Companies Act 2013
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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The Companies Act, 2013 (“the Act”) replaced the outdated Companies Act, 1956.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
For the Officer in Default: 10,000 or 100 per day for continuing offence to a maximum of 50,000

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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