Jash Patel*

The Companies Amendment Bill, 2019 has received assent of President on 31st July 2019. With total of 44 Sections, the act emphasis majorly on monetary penalties on Companies and reducing the criminal liabilities of the directors. Some of the amendments are note-worthy and some are penalty’s oriented. The key-highlights of the Companies (Amendment) Act, 2019 (hereinafter known as “Act, 2019” ) are as follows:

Section of Companies Amendment Act 2019 Companies Act, 2013 Companies Amendment Act, 2019 Remarks
Section 2 Amendment of Section 2(41) Where a Company/ Body Corporate which is
Holding/ Subsidiary/ Associate of a company incorporated outside that is required to follow a different financial year, may after prior
approval of tribunal follow that financial year.
Where a Company/Body Corporate which is Holding/ Subsidiary/ Associate of a company incorporated outside that is required to follow a different financial year, may after prior approval of Central Government follow that financial year. The amendment has vested the powers for change of financial year with Central
Government from the tribunal.
Section 3 Inserts new Section 10A.

Commencement of Business, etc

The Companies incorporated after commencement of Companies Amendment Act, 2019 shall not commence any business unless:

1. A declaration is filed by Director within 180 days of Incorporation, that the subscriber to memorandum has paid the value of shares agreed to be subscribed.

2. The company has filed verification of its registered office in Form No. INC 22.

The amendment aims to curb shell companies, wherein the newly incorporated companies require to furnish a declaration on the amount subscribed and the registered office of the company.
Section 4 Amendment of Section 12. If the registrar has reasonable cause to believe, that the company is not carrying any business / operations, the registrar may have a The new clause directly gives power to Registrar of Companies to have physical verification of the Registered office of the
Insertion of sub- section (9) to Section 12: physical verification of the registered office, and may initiate action for removal of the name of the company from register of companies if found any default. company and also initiate action for removal of name from the register of companies under Chapter XVIII.
Section 5 Amendment of
Section 14 Conversion of Public Company into
Private Company
Any alteration of articles having effect of conversion of Public company into Private Company shall require tribunal approval by an order on an application made therein. Any alteration of articles having effect of conversion of Public company into Private Company shall now require Central Government approval by an order on an application made therein. The amendment has vested the powers for conversion of Public Company into Private Company to Central Government from the tribunal.
Section 6 Amendment of Section 26 (4), (5) and (6) and omission of Section 26(7) Section 8 Amendment of
Section 35] (Yet to be notified)
The prospectus was required to be registered with Registrar of Companies. The prospectus is now required to be filed with the Registrar of Companies. The amendment has substituted word registration with filing, now the companies shall not be required to register the prospectus, instead it shall be now filed with registrar.
Section 7 Amendment of Section 29(1)(b) (Yet to be notified) The prescribed class (i.e. issuing convertible securities) of Public companies were compulsorily required to issue securities only in dematerialized form The prescribed class (i.e. issuing convertible securities) of companies are compulsorily required to issue securities only in dematerialized form The amendment removes the word “Public”, so now the requirement to issue in dematerialized form is applicable to very company that is issuing convertible
securities.Consequently, all the shareholders of the private companies issuing convertible
securities shall fall within the system by getting their shareholding dematerlised.
Section 11 Amendment to First and Second Proviso to Section 77(1) Registration of Charges If the company fails to register the charge within 30 days, the registrar may on application allow such registration to be made within three hundred days from creation on payment of additional fees. 1. Now, only the charges created before the commencement of Companies (Amendment) Act, 2019 can be allowed by registrar within a period of three hundred days.

2. In case of charges created after commencement of the Companies (Amendment) Act, 2019 the registrar may allow a period of sixty days from creation of charge with payment of additional fees.

Further, if the registration is not made within specified period:

In case of Point 1, the registration of charge shall be made within six months of commencement of the Companies
(Amendment) Act, 2019 with such additional fees.

In case of Point 2, the registrar may allow further sixty days (i.e. 120 days from creation of charge) on ad valorem fees.

The amendment has waived off the flexibility of three hundred days, now the charges has to be registered within 120 days of creation.
Section 12 Amendment of Section 86 Inserts Section 86(2) Any person willfully furnishes any false or incorrect information or knowingly
suppresses any material information required in registration of charges, shall be liable for action under Section 447.
The amendment has strengthened the penal provisions in case of willful default in registration of charges. The default shall be treated as fraud and be liable to punishment as per Section 447.
Section 13 Amendment of Section 87 The Central Government had powers to rectify the register of charges in following cases on making application:1. Omission to register the creation/ modification of
charges with the registrar.2. Omission to register the satisfaction of charges with the registrar.3. Omission or mis-statement of any particulars with respect to any charge or modification or with respect to satisfaction
which was accidental or due to inadvertence or other sufficient cause or not prejudice to
creditors or shareholders Or any other grounds, it is just and equitable to grant relief.
Now, The Central Government has powers to rectify the register of charges in following cases on making application:

1. Omission to register the satisfaction of charges with the registrar.

2. Omission or mis-statement of any particulars with respect to any charge or modification or with respect to satisfaction which was accidental or due to inadvertence or other sufficient cause or not prejudice to creditors or shareholders Or any other grounds, it is just and equitable to grant relief.

The amendment has removed rectification in case of omission to register the creation/modification of charges, which
means now the Companies cannot condone
the delay in case of registration of charges.

Condonation of delay is now allowed in case of registration of satisfaction of charges.

 

Section 14 Amendment of Section 90 Inserts new sub- clause 90(4A) Register of
significant beneficial owners in a company (Section 14 (i), (iii) and (iv) Yet to be notified)
Every company to take necessary steps to identify an individual who is significant
beneficial owner and require him to comply with the provisions of section 90.
The amendment has now casted responsibility on the company to identify the significant beneficial owner.
Section 20 Amendment of Section 132(4)(c) (Yet to be notified) In case of misconduct, NFRA had powers to debar the member or firm from practice as a member of ICAI for a minimum of 6 months or higher period but not exceeding 10 years. Now, in case of misconduct, NFRA has powers to debar the member or firm to be appointed as auditor or internal auditor or undertaking any functions and activities in respect of financial statements or internal audit.

Also debars from performing valuations.

The amendment now debars the member or firm to be appointed as auditor or internal auditor instead of debarring from member of the ICAI.

The move is to curb the loopholes detected in major frauds of the country due to negligence of the professionals involved.

Section 21 Amendment of Section 135(5) Corporate Social Responsibility (Yet to be notified) • For the purpose of calculating
the amount to be spent on CSR was 2% of average net profits of the company made during the 3 immediately preceding financial years.If the prescribed companies failed to spend the amount on CSR the company shall
disclose the reason for not spending the amount in its Board’s Report.
• Now, for the purpose of calculating the amount to be spent on CSR was 2% of average net profits of the company made during the 3 immediately preceding financial years or where the has not completed 3 financial years from date of its incorporation, the period shall be immediately preceding financial years.

• Now, if the company fails to spend such amount the company shall disclose the reason in its Board’s Report and shall transfer such amount to fund specified in Schedule VII of the Companies Act, 2013 except for the amount which remains unspent due to ongoing project.

• The amendment clears the ambiguity and now specifies for the period if the
company has not completed 3 financial years from date of incorporation.• This is one of the note-worthy amendment
where the companies falling under the Section 135 shall transfer such unspent amount in any fund under Schedule VII within 6 months of closure of financial year which now mandates to spend towards CSR activities.

• The amendment has waived off the ‘comply or explain’ excuse with mandatory compliance requirement.

Section 21 Amendment Section 135 Inserts new clause 135(6) Inserts new clause 135(7) of sub- In case of the amount remains unspent due to any ongoing project , the company shall transfer such amount to a special account opened with scheduled bank called Unspent Corporate Social Responsibility Account within 30 days of closure of financial year and such amount to be spent within 3 financial years from the date of transfer. If the company fails to spent, shall transfer the amount to fund specified in Schedule VII. If the company fails to comply with the provisions of Section 135(5) and Section 135(6) The company shall be punishable with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 25 lakh and 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. The amendment now ensures that the company contributes in CSR not only by spirit but by letter as well. The amendment also introduced penal provisions in case the unspent amount remains is not transferred to fund as
specified in Schedule VII.
Section 9 Amendment of Section 53 (3) Prohibition in Issue of shares at discount The default was punishable with Fine or imprisonment or both. The default is punishable with penalty, substituting fine or imprisonment or with both. The amendment has re-categorized certain penal provisions, where defaults that were punishable with fine have been amended to penalty.

Now, the offences can be easily adjudicated with the authorities without going into time-consuming application procedures.

Section 10 Amendment of Section 64(2) Filing with registrar for alteration of
Share capital
The Non-compliance was punishable with Fine only. The Non-compliance is now liable to penalty
Section 15 Amendment of Section 92(5) Filing of Annual Return The Non-compliance was punishable with Fine or
imprisonment or both.
The Non-compliance is now punishable:

The Company and Every officer in default shall be liable to penalty of Rs. 50000.

In case of continuous default, a further penalty of Rs. 100 for each day, subject to a maximum of Rs. 5 Lakhs.

Section 16 Amendment of Section 102(5) Statement annexed to Notice for calling general meeting in case of Special Business The non-compliance was liable to fine only. The non-compliance shall now result in Every promoter, director, manager or other key managerial personnel who is default be liable to a penalty of fifty thousand rupees or five times the benefit accruing w.e.f is higher.
Section 17 Amendment of Section 105(3) Declaration to appoint proxy in a notice calling general meeting Every officer in default was liable to fine. Now, instead of fine every officer shall be liable to penalty of five thousand rupees.
Section 18 Amendment of Section 117(2) Failure of filing resolutions with registrar Punishable with fine only. The Company and officer in default shall be liable to a penalty instead of fine.
Section 19 Amendment of Section 121(3) Failure of Report on Annual General Meeting by public listed company Punishable with fine only. The Company and officer in default shall be liable to a penalty instead of fine.
Section 22 Amendment of Section 137(3) Failure and delay in filing of copy of financial statement with registrar. Punishable with Fine or imprisonment or both The Company shall be liable to a penalty instead of fine and The Managing Director, the CFO, If any and in absence any other director who is
responsible for complying Section 137 and in absence, all the directors of the company will be liable for penalty, instead of fine or imprisonment or with both.
Section 23 Amendment of Section 140(3) Failure in filing by auditor after resignation Punishable with fine only. The auditor shall be liable to a penalty instead of fine
Section 24 Amendment of Section 157(2) Failure by company to intimate DIN to registrar Punishable with fine only The Company and every officer in default shall be liable to penalty instead of fine.
Section 25 Amendment of Section 159 Punishment for contravention in respect of DIN Punishable with Fine or imprisonment or both The Company and officer in default shall be liable to penalty instead of being punishable with fine.
Section 27 Amendment of Section 165 Directorships beyond specified number. Punishable with fine only The person shall be liable to penalty instead of fine.
Section 28 Amendment of Section 191(5) Payment to Director for Loss of Office, etc., in Connection with Transfer of Undertaking, Property or Shares The default in non-compliance was liable to fine only. The Director of the company shall be liable to a penalty instead of fine
Section 29 Amendment of Section 197(15) Non-Compliance in Overall Maximum Managerial Remuneration The default was punishable with fine only. Any person in default shall be liable to penalty instead of fine.
Section 30 Amendment of Section 203(5) Failure to appoint KMPs in specified class of companies The default was punishable with fine only The company, every director and key managerial personnel shall be liable to penalty instead of fine.
Section 32 Amendment of Section 238(3) Failure to register offer of scheme
involving transfer of shares
The failure was punishable with fine only. The director who fails to register shall be liable to penalty instead of fine.
Section 26 Amendment of Section 164 Inserts new clause 165(1)(i)

 

A director shall be disqualified under section 164, if the person holds directorships more than the prescribed limit in section 165. The amendment has included a new a clause which shall disqualify director if the person exceeds the limit of directorship in section 165.
Section 39 Amendment of Section 441(1)(b) Compounding of offence The maximum amount of fine which can be compounded by regional director was five lakhs rupees. Now, the maximum amount of fine which can be compounded by regional director is twenty- five lakhs rupees. The amendment aims to transfer the miscellaneous compounding application
from tribunal to Regional Director.
Amendment of Section 441(6)(a) Any offence which was punishable with imprisonment or fine or with both were compoundable with the permission of the Special Court Omitted. After amendment any offence which was punishable with imprisonment or fine or with both are not compoundable
Section 42 Amendment of Section 454(3) Adjudication of Penalties Amendment of Section 454(8) The adjudicating authority had power to impose penalty on the company and the officer in default.

454(8) was only applicable when the Company does not pay the penalty imposed by adjudicating authority

The adjudicating authority has powers to impose penalty on the company, the officer in default or any other person.

454(8) now shall be applicable if the company fails to comply with order made by the adjudicating authority.

The amendment has extended powers of adjudicating authority to also impose penalty on any other person also.

The amendment has included penalty for non-compliance of order passed by
adjudication authority.

Section 42 Amendment of Section 454(3) Adjudication of Penalties Amendment of Section 454(8) The adjudicating authority had power to impose penalty on the company and the officer in default.

454(8) was only applicable when the Company does not pay the penalty imposed by adjudicating authority

The adjudicating authority has powers to impose penalty on the company, the officer in default or any other person.

454(8) now shall be applicable if the company fails to comply with order made by the adjudicating authority.

The amendment has extended powers of adjudicating authority to also impose penalty on any other person also.

The amendment has included penalty for non-compliance of order passed by
adjudication authority.

Section 43 Insertion of new section 454A Penalty for repeated default In case of repeated default within three years from the order imposing penalty, the person shall be liable to amount equal to twice the amount liable for such default under the relevant provisions of Companies Act 2013. The new section has imposed rigid penalties in case of repeated defaults.

* Author Jash Patel is Associated as Executive with Shantilal Dand & Co, Practicing Company Secretaries and can be reached at [email protected]

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