ArticlesCompanies LawLegal Updates

An overview of the Companies (Amendment) Act, 2019.

Company Act Update

The Companies (Amendment) Act, 2019 has received the assent of the Rajya Sabha and has been passed in the Parliament. The Bill had already received the assent of majority in the Lok Sabha. The Bill aims to amend the Companies Act of 2013 (the Act) and bring forth essential changes on pressing issues such as those concerning strict compliance with the Corporate Social Responsibility (CSR) provisions and giving more responsibilities to the Adjudicating Authority i.e. the National Company Law Tribunal (NCLT). The key amendments to the Act are encapsulated as follows –

Section 2(41) of the Act has been amended to the extent that any application pending before the NCLT as on the date of commencement of the Companies (Amendment) Act, 2019, shall be disposed of by the NCLT in accordance with the provisions applicable to it before such commencement. A new Section 10A has been inserted that limits the commencement of business or exercise of borrowing powers by a Company unless the prerequisites prescribed under this section viz. a declaration within 180 days of company incorporation by the director verifying payment of value of shares by subscriber of memorandum, filing of verification of registered officer to the ROC are fulfilled. Further, penalties for non-compliance with the prerequisites are also prescribed.  Section 12 has been amended by inserting a sub-section (9) which empowers the ROC to “cause a physical verification of the registered office of the company” and “initiate action for the removal of the name of the company from the register of companies under Chapter XVIII” if found to be non-compliant. Section 14(1) has been amended to the extent that NCLT has been directed to dispose of applications for alteration of articles having the effect of conversion of a public company into a private company. Further in Section 14(2) the power of approval of the application for alteration has been given to the Central Government. Section 26(7) has been omitted. In Section 29, subsection 1A has been inserted to direct the securities to be held or transferred only in dematerialised form as per the Depositories Act, 1996 and its regulations. Section 53(3) has been amended to impose a penalty for default to the tune of the amount raised through the issue of shares at a discount or five lakh rupees (whichever is less) and impose a liability on the company to refund the monies along with interest at the rate of 12% p.a. Section 64(2) has been amended to impose a penalty for default to the tune of one thousand rupees for each day during which such default continues, or five lakh rupees (whichever is less). The provisos to Section 77(1) have been amended to prescribe a period for the ROC to allow registration within a period of 300 days in case of charges created before the commencement of the Companies (Amendment) Act, 2019 or within 60 days in case of charges created on or after the commencement of the Companies (Amendment) Act, 2019. Further, in case of registrations not made within the periods specified, the registration of the charge shall be made within six months from the date of commencement of the Companies (Amendment) Act, 2019 on payment of additional fees in case of charges created before the commencement of the Companies (Amendment) Act, 2019 and in case of charges created on or after the commencement of the Companies (Amendment) Act, 2019 the ROC may allow such registration to be made within a further period of 60 days after payment of such ad valorem fees.  Section 86 has been amended to insert a subsection (2) which warrants an action under Section 477 for wilful suppression of facts/misrepresentation of facts.

Section 87 of the Act has been substituted in its entirety to empower the Central Government to direct extension of the time for the giving of intimation of payment or require rectification of the omission or misstatement.  Section 90 has been amended to insert subsection 4A which requires every company to 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 Section 90. Section 90(9) has been substituted to prescribe a period of 1 year to file an application with the NCLT for relaxation or lifting of the restrictions placed under sub-section (8). Further, in case of failure to file an application within the prescribed period, the shares shall be transferred. Another sub section 9A has been added which empowers the Central Government to make the rules. Section 92(5) has been amended to  impose a penalty of fifty thousand rupees for failure to file annual return and in case of continuing failure, a further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of five lakh rupees to be imposed. Section 102(5), Section 117(2) and Section 121(3) have been amended to impose penalty on the defaulters. Under Section 132, subsections 1A, 3A and 3B have been inserted for the functioning of the National Financial Reporting Authority.  Further, subsection (4)©(B) has also been amended to provide for debarment of a member of the firm from being appointed as an auditor and performing auditory functions. 

 The provisions regarding CSR under Section 135 have been amended to provide for companies which have not completed the period of three financial years since its incorporation. Further, the second proviso has been amended to add that the unspent amount is to be transferred a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year. A subsection 6 has been added under which any amount remaining unspent shall be transferred by the company within thirty days from the end of the financial year to a special account to be opened by the company 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. Subsection 7 has been added to provide the punishment for non-compliance. Sub section 8 has been added to empower the Central Government to give directions to companies to ensure compliance. 

Section 137, Section 140, Section 157, Section 159, Section 165, Section 191, Section 197, Section 203 and Section 238 have been amended to prescribe penalty for default. Section 241 has been amended for the Central Government to prescribe that the applications be made to the Principal Bench of the NCLT. Further, the Central Government has been entitled to initiate a case against a person and refer the same to the NCLT with a request that the NCLT 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. Section 242 has been amended to insert a subsection 4A under which NCLT 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. Section 243 has been amended to insert subsection 1A and 1B which provides that a person who is deemed unfit u/s 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 and a person removed from the office of a director or any other office connected with the conduct and management of the affairs of the company, shall not be entitled to, or be paid, any compensation for the loss or termination of office. Section 248 (1) has been amended by inserting sub clause (d) and (e) which lays down additional criteria for companies to be removed from the Registrar. Section 398 has been amended to omit the requirement to register prospectus. Section 441 has been amended to increase the limit of the fine to 25 Lac rupees under subsection (1)(b). Section 454 has been amended to empower the adjudicating officer to direct the defaulter to rectify the default. Further subsection 454A has been inserted which states that in case of repeated default, the defaulter shall be liable for the second or subsequent defaults for an amount equal to twice the amount of penalty provided for such default under the relevant provisions of the Act.

 

Show More

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *