A government company is a company in which not less than 51% of the paid-up share capital is held by the Central Government, a State Government, or partly by both, and includes a subsidiary of such a company. The definition is in Section 2(45). Sections 394 and 395 deal with the annual report, the audit and the CAG’s oversight.
The Audit and CAG Oversight
The auditor of a government company is appointed by the Comptroller and Auditor General of India (CAG). The CAG has the power to conduct a supplementary audit or a test audit, and the audit report is placed before the legislature. The CAG’s oversight is a distinguishing feature: a government company is subject to a dual audit architecture—the statutory auditor and the CAG.
The Annual Report
Section 394 requires the government company to prepare an annual report on its working and affairs, and to lay it before both Houses of Parliament or the State Legislature, as applicable. The report is in addition to the financial statements and the board’s report.
The Exemptions
The Central Government has the power under Section 462 to exempt a government company from specified provisions of the Act. The exemptions are notified and are conditional. A government company should claim the exemption provision by provision, after checking the notification and the conditions, rather than assuming a blanket relaxation.
The Compliance Discipline
The government company should maintain the CAG audit records, the annual report, the board minutes and the ROC filings. The 51% holding test should be monitored, because a dilution below 51% changes the character of the company and the applicable compliance regime.
Call to Action: We advise government companies and their auditors on CAG oversight, annual-report obligations and notified exemptions. For a government-company review, contact office@anujdesaiassociates.com, Ph No. 9619456656, Website https://anujdesaiassociates.com, LinkedIn linkedin.com/in/ca-anuj-desai-122547230.