Note on the Companies (Amendment) Act, 2019 (the ‘Act’)
The aforesaid is an act to further amend the Companies Act, 2013, the said Act received the President assent on 31st day of July, 2019.
The said Companies (Amendment) Act, 2019 has amended a total of 40 sections of the Companies Act, 2013 and two new additions i.e. Section 10A and Section 454A.
The sections 6, 7, 8, clauses (i), (iii) and (iv) of section 14, 20, 21, 31, 33, 34, 35, 37 and 38 of the Companies Amendment Act, 2019 shall come into force on such date as the Central Government may appoint/notify and rest of the provisions shall be deemed to have come into force on the 2nd day of November, 2018.
|S. No||Section of the Companies Act, 2013||Section of the Companies (Amendment) Act, 2019||The impact due to amended provisions|
|1||Section 2 (Definition: 2(41): Financial Year)||Section 2#||Option to a company or body corporate which is a holding company or a subsidiary or associate company of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Central Government may, on an application made by that company or body corporate, allow any period as its financial year, whether or not that period is a year.|
|2||New Section 10 A (Commencement of Business etc.)||Section 3#||A company incorporated after the Commencement of this Act shall not commence any business or exercise any borrowing powers unless a declaration is filed by a Director within 180 days after the date of incorporation in respect to the receipt of paid up value of the shares agreed by the subscribers to the memorandum and the verification of Registered office with the Registrar of Companies.|
|3||Section 12 (Registered office of the Company)||Section 4#||The insertion of new provision regarding the physical verification of the Registered office of a Company by the Registrar and power to remove the name of the Company from the register of companies if any default is found in complying with the requirements prescribed under 12(1).|
|4||Section 14 (Alteration of Articles)||Section 5#||The power of the tribunal in relation to approve any alteration in the Articles of the Company having effect of conversion of a public company into a private company has been moved to Central Government.|
|5||Section 26 (Matters to be Stated in Prospectus)||Section 6*||The requirement for the registration of prospectus has been done away and in clause 4, 5 and 6 the word registration has been substituted with the word filing.|
|6||Section 29 (Public Offer of Securities to be in Dematerialized Form)||Section 7*||A new sub section (1A) has been added whereby In case of such class or classes of unlisted companies as may be prescribed, the securities shall be held or transferred only in dematerialized form in the manner laid down in the Depositories Act, 1996 and the regulations made thereunder.”|
|7||Section 35 (Civil Liability for Mis-statements in Prospectus)||Section 8*||The provision of this section has been amended in line with the amendment in the section 26 of the CA, 2013 whereby the duty of the Company is being restricted to the filing of prospectus only instead of registration.|
|8||Section 53 (Prohibition on issue of Shares at Discount)||Section 9#||The revision in the penalty provision on issue of shares at Discount.|
|9||Section 64 (Notice to be Given to Registrar for Alteration of Share Capital)||Section 10#||Just a technical change by substituting the word fine with penalty.|
|10||Section 77 (Duty to Register Charges, etc.)||Section 11#||The extended period of 270 days provided by the existing Act has been restricted to 30 days for application of registration with additional fees.|
|11||Section 86 (Punishment for Contravention)||Section 12#||Apart from the existing penal provisions on any contravention of the provisions of the chapter, any willful furnishing of false or incorrect information or knowingly suppressing any material information pertaining to registration of charges shall tantamount to be a fraud and shall attract action under Section 447.|
|12||Section 87 (Rectification by Central Government in Register of Charges)||Section 13#||Redrafted and merely a straightening of the language under the section.|
|13||Section 90 (Register of significant beneficial owners in a company)||Section 14*||New subsection 4A has been introduced whereby 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.
|14||Section 92 (Annual Return)||Section 15#||Penalty provisions on non-filing of the annual return within the prescribed timeline have been revised and a further penalty of INR 100 per day on continuing offence subject to a maximum of 5 Lakhs have been prescribed.|
|15||Section 102 (Statement to be Annexed to Notice)||Section 16#||Slight change in the language replaced the word fine with the penalty.|
|16||Section 105 (Proxies)||Section 17#||Slight change in the language replaced the word fine with the penalty.|
|17||Section 117 (Resolutions and Agreements to be Filed)||Section 18#||Slight change in the language replaced the word fine with the penalty and additional penalty on continuing offence of INR 500 per day subject to maximum of INR 5 Lakhs.|
|18||Section 121 Report on Annual General Meeting||Section 19#||Slight change in the language replaced the word fine with the penalty and additional penalty on continuing offence of INR 500 per day subject to maximum of INR 5 Lakhs.|
|19||Section 132 (Constitution of National Financial Reporting Authority)||Section 20*||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.
|20||Section 135 (Corporate Social Responsibility)||Section 21*||Clarity for calculation of profits for newly incorporated Company provided by addition of following words under sub section 5 “or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years”.
On the unspent amount, a provision to transfer the unspent amount to a fund specified under schedule VII within six months from the expiry of financial year has been provided unless it relates to an ongoing project.
In relation to any amount being unspent which relates to an ongoing project shall be transferred to a separate account to be opened by the Company to be called as the Unspent Corporate
Social Responsibility Account within a period of 30 days from the end of Financial Year and such amount shall be spent within the period of three financial years from the date of transfer and in case of failure such amount shall be transferred to a fund specified in Schedule VII within 30 days from the date of completion of third FY.
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.”
|21||Section 137 (Copy of Financial Statement to be Filed with Registrar)||Section 22#||Slight change in the language replaced the word fine with the penalty and additional penalty on continuing offence of INR 100 per day subject to maximum of INR 5 Lakhs.|
|22||Section 140 (Removal, Resignation of Auditor and Giving of Special Notice)||Section 23#||Slight change in the language replaced the word fine with the penalty and additional penalty on continuing offence of INR 500 per day subject to maximum of INR 5 Lakhs.|
|23||Section 157 (Company to Inform Director Identification Number to Registrar)||Section 24#||Slight change in the language replaced the word fine with the penalty and additional penalty on continuing offence of INR 100 per day subject to maximum of INR 1 Lakh.|
|24||Section 159 (Penalty for Default of Certain Provisions)||Section 25#||The provision regarding to imprisonment has been removed and the word fine has been replace with penalty.|
|25||Section 164 (Disqualification of Director)||Section 26#||A new clause has been inserted under the Section linking Section 165 which shall be a ground for disqualification of a director, if he/ she breaches the limits of maximum directorship allowed thereunder. It is pertinent to note that falling under any of the clauses of Section 164 leads to automatic vacation of office that too, from all the existing companies. This is one of the significant provisions which needs immediate attention.|
|26||Section 165 (Number of Directorships)||Section 27#||The minimum fine of INR 5000 and maximum fine of INR 25,000 has been substituted with Penalty of INR 5,000 per day.|
|27||Section 191 (Payment to Director for Loss of Office in Connection with Transfer of Undertaking, Property or Shares)||Section 28#||The minimum fine of INR 25,000 and maximum fine of INR 1,00,000 has been substituted with Penalty of INR 1,00,000.|
|28||Section 197 (Managerial Remuneration)||Section 29#||Sub- section (7) of the Section has been removed which pertained to a prohibition on entitlement of stock option by independent directors. However, this omission shall not have any impact as Section 149 (9) also provides similar prohibition.
Further, the existing penal provision of payment of fine has been replaced with penalty of the equivalent amount of fine as provided in the existing provisions.
|29||Section 203 (Appointment of Key Managerial Personnel)||Section 30#||The minimum fine of INR 1 lakh and maximum fine of INR 5 Lakh on the Company has been replaced with a penalty of INR 5 Lakh and a maximum penalty of INR 5 Lakh has been provide for Director/KMP/Office in default.|
|30||Section 212 (Investigation into Affairs of Company by Serious Fraud Investigation Office)||Section 31*||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.”
|31||Section 238 (registration of offer of schemes involving transfer of shares)||Section 32#||The minimum fine of INR 25,000 and maximum fine of INR 5,00,000 has been substituted with Penalty of INR 1,00,000.|
|32||Section 241 (Application to Tribunal for relief in cases of oppression, etc.)||Section 33*||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 have been introduced whereby in the opinion of Central government there exists circumstances as mentioned under sub section 3 clause (a) (b) (c) and (d), 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.|
|33||Section 242 (Powers of Tribunal)||Section 34*||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.
|34||Section 243 (Consequence of termination or modification of certain agreements)||Section 35*||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.
|35||Section 248 (Power of the Registrar to remove the name of the Company)||Section 36#||In view of the newly inserted provisions of Section 10A and 12(9) as mentioned aforesaid, the relevant amendments have been made in Section 248 of the Act in order to provide a reference to the aforesaid new Sections.|
|36||Section 272 (Petition for winding up)||Section 37*||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.|
|37||Section 398 (Provisions relating to filing of applications, documents, inspection, etc., in electronic form)||Section 38*||Consequent to the amendment of filing prospectus u/s 26 of the Act, the provisions with regards to registration of prospectus is deleted.|
|38||Section 441 (Compounding of offences)||Section 39#||The amendment has increased the limit of offence for compounding before the Regional Director from 5 Lakhs to 25 Lakhs. Further, it has been clarified that any offence not being an offence punishable with imprisonment only, or punishable with imprisonment and also with fine shall not be compoundable.|
|39||Section 446B ()||Section 40#||Language change substituting fine with penalty.|
|40||Section 447 (punishment for fraud)||Section 41#||The quantum of fine has been increased from Twenty Lakh rupees to fifty lakh rupees.|
|41||Section 454 (Adjudication of Penalties)||Section 42#||The existing section empowered the adjudicating officer to impose penalty, by an order, on the company and the officer who is in default in case of any non- compliance or default of the provisions of the Act. Such an order may henceforth be included any other person too, hence the same expands the power of the adjudicating officer. Further, the order of the adjudicating officer may also provide for rectification of the default by the concerned person. The penal provisions as provided in sub- section (8) shall apply to violation in compliance of the said order also.|
|42||New Section 454A (Penalty for repeated default)||Section 43#||The newly inserted section provides for penalty of twice the amount of penalty in case of repeated defaults by companies or any person who had already been subjected to penalty under the Act. However, the subsequent default has to be repeated within 3 years from the date of order imposing penalty for earlier default.|
* The provisions for which the effective date is yet to be notified.
# This section was already notified through Companies (Amendment) Ordinance which has been now repealed and the provisions notified then have been clubbed in the Companies (Amendment) Act, 2019.