The Act was passed on 31st July 2019 and it has introduced additional amendments in 12 different sections of Companies Act, 2013.
As mentioned in the Act, except sections 6, 7 and 8, clauses (i), (iii) and clause (iv) of section 14, sections 20 and 21, section 31, sections 33, 34 and 35, sections 37 and 38 the other sections shall be deemed to have come into force on the 2nd day of November, 2018.
The provisions of sections 6, 7 and 8, clauses (i), (iii) and clause (iv) of section 14, sections 20 and 21, section 31, sections 33, 34 and 35, sections 37 and 38 shall come into force on such date as the Central Government may notify in the Official Gazette.
We are highlighting the latest amendments which are passed under the new Act excluding the ordinance as it’s already in force.
|S.No||Section under CAA 2019||Section under CA 2013||Title|
|1.||6||26||Matters to be stated in prospectus.|
|2.||7||29||Public offer of securities to be in dematerialised form.|
|3.||8||35||Civil liability for mis-statements in prospectus.|
|4.||14||90||Register of Significant Beneficial Owners in a Company|
|5.||20||132||Constitution of National Financial Reporting Authority.|
|6.||21||135||Corporate Social Responsibility.|
|7.||31||212||Investigation into affairs of company by Serious Fraud Investigation Office.|
|8.||33||241||Application to Tribunal for relief in cases of oppression, etc.|
|9.||34||242||Powers of Tribunal.|
|10.||35||243||Consequence of termination or modification of certain agreements.|
|11.||37||272||Petition for winding up.|
|12.||38||398||Provisions relating to filing of applications, documents, inspection, etc., in electronic form.|
An analysis on each section is detailed below:
Section 26: Matters to be stated in prospectus.
With the amendment, before the issue of prospectus, the intended company shall file the same before Registrar of Companies.
The requirement of registration of prospectus is done away with.
The word “registration” is replaced with “filing” at various clauses.
Section 29: Public offer of securities to be in dematerialised form.
As per erstwhile Companies Act, 2013, any offer to public shall be in dematerialized form.
Now with the amendment, any offer by class or classes of unlisted companies shall be offered, issued, held and transferred only in dematerialized form as per Depositories Act, 1996.
Section 35: Civil liability for mis-statements in prospectus.
The section amends itself restricting the duty of the company intended to issue prospectus after filing with Registrar instead of registration.
Section 90: Register of Significant Beneficial Owners in a Company
Subsection 4A has been introduced as follows:
Every company shall take necessary steps to identify an individual who is a significant beneficial owner in relation to the company and require him to comply with the provisions of this section.;
The introduction of this section brings more clarity for casting duty on company to identify and report SBO to the Registrar and if a Company fails to take necessary steps, then the company and every officer of the company who is in default shall be punishable with fine which shall not be less than ten lakh rupees but which may extend to fifty lakh rupees and where the failure is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the failure continues.
Further, Central Government is empowered to make rules for the section.
Section 132: Constitution of National Financial Reporting Authority.
3 new sub sections are introduced as follows:
1) To empower NFRA to perform functions through divisions as may be prescribed.
2) The division of NFRA shall be presided by Chairperson or a full-time member authorized by Chairperson
3) An executive body shall be formed consisting of Chairperson and full time members of NFRA for discharge of its functions except the functions of recommendation of policies and standards and investigation into companies, body corporates or professionals.
Section 135: Corporate Social Responsibility.
Pursuant to amendment, the calculation of 2% of average profits for the entities wherein 3 immediately preceding financial years have not elapsed, such companies shall take immediately preceding financial year since incorporation.
Ex: If a company incorporated in 2017 has earned net profit of Rs. 5 Crore in 2018-19, then CSR would be applicable for such companies in FY 2019-20 to spend 2% of average net profits as calculated under section 198 of immediately preceding financial years since incorporation.
Such a company shall take 2% average of net profits u/s 198 of 2017-18 & 2018-19 and spend in FY 2019-20.
A new concept of fund transfer on non-utilisation of CSR spent is introduced wherein if a company fails to spend CSR amount, then the company shall transfer the unspent amount to a fund under Schedule VII or if a company holds amount for ongoing projects, then such amount be transferred to Unspent Corporate Social Responsibility A/c within a period of 30 days from the end of financial year and spend the same within 3 years for the project.
If a company fails to spend for ongoing project within a period of 3 years of transfer to unspend CSR A/c, the same be transferred to fund under schedule VII within 30 days of closure of Financial Year.
The same is illustrated as follows:
|If a company fails to spend CSR amount for FY 2019-20 as on 31st March 2020||Then the company shall transfer on or before 30th September 2020 to the Funds as mentioned in Schedule VII. Ex: Contribution to PM National Relief Fund|
|If a company is holding the unspent amount for ongoing project for FY 2019-20 as on 31st March 2020||Then open an account Unspent Corporate Social Responsibility A/c and transfer the unspent amount of CSR before 30th April 2020.
Such amount shall be spend within 3 years from the date of transfer i,e., on or before 30th April 2023.
|If a company fails to spend amount in unspent CSR A/c – for a period of 3 years||Then the company shall transfer on or before 30th April 2023 to the Funds as mentioned in Schedule VII. Ex: Contribution to PM National Relief Fund|
In case of default, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and every officer of such company who is in default, shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.”
Section 212: Investigation into affairs of company by Serious Fraud Investigation Office.
With the amendment
1) Any officer of SFIO not below the rank of Assistant Director has a power to arrest under circumstances as specified under the Act.
2) The cases have to be now taken to Special Court or Judicial Magistrate.
3) A new subsection 14A is introduced as follows:
“Where the report under sub-section (11) or sub-section (12) states that fraud has taken place in a company and due to such fraud any director, key managerial personnel, other officer of the company or any other person or entity, has taken undue advantage or benefit, whether in the form of any asset, property or cash or in any other manner, the Central Government may file an application before the Tribunal for appropriate orders with regard to disgorgement of such asset, property or cash and also for holding such director, key managerial personnel, other officer or any other person liable personally without any limitation of liability.”
Section 241: Application to Tribunal for relief in cases of oppression, etc.
The Central Government may apply to Tribunal if the affairs of the company are conducted prejudicial to public interest.
With the insertion of new proviso, now for the purpose of class of companies as may be prescribed the matter shall only be made before principal bench of the Tribunal.
Three new sub-sections are introduced as follows:
(3) Where in the opinion of the Central Government there exist circumstances suggesting that––
(a) any person concerned in the conduct and management of the affairs of a company is or has been in connection therewith guilty of fraud, misfeasance, persistent negligence or default in carrying out his obligations and functions under the law or of breach of trust;
(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;
(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 may initiate a case against such person and refer the same to the Tribunal with a request that the Tribunal 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.
(4) The person against whom a case is referred to the Tribunal under sub-section (3), shall be joined as a respondent to the application.
(5) Every application under sub-section (3)–
(a) shall contain a concise statement of such circumstances and materials as the Central Government may consider necessary for the purposes of the inquiry; and
(b) shall be signed and verified in the manner laid down in the Code of Civil Procedure, 1908, for the signature and verification of a plaint in a suit by the Central Government.
Section 242: Powers of Tribunal.
An order for an application of oppression and mis-management is to be filed with Registrar within 30 days of issue of the order by Tribunal.
A new sub section is introduced to cast responsibility on tribunal to record its decision at the conclusion of hearing, specifically as to whether or not the respondent 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.
This will ease the filing of order with Registrar.
Section 243: Consequence of termination or modification of certain agreements.
In case a person is declared as not a fit or proper person pursuant to sub-section 4A of section 242 under the case of oppression and mis-management 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 said decision:
Provided that the 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.
Further, any person on being removed as Director or any other office connected with the conduct and management of affairs of the company, shall not be entitled for loss of compensation or termination of office under any contract or memo.
Section 272: Petition for winding up.
The amendments enables the Registrar to present a petition for winding up under section 271 with only the exception of situation where if the company has, by special resolution, resolved that the company be wound up by the Tribunal the Registrar may not present such petition.
Section 398: Provisions relating to filing of applications, documents, inspection, etc., in electronic form.
Consequent to the amendment of filing prospectus u/s 26 of the Act, the provisions with regards to registration of prospectus is deleted.