The Companies Amendment Act, 2019 has been recently passed by the parliament and notified in the gazette. We aim to give you the highlights of the changes brought in through the new Amendment.

Background

To bring the law relating to formation, functioning and regulation of the companies in India in line with the current global scenario of corporate regulation, the Companies Act, 2013 (‘2013 Act’) was passed in 29 August, 2013 after receiving the recommendations of the standing committee who examined the matter in detail.

Companies Amendment Bill, 2019

Following the introduction of the 2013 Act several amendments and clarifications have been issued to address the immediate difficulties arising out of the initial experience of the working of the Act, and to facilitate “ease of doing business”.

In those lines, on 02 November 2018, an ordinance was passed bring about many changes in 2013 Act.  In January of 2019, this ordinance was replaced by the Companies Amendment Bill, 2019, which was passed by the Lok sabha, and later approved by the Rajya Sabha and it received the president’s assent and came into effect as Companies Amendment Act 2019 on July 31, 2019, after it was published in the official gazette by the Ministry of Law and Justice.

Companies Amendment Act

Major Changes in Companies Amendment Act 2019

The Companies Amendment Act 2019 incorporates all the provisions notified through the ordinance passed in 2018, along with as many as 12 additional amendments in 11 sections of the Companies Act, 2013.

Major changes introduced vide Companies Amendment Act 2019

  • With an aim to address the need to enforce civil liabilities for technical, procedural defaults and minor offences, there has been a rationalizing and re-categorizing of offences in the 2019 Amendment Act.  Earlier, the offences of minor nature and omissions were getting compounded, with severe penalties being levied. The objective has been to accommodate such minor offences with only a levy of penalty as they were only civil offences.
  • Further there was a need to declog the NCLT by shifting out routine matters, to the Central Government. Accordingly, the Central Government is now empowered to grant approvals for change in financial year of the Company, for conversion of a public company into a private.
  • The 2019 Amendment Act empowers the ROC to carry out physical inspection of the registered office of a company if he has reasons to believe that the company is not carrying on any business or operations.  If any default is found in complying with requirements for a physical registered office as envisaged under section 12(1) of the Companies Act, 2013, it is grounds for being struck off. This will enable stakeholders to check the versatility of their claim of the companies about complying with the Companies Act, 2013, including maintenance of required registers.
  • Stringent provision with reduced timelines have been imposed for modification for Charges
  • Breach for ceiling for directorship has been made grounds for disqualification.  For instance holding directorship in more than 20 companies (with a limit of 7 listed companies and 10 public companies) leads to stated responsibilities not being taken care of.  Hence disqualification is brought in for such persons who exceed the permissible limit.
  • Declaration before commencement of business is brought back under the 2019 Amendment Act, given that, the requirement for minimum paid up capital has been removed.  Now every company having share capital and incorporated after the commencement of the Amendment Act, 2019 has to file the declaration. The objective is to preen out companies which get registered and stay without carrying out any business operations. This comes in the backdrop of the fact that approx 400,000 inactive companies have been recently de-registered by the Ministry of Corporate Affairs for not carrying on any business.
  • Amendment has been brought into CSR provisions, to clarify the true spirit of the Companies Act, 2013. Till now the approach towards CSR has been that, companies to which section 135 was applicable can comply or explain. However, the Government has clarified that the intention of CSR provision has not been such. If a company to which CSR is applicable, and was unable to spend the money allocated for CSR in any year, then it has been allowed another 3 years time to spend it towards thrust areas specified under schedule VII of the Companies Act, 2013. However, the unspent CSR funds has to be transferred to a separate bank account.In an event at the end of 3 years if any of the money remains unlisted it shall be transferred to any of the fund mentioned in the Schedule VII.Further, penal clauses has been introduced for non-compliance with section 135 of Companies Act, 2013, which includes Rs 50,000 fine for companies and possible imprisonment or fine for officers in default.
  • NFRA has been empowered to enable them to discharge its function through its divisions, with a chairperson at the helm of affairs.  An additional clarity is being brought into the debarment provision with respect to Auditors. The debarment provisions has been diluted to make it reasonable such that the livelihood of the auditors are not affected.
  • Amendment has been made to provisions on Prevention of Mismanagement and oppression, where an application can be made by the Government to NCLT for identification of a KMP of any company, as not fit or proper person and seeking their removal, when that KMP is not engaging themselves in their role properly.  The intention is to debar to individuals not found fit and proper. The ROC will debar those individuals as per Central Government’s direction/ approval.
  • Serious Fraud Investigation Office will be empowered to be self sufficient to ensure speedy resolution of issue.

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