SAI CIRCULARS JANUARY 2014 www.saicirculars.

com
  
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CA.  SATISH AGARWAL
JANUARY-2014 * INDEX * Advisor to Editorial Board
S.No Particulars Page No.
I Important legal Obligations for Month of February 2014 4

II Executive Summaries based on Latest Circulars & Notifications

(A) Income Tax Act, 1961 5

(B) Service Tax (Finance) Act, 1994 (C) FEMA, 1999 5 to 7

 Reporting ‘Suspected’ Fraud by Auditor in India

(A) Introduction of Concept 7&8
(B) Clarifications on Concept 8&9
 Subscription Form 10

 Class Action under Companies Act, 2013 in India

(A) Introduction of Concept 11
(B) Time for Initiation of Class Action 11
(C) Powers of NCLT 11 & 12
(D) Application before NCLT 12 & 13

 Auditor under Companies Act, 2013 in India

13 & 14
(A) Introduction of Concept
(B) Rotation & Removal of Auditor 14 & 15
(C) Appointment ‘New’ Auditor 15
(D) Resignation of Auditor 15
(E) ‘Prohibited’ Services for Auditor 15 & 16
(F) Disqualifications of Auditor 16
(G) Penalties & Prosecutions against Auditor 16
(H) Miscellaneous Provisions 17

 List of Sections as Notified under Companies Act, 2013 in India 18 to 20

 Serious Fraud Investigation Office (SFIO) in India

(A) Introduction of Concept 20 & 21

(B) List of Offences for Power to Arrest by SFIO 21 & 22

 Sai Circulars INDEX 23
SAI CIRCULARS JANUARY 2014 3 www.saicirculars.com
 (I) Important legal Obligations for month of February 2014
S.No. Last Dates Nature of Obligations Remarks

(A) Income Tax Act, 1961

01 7th Deposit Monthly TDS & TCS For TDS & TCS deducted & collected

(B) Central Excise Act, 1944

01 5th Deposit Monthly Duty By all types of units except SSls

02 10th
Filing Monthly Return By all types of units except SSls

03 10th Filing Monthly Return By all types of units

For CENVAT credits availed

04 10th By all types of remaining units i.e

Filing Monthly Return
EOUs/FTZs/SEZs

05 10th Filing Monthly Return By all types of units

For receipts & consumptions of
inputs out of PLA where excise duty
exceeding Rs. one (1) crore in a year

06 15th Deposit Monthly Duty By SSI units only

(C) Employees Provident Funds (EPFs) and Miscellaneous Provisions Act 1952

01 15th Deposit Monthly EPF By all types of entities

02 15th Filing Monthly Return For new employees joined

03 15th Filing Monthly Return For old employees left

04 15th Filing Monthly Return By all types of entities

(D) Service Tax & ESI & SEBI

01 5th Deposit Monthly Service Tax By Corporates only

02 14th Publication Quarterly Review of Quarterly By Listed Companies

Results

03 21st Deposit Monthly ESI-Payments By all types of eligible entities

SAI CIRCULARS JANUARY 2014 4 www.saicirculars.com

 (II) Executive Summaries based on Latest Circulars & Notifications
(A) Income Tax Act, 1961
1 Clarifications on Applicability of
Dispute Resolution Panel (DRP) -
Section 144C
(I) Assessing officer (AO) be required to send
‘draft’ assessment order to ‘eligible’ assessee
where AO is proposing to make any variation
in ‘returned’ incomes or losses as prejudicial
to interest of assesses
(II) Provisions of DRP be applicable against
(B) Service Tax (Finance) Act, 1994
1 Guidelines for Arrest & Bail against
Offences as Punishable under Service
Tax (Finance) Act, 1994
(I) Introduction of concept - Section 90 & 91
Power to arrest is introduced under section 90
& 91 where evasion of service tax under
section 89(1) (i) or (ii) is exceeding ‘50’ Lakh
(II)‘Ordinary’ Reasons for Arrest-Section 89(1)(i)
 Arrest a Person
(a) Where a person ‘knowingly’ evade the
payment of service tax
or
(b) Avail & utilize the CENVAT ‘without’ actual
receipt ‘taxable’ services or ‘excisable’
goods either fully or partially in violation of
rules
or
(c) Maintain ‘false’ books of accounts
or
(d) Fails to supply any information as required
or supply ‘false’ information
& central excise
(e) Also service tax evaded is minimum ‘50’
lakh
 Release ‘Arrested’ Person
(a) ‘Minimum’ Assistant Commissioner (AC) or
Deputy Commissioner (DC) be permitted to
make an order for releasing ‘arrested’ person
on bail or otherwise
(b) AC or DC has ‘same’ power as available to
officer - in - charge of police station
(c) AC or DC be required to obey the procedure
as prescribed under section 436 of Code of
Criminal Procedure 1973 (2 of 1974)
(III) ‘Special’ Reasons for Arrest - Section 89(1)(ii)
SAI CIRCULARS JANUARY 2014
order for proposing to make any variation in
‘returned’ incomes or losses as prejudicial to
interest of assesses ‘on or after’ October 01,
for 2009 beside for ‘any’ assessment year
(III) Henceforth provisions of DRP be applicable
for order to be made ‘on or after’ October 01,
2009 beside for ‘any’ assessment year i.e Ay
2008-09 & 2009-10 & 2010-11
 Circular No. 09 dated November 19, 2013
(a) Where a person has collected the minimum
‘50’ lakh service tax
&
(b) Also failed to deposit to Govt and also ‘delay’
minimum ‘6’ months from date of service tax
become due
(c) ‘Arrested’ person be produced before
magistrate ‘without’ delay beyond ‘24’ hours
(d) Magistrate be permitted to decide to grant
a bail or ‘not’ to grant a bail
(IV) ‘Mandatory’ Conditions be Followed for
Arrest
(a) Stipulated conditions under section 89(1)
(i) or (ii) be obeyed ‘before’ arrest a person
(b) commissioner of Central Excise be required
to have a reason to believe that person to be
arrested has committed an offence as
stipulated under section 89(1) (i) or (ii)
&
(c) Also arrest be made on basis of credible
material available ‘before’ authorizing an offi-
cer ‘not’ below the rank of superintendent of
(d) Moreover ‘beside’ fulfilling ‘legal’
requirements further required to ensure
‘proper’ investigation
&
(e) Also prevention from possibility of
tampering with evidence or intimidating or
influencing the witnesses and amount of
service tax evaded ‘before’ deciding to arrest a
person
(V) Pre ‘Arrest’ Procedure
(a) Commissioner be required to ensure that
officer should followed the provisions under
section 436 of Code of Criminal Procedure,
1973 (2 of 1974) ‘before’ arrest a person
5 www.saicirculars.com
 (b) Arrest memo be contained the directions
as issued in D.K. Basu Vs State of West Bengal
as reported in 1997 (1) SCC, 416
(c) List of Contains as Needed in Arrest Memo
* Brief facts of case * Details of person as
arrested * Gist of evidence against person *
Relevant section(s) of Finance Act, 1994 or
‘other’ laws as attracted in case of arrest a
person * Grounds of arrest be explained to
‘arrested’ person and facts be noted in arrest
memo * Nominated person based on details
as provided by arrested person be informed an
immediately * Date & time of arrest be
mentioned in arrest memo * A separate arrest
memo be made & be provided to ‘each’
individual where arrest more than ‘1’ person
& A female be arrested in presence of woman
officer * ‘Reasonable’ care of health & safety of
arrested person be required
(VI) Post ‘Arrest’ Procedure
 Cases Covered Under Section 89 (1) (i)
(a) Assist or Deputy Commissioner be bound
to release a person on bail against bail bond
(b) Bail conditions be informed in writing to
arrested person
&
also to nominated person on telephone
(c) Arrested person be permitted to talk to
nominated person
(d) Execution of personal bail bond
& tional chief commissioner with copy to DGCEI
Also ‘1’ surety by local ‘reputed’ person before
investigating officer
& Also a report by jurisdictional Chief
Also ‘not’ to leave the country ‘without’
informing to officer
(e) Amount be indicated in personal bail bond
& security be depend on amount of tax evaded
(C) FEMA, 1999
1 Liberalization against Foreign
Investments in Credit ‘Enhanced’
Bonds by SEBI ‘Registered’ FIIs & QFIs
& LTIs in India
(I) Existing Provisions
(a) SEBI Registered Foreign Institutional
Investors (FIIs) & Qualified Foreign Investors
(QFIs) & Long Term Investors (LTIs) i.e Sovereign
Wealth Funds (SWFs) & Multilateral Agencies
& Pension or Insurance or Endowment funds
& Foreign Central banks as similar to RBI in
SAI CIRCULARS JANUARY 2014
(f) Arrested person be released ‘after’ fulfilling
bail conditions
(h) Arrested person be produced before
Magistrate ‘without’ delay beyond ‘24’
hours of arrest where bail conditions ‘not’
fulfilled
(i) Arrested person be handed over to nearest
police station for safe custody
 Cases Covered Under Section 89 (1) (ii)
(a) Arrested person be handed over to nearest
police station for safe custody with in ‘24’ hours
under proper challan
&
(b) Also be produced before magistrate on next
day
&
(c) Also be informed to nominated person
(VII) Miscellaneous Provisions
(a) Format for documentations i.e bail offer
letter & bail bond & challan for handing over
to police be in accordance to Section 436 of
Code of Criminal Procedure, 1973 (2 to 1974)
(b) Every commissionerate be maintained a
bail register and details of case i.e * Name of
arrested person * Bail amount * Surety amount
& Money or instruments or documents as rec-
eived as surety * Money deposited in treasury
(c) Reporting system
Report on arrested person be send to jurisdic-
(Headquarters) on same or next day
&
Commissioner be send to Zonal member with
in ‘24’ hours of arrest
 Circular No. 171 dated September 17,
2013
India be permitted to invest in Govt
Securities & Non ‘Convertible’ Debentures
(NCDs) or bonds as issued by Indian Companies
(b) These investments be permitted ‘after’
satisfaction of terms & conditions
&
Also be permitted on repatriation basis
(c) ‘Monetary’ limit for Investments in India
* USD ‘30’ billion in Govt Securities
&
* UDS ‘51’ billion in NCDS or bonds
6 www.saicirculars.com
 (II) Liberalized Provisions
(a) Now FIIs & QFIs & LTIs be permitted to
invest in credit ‘enhanced’ bonds in India
(b) However borrowers be eligible to raise an
ECB under automatic route in India
(c) Moreover ‘monetary’ limit should ‘not’ be
crossed the USD ‘30’ billion for Govt Securities
&
Also ‘51’ billion for NCDs or bonds
(d) Circular No. 40 dated March 02, 2010
& (a) Now NOC ‘not’ required to obtain & to submit
Also 120 dated June 26, 2013 are relevant on
this issue
 Circular NO. 74 dated November 11, 2013
2 Liberalizations against Transfer of
Shares against FDIs in Financial
Service Sector in India
(I) Existing Provisions
Reporting (A)
‘Suspected’ Fraud by Auditor in India
Introduction of Concept
1 Concept of Confidentiality
(I) Auditor ‘not’ permitted to disclose ‘client’
informations as acquired in course of
professional engagement to ‘third’ party
‘without’ consent from client in accordance to
CA Act, 1949
(II) However auditor be permitted to
disclose ‘client’ informations where required
by law
(III) (a) ‘Similar’ provisions be applied under
Cost and Works Accountants Act, 1959
&
(b) Also under Company Secretaries Act, 1980
(IV) Under Companies Act, 1956
Henceforth auditor ‘not’ permitted to report
the frauds or irregularities of client to law
enforcement authorities & Govt beside
reporting is needed in public interest under
Companies Act, 1956
(V) Under Companies Act 2013
(a) Now statutory auditor & cost auditor &
secretarial auditor be required to report
‘suspected’ offence of fraud to Govt
(b) Henceforth these provisions override the
concept of confidentiality obligations under
Code of Ethics of CA Act, 1949
SAI CIRCULARS JANUARY 2014 7 www.saicirculars.com
(a) No Objection Certificate (NOC) be obtained
from financial sector regulator(s) for transfer
of shares to ‘non’ resident where investee
company engaged in financial service sector
in India
(b) NOC be obtained by investee company &
transferor & transferee
(c) NOC be submitted alongwith form FC-TRS
to bank
(II) Liberalized Provisions
alongwith form FC-TRS to bank
(b) However fit and proper or due diligence
requirements for ‘non’ resident investor if
stipulated by financial service regulator(s) be
complied instead NOC
(c) Circular No. 43 dated November 04, 2011
is relevant on this issue
 Circular No. 72 dated November 11, 2013
2 Reporting ‘Suspected’ Fraud to Govt -
Section 143(12) to (15) Companies Act,
2013
(I) Under Section 143(12)
(a) Now auditor be required to report to Govt
against offence ‘involving’ fraud ‘already’
committed or ‘being’ committed against
company by officers or employees
(b) However auditor should have reason to
believe that either offence ‘already’ committed
or ‘being’ committed against company by
officers or employees
(c) Auditor be required to report an
immediately with in time & manner as
prescribed
(II) Under Section 143(13)
* Auditor ‘not’ contravening under head
confidentiality in accordance to CA act,
1949 where reporting is made under section
143(12)
(III) Under Section 143(14)
(a) Provisions under section 143(12) & (13) also
be applied on cost auditor appointed under
section 148
& (b) Also on secretarial auditor appointed
under Section 204
 (IV) Under Section 143(15)
(a) Now statutory auditor & cost auditor &
secretarial auditor be required to pay a penalty
for ‘not’ reporting to Govt for fraud ‘already’
(B) Clarifications on Concept
1 Immunity of Auditor from Professional
Misconduct for Breach of Confi-
dentiality Section 143(13)
(I) Auditor be permitted to report for fraud
against company by officers or employees
under section 143(13)
(II) Henceforth auditor ‘not’ permitted to report 6 Materiality of Fraud
for fraud by company under section 143(13)
(III) Therefore immunity of auditor from
professional misconduct for breach of confid-
entiality be permitted for reporting of fraud
against company by officers or employees
2 Fraud by ‘Thirty’ Party against
Company
(I) Auditor ‘not’ permitted to report of fraud by
‘third’ party against company to avail immu-
nity from professional misconduct for breach
of confidentiality under Section 143(13)
3 ‘Special’ Efforts to Detect a Fraud again
-st company by officers or Employees
(I) Auditor ‘not’ required to make ‘special’
efforts to detect a fraud against company by
officers or employees
(II) Henceforth auditor be required to obey the
Standards of Auditing i.e SA240 (Revised) as
7 Applicability of Provisions on Branch
mandatory for application under Companies
Act, 2013
(III) Therefore auditor ‘not’ required to do any
thing beyond the SA240 (Revised)
4 ‘Confirmed’ Fraud or ‘Not’ Confirmed
Fraud
(I) Auditor ‘not’ required to ensure about
‘confirmed’ fraud or ‘not’ confirmed fraud
(II) Henceforth auditor be required to have a
reason to believe about fraud either ‘already’
committed or ‘being’ committed
5 Qualifications & Disclosures in Audit
Report
(I) Auditor be required to qualify his audit
report wherever required beside reporting to
Govt about fraud
SAI CIRCULARS JANUARY 2014 8 www.saicirculars.com
committed or ‘being’ committed against
company by officers or employees
(b) Minimum ‘penalty’ be ‘1’ Lac
or Maximum ‘penalty’ be ‘25’ Lac
(II) (a) Henceforth reporting to Govt about fraud
‘not’ substitution of qualifications or disclo-
sures in audit report
& (b) Also obeying the SA240 (Revised) is
mandatory for application under Companies
Act, 2013
(I) Material Fraud
(a) Where fraud is happening in frequently
manner
or (b) Where ‘amount’ involved in fraud is
minimum ‘5%’ net profit
or (c) Minimum ‘2%’ turnover of company for
preceding financial year
(II) ‘Not’ Material Fraud
(a) Auditor be required to report in writing to
audit committee
or (b) To Board of Directors (BODs) where audit
committee ‘not’ constituted on issue of fraud
‘including’ systemic fraud
(c) Auditor be Permitted to Report to Govt.
Where auditor ‘not’ satisfied with action taken
by audit committee or BODs as case may be
beside fraud ‘not’ material
Auditor - Section 143(12) & (13)
(I) Provisions about reporting of fraud against
company by officers or employees also
applicable on branch auditor
(II) Henceforth ‘branch’ auditor be required to
report a fraud against company by officers or
employees
(III) However concept of synergy between ‘main’
auditor and ‘branch’ auditor be clarified by
ICAI or MCA in India
8 Procedure for Reporting of Fraud to
Govt by Auditor
(I) (a) Auditor be required to send his report to
Secretary Ministry of Corporate Affairs, Govt
of India in sealed envelope by registered post
with acknowledgement
 or (b) By speed post and also by email for
confirmation of dispatch
(II) Auditor be required to use his letter-head
and also to sign & to use rubber stamp & to
mention his membership number
(III) Auditor be required to report in form No. 10.3
(IV) Auditor be required to send a copy to audit
committee or BODs as case may be
9 Comparison of Reporting of Fraud 10 Difficulties for Auditor
under Para 4 (XXI) of CARO, 2003 &
Section 143(12) of Companies Act, 2013
(I) Reporting of Fraud on Company to Govt of
India
(a) Under CARO, 2003
Be reported by auditor for fraud beside
committed by officers or employees or by third
parties in audit report
(b) Under the Companies Act, 2013
Be reported by auditor for fraud against
company by officers or employees to Govt of
India
(II) Fraud by Management of Company
(a) Under CARO, 2003
Fraud by management of company be reported
by auditor in audit report
(b) Under the Companies Act, 2013
Fraud by Management of company ‘not’ to be
reported by auditor to Govt of India but be
reported in audit report
(III) Reporting to Members
(a) Under CARO, 2003
Fraud be reported by auditor in audit report to
members
(b) Under the Companies Act, 2013
Fraud be reported to Govt by auditor ‘directly’
beside reporting in audit report
11
(IV) Detection of Fraud
(a) Under CARO, 2003
‘All’ frauds be reported by auditor in audit
report beside detected by him or noticed or
reported by others
(b) Under the Companies Act, 2013
‘Only’ frauds as detected by auditor against
company by officers or employees during
performance of duties be reported to Govt of
India
SAI CIRCULARS JANUARY 2014 9 www.saicirculars.com
(V) List of Auditor Includes
(a) Under CARO, 2003
‘Only’ statutory auditor be required to report
in audit report against fraud
(b) Under the Companies Act, 2013
* ‘All’ auditors be required to report to Govt of
India i.e statutory auditor & cost auditor &
secretarial auditor
(I) Reason to Believe
(a) Auditor to ensure that reason to believe be
existed for fraud ‘already’ committed or ‘being’
committed by officers or employees against
company
(b) Henceforth auditor should have ‘sufficient’
reasons & informations with him to report
‘material’ frauds by officers or employees
against company
(II) Challenge in Court by Management of
Company
*‘Sufficient’ reason to believe may be challe-
nged in court by management of company
(III) Involvement in Management Function
(a) Auditor be required to provide the parti-
culars of officers or employees as involved in
frauds
(b) Henceforth auditor be required to fix an
accountability of officers or employees as invo
lved in fraud which is presently management
function ‘not’ audit function
(IV) Reporting of Immaterial Fraud
(a) Auditor be required to report to Govt where
reply of audit committee or BODs as case may
be ‘not’ satisfactory against immaterial frauds
(b) Henceforth auditor be required to examine
‘reply’ received ‘before’ reporting to Govt of
India against immaterial frauds
SA 240 (Revised) for Auditor
(I) Fraud Includes
(a) Fraud be intentional act (b) Fraud be comm-
itted by one or more an officer or employee or
third party (c) Fraud be committed through use
of deception (d) Fraud be committed to obtain
an unjust or illegal an advantage
(II) Obligation on Auditor
Auditor be required to ensure ‘before’ reporting
to Govt of India that frauds should cause a mat-
erial ‘mis’ statement in financial statements
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SAI CIRCULARS JANUARY 2014 10 www.saicirculars.com
  Class Action under Companies Act, 2013 in India
(A) Introduction of Concept
1 History of Class Action - Section 245 3 Role of NCLT in India
Concept of class action was first originated in Representatives of investors or depositors be
USA for providing a relief to small investors permitted to file an application before
in Enron and thereafter in Satyam case in USA National Company Law Tribunal (NCLT) for
seeking a relief under head class action
2 Need for Concept of Class Action concept in India
(I) Generally needed for small investors ‘not’
having proper time & money & energy to fight 4 Representative Action - Section 245
for their rights against large companies (10)
(II) Henceforth ‘small’ investors can fight for Application be filled by person or group of
their rights in collective way against large persons on behalf of affected persons under
companies under head class action head representative action
(B) Time for Initiation of Class Action
1 Class Action against ‘Prejudicial’ Action Also for inducing a person to invest the money
of Management - Section 245(1) - Section 34 & 36
(I) Punishment be imposed by courts
Applicants be permitted to file an application
on behalf of members or depositors where (II) As Section 34 & 36 ‘not’ providing a
management or conduct of affairs of company provision for payment of compensation or
being conducted in manner as prejudicial to damage to affected persons
interest of company or members or depositors
4 ‘Civil’ Liability for Misstatement in
2 Class Action against ‘Misleading’
Statements in Prospectus Prospectus - Section 35
(I) Compensation be awarded to every person
Applicants be permitted to file an application
who had sustained a loss or damage
on behalf of person or group of persons or
group of association of persons as effected by (II) Class action can be initiated in this case
‘misleading’ statement or inclusion or under section 245
omission of matter in prospectus under
Section 37 5 Class Action against Banking Com-
3 ‘Criminal’ Liability for Misstatement panies - Section 245(9)
in Prospectus ‘No’ class action can be permitted against
& banking companies
(C) Powers of NCLT
1 Restrain the Company from Acts as &
Ultra Virus to Memorandum or Articles (II) Also to restrain the company & directors
from acting on resolution where resolution
of Association was passed by suppression of material facts or
(I) NCLT be permitted to restrain the company obtained by misstatement to members or
from Committing an act as ultra Virus to depositors
Memorandum or Articles of Association
3 Prohibit an Acting against Company
& (II) Also to restrain the company from
committing a breach of provision of Low or Any ‘other’ Low
Memorandum or Articles of Association * NCLT be permitted to prohibit an acting
against company law or any ‘other’ law for time
2 Declare a Resolution as Void being in force
(I) NCLT be permitted to declare a resolution
as void as passed for alteration the 4 Restrain an Action as Contrary to
Memorandum or Articles of Association Resolution as Passed by Members
SAI CIRCULARS JANUARY 2014 11 www.saicirculars.com
 * NCLT be permitted to restrain the company
from taking an action as contrary to
resolution as passed by members
5 Claim the Damages or Compensation
from Company & Directors & Auditor
& Consultant & Any ‘Other’ Person
(I) Claim from Company & Directors
* NCLT be permitted to claim the damages or
compensation or any ‘other’ suitable action
from company & directors against fraudulent
or unlawful or wrongful an act or omission or
conduct
(II) Claim from Auditor
(a) NCLT be permitted to claim the damages
or compensation or any ‘other’ suitable action
from auditor against improper or misleading
statement in audit report
or
(D) Application before NCLT
1 ‘Eligible’ Persons for Making an
Application before NCLT
(b) For fraudulent or unlawful or wrongful an
act or conduct
(III) Claim from Expert & Advisor & Consultant
& Any ‘Other’ Person
(a) NCLT be permitted to claim the damages
or compensation or any ‘other’ suitable action
from advisor & consultant & any ‘other’ person
against incorrect or misleading a statement
made to Company
or (b) For fraudulent or unlawful or wrongful
an act or conduct
6 Fixation ‘Joint’ Liability of Audit Firm
& Partners - Section 245(2)
(I) NCLT be permitted to fix ‘joint’ liability of
audit firm & partners against improper or
misleading a statement in audit report
or
(II) For fraudulent or unlawful or wrongful act
(IV) To ensure that applicants ‘not’ having any
personal interest directly or indirectly

(I) Application by Members of Company having
Share Capital
(a) Minimum ‘100’ members of company
or
(b) Minimum ‘percentage’ prescribed which-
ever lower be permitted to apply before NCLT
(c) However applicant(s) be required to pay their
dues if any ‘before’ making an application
(II) Application by Members of company ‘not’
having Share Capital
* Minimum ‘20%’ members be permitted to
apply before NCLT
(III) Application by Depositors of Company
(a) Minimum ‘100’ depositors of company
or
(b) Minimum ‘percentage’ prescribed which-
ever lower be permitted to apply before NCLT
2 Matters be Considered by NCLT -
Section 245(4) (a) to (f)
(I) To ensure that applicants have acted in good
faith
(II) To ensure that other than director or officer
are involved
(III) To ensure that cause of action of members
or depositors be bonafide
SAI CIRCULARS JANUARY 2014
(V) To ensure that act or omission have ratified
by company
3 Procedures to be Followed by NCLT
section 245(5) (a) to (c)
* NCLT be required to decide to admit an
application on basis of certain procedure
(I) Public Notice
* NCLT be required to serve a notice to ‘all’
members or depositors of class in prescribed
manner
(II) Clubbing ‘Similar’ Applications
* All ‘similar’ applications be clubbed into
single application
(III) Selection of Lead Applicant
NCLT be permitted to appoint a lead appli-
cant where other applicant ‘unable’ to reach
at consensus
(IV) Parallel Proceedings for ‘same’ cause ‘not’
permitted
4 Penal Provisions against Liability of
Fraud - Section 337 to 341
Penal provisions are enacted in Companies
Act, 2013 for ‘personal’ liability of directors &
officers during winding up
12 www.saicirculars.com
5 Binding Nature of Order of NCLT -
Section 245(6)
(I) Order of NCLT be binding on applicants &
auditor & expert & consultant & advisor
(II) However order of NCLT can be appealed
before appellate tribunal (NCLAT)
6 Punishment for Violation of Order of
NCLT- Section 245(7)
(I) Punishment on Company
(a) Minimum ‘penalty’ be ‘5’ Lac
& NCLT is permitted to make an order for
(b) Maximum ‘penalty’ be ‘25’ Lac
(II) Punishment on officer
 Auditor under Companies Act, 2013 in India
(A) Introduction of Concept
1 Appointment of Auditor by ‘Non’ Govt. 4 Filling of Casual Vacancy - Section
Company 139(7)
(I) Every company be required to appoint an
auditor in ‘Ist’ AGM till Conclusion ‘6th’ AGM
(II) LLP be eligible for appointment as auditor
(III) ‘Re’appointment or ‘fresh’ appointment be
made in ‘6th’ AGM
(IV) Company be required to ratify an
appointment in ‘every’ AGM
(V) Appointment ‘Existing’ Auditor - Section
139(10)
‘Existing’ auditor be continued till ‘no’ fresh
appointment or reappointment is made at
AGM
2 Appointment ‘Ist’ Auditor by BODs -
Section 139(6)
(I) Board of Directors (BODs) be permitted to
appoint ‘Ist’ auditor with in ‘30’ days from date
of incorporation of Company
(II) Auditor as appointed by BODs be reappoin-
ted in ‘Ist’ AGM
3 Appointment ‘Ist’ Auditor by EGM
*Members be permitted to call an Extra-
ordinary General Meeting (EGM) to appoint ‘Ist’
auditor with in ‘90’ days from date of incorpora-
tion of company where BODs is fails to appoint
‘Ist’ auditor
SAI CIRCULARS JANUARY 2014 13
(a) Maximum ‘imprisonment’ be ‘3’ year
&
(b) Also minimum ‘penalty’ be ‘25’ thousand
or
(c) Maximum ‘penalty’ be ‘1’ Lac
7 Penalty for Frivolous or Vexations
Application - Section 245(8)
Maximum ‘penalty’ be ‘1’ Lac on appli-
cant where application found frivolous or
vexations
8 Reimbursement of Cost of Litigation
reimbursement the legal cost incurred by
applicant from Investor Education and
Protection Fund
(I) BODs be permitted to fill casual vacancy
with in ‘30’ days
but
(II) Company be required to ratify in AGM or
EGM with in ‘3’ months where casual vacancy
due to resignation
5 Appointment of Auditor by Govt
Company
(I) ‘Annual’ Appointment or Reappointment
(a) The Comptroller and Auditor General of
India (C & AG) be required to appoint an auditor
with in ‘180’ days from Commencement of
financial year i.e. 30th September
(b) Auditor be permitted to hold an office till
Conclusion of AGM
(II) ‘Ist’ Appointment of Auditor
(a) C & AG be required to appoint ‘Ist’ auditor
with in ‘60’ days from date of incorporation of
company
(b) BODs be required to appoint ‘Ist’ auditor
with in ‘30’ days from date of expiry ‘60’ days
where C & AG is fails to appoint
(c) Henceforth BODs be required to appoint ‘Ist’
auditor with in ‘90’ days (i.e. 60 + 30 = 90) from
date of incorporation of company
(d) Members be permitted to call an EGM to
appoint ‘Ist’ auditor with in ‘150’ days (i.e
60+30+60=150) where BODs is fails to appoint
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 with in ‘30’ days
(III) Filling of Casual Vacancy
(a) C & AG be required to appoint ‘new’ auditor
with in ‘30’ days from date of Casual Vacancy
(b) BODs be required to appoint ‘new’ auditor
with in ‘30’ days from date of expiry ‘30’ days
(c) Henceforth BODs be required to appoint
(B) Rotation & Removal of Auditor
1 ‘Mandatory’ Rotation of Auditor
(I) ‘Maximum’ Period for Rotation
(a) ‘Listed’ Company ‘not’ permitted to appoint
an auditor for ‘not’ more than ‘5’ year as
individual
or
(b) For ‘not’ more than ‘10’ year as firm
‘including’ LLP
(II) Period for Transition
Maximum ‘3’ year is permitted for transition
against provisions for rotation from date of
commencement of Companies Act, 2013
2 Removal or Resignation of Auditor -
Section 139(2)
(I) Right to remove an auditor by company
& opportunity being heard ‘before’ removal
(II) Also right to resign by auditor ‘not’ effecting
the provisions for rotation of auditor
(III) Power of Govt - Section 139(4)
Govt is empowered to prescribed the rules for
rotation of auditor of company
3 Concept of Cooling ‘off’ Period
(I) ‘Re’appointment ‘not’ required ‘before’
completion ‘5’ year
(II) New audit firm ‘not’ permitted to have
‘common’ partner of old audit firm
(III) Henceforth ‘no’ manipulation be
permitted through a ‘common’ partner in old
& new audit firm
4 ‘Voluntary’ Rotation of Auditor &
Rotation of Audit Partner - Section
139(3)
(I)(a) Rotation of auditor is mandatory
but
(b) Rotation of partner of firm ‘not’ mandatory
for listed company
SAI CIRCULARS JANUARY 2014 14
‘new’ auditor with in ‘60’ days (i.e. 30 + 30 =
60) from date of casual vacancy
(IV) Concept of Govt. Company Includes
Where Company is owned or Controlled
either directly or indirectly by (a) Central
Govt. or (b) State Govt. or (c) ‘Multiple’ State
Govts or (d) ‘Joint’ Central & State Govt(s)
(II) However members of company be
permitted to prescribe the provisions for
rotation of partner of firm through resolution
in AGM or EGM
(III) Moreover members of company be
permitted to prescribe the provisions for
rotation of auditor through resolution in AGM
or EGM
5 Removal of Auditor ‘before’ Expiry of
Term - Section 140(1)
(I)(a) Company be permitted to remove an
auditor through passing a special resolution
in AGM or EGM
&
(b) Also required ‘prior’ approval from Govt. for
removal of auditor of company
(II) Auditor be permitted to have ‘reasonable’
6 Power of Tribunal for Removal of
Auditor - Section 140(5)
(I)(a) Tribunal be permitted to remove an
auditor ‘after’ satisfactions that auditor has
acted in fraudulent manner
or
(b) Auditor has abetted or colluded in fraud
with company or director(s) or officer(s)
(II) Tribunal be permitted either Suo moto or
through an application from Govt. or from any
Concerned person
(III) (a) Tribunal be permitted to make an order
to remove an auditor with in ‘15’ days against
application as received from Govt ‘after’
satisfaction with reasons for removal
&
(b) Also Govt be permitted to appoint ‘another’
auditor
(IV) Action against Auditor - section 447
‘Removed’ auditor ‘not’ permitted for appoint-
ment an auditor in any ‘other’ company
‘minimum’ for ‘5’ year from date of order for
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 removal as auditor of company Partner & firm ‘jointly’ liable for losses due to
fraudulent act or abetted or colluded in fraud
(V) Liability of Firm & Partners against company or director(s) or officer(s)
(C) Appointment ‘New’ Auditor
* Company be permitted to appoint ‘new’ ‘Existing’ auditor has right to make ‘written’
auditor ‘other’ than ‘existing’ auditor through representation to company ‘not’ exceeding
AGM or EGM ‘reasonable’ length

1 ‘Special’ Notice - Section 115 3 Duties of Company

(I) Company be required to receive ‘special’ (I) Company be required to mention to
notice to call an AGM or EGM to appoint ‘new’ members that representation is received from
auditor other than ‘existing’ auditor ‘existing’ auditor
&
(II) Special notice can be given by member(s) (II) Also to send a copy of representation to
holding minimum ‘1%’ voting power members

(III) Special notice ‘not’ required where (III) Company be required to ensure that
‘existing’ auditor has completed his tenure i.e representation be read beside right to be heard
‘5’ or ‘10’ year under section 139(2) as case at AGM or EGM
may be for listed company
(IV) Company be required to file a copy of
2 ‘Existing’ Auditor’s Rights representation to ROC where ‘not’ sent to
members
(I) Right to Receive Copy of Special Notice
‘Existing’ auditor has right to receive a copy of 4 Right of Tribunal
special notice alongwith resolution to be Tribunal be permitted to allow ‘no’ circulation
passed at AGM or EGM of representation ‘after’ satisfying that auditor
has misused the right of representation on
(II) Right to Represent before Members in AGM basis of application as received from company
or EGM or any ‘other’ aggrieved person(s)
(D) Resignation of Auditor
1 Auditor ‘Non’ Govt Company (II) Also to ROC of State
&
(I) Auditor be required to file a statement to
(III) Also to C & AG ‘indicating’ facts & reasons
company
of resignation with in ‘30’ days from date of
&
resignation as auditor
(II) Also to ROC ‘indicating’ facts & reasons of
resignation with in ‘30’ days from date of
3 Penalty against Auditor
resignation as auditor
(I) Auditor be liable to pay ‘minimum’ penalty
2 Auditor of Govt Company ‘50’ thousand
or
(I) Auditor be required to file a statement to
(II) ‘Maximum’ penalty ‘5’ Lac for ‘not’ filing
company
abovementioned statement
&
(E) ‘Prohibited’ Services for Auditor
1 Introduction of Concept - Section 144 audit service (III) Design & implementation of
financial information system (FTS) services
* Auditor ‘not’ permitted to provide ‘prohibited’ (IV) Actuarial service (v) Investment banking
services to auditee or holding or subsidiary service (VII) Rendering ‘outsourced’ financial
company directly or indirectly service (VIII) Management service (IX) Any
2 ‘other’ service as may be prescribed
List of Prohibited Services
(I) Accounting & book keeping services (II) Internal 3 List ‘Non’ Prohibited Services
SAI CIRCULARS JANUARY 2014 15 www.saicirculars.com
 * Auditor be permitted to provide the non
‘prohibited’ services ‘after’ approval from audit
committee or BODs as case may be
4 Transition Period
* Auditor be permitted to provide ‘prohibited’
services ‘before’ closure of first financial year
‘after’ commencement of companies Act, 2013
i.e March 31, 2014
5 Concept of Directly or Indirectly
(F) Disqualifications of Auditor
(I) Auditor be disqualified having ‘business’
relationship with auditee or subsidiary or
holding or associate or subsidiary or associate
of holding company
(II) Auditor be disqualified having relative as
director or key managerial personnel (KMP) in
company
(III) (a) Auditor be disqualified having
(G) Penalties & Prosecutions against Auditor
* Under Section 147
1 For ‘General’ Contravention
(I) Minimum ‘penalty’ be ‘25’ thousand
or
(II) Maximum ‘penalty’ be ‘5’ Lac
2 For ‘Specific’ Contravention
(I) Maximum ‘imprisonment’ be ‘1’ year
& ‘Jointly’
(II) Also minimum ‘penalty’ be ‘1’ Lac
or
(III) Maximum ‘penalty’ be ‘25’ Lac where
contravention is willful or knowingly with
intent to deceive the company or shareholders
or creditors or tax authorities
3 Refund of Remuneration & Payment
for Damages
(I) Auditor be required to refund his 6
remuneration
& 147(3)
(II) Also be required to pay against damages to
company or statutory bodies or tax authorities
or any ‘other’ person(s) for losses as due to
incorrect or misleading statements of
particulars as made in audit report
4 Power of Govt. of India
SAI CIRCULARS JANUARY 2014
(I) Auditor as individual ‘not’ permitted to
provide ‘prohibited’ services either directly or
through relative or any ‘other’ entity where
individual has significant ‘influence’ or
control or using the name or trademark or
brand
& (II) Also auditor as firm or LLP ‘not’
permitted to provide ‘prohibited’ services
either directly or through holding (parent) or
subsidiary or associate where firm or partner
or LLP has significant ‘influence’ or control or
using the name or trademark or brand
conviction by court against offence ‘involving’
fraud
&
(b) Also period ‘10’ year ‘not’ completed from
date of conviction
(IV) Auditor be disqualified where subsidiaries
or associates entity providing ‘prohibited’
services to auditee company
(I) Now Govt be empowered to specify the
statutory body or tax authority or officer for
ensuring ‘prompt’ payment against damages
to company or to ‘specified’ person(s)
&
(II) Also to get a report from statutory body or
tax authority or officer ‘after’ payment for
damages
5 Liability on Audit Firm & Partners
(I) ‘All’ civil & criminal liabilities be levied on
‘audit’ partner(s)
&
(II)(a) Also on audit firm as jointly & severely
where proved ‘audit’ partner(s) were acted in
fraudulent manner
or
(b) Abetted or colluded in fraud with company
or directors or officers
Liability towards ‘Third’ Party-Section
(I) Now auditor be liable for ‘financial’ losses
to ‘third’ party i.e. (a) Shareholders (b)
Creditors against misleading or incorrect
‘audited’ financial statements
(II) This concept commonly known ‘class’
action or suit as used against Enron & Satyam
in USA
16 www.saicirculars.com
 (H) Miscellaneous Provisions
1 ‘Mandatory’ Application ‘Auditing’
Standards - Section 143(9) & 143(10)
(I) Auditor be required to comply ‘auditing’
standards the SA 240 (Revised)
(II) Govt be empowered to prescribe ‘auditing’
standards as recommended by ICAI & NFRA
(III) Transition Period
Auditor be required to comply ‘auditing’
standards ‘already’ issued by ICAI till Govt is
recommending separately
2 Highlighting of Audit Report - Section
143(3) (f) & (i)
(I) Now highlighting through use of thick or
italics words ‘not’ required
(II) Now auditor be required to state the
observations or comments against ‘financial’ 4
transactions or matters having ‘adverse’ effect
on functioning of company
(III) (a) Now auditor be required to state that
company has adequate ‘internal’ financial
controls system in operation
&
(b) Also ‘operating effectively on controls as
required
3 Reporting against Fraud to Govt by
Auditor -143(12) & (13) & (14)
(I) Duty of Auditor - Section 143(12)
Auditor be required to report to Govt. with in
‘specified’ time where has reason to believe
that fraud ‘already’ committed or ‘being’
committed by officers or employees against
company
(II) Concept of Confidentiality under
Chartered Accountant (CA) Act, 1949 - Section
143(13)
Auditor ‘not’ violating the concept of
confidentiality under CA Act, 1949 while
reporting the fraud by officers or employees
against company to Govt. in good faith
(III) Reporting of fraud by ‘Branch’ Auditor -
Section 143(14)
(a) ‘Branch’ auditor ‘not’ protected under
Section 143(13) for reporting to Govt. for fraud
SAI CIRCULARS JANUARY 2014
against company in good faith
(b) Henceforth ‘main’ auditor of company be
permitted
‘Not’
‘Branch’ auditor be Permitted to report to Govt
for fraud against company in good faith
(IV) Applicability of Provisions on Cost Auditor
& Secretarial Auditor
Provisions under Section 143(12) & (13) be
applicable on cost auditor & secretarial auditor
(V) Penalty on Statutory Auditor & Cost Auditor
& Secretarial Auditor - section 143(15)
(a) Minimum ‘penalty’ be ‘1’ Lac
&
(b) Maximum ‘penalty’ be ‘25’ Lac for ‘not’
reporting to Govt. for fraud by officers or
employees against company by statutory
auditor & cost auditor & Secretarial auditor
Auditor’s Duty to Attend an AGM or
EGM - Section 146
(I) Now auditor be required to attend himself
or through ‘authorized’ representative as
qualified to become auditor an AGM or EGM
as mandatory duty
(II) However Company be permitted to exempt
an auditor to attend an AGM or EGM
5 Power of NFRA against Auditor
(I) Introduction of Concept
National Financial Reporting Authority (NFRA)
is empowered to investigate either Suo-moto
or on order of Govt against misconduct as
committed by auditor
(II) Power of NFRA & ICAI
ICAI ‘not’ permitted to initiate or continue the
proceedings against auditor where NFRA
‘already’ initiated an investigation
(III) Penalties by NFRA
(a) Monetary Penalties
*On Individual as Auditor
Minimum ‘1’ Lac & Maximum ‘5’ time of Fee
*On Partnership firm or LLP as Auditor
Minimum ‘10’ Lac & Maximum ‘10’ time of Fee
(b) ‘Non’ Monetary Penalties
Auditor be debarred from practice for minimum
‘6’ month & maximum ‘10’ year
17 www.saicirculars.com
 List of Sections as Notified under Companies Act, 2013 in India
 Applicable from September 12, 2013
1. Sec-2 - Definitions
2. Sec-19 - Subsidiary company ‘not’ to hold
the shares in holding company
3. Sec-21 - Authentication of documents &
proceedings and contracts
4. Sec-22 - Execution of acts of exchange
5. Sec-23 - Public offer & private placement
6. Sec-24 - Power of SEBI to regulate the issue
of transfer of Securities
7. Sec-25 - Document containing offer of Secu-
rities for sale be deemed prospectus
8. Sec-29 - Public offer of Securities be in
dematerialised form
9. Sec-30 - Advertisement of prospectus
10. Sec-31 - Shelf prospectus
11. Sec-32 - Red herring prospectus
12. Sec-33 - Issue ‘application’ forms for Secu-
rities
13. Sec-34 - Criminal ‘liability’ for ‘misstate-
ments’ in prospectus
14. Sec-35 - Civil ‘liability’ for ‘misstatements’
in prospectus
15. Sec-36 - Punishment for fraudulently in-
ducing person(s) to invest in company
16. Sec-37 - Action by affected persons
17. Sec-38 - Punishment for personation for
acquisition of Securities
18. Sec-39 -Allotment of Securities
19. Sec-40 -Securities at stock exchange
20.Sec-44 - Nature of shares or debenturesres.
21. Sec-45 -Numbering of shares
22. Sec-49 -Calls on shares ‘same’ class be
made on uniform basis
23. Sec-50 -Company to accept ‘unpaid’ share
capital although ‘not’ called up
SAI CIRCULARS JANUARY 2014
24. Sec-51 - Payment of dividend in propor-
tion to amount paid up
25. Sec-57 - Punishment for personation of
shareholder
26. Sec-58 - Refusal for registration and ap-
peal against refusal
27. Sec-59 - Rectification of register of mem-
bers
28. Sec-60 - Publication of authorised & sub-
scribed and paid up capital
29. Sec-65 - Unlimited company to provide for
reserve share capital on re-registration
30. Sec-68 - Transfer ‘certain’ sums to capital
redemption reserve account
31. Sec-70 - Prohibition for buy-back in ‘cer-
tain’ circumstances
32. Sec-86 - Punishment for contravention
33. Sec-91 -Power to close the register of mem-
bers or debenture holders
34. Sec-100 - Calling of EGM
35. Sec-102 - Statement be annexed to notice
36. Sec-103 - Quorum for meetings
37. Sec-104 - Chairman of meetings
38. Sec-105 -Proxies
39. Sec-106 -Restriction on voting rights
40. Sec-107 -Voting by show of hands
41. Sec-111- Circulation ‘members’ resolu-
tion
42. Sec-112 -Representation of President &
Governors in meetings
43. Sec-113 -Representation of corporations
at meeting of companies & creditors
44. Sec-114 -Ordinary & special resolutions
45. Sec-116 -Resolutions passed at ‘adjourned’
meeting
46. Sec-127 - Punishment for failure to ‘dis-
tribute’ dividends
18 www.saicirculars.com
 47. Sec-133 - Central Government to prescribe
accounting standards through NFRA
48. Sec-161 - Appointment of additional di-
rector & alternate director & nominee direc-
tor
49. Sec-162 - Appointment of directors be
voted individually
50. Sec-163 - Option to adopt the principle of
proportional representation for appointment
of directors
51. Sec-176 - Defects in appointment of di-
rectors ‘not’ invalidate actions taken
52. Sec-180 - Restrictions on powers of BODs
53. Sec-181 - Company to contribute to bona
fide and charitable funds
54. Sec-182 - Prohibitions & restrictions re-
garding political contributions
55. Sec-183 - Power of BODs & ‘other’ persons
to make contributions to national defence
fund
56. Sec-185 - Loan to directors
57. Sec-192 - Restriction on ‘non’ cash trans-
actions involving directors
58. Sec-194 - Prohibition on forward dealings
in securities of company by key managerial
personnel (KMP)
59. Sec-195 - Prohibition on ‘insider’ trading
of securities
60. Sec-202 - Compensation for loss of office
of managing or whole time director or man-
ager
61. Sec-379 - Application of Act to ‘foreign’
companies
62. Sec-382 - Display of name of ‘foreign’ com-
panies
63. Sec-383 -Service ‘foreign’ company
64. Sec-386 -Interpretation
65. Sec-394 - Annual reports on Government
companies
SAI CIRCULARS JANUARY 2014 19
66. Sec-405 -Power of Government to direct
the companies to furnish an information or
statistics
67. Sec-407 - Definitions
68. Sec-408 - Constitution of NCLT
69. Sec-409 - Qualification of President &
Members of NCLT
70. Sec-410 - Constitution of NCLAT
71. Sec-411 - Qualification of Chairperson &
Members of NCLAT
72. Sec-412 - Selection of Members of NCLAT
73. Sec-413 - Term of office of President, &
Chairperson & ‘other’ Members at NCLAT
74. Sec-414- Salary & allowances & ‘other’
terms & conditions of service of Members
75. Sec-439 - Offences be ‘non’ cognizable
76. Sec-443 - Power of Government to appoint
company prosecutors
77. Sec-444 - Appeal against acquittal
78. Sec-445 - Compensation for accusation
‘without’ reasonable cause
79. Sec-446 - Application of fines
80. Sec-447 -Punishment for fraud
81. Sec-448 -Punishment for ‘false’ state-
ments
82. Sec-449 -Punishment for ‘false’ evidence
83. Sec-450 -Punishment where no ‘specific’
penalty or punishment is prescribed
84. Sec-451 -Punishment in case of repeated
default
85. Sec-452 -Punishment for ‘wrongful’ with-
holding of property of company
86. Sec-453 -Punishment for ‘improper’ use of
Limited or Private Limited words
87. Sec-456 -Protection ‘action’ taken in good
faith
88. Sec-457 -’Non’ disclosure of information
in ‘certain’ cases
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 89. Sec-458 -Delegation by Government for
powers and functions
90. Sec-459 -Powers of Government or NCLT
for fees on applications
91. Sec-460 -Condonation of delay in ‘certain’
cases
92. Sec-461 -Annual report by Government
93. Sec-462 -Power to exempt a class or classes
of companies from provisions of Act
 Serious Fraud Investigation Office (SFIO) in India
(A) Introduction of Concept
1 Powers of Govt- Section 210
(I) (a) Now Govt is empowered to investigate
the affairs of company on receipt of report from
ROC
or
(b) On receipt of request from company in
public interest
(II) (a) Govt has discretion in ordering for
investigation the affairs of company on receipt
of report from ROC or on receipt of request from
company in public interest
(b) Henceforth Govt ‘not’ mandatory required
to order for investigation on receipt of report
from ROC or on receipt of request from
company in public interest
(III) Now Govt. is empowered to direct to SFIO
to launch the prosecution against officers or
employees of company ‘after’ receipt &
examination of report from SFIO
2 Establishment of SFIO -Section 211
(I) SFIO be established through notification by
Govt
(II) However SFIO ‘already’ established under
Ministry of Corporate Affairs on July 02, 2003
be ‘deemed’ SFIO under section 211 of
Companies Act, 2013
(III) Henceforth ‘after’ notification the SFIO will
work ‘separate’ department to investigate in
frauds of companies
3 Circumstances for Investigation of (I) SFIO be permitted to arrest an offender
where officer has reason to believe on basis of
Affairs of Companies by SFIO
material as available with him
(I) Where report under section 208 is issued
SAI CIRCULARS JANUARY 2014 20
94. Sec-463 -Power of Court to grant ‘relief’ in
‘certain’ cases
95. Sec-467 -Power of Government to amend
Schedules
96. Sec-468 -Power of Government to make
‘rules’ relating to winding up
97. Sec-469 -Power of Government to make
‘rules’ relating to ‘other’ matters
98. Sec-470 -Power to ‘remove’ difficulties
by ROC of State
(II) Where company has requested ‘after’
passing ‘special’ resolution in AGM or EGM
(III) Where investigation is required in public
interest
(IV) Where investigation is requested by Govt
deptt
4 ‘Special’ Status of SFIO
(I)(a) SFIO has discretion to commence an
investigation in affairs of company
(b) Henceforth SFIO be permitted for ‘not’
commencement of investigation in affairs of
company where ‘not’ required in opinion of
SFIO
(II) SFIO be permitted to ask to transfer the
records & documents as pertaining to investi-
gation from other ‘investigating’ agencies
where SFIO ‘already’ commenced an investi-
gation
5 Prosecutions against Offences
(I) (a) Court ‘not’ permitted to release an
offender on bail or on bond unless opportunity
to oppose an application is given to public
prosecutor
&
(II) (b) Also court is satisfied that offender ‘not’
guilty of offence
6 Power to Arrest an Offender by SFIO
&
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 (II) Also an offender will ‘not’ be released by (III) Now officers of SFIO have wide powers
court unless opportunity to oppose an against ‘corporate’ frauds & offences
application is given to public prosecutor
(B) List of Offences for Power to Arrest by SFIO
1 Furnishing ‘False’ Informations for 5 Making ‘Fictitious’ Application for
Incorporation of Company - Section Procuring the Securities in Company
7(5) - Section 38(1)
(I) Against ‘Knowingly’ furnishing of false or (I) Against ‘knowingly’ making or abetting any
incorrect information or suppression application in ‘fictitiously’ name for acquiring
‘material’ information in documents as the securities of company
required to file with ROC at time of &
incorporation of company (II) Also against making ‘multiple’ applications
by using ‘different’ combinations of name or
(II) All ‘responsible’ person for material surname or otherwise in fraudulently manner
‘misleading’ be liable for action under Section inducing the company to allot or transfer or
447 register of securities in fictitious name

2 Furnishing ‘False’ Informations for (III) All ‘responsible’ persons for material
‘misleading’ be liable for action under section
Obtaining a Certificate of Incor-
447
poration of Company - Section 7(6)
(I) Against ‘Knowingly’ obtaining a certificate 6 Issuing ‘Duplicate’ Certificate of Shares
of incorporation of company through
with Intention to Defraud ‘any’ Person
furnishing a false or incorrect information or
suppression of material information - Section 46(5)
(I) Against ‘knowingly’ issue ‘duplicate’
(II) All ‘promoters’ including ‘first’ directors of
certificate of shares with intention to defraud
company & also any ‘other’ person ‘singing’
‘any’ person
declaration be liable for action under Section
447 (II) Penalties
3 (a) Minimum ‘penalty’ be ‘5’ time
Furnishing ‘False’ Informations for
or
Inviting ‘Investments’ through (b) Maximum ‘penalty’ be ‘10’ time of face value
Prospectus - Section 34 of ‘duplicate’ shares
(I) Against ‘knowingly’ issue of prospectus with or
misleading or ‘false’ statement ‘including’ (c) INR ‘10’ crore whichever is higher be levied
inclusion or exclusion with intention to (III) All ‘responsible’ persons for issuing
mislead the investors ‘duplicate’ certificates with intention to
defraud be liable for action under Section 447
(II) All ‘responsible’ persons for material
‘misleading’ be liable for action under Section 7 Transferring ‘Falsely’ Shares of
447 Company by Depository - Section 56(7)
4 Making ‘False’ Promises for Inducing (I) Against ‘knowingly’ transfer of shares by
depository ‘participant’ with intention to
the Investors to Invest in Company - defraud ‘any’ person
Section 36
(II) All ‘responsible’ persons for issuing ‘falsely’
(I) Against ‘knowingly’ making ‘false’ shares be liable for action under Section 447
statement or promise or forecast as knowingly
or recklessly or deliberately ‘concealing’ 8 Concealing ‘Creditor’ Name having
material facts to induce to invest any money Right to Object against Reduction in
in securities of company
Share Capital - Section 66(10)
(II) All ‘responsible’ person for material ‘mis- (I) Against ‘knowingly’ concealing the name of
leading’ be liable for action under Section 447 creditor where creditor has right to object for
SAI CIRCULARS JANUARY 2014 21 www.saicirculars.com
 reduction in share capital
(II) All ‘responsible’ persons for concealing
‘creditor’ name be liable for action under
Section 447
9 Auditor is Acting ‘Fraudulently’ 14 Carrying ‘Fraudulently’ Business of
Manner- Section 140(5) Company - Section 339(3)
(I) Against ‘knowingly’ acting in fraudulent
manner
& during course of winding up of company
(II) Also where NCLT passed orders against
auditor
(III) All ‘responsible’ partners for acting
‘fraudulently’ manner be liable for action under
section 447
10 Carrying ‘Fraudulently’ Business of
Company - Section 206(4)
(I) Against ‘knowingly’ carrying of business in
fraudulent or unlawful purpose by officer(s) of
company
(II) All ‘responsible’ officers for acting
‘fraudulently’ be liable for action under Section
447
11 Forming ‘Fraudulently’ Company &
‘Mis’managing the Affairs of Company
- Section 213
(I) Against ‘Fraudulently’ formation of company
or
(II) Against ‘mis’ management of affairs of
company
(III) All ‘responsible’ persons for carrying ‘mis’
management of affairs of company be liable
for action under Section 447
12 Furnishing ‘False’ Statements for
Investigation or Inspection of
Company by Authorities - Section 229
(I) Against ‘knowingly’ furnishing ‘false’
statement or mutilation or destruction of
documents where company under
investigation or inspection
(III) All ‘responsible’ persons for furnishing
‘falses’ statements be liable for action under
Section 447
13 Applying ‘Falsely’ Removal of Name of
Company - Section 251(1)
(I) Against ‘knowingly’ making an application
for removal of name of company to ROC with
SAI CIRCULARS JANUARY 2014 22
intention to evade a liability of creditor(s)
(II) All ‘responsible’ persons for applying ‘falsely’
for removal of name of company be liable for
action under Section 447
(I) Against ‘knowingly’ carrying of business with
intention to defraud the creditors as found
(II) All ‘responsible’ persons for carrying of
business ‘fraudulently’ be liable for action
under section 447
 NOTES on Section 447
1 Introduction of Concept
* All ‘abovementioned’ offences under Para 1
to 14 be punished under section 447
2 Penalties & Prosecutions under-
Section 447
(I) (a) Minimum ‘imprisonment’ be ‘6’ month
or
(b) Maximum ‘imprisonment’ be ‘10’ year
&
(II) (a) Also minimum ‘penalty’ be ‘1’ time
or
(b) Maximum ‘penalty’ be ‘3’ time of amount
an involved in fraud
(III) Moreover minimum ‘imprisonment’ be
‘3’ year where fraud is involving ‘public’
interest
3 Definitions under Section 447
(I) Fraud Includes
Where any act or omission or concealment of
fact or abuse of position with intention to
deceive to gain ‘undue’ advantage from
company or shareholders or creditors or any
‘other’ person beside that there wrongful ‘gain’
or wrongful ‘loss’ is existed or ‘not’ existed
(III) Wrongful ‘Gain’
(a) Where gain is arised due to use of unlawful
means
&
(b) Also where ‘not’ legally entitled
(IV) Wrongful ‘Loss
(a) Where Loss is arised due to use of unlawful
means
&
(b) Also where legally entitled
www.saicirculars.com
  Sai Circulars INDEX
From January 2013 to December 2013
 January 2013
 Foreign Corrupt Practices Act in USA
 Remittances ‘Outside’ India
 Domestic Transfer Pricing in India
 APA In India (Part Ist)
 February 2013
 TAS in India
 Companies Bill, 2012 in India
 March 2013
 Buy-Back of Shares in India
 Taxation ‘Deemed’ Gifts in India
 FEMA in India (Part Ist)
 ODIs from India (Part Ist)
 April 2013
 Finance Bill (Budget) 2013
 May 2013
 ODIs from India (Part IInd)
 FEMA in India (Part IInd)
 June 2013
 FEMA in India (Part IIIrd)
FDIs in India (Part Ist)
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who have already paid are requested to ignore
this instruction
SAI CIRCULARS JANUARY 2014
 July 2013
 APA in India (Part IInd)
 FDIs in India (Part IInd)
 August 2013
 Contraventions under FEMA in India
 BO or LO or PO in India (Part IInd)
 Acquisition of Property in India (Part IInd)
 September 2013
 VCES in Service Tax in India
 TDS on Payment to ‘Non’ Resident of India
 October 2013
 Draft Safe Harbour Rules in India
 Companies Act, 2013 in India (Part Ist)
 November 2013
 Companies Act, 2013 in India (Part IInd)
 Taxation on FIIs & FDIs in India
 December 2013
 Transfer Pricing Concept in India
 Companies Act, 2013 in India (Part IIIrd)
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Postal Reg. No. DL (C)-14/1058/14-2016
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25-12-2013 Dispatch date: 7 & 8

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