Companies Act

This article is written by Apurv Umredkar, from KIIT School of Law, Bhubaneswar.

Introduction

The govt recently introduced the Companies (Amendment) Act 2020[1] (the Amendment Act) in order to amend some provisions of the Companies Act 2013[2] (the principal act), the key objectives being decriminalization as well as reduction in penalties for various offenses stipulated in the Act of 2013, the implementation of which will create a more liberal economy and business-friendly environment in the market system. Also saving them from heavy levies charged by the competent authority for any illegal act or impermissible act or omission in the course of their business. Some of the provisions mentioned in the Companies Act 1956[3] were introduced by the way of this amendment. The Big MNCs and conglomerates can finally set themselves at ease for now they will have much more impunity than ever before.

Since its inception, the Companies Act 2013 has always been on the radar of the legislation of India. The complexity and lengthiness of the Company Laws lead to the regular postponement of necessary changes to be brought in the Act. This is due to the fact that there’s a lot to be amended in the Companies Act 2013, but amending all the provisions at one time might lead to bigger problems of readjustment and rescheduling and ultimately chaos. This major step much awaited by the company law experts seeks to establish the proper reforms that were missing in the earlier amendments of Companies Act in the year 2015[4], 2017[5], and 2019[6]. The major step is Companies Amendment Act 2020, which provides for fresh reforms, reduction in penalties and other necessary changes in the form of amendments.

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Behind the scenes of The Companies (Amendment) Bill 2020[7] was the Company Law Committee (CLC)[8] constituted by the Ministry of Corporate Affairs to enhance the productivity of courts, functioning of competent authority and liberating various policies to promote business culture in India and attract investment. The CLC consists of ministry representatives, legal professionals and subject experts. The CLC report recommending suitable changes in the Act of 2013 was sent to the Ministry of Corporate Affairs on November 14 2019. After introducing it in the Parliament, it was passed by Lok Sabha[9] on September 19, 2020 and by Rajya Sabha on September 22, 2020. The President of India’s assent was obtained on September 30, 2020. An official notification dated December 22, 2020 was released by the Central Government indicating that the provisions will come into force by December 21, 2020.

Companies (Amendment) Act of 2020

The latest amendment of the Companies Act 2013 is the most exhaustive and important of all the amendments of Companies Act till date. It extensively deals with provisions related to rationalization and decriminalization of certain offences along with changes for initiating ease of doing business in India. A total of 61 sections are amended present in the Act and another 4 sections are added relevant to the producer companies. The main motive behind this change is to curb the negligible violations by the companies (especially Small Companies[10] and One Person Companies[11]) which don’t have any basis of fraud or serious malpractices. The act is divided into two parts – The first one dealing with decriminalization of certain specific offenses and the second one dealing with reduction in penalties with the aim of improving scope of doing business in India.

Objectives of the Companies (Amendment) Act 2020

The statement of object and reasons provide for the following key objectives which were kept in mind for introducing the change –

  • Decriminalize specific compoundable offences which don’t fall into the category of serious fraud & malpractice and which do not involve general public interest. The punishment of imprisonment for several provisions like buyback of securities, disclosure if interest by directors, disqualification of directors, audit procedures etc have been omitted. In this category, three major measures taken are – (a) Eliminating Criminal Offences. (b) Adjusting imprisonment for punishment and conversion into civil wrong. (c) Reshaping penalty amounts.
  • Enabling Central Government in consultation with Securities Exchange Board of India to exclude a certain class of companies from the category of ‘listed companies’[12]. As a result, it will eliminate the excess burden on companies for regulatory compliance and procedural formalities.
  • Clearly specify the jurisdiction of trial court depending upon the place of commission of offense under section 452[13] of the act for wrongfully withholding of property by the company’s employees.
  • Bringing back provisions related to Producer Companies[14] in Companies Act 1956 through the insertion of Chapter XXIA.
  • Setting up of NCLAT benches in Delhi. This will lessen the burden of cases on the principal bench of NCLAT in Delhi.
  • Provisions for remuneration to non executive directors in case of inadequacy of profits or loss.
  • Relaxing provisions related to charging of higher penalties for default in submitting, filing or recording any document under section 403 of the Act.
  • Extending the application of section 446B (lesser penalty provisions for small companies and OPCs) to Producer Companies and Startups.
  • Reducing timelines to apply for Right issuing leading to increase in procedure under Section 62.
  • Exemption to any class of persons from complying with the provisions stipulated in section 89 as well as exemption to foreign companies[15] from complying with the provisions of Chapter XXII.
  • Increasing exemption under section 117 to certain NBFCs[16] (Non Banking Financial Companies) and Housing corporations from filing certain resolutions.
  • To upgrade the CSR[17] regulations – (a) The company having CSR spending obligation upto Rs 50,00,000 shall not be required to constitute the CSR committee. The board of directors of that company can look after CSR work. (b) The eligible companies will now be allowed to set off the excess CSR amount paid by it in a particular financial year against the subsequent years.
  • Exemption from fines due to delayed filing in annual returns.
  • Providing for specific unlisted companies to file their periodical financial results.
  • Allowing direct listing of securities by Indian companies in permissible abroad jurisdictions. Earlier the company’s Global Depository Receipts in order to access foreign security markets.

Provisions in the Amendment Act 2020

The whole Companies Amendment Act 2020 is categorically divided into various aspects of the relevant changes which needed reform –   

Amendment for Ease of living for Corporates

  • Section 2 of the Amendment Act – This amendment adds a provision to the definition of ‘listed companies’ under section 2(52)[18] of the principal act that a certain class of listed companies shall be excluded by the Central Government in consultation with Securities Exchange Board of India from the list of registered companies.
  • Section 5 of the Amendment Act – This amends section 23[19] of the principal act which deals with issuing of securities by public offer and private placement. The reform will permit specific classes of public companies to list their securities on particular foreign stock exchanges. The central government is given power to exempt in consultation with Securities Exchange Board of India such particular companies from the reach of Chapter III[20], Chapter IV[21], section 90[22] and section 127[23] of the principal act.

Amendment for Ease of Compliance

  • Section 4 of the Amendment Act – Section 16[24] of the principal act deals with the registered name of the company. It provides that if a name of a company is found unfit or identical with the name of another registered company, then in that case the central government directs the company to change its name within certain prescribed days. Earlier this limit was six months. Now after the amendment this has been reduced to three months. In case of non compliance of notice by the government, a new name will be allotted to the company as per the required procedures and a new incorporation certificate will be issued. However, the company is free to change its new name by following the provisions of Section 13.
  • Section 11 of the Amendment Act – The amendment empowers the Central Government to reduce the time period prescribed for issuing rights under (ICDR) Issue of Capital and Disclosure Requirements) Regulations 2018. The current provision under section 62[25] of the principal act provides a minimum fifteen days for accepting or rejecting the right issue. By this amendment, lesser days will be provided by the Ministry of Corporate Affairs for acceptance of offer.
  • Section 18 of the Amendment Act – This amendment inserts a new provision in the form of section 89(11) which empowers the central government to exclude a certain class of person from the reach of section 89[26] of the principal act. Section 89 deals with declaration of beneficial ownership and beneficial interest by a shareholder of a company.
  • Section 22 of the Amendment Act – Section 117[27] of the principal act provides for the resolutions agreements to be filed to the ROCs within thirty days in case of any alteration or modification in the articles and memorandum of association of the company. Only banking companies are exempted from this. After this amendment, the relief is extended to the Non Banking Financial Institutions and other Housing Finance Companies. The reason behind this was stated as – NBFCs and HFCs are also engaged in lending and other financial services. So this provision was made applicable on them.
  • Section 27 of the Amendment Act – Some modifications are brought in CSR regulations. The current provisions in Section 135 of the principal act lays down the CSR policies and rules. By way of this amendment, the companies will be able to set off the extra amount paid by them for CSR obligations during the last consecutive financial years. Exemption is provided from making a CSR committee to companies who have obligations of not more than Rs 50,00,000. The Board of Directors will be considered eligible for deciding the CSR matters. The amendment also reduces the penalty amount for non compliance with CSR provisions to twice the amount of calculated CSR fund or Rs. 1 Crore whichever is less in case of company’s default. For the employee’s default, 10% of the CSR fund or Rs 2,00,000 whichever is less.

Amendments for strengthening Corporate Governance

  • Section 25 of the Amendment Act – A new section – 129A has been introduced in the Companies Act 2013. The freshly arrived provision deals with the mandatory order which requires certain unlisted or class of companies to prepare and submit periodical financial statistics in the prescribed format, obtaining Board of Directors’ approvals, completing the audit review process and filing with ROC a copy of all relevant documents within thirty days.
  • Section 32 of the Amendment Act – This amendment provides for insertion of a provision under section 149 which states that in case of losses or insufficient profits the independent director is entitled to receive salary in accordance with the provisions of Schedule V.
  • Section 40 of the Amendment Act – Section 197 of the principal act provides for the maximum amount of remuneration to be given to the directors (including managing as well as whole-time director) in case of heavy losses or insufficient profits of the company. of the amended act. After the applicability of this change, non executive directors and independent directors will be eligible for remittance of their salaries.

Amendments related to Winding up

  • Sections 46 of the Amendment Act – This amendment substitutes Section 284[28](2) of the principal act with two sub sections. The first one provides that Company Liquidator in discharge of his duties can make relevant application to NCLT for further directions if the person who is required to assist him does not obey instructions. In furtherance of this, subsection 3 provides that NCLT may issue orders and direct that specific person to comply with the given provisions and assist the Company Liquidator.
  • Section 47 of the Amendment Act – By way of this amendment, the subsection 3 of section 302[29] has been substituted for provision that NCLT shall forward a copy of order to the Registrar and then direct the Company Liquidator to forward the copy of order to the Registrar who will record details of the dissolution of the company.
  • Section 50 of the Amendment Act – The amendment substitutes section 348(6) of the principal act and states that in case of any default under this section in performing his duties by the Company Liquidator or Insolvency Professional, he shall be dealt with by the provision of the Insolvency and Bankruptcy Code 2016 and rules & regulations stipulated therein. Section 348[30] primarily deals with pending liquidation procedures. Also, section 348(7) has been revoked.
  • Section 51 of the Amendment Act – By way of this amendment, section 356[31](2) has been substituted with the provision stipulating that NCLT shall forward a copy of order to the Registrar and direct the person on whose application the order was made to file a certified copy of order with registrar within thirty days or such period as allowed in advance.

Amendments related to Curtailment in Monetary Penalties  

  • Section 12 of the Amendment Act – The penalty for not filing a notice to the ROC within a period of thirty days of the modification made to the redemption of share capital arrangements is stipulated in section 64[32] of the principal act. The fine is currently prescribed at Rs 1000 for each day the default continues or Rs 5,00,000 whichever is less. After the amendment, the fine is reduced to Rs 500 per day till the default continues or Rs 1,00,000 whichever is less.
  • Section 20 of the Amendment Act – This amendment changes the penalty amount in section 92[33] of the principal act to be paid for late submission of annual return within sixty days of Annual General Meeting. The amount is reduced to Rs 10000 from Rs 50000 for the first default in payment. In case of continuous default to make payment, the charges are reduced to Rs 2,00,000 in case of a company and to Rs 50,000 in case of an officer.
  • Section 22 of the Amendment Act – Section 117[34] of the principal act provides for the resolutions agreements to be filed to the ROCs within thirty days in case of any alteration or modification in the articles and memorandum of association of the company. In case of failure of company to comply with the given provisions, the stipulated penalty is reduced to Rs 10,000 from earlier amount of Rs 1,00,000 and in case of continuing failure the penalty has been reduced to Rs 100 per day from Rs 500, with a maximum amount fixed at Rs Rs 2,00,000 (earlier Rs 25,00,000). The default amount for an individual is fixed at Rs Rs 10,000 (earlier Rs 50000) and in case of continuing failure the penalty has been reduced to Rs 100 (earlier Rs 500), with a maximum amount fixed at Rs 50,000.
  • Section 28 of the Amendment Act – It modifies the penalty amount stipulated in section 137[35] of the principal act for non compliance with the regulations of filing the copy of financial statements with the ROC within thirty days of Annual General Meeting. The amount of penalty for individuals has been reduced to Rs 10,000 with the maximum amount being Rs 50,000. And per day penalty for further continuous defaults is Rs 100 per day with maximum limit of Rs 2,00,000.
  • Section 29 of the Amendment Act – By this amendment, the maximum penalty for an auditor in case of his failure to resign with the registrar within the thirty days from the date of resignation is modified. Section 140[36] of the principal act deals with the procedure an auditor has to follow when he himself resigns. He is mandated to submit a prescribed form to the Registrar or to the Comptroller and Auditor General of India showcasing the reasons and other relevant details of the resignation. Earlier the amount of fine was Rs 5,00,000 maximum. Now after amendment, the maximum amount has been reduced to Rs 2,00,000.
  • Section 33 of the Amendment Act – Section 165 of the principal act stipulates for the permissible limit for a person to obtain directorships of various companies. A directorship of maximum 20 companies can be permitted to one person. Within that 20, only 10 public companies can offer directorship to one individual. Penalty for violation of these relevant rules is provided at Rs 5000 per day. Now after amendment the amount is fixed at Rs 2000 per day with the maximum amount being restricted to Rs 2,00,000.
  • Section 45 of the Amendment Act – By way of this amendment, the punishment to registered valuer for violating the regulations stipulated under section 247[37] of the principal act has been reduced to Rs 50000.

Amendments for Eliminating punishment with imprisonment

  • Section 3 of the Amendment Act – It provides for reduction in punishment for not complying with the provision of section 8[38] of the principal act which deals with companies having charitable objectives and its relevant aspects. The provision of imprisonment has been removed. In case of any default, the company will now be liable for only monetary fine which is fixed at Rs 25000 minimum and Rs 25,00,000 maximum.
  • Section 6 of the Amendment Act – Section 26 of the principal act which extensively deals with issuing of prospectus, its contents, and other relevant aspects has been amended by way of this amendment. Earlier the penalty for non compliance with the above mentioned provisions included imprisonment along with monetary fine. After amendment, the punishment for imprisonment has been removed. Only monetary fine can be levied from the company which is Rs 50000 minimum and Rs 3,00,000 maximum.
  • Section 7 of the Amendment Act – It cuts down the provision of imprisonment given in section 40[39] of the principal act in case of any default or non compliance of the regulations mentioned in section 40. It deals with securities of stock exchange, its regulations, procedure and other related aspects. Earlier, the rules specified that in case of default the punishment would be imprisonment along with fines. Now after amendment, the punishment for default includes monetary fine only. The punishment of imprisonment has been removed.
  • Section 14 of the Amendment Act – Section 68[40] of the principal act deals with buy back features of companies through which a company can buy its own shares and securities complying with all the procedures, rules and regulations mentioned therein. The imprisonment as a penalty has been removed. Now in case of any default a monetary fine can be inflicted upon companies or its officers between Rs 1,00,000 to Rs 3,00,000.
  • Section 24 of the Amendment Act – By way of this amendment, the provision of imprisonment under section 128[41] of the principal act for non compliance of rules of book keeping and account maintenance has been removed. In case of any default by the Whole Time Director, Managing Director and or Chief Financial Officer, the only punishment is monetary punishment which is fixed at minimum of Rs 50000 and maximum of Rs 5,00,000.
  • Section 31 of the Amendment Act – Section 147 of the principal act prescribes the punishment for contravention of regulations mentioned in sections 139 to section 146. The regulations deal with audit, auditors and auditing standards that are a must in a company. The punishment for not maintaining those standards is specifically mentioned in the provision. By way of this amendment, the imprisonment for above mentioned omissions have been removed. The monetary punishment is as it is left which is Rs 25000 to Rs 5,00,000 for default by companies and Rs 10000 to Rs 1,00,000 for default by company officers.
  • Section 34 of the Amendment Act – By way of this amendment, the imprisonment for violating the rules and regulations stipulated in section 167 of the principal act has been removed. Section 167 deals with position of director in company, circumstances in which it will be vacated and other details. After amendment, only monetary penalty can be imposed on a director found guilty under this section. The amount of fine should be between Rs 1,00,000 to Rs 5,00,000.
  • Section 43 of the Amendment Act – Section 242 of the principal act extensively deals with powers of the tribunal (NCLT/NCLAT). In section 242(5), it is stipulated that an order of NCLT/NCLAT directing a company to modify certain provisions of MOA and AOA of the company has to be mandatorily followed as per the guidelines of the tribunal. The punishment for contravention of above mentioned provisions is given in section 242(8). By way of this amendment, imprisonment as a punishment has been removed from sub section 8. Now only fine can be imposed ranging between Rs 25000 to Rs 1,00,000.
  • Section 44 of the Amendment Act – The amendment removes the imprisonment for contravening the provisions mentioned under section 243 of the principal act. Now, if a director wilfully disobeys any order or direction under this section, then he shall be held liable for monetary penalty to a maximum amount of Rs 5,00,000.
  • Section 49 of the Amendment Act – It provides for reduction in penalty by removing imprisonment for offence under section 347[42] of the principal act. It deals with proper disposal of company papers and documents and books related to the company. This process is generally entailed after the winding up procedure. The defaulter if any will now be immune from arrest can be held liable for monetary penalties stipulated under the act which is Rs 50,000 maximum.
  • Section 54 of the Amendment Act – This amendment modifies section 392 of the principal act which prescribes punishment for foreign companies and its officers in case of contravention of provisions under Chapter XXII (Companies incorporated outside India). The penalty amount is Rs 1,00,000 to Rs 3,00,000 for company’s default. And in case of individuals the amount is Rs 25,000 to Rs 5,00,000.
  • Section 61 of the Amendment Act – Section 441 of the principal act deals with compounding of certain offences, its procedure and related details. In case of default by any officer of the company this amendment provides for twice the amount of penalty stipulated for the particular offence committed by the offender. And imprisonment under this section is removed.

Amendments related to Removal of Penal Provisions

  • Section 4 of the Amendment Act – The failure to follow the orders or directions by the central government under section 16[43] of the principal act regarding rectification of the name of the company will attract Rs 1000 per day penalty in case of violation by company and Rs 5000 to Rs 1,00,000 in case of an individual officer of the company.
  • Section 8 of the Amendment Act – The old provision in section 48(5) has been omitted. The new provision states that in case of default under section 48 of the principal act by a company, the punishment will be a penalty of Rs 25000 to Rs 5,00,000. In case of default by an officer, the punishment monetary penalty of Rs 25000 to Rs 5,00,000 along with imprisonment of upto six months maximum.
  • Section 10 of the Amendment Act – It omits the sub section 5 of section 59 of the principal act. Section 59 deals with the unnecessary omission or addition of a name in the register of the company. The aggrieved person can approach the tribunal and can get an order directing the company or individual concerned to follow the guidelines stipulated in the order so as to correct the error caused. In case of failure to follow the orders of the tribunal, the Company will be held liable for Rs 1,00,000 to Rs 5,00,000. And an individual/officer will be held liable for Rs 1,00,000 to Rs 3,00,000 along with one year imprisonment.
  • Section 13 of the Amendment Act – It omits the subsection 11 of the section 66 of the principal act. The section deals with the procedure of reduction in share capital by the company. The amendment provides for punishment for failing to publish the confirmation order of reduction of share capital by Tribunal is between Rs 5,00,000 to Rs 25,00,000.
  • Section 15 of the Amendment Act – It omits sub-section 11 of section 71 of the principal act. Section 71 deals with issuance, redemption, conversion and all other aspects related to debentures. If a default is made by a company in following the orders of the tribunal regarding redemption of debentures, then every officer responsible for this will be held liable for penalty ranging from Rs 2,00,000 to Rs 5,00,000 along with imprisonment of three years.
  • Section 48 of the Amendment Act – It provides for a relief to the person who wilfully does not provide assistance or help that is required under section 342 of the principal act. The amended provision now eliminated the punishment of monetary penalty which was present earlier.
  • Section 46 of the Amendment Act – It omitted old provision of section 284 of the principal act. Section 284 prescribes that every promoter, director or any other relevant person should assist and cooperate with the Company Liquidator in Insolvency Proceedings. The amendment act stipulates that the person not following these guidelines will be held liable for an amount of Rs 50,000 maximum and imprisonment of six months.

Amendments related to Foreign Companies

  • Section 53 of the Amendment Act – The provision to sub-section 1 of the Section 379[44] of the principal has been omitted by way of this amendment. The provision empowered the Central Government to treat a foreign company as a Indian Registered Company and make it mandatory for the company to operate as per the Indian Company Law Standards if not less than 50% of its share capital is held by Indian citizens, companies incorporated in India or individuals of Indian origin. This provision has now been omitted by way of this amendment.
  • Section 55 of the Amendment Act – A new provision has been inserted by way of Section 393A in the principal act. It provides for the power and authority of the Central Government to exempt any class of foreign companies or companies incorporated outside India from any of the rules, regulations and provisions under the Companies Act 2013. The Central Government may do so by a separate notification or official order, a copy of which is to be laid down before the Parliament.

Amendments related to Recategorization of Offences

  • Section 9 of the Amendment Act – It modifies the punishment for not complying with the provisions of section 56 of the principal act which deals with transfer of shares of a company, the procedure of application, criteria and requirements apropos transfer. By way of this amendment, the penalty for default is fixed at Rs 50,000 for both the company and its officers.
  • Section 16 of the Amendment Act – It modifies section 86 of principal act which defines punishment for contravention of provisions of Chapter VI[45]. The penalty after amendment is stipulated at Rs 5,00,000 for company and Rs 50000 for an officer.
  • Section 17 of the Amendment Act – Section 88 of the principal act prescribes that every company must maintain register of members, register of debenture holders, and register of security holders, record their contents, details of beneficiaries failing of which will attract a penalty of Rs 3,00,000 in case of company and Rs 50,000 for every individual.
  • Section 18 of the Amendment Act – This amendment bought 3 changes to section 89 of the principal act which provides that any person holding shares in the name of another has to make a declaration stating the same, the reason, the nature of its purpose etc. The first change is attributed to modification in penalty amount in case a person fails to obey the provisions under section 89. The amount is fixed at Rs 50,000, and another Rs 200 per day for continuing failure by the person with a maximum amount to be Rs 5,00,000. If a company or its officer fails to obey the provisions in sub section 6, then as per the amendment obligation would arise upto Rs 1000 per day subject to Rs 5,00,000 maximum in company’s case and Rs 2,00,000 maximum in individual’s case.
  • Section 20 of the Amendment Act – Section 92 of the principal act prescribes the company to file annual returns containing information about registered offices, principal business activities, shareholders, members and all other important details. The annual return to be filed must be certified by a Company Secretary and in case a company fails to comply with these provisions then it shall be liable for rs 10000 to Rs 2,00,000. And an officer will be liable for Rs 50000. The company secretary will be liable for an amount of Rs 2,00,000.
  • Section 21 of the Amendment Act – It modifies the provision of section 105 of the principal act which deals with proxies. By way of this amendment, the punishment for appointing a person as a proxy at the company’s expense and not complying with the regulations stipulated therein is Rs 50000.
  • Section 23 of the Amendment Act – It changes the penalty prescribed for not complying with the provisions of section 124 of the principal act for dealing with unpaid dividend amount. It discusses all the related aspects of the amount not paid by the company even after declaration of the dividend. The reduced penalty is stipulated at Rs 1,00,000 and further Rs 500 per day for continuing failure subject to maximum of Rs 10,00,000 In case of an officer, a penalty of Rs 25000 and further Rs 100 per day for continuing failure subject to maximum Rs 2,00,000.
  • Section 26 of the Amendment Act – It reduces the penalty in case of failure to comply with the provisions of financial statement and board report under section 134 of the principal act. The amended provision now stipulates a fine of Rs 3,00,000 in case of company and Rs 50,000 for every officer.
  • Section 27 of the Amendment Act – It provides for the penalty in case a company or its officer fail to comply with the regulations of Corporate Social Responsibility under section 135 of the principal act. The fine amount is fixed at twice the amount of fund to be transferred to CSR account or Rs 1 crore, whichever is less. And for the officer’s penalty, he will be liable for upto 1/10th of the total amount to be transferred to the CSR account or Rs 2,00,000, whichever is less.
  • Section 30 of the Amendment Act – Section 143 of the principal act deals with powers and duties of Auditors, Cost Accountants and Company Secretary. The penalty is stipulated for any act of default by the auditors in the course of their duties. The amended provision fixes the fine amount at Rs 5,00,000 for listed company and Rs 1,00,000 for unlisted company.
  • Section 35 of the Amendment Act – By way of this amendment the punishment for non compliance of provisions under section 172[46] of the principal act. The penalty is fixed at Rs 50000 for company and its officers along with Rs 500 per day for continuing failure subject to maximum amount Rs 3,00,000 for company and Rs 1,00,000 for officer.
  • Section 36 of the Amendment Act – It modifies sub section 8 of section 178 (Nomination and Remuneration Committee) of the principal act. It prescribes punishment for not complying with the provisions of section 178 and 177 by a company and its officers. The fine amount is Rs 5,00,000 for a company and Rs 1,00,000 for every officer.
  • Section 37 of the Amendment Act – Section 184 of the principal act mandatorily prescribes that every director of the company must disclose their nature of interest in the course of their duties of the company. The non compliance of this entails a penalty of Rs 1,00,000 for every director as per the new amended section.
  • Section 38 of the Amendment Act – It changes the penalty amount for non compliance of provisions under section 187 of the principal act. Section 187 deals with provisions of company’s investments, share purchasing and securities transactions. The company in case of default will be liable for upto Rs 5,00,000 and an individual officer will be held liable for upto Rs 50,000.
  • Section 39 of the Amendment Act – It amends the provision for punishment in case of non compliance of related party transactions under section 188 of the principal act. The new changes stipulate a penalty of Rs 25,00,000 for listed companies and Rs 5,00,000.
  • Section 41 of the Amendment Act – The punishment prescribed in section 204 of the principal act is amended by this provision. The new provision stipulates a penalty at Rs 2,00,000. Section 204 deals with the regulations of filing Board’s report and Secretarial audit report for bigger companies.
  • Section 42 of the Amendment Act – By way of this amendment, the penalty for non compliance with the provisions of section 232 of the principal act is fixed at Rs 20,000 for company and each of its officers along with further penalty of Rs 1000 per day in case of continuing failure subject to a maximum of Rs 3,00,000. Section 232 deals with merger and acquisition of the companies and all the related aspects.
  • Section 57 of the Amendment Act – Section 405 of the principal act empowers the Central Government to direct companies to produce the relevant information, data or statistics. Sub section 4 of section 405 prescribes certain punishment in case a company fails to obey the regulations contained therein. The new modifications will now levy fines upto Rs 20,000 along with Rs 1000 per day for the continuing failure with a total limit of upto Rs 3,00,000.
  • Section 63 of the Amendment Act – Section 450 of the principal act lays down that any act or omission by company or an officer of the company which is against the rules, regulations of the principal act or which violates the limitations, conditions, and standards contained therein and for which no specific penalty or punishment is provided in act shall be punishable with a monetary penalty (after amended provisions) of Rs 10000 along with further fine of Rs 1000 per day in case of continuing failure and the maximum limit is Rs 2,00,000 for company and Rs 50000 for each officer.

arbitration

Amendments pertaining to Adjudication

  • Section 31 of the Amendment Act – Apropos adjudication matters, this section provides a relief in punishment for contravention of under section 147 of the principal act by eliminating section 143 from the list of punishable provisions.
  • Section 65 of the Amendment Act – Section 454 of the principal act empowers the Central Government to appoint such officers not less than the position of registrar for adjudging cases and fines under the principal act (Companies Act 2013). It may do so by issuing an official notification. The amendment inserts a provision in section 454(3) that if the particular default by the company pertaining to section 92(4), 137(1) and 137(2) has been dealt with by an officer within thirty days of the notice issuing date, it shall not be held punishable. This amendment basically provides a benefit to companies in delayed filing of annual statements and financial reports under specifically mentioned circumstances.
  • Section 60 of the Amendment Act – By way of this amendment, punishment for wrongful withholding of property (under section 452 of the principal act), has been moved out of jurisdiction of Special Courts (under section 435).
  • Section 62 of the Amendment Act – The current provision in Section 446 of the principal act related to the reduced penalties for One Person Companies and Small Companies has been amended to extend the reach of this benefit to Startup and Producer Companies. Due to this amendment, all the above 4 mentioned companies will get reduction in penalties up to one half of the amount provided in the statute. The maximum amount is stipulated at Rs 2,00,000 for companies and Rs 1,00,000 in case of an individual (employee of the company). For this, Section 446B has been substituted for section 446 in the principal act.
  • Section 64 of the Amendment Act – By way of this amendment, a new provision has been added to section 452(2) of the principal act. It lays down that the imprisonment of an officer for an offence of wrongful withholding of property must not be directed by the court if it is satisfied that the extra perks and allowances by the company have not been obtained by that officer.

Other Miscellaneous Amendments

  • Section 52 of the Amendment Act – By way of this amendment, a new chapter ‘Chapter XXIA’ has been inserted after section 378 of the principal act. The chapter contains provisions ranging from section 378A to 378ZU. Originally, this provision was present in the old regulation, The Companies Act 1956 and was omitted in the Companies Act 2013. But a need was felt lately so as to cover certain portions of company regulations for better governance. Hence the chapter of ‘Producer Companies’ was brought through this amendment. The selected provisions of the Companies Act 1956 related to producer companies were reinserted like regulations on membership, account maintenance.
  • Section 56 of Amendment Act – Section 403 of the principal act deals with fines and penalties related to late submission, filing and registration of documents. The amendment leads to covering the situation of 2 or more defaults in submitting, filing and registration of documents. Now the documents can be submitted by giving the higher amount of fines along with separate fees for each day’s delay.
  • Section 58 of the Amendment Act – Through this amendment, the limitation on appointment of members of the tribunal has been eliminated. Earlier the total number of members allowed was fixed at 11.
  • Section 59 of the Amendment Act – A new provision has been added by the name ‘Section 418A’ which provides for additional benches of the NCLAT in New Delhi. It also provides for benches of Appellate Tribunal in order to consider cases under section 53A of the Competition Act 2002 and section 61 of Insolvency and Bankruptcy Code 2016.
  • Section 66 of the Amendment Act – By this amendment, the first provision in sub section 1 of section 465 of the principal act has been omitted.

Critical evaluation of the Act

The major thrust behind the enactment of Companies (Amendment) Act 2020 lies in the long term motive of the Central Government to relax and ease the burden of corporate penalties on companies and business enterprises. A well planned strategy to reduce certain penalties imposed in the act, provide relief in the form of less stringent punishments, cut down costs for statutory requirements, and help grow and flourish the businesses in India especially the small ones – Startups and Small and Medium Sized Enterprises. The reason behind providing special benefits to the small industries is the absence of resource, strategy, funds and experience, these enterprises sometimes commit a minor or negligible offence which does not contain the element of graveness of misconduct.

This way the Central Government is trying to establish a competitive and supportive platform in the market for small business enterprises which generally lag behind in every terms from big profit oriented companies. Another aspect of this amendment covers up the establishment of branches of NCLT in New Delhi. At present there is one principal branch situated in New Delhi. The addition of other branches will surely ease their burden and reduce the pendency and backlog of complex company law cases.

The type of felonies under the Companies Act 2013 are categorized into three categories – 1) Punishment for Civil liability, 2) Compoundable Offences, 3) Non Compoundable Offences. The civil liability arises in case of damage to private or individual parties. The punishment is stipulated by way of compensation to the affected party by the wrongdoer. Compoundable offences are those the punishment for which could be substituted for monetary penalties or other acceptable or suitable acts. It is a way of settlement that takes place in compoundable offences so as to ease the process of complex adjudication matters.

The matter is often settled by paying a fixed monetary penalty to the aggrieved party. The Central Government seeks to eliminate the criminal penalties as much as possible in less serious offences or such offences which does not involve a public harm or wilful fraud and misconduct. The reason for doing this is, in case of criminal liability, the offence has to be proven beyond reasonable doubt thereby adding to the complexity of the matter concerned. Also more and more criminal sanctions in the Indian Judiciary have led to huge pendency and unnecessary prolonged delay of cases which ultimately leads to the heavy burden on the Indian Judicial System.

The civil penalties are much less stringent in terms of punishment, compliance requirements and other aspects. The main aim of replacing criminal penalties with civil sanctions is to reduce the overall complexity in the case. After the application of amendment, the majority of the offences under the act have now been modified as civil offences. The benefit of recategorizing them into civil offences is that dealing with civil offences is comparatively less cumbersome as guilty proving under civil case requires only a balance of probabilities apropos the circumstances. There’s no need to prove the mens rea (guilty mind) of the offender. That’s why the Central Government in order to ease the procedure, introduced this amendment act of 2020.

However, the amendment doesn’t provide for relief in all cases. The offences which involve public wrong or grave moral turpitude are not amended for liberal punishments. Unnecessary decriminalization of offences under the act will make it useless for enforcing company law regimes and regulations upon the companies. Therefore a fine tuning of balance has been established by the Ministry of Corporate Affairs by enacting this amendment.

Conclusion

The Central Government introduced Companies (Amendment) Act 2020 to look after the company law provisions and amend, insert and eliminate the respective provisions and sections which need to be replaced from the new ones. The Companies Act 2013 has always been on the radar of the rule makers. There was a need for massive change in company regulations which would enhance the business environment in India for entry level enterprises and also to attract foreign investment. Liberal regimes will definitely lure big conglomerates to land into India and expand their business territory. This new amendment act will help small scale enterprises and startup foundations in keeping compliance with the regulatory regimes. Small negligible offences are now removed and punishments for other civil wrongs under the act have also been reduced or eliminated.

The year 2020 witnessed a huge unwanted repercussions throughout the world due to COVID-19 and the tight grip of the virus affected millions of people, livelihoods, families and properties. Business are also among the worst sufferers of the COVID. And that’s why there was a need for such modifications which will provide Ease of Living for Corporates and Ease of Compliances in India as already billions of rupees have already been lost coping up with the COVID-19 and following strict lockdown protocols of the government. Now with the amended provisions we can hope for a better environment across the business world in India.

References

[1] http://www.mca.gov.in/Ministry/pdf/AmendmentAct_29092020.pdf

[2] https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf

[3] https://www.mca.gov.in/Ministry/pdf/Companies_Act_1956_13jun2011.pdf

[4] https://www.mca.gov.in/Ministry/pdf/AmendmentAct_2015.pdf

[5] http://www.nfcg.in/UserFiles/THE-COMPANIES-AMENDMENT-ACT-2017.pdf

[6] https://www.mca.gov.in/Ministry/pdf/AMENDMENTACT_01082019.pdf 

[7] http://www.mca.gov.in/Ministry/pdf/Amendment_18032020.pdf

[8] The Company Law Committee is an establishment under the Ministry of Corporate Affairs, Government of India which has the primary responsibility of reviewing, recognizing and rectifying the suitable and necessary modifications in the Company Law Regulations across India. The committee was first constituted on June 4, 2015 by the Secretary, Ministry of Corporate Affairs via official notification. The main aim of the constitution of the committee was a) to make recommendations on issues pertaining to the Companies Act, b) thoroughly analysing and putting to use the recommendations received from Bankruptcy Law Reforms Committee, Corporate Social Responsibility Committee and Law Commission of India among others. The committee members were mandated to be Judges, Members of Chartered Accountants of India and Cost Accountants of India, Members of Institute of Company Secretaries of India, members of Reserve Bank of India and Security Exchange Board of India along with members of Ministry of Corporate Affairs and other persons having practical knowledge and experience in the field. The current CLC which recommended the provisions of Companies (Amendment) Act 2020 is a11 member committee and has a tenure of upto September 17, 2021. It is chaired by secretary to the Ministry of Corporate Affairs Rajesh Verma. 

[9] http://164.100.47.4/BillsTexts/LSBillTexts/Asintroduced/88_2020_LS_Eng.pdf

[10] Small Companies are those companies which have a limited amount of start up capital due to the limitations and size of the company. The motive behind insertion of such companies in the company regulations is to provide a focused and dedicated channel to these enterprises so as to assist them in fulfilling their objectives. As per the section 2(85) of the Companies Act 2013, small company is a company which has a paid up share capital of not more than Rs 50,00,000 or such higher amount as prescribed but not more than Rs 10 crores; or a turnover of not more than Rs 2 crore or such higher amount as may be prescribed but not more than Rs 100 crore. These provisions must not apply to holding or subsidiary companies, companies under section 8 and companies governed by a special act or legislation. For all purposes, a small company shall be deemed to be a private company. Various benefits are provided by the Central Government to these types of companies for their growth and upliftment.   

[11] OPC or One Person Companies are companies which are incorporated with a minimum on person as a member and one person as a director This concept was first suggested by the JJ Irani Committee report keeping in mind the contribution of small scale businessmen in the economy. It provides opportunity for small traders to expand their business with as minimum possible requirements and formalities. An OPC is exempted from stringent regulations and protocols under the Companies Act 2013.

[12] Listed Companies herein refer to as companies which are public companies and are registered in the Securities Exchange Board of India. The amended provision will now empower the Central Government to classify a certain class of companies and exclude them from the category of listed companies.

[13] Section 452 of the Companies Act provides for the punishment to any officer who wrongfully acquires cash, valuable properties or important documents related to the company and misuses it for the purpose other than prescribed in the act will be held liable under the provision under the act. 

[14] Producer Company is an alliance or corporate body which is engaged in any activity related to primary produce or farming based products (products which have been grown). The main focus of these companies is to increase the profits, standard of living, a stable business and reputable status alongside the market line. The members usually consist of farmers/agriculturists or any other relevant person who wants to be part of the organization. The regulations and protocols are present in the Companies Act 1956, and omitted by enactment of Companies Act 2013. By way of Companies (Amendment) Act 2020, the provision of Producer Companies is inserted back to the company law regulations. The member structure can be based on any one of the following sets : a) Ten or more individuals and each one of them being a producer. b) Two or more producer Institutions. c)  A combination of both of them. The following types of activities are carried on by Producer Companies – a) Processing of produce of members. b) Manufacture, Sale and Distribution of necessary Machinery . c) Enable better functioning of its members. d) Provide technical assistance training and other services to member farmers. e) Any other Activity to promote mutual assistance and help.

[15] As per the Companies Act 2013, Foreign Company is a company or body corporate which is incorporated outside India and has a place of business in India or conducts its business activity in India. The old provision regarding foreign companies in the 1956 act, was narrow in scope and meaning. The 2013 act definition prescribes that even if the business is conducted virtually in India, then also the company can be called as foreign company. The need for physical presence has been done away with. Now the Foreign Companies will be regulated under Chapter XXII of the 2013 Act from section 379 to section 393.  

[16] NBFCs are Companies involved in loans and advances but are not completely in the banking business. Some examples in India are Bajaj Finance Limited, Muthoot Finance Limited. 

[17] Corporate Social Responsibility is a certain way of giving and providing something to society. The big Multinational Corporates have an obligation to do something for society or locality in which they usually operate and conduct their business. The companies registered under the Act of 2013 are required to spend a minimum 2% of the average net profit during the immediate three preceding financial years. As per section 135 of the 2013 act, companies having net worth of Rs 500 crore or more or turnover of Rs 2000 crore or more are compulsorily prescribed to create a CSR Committee.

[18] Defines what a listed company means under Companies Act 2013.

[19] Deals with issuance of securities and shares by Public and Private Companies.

[20] Chapter III – Prospectus and Allotment of Securities

[21] Chapter IV – Share Capital and Debentures.

[22] Section 90 of the Companies Act 2013 empowers the Central Government any number of eligible persons to investigate and examine and report regarding the beneficial ownership related to the share or securities.  

[23] Section 127 of the Companies Act deals with compulsory provision of distributing dividends by the company within thirty days from the date of declaration to shareholder. The provision stipulates punishment for non compliance of directions under the section.

[24] https://www.indiacode.nic.in/show-data?actid=AC_CEN_22_29_00008_201318_1517807327856&sectionId=199&sectionno=16&orderno=18

[25] It deals with further allotment of shares or further issuance of shares and the related regulations. 

[26] It mandates that in case the shareholder of the company doesn’t have any beneficial interest in the share, he must make a declaration stating the same and the name and other details of the beneficiary as and when prescribed. Also it prescribes the person who has beneficial interest in the shares of the company to make a declaration regarding the name of the person with which the shares are allotted and the purpose of doing so.

[27] Section 117 prescribes every resolution which contains any modification or alteration in Memorandum of Association or Articles of Association must be reported to the Registrar of Companies within thirty days of announcement of such resolution.

[28] Section 284 of the Companies Act lays down that Officers, employees, directors of the company must assist and cooperate with the Company Liquidator or Insolvency Professional of the company.

[29] Section 302 deals with the rules and regulations of dissolution of the company by the tribunal. After winding up, the Company Liquidator must apply to the Tribunal for dissolution. The tribunal after thoroughly examining the facts and figures will make an order or direct the company to be dissolved. The copy of the order will then be filed to the Registrar of the company by the Company Liquidator, failing which the punishment is prescribed in the act. 

[30] It lays down that in case winding up is not completed within one year of its commencement, then the Company Liquidator must file a statement as prescribed and audited by the auditor within 2 months of the expiry of that year. Several punishments are given for non compliance with the provisions of this section.

[31] Section 356 of the Companies Act 2013 deals with the power and authority of the Tribunal to declare or consider the dissolution of a company void if the circumstances exist.

[32] It prescribes the process which the company has to go through in case there is any modification in the amount of share capital of the company.

[33] It compulsorily prescribes the company to file an annual return with the Registrar within 60 days of the Annual General Meeting held. The report of Annual return shall contain all the relevant details like registered office, shares, debentures, members, promoters, meetings and penalties stipulated.

[34] Section 117 prescribes every resolution which contains any modification or alteration in Memorandum of Association or Articles of Association must be reported to the Registrar of Companies within thirty days of announcement of such resolution.

[35] The section 137 lays down the provision that the financial statement report must be filed with the Registrar of the Companies within thirty days of the Annual General Meeting. In case of contravention of the provision of this section, the punishment is prescribed under the Companies Act 2013.

[36] It lays down the procedure for removing the Auditor before the expiry of his term in the company. This can be done by passing a special resolution after approval of the Central Government. The auditor can also give resignation by himself and within thirty days of resignation, he must file a statement to the Registrar and also the Comptroller and Auditor General of India in case of a Government company. 

[37] It lays down that in case a need arises of evaluation of property, stocks, shares, debentures or securities of the company an eligible auditor must be appointed by the Audit Committee or Board of Directors of the company.

[38] It deals with the companies having the main objective of promoting art, commerce, culture, education, research, social or public welfare. Such companies are given a special status and are construed as a limited company for all official and legal purposes. All aspects of such companies right from memorandum, conversion, licensing to revoking, winding up and dissolution of the company are dealt with in this section.

[39] For dealing in the Stock market and making public offerings, the company must first register itself in the name of listed companies in the stock exchange. The stock money is strictly prescribed to be kept in a separate bank account for the same purposes. The relevant dos and don’ts are given in the section so as to deal with issuance of securities and other matters.

[40] This section lays down the power and authority of a company to buy its own securities out of free reserves or securities premium account or proceeds of securities.

[41] Section 128 makes it compulsory for the company to maintain and keep books of accounts, financial records, the daily state of affairs of the company along with the registered office transaction history of the company. All these documents can be inspected by the director or the relevant authorities during the office hours of the company.

[42] It specifies the procedure of disposal of all the documents of the company after its winding up. In case of winding up by tribunal the tribunal will direct for disposal. And in case of voluntary winding up, the procedure will be determined by special resolution of creditors. 

[43] It lays down that in case a registered name of a company is too similar with the other or is indistinguishable from the other company, the Central Government can issue a notice to the company to change its name within 3 months of that notice. After changing name the company must inform the registrar along with Central Government’s order so that modifications can be carried out in certificate of incorporation.

[44] It prescribes provisions to be applicable to the Foreign Companies and what will be the criteria of declaring a company foreign company.

[45] It deals with Registration of Charges.

[46] It prescribes the punishment for company and its officers in case of non compliance of provisions under Chapter XI.

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