Category: MCA (Companies)

Audit Committee, Nomination and Remuneration Committee and Vigil Mechanism under Sections 177 and 178 of the Companies Act, 2013

Posted on by CA Meet Dhrangadhariya

Last updated: 09 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Every listed public company, and the prescribed classes, must have an Audit Committee of at least three directors with independent directors in the majority. Its terms of reference cover auditors, financial statements, related party approval, inter-corporate loans, valuation, internal financial controls and use of funds raised.
  • The Nomination and Remuneration Committee has three or more non-executive directors, at least half independent, and recommends director and senior management appointments, board evaluation and remuneration policy.
  • A Stakeholders Relationship Committee is needed where a company has more than 1,000 security holders at any time in a financial year.
  • A vigil mechanism is required for listed companies and prescribed classes. Contravention carries a fine of Rs 1 lakh to Rs 5 lakh on the company and Rs 1 lakh on each officer in default.

Larger and listed companies must hand some of the Board’s most sensitive work to committees dominated by independent directors. Section 177 sets up the Audit Committee and the vigil mechanism; section 178 sets up the Nomination and Remuneration Committee and the Stakeholders Relationship Committee.

Audit Committee (section 177)

Who must have one. The Board of every listed public company, and of such other classes of companies as may be prescribed, constitutes an Audit Committee.

Composition. A minimum of three directors, with independent directors forming a majority. The majority of members, including the chairperson, must have the ability to read and understand a financial statement.

Terms of reference. The committee acts under written terms of reference set by the Board, which include:

  1. recommending the appointment, remuneration and terms of appointment of auditors;
  2. reviewing and monitoring the auditor’s independence and performance, and the effectiveness of the audit process;
  3. examining the financial statement and the auditors’ report on it;
  4. approval or any subsequent modification of transactions with related parties. The committee may give omnibus approval subject to prescribed conditions. If a transaction (other than one under section 188) is not approved, the committee makes its recommendation to the Board. If a transaction not exceeding Rs 1 crore is entered into by a director or officer without the committee’s approval and is not ratified within three months, it is voidable at the committee’s option, and the director concerned must indemnify the company where it is with a related party or was authorised by another director. This does not apply to transactions, other than those under section 188, between a holding company and its wholly owned subsidiary;
  5. scrutiny of inter-corporate loans and investments;
  6. valuation of undertakings or assets of the company, wherever necessary;
  7. evaluation of internal financial controls and risk management systems; and
  8. monitoring the end use of funds raised through public offers and related matters.

Powers. It can call for the auditors’ comments on internal control systems and the scope of the audit, review financial statements before they go to the Board, discuss issues with internal and statutory auditors and management, investigate any matter within its terms of reference or referred by the Board, obtain professional advice from external sources, and has full access to the company’s records. The auditors and the KMP have a right to be heard in the committee’s meetings when the auditor’s report is considered, but no right to vote.

Disclosure. The Board’s report discloses the composition of the Audit Committee and, where the Board did not accept any recommendation of the committee, that fact with the reasons.

Vigil mechanism (section 177(9) and (10))

Every listed company and the prescribed classes must establish a vigil mechanism for directors and employees to report genuine concerns, in the prescribed manner. It must have adequate safeguards against victimisation of the persons who use it, and direct access to the chairperson of the Audit Committee in appropriate or exceptional cases. The details are disclosed on the company’s website (if any) and in the Board’s report.

Nomination and Remuneration Committee (section 178(1) to (4))

Who must have one. The Board of every listed public company, and of the prescribed classes.

Composition. Three or more non-executive directors, of whom not less than one-half are independent directors. The chairperson of the company, whether executive or non-executive, may be a member but shall not chair the committee.

Functions.

  • Identify persons qualified to become directors and persons who may be appointed in senior management under the laid-down criteria, and recommend to the Board their appointment and removal.
  • Specify the manner of effective evaluation of the performance of the Board, its committees and individual directors, to be carried out by the Board, by the committee or by an independent external agency, and review its implementation and compliance.
  • Formulate the criteria for determining qualifications, positive attributes and independence of a director, and recommend to the Board a remuneration policy for directors, KMP and other employees.

Policy safeguards. The remuneration policy must ensure that (a) the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of the quality required; (b) the relationship of remuneration to performance is clear and meets appropriate benchmarks; and (c) remuneration to directors, KMP and senior management is a balance between fixed and incentive pay reflecting short and long-term performance objectives. The policy is placed on the company’s website (if any), and its salient features and changes, with the web address, are disclosed in the Board’s report.

“Senior management” means the core management team excluding the Board, comprising all members of management one level below the executive directors, including functional heads.

Stakeholders Relationship Committee (section 178(5) and (6))

A company with more than one thousand shareholders, debenture-holders, deposit-holders and other security holders at any time during a financial year constitutes a Stakeholders Relationship Committee. Its chairperson is a non-executive director, and the Board decides the other members. It considers and resolves the grievances of security holders. The inability to resolve or consider a grievance in good faith is not a contravention.

Attendance and penalty

  • The chairperson of each committee, or any member authorised by him, attends the general meetings of the company (section 178(7)).
  • Penalty (section 178(8)): for contravention of section 177 or section 178, the company is punishable with a fine of not less than Rs 1 lakh, up to Rs 5 lakh, and every officer in default is liable to a penalty of Rs 1 lakh, as the section reads after the 2020 amendment (the India Code print of the amended words is repetitive, so confirm the figure against the latest official text).

A short checklist

  1. Test whether your company is a listed public company or in a prescribed class; if so, set up the committees by Board resolution with written terms of reference.
  2. Check the composition rules: three directors with an independent majority for audit; three non-executive directors with at least half independent for nomination and remuneration.
  3. Put the vigil mechanism policy on the website and mention it in the Board’s report.
  4. Count security holders each year against the 1,000 threshold.
  5. Record in the Board’s report the composition of the Audit Committee and any recommendation of that committee which the Board did not accept.

Points to check

  • This post follows the Companies Act as published on India Code, including its amendments up to the footnotes in that edition. The prescribed classes of companies for each committee, the omnibus approval conditions and the vigil mechanism rules are in the Rules, which were not reviewed.
  • Listed companies must also follow the SEBI listing regulations, which add further requirements on the number of meetings, independent directors and the role of each committee.
  • The India Code print of section 178(8) repeats the penalty words after the 2020 substitution. This post reads it as a fine of Rs 1 lakh to Rs 5 lakh on the company and Rs 1 lakh on each officer in default, and that reading should be confirmed.

Frequently asked questions

Which companies must have an Audit Committee?

Every listed public company, and other classes of companies prescribed by the Rules. It must have at least three directors, with independent directors forming a majority. The majority of members, including the chairperson, must be able to read and understand a financial statement.

What does the Audit Committee do?

It acts under written terms of reference set by the Board, which include recommending the appointment, remuneration and terms of auditors; reviewing the auditor’s independence, performance and effectiveness of the audit; examining the financial statements and the auditors’ report; approving related party transactions; scrutinising inter-corporate loans and investments; valuation of undertakings or assets; evaluating internal financial controls and risk management; and monitoring the end use of funds raised through public offers.

Can the Audit Committee approve related party transactions in advance?

Yes. It may make omnibus approval for related party transactions proposed to be entered into, subject to the prescribed conditions.

Who must have a Nomination and Remuneration Committee?

Every listed public company and the prescribed classes. It consists of three or more non-executive directors, not less than one-half of them independent. The chairperson of the company may be a member but cannot chair the committee.

When is a Stakeholders Relationship Committee required?

When the company has more than 1,000 shareholders, debenture-holders, deposit-holders and other security holders at any time in a financial year. Its chairperson must be a non-executive director, and it considers and resolves the grievances of security holders.

What is a vigil mechanism?

A mechanism for directors and employees to report genuine concerns, which every listed company and the prescribed classes must establish. It must protect users from victimisation and give direct access to the chairperson of the Audit Committee in appropriate or exceptional cases. Its details are disclosed on the company’s website and in the Board’s report.

What is the penalty for contravention?

A fine of not less than Rs 1 lakh, up to Rs 5 lakh on the company, and a penalty of Rs 1 lakh on every officer in default (as the section reads after the 2020 amendment).

Official sources

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Board Composition and Independent Directors under Sections 149 and 150 of the Companies Act, 2013: Number, Independence Criteria, Term and Liability

Posted on by CA Meet Dhrangadhariya

Last updated: 09 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A public company needs at least three directors, a private company two and a One Person Company one, with a maximum of fifteen (more with a special resolution). Every company needs at least one director who stays in India for 182 days or more in the financial year.
  • A listed public company must have at least one-third of its directors as independent directors, with any fraction rounded up to one.
  • An independent director is not an MD, whole-time director or nominee director, is not a promoter or related to one, has no material pecuniary or employment ties, and must give a declaration of independence at the first Board meeting and every year.
  • The term is up to five consecutive years, with one re-appointment by special resolution, and then a three year cooling off. Liability is limited to acts with his knowledge, consent or connivance, or where he did not act diligently.

Section 149 sets the shape of a company’s Board: how many directors, how many must be independent, and what “independent” means. Section 150 deals with how independent directors are selected.

Number of directors (section 149(1) to (3))

Company Minimum Maximum
Public company 3 15
Private company 2 15
One Person Company 1 15
  • A company may appoint more than fifteen directors after passing a special resolution.
  • The Board must consist of individuals.
  • Classes of companies prescribed by the Rules must have at least one woman director.
  • Resident director: every company must have at least one director who stays in India for a total of not less than 182 days during the financial year. For a newly incorporated company, the requirement applies proportionately at the end of the financial year of incorporation.

Independent directors (section 149(4))

Every listed public company must have at least one-third of the total number of directors as independent directors, and a fraction is rounded up to one. For example, a Board of seven needs three independent directors. The Central Government may prescribe a minimum number of independent directors for other classes of public companies.

Who is an independent director (section 149(6))

An independent director means a director other than a managing director, whole-time director or nominee director, who meets all of these tests:

  1. Integrity and expertise: in the Board’s opinion, a person of integrity with relevant expertise and experience.
  2. Promoters and relations: is not and was not a promoter of the company or its holding, subsidiary or associate company, and is not related to promoters or directors of the company or of its holding, subsidiary or associate company.
  3. Money: has no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters or directors, other than remuneration as director or a transaction not exceeding 10% of his total income (or the prescribed amount), during the two immediately preceding financial years or the current financial year.
  4. Relatives: none of his relatives (a) holds securities or an interest in the company group above a face value of Rs 50 lakh or 2% of paid-up capital (or a higher prescribed sum) during that period; (b) is indebted to the company group or its promoters or directors above the prescribed amount; (c) has given a guarantee or security for a third person’s debts to the company group above the prescribed amount; or (d) has any other pecuniary transaction or relationship with the company group amounting to 2% or more of its gross turnover or total income.
  5. Employment and professional ties: neither he nor any relative holds or has held the position of KMP or been an employee of the company group in any of the three financial years before the appointment (a relative’s employment during the preceding three years is not a bar); has been an employee, proprietor or partner in the preceding three years of the company’s firm of auditors, company secretaries in practice or cost auditors, or of any legal or consulting firm that had transactions with the group of 10% or more of that firm’s gross turnover; holds together with his relatives 2% or more of the total voting power; or is a chief executive or director of a non-profit organisation that receives 25% or more of its receipts from the company, its promoters, directors or group companies, or that holds 2% or more of the voting power.
  6. Any other prescribed qualification.

A nominee director is a director nominated by a financial institution under any law or agreement, or appointed by any Government or any other person to represent its interests.

Declaration of independence (section 149(7))

Every independent director gives a declaration that he meets the criteria at the first Board meeting in which he participates, then at the first Board meeting of every financial year, and whenever there is a change in circumstances that may affect his status.

Term (section 149(10), (11) and (13))

  • Up to five consecutive years on the Board of a company.
  • Re-appointment for a further term needs a special resolution and disclosure in the Board’s report.
  • No independent director can hold office for more than two consecutive terms, and he is eligible for appointment again only after three years from ceasing to be an independent director. During those three years he cannot be appointed or associated with the company in any other capacity, directly or indirectly.
  • Any tenure on the date the Act commenced is not counted as a term.
  • The rotation rules for retirement by rotation in section 152(6) and (7) do not apply to independent directors.

Remuneration (section 149(9))

An independent director is not entitled to any stock option. He may receive the sitting fee under section 197(5), reimbursement of expenses for attending Board and other meetings, and profit related commission approved by the members. If the company has no profits or inadequate profits, he may receive remuneration, other than the sitting fee, in accordance with Schedule V.

Limited liability (section 149(12))

An independent director, and a non-executive director who is not a promoter or KMP, is liable only for acts of omission or commission by the company that occurred with his knowledge (attributable through Board processes) and with his consent or connivance, or where he had not acted diligently.

Conduct

The company and independent directors must follow the code in Schedule IV (section 149(8)).

Selection (section 150)

  • An independent director may be selected from a data bank of eligible and willing persons maintained by a body notified by the Central Government. The responsibility of due diligence before selecting a person from the data bank lies with the company.
  • The appointment is approved by the company in general meeting, as provided in section 152(2), and the explanatory statement to the notice must give the justification for choosing the appointee.

A short checklist for the company

  1. Count the directors against the minimum and maximum for your class of company; check the 182 day resident director and the woman director requirement for your class.
  2. If listed, calculate one-third (rounded up) of the Board and plan the independent director appointments in time.
  3. Collect the section 149(7) declaration at the first meeting of each financial year.
  4. Track each independent director’s tenure and the three year cooling-off after two terms.
  5. Record in the explanatory statement why the appointee was chosen, and the data bank search.

Points to check

  • This post follows the Companies Act as published on India Code, including its amendments up to the footnotes in that edition. The classes of companies required to have a woman director or independent directors, the prescribed amounts in the independence tests, the data bank rules and Schedules IV and V are in the Rules and Schedules, which were not reviewed in detail.
  • Listed companies must also comply with SEBI’s listing regulations, which carry further requirements on independent directors and committees.

Frequently asked questions

What is the minimum number of directors?

Three for a public company, two for a private company and one for a One Person Company. The maximum is fifteen, and a company can appoint more than fifteen after passing a special resolution.

Is a resident director required?

Yes. Every company must have at least one director who stays in India for a total of not less than 182 days during the financial year. For a newly incorporated company this applies proportionately at the end of the financial year of incorporation.

How many independent directors must a listed company have?

At least one-third of the total number of directors, with any fraction rounded off to one, in a listed public company. The Central Government may prescribe a minimum number of independent directors for other classes of public companies.

Who is an independent director?

A director other than a managing director, whole-time director or nominee director, who in the Board’s opinion has integrity and relevant expertise and experience, and who meets the tests in section 149(6): not a promoter or related to promoters or directors, no material pecuniary relationship, no relevant relatives’ holdings or transactions, and no past employment or professional connection with the company group within three years.

What is the term of an independent director?

Up to five consecutive years, with re-appointment for a second term on a special resolution and disclosure in the Board’s report. No independent director can hold office for more than two consecutive terms, and is eligible again only after three years, during which he cannot be associated with the company in any other capacity.

Is an independent director entitled to stock options?

No. He can receive sitting fees, reimbursement of expenses and, if the members approve, profit related commission; where the company has no profits or inadequate profits, remuneration in accordance with Schedule V.

When is an independent director liable?

Only in respect of acts of omission or commission by the company which occurred with his knowledge, attributable through Board processes, and with his consent or connivance, or where he had not acted diligently. The same protection applies to a non-executive director who is not a promoter or KMP.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Related Party Transactions and Disclosure of Director’s Interest: Sections 184, 188 and 189 of the Companies Act, 2013

Posted on by CA Meet Dhrangadhariya

Last updated: 09 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A related party includes a director or KMP and their relatives, a firm or private company in which a director or manager or relative is a partner, member or director, and a holding, subsidiary or associate company, among others (section 2(76)).
  • A company can enter into the listed types of contracts with a related party (sale or purchase of goods, property, leases, services, agents, office or place of profit, underwriting) only with the consent of the Board at a meeting. Above the prescribed limits, members must approve by resolution, and related party members cannot vote.
  • Transactions in the ordinary course of business and at arm’s length are outside section 188(1). The Board’s report must refer to each contract with the justification.
  • An unapproved contract that is not ratified within three months is voidable. Penalty on the director or employee: Rs 25 lakh in a listed company and Rs 5 lakh in any other company.

When a company deals with people who control it or are close to those who control it, the price and terms may not be what an outsider would get. The Companies Act, 2013 handles this with three safeguards: a wide definition of “related party” (section 2(76)), an approval process for transactions with them (section 188), and a duty on every director to disclose personal interests (section 184), with a register of contracts (section 189).

Who is a related party (section 2(76))

  1. A director or his relative;
  2. a key managerial personnel or his relative;
  3. a firm in which a director, manager or his relative is a partner;
  4. a private company in which a director, manager or his relative is a member or director;
  5. a public company in which a director or manager is a director and holds, along with his relatives, more than 2% of the paid-up share capital;
  6. a body corporate whose Board, managing director or manager is accustomed to act on the advice, directions or instructions of a director or manager;
  7. a person on whose advice, directions or instructions a director or manager is accustomed to act (clauses 6 and 7 do not apply to advice given in a professional capacity);
  8. a body corporate that is a holding, subsidiary or associate company, a subsidiary of the holding company to which it is also a subsidiary, or an investing company or venturer of the company; and
  9. such other person as may be prescribed.

A relative means a member of the same Hindu Undivided Family, husband and wife, or a person related in the prescribed manner (section 2(77)).

Transactions covered by section 188(1)

A contract or arrangement with a related party relating to:

  • sale, purchase or supply of any goods or materials;
  • selling or otherwise disposing of, or buying, property of any kind;
  • leasing of property of any kind;
  • availing or rendering of any services;
  • appointment of any agent for purchase or sale of goods, materials, services or property;
  • the related party’s appointment to any office or place of profit in the company, its subsidiary or associate company; and
  • underwriting the subscription of any securities or derivatives of the company.

What approval is needed

  • Board consent: no such contract may be entered into except with the consent of the Board given by a resolution at a meeting, subject to prescribed conditions.
  • Shareholders: where the company’s paid-up share capital is at or above the prescribed amount, or the transactions exceed the prescribed sums, the contract needs the prior approval of the company by resolution. No member who is a related party can vote on that resolution (this does not apply to a company in which 90% or more of the members, in number, are relatives of promoters or related parties).
  • Exceptions: section 188(1) does not apply to transactions in the ordinary course of business that are on an arm’s length basis, nor does the shareholders’ resolution requirement apply to transactions between a holding company and its wholly owned subsidiary whose accounts are consolidated with the holding company and placed before the shareholders at the general meeting.
  • Arm’s length transaction means a transaction between two related parties that is conducted as if they were unrelated, so that there is no conflict of interest.
  • Office or place of profit: for a director, anything received above the remuneration due to him as a director; for anyone else, any remuneration, salary, fee, commission, perquisites or rent-free accommodation received from the company.

Reporting and consequences

  • Board’s report: every contract or arrangement under section 188(1) is referred to in the Board’s report to the shareholders, with the justification for entering into it (section 188(2)).
  • Voidable contracts: if a director or employee enters into a contract without Board consent or shareholders’ approval and it is not ratified within three months, it is voidable at the option of the Board or the shareholders. If it is with a related party of a director, or authorised by another director, the directors concerned must indemnify the company against any loss (section 188(3)).
  • Recovery: the company can proceed against the director or employee to recover any loss (section 188(4)).
  • Penalty (section 188(5)): a director or employee who entered into or authorised the contract in violation is liable to a penalty of Rs 25 lakh in a listed company and Rs 5 lakh in any other company.

Section 184: disclosure of interest by a director

  • General disclosure (section 184(1)): every director discloses his concern or interest in any company, body corporate, firm or association of individuals, including shareholding, at the first Board meeting in which he participates, at the first Board meeting of each financial year, and at the first meeting after any change in what he has disclosed.
  • Specific disclosure (section 184(2)): a director who is concerned or interested in a contract or arrangement with a body corporate in which he (with others) holds more than 2%, or is a promoter, manager or CEO, or with a firm or entity in which he is a partner, owner or member, discloses the nature of his interest at the Board meeting where it is discussed and does not participate. If he becomes interested after the contract is made, he discloses forthwith or at the first Board meeting after.
  • Consequences (section 184(3) and (4)): a contract made without disclosure, or with participation by an interested director, is voidable at the company’s option, and the director is liable to a penalty of Rs 1 lakh.
  • Small shareholdings (section 184(5)(b)): the section does not apply to contracts between companies where a director holds not more than 2% in the other company.

Register of contracts: section 189

  • Every company keeps one or more registers of all contracts or arrangements to which section 184(2) or section 188 applies, in the prescribed manner, placed before the next Board meeting and signed by all directors present.
  • A director or KMP discloses within 30 days of appointment or relinquishment the particulars of his concern or interest in other associations.
  • The register is kept at the registered office, open to inspection during business hours, and produced at the start of every AGM.

A short compliance checklist

  1. Keep a live list of related parties, updated at each Board meeting from the directors’ disclosures.
  2. Test each proposed transaction: is it with a related party, is it one of the seven types, is it in the ordinary course and at arm’s length?
  3. If not exempt, get Board consent at a meeting, and check the prescribed monetary thresholds for the shareholders’ resolution.
  4. The interested director leaves the discussion; related party members do not vote on the shareholders’ resolution.
  5. Record the justification, put it in the Board’s report, and enter the contract in the register.

Points to check

  • This post follows the Companies Act as published on India Code, including its amendments up to the footnotes in that edition. The monetary thresholds for the shareholders’ resolution, the conditions for Board consent, the register form and the extra list of related parties are in the Rules, which were not reviewed.
  • Listed companies have further requirements under the SEBI listing regulations, including audit committee approval of related party transactions.
  • The statutory auditor reports on related party compliance under clause (xiii) of the Companies (Auditor’s Report) Order, 2020.

Frequently asked questions

Who is a related party?

Under section 2(76): a director or his relative; a KMP or his relative; a firm in which a director, manager or relative is a partner; a private company in which a director, manager or relative is a member or director; a public company in which a director or manager, with relatives, holds more than 2% of paid-up capital; a body corporate whose Board or manager acts on a director’s advice; a person on whose advice a director acts (other than in a professional capacity); a holding, subsidiary or associate company, a fellow subsidiary, and an investing company or venturer; and any person prescribed.

Which transactions does section 188 cover?

Contracts or arrangements with a related party for: sale, purchase or supply of goods or materials; selling, disposing of or buying property; leasing property; availing or rendering services; appointing an agent for purchase or sale; the related party’s appointment to an office or place of profit in the company, its subsidiary or associate; and underwriting the subscription of the company’s securities.

Is Board approval enough?

The Board’s consent at a meeting is required for every such contract. Where the paid-up capital or the value of the transaction exceeds the prescribed amounts, the company’s prior approval by resolution is also needed, and no member who is a related party can vote on it.

When is section 188(1) not applicable?

To transactions in the ordinary course of business that are on an arm’s length basis, and to transactions between a holding company and its wholly owned subsidiary whose accounts are consolidated with it and placed before shareholders at the general meeting (the requirement of a shareholders’ resolution is not applicable to them).

What happens if the contract is entered into without approval?

If it is not ratified by the Board or the shareholders within three months from the date it was entered into, it is voidable at the option of the Board or the shareholders, and the concerned directors must indemnify the company against any loss where the contract is with a related party to a director or was authorised by another director.

What is the penalty?

A director or employee who entered into or authorised the contract in violation is liable to a penalty of Rs 25 lakh in a listed company and Rs 5 lakh in any other company.

What must a director disclose?

At the first Board meeting in which he participates, and at the first meeting of each financial year (and after any change), his concern or interest in other companies, bodies corporate, firms and associations. A director interested in a contract must disclose the nature of the interest at the Board meeting and not participate. A contract entered into without such disclosure or with such participation is voidable at the company’s option, and the director is liable to Rs 1 lakh.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Loans, Guarantees and Investments by a Company: Sections 185 and 186 of the Companies Act, 2013

Posted on by CA Meet Dhrangadhariya

Last updated: 09 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Section 185 bars a company from lending to its directors, their relatives, partners and firms, or giving guarantee or security for their loans. A loan to a company in which a director is interested is allowed only with a special resolution and if the money is used for the borrower’s principal business.
  • Section 186 limits loans, guarantees, security and investments in other bodies corporate to 60% of paid-up capital, free reserves and securities premium, or 100% of free reserves and securities premium, whichever is more. Beyond that, a special resolution is needed.
  • Every such loan, investment, guarantee or security must be approved at a Board meeting by all directors present, and the loan interest rate cannot be below the prevailing government security yield for the tenor.
  • Penalties are heavy: Rs 5 lakh to Rs 25 lakh under section 185, and up to Rs 5 lakh for the company with up to two years for officers in default under section 186.

When a company lends money, gives a guarantee, or buys shares in another business, it is using funds that belong to its members and creditors. The Companies Act, 2013 therefore regulates two situations strictly: loans to directors and people close to them (section 185), and loans, guarantees, security and investments in other bodies corporate in general (section 186).

Section 185: loans to directors

The rule (section 185(1)). No company shall, directly or indirectly, advance any loan, including a loan represented by a book debt, or give any guarantee or provide any security in connection with any loan taken by:

  • any director of the company, or of a company that is its holding company, or any partner or relative of such a director; or
  • any firm in which such a director or relative is a partner.

Entities in which a director is interested (section 185(2)). A company may advance a loan, or give a guarantee or security, for any person in whom a director is interested, only if:

  1. a special resolution is passed in general meeting, with the explanatory statement disclosing the full particulars of the loan, guarantee or security, the purpose for which the recipient will use it, and any other relevant fact; and
  2. the loans are used by the borrowing company for its principal business activities.

A person “in whom a director is interested” means: a private company of which the director is a director or member; a body corporate in whose general meeting a director, or two or more directors together, can exercise or control at least 25% of the total voting power; or a body corporate whose Board, managing director or manager is accustomed to act on the directions of the lending company’s Board or of any of its directors.

Exceptions (section 185(3)). The prohibition and the special resolution requirement do not apply to:

  • a loan to a managing or whole-time director as part of the conditions of service extended to all employees, or under a scheme approved by members by special resolution;
  • a company that in the ordinary course of its business provides loans or gives guarantees or securities, and charges interest at a rate not less than the prevailing yield of the one year, three year, five year or ten year Government security closest to the tenor of the loan;
  • a loan by a holding company to its wholly owned subsidiary, or a guarantee or security by a holding company for a loan made to its wholly owned subsidiary; and
  • a guarantee or security by a holding company for a loan made by a bank or financial institution to its subsidiary.

The wholly owned subsidiary and subsidiary exceptions apply only if the subsidiary uses the money for its principal business activities.

Penalty (section 185(4)).

Who Penalty
The company Fine of Rs 5 lakh to Rs 25 lakh
Every officer in default Imprisonment up to six months, or fine of Rs 5 lakh to Rs 25 lakh
The director or other person who received the loan, guarantee or security Imprisonment up to six months, or fine of Rs 5 lakh to Rs 25 lakh, or both

Section 186: loans and investments in other bodies corporate

Layers of investment companies (section 186(1)). Unless otherwise prescribed, a company makes investments through not more than two layers of investment companies (with exceptions for acquiring a foreign company that has more layers under its own law, and for a subsidiary that must have an investment subsidiary under a legal requirement).

The ceiling (section 186(2)). No company shall directly or indirectly (a) give any loan to any person or other body corporate, (b) give any guarantee or provide security for a loan to any other body corporate or person, or (c) acquire securities of any other body corporate by subscription, purchase or otherwise, exceeding the higher of:

  • 60% of its paid-up share capital, free reserves and securities premium account; or
  • 100% of its free reserves and securities premium account.

“Person” does not include an individual in the employment of the company. The limit is measured on the aggregate of loans and investments made, and guarantees and security given, along with those now proposed (section 186(3)).

Going above the ceiling (section 186(3)). A further investment, loan, guarantee or security that takes the total over the limit needs prior authorisation by a special resolution in general meeting. The requirement does not apply to a loan, guarantee or security given by a company to its wholly owned subsidiary or a joint venture company, or to an acquisition by a holding company of securities of its wholly owned subsidiary; the details must still be disclosed in the financial statements.

Process and conditions.

  • Disclosure: full particulars of the loans, investments, guarantees and security, and the purpose for which the recipient will use them, must be disclosed in the financial statements (section 186(4)).
  • Board approval: the resolution must be passed at a meeting of the Board with the consent of all the directors present, and with the prior approval of the public financial institution concerned where any term loan is subsisting. That approval is not needed if the limit in section 186(2) is not exceeded and there is no default in repaying that institution (section 186(5)).
  • Interest rate floor: no loan can be given at a rate of interest lower than the prevailing yield of the one year, three year, five year or ten year Government Security closest to the tenor of the loan (section 186(7)).
  • Defaulting companies: a company in default in repaying deposits or interest on them cannot give any loan or guarantee, provide security or make an acquisition while the default continues (section 186(8)).
  • Register: a register of loans, guarantees, security and acquisitions is kept at the registered office, open to inspection, and members may take extracts (section 186(9) and (10)).
  • Entities registered with SEBI: a company registered under section 12 of the SEBI Act, 1992 and covered by the prescribed classes cannot take inter-corporate loans or deposits above the prescribed limit, and must give the details in its financial statements (section 186(6)).

Who is outside most of section 186 (section 186(11)). Except for the layer limit, the section does not apply to loans, guarantees, security or investments made by a banking company, an insurance company or a housing finance company in the ordinary course of business, or by a company set up to finance industrial enterprises or provide infrastructure facilities; nor to investments by an investment company, investments in shares allotted under section 62(1)(a) or in rights issues of a body corporate, nor to investment or lending by an NBFC registered with the RBI whose principal business is the acquisition of securities.

Penalty (section 186(13)). The company is punishable with a fine of Rs 25,000 to Rs 5 lakh, and every officer in default with imprisonment up to two years and a fine of Rs 25,000 to Rs 1 lakh.

Investments in own name (section 187). A company’s investments are made and held in its own name, with limited exceptions such as shares held in a nominee’s name to keep a subsidiary above its minimum number of members, securities held through a depository, and securities deposited with bankers for collection or by way of security.

A checklist before the company lends or invests

  1. Is the borrower a director, relative, partner or a firm of a director? If yes, section 185 prohibits the loan unless an exception applies.
  2. Is the borrower a company in which a director is interested? Pass a special resolution with the full explanatory statement, and confirm the money goes to the borrower’s principal business.
  3. Compute the 60% and 100% limits on the latest audited figures, including all existing loans, investments, guarantees and security, and the new amount.
  4. Pass the Board resolution with the consent of all directors present; get the lender’s approval if a term loan is outstanding.
  5. Charge interest not below the Government Security yield for the tenor.
  6. Update the register and disclose in the financial statements.

Points to check

  • This post follows the Companies Act as published on India Code, including its amendments up to the footnotes in that edition. Rules prescribing the register, the inter-corporate loan limit and layer exceptions were not reviewed.
  • Exemptions for private companies and start-ups have been notified from time to time; check the current notifications before relying on one.
  • The statutory auditor reports on compliance with sections 185 and 186 under clause (iv) of the Companies (Auditor’s Report) Order, 2020.

Frequently asked questions

Can a company give a loan to its director?

Not under section 185(1). No company can directly or indirectly advance a loan, including a loan represented by a book debt, or give a guarantee or security for a loan, to any director of the company or of its holding company, any partner or relative of such a director, or any firm in which a director or relative is a partner. Section 185(3) lists exceptions.

What are the exceptions?

A loan to a managing or whole-time director as part of the conditions of service extended to all employees or under a scheme approved by members by special resolution; a company that lends in the ordinary course of its business at not less than the prevailing government security yield; a loan, guarantee or security by a holding company to or for its wholly owned subsidiary; and a guarantee or security by a holding company for a bank or financial institution loan to its subsidiary, where the money is used for the subsidiary’s principal business.

Can a company lend to a company in which a director is interested?

Yes, under section 185(2), if a special resolution is passed in general meeting (with full particulars in the explanatory statement) and the borrower uses the loan for its principal business activities.

What is the investment limit under section 186?

A company cannot give loans, guarantees or security to, or acquire securities of, other bodies corporate beyond 60% of its paid-up share capital, free reserves and securities premium account, or 100% of free reserves and securities premium, whichever is more, unless previously authorised by a special resolution passed in general meeting.

What approval is needed for each loan or investment?

A resolution at a Board meeting with the consent of all directors present, and the prior approval of the public financial institution concerned where a term loan is subsisting, unless the limits are not exceeded and there is no default to that institution.

What is the minimum interest rate on a loan?

Not lower than the prevailing yield of the one year, three year, five year or ten year Government Security closest to the tenor of the loan.

What are the penalties?

Under section 185: Rs 5 lakh to Rs 25 lakh on the company; imprisonment up to six months or Rs 5 lakh to Rs 25 lakh on every officer in default; and imprisonment up to six months or Rs 5 lakh to Rs 25 lakh or both on the borrower. Under section 186: Rs 25,000 to Rs 5 lakh on the company, and imprisonment up to two years and Rs 25,000 to Rs 1 lakh on every officer in default.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Key Managerial Personnel (KMP) under Section 203 of the Companies Act, 2013: Who They Are, Appointment, Vacancy and Penalty

Posted on by CA Meet Dhrangadhariya

Last updated: 09 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Key managerial personnel are the CEO or managing director or manager, the company secretary, the whole-time director and the Chief Financial Officer, plus any whole-time officer one level below the directors whom the Board designates, and any other officer the Rules prescribe.
  • Companies of the prescribed classes must have a whole-time managing director (or CEO or manager, and in their absence a whole-time director), a company secretary and a CFO.
  • They are appointed by a Board resolution that sets the terms, including the remuneration, and a vacancy must be filled by the Board within six months.
  • Default carries a company penalty of Rs 5 lakh and Rs 50,000 on every director and KMP in default, plus Rs 1,000 a day for continuing default up to Rs 5 lakh.

The Companies Act, 2013 treats a small group of senior officers as “key managerial personnel”, because they are the people through whom a company acts, and they carry personal responsibility. The definition is in section 2(51), and the duty to appoint them is in section 203.

Who is KMP (section 2(51))

  1. The Chief Executive Officer or the managing director or the manager;
  2. the company secretary;
  3. the whole-time director;
  4. the Chief Financial Officer;
  5. such other officer, not more than one level below the directors, who is in whole-time employment and is designated as KMP by the Board; and
  6. such other officer as may be prescribed.

Which companies must appoint them (section 203(1))

Every company belonging to such class or classes as may be prescribed must have the following whole-time key managerial personnel:

  • a managing director, or Chief Executive Officer, or manager, and in their absence, a whole-time director;
  • a company secretary; and
  • a Chief Financial Officer.

The classes of companies are set by the Rules, which were not reviewed for this post, so check the current Rules before concluding that a particular company is, or is not, covered.

Chairperson and MD or CEO

An individual cannot be appointed or reappointed as chairperson of the company (under the articles) and as managing director or CEO at the same time, unless (a) the articles provide otherwise, or (b) the company does not carry multiple businesses. The restriction does not apply to notified classes of companies engaged in multiple businesses that have appointed one or more CEOs for each business.

How KMP are appointed (section 203(2))

A whole-time KMP is appointed by a resolution of the Board that contains the terms and conditions of the appointment, including the remuneration.

One company only (section 203(3))

  • A whole-time KMP cannot hold office in more than one company at the same time, except in its subsidiary company.
  • A KMP can be a director of any company with the permission of the Board.
  • A company may appoint as its managing director a person who is the managing director or manager of one, and not more than one, other company, if the appointment is made or approved by a resolution at a Board meeting with the consent of all directors present, and specific notice of the meeting and of the resolution has been given to all directors then in India.

Filling a vacancy (section 203(4))

If the office of any whole-time KMP is vacated, the Board must fill the vacancy at a Board meeting within six months of the date of the vacancy.

Penalty (section 203(5))

If a company defaults in complying with section 203:

Who Penalty
The company Rs 5 lakh
Every director and KMP of the company in default Rs 50,000
Continuing default A further Rs 1,000 for each day after the first, subject to a maximum of Rs 5 lakh

Practical points

  • Make a list of the company’s KMP, with the date of appointment and the Board resolution reference, and keep it with the statutory registers.
  • Track the six month period from the day a KMP resigns or leaves, and diarise the Board meeting that will fill the vacancy.
  • If the company designates another officer as KMP under clause (v), the Board resolution should say so, and the officer must be in whole-time employment and not more than one level below the directors.
  • Before appointing a CFO or company secretary, check whether the person already holds a KMP post elsewhere.

Points to check

  • This post follows the Companies Act as published on India Code, including amendments up to the footnotes in that edition. The thresholds that decide which companies must have KMP, the qualifications of the company secretary, and the filing of forms on appointment or resignation are in the Rules and are not reproduced here.
  • A listed company is also subject to the SEBI listing regulations on senior management and compliance officers.

Frequently asked questions

Who are key managerial personnel?

The Chief Executive Officer or managing director or manager; the company secretary; the whole-time director; the Chief Financial Officer; such other officer, not more than one level below the directors, who is in whole-time employment and is designated as KMP by the Board; and such other officer as may be prescribed.

Which companies must appoint whole-time KMP?

Every company belonging to the classes prescribed by the Rules must have a managing director or CEO or manager (and in their absence a whole-time director), a company secretary and a Chief Financial Officer. Check the current Rules for the thresholds.

How is a KMP appointed?

By a resolution of the Board containing the terms and conditions of the appointment, including the remuneration.

Can a KMP hold office in more than one company?

A whole-time KMP cannot hold office in more than one company at the same time, except in its subsidiary. A KMP may be a director of any company with the Board’s permission. A company can appoint as managing director a person who is managing director or manager of not more than one other company, with a Board resolution passed with the consent of all directors present.

How long can a KMP post stay vacant?

The Board must fill a vacancy in the office of a whole-time KMP at a Board meeting within six months from the date of the vacancy.

Can the chairperson also be the MD or CEO?

Not at the same time, unless the articles provide otherwise or the company does not carry multiple businesses. A class of companies with multiple businesses that has appointed one or more CEOs for each business, as notified, is outside the restriction.

What is the penalty for default?

The company is liable to a penalty of Rs 5 lakh. Every director and KMP in default is liable to Rs 50,000, and for a continuing default a further Rs 1,000 for each day after the first, up to Rs 5 lakh.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Board Meetings under Sections 173 to 175 of the Companies Act, 2013: Number, Notice, Quorum and Resolution by Circulation

Posted on by CA Meet Dhrangadhariya

Last updated: 09 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Every company holds its first Board meeting within 30 days of incorporation and at least four Board meetings every year, with a gap of not more than 120 days between two meetings.
  • A One Person Company, small company and dormant company are treated as compliant with one meeting in each half of the calendar year, at least 90 days apart.
  • Notice is at least seven days in writing to every director (shorter notice is allowed for urgent business if an independent director is present). Quorum is one-third of the total strength or two directors, whichever is higher.
  • A resolution by circulation needs approval by a majority of the directors entitled to vote, and must be decided at a meeting if one-third of the directors ask for that.

The Board of Directors is where a company’s day-to-day governance happens, so the Companies Act, 2013 sets a minimum rhythm of meetings, a notice period, a quorum and a way to pass urgent resolutions without meeting. These are sections 173 to 175 in Chapter XII.

How often (section 173(1))

  • The first Board meeting within 30 days of the date of incorporation.
  • After that, a minimum of four meetings every year, with not more than 120 days between two consecutive meetings.
  • The Central Government can by notification exempt a class of companies or apply the rule with modifications.

One Person Company, small company and dormant company (section 173(5))

These are treated as having complied if at least one meeting is held in each half of a calendar year and the gap between the two meetings is not less than 90 days. Sections 173 and 174 do not apply at all to a One Person Company that has only one director.

Attending by video conferencing (section 173(2))

Directors may participate in person or through video conferencing or other audio visual means, as prescribed, which can record and recognise their participation and record and store the proceedings with date and time. The Central Government can specify matters that cannot be dealt with this way; even for those matters, if there is a quorum through physical presence, another director may join by video conferencing.

Notice (section 173(3) and (4))

  • At least seven days’ written notice to every director at the address registered with the company, sent by hand delivery, post or electronic means.
  • Shorter notice is allowed to transact urgent business, provided at least one independent director (if the company has one) is present. If no independent director attends, the decisions are circulated to all directors and become final only when ratified by at least one independent director.
  • An officer whose duty it is to give notice and who fails to do so is liable to a penalty of Rs 25,000.

Quorum (section 174)

  • One-third of the total strength of the Board or two directors, whichever is higher. A director attending by video conferencing counts. A fraction is rounded up to one, and vacant seats are not part of the “total strength”.
  • Vacancies: continuing directors can act, but if their number falls below the quorum they can act only to increase the number of directors to the quorum, or to call a general meeting.
  • Interested directors: if the number of interested directors is two-thirds or more of the total strength, the directors who are not interested and present, being not less than two, form the quorum.
  • No quorum: unless the articles provide otherwise, the meeting automatically stands adjourned to the same day, time and place in the next week, or, if that day is a national holiday, to the next day that is not a national holiday.

Resolution by circulation (section 175)

  • The resolution is circulated in draft, with the necessary papers, to all directors (or committee members) at their addresses registered with the company in India, by hand, post, courier or the prescribed electronic means.
  • It is passed if approved by a majority of the directors or members entitled to vote.
  • If not less than one-third of the total number of directors require that the resolution be decided at a meeting, the chairperson must put it to a meeting of the Board.
  • The resolution is noted at the next Board meeting and made part of its minutes.

Defects in appointment (section 176)

An act done by a person as a director is not invalid merely because it is later noticed that his appointment was defective, disqualified or had terminated. This protection does not cover acts done after the company has noticed the defect.

What if a company does not hold the meetings?

Section 173 itself provides a specific penalty only for failing to give notice (Rs 25,000). For other contraventions of the Act for which no penalty is provided elsewhere, section 450 provides a penalty of Rs 10,000 and a further Rs 1,000 for each day of continuing contravention, up to Rs 2 lakh for a company and Rs 50,000 for an officer in default. Confirm with your professional adviser which provision applies to your case.

A simple annual plan

Task Suggested timing
First meeting after incorporation within 30 days
Meetings through the year four or more, never more than 120 days apart
Notice at least seven days before, with agenda and papers
Circular resolution when a meeting is not practical; keep the signed approvals and note it at the next meeting
Minutes recorded and signed as the Act and the secretarial standards require

Points to check

  • This post follows the Companies Act as published on India Code, including its amendments up to the footnotes in that edition. The Secretarial Standard on Board Meetings (SS-1) adds procedural rules on notice, agenda, minutes and attendance that this post does not reproduce.
  • Listed companies and certain classes must also have committees and independent directors under sections 177, 178 and 149 and SEBI’s listing rules.

Frequently asked questions

How many Board meetings must a company hold in a year?

At least four, and not more than 120 days can pass between two consecutive meetings. The first meeting must be held within 30 days of incorporation.

Are there relaxations for small companies?

A One Person Company, small company and dormant company are deemed to comply if at least one Board meeting is held in each half of a calendar year with a gap of not less than 90 days between the two. Sections 173 and 174 do not apply to a One Person Company with only one director.

What notice is needed for a Board meeting?

Not less than seven days in writing to every director at the address registered with the company, by hand, post or electronic means. Shorter notice is allowed for urgent business if at least one independent director (if any) is present; if no independent director attends, the decisions are final only on ratification by at least one independent director.

Can directors attend by video conferencing?

Yes. Participation in person or by video conferencing or other audio visual means as prescribed is allowed, and such participation counts for quorum. The Central Government can specify matters that cannot be dealt with by video conferencing.

What is the quorum?

One-third of the total strength of the Board, or two directors, whichever is higher. Any fraction is rounded up to one, and vacant seats are not counted in total strength.

What if there is no quorum?

Unless the articles provide otherwise, the meeting stands adjourned to the same day, time and place in the next week, or if that is a national holiday, to the next day that is not a national holiday.

How does a resolution by circulation work?

The draft, with the necessary papers, is circulated to all directors at their registered addresses in India. It is passed if approved by a majority of the directors entitled to vote. If one-third or more of the directors require that it be decided at a meeting, the chairperson must put it to a meeting. It is noted at the next Board meeting and made part of the minutes.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Duties of Directors, Directorship Limit and Vacation of Office: Sections 165 to 168 of the Companies Act, 2013

Posted on by CA Meet Dhrangadhariya

Last updated: 09 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A person cannot be a director in more than 20 companies at the same time, and not more than 10 of them public companies. Dormant companies are not counted towards the 20, and a private company that is a holding or subsidiary of a public company counts as public for the limit of 10.
  • Section 166 sets the duties of a director: act within the articles, in good faith, with due care and independent judgment, avoid conflicts, no undue gain, no assignment of office. A breach is punishable with a fine of Rs 1 lakh to Rs 5 lakh.
  • The office becomes vacant on disqualification, absence from all Board meetings for twelve months, breach of the interest disclosure rules, conviction with at least six months imprisonment, removal, and others.
  • A director resigns by written notice; resignation takes effect from the date the company receives the notice or the date in the notice, whichever is later.

Directors run a company on behalf of its members, so the Companies Act, 2013 caps how many boards one person can sit on, lists the duties that every director owes, and says when the office ends. This post covers sections 165 to 168.

How many directorships (section 165)

  • No person can hold office as a director, including an alternate directorship, in more than 20 companies at the same time.
  • Of these, not more than 10 can be public companies. For this limit, a private company that is a holding or subsidiary of a public company is counted as a public company.
  • A directorship in a dormant company is not counted for the limit of 20.
  • The members of a company can, by special resolution, set a lower number of companies in which a director of that company may act as director.
  • Penalty: a person who accepts an appointment in violation of the section is liable to Rs 2,000 for each day after the first during which the violation continues, up to a maximum of Rs 2 lakh.

Duties of a director (section 166)

  1. Act in accordance with the articles of the company.
  2. Act in good faith to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and the protection of the environment.
  3. Exercise duties with due and reasonable care, skill and diligence, and independent judgment.
  4. Do not get into a situation where there is, or may be, a direct or indirect interest that conflicts with the interest of the company.
  5. Do not achieve or attempt to achieve any undue gain or advantage for yourself or your relatives, partners or associates. A director found guilty of undue gain must pay the company an amount equal to the gain.
  6. Do not assign your office; any assignment is void.

Penalty: a director who contravenes section 166 is punishable with a fine of not less than Rs 1 lakh, which may extend to Rs 5 lakh.

When the office becomes vacant (section 167)

The office of a director becomes vacant if he:

  • incurs any disqualification under section 164 (where the disqualification arises from default in filing financial statements or repaying deposits under section 164(2), the office is vacated in all companies other than the company in default);
  • absents himself from all Board meetings held during twelve months, with or without leave of absence;
  • acts in contravention of section 184 on contracts in which he is interested, or fails to disclose his interest;
  • is disqualified by an order of a court or the Tribunal;
  • is convicted by a court of any offence, whether or not involving moral turpitude, and sentenced to imprisonment for not less than six months. The office is not vacated for 30 days from the conviction or order, and not until an appeal or petition filed within that time (and any further appeal filed within seven days) is disposed of;
  • is removed under the Act; or
  • was appointed a director by virtue of an office or employment in the holding, subsidiary or associate company, and ceases to hold that office or employment.

A person who goes on acting as a director when he knows that the office has fallen vacant is punishable with a fine of Rs 1 lakh to Rs 5 lakh. A private company can add other grounds for vacation in its articles. If all directors vacate, the promoter, or in his absence the Central Government, appoints the required number of directors until the company appoints others in general meeting.

Resignation (section 168)

  • A director resigns by written notice to the company. The Board takes note, and the company informs the Registrar in the prescribed manner, time and form, and places the fact of resignation in the directors’ report laid at the next general meeting.
  • The director may also forward a copy of the resignation with detailed reasons to the Registrar within 30 days of the resignation.
  • The resignation takes effect from the date on which the notice is received by the company, or the date specified in the notice, whichever is later.
  • A director who has resigned remains liable for offences that occurred during his tenure.
  • If all directors resign, the promoter, or the Central Government in his absence, appoints directors until the company appoints them in general meeting.

A short checklist for a director

  1. Keep a list of the directorships you hold, and count public companies (and private subsidiaries of public companies) separately.
  2. Attend at least one Board meeting in every twelve months, since absence from all meetings vacates the office.
  3. Disclose your interest in contracts and arrangements as section 184 requires.
  4. Read the articles, and record the reasons and information on which you rely when you decide.
  5. When you resign, send written notice, keep proof of receipt, and file your own copy with reasons with the Registrar within 30 days if you want the reasons on record.

Points to check

  • This post follows the Companies Act as published on India Code, including amendments up to the footnotes in that edition. Rules on appointment, disclosure forms and filing times are in separate rules and forms, which this post does not reproduce.
  • For listed companies, SEBI’s listing regulations impose further limits on directorships and on independent directors.

Frequently asked questions

How many companies can a person be a director of?

Not more than 20 companies at the same time, including alternate directorships, and not more than 10 public companies. A dormant company is not counted for the limit of 20. A private company that is a holding or subsidiary of a public company counts as a public company for the limit of 10.

What is the penalty for holding too many directorships?

A person who accepts an appointment in violation of section 165 is liable to a penalty of Rs 2,000 for each day after the first during which the violation continues, up to a maximum of Rs 2 lakh.

Can a company have a lower limit?

Yes. Members may, by special resolution, specify a lesser number of companies in which a director of that company may act as director.

What are the main duties of a director?

To act in accordance with the articles, in good faith to promote the objects of the company for the benefit of its members as a whole and in the best interests of the company, its employees, shareholders, the community and the environment; to use due and reasonable care, skill and diligence and independent judgment; to avoid conflicts of interest; not to make undue gain; and not to assign the office.

What is the penalty for breach of directors’ duties?

A fine of not less than Rs 1 lakh, which may extend to Rs 5 lakh. A director who makes an undue gain must also pay the company an amount equal to the gain.

When does a director’s office become vacant?

On disqualification under section 164, absence from all Board meetings held in twelve months, breach of the rules on interest in contracts, disqualification by a court or Tribunal, conviction with imprisonment of at least six months, removal under the Act, or ceasing to hold the office in the holding, subsidiary or associate company by virtue of which he was appointed.

How does a director resign?

By written notice to the company. The Board takes note, the company informs the Registrar, and the director may also forward a copy with reasons to the Registrar within 30 days. The resignation takes effect on the date of receipt or the date given in the notice, whichever is later.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Corporate Tax Rates for Tax Year 2026-27: 25%, 22%, 15% Regimes, MAT at 14% and AMT

Posted on by CA Meet Dhrangadhariya

Last updated: 25 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A domestic company pays 25% if its turnover in tax year 2024-25 was up to ₹400 crore and 30% otherwise (Finance Act, 2026), or can opt for 22% under section 200 (earlier 115BAA); a new manufacturing company set up from 1 October 2019 that began production by 31 March 2024 can pay 15% under section 201 (earlier 115BAB).
  • The option under sections 199 to 201 must be exercised by the return due date and cannot be withdrawn; these companies give up most deductions and the related carry forward losses.
  • Minimum alternate tax is now 14% of book profit (earlier 15%), does not apply to a company that opted for section 200 or 201, and from 1 April 2026 gives no new credit; old MAT credit can be used up to 25% of tax payable.
  • Non-corporate persons claiming certain deductions pay alternate minimum tax at 18.5% of adjusted total income, with credit carried forward for 15 years.

A company’s tax depends on which regime it is in. For tax year 2026-27, the Income-tax Act, 2025 and the Finance Act, 2026 give a base rate and three concessional options, plus minimum alternate tax for companies that pay little regular tax. This post summarises them.

Base rates (Finance Act, 2026)

Company Rate
Domestic company whose total turnover or gross receipts in tax year 2024-25 did not exceed ₹400 crore 25%
Other domestic company 30%
Company other than a domestic company (foreign company) 35% on the balance of income (50% on specified old royalty and technical fee agreements)
Firm and local authority 30%

Surcharge (companies): domestic company, 7% if total income exceeds ₹1 crore and does not exceed ₹10 crore, and 12% above ₹10 crore; a company that opts for section 200 or 201, a flat 10%; foreign company, 2% above ₹1 crore up to ₹10 crore and 5% above ₹10 crore; and a firm 12% above ₹1 crore. Cess is 4%.

The concessional options

Section 200 (earlier 115BAA): 22%

Any domestic company may opt to pay 22%, if its total income is computed:

  • without the deductions under Chapter VIII (other than section 146 for new employment and section 148 for inter-corporate dividends), section 45(2) or 47(1)(b), or the sections listed in section 205(1)(a) to (g); and
  • without set-off of brought forward loss or depreciation attributable to those deductions (section 200(1)).

Those losses and depreciation are treated as having been given full effect, so they lapse (section 200(3)). The option:

  • must be exercised on or before the due date for the first return the company must file (section 200(5));
  • cannot be withdrawn once exercised (section 200(6)); and
  • becomes invalid from the year in which the company fails to meet the conditions, after which the general rules apply (section 200(2)).

MAT does not apply to a company that has exercised this option (section 206(1)(q)(ii)).

Section 201 (earlier 115BAB): 15% for new manufacturing companies

A domestic company engaged in manufacture or production of an article or thing can opt for:

Income Rate
Total income other than the items below 15%
Income not derived from or incidental to manufacturing or production, with no specific rate under other provisions (no expenditure deduction) 22%
Short-term capital gains on assets on which no depreciation is allowable 22%
Income deemed under section 205(4) 30%

Conditions: the option is exercised on or before the due date for the first return; the company was set up and registered on or after 1 October 2019; it commenced manufacturing or production on or before 31 March 2024; total income is computed without the deductions as for section 200; and the conditions in section 201(5) and section 205(2) are fulfilled. Because of the cut-off date for starting production, this option is closed for new companies.

Section 199: 25% for companies set up from 1 March 2016

A domestic company set up and registered on or after 1 March 2016, engaged only in manufacture or production (and research and distribution of its own products), may opt for 25%, if income is computed without the specified deductions. Since the base rate is 25% for companies up to ₹400 crore turnover, this option is mainly of historical interest. An option under section 199 can be exchanged for section 200 (section 199(4)).

Minimum alternate tax (section 206(1))

Where the tax on a company’s total income is less than the minimum alternate tax (MAT), the book profit is deemed to be total income and the company pays MAT.

  • Rate: 14% of book profit (reduced from 15% by the Finance Act, 2026, from 1 April 2026); 9% for a unit in an International Financial Services Centre earning in foreign exchange.
  • Not applicable to a company that has exercised the option under section 200(5) or 201(2), and to a company with life insurance business income taxed under section 194(1), among others.
  • Book profit is the profit in the statement of profit and loss as prepared under Schedule III of the Companies Act (or the governing enactment), increased by income tax and provision, reserves, provisions for unascertained liabilities, dividends, depreciation, deferred tax and other items listed in section 206(1)(c), and reduced by items such as depreciation (excluding revaluation depreciation), brought forward loss or unabsorbed depreciation (whichever is less), and the other deductions listed there.
  • A report from an accountant certifying the book profit is required before the specified date in section 63.

No new MAT credit; old credit

  • From 1 April 2026, MAT paid gives no credit: the clauses allowing credit for the excess of MAT over regular tax and its carry forward were omitted by the Finance Act, 2026. MAT is effectively a final tax.
  • Credit brought forward from the 1961 Act (section 115JAA) as on 31 March 2026 survives only for a domestic company that opts under section 200(5) or 201(2) for a tax year beginning on or after 1 April 2026. The credit can be set off up to 25% of the tax payable on the total income of the year, and the balance carried forward, but not beyond the 15th tax year from the year the credit first arose (section 206(3)).
  • A foreign company can set off its brought forward credit in a year when its tax exceeds MAT, within the same 15 year limit (section 206(4)).

Alternate minimum tax for non-corporates (section 206(2))

An assessee who is not a company and who claims a deduction under Chapter VIII-C (other than section 149) or section 46 pays alternate minimum tax (AMT) if regular tax is lower:

  • Rate: 18.5% of the adjusted total income; 15% for a co-operative society; 9% for an IFSC unit.
  • Adjusted total income: total income plus the deductions claimed under Chapter VIII-C and under section 46 (reduced by the depreciation allowable on the assets).
  • Does not apply to a person who has opted under section 203(5) or 204(2), a person taxed under section 202(1) (the default new regime), an individual, HUF, AOP or BOI whose adjusted total income is ₹20 lakh or less, and a specified fund.
  • Credit: the excess of AMT over regular tax is carried forward and set off when regular tax exceeds AMT, up to the 15th year, without interest.
  • A report in the prescribed form from an accountant is required before the specified date in section 63.

Choosing a regime

Question Section 200 (22%) Base rate (25% or 30%)
Deductions (for example, Chapter VIII, section 45(2)) Largely not available Available
Losses and unabsorbed depreciation attributable to those deductions Lapse Carried forward
MAT Not applicable Applies if regular tax is lower than 14% of book profit
Reversal Not possible N/A

For most companies without significant deductions, section 200 reduces the rate and removes MAT. A company with large brought forward losses from claimed deductions, or with big incentives, should compare before opting, because the option is irreversible.

Frequently asked questions

What is the corporate tax rate for tax year 2026-27?

For a domestic company, 25% if its total turnover or gross receipts in tax year 2024-25 did not exceed ₹400 crore, otherwise 30%; 22% under section 200 if it opts in; and 15% under section 201 for a qualifying new manufacturing company. A company other than a domestic company pays 35% (Finance Act, 2026). Add surcharge and 4% cess.

Who can opt for the 22% rate under section 200?

Any domestic company, by exercising the option on or before the due date for the first return it must file. It computes income without most deductions and without set-off of losses attributable to them, and cannot later withdraw the option.

What is the 15% rate under section 201?

A domestic company engaged in manufacture or production, set up and registered on or after 1 October 2019, which commenced production by 31 March 2024, and which meets the other conditions in sections 201 and 205. Other income is taxed at 22%, and certain short-term gains and deemed income at special rates.

What is MAT now?

Minimum alternate tax is 14% of book profit (9% for an IFSC unit), reduced from 15% from 1 April 2026. It applies where the company’s regular tax is less than the MAT, and does not apply to a company that has opted for section 200 or 201 (section 206(1)).

Can MAT credit still be claimed?

No fresh MAT credit arises from 1 April 2026, because the credit clauses were omitted. Credit brought forward from the 1961 Act can be set off by a domestic company that has opted under section 200 or 201, up to 25% of the tax payable, and within 15 years of the year in which it arose (section 206(3)).

What is alternate minimum tax?

A tax of 18.5% (15% for a co-operative society, 9% for an IFSC unit) on adjusted total income of a person other than a company who has claimed deductions under Chapter VIII-C or section 46, where regular tax is lower. It does not apply to a person taxed under section 202(1) or whose adjusted total income is up to ₹20 lakh (section 206(2)).

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

AGM and EGM under the Companies Act, 2013: Time Limits, Notice, Place, Requisition and Penalty for Default

Posted on by CA Meet Dhrangadhariya

Last updated: 09 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Every company except a One Person Company must hold an annual general meeting each year, with not more than 15 months between two AGMs. The first AGM is due within nine months of the first financial year end, and later AGMs within six months of the financial year end.
  • The Registrar can extend the time for an AGM (other than the first) by up to three months, for a special reason.
  • A general meeting needs at least 21 clear days notice, or shorter notice if 95% of the members entitled to vote consent in writing or electronically.
  • If the Board does not call an EGM within 21 days of a valid requisition by members holding one-tenth of the voting paid-up capital, the requisitionists can call it themselves. Default in holding an AGM is punishable with a fine up to Rs 1 lakh and Rs 5,000 a day.

General meetings are where the members of a company exercise their rights: they approve the accounts, appoint auditors and pass the major resolutions. The Companies Act, 2013 separates the yearly annual general meeting (AGM) from any other extraordinary general meeting (EGM) and sets strict timelines for both.

Annual general meeting: section 96

  • Who: every company other than a One Person Company holds an AGM every year, and calls it an AGM in the notice.
  • Gap between AGMs: not more than 15 months between one AGM and the next.
  • First AGM: within nine months from the closing of the first financial year. A company that holds its first AGM in this way need not hold an AGM in the year of its incorporation.
  • Every other AGM: within six months from the closing of the financial year. For a March year-end, that is by 30 September.
  • Extension: the Registrar can, for a special reason, extend the time for an AGM other than the first by up to three months.
  • Time and place: called during business hours (between 9 a.m. and 6 p.m.) on a day that is not a National Holiday, at the registered office or another place in the same city, town or village. An unlisted company may hold the AGM at any place in India if all members give consent in advance, in writing or electronically. The Central Government can exempt a company from this sub-section on conditions.

If the company does not hold an AGM

  • Tribunal (section 97): on a member’s application, the Tribunal can call or direct the calling of an AGM, and can direct that one member present in person or by proxy is a valid meeting. A meeting so held is treated as the AGM.
  • Other meetings (section 98): where it is impracticable to call, hold or conduct a meeting (other than an AGM) in the usual manner, the Tribunal can order how it is to be called, held and conducted.
  • Penalty (section 99): the company and every officer in default are punishable with a fine which may extend to Rs 1 lakh, and for a continuing default a further fine which may extend to Rs 5,000 for every day during which the default continues.

Extraordinary general meeting: section 100

  • The Board may call an EGM whenever it considers fit. An EGM is held at a place within India (except for a wholly owned subsidiary of a company incorporated outside India).
  • Requisition: members holding at least one-tenth of the paid-up share capital that carries the right to vote (or at least one-tenth of the total voting power, in a company without share capital) on the date the requisition is received can require the Board to call an EGM.
  • The requisition sets out the matters to be considered, is signed by the requisitionists and is sent to the registered office.
  • If the Board does not, within 21 days of receiving a valid requisition, proceed to call a meeting on a day not later than 45 days from the receipt, the requisitionists may call and hold the meeting themselves within three months of the requisition, in the same manner as the Board would.
  • The company reimburses their reasonable expenses, and deducts the sum from any remuneration under section 197 payable to the directors who were in default.

Notice of a meeting: sections 101 and 102

  • Period: not less than clear 21 days notice, in writing or by electronic mode as prescribed. “Clear” days exclude the day of giving the notice and the day of the meeting.
  • Shorter notice: allowed if consent is given in writing or electronically: for an AGM, by not less than 95% of the members entitled to vote; for any other general meeting, by members who are a majority in number and hold at least 95% of the voting paid-up share capital (or hold at least 95% of the total voting power, in a company without share capital).
  • Contents: the place, date, day and hour, and a statement of the business to be transacted.
  • Who gets the notice: every member, the legal representative of a deceased member or the assignee of an insolvent member, the auditors, and every director.
  • Accidental omission: the accidental omission to give notice to, or the non-receipt of notice by, any person entitled to it does not invalidate the proceedings.
  • Explanatory statement: each item of special business must have a statement of material facts annexed to the notice, including the nature of any interest of every director, the manager, other key managerial personnel and their relatives in that item.

A simple calendar for a March year-end company

Task Date
Financial year ends 31 March
AGM due (six months) 30 September
Last day to send the notice for a meeting on 30 September (21 clear days, excluding the day of sending and the day of the meeting) 8 September
Registrar’s extension for a special reason by up to three months, so up to 31 December
Next AGM, at the latest within 15 months of the previous AGM

Points to check

  • Notice, e-voting, proxies, minutes and filing of the resolutions and annual return are covered by other sections and rules. This post covers the timing, place and notice rules in sections 96 to 102.
  • The text above follows the Companies Act as published on India Code, including its amendments up to the footnotes in that edition. The Ministry has at times extended AGM dates by general circular; check the MCA website for any relaxation that applies to your financial year.
  • Listed companies must also follow SEBI’s listing regulations on meetings.

Frequently asked questions

Within what time must a company hold its AGM?

The first AGM within nine months from the closing of the first financial year. Every later AGM within six months from the closing of the financial year, and not more than 15 months after the previous AGM.

Can the AGM date be extended?

Yes. The Registrar may, for a special reason, extend the time for any AGM other than the first by a period not exceeding three months.

Does a One Person Company hold an AGM?

No. Section 96 applies to every company other than a One Person Company.

What is the notice period for a general meeting?

Not less than clear 21 days, in writing or by electronic mode. A shorter notice is valid if, for an AGM, not less than 95% of the members entitled to vote consent in writing or electronically.

Where can an AGM be held?

During business hours (9 a.m. to 6 p.m.) on a day that is not a National Holiday, at the registered office or at some other place within the city, town or village of the registered office. An unlisted company may hold it at any place in India if all members consent in writing or electronically in advance.

How can members force an EGM?

Members holding at least one-tenth of the paid-up share capital that carries voting rights (or one-tenth of the voting power in a company without share capital) can requisition it. If the Board does not call the meeting within 21 days, for a date not later than 45 days from the requisition, the requisitionists can call it within three months.

What is the penalty for not holding an AGM?

The company and every officer in default are punishable with a fine up to Rs 1 lakh, and a further fine up to Rs 5,000 for every day of continuing default.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

CARO 2020: Applicability, Exemptions and the 21 Clauses of the Companies (Auditor’s Report) Order

Posted on by CA Meet Dhrangadhariya

Last updated: 09 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • CARO 2020 is an Order under section 143(11) of the Companies Act, 2013 that adds 21 matters to the statutory auditor’s report, for financial years starting on or after 01/04/2019. It replaced CARO 2016.
  • It does not apply to banking and insurance companies, Section 8 companies, one person companies, small companies, and a small private company with paid-up capital and reserves up to Rs 1 crore, borrowings up to Rs 1 crore and revenue up to Rs 10 crore (that is not a subsidiary or holding company of a public company).
  • For consolidated financial statements only clause (xxi) applies.
  • Where an answer is unfavourable or qualified, the auditor must state the basis.

Section 143(11) of the Companies Act lets the Central Government direct that the auditor’s report of specified companies include a statement on matters it lists. The Companies (Auditor’s Report) Order, 2020 (CARO 2020) is that direction. It supersedes the 2016 Order and applies to auditor’s reports for financial years commencing on or after 01/04/2019.

Who is covered

CARO 2020 applies to every company including a foreign company, except:

  1. a banking company;
  2. an insurance company;
  3. a company licensed under section 8 of the Companies Act (Section 8 company);
  4. a One Person Company and a small company; and
  5. a private limited company, not being a subsidiary or holding company of a public company, which has all of these: paid-up capital and reserves and surplus of not more than Rs 1 crore at the balance sheet date; no borrowings above Rs 1 crore from any bank or financial institution at any time in the year; and total revenue (as disclosed in Schedule III, including discontinued operations) of not more than Rs 10 crore in the year.

The Order does not apply to the auditor’s report on consolidated financial statements, except clause (xxi).

What the auditor must report: the 21 clauses of paragraph 3

Clause Subject
(i) Property, plant and equipment and intangibles: proper records, physical verification, title deeds of immovable property held in the company’s name, revaluation by a registered valuer (change of 10% or more), benami proceedings
(ii) Inventory: physical verification and discrepancies of 10% or more per class; for working capital limits above Rs 5 crore on security of current assets, whether quarterly returns agree with the books
(iii) Investments, guarantees, security and loans: amounts, terms not prejudicial, repayment schedule, overdues above 90 days, renewals to settle overdues, loans repayable on demand or without terms and loans to promoters and related parties
(iv) Compliance with sections 185 and 186 on loans, investments, guarantees and security
(v) Deposits: compliance with RBI directions and sections 73 to 76 and orders of tribunals or courts
(vi) Cost records under section 148, where specified
(vii) Statutory dues (GST, PF, ESI, income-tax and others): regularity of deposit, arrears over six months, and disputed dues with the forum
(viii) Unrecorded transactions surrendered or disclosed as income in tax assessments
(ix) Borrowings: defaults to lenders (in the prescribed format), wilful defaulter status, end use of term loans, short term funds used for long term, funds taken for obligations of subsidiaries, associates or joint ventures, and loans raised on pledge of their securities
(x) Public issues and preferential allotments or private placements: use of funds and compliance with sections 42 and 62
(xi) Fraud: any fraud by or on the company, whether Form ADT-4 report under section 143(12) was filed, and whistle-blower complaints considered
(xii) Nidhi companies: net owned funds to deposits ratio of 1:20, ten per cent unencumbered term deposits, defaults on deposits
(xiii) Related party transactions: compliance with sections 177 and 188 and disclosure in the financial statements
(xiv) Internal audit system commensurate with the size and nature of business, and whether the internal auditors’ reports were considered
(xv) Non-cash transactions with directors or connected persons and section 192
(xvi) NBFC and housing finance activity: registration under section 45-IA of the RBI Act, activity without a certificate of registration, status as a Core Investment Company and number of CICs in the group
(xvii) Cash losses in the year and the preceding year
(xviii) Resignation of statutory auditors during the year and whether the issues raised by the outgoing auditor were considered
(xix) Whether the auditor believes no material uncertainty exists about the company meeting its liabilities as they fall due within one year of the balance sheet date
(xx) CSR: transfer of unspent amount to a Schedule VII fund within six months, and to a special account for an ongoing project (section 135(5) and (6))
(xxi) Consolidated statements: qualifications or adverse remarks in the CARO reports of the companies included, with details of each company and paragraph

Unfavourable or qualified answers

Where the answer to any matter in paragraph 3 is unfavourable or qualified, the report must also state the basis for that answer (paragraph 4).

Practical points for companies

  • Keep documents ready for the clauses that need evidence: title deeds, stock count records, quarterly returns filed with banks, loan registers, statutory dues ageing, the list of related party transactions, the internal audit reports, and CSR bank account records.
  • The auditor will ask about any ADT-4 filing, resignation of the previous auditor, whistle-blower complaints and defaults to lenders, because these have their own clauses.
  • A company that is out of the Order because of the small private company exemption should test the three limits at each balance sheet date, because crossing any of them brings it under the Order for that year.
  • The clause numbers above follow the text of the Order. The ICAI has issued guidance notes and later clarifications on how to report; use the current ICAI guidance for the working papers.

Points to check

  • This post follows the text of the Order as published by the Ministry of Corporate Affairs. Amendments after that text, if any, were not reviewed.
  • The Order sits alongside section 143(3) reporting and Rule 11 of the Audit and Auditors Rules, which add their own items (such as the audit trail statement).

Frequently asked questions

What is CARO 2020?

The Companies (Auditor’s Report) Order, 2020, made by the Central Government under section 143(11) of the Companies Act, 2013 after consulting the NFRA. It requires the auditor’s report to include a statement on the matters in paragraph 3 of the Order.

From when does it apply?

To the auditor’s report for financial years commencing on or after 01/04/2019. It superseded the Companies (Auditor’s Report) Order, 2016.

Which companies are exempt?

Banking companies, insurance companies, Section 8 companies, one person companies, small companies, and a private company that is not a subsidiary or holding company of a public company and has paid-up capital and reserves of not more than Rs 1 crore, borrowings from banks and financial institutions of not more than Rs 1 crore at any time in the year, and total revenue of not more than Rs 10 crore.

Does CARO 2020 apply to consolidated financial statements?

Only clause (xxi), which asks for qualifications or adverse remarks in the CARO reports of the companies included in the consolidation.

What if the answer to a clause is unfavourable?

The auditor must state the basis for the unfavourable or qualified answer.

Does the Order cover a foreign company?

Yes. It applies to every company including a foreign company, except those listed in the exemptions.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.