Director’s Report 2013

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With application of Companies Act 2013, Director’s report, which is a part of Annual Report has to contain certain disclosures mandatorily. There are, however no restrictions on voluntary disclosures other than the ones mentioned below.

A list of the disclosures is mentioned hereunder:

The Directors Report should contain the following mandatory information:—

1. Extract of the Annual Return under Section 92.
2. The number of meetings of the Board.
3. Directors' Responsibility Statement, which shall state as under—
• That the applicable accounting standards are followed in preparation of FS plus explanation relating to material departures therefrom
• The directors selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent enough to give a true and fair view of state of affairs
• The directors had taken proper and sufficient care for the maintenance of appropriate financial records as per provisions of this Act for safeguarding the assets of the company and for preventing and detecting frauds and other irregularities
• The directors had prepared the annual accounts on a going concern basis
• The directors, in the case of a listed company, had laid down internal financial controls to be followed by the company and that such internal financial controls were adequate and were operating effectively.
• The directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
4. A statement on declaration given by Independent Directors under sub-section (6) of Section 149. it is the duty of an Independent Director to disclose given points in his statement which shall be annexed with the Directors Report. As per Section 149(10), every independent director shall be appointed for a term of five years but shall be eligible for re-appointment by passing of special resolution by the shareholders of the Company. In that event, the company must disclose the appointment or re-appointment of the independent director in the Boards' Report. In case of a company covered under sub-section (1) of Section 178, company's policy on director's appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under sub-section (3) of Section 178.
5. As per Section 178 (1), listed companies have to constitute Nomination and Remuneration Committee which should have 3 or more Non Executive Directors, of which at least one should be Independent Director, who will identify persons qualified to become directors and and eligible to be appointed in senior management. They will recommend to the Board their appointment, removal and evaluation report of every director's performance. As per section 178(3), Committee decide criteria for determining qualifications, independence of a director etc. and suggest a policy to the Board regarding the remuneration of the directors, key managerial personnel and other employees. This committee shall ensure that : (a) the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of quality required to run the company successfully, (b) relationship of remuneration to performance is clear and meets appropriate performance benchmarks, and (c) remuneration to directors, key managerial personnel and senior management involves a balance between the fixed and incentive pay reflecting short and long-term performance of objects appropriate to the working of the company and its goals. Such policy shall be disclosed in the Directors' Report.
6. Explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his Report.
7. Particulars of loans, guarantees or investments under Section 186.
8. Particulars of contracts or arrangements with related parties referred to in sub-section (1) of Section 188 in the prescribed form.
9. Material changes and commitments, which have or may have impact on financial reporting of the company, if they have occurred between the end of the financial year of the company to which the financial statements relate to and the date of the Report.
10. The amounts, which it proposes to carry to reserves.
11. The amount, which it recommends should be paid by way of dividend.
12. The state of the company's affairs-snap shot of financial information.
13. The conservation of energy, technology absorption, foreign exchange earnings and outgo.
14. A statement indicating development and implementation of risk management policy for the company, including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company? It should contain a statement which shows the development and implementation of risk management policy of the company. Since there is no specific definition of Risk Management under the Companies Act, 2013, this should cover : (a) meaning and definition of Risk Management, (b) Type of risks, (c) Risk assessment, (d) Risk identification, (e) Risk handling or mitigation of risks, (f) Monitoring and Reporting, (g) Conclusion.
15. In case of a listed company and every other public company having paid-up share capital as may be prescribed, a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its Committees and individual directors. All listed companies and other prescribed public limited companies have to attach a statement with the Directors' Report relating to evaluation of the performance of the Board and its Committees and its individual directors.
16. Every listed company shall disclose in the Board's Report the ratio of the remuneration of each director to the median employee's remuneration and such other details as may be prescribed.
17. As per Section 177(9), every listed company or such class or classes of companies, as may be prescribed shall establish a vigil mechanism for directors and employees to report genuine concerns in such manner as may be prescribed. This mechanism would safeguards against victimization of persons who use such mechanisms and make provision for direct access to the Chairperson of the Audit Committee in appropriate or exceptional cases. It also mandates that the details of establishment of such mechanism shall be disclosed in the website, if any, and in the Board's Report.
18. The details about the policy developed and implemented by the company on Corporate Social Responsibility initiatives taken during the year. As per Section 135, certain companies (turnover above a given threshold) are required to spend 2% of Average Net Profits on corporate social responsibilities. Average Net profits would be of the immediately preceding three years on CSR activities and if not so spent, its explanation is required to be reported in the Directors' Report.
19. As per Section 177(14), any director who is in receipt of any commission from the company and who is a managing or whole-time director of the company shall not be disqualified from receiving any remuneration or commission from any holding company or subsidiary company of such company if the same fact is well disclosed in the Board's Report.
20. Section 204 mandates listed companies and companies which are having paid-up share capital of more than Rs.100 cores to have a Secretarial Audit. Provisions of clause 49-C(iii) of the Listing Agreement with the Stock Exchanges also states that the Board shall periodically review legal compliance reports prepared by the company as well as steps taken by the company to cure instances of non-compliances. Such companies are required to attach a Secretarial Audit Report which is issued by a Company Secretary in Practice with its Board's Report.
21. Management Discussion and Analysis report forms part of the Annual Report to the shareholders. This Management Discussion & Analysis with discussion on the matters below considering competitive position:—
• Industry structure and developments.
• Opportunities and Threats.
• Segment-wise or product-wise performance.
• Outlook
• Risks and concerns.
• Internal control systems and their adequacy.
• Discussion on financial performance with respect to operational performance.
• Material developments in Human Resources/Industrial Relations front, including number of people employed.