MCA moves to reduce compliance costs for small private limited companies

The ministry of corporate affairs (MCA) has been taking various initiatives on a continuous basis to provide less stringent regulations, including measures with respect to filing requirements for small companies, One Person Companies (OPCs) and start-ups, union minister of state for finance and corporate affairs Anurag Thakur informed the Lok Sabha in a written reply on Monday.

Changes have been made in the Companies Act, 2013 as well as various Rules and Forms thereunder from time to time.  Accordingly, the Companies (Auditor’s Report) Order, 2016 (CARO, 2016) has not been extended to private schools and hospitals built on concession land.
The Minister further stated that the opinion of the Government regarding inclusion of Institute of Chartered Accountants of India (ICAI) members on the NFRA (National Financial Reporting Authority) Board is that it would not create conflict of interest situation.
As per the National Financial Reporting Authority (Manner of Appointment and other Terms and Conditions of Service of Chairperson and Members) Rules, 2018, NFRA board has 13 members out of which 3 members represent ICAI as per clause (v), (vi) and (vii) of Rule 4(6). The main functions under section 132(2) and (4) will be performed by the executive body of NFRA and as such, no conflict of interest will be there.
The Securities and Exchange Board of India (SEBI) has taken following measures to improve governance standard in rating agencies:
  • Credit Rating Agencies (CRA) to segregate the activity other than the rating of financial instruments under the respective guidelines of a financial sector regulator or any authority as may be specified by Sebi;.
  • MD/CEO of a CRA shall not be a member of rating committees of the CRA;
  • Rating committees of a CRA shall report to a Chief Ratings Officer (CRO);
  • One third of the board of a CRA shall comprise of independent directors, if the board is chaired by a non-executive director. In case the board of the CRA is chaired by an executive director, half of the board shall comprise of independent directors;
  • The board of a CRA shall constitute the Ratings Sub-Committee and the Nomination and Remuneration Committee;
  • The Chief Ratings Officer (CRO) shall directly report to the Ratings Sub-Committee of the board of the CRA; 
  • The Nomination and Remuneration Committee shall be chaired by an independent director;
  • CRAs  shall meet the audit committee of  the  rated  entity, at  least  once  in  a  year,  to discuss issues, including related party transactions, internal financial control and other material disclosures made by the management, which have a bearing on rating of the listed Non-Convertible Debentures (NCDs);
  • Minimum net worth requirement of CRA increased from existing Rs. 5 Crore to Rs25 crore.
  • The promoter of a CRA to maintain a minimum shareholding of 26per cent in the CRA for a minimum period of 3 years from the date of grant of registration by the board.
  • A CRA shall not, directly or indirectly, have 10 per cent or more shareholding and/ or voting rights in another CRA and a CRA shall not have representation on the Board of any other CRA.
Sebi, the minister further stated, has in addition, stated that the following steps have been taken by SEBI to improve corporate governance of listed entities.
These include corporate governance norms introduced through Clause 49 in the Listing Agreement on 21 February 2000 based on the recommendations of the Kumaramangalam Birla Committee, which was subsequently revised and strengthened in 2004 based on the recommendations of the Narayana Murthy Committee. In 2015, the listing norms in the entire listing agreement, including clause 49 was streamlined in the form of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
Sebi formed a committee on corporate governance in June 2017 under the chairmanship of Uday Kotak with a view to enhancing the standards of corporate governance of listed entities. The committee submitted its report to Sebi in October 2017.
Sebi board had accordingly made amendments to the Sebi (Listing Obligations and Disclosure Requirements) Regulations, 2015, which were notified on 9 May 2018.
Major reforms arising out of the recommendations of Kotak Committee have been implemented in a phased manner. These include, among others, the following: 
  • At least one woman independent director in the top 500 listed entities by market capitalization by 1 April 2019 and in the top 1,000 listed entities, by 1 April 2020;
  • Separation of CEO/MD and chairperson (to be initially made applicable to the top 500 listed entities by market capitalization with effect from 1  April 2020;.
  • Enhanced disclosure of related party transactions (RPTs) and related parties to be permitted to vote against RPTs;
  • Reduction in the maximum number of listed entity directorships from 10 to 8 by 1 April 2019 and to 7 by 1 April 2020;
  • Enhanced role of the Audit Committee, Nomination and Remuneration Committee (NRC) and Risk Management Committee;
  • Disclosures of auditor credentials, audit fee, reasons for resignation of auditors, etc;
  • Disclosure of expertise/ skills of directors;
  • Mandatory disclosure of consolidated quarterly results with effect from FY 2019-20;
  • Secretarial audit to be mandatory for listed entities and their material unlisted subsidiaries;
  • Minimum six directors in the top 1,000 listed entities by market capitalisation by 1 April 2019 and in the top 2,000 listed entities by 1 April 2020;
  • Quorum for board meetings (1/3rd of the size of the board or 3 members, whichever is higher) in the top 1,000 listed entities by market capitalization by 1 April 2019 and in the top 2,000 listed entities, by 1 April 2020.;
  • Top 100 entities to hold AGMs within 5 months from the end of FY 2018-19, ie, by 31 August 2019; and
  • Webcast of AGMs to be compulsory for top 100 entities by market capitalisation.