Director of a Company

Meaning of Director

In simple terms, the director is the supreme executive authority in the

company, who is entrusted with the management and control of the
company’s affairs. The team of directors is responsible for the entire
management of the company’s state of affairs. These teams of directors
are collectively known as Board of Directors.

The term Director is defined under section 2(34) of Companies Act

2013. It states that a director means a director appointed to the Board
of Company.
 Legal Position of Directors
Describing the precise legal role of directors in a company can be quite challenging.
Judges have used various terms to define directors, such as agents, trustees, and
managing partners. Directors are individuals who have been duly appointed by the
company to direct and manage its affairs. However, these terms, like agents and
trustees, do not cover all of their powers and responsibilities comprehensively.

In the case of Ram Chand & Sons Sugar Mills Pvt. Ltd. v. Kanhayalal Bhargava
(1966), it was acknowledged that it’s indeed difficult to provide an exact legal
position of a director in a company. Judges have described it as a multi-dimensional
role, which can be viewed as that of an agent, trustee, or manager, even though
these terms may not have the same legal implications in a strict legal sense.
 Directors as Agents
A company cannot independently take action in its own capacity and requires a
representative. This representative role is fulfilled by the directors, establishing a principal-
agent relationship.
In this relationship, directors possess the authority to act and make decisions on the
company’s behalf. Any contracts or transactions made on behalf of the company render
the company responsible, while the directors remain free from personal liability. Directors
merely sign and execute contracts on behalf of the company.
In the case of Ferguson v. Wilson (1904), it was legally recognized the legal position of
directors as agents of the company. This acknowledgement stems from the legal principle
that a company, as an artificial entity, cannot function independently; it necessitates an
agent to act on its behalf.
 Director as a Trustee
Within a company, the legal position of director is also as a trustee. This trustee role
implies that directors manage the company’s assets and work in the best interests of the
company.

A trustee is someone who can be entrusted with the company’s resources and acts to
achieve the company’s objectives rather than for personal gain. Furthermore, a trustee is
granted certain powers, such as share allocation, issuing calls, accepting or declining
transfers, etc., which are referred to as powers in trust.

In the case of Dale & Carrington Investment (P.) Ltd. v. P.K. Prathapan (2004), it was
emphasized that directors must act in a fiduciary capacity. This means they have a duty to
act on behalf of the company with the utmost care, skill, good faith, and due diligence,
primarily in the best interests of the company they represent.
 Director as a Managing Partner

Directors of a company act as representatives of the shareholders,

carrying out their will and objectives. They work on behalf of the
shareholders and their interests, which grants them significant powers
and the ability to perform functions that are essentially proprietary in
nature.

The company’s Memorandum of Association (MOA) and Articles of

Association (AOA) establish the board of directors as the highest
authority for policy-making and decision-making.
 Conclusion

The legal position of directors in a company is multifaceted and includes

roles as agents, trustees, managing partners, and officers. Directors act as
representatives of shareholders, wielding substantial powers and making key
decisions. They operate under the company’s governing documents as the
supreme authority.

While they are not employees in the traditional sense, they can enter into
special contracts to hold an employee status. Directors also bear a fiduciary
duty toward the company, ensuring they act with care, good faith, and
diligence in its best interests. This intricate role underscores the pivotal
position directors hold in guiding and safeguarding a company’s affairs.
 Basis Shareholder Board of Directors
Eligibility Any individual or non individual entity Individuals who are not minors

Roles Holds part ownership of the company Controls the management of the company

Responsibilities Infuses capital into the company Ensures that the company is legally
compliant
Decision making Takes crucial decisions regarding company’s Takes crucial decisions regarding company’s
financial performance internal management
Remuneration Receives dividend in percentage of share of Receives remuneration for professional
ownership plus capital gain services offered to the company
Induction Allotment of shares Appointment by promoters/shareholders

Minimum Number Private company: 2 Private company: 2

Public company: 7 Public Company: 3
OPC: 1 OPC: 1
Maximum Number Private company: 200 Private company: 15
Public company: unlimited Public Company: 15
OPC: 1 OPC: 15
 DUTIES OF DIRECTOR (SECTION 166)
• Subject to the provisions of this Act, a director of a company shall act in accordance with the articles of the
company.
• A director of a company shall act in good faith in order to promote the objects of the company for the
benefit of its members as a whole, and in the best interests of the company, its employees, the
shareholders, the community and for the protection of environment.
• A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall
exercise independent judgment.
• A director of a company shall not involve in a situation in which he may have a direct or indirect interest that
conflicts, or possibly may conflict, with the interest of the company.
• A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to
himself or to his relatives, partners, or associates and if such director is found guilty of making any undue
gain, he shall be liable to pay an amount equal to that gain to the company.
• A director of a company shall not assign his office and any assignment so made shall be void.
• If a director of the company contravenes the provisions of this section such director shall be punishable with
fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
 Grounds for disqualification of Director (Section 164)
• When the company does not pay interest on deposits or does not return the deposit
received.
• If the organization fails to pay the required interest or repay the bonds by the due date.
• Failure to pay the declared dividend and continuing this activity for more than one year may
result in the disqualification of the director of the company.
• If the director have been declared insolvent.
• If the director was previously disqualified by the court.
• If the director has been convicted of a criminal offense and sentenced by a court to
imprisonment for more than 6 months.
• If the court determines that the director is mentally ill.
• If the director of the company is found guilty under section 188 of the Penal Code for party
transactions carried out by the director in the previous five years.
 Removal of Director (Section 169)
Section 169 of the Companies Act, 2013 deals with the removal of directors from a company.

• Removal by Ordinary Resolution: A director of a company can be removed by the shareholders of the company through
an ordinary resolution in a general meeting. This requires a simple majority vote.

• Special Notice: A special notice of the intention to remove a director must be given to the company. This notice should be
sent at least 14 days before the meeting.

• Opportunity to be Heard: The director being removed must be given an opportunity to represent themselves. They have
the right to make a written representation to the company or address the shareholders at the meeting.

• Board’s Role: The board of directors can remove a director only if it is allowed by the articles of association, and it typically
applies to a situation where a director is appointed by the board (e.g., in case of casual vacancies). Removal by the board
doesn't need the approval of the shareholders.

• Reasons for Removal: Removal can be for any reason, including lack of performance, misconduct, or violation of legal
obligations, but the director should be given a fair chance to defend themselves.

• Removal By tribunal: The Director can be removed by tribunal on an application made for the relief of cases of oppression
and mismanagement, etc. (S. 242)

This section ensures that the process of removing a director is transparent and involves due process.
 Types of Directors
• First Director:

Section 152 of the Act provides for the appointment of First Directors, accordingly, where there is no provision made in
articles of association of the company for appointment of first directors then the subscribers to the memorandum who are
individuals shall be deemed to be the first directors of the company.

Promoter can be the 1st Director. When there will be the 1st AGM, then the directors can be appointed.

• Resident Director:

Section 149(3) provides that every company shall have at least one director who stayed in India for a total period of not less
than 182 days during the financial year.

• Women Director:

Second Proviso to section 149(1) read with rule 3 of Companies (Appointment and Qualification of Director) Rules, 2014
following class of companies must have at least one women Director.

• Nominee Director:

Nominee Director means a director nominated by any financial institution in pursuance of the provisions of any law for the
time being in force, or of any agreement, or appointed by any government, or any other person to represent its interests. He
is appointed on behalf of the interested parties. Nominee director is excluded from being considered as Independent
Director.
 Continued…
• Shadow Director:

A person who is not appointed to the Board of Director but whose instructions the Board is accustomed to act is responsible as
a director of the company unless he/she is offering advice in his/her professional role.

• Executive Director:

It is defined in section 2(94). It means a whole time director. They are internal professionals to the organization and are
involved in the daily functions of the company. Any person who is full time employee of the company (i.e. the whole time
director) or who is responsible for the day to day operations of the company (i.e. managing director) will be called an executive
director.

• Non Executive Director:

The Act does not define non executive director. They are not involved in day to day functions or activities of the company but
still they are on Board for may be legal requirement. They are not employed by the company but act as independent advisors
or directors to help the company achieve its goals. They are involved in policymaking and planning exercises and routinely
monitor the company's executive directors to ensure they act in the interest of corporate stakeholders.

• Rotational Director:

Directors whose period of office is liable to retire by rotation in every Annual General Meeting and eligible for reappointment
accordance with the provision of section 152 of the Companies Act, 2013 Rotational directors are also known as retiring
directors
 Continued…

• Additional Director:
Additional directors are non-elected directors appointed by the board of directors of a company to serve for a
temporary period. These directors are appointed to provide specialized skills or knowledge in a particular area that is
not already present on the board. The board of directors of a company can appoint additional directors at any time
between two annual general meetings (AGMs) of the company. The additional directors serve until the next AGM,
where they can be re-appointed or replaced by the shareholders.
• Alternate Director:
An alternate director is an individual who is appointed to attend a board meeting on behalf of the director of
a company where the principal director would be otherwise unable to attend.
• Small Shareholder Director:
A small shareholder is a person who is holding shares of nominal value amounting to a maximum of Rs 20,000 in
a public company. Small shareholders are entitled to elect a director in a listed company. The directors elected by
these shareholders will be known as a ‘Small Shareholders Director’.
• Independent Director:
An independent director refers to the board member, not the organization, and helps share a neutral opinion as they
are not attached to the existing management. Their primary role includes setting top executive remuneration,
assessing any situation related to the corporate finance decision making. They also play an important role in
managing and controlling conflicts in the organization.
 Appointment of Directors (section 152)
• Articles of Association
• By General Meeting
• Appointment by Board of Directors
 Filling up casual vacancies
 Appointment of Additional Directors

 Appointment of Alternate Directors

 Nominee Director

• By Tribunal
• By Promoter/ Central Government
• By Small Shareholders
 Director Identification Number (DIN), ( Section 153 to 159)
DIN i.e. Director Identification Number is a unique identification number assigned to an individual who acts as a
director or intends to become a director of a company. The concept of DIN was introduced in the Companies Act, of
2006 and continues thereafter.
The main purpose of DIN is to maintain a database of directors whereby their activities in corporate governance can be
traced.
Every individual who wishes to get appointment as a director of a company is required to apply to Ministry of
Corporate Affairs (MCA) in prescribed format. Upon scrutiny of application and supporting documents as prescribed,
MCA assigns a unique DIN to the applicant. This DIN remains the same throughout the life time even if the director
changes the companies.
Requirement of DIN is mandatory to all individuals who wants to be appointed as director. Individuals identity and
background can be traced preventing fraudulent practices thereby protecting the interest of shareholders of the
company.
Directors are required to quote their DIN in all financial documents, filings and communications related to company.
Example, annual reports, financial statements, returns, etc.
 Section 153-159 Director Identification Number (DIN)
• Application for allotment of Director Identification Number (Section 153)
Every individual intending to be appointed as director of a company shall make an application for allotment of Director
Identification Number to the Central Government in such form and manner and along with such fees as may be
prescribed.

• Allotment of Director Identification Number (Section 154)

Central Government should allot a DIN, as prescribed within one month of receipt of application
• Prohibition to obtain more than one DIN (Section 155)

No individual, who has already been allotted a Director Identification Number under section 154, shall apply for, obtain
or possess another Director Identification Number.
• Director to intimate DIN (Section 156)
Every director on receipt of DIN, within one month should inform the company or companies where he is a director
Continued…

• Company to inform DIN to Registrar (Section 157)

It says that the company on receipt of DIN, should inform DIN of director to the Registrar within 15 days.
Failure to inform, the company will be liable to penalty.

• Obligation to indicate DIN (Section 158)

Section 158 makes it obligatory to every person or company to mention the DIN where the information
pertains to a director or contains a reference to any director.

• Punishment for Contravention (Section 159)

If any individual or director of a company, contravenes any of the provisions of Section 152, 155 and 156,
such individual or director of the company shall be punishable with imprisonment for a term which may
extend to six months or with fine which may extend to fifty thousand rupees, and where the
contravention is continuing one, with a further fine which may extend to five hundred rupees each day.
 Powers of Directors (Section 179)

• Calls on Shares
• Buy Back of Securities
• Issue of Securities/Debentures
• Borrow Monies
• Power to Invest
• Loan and Guarantee
• Financial Statement
• Diversification of Business
• Amalgamation
• Taking Over
 Liabilities of Director

Liability Criminal
to Liability
Company

Liability to
the Third
Party
 Liability to Company
• Liability for Ultra Vires Acts Objects
Directors are bound by the company's Memorandum of Association and Articles of Association. If
they act beyond the powers (ultra vires) of the company, the company has the right to hold them
liable. Directors are accountable for unauthorized actions that are not in line with the company's
constitution, and the company can seek compensation for any damage caused by such
unauthorized acts.
• Liability for Mismanagement and Negligence
If the company suffers financial loss or damage due to mismanagement or negligence on the part
of the directors, the directors can be held liable for the resulting loss. Section 166 and Section 184
of the Companies Act, 2013, require directors to act in good faith and disclose any potential
conflicts of interest. If a director fails to meet these obligations, the company may seek
compensation.
Continued…

• Liability for Breach of Trust

If a director is involved in fraudulent activities, the company can hold them personally liable for any
losses or damage caused. Section 447 of the Companies Act, 2013, stipulates severe penalties for
directors engaged in fraud. The company has the right to claim compensation for any financial loss
incurred due to the director’s fraudulent actions.
Directors are responsible for the prudent management of the company’s funds. If directors use
company funds for personal gain or in violation of the company’s policies or articles, they can be
held personally liable to the company for any financial loss incurred.
If a director signs financial statements or any documents containing false or misleading information,
they can be held liable for damages to the company. For example:
o Signing fraudulent financial statements.
o Providing false statements to the Registrar of Companies (RoC) or to auditors.
o In such cases, the company can seek to recover any damages caused by the false statements or
misrepresentations made by the director.
 Liability to Third Party
• Liability as to Contracts
o Contract Not Approved by the Board:
Under the Companies Act, 2013, certain contracts may require board approval before being entered into, especially if
they involve significant financial commitment or are not part of the company's ordinary course of business. If a director
enters into a contract without obtaining the necessary board approval, the contract may not be binding on the
company, and the director may face personal liability.
o Liability in Case of Tortious Acts in the Course of Contracting:
Directors may be personally liable for torts (wrongful acts) committed during the execution of contracts. If a director
acts negligently or unlawfully while performing their duties, and the third party suffers harm as a result, the director
may be held personally liable.
o Liability for Non-Disclosure of Interest (Section 184)
Directors are required under Section 184 of the Companies Act, 2013, to disclose any interest they have in contracts or
arrangements with the company. If a director fails to disclose an interest in a contract, and this failure harms the third
party (e.g., causing a conflict of interest that affects the contract’s execution), the director may be personally liable for
any losses incurred by the third party.
 Continued…

Liability for Mis-representation of Prospectus:

Directors may be held personally liable for any false statements included in the prospectus, even if they did not
make those statements personally but were involved in the drafting or approval of the prospectus.
Directors may also be held liable for omitting material facts from the prospectus. This means leaving out critical
information that an investor would need to make an informed decision about subscribing to the company’s
securities.
• Examples of Misrepresentation in a Prospectus
• Overstated Profits: The prospectus may state that the company has high profitability, but it turns out to be a
misrepresentation based on inflated figures.
• Undisclosed Liabilities: If the prospectus fails to disclose significant debts or contingent liabilities (e.g., lawsuits),
and investors suffer losses after learning of these liabilities, directors can be held liable for the omission.
• Failure to Disclose Risks: If the prospectus fails to mention material risks, such as ongoing litigation or market
volatility, investors could be misled and may sue the directors for damages.
 Criminal Liability
Under the Companies Act, 2013, directors and officers of a company can face
criminal liability for various offenses related to the company’s operations,
particularly for acts of fraud, misrepresentation, non-compliance with statutory
duties, and violations of corporate governance norms. The Act outlines several
provisions that can lead to criminal liability for directors, including penalties such as
fines and imprisonment.
• Money Laundering and Financial Crimes
• Non-Compliance with Orders from the Tribunal
• Director’s Liability in Case of Violation of Corporate Governance Norms
• Failure to Maintain Proper Books of Accounts
• Non-Compliance with Statutory Requirements
• False Statements in Financial Statements
• Fraudulent Activities
 Independent Director

An independent director is a non-executive director who does not have

any kind of relationship with the company that may affect the
independence of his/her judgment. An independent director should
not have been a partner or executive director of the
auditors/lawyers/consultants of the company in preceding three years
or should not hold 2% or more of shares of the company.
 Requirement for Independent Director

As per the Companies Act 2013, all listed public limited

companies are mandatorily required to have at least one-third of the
total number of directors as an independent directors. Unlisted public
companies should appoint at least two independent directors in the
following situations:
• If the paid up share capital is in excess of Rs.10 crores;
• If the turnover is in excess of Rs.100 crores;
• If the total of all the outstanding loans, debentures and deposits is in
excess of Rs.50 crores
 Duties of an Independent Directors
• Aid in bringing an independent judgment to bear on the Board’s deliberations particularly on issues of
strategy, performance, risk management, resources, key appointments and standards of conduct;
• Enable an objective view in the evaluation of the performance related to board and management;
• Examine the performance of management in meeting the decided goals and objectives and examine the
reporting of performance;
• Satisfy themselves on the reliability of financial information and that financial controls and the systems
of risk management are considered robust and defensible;
• Protect the interests of all stakeholders, mainly the minority shareholders;
• Balance the conflict of interest of the stakeholders;
• Decide suitable levels of remuneration of executive directors, key managerial personnel and senior
management and have a major role in appointing and where essential recommend removal of executive
directors, important managerial personnel and senior management;
• Moderate and adjudicate in the interest of the company as a whole, in the situations of conflict between
the management as well as shareholder’s interest.
Appointment of Independent Director
While selecting an independent director, the board of directors must ensure that there is an
appropriate balance of skills, experience, and knowledge in the Board so as to enable the
Board to discharge its functions and duties effectively. The appointment of an independent
director of the company must be approved at the meeting of shareholders.

Re-Appointment
The independent directors are subject to their performance evaluation by other directors. Their re-
appointment would be considered based on their performance appraisal report.

Resignation or Removal
The independent director could resign or could be removed just like any other director. Upon
resignation or removal, the vacancy is to be filled in by the Board within a period of 180 days from
the date of either resignation or removal.
 Remuneration of Director
The term remuneration is defined under section 2(78) of Companies Act 2013. it defines the term as money or
its equivalent provided or given to a person in return for the services provided by him.
The first clause of the section lays down the maximum remuneration payable by a public company. Section
197(1) states that for a financial year, the total managerial remuneration that is paid by the public company to
the managerial personnel and other directors, including the managing director, whole time director, shall not
be more than 11% of the net profit of the company. This net profit is calculated as prescribed under section
198 of the Act of 2013. Also this remuneration is not deducted from the Gross Profit.
The proviso clause of section 197(1) states that a company may exceed the limit of 11% and authorize the
payment of remuneration exceeding 11% in a general meeting.
However, it is important to note that the company, must do so in compliance with Schedule V.
The proviso further states that the remuneration paid to any managing director, whole time director or
manager shall not exceed 5% of the net profit of the company. Also, if there is more than 1 such director, then
exceeding limit for remuneration to all such directors and managers must not exceed 10% when taken
together. In the case of remuneration that is paid to the directors who are neither the managing director nor
the whole time director, the remuneration shall not exceed 1% of the net profits of the company, if there is
managing or whole time director or manager. In any other case it shall not exceed 3%.
Thank You
MANAGING DIRECTOR AND MANAGER
 INTRODUCTION
‘Managing Director’ has been defined under Section 2(54) of Companies Act to mean a Director, who by virtue of
the articles of a company or an agreement with the company or a resolution passed in its general meeting or by its
Board of Directors is entrusted with substantial powers of management of the affairs of a company.
Under the Companies Act, 2013, the role and provisions concerning the Managing Director (MD) are specified
primarily under Section 196 to 200 of the Act.
The explanation to Section 2(54) clarifies that certain acts such as those mentioned below which are done as part of
routine administrative acts would be considered as substantial powers.
• Pinning the company’s common seal with the document.
• Draw and endorse any cheque/negotiable instrument on the account of the company,
• Sign any certificate of share,
• Direct registration of transfer of any share.
A Director of a company is further eligible to be selected as MD of company. It is essential to add the MD in the list
of Key Managerial Personnel as stated by the Companies Act.
 Appointment of Managing Director (MD)

• Section 196 of the Companies Act, 2013 deals with the appointment
of a Managing Director.
• A company may appoint a Managing Director if its Articles of
Association (AOA) allow for such a position.
• The appointment must be approved by the Board of Directors, and it
must also be ratified by the shareholders in a general meeting.
• Terms of Appointment: The term of appointment of the Managing
Director is limited to five years, and they can be reappointed after
that period.
 Procedure For Appointment
• The company shall first obtain consent for appointment as Managing Director from the proposed
Managing Director.
• Once the consent and declaration of disqualification has been obtained from the proposed
Managing Director, a board meeting after the requisite notice must be conducted by the
company.
• The board meeting is then to be conducted where the board resolution to appoint such a person
as the managing director must be passed. Furthermore, a date is also to be fixed for holding a
general meeting of the company.
• The resolution passed at such board meeting has to be filed with the Registrar of
Companies (ROC) in form MGT-14 within 30 days of passing of such resolution.
• A special resolution is required to be passed by the shareholders of company stating the
appointment of the MD.
• It would be worth noting that if the appointment of a person as Managing Director is not
approved at the general meeting, then any act done by him before such approval shall not be
deemed valid.
 Eligibility/Qualification

• The MD must also not be convicted of any offence relating to the

promotion, formation, or management of companies.
• Age limit is between 21-70 years. In case someone is to be appointed
who is above the age of 70, a special resolution is required
• The person cannot be an insolvent at any time
• Such a person has not at any time suspended payment to his
creditors.
• Such a person has not been convicted of an offence and sentenced
for a period of more than 6 months.
 Power/Role of Managing Director
• The Managing Director is typically responsible for the day-to-day management of the company and
reports to the Board of Directors.
• The specific powers and duties of the Managing Director should be clearly defined in the agreement
entered into between the company and the MD.
• The MD must act in the best interest of the company and manage its affairs as per the Board's
directions.
• Act as a bridge between the employees and the board of directors.
• Ensure smooth and efficient working in the day-to-day operations of the company.
• Issuing necessary directions to the various departments of a company.
• Providing strategic advice to the board and chairperson.
• Overseeing the company’s financial performance and developing strategies for more efficient utilization
of the company’s funds.
• The Managing Director shall exercise the above functions with due care and diligence.
 Removal of Managing Director
• The Board of Directors has the power to remove the Managing Director
before the expiry of their term, subject to certain conditions, such as the
terms of the agreement with the Managing Director.
• A special resolution may also be required to remove the MD by the
shareholders.

Disclosure and Filing Requirements

• Any changes in the position of the Managing Director, such as
appointment, reappointment, or removal, must be disclosed to the
Registrar of Companies (ROC) and reflected in the company’s records.
• The company must file certain forms with the ROC to reflect these changes
(e.g., Form DIR-12).
 MANAGER
As per Section 2(53) of the Companies Act, 2013, “manager” means an individual
who, subject to the superintendence, control and direction of the Board of
Directors, has the management of the whole, or substantially the whole, of the
affairs of a company, and includes a director or any other person occupying the
position of a manager, by whatever name called, whether under a contract of
service or not.
A manager is a person responsible for supervising and motivating employees and
for directing the progress of an organization/ Company. Every company grow when
their employees performs good and employees performs best when they are
managed by a Manager. They are that link between Top management’s route map
to workers who are responsible for execution.
Different Countries have their different definition and powers lying there is no
universal roles defined for Managers and different qualification to criteria for
eligibility.
First and foremost, a manager is tasked with setting goals and objectives for
their team, aligning these with the organization’s broader mission and vision.
They play a crucial role in defining the strategic direction that their team
should follow. They are also responsible for day-to-day operations. They must
organize tasks and resources to ensure that work progresses efficiently.

Managers are also tasked with monitoring and evaluating performance. They
must assess how well the team is doing, identify areas for improvement, and
make decisions to optimize performance. Effective communication is vital for
managers as they must convey information clearly to their team.
 Appointment of Manager (Section 196)
• Eligibility: A company can appoint a manager who must be an individual, not a
body corporate.
• Terms and Conditions: The appointment must be for a period not exceeding 5
years, and the terms of appointment, including the remuneration, must be
approved by the shareholders via a resolution.
• Resolution: The appointment must be approved by a special resolution in the
case of a public company.
• Consent: The manager must give consent in writing to act as the manager, and
such an appointment must be filed with the Registrar.
• Remuneration: The remuneration of the manager is subject to limits prescribed
under the Act, especially in case of a public company or a listed company.
Parameters Manager Managing Director

Position in Hierarchy Mid-level or lower-level position Top of the organization hierarchy

Limited and focusing on day-to-day Broad, encompassing the entire

Scope of responsibility
activities organization

Significant decision-making
Operational decisions within their
Decision-making authority authority and can make high-level
designated area of responsibility
strategic decisions

To the board of directors,

Accountability To higher-level executives
shareholders and stakeholders

Primarily responsible for

Contribute to the execution of the
Role in Strategy formulating and executing the
company’s strategy
company’s strategic vision
Board Meeting
 Introduction

Board Meetings are the furnace in which corporate destinies are mapped out and strategic
decisions are made; i.e., meeting at the highest level where board members or their representatives
are present. Under the Companies Act, 2013, which requires regular gatherings to discuss important
issues impacting the company, these meetings are required by law. Effective governance is ensured
by a well-organized board meeting, which promotes accountability and transparency. Within the
complex world of corporate governance, Board Meetings are essential occasions that influence a
company's course. It is crucial to comprehend the subtleties involved in holding these meetings to
guarantee adherence to the Companies Act, 2013.
In every company, the Board of Directors is the supreme authority and has the power to make all
the major decisions of the company. The board is also responsible for managing the affairs of the
company.
For smooth functioning and management, Board Meetings must be held at frequent
intervals. The schedule for Board Meetings is as follows:

• Section 173 of the Companies Act provides that all public and private companies must
hold four board meetings in a calendar year.

• A company registered under Section 8 of the act must hold a board meeting or the
government body at least once in six months.

• Small companies, Dormant companies, and One Person Companies shall come together
in a meeting at least once in each half of the calendar year.

Gap between two Board Meetings:

In addition to the above, as per Section 173 of the Act, 120 days is the maximum gap
interval between two consecutive board meetings in a single calendar year.
 Notice of Board Meetings
The Notice of Board Meetings is the first light that signals that the discussions are about to begin. It
is stated in Section 173(3) of the act that a meeting shall be called by notice of not less than 7 days
to each and every director in writing. This official notice, which includes the meeting's date, time,
and location, is sent to each and every director. It is crucial to comply with the statutory deadlines
for the issuance of notices in order to give directors enough time to get ready and participate
actively in the discussions.
• Issuance: All directors must receive notice of a board meeting.
• Notice Mode: It may be sent electronically, by hand delivery, or by post.
• Timeframe: The notice must be sent in writing no later than seven days prior to the meeting, or
within the time frame specified in the company's articles.
 Quorum for the Board Meetings

To ensure the legitimacy of a Board Meeting, a quorum must be present. Quorum implies the
minimum number of members of the board to conduct a valid board meeting. This threshold is
outlined in the Companies Act, 2013, highlighting the importance of having the necessary number
of directors present in order to make decisions that have legal standing.
• Minimum Attendance: The term "Quorum" describes the bare minimum of directors that must
be present for a meeting to be deemed legitimate. The minimum number of directors that must
be present is two.
• Requirement: As per section 174 of the act, the quorum for a board meeting is one-third of the
board's total strength or two directors, whichever is higher, unless the company's articles specify
a different number.
 Requirements for Conducting a Valid Board Meeting

• Proper Agenda: A list of the items to be discussed should be distributed with the notice.
Anything which is not mentioned must not be discussed in the meeting.
• Minutes of the Meeting: Detailed minutes of the meeting must be kept up to date and
documented according to the guidelines.
• Resolution: Resolutions are frequently used to formalize decisions, and they need to be
properly documented.
• Right Convening Authority: The Board Meeting must be held under the direction of
proper authority; i.e., the Company Secretary or any authorized person.
• Proper Presiding Officer: The Board Meeting must always be conducted in the presence
of a Chairman of the Board.
• Proper Notice: A Formal Notice needs to be served to all members before conducting a
Board Meeting.
 Contents of Meeting Minutes
1.Basic Details
1. Date, time, and venue of the meeting.
2. Name of the chairperson and attendees.
3. Quorum status (minimum members present)

2.Agenda Items & Discussions

1. Topics discussed and key points raised.
2. Decisions, approvals, and resolutions.

3.Action Items & Responsibilities

1. Who is responsible for what actions.
2. Deadlines for follow-up.

4.Closing & Signatures

1. Meeting adjournment time.
2. Signed by Chairperson & Company Secretary (if applicable).
Thank You
COMPANY SECRETARY
 Introduction
Despite the name, the role of company secretary is not a secretarial or clerical one in the
usual sense. In fact, a company secretary is typically ‘Senior Managerial Personnel’ in the
corporate structure ensuring efficient administration of the company and certifying the
company’s compliance with the provisions of Companies Act,2013 and other laws
applicable on the company.
Meaning of company secretary is defined under Section 2 (24) of Companies Act,
2013: "Secretary means a company secretary defined under Section 2(1)(c) of Companies
Act,1980“
Now as per Section 2(1)(c), Company Secretary is a person who is a member of Institute.
Company Secretary is covered in the definition of Key Managerial Personnel as per Section
2(51) of CA, 2013.
 APPOINTMENT OF COMPANY SECRETARY
Appointment of a company secretary is made by certain class of companies on mandatory basis
however other company may make an appointment of company secretary on voluntary basis in order
to avoid any failure in compliance which can be very deliberating.
A Company Secretary is appointed by the Company in accordance with Section 203 of CA,2013 and
Rule8/8A of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014:
Section 203 of the Companies Act 2013 requires certain companies to have full-time key managerial
personnel, including a managing director or CEO, a company secretary, and a CFO.
As per Rule 8: Appointment of a company secretary is made by every listed company and other public
company having paid up share capital of 10 Crore or more.
As per Rule 8A: Appointment of a company secretary is made by every company other than a
company covered under Rule 8 having paid up share capital of 10 Crore or more is required to
appoint a whole-time company secretary.
 PROCEDURE FOR APPOINTMENT OF COMPANY
SECRETARY
• Appointment of a company secretary is made by convening a Board Meeting after giving notice to all the directors of the Company
as per Section 173 of Companies Act, 2013.

• At the board meeting, place the proposal of appointment of company secretary with the details of the person finalized. Pass a
resolution of appointment of company secretary thereby approving the terms and conditions of his appointment.

• Once the Company Secretary is appointed, the company must file a return of ‘Appointment of Company Secretary’ with the
Registrar of Companies (ROC) in FORM DIR-12 within 30 days from the date on which company secretary is appointed by the
company.

• FORM MGT-14 is also required to be filed along with such fees as is specified under Companies (Registration of Offices and Fees)
Rules, 2014.

• Once a particular whole-time company secretary is appointed by the company, such Company Secretary shall be barred from
holding the office of ‘Whole Time CS’ in any other company.

• Exception: The company secretary so appointed in the holding company may hold the office of CS in its subsidiary company at the
same time.

• Make entries in the register of directors and key managerial personnel under section 170 of Companies Act,2013

• Inform the stock exchange where the company is listed.

 PROCEDURE FOR REMOVAL OF COMPANY
SECRETARY/RESIGNATION BY COMPANY SECRETARY
• Convene a board meeting after giving notice to all the directors of the company as per
section 173 of Companies Act, 2013. Place the matter of removal/resignation of the
Company Secretary and pass a resolution to the effect.
• File form DIR-12 in electronic mode within 30 days with the registrar of companies
together with the requisite filing fees. Evidence of cessation (for example resignation
letter) is an optional attachment.
• Inform the stock exchange where the company is listed.
• Make entries in the register maintained for recording the particulars of Company
Secretaries under Section 170.
• Issue a general public notice, if it is so warranted, according to size and nature of the
Company.
• The resulting vacancy shall be filled up by the board at a meeting of the board of
directors of the company within a period of six months from the date of such vacancy.
 PENAL PROVISION RELATING TO FAILURE IN
APPOINTMENT OF COMPANY SECRETARY [SECTION
203 OF COMPANIES ACT, 2013]
If any company makes any default in complying with the provisions of
Section 203 related to appointment of KMP in Company, then
1. Company shall be liable to a penalty of 5 Lakh Rupees; AND
2. Every Director and Key Managerial Personnel of the Company who is
in default shall be liable to a penalty of Rs. 50,000
In case, the default is continuing in nature, then a further penalty of Rs.
1,000/- for each day after the first during which such default continues
but not exceeding 5 Lakh Rupees.
Thank You
ACCOUNTS
 Statutory Books
The term “Statutory Register” pertains to distinct documentation concerning a
company’s shareholders, directors and meetings convened. These records are
separate from the regular accounting documents companies must maintain. While
many companies store their statutory registers in a loose-leaf binder or bound
book, they can utilize other formats, such as computerized records.
According to the Companies Act of 2013, it is mandatory for every company to
submit these records, along with the applicable fees, to the Registrar of
Companies (ROC) within specified timeframes.
The statutory registers to be maintained include the Register of Members, Register
Relating To Directors and KMP, Register of Charges, Registers Relating To Renewed
and Duplicate Share Certificates, Register Relating To the Employee Stock Options,
and Register Relating To Shares/Other Securities Buyback.
 Register of the Company
The company must maintain a statutory register at its registered office for recording deposits accepted and renewed, with a retention period of
8 years from the financial year in which the entry was made. This register must include the following information regarding depositors:

• Name, PAN and address of the depositors.

• Guardian details for minors.

• Particulars of the nominee.

• Date and amount of each deposit.

• Deposit receipt number.

• Interest rate.

• Duration of the deposit.

• Repayable date.

• The due date for interest payment.

• Details related to deposit insurance.

• Details of any charge or security created.

All entries made in this register must be authenticated by a director, secretary or any other authorized officer of the company.
 Register of Members
To comply with regulations, every company is required to maintain the following statutory registers for its members:
• Register of Members for Equity Shares: This register should be maintained separately for equity and preference
shares.
• Register of Debenture Holders: This register should include an index of names and record relevant information
about the debenture holders.
• Register of Other Security Holders: Similar to the above registers, this register should also contain an index of names
and record pertinent details about other security holders.

It must include an index of names and contain the following details for each member:
• Name, address, email
• PAN (Permanent Account Number), UIN (Unique Identification Number), CIN (Corporate Identification Number)
• Occupation, nationality
• Father’s/mother’s/spouse’s name
• Date of commencement and cessation of membership
• Other relevant details as required
Feature CIN
Key Differences:
DIN UIN

Foreign Entities, UN
Issued To Companies Directors
Bodies

Issued By MCA MCA Government of India

Number Type 21-digit alphanumeric 8-digit numeric 15-digit alphanumeric

GST Exemption, Special

Purpose Company Registration Director Identification
Entity Recognition
 Register of Directors and Key Managerial Personnel
As per the Companies Act 2013, every company must maintain a statutory register at its registered office that contains specific information about
directors and Key Managerial Personnel (KMP). This register should include details regarding the securities they hold in the company, its subsidiary,
holding company, associate companies or subsidiary of the company’s holding company. Rule 17 of the Companies (Appointment and Qualification
of Directors) Rules, 2014, specifies the following particulars that must be recorded in the company’s registered office register:

• Director Identification Number (DIN)

• Name and surname

• Any previous name or surname

• Father’s name, mother’s name and spouse’s name

• Date of birth

• Nationality (including the nationality of origin, if different)

• Residential address (both present and permanent)

• Date of the board resolution for the appointment

• Occupation

• Date of appointment and reappointment

• Date of cessation of office and reasons thereof

• Companies need to maintain this register to comply with the requirements of the law.
 Register of Charges
A company is obligated to maintain a statutory register of charges in
accordance with Form No. CHG 7. This register should include
comprehensive information about charges registered with the registrar,
including assets, property, companies or undertakings. It must also
contain particulars of the acquired property subject to charges, as well
as details regarding any modifications or satisfaction of charges.
The register of charges must be preserved permanently at the
company’s registered office. However, the instrument that creates the
charge should be kept for a period of 8 years from the date when the
charge is satisfied by the company in question.
 Mandatory Statutory Books Under Companies Act, 2013
1. Register of Members (Section 88)
•Contains details of shareholders, including name, address, date of becoming/removing as a member, and shareholding
details.

2. Register of Directors & Key Managerial Personnel (KMP) (Section 170)

•Records details of directors and KMP, including name, DIN, address, appointment and resignation details, and
shareholding in the company.

3. Register of Charges (Section 85)

•Maintained to record details of charges (mortgages, loans, hypothecation) created on company assets.
•Filed with the Registrar of Companies (ROC).

4. Register of Debenture Holders (Section 88)

•Required for companies issuing debentures.
•Contains details of debenture holders and debenture-related transactions.

5. Register of Loans, Guarantee, Security, and Investments (Section 186)

•Records loans given, guarantees provided, and securities issued by the company.
•Ensures compliance with investment limits and board/shareholder approvals.
6. Register of Related Party Transactions (Section 189)
•Records contracts and arrangements with related parties.
•Maintained as per the approval requirements under Section 188.

7. Register of Directors’ Shareholding (Section 170)

•Details of shares and securities held by directors and KMP in the company or its subsidiaries.

8. Minutes Book of Board & General Meetings (Section 118)

•Maintains records of board meetings, general meetings, and committee meetings.
•Must be signed and stored permanently.

9. Register of Share Transfer & Transmission

•Records details of share transfers and transmissions.

10. Register of Buy-Back of Shares (Section 68)

•Maintained if a company repurchases its own shares.

11. Register of Sweat Equity Shares (Section 54)

•Records details of sweat equity shares issued to employees or directors.

13. Register of Deposits (Section 73)

•Applicable to companies accepting deposits.
•Records details of depositors, amounts received, interest paid, and repayment status.
 Balance Sheet
A balance sheet is basically an accurate representation of assets and liabilities of a
business. They contain all details pertaining to the long-term and short-term
assets, debts, and capital of a firm. It is one of the most important tools
stakeholders use to understand a particular business.
Every company has to annually prepare and present a balance sheet according to
the (Revised) Schedule VI of Companies Act, 1956. Companies generally cannot
deviate from this format. Apart from this, they even have to follow the relevant
Accounting Standards of ICAI (The Institute of Chartered Accounts of India).
According to Schedule VI, a balance sheet must comprise the following contents
and requirements. Every balance sheet basically contains these parts: share capital,
reserve and surplus, current & non-current assets and liabilities, borrowings, etc.
 Contents of Balance Sheet
Liabilities
This section of the balance sheet shows the money that a company owes to others, like loan expenses,
recurring expenses, other forms of debt, etc. Now, liabilities can be further subdivided into two categories:
Current liabilities: Under current liabilities fall notes payable due within a year.
Non-current liabilities: Non-current liabilities include deferred tax liabilities, bonds payable, long-term debt
and notes payable in the long term.

Assets
In the assets section of the balance sheet, there are items of value that can be converted into cash. These
items will be listed in order of liquidity, that is, how easily they can be converted to cash.
Assets can be further subdivided into the following:
Current assets: The assets that can be converted easily into cash within a year or less are called current
assets. Eg.: Prepaid Expenses, Inventory (raw material, finished products, etc.)
Long-term assets
Those assets that cannot be converted into cash within a year are called long-term assets. You can further
subdivide them into the following:

Assets Particulars

Fixed assets Machinery, buildings, property, etc.

Intangible assets Patents, copyrights, franchise agreements and more.

Shareholders’ equity
Shareholder’s equity is the amount of money stockholders have invested in a company. It includes the
following:

Retained earnings
It is the amount of a company’s gains that are reinvested into its business instead of returning to the
shareholders in the form of dividends.

Share capital
This is the amount of capital that a company receives for the purpose of business.
 Importance of Balance Sheet
• Assist banks in evaluating a firm’s net worth
When a business wants to expand its operations and make future investments, it seeks loans from banks. Under such
circumstances, the banks will look at the firm’s balance sheet to evaluate whether or not it has the financial position to
pay back the loan amount.
• Helps investors take decisions
While choosing a firm for the purpose of investment, a majority of investors look at the company’s balance sheet to
determine its financial position. Moreover, they combine it with various other factors to assess the firm’s future growth
potential.
• Serves as a determiner for risk and returns
If you are a business owner, maintaining a balance sheet will enable you to determine the ease at which you can meet
your short-term obligations. Furthermore, you can also put a check on the liabilities of your business if they are rapidly
growing and avoid the chances of bankruptcy.
• Enables financial analysis
Having a proper balance sheet will let you get a clear idea of the liquidity conditions of your company. Thus, you can
view the cash flow of your firm, working capital funding, trade receivable status and also how much daily transactions
your business can afford.
 Profit and Loss Statement
A profit and loss (P&L) statement is a financial statement that summarizes the revenues, expenditures, and
expenses incurred for a certain time, which is commonly a quarter or fiscal year. These records reveal a
company's potential or inability to earn profit through increased revenue, cost reductions, or both. P&L
statements are frequently given in cash or accrual format. Corporate managers and investors use P&L
statements to evaluate a company's financial health.

Accrual Method Cash Method

Using the accrual method, revenue is recorded as it is

earned. Consequently, an organization that uses the
accrual method records revenues that it expects to When cash enters and exits the business, only then
earn at a later time. the cash is recorded, also known as the cash
For example, in the case of a business that provides a accounting method. This straightforward approach
service or product to a customer, the revenue will accounts only for cash paid or received. When cash is
appear on the P&L statement regardless the fact that received, a business documents the transaction as
payment has not been received. Likewise, liabilities revenue; when cash is used to pay bills or
are recognized and recorded in the financial commitments, the transaction is recorded as liability.
statements of the organization, regardless of the fact
that no expenses have been paid.
 Preparation of Profit and Loss Statement
• Define the Reporting Period: Determine the duration in months, quarters, or years for which the P&L statement will be
generated.

• Collect Revenue Data: Commence by assembling the revenues generated throughout the review period. Revenues, service
charges, interest income, and any additional sources of revenue should be included. Ensure that any sales returns or discounts
are deducted.

• Calculate Cost of Goods sold (COGS): Direct costs associated with the production of products or services are included in COGS.
This may include labor, basic materials, and manufacturing expenses. Gross profit is determined by deducting the cost of goods
sold from total revenue.

• Enumerate Operating Expenses: Determine and describe every operating expense. These may consist of rent, utilities, salaries,
marketing costs, insurance, and any other expenditures that are directly associated with the operation of the company.

• Tax Calculation: Determine the net profit by subtracting taxes from the before taxes profit.

• Interpret and Compare: By comparing the current P&L statement to those of prior periods, one can discern patterns and
evaluate the financial well-being of the organization. Incorporate the findings within the framework of your organization's
objectives and industry standards.

It is important to note that the format and particular entries on a P&L statement can differ due to industry regulations and
accounting standards.
BASIS FOR COMPARISON BALANCE SHEET PROFIT AND LOSS ACCOUNT
Meaning A balance sheet is a statement that A profit and loss account is an
discloses the financial position of its account that shows the revenue and
assets, liabilities and capital on a specific expenses of the firm from business
date. operations during a financial year.

Represents The financial position of the business on Profit earned or loss suffered by the
a particular date. business for the accounting period.

Information Disclosed Assets, liabilities, and capital of Income, expenses, gains and losses.
shareholders.
Sequence It is prepared after the preparation of It is prepared before the preparation
the Profit and Loss Account. of the Balance Sheet.
 Disclosure of Accounts of Subsidiary Companies
Section 129 of the Companies Act, 2013, deals with the preparation, presentation, and disclosure of financial statements by
companies. It ensures that companies maintain accurate financial records that present a true and fair view of their financial
position in accordance with applicable accounting standards.

1. Preparation of Financial Statements (129(1))

• Every company must prepare financial statements that comply with Schedule III of the Act.

• The financial statements should give a true and fair view of the company’s affairs.

• They must be prepared in accordance with applicable accounting standards (Indian Accounting Standards - Ind AS).

• Financial statements include:

o Balance Sheet
o Profit & Loss Account
o Cash Flow Statement (except for certain exempted companies)
o Statement of Changes in Equity
o Explanatory Notes to Accounts

• The Board of Directors must approve the financial statements before presenting them in the Annual General Meeting
(AGM).
2. Consolidation of Accounts for Subsidiaries (129(3))
 If a company has one or more subsidiaries, it must prepare Consolidated Financial Statements
(CFS) along with standalone financials.
 Subsidiaries include:
o Wholly-owned or partially owned subsidiaries
o Associate companies
o Joint ventures
 The CFS must be prepared in the same format as the standalone financials.
 A statement with key financial highlights of subsidiaries must be attached to the company’s
financial statements (as per Form AOC-1).

3. Laying of Financial Statements in AGM (129(2))

 The financial statements of subsidiary company, along with the Board’s Report and Auditor’s
Report, must be presented before shareholders at the Annual General Meeting (AGM).
 In the case of a holding company also, the CFS must also be laid before the AGM.
4. Compliance with Accounting Standards (129(4))
Financial statements must comply with applicable Accounting Standards (Ind AS or AS) as prescribed by
Section 133 of the Companies Act, 2013.

Accounting Standards (AS) – standards issued by the Institute of Chartered Accountants of India (ICAI).
Indian Accounting Standards (Ind AS) –standards issued by the Ministry of Corporate Affairs (MCA) for better global
alignment.

5. Penalty for Non-Compliance (129(7))

If a company fails to comply with Section 129:
The company is liable to a fine of up to ₹5 lakh.
Every officer in default (such as directors and CFO) can be fined up to ₹1 lakh or imprisoned for up to one
year, or both.

Rule 5: Form of statement containing salient features of financial statement of subsidiaries:

The statement containing the financial statement of a company’s subsidiary or subsidiaries, associate
company and companies and joint venture or ventures under the first proviso to sub section (3) of section
129 shall be in Form AOC-1.
 Director's Report (Section 134)

A director's report is a document that is typically included in a

company's annual report. This document provides stakeholders with a
comprehensive overview of a company's financial performance,
strategic direction, and governance practices.
The report is written by the board of directors and provides an
overview of the company's performance and operations over the past
year. The director's report is an essential communication tool for the
company, as it allows shareholders and other stakeholders to
understand the company's strategy, performance, risks, and prospects.
 Benefits of Report
• Transparency: It improves clarity by providing stakeholders with a comprehensive overview of the company's
operations, financial performance, and strategic direction. This helps build trust and confidence in the company and
demonstrates the company's commitment to transparency and accountability.
• Facilitating decision-making: It provides stakeholders with the information needed to make decisions about the
company. For example, investors and other stakeholders can use the report to evaluate the company's
performance, prospects, and risks, and decide whether to invest in the company, continue doing business with it, or
assess its performance relative to its competitors.
• Enhancing corporate reputation: A well-prepared report can improve a company's reputation. By demonstrating
the company's commitment to good corporate governance, ethical conduct, and sustainability, the information can
help build trust and confidence in the company among stakeholders.
• Meeting legal requirements: In many jurisdictions, companies must prepare and publish a report as part of their
annual report. By complying with these legal requirements, the company can avoid penalties and demonstrate its
commitment to legal compliance.
• Identifying areas for improvement: Preparing a report can help a company identify areas for improvement in its
operations, financial performance, and governance practices. By reviewing the information, the company's
management team and board of directors can identify areas where the company can improve its performance and
change its strategic direction.
 Audit Report
Audit Report is the formal written opinion about the entity’s financial
statements. The auditor conveys the report to the management at the end of
the audit. Apart from the opinion on the statements, it also includes factual
information.
It is a medium of communication of the views of the auditor to the
company’s management. Hence, he submits the report created to the client.
The report explains the information contained in it with clarity and brevity.
The audit report is the final product of the audit work performed by the
auditor and his staff.
Noting that, the facts listed in the audit report are not available elsewhere.
Once the auditor submits the report, his duty is over, as per the respective
acts and laws.
Types of Audit Report
 Types of audit report
• Unqualified Report:
The clean report is an alternative term for the unqualified report. It shows that the company’s financial
statements present a true and fair view. It does not contain any reservations.

• Qualified Report:
Here, the auditor doesn’t give a clean report. Rather, he expresses his opinion on the truth and
fairness, with some reservations.

• Adverse Report:
In this, the auditor generates a report based on an examination conducted. He/She is not in agreement
with the affirmations given on the financial statements.

• Disclaimer Opinion:
Here, the auditor is unable to give any opinion on the financial statement. He/She denies passing any
statement, after the audit.
Type of Audit Report Meaning Impact

✅ Unqualified Report (Clean Financials are accurate and comply

No issues, positive opinion
Report) with standards

Needs correction, but not

⚠️ Qualified Report Minor issues, but overall fair view
misleading

Major misstatements, inaccurate

❌ Adverse Report Serious red flag, possible fraud
financials

High risk, lack of transparency

🚫 Disclaimer of Opinion Insufficient data, no conclusion
CONTENTS OF AUDIT REPORT
 Contents of Audit Report
• Title: An appropriate title facilitates the reader to identify the report. It also differentiates this report
from others.
• Address: It has to be properly addressed. For instance, in a statutory audit, the audit report is
addressed to the shareholders. Whereas the same is addressed to the government in case of special
audit.
• Identification of financial statements: It should display the name and address of the enterprise.
• Reference to auditing standards and practices: It ensures conformity of the resolution of ICAI. Plus, it
guarantees that the accounting and auditing standards are duly complied with.
• Opinion on the financial statements: It expresses the auditor’s opinion on the company’s financial
position.
• Signature: The auditor should sign the audit report. Further, in case the audit firm is an auditor, then
the representative can sign the report on behalf of the firm.
• Date: The report must display the date of audit.
 Audit Committee (Section 177)
An Audit Committee is a subcommittee of a company's Board of Directors
responsible for overseeing financial reporting, internal controls, risk management,
and compliance with laws and regulations. It ensures transparency, integrity, and
accountability in financial matters.
According to Section 177 of the Companies Act, 2013, the Audit Committee is a
mandatory committee for certain companies, primarily tasked with monitoring
financial reporting and disclosure processes, approving related party transactions,
and ensuring effective internal controls and risk management.
Section 177 of the Companies Act,2013 and Rule 6 and 7 of Companies (Meetings
of Board and its Powers) Rules,2014 deals with the Audit Committee.
The auditors of a company and the KMP shall have a right to be heard in the
meetings of the Audit Committee when it considers the auditor’s report but shall
not have the right to vote.
 Applicability of Audit Committee
The Board of directors of every listed companies and the following classes of
companies, as prescribed under Rule 6 of Companies (Meetings of Board and
its powers) Rules,2014 shall constitute an Audit Committee.
• all public companies with a paid-up capital of Rs.10 Crores or more;
• all public companies having turnover of Rs.100 Crores or more;
• all public companies, having in aggregate, outstanding loans or borrowings
or debentures or deposits exceeding Rs.50 Crores or more.
The paid-up share capital or turnover or outstanding loans, or borrowings or
debentures or deposits, as the case may be, as existing on the date of last
audited Financial Statements shall be considered for the purposes of this
rule.
 COMPOSITION

The Audit Committee shall consist of a minimum of 3 directors with

independent directors forming a majority. The majority of members of
Audit Committee including its Chairperson shall be persons with ability
to read and understand, the financial statement.
The Board’s report under section 134(3) shall disclose the composition
of an Audit committee and where the Board had not accepted any
recommendation of the Audit Committee, the same shall be disclosed
in such report along with the reasons there for.
 Functions of Audit Committee
Every Audit Committee shall act in accordance with the terms of reference specified in
writing by the Board which shall, inter alia, include—
• the recommendation for appointment, remuneration and terms of appointment of
auditors of the company;
• review and monitor the auditor’s independence and performance, and effectiveness of
audit process;
• examination of the financial statement and the auditors’ report thereon;
• scrutiny of inter-corporate loans and investments;
• valuation of undertakings or assets of the company, wherever it is necessary;
• monitoring the end use of funds raised through public offers and related matters.
• To call for the comments of the auditors about internal control systems, the scope of
audit, including the observations of the auditors and review of financial statement
before their submission to the Board
• To have full access to information contained in the records of the company.
 Auditor
Auditors are professionals who evaluate and verify the accuracy of a company’s financial records.
They ensure that the financial statements are presented fairly in accordance with applicable laws
and regulations. There are two main types of auditors:
Internal Auditors: These auditors work within the organization to assess its operations and risk
management.
• IT Internal Auditor (Cybersecurity & Data Protection)- Works for tech companies like Google,
Amazon, or IBM to audit cybersecurity measures, data protection, and compliance with privacy
laws.
External Auditors: These auditors are hired from outside the organization to conduct an
independent audit.
• External auditors from Deloitte, PwC, EY, and KPMG conduct independent audits for various
companies. Like, PwC audits Apple’s financial statements to ensure accuracy before they are
reported to investors.
By identifying potential discrepancies, auditors help companies maintain financial integrity and trust
with their stakeholders.
 Procedure for Appointment of Auditor
• Board Meeting: The Board of Directors should convene a meeting to discuss and also
propose the name(s) of potential auditors.
• Consent from Auditor: Before making an appointment, it is necessary to obtain written
consent from the proposed auditor confirming their willingness to act in that capacity.
• Eligibility Certificate: The proposed auditor must provide a certificate indicating that
they meet all eligibility criteria as per Section 141 of the Companies Act.
• Filing with Registrar: After obtaining consent as well as eligibility certification, you must
file Form ADT-1 with the Registrar of Companies (ROC) within 30 days of appointment.
• Passing a Resolution: The appointment must be ratified by passing an ordinary
resolution during the AGM.
• Notification: The company must inform the appointed auditor about their appointment
as well as file notice with ROC.
 Duties of Auditor – Section 143, Section 144, Section 145, and
Section 146
• Compliance with audit standard: Every auditor shall comply with auditing standard issued by ICAI.
[143(9)]
• Duty to report fraud: Auditor shall report the material fraud to the Central Government within
prescribed time and manner. The same shall not be construed as breach of duty.
• Duty not to render certain services: According to section 144 of the Act, an auditor can render services
as are approved by the BOD or the Audit Committee. He cannot render “consulting and specialized
services”.
• Duty to sign audit reports, etc. (section 145): The auditor of the company shall sign the auditor’s report
or sign or certify any other document of the company in accordance with the provisions of sub-section
(2) of section 141.
• Duty to attend general meeting: Under section 146, auditor has a duty to attend any general meeting
either by himself or through his authorized representative who is qualified to be an auditor.
• Duty to report & Duty to enquire
 Rights/Powers of an Auditor
• Right of access at all times to books of account and vouchers of the company
• Section 143(1) confers upon the auditor right of access at all times to books of account and vouchers of the company, whether
kept at the registered office of the company or elsewhere.
• The auditor can exercise this right at all times which implies normal business hours on any working day.

• Right to obtain information and explanations

• Section 143 empowers the auditor to call for any explanation or information from the employees and officers including managing
director and other directors of the company, which he thinks is relevant for the purpose of audit and proper discharge of his
duties.
• In case any information or explanation is not given to him, he should mention this fact in his audit report.

• Right of access to records of subsidiaries

• Auditor of a company which is a holding company shall also have the right of access to the records of all its subsidiaries insofar as it
relates to the consolidation of its financial statements with that of its subsidiaries.

• Right to sign audit reports, etc.

• The person appointed as an auditor of the company shall sign the auditor’s report or sign or certify any document of the company.

• Right to receive notice of and attend general meeting

• Auditor has a right to receive notice of any general meeting.
• He has a right to be heard at such meeting on any part of the business which concerns him as the auditor.
 Liabilities of Company Auditor
• Professional Liability: Auditors are responsible for ensuring that
financial statements are free from material misstatements due to
fraud or error.
• Legal Liability: If found negligent in their duties, auditors can face
legal actions from shareholders or regulatory authorities.
• Reputation Risk: An auditor’s reputation can be severely impacted by
any failure to detect fraud or misrepresentation in financial
statements.
• Compliance Obligations: Auditors must ensure compliance with
various laws and regulations governing financial reporting.
 Removal of Auditor
The auditor can be removed through before the expiry of his term by following the procedure as given below:
• Prior approval of Central Government is required and the application shall be made in Form ADT-2. Along with
the form, necessary fees as prescribed shall be paid as laid down in the Companies (Registration offices and
Fees) Rules, 2014.
• A special resolution of the Company is needed for the removal of an auditor before the expiry of his term.
• The auditor shall be given a reasonable opportunity of being heard before his removal.
• Application as specified above shall be filed within 30days from the date of passing of the resolution.
• The Company should hold the General Meeting (EGM) within 60 days from the approval received from the
Central Government.
Form ADT – 2
The application for removal of auditor before expiry term should be made in Form ADT-2 to Central
Government.
 Resignation by Auditor
• Form ADT-3 (attached in GNL-2) need to be filed within 30 days from the date of
resignation to the ROC, by the auditor resigning from the office. It should also include
the reasons and other facts as may be relevant.
• For Companies other than the Government Company, the auditor shall file such
statement with the Company and the Registrar within 30days of resignation.
• For the government-controlled company, the resignation shall be filed within 30 days
from the date of resignation to the Registrar, Company and the Comptroller and
Auditor General of India (CAG).
• The onus to file the statement containing relevant facts and a reason for resignation is
on the resigning auditor and contravention is punishable by a monetary fine which
could be minimum Rs. 5000 and Maximum Rs. 5 Lakh.
Form ADT – 3 An auditor who has resigned should file Form ADT-3 within 30 days time
from the date of resignation.
 Cost Audit
Cost Audit is the detailed checking of the costing system, technique,
and accounts to verify their correctness and ensure adherence to the
objective of cost accountancy.
Cost auditing checks and verifies cost accounts’ accuracy, actuality,
authenticity, and overall adherence to the company’s cost accounting
plan. This involves not only the examination of cost accounts but also
the fact that the plan prepared in this connection has been duly
executed.
Such verification is done not only for the entries made in the cost
accounting books but to see that the various resources are used by the
company with maximum efficiency and the cost of production and cost
of sales is kept to the minimum.
 Objectives of a Central Government-Directed Cost Audit
• To establish the accuracy of costing data. This is done by verifying the arithmetical accuracy of cost accounting
entries in the books of accounts.
• To ensure that cost accounting principles are governed by the management objectives and these are strictly
adhered to in preparing cost accounts.
• Ensure that cost accounts are correct and detect errors, fraud, and wrong practices in the existing system.

• To check up on the general working of the cost department of the organization and to make suggestions for
improvement.
• To help the management make correct decisions on certain important matters
• to determine the actual cost of production when the goods are ready.

• To reduce the amount of detailed checking by the external auditor, its effective internal cost audit system is in
operation.

• To determine whether each item of expenditure involved in the relevant components of the goods manufactured or
produced has been properly incurred.
 When is a Cost Audit Ordered by the Government?
• Public Sector Projects – Large infrastructure projects such as roads, bridges, airports, or railways, where cost overruns and
mismanagement can lead to significant losses.

• Defense Contracts – Military and defense equipment procurement, where vendors supplying arms, vehicles, or technology must
justify their costs.

• Pharmaceutical & Healthcare – Drug price control audits to ensure fair pricing of essential medicines and hospital services.

• Energy & Utilities – Power plants, renewable energy projects, and fuel price regulations, where costs impact national economic
policies.

• Corporate Sector Compliance – If a company operates in a regulated sector (e.g., oil, telecom, steel), the government may audit
their cost records to ensure fair pricing practices.

Example: Infrastructure Project Audit (Highway Construction)

• A company is awarded a 500 million contract to build a highway. The government directs a cost audit due to suspected cost
overruns. The audit finds:

• Material costs inflated by 20% compared to market rates.

• Unapproved subcontractor expenses amounting to 50 million.

 Cost Audit Process as per Government Regulations

Step 1: Identification of Companies for Cost Audit

• The Central Government issues a notification directing a cost audit for specific industries.
• Companies exceeding the prescribed turnover threshold must comply.
Step 2: Appointment of Cost Auditor
• The Board of Directors appoints a Cost Auditor (a Certified Cost Accountant from ICAI-CMA).
• The appointment must be ratified by shareholders in the Annual General Meeting (AGM).
Step 3: Maintenance of Cost Records
• Companies must maintain detailed cost records covering:
• Production costs (raw materials, labor, machinery).
• Operating expenses (transport, utilities, marketing).
• Pricing structure (profit margins, tax calculations).
Continued…

Step 4: Conducting the Cost Audit

• The Cost Auditor verifies the company's cost records and assesses
compliance with government pricing norms.
• Site visits, interviews, and document analysis are conducted.
Step 5: Submission of Cost Audit Report
• The Cost Auditor submits the report to the Board of Directors.
• The company forwards the report to the Central Government (MCA/CAG)
within 30 days.
 Regulatory Framework for Cost Audit Ordered by the Central
Government
The regulatory framework for cost audit in India is governed by multiple laws,
rules, and guidelines issued by the Central Government, primarily under
Section 148 of the Companies Act, 2013. It involves various regulatory bodies,
auditing standards, and compliance mechanisms to ensure transparency in
cost accounting.
• Section 148(1): Empowers the Central Government to specify certain
industries that must maintain cost records.
• Section 148(2): Allows the Central Government to order a cost audit for
companies in specific sectors where cost transparency is crucial.
• Section 148(3)–(5): Lays down rules for the appointment of cost auditors,
submission of reports, and penalties for non-compliance.
 Special Audit
A Special Audit is an in-depth examination of a company’s financial records, transactions,
and operations beyond regular audits. It is conducted when suspicious activities, fraud,
mismanagement, or irregularities are suspected.
Legal Provisions for Special Audit in India
A. Companies Act, 2013 – Special Audit Under Section 143(11)
• The Central Government can order a special audit in the following situations:
• Fraudulent Financial Reporting
• Diversion of Funds
• Misuse of Public Money (Government Contracts/Subsidies)
• Money Laundering or Unexplained Transactions.
• Example: A real estate company receiving a government loan subsidy is suspected of using funds for
personal expenses. The Central Government may order a special audit to investigate.
 Continued…

B. Income Tax Act, 1961 – Special Audit Under Section 142(2A)

• The Income Tax Department orders a special audit if:
• Tax records are too complex for regular audits.
• Income is underreported or hidden transactions are found.
• There is suspicion of tax evasion or money laundering.
• Example: A company declares ₹10 crores in profits but shows ₹100 crores in unexplained
transactions. The Central Government orders a special audit under Income Tax Act.
C. GST Act, 2017 – Special Audit Under Section 66
• The GST Commissioner can order a special audit if:
• A business claims excessive Input Tax Credit (ITC).
• There are suspicious transactions or fake invoices.
• Tax evasion is suspected.
• Example: A company reports ₹5 crores in GST liabilities but claims ₹4.5 crores in ITC using fake
invoices. The Central Government directs a GST special audit.
 Process of Special Audit as Directed by the Central
Government
Step 1: Identification of the Need for Special Audit
• The Ministry of Corporate Affairs (MCA) or other government bodies review
complaints, financial reports, or whistleblower information.
Step 2: Appointment of Special Auditor
• The government appoints a Chartered Accountant (CA) or a professional auditor.
• The auditor must be independent and not associated with the company.
Step 3: Examination of Financial Records
• Detailed scrutiny of accounts, tax filings, loans, subsidies, and transactions.
• The auditor verifies if company funds were misused.
 Continued…

Step 4: Submission of Special Audit Report

• The auditor submits the Special Audit Report to the government authority (MCA, Income Tax
Department, GST Commissioner, etc.).
Step 5: Government Action Based on Findings
• If fraud is detected, the government may:
• Impose fines and penalties.
• Cancel company licenses or contracts.
• Refer the case to CBI or Enforcement Directorate for investigation.
Case Study: Special Audit of Satyam Computers (Corporate Fraud Case)
• The Government of India ordered a Special Audit after Satyam Computers manipulated its
financial statements.
• The auditor uncovered ₹7,000 crores in fraudulent revenue reports.
• The company’s CEO was arrested, and the firm collapsed.
Thank You