The MCA has notified the Companies (Amendment) Act, 2019 and the provisions of which, shall be deemed to have come into force on the 2nd day of November, 2018, except sections 6, 7 and 8, clauses (i), (iii) and clause (iv) of section 14, sections 20 and 21, section 31, sections 33, 34 and 35, sections 37 and 38 which shall come into force on such date as the Central Government may notify. The Amendment Act containing 44 clauses is being brought in to “ensure more accountability and better enforcement to strengthen the corporate governance norms and compliance management in the corporate sector. The Act will tighten Corporate Social Responsibility (CSR) compliance, re-categorisation of specific offences as civil offences and transfer certain responsibilities to National Company Law Tribunal. The ACT has replaced the Ordinance promulgated in February 2019, will keep a check of ‘shell companies’ and will promote ‘ease of doing business.
The key features of the Amendment are :
1. Allowing subsidiaries of foreign companies to follow different financial year for accounting;
2. Measures to control ‘shell companies’;
3. Sixteen sections of the Act are amended so as to modify the punishment as provided in the said sections from fine to monetary penalties to lessen the burden upon the Special Courts.
4. Amendments are made to Section 135 to carry forward the unspent corporate social responsibility amount, to a special account to be spent within three financial years and transfer thereafter to the Fund specified in Schedule VII, such as PM’s National Relief Fund.
5. The Act provides for the punishment for debarment from appointment as an auditor or internal auditor of a company, or performing a company’s valuation, for a period between six months to 10 years in case of proven misconduct.
6. The pecuniary limits of Regional Director (“RD”) to compound offences under section 441 of the Act is proposed to be increased. The threshold is increased to a fine up to Rs. 25 lakhs.
7. A new clause has been inserted under the Section 164 to state that violation of Section 165(1) shall be a ground for disqualification of a director if he/ she breaches the limits of maximum directorship allowed thereunder.
8. The amendment to Section 241 empowers the Central Government to move a matter before the NCLT against managerial personnel on several grounds.
9. Shifting of powers for conversion from public to private companies from National Company Law Tribunal (NCLT) to the central government, as well as more clarity with respect to certain powers of the National Financial Reporting Authority (NFRA).
10. The Act provides more power to the Registrar of Companies (ROC) to take strict action against those companies which are not working as per the law. Registrar can remove the name of the company from the Register of companies if it is not carrying on the operations.
11. Amendment Act seeks to insert sub-section 1A to Section 29, which inter-alia mandates certain unlisted companies that the securities shall, in addition to being issued, also be held and transferred only in dematerialized form after complying with the provisions of the Depositories Act, 1996 and regulations made thereunder. With this proposed move, all shareholders of all private companies shall have to get their holdings dematerialized.
12. In case of corporate frauds revealed by an investigation by SFIO, the Central Government may make an application to NCLT for passing appropriate orders for disgorgement of profits or assets of an officer or person or entity which has obtained an undue benefit.
13. Charges can only be registered within a period of 120 days from the date of creation and modification and ad-valorem fees shall also be charged over and above the additional fees in case of delayed filings beyond 60 days.
14.Rectification by Central Government in Register of charges in case of omission and or misstatement of any particulars, in any filing previously made to the Registrar with respect to any charge or modification thereof or with respect to any memorandum of satisfaction or other entry made in pursuance of section 82 or section 83.
15. If any company fails to file its annual return under sub-section (4), before the expiry of the period specified therein, such company and its every officer who is in default shall be liable to a penalty of fifty thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of five lakh rupees.
16. If any company fails to furnish the Director Identification Number under sub-section (1), such company shall be liable to a penalty of twenty-five thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day after the first during which such failure continues.
17. Section 203, non-compliance provisions amended to provide that if any company makes any default in complying with the provisions of this section, such company shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees.”
18. Penalty provided under section 447 of the principal Act, is increased from “twenty lakh rupees”, to “fifty lakh rupees”.
19. Insertion of new section 454A to provide Penalty for repeated defaults by a company or an officer of a company or any other person having already been subjected to a penalty for default under any provisions of this Act.
20. The Companies (Amendment) Second Ordinance, 2019 is repealed on notification of the Act.