India Day Series - Citibank

May 2014

India Day Series Deep Dive Into The Companies Act, 2013

Webinar Schedule: 10.00-10.05

Michael Guralnick, Global Sales Head, Treasury & Trade Solutions: Opening Remarks

Slide 2

10.05-10.25

Sai Venkateshwaran, Partner & Head Accounting Advisory Services, KPMG; Nirav Patel, Director Accounting Advisory Services, KPMG: Changes in Companies Act and Impact on Corporates

Slide 3-14

10.25-10.35

Ravikumar R, CFO, IBM India: Challenges of Doing Business in India

Slide 15

10.35-10.40

Divyesh Dalal, India Sales Head of Treasury & Trade Solutions: Closing Remarks

Slide 16

Opening Remarks 10.00-10.05 A.M. (NY Time)

Speaker Michael Guralnick, Global Sales Head, Corporate & Public Sector, Treasury & Trade Solutions, Citi Mr. Guralnick’s principal activity is to lead and direct TTS’ global sales strategies for the bank’s Corporate & Public Sector clients including: new sales origination, cross-sell, and ensuring client satisfaction. Prior to his current role, Mr. Guralnick held senior management positions with Citi in Asia Pacific, EMEA and North America. Mr. Guralnick is a member of the UK Association of Corporate Treasurers, and the British American Business Inc and was named in Global Finance magazine’s annual list of Who’s Who in Treasury & Cash Management in 2012 . Mr. Guralnick earned a Master’s of Science in Foreign Service (MSFS) degree, from Georgetown University’s School of Foreign Service, in Washington D.C., where he graduated with Academic Honors. 2

Changes in Companies Act and Impact on Corporates 10.05-10.30 A.M. (NY Time) Speaker Sai Venkateshwaran, Partner & Head Accounting Advisory Services, KPMG Sai leads KPMG’s Companies Act initiatives and regularly interacts with the MCA on matters relating to the new corporate law. Sai has over 17 years of experience in public accounting and has specialized in financial reporting advisory services since 2004. He is a member of the Institute of Chartered Accountants of India. During the course of his career, Sai has advised a number of Indian and multinational companies on various engagements involving assurance services, accounting advisory services, forensic accounting services and due diligence reviews.

3

Roll Out Roadmap Draft Rules released in phases in 2013 for public comments

Companies Act receives Presidential assent

Consent of both Houses received- Lok Sabha (December 2012 ;

Rajya Sabha (Aug 2013)

Draft Rules released for public comments

Final Rules released for most chapters. Several changes from the draft rules.

Vast majority of Act effective 1 April 2014

Final Rules released

98 Sections made effective 12 September 2013 184 sections made effective 1 April 2014

Presidential Assent- Sep 2013

NCLT, NFRA related provisions to be notified

Key sections and rules still to be notified include those related to NCLT, NFRA, Registered Valuers, IEPF/ Unpaid dividend

As per latest MCA circular dated 04.04.14, provisions of the Companies Act, 2013 with regard to maintenance of books of accounts and preparation/adoption/filing of financial statements, auditors report, Board's report and attachments to such statements and reports- are effective from 1st April, 2014. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated wi th KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

4

Companies Act 2013: Capitalising on the wisdom of 57 years

Focus on

1. Change in 'Reporting Framework' 2. Higher 'Auditor Accountability‘

3. Increased Responsibility' ‘of Board, Independent Directors and Audit Committee 4. Push on 'Inclusive Agenda' (CSR) 5. Emphasis on 'Investor Protection‘

critical themes

6. ‘Ease in Restructuring’ of companies

Sweeping changes that raise the bar on the Governance Framework

© 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated wi th KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

5

Change in ‘Reporting Framework'

Greater flexibility to depreciate assets over their ‘useful lives’ instead of standard minimum rates

Change in definition of subsidiaries & associates – total share capital v. voting equity share capital; Total share capital also includes convertible preference capital

Inter-corporate loans – requirements have undergone a change

Directors report to also include “Internal Financial controls with respect to Financial statements” for listed and certain unlisted public companies-confusion for listed companies.

Treatment of subsidiaries of a foreign company


6

Higher ‘Auditor Accountability'

Mandatory auditor firm rotation – ten years ; applicable retrospectively

Prohibition on certain non-audit services – similar to Sarbanes-

Oxley

Auditor to report on internal controls on financial transactions, and financial transactions that have a material adverse effect

Reporting of all frauds to the Central Government within 60 days; including immaterial frauds


7

Change in requirements for Director appointments Limits on number of Directors

12

15

New Act

>15

Special Resolution

≥1 Director Resident in India for 182 days

Minimum of 2 Independent Directors

Listed



Unlisted (All)

Audit Committee

Nomination and remuneration committee

Women Director

*









-

-

-

-

Public Companies with Share Capital ≥ INR 10cr (INR 100cr for Women Directors)

-









Public Companies with Turnover ≥ INR 100cr (INR 300cr for Women Directors)

-









Public Companies with Loan/Debentures/ Deposits ≥ INR 50cr

-







-

Mandatory Appointment

*1/3rd Directors to be independent in case of listed companies Independent Directors also required for certain unlisted companies

Independent Directors liable to mandatory rotation- prospective application


Whistle blower mechanism – all listed and certain unlisted companies 8

‘Increased Responsibility' of Board, Independent Directors and Audit Committee

Independent Directors

 No pecuniary relationships and stock options  Nominees of financial investors are not independent

 Appointment and monitoring of auditors

Audit Committee Responsibilities

 Approval of all related party transactions  Monitoring of inter-company loans and investments  Evaluation of internal controls over financial transactions

 Compliance with all laws and regulations

Board Responsibilities

 Disclosure of related party transactions  Monitoring of inter-company loans and investments  Evaluation of internal controls over financial transactions

Penalties for non-compliance © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated wi th KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

9

Push on ‘Inclusive Agenda' (CSR)

CSR contribution - 2 percent of average net profit before tax for last three financial years

Board to provide oversight on CSR activities and to appoint a three-member CSR Committee

Spend or disclose approach – for now

Group-wide CSR and allocation approach

No clarity on tax deductability of CSR contribution


10

Related Party: Section 2(76) Distinct from the 'Related Party‘ definition per AS 18

2

Restricted to company and its holding company only Entity influencing in nonprofessional capacity

Management Level

1 Key Management Personnel

Directors

Company Level Fellow Subsidiary

Holding

Several/Joint Direct/Indirect Influence

Owns/'controls' >20% share capital

Associate, Joint Venture Company

Subsidiary

Relative

Partner

Firm

Director

Private Company

Director or owner >2% share capital

Public Company

3

Relative

Individual

Parents

HUF

Siblings


Spouse

Children and spouse

11

Emphasis on ‘Investor Protection'

Transactions at ‘arms length’ in the ‘ordinary course of business’ – Audit committee approval will suffice

Transactions that do not meet the ‘arms length’ and ‘ordinary course’ criteria – Board and shareholder approval required

Vigil mechanism, Whistleblower policy mandatorily required

Restriction on loans and guarantees to certain companies over which the Directors have influence

Class action suits against the company, Directors and auditors


12

Loans to directors and interested companies

No loans or guarantees to directors or ‘person in whom the director is interested’ other than MD (in non-financial services company) subject to conditions Person in whom director is interested includes any body corporate accustomed to act in accordance with the directions of directors of lending company

Guarantee given or security provided by a holding company to a bank or financial institution for the purpose of loan taken by any subsidiary also exempt Investment in a wholly owned subsidiary, loan / guarantee/ security provided to its wholly owned subsidiary company or a JV, exempted from calculating the limits prescribed under section 186

Financial penalty or imprisonment or both contained in the Act for non-compliance


13

‘Ease in Restructuring’ of companies

Rationalising multi-layered structures

Changes in the merger approval process

Simplifying procedures for restructuring- provision for minority buyouts

Cross-border mergers, fast-track mergers, and capital reduction

Largely unoperationalised currently ; expected to be in force once NCLT constituted

Buyback of shares-made more stringent


14

Challenges of doing Business in India 10.30-10.40 A.M. (NY Time)

Speaker R Ravikumar, CFO, IBM India Ravi has been with IBM for 14 years, as the CFO of IBM India’s Domestic Business and the CFO of IBMs Systems & Technology business for Asia Pacific. He has worked at IBM’s Asia Pacific headquarters for over 5 years. Ravi is a Chartered Accountant with 25 years of experience in different functions of finance. Currently, he is responsible the overall financial management of the Domestic Business of IBM India, as well as Global Delivery. The portfolio includes Enterprise Risk Management, Cash, Strategy execution support, Real Estate Management, Procurement function, Regulatory matters, Audit & Controls and support to many Global Missions based in India that deliver service to IBM Internal clients. 15

Closing Remarks 10.40-10.45 A.M. (NY Time)

Speaker Divyesh Dalal, Head of India Sales, Treasury and Trade Solutions, Citi India Divyesh has been with Citi for over twelve years and has worked in diverse areas across Risk, Finance and TTS. Prior to joining Citi, he worked with KPMG- Assurance Based Advisory Services from 1997 to 2000. In Citi Divyesh has held roles including PRR Manager in the retail bank, Receivables product manager, Receivables, Payables and Network Head in TTS Product, and the TTS Regional Corporate Sales head, for West and East India. In his present role as the India Sales head, Divyesh manages a portfolio of 1200+ clients in seven dispersed markets and leads various strategic initiatives across Digital Marketplace, Pooling Solutions, Integrated Cash & Trade solutions and Structured trade solutions for Citi, many of them being market firsts. Divyesh holds an MBA from Indian School of Business, Hyderabad and is a Chartered Accountant 16

Contact Us

Thanks for your participation, in case you have any questions or clarifications about today’s session, please write to us at [email protected]

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India Day Series - Citibank

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