MAJOR HIGHLIGHTS OF THE COMPANIES (AMENDMENT) ACT, 2020

The Companies (Amendment) Bill, 2020 was introduced in Lok Sabha by the Minister for Corporate Affairs, Ms. Nirmala Sitharaman, on March 17, 2020. The Bill seeks to amend the Companies Act, 2013.  It was passed by Lok Sabha on 19th September 2020 and passed further by Rajya Sabha on 22nd September 2020 and received the assent from President on 28th September, 2020.

The CAB, 2020 has been based on the Company Law Committee (“CLC/Committee”) which was set up under the Chairmanship of Shri Injeti Srinivas in September, 2019. The CLC was constituted with a view to decriminalize offences and  provide  ease  of  doing  business to  the  corporates  and other stakeholders. The Committee presented its Report 2 in November, 2019 which provided for de-clogging 46 penal provisions in the following manner:

•Re-categorising   of   23   offences   out   of   66   compoundable   offences   to   an   in-house adjudication framework wherein penalty will be levied by an adjudication officer

•Omitting 7 compoundable offences 

•Limiting 11 compoundable offences to fine only (by removing imprisonment part)

•Recommending 5 offences to be dealt with in an alternative framework 

The CAB, 2020 based on the CLC Report provides majorly for the following:

•Decriminalise certain offences under the Companies Act, 2013in case of defaults which can be determined objectively, and which otherwise lack any element of fraud or do not involve larger public interest;

•To empower the CG to exclude, in consultation with the SEBI, certain class of companies 

from the definition of "listed company", mainly for listing of debt securities;

•To make provisions for allowing payment of adequate remuneration to  non-executive directors  in  case  of  inadequacy  of  profits,  by  aligning  the  same  with  the  provisions  for remuneration to executive directors in such cases;

•To exempt any class of persons from complying with the requirements of section 89 relating to declaration of beneficial interest in shares;

•To reduce timelines for applying for rights issues to speed up such issues under section 62;

•To extend exemptions to certain classes of non-banking financial companies and housing finance companies from filing certain resolutions under section 117;

•To further amend provisions relating to CSR;

Quick Review of Major Highlights

1. Definition of Listed Company

Empower Central Government to exclude, in consultation with SEBI, certain class from the definition of Listed Company. (Those Whose Debt securities are being Listed).

2. Rectification of Name

Change of name as per the Direction of Central Government

 

Earlier Duration –     6 Months

Amended Duration – 3 Months

3. Section 62(1)(a)- Right Issue

Earlier Letter of Offer Timing – Min. 15 days, Max. 30 days

Proposed Timing                     - Less than the timing Prescribed currently. 

4. Section 117- Resolution and Agreement to be filed

The Section requires filing of resolution to ROC. It currently exempts banking Companies which are Providing Loan, Guarantee, Security in connection with Loan in their ordinary Course of business to file Form MGT-14 to ROC. 

It has now been Proposed to extend the same exemption to registered NBFC and HFCs.

5. Section 129 A- (Newly Incorporate Section)

Central Government can direct to any class or Classes of the Companies as may be prescribed to-

I Prepare Periodical Financial Statements

II Obtain approval from BOD

III Complete Limited review of Such Financial Statements

IV File with ROC with in 30 days.

6. Section 135 – Corporate Social Responsibility

Set off amount spent in excess of the CSR amount required to be Spent (No. of Years to be Prescribed)

Penalty for not transferring the amount to respective Funds –

Company- Twice of the Amount required to be transferred

                                            or

                         One Crore 

                           (Which Ever is Lower) 

Officer in Default- 1/10th of the amount required to be transferred

or

           Two lakh 

                        (Whichever is lower)

No need of CSR Committee if amount required to be spent is less than 50 lakh.

Section 149-Company to have Board of Directors (Independent Directors)

Currently, provisions provide that Independent Directors are not subject to stock options and are entitled to sitting fees only, profit related commission and reimbursement of expenses incurred in attending meetings as per Section 197(5).

Amendment- An ID and Non-Executive Directors may receive any other sort of remuneration, excluding the aforesaid, in terms of Schedule V where there is no profit or inadequate profits in the company.

Section 197- Overall Maximum Managerial Remuneration and Managerial Remuneration in Case of Absence or Inadequacy of Profits

Section 197(3) has been aligned with Section 149(9) to include NEDs and IDs within the ambit of remuneration payable as per Schedule V in case of no profits or inadequate profits.

PENAL PROVISIONS

Section 8(11) Formation of Companies with Charitable Objects, etc.

 

Current- The Directors and every officer of the company who is in default Shall be punishable with imprisonment for a term which may extend to 3 years or with fine which shall not be less than Rs. 25000 which may extend to Rs. 25 lakhs, or with both. 

Amendment- The Directors and every officer of the company who is in default Shall be punishable with imprisonment for a term which may extend to 3 years or with fine which shall not be less than Rs. 25000 which may extend to Rs. 25 lakhs, or with both.

Section 16(3) Rectification of Name of Company 

Current- If a company makes default in complying with any direction given under sub-section (1), Fine on Company: Rs. 1000 for every day during which the default continues. 

Every officer who is in default shall be punishable with fine: 

Which shall not be less than Rs. 5000 but which may extend to Rs. 1 Lakh.

 

Amendment- If a company is in default in complying with any direction given under sub-section (1), The CG shall allot a new name to the company in such manner as may be prescribed and the Registrar shall enter the new name in the ROC in place of the old name and issue a fresh certificate of incorporation with the new name, which the company shall use thereafter.

Provided that nothing in this sub-section shall prevent a company from subsequently changing its name in accordance with the provisions of section 13.

 

Sections- 26(9) Matters to be Stated in Prospectus

 

Current- Fine on Company: Which shall not be less than Rs. 50,000 but which may extend to Rs. 3 Lakhs 

and

Every person who is knowingly a party to the issue of such prospectus: shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 3 Lakhs or with both. 

Amendment- Fine on Company: Which shall not be less than Rs. 50,000 but which may extend to Rs. 3 Lakhs 

and

Every person who is knowingly a party to the issue of such prospectus: shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 3 Lakhs or with both.

Section-48(5) Variation of Shareholders' Rights

Current- Where any default is made in complying with the provisions of this section, Fine on Company: Which shall not be less than Rs. 25,000 but which may extend to Rs. 5 Lakhs and 

Every officer of the company who is in default shall be Punishable: with imprisonment for a term which may extend to 6 months or with fine which shall not be less than Rs. 25,000 but which may extend to Rs. 5 Lakhs, or with both.  

Amendment – Omitted

Section -56(6) Transfer and Transmission of Securities

 

Current- Where any default is made in complying with the provisions of sub-sections (1) to (5), Fine on Company: Which shall not be less than Rs. 25,000 but which may extend to Rs. 5 Lakhs and Every officer of the company who is in default shall be punishable: 

With fine which shall not be less than Rs.10,000 ten thousand rupees but which may extend to Rs. 1 Lakhs. 

Amendment- Where any default is made in complying with the provisions of sub-sections (1) to (5), the company and every officer of the company who is in default shall be liable to a penalty of Rs. 50,000. 

Section 59(5)- Rectification of Register of Members

Current- If any default is made in complying with the order of the Tribunal under this section,

Fine on Company: Which shall not be less than Rs. 1 lakh but which may extend to Rs. 5 lakhs and 

Every officer of the Company who is in default shall be Punishable:

With imprisonment for a term which may extend to 1 year or with fine which shall not be less than Rs. 1 lakh but Which may extend to Rs. 3 lakhs, or with both.

Amendment- Omitted

 

Section 64(2) Notice to be Given to Registrar for Alteration of Share Capital 

   

Where any company fails to comply with the provisions of sub-section (1), 

Penalty on Company and every officer who is in default shall be liable to a penalty of Rs.1000 for each day during which such default continues, or Rs. 5 Lakhs whichever is less. 

    

Omitted- Where any company fails to comply with the provisions of sub-section (1), 

Penalty on Company and every officer who is in default shall be liable to a penalty of Rs. 500 for each day during which such default continues, subject to a maximum of Rs. 5 Lakhs in case of a company and Rs. 1 Lakh in case of an officer who is in default.

Section 66(11) Reduction of Share Capital

Current- If a company fails to comply with the provisions of sub-section (4), 

Fine on Company: Which shall not be less than Rs. 5 Lakhs but which may extend to Rs. 25 Lakhs  

Amendment- Omitted

Section 68(11) Power of the Company to Purchase its own Securities  

    

Current- If a company makes any default in complying with the provisions of this section or any regulation made by the Securities and Exchange Board, for the purposes of clause (f) of sub-section (2), 

Fine on Company: Which shall not be less than Rs. 1 Lakh but which may extend to Rs. 3 Lakhs and 

Every officer of the company who is in default shall be punishable: 

With imprisonment for a term which may extend to 3 years or with fine which shall not be less than Rs. 1 Lakh but which may extend to Rs. 3 Lakhs, or with both. 

     

Amendment-If a company makes any default in complying with the provisions of this section or any regulation made by the Securities and Exchange Board, for the purposes of clause (f) of sub-section (2), 

Fine on Company: Which shall not be less than Rs. 1 Lakh but which may extend to Rs. 3 Lakhs 

Every officer of the company who is in default shall be punishable: 

With imprisonment for a term which may extend to 3 years or with fine which shall not be less than Rs. 1 Lakh but which may extend to Rs. 3 Lakhs, or with both. 

Section 71(11) Debentures 

Current- If any default is made in complying with the order of the Tribunal under this section, 

Every officer of the company who is in default shall be punishable : 

With imprisonment for a term which may extend to 3 years or with fine which shall not be less than Rs. 2 Lakhs but which may extend to Rs. 5 Lakhs, or with both. 

Amendment- Omitted

Section 86(1) Punishment for Contravention

Current- If any company contravenes any provision of this Chapter, 

Fine on Company: Which shall not be less than Rs. 1 Lakh but which may extend to Rs. 10 Lakhs and 

Every officer of the company who is in default shall be punishable: 

with imprisonment for a term which may extend to 6 months or with fine which shall not be less than Rs. 25,000 but which may extend to Rs. 1 Lakh, or with both. 

Amendment- If any company is in default in complying with any of the provisions of this Chapter, the company shall be liable to a penalty of Rs. 5 Lakhs and every officer of the company who is in default shall be liable to a penalty of Rs. 50,000.

Section 88(5) Register of Members, etc.

 

Current-If a company does not maintain a register of members or debenture-holders or other security holders or fails to maintain them in accordance with the provisions of sub-section (1) or sub-section (2), 

Fine on Company: Which shall not be less than Rs. 50,000 but which may extend to Rs. 3 Lakhs 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.

 

Every officer of the company who is in default shall be punishable: with a fine which shall not be less than Rs. 50,000 but which may extend to Rs. 3 Lakhs 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. 

Amendment- If a company does not maintain a register of members or debenture-holders or other security holders or fails to maintain them in accordance with the provisions of sub-section (1) or sub-section (2), the company shall be liable to a penalty of Rs. 3 Lakhs and every officer of the company who is in default shall be liable to a penalty of Rs. 50,000. 

Section- 89(5) Declaration in Respect of Beneficial Interest in any Share 

Current- If any person fails, to make a declaration as required under sub-section (1) or sub-section (2) or sub-section (3), without any reasonable cause, he shall be punishable with fine which may extend to Rs. 50,000 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. 

Amendment- If any person fails to make a declaration as required under sub-section (1) or sub-section (2) or sub-section (3), he shall be liable to a penalty of Rs. 50,000 and in case of continuing failure, with a further penalty of Rs. 200 for each day after the first during which such failure continues, subject to a maximum of Rs. 5 Lakhs. 

Section 89 Declaration in Respect of Beneficial Interest in any Share 

Current-  A company, required to file a return under sub-section (6), fails to do so before the expiry of the time specified therein, the company and every officer of the company who is in default shall be punishable with 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. 

Amendment- If a company, required to file a return under sub-section (6), fails to do so before the expiry of the time specified therein, the company and every officer of the company who is in default shall be liable to a penalty of Rs. 1000 for each day during which such failure continues, subject to a maximum of Rs. 5 Lakhs in the case of a company and Rs. 2 Lakhs in case of an officer who is in default. 

Section 90(10) Register of significant beneficial owners in a company 

Current- If any person fails to make a declaration as required under sub-section (1), he shall be punishable with imprisonment for a term which may extend to 1 year or with fine which shall not be less than Rs. 1 Lakh but which may extend to Rs. 10 Lakhs or with both 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. 

Amendment- If any person fails to make a declaration as required under sub-section (1), he shall be liable to a penalty of Rs. 50,000 and in case of continuing failure, with a further penalty of Rs. 1000 for each day after the first during which such failure continues, subject to a maximum of Rs. 2 Lakhs.

Section 90(11) Register of significant beneficial owners in a company 

Current -If a company, required to maintain register under sub-section (2) and file the information under sub-section (4) or required to take necessary steps under sub-section (4A), fails to do so or denies inspection as provided therein, the company and every officer of the company who is in default shall be punishable with fine which shall not be less than Rs. 10 Lakhs but which may extend to Rs. 50 Lakhs and where the failure is a continuing one, with a further fine which may extend to Ra. 1000 for every day after the first during which the failure continues. 

Amendment- If a company, required to maintain register under sub-section (2) and file the information under sub-section (4) or required to take necessary steps under sub-section (4A), fails to do so or denies inspection as provided therein, the company shall be liable to a penalty of Rs. 1 Lakhs and in case of continuing failure, with a further penalty of Rs. 500 for each day, after the first during which such failure continues, subject to a maximum of Rs. 5 Lakhs and every officer of the company who is in default shall be liable to a penalty of Rs. 25,000 and in case of continuing failure, with a further penalty of Rs. 200 for each day, after the first during which such failure continues, subject to a maximum of Rs.1 Lakh. 

Section 92(5) Annual Return 

Current- 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 Rs. 50,000 and in case of continuing failure, with further penalty of Rs. 100 for each day during which such failure continues, subject to a maximum of Rs. 5 Lakhs 

Amendment- 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 Rs. 10,000 and in case of continuing failure, with further penalty of Rs. 100 for each day during which such failure continues, subject to a maximum of Rs. 2 Lakhs in case of a company and Rs. 50,000 in case of an officer who is in default. 

Section 92(6) Annual Return 

Current- If a company secretary in practice certifies the annual return otherwise than in conformity with the requirements of this section or the rules made thereunder, he shall be punishable with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 5 Lakhs. 

Amendment- If a company secretary in practice certifies the annual return otherwise than in conformity with the requirements of this section or the rules made thereunder, he shall be liable to a penalty of Rs. 2 Lakhs. 

Section-165(6) Number of Directorships

Current- If a person accepts an appointment as a director in contravention of sub-section (1), he shall be liable to a penalty of Rs. 5000 for each day after the first during which such contravention continues. 

Amendment- If a person accepts an appointment as a director in violation of this section, he shall be liable to a penalty of Rs. 2000 for each day after the first during which such violation continues, subject to a maximum of Rs. 2 Lakhs.

Related Links

Companies Amendment Act 2020

Regards

CS Shubham Kapoor

Ph- 9711244345, 7017667034

Email- kapoor.shubhamm@gmail.com