Who can be the 'Karta' of HUF

A HUF is a family made up of all people who are descended from a common ancestor, including their wives and unmarried daughters. HUF is a person under section 2(31) of the Income tax act, 1961.

 

Who is a ‘Karta’?

"Karta" is a term used to describe the main family member and is traditionally passed down through males.

The Karta holds a position of authority over the other members and has full authority over property, rituals, and other matters.

The senior most member of the family assumes position of Karta of HUF.

 

Whether a minor can become the Karta of HUF?

A junior member cannot become Karta of the Family as long as a senior member is available. A junior member of the HUF can only become Karta of the HUF if all the coparceners agree to the junior member occupying the managerial position. If a minor is the only one left to be manager, he can do so as long as a capable guardian represents him.

 

Whether a female member can become the Karta of HUF?

“If a male member of a Hindu Undivided Family (HUF), by virtue of his being the first-born eldest, can be a Karta, so can a female member”

Held by Delhi high court a case of Mrs. Sujata Sharma Vs Shri Manu Gupta.

 

The traditional Hindu view, recognises only male inheritors to ancestral property. These views are based on treatises such as Dharmshastra and the Mitakshara school of law.

However , the amendments to the Hindu Succession Act in 2005 introduced section 6.  By virtue of this section , even women members get the same rights as male members. The Section 6 is reproduced below.

On and from the commencement of the Hindu Succession (Amendment) Act, 2005 (39 of 2005), in a Joint Hindu family governed by the Mitakshara law, the daughter of a coparcener shall,

(a) by birth become a coparcener in her own right the same manner as the son;

(b) have the same rights in the coparcenery property as she would have had if she had been a son;

(c) be subject to the same liabilities in respect of the said coparcenery property as that of a son, and any reference to a Hindu Mitakshara coparcener shall be deemed to include a reference to a daughter of a coparcener.

Conversion of OPC into Private/Public Company

 

One Person Company (OPC) is a private limited company that has only one member, as opposed to private companies, which must have a minimum of two members, and public companies, which must have a minimum of seven members.

The conversion of a One Person Company (OPC) to other forms of the Company (Private Limited Company or Public Limited Company), is provided under Section 18 of the Companies Act of 2013 and Rule 6 of the Companies (Incorporation) Regulations of 2014.

 

When OPC is to be converted into a Private/public limited Company?

1)   Voluntary Conversion:

A voluntary conversion into a private/public limited company is not permitted unless two years have passed since the incorporation of the OPC.

However, if the One Person Company’s share capital exceeds Rs. 50 lakhs or its average turnover exceeds Rs. 2 crores, the One Person Company (OPC) may convert itself into a private limited company within two months.

In the event of a voluntary conversion, the One Person Company (OPC) must notify the Registrar of Companies (ROC) using form INC-5 within 60 days.

 

 

2)   Mandatory/Compulsory Conversion:

A One Person Company (OPC) must convert to Private/Public in the following scenarios:

Paid-up share capital exceeds Rs. 50 lakhs or the yearly turnover of the three most recent fiscal years is more than two crores rupees.

This conversion must be completed within 6 months of the date when the paid-up capital exceeds Rs. 50 lakhs or the related period when the average annual turnover exceeds Rs. 2 crores.

 

Amendment Effective From 1st April 2021

A One Person Company, may be converted into a Private or Public Company by increasing the minimum number of members and directors to two or seven members and two or three directors, as the case may be, and maintaining the minimum paid-up capital as required by the Act for such class of company, and by complying with Section 18 of the Act for conversion.

When Social Auditing Standards are mandatory?

The Social Audit Standards (SASs) will apply when an independent social audit of a Social Enterprise is to be performed,

The Institute of Chartered Accountants of India (ICAI) has published 16 Social Audit Standards.

 

When these standards are mandatory?

While conducting the social audit for "social enterprises" listed on the "social stock exchange," social auditors must comply with the requirements of SASs.

 

Five Elements of Social Audit

There are five elements of a social audit engagement.

1)    A three-party relationship involving a social auditor, a responsible party, and intended users;

2)    Project/ Program/ Intervention to be covered;

3)    Project Monitoring Framework;

4)    Evidence; and

5)    A written audit report

Know about 16 Social Audit Standards

When an independent social audit of a Social Enterprise is to be performed, the Social Audit Standards will apply.

The Institute of Chartered Accountants of India (ICAI) has published 16 Social Audit Standards.

This Social Audit Standard is concerned with the theme of "eradicating hunger, poverty, malnutrition, and inequality."

Below are the 16 Social Audit Standards that Social Auditors must follow while doing social audits commencing on or after 14^th January 2023.

 

i)  SAS 100: Hunger, Poverty, Malnutrition, and Inequality:

ii) SAS 200: Promoting health care (including mental health) and sanitation, as well as making safe drinking water available

iii) SAS 300: Education, employability, and livelihood promotion

iv) SAS 400: Gender equality, women's empowerment, and LGBTQIA+ communities

v) SAS 500: Ensuring environmental sustainability, addressing climate change (including mitigation and adaptation), and conserving forests and wildlife.

vi) SAS 600: National heritage, art, and culture protection

vii) SAS 700: Promotion of rural sports, nationally recognised sports, Paralympic sports, and Olympic sports through training.

viii) SAS 800: Supporting incubators of social enterprises

ix) SAS 900: Supporting other platforms that strengthen the non-profit ecosystem in fundraising and capacity building

x) SAS 1000: Promoting livelihoods for rural and urban poor including enhancing

xi) SAS 1100: Slum development, affordable housing, and other interventions to create more sustainable and resilient cities

xii) SAS 1200: Disaster management, including disaster relief, rehabilitation, and reconstruction.

xiii) SAS 1300: Financial Inclusion Promotion

xiv) SAS 1400: Facilitating disadvantaged communities' access to land and property assets

xv) SAS 1500: Bridging the digital divide in internet and mobile phone access, addressing issues of misinformation and data protection

xvi) SAS 1600: Improving the well-being of migrants and refugees

 

 

CRYPTOCURRENCY : DISCLOSURE REQUIREMENT UNDER REVISED SCHEDULE III

Cryptocurrency is the newly emerging digital currency in the world. It uses blockchain technology. Countries all over the world have not accepted it as a digital currency. Recently, a country called ‘El Salvador’ has declared “Bitcoin” (the first cryptocurrency ever known) as its official currency. There is no particular regulatory body to govern the transactions in cryptocurrencies. In India, the Ministry of Corporate Affairs has taken steps to require Companies to disclose their transactions in cryptocurrencies in their financial statements.

 

These changes in the reporting requirements have to be disclosed for the financial year 2021-22 and onwards. These charges are expected to bring more transparency to the financial statements.

 

The following details or information are to be provided in the financial statements of a Company.

Sl.No.	Particulars	FY 2021-22	FY 2020-21
1	Profit or loss on transactions involving Cryptocurrency
2	Amount of Cryptocurrency held as at the reporting date
3	Deposits/advances received by any persons to trade or to invest in cryptocurrency

✍

CA Ramakrishna Sanjay

DOCTRINE OF PROMISSORY ESTOPPEL

 

DOCTRINE OF PROMISSORY ESTOPPEL

 

Generally, a promise is legally enforceable when such promise/promises are made for consideration. If, any promise/promises are made without underlying consideration, such promises are void-ab-initio and cannot be legally enforceable in the court of law. But, in some instances courts may entertain promises without valid consideration also and the same is known as the “Doctrine of Promissory Estoppel”.

The Doctrine of Promissory Estoppel is a legal principle, wherein a promise made without underlying consideration is also legally enforceable when such promise/promises are made by the promisor to promisee and on the basis of such promise/promises, promisee has acted upon and that results to his detrimental.

So, following aspects must present in a case to fit into the ‘Doctrine of Promissory Estoppel’ so that Court can consider such cases for hearing even though promises are made without underlying consideration.

1)    There is a Promise

2)    The Promisor has made promise to promise

3)    Promise doesn’t have any underlying consideration

4)    Promisee has acted upon (entered into the contract) on the basis of such promise by the promisor.

5)    Promisee has suffered/may suffer any economic loss if such promises are not met.

The main objective of this legal principal is to protect the interest of the innocent promisee who has entered into the contract solely on the basis of promises made by the promisor. This principal also abstains the promisor from arguing that an underlying promise shouldn’t be entertained as no consideration is involved. It helps the injured person (promisee) to recover the losses on a promise.

Also, cases are entertained by the Court only if it determines that honouring of the promise is the only means by which loss(e) suffered by the promisee can be rectified.

Example:

Vendor, sells a shirt to customer by promising that the shirt can be replaced if it doesn’t fit to customer’s size.

Here,

1)    There is a promise

2)    A Promise is made without consideration (No Consideration is demanded for replacing the shirt)

3)    Customer has acted upon i.e., purchased the shirt on belief that shirt can be replaced if it doesn’t fit to his size.

4)    If the promise is not honoured the customer will suffer loss

5)    Honouring the promise is the only way by which loss of the customer can be rectified.

 

So, in such instances the Court will accept the cases even though they are made without underlying consideration.

 

                                                                                                                                  ✍

CA Sanjay R Shetty

 

CARO 2020 applicability on Private Limited Companies – An analysis

 

">CARO 2020 applicability on Private Limited Companies – An analysis

The Central Government, in exercise of the powers conferred, under sub-section (11) of section 143 of the Companies Act, 2013, issued the Companies (Auditor’s Report) Order, 2020, vide Order number S.O. 849(E) dated 25th February, 2020.

The Order prescribes certain financial / non-financial aspects relating to Companies on which auditor of the Company is required to comment upon.

The Order is applicable to all Companies. However, the auditors banking Companies, Insurance Companies, Companies registered under section 8 of the Act, One Person Companies, Small Companies and Private Limited Companies are not required to include CARO 2020 in their Independent Auditor’s Report. While OPCs and Small Companies are exempted from the applicability of this Order, Private Limited companies are exempted only upon the conditions mentioned therein are duly satisfied.

This article explains the manner of determining the CARO Applicability on OPCs, Small Companies and Private Limited Companies.

Classes of Companies	Section	Meaning
One Person Companies	2(62)	Are those Companies which will have only one person as its member.
Small Companies	2(85)	Are those companies whose Paid-up capital is below Rs. 50 Lakhs and Turnover is below Rs. 2 Crores, as per the statement of profit and loss for the immediately preceding financial year and which is not a subsidiary or holding Company.
Private Limited Companies	2(68)	Are those Companies which restrict the right to transfer its shares and limits the number of members to 200.

 

CARO 2020, Applicability on Private Limited Companies

Analyzing the CARO 2020, Applicability

Particulars	Scenario 1	Scenario 2	Scenario 3	Scenario 4
Nature of Company	-	-	-	Subsidiary/holding of a Public Company
Paid-up Capital	49 Lakhs	51 Lakhs	51 Lakhs	10 Lakhs
Reserves & Surplus	1 Crore	49 Lakhs	49 Lakhs	0.5 Lakhs
Borrowings	10 Crores	90 Lakhs	2 Crores	NIL
Total Income	1.90 Crores	09 Crores	9 Crores	NIL
CARO 2020, Applicable	NO	NO	YES	YES
Reason	Note 1	Note 2	Note 3	Note 3

Note 1: CARO 2020, is not applicable in the case of Small Companies.

Note 2: CARO 2020, is not applicable as the Total Income, Borrowings and Networth is within the limit prescribed.

Note 3: Applicable as the limit of borrowings exceeded.

Note 4: Applicable as it is a subsidiary/holding Company of a Public Limited Company.

 

✍

CA Sanjay R Shetty

 

 

Companies (Auditor’s Report) Order, 2020 Applicability

 

Companies (Auditor’s Report) Order, 2020 Applicability

The Central Government, in exercise of the powers, conferred, under sub-section (11) of section 143 of the Companies Act, 2013, issued the Companies (Auditor’s Report) Order, 2020, vide Order number S.O. 849(E) dated 25th February 2020.

 

CARO 2020 was initially applicable for audits of the financial year 2019-20 and onwards.

 

Subsequently, vide notification dated 24th March 2020; the applicability of the said Order has been postponed by one more financial year. Accordingly, CARO 2020 is applicable for audits of the financial year 2020-21 and onwards.

 

The order applies to all companies.

 

The Order also applies to foreign companies.

In the case of a foreign company, the Order would be applicable, wherever under any of the provisions of the Act; an audit of financial statements under Chapter X of the Act is required to be carried out for that foreign Company.

 

The Order is also applicable to the audits of the branch(es) of a Company.

Likewise, the Order is also applicable to the audits of the project office/liaison office established by a company outside India, to whom the Order applies.

 

 

Companies Not Covered by the Order

 

1)    A banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949.

 

2)   An insurance company as defined under the Insurance Act, 1938.

 

3)    A company licensed to operate under section 8 of the Act.

 

4)    a one person company as defined under clause (62) of section 2 of the Act and a small company as defined under clause (85) of section 2 of the Act; and

 

5)    a private limited company, provided

Ø  The Company is not a subsidiary or holding of a public company.

Ø  The Company does not have a paid-up capital and reserves and surplus exceeding one crore rupees as on the balance sheet date.

Ø  The Company does not have total borrowings exceeding one crore rupees from any bank or financial institution at any point of time during the financial year.

Ø  The Company does not have a total income as disclosed in Schedule III to the Act, exceeding ten crores rupees during the financial year as per the financial statements.

 

 

Decoding the Applicability of CARO 2020 to Private Limited Companies

 

1)    A private limited company, in order to be exempt from the applicability of the Order must satisfy all the conditions mentioned above collectively. Even if, one of the conditions is not satisfied, the Order would be applicable to the company.

2)    In case a company is covered under the definition of a small company, it will remain exempt from the applicability of the Order even if it falls under any of the criteria specified for a Private Company.

3)   A Private Limited Company is exempted from CARO Reporting if it is a subsidiary or holding company of another Private Limited Company. But, if a Private Limited Company is a subsidiary or holding of a limited Company then the CARO 2020 is applicable.

4)    While the amount of borrowings at any point of time during the financial year need to be considered, Total Income and Paid-up capital and Reserves as at the end of the Financial Year is required to be considered to check the applicability of the CARO 2020.

5)    The test of applicability should be done on annual basis for each financial year separately.

 

✍

CA Sanjay R Shetty