• Kandivali West Mumbai 400067, India
  • 022 39167251
  • support@email.com
March 18, 2021

FAQ’s on Contravening Section 8 of Companies Act, 2013

by CA Shivam Jaiswal in Compliance Law

FAQ’s on Contravening Section 8 of Companies Act, 2013

1. What are the consequences of contravening Section 8 of Companies Act, 2013?

Answer: The Central Government may

  1. Revoke the licence issued and covert the status and change its name to add the words ‘Limited” or “Private Limited” as the case may be.
  2. Order for amalgamation of company with similar objects
  3. Order for winding up.
  4. Section 8 Company and the respective officer in default is liable for penalty prescribed

2. What are the penalties prescribed under Section 8?

Answer: For Company: fine not less than Rs 10 lakh, which may extend to Rs 1 crore for directors/officers in default.

Imprisonment for a term which may extend to 3 years or a fine not less than Rs 25000 which may extent to Rs 25 lakhs or with both.

3. What are the consequences when the affairs of section 8 companies are conducted fraudulently?

Answer: Every officer in default shall be liable for action under Section 447 of Companies Act for punishment of fraud. The punishment is imprisonment for a term not less than 6 months which may extend to 10 years and shall be liable for a fine which shall not be less than the amount involved in the fraud which may extend to three times the amount involved in the fraud. It is a non-compoundable offence. (Proviso to Section 8(11).

4. What is a procedure for making allotment of securities by Section 8 Company?

Answer: There is no specific exemption to Section 8 Companies.

5. Whether there is any difference in voting rights of members of Section 8 Company?

Answer: There is no distinction in voting rights of members of section 8 Companies.

6. If a Section 8 Company can secure listing of its Non Convertible Debentures issued on private placement basis at a Stock exchange

Answer: Section 8 Company can secure listing of its Non Convertible Debentures issued on private placement basis at a Stock exchange.

7. If a director of a Section 8 Company is required to make disclosure regarding his interest in all contracts and arrangements and abstain from participation or in certain cases only?

Answer: Yes, like directors of any other company, the director of a Section 8 Company is required to make disclosure regarding his interest in all contracts and arrangements.

8. Whether Section 8 Company can be declared as a Dormant Company?

Answer: Subject to compliance of section 455 of the Companies Act, 2015, Section 8 Company can be declared as a Dormant Company.

9. Whether a Section 8 Company can maintain its books of accounts on cash basis?

Answer: Section 128 of the Companies Act, 2013 provide for maintenance of books of accounts on accrual basis and according to the double entry system of accounting. Thus even a section 8 company can not maintain its books of accounts on cash basis.

10. For what period a Section 8 Company is required to keep its books of accounts?

Answer: Section 128(5) of the Companies Act, 2013 provides that the books of account of every company relating to a period of not less than eight financial years immediately preceding a financial year, or where the company had been in existence for a period less than eight years, in respect of all the preceding years together with the vouchers relevant to any entry in such books of account shall be kept in good order. However where an investigation has been ordered in respect of the company under Chapter XIV, the Central Government may direct that the books of account may be kept for such longer period as it may deem fit.

The exemption notification issued under the Companies Act, 1956 provided that the provisions of section 209(4A) of the Companies Act, 1956 shall apply with modification to section 25 companies and the section 25 companies were required to preserve the books of account relating to a period of not less than four years immediately proceeding the current year.

No such exemption notification has been issued in respect of Section 8 Companies under the provisions of the Companies Act, 2013. Accordingly the companies registered under the provisions of section 8 of the Companies Act, 2013 shall also be required to maintain books of accounts for the period of 8 years.

11. If a Section 8 Company is required to prepare its annual accounts in Schedule III of the Companies Act, 2013?

Answer: Yes. Rule 4A of the Companies (Accounts) Rules, 2014 provides that the financial statements shall be in the form specified in Schedule III to the Act and comply with Accounting Standards or Indian Accounting Standards as applicable. No exemption has been provided in respect of section 8 companies.

12.Whether Accounting Standards are applicable on a Section 8 Company?

Answer: Yes. Rule 4A of the Companies (Accounts) Rules, 2014 provides that the financial statements shall be in the form specified in Schedule III to the Act and comply with Accounting Standards or Indian Accounting Standards as applicable. No exemption has been provided in respect of section 8 companies.

12. If Secretarial Standards are applicable on a Section 8 Company?

Answer: No. Section 8 Companies are exempted from section 118 vide MCA notification dated 5th June, 2015. However, adherence to Secretarial Standards helps Section 8 Companies in raising their Governance standards and faith of stakeholders.

13. If a Secretarial Audit is applicable on a Section 8 Company?

Answer: Yes, if a Section 8 Company falls in the parameters specified in section 204 of the Companies Act, 2013. It means that Section 8 Company is either a listed company or a public company having paid up share capital of Rs. 50 crores or more or a public company having turnover of Rs. 250 crores or more, shall be required to annex secretarial audit report to its board report in terms of the provisions of section 134(3) of the Companies Act, 2013.

14. If a Cost Audit can become applicable on a Section 8 Company?

Answer: Considering the fact that a section 8 company can be formed for the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other objects, the possibility of a section 8 company falling in a class of company specified in section 148(2) of the Companies Act, 2013 is very remote. However if a section 8 company fall in a class of company specified in section 148(2) of the Companies Act, 2013, the cost audit shall become applicable.

15. If an Internal Audit can become applicable on a Section 8 Company?

Answer: Rule 13 of the Companies (Accounts) rules, 2014 provides that:

  • The following class of companies shall be required to appoint an internal auditor or a firm of internal auditors, namely:-
    1. every listed company;
    2. every unlisted public company having-
      • paid up share capital of fifty crore rupees or more during the preceding financial year; or
      • turnover of two hundred crore rupees or more during the preceding financial year; or
      • outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year; or
      • outstanding deposits of twenty five crore rupees or more at any point of time during the preceding financial year; and
    3. every private company having-
      • turnover of two hundred crore rupees or more during the preceding financial year; or
      • outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year:

Provided that an existing company covered under any of the above criteria shall comply with the requirements of section 138 and this rule within six months of commencement of such section.

Therefore, if a Section 8 Company falls in any of the above parameters, it shall be required to appoint an Internal Auditor.

16. If a Companies (Auditors Report) Order, 2016 applicable on a Section 8 Company?

Answer: In terms of the provisions of para 2(iii) of the Companies (Auditors Report) Order, 2016, the provisions of the Companies (Auditors Report) Order, 2016 are not applicable on a Section 8 Companies.

Enter your email address:

Subscribe to faceless complainces

Please follow and like us:
Pin Share
RSS
Follow by Email