Section 212 of Companies Act 1956 with respect to companies incorporated abroad
CS A Rengarajan
Section 212 of the Companies Act, 1956 – impossible to comply – By CS A Rengarajan and CS Alok Rudra
Introduction: In 1913 Act, the corresponding section will be 132A and it is based on Section 150, 151 and 152 of English Act. Section 212 of the Companies Act, 1956 provides attachment of subsidiary company balance sheet together with directors and auditors report. There is also a provision to exempt the companies for non attachment of balance sheet by way of obtaining central government approval.
Subsidiaries: There are two types of subsidiaries one company incorporated in India and another is incorporated outside india i.e foreign subsidiaries. Subsidiary is nothing but a company holding shares more than 50.01%. It may be 51% or 60% or 70% and if it is 100% then it is called wholly owned subsidiary. There are no foreign subsidiaries prior to 1991. The section was introduced more than 54 years back and after that many amendments came but the government not bothered to effect the changes in the Said section. Until 1990, the Section 212 can be complied fully in respect of Indian subsidiary.
Indian Subsidiaries: As far as companies incorporated in India and become subsidiaries , prepare accounts as pre the requirements of the Companies Act, 1956. They need to fully comply the same. There is no problem for preparation of accounts as per the Act.
Foreign Subsidiaries: The problem for impossibility in that section is foreign subsidiary. By not complying the section for foreign subsidiaries, the Registrar of Companies threaten the companies as to why the companies should be penalized? How impossibility will come? How you can insist that the balance sheet of the companies incorporated abroad as per the requirements of Companies Act, 1956. This is impossibility.
The Section 212 of the Companies Act, 1956 provides are as follows.
Clause (a) of sub Section 1 of Section 212 of the Companies Act, 1956 provides that
(a) a copy of the balance sheet of the subsidiary;
(b) a copy of its profit and loss
account;
(c) a copy of the report of its Board of directors;
(d) a copy of the report of its auditors;
(e) a statement of the holding company's interest in the subsidiary as
specified in sub-section (3);
(f) the statement referred to in sub-section (5), if any; and
Clause (a) of sub section (2) of Section 212 of the Companies Act, 1956 provides that the balance sheet referred to in clause (a) of sub section (1) shall be made out in accordance with the requirements of the Act.
The requirements of the Act basically the financials are to be prepared as per Indian companies act. The books of accounts are also to be certified by Indian chartered accountants. The procedural problems to encounter and you cannot simply attach the balance sheet of foreign subsidiary duly certified the professionals of foreign country/ Indian chartered accountant.. The schedule VI to be prepared in Indian rupees not in foreign currency.
Prior to 1991: The government has not initiated investment abroad as well as foreign direct investment. There is only one category of subsidiary company i.e companies incorporated in india.
Post 1991 : The Section was introduced in 1956 and great visionary like Pandit .Jawarhalal Nehru not visualized the foreign subsidiary at future date. But the congress led government formed the ministry under the leadership of Mr.Narshima Rao then Prime Minister in 1991 initiated series of economic reform process including attracting foreign direct investment and investing abroad and also have their subsidiaries abroad. The companies invested abroad and also made several subisidiaries both listed and unlisted entities
.
The companies went for exemption under Section 212 of the Companies Act, 1956, the Registrar of Companies understood the problem that Indian holding company to prepare subsidiary accounts as per requirements of the Companies Act, 1956. It is impossible to comply because the accounting procedure and accounting standards are entirely different one country another country. When we prepare the accounts, our Chartered Accountants wants the books of accounts of the subsidiaries.. The Section is impossible to comply but the authorities are giving exemption, if you prepare consolidation of balance sheet, then exemption will be granted The Consolidation of balance sheet will also to be prepared as per the requirements of Companies Act, 1956. Listed entities by virtue of listing agreement as well as accounting standards, prepare consolidation but the section no where mentioned that exemption will be given provided if you prepare consolidation of balance sheet. Either consolidation for exemption for non attachment or attachment simply fill up the accounts in Schedule VI.. Keeping in view of the above, ROC issuing notices to various corporate to adhere the subsidiary ( incorporated abroad) requirements as per Section 212 of the Companies Act, 1956.\When the corporate not in a position to comply i.e, impossibility comes how can you penalize the corporate?
Suggestions: While enacting the Companies bill 2009, the government should consider attachment of accounts prepared by foreign nations without insisting that the balance sheet to be prepared as per requirements of the act. In the present companies bill should include IFRS and also the attachement of subsidiary to be addressed.
At present the impossibility continues for non performance as per act.
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csarengarajan
Company Secretary, Chennai
email csaren...@gmail.com
mobile 093810 11200
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From: csmy...@googlegroups.com [mailto:csmy...@googlegroups.com] On Behalf Of sudhindra ks
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Subject: Re: [CSMysore] Section 212 of Companies Act 1956 with respect to companies incorporated abroad
R V SECKAR
Nice article. Please continue your endeavors to enlighten us,
R.V.Seckar
narasimha karthik
(a) a copy of the balance sheet of the subsidiary;
(b) a copy of its profit and loss account;
(c) a copy of the report of its Board of directors;
(d) a copy of the report of its auditors;
C.S. KARTHIK