The Companies (Amendment) Bill, 2019 was passed by the Rajya Sabha on the 30th day of July, 2019 and received the Assent of President on 31st July 2019. Earlier the Amendment Bill, 2019 was passed by Lok Sabha on the 27th day of July, 2019. While introducing the Bill in the Lok Sabha, the Hon’ble Finance and Corporate Affairs Minister, Nirmala Sitharaman said, “the Bill seeks to ensure more accountability and better enforcement to strengthen the corporate governance norms and compliance management in corporate sector as enshrined in the Companies Act, 2013”.
Amendments through the Companies (Amendment) Second Ordinance, 2019
The main reforms undertaken through the Ordinance include the following:
Apart from replacing the Second Ordinance 2019, the newly introduced Amendment Bill seeks to provide for certain additional amendments.
AMENDMENTS THROUGH COMPANIES (AMENDMENT) SECOND ORDINANCE, 2019
(As also provided in the Companies (Amendment) Bill, 2019)
(A) Re-categorising of offences:
The list of offences which are re-categorised as defaults carrying civil liabilities which would be subject to an in-house adjudication mechanism, along with the pre-ordinance punishment in each case is as under:
|Section||Nature of default||Pre-Ordinance||Post ordinance|
|1.||Section 53(3) Prohibition of issue of shares at a discount||Prohibition of issue of shares at a discount||Fine or imprisonment or both||Non-compliance with sub-section (3) of Section 53 shall result in the company and any officer in default being liable to a penalty, instead of being punishable with fine or imprisonment or with both.|
Notice to be given to Registrar for alteration of share capital
|Failure/delay in filing notice for alteration of share capital||Fine only||Non-compliance with sub-section (1) of Section 64 shall result in the company and any officer in default being liable to a penalty, instead of being punishable with fine.|
|Failure/delay in filing annual return||Fine or imprisonment or both||Non-compliance with sub-section (4) of Section 92 shall result in:
(i) the company being liable to a penalty, instead of being punishable with fine; and
(ii) every officer in default being liable to a penalty, instead of being punishable with fine or imprisonment or with both.
Statement to be annexed to notice
|Attachment of a statement of special business in a notice calling for general meeting||Fine only||Non-compliance with Section 102 shall result in every promoter, director, manager or other key managerial personnel who is in default being liable to a penalty, instead of being punishable with fine.|
|Default in providing a declaration regarding
appointment of proxy in a notice calling for general meeting
|Fine only||Non-compliance with sub-section (2) of Section 105 shall result in every officer in default being liable to a penalty, instead of being punishable with fine.|
Resolutions and Agreements to be filed
|Failure/Delay in filing Certain resolutions||Fine only||Non-compliance with sub-section (1) of Section 117 shall result in the company and every officer in default including liquidator of a company, if any, being liable to a penalty, instead of being punishable with fine.|
Report on annual general
|Failure/Delay in filing Report on AGM by public listed company||Fine only||Non-compliance with sub-section (2) of Section 121 shall result in the company and every officer in default being liable to a penalty, instead of being punishable with fine.|
Copy of financial statement to be filed with Registrar
|Failure/Delay in filing financial statement||Fine or imprisonment or both||Non-compliance with sub-section (1) or (2) of Section 137 shall result in:
(i) the company being liable to a penalty, instead of being punishable with fine; and
(ii) the managing director and the Chief Financial Officer of the company, if any, and, in the absence of
the managing director and the Chief Financial Officer, any other director who is charged by the board of directors with the responsibility of
|Failure/Delay in filing statement by auditor after resignation||Fine only||Non-compliance with sub-section (2) of Section 140 shall result in the auditor being liable to a penalty, instead of being punishable with fine.|
Company to inform Director Identification Number to Registrar
|Failure/Delay by company in informing DIN of director||Fine only||Non-compliance with sub-section (1) of Section 157 shall result in the company and every officer in default being liable to a penalty, instead of being punishable with fine.|
Punishment for Contravention – in respect of DIN
related to DIN
|Fine or imprisonment or both||Penalty for default in certain provisions
Non-compliance with Section 152 (Appointment of directors), Section 155 (Prohibition to obtain more than one Director Identification Number) and Section 156 (Director to intimate Director
|Accepting directorships beyond
|Fine only||If a person accepts appointment as a director in contravention of sub-section (1) of Section 165 such person shall be liable to a penalty, instead of being punishable with fine.
Payment to Director for Loss of Office, etc., in connection with transfer of
|Payment to director not to be made on loss of office||Fine only||Non-compliance with Section 191 shall result in the director of the company being liable to a penalty, instead of being punishable with fine.|
Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits
|Managerial remuneration||Fine only||Under sub-section (15) Non-compliance with Section 197 shall result in any person in default being liable to a penalty, instead of being punishable with fine.|
Appointment of Key Managerial Personnel
|Appointment of KMPs in certain class of companies||Fine only||Non-compliance with Section 203 shall result in the company, every director and key managerial
personnel of the company who is in default being liable to a penalty, instead of being punishable with fine.
Registration of the offer of scheme involving transfer of
|Registration of the offer of scheme involving transfer of
|Fine only||Non-compliance with clause (c) of sub-section (1) of Section 238 shall result in the director being liable to a penalty, instead of being punishable with fine.|
(B) Ensuring compliance of the default and prescribing stiffer penalties in case of repeated defaults.
To achieve the said reform, the Ordinance has modified sub-section (3) and (8) of section 454 and also introduced a new section 454A as follows:
|Section||Title||Post ordinance Impact|
|1.||454(3)||Adjudication of Penalties||The adjudicating officer shall also give the direction of making good of the default at the time of levying penalty.|
|2.||454(8)||Adjudication of Penalties||Default would occur when the company or the officer in default would fail to comply with the order of the adjudicating officer or RD as the case may be.|
|3.||454A||Penalty for repeated
|A new section has been inserted to provide where a penalty in relation to a default has been imposed on a person under the provisions of CA 2013, and the person commits the same default within a period of three years from the date of order imposing such penalty, passed by the adjudicating officer or RD as the case may be, it or he shall be liable for the second and every subsequent defaults for an amount equal to twice the amount provided for such default under the relevant provision of CA 2013.|
(C) De-clogging the NCLT
|Section||Title||Post ordinance Impact|
|1.||441(1)(b)||Compounding of Certain
|Power of Regional Director to compound offence punishable increased upto Rs. 2,500,000/-
Pre-Amendment, where the maximum amount of fine which may be imposed for such offence did not exceed five lakh rupees, such offence was compounded by the Regional Director or any officer authorised by the Central Government.
Through the Amendment, where the maximum amount of fine which may be imposed for such offence does not exceed Twenty five lakh rupees, such offence shall be compounded by the Regional Director or any officer authorised by the Central Government.
|2.||441(6)(a)||Compounding of Certain
|Section 441(6)(a), which requires the permission of the Special Court for compounding of offences, being redundant provision, is omitted.|
As per Companies Act, in case of Indian company having Holding/ subsidiary/ Associate Company situated outside India, it is allowed the change the financial year as per such company with the approval of Tribunal.
Through this Ordinance, Power of Tribunal has been transferred from Tribunal to Central Government, therefore, financial year of Company can be changed with approval of Central Government.
In terms of Section 14(1), for Conversion of Public Company into Private Limited Company, the power to approve is shifted from Tribunal to Central Government.
(D) Other corporate governance related reforms:
|S. No.||Section||Title||Post ordinance Impact|
|1.||10A||Insertion of new section 10A Commencement of business, etc.||Re-introduction of section 11 omitted under the Companies (Amendment) Act, 2015 (after doing away with the requirements of minimum paid up capital) to provide for a declaration by a company having share capital before it commences its business or exercises borrowing power.
Non-compliance of section 11 by an officer in default shall result in liability to a penalty instead of fine.
|2.||12||Registered Office of Company||Insertion of sub-section (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.||90||Register of significant beneficial owners in a company.||Considering the importance of the disclosures under section 90, the punishment for violation of section 90(1) prescribed under section 90(10) is enhanced to the effect that the contravention is punishable with fine or imprisonment or both, instead of being punishable with only fine.|
|4.||164||Disqualifications from appointment of directors||A new clause (i) after clause (h) in section 164(1) inserted, whereby a person shall be subject to disqualification if he accepts directorships exceeding the maximum number of directorships provided in section 165.|
ADDITIONAL AMENDMENTS THROUGH COMPANIES (AMENDMENT) BILL, 2019
1. Section 26 – Matters to be stated in prospectus
The requirement of registration of prospectus with the Registrar of Companies has been done away with. Instead the prospectus would be filed with the Registrar.
2. Section 29 – Public offer of securities to be in dematerialised 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.
3. Section 35 – Civil liability for mis-statements in prospectus
The reference of ‘Registration of Prospectus with the Registrar’ is replaced by ‘Filing of copy of Prospectus with the Registrar’.
4. Section 90 – Register of significant beneficial owners in a company
5. Section 132 – Constitution of National Financial Reporting Authority (NFRA)
6. Section 135 – Corporate Social Responsibility
(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.
(iii) 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 year.
(iv) Penal provisions inserted as under:
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.
(v) 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.
7. Section 212 – Investigation into affairs of Company by Serious Fraud Investigation Office
8. Section 241 – Application to Tribunal for relief in cases of oppression, etc.
Central Government to prescribe such company or class of companies in respect of which, applications under such sub-section, shall be made before the Principal Bench of NCLT and shall be dealt with by such Bench.
In certain circumstances, the Central Government may refer the matter and request to the Tribunal to inquire into the case and record a decision about whether the 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.
9. Section 242 – Powers of Tribunal
In matters under section 241, the Tribunal shall record its decision stating 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.
10. Section 243 – Consequence of termination or modification of certain agreements
11. 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.
12. Section 398 – Provisions relating to filing of applications, documents, inspection, etc., in electronic form
Prospectus not required to be registered by the Registrar.
Source- ICSI – https://resource.cdn.icai.org/56169asb45450.pdf