[Opinion] ROC Slaps Penalty on Company MD & Director for Incorrect Subsidiaries Disclosure in Board Report

Prof R Balakrishnan – [2023] 154 taxmann.com 274 (Article)

1. A brief on board report

The Board’s Report is an important document prepared by the company every year and attached along with the financial statements and discloses the details of the company’s affairs as to what happened during the financial year that has ended, to its stakeholders. The stakeholders of the company go through the board report of both financial and non-financial information such as performance and prospects of the company, management changes that happened during the year, company’s capital structure, recommended dividend payments to shareholders by the board, information relating to expansion, further development of business, restructuring, modernisation and diversification, capitalisation of reserves and in case of listed companies, the opportunities available to the company and threats faced/facing the company through the section of its “Management Discussion and Analysis” report and similar information relating to the company.

2. Framework of the Companies Act on board report disclosure

As per the provisions of the Companies Act 2013, there are mandatory disclosures that are required to be made in the board’s report. A listed company in the stock exchanges is required to comply with certain additional disclosures in addition to the one specified in the Companies Act 2013, in terms of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015. Similarly, a company, whose securities are listed on an overseas stock exchange, is required to comply with additional requirements as may be specified by such stock exchange (s). In addition to the above, the companies which are regulated by other laws/regulations may have to disclose additional disclosures as required by those regulations in their board report as per the respective laws which are applicable to the company.

3. Provisions governing the board report

Section 134 of the Companies Act 2013 read with Companies (Accounts) Rules, 2014, is the governing regulation which spells out the various requirements of the board report.

4. Contents to be disclosed in the board report

Sub-section (3) of section 134 of the Companies Act, 2013 read with Companies (Accounts) Rules, 2014, lists the requirements of various disclosures such as financial highlights of the company relating to transfer to reserve, dividend etc., details of a subsidiary if any, number of the board meeting held, key managerial personnel and directors details, directors responsibility statement, the composition of the audit committee and adequacy of internal financials controls, particulars relating to a loan, investment, guarantee and securities and contracts or arrangements with related parties, auditor and auditors report (statutory auditor, cost auditor and secretarial auditor), significant events and material orders passed by the regulators or courts, corporate social responsibilities related matters if applicable and such other matters.

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