MCA: Mandatory Disclosure of Compliance in Annual Reports of Companies

MCA: Mandatory Disclosure of Compliance in Annual Reports of Companies

On 29th November, 2017, the Economic Times had reported that “Companies will soon have to disclose whether they have constituted an internal complaints committee (ICC) on sexual harassment as the government is planning to amend its rules to make the move mandatory, Union Minister Maneka Gandhi said today. The measure will help the government monitor whether organisations are complying with the Sexual Harassment at Workplace Act, 2013, which requires any entity with 10 or more employees to compulsorily set up an ICC to look into complaints of sexual misconduct.”  Click here to read

On 14th December, 2017, the Indian Express reported that “Earlier letters by Maneka to Corporate Affairs minister Arun Jaitley were met with a reply that industry representatives were against “enhanced disclosures under the Companies Act, 2013, and adding to these may not be desirable””. Click here to read

After about 2 years of effort by the Ministry of Women and Child Development, the Ministry of Corporate Affairs has finally on 31st July, 2018 amended the Companies (Accounts) Rules, 2014 by way of a notification of the same date. This has been done in exercise of the powers conferred to it by Section 134 read with Section 469 of the Companies Act, 2013. The amendment has been made to Rule 8 which provides for categories of matters to be included in Board of Directors’ Report that is filed annually by all registered companies in India. This amendment provides that companies shall now have to mandatorily provide “a statement that the company has complied with provisions relating to the constitution of Internal Complaints Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013…” This will be in addition to the Annual Report that companies have to file as per the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 to the District Officer. This, however, shall not apply to One Person Company or Small Company, defined in Companies Act, 2013. This appears to have been done because under the Sexual Harassment Act, only employers who have 10 or more employees working for them are required to constitute an internal committee. Non-compliance with the reporting requirements under S134 of the Companies Act, 2013 could lead to imposition of a fine on the Company which is not less than Rs. 50,000 but which may extend to Rs. 25 Lakhs and imprisonment of every officer of the Company for a term which may extend to 3 years or fine in the range of Rs. 50,000 to Rs. 5 Lakhs.  Click here for a copy of the notification

Along with thanking the Ministry of Corporate Affairs for bringing about this amendment, the Mumbai Mirror reported on 14th August, 2018, that Ms. Gandhi had stated that she will be requesting the Securities and Exchange Board of India (SEBI) to suitably incorporate this disclosure in the Corporate Governance reports of the companies. “This will cast as ever higher responsibility on the Directors of these Companies for implementation of the Act,” Gandhi said in a statement it said. Click here to read

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