Additional Disclosures required in Board report under Companies Act 2013

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Additional Disclosures required in Board report under Companies Act 2013

The additional disclosures which are required now under the Companies Act, 2013 may be summarized as follows:

1. Number of Board Meetings held during the year, Composition of Audit Committee, and CSR Committee.

2. Extract of Annual return

as prescribed in Form MGT 9 [Section 134(3)(a) of the Act]

3. Additional information in Directors’ Responsibility Statement relating to the statement that the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively and in case of listed companies, statement that directors had laid down internal financial controls and such controls are adequate and operating effectively. [Section 134(5) of the Act]

4. Disclosures relating to Directors / KMP :

Details of Directors or KMP appointed or resigned during the year
Statement on declaration given by Independent Directors (IDs)
Policy on appointment of Directors
In case of re-appointment of IDs disclosure of such appointment
Receipt of commission by whole time Director / Managing Director from its holding / subsidiary company, if any. [Section 134(3)(d) & (e), 149(10) and 197(14) of the Act]

5. Disclosures relating to policies:

Policy relating to the remuneration of the Directors, KMP and other employees [Section 178(4) of the Act]
Statement indicating development and implementation of Risk Management Policy [Section 134(3)(n) of the Act]
Details about the CSR policy developed and implemented as well as CSR report as per prescribed format [Section 134(3)(o) of the Act and Rule 9 of the Companies (Accounts) Rules, 2014]
Details of establishment of vigil mechanism [Section 177(10) of the Act]

6. Disclosures on remuneration of Directors / KMP / Employees:

The ratio of the remuneration of each director to the median remuneration of the employees
The percentage increase in remuneration of each director, Chief Financial Officer, Chief Executive Officer, Company Secretary or Manager, if any, in the financial year
The percentage increase in the median remuneration of employees in the financial year, the number of permanent employees
The explanation on the relationship between average increase in remuneration and company performance

Comparison of the remuneration of the Key Managerial Personnel against the performance of the company

Variations in the market capitalisation of the company, price earnings ratio as at the closing date of the current financial year and previous financial year and percentage increase over decrease in the market quotations of the shares of the company in comparison to the rate at which the company came out with the last public offer in case of listed companies, and in case of unlisted companies, the variations in the net worth of the company as at the close of the current financial year and previous financial year
Average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration

Comparison of the each remuneration of the Key Managerial Personnel against the performance of the company

The key parameters for any variable component of remuneration availed by the directors
The ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year; and affirmation that the remuneration is as per the remuneration policy of the company. [Section 197(12) of the Act and Rule 5 of the Companies (Appointment & Remuneration of managerial Personnel) Rules, 2014]

7. Disclosures on performance evaluation of the Board, its committees and individual directors [Section 134(3)(p) of the Act], Criteria for determining qualifications, positive attributes and independence of a Director [Section 134(3)(e) of the Act]

8. Disclosures on related party transactions

– particulars of contracts or arrangement with related parties in prescribed form AOC 2. [Section 134(3)(h) of the Act and Rule 8(2) of the Companies (Accounts) Rules, 2014]

9. Disclosure of particulars of loans, guarantees or investments made under Section 186 of the Act. [Section 134(3)(g) of the Act]

10. Disclosure of a report on the performance and financial position of each of the subsidiaries, associates and joint venture companies included in the consolidated financial statement is presented. Names of companies which have become or ceased to be its Subsidiaries, joint ventures or associate companies during the year. [Rule 8 of the Companies (Accounts) Rules, 2014]

11. Disclosures relating to Deposits

– Deposits accepted, remained unpaid or unclaimed at the end of a year and the details of deposits which are not in compliance with the requirements of Chapter V of the Act. [Rule 8(5)(v) of the Companies (Accounts) Rules, 2014]

12. Disclosures on ESOP

– options granted, options vested, options exercised, the total number of shares arising as a result of exercise of option, options lapsed, the exercise price, variation of terms of options, money realized by exercise of options , total number of options in force and employee wise details of options granted to KMP, specified employees. [Rule 12(9) of the Companies (Share Capital and Debentures) Rules, 2014]

13. Secretarial Audit Report.

[Section 204 of the Companies Act, 2013]

14. Other details

– in respect of adequacy of internal financial controls with reference to the Financial Statements, significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and company’s operations in future [Rule 8(5) of the Companies (Accounts) Rules, 2014]

Additional Disclosures as required under the Listing Agreement:

Additional requirements under Revised Clause 49 of the Listing Agreement may be summarised as follows:
Web link providing details of familiarisation programmes for IDs.
2 Web link for accessing the policy for determining material subsidiaries.
3. Web link for accessing the policy dealing with related party transactions.
4 Evaluation criteria for performance as established by Nomination and Remuneration Committee.
Penalty for non-compliances
With the intent to make the Board more responsible and transparent, the Act prescribes hefty penalty for non-compliance. It is Rs.50,000 for a company which may extend up to Rs.25 lakhs and for every officer of the Company who is in default, the Act prescribes an imprisonment for a term which may extend to 3 years or with fine of minimum Rs.50,000 which may extend up to Rs.5 lakhs or both.
Voluntary Revision of Board Report:
Section 131 of the Act, which is yet to be notified permits the Directors of the Company to voluntary revise the Board Report if it does not comply with the requirements of Section 134 of the Act. Such revision however can be made in respect of any three preceding financial years and would also require approval of the National Company Law Tribunal.

Conclusion

Though the compilation of all these information pertaining to the disclosures to be made in the Board Report would be a herculean task for many companies at the initial stage but these disclosures in the Board Report are certainly required to ensure accountability of the Board and to build up transparency in reporting norms. The disclosures as required under the Companies Act, 2013 would also align the reporting norms and responsibilities of the Board with the standard global practices followed by foreign countries.


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