Key Takeaway of Companies (Amendment) Act, 2019

The Companies (Amendment) Act, 2019 received the assent of the President on the 31^st July, 2019. In this article author discusses Key Take Away of Companies Amendment (Act), 2019.

Process for Approval of the Companies (Amendment) Act, 2019.

Purpose of The Companies (Amendment) Act, 2019 “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.

This article provides a brief to the amendments that have been passed in the Companies (Amendment) Act, 2019. This article is based on the earlier Ordinance and the Act passed.

However, some link of earlier editorial of ordinance is also given in this write-up.

Section Not Effective:

Below mentioned section shall come into force on such date as the Central Government may notify in the Official Gazette.

We have divided this editorial in Three Parts:

Part I – New Amendment (Other than amendment covered in Ordinance)

Part II- Amendment covered in Ordinance

Part III- Link of Topic wise write-ups published earlier on Ordinance.

Apart from replacing the Second Ordinance 2019, the newly introduced Amendment Act, 2019 seeks to provide certain additional Amendments.

IMPACT OF ORDINANCE

√ Enlarging the jurisdiction of Regional Director.

√ Re-categorized of “Fine as Penalty”

√ De-clogging the NCLT

√ Corporate Governance relating Reforms.

Clause = Serial No. of Companies Amendment Act, 2019

Section = Sections of Companies Act, 2013

PART – I

Amendments in CA 2013 as included in the Companies (Amendment) Act, 2019 on 31^st July, 2019 (other than Ordinance):-

1. Section 26 (Clause 6): Matters to be stated in Prospectus:

Substituting the word ‘filing’ for the word ‘registration: The requirement of registration of prospectus with Registrar of Companies has been done away with. Instead the prospectus would be filed with the Registrar.

2. Section 29 (Clause 7): Public offer of Securities to be in dematerialized form:

Issue of shares in dematerialized format: The term ‘public’ has been omitted under Section 29(1)(b). It denotes that government would now prescribe the class of companies, which would be mandatorily required to issue the securities only in Dematerialized form.

3. Section 35 (Clause 8): Civil Liability for mis-statements in prospectus:

The reference of ‘Registration of Prospectus with Registrar’ is replaced by ‘Filing of copy of prospectus with the Registrar’.

4. Section 90 (Clause 14): Register of Significant Beneficial Owners in a Company:

After subsection 4 following subsection 4A inserted: Every Company shall take necessary steps to identify and individual who is a significant beneficial owner in relation to the company and require him to comply with the provision of this section.

Sub Section 9 shall be substituted namely: The company or the person aggrieved by the order of the Tribunal may make an application to the Tribunal for relaxation or lifting of the restrictions placed within a period of one year from the date of such order.

After subsection 9 following subsection 9A inserted: This sub section sintered to provide power to the Central Government to make rules for the purposes of this section.

5. Section 132 (Clause 20): Constitution of National Financial Reporting Authority (NFRA):

After subsection 1 following subsection 1A inserted: NFRA to perform functions through such divisions as may be prescribed by the Central Government.

After subsection 3 following subsection 3A & 3B inserted: NFRA to perform functions through such divisions as may be prescribed by the Central Government.

Sub Section 4(c) clause (B) substituted by following clause: Debarring of the member or firm from being appointed as an auditor or internal auditor etc. or performing any valuation under section 247 by NFRA in case professional or other misconduct is proved.

6. Section 135 (Clause 21): Corporate Social Responsibility:

Insertion of section 135(6),

• 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 monthsof the expiry of the financial year.
• 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.
• 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 yearsfrom 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.
• 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.
• 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 (Clause 31): Investigation into affairs of Company by Serious Fraud Investigation Office:

Amendment in Sub section 8:- Now, any officer not below the rank of Assistant Director comes within the ambit for investigation and taking under arrest.

Amendment in Sub section 10:- Now, cases have been taken to Special Court or Judicial Magistrate. The person so arrested may be taken to a Special Court or Judicial Magistrate or Metropolitan Magistrate within 24 hours of his arrest.

After sub section 14 following sub-section 14A shall be inseted:-

Where an investigation report submitted by SFIO states that a fraud has taken place and any director, KMP or officer has taken undue advantage or benefit, then the Central Government may file an application before the Tribunal with regard to disgorgement and such director, KMP or officer may be held personally liable without any limitation of liability.

8. Section 272 (Clause 37): Power of Court to stay or restrain proceedings:

In section 272(3), the reference to clause (e) is omitted: Registrar allowed presenting a petition of winding up on the ground that it is just and equitable to do so under Clause (e) of Section 271.

9. Section 398 (Clause 38): Provisions relating to filing of applications, documents, inspection etc. in electronic form:

Prospectus not required to be registered by the Registrar.

10. Section 241, 242 & 243 (Clause 33, 34 & 35): Application to Tribunal for relief in cases of Oppression, etc:

These sections relating to restrictions on provisions of Oppression and Mismanagement. Will discuss separately.

PART – II

Amendments in CA 2013 as included in the Companies (Amendment) Act, 2019 on 31^st July, 2019 was part of Ordinance, 2018 and effective from 02^nd November, 2018:-

11. RE-CATEGORISING OF OFFENCES:

The list of offences which are re-categorized as defaults carrying civil liabilities which would be subject to an in-house adjudication mechanism, along with the pre-ordinance punishment. There are as many as 16 sections amended via Ordinance and adopted in Amendment Act, 2019 whereby the punishment for non-compliance to be levied under the Companies Act, 2013 is re-categorized from “FINE” to “PENALTY”

12. DEFINITION:

Substitution of First Proviso of Section 2 Clause 41: “Financial Year”

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.

By Amendment Act, 2019: Power of Tribunal has been transferred to Central Government. Therefore, after notification of ordinance financial year of Company can be changed with approval of Central Government.

Companies (Incorporation) Fourth Amendment Rules, 2018: Dated: 18^th December, 2018

Power of Central Government has been transferred to “Regional Director”. Application to Regional Director shall be File in e-form RD-1.

Following documents shall be required to attach in RD-1:

• Reason for Change in Financial Year
• Minutes of Board Meeting
• Power of Attorney or Memorandum of Appearance

Order shall be file in e-form INC-28 with Registrar of Companies within 30 days of date of receipt of order.

13. DECLARATION OF COMMENCEMENT OF BUSINESS:

New Section 10A inserted after Section 10:  As per 10A, a company incorporated after ordinance shall not commence its business or exercise any borrowing powers unless-

• A declaration is filed by the directors within 180 days from date of incorporation of company with Roc that ‘every subscriber to the MOA has paid the value of the shares agreed to be taken by him”
• A verification of registered office as required to file u/s 12(2) within 30 days of incorporation.

Note:

If company fails to file such declaration within 180 days from the date of incorporation then Roc has reasonable cause to believe that the Company is not carrying on any business or operation, ROC may, initiate action for removal of name of Company (Strike off)

14. MAINTENANCE OF REGISTERED OFFICE OF COMPANY:

Addition of subsection (9) after Section 12 subsection 8:

As per Section 12(1) A company shall, within thirty days of its incorporation and at all times thereafter, have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it.

By Amendment Act, 2019: i Registrar may do physical verification of the Registered office of Company and if any default is found to be made in complying with provision of Section 12(1)  (extract mentioned above). ROC may, initiate action for removal of name of Company (Strike off)

Compliance as per Section 12:

Every company shall—

(a) paint or affix its name, and the address of its registered office, in a conspicuous position, in legible letters, and

(b) if the characters employed therefore are not those of the language or of one of the languages in general use in that locality, also in the characters of that language or of one of those languages;

15. CONVERSION OF PUBLIC COMPANY INTO PRIVATE LIMITED COMPANY:

Substitution of Provisos of Section 14 Sub section 1 :

As per Section 14(1)- for conversion of Public Company into Private Limited Company approval of Tribunal is required.

By Amendment Act, 2019: Power of Tribunal has been transferred to Central Government. Therefore, after notification of ordinance Public Company can be convert into Private Company with approval of Central Government.

16. ISSUE OF SHARES AT DISCOUNT:

Substitution of Sub Section 3 of Section 53:

Alteration in relation to penalty. Therefore, this shall be discussed separately in upcoming editorial.

17. DUTY TO REGISTER CHARGE:

Substitution of first and Second Provisos of Section 77 Sub section 1:

As per Section 77(1) Company can file form for registration of Charge after 30 days till 300 days with additional fees and if company fails to file within 300 days can file form as per Section 87 Condonation from Regional Director.

By Amendment Act, 2019: In case of charge created after the commencement of ordinance, 2018 then registrar shall allow such registration “within period of 60 days of such creation”.

If Company fails to file within 60 days of creation, “Roc may allow such registration to be made within a further period of 60 days after payment of such advalorem fees as may be prescribed”

Therefore, period of 300 days has been removed by the ordinance.

Note: Maximum time period for registration/modification of charges to be 30 days + additional 30 days.  Further advolerum fees to be done in next 60 days. *After total of 120 days Charge cannot be Registered.*

If Charge is created after date of Ordinance i.e. 02.11.2018 in such case what shall be time period for filing of form for registration of charge with ROC.

If charge is created after 02.11.2018 in such case following shall be period for filing of charge form with ROC.

18. CONDONATION OF DELAY IN CHARGE – SECTION 87:

Section 87 substituted by new Section:

This section now applicable only for “Satisfaction of Charge”. Power of Creation of Charge u/s 87 has been removed.

19. SIGNIFICANT BENEFICIAL OWNER– SECTION 90:

Substitution of Sub Section 9 of Section 90:

As per Act “The company or the person aggrieved by the order of the Tribunal may make an application to the Tribunal for relaxation or lifting of the restrictions placed under sub-section (8).

By Amendment Act, 2019: The company or the person aggrieved by the order of the Tribunal may make an application to the Tribunal for relaxation or lifting of the restrictions placed under sub-section (8) “within period of one year from the date of such order”

Provided that, No application filed within period of one Year ‘Shares shall be transferred to the authority constituted u/s 125(5).

20. ANNUAL RETURN– SECTION 92:

Substitution of Sub Section 5 of Section 92: “Reduction in Penalty”

By Amendment Act, 2019: If any company fails to file Annual Return u/s 4 before expiry of 60 days, such company and its officer who is in default shall be liable to a penalty of “50,000/-“ and in case of continuing failure, with further penalty of “Rs. 100” for each day during which such failure continues.

21. DISQUALIFICATION OF DIRECTOR– SECTION 164:

Addition of clause (h) in Section 164(1)

As per Section 165, No person, after the commencement of this Act, shall hold office as a director, including any alternate directorship, in more than twenty companies at the same time.

By Amendment Act, 2019: If default made in Section 165, then director shall be considered as disqualified under Section 164. “Breach in Maximum no of Directorships to be a Ground for Disqualification.

22. MANAGERIAL REMUNERATION– SECTION 197:

Subsection 7 shall be omitted:

(7) Notwithstanding anything contained in any other provision of this Act but subject to the provisions of this section, an independent director shall not be entitled to any stock option and may receive remuneration by way of fees provided under sub-section (5), reimbursement of expenses for participation in the Board and other meetings and profit related commission as may be approved by the members.

By Amendment Act, 2019: Sub section 7 omitted, therefore, remuneration to Independent Directors in form of Sitting fees has been removed from the Act. “Stricter norms for IDs & capping of their sitting fee & remuneration.”  

23. COMPOUNDING OF OFFENCE– SECTION  441:

As per Act, (b) where the maximum amount of fine which may be imposed for such offence does not exceed five lakh rupees, by the Regional Director or any officer authorised by the Central Government, (Power of RD to compound offence punishable upto Rs. 500,000/-)

By Amendment Act, 2019:  where the maximum amount of fine which may be imposed for such offence does not exceed Twenty five lakh rupees, by the Regional Director or any officer authorised by the Central Government, (Power of RD to compound offence punishable increased upto Rs. 2,500,000/-)

RE CATEGORIZED OF DEFAULT:

In General words, Fine imposed when any application/ petition filed with any court (like: NCLT, High Court) and penalty imposed when company made any non compliance and authority directly can impose penalty on them.

DATE OF NOTIFICATION OF SECTIONS OF COMPANIES (AMENDMENT) ACT, 2019

We hope you will find the same useful.

Still Amendment Act, 2019 not notified except provisions of Ordinance, 2019.

(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at [email protected]).