NEW PROVISIONS INSERTED BY COMPANIES (AMENDMENT) ACT, 2019

The Companies (Amendment) Act, 2019 contains:

1. All provisions introduced by The Companies (Amendment) Ordinance, 2018. (Dated 02.11.2018)

2. All provisions introduced by The Companies (Amendment) Ordinance, 2019. (Dated: 12.01.2019)

3. All provisions introduced by The Companies (Amendment) Second Ordinance, 2019. (Dated 21.02.2019)

4. New provisions introduced in this Act only.

We can divide the Companies (Amendment) Act, 2019 into two parts

1. Part containing the New amendments and provisions (Effective date is not notified yet)

2. Part containing the amendments and provisions introduced by Ordinances. (Effective from 02.11.2018)

Here we will talk about the new amendments and provisions inserted by the Companies (Amendment) Act, 2019

The Effective date for the provisions mentioned here is not notified yet

Section of Principal Act New Provision Changes made Impact of Changes
Section 26 Subsection 4, 5 & 6 (4) No prospectus shall be issued by or on behalf of a company or in relation to an intended company unless on or before the date of its publication, there has been delivered to the Registrar for registration filing, a copy thereof signed by every person who is named therein as a director or proposed director of the company or by his duly authorised attorney.

(5) A prospectus issued under sub-section (1) shall not include a statement purporting to be made by an expert unless the expert is a person who is not, and has not been, engaged or interested in the formation or promotion or management, of the company and has given his written consent to the issue of the prospectus and has not withdrawn such consent before the delivery of a copy of the prospectus to the Registrar for registration filing and a statement to that effect shall be included in the prospectus.

(6) Every prospectus issued under sub-section (1) shall, on the face of it,—

(a) state that a copy has been delivered for registration filing to the Registrar as required under sub-section (4); and

(b) specify any documents required by this section to be attached to the copy so delivered or refer to statements included in the prospectus which specify these documents.

The word ‘registration’ has been replaced with word ‘filing’

 

By this change the requirement of registration of Prospectus with the ROC has been removed. Now prospectus is to be filed only
Section 29 subsection ‘1A’ In case of such class or classes of unlisted companies as may be prescribed, the securities shall be held or transferred only in dematerialised form in the manner laid down in the Depositories Act, 1996 and the regulations made thereunder.” New Inserted Sub-Section

 

This change in Act is in accordance with the Rule 9A of inserted by the Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018 dated 10.09.2018
Section 35 (2) (c) (c)that, as regards every misleading statement purported to be made by an expert or contained in what purports to be a copy of or an extract from a report or valuation of an expert, it was a correct and fair representation of the statement, or a correct copy of, or a correct and fair extract from, the report or valuation; and he had reasonable ground to believe and did up to the time of the issue of the prospectus believe, that the person making the statement was competent to make it and that the said person had given the consent required by sub-section (5) of section 26 to the issue of the prospectus and had not withdrawn that consent before delivery of a copy of the prospectus for registration filing or, to the defendant’s knowledge, before allotment thereunder. The word ‘registration’ has been replaced with word ‘filing’

 

As the requirement of registration has been removed in Section 26 Subsection 4, 5 & 6
Section 90 (4A) (4A) Every company shall take necessary steps to identify an individual who is a significant beneficial owner in relation to the company and require him to comply with the provisions of this section New Sub-Section

 

The Duty of Reporting company to identify the SBO and get the provisions complied with.
Section 90 (9A) (9A) The Central Government may make rules for the purposes of this section New Sub-Section

 

Power to the Central Government for making rules in connection with Section 90.
Section 132 (1A) NFRA “(1A) The National Financial Reporting Authority shall perform its functions through such divisions as may be prescribed. New Sub-Section

 

Regarding Constitution of National Financial Reporting Authority
Section 132 (3A) NFRA 3(A) Each division of the National Financial Reporting Authority shall be presided over by the Chairperson or a full-time Member authorised by the Chairperson New Sub-Section

 

Section 132 (3B) NFRA (3B) There shall be an executive body of the National Financial Reporting Authority consisting of the Chairperson and full-time Members of such Authority for efficient discharge of its functions under sub-section (2) [other than clause (a)] and sub-section (4).” New Sub-Section

 

Section 132 (4)(b)(B) NFRA 132(4)(b)(B) debarring the member or the firm from—

I. being appointed as an auditor or internal auditor or undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate; or

II. performing any valuation as provided under section 247 for a minimum period of six months or such higher period not exceeding ten years as may be determined by the National Financial Reporting Authority

Substituted the Old subclause (B) of Clause (b) of subsection 4 which was as follows:

Debarring the member or the firm from engaging himself or itself from practice as member of the Institute of Chartered Accountant of India referred to in clause (e) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 for a minimum period of six months or for such higher period not exceeding ten years as may be decided by the National Financial Reporting Authority.

Now debarred only for Statutory Audit; Internal Audit of the Company and Valuation as per Section 247, in case of Professional or any other mis conduct is proved.
Section 135(5) CSR (5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:

Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities:

Provided further that if the company fails to spend such amount and, unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount

Inserted after the words “three immediately receding financial years,”, the words “or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years,” and in the second proviso, after the words “reasons for not spending the amount” occurring at the end, the words, brackets, figure and letters “and, unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year By this change clarification regarding the Companies which has not completed 3 years of its incorporation, is given and create a specified fund for unspent money of CSR
Section 135 (6) CSR (6) Any amount remaining unspent under sub-section (5), pursuant to any ongoing project, fulfilling such conditions as may be prescribed, undertaken by a company in pursuance of its Corporate Social Responsibility Policy, shall 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, and 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 New Sub-Section

 

Open a Separate Bank Account specially for unspent amount of CSR and transfer the unspent amount within 30 days to that account
Section 135 (7) CSR (7) If a company contravenes the provisions of sub-section (5) or sub-section (6), the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and every officer of such company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both New Sub-Section

 

Penal provisions for contravention of Section 135 (5) & (6)
Section 135 (8) CSR The Central Government may give such general or special directions to a company or class of companies as it considers necessary to ensure compliance of provisions of this section and such company or class of companies shall comply with such directions. New Sub-Section

 

Power to Central Government to ensure the compliance of the provisions of Section 135
Section 212 (8) If the Director, Additional Director or Assistant Director If any officer not below the rank of Assistant Director of Serious Fraud Investigation Office authorised in this behalf by the Central Government by general or special order, has on the basis of material in his possession reason to believe (the reason for such belief to be recorded in writing) that any person has been guilty of any offence punishable under sections referred to in sub-section (6), he may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest. The word ‘the Director, Additional Director or Assistant Director’ has been replaced with word ‘If any officer not below the rank of Assistant Director’

 

To bring the officers not below the rank of Assistant Directors in the ambit of Investigation
Section 241 (2) The Central Government, if it is of the opinion that the affairs of the company are being conducted in a manner prejudicial to public interest, it may itself apply to the Tribunal for an order under this Chapter:

Provided that the applications under this sub-section, in respect of such company or class of companies, as may be prescribed, shall be made before the Principal Bench of the Tribunal which shall be dealt with by such Bench.

Proviso to Section 241 (2) inserted Power to CG for application under this chapter to Principal Bench of Tribunal only
Section 241 (3) “(3) Where in the opinion of the Central Government there exist circumstances suggesting that––

(a) any person concerned in the conduct and management of the affairs of a company is or has been in connection therewith guilty of fraud, misfeasance, persistent negligence or default in carrying out his obligations and functions under the law or of breach of trust;

(b) the business of a company is not or has not been conducted and managed by such person in accordance with sound business principles or prudent commercial practices;

(c) a company is or has been conducted and managed by such person in a manner which is likely to cause, or has caused, serious injury or damage to the interest of the trade, industry or business to which such company pertains; or

(d) the business of a company is or has been conducted and managed by such person with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose or in a manner prejudicial to public interest, the Central Government may initiate a case against such person and refer thesame to the Tribunal with a request that the Tribunal may inquire into the case and record a decision as to whether or not such 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.

New Sub-Section

 

The purpose is to find the guilty minds and mal intentions and to file the case against them
Section 241 (4) & (5) (4) The person against whom a case is referred to the Tribunal under sub-section (3), shall be joined as a respondent to the application.

(5) Every application under sub-section (3)––

(a) shall contain a concise statement of such circumstances and materials as the Central Government may consider necessary for the purposes of the inquiry; and

(b) shall be signed and verified in the manner laid down in the Code of Civil Procedure, 1908, for the signature and verification of a plaint in a suit by the Central Government.”.

New Sub-Section

 

About the Content of the application to be filed by Central Government under 241 (3)
Section 242 (4A) “(4A) At the conclusion of the hearing of the case in respect of sub-section (3) of section 241, the Tribunal shall record its decision stating therein 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. New Sub-Section

 

The duty of Tribunal to record its decision whether or not the respondent is a fit and proper person to hold the office of director or any other office
Section 243(1A) “(1A) The person who is not a fit and proper person pursuant to sub-section (4A) of section 242 shall not hold the office of a director or any other office connected with the conduct and management of the affairs of any company for a period of five years from the date of the said decision:

Provided that the Central Government may, with the leave of the Tribunal, permit such person to hold any such office before the expiry of the said period of five years.

New Sub-Section

 

To fix the period by which a person who is not a fit and proper person shall not hold the office of a director or any other office
Section 243 (1B) Notwithstanding anything contained in any other provision of this Act, or any other law for the time being in force, or any contract, memorandum or articles, on the removal of a person from the office of a director or any other office connected with the conduct and management of the affairs of the company, that person shall not be entitled to, or be paid, any compensation for the loss or termination of office.”; New Sub-Section

 

Debarred to pay any compensation for the loss or termination of office on the removal of a person from the office of a director or any other office connected
Section 243 (2) Any person who knowingly acts as a managing director or other director or manager of a company in contravention of clause (b) of sub-section (1) and sub-section (1A), and every other director of the company who is knowingly a party to such contravention, shall be punishable with imprisonment for a term which may extend to six months or with fine which may extend to five lakh rupees, or with both. Insertion of words and sub-section (1A) To enhance the scope of Section 243 (2) to include the sub-section (1A)
Section 272 (3) 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 of that section:

Provided that the Registrar shall obtain the previous sanction of the Central Government to the presentation of a petition:

Provided further that the Central Government shall not accord its sanction unless the company has been given a reasonable opportunity of making representations.

The word ‘the Director, Additional Director or Assistant Director’ has been replaced with word ‘If any officer not below the rank of Assistant Director’

 

Now the Registrar may present a petition on the grounds of Just and Equitable under clause (e) of Section 271.
Section 398 (1) (f)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(f) the Registrar shall register change of registered office, alteration of memorandum or articles, prospectus, issue certificate of incorporation, register such document, issue such certificate, record the notice, receive such communication as may be required to be registered or issued or recorded or received, as the case may be, under this Act or the rules made thereunder or perform duties or discharge functions or exercise powers under this Act or the rules made thereunder or do any act which is by this Act directed to be performed or discharged or exercised or done by the Registrar in the electronic form in such manner as may be prescribed.

Explanation.— For the removal of doubts, it is hereby clarified that the rules made under this section shall not relate to imposition of fines or other pecuniary penalties or demand or payment of fees or contravention of any of the provisions of this Act or punishment therefor.

The Word Prospectus is omitted Prospectus is not required to be registered with Registrar

Beside above amendments all other amendments were inserted by various ordinances issued on the dates as mentioned above, which were already discussed at various platforms in various parts, So I am not including those amendments here.

Anyone having any query regarding Companies (Amendment) Act, 2019 or any other query regarding corporate law can reach me at jassociates.cs@gmail.com and also at 9953001339 / 9654080119.

Author Bio

Qualification: CS
Company: Jhamb & Associates
Location: New Delhi, New Delhi, IN
Member Since: 10 Jan 2019 | Total Posts: 9
CS Hitesh Jhamb is a young Company Secretary with a post qualification experience of 4 years and a VALUER registered with IBBI having exposure in assignments of Securities Valuation, Compliance of NBFCs,Trademarks, FSSAI, TAAI (For Travel Companies) GST, Trust & Societies and Many More. CS Hites View Full Profile

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