RELATED PARTY TRANSACTIONS UNDER COMPANIES ACT, 2013

Definition and Meaning of some important terms used in this article.

• Meaning of “Ordinary Course of Business” - Generally, the ordinary course of business will cover the usual transactions, customs, and practices of a business and of a company.
• Definition of “Arm’s length transaction”- As per the explanation (2) to Section 188(1) of the Act, the expression “arm’s length transaction” means a transaction between two related parties that is conducted as if they were unrelated so that there is no conflict of interest.

To understand what are meaning of related party transactions and other related matters under the companies act, 2013, before it we must understand the meaning of related party.

who are the related parties under the Companies Act, 2013?

According to Section 2(76) of Companies Act 2013, “related party”, with reference to a company, means— (i) a director or his relative;

(ii) a key managerial personnel or his relative;

(iii) a firm, in which a director, manager or his relative is a partner;

(iv) a private company in which a director or manager or his relative is a member or director;

(v) a public company in which a director or manager is a director and holds along with his relatives, more than two per cent (2%) of its paid-up share capital;

(vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;

(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act:

Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity;

(viii) any body corporate which is—

• a holding, subsidiary or an associate company of such company;
• a subsidiary of a holding company to which it is also a subsidiary;or
• an investing company or the venturer of the company

(According to Notification no. GSR 464(E), dated 05/06/2015 in case of Private Companies Section 2(76) Sub-clause viii shall not apply with respect to section 188.)

(ix) such other person as may be prescribed.

What are the related party transactions covered under Section 188(1) of the Companies Act, 2013?

Following transactions are covered under Section 188 (1) of the Companies Act, 2013 -

1. sale, purchase or supply of any goods or materials;
2. selling or otherwise disposing of, or buying, property of any kind;
3. leasing of property of any kind;
4. availing or rendering of any services;
5. appointment of any agent for purchase or sale of goods, materials, services or property;
6. such related party’s appointment to any office or place of profit in the company, its subsidiary company or associate company; and
7. underwriting the subscription of any securities or derivatives thereof, of the company

As per Section 188 (1) of the Companies Act, 2013 no company shall enter into any contract or arrangement with a related party without the consent of the Board of Directors by passing board resolution in the Board Meeting and subject to such conditions as prescribed under Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014, with respect to above mentioned transactions.

Section 188(1) of the Act shall not apply to any transactions entered into by the company in its ordinary course of business other than transactions that are not on an arm’s length basis.

Other conditions and compliances for related party transactions –

(1) The agenda of the Board meeting at which the resolution is proposed to be moved shall disclose-

(a) the name of the related party and nature of relationship;

(b) the nature, duration of the contract and particulars of the contract or arrangement;

(c) the material terms of the contract or arrangement including the value, if any;

(d) any advance paid or received for the contract or arrangement, if any;

(e) the manner of determining the pricing and other commercial terms, both included as part of contract and not considered as part of the contract;

(f) whether all factors relevant to the contract have been considered , if not ,the details of factors not considered with the rationale for not considering those factors; and

(g) any other information relevant or important for the Board to take a decision on the proposed transaction.

(2) Where any director is interested in any contract or arrangement with a related party, such director shall not be present at the meeting during discussions on the subject matter of the resolution relating to such contract or arrangement.

Which related party transactions require prior approval of the company by passing resolution in the General Meeting of the company?

As per First Proviso to the Section 188 (1) of the Act read with Rule 15 of the Companies (Meetings of board and its Powers) Rules, 2014 no company shall enter into any contract or arrangement with a related party without the consent of the company by passing resolution in the General Meeting of the company with respect to following transactions –

A. Contract or arrangements with respect to:

1. sale, purchase or supply of any goods or materials, directly or through appointment of agent, amounting to ten percent or more of the turnover of the.
2. selling or otherwise disposing of or buying property of any kind, directly or through appointment of agent, amounting to ten percent or more of net worth of the company.
3. leasing of property of any kind amounting to ten percent or more of the turnover of the company.
4. availing or rendering of any services, directly or through appointment of agent, amounting to ten percent or more of the turnover of the company.

B. is for appointment to any office or place of profit in the company, its subsidiary company or associate company at a monthly remuneration exceeding two and a half lakh rupees.

C. is for remuneration for underwriting the subscription of any securities or derivatives thereof, of the company exceeding one percent of the net worth.

Exceptions: The requirement of passing the resolution under first proviso shall not be applicable for transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval.

Other important points –

• The turnover or net worth referred in the above sub-rules shall be computed on the basis of the audited financial statements of the preceding financial year.
• In case of wholly owned subsidiary, if the resolution is passed by the holding company, it shall be sufficient for the purpose of entering into the transaction between the wholly owned subsidiary and the holding company.
• Information to be provided in the explanatory statement to be annexed to the notice of a general meeting convened pursuant to section 101 shall contain the following particulars, namely:-

(a) name of the related party;

(b) name of the director or key managerial personnel who is related, if any;

(c) nature of relationship;

(d) nature, material terms, monetary value and particulars of the contract or arrangements;

(e) any other information relevant or important for the members to take a decision on the proposed resolution.

Can a related party vote on resolution?

As per Second Proviso to Section 188 (1) of the Act,no member of the company shall vote on such resolution, to approve any contract or arrangement which may be entered into by the company, if such member is a related party.

This shall not apply to a company in which ninety per cent. or more members, in number, are relatives of promoters or are related parties.

Exemptions from Second Proviso to Section 188 (1) of the Act -

1. Exemption to Private Companies: In case of private companies second proviso to Section 188(1) of the Act, shall not apply (Notification No. GSR 464(E) dated5-6-2015).
2. Exemption to Government Companies: In case of Government companies above mentioned Second Proviso to the section 188 (1) of the Act shall not apply to -

(a) a Government company in respect of contracts or arrangements entered into by it with any other Government company or with Central Government or any State Government or any combination thereof;

(b) a Government company other than a listed company, in respect of contracts or arrangements other than those referred to in clause (a), in case such company obtains approval of the Ministry or Department of the Central Government which is administratively in charge of the company, or, as the case may be the State Government before entering into such contract or arrangement. (Notification No. GSR 463(E) dated 5-6-2015) further amended by (Notification No: G.S.R. 151(E) dated 02nd March, 2020).

1. Exemptions to Specified IFSC Public Company : Second proviso to sub section (1) of section 188 shall not apply, In case of Specified IFSC Public Company.

By virtue of MCA Notifications dated, 13th June, 2017, the exemption from applicability of the Second Proviso to Section 188 (1) of the Companies Act is available only to those private and Government companies who have not committed a default in filing of their financial statements under Section 137 or Section 92 of the Companies Act, 2013.

Disclosures requires to be made in Board report with respect to related party transactions –

Section 188(2) of the Act, provides that every related party contracts or arrangements shall have to be disclosed in the Board’s report and referred to shareholders along with the justification for entering into such type of transactions in the prescribed form i.e., Form no. AOC-2.

Consequences of Entering Related Party transactions by the Director or the Employee Without the Consent of the Board or Approval of the company by passing resolution in General Meeting -

• As per Section 188(3) of the Act,where any contract or arrangement is entered into by a director or any other employee, without obtaining the consent of the Board or approval by a resolution in the general meeting under sub-section (1) of Section 188 and if it is not ratified by the Board or, as the case may be, by the shareholders at a meeting within three months from the date on which such contract or arrangement was entered into, such contract or arrangement shall be voidable at the option of the Board or, as the case may be, of the shareholders and if the contract or arrangement is with a related party to any director, or is authorised by any other director, the directors concerned shall indemnify the company against any loss incurred by it.
• Section 188(4) of the Act, states that it shall be open to the company to proceed against a director or any other employee who had entered into such contract or arrangement in contravention of the provisions of this section for recovery of any loss sustained by it as a result of such contract or arrangement.

Additional provisions for related party transactions required to be comply by listed entities under SEBI (LODR), Regulations, 2015 –

Regulation 23 of SEBI (LODR) Regulations, 2015, specify provisions related to related party transactions.

Regulation 23 of the SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 provides that:

(1) The listed entity shall formulate a policy on materiality of related party transactions and on dealing with related party transactions including clear threshold limits duly approved by the board of directors and such policy shall be reviewed by the board of directors at least once every three years and updated accordingly.

A transaction with a related party shall be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds ten percent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity.

With effect from July, 01, 2019 a transaction involving payments made to a related party with respect to brand usage or royalty shall be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceed 5 percent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity.

(2) All related party transactions shall require prior approval of the audit committee.

(3) Audit committee may grant omnibus approval for related party transactions proposed to be entered into by the listed entity subject to the following conditions, namely-

• the audit committee shall lay down the criteria for granting the omnibus approval in line with the policy on related party transactions of the listed entity and such approval shall be applicable in respect of transactions which are repetitive in nature;
• the audit committee shall satisfy itself regarding the need for such omnibus approval and that such approval is in the interest of the listed entity;
• the omnibus approval shall specify:

1. the name(s) of the related party, nature of transaction, period of transaction, maximum amount of transactions that shall be entered into,
2. the indicative base price / current contracted price and the formula for variation in the price if any; and
3. such other conditions as the audit committee may deem fit: Provided that where the need for related party transaction cannot be foreseen and aforesaid details are not available, audit committee may grant omnibus approval for such transactions subject to their value not exceeding rupees one crore per transaction.

• the audit committee shall review, at least on a quarterly basis, the details of related party transactions entered into by the listed entity pursuant to each of the omnibus approvals given.
• Such omnibus approvals shall be valid for a period not exceeding one year and shall require fresh approvals after the expiry of one year:

(4) All material related party transactions shall require approval of the shareholders through resolution and “no related party shall vote to approve” such resolutions whether the entity is a related party to the particular transaction or not.

(5) The provisions of sub-regulations (2), (3) and (4) shall not be applicable in the following cases:

• transactions entered into between two government companies;
• transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval.

(6) The provisions of regulation 23 of SEBI (LODR) Regulations, 2015 shall be applicable to all prospective transactions.

(7) For the purpose of regulation 23 of SEBI (LODR) Regulations, 2015, all entities falling under the definition of related parties shall not vote to approve the relevant transaction irrespective of whether the entity is a party to the particular transaction or not.

Draft format of Resolutions for approval of related party transactions in Unlisted Private and Public Companies

1. Draft format of Board Resolution for approval of related party transactions in ordinary course of business andat arm’s length basis.

Contract or arrangements with related parties in ordinary course of business and at arm’s length basis does not require prior approval of the company. Here is the draft format of board resolution:

RESOLVED THAT pursuant to the provisions of section 188 of the Companies Act,2013 (as amended or re-enacted from time to time) read with rule no 15 of theCompanies (Meeting of Board and its Powers) Rules 2014, the consent of the boardbe and is hereby accorded forentering into a contract with _____________[Name of relatedparty),at arm's length basis the copy of which is laid before the meeting and initialedby the chairman for the purpose of identification, be and is hereby approved. Thebriefdetails of contract is given below:
 

Description Period Amount (in Rs)
 

RESOLVED FURTHER THAT the Mr./Ms. ___________ Managing Director/ Director/ Company Secretary of the Company, be and is hereby, authorized to do or cause to be done all such acts, matters, deeds and things and to settle any queries, difficulties, doubts that may arise with regard to any transaction with the related party and execute such agreements, documents and writings and to make such filings, as may be necessary or desirable for the purpose of giving effect to this resolution, in the best interest of the Company.”

2. Draft format of Board Resolution for approval of related party transactions in ordinary course of business and not at arm’s length basis.

Contract or arrangements with related parties in ordinary course of business and not at arm’s length basis does require prior approval of the company by passing ordinary resolution in General Meeting. Here is the draft format of board resolution:

RESOLVED THAT pursuant to the provisions of section 188 of the Companies Act,2013 (as amended or re-enacted from time to time) read with rule no 15 of theCompanies (Meeting of Board and its Powers) Rules 2014, the consent of the boardbe and is hereby accorded subject to prior approval of shareholders of company for entering into a contract with _____________[Name of relatedparty),not at arm's length basis the copy of which is laid before the meeting and initialedby the chairman for the purpose of identification, be and is hereby approved. Thebrief details of contract is given below:
 

Description Period Amount (in Rs)
 

RESOLVED FURTHER THAT the Mr./Ms. ___________ Managing Director/ Director/ Company Secretary of the Company, be and is hereby, authorized to do or cause to be done all such acts, matters, deeds and things and to settle any queries, difficulties, doubts that may arise with regard to any transaction with the related party and execute such agreements, documents and writings and to make such filings, as may be necessary or desirable for the purpose of giving effect to this resolution, in the best interest of the Company.”

Draft format of Resolutions for approval of related party transactions in Listed Companies

Draft Format of Ordinary Resolution for approval of all material transactions with related parties.

A transaction with a related party shall be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds ten percent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity.

All material related party transactions shall require approval of the shareholders through resolution and “no related party shall vote to approve” such resolutions whether the entity is a related party to the particular transaction or not.

"RESOLVED THAT pursuant to the provisions of Section 188 of the Companies Act, 2013 (the 'Act'),read with Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014, Regulation 23(4)of the SEBI (Listing Obligations and DisclosureRequirements)Regulations, 2015 (the 'Listing Regulations'), the Company's policy on Related Party transactions, andany other applicable provisionsincluding any amendments thereto for the time being in force, consentof the members be and ishereby accorded to the Board of Directors of the Company to enter intocontract(s)/arrangement(s)/transaction(s) with __________(Name of the Company), a Company in which (Nameof the Director), Director of the Company is interested in the capacity as a Director of the said otherCompany, a related party within the meaning of Section 2(76) of the Act, for the purchase of (details oftransactions or contract or business purpose), on such terms and conditions as the Board of Directorsmay deem fit, up to a maximum aggregate value of INR __________ for the financial year 20__-__,provided that the said contract(s)/ arrangement(s)/ transaction(s) so carried out shall be at arm'slength basis and in the ordinary course of business of the Company.

RESOLVED FURTHER THAT MS.........., Managing Director/ Director and Mr. ........., Company Secretary ofthe Company be and are hereby severally authorized to execute the agreement for rendering servicesto the said Related Party and to do such other acts, things, deeds and matters as may be necessary,expedient and desirable for the purpose of giving effect to this resolution."

“Auditing is a systematic examination of financial statements, records and related operations to determine adherence accepted to generally accepted accounting principles management policies or stated requirements”.

In simple terms Auditing is a process of checking of the transactions of the business with its books of accounts and evidence with a view of find out the arithmetical accuracy of the accounts, the correctness and truthfulness of the transaction recorded in the books and their results thereon.

Salient Features of Auditing 

(i) The audit is a systematic examination of the books, accounts, documents and vouchers of a business organization.

(ii) The purpose of the examination of books, accounts, documents etc. is to ascertain how far they present a true and correct view of the state of affairs of a particular concern.

(iii) The auditor has to satisfy himself that the books have been drawn up properly and they give a true and fair view of the state of affairs.

(iv) Audit conducted in a haphazard manner does not serve the desired purpose.

(v) The report of the auditor is prepared for a particular financial period.

Main function of Auditing 

(i) Auditing helps to ascertain the systems to accounting, internal control, management of a business organization.

(ii) Auditing helps to test-check the system of the internal control of a business concern.

(iii) Auditing plays an important role in verification of the assets and liabilities of a business organization an also ensures that assets are valued properly.

(iv) To check the arithmetical accuracy of records.

(v) auditing helps to ensure that Books of Accounts are maintained according to the requirement of statue governing the business.

(vi) To ensure that the opinion covers all aspects by the professional standards.

Advantages of Auditing 

• It ensures the correctness of the accounts of the concern.
• Errors and fraud are detected very easily with the help of auditing.
• Audited accounts are considered more reliable as evidence in the court of law.
• Loans and credit can easily be obtained from banks on the basis of audited accounts.
• Audited accounts are considered more reliable for the purpose of various type of taxation.
• The auditing of accounts make the clerk who maintain them at least careful and verigilent.
• The audited accounts are helpful in the settlement of claims by the insurance company in case of fire.
• Audited accounts are taken as more reliable and useful during the course of amalgamation.
• In the case of employer employee dispute, audited accounts are helpful in the determination of profits and trends of profitability. 

Limitations of Auditing

Audit have lots of benefits, but it also have some limitations which are following - 

• An audit may not reveal the complete truth. This may happen when accounts are prepared with malafide intentions.
• The author’s report depends upon the explanations and information given by the management. Incorrect information and explanations affect the author’s report.
• An auditor may not always work independently. Reason being that theoretically he is appointed by the shareholders but actually it is the director who appoint him.
• Auditing is a post-mortem examination. There is no use o such an examination when the events have already happened.
• Audit work generally depends on the prevalent system o internal control, but it may not be effective.

"Auditing begains where accountancy ends"

Auditing and accountancy have a very close relationship, yet their nature and scope are quite different.” Accounting comes first. When accounts are finalized, thereafter audit works begins. Here are some diffrence between auditing and accountancy.

Difference between Accounting and Auditing

Treasury stock or treasury shares

Treasury stock also known as treasury shares. When a company acquires its shares either by way of buyback or when shares are initially created but not issued to the public.

In other words, when an issuing company buys back its stock or shares on its name to hold it or resale it after some time then such shares are known as treasury shares. After the buyback of the treasury shares, the share capital of the issuing company decreases.

Features of treasury shares

• Treasury shares are not entitled to dividends.
• No voting rights
• No claim at the time of liquidation.
• No inclusion in the calculation of market capitalization.

What is the difference between treasury shares and retired shares?

• When a company buys back its shares on its name and holds it then such shares are known as treasury shares, whereas when a company buys back its shares and destroyed it then such shares are known as retired shares.
• Treasury stock can be retired (canceled) or resale in an open market whereas retired shares are permanently canceled.
• Treasury shares can be reissue but retired shares never can be reissue.

What are the similarities between treasury shares and retired shares?

• Both treasury shares and retired shares don’t receive dividends.
• Treasury shares and retired shares don’t have any voting rights and ownership.
• Both treasury shares and retied shares not included in the calculation of outstanding shares.

Meaning of some terms used in this article

1. Authorized Shares – The maximum number of shares a company allows to issue.

2. Issued shares – The total number of shares a company has ever issued.

3. Outstanding shares – The total number of shares currently held by investors.

Accounting treatment for treasury stock or treasury shares –

• Treasury stock represents the number of shares repurchased from the open market it reduces shareholders' equity by the number of treasury shares.
• Treasury stocks are shown as a “negative figure” under the capital in the balance sheet.
• Treasury shares are shown at historical cost or par.
• Treasury stock is a contra entry equity account.

How to calculate treasury shares / Formula for calculating treasury shares -

Total number of shares issued         = XXX

(-) Total number of outstanding shares = (XXX)

Number of treasury shares            = XXX

What is “negative treasury stock”?

We know when issuing the company acquires its shares from the open market and hold it then those shares become treasury shares or stock. Treasury shares appear at cost or par value in the shareholder's equity section of the balance sheet as a “negative figure”.

Are treasury shares included in the market cap?

We know that,

Market capitalization = shares outstanding × price per share

Where share outstanding = the total shares of common stock issued (excluding those hold as treasury shares)

Therefore, we can say that

Market cap = [the total shares of common stock issued – treasury shares] × price per share

Hence proved, treasury shares are not included in market cap.

What is "Negative treasury stock 

Treasury Stock is a contra equity item. It is not reported as an asset; rather, it is subtracted from
stockholders' equity. The presence of treasury shares will cause a difference between the number of
shares issued and the number of shares outstanding

Effects of treasury stock on retained earnings -

When a corporation buys back some of its issued and outstanding stock, the transaction affects retained earnings indirectly. The cost of treasury stock must be subtracted from retained earnings, reducing amounts the company can distribute to stockholders as dividends.

Treasury stock financing or investing activity? 

The purchase of treasury stock results in a decrease in stockholders' equity. Changes in stockholders' equity and long-term liabilities are shown in the financing activities section of the statement of cash flows. The purchase of Treasury Stock will cause a decrease in cash from financing activities.

Methods of buyback of shares of stock in the USA -

1. Open market stock buyback

A company can buy back its shares own shares directly from the open market. Buyback through this method does not impose any legal obligations on a company to complete the buyback program. Thus, a company enjoys the flexibility to cancel the stock buyback program at any time. The primary advantage of the open market stock buyback is its cost-effectiveness because a company buys back its shares at the current market price and doesn't need to pay the premium.

2. Fixed-price tender offer

In the Fixed-price tender offer method, the company makes a tender offer to the shareholders of the company to buy back the shares on a fixed date and at a fixed price. The price of the tender offer almost always includes the premium relative to the current share price. Then, those shareholders who are interested in selling their stocks submit the number of shares for sale to the company.

3. Dutch auction tender offer

In a Dutch auction tender offer method, a company makes a tender offer to the shareholders of the company to buy back shares and provides them a range of possible prices, with setting the minimum bid price. Then, the shareholders make their bids by specifying the number of shares and the minimum price at which they are willing to sell their shares.

4. Direct negotiation

Under this method of buyback, a company directly approaches to one or more shareholders of a company to buyback of shares from them. For that company offers them purchase price including premium. The important benefit of the method is that a company can negotiate the purchase price directly with the shareholders.

Reasons for buyback of shares / why company buy back its shares or stocks?

• to improve the earnings per share
• to improve return on capital, return on net worth and to enhance the long-term shareholder's value
• to provide an additional exit route to shareholders when shares are undervalued or thinly traded
• to enhance consolidation of a stake in the company
• to prevent unwelcome takeover bids
• to return surplus cash to shareholders
• to achieve optimum capital structure
• to support share price during periods of sluggish market condition
• to serve the equity more efficiently.

According to the Annual report of ITC Limited, company total CSR expenditure for the financial year 2018-19 stood at Rs. 306.95 crores. Prescribed CSR expenditure is Rs. 306.55 crores for FY 2018-19.

company mainly focus on following CSR areas enhancing environmental and natural capital; supporting rural development; promoting education and vocational skills; providing preventive healthcare; providing sanitation and drinking water; creating livelihoods for people, especially those from disadvantaged sections of society, in rural and urban India; preserving and promoting traditional art and culture and promoting sports.

ITC Limited contribution towards COVID-19

Recently ITC limited contributed Rs. 150 Cr. towards COVID-19. 

About ITC Limited Company

• ITC has a diversified presence in the following business areas - Fast Moving Consumer Goods, Hotels, Paperboards and Packaging, Agri-Business, and Information Technology. 
• The Company is acknowledged as one of India's most valuable business corporations with a market capitalization of nearly US $ 27.90 billion and a gross sales value of USS 10.74 billion (figures as on 31.03.2020).
• ITC is the country's leading FMCG marketer, the clear market leader in the Indian Paperboard and Packaging industry, a globally acknowledged pioneer in farmer empowerment through its wide-reaching Agri-Business, a pre-eminent hotel chain in India that is a trailblazer in 'Responsible Luxury'. 
• ITC's new Consumer Goods Businesses have established a vibrant portfolio of 25 world-class Indian brands that create and retain value in India. 
• ITC's world-class FMCG brands including Aashirvaad, Sunfeast, Yippee!, Bingo!, B Natural, ITC Master Chef, Fabelle, Sunbean, Fiama, Engage, Vivel, Savlon, Classmate, Papercraft, Mangaldeep, Aim, and others have garnered encouraging consumer franchise within a short period. 

ITC CSR ACTIVITIES 2020

1. Promoting Preventive Healthcare, Sanitation & Poverty Alleviation - Eradicating hunger, poverty, and malnutrition, promoting health care including preventive health care and sanitation including contribution to the Swachh Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water.

2. Livelihood Enhancement - Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently-abled and livelihood enhancement projects.

3. Economic Empowerment of Women - Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, daycare centers, and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.

4. Ensuring Environmental Sustainability - Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga.

5. Protection of National Heritage, Art & Culture - Protection of national heritage, art and culture, including restoration of buildings and sites of historical importance and works of art, setting up public libraries, promotion and development of traditional arts and handicrafts

6. Rural Development - Rural Development projects.

Last 5 years Details of CSR expenditure of ITC Limited

In financial year 2018-19

• Average Net Profit of the company for the last three financial years:  Rs. 15327.74 crores
• Prescribed CSR Expenditure (two percent of the amount as in item above): Rs. 306.55 crores for FY 2018-19
• Details of CSR Spent during the financial year: The total CSR expenditure for the financial year 2018-19 stood at  Rs. 306.95 crores.

In financial year 2017-18

• Average Net Profit of the company for the last three financial years: Rs. 14523.40 crores
• Prescribed CSR Expenditure (two percent of the amount as in item above): Rs. 290.47 crores for FY 2017-18
• Details of CSR Spent during the financial year: The total CSR expenditure for the financial year 2017-18 stood at Rs. 290.98 crores. 

In financial year 2016-17

• Average Net Profit of the Company for the last three financial years: Rs. 13763.29 crores.
• Prescribed CSR Expenditure (two percent of the amount as in item above): Rs. 275.27 crores for FY 2016-17.
• Details of CSR Spent during the financial year: The total CSR expenditure for the financial year 2016-17 stood at Rs. 275.96 crores. 

In financial year 2015-16

• Average Net Profit of the Company for the last three financial years: Rs. 12338.22 crores.
• Prescribed CSR Expenditure (two percent of the amount as in item above): Rs. 246.76 crores for FY 2015-16.
• Details of CSR Spent during the financial year: The total CSR expenditure for the financial year 2015-16 stood at Rs. 247.50 crores. 

In financial year 2014-15

• Average Net Profit of the Company for the last three financial years: Rs. 10,646.11 crores.
• Prescribed CSR Expenditure (two percent of the amount as in item above): Rs. 212.92 crores for FY 2014-15.
• Details of CSR Spent during the financial year: The total CSR expenditure for the financial year 2014-15 stood at Rs. 214.06 crores.

CSR of Reliance

During the year 2019-2020, the Company spent Rs. 909 crore (around 2.08% of the average net profits of last three financial years) on CSR activities. As per the CSR policy of the Company, Rural Transformation, Health, Education, Environment, Arts, Heritage & Culture and Disaster Response, are the focus areas for CSR engagement. CSR initiatives of the Company under the leadership of Smt. Nita M. Ambani, Founder and Chairperson, Reliance Foundation, have touched the lives of around 3.6 crore people across India covering more than 37,000 villages and several urban locations across India.

The Reliance group supported major national campaigns like Swachhata hi Seva and Jal Shakti Abhiyan. It responded fast to national emergencies and disasters including floods and more recently, COVID-19 pandemic which has earned accolades from one and all. CSR initiatives of the Company have won several awards including Mahatma Award 2019 for Excellence in Corporate Social Responsibility. The Company was conferred with the Golden Peacock Award

The key philosophy of all CSR initiatives of RIL is guided by three core commitments of SIS:

a) S - SCALE

b) I - IMPACT

c) S - SUSTAINABILITY

Reliance has identified 6 focus areas for their CSR policy: 

1. Rural Transformation

To work towards bridging the developmental gap between rural 'Bharat' and urban India by improving livelihood, addressing poverty, hunger and malnutrition. Key initiatives include:

• Supporting Farm and non-farm livelihoods
• Improving water conservation and rain-water harvesting
• Developing community based initiatives like VFAs and producer companies towards building capacity of the community and ensuring sustainability.
• Using technology towards delivering need based information for improving quality of life.
• Improving food security and enhancing nutrition
• Developing Community infrastructure

2. Healthcare

To address issues around affordability and accessibility of quality healthcare and bring about improvement in awareness and health seeking behavior in various parts of India, enabling a better living, through initiatives such as:

• Primary, secondary and tertiary care facilities
• Conducting need based health camps and providing consultation, medicines etc.
• Working on maternal and child health
• Behavioral change for improved mother and child health
• Improving healthcare delivery through innovative outreach programmes
• Working for the visually impaired
• Working in the areas of Communicable and non-communicable diseases
• Using technology for training, competency evaluation and clinical decision support for medical professionals with a view to improve quality of healthcare

3. Education

To work on several educational initiatives to provide quality education, training, skill enhancement for improving the quality of living and livelihood. Initiatives are aimed at:

• Promoting primary and secondary education
• Enabling higher education through merit cum means scholarships, including for differently abled across the country.
• Using sports as a tool for development of students in both urban and rural settings
• Promoting higher education including setting up and supporting universities
• Skill development and vocational training

4. Environment

To enable enhanced livelihood and quality of life, promote environment sustainability through various initiatives for:

• Ecological sustainability
• Promoting biodiversity
• Conservation of natural resources
• Maintaining quality of soil, air and water
• Promoting renewable energy
• Developing gardens and river fronts

5. Protection of national heritage, art and culture

To work towards preserving the rich heritage, arts and culture of India for its future generation and make conscious efforts to ensure its continuity and enhance avenues for livelihoods of traditional artisans and craftsmen. Key initiatives include:

• Working towards protecting and promoting India's art, culture and heritage through various promotional and developmental projects and programmes.
• Support and promotion of artists and craftsman
• Promotion and preservation of traditional art and handicraft
• Documenting India's rich heritage for the benefit of future generations

6. Disaster Response

RIL has a track record of organizing timely relief and rehabilitation of communities affected by natural calamities. To strengthen efforts in the area of Disaster Response towards establishing RIL as one of the leading organizations with the capacity to respond in a timely and impactful manner in the affected areas. Key initiatives include:

• Building capacities of local communities to respond to disasters
• Developing expertise and resources to respond to disaster

Reliance CSR expenditure:

• The Board of RIL to ensure that minimum of 2% of average net profit of the last 3 years is spent on CSR initiatives undertaken by RIL
• All expenditure towards the programs to be diligently documented
• In case at least 2% of average net profit of the last 3 years is not spent in a financial year, reasons for the same to be specified in the CSR report
• Any surplus generated out of the CSR activities not to be added to the normal business profits of RIL.

• Goods & Services Tax is prevalent in almost 160 countries around the world and France was the first country to introduce the same in 1954. 
• GST is one of the biggest taxation reforms of independent India.  
• It aims at creating a single, unified Indian market throughout the Nation.  
• It is an indirect tax levy on goods as well as services at the national level. 
• GST is a consumption based tax which is levied on the basis of “Destination principle.”
• Here burdon born by final consumer.
• It offers comprehensive & continous chain of tax credit.   
• Its main objective is to consolidate multiple indirect tax levies into a single tax.

Constitution (101st Amendment) Act, 2016

The Constitution of India has been amended by the Constitution (One Hundred and First Amendment) Act, 2016 for the purpose on GST on 8^th september 2016 on desent of president. Following Articles inserted in constitution : 

1. Article 246A Inserted -

• Oversides Article 246.
• Give power to parliament and each state legislature to levy GST on goods & services. 
• Only parliament can levy GST on inter state supplies.

2. Article 269A Inserted -

• Give power to parliament to levy and collect IGST on inter-state supplies.
• Such IGST shall be distributed between center and states.
• Parliament has power to determine place of supply and time of supply.
• Import and export of goods, services or both shall be deemed to be inter-state supply.

3. Article 279A Inserted -

​The President shall, within 60 days from the date of commencement of the Constitution (One Hundred and First Amendment) Act, 2016, by order, constitute a Council to be called the GST Council. 

4. Article 254 -

Any difference arises between law made by parliment and law made by state, than law made by parliament prevail.

The following subject matters kept outside the purview of GST. As such these are taxed under the existing laws of centre and states as the case may be -

i) Alcohol for human consumption

ii) Entertainment tax collected by local bodies

iii) Property taxes, such as stamp duty

iv) Electricity 

v) Petroleum Products -

• petroleum crude,
• motor spirit (petrol),
• high speed diesel,
• natural gas and aviation turbine fuel

Note - Tabacco and tabacco products would be subject to GST in addition the center would have power to levy Central Excise duty on  tabacco and tabacco products.

Sole Proprietorship

Meaning : Sole proprietorship is a form of organization in which there is only single owner of business. He himself manages and control the business.

Features of Sole-Proprietorship 

1) Single ownership - He is sole owner of all the assets and resources of business.

2) No separate Legal Entity - Sole proprietorship has no separate existence like company. owner and business are not separate.

3) No Legal Formalities - No Legal Formalities are required to start, manage and dissolve such business organization. because registration of  Sole proprietorship is not mandatory.

4) Control and management - In sole proprietary organisation, all the decisions relating to business operations are taken by one person, which makes functioning of business simple and easy.

5) Unlimited liability - The liability of owner is unlimited. In case, the assets of business are not sufficient to meet its debts, the personal property of owner can be used for paying debts.

6) Undivided Risk - The sole proprietor is the only person to whom the profits belong. There is a direct relationship between effort and reward. This motivates him to work hard and bear the risks of business

8) Secrecy - All the important informations concerning the business rests only with the owner so that no outside party can take any under advantage of it.

Advantages of Sole-Proprietorship

1) Easy Formation - It can be easily started and closed as there is no need to observe any legal formalities. It is not governed by any specific law. It is simply required that the business activity should be lawful and should comply with the rules and regulations laid down by local authorities.

2) Quick Decision - A Sole proprietor takes the decision quickly as he is not required to consult anybody about his decisions.

3) Secrecy - All the secrets are confined with the owner. They are not shared with any body, so there has full secrecy.

4) Direct motivation - There is a direct relationship between effort and reward. This motivates him to work hard and bear the risks of business

5) Personal touch - Sole proprietor can maintain personal contacts with his customers and employees. In this way, good work is possible at less cost and time.

Limitations of Sole-Proprietorship

1) Limited financial resources - Funds are limited to the owner's personal savings (i.e. his capital) and his personal assets may also be insufficient for raising loans against their security, which reduces his borrowing capacity.

2) Limited managerial ability - A sole proprietor may not be able to manage the business efficiently as he is not likely to have necessary skills regarding all aspects of the business and also due to limited financial resources sole proprietor may not afford qualified managers.

3) Unlimited liability - As the sole trader has to face the entire risk of business, so he compels him to avoid risky and bold decisions. Unlimited Liability It refers that if the business gets into difficulty and can't pay its debts, the owner of the business is hold personally liable for those debts. 

4) Uncertainty - Because sole proprietor is a natural person and their has no separate entity death, insolvency, lunacy or illness of a proprietor may leads to its closure.

5) Limited scope for expansion - Due to limited capital and managerial skills, it can't expand to a large scale.

Doctrine of constructive notice says -

• As per section 2(35) of the companies Act, 2013 Dividend includes any interim dividend
• In simple words dividend is a portion of profit available for distribution among its shareholders by the company.
• Profits available for dividend to shareholders are known as divisible profits. 
• Dividend payable to preference shareholders are called preference dividend and Dividend payable to equity shareholders are called equity dividend.

Types Of Dividend 

1. Final Dividend :

2. Interim Dividend : 

• Recommend and declared by board of directors in board meeting.
• SS-3 defines interim dividend so as to mean the Dividend declared by the Board of Directors.
•  it is declared by the Board of Directors between two annual general meetings of the company, if board of directors believes that company has surplus profit.
• All the provisions relating to the payment of dividend shall be applicable on the interim dividend also.

Important Provisions Related to Declaration of Dividend (Section 123)

1. Declaration of dividend shall be authorized by AOA.

2. Sources of declaration of dividend: 

(i) Out of current year profit, or

(ii) Out of any previous year profit or accumulated profit arrived after providing depreciation

(iii) Or both (i) and (ii) , or

(iv) Out of money provided by the Central Government or a State Government for the payment of dividend;

3. Before the declaration of any dividend in any financial year, transfer such percentage of profits for that financial year as it may consider appropriate to the reserves of the company;

4. Before the declaration of dividend company shall provide depreciation to its all depreciable assets.

5. Dividend to be paid to registered shareholder only.

6. Dividend to be declared from free reserves only.

7. A company shall also not declare Dividend in following situations :