Highlights of the Companies (Amendment) Bill, 2018 passed by Lok Sabha

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On January 4, with an aim to improve the ease of doing business, the Lok Sabha passed the Companies (Amendment) Bill, 2018, designed to reduce the National Company Law Tribunal's (NCLT) burden in volume of insolvency cases, as well as prescribe strong action against non-compliant companies.

In the bill, Hon’ble Arun Jaitley, Minister of Finance and Corporate Affairs, Government of India, said:

• The Companies Act, 2013 (the Act) was enacted with a view to consolidate and amend the law relating to companies. The Act introduced significant changes relating to disclosures to stakeholders, accountability of directors, auditors and key managerial personnel, investor protection and corporate governance.

• In order to review the existing framework dealing with offences under the Companies Act, 2013 and related matters and make recommendations to promote better corporate compliance, the Government of India constituted a Committee in July, 2018 and the said Committee, after taking the views of several stakeholders, submitted its report in August, 2018. The Committee recommended that the existing rigour of the law should continue for serious offences, whereas the lapses that are essentially technical or procedural in nature may be shifted to in-house adjudication process. The Committee observed that this would serve the twin purposes of promoting of ease of doing business and better corporate compliance. It would also reduce the number of prosecutions filed in the Special Courts which would in turn facilitate speedier disposal of serious offences and the offenders shall be penalized. The liability under Section 447 which deals with corporate fraud would continue to apply wherever fraud is noticed.

• The recommendations made by the Committee were examined by the Government and it was noted that the changes in the Companies Act, 2013 suggested by the said Committee would fill critical gaps in the corporate governance and compliance framework as enshrined in the said Act while simultaneously extending greater ease of doing business to law abiding corporate.

• As the Parliament was not in session and immediate action was required to be taken, the Companies (Amendment) Ordinance, 2018 was promulgated by the President on the 2nd day of November, 2018.

• The Companies (Amendment) Bill, 2018 which seeks to replace the aforesaid Ordinance, inter alia, provides—

(i) to amend clause (41) of Section 2 of the Companies Act, 2013 so as to empower the Central Government to allow certain companies to have a different financial year instead of as determined by the Tribunal;

(ii) to amend Section 12 of the Act empowering the Registrar to initiate action for the removal of name of the company from register of companies, if the company is not carrying on any business or operation in accordance with the provisions of the Act;

(iii) to amend sixteen sections of the Act 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; and

(iv) to amend Section 441 of the Act so as to enhance the jurisdiction of the Regional Director for compounding of offences.

• The Bill seeks to replace the aforesaid Ordinance.

The Notes on Clauses explain in detail the various provisions of the Bill.

Clause 1 of the Bill provides for the short title and commencement of the proposed Legislation.

Clause 2 of the Bill seeks to amend clause (41) of Section 2 of the Companies Act, 2013 (the Act) so as to enable the relevant companies to follow different financial year with the approval of the Central Government, instead of taking approval of the Tribunal.

Clause 3 of the Bill seeks to insert a new Section 10A relating to commencement of business etc., to provide that a company having a share capital shall not commence business or exercise any borrowing powers unless a declaration is filed with the Registrar by a director that every subscriber to the memorandum has paid the value of shares and the company has filed with the Registrar the verification of its registered office. The said clause further provides that non-compliance with filing of declaration may result into action by Registrar under Chapter XVIII.

Clause 4 of the Bill seeks to insert a new sub-section (9) in Section 12 of the Act to provide that the Registrar may cause a physical verification of the registered office of the company if he has reasonable cause to believe that company is not carrying on any business or operations as specified and to provide consequent action thereof.

Clause 5 of the Bill seeks to amend the second proviso to sub-section (1) of Section 14 of the Act to provide that any alteration having the effect of conversion of a public company into a private company shall not be valid unless it is approved by an order of the Central Government on an application made in such form and manner as may be prescribed. Earlier this approval was obtained from the Tribunal.

Clause 6 of the Bill seeks to amend sub-section (3) of Section 53 of the Act to provide for monetary penalty and refund of monies in case of failure to comply provision of that section.

Clause 7 of the Bill seeks to amend sub-section (2) of Section 64 of the Act to provide for monetary penalty for company and its officers in default in case of failure to comply with provision of such section.

Clause 8 of the Bill seeks to amend the first and second proviso of sub-section (1) of Section 77 of the Act to provide that the Registrar may, on the application made by a company, allow registration of charge, in case of charges created before the commencement of the Companies (Amendment) Act, 2018, within a period of three hundred days or charges created after the commencement of the said Act within sixty days, on payment of additional fees. The additional period within which the charges required to be registered is also provided.

Clause 9 of the Bill seeks to insert sub-section (2) in Section 86 of the Act to provide that any person who wilfully furnishes any false or incorrect information or knowingly suppresses any material information, required to be registered in accordance with the provisions of Section 77, shall be liable for action under Section 447.

Clause 10 of the Bill seeks to substitute Section 87 of the Act to empower the Central Government to extend time or allow rectification, if it is satisfied that omission to give intimation to the Registrar of the payment or satisfaction of a charge, within the time required under Chapter VI; or the omission or misstatement of any particulars, in any previous filing with respect to any such charge or modification thereof or with respect to any memorandum of satisfaction or other entry made in pursuance of Section 82 or Section 83 was accidental or was due to inadvertence.

Clause 11 of the Bill seeks to amend sub-section (9) of Section 90 of the Act to provide that the company or the person aggrieved by the order of the Tribunal may make an application to the Tribunal for relaxation or lifting of the restrictions placed under sub-section (8), within a period of one year from the date of such order and if no such application is filed, such shares shall be transferred without any restrictions to Investor Education and Protection Fund Authority. The clause also seeks to amend the penal provision under sub-section (10) of Section 90 of the Act.

Clause 12 of the Bill seeks to amend sub-section (5) of Section 92 of the Act to provide that 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 monetary penalty as specified in the provision.

Clause 13 of the Bill seeks to amend sub-section (5) of Section 102 of the Act to provide that in case of any default made in complying with the provisions of such section, every promoter, director, manager or other key managerial personnel of the company who is in default shall be liable to monetary penalty as specified in the provision.

Clause 14 of the Bill seeks to amend sub-section (3) of Section 105 of the Act to provide that for any default under sub-section (2) of said section, the officer in default shall be liable for monetary penalty as specified in sub-section (3).

Clause 15 of the Bill seeks to amend sub-section (2) of Section 117 of the Act to provide that for failure in filing a copy of every resolution or an agreement as per sub-section (1) of said section, the company and its officer in default shall be liable for monetary penalty as specified in sub-section (2).

Clause 16 of the Bill seeks to amend sub-section (3) of Section 121 of the Act to provide for liability to pay monetary penalty for not filing with the Registrar a copy of report within the stipulated period as per sub-section (2) of said section.

Clause 17 of the Bill seeks to amend sub-section (3) of Section 137 of the Act to provide for payment of monetary penalty in case of failure to file a copy of financial statements with the Registrar.

Clause 18 of the Bill seeks to amend sub-section (3) of Section 140 of the Act to provide for payment of monetary penalty of fifty thousand rupees or an amount equal to the remuneration whichever is less and further penalty for continuous faliure, if the auditor does not comply with sub-section (2) of said section.

Clause 19 of the Bill seeks to amend sub-section (2) of Section 157 of the Act to provide for payment of monetary penalty in case there is failure to furnish Director Identification Number pursuant to sub-section (1) of said section.

Clause 20 of the Bill seeks to amend Section 159 of the Act to provide for payment of monetary penalty if any individual or director of a company makes default in complying with Sections 152, 155 and 156 of the Act.

Clause 21 of the Bill seeks to insert clause (i) in sub-section (1) of Section 164 of the Act to provide disqualification to become a director if an individual has not complied with the provisions of sub-section (1) of Section 165 of the Act.

Clause 22 of the Bill seeks to amend sub-section (6) of Section 165 of the Act to provide for payment of monetary penalty in case a person accepts an appointment as a director in contravention of sub-section (1) of said section.

Clause 23 of the Bill seeks to amend sub-section (5) of Section 191 of the Act to provide for payment of monetary penalty if a director makes default in complying with such section.

Clause 24 of the Bill seeks to omit sub-section (7) and to amend sub-section (15) of Section 197 of the Act to provide for payment of monetary penalty by any person or the company in case of default.

Clause 25 of the Bill seeks to amend sub-section (5) of Section 203 of the Act to provide for payment of monetary penalty by any company and director and key managerial personnel who is in default in complying with said section.

Clause 26 of the Bill seeks to amend sub-section (3) of Section 238 of the Act to provide for payment of monetary penalty for the director who issues a circular which has not been presented for registration and registered as per sub-section (1) of said section.

Clause 27 of the Bill seeks to amend sub-section (1) of Section 248 of the Act to insert new clauses (d) and (e) to provide that in case the subscribers to the memorandum have not paid the subscription which they had undertaken to pay and declaration under Section 10A has not been filed or where the company is not carrying on any business or operation as revealed after the physical verification, the Registrar shall send notice to such companies and its directors informing them of his intention to remove the name of the company from the register of companies.

Clause 28 of the Bill seeks to amend clause (b) of sub-section (1) of Section 441 of the Act to increase the threshold of maximum amount of fine that does not exceed twenty-five lakh rupees for compounding by the Regional Directors.

Clause 29 of the Bill seeks to amend Section 446B of the Act to provide for payment of reduced amount of monetary penalty in case of default by One Person Company or small companies.

Clause 30 of the Bill seeks to amend Section 447 of the Act to enhance the amount of fine from "twenty lakh rupees" to "fifty lakh rupees".

Clause 31 of the Bill seeks to amend sub-sections (3) and (8) of Section 454 of the Act to provide that adjudicating officer may also direct the company or officer in default or other person to rectify default, wherever he considers fit.

Clause 32 of the Bill seeks to insert new Section 454A relating to monetary penalty for repeated default, which is twice the amount of penalty provided for such defaults under the relevant provisions of this Act.

Clause 33 of the Bill seeks to repeal the Companies (Amendment) Ordinance, 2018 and to save the actions done during the course of the period of Ordinance.

To read the entire Official Bill in detail, please view the file attached herein.

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