MCA Update - The Companies (Amendment) Act, 2019

After getting the clearance from both the houses, "The Companies (Amendment) Act, 2019" has been notified in the Official Gazette dated July 31, 2019 after receiving the assent from the President.

Purpose of The Companies (Amendment) Act, 2019 is “To ensure more accountability and better enforcement to strengthen the Corporate Governance Norms and Compliance Management in Corporate Sector as enshrined in the Companies Act, 2013.”

 

Key Highlights of The Companies (Amendment) Act, 2019 are mentioned below:

 

Applicable

Section under Companies Act, 2013

 

Key Amendment
Section 2

(Financial Year)

As per Companies Act, 2013, in case of Indian company having Holding/ subsidiary/ Associate Company situated outside india, it is allowed to change the financial year as per such company with the approval of Tribunal.

 

Power of Tribunal has been transferred to Central Government. Therefore, after notification of ordinance financial year of Company can be changed with approval of Central Government.

 

Section 10A

(Commencement of business)

Company incorporated after ordinance shall not commence its business or exercise any borrowing powers unless ‐

 

A declaration is filed by the directors within 180 days from date of incorporation of company with Roc that ‘every subscriber to the MOA has paid the value of the shares agreed to be taken by him’ & files a verification of its registered address with the RoC within 30 days of incorporation.

 

If company fails to file such declaration then Roc has reasonable cause to believe that the Company is not carrying on any business or operation, ROC may, initiate action for removal of name of Company (Strike off)

 

Section 12

(Registered office of Company)

 

As per Section 12(1) A company shall, within thirty days of its incorporation and at all times thereafter, have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it.

 

Registrar may do physical verification of the Registered office of Company and if any default is found to be made in complying with provision of Section 12(1) (extract mentioned above). ROC may, initiate action for removal of name of Company (Strike off)

 

Section 14

(Alteration of Articles)

Shifting of powers for conversion from public to private companies from National Company Law Tribunal (NCLT) to the central government.

 

Section 26

(Matters to be stated in prospectus)

The requirement of registration of prospectus with Registrar of Companies has been done away with.

 

Instead the prospectus would be filed with the Registrar.

 

Section 29

(Public offer of Securities to be in dematerialized form)

The term ‘public’ has been omitted.

 

Government would now prescribe the class/classes of unlisted companies, which would be mandatorily required to issue the securities only in Dematerialized form.

 

Section 35

(Civil Liability for misstatements in prospectus)

 

‘Registration of Prospectus with Registrar’ is replaced by ‘Filing of copy of prospectus with the Registrar’.
Section 53

(Issue of shares at discount)

 

Amendment Act have made alterations in relation to penalty.
Section 64

(Notice to be Given to Registrar for Alteration of Share Capital)

 

Amendment Act have made alterations in relation to penalty.

 

Penalty will be levied on company and every officer who is in default.

Section 77

(Register of charges)

 

As per Section 77(1) Company can file form for registration of Charge after 30 days till 300 days with additional fees and if company fails to file within 300 days can file form as per Section 87 for Condonation from Regional Director.

 

In case of charge created after the commencement of ordinance, 2018 then registrar shall allow such registration “within period of 60 days of such creation”.

 

Therefore, period of 300 days has been removed by the ordinance.

 

If Company fails to file within 60 days of creation, “Roc may allow such registration to be made within a further period of 60 days after payment of such advalorem fees as may be prescribed”

 

(Maximum time period for registration/modification of charges to be 30 days + additional 30 days. Further advolerum fees to be done in next 60 days. After total of 120 days Charge cannot be Registered.)

 

Section 86

(Punishment for Contravention)

 

Amendment Act have made alterations in relation to penalty.

 

If any person 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, he shall be liable for action under section 447.

 

Section 87

(Condonation of Delay in charge)

 

This section now applicable for “Satisfaction of Charge”.

 

 

Section 90

(Register of Significant Beneficial Owners in a Company)

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 provision of this section.

 

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 within a period of one year from the date of such order.

 

Provided that, if no application filed within period of one Year ‘Shares shall be transferred to the authority constituted u/s 125(5).

 

This Amendment provide power to the Central Government to make rules for the purposes of this section.

 

Section 92

(Annual Return)

 

If any company fails to file Annual Return before expiry of 60 days, such company and its officer who is in default shall be liable to a penalty of “50,000/‐“ and in case of continuing failure, with further penalty of “Rs. 100” for each day during which such failure continues subject to maximum of Rs 5 lacs.

 

Section 102

(Statement to be Annexed to Notice)

 

Amendment Act have made alterations in relation to penalty.

 

Section 132

(Constitution of National Financial Reporting Authority (NFRA)

Amendment Act gave more clarity with respect to certain powers of the National Financial Reporting Authority (NFRA).

 

NFRA debar a member or firm from practising as a Chartered Accountant for a period between 6 months to 10 years, for proven misconduct.

 

The Bill amends the punishment to provide for debarment from appointment as an auditor or internal auditor of a company, or performing a company’s valuation, for a period between 6 months to 10 years.

 

Section 135

(Corporate Social Responsibility)

 

A major focus of the bill is on CSR spending. Now companies have to keep unspent money in a special account.

 

The Companies (Amendment) Bill, 2019 highlights that companies with a profit of more than Rs 5 crore, turnover of Rs 100 crore and net worth of more than Rs 500 crore have to spend at least 2% of their 3 years annual average net profit towards CSR activities.

 

In case of non-compliance of CSR provisions, monitory as well as penal provisions are prescribed under the Amendment Bill.

 

Highlights of CSR policy are mentioned below:

 

i) In case the unspent amount does not relate to any ongoing project, unspent amounts to be transferred to a Fund specified under Schedule VII within a period of 6 months of the expiry of the financial year.

 

ii) In case the unspent amount relates to any ongoing project subject to fulfilling of prescribed conditions, unspent amounts to be transferred by the company within a period of 30 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.

 

iii) Such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of 3 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 30 days from the date of completion of the third financial year.

 

iv) Penal provisions inserted as under:

 

The company - punishable with fine which shall not be less than Rs. 50,000/- but which may extend to Rs. 25 lakh Every officer of such company who is in default - shall be punishable with imprisonment for a term which may extend to 3 years or with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 5 lakh, or with both.

 

Section 164

(Disqualification for Appointment of Director)

 

As per Section 165, No person, after the commencement of this Act, shall hold office as a director, including any alternate directorship, in more than twenty companies at the same time.

 

If default made in Section 165, then director shall be considered as disqualified under Section 164.

 

Breach in Maximum no of Directorships to be a Ground for Disqualification.

 

Section 197

(Managerial Remuneration)

 

Remuneration to Independent Directors in form of Sitting fees has been removed from the Act.

 

Amendment Act have made stricter norms for Independent Director & capping of their sitting fee & remuneration.

 

Section 212

(Investigation into affairs of Company by Serious Fraud Investigation Office)

 

Any officer not below the rank of Assistant Director comes within the ambit for investigation and taking under arrest.

 

Now, cases have been taken to Special Court or Judicial Magistrate. The person so arrested may be taken to a Special Court or Judicial Magistrate or Metropolitan Magistrate within 24 hours of his arrest.

 

Where an investigation report submitted by SFIO states that a fraud has taken place and any director, KMP or officer has taken undue advantage or benefit, then the Central Government may file an application before the Tribunal with regard to disgorgement and such director, KMP or officer may be held personally liable without any limitation of liability.

 

Section 241

(Application to Tribunal for Relief in Cases of Oppression, etc)

Central Government may initiate a case against a person and refer the same 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.

 

If the NCLT passes an order against such person, he will not be eligible to hold office in any company for five years.

 

Section 272

(Power of Court to stay or restrain proceedings)

 

Registrar allowed presenting a petition of winding up on the ground that it is just and equitable to do so under Clause (e) of Section 271.
Section 441

(Compounding of Offences)

 

As per Amendment, where the maximum amount of fine which may be imposed for such offence does not exceed Twenty five lakh rupees, by the Regional Director or any officer authorised by the Central Government,

 

Thus, power of RD to compound offence punishable increased from Rs. 5 lacs upto Rs. 25 lacs.

 

 

Attached copy of the Companies Amendment Act, 2019 for your ready reference.