November the 8^th, 2016, had been a crucial day in the history of Indian Financial System when the Prime Minister of India announced the ban of currency notes of Rs.500 and Rs.1000. This has been a big blow to the group of individuals and companies who were operating illegally behind a veil turning black money into white. Following the ban of specified currency notes, Ministry of Corporate Affairs (MCA), Serious Fraud Investigation Office (SFIO), Income Tax (IT), and Central Bureau of Investigation (CBI) severally axed many such entities and individuals. SFIO came down tough on shell companies which were operating from various parts of the country and listed many such name of companies which were into fraudulent businesses. 

 

The government cracked the whip and made it more stringent by imposing restriction on cash transactions to curb the black money market. 

 

While the currency saga was nearing its end after demonetization, the Ministry of Corporate Affairs (MCA) came out with a notification dated 30^th March, 2017, and brought in a strict amendment in preparation of financial statements that is required to be made as per Schedule III of the Companies Act, 2013.

 

The Notification mainly stresses on the disclosures that should be made by a Company in the Annual Financial Statements for the Financial Year 2016-17. This movement indicates that the government wants to go head-on to detect if any companies indulged into malpractices.

 

The Notification issued by the Ministry of Corporate Affairs dated 30^th March, 2017 reads as follows:

G.S.R. 308(E) — In exercise of the powers conferred by sub-section (1) of section 467 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following further amendments to Schedule III of the said Act with effect from the date of publication of this notification in the Official Gazette, namely:-

2. In the Companies Act, 2013 (hereinafter referred to as the principal Act), in Schedule III, in Division I, in Part I under the heading “General instructions for preparation of Balance Sheet” in paragraph 6, after clause ‘W’, the following clause shall be inserted namely:-

“X. Every company shall disclose the details of Specified Bank Notes (SBN) held and transacted during the period from 8^th November, 2016 to 30^th December, 2016 as provided in the Table below:-

	SBNs	Other denomination notes	Total
Closing cash in hand as on 08.11.2016
(+) Permitted receipts
(-) Permitted payments
(-) Amount deposited in Banks
Closing cash in hand as on 30.12.2016

 

Explanation: For the purposes of this clause, the term ‘Specified Bank Notes’ shall have the same meaning provided in the notification of the Government of India, in the Ministry of Finance, Department of Economic Affairs number S.O. 3407(E), dated the 8th November, 2016.”.

3. In the  principal  Act,  in  Schedule  III,  in  Division  II,  in  Part  I  under  the  heading  “General instructions  for  preparation  of  Balance  Sheet”  in  paragraph  6,  after  clause  ‘J’,  the  following  clause shall  be inserted namely:-  

“K. Every  company  shall  disclose  the  details  of  Specified  Bank  Notes  (SBN)  held  and  transacted during the period 08/11/2016 to 30/12/2016 as provided in the Table below:-

	SBNs	Other denomination notes	Total
Closing cash in hand as on 08.11.2016
(+) Permitted receipts
(-) Permitted payments
(-) Amount deposited in Banks
Closing cash in hand as on 30.12.2016

 

Explanation: For the purposes of this clause, the term ‘Specified Bank Notes’ shall have the same meaning provided in the notification of the Government of India, in the Ministry of Finance, Department of Economic Affairs number S.O. 3407(E), dated the 8th November, 2016.”

 

The crux of the notification lies on point ‘X’ and ‘K’; it clearly states every company shall disclose the details of Specified Bank Notes (SBN) held and transacted.  Thus, even if a company did not hold currency of Rs.500/- or Rs.1000/- but transacted the same, during the period 8^th  November, 2016 to 30^th December, 2016, it shall tantamount to held and transacted and hence the details have to be furnished as per the notification.

 

The Ministry of Corporate Affairs also amended Companies (Audit and Auditors) Rules, 2014, and inserted clause (d) in rule 11, namely:-

“(d) whether the company had provided requisite disclosures in its financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016 and if so, whether these are in accordance with the books of accounts maintained by the company.”

 

By doing this, the government has taken a step further and threw the ball in the court of the Auditor making it compulsory for the auditors to bring such information to light in the Auditor Report for the Financial Year ended 31^st March, 2017.

 

Although, the penalty for misinformation has not been notified however it is to be noted that Section 448 of the Companies Act 2013 provides for penal provisions for making false information in the financial statements and accordingly every person shall be punished as per Section 447 of the Companies Act, 2013, which might lead to imprisonment upto 10 years and fine which shall not be less than the amount involved in fraud, and may extend to three times the amount involved in fraud or both.

 

Post demonetization this has been one of the major moves by the government to tackle the black money menace. The notification will force the companies to make disclosures with respect to Specified Bank Notes (SBN) which is indeed going to make the job tougher for the companies and the auditors and hence the parties need to be extra careful while preparing their financials. 

 

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