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    disclosing cryptocurrency holdings, benami properties and audit trail: recent amendments in the companies act

    Mar 28, 2021.

    By:  Rakshitt C Bajpai (BA LLB(Hons.), Dr Ram Manohar Lohiya National Law University, Lucknow)


    In a recent move[1], the Ministry of Corporate Affairs (MCA) has made amendments to rules in the Companies Act. These rules state that the concerned firms registered under the act must disclose their investments in cryptocurrencies, amount spend on corporate social responsibility (CSR) and other concerning benami property transactions. Further, the details concerning all this is to be included in the respective financial statements of the firms, starting from the coming financial year. Companies will also have to disclose their relationship with struck-off firms and the details of title deeds of immovable property not held in the name of the company. Exercising the powers conferred[2] upon MCA under the Companies Act, the ministry notified about these amendments through a notification[3] dated 24th March, 2021, which will be put to effect from 1st April, 2021.


    About the New Rules

    Primarily this amendment targets the aspects related to a company’s investments and dealings in cryptocurrency, corporate social responsibility schemes, transactions concerning benami property and regarding disclosure of the company’s insolvency and bankruptcy matters and information relating to the valuation of the company’s assets in the board’s report. Apart from these, a number of amendments have been brought about, specifically to broaden the ambit of audit reporting. In accordance with this, now the management representations on advances, loans, and investments, etc, will have to be reported.

    One of these changes requires companies to use that accounting software for maintaining its books that allow it to record the audit trail of every transaction. These changes would promote and efficient and quick assessment if such transactions in auditing. As far as the amendments related to property are concerned, the notification reads that “The company shall provide the details of all the immovable property (other than properties where the Company is the lessee and the lease agreements are duly executed in favour of the lessee) 5 whose title deeds are not held in the name of the company in format given below and where such immovable property is jointly held with others, details are required to be given to the extent of the company’s share”.

    Further, it has been mentioned that in cases where any company has revalued its Property, Plant and Equipment, it must disclose as to whether the revaluation is based on the valuation by a registered valuer as defined under rule 2 of the Companies (Registered Valuers and Valuation) Rules, 2017.


    As for matters concerning Benami Property, if any proceeding has been initiated against the company under the Benami Transactions (Prohibition) Act, 1988 for holding any such property, the company would be required to adhere to these new rules mandatorily and disclose the following details:-

    (a) Details of such property, including year of acquisition,

    (b) Amount thereof,

    (c) Details of Beneficiaries,

    (d) If property is in the books, then reference to the item in the Balance Sheet,

    (e) If property is not in the books, then the fact shall be stated with reasons,

    (f) Where there are proceedings against the company under this law as an abetter of the transaction or as the transferor then the details shall be provided,

    (g) Nature of proceedings, status of same and company’s view on same.


    Companies will also have to disclose the expenditure on CSR activities of the previous years as well, including reasons for any shortfall. Till now, CSR spend has been part of the directors’ report, but now companies will have to disclose it in their financial statements. The following details are to be disclosed by the company in its financial statements:-

    (a) amount required to be spent by the company during the year,

    (b) amount of expenditure incurred,

    (c) shortfall at the end of the year,

    (d) total of previous years shortfall,

    (e) reason for shortfall,

    (f) nature of CSR activities,

    (g) details of related party transactions, e.g., contribution to a trust controlled by the company in relation to CSR expenditure as per relevant Accounting Standard,

    (h) where a provision is made with respect to a liability incurred by entering into a contractual obligation, the movements in the provision during the year should be shown separately.


    Another unique aspect of this amendment expresses the government’s concern towards monitoring and regulation of cryptocurrency in India and the corresponding transactions arising out of the same. The notification clearly mentions that such details of the crypto currency or any other virtual currency must be furnished by the company where the Company has traded or invested in Crypto currency or Virtual Currency during the financial year and the following details must be disclosed:-

    (a) profit or loss on transactions involving Crypto currency or Virtual Currency

    (b) amount of currency held as at the reporting date,

    (c) deposits or advances from any person for the purpose of trading or investing in Crypto Currency/ virtual currency.”;


    An Initiative Strengthening the Structure of Corporate Governance

    In the recent times there has been a lot of uproar among the media, activists as well as the member of opposition in India, regarding the well-known cases of economic offenders as well as huge scale scams done by some companies on the basis of flaws in the legislative framework as well as the corporate governance framework governing the market. Furthermore, there is always an accompanying aspect of national security with such companies which receive foreign aids for executing CSR schemes. In light of all this, the government has taken a bold step to ensure minimum safeguards which can be implemented without infringing the freedom of market forces. In this regard, strengthening basic methods of auditing and expanding their ambit will prove very efficient in the detection as well as investigation of financial crimes and crimes related to tax embezzlement. These audit reports will eventually act as evidence in court of law, thereby ensuring convictions of the culprits. Furthermore, this will bring about transparency within the functioning of the companies.

    Additionally, as the government is yet to deliberate on the decision of banning cryptocurrencies and virtual currencies in India, these newly introduced rules will provide an alternative mechanism of keeping a check on the same, till the final call is taken. This will put a rest to the current concerns being raised by the companies regarding the decision of banning cryptocurrencies in India. Even if they are not banned, the concerned authorities will be able to monitor them and ensure transparency in the system.


    Checks in USA & EU

    All U.S. companies, both private and public, are required to file financial documents with the secretary of state in the state where they incorporate[4]. When a company incorporates, it must file articles of incorporation or a certificate of formation, depending on the type of entity[5].This allows the company to formalize when it is first getting started. After filing these documents, a company is not required to provide any additional information to the public in its operations.

    That being said, all companies must file quarterly tax estimates with the Internal Revenue Service (IRS) and a yearly tax return, which contains all of its financial information for the year[6]. However, these documents are not public but restricted to government use. Primarily, they are used to assess tax liabilities for incorporated entities in the U.S. and give the government the ability to track and be apprised of larger market forces and shifts in the economy. Furthermore, the US SEC[7] has a lot of jurisdiction in such matters of checks.

    Companies that are privately owned are not required by law to disclose detailed financial and operating information in most instances. They enjoy wide latitude in deciding what types of information to make available to the public. Small businesses and other enterprises that are privately owned may shield information from public knowledge and determine for themselves who needs to know specific types of information. Companies that are publicly owned, on the other hand, are subject to detailed disclosure laws about their financial condition, operating results, management compensation, and other areas of their business. While these disclosure obligations are primarily linked with large publicly traded companies, many smaller companies choose to raise capital by making shares in the company available to investors. In such instances, the small business is subject to many of the same disclosure laws that apply to large corporations. Disclosure laws and regulations are monitored and enforced by the U.S. Securities and Exchange Commission (SEC).

    All of the SEC's disclosure requirements have statutory authority, and these rules and regulations are subject to changes and amendments over time. Some changes are made as the result of new accounting rules adopted by the principal rule-making bodies of the accounting profession. In other cases, changes in accounting rules follow changes in SEC guidelines.

    Generally accepted accounting principles (GAAP) and specific rules of the accounting profession require that certain types of information be disclosed in a business's audited financial statements. As noted above, these rules and principles do not have the same force of law as SEC rules and regulations. Once adopted, however, they are widely accepted and followed by the accounting profession. Indeed, in some instances, disclosures required by the rules and regulations of the accounting profession may exceed those required by the SEC.

    It is a generally accepted accounting principle that financial statements must disclose all significant information that would be of interest to a concerned investor, creditor, or buyer. Among the types of information that must be disclosed are financial records, accounting policies employed, litigation in progress, lease information, and details of pension plan funding. Generally, full disclosure is required when alternative accounting policies are available, as with inventory valuation, depreciation, and long-term contract accounting. In addition, accounting practices applicable to a particular industry and other unusual applications of accounting principles are usually disclosed.

    Certified financial statements contain a statement of opinion from an auditor, in which the auditor states that it is his or her opinion that the financial statements were prepared in accordance with GAAP and that no material information was left undisclosed. If the auditor has any doubts, then a qualified or adverse opinion statement is written[8].

    These requirements differ slightly when considering European companies that operate in the EU. No matter whether a limited liability business is public or private in the EU, they are required to publish certain financial documents. Although member states are free to implement their own disclosure laws, all member states must adopt European Union law in the form of directives. Public documents that need to be filed with the EU comprise constitutive documents, amendments, and information on the authorized representatives of the company for purposes of dealing with third parties[9].

    Every European company with limited liability—public or non-public—must publish its balance sheet, profit-and-loss account, annual report, and auditor's opinion. Small and medium-sized businesses that meet balance sheet and turnover thresholds must also disclose financial information.

    As one can see, different countries employ different methods of control over the companies and market forces competing therein. There are multiple factors affecting such policies. As discussed above, to a large extent these recent amendments have been influenced by India’s ever changing geopolitical situation and economy.


    [1]Shrimi Choudhary & Indivjal Dhasmana,Government mandates companies to disclose investments in cryptocurrencies (March 26, 2021), https://www.business-standard.com/article/markets/govt-mandates-companies-to-disclose-investments-in-cryptocurrencies-121032600056_1.html.

    [2] Companies Act 2013, § 467(1)

    [3] Government of India, Ministry of Corporate Affairs, Notification (March 24, 2021), http://www.mca.gov.in/Ministry/pdf/ScheduleIIIAmendmentRules_24032021.pdf.

    [4] Evan Tarver, Are Private Companies Required to Publish Financial Statements? (May 10, 2020), https://www.investopedia.com/ask/answers/062415/private-company-required-disclose-financial-information-public.asp.

    [5] U.S. Small Business Administration, Business Registration, https://www.sba.gov/business-guide/launch-your-business/register-your-business.

    [6] IRS (US), Business Taxes, https://www.irs.gov/businesses/small-businesses-self-employed/business-taxes.

    [7] U.S. Securities and Exchange Commission, Financial Reporting Manual, https://www.sec.gov/corpfin/cf-manual/topic-6.

    [8] SEC Disclosure Laws and Regulations, https://www.inc.com/encyclopedia/sec-disclosure-laws-and-regulations.html.

    [9] H.M. Liebman, Elena D. Bojilowa and Marylin W. Sonnie, Public Disclosure Requirements for Private Companies: U.S. vs. Europe (October, 2012), https://www.jonesday.com/en/insights/2012/10/public-disclosure-requirements-for-private-companies-us-vs-europe.