Introduction: On July 31, 2019, the Ministry of Corporate Affairs introduced the Companies (Amendment) Act, 2019 (Amendment). The Amendment considers changes brought in by the Companies (Amendment) Ordinance, 2018, (2018 Ordinance), the Companies (Amendment) Ordinance Act, 2019 and the Companies (Amendment) Second Ordinance, 2019 (2019 Ordinances) to further amend the Companies Act, 2013 (Act).

1. SECTION 10A INSERTION OF NEW SECTION 10A COMMENCEMENT OF BUSINESS

Re-introduction of section 11 omitted under the Companies (Amendment) Act, 2015 to provide for a declaration by a company having share capital before it commences its business

A company shall not commence its business or exercise its borrowing power  unless it has file declaration within 180 days from the date of its incorporation with the registrar that every subscriber of memorandum has paid the value of share agreed to taken by him on the date of making such declaration and the company has also filed with the registrar a verification of its registered office under section 12(2).

  • Penalty for default : On Company Rs. 50000/-

On officer Rs. 1000/- for each day during which default continues but maximum upto one lakh

  • Other Consequenses : The Registrar may initiate action for removal of the name of the company from the register of companies under chapter XVIII

2. SECTION 12 REGISTERED OFFICE OF THE COMPANY

Insertion of subsection 9 to section 12, stating that

“If Registrar has reasonable cause to believe that the company is not carrying on any business or operations, he may, without prejudice to the provision of sub-section (8), cause a physical verification of the registered office of the company and if any default is found in complying with the requirements of sub- section (1), initiate action for the removal of the name of the company from the register of companies under Chapter XVIII”.

3. SECTION 26 MATTERS TO BE STATED IN PROSPECTUS

Now the companies are not required to get prospectus register with the ROC instead the prospectus would be filled with the registrar.

4. SECTION 29 PUBLIC OFFER OF SECURITIES TO VBE IN DEMATERIALLISED FORM

The term ‘public’ has been omitted under section 29(1)(b). Government would now prescribe the class of companies (not restricted to public companies), which would be mandatorily required to issue the securities only in dematerialised form.

5. SECTION 35 CIVIL LIABILITY FOR THE MIS-STATEMENTS IN PROSPECTUS

The reference of ‘Registration of Prospectus with the Registrar’ is replaced by ‘Filing of copy of Prospectus with the Registrar’.

6. SECTION 77 REGISTRATION OF CHAGE

The requirement of registration of a charge is within 30 days of its creation with the ROC remains unchanged.

Section 11 of the Amendment states, that in case of charges which was created prior to the commencement of the Amendment, the ROC may, upon an application by the company, allow registration of such charges to be made within 300 days of its creation, and provides for a further extension of up to 6 months from the date of the commencement of the Amendment, on payment of additional fees as may be prescribed for different classes of companies.

Further, in case of charges created on or after the commencement of the Amendment, the ROC may, on an application by the company, allow registration of such charges to be made within 60 days of its creation, which may further be extended to another 60 days on payment of ad valorem fees.

7. SECTION 90 REGISTER OF SIGNIFICANT BENEFICIAL OWNER IN THE COMPANY

  • After sub-section (4) sub-section (4A) is inserted which provides that every company should take necessary steps to identify the individuals who are the significant beneficial owner of the company.
  • For sub-section (9) following sub-section substituted namely:

The company or the person aggrieved by the order of tribunal may make an application to the tribunal for setting aside the order made under sub-section (8) within a period of one year from the date of such order.

If no application is filed within a period of one year then shares shall be transferred to authority constituted under section 125(5).

  • After sub-section (9) sub-section (9A) inserted which give power to the Central Govt. to make rules for the purpose of this section.

8. SECTION 132 CONSTITUTION OF NATIONAL FINANCIAL REPORTING AUTHORITY

Under Section 132 following sub-sections are inserted, namely:

  • (1A) The National Financial Reporting Authority shall perform its functions  through such divisions as may be prescribed.
  • (3A) Each division of the National Financial Reporting Authority shall be presided over by the Chairperson or a full-time Member authorised by the Chairperson.
  • (3B) There shall be an executive body of the National Financial Reporting

Authority consisting of the Chairperson and full-time Members of such Authority for efficient discharge of its functions under sub-section (2) [other than clause (a)] and sub-section (4).”

Under sub-section (4) clause (c) sub-clause (B) is substituted and states that A member or firm debarred from being appointed as an auditor or internal auditor etc. or performing any valuation under section 247 by NFRA in case professional or other misconduct is proved.

9. SECTION 135 CORPORATE SOCIAL RESPONSIBILITY

  • In sub-section (5) following amendment is made the board of director of every company referred under sub-section (1) shall ensure that the Company spend in every financial year at least 2% of average net profits of the company made during the three immediately preceding financial year but where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years in pursuance of its corporate social responsibility.
  • After sub-section(5) following subsections inserted which states:
  • Sub-section (6)

(i) In case the unspent amount does not relate to any ongoing project, unspent amounts to be transferred to a Fund specified under Schedule VII within a period of six months of the expiry of the financial year.

(ii) In case the unspent amount relates to any ongoing project subject to fulfilling of prescribed conditions, unspent amounts to be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account. AND Such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial.

  • Sub-section(7) Penal Provision If Company Contravenes provisions of sub-section (5) or (6)

The company – punishable with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 25 lakh

Every officer of such company who is in default – shall be punishable with imprisonment for a term which may extend to 3 years or with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 5 lakh, or with both 

  • Sub-section (8)

MCA empowered to give general or special directions to a company or class of companies as it considers necessary to ensure compliance of provisions of this section.

10. SECTION 164 DISQUALIFICATIONS FROM THE APPOINTMENT OF DIRECTOR

In section 164(1) a new clause (i) is inserted whereby a person shall be subject to disqualification if he accepts directorships exceeding the maximum number of directorship provided in section 165 i.e., directorship in maximum 20 companies.

11. INVESTIGATION INTO THE AFFAIRS OF COMPANY BY SERIOUS FRAUD INVESTIGATION OFFICER

  • Effect of amendment in sub-section (8):Any officer not below the rank of Assistant Director of Serious Fraud Investigation Office (SFIO), if so authorised, may arrest any person in accordance with the provisions of this section.
  • Effect of amendment in sub-section (10): The person so arrested may be taken to a Special Court or Judicial Magistrate or Metropolitan Magistrate within 24 hours of his arrest.
  • Effect of insertion of sub-section (14A): Where an investigation report submitted by SFIO states that a fraud has taken place and any director, KMP or officer has taken undue advantage or benefit, then the Central Government may file an application before the Tribunal with regard to disgorgement and such director, KMP or officer may be held personally liable without any limitation of liability.

12. SECTION 241 – APPLICATION TO TRIBUNAL FOR RELIEF IN CASES OF OPPRESSION

New subsections to Section 241 of the Act, have been introduced, where if the Central Government is of the opinion that there exist circumstances where:

(a) any person concerned in the conduct and management of the affairs of a company is guilty of fraud, misfeasance, persistent negligence or default in carrying out his obligations and functions under the law or of breach of trust; or

(b) the business of a company is not or has not been conducted and managed by such person in accordance with sound business principles or prudent commercial practices; or

(c) a company is or has been conducted and managed by such person in a manner which is likely to cause, or has caused, serious injury or damage to the interest of the trade, industry or business to which such company pertains; or

(d) the business of a company is or has been conducted and managed by such person with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose or in a manner prejudicial to public interest;

the Central Government is empowered to initiate a case against such person and refer the same to the NCLT with a request that the NCLT may inquire into the case and record a decision as to whether or not such person is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company.

If the NCLT rules that the person is not a fit and proper person then the person shall not hold the office of a director or any other office connected with the conduct and management of the affairs of any company for 5 years from the date of the decision and further would not be entitled to any compensation for the loss or termination of office.

13. SECTION 441 COMPOUNDING OF OFFENCE

As per Section 39 of the Amendment, any offence which is punishable under the Act with imprisonment only or with imprisonment and also with fine shall not be compoundable notwithstanding anything contained in the Code of Criminal Procedure, 1973.

Section 441 of the Act has been amended to provide that the Regional Director or any officer so authorized by the Central Government shall now have the power to compound (settle) offences wherein the penalty is up to INR 25,00,000

14. SECTION 243 CONSEQUENCE OF TERMINATION OR MODIFICATION OF CERTAIN AGREEMENTS

The person who is not a fit and proper person pursuant to section 242 shall not hold the office of a director or any other office connected with the conduct and management of the affairs of any company for a period of five years from the date of the decision of the Tribunal.

Central Government may, with the leave of the Tribunal, permit such person to hold any such office before the expiry of the said period of five years.

The person so removed from the office of a director or any other office connected with the conduct and management of the affairs of the company shall not be entitled to, or be paid, any compensation for the loss or termination of office.

15. SECTION 272 POWER OF COURT TO STAY OR RESTRAIN PROCEEDINGS

In section 272 (3), as provided under, the reference to clause (e) is omitted:

The Registrar shall be entitled to present a petition for winding up under section 271, except on the grounds specified in clause (a) or clause (e) of that sub-section:

271(e) provides that a company may, on a petition under section 272, be wound up by the Tribunal, if the Tribunal is of the opinion that it is just and equitable that the company should be wound up.

Registrar allowed to present a petition of winding up on the ground that it is just and equitable to do so under clause (e) of section 271.

16. PROVISIONS RELATING TO PENALTIES

Changes in penal provisions introduced by the 2018 Ordinance, promulgated again by 2019 Ordinances and now fortified by the Amendment have been made effective for the following non-compliances:

S. No. Failure to comply with Penalty
1 Prohibition on Issue of Shares at Discount Company: amount equal to the amount raised through the issue of shares at a discount or INR 5,00,000 whichever is less;

refund all monies received with interest at the rate of 12% per annum, from the date of issue of such shares

OIDs: amount equal to the amount raised through issue of shares at a discount, or INR 5,00,000, whichever is less

2 Notice to be given to the RoC for Alteration of Share Capital Company & OIDs: INR 1,000 for each day during which such default continues, or INR 5,00,000 whichever is less
3 Filing of Annual return Company & OIDs: INR 50,000 and in case of continuing failure, with a further penalty of INR 100 for each day after the first during which such failure continues, subject to a maximum of INR 5,00,000
4 Statement to be Annexed to Notice OIDs: INR 50,000, or 5 times the amount of benefits accrued
5 Notice calling a meeting which provide for voting by proxy OIDs: INR 5,000
6 Resolutions and Agreements to be Filed Company: INR 1,00,000, and in case of continuing failure, INR 500 for each day after the first during which such failure continues, subject to a maximum of INR 25,00,000

OIDs & Liquidator: INR 50,000 and in case of continuing failure, with further penalty of INR 500 for each day after the first during which such failure continues, subject to a maximum of INR 5,00,000

7 Report on Annual General Meeting Company: INR 1,00,000, and in case of continuing failure, with a further penalty of INR 500 for each day after the first during which such failure continues subject to a maximum of INR 5,00,000

OIDs: INR 25,000 and in case of continuing failure, with a further penalty of INR 500 for each day after the first during which such failure continues, subject to a maximum of INR 1,00,000

8 Copy of Financial Statement to be Filed with the RoC OIDs: INR 1,00,000, and in case of continuing failure, with further penalty of INR 100 for each day after the first during which such failure continues, subject to a maximum of INR 5,00,000
9 Company to Inform Director Identification Number to the RoC Company: INR 25,000 and in case of continuing failure, with further penalty of INR 100 for each day after the first during which such failure continues, subject to a maximum of INR 1,00,000

OIDs: INR 25,000 and in case of continuing failure, with further penalty of INR 100 for each day after the first during which such failure continues, subject to a maximum of INR 1,00,000

10 Penalty for Default of Section 152, 155 & 156 OIDs: INR 50,000 and where the default is a continuing one, with a further penalty which may extend to INR 500 for each day after the first during which such default continues
11 Payment to Director for Loss of Office, etc., in Connection with Transfer of Undertaking, Property or Shares Director: INR 1,00,000
12 Appointment of Key Managerial Personnel Company: INR 5,00,000

OID: INR 50,000 and where the default is a continuing one, with a further penalty of INR 1,000 for each day after the first during which such default continues but not exceeding INR 5,00,000

13 Registration of Offer of Schemes Involving Transfer of Shares Director: INR 1,00,000
14 Penalty for repeated default An amount equal to twice the amount of penalty provided for such default under the relevant provisions of this Act

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