The Companies (Amendment) Act 2019 assented by the President on 31st July, 2019

The Companies (Amendment) Act 2019 assented by the President on 31st July, 2019

In order to review the existing provisions of the The Companies Act, 2013 (the Act) dealing with the offences and better corporate compliance, the Government of India had constituted a Committee.

On the recommendations made by the Committee, in order to fill critical gaps in the corporate governance and compliance framework and extending greater ease of doing business, it was proposed to amend certain provisions of the Companies Act, 2013.

However, due to the urgency, the Companies (Amendment) Ordinance, 2018 was promulgated . To replace the aforesaid Ordinance, the Companies (Amendment) Bill, 2018 was passed in the Lok Sabha. However, the said Bill could not be taken up for consideration in the Rajya Sabha.

In order to give continued effect to the Companies (Amendment) Ordinance, 2018, the President promulgated the Companies (Amendment) Ordinance, 2019 and the Companies (Amendment) Second Ordinance, 2019 on the 12th day of January, 2019 and the 21st day of February, 2019 respectively.

Today, the Lok Sabha passed the Companies (Amendment) Bill, 2019 to replace the Companies (Amendment) Second Ordinance, 2019 with certain other amendments considered necessary to ensure more accountability and better enforcement to strengthen the corporate governance norms and compliance management in corporate sector.

As stated by the Finance Minister, the amendments are all aimed at ease of doing business for small, medium, and large companies, which are being troubled because of the Companies Act. Replying to debate in the Lok Sbha she stated that amendments are not just being brought in suo moto, but they are being brought in because there is a demand and in response to attending to the people’s inconveniences and addressing them.

As per the Statement of Objects and reasons, the Companies (Amendment) Bill, 2019 which replaces the Companies (Amendment) Second Ordinance, 2019 with certain additional amendments, inter alia, provides for the following, namely:—

(i) to amend clause (41) of section 2 of the Companies Act, 2013 so as to empower the Central Government to allow certain companies to have a different financial year instead of as determined by the Tribunal;

(ii) to amend section 12 of the Act empowering the Registrar to initiate action for the removal of name of the company from register of companies, if the company is not carrying on any business or operation in accordance with the provisions of the Act;

(iii) to amend sixteen sections of the Act so as to modify the punishment as
provided in the said sections from fine to monetary penalties to lessen the burden upon the Special Courts;

(iv) to amend section 132 of the Act to enable the National Financial Reporting Authority to perform its functions through divisions and the Executive Body.

The Companies (Amendment) Act 2019 – Key amendments:

1. The Bill seeks to amend clause (41) of section 2 of the Companies Act, 2013 (the Act) so as to enable the relevant companies to follow different financial year with the approval of the Central Government, instead of taking approval of the Tribunal.

2. The Bill seeks to insert a new section 10A relating to commencement of business etc., to provide that a company having a share capital shall not commence business or exercise any borrowing powers unless a declaration is filed with the Registrar by a director that every subscriber to the memorandum has paid the value of shares and the company has filed with the Registrar the verification of its registered office. The said clause further provides that non-compliance with filing of declaration may result into action by Registrar under Chapter XVIII.

3. Insertion of a new sub-section (9) in section 12 of the Act to provide that the Registrar may cause a physical verification of the registered office of the
company if he has reasonable cause to believe that company is not carrying on any business or operations as specified and to provide consequent action thereof.

4. Amendment to the second proviso to sub-section (1) of section 14 of the Act to provide that any alteration having the effect of conversion of a public company into a private company shall not be valid unless it is approved by an order of the Central Government on an application made in such form and manner as may be prescribed. Earlier this approval was obtained from the Tribunal.

5. Amendment of sub-sections (4), (5) and (6) of section 26 of the Act so as to substitute the requirement of registration of prospectus with filing of prospectus with the Registrar.

6. Amendment of sub-section (1) of section 29 of the Act and to insert sub-section (1A) therein to provide for the requirement of issuance, holding or transferring of securities in dematerialised form for any class of unlisted companies, as may be prescribed by the Central Government.

7. Amendment of clause (c) in sub-section (2) of section 35 of the Act to provide that the copy of the prospectus shall be filed with the Registrar instead of delivery for registration.

8. Amendment of sub-section (3) of section 53 of the Act to provide for monetary penalty and refund of monies in case of failure to comply with the provision of the said section.

9. Amendment of sub-section (2) of section 64 of the Act to provide for monetary penalty for company and its officers in default in case of failure to comply with provision of the said section.

10. Amendment of the first and second proviso of sub-section (1) of section 77 of the Act to provide that the Registrar may, on the application made by a company, allow registration of charge, in case of charges created before the commencement of the Companies (Amendment) Act, 2019, within a period of three hundred days or in case of charges created after the commencement of the said Act within sixty days, on payment of additional fees. The additional period within which the charges are required to be registered is also provided.

11. Insertion of sub-section (2) in section 86 of the Act to provide that any person who wilfully furnishes any false or incorrect information or knowingly suppresses any material information, required to be registered in accordance with the provisions of section 77, shall be liable for action under section 447.

12. Substitution of section 87 of the Act to empower the Central Government to extend time or allow rectification, if it is satisfied that omission to give intimation to the Registrar of the payment or satisfaction of a charge, within the time required under Chapter VI; or the omission or misstatement of any particulars, in any previous filing with respect to any such charge or modification thereof or with respect to any memorandum of satisfaction or other entry made in pursuance of section 82 or section 83 was accidental or
was due to inadvertence.

13. Amendment to section 90 of the Act by inserting sub-section (4A) to provide that the company shall take necessary steps to identify an individual who is a significant beneficial owner. Failure to take necessary steps shall lead to action under sub-section (11). It also seeks to amend sub-section (9) of section 90 of the Act to provide that 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 a period of one year from the date of such order and if no such application is filed, such shares shall be transferred without any restrictions to Investor Education and Protection Fund Authority. It also seeks to insert sub-section (9A) to provide the power to the Central Government to make rules for the purposes of this section.

14. Amendment to sub-section (5) of section 92 of the Act to provide that if any company fails to file its annual return under sub-section (4), before the expiry of the period specified therein, such company and its every officer who is in default shall be liable to monetary penalty. 

15. Amendment to sub-section (5) of section 102 of the Act to provide that in case of any default made in complying with the provisions of such section, every promoter, director, manager or other key managerial personnel of the company who is in default shall be liable to monetary penalty. 

16. Amendment to sub-section (3) of section 105 of the Act to provide that for any default under sub-section (2) of said section, the officer in default shall be liable for monetary penalty. 

17. Amendment to sub-section (2) of section 117 of the Act to provide that for failure in filing a copy of every resolution or an agreement as per sub-section (1) of said section, the company and its officer in default shall be liable for monetary penalty 

18. Amendment to sub-section (3) of section 121 of the Act to provide for liability to pay monetary penalty for not filing with the Registrar a copy of report within the stipulated period. 

19. Amendment to section 132 of the Act to provide that the National Financial Reporting Authority shall perform its functions through such divisions as may be prescribed by the Central Government. It also seeks to provide that there shall be an executive body of the National Financial Reporting Authority consisting of the Chairperson and full-time Members for efficient discharge of its certain functions. The clause also seeks to amend sub-clause (B) of clause (c) of sub-section (4) of section 132 with respect to the extent of debarring of the member or firm by National Financial Reporting Authority in case professional or other misconduct is proved.

20. Amendment to sub-section (5) of section 135 and insert sub-sections (6), (7) and (8) in the said section of the Act to provide, inter alia for (a) carrying forward the unspent amounts, to a special account to be spent within three financial years and transfer thereafter to the Fund specified in Schedule VII, in case of an ongoing project; and (b) transferring the unspent amounts to the Fund specified under Schedule VII, in other cases.

21. sub-section (3) of section 137 of the Act to provide for payment of monetary penalty in case of failure to file a copy of financial statements with the Registrar.

22. Amendment to sub-section (3) of section 140 of the Act to provide for payment of monetary penalty of fifty thousand rupees or an amount equal to the remuneration of the auditor whichever is less and further penalty for continuous failure, if the auditor does not comply with sub-section (2) of the said section.

23. Amendment to  sub-section (2) of section 157 of the Act to provide for payment of monetary penalty in case there is failure to furnish Director Identification Number pursuant to sub-section (1) of the said section.

24. Amendment to section 159 of the Act to provide for payment of monetary penalty if any individual or director of a company makes default in complying with sections 152, 155 and 156 of the Act.

25. Insertion of clause (i) in sub-section (1) of section 164 of the Act to provide disqualification to become a director if an individual has not complied with the provisions of sub-section (1) of section 165 of the Act.

26. Amendment to sub-section (6) of section 165 of the Act to provide for payment of monetary penalty in case a person accepts an appointment as a director in contravention of sub-section (1) of the said section.

27. Amendment to sub-section (5) of section 191 of the Act to provide for payment of monetary penalty if a director makes default in complying with the said section.

28. Omission of sub-section (7) and to amend sub-section (15) of section 197 of the Act to provide for payment of monetary penalty by any person or the
company in case of default.

29. Amendment to sub-section (5) of section 203 of the Act to provide for payment of monetary penalty by any company and director and key managerial personnel who is in default in complying with the said section.

30. Amendment to section 212 of the Act to provide that any officer not below the rank of Assistant Director of Serious Fraud Investigation Office (SFIO), if so authorised, may arrest any person in accordance with the provisions of this section. It also seeks to provide that the person so arrested may be taken to a Special Court or Judicial Magistrate or Metropolitan Magistrate within twenty four hours of his arrest. Further, the
clause also seeks to provide that where an investigation report submitted by SFIO states that a fraud has taken place and any director, key managerial personnel or officer has taken undue advantage or benefit, then the Central Government may file an application before Tribunal with regard to disgorgement and such director, key managerial personnel or officer may be held personally liable without any limitation of liability.

31. Amendment to sub-section (3) of section 238 of the Act to provide for payment of monetary penalty for the director who issues a circular which has not been presented for registration and registered as per sub-section (1) of the said section.

32. Amendment to sub-section (2) of section 241 of the Act by inserting a proviso to empower the Central Government to prescribe such company or class of companies in respect of which, applications under such sub-section, shall be made before the Principal Bench of the Tribunal and shall be dealt with by such Bench. It also seeks to provide that in certain circumstances, the Central Government may refer the matter and request to the Tribunal to inquire into the case and record a decision about whether the 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.

33. Amendment to section 242 of the Act to provide that at the conclusion of the hearing of the case in respect of section 241, the Tribunal shall record its decision stating 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.

34. Amendment to section 243 of the Act to provide that the person who is not a fit and proper person pursuant to 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 relevant decision of the Tribunal. It also seeks to provide 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. The clause also seeks to provide that the person so 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.

35. Amendment to sub-section (1) of section 248 of the Act to insert new clauses (d) and (e) to provide that in case the subscribers to the memorandum have not paid the subscription which they had undertaken to pay and declaration under section 10A has not been filed or where the company is not carrying on any business or operation as revealed after the physical verification, the Registrar shall send notice to such companies and its directors informing them of his intention to remove the name of the company from the register of companies.

36. Amendment to sub-section (3) of section 272 of the Act to allow the Registrar to present a petition of winding up on the ground that it is just and equitable to do so under clause (e) of section 271.

37. Amendment to clause (f) of sub-section (1) of section 398 of the Act by omitting the word “prospectus” as it would not be required to be registered by the Registrar.

38. Amendment to clause (b) of sub-section (1) of section 441 of the Act to increase the threshold of maximum amount of fine that does not exceed twenty-five lakh rupees for compounding by the Regional Directors.

39. Amendment to section 446B of the Act to provide for payment of reduced amount of monetary penalty in case of default by One Person Companies or small companies.

40. Amendment to section 447 of the Act to enhance the amount of fine from “twenty lakh rupees” to “fifty lakh rupees”.

41. Amendment to sub-sections (3) and (8) of section 454 of the Act to provide that adjudicating officer may also direct the company or officer in default or other person to rectify default, wherever he considers fit.

42. Insertion of a new section 454A relating to monetary penalty for repeated default, which is twice the amount of penalty provided for such defaults under the relevant provisions of this Act.

43. It repeals the Companies (Amendment) Second Ordinance, 2019 and to save the actions done during the course of the period of Ordinance

Download The Companies (Amendment) Act 2019 Click Here >>

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