CS Mohit Patel 

CS Mohit Patel The Companies (Amendment) Bill, 2019 was introduced in the Lok Sabha on Thursday, July 25, 2019 by the Minister of Finance, Ms. Nirmala Sitharaman, which seeks to tighten corporate social responsibility compliance, reduce the load of cases on the National Company Law Tribunal (NCLT) and other amendments to the Companies Act, 2013.

The Minister of Finance, Ms. Nirmala Sitharaman said that the bill seeks to replace the ordinance and that, along with certain other amendments, it is being brought in to “ensure more accountability and better enforcement to strengthen the corporate governance norms and compliance management in corporate sector”.

Companies (Amendment) Bill, 2019

KEY HIGHLIGHTS OF COMPANIES (AMENDMENT) BILL, 2019

Issuance of dematerialized shares

 As per the Companies (Amendment) Act, 2017, all Public unlisted Companies are required to ensure the issue and transfer of securities shall be done in dematerialized mode only. As per the Companies (Amendment) Bill, 2019, the provision of Section 29 of the Companies Act, 2013 is now being extended to all companies i.e. Private and Public. It shall be noted that the Government may now mandate dematerialization of shares of Private Companies.

Re-categorization of certain Offences

The Companies Act, 2013 contains 81 compoundable offences punishable with fine or fine or imprisonment, or both. The Companies (Amendment) Bill, 2019 re-categorizes 16 of these offences as civil defaults, where adjudicating officers appointed by the Central Government may now levy penalties. Further, the Bill amends the penalties for some other offences.

Corporate Social Responsibility (CSR)

When the provision for Corporate Social Responsibility (CSR) was introduced by Companies Act 2013, It was being said by the Government that the provision for Corporate Social Responsibility (CSR) will follow what is globally known as “comply or explain” (COREX), Which means the Companies will not be mandated to spend on Corporate Social Responsibility (CSR) and the Board Report will only give reasons for not spending.

Under the Companies (Amendment) Rules, 2019, any unspent annual CSR funds must be transferred to one of the funds mentioned under Schedule VII of the Companies Act, 2013 (e.g., PM Relief Fund) within six months of the financial year.

Companies may retain amounts only to the extent required for on-going projects. There will be the rules for what are eligible on-going projects. Even in case of such on-going projects, the amount required will be put into a special account within 30 days from the end of the financial year, from where it must be spent within the next 3 years, and if not spent, will once again be transferable to the funds mentioned under Schedule VII of the Companies Act, 2013.

If a Company contravenes the provisions, 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.

Debarring of erring auditors

Under the Companies Act, 2013, the National Financial Reporting Authority (NFRA) debar a member or firm from practicing as a Chartered Accountant for a period between 6 months to 10 years, for proven misconduct. The Companies (Amendment) Bill, 2019 amends the punishment to provide for debarment from appointment as an auditor or internal auditor of a company or performing a company’s valuation, for a period between 6 months to 10 years.

Commencement of business

The Companies (Amendment) Bill, 2019 states that a company may not commence business, unless;

    • It files a declaration within 180 days from the incorporation, confirming that every subscriber to the Memorandum of the company has paid for the shares agreed to be taken by him.
    • It files a verification of its registered address with the Registrar of Companies (RoC) within 30 days form the incorporation.

If the company fails to comply with these provisions and is found not to be carrying out business, then name of the company may be removed from the Register of Companies.

Change in approving authority

Under the Companies Act, 2013 change in period of financial year for a company associated with a foreign company, has to be approved by the National Company Law Tribunal (NCLT). Similarly, any alteration in the incorporation document of a public company which has the effect of converting it to a private company, has to be approved by the National Company Law Tribunal (NCLT). Under the Companies (Amendment) Bill, 2019 these powers have been transferred to the Central Government.

Expanding the power to compound offences

The pecuniary limits of Regional Director (RD) to compound offences under Section 441 of the Companies Act, 2013 id proposed to be increased. The threshold is proposed to be increased to fine up to Rs. 25 Lakhs.

Disqualification of Director

A new clause has been inserted under Section 164 of the Companies Act, 2013 to state that violation of Section 165(1) of the Companies Act, 2013 shall be a ground for disqualification of a director, if he/ she breaches the limits of maximum directorship allowed thereunder.

Beneficial ownership

If a person holds beneficial interest of at least 25% shares in a company or exercises significant influence or control over the company, then such person is required to make a declaration of his interest. The Companies (Amendment) Bill, 2019 requires every company to take necessary steps to identify an individual who is a Significant Beneficial Owner (SBO) and require their compliance under the Companies Act, 2013.

To conclude we can say that the Government is continuously attempting to tighten the Corporate Governance norms and bringing more developed processes to follow the best compliance management in corporate sector.

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