Recent legislative amendments have brought sweeping changes to India’s corporate compliance landscape, strengthening regulatory oversight while introducing targeted relaxations for small companies and IFSC entities.
1. Strengthened NFRA Powers
Following the Delhi High Court’s Deloitte ruling upholding its constitutional validity, the NFRA now has enhanced enforcement authority. It can issue advisories, censure auditors, mandate additional training, and refer matters to the government. Professional misconduct includes contravention of the Act or NFRA rules, punishable with imprisonment, fines, and debarment. Auditors under NFRA jurisdiction must file prescribed returns; failure attracts penalties up to ₹25 lakh.
2. Revised Auditor & Board Requirements
Auditor Compliance: The government may exempt certain companies from mandatory statutory audit. Every partner in an audit firm must now register with a statutory Indian body. A blanket ban on any non-audit services for prescribed class of companies is introduced, extending three years post-tenure. Non-attendance of general meetings by auditors now attracts penalties under Section 147(2).
Secretarial Audit: The role now explicitly requires a “company secretary in practice.” A firm can be appointed if majority partners are practicing company secretaries registered in India.
Board Meetings & Reports: AGMs/EGMs can be held physically, via VC, or in hybrid mode; at least one AGM every three years must be physical. Board’s report must now include explanations on all auditor observations, qualifications, adverse remarks, and reasons for rejecting any Audit Committee recommendation. Voluntary revision of financial statements for any of the three preceding financial years is permitted.
3. CSR Relaxations
The net profit threshold for CSR obligation rises from ₹5 crore to ₹10 crore. No CSR committee is required if obligation is up to ₹1 crore (raised from ₹50 lakh). The government can exempt prescribed classes of companies from CSR. The timeline to transfer unspent CSR amount for ongoing projects to the ‘Unspent CSR Account’ increases from 30 to 90 days after the financial year end.
4. Director Accountability & Eligibility
Disqualification triggers if financial statements or annual returns are not filed for two consecutive financial years (reduced from three). DIN can now be deactivated or cancelled for non-compliance or disqualification. A person is ineligible to be a director if penalized for related-party transaction defaults under Section 188 in the last five years. Independent director criteria now cover the current financial year; the three-year cooling-off period applies to holding, subsidiary, and associate companies as well. Additional director’s tenure changes to the earlier of the next general meeting or three months.
5. Small Company Definition Expanded
Paid-up capital threshold doubled to ₹20 crore; turnover threshold doubled to ₹200 crore, significantly widening the scope of “small companies” eligible for lighter compliance.
6. Fast-Track Mergers & Buy-Back Flexibility
Mergers: Approval threshold for members and creditors reduced from 90% to 75% (in value) of those present and voting.
Buy-Back: Prescribed companies can now conduct two buy-backs within a year (subject to a six-month gap between closures). Higher buy-back limits (beyond 25%) may be permitted. Affidavit for solvency replaced by self-declaration. Buy-back of RSUs/SARs is introduced.
7. IEPF & Unpaid Dividend
Any dividend not claimed for shares transferred under Section 124(6), as well as unclaimed buy-back proceeds remaining unpaid for seven or more years, must be transferred to the Investor Education and Protection Fund (IEPF).
8. IFSC (Gift City) Companies & LLPs
Companies: Must maintain share capital, books, and financial statements in permitted foreign currency. Fees/penalties remain in INR. Existing IFSC companies get a transition period to convert INR capital.
LLPs: Specified IFSC LLPs must have registered office within IFSC and include “International Financial Services Centre LLP” in name. Partner contributions and accounts must be in permitted foreign currency. Changes in partners can be filed annually. Conversion of specified trusts (registered with SEBI/IFSCA) into LLPs is now permitted.
9. Other Key Amendments
Loan Prohibition: Extended to LLPs where a director or relative is a partner (amending Section 185).
Digital Modes: Prescribed companies must maintain websites, email systems, and report details to RoC.
Financial Year: Companies can now realign financial year to 31st March of the following year based on commercial considerations, not just foreign holding reasons.
Share Capital Schemes: RSUs and SARs recognised alongside ESOPs, requiring shareholder special resolution.
Strike-off & Liquidation: Companies with no significant accounting transactions for two financial years, or failing to file returns for two consecutive years, can be struck off. Summary liquidation now requires satisfaction of even one condition (not all).
10. Valuation Framework
IBBI becomes the apex regulator for registered valuers. All valuations under the Companies Act must be done by a registered valuer appointed by the Audit Committee or Board. The framework extends to LLPs mutatis mutandis, with a comprehensive penalty and appeal regime
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