The Ministry of Corporate Affairs has notified an amendment to the Companies (Accounts) Rules, 2014 (‘Accounts Rules’), requiring all eligible companies to incorporate a statement disclosing their compliance with the provisions relating to constitution of an internal complaints committee under the Prevention of Sexual Harassment at the Workplace (Prevention, Prohibition and Redressal) Act, 2013 (‘POSH Act’) in the Board of Directors Report, to be prepared under the provisions of Section 134 of the Companies Act, 2013 (‘Companies Act’). Key highlights of this amendment are set out below:
1. Section 134 of the Companies Act requires all companies to seek approval of its financial statements from the Board of Directors, and file the same with the Registrar of Companies, in accordance with provisions of the Companies Act. The financial statements are to be accompanied with any notes annexed to or forming part of such financial statements, the auditors’ report and the Board of Director’s report.
2. Section 134 (3) describes the extent of information to be disclosed under the Board of Director’s report, such as extracts of annual return, directors’ responsibility statement, etc. Additional information that has to be disclosed has been prescribed under Rule 8 of the Accounts Rules.
3. Failure to include disclosures mandated under Section 134 of the Companies Act and the rules framed thereunder in the Board of Director's report is punishable with fine of not less than INR 50,000 (approx. USD 715) which may extend to INR 25,00,000 (approx. USD 35,850). Additionally, every officer of the company who is in default is punishable with imprisonment for a term which may extend to 3 years or with fine of not be less than INR 50,000 (approx. USD 715), which may extend to INR 5,00,000 (approx. USD 7,150), or with both.
Key aspects of the Amendment
4. The amendment to the Accounts Rules requires every eligible company to mandatorily include a statement in its Board of Directors’ report that it has complied with the provisions relating to the constitution of the Internal Complaints Committee, now re-named as the Internal Committee (‘ICC’), under the POSH Act.
5. The amendment is effective as of July 31, 2018. The amendment is not applicable to a One Person Company or a Small Company.
Existing Compliance Framework
6. It may be noted that the POSH Act requires all companies who have more than 10 employees to constitute an ICC in the prescribed manner, and to receive and redress complaints received from women in a time-bound and confidential manner. Further, Section 22 of the POSH Act already requires such companies to make an annual filing which discloses details such as number of cases filed, pending or disposed by the ICC in the company’s annual report.
7. This amendment is merely adding an additional action item for the Board of Directors for making a specific statement that the company has constituted an ICC in compliance with the POSH Act. This will possibly help in formalizing the institution of ICCs across companies since many companies still set-up an ICC only when a complaint arises, which practice is not compliant with the POSH Act.