One can file the annual returns and other application online through Ministry of Corporate Affairs’ application platform popularly known as MCA21 (which can be accessed here). While, there are separate forms for applications, there are 5 general e-forms which are used to file 24 different notified events (i.e. events for which filing is required). The 5 general e-forms are as follows:

At the end of the financial year, a company is required to submit the following forms[1] to the ROC:

Mandatory forms required to be filed for annual compliance (Under Companies Act, 1956)

Please note: Financial statements, auditor’s report and Board’s report of companies whose financial years commenced before 1 April 2014, need to file the report according of the rules and provisions of the Companies Act, 1956.

1. Form 23AC (for balance sheet) with following attachments to be filed within 30 days of AGM:

• Notice of AGM
• Director’s report
• Auditor’s report
• Balance Sheet with prescribed annexures and schedule

2. Form 23ACA (for profit and loss account) with duly signed profit and loss account attached to be filed within 30 days of AGM.

1. Form 66 (for filing a compliance certificate. See point 2 below to find out if compliance certificate is necessary for your company) to be filed within 30 days of AGM. Under Companies Act, 2013 compliance certificate has been replaced with secretarial audit report which has to be submitted along with the Board Report in Form No MR.3.
2. Form 20B (for annual return) to be filed within 60 days of AGM with following attachments:

• Duly signed annual return
• List of directors
• List of shareholders
• List of transfers that took place during the year

Mandatory forms required to be filed for annual compliance (i.e. for annual filings pertaining to the financial year beginning from 1^st April 2014) (Under Companies Act, 2013)

1. Form AOC-3/AOC-4/Schedule-III for financial statement (including consolidated statement for subsidiary companies) which needs to be filed within 30 days of AGM or when the AGM was due to be held). The financial statement should contain:
   1. a balance sheet as at the end of the financial year,
   2. a profit and loss account, cash flow statement,
   3. a statement of changes of equity, where applicable
   4. and any explanatory note annexed or forming part of the financial statement.
2. Report on AGM in Form No. MGT.15 must be sent within 30 days of AGM. The report must contain:
   1. Minutes of the meeting
   2. the day, date, hour and venue of the annual general meeting;
   3. confirmation with respect to appointment of Chairman of the meeting;
   4. number of members attending the meeting;
   5. confirmation of quorum;
   6. confirmation with respect to compliance of the Act and the Rules, secretarial standards made there under with respect to calling, convening and conducting the meeting;
   7. business transacted at the meeting and result thereof;
   8. particulars with respect to any adjournment, postponement of meeting, change in venue; and
   9. any other points relevant for inclusion in the report
3. Under Companies Act, 2013 compliance certificate has been replaced with secretarial audit report which has to be submitted along with the Board Report in Form No MR.3. See point 2 below to find out if compliance certificate is necessary for your company).
4. Form No MGT-7 (for annual return to be filed as on 31 March of the previous financial year) to be filed within 60 days of AGM with following attachments:
   1. Duly signed annual return
   2. List of directors
   3. List of shareholders
   4. List of transfers that took place during the year

Requirement of employing a company secretary

Whole time company secretary is required to be employed by a listed company and any other public company if its paid-up capital is Rs. 10,00,00,000 (ten crores) or more. A private company having its paid-up share capital worth 5,00,00,000 (five crores) or more must appoint a whole-time company secretary.

Under the Companies Act, 1956 if paid-up share capital is less than Rs. 10 crores, but Rs. 10 lakhs or more, then it shall obtain a compliance certificate from a Company Secretary and:

1. File it with the Registrar of Companies (“ROC“) in Form 66,
2. Annex it to the report of the Board of directors, and present it before members in the AGM

For a small company and a one person company, which does not have a company secretary, the annual report can be signed by the director(s) of the company.

Under Companies Act, 2013 all listed companies and the following categories of companies must file a secretarial audit report which has to be submitted along with the Board Report in Form No MR.3 to the Registrar of Companies.

1. a) a public company having a paid up capital of more than fifty crores or more, or,
2. b) a public company having a turnover of two hundred fifty crores rupees or more

 Requirement of audit

All companies are required to get their books of account audited. The report need to be prepared as per the accounting standards and according to Section 143 of the Companies Act, 2013..The accounting standards under the Companies Act, 2013 have not been notified (as of 15 April, 2014) and the Companies will have to follow the existing accounting standards.

Essential statutory registers / books to be maintained under Companies Act, 2013

In addition to the books of accounts, registers of certain particulars that are prescribed under the Companies Act must be maintained by a company. Although the list of particulars provided below is enormous, in practical situations, there is a large register which is divided into many sections, and each section contains the details of the individual items listed below.

A Company Secretary (even if he is a part-time company secretary) or accountant of the company may provide assistance in maintaining the registers.

Note that some of the registers will only have to be maintained if the situation is applicable. For example, a register of debenture holders (Entry viii below) will only have to be maintained if the company actually has issued debentures. A complete list is provided below:

1. Books of Accounts
2. Cost Records
3. Proceedings of General & Board Meetings (Minutes)
4. Register & Index of Members
5. Register of Beneficial Owner
6. Register of Charges
7. Register of Contracts in which Directors are interested
8. Register of Debenture holders
9. Register of Directors and Key Managerial Personnel
10. Register of Directors’ Shareholding.
11. Register of Foreign Members
12. Register of Inter Corporate Loans & Investments.
13. Register of Investments not held by company in its own name
14. Register of Renewed & Duplicate Share Certificates
15. Register of Securities bought back
16. Register of Security holders
17. Register of loans, investments, guarantees and securities

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[1] The companies are required to submit the financial statements, auditor’s report and Board’s report in respect of the previous financial year (ie, before 1 April, 2014) are required to submit according to old provisions, schedules and rules of the Companies Act, 1956. Download updated forms for filing from the MCA site at http://www.mca.gov.in/MCA21/dca/downloadeforms/Download_eForm_choose.html#

In the course of carrying out its activities, every business is required to comply with provisions of applicable statutes – company law, tax legislations, labour legislations, specific sectoral legislations and any bye-laws made by the local authority (e.g. a municipal corporation). Most statutes impose a fine on the company as well as the directors of the company. Sometimes, directors may also face risk of imprisonment.

A Directors and Officers Insurance (D&O) policy insures a  company (and sometimes directors) in respect of specific kinds of losses or liabilities (e.g. fine imposed on account of statutory violations) in the event of legal or regulatory action against itself, and thus minimizes risk of loss due to actions of directors and key officers.

While D&O Policies are not very common currently, they can be extremely useful in minimizing risk, especially for businesses in heavily regulated sectors where risk of legal proceedings or liability is high, e.g. banking, finance, broking, etc.

A Directors and Officers Insurance (D&O) policy insures a  company (and sometimes directors) in respect of specific kinds of losses or liabilities (e.g. fine imposed on account of statutory violations) in the event of legal or regulatory action against itself.

Investors may insist on the company to take D&O insurance coverage up to a suitable extent as a ‘condition precedent’ to the investment transaction. Further, at the time of undertaking a public issue of share or debentures, a company must disclose whether it has obtained a directors and officers insurance to the public.

Issues for a business

D&O Policies can be very helpful for minimizing risk. However, they can be worded very differently, depending on the insurer. Therefore, a business considering a D&O Policy should evaluate the terms of the policy carefully. Broadly speaking, the following questions (explained in detail later) are essential:

1. Which persons are covered by a D&O Policy?
2. What kinds of defaults are covered, and which ones are excluded?
3. Is liability arising out of prior defaults (that were committed before the policy) but are detected when the company has taken insurance, covered under the policy?
4. How is liability arising from a default that was committed during the validity of the policy, but which was discovered after its expiry of the policy treated? Is it covered under the policy?
5. Can costs be reimbursed at a stage prior to final judgment? (This assumes importance if legal proceedings are taking a long time)
6. What is the level of control that the insurer has over legal proceedings? Do costs have to be pre-approved? Can the company appoint a defense counsel of its choice? Does it business have the authority to settle proceedings on its own?
7. Which persons/ entities are covered by a D&O Policy?

Under Indian law, a company cannot indemnify directors. However, it may obtain D&O insurance for its directors and other key officers, which is not covered by the prohibition. Insurance against liability incurred in course of business helps the company in attracting the best talent for managerial roles, as directors need not be overcautious about liability taking a managerial in a company because the risk of being prosecuted is very high.

As discussed before, most Indian statutes impose a fine in case of breach of their provisions directly on the directors who are in charge, as well as on the company. Therefore, ideally, it would be in a company’s interest to obtain insurance with respect to both possibilities.

A D&O Policy is of multiple types – it can insure the director against any losses, fines or penalties that are imposed on the director in capacity as director of the company (such a policy is said to provide ‘A-Side Coverage’). If an A-Side Coverage is taken with respect to such a situation, the premium will be paid by the company, and any amounts due under the policy in the event of loss/ liability are paid to the director by the insurer.

C-Side Coverage is taken for the company to be insured against any liability or loss that is directly imposed on the company. In a C-Side Coverage, the premium is paid by the company and any amounts that the company is liable for are reimbursed by the insurer to the company.

(A third kind of D&O Policies, known as B-Side policies, are redundant in India since Indian companies cannot indemnify directors. In a B-Side policy, the liability amount is paid to the company, to the extent the company has indemnified the director.)

What kinds of defaults are covered under D&O Policies? Which defaults are excluded?

As explained above, a company may face risks from shareholder actions, inaccurate disclosure in company accounts or errors in financial reporting, misrepresentations in prospectus (for a company undertaking a public issue of shares or debentures), liability on account of failure to comply with laws, or with respect to employment practices.

It is important to be aware of the claims which are not covered by D&O insurance. While the exact exclusions depend on the language of the policy, we are listing out some of the common grounds below (these are called ‘Exclusions’):

1. Dishonest and fraudulent acts – Claims where directors act for personal profit, fraud and intentional violations of a statute are excluded.

Note: Various regulatory statutes impose a penalty on the directors who were ‘in charge’ or ‘responsible’, unless such directors can show that they were not negligent or they had taken due care. If directors are not able to establish this, they will have to pay applicable penalties or fines. From a company’s perspective, care should be taken to ensure that such instances of ‘negligence’ are not excluded from the terms of the policy.

2. Punitive damages – In certain circumstances, courts may award ‘punitive damages’ in order to condemn and discourage wrongful conduct. D&O Policies do not usually provide insurance against such claims, as ‘punitive damages’ are by definition excessive (and therefore unpredictable). Further, the intended purpose of such damages, which is to set an example so that the wrongdoer and other businesses are discouraged would be defeated if punitive damages are reimbursed by the insurer.
3. Claims initiated by other insured parties – Claims made by one director against another are excluded, since the acceptance of such claims may lead to collusion between the parties.
4. Claims with respect to liability in professional capacity – Often, companies appoint professionals (e.g. Chartered Accountants or lawyers) on their board. These directors may often serve the company in a professional capacity (not as a director). A D&O Policy does not cover liabilities incurred while a director is acting in professional capacity (a different insurance policy called ‘professional liability insurance’ may be taken for that purpose).

We have included some of the most common exclusions above. An insurer may be in a position to invoke some of these exclusions, for example, the exclusion for ‘dishonest and fraudulent acts’, either if a court makes a finding that a particular act was fraudulent, or even by conducting its own investigation (independently from the court’s finding), if the policy permits it to do so. Exclusions which can be invoked by an insurance company after conducting its own investigation are against the interest of the insured (directors/ officers or the company, as the case may be). Therefore, businesses should permit exclusions to be invoked only when a court or regulatory authority makes a finding that is consistent with reliance on the exclusion.

Please note that a D&O Policy may contain other exclusions, and an entrepreneur (or his adviser) should carefully go through the exclusions before confirming the policy. It may be possible to negotiate the exclusions in a particular policy for a specific business, or to obtain another policy that is customarily offered by an insurer.

How is an act (which results in liability) committed before the policy was obtained treated? What happens if a defaulting action is ‘discovered’ after the expiry of the policy?

Legal proceedings may not be initiated at the same time as the defaulting act is committed. Therefore, there will be a time lag between the time an act is committed and when it is discovered. Understandably, if the act is committed and discovered at a time when the policy is valid, it will be covered by the policy. However, what happens if the act was committed before the policy was taken, or if a legal proceeding was initiated (in respect of a default committed when the policy was valid) after the expiry of the policy, is important for businesses, and is discussed below.

A D&O Policy could ensure coverage so long as a claim is made at a time when the policy is effective, irrespective of when the act that resulted in a violation occurred. Such a policy is known as a ‘claims made’ policy. Some policies allow an optional “discovery period”, which extends insurance coverage for an extended period (say 12 months after expiry of the policy). This is advantage especially for scenarios when the policy is cancelled or not renewed (because it may take time to arrange for new coverage). A company would prefer to be covered during such period.

Alternately, a policy may depend on the ‘occurrence’ of the act resulting in liability, that is, insurance coverage will only be available if the act was taken at a time when the policy was effective. Under an ‘occurrence policy’, a claim made during the validity period of the policy will not be covered if it pertains to an act undertaken at a time when the policy was not effective. From the insurer’s perspective, his liability with respect to an ‘occurrence’ based policy is not certain even after the policy has expired because a there may be a possibility of legal proceedings pertaining to the coverage period, even after expiry.

On the other hand, a claims made policy ensures that the insurer’s liability on the policy is certain once the period has expired. For example, if there is no claim during the term of the policy, an insurer can be certain that there is no liability on the policy.

Is it necessary for legal proceedings to have come to an end, to claim under the policy? Can claims for costs be made under the policy while legal proceedings are continuing?

The costs of continuing legal proceedings can be huge. The terms of a D&O Policy should be examined to check if insurance amounts can be paid during the pendency of legal proceedings. In various cases, legal proceedings can drag on for a long period. Although a D&O Policy includes coverage of legal fees, the time of reimbursement from the insurer can significantly affect the effectiveness of the policy – for example, the policy will not be very useful if claims can only be reimbursed after the termination of legal proceedings.

What is the level of control that the insurer has over legal proceedings? Do costs have to be pre-approved? Can the company appoint a defense counsel of its choice? Does it business have the authority to settle proceedings on its own?

The amount of loss incurred (due to costs and expenses of legal proceedings and any damages or penalties) is also dependent on the conduct of defense proceedings. For example, hiring an expensive legal counsel may increase legal costs. At the same time, it may improve the chances of an acquittal. It is essential for a business to be aware of the level of control that the insurer is entitled to exercise as per the terms of the policy.

Usually, if the insurer has agreed to pay amounts during the pendency of legal proceedings, it may expect to have a higher level of control with respect to the litigation – such as appointment of counsel, settlement, etc.

For example, consider the following clauses:

1. A clause which requires consent of the insurer for incurring any expenses and for settlement of legal proceedings:

No costs, charges and expenses shall be incurred or settlements made without the Insurer’s consent, which consent shall not be unreasonably withheld; however, in the event such consent is given, the Insurer shall pay subject to the provisions of [limit of liability], such costs, settlements, charges and expenses.

 2. A clause which provides the insurer the discretion to the insurer to pay amounts during the pendency of the legal proceedings (subject to repayment by directors/ officers if it is established that the insurer was not liable):

The Insurer may at its option and upon request, advance on behalf of the Directors and Officers, or any of them, expenses which they have incurred in connection with claims made against them, prior to disposition of such claims, provided always that in the event that it is finally established the Insurer has no liability hereunder, such Directors and Officers agree to repay the Insurer, upon demand, all monies advanced by virtue of this provision.

3. A clause which prohibits any legal action against the insurer until a court has fully determined whether the directors/ officers are liable to pay or by agreement between the parties concerned.

No action shall be taken against the Insurer unless, as a condition precedent thereto, there shall have been full compliance with all of the terms of this policy and not until the amount of the Directors’ and Officers’ obligation to pay shall have been finally determined either by judgment against the Directors and Officers after actual trial or by written agreement of the Directors and Officers, the Claimant and the Insurer.

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