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CARO 2004 applicability to a pvt co

16 April 2010

Is CARO applicable to a private limited company who has taken loan from directors above Rs 25 lakhs? All other conditions as to applicability of CARO 2004 are not met by the company.

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CA RAJESH BALSARA (Proprietor) (262 Points)
Replied 16 April 2010

CARO, 2003 and CARO (Amendment), 2004 - A Comparative Analysis

Compiled by CA RAJESH BALSARA

Sl. No.	Clause	CARO, 2003	CARO (Amend), 2004	Amendments / Remarks
01	Clause (iv)(2) of Para 1	a private limited company with a paid up capital and reserves not more than fifty lakh rupees and has not accepted any public deposit and does not have loan outstanding ten lakh rupees or more from any bank or financial institution and does not have a turnover exceeding five crore rupees.	'a private limited company with a paid up capital and reserves not more than rupees fifty lakh and which does not have loan outstanding exceeding rupees twenty five lakh from any bank or financial institution and does not have a turnover exceeding rupees five crore at any point of time during the financial year.	1. The Pvt. Ltd. Companies cannot legally raise public deposits and hence the clause has been omitted. 2. The loan outstanding limit has been raised from Rs.10 lakhs to Rs. 25 lakhs above. 3. Now a private limited Company, in order to be exempt from the applicability of the Order, must satisfy all the conditions at any point of time during the financial year.
02	Clauses( c) to (i) of Para 2	Definitions of: (c) "finance company" (d) "investment company" (e) "manufacturing company" (f) "mining company" (g) "processing company" (h) "service company" (i) "trading company"	OMITTED	Certain definitions repeated from MAOCARO, 1988 have been omitted now.
03	Clause (iii) of Para 4	a) has the company either granted or taken any loans, secured or unsecured to/from companies, firms or other parties covered in the register maintained under section 301 of the Act. If so, give the number of parties and amount involved in the transactions. b) whether the rate of interest and other terms and conditions of loans given or taken by the company, secured or unsecured, are prima facie prejudicial to the interest of the company; c) whether payment of the principal amount and interest are also regular; d) if overdue amount is more than one lakh, whether reasonable steps have been taken by the company for recovery/payment of the principal and interest;	a) has the company granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 301 of the Act. If so, give the number of parties and amount involved in the transactions; and b) whether the rate of interest and other terms and conditions of loans given by the company, secured or unsecured , are prima facie prejudicial to the interest of the company ; and c) whether receipt of the principal amount and interest are also regular; and d) if overdue amount is more than rupees one lakh, whether reasonable steps have been taken by the company for recovery of the principal and interest; e) has the company taken any loans, secured or unsecured from companies, firms or other parties covered in the register maintained under section 301 of the Act. If so, give the number of parties and the amount involved in the transactions; and f) whether the rate of interest and other terms and conditions of loans taken by the company, secured or unsecured, are prima facie prejudicial to the interest of the company; and g) whether payment of the principal amount and interest are also regular.	Previously merged clauses have been de-merged again in line with MAOCARO, 1988 with some changes have already made in CARO,2003.
04	Clause (iv) of Para 4	is there an adequate internal control procedure commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods. Whether there is a continuing failure to correct major weaknesses in internal control;	is there an adequate internal control system commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and services. Whether there is continuing failure to correct major weakness in internal control system;	1. Now the more emphasis has been given to internal control system rather than mere internal control procedure. 2. Now the para covers purchase and sale of services also.
05	Clause (v) of Para 4	a) whether transactions that need to be entered into a register in pursuance of section 301 of the Act have been so entered; b) whether each of these transactions have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time;	a) whether the particulars of contracts or arrangements referred to in section 301 of the Act have been entered in the register required to be maintained under that section ; and b) whether transactions made in pursuance of such contracts or arrangements have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time;	These paragraphs have been re-drafted meaningfully and these two paragraphs are mutually dependable.
06	Clause (vi) of Para 4	in case the company has accepted deposits from the public, whether the directives issued by the Reserve Bank of India and the provisions of sections 58A and 58AA of the Act and the rules framed there under, where applicable, have been complied with. If not, the nature of contraventions should be stated; If an order has been passed by Company Law Board whether the same has been complied with or not?	In case the company has accepted deposits from the public, whether the directives issued by the Reserve Bank of India and the provisions of sections 58A, 58AA or any other relevant provisions of the Act and the rules framed there under, where applicable, have been complied with. If not, the nature of contraventions should be stated; If any order has been passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other tribunal whether the same has been complied with or not.	Certain words and figures are added without any further amendments in future.
07	Clause (ix) of Para 4	d) is the company regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees' State Insurance, Income-tax, Sales-tax, Wealth Tax, Custom Duty, Excise Duty, cess and any other statutory dues with the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as at the last day of the financial year concerned for a period of more than six months from the date they became payable, shall be indicated by the auditor. d) in case dues of sales tax/income tax/customs tax/wealth tax/ excise duty/cess have not been deposited on account of any dispute, then the amounts involved and the forum where dispute is pending may please be mentioned.	a) is the company regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees' State Insurance, Income-tax, Sales-tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, cess and any other statutory dues with the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as at the last day of the financial year concerned for a period of more than six months from the date they became payable, shall be indicated by the auditor. b) in case dues of Income tax/ sales tax/wealthtax/ service tax/ Customs duty/Excise duty/cess have not been deposited on account of any dispute, then the amounts involved and the forum where dispute is pending shall be mentioned.	In the previous order, the Service-tax not specifically covered, now the amendment made it clear.
08	Clause (x) of Para 4	whether in case of a company which has been registered for a period not less than five years, its accumulated losses at the end of the financial year are not less than fifty percent of its net worth and whether it has incurred cash losses in such financial year and in the financial year immediately preceding such financial year also.	whether in case of a company which has been registered for a period not less than five years, its accumulated losses at the end of the financial year are not less than fifty percent of its net worth and whether it has incurred cash losses in such financial year and in the immediately preceding financial year.	The anomaly has been rectified now.
09	Clause (xiii) of Para 4	b) whether the company has complied with the prudential norms on income recognition and provisioning against sub-standard / default / loss assets; d) whether the repayment schedule of various loans granted by the nidhi is based on the repayment capacity of the borrower and would be conducive to recovery of the loan amount;	b) whether the company has complied with the prudential norms on income recognition and provisioning against sub-standard/doubtful/loss assets; d. whether the repayment schedule of various loans granted by the nidhi is based on the repayment capacity of the borrower ~~and would be conducive to recovery of the loan amount;~~	Drafting error rectified now. The strikethrough words have been omitted.
10	Clause (xiv) of Para 4	if the company is dealing or trading in shares, securities, debentures and other investments whether proper records have been maintained of the transactions and contracts and whether timely entries have been made therein; also whether the shares, securities, debentures and other securities have been held by the company, in its own name except to the extent of the exemption; if any, granted under section 49 of the Act.	if the company is dealing or trading in shares, securities, debentures and other investments whether proper records have been maintained of the transactions and contracts and whether timely entries have been made therein; also whether the shares, securities, debentures and other investments have been held by the company, in its own name except to the extent of the exemption; if any, granted under section 49 of the Act.	Drafting error rectified now.
11	Clause (xvii) of Para 4	whether the funds raised on short-term basis have been used for long term investment and vice versa; If yes, the nature and amount is to be indicated;	whether the funds raised on short-term basis have been used for long term investment ~~and vice versa~~; If yes, the nature and amount is to be indicated;	Now the purpose of reporting is meaningful.
12	Clause (xix) of Para 4	whether securities have been created in respect of debentures issued?	whether *security or charge* has been created in respect of debentures issued?	Now the auditor has to report whether any charge, apart from security, has been created in respect of debentures issued by the Company

Ref : Notification No. GSR766(E)

Date of Notification : 25/11/2004

Date of Publication : 25/11/2004

(The principal order was issued vide notification Number GSR 480(E) dated the 12^th June, 2003)

Note : All the above-said amendments shall come into force from 25^th November, 2004

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Suvarna Pathare (C.A) (78 Points)
Replied 16 April 2010

I presume that CARO is not applicable to a pvt ltd co even if it has taken a loan from directors above Rs 25 lakhs. Could you please confirm?

CourseCart.in (Mentor at SHAYVIDZ Academy) (3756 Points)
Replied 16 April 2010

Clause (iv)(2) of Para 1

exception -

a private limited company with a paid up capital and reserves not more than rupees fifty lakh and which does not have loan outstanding exceeding rupees twenty five lakh from any bank or financial institution and does not have a turnover exceeding rupees five crore at any point of time during the financial year.

Loan from director is not covered. hence u do not need to check any loan otherthan loan from bank or FI. Only check loan from bank or FI & forget all other loans.

So CARO is not applicable in ur case.