Companies (Amendment) Bill, 2020 receives President’s nod; commencement notifications expected to follow giving effect to different provisions of the Amendment Act

The President has given his assent to the Companies (Amendment) Bill, 2020 on September 28, 2020.

Please note that this is expected to be followed up by separate commencement notifications which would give effect to different provisions of the Act.

The changes can be broadly classified under the following heads:

• Decriminalization of certain non-grave offences under the Act, especially in cases where the defaults are devoid of any malafide intention, or do not involve larger public interest

• Rationalization of existing penalties.

• Other modifications and relaxations to promote Ease of Doing Business in India

• Framework for faster and effective disposal of cases

• Inclusion of new provisions

Please find below the Key Highlights of the Companies (Amendment) Act, 2020 (Amendment Act) amending the provisions of the Companies Act, 2013 (Act).

I. Decriminalization of certain non-grave offences under the Act, especially in cases where the defaults are devoid of any malafide intention, or do not involve larger public interest

Several offences under the Act which are not of a grave nature have been decriminalised and the penalty for these have been restricted to fine only. The penalty towards imprisonment has been done away with.

The offences which have been decriminalised are as follows:

1. Prospectus being issued in contravention of the Act (Section 26)
2. Non-compliance with regard to the securities to be dealt with in stock exchange (Section 40)
3. Non-compliance with regard to purchasing its own shares/ securities by a company ( Section 68)
4. Non-compliance with regard to registration of charge by a company. The fine is also revised and specified separately for company and for officer in default as Rs. 5 Lakh and Rs. 50,000/- respectively. (Section 86)
5. Non-compliance with regard to declaration of significant beneficial ownership. The fine is also considerably reduced and set at Rs. 50,000 in case of continuing failure, with a further penalty of Rs. 1000 for each day after the first during which such failure continues. The maximum limit is set at Rs. 2 Lakh. (Section 90)
6. Non-compliance with regard to maintaining books of account and other relevant books, papers and financial statements, (Section 128)
7. Non-compliance with regard appointment/ removal of auditors etc (Section 147)
8. In case of a person continuing to hold office of directors even after being disqualified as specified in law (Section 167)
9. Non-compliance with regard to Audit Committee or the Nomination and Remuneration Committee and Stakeholders Relationship Committee (Section 178)
10. Non-compliance with regard to disclosure of interest by director (Section 184)
11. In case of any investments of a company not being held in its name (Section 187)
12. Non-compliance with regard to related party transaction. The fine is set at Rs. 25 Lakh in case of listed company and at Rs. 5 Lakh in case of other companies. (Section 188)
13. Non-compliance with regard to Secretarial Audit of bigger companies. The fine is reduced to Rs. 2 Lakh from Rs. 5 Lakh (Section 204)
14. Non-compliance with regard to merger or amalgamation of companies (Section 232)
15. Non-compliance with regard to the alternation made to the memorandum or articles of the company by the Tribunal (Section 242)
16. Non-compliance with regard to disposal of books or papers of the company at the time of winding up. (Section 347)
17. Non-compliance with regard to the provisions specified for companies incorporated outside India (Section 392)

II. Rationalization of existing penalties.

Several existing penalties under the Act are reduced or modified considerably. The details are given below:

1. Act earlier provided the detailed procedure for variation of in rights of shareholders rights along with the penalty for the same. The Amendment Act had done away with the penalty completely in this regard. (Section 48)

2. Any default in transfer and transmission of securities was punishable as follows:
a. company punishable with fine which shall not be less than Rs. 25,000/ – but which may extend to Rs. 5 Lakh.
b. every officer of the company who is in default to be punishable with fine which shall not be less than Rs. 10,000/- but which may extend to Rs. 1 lakh.

The fine in this regard is made uniform where the company and every officer of the company who is in default will be liable to a penalty of Rs. 50,000/-. (Section 56)

3. The penalty for failure to comply with Tribunal’s Order regarding rectification of register or members is completely done away with. (Section 59)

4. The penalty for failure to provide notice for alteration of share capital is reduced as follows:
a. reduced from Rs. 1000 to Rs. 500 for each day during which the default continues.
b. The upper limit of Rs. 5 Lakh restricted to company only and case of default by officer, the upper limit is Rs. 1 lakh. (Section 64)

5. The penalty for failure to comply with the order of confirmation towards reduction of share capital is done away with completely (Section 66)

6. In case of any non-compliance with regard to issuing of debentures by a company, the penalty done away with completely (Section 71)

7. The penalty for failure to maintain register of members or debenture holders is revised and the fine is specified separately for company and for officer in default as Rs. 3 Lakh and Rs. 50,000/- respectively (Section 88)

8. For failure to make declaration with regard to beneficial interest in any share, the penalty is revised. Now, for continuing failure, fine is prescribed as Rs. 200/- for each day after the first during which failure continues. Earlier this was Rs. 1000/-. Also, the upper limit is set at Rs. 5 lakh which was not defined earlier (Section 89)

9. The penalty for non-compliance with regard to filing return of beneficial ownership is also revised-
a. Earlier Position – Fine which shall not be less than Rs. 500 but which may extend to Rs. 1000 and where the failure is a continuing one, with a further fine which may extend to Rs. 1000 for every day after the first during which the failure continues.
b. Amended Position- Rs. 1000 for each day during which such failure continues, subject to a maximum of Rs. 5 Lakh in the case of a company and Rs. 2 Lakh in case of an officer who is in default. (Section 89)

10. The fine for non-compliance with regard to filing of Annual Return is considerably reduced –
The fine in first instance is reduced to Rs. 10,000 from Rs. 50,000. For continued default earlier the fine was Rs. 100 per day subject to maximum limit of Rs. 5 Lakh. This upper limit is now reduced to Rs. 2 Lakh for company and Rs. 50,000 for any officer in default. (Section 92)

11. The overall fines for failure to file resolutions or agreements as specified has been reduced considerably under the Amendment Act. (Section 117)

12. The overall fines for failure to comply with provisions regarding unpaid dividend as specified has been reduced considerably under the Amendment Act.
a. Earlier Penalty- For Company – Fine not less than Rs. 5 Lakh, extendable to Rs. 25 Lakh and for every officer of the who is in default Rs. 1 Lakh extendable to Rs. 25 Lakh.
b. Amended Penalty – For Company – Fine of Rs. 1 Lakh, and for continuing offence fine Rs. 500 for each day subject to maximum penalty of Rs. 10 Lakh
For every officer of the who is in default – Fine of Rs. 1Rs, 25,000, and for continuing offence fine Rs. 100 for each day subject to maximum penalty of Rs. 2 Lakh

13. For failure to transfer unspent amount of CSR to the CSR Fund, the penalty is revised and would be in proportion of the amount that was supposed to be transferred. (Section 135)

14. The maximum penalty for the failure of an auditor to submit a statement of his resignation is reduced from Rs. 5 Lakh to Rs. 2 Lakh (Section 140)

15. The penalty for failure of auditor to report any fraud is bifurcated and specified for listed companies as Rs. 5 Lakh and for other companies as Rs. 1 Lakh. (Section 143)

16. The penalty for accepting appointment as director in violation of the number of directors prescribed is reduced to Rs. 2000 for each day after the first during which such violation continues. An upper limit of Rs. 2 Lakh is also prescribed (Section 165)

17. In case of any non-cooperation with the company liquidator, the penalty is done away with. Instead, the liquidator may make an application with the Tribunal which may then direct the required person to cooperate with the liquidator. (Section 284)

18. An upper limit of penalty is prescribed for one person and small companies as :
a. Rs. 2 Lakh in case of a company
b. Rs. 1 Lakh in case of an officer who is in default or any other person (Section 446B)

19. The penalty for non-compliances where no specific penalty is provided is revised to set the lower limit as follows:
a. Rs. 10,000/
b. In case of continuing contravention, further penalty of Rs. 1000/- for each day after the first during which the contravention continues, subject to a maximum of two lakh rupees (Section 450)

20. The general penalty for non-compliance with provisions regarding appointment of qualification of directors (where no specific penalty is specified) is revised as follows:
a. Penalty of Rs 50,000.
b. In case of continuing failure, further penalty Rs. 500 for each day during which such failure continues, subject to a maximum of Rs. 3 Lakh in case of a company and Rs. 1 Lakh in case of an officer who is in default. (Section 172)

III. Other modifications and relaxations to promote Ease of Doing Business in India

1. The Amendment Act empowers the Central Government, in consultation with the Securities and Exchange Board of India, to exclude companies which are issuing / intend to issue specified classes of securities from the definition of a “listed company”. (Section 2(52))

2. The Amendment Act empowers the Central Government to allow certain classes of public companies to list classes of securities (as may be prescribed) in foreign jurisdictions. (Section 23)

3. As per the Amendment Act the Central Government may exempt any class or classes of persons from complying with requirements on beneficial ownership by way of separate notification. (Section 89)

4. Under the Act, banking companies were earlier exempt from filing resolutions passed under section 179(3)*. This exemption is now extended to registered non-banking financial companies and housing finance companies. (Section 117)

5. The Amendment Act allows companies which spend any amount in excess of their CSR obligation in a financial year to set off the excess amount towards their CSR obligations in subsequent financial years. The Amendment Act also exempts companies with a CSR liability of up to Rs 50 lakh a year from setting up CSR Committees. (Section 135)

6. The additional fee for a delayed filing after 2 or more occasions of any document was earlier mandated to be not less than twice the amount of the original additional fee prescribed. This requirement is now omitted. (Section 403)

IV. Framework for faster and effective disposal of cases

1. Under the Act, the total number of people in National Company Law Appellate Tribunal consisting of the Chairperson, Judicial and Technical members cannot exceed 11 members. This restriction of 11 members is removed by way of the Amendment Act. (Section 410).

2. The Amendment Act empowers the Chairperson of Tribunal to constitute benches which can perform the functions of the Tribunal. Such bench must have at least 1 Judicial Member and one Technical Member and must ordinarily sits at New Delhi to hear appeals. (Section 418A)

3. The Act provides for the establishment of special courts for the speedy trail of offences under the Act. The Amendment Act, however, makes one exception to this and provides that the offences of Wrongful Withholding of Property cannot be adjudicated by Special courts. (Section 435)

4. Section 454 provides that the adjudicating officer may impose the penalty on the company, the officer who is in default and direct them to rectify the default. A new proviso is added to this stating that if the default for the following cases is rectified within 30 days of issue of notice by officer, no penalty would be imposed and proceedings will be deemed to have been closed:
• Default in annual return by One-person company/ small company
• Default in filing of financial statement with the registrar.

V. Inclusion of new provisions

1. New Section 129A is added empowering the Central Government to require any class/ classes of unlisted companies (as may be prescribed) to prepare and file periodical financial results, and to obtain approval of the Board of Directors to complete the audit or review of such results.

2. Section 149 of the Act provides that Independent Directors are not subject to stock options and are entitled to fees for attending meetings and reimbursement of expenses incurred in attending meetings and profit related commission. The Amendment Act inserts a new proviso allowing an Independent Director to receive any sort of remuneration, excluding the aforesaid, in terms of Schedule V where there is no profit or inadequate profits in the company. The Amendment Act also makes provisions for allowing payment of adequate remuneration to non-executive directors in case of inadequacy of profits. (section 197)

3. A new insertion, Section 393A empowers the Government to exempt foreign companies and companies incorporated or to be incorporated outside India from the applicability of the provisions specific to foreign companies.

4. The Chapter on Producer Company under Companies Act, 1956 were not repealed earlier and the provisions under the 1956 Act were being followed in this regard. Now, this is repealed by the present Amendment Act and provision is being made in the Act for accommodating a chapter specifically on producer companies.

* 179 (3) The Board of Directors of a company shall exercise the following powers on behalf of the company by means of resolutions passed at meetings of the Board, namely:—
(a) to make calls on shareholders in respect of money unpaid on their shares;
(b) to authorise buy-back of securities under section 68;
(c) to issue securities, including debentures, whether in or outside India;
(d) to borrow monies;
(e) to invest the funds of the company;
(f) to grant loans or give guarantee or provide security in respect of loans;
(g) to approve financial statement and the Board’s report;
(h) to diversify the business of the company;
(i) to approve amalgamation, merger or reconstruction;
(j) to take over a company or acquire a controlling or substantial stake in another company;
(k) any other matter which may be prescribed:

 

Source: Ministry of Law and Justice

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