SET - 1

1. What are the means/channel a company can adopt to pursue its CSR
activities? Section 128(1) requires every company to prepare and
keep the books of accounts and other relevant books and papers and
financial statements at its registered office. State the manner of
maintenance of books of accounts in electronic form. – 12.5M
TB PG 154, 162

Corporate Social Responsibility (CSR) in India: Committee Formation,

Implementation, and Record Keeping
India is unique in statutorily mandating Corporate Social Responsibility (CSR)
through the Companies Act, 2013. This makes it essential for eligible companies
to understand the nuances of CSR obligations, including the constitution and
functions of a CSR Committee, as well as the means of implementation and
proper record keeping.
Applicability and Necessity of Forming a CSR Committee
Not all companies are required to form a CSR Committee. The obligation arises
specifically for companies that meet any of the following financial thresholds:
 Net Worth: ₹500 crore or more
 Turnover: ₹1,000 crore or more
 Net Profit: ₹5 crore or more
These criteria are evaluated based on the company's financial performance in
any financial year. If a company meets any one of these triggers, it is mandated
to constitute a CSR Committee.
Composition of the CSR Committee
The CSR Committee must consist of:
 Minimum Three Directors: Including at least one independent director.
 Exemption for Certain Companies: Unlisted public companies or
private companies not required to appoint an independent director can
form a committee with two or more directors.
  Board Oversight (Limited CSR Spending): In cases where the required
CSR expenditure does not exceed ₹50 lakh, a separate CSR committee is
not mandatory; the functions can be managed directly by the Board of
Directors.
Key Functions and Roles of the CSR Committee
The CSR Committee plays a pivotal role in guiding, overseeing, and ensuring
the effectiveness of a company's CSR initiatives4. Its core functions include:
 Formulating and Recommending CSR Policy: The committee is
responsible for developing a comprehensive CSR policy aligned with
Schedule VII of the Companies Act, which specifies eligible CSR
activities4. This policy outlines the activities the company intends to
undertake to fulfill its social responsibility4.
 Recommending Expenditure: It recommends the amount of expenditure
to be incurred on CSR activities, ensuring that the company allocates at
least 2% of its average net profits from the previous three financial years
towards these initiatives4.
 Monitoring CSR Activities: The committee monitors the
implementation of the CSR policy and ensures that activities are carried
out as planned4. This includes evaluating the impact and effectiveness of
CSR initiatives over time4.
 Annual Action Plan: The committee formulates an annual action plan in
line with its CSR policy, detailing specific projects, modalities of
execution, utilization of funds, and monitoring and reporting
mechanisms, including timelines for implementation4.
 Reporting and Disclosure: The composition of the CSR committee and
the details of its policy must be disclosed in the company's board report,
ensuring transparency and accountability4.
Means/Channels for Pursuing CSR Activities
A company can implement CSR programs either directly or through
implementing agencies1.
 Directly: A substantial proportion of companies spend their CSR funds
directly.
 Through Implementing Agencies: Under the 2021 amendment, a
company can undertake its CSR implementation through:
  Another company established under Section 8 of the Companies
Act.
 A registered public trust or a registered society established by the
company itself.
 The Central Government or State Government.
 Entities registered under section 12A and 80G of the Income Tax
Act, 1961.
 Registration of Implementing Agencies: All implementing agencies
intending to undertake CSR activities must register themselves with the
Central Government by filing form CSR-1 electronically. Approved
agencies are listed on the MCA21 portal to improve accountability and
transparency. International organizations are not permitted to serve as
implementing agencies.
 Popularity of NGOs: NGOs are becoming a popular channel for
companies to execute CSR projects due to their presence in target areas,
local connections, and experience in executing social projects2.
Simply disbursing funds to an implementing agency does not fulfill CSR
requirements1.
Maintenance of Books of Accounts in Electronic Form (Section 128(1))
Section 128(1) of the Companies Act requires every company to prepare and
keep books of accounts and other relevant books, papers, and financial
statements at its registered office4. These records must accurately reflect the
company's transactions. The Act recognizes both physical and electronic forms
for maintaining these records. When maintaining books of accounts in
electronic form, the following should be adhered to:
 Accessibility: The books of accounts and other relevant documents must
be accessible in India.
 Reproducibility: The electronic records should be capable of being
converted into a readable or printed form.
 Proper Back-Up: Adequate backups should be maintained to prevent
data loss due to unforeseen circumstances.
 Audit Trail: The system should have a proper audit trail to track changes
made to the records.
  Authentication: Access to the electronic records should be controlled
through proper authentication methods.
 Compliance with Standards: The electronic records should comply with
the standards specified in the Information Technology Act, 2000.
State-wise Distribution of CSR Funds
Significant amounts of funding go to higher industrialized states2. Maharashtra,
Karnataka, Gujarat, and Tamil Nadu have received more than 30 percent of the
total CSR spend since FY20152. States with a relatively higher level of
development are where the concentration of CSR-led activities is the highest
and is seen to be increasing over the years2.
Form CSR-1
From April 1, 2021, entities undertaking CSR activities need to file Form CSR-
1 with the Ministry of Corporate Affairs (MCA)5. This form is mandatory for
NGOs and other organizations to receive CSR funding from companies5. The
registration helps in effective monitoring of CSR spending and ensures
compliance5. Companies must ensure that CSR activities are conducted either
directly or through registered entities5.
In summary, CSR in India is a statutorily driven framework that mandates
eligible companies to constitute CSR committees, formulate, monitor, and
execute CSR policies and projects, and maintain meticulous records in
compliance with the Companies Act, 2013, and its amendments4. This
framework aims to ensure that companies contribute towards social and
environmental well-being in a structured and accountable manner.

2. In Evergreen Ltd., the Board of directors declared an interim

dividend but could not distribute the dividend due to objections of
audit committee that the accounts considered by the Board were
false; and true financial results were inflated by not incorporating
outstanding liabilities and over- valuation of inventories. A
shareholder filed a suit for non- payment of dividend. One of the
directors contended that he never attended the Board meeting where
the issue relating to payment of interim dividend was declared on the
basis of false accounts. Discuss about the validity of contention of the
director. – 12.5M
Evergreen Ltd. Dividend Dispute: Analysis and Director Liability
The Evergreen Ltd. case presents a multi-faceted scenario involving corporate
governance, dividend declaration, financial misrepresentation, and shareholder
rights. A proper assessment requires delving into the duties and liabilities of
directors, the role of the audit committee, and the legal implications of declaring
a dividend based on false accounts.
1. Background and Key Issues:
 Interim Dividend Declaration: The Board of Directors of Evergreen
Ltd. declared an interim dividend.
 Audit Committee Objection: The Audit Committee objected to the
dividend declaration, citing false financial statements due to:
 Non-incorporation of outstanding liabilities.
 Over-valuation of inventories.
 Shareholder Suit: A shareholder has filed a suit for non-payment of the
declared dividend.
 Director's Contention: One director claims he did not attend the Board
meeting where the dividend was declared and thus should not be held
liable.
2. Legal Framework:
 Section 123 of the Companies Act, 2013: This section governs the
declaration of dividends. It mandates that dividends can only be declared
from:
 Current profits.
 Accumulated profits.
 Money provided by the government.
 Section 129 of the Companies Act, 2013: This section mandates that the
financial statements must give a true and fair view of the state of affairs
of the company.
 Section 177 of the Companies Act, 2013: This section outlines the role
of the Audit Committee. The audit committee is responsible for
overseeing the company's financial reporting process and ensuring the
integrity of the financial statements.
  Section 166 of the Companies Act, 2013: States the duties of directors,
including exercising reasonable care, skill, and diligence in discharging
their responsibilities.
 Liability for False Statements (Section 447 of the Companies Act,
2013): If the financial statements are found to be materially false or
misleading, the directors involved could face significant penalties,
including imprisonment and fines.
3. Analysis of the Director's Contention:
The director's claim of non-attendance is a critical point, but its validity and
impact depend on several factors:
 Attendance Records and Minutes: The company's official records
(attendance sheets, minutes of the Board meeting) will be crucial in
determining whether the director was indeed absent.
 Extent of Involvement: Even if absent from the meeting, the director's
prior knowledge or involvement in the matters leading to the false
accounts could affect their liability. Did they receive notice of the
meeting? Did they have access to the financial information?
 Duty of Care and Diligence: A director has a duty to exercise reasonable
care, skill, and diligence. If there were red flags or concerns about the
financial statements, the director's failure to investigate or take
appropriate action could lead to liability, even if they were not at the
meeting.
 Collective Responsibility: Under corporate governance principles,
directors have a collective responsibility for decisions made by the Board.
If the director was aware of the problems with the accounts but did
nothing to address them, they could be held liable.
4. Role of the Audit Committee:
The fact that the Audit Committee raised objections regarding false accounts is
significant. It suggests that there were material issues with the financial
statements that should have been addressed.
 Responsibilities of the Audit Committee:
 Overseeing the financial reporting process.
 Reviewing the financial statements.
 Monitoring the independence of the auditors.
  Impact on Director Liability: The Audit Committee's objections could
increase the liability of directors if they knew, or should have known,
about the problems with the accounts.
5. Implications for the Shareholder's Suit:
 Dividend as a Debt: Once a dividend is declared, it becomes a debt due
to the shareholders. However, if the dividend declaration was based on
false accounts, the company may have grounds to argue that the dividend
should not be paid.
 Shareholder Rights: Shareholders have a right to accurate financial
information and to receive dividends declared in accordance with the law.
If the financial statements were false, the shareholders could have a claim
against the company and the directors for misrepresentation.
6. Likely Outcome and Considerations:
 Director Liability: The director's liability will depend on whether they
exercised reasonable care, skill, and diligence. Even if absent from the
meeting, their overall conduct and involvement will be considered.
 Company Liability: Evergreen Ltd. could face significant penalties for
issuing false financial statements and declaring a dividend based on those
statements.
 Shareholder Suit: The success of the shareholder's suit will depend on
whether the dividend declaration was legal and whether the company has
a valid defense for non-payment.
7. Conclusion:
The Evergreen Ltd. case highlights the critical importance of accurate financial
reporting, the duties of directors, and the role of the Audit Committee in
ensuring corporate governance. The director claiming non-attendance may not
be automatically absolved of liability if they failed to exercise reasonable care
and diligence. The company and its directors could face significant legal and
financial consequences if the financial statements are found to be false.
Shareholders have a legitimate claim for dividends if they were validly
declared. The entire situation emphasizes the need for integrity, transparency,
and compliance with the Companies Act, 2013.
The company wants to deposit the dividend amount to co-operative bank.
Is every company required to constitute CSR committee? Explain the role
and function of Ca Committee constituted by the company. – 8M TB PG
162
Corporate Social Responsibility (CSR) in India: Committee Formation,
Roles, and Legal Framework
India is unique in statutorily mandating Corporate Social Responsibility (CSR)
through the Companies Act, 2013, making it essential for eligible companies to
understand the nuances of CSR obligations, including the constitution and
functions of a CSR Committee.
Applicability and Necessity of Forming a CSR Committee
Not all companies are required to form a CSR Committee. The obligation arises
specifically for companies that meet any of the following financial thresholds:
 Net Worth: ₹500 crore or more
 Turnover: ₹1,000 crore or more
 Net Profit: ₹5 crore or more
These criteria are evaluated based on the company's financial performance in
any financial year. If a company meets any one of these triggers, it is mandated
to constitute a CSR Committee.
Composition of the CSR Committee
The CSR Committee must consist of:
 Minimum Three Directors: Including at least one independent director.
 Exemption for Certain Companies: Unlisted public companies or
private companies not required to appoint an independent director can
form a committee with two or more directors.
 Board Oversight (Limited CSR Spending): In cases where the required
CSR expenditure does not exceed ₹50 lakh, a separate CSR committee is
not mandatory; the functions can be managed directly by the Board of
Directors.
Key Functions and Roles of the CSR Committee
The CSR Committee plays a pivotal role in guiding, overseeing, and ensuring
the effectiveness of a company's CSR initiatives. Its core functions include:
  Formulating and Recommending CSR Policy: The committee is
responsible for developing a comprehensive CSR policy aligned with
Schedule VII of the Companies Act, which specifies eligible CSR
activities. This policy outlines the activities the company intends to
undertake to fulfill its social responsibility.
 Recommending Expenditure: It recommends the amount of expenditure
to be incurred on CSR activities, ensuring that the company allocates at
least 2% of its average net profits from the previous three financial years
towards these initiatives.
 Monitoring CSR Activities: The committee monitors the
implementation of the CSR policy and ensures that activities are carried
out as planned. This includes evaluating the impact and effectiveness of
CSR initiatives over time.
 Annual Action Plan: The committee formulates an annual action plan in
line with its CSR policy, detailing specific projects, modalities of
execution, utilization of funds, and monitoring and reporting
mechanisms, including timelines for implementation.
 Reporting and Disclosure: The composition of the CSR committee and
the details of its policy must be disclosed in the company's board report,
ensuring transparency and accountability.
Legal Framework and Amendments
 Companies Act 2013, Section 135: This section mandates CSR for
specified companies in India.
 Amendments: The CSR framework has undergone several amendments
to improve its effectiveness, monitoring, and alignment with national
priorities and Sustainable Development Goals.
 Non-Compliance: Penalties may be imposed on companies that fail to
comply with CSR spending provisions.
Interpretations and Clarifications
While specific landmark case laws directly interpreting Section 135 are limited,
the Ministry of Corporate Affairs (MCA) has provided guidance through
circulars and committee reports:
 General Circular No. 14/2021: Addresses FAQs related to CSR,
offering clarity on eligible activities, expenditure, and compliance
requirements.
  High-Level Committee Reports: Reports from committees constituted
by the MCA have provided recommendations for strengthening the CSR
framework and enhancing its impact.
Examples of CSR Activities in India by Prominent Companies
 Tata Group: Focuses on community improvement, poverty alleviation,
and education through various self-help groups and projects.
 Ultratech Cement: Concentrates on healthcare, family welfare,
infrastructure, environment, education, sustainable livelihoods, and social
welfare across numerous villages.
In summary, CSR in India is a statutorily driven framework that mandates
eligible companies to constitute CSR committees to formulate, monitor, and
execute CSR policies and projects in compliance with the Companies Act, 2013,
and its amendments. This framework aims to ensure that companies contribute
towards social and environmental well-being in a structured and accountable
manner.

Define the term Dividend. State briefly the provisions related to declaration
of dividend under the Companies Act 2013. – 8M
Definition
Section 2(35) of the Companies Act, 2013, while defining the term dividend
simply states that “dividend” includes any interim dividend. In common
parlance, “Dividend” implies a distribution of any sums to members out of
profits and wherever permitted out of free reserves available for the purpose.
Dividend is the shareholders return on their investment / capital in the company.
Dividend is part of the distributable profits which has been paid out to them. In
simple words, it is a distribution of profits i.e. a portion of profits earned and
allocated as payable to the shareholders whenever declared.
PROVISIONS REGARDING DECLARATION AND PAYMENT OF
DIVIDEND Material PG- 8.7
A. Sources for Declaration of Dividend
According to Section 123 (1), the dividend for any financial year shall be
declared or paid from the following sources:
(a) Profits of the current financial year- Profits arrived at after providing for
depreciation in accordance with Schedule II.
(b) Profits of any previous financial year or years- Profits of any previous
financial year(s) arrived at after providing for depreciation in accordance
with Schedule II and remaining undistributed i.e. credit balance in profit and
loss account and free reserves. It is to be noted that only free reserves and
no other reserves are to be used for declaration or payment of dividend.
(c) Both (a) and (b).
(d) Provision of money by the Government- Money provided by the Central
Government or a State Government for the payment of dividend by the
company in pursuance of a guarantee given by that Government.

Distinguish between Interim Dividend' and 'Final Dividend. – 4.5M

Definition
Section 2(35) of the Companies Act, 2013, while defining the term dividend
simply states that “dividend” includes any interim dividend. In common
parlance, “Dividend” implies a distribution of any sums to members out of
profits and wherever permitted out of free reserves available for the purpose.
Dividend is the shareholders return on their investment / capital in the company.
Dividend is part of the distributable profits which h as been paid out to them. In
simple words, it is a distribution of profits i.e. a portion of profits earned and
allocated as payable to the shareholders whenever declared.
The sources for declaring interim dividend include:
• Surplus in the profit and loss account; or
• Profits of the financial year in which such dividend is sought to be declared; or
• Profits generated in the financial year till the quarter preceding the
date of declaration of the interim dividend.
♦ If the company has incurred loss during the current financial year up to the
end of the quarter immediately preceding the date of declaration of interim
dividend, such interim dividend shall not be declared at a rate higher than the
average (rate of) dividend declared by the company during the immediately
preceding three financial years.
♦ The amount of the dividend, including interim dividend, shall be deposited in
a separate account maintained with a scheduled bank within five days from the
date of declaration.
♦ All provisions which are applicable to the payment of dividend shall also
apply in case of interim dividend.
Final Dividend
♦ When the dividend is declared at the Annual General Meeting of the company,
it is known as ‘final dividend’.
♦ The rate of dividend recommended by the Board cannot be increased by the
members.

State the situations under which a company is required to constitute the

Audit Committee. – 4.5M
The requirement for a company to constitute an Audit Committee is detailed in
Section 177 of the Companies Act, 2013. This section outlines specific
situations and classes of companies that must establish an Audit Committee,
reflecting the importance of effective financial oversight and governance.
Situations Requiring Constitution of an Audit Committee
A company is required to constitute an Audit Committee under the following
conditions:
 1. Listed Companies: Every listed company is mandated to form an Audit
Committee.
2. Public Companies with Paid-Up Capital: Any public company with a
paid-up capital of ₹10 crore or more must have an Audit Committee.
3. Public Companies with Turnover: Public companies having a turnover
of ₹100 crore or more are also required to establish an Audit Committee.
4. Public Companies with Outstanding Loans or Borrowings: Public
companies that have aggregate outstanding loans, borrowings,
debentures, or deposits exceeding ₹50 crore must constitute an Audit
Committee.
These criteria are established to ensure that companies with significant financial
operations have adequate oversight mechanisms in place.
Composition and Structure
According to Section 177(2) of the Companies Act, the Audit Committee must
consist of:
 Minimum Three Directors: The committee should have at least three
directors.
 Independent Directors: A majority of the members must be independent
directors. In practice, this means that at least two-thirds of the committee
should consist of independent directors.
 Financial Literacy: Members should be financially literate, and at least
one member should possess expertise in accounting or related financial
management areas.
Key Provisions and Responsibilities
The responsibilities and powers of the Audit Committee are outlined in Section
177(4) of the Companies Act. Key functions include:
 Recommendation for Auditor Appointment: The committee
recommends the appointment, remuneration, and terms of appointment of
auditors.
 Monitoring Auditor Independence: It reviews and monitors the
independence and performance of auditors.
  Examination of Financial Statements: The committee examines
financial statements and auditor reports before they are presented to the
Board.
 Approval of Related Party Transactions: It approves or modifies
transactions with related parties.
 Scrutiny of Loans and Investments: The committee scrutinizes inter-
corporate loans and investments.
 Valuation Activities: It oversees the valuation of assets as necessary.
 End Use Monitoring: The committee monitors the end use of funds
raised through public offers.
Regulatory Framework
The requirement for establishing an Audit Committee is further supported by
Rules under the Companies (Meetings of Board and its Powers) Rules, 2014.
These rules elaborate on the conditions under which companies must operate
their Audit Committees, ensuring compliance with corporate governance
standards.
Conclusion
In summary, Section 177 of the Companies Act, 2013 mandates that every listed
company and certain public companies must constitute an Audit Committee to
enhance financial transparency and accountability. This requirement reflects the
growing emphasis on corporate governance in India, ensuring that companies
operate with integrity while providing stakeholders with confidence in their
financial reporting processes.

SET-3
There are so many mandatory discolsers in the board report under the
companies act 2013,exaplain them ellobrately. – 12.5 M Pg 192
MATERIAL ACCOUNTS AND AUDITORS PG- 9.35
Elaborately the disclose the contents of board report under section 134 of
companies act and contents of board responsibilities statement. – 12.5M
Contents of the Board Report under Section 134 of the Companies Act,
2013
Section 134 of the Companies Act, 2013 outlines the requirements for the
Board's report that must accompany a company's financial statements. This
report is essential for providing stakeholders with insights into the company's
operations, financial performance, and governance. The key components of the
Board report as specified under Section 134(3) are as follows:
1. Web Address of Annual Return: The report must include the web
address where the annual return referred to in Section 92(3) is placed.
2. Number of Board Meetings: A statement regarding the number of
meetings of the Board of Directors held during the financial year.
3. Directors’ Responsibility Statement: This statement outlines the
responsibilities of the directors concerning financial statements and
compliance with applicable laws.
4. Declaration by Independent Directors: A declaration from independent
directors regarding their independence as per Section 149(6).
5. Company Policy on Director Appointment and Remuneration: Details
regarding the policy for appointing directors, including qualifications,
attributes, and other relevant matters as per Section 178.
6. Auditor Qualifications or Adverse Remarks: Explanations or
comments by the Board on every qualification, reservation, or adverse
remark made by the auditor in their report.
7. Loans, Guarantees, and Investments: Particulars concerning loans,
guarantees, or investments made under Section 186.
8. Contracts with Related Parties: Details of contracts or arrangements
with related parties as referred to in Section 188.
9. State of Company’s Affairs: A general overview of the company’s state
of affairs.
10.Proposed Reserves: Information about any amounts proposed to be
carried to reserves.
11.Financial Highlights: A summary or highlights of financial performance
during the year.
12.Changes in Business Nature: Any changes in the nature of business
during the financial year.
 13.Details on Directors and Key Managerial Personnel: Information on
directors or key managerial personnel who were appointed or resigned
during the year.
14.Subsidiaries and Joint Ventures: Names of companies that have
become or ceased to be subsidiaries, joint ventures, or associate
companies during the year.
15.Deposits Details: Information related to deposits accepted during the
year and any defaults in repayment or interest payments.
Board Responsibilities Statement
The Directors' Responsibility Statement is a critical component included in the
Board's report under Section 134(5) of the Companies Act, 2013. It outlines the
responsibilities of directors concerning financial reporting and compliance with
laws:
1. Preparation of Financial Statements: The directors are responsible for
ensuring that financial statements are prepared in accordance with
applicable accounting standards and give a true and fair view of the
company's state of affairs.
2. Compliance with Laws: The statement affirms that the company has
complied with all relevant laws and regulations applicable to its business
operations.
3. Internal Financial Controls: The directors must ensure that adequate
internal financial controls are maintained to safeguard assets and prevent
fraud and errors.
4. Going Concern Basis: The responsibility statement should confirm that
they have assessed the company’s ability to continue as a going concern
for at least twelve months from the date of approval of financial
statements.
5. Fraud Reporting: If any fraud is reported by auditors under Section
143(12), it should be noted in this statement unless it is reportable to
government authorities.
Conclusion
The contents mandated under Section 134 serve to enhance transparency and
accountability within corporate governance frameworks in India. The Board's
report provides stakeholders with essential information regarding a company's
performance, governance practices, and compliance status while ensuring that
directors affirm their responsibilities related to financial integrity and legal
adherence. This structured approach not only aids shareholders but also
reinforces trust in corporate operations by promoting ethical practices and
transparency.

Demonstrate the qualification and disqualification of the auditors under

the companies act 2013 – 8M PG 175
Ellobrate the compostion of NFRA .Explain its functions and duties under
the companies act 2013. – 8M
Material Accounts and Auditors – pg 9.23

Composition of NFRA
The National Financial Reporting Authority (NFRA) is composed of one
Chairperson, three full-time Members, and one Secretary1. The chairperson is
appointed by the Central Government and should have expertise in accountancy,
auditing, finance, or law.
The qualifications for the appointment of NFRA members are:
 Expertise in accountancy, auditing, finance, or law1.
 A declaration to the Central Government about no conflict of interest or
lack of independence1.
 Full-time members should not be associated with an audit firm during or
for 2 years after their office term1.
The draft NFRA rules outline the following composition of the authority4:
 Chairperson: Should be a CA and a person of eminence possessing
expertise in auditing, accountancy, finance, or law1.
 Member- Accounting1
 Member- Auditing1
 Member- Enforcement1
 One representative from the MCA and not below the rank of Joint
Secretary or equivalent1.
  High Court’s retired CJI or a person who has been a judge of a high court
for more than five years should be nominated by the Central
Government1.
 President of the ICAI1.
Functions and Duties of NFRA
As per Sub Section (2) of Section 132 of the Companies Act, 201335:
 Recommend accounting and auditing policies and standards to be adopted
by companies for approval by the Central Government35.
 Monitor and enforce compliance with accounting standards and auditing
standards35.
 Oversee the quality of service of the professions associated with ensuring
compliance with such standards and suggest measures for improvement
in the quality of service35.
 Perform such other functions and duties as may be necessary or incidental
to the aforesaid functions and duties35.
The NFRA aims to protect the public interest and the interests of investors,
creditors, and others associated with the companies or bodies corporate
governed under Rule 3 by establishing high-quality standards of accounting and
auditing and exercising effective oversight of accounting functions performed
by the companies and bodies corporate and auditing functions performed by
auditors3. The NFRA also has the power to investigate matters of professional
misconduct committed by a prescribed class of CAs or Chartered Accountant
firms.

Distinguish between Interim Dividend' and 'Final Dividend. – 4.5M

Explain the unspent CSR amount and punishments and pinalite provisions
non complaince of CSR activies. – 4.5M
Material Accounts and Audits Pg- 9.51
Unspent CSR Amount
If a company required to undertake CSR activities fails to fully spend the
allocated amount (2% of the average net profit of the past three years), the
treatment of the unspent amount depends on whether it relates to an ongoing
project or not.
 Ongoing Project: If the unspent amount relates to an ongoing CSR
project, it must be transferred to an "Unspent Corporate Social
Responsibility Account" within 30 days from the end of the financial
year. This account is to be opened in a scheduled bank. The funds in this
account must be utilized within three financial years from the date of
transfer.
 Other than Ongoing Project: If the unspent amount does not relate to
any ongoing project, it must be transferred to a Fund specified in
Schedule VII of the Companies Act, 2013, within six months from the
 end of the financial year. Examples of such funds include the Prime
Minister's National Relief Fund and the Clean Ganga Fund.
Penalties for Non-Compliance
If a company fails to comply with the CSR provisions, including failing to
spend the required amount or transfer the unspent amount as required, it can
face penalties:
 Company Penalty: The company is liable to a penalty of twice the
amount required to be transferred to the specified fund or the Unspent
Corporate Social Responsibility Account, or ₹1 crore, whichever is less.
 Officer Penalty: Every officer of the company who is in default is liable
to a penalty of one-tenth of the amount required to be transferred, or ₹2
lakh, whichever is less.
Key points regarding penalties:
 The penalties are specified under sub-section (7) of Section 135 of the
Companies Act, 2013.
 These penalties apply if the company defaults in complying with the
provisions of sub-section (5) or sub-section (6) of Section 135.
 The penalties aim to ensure that companies take their CSR obligations
seriously and comply with the legal requirements.
Additional points:
 Companies must disclose the details of the Unspent Corporate Social
Responsibility Account in their balance sheet under "Current Liabilities".
 They must also specify the nature and amount of expenditure incurred on
CSR activities in their board report and on their website.
 Companies must also disclose the details of the account in their annual
return filed with the Registrar of Companies (ROC).
Non-compliance with CSR provisions can lead to significant financial penalties
for both the company and its officers. Therefore, it is crucial for companies to
understand and adhere to these provisions to avoid legal repercussions.
 SET - 2

Explain the provisions regarding to declaration and payment of dividend

under the companies act 2013 and company rules 2014. – 12.5M
Explain the contents of the board report and discloseres in directors
responsibilities statement. – 12.5M

List out the functions and duties of CSR committee and the activities of
CSR mentioned in schedule of the companies act. – 8M
Functions of the CSR Committee
1. Formulation of CSR Policy:
 The CSR Committee is responsible for formulating and
recommending a comprehensive CSR policy to the Board of
Directors. This policy should outline the projects and activities that
the company intends to undertake in alignment with Schedule VII
of the Companies Act, which specifies eligible areas for CSR
activities.
2. Recommendation of Expenditure:
 The committee recommends the amount of expenditure to be
incurred on CSR projects or activities. This ensures that the
company allocates at least 2% of its average net profits from the
previous three financial years towards these initiatives.
3. Implementation Oversight:
 The CSR Committee may constitute a Management Committee or
designate personnel responsible for implementing and executing
CSR initiatives. This includes ensuring that projects are carried out
effectively and in accordance with the approved policy.
4. Monitoring and Evaluation:
 The committee is tasked with instituting a transparent monitoring
mechanism to evaluate the implementation of CSR projects. It
reviews the performance of these projects regularly to assess their
impact and effectiveness.
5. Quarterly Financial Review:
  The committee reviews quarterly financial statements related to
CSR expenditures before they are submitted to the Board for
approval. This ensures financial accountability and transparency in
spending.
6. Annual Reporting:
 The CSR Committee is responsible for submitting an annual report
on CSR activities to the Board. This report should detail the
initiatives undertaken, expenditures incurred, and outcomes
achieved.
7. Policy Review:
 The committee must periodically review the CSR policy and its
implementation, making recommendations for any necessary
updates or changes based on evolving business practices or societal
needs.
8. Stakeholder Engagement:
 Engaging with stakeholders, including employees, community
members, and other relevant parties, is essential for understanding
their needs and expectations regarding CSR initiatives.
9. Compliance with Legal Requirements:
 The committee ensures that all CSR activities comply with
applicable laws and regulations, thus safeguarding the company's
interests and reputation

CSR Committee (Rule 2(e) of the CSR Rules)

CSR Committee means the Corporate Social Responsibility Committee of the
Board referred to in section 135 of the Act (i.e., constituted under sub-section 1
of section 135).
Composition of CSR committee
Corporate Social Responsibility Committee of the Board consisting of three or
more directors, out of which at least one director shall be an independent
director.
Proviso to section 135(1) of the Act read with Rule 5 (1) of the CSR Rule
further states:
a. Where a company covered under section 135(1) but is not required to appoint
an independent director under section 149(4), it shall have in its Corporate
Social Responsibility Committee two or more directors, without such
independent director.
b. A private company having only two directors on its Board shall constitute its
CSR Committee with two such directors
c. A foreign company covered under these rules, the CSR Committee shall
comprise
of at least two persons of which one person shall be as specified under clause
(d) of sub-section (1) of section 380 of the Act and another person shall be
nominated by the foreign company.

DUTIES OF CSR COMMITTEE [SUB-SECTION 3 READ WITH RULE

5(2)]
The Corporate Social Responsibility Committee shall:
a. Formulate and recommend to the Board, a Corporate Social Responsibility
Policy which shall indicate the activities to be undertaken by the
company in areas or subject, specified in Schedule VII;
b. Recommend the amount of expenditure to be incurred on the activities
referred to in above clause; and
c. Monitor the Corporate Social Responsibility Policy of the company from time
to time.
Further, according to Rule 5(2) of Companies (CSR) Rules, 2014, the CSR
Committee
shall formulate and recommend to the Board, an annual action plan in
pursuance
of its CSR policy, which shall include the following, namely:
a. The list of CSR projects or programmes that are approved to be undertaken
in areas or subjects specified in Schedule VII of the Act
b. The manner of execution of such projects or programmes as specified in
sub-rule (1) of rule 4 (itself or through other section 8 company, etc.)
c. The modalities of utilisation of funds and implementation schedules for the
projects or programmes
d. Monitoring and reporting mechanism for the projects or programmes; and
e. Details of need and impact assessment, if any, for the projects undertaken
by the company.

ACTIVITIES TB PG 162

Herry Limited is a company registered in Thailand. SKP Limited

(Registered in India), a wholly owned subsidiary company of Herry
Limited decided to follow different financial year for consolidation of its
accounts outside India. State the procedure to be followed in this regard. –
8M
To follow a different financial year for consolidation of accounts outside India,
SKP Limited, a wholly-owned subsidiary of Herry Limited registered in
Thailand, must adhere to specific procedures as outlined in the Companies Act,
2013 and relevant accounting standards. Here’s a detailed procedure to be
followed:
Procedure for Changing Financial Year for Consolidation
1. Board Resolution:
 SKP Limited must first pass a resolution in its Board meeting to
change its financial year. The resolution should specify the new
financial year-end date.
2. Intimation to Regulatory Authorities:
 After passing the board resolution, SKP Limited must inform the
Registrar of Companies (ROC) about the change in the financial
year. This is typically done by filing Form MGT-14 with the ROC
within 30 days of passing the resolution.
3. Approval from Central Government:
 Since SKP Limited is a subsidiary of a foreign company (Herry
Limited), it may require approval from the Central Government for
changing its financial year. This is especially important if the
change affects compliance with Indian laws or accounting
standards.
 The application for approval should include details such as the
reasons for the change and how it aligns with the parent company’s
consolidation requirements.
4. Compliance with Accounting Standards:
 SKP Limited must ensure that its financial statements comply with
Indian Accounting Standards (Ind AS) or any applicable local
accounting standards in Thailand.
 If SKP Limited follows Ind AS, it must refer to Ind AS 110
regarding Consolidated Financial Statements, which outlines how
to handle subsidiaries with different reporting periods.
5. Preparation of Financial Statements:
  Following the change, SKP Limited should prepare its financial
statements for the new financial year-end date as per applicable
accounting standards.
 It should also ensure that these statements are ready for
consolidation with Herry Limited’s accounts.
6. Consolidation Process:
 When consolidating accounts, Herry Limited will need to adjust for
any differences in reporting periods. This may involve preparing
additional information or pro forma statements to align SKP
Limited’s results with its own reporting period.
 The consolidated financial statements must reflect all subsidiaries'
results accurately, ensuring compliance with both Thai regulations
and Indian laws.
7. Disclosure Requirements:
 In its annual report, SKP Limited must disclose the change in
financial year and provide reasons for this change. This disclosure
helps maintain transparency with shareholders and regulatory
authorities.
8. Communication with Stakeholders:
 It is advisable for SKP Limited to communicate this change to its
stakeholders, including investors and employees, to ensure they are
aware of how this may affect reporting and performance
evaluations.
Conclusion
Changing the financial year for consolidation purposes involves careful
planning and adherence to legal requirements under both Indian and Thai
regulations. By following these steps, SKP Limited can effectively manage its
financial reporting obligations while aligning with Herry Limited's
consolidation needs. Ensuring compliance throughout this process is crucial to
avoid any regulatory issues and maintain transparency with stakeholders.
2. For a company which does not have a subsidiary or subsidiaries but has one
or more associate companies or Joint Ventures or both will not be required
to comply with this rule of consolidation of financial statements in respect of
associate companies or joint ventures or both, as the case may be, only for
the financial year commencing from the 1st day of April, 2014 and ending on
the 31st day of March, 2015.
3. Nothing in this rule shall apply in respect of consolidation of financial
statement by a company having subsidiary or subsidiaries incorporated
outside India commencing on or after 1st April 2014.

DISCLOSURE OF DEVIATION FROM ACCOUNTING STANDARDS

ALONG WITH REASON AND EFFECT THEREOF [SUB-SECTION 5]
Without prejudice to sub-section (1), where the financial statements of a
company
do not comply with the accounting standards referred to in sub-section (1), the
company shall disclose in its financial statements, the deviation from the
accounting standards, the reasons for such deviation and the financial effects, if
any, arising out of such deviation.
PENALTY [SUB-SECTION 7]
If a company contravenes the provisions of this section, the managing director,
the whole-time director in charge of finance, the Chief Financial Officer or any
other person charged by the Board with the duty of complying with the
requirements of this section and in the absence of any of the officers mentioned
above, all the directors shall be punishable with imprisonment for a term which
may extend to one year or with fine which shall not be less than fifty thousand
rupees but which may extend to five lakh rupees, or with both. Penal provision
can be summarised as:

Explain constitution of IEPF and utilization of IEPF account. -4.5M

INVESTOR EDUCATION AND PROTECTION FUND (IEPF)

Section 125 of the Act along with various Rules framed from time to time
including 12Investor Education and Protection Fund Authority (Accounting,
Audit, Transfer and Refund) Rules, 2016 deal with the Investor Education and
Protection Fund (IEPF). This fund, being established by the Central
Government, shall be credited with specified amounts and utilized for refund of
unclaimed and unpaid amounts, promotion of investors’ awareness and
protection of the interests of investors, etc.
Constitution of IEPF
The Investor Education and Protection Fund (IEPF) is constituted by the Central
Government under Section 125 of the Companies Act, 20131. The IEPF
consists of:
 A chief executive officer, appointed by the central government1.
 A chairperson1.
 A maximum of seven members1.
Sources of Funds for IEPF
The IEPF is credited with funds from various sources, including1:
 Grants from the Central Government1.
 Donations from institutions and government bodies1.
 Unpaid or unclaimed dividend accounts of companies1.
 Money in the general revenue account of the central government1.
 Interest or other income received from investments made by individuals
in a particular company1.
 Amounts received by companies through applications for allotment of
any securities1.
 Unclaimed dividends, matured deposits, share application money,
debentures, and interest that have remained unclaimed for seven years12.
Utilization of IEPF Account
The amounts credited to the IEPF are maintained under the Consolidated Fund
of India2. The fund is utilized for12:
 Promoting investor awareness2.
 Protecting investor interests2.
 Distributing any disgorged amount among eligible applicants for shares
or debentures, shareholders, debenture-holders, or depositors who have
suffered losses due to wrongful actions, as per court orders2.
 Investor's education1.
  Investor's awareness programs

Utilization of the Fund: According to section 125 (3) the Fund shall be
utilized for:
(a) refund of unclaimed dividends, matured deposits, matured
debentures, the application money due for refund and interest
thereon;
(b) promotion of investors’ education, awareness and protection;
(c) distribution of any disgorged amount among eligible and identifiable
applicants for shares or debentures, shareholders, debenture-holders
or depositors who have suffered losses due to wrong actions by any
person, in accordance with the orders made by the Court which had
ordered disgorgement;
d) reimbursement of legal expenses incurred in pursuing class action
suits under sections 37 and 245 by members, debenture-holders or
depositors as may be sanctioned by the Tribunal; and
(e) any other purpose incidental thereto in accordance with the rules
framed under the Investor Education and Protection Fund Authority
(Accounting, Audit, Transfer and Refund) Rules, 2016.

Illustrate the composition of NFRA and NFRA objects. – 4.5M