This article is written by Mudita, pursuing a Diploma in Business Laws for In House Counsels from LawSikho.
Introduction
The Companies Act, 2013 (“the Act”) replaced the outdated Companies Act, 1956. Thereafter, the Ministry of Corporate Affairs has been diligently amending the Companies Act. The driving factor against the 2020 Amendment was focused on ease of doing business in India.
Let us discuss some of the key changes brought by the Companies (Amendment) Act, 2020 (“the Amendment”).
Key changes
- Decriminalizing: One of the key changes the amendment has brought about is decriminalizing minor offences and also bringing about reduction of the penal amount. The list of sections is as under:
Section |
Sub-section |
Title |
Previous Penalty |
Updated penalty |
8 |
1 |
Formation of companies with charitable objects |
For the officer in default: 25,00,000, imprisonment extending upto three years. |
25,00,000 |
26 |
9 |
Matters to be stated in prospectus |
For the officer in default: 3,00,000, imprisonment extending upto three years. |
3,00,000 |
40 |
5 |
Securities to be dealt with in stock exchanges |
For the officer in default: 3,00,000 imprisonment extending upto one year. |
3,00,000 |
48 |
5 |
Variation of shareholder’s right |
For the officer in default: 25,000 to 5,00,000 imprisonment extending upto six months. |
omitted |
56 |
6 |
Transfer and transmission of securities |
For the Company: 25,000 to 5,00,000 For the officer in default: 10,000-1,00,000. |
50,000 for both, the company and the officer in default |
64 |
2 |
Notice to be given to the Registrar for alteration of share capital |
For the officer in default:1000 per day or 5,00,000, whichever is less. |
500 per day to the maximum extent of 5,00,00 |
66 |
11 |
Reduction of share capital |
For the officer in default: 5,00,000 to 25,00,000. |
omitted |
68 |
11 |
Power of the company to purchase its own securities |
For the company: 1,00,000-3,00,000 For the officer in default: 1,00,000 or imprisonment extending upto 3 years for officer in default or both. |
For the officer in default: 3,00,000 |
71 |
11 |
Debentures |
For the officer in default: 2,00,000-5,00,000, imprisonment extending upto 3 years. |
Omitted |
86 |
Punishment for contravention |
For the Company: 1,00,000-10,00,000 For the officer in default: 25,000-1,00,000 or/and imprisonment extending upto six months. |
For the Company: 5,00,000 For the officer in default: 50,000 |
|
88 |
5 |
Register of members |
50,000 to 3,00,000 for both the company and officer in default. |
3,00,000 for company and 50,000 for officer in default |
89 |
5 |
Declaration in respect of beneficial interest in any share |
50,000 and for continuing offence 1000 per day. |
50,000 and for continuing offence 200 per day to a maximum of 5,00,000 |
90 |
10 |
Register of significant beneficial owners in a company |
1,00,000 to 10,00,000 |
50,000 and for continuing offence 1000 per day to a maximum of 2,00,000 |
90 |
11 |
Register of significant beneficial owners in a company |
10,00,000 to 50,00,000 |
For continuing offence 200 per day to the maximum of 1,00,000 for officer in default |
92 |
5(a)(i) |
Annual Return |
50,000 |
10,000 |
92 |
5(a)(ii) |
Annual Return |
For the company and officer in default: 5,00,000. |
For the Company: 2,00,000 For the officer in default: 50,000 |
92 |
5(b) |
Annual Return |
For the officer in default: 50,000 to 5,00,000. |
For the officer in default: 2,00,000 |
105 |
5 |
Proxies |
1,00,000 |
50,000 |
117 |
2 |
Resolutions and Agreements to be filed |
5,00,000 to 25,00,000 for the Company and 1,00,000 to 5,00,000 for the officer in default. |
For the Company: 10,000 or 100 per day for continuing offence to a maximum of 2,00,000 |
124 |
7 |
Unpaid Dividend Account |
For the Company: 5,00,000 upto 25,00,000 For the Officer in default: 1,00,000-5,00,000. |
For the Company: 1,00,000 or 500 per day for continuing offence to a maximum of 10,00,000 For the officer in default: 25000 or 100 per day for continuing offence to a maximum of 2,00,000 |
128 |
6 |
Books of account, etc. to be kept by the company |
Imprisonment upto one year and fine 50,000 to 5,00,000 or both. |
50,000 to 5,00,000 |
134 |
8 |
Financial statement, Board’s report, etc. |
For the Company: 50,000 to 25,00,000 For the officer in default: imprisonment upto 3 years, fine of 50,000 to 5,00,000 or both. |
For the Company: 3,00,000 For the officer in default: 50,000 |
140 |
3 |
Removal, Resignation of Auditor and giving of special notice |
5,00,000 |
2,00,000 |
147 |
1 |
Punishment for contravention |
For the Company: 25,000 to 5,00,000 For the officer in default: imprisonment extending up to a year, fine of 10,000 to 1,00,000 or both. |
For the Company: 25,000 to 5,00,000 For the officer in default: 10,000 to 1,00,000 |
167 |
2 |
Vacation of office of director |
Imprisonment upto a year and fine of 1,00,000 to 5,00,000. |
5,00,000 |
178 |
8 |
Nomination and Remuneration Committee and Stakeholders Relationship Committee |
For the Company: 1,00,000 to 5,00,000 For the officer in default: imprisonment extending up to a year, fine of 25,000 to 1,00,000 or both. |
For the Company: 5,00,000 For the officer in default: 1,00,000 |
184 |
4 |
Disclosure of interest by director |
For the officer in default: imprisonment extending up to a year, fine of 50,000 to 1,00,000 or both. |
1,00,000 |
187 |
4 |
Investments of company to be held in own name |
For the Company: 25,000 to 25,00,000 For the officer in default: imprisonment extending up to six months, fine of 25,000 to 1,00,000 or both. |
For the Company: 5,00,000 For the officer in default: 50,000 |
188 |
5 |
Related party transaction |
For the officer in default: imprisonment extending up to a year, fine of 25,000 to 5,00,000 or both. |
5,00,000 to 25,00,000 |
204 |
4 |
Secretarial audit for bigger companies |
Fine ranging from 1,00,000 to 5,00,000. |
2,00,000 |
232 |
8 |
Merger and amalgamation of companies |
For the Company: 1,00,000 to 25,00,000 For the officer in default: imprisonment extending up to one year, fine of 1,00,000 to 3,00,000 or both. |
For the officer in default: 20,000 to 3,00,000 |
242 |
8 |
Powers of Tribunal |
For the Company: 1,00,000 to 25,00,000 For the officer in default: imprisonment extending up to six months, fine of 25,000 to 1,00,000 or both. |
For the Company: 1,00,000 to 25,00,000 For the officer in default: 25,000 to 1,00,000 |
243 |
2 |
Consequence of termination or modification of certain agreements |
For the officer in default: imprisonment extending up to six months, fine upto 5,00,000 or both. |
5,00,000 |
247 |
3 |
Valuation by registered valuers |
25,000 to 1,00,000 |
50,000 |
342 |
6 |
Prosecution of delinquent officers and members of the company |
25,000-1,00,000 |
— |
347 |
4 |
Disposal of books and papers of company |
Imprisonment for six months or fine of 50,000 or both. |
50,000 |
- Changes in definition: The Amendment also brought about changes in the definition of private company. Before the Amendment, a company with any of its securities listed with a recognized stock exchange was qualified to be a listed company. The downside to this was that in addition to the compliances under the Companies Act, the company would also be responsible for compliances under Securities and Exchange Board of India (“SEBI”) and rules thereunder. Post the Amendment the Central Government has the power to exempt some classes of companies from being treated as listed companies thus bringing down their compliance requirement.
- Foreign listing: Sub Section 23(3) and 23(4) are added to Section 23, permitting certain class of public companies incorporated in India to list their shares on permitted foreign indexes irrespective of their securities being listed in India. Such class of public companies may also be exempted by the Central Government from complying with provisions relating to private placement and public offer of securities, beneficial ownership, share capital and debentures or punishment for failure to distribute dividend, by way of issuing a notification, which has to be placed before both Houses of Parliament.
- Declaration of Beneficial Ownership: Under the prevailing Companies Act, it was mandatory for the person who was the ultimate beneficiary of the shares to submit a declaration for the same and the companies were obligated to file returns with the registrar intimating the registrar of such beneficial interest. However, pursuant to the Amendment, the Central Government is empowered to exempt certain people from complying with the above-mentioned requirement.
- Periodic Financial results: Section 129A of the Amendment empowers the Central Government to require a certain class of unlisted public companies (which is yet to be prescribed) to prepare periodic financial results. Such periodic financial results shall be in addition to the preparation of annual financial results as prescribed under the Act and would need to be approved by the Board of Directors and audited (or subjected to a limited review) by the statutory auditors, in addition to filing periodic financial results with the Registrar. This requirement appears to have been introduced in alignment with similar provisions prescribed for listed companies under the LODR. Given that certain class of public companies will be permitted to list their securities in foreign jurisdictions, without listing on Indian stock exchanges, the Amendment imposes an additional requirement on unlisted public companies to prepare periodic financial results thereby allowing the Central Government or the Ministry of Corporate Affairs (MCA) to keep a close watch on the functioning of such companies on a periodic basis and not just on an annual basis as per existing provisions of the Act.
- Reduced timelines for rights issue: Under the prevailing Companies Act, the time frame for a rights issue was a minimum of 15 days, with the conditional exception given to private companies provided such reduced timeline is agreed by 90% of the shareholders. With the Amendment, the time frame can be reduced to a number as agreed by the Central Government thereby allowing companies a faster access to funds.
- Reduced timeframe for rectification of name and powers to the Central Government: Under the prevailing Companies Act, for newly incorporated companies, if their proposed name had resemblance to an existing company, the Central Government would direct the company to change its name within a period of 6 months from the date of such communication. However, under the Amendment, this period has been reduced to 3 months. The Central Government has also been empowered to allot a new name in such cases.
- Corporate Social Responsibility: As we are already aware, The Companies Act, 2013 laid down a lot of importance on Corporate Social Responsibility (“CSR”), it mandated companies exceeding certain thresholds to set aside a certain sum for CSR activities. Companies were also to set up a CSR Committee within their organization. Pursuant to the Amendment, companies having spent more than the mandatory amount can avail a set off against the same, in consultation with the Central Government. The mandatory requirement of setting up a CSR Committee has also been done away with for Companies not having to spend more than INR 50,00,000.
- Exemption to NBFCs: Under the Act, a banking company is exempted from filing the resolutions passed to grant loans or give guarantee or provide security in respect of loans in the ordinary course of its business, with the registrar. The Amendment extends such exemption to a registered non-banking finance company and a housing finance company.
- Remuneration of Independent Directors: Under the prevailing Act, where there were no profits in a year or inadequate profits, only the executive and managing directors were entitled to receive remuneration to the extent permissible. Pursuant to the Amendment, independent directors and non-executive directors are also entitled to receive remuneration subject to other provisions of the Act.
Conclusion
The overall amendments have been welcomed by the industry since they have been industry favorable and are aligned with the current government’s vision of promoting business in India. The amendment brings about favorable changes for local as well as foreign companies doing business in India, however a lot of discretion has been given to the Central Government.
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