Article discusses Impact of Companies Amendment Ordinance, 2018 which are Effective from November 2nd 2018. Vide Companies Amendment Ordinance, 2018, 31 amendments were made in Companies Act, 2013 which are discussed in the article. Companies Amendment Ordinance, 2018 Re-categorise compoundable offences to in house adjudication framework, Amends adjudication of penalties, Imposing penalty for repeat defaults, Enhances punishment for fraud, Declogs NCLT, Improve Corporate Governance, amends provisions related to Registration of creation/ modification of charges and prescribes Punishment for contravention of lay related to Registration of charges.
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I. Re-categorising compoundable offences to in house adjudication framework
The amendment has re -categorised many of the compoundable offences by substituting fine and/ or imprisonment with penalty. Apart from absolving companies of criminal liability it has quickened the process of adjudication.
| Sr. No. | Section | Type of Offence | Old Provision | New Provision | Impact |
| 1. | 53(3) | Prohibition of issue of shares at a discount | Company liable to fine: Officer in default liable to fine and/ or imprisonment. | Company or any officer in default liable to penalty | Penalty substituted for fine and/ or imprisonment. |
| 2. | 64(2) | Failure/ delay in giving notice to ROC regarding change in share capital | Company and every officer in default liable to fine. | Company and every officer in default liable to penalty. | Penalty substituted for fine |
| 3. | 92(5) | Failure/Delay in filing Annual return with the ROC | Company liable to fine. Officer in default liable to fine and/ or imprisonment. | Company and every officer in default liable to penalty | Penalty substituted for fine and/ or imprisonment. |
| 4. | 102(5) | Failure to annex explanatory statement to Notice of GM | Promoter/ Manager/ KMP/ Director in default liable to fine | Promoter/ Manager/ KMP/ Director in default liable to penalty | Penalty being substituted for fine. |
| 5. | 105(3) | Failure to give declaration w.r.t apt. of proxies in Notice of GM | Every officer in default liable to fine. | Every officer in default liable to penalty | Penalty being substituted for fine |
| 6. | 117(2) | Failure/ Delay in filing specified resolutions with the ROC | Company & every officer in default including liquidator liable to fine. | Company & every officer in default including liquidator liable to Penalty | Penalty being substituted for fine |
| 7. | 121(3) | Failure/ Delay in filing Report of GM ( public listed company) | Company & every officer in default liable to fine | Company & every officer in default liable to penalty | Penalty substituted for fine |
| 8. | 137(3) | Failure / Delay in filing financial statements with ROC | Company liable to fine: MD, CFO/ Other Directors liable to fine or imprisonment or with both | Company & MD, CFO/ other Directors liable to Penalty | Penalty substituted for fine and/or imprisonment |
| 9. | 140(3) | Failure/ Delay by auditor in intimating resignation to ROC | Auditor liable to fine. | Auditor liable to Penalty | Penalty being substituted for fine |
| 10. | 157(2) | Failure/ Delay by Company in intimating DIN of director to ROC | Company & every officer in default liable to Penalty | Company & every officer in default liable to Penalty | Penalty being substituted for fine |
| 11. | 159 | Default in relation to apt. as Directors/ Failure to furnish DIN, in possession of 2 or more DINs | Director in default liable to fine and/ or imprisonment | Director in default liable to penalty | Penalty being substituted for fine and/ or imprisonment |
| 12. | 165(6) | Accepting more than 20 Directorships | Director in default liable to Fine | Director in default liable to Penalty | Penalty being substituted for fine |
| 13 | 191(5) | Contravention of provisions relating to payment in case of loss of office etc. | Director in default liable to fine | Director in default liable to Penalty | Penalty being substituted for fine |
| 14. | 197(15) | Contravention of provisions relating to Managerial Remuneration | Person in default liable to fine | Person in default liable to Penalty | Penalty being substituted for fine. |
| 15. | 203(5) | Contravention in provisions relating to appointment of KMP | Company, KMP & Officer in default liable to fine | Company, KMP & Officer in default liable to penalty | Penalty being substituted for fine. |
| 16. | 238(3) | Contravention of provisions relating to registration of scheme involving transfer of shares | Director in default liable to fine | Director in default liable to penalty | Penalty being substituted for fine. |
Note: Pursuant to amendments in Sections 92,117 and 137, Section 446B providing for relief to OPC and small companies with half the fine/ imprisonment in such Sections, has been amended to substitute fine and/or imprisonment with penalty.
II. Amendments in adjudication of penalties
Section 454
The ordinance has brought in an amendment in Section 454(3), wherein the adjudication officer apart from imposing penalties on the Company and any officer in default shall also direct them to make good the default. The erstwhile provision only provided for imposition of penalty. Hence, the object of the law could not be fully realised.
The new provision 454(3) is as under:
“(3) The adjudicating officer may, by an order—
(a) impose the penalty on the company, the officer who is in default, or any other person, as the case may be, stating therein any non-compliance or default under the relevant provisions of this Act; and
(b) direct such company, or officer who is in default, or any other person, as the case may be, to rectify the default, wherever he considers fit.”;
Consequently, sub section 8 of Section 454 has also been amended. The new provision is as follows:
(8) (i) Where company fails to comply with the order made under sub-section (3) or sub-section (7) within a period of ninety days from the date of the receipt of the copy of the order, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees.
(ii) Where an officer of a company who is in default fails to comply with the order made under sub-section (3) or sub-section (7) within a period of ninety days from the date of the receipt of the copy of the order, such officer shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both.
III. Imposing penalty for repeat defaults
To curb repeat of the same defaults, a new provision, Section 454A has been introduced which provides for imposition of twice the penalty provided under the Companies Act, in case the same default is committed within 3 years from imposition of penalty by AO or RD in respect of the first default. This is similar to Section 451.
IV. Enhancing punishment for fraud
Section 447
The Amendment has enhanced the maximum fine for frauds involving amount less than 10 lakhs or 1% of turnover of Company, whichever is lower. Thus, the post amendment punishment for frauds u/s 447 is as under:
| Amount involved | Fine | Imprisonment |
| > Lower of 1% of turnover or Rs. 10 lakhs | Amount involved upto 3 times amount involved | 6 months to 10 years |
| > Lower of 1% of turnover or Rs. 10 lakhs | Upto Rs. 50 lakhs | Upto 5 years |
V. Declogging the NCLT
In order to reduce the multitude of cases before the NCLT and to enable it to focus on more serious and significant matters, following provisions have been amended:
| Sr. No. | Section | Amendment | Old provision | New Provision | Remarks | ||
| 1. | 2(41) | Application to follow a different financial year by holding, subsidiary or associate of foreign company | NCLT | CG | Pending applications to be decided by NCLT | ||
| 2. | 14 | Approval for conversion of public co. to private co. | NCLT | CG | Pending applications to be decided by NCLT | ||
| 3. | 441 | Application for compounding of offences | Max. fine < 5 lakhs= RD | NCLT in other cases | Max. fine < 25 lakhs= RD | NCLT in other cases | |
VI. Improving Corporate Governance
In furtherance of the Government’s efforts to strike down on shell Companies and enhance corporate governance measures, following provisions have been introduced:
1. Directors to file declaration with ROC within 180 days of incorporation, that all subscribers to the MOA have paid the value of shares taken by them.(Section 10A(1)(a))
2. Company to file INC 22, verifying its Registered office within 30 days of incorporation.(Section 10A(1)(b) r/w Section 12(2))
3. Company not to commence business without complying with clauses 1. And 2. Above.
4. In case of default of the aforementioned provisions, the Company & every officer in default liable to penalty. (Section 10A(2))
5. In case of non- compliance of clause 1., ROC may initiate action for strike off. (Section 10A(3) r/w Section 248(1)(d)).
6. ROC may cause for physical verification of registered office of the Company, and in case of sufficient reasons that Company is not carrying on business, initiate action for strike off.(Section 12(9) r/w Section 248(1)(e))
7. In case any significant beneficial owner fails to disclose his interest in a Company, he or it shall be liable to fine not less than Rs. 1,00,000 but which may extend to Rs. 10,00,000 and/ or imprisonment upto 1 year.(Section 90(1) r/w 90(10))
8. Every director whose directorships exceed 20 shall be liable to disqualification. (Section 164(1)(i) r/w 165(1)).
VII. Charge Management
The Amendment has tightened the regulation of charges. Following amendments have fallen through:
1. Registration of creation/ modification of charges
| Sr. No. | Particulars | Pre amendment | Post amendment
(charges created before effective date) |
Post amendment
(charges created after effective date) |
| 1. | Time limit (with normal fees) | 30 days from creation | 30 days from creation | 30 days from creation |
| 2. | Time limit (with additional fees) | Further 270 days | Further 270 days | Further 30 days |
| 3. | Further extension of time | Delay to be condoned by CG
No max. time limit |
6 months from effective date (1st May 2019), with additional fees | Further 60 days with ad valorem fees |
2. Punishment for contravention
| Sr. No. | Particulars | Pre Amendment | Post Amendment |
| 1. | Contravention of provisions relating to charge (registration, satisfaction etc.) | Company & every officer in default liable u/s 86 * | Company & every officer in default liable u/s 86(1) * |
| 2. | Furnishing false/ incorrect information or suppressing material information relating registration of charge | NA | Any person committing the offence liable u/s 86(2)r/w Section 447 ^ |
*Company liable to fine of Rs. 1 lakh to Rs. 10 lakhs and every officer in default liable to fine of Rs. 25,000 to Rs. 1 lakh and/ or imprisonment upto 6 months.
^ Punishment shall be as specified in IV above
Note
The time limit for satisfaction of charge shall remain same viz. 30 days + condonation by CG.
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