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 |
Accepting directorships beyond |
|
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 |
Registration of the offer of scheme involving transfer of |
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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