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A STUDY ON THE HIGHLIGHTS AND MAJOR

CHANGES INTRODUCED IN SCHEDULE III VIS--VIS


REVISED SCHEDULE VI COMPANIES ACT 2013.
Rishi Bhargav Das
Assistant Professor
Department of Commerce
Nowgong College, Nagaon, Assam
rishibhargavdas.du@gmail.com

Abstract

The Ministry of Corporate Affairs (MCA) has issued Schedule III which lays down a format for
preparation and presentation of financial statements by Indian companies for financial years
commencing on or after 1st April, 2014. This Schedule III has some significant Conceptual
changes such as Current/Non-current distinction, primacy to the requirements of the accounting
standards, etc. The Schedule III, among other things, has also prescribed a format for Statement
of Profit and Loss mandating classification of expenses by their nature as opposed to by function
and added a host of incremental disclosures and Consolidate Financial Statement too. This paper
tries to highlight the Schedule III to the Companies Act, 2013 is in majorly in line with the
Revised Schedule VI to Companies Act, 1956, and however certain additional disclosure
requirements and some nomenclature changes have been incorporated in the Revised Schedule
III.

Introduction:
The 1956 Act has been in need of a substantial revamp for quite some time now, to make it more
contemporary and relevant to corporate, regulators and other stakeholders in India. While

several unsuccessful attempts have been made in the past to revise the existing 1956 Act, there
have been quite a few changes in the administrative portion of the 1956 Act. The most recent
attempt to revise the 1956 Act was the Companies Bill, 2009 which was introduced in the LokSabha, one of the two Houses of Parliament of India, on 3 August 2009. This Companies Bill,
2009 was referred to the Parliamentary Standing Committee on Finance, which submitted its
report on 31 August 2010 and was withdrawn after the introduction of the Companies Bill, 2011.
The Companies Bill, 2011 was also considered by the Parliamentary Standing Committee on
Finance which submitted its report on 26 June 2012. Subsequently, the Bill was considered and
approved by the Lok Sabha on 18 December 2012 as the Companies Bill, 2012 (the Bill). The
Bill was then considered and approved by the Rajya Sabha too on 8 August 2013. It received the
Presidents assent on 29 August 2013 and has now become the Companies Act, 2013. The
changes in the 2013 Act have far-reaching implications that are set to significantly change the
manner in which corporates operate in India. In this publication, we have encapsulated the major
changes as compared to the 1956 Act and the potential implications of these changes. The Act,
2013 provides for business friendly corporate regulation, e-governance initiatives, good
corporate governance, Corporate Social Responsibility, enhanced disclosure norms, enhanced
accountability of management, audit accountability, protection for minority shareholders,
investor protection and activism and better framework for insolvency regulation and institutional
structure.
Objective of the Study
1. To Highlight the new terminology and concept in Companies Act 2013.
2. To Highlight the major changes in Revised Schedule III of the Companies Act 2013.
Methodology of the Study
The research paper is exploratory research, based on the secondary data sourced from websites
journals, magazines, and articles.
The Companies 2013 Act has introduced several new concepts and definitions. Few of them
which we believe to be the most crucial are analyzed below:
1. One Person Company: 2013 Act now allows one person to form a company vis-- vis the
earlier position where a minimum of two persons were required to form a company (private).

This new concept will be beneficial as entrepreneurs will be able to singly set up a corporate
entity, restrict the liability of business and reduce compliances.
2. Small Company: 2013 Act introduces this new concept of a small company, which means a
company other than a public company having paid up share capital not exceeding Rs 50, 00,000.
However this small company will not be applicable in case of holding company or subsidiary
company.
3. Private Company: : 2013 Act has now increased the total limit of number of members /
shareholders in private company from 50 to 200. [Section 2(68)(ii)].
4. Promoter: The term Promoter was not defined in the 1956 Act. However it was extensively
used through company law. 2013 Act now specifically defines Promoter, which includes (a)a
person who has been named as such in the prospectus or is identified as such in the annual
return; or (b) who has control over the affairs of the company (other than in a professional
capacity), as a shareholder or a director or otherwise; or (c) in accordance with whose advice or
directions the Board is accustomed to act. [Section 2(69)] .
5. Class Action Suit : 2013 Act introduces the western concept of class action suits which
allows requisite number of members, depositors or any class of them file a suit against the
company, its directors, auditors and/or other experts or consultants or advisors, if they believe
that affairs of the company are conducted in a manner prejudice to the company orits members or
depositors. [Section 245].
6. Maximum Number of Directors: The maximum number of directors for a public company
has been increased from 12 to 15. In case the company further increase the board size, it may do
so by passing a special resolution. The requirement of taking permission of the Central
Government as provided in 1956 Act is done away with in 2013 Act. [Section 149(1)].
7. Woman Director: Certain class of the companies (which will be notified in the Rules) must
have at least one woman director on the board. [Section 149(1)]
8. Independent Directors: To align the company law with Clause 49 of Equity Listing
Agreement (Clause 49), 2013 Act has introduced the concept of Independent Directors. In this
respect, few of our general observations are as follows:
(a) The term independent director has been defined with certain prescribed qualification and
disqualification. [Section 149(6)]
(b) Every listed company is required to have at-least one-third of the total number of directors as
independent directors. Independent directors shall be entitled to sitting fees, commission from

the profit and reimbursement of expenses. However, they will not be entitled to stock options.
[Section 149(9)]
(c) The appointment of the independent director shall be approved by the members in a general
meeting and they will not be required to retire by rotation. [Section 149(13)]
(d) An independent director can hold the office for consecutive two terms of five years each
following which there should be three years break before he or she is reappointed as an
independent director. [Section 149(11)]
(e) Nominee director shall not be considered as an independent director. [Section 149(6)]
(f) While the intention of 2013 Act is to align itself with Clause 49, there are few aspects which
are different. All listed companies will now have to comply with Clause 49 and 2013 Act which
will make the compliance process more cumbersome.
(g) Independent director shall only be liable for such act of omission, commission by a company
which had occurred with his or her knowledge, attributable through Board processes, and with
his/ her consent or connivance or where he or she had not acted diligently. [Section 149(12)].
9. Corporate Social Responsibility (CSR):
The Ministry of Corporate Affair had introduced CSR Voluntary Guidelines in 2009. These
guidelines are now part of the 2013 Act and mandates following companies with the CSR
activities:
1. Every company having net worth of Rs 500 Crores or more, or turnover of Rs 1000 Crore or
more or a net profit of Rs 5crore or more during any financial year shall constitute a CSR
Committee of the Board consisting of three or more directors, out of which at least one director
shall be an independent director.
2. CSR Committee shall formulate the policy for activities specified in Schedule VII of the 2013
Act which broadly includes (a) eradicating extreme hunger and poverty; (b) promotion of
education; (c) promoting gender equality and empowering women; (d) reducing child mortality
and improving maternal health; (e) combating human immunodeficiency virus, acquired immune
deficiency syndrome, malaria and other diseases; (e) ensuring environmental sustainability; (f)
employment enhancing vocational skills; (g) social business projects; (g) contribution to the
Prime Ministers National Relief Fund or any other fund set up by the Central Government or the
State Governments for socio-economic development and relief and funds for the welfare of the
Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; (h) such
other matters as may be prescribed.

3. 2013 Act mandates companies to spent at least two percent of the average net-profits of
immediately preceding three years on CSR activities, and if not spent, an explanation with the
reasons thereof shall be required to be given in the Directors Report. [Section 135]
10. Mergers and Amalgamation
2013 Act introduces some new provisions with regard to mergers and acquisitions, apart from
incorporating changes to the existing provisions in the 1956 Act. The objective of bringing these
changes is to simplify the procedures involved and ensure higher standards of accountability.
Some of the key new provisions in this respect are:
i. Holding and subsidiary: A fast track procedure has been introduced for merger and
amalgamation of holding company and its fully owned subsidiary. An approval of the court is
not required as long as the Registrar of Companies (ROC) and official liquidator have no
objection and the Central Government has granted its consent. [Section 233]
ii. Cross Border Mergers: 1956 Act did not permit Indian companies to merge with foreign
companies. 2013 Act now allows Indian companies to merge with foreign companies subject to
an approval of the Reserve Bank of India and foreign company being incorporated in the
jurisdiction notified by Central Government. [Section 234].
11. Financial Year: Under the 1956 Act, companies were permitted to decide their own
financial year. 2013 Act has taken away this liberty and requires all the companies to have a
financial year ending as on the 31st of March. If any company desires to follow a different
financial year because the holding company or subsidiary company requires following of
different financial year for consolidation of its accounts, it will have to make an application to
Tribunal. Tribunal, if satisfied, shall grant such an exemption. [Section 2(41)]
12. Consolidated Statement: 2013 Act requires consolidation of certain financial statements of
any company having subsidiary, associate or joint venture company to prepare and present in
addition to stand alone financial statements.
13. Winding-Up
1956 Act provided three modes of winding-up of a company i.e. (a) Compulsory Winding- Up
ordered by the court; (b) Voluntary Winding-Up by members; and (c) Winding-Up under
supervision of the court. 2013 Act now prescribes only two modes i.e. a) Winding-Up by the

Tribunal and b) Voluntary Winding-Up. Further, 2013 Act does not acknowledge the distinction
between member voluntary winding up and creditor voluntary winding up vis--vis the position
in the 1956 Act.
14. Regulators:
1. National Company Law Tribunal (NCLT or Tribunal): 2013 Act provides for constitution
of
Tribunal and Appellate Tribunal with the objective of facilitating expeditious disposal of
proceedings. All the matters, issues and disputes falling within the ambit of 2013 Act will now
be referred to NCLT. Appeal would lie before the Appellate Tribunal and thereafter can be
challenged before the Supreme Court. High Courts will now have no jurisdiction in matters
related to company law. [Section 407 to 434]
2. National Financial Reporting Authority (NFRA): 2013 Act also provides for constitution of
NFRA which will substitute the National Advisory Committee on Accounting and Auditing
Standards. NFRA will supervise and regulate the activities of auditors and companies and see
that they are in compliance with accounting and auditing standards. [Section 132]
3. Serious Fraud Investigation Office (SFIO): SFIO is an expert body established by Central
Government in 2003 as a special organization to examine serious cases of fraud and scams
received from MCA. The body was formed to carry out investigations under the provisions of the
1956 Act and was formed in light of the rise in white collar crimes and stock market scams. 2013
Act now itself incorporates within its folds the mandate for setting up an investigative body and
recognizes the already existing SFIO as the investigative body. [Section 211]
MAJOR CHANGES IN THE REVISED SCHEDULE III OF THE COMPANIES ACT
2013

(1) Classification of Assets and Liabilities into Current and Non Current: Concept of
classified balance sheet was introduced, according to which all assets and liabilities are classified
into current and non-current categories applying the definitions of Current / Non-current asset /
liability .
2. Horizontal format of Balance Sheet deleted:
Horizontal format of Balance Sheet known as conventional or customary form (T-shaped) of
Balance Sheet was deleted in Revised Schedule VI (now Schedule III). Accordingly now a days

only vertical format is being used.Under Old Schedule VI, the Companies had an option to use
either of horizontal or vertical format for presentation of Balance Sheet.
3. Change in titles of Upper and Lower half of Balance Sheet:
Under Revised Schedule VI (now Schedule III) the upper half is referred to as Equity and
Liabilities and lower half is shown as Assets whereas in Old Schedule VI the same were referred
as Sources of Funds and Application of Funds respectively. This change was made as the current
liabilities (including short term provisions) are required to be shown in upper half of balancesheet under Equity and Liabilities as against deduction from current assets, loans and advances
(Asset Side) as prescribed in Old Schedule VI (vertical form).
4. Notes to Accounts defined:
Revised Schedule VI (now Schedule III) states that Notes to Accounts shall contain information
in addition to that presented in the Financial Statements and shall provide where required (a)
narrative descriptions or disaggregations of items recognized in those statements and (b)
information about items that do not qualify for recognition in those statements. This definition is
as per IAS 1 Presentation of Financial Statements.
5. Disclosure of shareholding pattern:

Two new disclosures regarding disclosures of share holding pattern for each class of share
capital were introduced in revised Schedule VI (now Schedule III).
(i) Shares in the company held by its holding company or its ultimate holding company
including shares held by or by subsidiaries or associates of the holding company or the ultimate
holding company in aggregate.
(ii) Shares in the company held by each shareholder holding more than 5 percent shares (as on
Balance Sheet date) specifying the number of shares held
6. Disclosure of Reserves & Surplus:
New line items for Debenture Redemption Reserve, Revaluation Reserve, Share Option
Outstanding Account have been inserted under Reserves &Surplus. Further additional

requirement of specifying purpose of reserves falling under residual head of other reserves were
introduced in Revised Schedule VI, which are carried forward in Schedule III.
7. Disclosure of Accumulated Losses.
Debit balance of profit and loss shall be shown as a negative figure under the head Surplus.
Similarly, the balance of Reserve and Surplus after adjusting negative balance of surplus,if any
shall be shown under the head Reserve and Surplus even if the figure is in the negative. Under
old Schedule VI, any debit balance in Profit and Loss Account carried forward after deduction
from uncommitted reserves was required to be shown as the last item on the Assets side of the
Balance Sheet as Profit and Loss Account after Miscellaneous Expenditure. It is pertinent to
mention here that the line item of Miscellaneous expenditure on Asset side of Old Schedule VI
was also omitted.
8. Share Application Money:
Revised Schedule VI had inserted a new line item Share Application Money pending allotment
under Equity & Liabilities (upper part of balance sheet) between Shareholder funds and Noncurrent liabilities.
9. Trade Receivables and Trade payables:
The terms of Debtors and Creditors were scrapped and replaced with Trade Receivables and
Trade payables.
A receivable shall be classified as a trade receivable if it is in respect of the amount due on
account of goods sold or services rendered in the normal course of business.
A payable shall be classified as a trade payable if it is in respect of the amount due on account
of goods purchased or services received in the normal course of business.
Hence, amounts due / payable on account of other contractual obligations were no longer to be
included in the trade receivables / payables. Further their classification into non-current and
current is now required and accordingly corresponding line items have been inserted in noncurrent assets / liabilities.
10. Fixed Assets:
The amount of tangible, intangible assets and intangible assets under development (new line
item) were required to be depicted on face of balance sheet separately under Revised Schedule
VI. Further, the net block is required to be disclosed on face of balance sheet whereas under Old
Schedule VI the amount of Gross Block and accumulated depreciation were also shown.

11. Recognition of dividend income.


The Old Schedule VI required the parent company to recognize dividends declared by subsidiary
companies even after the date of the Balance Sheet if they were pertaining to the period ending
on or before the Balance Sheet date. Such requirement was abolished in the Revised Schedule VI
(now Schedule III). Accordingly, as per AS-9 Revenue Recognition, dividends should be
recognized as income only when the right to receive dividends is established as on the Balance
Sheet date i.e. dividend has been approved by shareholders of investee company at the Annual
general Meeting.
12. Disclosure of Capital Advances:
Capital Advances are required to be presented separately under the head Long term loans and
advances both in Revised Schedule VI as well as Schedule III. Earlier in era of old Schedule VI
they were being shown as part of fixed assets / capital work in progress in absence of any
heading available for such advances.

13. Intangible Assets:


New line items of Computer Software, mastheads and publishing rights, Mining Rights, Recipes,
formulae, models, designs and prototypes, Licenses & Franchise as introduced in Revised
Schedule VI have been maintained in Schedule III.
14. Disclosure of Provisions:
Under Old Schedule VI, all the provisions were shown as Current Liabilities, but in Revised
Schedule VI provisions for which the related claim is expected to be settled beyond 12 months
after the reporting date are classified as noncurrent liabilities and shown under new line item of
Long-term provisions. The provisions which will be settled Within 12 months after the reporting
period are classified as a current liability and shown under line item of Short term provisions.
The above provisions (long term as well as short term) were to be further classified as provision
for employees benefits and others (nature to be specified). Schedule III also has the same
requirement.
Conclusion:
The new Indian Companies Act, 2013 is a positive and welcoming step towards modernizing
Indias company law and places India on par with corporate legislation elsewhere in the globe.
The Act is a progressive and forward looking which promises improved corporate governance

norms, enhanced disclosures and transparency, facilitation of responsible entrepreneurship,


increased accountability of company managements and auditors and stricter enforcement
processes. It goes a long way in protecting the interests of shareholders and removes
administrative burden in several areas. The introduction of CSR as an integral function of
corporate operations is the most significant step and also the levy of heavier penalties for
transgressions from fulfillment of its obligations. Overall, the Act promises to significantly raise
the bar on Corporate Governance and will radically alter the framework in a positive sense.
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_Im pact_of_New_Companies_Bill2.pdf
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issued by Committee for Capacity Building of CA Firms and Small & Medium Practitioners
(CCBCAF&SMP) The Institute of Chartered Accountants of India