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    SBS DIGEST E Journal July 2017

    Key Topics Covered:

    • AUDIT


    • COMPANIES ACT, 2013

    This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

    SBS WIKI E Journal July 2017

    Key Topics Covered:

    • AUDIT
    • COMPANIES ACT, 2013

    This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

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    In our country construction and infrastructure industry is one of the major sector employing over 9 million workers in the construction activity and this sector plays a pivotal role in the development and progress of the nation and its economy. The workers in this sector are mostly migrant in nature and vulnerable unorganised labour. The nature of work is also characterized by inherent risk to the life and limb of the workers. The work is casual nature and has a very temporary employer employee relationship for short durations. In most of cases, they work through contractors and sub-contractors and they do not have any direct relationship with the principal employer or owner of the project. The project construction works are normally associated with uncertain working hours, lack of basic amenities and inadequacy of welfare facilities. Keeping in view these conditions, the BOCWAct and BOCW Welfare Cess Act have been brought into place by the legislature.


    The BOCWA has defined building or other construction work as the construction, alternation, repairs,maintenance or demolition of or, in relation to, buildings,streets, roads, railways, tramways, airfields, irrigation,drainage, embankment and navigation works, floodcontrol works (including storm water drainage works),generation, transmission and distribution of power,water works (including channels for distribution ofwater), oil and gas installations, electric lines, ……………..but does not include


    any building or other construction work to whichthe provisions of the Factories Act, 1948 (63 of 1948), orthe Mines Act, 1952 (35 of 1952), apply.


    In view of the exclusion of construction work to which the provisions of the Factories Act, 1948 is applicable, the green field factories which are under construction have claimed that the BOCWA and Cess Act will not be applicable to them as the Factory Building plans are approved by the Director of Factories and the construction work is undertaken in accordance with the said approvals by the Director of Factories. Though the factory is under construction it has submitted itself to the control and supervision of the Director of Factories.


    These contentions were reached the Supreme Court and finally it is now a settled law that the factories during the period of construction are not qualified to be termed as ‘Factory’ and they are covered under BOCWA and Cess Act.


    Let us look at the rationale behind this decision. The Factories Act has defined a Factory as any premises including precincts thereof where ten or more workers are working with the aid of power in any part of which a manufacturing process is being carried on. The key issue in the definition is that there should be ‘manufacturing process’.


    The factories act has defined manufacturing process as any process for making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting anyarticle or substance with a view to its use, sale, transport, delivery or disposal… The construction of the factory is not falling within the definition of ‘manufacturing process’.








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    In addition to the requirement of carrying manufacturing process, to qualify as a factory, there is a requirement of number of workers and operations with the aid of power. The Act defined worker as a person employed in any manufacturing process or in cleaning any part of the machinery or premises used for a manufacturing process or in any other kind of work incidental to or connected with the manufacturing process.


    When there is no manufacturing process, there can be no worker covered under the Factories Act during the period of construction of a factory.


    The new factories during the period of construction do not have any ‘manufacturing process’ and also do not have any worker in accordance with the provisions of the factories act and hence the factory during the period of construction is not covered under Factories Act and it is not a factory till it commences ‘manufacturing process’.


    In view of the above, all the factories during the period of construction are required to be registered and BOCWA and also remit cess in accordance with the provisions of the BOCW Welfare Cess act.


    Now the question remind unanswered is whether cess is payable on the total cost of the project that is including the cost of the machinery in addition to cost of civil construction cost. The authorities implementing the BOCW WelfareCess act are insisting payment on the total project cost of the factory including the cost of the machinery etc.,


    In common parlance, installation of machinery is known as erection and commissioning and not construction. Now the future litigation is likely to be on these aspects with regard to the assessment of cess liability.


    In a matter relating to the welfare cess, the Supreme Court expressed its anguish with regard to collection of over Rs. 27,000 crores as cess and not utilising the same for the purpose for which it is collected under act. It also expressed its view that the money, which should have been spent on the welfare of the labourers, was being spent on administration and advertisements, while the workers are condemned to live miserable life. The bench noted that it was extremely disturbed to find that the poorer people are not getting any benefits from the welfare measure.


    The schemes implemented by A.P.Building & Other Construction Workers Welfare Board are: ( i ) Personal Accidental Death Relief, ( ii ) Permanent Disability Relief, ( iii) Natural Death Relief, ( iv) Maternity Benefit, (

    1. Temporary disability Relief (hospitalisation charges), ( vi) Funeral Expenses, ( vii) Marriage Gift, ( viii) Reimbursement of training in safety and skill development expenses, ( ix) Matching contribution towards Pension Scheme. (x) Vocational training to dependents. In its scheme the Welfare Board has extended support to unregistered workers also in case of accidental death and permanent disability.


    While the observations made by the apex court are very true, the establishments engaged in construction activity should take up the responsibility of registering the beneficiaries that is the construction workers and assist them to claim the benefits provided under different schemes by the Government under the BOCW Act.



    All are aware that pursuant to the provisions of Section 248 of the Companies Act, 2013, notices have been received from the Registrar of Companies, by those companies which have not commenced its business or is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under section 455, and responses were sought from such companies within 30 days, failing which the name of the said Company would be removed from the Register of Companies. 

    After giving reasonable time, the Registrar of Companies, have removed the names of the Companies, which have not responded to their notice, or which have not updated their returns with the ROC, and accordingly the status of the said companies stands changed to “Struck-off”, in the Master Data of the said Companies, as appearing in the MCA Portal. 


    All are aware that on 05.06.2015, the Ministry had issued Four Notifications all Dt: 05.06.2015, vide which the Minstry has provided certain exemptions/modifications and adaptations as to certain provisions of the Companies Act, 2013 which are applicable to:


    èGovernment Companies

    èNidhiCompanies (Nidhis)


    èSection8Companies (Companies not for profit)


    Even after issue of the said notifications, there were/are many provisions under the Companies Act, 2013, that require relaxations, and upon the representations received by the Ministry, from the Trade and profession, as to difficulties in implementation, the Ministry has issued notification Dt:13.06.2017, providing further exemptions/modifications/adaptations applicable to:


    èGovernment Companies


    èSection8Companies (Companies not for profit)


    In this article, an effort is being made to look in to the further exemptions, modifications and adaptations to the provisions of the Companies Act, 2013, applicable to Private Limited Companies, as notified by the Ministry vide notification Dt:13.06.2017.
































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    Chapter/ Section number/ Sub-section(s) in the

    Exceptions/ Modifications/Adaptations, as the



    Companies Act, 2013 and Description of the

    may be, as per the Notification





    Section, under which the changes were proposed.

















    So  a  OPC,  Dormant  Company,





    Small Company and a Start-up



    èFinancialStatement, with respect to one person

    Company, being a Private Limited



    company, small company, dormant company and

    Company,  are  not  required  to



    private company (if such private company is a start-

    prepare Cash Flow Statement as



    up) may not include the cash flow statement;


    part of their Financial Statements



    Explanation: For the purposes of this Act, the term




    „start-up? or “start-up company” means a private




    company incorporated under the Companies Act, 2013




    (18 of 2013) or the Companies Act, 1956 (1 of 1956) and




    recognised  as  start-up  in  accordance  with  the




    notification issued by the Department of Industrial




    Policy and Promotion, Ministry of Commerce and













    Chapter V, Clauses (a) to (e) of sub-section (2) of



    Exemption to


    section 73 (Acceptance of deposits from its



    (a)  private  companies  which



    Shall not apply to private companies which:






    propose to accept monies from its


    [Modification to an existing exemption granted

    èacceptsfrom its members monies not exceeding

    members not exceeding 100 % of


    through notification Dt: 05.06.2015]

    100 % of aggregate of the paid up share capital, free

    aggregate of the Paid-up Share



    reserves and securities premium account; or


    Capital  and  Free  Reserves  and



    èwhichisastart-up, for five years from the date of its

    securities premium; or



    incorporation; or


    (b) Start-ups for a period 5 years



    èwhichfulfils  all  of  the  following  conditions,





    from the date of incorporation; or








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    (a) which is not an associate or a subsidiary

    (c) A company not being a associate



    company of any other company;

    or subsidiary of another company,




    with borrowings less than twice of



    (b) if the borrowings of such a company from

    its paid up share capital or Rs.50



    banks or financial institutions or any body

    Crores, whichever is lower, and has



    corporate is less than twice of its paid up share

    not defaulted in repayment   of



    capital or Rs.50 Crores, whichever is lower; and




    (c) such a company has not defaulted in the

    However, the details of deposits



    repayment of such borrowings subsisting at the

    accepted needs to be informed to



    time of accepting deposits under this section:

    the Registrar.



    Provided that the company referred to in clauses (A),




    (B) or (C) shall file the details of monies accepted to the




    Registrar in such manner as may be specified.







    Chapter VII, clause (g) of sub-section (1) of


    Disclosure as to the remuneration


    section 92 (Annual Return)


    drawn  by  the  directors  is  not



    Shall apply to private companies which are small

    required to be provided by Small


    New Exemption

    companies, namely:-

    Companies, in the Annual Return




    filed  with  the  Registrar  of



    “(g) aggregate amount of remuneration drawn by











    Chapter VII, proviso to sub-section (1) of section


    Exemption/Adaptation, to provide


    92 (Annual Return)

    For the proviso, the following proviso shall be substituted,

    that in case of a Start-up Private



    Company, the annual return shall


    New Exemption/Adaptation.



    Provided that in relation to One Person Company, small

    be signed by the CS, and if there is



    no CS, then by the Director of the



    company and private company (if such private company is




    a start-up), the annual return shall be signed by the



    company secretary, or where there is no company




    secretary, by the director of the company.”.








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    Chapter X, clause (i) of sub-section (3) of section



    Exemption to the Auditors





    143  (Powers  and  Duties  of  Auditors  and



    regard to disclosure in their report,


    Auditing  Standards)-  Internal  Financial

    Shall not apply to a private company:-

    as to presence of IFC, in Company,




    in relation to (a) a OPC or a small



    (i) which is a OPC or a small company; or

    company; or (b) Companies with


    New Exemption

    (ii) which has turnover less than Rs. 50 Crores, as per Turnover less than Rs. 50 Crores, or



    latest  audited  financial  statement  or  which

    has Borrowings from banks or financial



    aggregate  borrowings  from  banks  or  financial institutions or any Body Corporate,



    institutions or any body corporate at any point of time less than Rs.25 Crores.



    during the financial year less than Rs.25 Crores.”.











    Chapter XII, sub-section (5) of section 173





    (Meetings of the Board)


    relation to a Start-up Company, to



    For sub-section (5), the following sub-section shall be provide  that  holding  of  one


    New Exemption/Adaptation.

    substituted, namely:-

    meeting of the Board of Directors




    in each half of a calendar year, with


    • A One Person Company, small company, dormant e gap between the two meetings, company and a private company (if such private not less than 90 days, shall be in company is a start-up) shall be deemed to have compliance of Section 173. complied with the provisions of this section if at least


    one meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days:


    Provided that nothing contained in this sub-section and

    in section 174 shall apply to One Person Company in


    which there is only one director on its Board of Directors










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    Chapter  XII,  sub-section  (3)  of  section


    To provide for counting of the


    174.(Quorum for meetings of the Board)


    interest director for quorum, after



    Shall apply with the exception that the interested

    the said interested director has


    New Exemption

    director may also be counted towards quorum in such

    disclosed his interest as required



    meeting after disclosure of his interest pursuant to

    under Section 184.



    Section 184.






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