Taxmann's Secretarial Audit Compliance Management & Due Diligence (SACMDD/Due Diligence) | CRACKER

CONTENTS PAGE

Chapter-wise Marks Distribution

I-5

Previous Exams Trend Analysis

I-7

Chapter-wise Comparison with Study Material

I-17

1.1

CHAPTER 2 COMPLIANCES

2.1

CHAPTER 3 DOCUMENTATION AND MAINTENANCE OF RECORDS

3.1

CHAPTER 4 SEARCH AND STATUS REPORT

4.1

CHAPTER 5 KNOW YOUR CUSTOMER (KYC) GUIDELINES

5.1

CHAPTER 6 SIGNING AND CERTIFICATION

6.1

CHAPTER 7 SEGMENT-WISE ROLE OF COMPANY SECRETARIES

7.1

CHAPTER 8 AUDITS

8.1

CHAPTER 9 SECRETARIAL AUDIT

9.1

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CHAPTER 1 COMPLIANCE FRAMEWORK

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CONTENTS

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PAGE

CHAPTER 10 INTERNAL AUDIT

10.1

CHAPTER 11 CONCEPTS AND PRINCIPLES OF OTHER AUDITS

11.1

CHAPTER 12 AUDIT ENGAGEMENT

12.1

CHAPTER 13 AUDIT PRINCIPLES AND TECHNIQUES

13.1

CHAPTER 14 AUDIT PROCESS AND DOCUMENTATION

14.1

CHAPTER 15 FORMING AN OPINION AND REPORTING

15.1

CHAPTER 16 SECRETARIAL AUDIT - FRAUD DETECTION AND REPORTING

16.1

CHAPTER 17 QUALITY REVIEW

17.1

CHAPTER 18 VALUES, ETHICS AND PROFESSIONAL CONDUCT

18.1

CHAPTER 19 DUE DILIGENCE-I

19.1

CHAPTER 20 DUE DILIGENCE-II

20.1

Solved Paper : June 2023 (Suggested Answers)

P.1

Solved Paper : Dec. 2023 (Suggested Answers)

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COMPLIANCES

CHAPTER

PAST YEARS' EXAMINATION QUESTIONS COMPLIANCE MANAGEMENT Q1. Write a note on: “Compliance Management”. [(June 2010) (4 Marks)] [(December 2016) (3 Marks)] Ans. Compliance management is the method by which corporate manage the entire compliance process. It includes the compliance program, compliance audit, compliance report etc.

It is also known as “compliance solution”.

Corporate compliance management involves a full process of research and analysis as well as investigation and evaluation.

Corporate compliance management is undertaken in order to determine the potential issues and get a realistic view about how the entity is performing and how it is likely to perform in the future.

Company Secretaries with core competence in compliance and corporate governance play a crucial role in the corporate compliance management in an organisation.

ESTABLISHMENT OF COMPLIANCE MANAGEMENT FRAMEWORK Q2. What are the areas required to be covered in establishing a compliance management framework?

(June 2014) (7 Marks) Ans. Any corporate compliance management framework includes: (1) Compliance Identification, (2) Compliance Ownership, (3) Compliance Awareness, (4) Compliance Reporting and (5) Periodical Compliance MIS.

Compliance Identification: The process involves the identification of compliances under various legislations applicable to the company in 2.1

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2.2

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consultation with the functional heads. The legal team has to identify the legislations applicable to the company and identify the compliances that are required under each legislation, rules and regulations made thereunder.

Compliance Ownership: The ownership of the various compliances has to be described function-wise and individual wise. Clear description of primary and secondary ownership is also very important. While the primary owner is mainly responsible for the compliance, the secondary owner (usually the supervisor of the primary owner) has to supervise the compliance. For example: Secretarial Officer/Company Secretary may be primarily responsible.

Compliance Awareness: This includes establishment of the legal compliance management and creation of awareness of the various Legal Compliances amongst those responsible. Sometimes, the compliances are handled by persons who are not fully aware of the requirements of the legislations and hence creating appropriate awareness amongst the owners is very important.

Compliance Reporting: The status of Compliances or non-compliances should be communicated to the concerned person/authority. Reporting of non-compliances ensures that appropriate corrective action is being taken by the responsible person in case of the failure in doing compliances.

Periodical Compliance MIS: It is a type of reporting that occurs at a pre-decided period (at least quarterly, if not monthly). This report contain the status of the various compliances need to be done by the company as well as any gap in the compliance and other incidents which are need to be reported to Board, Senior Management of the Company.

COMPLIANCE UNDER SEBI (LODR) REGULATIONS, 2015 Q3. A subsidiary to a listed company, irrespective of its registered status, to a large extent is treated as a listed company by the authorities. As the Secretarial advisor and auditor of XYZ Ltd., which is a Public Ltd. company and a subsidiary to a listed company ABC Ltd. How would you ensure the compliance of Corporate Governance requirements

by XYZ Ltd., with reference to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015?

(December 2018) (5 Marks)

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Ans. As per Regulation 24 of the SEBI (LODR) Regulations, 2015, the following compliances are required to be ensured by a subsidiary of a listed company with reference to Corporate Governance: At least one independent director on the board of directors of the listed entity shall be a director on the board of directors of an unlisted material subsidiary incorporated in India.

The audit committee of the listed entity shall also review the financial statements, in particular the investments made by the unlisted subsidiary.

The minutes of the meetings of the board of directors of the unlisted subsidiary shall be placed at the meeting of the board of directors of the listed entity.

The management of the unlisted subsidiary shall periodically bring to the notice of the board of directors of the listed entity, a statement of all significant transactions and arrangements entered into by the unlisted subsidiary.

A listed entity shall not dispose of shares in its material subsidiary resulting in reduction of its shareholding (either on its own or together with other subsidiaries) to less than fifty per cent or cease the exercise of control over the subsidiary without passing a special resolution in its General Meeting except in cases where such divestment is made under a scheme of arrangement duly approved by a Court/Tribunal or under a resolution plan duly approved under section 31 of the Insolvency Code and such an event is disclosed to the recognised stock exchanges within one day of the resolution plan being approved.

Selling, disposing and leasing of assets amounting to more than twenty per cent of the assets of the material subsidiary on an aggregate basis during a financial year shall require prior approval of shareholders by way of special resolution, unless the sale/disposal/lease is made under a scheme of arrangement duly approved by a Court/Tribunal or under a resolution plan duly approved under section 31 of the Insolvency Code and such an event is disclosed to the recognised stock exchanges within one day of the resolution plan being approved.

Where a listed entity has a listed subsidiary which is itself a holding company, the provisions of this regulation shall apply to the listed subsidiary in so far as its subsidiaries are concerned.

As a Secretarial advisor and auditor of XYZ Ltd., which is a Public Ltd. company and a subsidiary to a Listed company ABC Ltd., I would focus on checking the compliance of XYZ Ltd. of the above cited points and

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COMPLIANCES

thereby ensure the compliance of Corporate Governance requirements by XYZ Ltd. with reference to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.

INCLUSION OF EXTRACT ANNUAL RETURN IN BOARD’S REPORT Q4. XYZ Ltd., a listed company, seeks your advice, as the Secretarial Auditor of the company, on the inclusion of Extract Annual Return in the Board’s Report for the financial year 2017-18.

(December 2018) (5 Marks) Ans. As per the provisions under section 92(3) of the Companies Act, 2013 read with Rule 12 of the Companies (Management and Administration) Rules, 2014 an extract of the annual return in Form MGT-9 is to be attached with the Board’s Report of the company.

However, the amendment in Section 92(3) through Companies (Amendment) Act, 2017 provides that every company shall place a copy of the Annual Return on the website of the Company, if any and the web-link of such Annual Return shall be disclosed in the Board’s Report. But the same is not applicable for Financial Year 2017-2018 as it is not notified during Financial Year 2017-2018.

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Therefore as a Secretarial Auditor, it is advised to the Company that for the Financial Year 2017-18, the company should prepare the Extract of the Annual Return in Form MGT-9 and attach the same with the Board’s Report.

SCOPE OF CORPORATE COMPLIANCE Q5. You are appointed as Compliance Officer in a listed company. An Independent Director asks you to describe the scope of Corporate Compliance. Prepare a brief note.

(June 2019) (5 Marks) Ans. To Mr. X Independent Director Subject: Scope of Corporate Compliance Dear Sir, As desired, the note on the Corporate Compliance is as under:

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COMMON OBLIGATIONS TO ANY LISTED ENTITY Q6. Explain the compliances under Securities & Exchange Board of India (Listing Obligations and Disclosure Requirements) [SEBI

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Corporate compliances broadly include compliance of Corporate & Economic Laws, Securities Laws, Commercial Laws including Intellectual Property Rights Laws, Labour Laws, Tax Laws, Cyber Laws which is also known as the Information Technology Law, Pollution Control Laws, Industry Specified laws and all other laws affecting the company concerned depending upon the type of industry/activity. The broad coverage of laws includes the compliances of the following laws: Companies Act, 2013 and the Rules and Regulations framed thereunder, MCA-21 requirements and procedures.

Secretarial Standards/Accounting Standards/Cost Accounting Standards issued by ICSI/ICAI/ICMAI, respectively.

Foreign Exchange Management Act, 1999 and the various Notifications, Rules and Regulations framed thereunder.

Competition Act, 2002.

SEBI Act, 1992.

Securities (Contracts) Regulation Act, 1956 and rules made thereunder.

SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Depositories Act, 1996.

Intellectual Property Rights Laws.

Income Tax Act, 1961.

Customs Act, 1962.

GST Laws.

Labour Laws.

Environment Laws.

Industry Specific Laws.

Local Laws include Municipal and Civic Administration Laws, Shops and Establishments etc.

Regards, _________________ Compliance Officer _______ Ltd.

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(LODR)] Regulations, 2015 relevant to the common obligations to any listed entity indicating the time period and event of each.

(June 2019) (5 Marks) Ans. Following are common obligations to Listed Entity:

Regulation 7(3): Submission of Compliance Certificate to Ex-change: Submission of Compliance Certificate to Stock Exchange certifying that all activities in relation to both physical and electronic share transfer facility are maintained either in house or by Registrar to an issue and share transfer agent registered with the Board.

Time Limit: Within one month of end of each half of the financial year.

Regulation 7(5): Appointment/Alteration of Share Transfer Agent:

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The Company can manage in house Share Transfer Facility. But as and when the total number of holders of securities of the listed entity exceeds INR 1,00,000. The listed entity shall appoint Share Transfer Agent.

Time Limit: Intimate to the Stock Exchange such appointment or alteration within 7 days on entering into agreement shall be placed before the Board of Directors in subsequent Meeting.

Regulation 13: Grievance Redressal Mechanism: The listed entity shall file with the recognized stock exchange(s) a statement giving: 1. The number of investor complaints pending at the beginning of the quarter, 2. Those received during the quarter, 3. Disposed of during the quarter and 4. Those remaining unresolved at the end of the quarter.

Time Limit: Within 21 days of the end of the each quarter. Same statement shall be placed before the Board of Director quarterly.

APPOINTMENT OF AUDITOR Q7. Zen Pvt. Limited had a paid up share capital of INR 35 crore in the previous year. The Company Secretary advises the Company that it is mandatory to appoint the auditor as per the requirements of Sec. 139(2) of the Companies Act, 2013. The company is having public borrowings viz. from banks INR 25 crore, financial institutions INR 20 crore and public deposits of INR 7.5 crore. Examine the require-

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ment of applicability of mandatory term/rotation in the appointment of auditor with reference to the changed scenario since June, 2017.

(December 2019) (5 Marks) Ans. Provisions of section 139(2) of the Companies Act, 2013 and Rule 5 of the Companies (Audit and Auditors) Rules, 2014, as amended, deals with applicability of mandatory term/rotation in the appointment of auditor and the said provision is applicable to the following class of companies: (a) All unlisted public companies having paid up share capital of Rupees 10 crore or more; (b) All private limited companies having paid up share capital of Rupees 50 crore or more; (c) All companies having paid up share capital below the threshold limit mentioned in (a) and (b) above but having public borrowings from financial institutions, banks or public deposits of 50 crore or more.

Accordingly, Zen Pvt. Limited will get be covered as per provision (c) above and therefore, it is mandatorily required to rotate the Auditor as per the provisions of section 139(2) of the Companies Act, 2013.

Q8. XYZ Ltd. is having paid up share capital of INR 10.00 crore as on 31st March, 2019. Whether the company is required to appoint a Company Secretary in the Company? What would be your answer if the said XYZ is a Private Limited Company? Explain the relevant provisions regarding the appointment of a Company Secretary in employment by the Company.

(December 2019) (5 Marks) Ans.

According to section 203 of the Companies Act, 2013 & Rule 8 of the Companies (Appointment and Remuneration) Rules, 2014, every listed company and every other public company having paid up share capital of rupees ten crores or more is required to appoint a whole time Company Secretary, Managing Director and CFO.

Further Rule 8A of the Companies (Appointment and Remuneration) Rules, 2014 provides that a company other than a company covered under rule 8 which has a paid-up share capital of five crore rupees or more shall have a whole-time company secretary.

Hence, XYZ Ltd. as a Public Company is required to appoint Whole-time Company Secretary.

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APPOINTMENT OF COMPANY SECRETARY IN EMPLOYMENT

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COMPLIANCES

Further on 31st March, 2019 if XYZ is a Private Limited Company then it has to appoint Whole-time Company Secretary if paid up capital of the Company is INR 5 Crore or above as per Rule 8A of the Companies (Appointment and Remuneration) Rules, 2014.

Q9. Jemez & Co. Ltd. has listed is Securitized Debt Instruments at a stock exchange One of the directors has asked you, being the compliance officer of the company, to informs the obligations of the company regarding its Securitized Debt Instruments. Describe with reference to compliances under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.

(December 2020) (5 Marks)

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Ans. Refer Answer of Question 24 in Chapter 2.

Q10. Odee Ltd., a listed company has appointed two independent directors. As part of its familiarization policy it provides key updates and background about the company to the newly appointed directors.

The directors have requested you as the Company Secretary of the company to explain the process of Corporate Compliance Reporting.

Explain the process.

(June 2021) (5 Marks) Ans. As, a Company Secretary of Odee Ltd. the explanation of Corporate Compliance Reporting (CCR) Process for Independent Directors familiarization policy are as under:

Identification of Functional Heads for the Reporting: Functional heads for the reporting of various laws have to be identified.

Example: The company secretary would be the functional head for reporting of company law, listing regulations and commercial laws. In the same manner, the head of the personnel department could report the compliance of labour and industrial laws and the fiscal law compliance would be the domain of head of the finance/accounts departments.

Collection, Classification and Consolidation of relevant information by each functional heads: Each of the functional heads may collect and classify the relevant information from the various units/locations pertaining to their department and consolidate them in the form of a report.

Affirmation and Reporting by functional heads: The report shall carry an affirmation from the functional heads that the said report has been prepared based on the inputs received from the various units/offices.

Also, list out the specific compliances/non-compliances as already

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circulated to the functional heads. Each of the functional heads should forward their respective compliance reports to the company secretary/ managing director.

Brief Presentation of Comprehensive CCR to Board for its information, advice and noting: The company secretary would then brief the managing director and with suitable inputs from the company secretary, the managing director would consolidate and present under his signature a comprehensive CCR to the Board of Directors for its information, advice and noting.

Ans. The brief note on compliances relating to the Financial Statements and Forms to be filed with Registrar of Companies for the purpose of discussion with the statutory auditors of IT Ltd. : Financial Statement [Section 137 of Companies Act, 2013 read with Rule 12(1) of Companies (Accounts) Rules, 2014]: Company is required to file its financial statements, including consolidated financial statement along with all the documents required to be or attached to such financial statements, duly adopted at the AGM of the company with the Registrar within 30 days of the date of AGM or in case financial statements are adopted in the adjourned AGM, within 30 days of the date of adjourned AGM. If annual general meeting is not held for any year, the financial statements along with the documents required to be attached under sub-section (1) of section 137 duly signed along with the statement of facts and reasons for not holding the annual general meeting shall be with the Registrar within 30 days of the last date before which the annual general meeting should have been held.

Forms to be filed with Registrar of Companies: E-Form AOC-4 & E-form AOC-4 CFS required to be filed for above discussed purpose.

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Q11. IT Ltd. acquired 99% equity shares in Zeb Ltd. on 1st February, 2021. Amongst other compliances the Company Secretary informed the finance team that the consolidated Financial Statements of IT Ltd. are required to be prepared and presented to the Board. The CFO asks the Company Secretary to prepare a brief note on compliances relating to the financial Statements and forms to be filed with Registrar of Companies for discussion with the Statutory auditors. Outline the key points to be covered in the note and indicate the Relevant forms to be filed.

(June 2021) (5 Marks)

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Q12. What are the records to be preserved for a period of 21 years and 5 years under Rule 27 of LLP Act ? (December 2021)(5 Marks) Ans. Refer Answer of Question 19 in Chapter 2.

Q13. Amil Krishna, a Company Secretary and Law Graduate by profession, was appointed as Company Secretary cum Compliance officer for Radha Raman Ltd. (a BSE Listed Company). The Company follows the Good Corporate Governance practices and resolution for each and every grievance of the Stakeholder of the Company, Under the SEBI (LODR) Regulations, 2015, what are the provisions there for Grievance Redressal Mechanism & Submission of Compliance Certificate to the Exchange ?

(December 2021) (5 Marks)

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Ans. Refer Answer of Question 28 in Chapter 2.

Q14. You are a Company Secretary of a Listed Company, where the prior notice is required to be sent to stock exchange before the Board Meeting. Kindly list out the matters under consideration for the meeting where at least 2 days prior notice of the Board Meeting is to be intimated by the Company to the Stock Exchange.

(December 2021) (5 Marks) Ans. Refer Answer of Question 26 in Chapter 2.

Q15. Murthy, an Indian resident and citizen of India, has incorporated one person company under the Companies Act, 2013 at Mumbai with a paid up share capital of ` 40 lakh. During the financial year 202122, turnover of the company was ` 1.35 crore. The director of this company has asked the Company Secretary about holding of board meetings, notice and quorum of board meetings and appointment of auditor. Explain the applicable section, rule and compliances for these matters.

(June 2022) (5 Marks) Ans. Applicable Sections, Rules and Compliance in the given matter are as follows: Holding of Board Meeting, Notice and Quorum of Board Meeting: [Section 173(3) & (5) of Companies Act, 2013]: Every OPC shall hold at least one meeting of the Board of Directors in each half of a calendar year and the gap between the two meetings shall not be less than 90 days.

However, provisions of section 173(5) and section 174 relating to quorum shall not apply to OPC in which there is only one director in the company.

A meeting of the Board shall be called by giving not less than 7 days’ notice in writing to every director at his address registered with the company and such notice shall be sent by hand delivery or by post or by electronic means.

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However, meeting of the Board may be called at shorter notice to transact urgent business in the presence of atleast one independent director.

Appointment of Auditor [Section 139(1) of Companies Act, 2013 read with Rule 4(2) of Companies (Audit and Auditors) Rules, 2014]: Auditor shall be appointed for 5 years. The company shall inform the auditor concerned of his or its appointment, and also file a notice of such appointment with the Registrar within fifteen (15) days of the meeting in which the auditor is appointed in e-Form ADT-1.

Note: In case of OPC; Exemption from rotation of Company Auditors.

Q16. Why are the following registers maintained in a company and under what rules ? CHG-7, MGT-2, MBP-3, SH-3, PAS-5.

(June 2022) (5 Marks) Ans. The given registers maintained in a company under below mentioned rules as: CHG-7

Register of Charges.

MGT-2

Register of debenture Section 88 and Rules 4 & 15(2) of Comholder and other security panies (Management and Administration) holders.

Rules, 2014.

MBP-3

Register of Investment Section 187(3) and Rule 14(1) of Companot held in its own name nies (Meetings of Board and its Powers) by the company.

Rules, 2014.

SH-3

Register of Sweat Equity Section 54 and Rule 8(14)(a) of Companies Shares.

(Share Capital and Debentures) Rules, 2014.

PAS-5

Maintenance of complete Section 42(9) and Rule 14(3) of Companies record of Private Place- (Prospectus and Allotment of Securities) ment Offers.

Rules, 2014.

Section 85 and Rule 10(1) of Companies (Registration of Charges) Rules, 2014.

Q17. X and Y partners of a ZK LLP undertakes ` 2,50,000/- each in the total contribution of ` 5,00,000 of the firm. X transferred the amount of ` 2,75,000/- in ZK LLP’s bank account as the contribution.

Referring the relevant provisions of the Limited Liability Partnership (LLP) Act, 2008 answer each of the following : (i) What will be the contribution of Y in the LLP ? (ii) Explain how the contribution contributed by X will be treated ?

(December 2022) (5 Marks)

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PARTNERS’ CONTRIBUTION IN CASE OF LLP

SECRETARIAL AUDIT COMPLIANCE MANAGEMENT & DUE DILIGENCE (SACMDD/DUE DILIGENCE) | CRACKER AUTHOR PUBLISHER DATE OF PUBLICATION

: N.S. Zad, Divya Bajpai : TAXMANN : FEBRUARY 2024

EDITION ISBN NO NO. OF PAGES BINDING TYPE

: 7TH EDITION : 9789357783934 : 432 : PAPERBACK

Rs. 550

DESCRIPTION This book is prepared exclusively for the Professional Level of Company Secretary Examination requirement. It covers the questions (topic/sub-topic wise) & detailed answers strictly as per the old syllabus of ICSI. The Present Publication is the 7th Edition for the CS-Professional | June 2024 Exam. This book is authored by CS N.S. Zad & CS Divya Bajpai, with the following noteworthy features: • Coverage of this book includes o Fully-Solved Questions of Past Exams; Topic-wise, including: - Solved Paper | Dec. 2023 | Suggested Answers • [Arrangement of Questions] Questions in each chapter are arranged 'sub-topic wise' • [Important Additional Questions] with Answers are provided • [Marks Distribution] Chapter-wise marks distribution from June 2019 onwards • [Past Exam Trend Analysis] from December 2019 onwards • [ICSI Study Material Comparison] is provided chapter-wise

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