sub-section (4), may prefer an appeal before "the Appellate Tribunal in such manner
and on payment of such fee as may be prescribed"
(6) The Central Government may, by notification, constitute, with effect from such date as may be
specified therein, an Appellate Authority consisting of a chairperson and not more then two other
members, to be appointed by the Central Government, for hearing appeals arising out of the
orders of the National Financial Reporting Authority.
(7) The qualifications for appointment of the chairperson and members of the Appellate Authority,
the manner of selection, the terms and conditions of their service and the requirement of the
supporting staff and procedure (including places of hearing the appeals, form and manner in
which the appeals shall be filed) to be followed by the Appellate Authority shall be such as may
be prescribed.
(8) The fee for filing the appeal shall be such as may be prescribed.
(9) The officer authorised by the Appellate Authority shall prepare in such form and at such time as
may be prescribed its annual report giving a full account of its activities and forward a copy
thereof to the Central Government and the Central Government shall cause the annual report to
be laid before each House of Parliament.
(10) The National Financial Reporting Authority shall meet at such times and places and shall observe
such rules of procedure in regard to the transaction of business at its meetings in such manner as
may be prescribed.
(11) The Central Government may appoint a secretary and such other employees as it may consider
necessary for the efficient performance of functions by the National Financial Reporting Authority
under this Act and the terms and conditions of service of the secretary and employees shall be
such as may be prescribed.
(12) The head office of the National Financial Reporting Authority shall be at New Delhi and the
National Financial Reporting Authority may, meet at such other places in India as it deems fit.
(13) The National Financial Reporting Authority shall cause to be maintained such books of account
and other books in relation to its accounts in such form and in such manner as the Central
Government may, in consultation with the Comptroller and Auditor-General of India prescribe.
(14) The accounts of the National Financial Reporting Authority shall be audited by the Comptroller
and Auditor-General of India at such intervals as may be specified by him and such accounts as

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 certified by the Comptroller and Auditor-General of India together with the audit report thereon
shall be forwarded annually to the Central Government by the National Financial Reporting
Authority.
(15) The National Financial Reporting Authority shall prepare in such form and at such time for each
financial year as may be prescribed its annual report giving a full account of its activities during
the financial year and forward a copy thereof to the Central Government and the Central
Government shall cause the annual report and the audit report given by the Comptroller and
Auditor-General of India to be laid before each House of Parliament.

4) Right of member to copies of audited financial statement (Section 136)

(1) Without prejudice to the provisions of section 101, a copy of the financial statements, including
consolidated financial statements, if any, auditor’s report and every other document required by
law to be annexed or attached to the financial statements, which are to be laid before a company
in its general meeting, shall be sent to every member of the company, to every trustee for the
debenture-holder of any debentures issued by the company, and to all persons other than such
member or trustee, being the person so entitled, not less than twenty-one days before the date
of the meeting:
 "Provided that if the copies of the documents are sent less than twenty-one days before the date
of the meeting, they shall, notwithstanding that fact, be deemed to have been duly sent if it is so
agreed by members—
(a) holding, if the company has a share capital, majority in number entitled to vote and who
represent not less than ninety-five per cent. of such part of the paid-up share capital of the
company as gives a right to vote at the meeting; or
(b) having, if the company has no share capital, not less than ninety- five per cent. of the total voting
power exercisable at the meeting: Provided further that";
(c) in the second proviso, for the words "Provided further", the words, "Provided also" shall be
substituted;
(d) for the fourth proviso, the following provisos shall be substituted, namely:—
 'Provided also that every listed company having a subsidiary or subsidiaries shall place separate
audited accounts in respect of each of subsidiary on its website, if any: Provided also that a listed
company which has a subsidiary incorporated outside India (herein referred to as "foreign
subsidiary")—
a) where such foreign subsidiary is statutorily required to prepare consolidated financial
statement under any law of the country of its incorporation, the requirement of this proviso
shall be met if consolidated financial statement of such foreign subsidiary is placed on the
website of the listed company;
b) where such foreign subsidiary is not required to get its financial statement audited under any
law of the country of its incorporation and which does not get such financial statement
audited, the holding Indian listed company may place such unaudited financial statement on
its website and where such financial statement is in a language other than English, a translated
copy of the financial statement in English shall also be placed on the website.’;
(2) A company shall allow every member or trustee of the holder of any debentures issued by the

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 company to inspect the documents stated under sub-section (1) at its registered office during
business hours.
 “Provided that every company having a subsidiary or subsidiaries shall provide a copy of separate
audited or unaudited financial statements, as the case may be, as prepared in respect of each of
its subsidiary to any member of the company who asks for it."
(3) If any default is made in complying with the provisions of this section, the company shall be liable
to a penalty of twenty-five thousand rupees and every officer of the company who is in default
shall be liable to a penalty of five thousand rupees

5) Copy of Financial statement to be filed with registrar [Section 137]

Section 137(1) - Filing of Annual Accounts with ROC
 A copy of the financial statements along with all the documents which are required to be annexed
or attached, duly adopted at the AGM of the company, shall be filed with the Registrar within 30
days of the date of AGM along with Form AOC-4 and AOC-4 CFS. Specified companies given later
are required to file their FS in XBRL format.
 Filing of UNADOPTED Annual Accounts with ROC
 Where the financial statements are not adopted at AGM or adjourned AGM, such unadopted
financial statements shall be filed with the Registrar within 30 days of the date of AGM and the
Registrar shall take them in his records as provisional till the financial statements are filed with
him after their adoption in the adjourned AGM for that purpose.
 Such financial statements adopted in the adjourned AGM shall be filed with the Registrar within
30 days of the date of such adjourned AGM.
 Note – Time limit for filing Annual accounts for OPC - A One Person Company shall file a copy of
the financial statements duly adopted by its member, along with all the documents which are
required to be attached to such financial statements, within 180 days from the closure of the
financial year.
 Filing of Accounts of Subsidiary/ Foreign Subsidiary with ROC
 A company shall, along with its financial statements to be filed with the Registrar, attach the
accounts of its subsidiary or subsidiaries which have been incorporated outside India and which
have not established their place of business in India.
 Provided also that in the case of a subsidiary which has been incorporated outside India (herein
referred to as "foreign subsidiary"), which is not required to get its financial statement audited
under any law of the country of its incorporation and which does not get such financial statement
audited, the requirements of the fourth proviso shall be met if the holding Indian company files
such unaudited financial statement along with a declaration to this effect and where such
financial statement is in a language other than English, along with a translated copy of the
financial statement in English. [Inserted by Companies (Amendment) Act, 2017]

Section 137(2) - Filing of Annual Accounts when AGM is not held

 Where the AGM of a company for any year has not been held, the financial statements duly
signed along with the statement of facts and reasons for not holding the AGM shall be filed with
the Registrar within 30 days of the last date before which the AGM should have been held.

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 Section 137(3) - Punishment in case of non-compliance
Punishment for non-compliance shall be as follows: -
 On Company - Fine of ₹ 1,000 per day but not exceeding ₹ 10 lacs
 MD and CFO of the company, if any, and, in their absence, any other director who is charged by
the Board with the responsibility of complying with the provisions of this section, and, in the
absence of any such director, all the directors of the company.

 Note - Any Reference to Section 403 in this sub-section is omitted via Companies Amendment
Act, 2017

6) Term of Auditor [Section 139(2)]:

a) Section 139(2) provides that listed companies and other prescribed class or classes of companies
(except one person companies and small companies) shall not appoint or re-appoint-
(i) an individual as auditor for more than one term of five consecutive years; and
(ii) an audit firm as auditor for more than two terms of five consecutive years.
b) The Companies (Audit and Auditors) Rules, 2014 has prescribed the following classes of
companies for the purposes of Section 139(2):
(i) all unlisted public companies having paid up share capital of rupees 10 crore or more;
(ii) all private limited companies having paid up share capital of rupees 20 crore 50 crore or more;
(iii) all companies having paid up share capital of below threshold limit mentioned in (2) and (3)
above, but having public borrowings from financial institutions, banks or public deposits of ru-
pees 50 crores or more.

7) Removal, resignation of auditor and giving of special notice [Section 140(3)]

 If the auditor does not comply with sub-section (2), he or it shall be punishable with fine which
shall not be less than fifty thousand rupees fifty thousand rupees or the remuneration of the
auditor, whichever is less but which may extend to five lakh rupees.

8) Eligibility, qualifications and disqualifications of auditors [Section 141(3)]

 Section 141(3)(g)-
a person who is in full time employment elsewhere or a person or a partner of a firm holding
appointment as its auditor, if such persons or partner is at the date of such appointment or
reappointment holding appointment as auditor of more than 20 companies.
Exemption Notification dated 5th June 2015 for Section 141 (3) (g)
(a) Private Companies having PUSC < ` 100 Crores.
(b) One Person Company u/s 2(62)
(c) Dormant Company u/s 455
(d) Small Company u/s 2(85).

 Section 141(3)(i)
a person who, directly or indirectly, renders any service referred to in section 144 to the company
or its holding company or its subsidiary company.

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 Explanation-For the purposes of this clause, the term "directly or indirectly" shall have the
meaning assigned to it in the Explanation to section 144. [Substituted via Amendment Act, 2017]

9) Powers and duties of auditors and auditing standards (Section 143)

143 (1)
 Every auditor of a company shall have a right of access at all times to the books of account and
vouchers of the company, whether kept at the registered office of the company or at any other
place and shall be entitled to require from the officers of the company such information and
explanation as he may consider necessary for the performance of his duties as auditor and
amongst other matters inquire into the following matters, namely:—
a) whether loans and advances made by the company on the basis of security have been properly
secured and whether the terms on which they have been made are prejudicial to the interests of
the company or its members;
b) whether transactions of the company which are represented merely by book entries are
prejudicial to the interests of the company;
c) where the company not being an investment company or a banking company, whether so much
of the assets of the company as consist of shares, debentures and other securities have been sold
at a price less than that at which they were purchase by the company;
d) whether loans and advances made by the company have been shown as deposits;
e) whether personal expenses have been charged to revenue account;
f) where it is stated in the books and documents of the company that any shares have been allotted
for cash, whether cash has actually been received in respect of such allotment, and if no cash has
actually been so received, whether the position as stated in the account books and the balance
sheet is correct, regular and not misleading:
Provided that the auditor of a company which is a holding company shall also have the right of
access to the records of all its subsidiaries its subsidiaries and associate companies in so far as it
relates to the consolidation of its financial statements with that of its subsidiaries.

143(3)(i) -
 The auditor’s report shall also state—
a) Whether the company has adequate internal financial controls with reference to Financial
Statements [Substituted via Amendment Act, 2017] in place and the operating effectiveness of
such controls.
 Section 143(3)(i), shall not apply to a private company:-
(a) which is a OPC or a SMALL company; or
(b) which has turnover < ₹ 50 cr. as per latest audited financial statement or which has aggregate
borrowings from banks or financial institutions or anybody corporate at any point of time during
the financial year < ₹ 25 Cr.

143(14)-
 The provisions of this section shall mutatis mutandis apply to—
a) the cost accountant in practice conducting cost audit under section 148; or
b) the company secretary in practice conducting secretarial audit under section 204

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10) Punishment for contravention (Section 147)
(2) If an auditor of a company contravenes any of the provisions of section 139, section 143, section
144 or section 145, the auditor shall be punishable with fine which shall not be less than twenty-
five thousand rupees but which may extend to five lakh rupees or four times the remuneration of
the auditor, whichever is less:
Provided that if an auditor has contravened such provisions knowingly or willfully with the
intention to deceive the company or its shareholders or creditors or tax authorities, he shall be
punishable with imprisonment for a term which may extend to one year and with fine which shall
not be less than one lakh rupees but which may extend to twenty-five lakh rupees and with fine
which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees
or eight times the remuneration of the auditor, whichever is less.
(3) Where an auditor has been convicted under sub-section (2), he shall be liable to—
(i) refund the remuneration received by him to the company; and
(ii) pay for damages to the company, statutory bodies or authorities or to any other persons or to
members or creditors of the company for loss arising out of incorrect or misleading statements of
particulars made in his audit report.

(4) Where, in case of audit of a company being conducted by an audit firm, it is proved that the
partner or partners of the audit firm has or have acted in a fraudulent manner or abetted or
colluded in any fraud by, or in relation to or by, the company or its directors or officers, the
liability, whether civil or criminal as provided in this Act or in any other law for the time being in
force, for such act shall be of the partner or partners concerned of the audit firm and of the firm
jointly and severally.
Provided that in case of criminal liability of an audit firm, in respect of liability other than fine, the
concerned partner or partners, who acted in a fraudulent manner or abetted or, as the case may
be, colluded in any fraud shall only be liable.

11) Central Government to specify audit of items of cost in respect of certain

companies (Section 148)

(3) The audit under sub-section (2) shall be conducted by a Cost Accountant in practice who shall be
appointed by the Board on such remuneration as may be determined by the members in such manner as
may be prescribed:
Provided that no person appointed under section 139 as an auditor of the company shall be
appointed for conducting the audit of cost records:
Provided further that the auditor conducting the cost audit shall comply with the cost auditing
standards.
Explanation.—For the purposes of this sub-section, the expression “cost auditing standards” mean
such standards as are issued by the Institute of Cost and Works Accountants of India, Institute of
Cost Accountants of India constituted under the Cost and Works Accountants Act, 1959, with the
approval of the Central Government.

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(5) The qualifications, disqualifications, rights, duties and obligations applicable to auditors under
this Chapter shall, so far as may be applicable, apply to a cost auditor appointed under this
section and it shall be the duty of the company to give all assistance and facilities to the cost
auditor appointed under this section for auditing the cost records of the company: Provided that
the report on the audit of cost records shall be submitted by the cost accountant in practice to
the Board of Directors of the company.

Cost Accountant [Section 2(28)] - “cost accountant” means a cost accountant as defined in clause (b)
of subsection (1) of section 2 of the Cost and Works Accountants Act, 1959.
"Cost Accountant" means a cost accountant as defined in clause (b) of sub-section (1) of section 2 of
the Cost and Works Accountants Act, 1959 and who holds a valid certificate of practice under sub-
section (1) of section 6 of that Act; [Substituted via The Companies (Amendment) Act, 2017]

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