IS THE AUDIT PROFESSION AT CROSS-ROADS

Introduction

Recent amendments to the statutory framework under the Companies Act, 2013 (“the Act”), have cast focus on the ever-expanding statutory duties of the auditors of a company. The purpose of an audit is to enhance the degree of confidence of users of the financial statements. In this regard, Section 129 of the Act provides that the financial statements prepared by a company should comply with three prime conditions:
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New CSR Regime – Is it a philanthropy or a tax levy?

The Ministry of Corporate Affairs (“MCA”), Govt of India, notified the amendments to Section 135 of the Companies Act, 2013 (“the Act”), (dealing with CSR contribution), by the Companies (Amendment) Act, 2019 (“2019 Amendment”), and the Companies (Amendment) Act, 2020 (“2020 Amendment”), on January 22, 2021. The MCA has also notified the Companies (CSR Policy) Amendment Rules, 2021 (“new CSR Rules”), which has made some fundamental changes to the CSR Rules, 2014.
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New disclosure obligation in Financial Statements for companies holding cryptocurrencies - Are Regulators testing waters?

Context

India is witnessing a rapid increase in the number of crypto exchanges as well as cryptocurrency transactions. As per publicly available data, the average daily cryptocurrency trading volumes across the top Indian exchanges have grown nearly 500% from March 2020 to December 2020. Globally, countries such as Switzerland, Singapore and the US have been pro-active in undertaking cryptocurrency transactions, and simultaneously creating a robust regulatory framework for the same. In fact, investors from these countries have also been investing in Indian cryptocurrency exchanges.
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New Remuneration Regime for Independent Directors - Will It help in attracting better talent on the boards of India Inc

Recently, the Ministry of Corporate Affairs (‘MCA’) has notified the amendments made to Sections 149(9) and 197(3) of the Companies Act, 2013 (‘2013 Act’) by the Companies (Amendment) Act, 2020 (‘2020 Amendment’) -to enable companies faced with absence or inadequacy of profits to pay certain minimum guaranteed remuneration to Non-Executive Directors (‘NEDs’) and Independent Directors (‘IDs’), as may be prescribed. On the same day, the MCA also issued a Notification to amend Schedule V of the 2013 Act to prescribe the scale of remuneration which can be paid to NEDs and IDs, depending on the effective capital of the company.
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Computation of ‘net profits’ for Managerial Remuneration – Has this provision outlived its utility

Introduction

Section 198 of the Companies Act, 2013 (‘2013 Act’), prescribes a special method for computation of ‘net profits’ of a company in a financial year — which has different rules for arriving at net profit than the one prescribed under Accounting Standards.

The special methodology for computation of net profits prescribed under Section 198 is used for two purposes – (i) for determining managerial remuneration under Section 197 and Schedule V; and (ii) for determining the minimum CSR amount to be spent by the company in a financial year, under Section 135(5) of the 2013 Act.
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Cross-border ESOP Structures

Employee stock options (“ESOPs”) have been used as an effective retention tool globally. Cross-border ESOP structures can be considered by a variety of global businesses with existing Indian presence and by investors that propose to set up greenfield presence or acquire operating businesses in India. Moreover, Indian companies can also issue ESOPs to employees of their foreign holding, subsidiary or joint venture companies. This article discusses various cross-border ESOP structures and identifies key considerations arising under Indian corporate, foreign exchange and taxation laws. 
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Serious Fraud Investigation Office – Keeping a close watch on frauds in India Inc

The Serious Fraud Investigation Office (‘SFIO’) is an organisation established under the aegis of the Ministry of Corporate Affairs (‘MCA’) – for investigation and prosecution of white-collar crimes. The SFIO was constituted in July 2003 following the recommendations of the Naresh Chandra Committee. In 2002, the Naresh Chandra Committee had recommended setting up a ‘Corporate Serious Fraud Office’, to uncover corporate fraud, and supervise prosecutions under various economic legislations.
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Minimum Interest Rates on loans to foreign WOS – Need for Review

Inter-corporate loans granted by a company are regulated under Section 186 of the Companies Act, 2013 (‘2013 Act’). One important pre-condition relates to the interest rate thresholds prescribed under sub-section (7). Section 186(7) of the Act states that – “No loan shall be given under this Section at a rate of interest lower than the prevailing yield of one-year, three-year, five-year or ten-year Government Security closest to the tenor of the loan.

Section 186(7) effectively prevents a company from giving an inter-corporate loan at a rate of interest lower than the prescribed thresholds, i.e. the prevailing yield of one-year, three-year, five-year or ten-year government security closest to the tenor of the loan. This leads to multiple practical difficulties, especially in situations where a holding company wishes to provide funds to its foreign wholly owned subsidiaries (‘WOS’).
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SEBI Changes to Scheme Circular - Is it a case of over-prescription

SEBI has been continuously streamlining the regulatory architecture governing schemes of arrangements under Sections 230-232 of the Companies Act, 2013 (“Companies Act”) and Regulations 11, 37 and 94 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR”) involving listed companies with the introduction of the SEBI Circular dated March 17, 2017 (“SEBI Scheme Circular”). SEBI vide its Circular dated November 3, 2020 (“Amendment Circular”), has introduced further changes to the SEBI Scheme Circular. The Amendment Circular is brought into effect for all schemes of arrangement submitted to the Stock Exchanges on or after November 17, 2020. Changes introduced under the Amendment Circular are as follows:
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