GN on Division III to Schedule III to the Companies Act
Guidance Note (GN) on Division III to Schedule III to the Companies Act 2013 for NBFC that is required to comply with Ind AS issued by CL&CGC ICAI
- Introduction
1.1 Schedule III to the Companies Act, 2013 (‘the Act’) was notified along with the Act itself on 29 August, 2013 thereby providing the manner in which every company registered under the Act shall prepare its Financial Statements. Financial Statements as defined under the Act include Balance Sheet, Statement of Changes in Equity for the period, the Statement of Profit and Loss for the period, Cash flow statement as applicable for the period and Notes.
1.2 Ministry of Corporate Affairs (‘MCA’) notified Indian Accounting Standards (‘Ind AS’) on 16 February, 2015 thereby laying down the initial roadmap for all companies, except insurance companies, banking companies and non-banking finance companies, for adoption of Ind AS (‘MCA roadmap’). Further, MCA notified amendments to Schedule III to the Act on 6 April, 2016 whereby:
1.2.1 The original Schedule III was renamed as ‘Division I’ to Schedule III (‘Non-Ind AS Schedule III’) – which gives a format of Financial Statements for Non-Ind AS companies, that are required to comply with the Companies (Accounting Standards) Rules, 2006 (as amended from time to time). In other words, Non-Ind AS companies, will be required to prepare Financial Statements as per Companies (Accounting Standards) Rules, 2006 (as amended from time to time), as per the format of Division I to Schedule III to the Act.
1.2.2 ‘Division II’ – ‘Ind AS Schedule III’ was inserted to give a format of Financial Statements for companies that are required to comply with the Companies (Indian Accounting Standards) Rules, 2015, as amended from time to time (‘Companies Ind AS Rules’). This was newly inserted into Schedule III for companies that adopt Ind AS as per Rule 4(1)(i) or Rule 4(1)(ii) or Rule 4(1)(iii) of the Companies Ind AS Rules. Accordingly, such Companies, while preparing its first and subsequent Ind AS Financial Statements, would apply Division II to Ind AS Schedule III to the Act.
1.3 The MCA issued a notification dated 30 March, 2016 announcing the Ind AS roadmap for non-banking financial companies (‘NBFC’). Further, MCA notified amendments to Schedule III to the Act on 11 October, 2018 whereby:
1.3.1 ‘Division III’ to Schedule III’ (Refer Annexure A, Pg 138) was inserted to give a format of Financial Statements for NBFC’s that are required to comply with the Companies (Indian Accounting Standards) Rules, 2015, as amended from time to time (‘Companies Ind AS Rules’). As per the Companies Ind AS Rules, “Non-Banking Financial Company” means a NonBanking Financial Company as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 and includes Housing Finance Companies, Merchant Banking companies, Micro Finance Companies, Mutual Benefit Companies, Venture Capital Fund Companies, Stock Broker or Sub-Broker Companies, Nidhi Companies, Chit Companies, Securitisation and Reconstruction Companies, Mortgage Guarantee Companies, Pension Fund Companies, Asset Management Companies and Core Investment Companies.’ Accordingly, NBFC’s while preparing its first and subsequent Ind AS Financial Statements, would apply Division III to Schedule III to the Act.
1.4 It may, however, be clarified that for companies engaged in the generation or supply of electricity, neither the Electricity Act, 2003, nor the rules framed thereunder, prescribe any specific format for presentation of Financial Statements by an electricity company. Section 1(4) of the Act states that the Act will apply to electricity companies, to the extent it is not inconsistent with the provisions of the Electricity Act. Keeping this in view, Division III to Schedule III, Division I or Division II as applicable may be followed by such companies till the time any other format is prescribed by the relevant Statute.
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