Indian Law Updates February 2019 Corporate Practice
The Companies (Amendment) Ordinance, 2019:
Whilst the Companies (Amendment) Bill, 2018, is still pending to be passed by the Rajya Sabha, the Companies (Amendment) Ordinance, 2019 has been promulgated, with effect from 12 January 2019, to continue the applicability of the provisions contained in the Companies (Amendment) Ordinance, 2018, relating to rearrangement of penalties for offences in the Companies Act, 2013 (the Act) and easing up compliance procedure in some respects. The pending bill shall become an Act post the approval of the Rajya Sabha and receipt of presidential assent and shall be effective from the date of notification in the Gazette. Once that happens, the amendments brought in by the Companies (Amendment) Ordinance, 2019 will also be crystallized in the Act.
While the inserted Section 10A prohibits all companies (whether public or private) from commencing business before they bring in the subscribers’ funds (the outer limit for which is within 180 days), file a declaration by the directors to this effect and report the registered office of the company within 30 days of commencement, Section 12(9) empowers the registrar to cause a physical verification of the registered office. On failure to file the declaration relating to the funds and verification of registered office, the registrar can initiate proceedings to remove the name of the company from the register under Chapter XVIII. This can act as a deterrent for shell companies since a physical office and receipt of funds is now mandatory.
Following are some provisions which ease up procedural requirements:
- Change in the financial year of a holding, subsidiary or associate company of a company incorporated outside India and the conversion of a public company into private company, which earlier required the approval of National Company Law Tribunal (NCLT) can now be approved by the Central Government.
- Section 197(7) which stated that an independent director will not be entitled to stock options and can receive remuneration in the form of sitting fees and reimbursements has been removed, adding a bit of flexibility to the payment mechanisms for independent directors.
- The maximum amount of penalty which can be compounded by the Regional Director has been increased to twenty-five lakhs rupees.
Provisions where the fines / additional fees have been rearranged include:
- The minimum fine for the issue of shares at discount is fixed as the amount raised through the issue of such shares, the maximum fine is capped at five lakhs rupees and the company shall have to refund the monies received with 12 percent interest from date of issue.
- The initial period for registration of charges has been increased from 30 to 60 days, but the extension which can be granted by the registrar has been brought down from 300 to 60 days. Further, the fees for extension have been changed from additional to ad valorem, which means high value charges will have higher fees, rather than a time-based slab.
- Wilfully furnishing false information or suppressing material information in relation to charges will now invite penalty equivalent to fraud, which can extend to fifty lakh rupees.
- Section 90 relating to significant beneficial owners, which had been significantly amended by the Companies (Amendment) Act, 2017 provides that NCLT, at the request of the company, can make an order restricting the rights on the shares owned by a person who is believed to be the beneficial owner, but who is not registered as a beneficial owner. A person who is aggrieved by this order can apply to NCLT for the restrictions to be removed, but the time period for this application has now been restricted to one year. If the application is not filed within one year, the shares can be transferred to the authority constituted for the administration of Investor Education and Protection Fund.
- Continuing penalties per day of default have been brought in such as one hundred rupees per day for non-filing of financial statements and annual return, five hundred rupees per day for non-filing of resolutions and agreements under Section 117 of the Act and one thousand per day for not complying with the requirement to appoint key managerial personnel in accordance with Section 203.
- Maximum fine for frauds not involving public interest or less than ten lakhs rupees or one percent of the turnover have been increased to fifty lakhs rupees from twenty lakhs rupees.
- Amendments in Section 454 relating to imposition of penalty by adjudicating officer or regional director now bring into its purview ‘any other persons’, apart from the company itself and officers in default.
- If the same offence for which the penalty was imposed by adjudicating officer or regional director is repeated, the penalty would then be twice the amount of penalty provided for such default.