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The Companies (Amendment) Bill, 2019 was passed by the Rajya Sabha on 30th July, 2019 and received the Assent of President on 31st July 2019. Earlier the Amendment Bill, 2019 was passed by Lok Sabha on 27th July, 2019.

Replacement of imprisonment and/or fine with penalties:

The main feature of this amendment is to re-categorize certain offences from judicial prosecutions to an in-house adjudication framework. In other words, replacement of existing system of judicial prosecution for certain offences by a departmental process of imposition of penalties.

As a result, though companies may have to pay more for the offences, but defaulters will not have to face criminal courts and prosecutions.

Following are offences for which the fines and/or imprisonments are replaced by the penalties under the Companies (Amendment) Act, 2019;


Sr. No.

Sections

Nature of Default

1

Section 53(3) Prohibition of issue of shares at a discount

Prohibition of issue of shares at a discount

2

Section 64(2) Notice to be given to Registrar for alteration of share capital

Failure/delay in filing notice for alteration of share capital

3

Section 92(5) Annual return

Failure/delay in filing annual return

4

Section 102(5) Statement to be annexed to notice

Attachment of a statement of special business in a notice calling for general meeting

5

Section 105(3) Proxies

Default in providing a declaration regarding appointment of proxy in a notice calling for general meeting

6

Section 117(2) Resolutions and Agreements to be filed

Failure/Delay in filing Certain resolutions

7

Section 121(3) Report on annual general meeting

Failure/Delay in filing Report on AGM by public listed company

8

Section 137(3) Copy of financial statement to be filed with Registrar

Failure/Delay in filing financial statement

9

Failure/Delay in filing financial statement

Failure/Delay in filing statement by auditor after resignation

10

Section 157(2) Company to inform Director Identification Number to Registrar

Failure/Delay by company in informing DIN of director

11

Section 159 Punishment for Contravention – in respect of DIN

Contraventions related to DIN

12

Section 165(6) Number of
Directorships

Accepting directorships beyond
specified

13

Section 191(5) Payment to Director for Loss of Office, etc., in connection with transfer of undertaking, property or shares

Payment to director not to be made on loss of office

14

197(15) Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits

Managerial remuneration

15

203(5) Appointment of Key Managerial Personnel

203(5) Appointment of Key Managerial Personnel

16

238(3) Registration of the offer of scheme involving transfer of
shares

Registration of the offer of scheme involving transfer of
shares


To achieve the above reform, the act has also modified sub-section (3) and (8) of section 454 and also introduced a new section 454A.

Amendment in Section 135 – Corporate Social Responsibility

Previously CSR spending was not compulsory, only the explanation was needed in the Directors Report for not spending the amount. Now, the Ministry has introduced some strict provisions including penalties and taken steps to ensure that CSR amounts are spend properly by the Corporates to whom its applicable, they are:

  • If companies are not able to spend the required CSR amount, then they are required to contribute the unspent amount to the Funds mentioned in Scheduled VII, for example, PM's National Relief Fund.
  • If companies are running any CSR project, it may retain unspent amounts only to the extent required for on-going projects (rules will be prescribed for eligible on-going projects). However, such unspent amount shall be kept into a special account called 'Unspent Corporate Social Responsibility Account' within 30 days from the end of the financial year, from where it must be spent within the next 3 years, and if not spent, than such unspent amount shall be transferred to the Funds mentioned in Schedule VII.
  • Failure to comply with the provisions makes the company liable to a fine, and officers of the company will be liable to be imprisoned for upto 3 years, or pay a fine extending to Rs 5 lacs.

Dematerialization of shares of Specified Companies (including Private Companies):

The term 'public' has been omitted under section 29(1)(b). Now, Ministry may prescribe the class of companies (not restricted to public companies), which would be mandatorily required to convert existing shares into dematerialized form and to issue the securities only in dematerialized form.

Increase in the power of Regional Director to Compound the offences:

Section 441(1)(b): Power of Regional Director to compound offence punishable increased upto Rs. 2,500,000/- (previously it was Rs. 5,00,000/-)

Section 441(6)(a), which requires the permission of the Special Court for compounding of offences, being redundant provision, is omitted under this act.

Following powers of NCLT is shifted to Central Government:

  • Approval for change in financial year by any Indian Company,
  • Approval for conversion Public Limited Company to Private Limited Company.

Declaration by new companies before commencement of business:

Insertion of Section 10A to provide for a declaration by a company having share capital before it commences its business or exercises borrowing power.

Non-compliance of section 10A by an officer in default shall result in liability to a penalty instead of fine.

Power to remove name of Companies who do not have registered office in compliance with Section 12(1):

Insertion of sub-section (9) in Section 12: Now by this insertion,  if ROC finds that a Company is not carrying any business, it may cause physical verification of registered office of the that Company and if any default is found in compliance with Section 12(1), ROC may initiate process of removal of name of that Company.

Amendment in Section 26:

The requirement of registration of prospectus with the Registrar of Companies has been done away with instead the prospectus would only be filed with the Registrar.


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Category Corporate Law, Other Articles by - NANDLAL YADAV 



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