It is a well-known fact that ‘annual filing fever’ takes over all CS (Company Secretary) offices during October and November after companies hold their AGMs and filing due dates kick in. of the audited financial statements and the annual declaration. However, this year, filing has reached a “feverish” pace and tone thanks to the late publication of electronic forms under the new Companies Act 2013 and also repeated revisions to them. This has created several challenges in CS offices, as well as in companies that struggle to understand and complete the information correctly. Let’s look at some of the challenges involved in preparing and electronically filing an unlisted company’s annual return (AR) for FY14-15:
1. There is an AR extract in MGT9 which is part of the Report of the Board (new requirement under the Companies Act 2013) and then there is MGT7 which is the full AR in electronic version. MGT7 was released only in late September 2015 and continued to evolve as the ‘amoeba’ until it reached its current ‘avatar’ on November 17, 2015. Needless to say, the information previously collected by CS for MGT9 is not exactly the Same as in MGT7. Wondering how MGT9 qualifies as an ‘AR extract on MGT7’? Surely, there was enough time since 2014 to align the two and save businesses and professionals from interpreting and gathering information on the same topic multiple times and from multiple perspectives. Hoping this will be resolved by the annual FY15-16 filing.
2. Corporations are annoyed that CSs go back and forth asking them to classify their business in percentage under 2 different codes: NIC2008 for annual return (both MGT7 and MGT9) and NCPS (National Classification of Goods and Services) o ITC -HS (Indian Business Classification – Harmonized System) for classification in AOC4 (presentation of audited financial statements). This information is not available in the audited financial statements and their annexes. Most companies can’t find the correct classification and so it’s just the ‘almost there’ or ‘nearest’ code. Once broad level sorting is complete in MGT7, the autocomplete tooltip that appears reflects unrelated activity that sends CSs into a state of nervousness resulting in gtalk/whatsapp/phone “question” activity. The lack of clarity is the biggest obstacle that generates different interpretations. We cannot risk making a mistake since the CSs are signing the form or certifying as in the case of MGT8 (for a certain category of companies).
3. In the initial version of MGT7, the details of the share capital division were in the Promoter and Public category. Since public participation is normally relevant for public limited companies, many professionals did not complete the share capital belonging to non-promoters in the case of private unlisted public limited companies. There was confusion about whether it was correct to fill it in the ‘public’ category or not. After countless representations, consultations, webinars, FAQs, etc., this has now been clarified by amending the form to read ‘Breakdown of share capital: share of promoters and non-promoters’.
4. Similarly, Loan in MGT9 clearly meant ‘including increased interest but not due’, whereas in the initial version of MGT7, it simply said Loan. This has now been expanded to read as ‘Loan Including Increased Interest But Not Due’, which aligns both forms. As it is, the information at this depth: of greatest interest, greatest but not due, etc. it is not available for the CS of the financial statements and we have to go back to the client to request the same thing, which delays the whole process. In a nutshell, unless the CS is fully prepared with a complete checklist, it is not possible to prepare the AR. The tragedy is that we had little time to create a sticky checklist, as the electronic form itself has evolved. Many times a form filled out today is not good for tomorrow simply because there was a review. A colossal waste of time and energy in redoing it.
5. Another area is equity participation which in the first version was classified as Indian and Foreign. The question arose as to whether it includes preferred social capital. It is now changed to Equity and Preference, but there is no place to show the division of Indian and foreign shareholding by legal entities. Fixing an anomaly has now resulted in another request for another hotfix in MGT7!
6. What is the meaning of the number of meetings a director is entitled to attend? Does it also include alternate directors? What are the meetings they are entitled to attend? Apparently simple information but that can be interpreted in various ways.
7. Disclosure of the remuneration of Directors and KMP: different positions taken by different professionals. While some say there is no need to disclose this for unlisted companies, some are of the opinion that whether or not they are listed, if a company has an MD/WTD/Manager, etc., they are either designated as Director/KMP u/s 203 of the Law or not. remuneration details must be disclosed. Many companies are sensitive about disclosing details of directors’ compensation, but do not understand that this information is in any case available in the Audited Balance Sheet Exhibit, albeit to a lesser degree of disclosure.
8. Compliance and penalties under other Laws – how are we to know this? Difficult to determine because generally the scope of work of a PCS (Practicing Company Secretary) does not extend to other laws and this is a new requirement. There is also no disclosure of such non-compliance and penalties in the financial statements. How are we going to sign that the information is correct unless we verify? These are just a few gray areas and challenges facing a CS in filing this year’s Annual Statement. Penalties in CSs are significant for incorrect information completed. Therefore, it may be useful to follow the steps below:
– Study the electronic form completely and prepare a checklist of the required information and start only when the complete data is available. At least for next season’s presentation, better clarity may be available.
– Send the completed form to the client for confirmation.
– Where required, insist on a Management Representation letter. Currently, many disclosures are subject to interpretation, and companies do not share certain information based on advice received from other experts or internal decisions.
– Review all the original records before signing the form, considering that as CS you are declaring to that effect as well as its correctness and integrity. For certification in MGT8, in any case a mini-audit must be carried out.