India: Companies (Amendment) Act, 2019, Notified

Last Updated: 20 August 2019
Article by SKP  

The Companies Act, 2013 (the Act), amended under promulgation of the Companies (Amendment) Ordinance, 2018, and Companies (Amendment) Ordinance, 2019, and was placed for passage by the Parliament.

Accordingly, the Parliament has passed the Companies (Amendment) Act, 2019 (the Amendment Act), in monsoon session repealing the Companies (Amendment) Ordinance, 2019, and further received the assent of President on 31 July 2019. The provisions of the Amendment Act were notified in the official gazette on the same day and taken effect w.e.f. 2 November 2018 except certain sections which shall come into force on such date as the Central Government may notify.

The Amendment Act seeks to ensure more accountability and better enforcement to strengthen the corporate governance norms and compliance management in the corporate sector as enshrined in the Act.

The Act sought to amend almost 42 sections of the Companies Act, 2013. We bring to the readers key takeaways from the amendments made to the Act vide said Amendment Act:

Particulars Details of the amendment
Change in the financial year The authority to approve the adoption of a different year as 'financial year' has been shifted from the Tribunal to the Central Government.
Commencement of Business The concept of commencement of business has been reintroduced. Accordingly, every company having share capital and incorporated after commencement of the Ordinance has to ensure that before commencing its business (i) a director files declaration within a period of 180 days with the Registrar that every subscriber to memorandum has paid the subscription money; and (ii) the company has filed with the Registrar a verification of its registered office.
Registered Office Verification The Registrar is empowered to do physical verification of the registered office if he has reasonable cause to believe that the company is not carrying on any business or operations, and in case of default, he may initiate the action for strike off of the company's name from the registry.
Conversion of Public Company to Private Company Authority to approve an application for conversion of a public limited company to a private limited company has been shifted from the NCLT to the Central Government, i.e., Regional Director.
Registration of Charge The period to register the charge created on the assets of the company has been reduced to 30 days from 300 days. The Registrar is empowered to extend this period up to 60 days further on payment of ad valorem fees as may be prescribed.

Further, if a person willfully furnishes incorrect information or knowingly suppresses any material information pertaining to the registration of charges, he shall be liable for action under fraud.
Disqualifications of Director If a director does not comply with the number of directorships, i.e. a maximum of ten public in companies and a maximum of twenty in other companies, he/she shall be disqualified under section 164 of the Act. Thus, one more ground for disqualification of director has been added.
Remuneration to Independent Director The provisions of section 197(7) of the Act has been omitted, which deals with remuneration to Independent Director in the form of sitting fees, profit related commission, and reimbursement of expenses. However, the provisions of section 149(9) still provides for the same.
Power of the Registrar to remove the name of the company
The amendment has introduced two new clauses for removal of the name of the Company by the Registrar:
  1. If the subscribers of Memorandum of Association of the Company have not paid the subscription amount and have not furnished a declaration in this regard within 180 days; and
  2. If the Company is revealed to not having any registered office after physical verification of registered office
Compounding of offenses The pecuniary jurisdiction for compounding of offense by Regional Director has been raised to INR 25 lakh. This will reduce the burden on NCLT with respect to routine procedural matters and is a great move indeed.
Punishment for Fraud The maximum fine under section 447 has been increased from INR 20 lakh to INR 50 lakh.
Adjudication of penalties Adjudicating mechanism for non-compliance or default under the Act has been widened to include the imposition of penalty on 'any other person.' This is basically with an objective to resolve issues of non-compliance or default by way of system driven adjudication mechanism wherein the person can be relived of non-compliance by payment of penalty instead of enforcement mechanism.
Penalty for repeated default (insertion) New section 454A has been inserted for repeated default wherein if the default is repeated within three years from the last date; then double penalty shall be imposed.
Substitution of 'Penalty' for 'Fine'
The amendment has substituted penalty for certain non-compliances which are technical in nature, in place of the fine. Fine and Penalty though may sound similar, yet are different. Fine can be imposed only by a court of law, but a penalty may be imposed even by an administrative officer.
The Amendment Act, therefore, seeks to provide penalty inter alia for following non-compliances in place of fine:
  • Issue of shares at a discount
  • Notice to the registrar for an alteration of share capital
  • Non-compliance with the registration of charges
  • Annual return
  • Explanatory statement
  • Proxy
  • Registration of certain resolution
  • Reporting on the annual general meeting

However, following provisions of the Amendment Act are yet to be notified:

Section Number Details of the amendment
Section 6 of the Amendment Act Seeks to 'file' the prospectus with the registrar instead of 'registration' thus simplifies the procedure.
Section 7 of the Amendment Act Seeks to empower Central Government to prescribe any class of company to issue or transfer shares only in dematerialized form.
Section 8 of the Amendment Act
Substitutes the word 'file' in place of 'registration'.
Clauses (i), (iii) and clause (iv) of section 14 of the Amendment Act
Deals with the declaration of beneficial ownership by an individual. It casts an obligation on the Company to identify an individual who is a significant beneficial owner in relation to the company and requires him to make the declaration of significant beneficial ownership as per the Act.
Section 20 of the Amendment Act
Deals with the National Financial Reporting Authority.
Section 21 of the Amendment Act
Deals with Corporate Social Responsibility (CSR). It seeks to cast an obligation on a company to spend amount towards CSR. Removes criteria of profit in three immediate financial years. Provides for the transfer of the unspent amount to separate account as prescribed. The contravention to spend on CSR has been criminalized by providing fine for contravention and imprisonment.
Section 31 of the Amendment Act
Relate to inspection and investigation by Central Government.
Section 33, 34 and 35 of the Amendment Act
Relates to newly inserted amendments to sections relating to cases of oppression etc. seeks to empower Central Government to initiate case against person involved in mismanagement and request NCLT to enquire into case and record a decision whether such a person is fit and proper to hold office of director or any other office connected with conduct and management of any company.
Further, the person who is not fit and proper is debarred from holding any office connected with the conduct of and management of the affairs of any company for a period of five years from the decision of the NCLT.
Section 37 of the Amendment Act
Allows registrar to file winding up petition before NCLT in terms of clause (e) of section 271 of the Act.
Section 38 of the Amendment Act Omits the word 'prospectus' in section 398 (1)(f) of the Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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