The Companies (Amendment) Ordinance, 2018 (“Ordinance”) received the President of India’s assent bringing into force amendments to certain provisions of the Companies Act, 2013 (“Act”) with effect from November 2, 2018. The Ordinance is based on the recommendations made by a committee appointed by the Government to review offences under the Act.
Set forth below is an analysis of the key provisions of the Ordinance:
The Ordinance has introduced Section 10A in the Act which mandates that every company incorporated after commencement of the Ordinance shall not commence business or exercise any borrowing powers unless it satisfies the following 2 conditions: (i) a declaration is filed by a director within a period of 180 days of the date of incorporation with the Registrar of Companies (“Registrar”) in the prescribed form, stating that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of making such declaration; and (ii) a declaration is filed by the company with the Registrar furnishing verification of its registered office within 30 days from its date of incorporation.
In case no declaration is filed within 180 days of incorporation and the Registrar has reasonable cause to believe that the company is not conducting any business or operations, the Registrar may initiate the removal of the company’s name from the register of companies.
Section 12(8) has been introduced through the Ordinance, as per which, if the Registrar has reasonable cause to believe that the company is not carrying on any business or operations, he may cause a physical verification of the company’s registered office in the prescribed manner. If any default is found to be made on such verification, the Registrar may initiate action for removal of the company’s name from the register of companies.
The Ordinance provides that any alteration of articles of association having the effect of conversion of a public company into a private company will be valid only after it is approved by an order of the Central Government. Earlier, the National Company Law Tribunal (“NCLT”) was responsible for granting this approval. For pending NCLT applications as on the date of the Ordinance, the NCLT only will be responsible for granting the approval.
The Ordinance has amended section 77 of the Act, as per which, in case of charges created by the company before November 2,
2018, the Registrar may on application by the company allow registration of the charge, within a period of 300 days of such charge creation. If the registration is not made within 300 days, the registration of the charge can be made within 6 months from November 2, 2018.
In case of charges created after November 2, 2018 the Registrar may on application by the company allow registration of the charge within 60 days of such charge creation. If the charge is not registered within the aforesaid period, the registration can be made within an additional period of 60 days on payment of ad-valorem fees.
In case of suspension of shareholder rights by the NCLT for not providing disclosure of beneficial interests as provided under the Act, the company or person aggrieved by its order may apply to it for relaxation or lifting of restrictions within a period of 1 year from the order date. In case no such application is filed, the underlying shares will be transferred to the Investor Education and Protection Fund.
The Ordinance has introduced section 164(1)(i), as per which, a person holding more than the total number of directorships allowed as per the Act will be disqualified for being appointed as director of the company. The Act allows a person to hold upto 20 directorships, out of which directorship in public companies cannot exceed 10.
Offences (excluding offences punishable with imprisonment or with imprisonment and fine), carrying maximum amount of fine not exceeding INR 25,00,000, will now be compounded by the Regional Director or any authorized officer of the Central Government. This limit was earlier INR 5,00,000.
Certain offences under the Act have been re-categorised as defaults carrying civil liabilities. Some of the key penalties amended are as follows:
Issue of shares at discount in contravention of the Act.
The Ordinance has done away with the fine and imprisonment term. The company and every officer in default will now be liable to a penalty and to refund monies received from the issue along with interest @ 12% p.a.
Non-filing of annual return within the due date.
The Ordinance has done away with the fine and imprisonment term. The company and every officer in default will now be liable to a penalty and additional penalty in case of continuing failure.
Failure/delay in filing financial statement.
The Ordinance now prescribes a penalty instead of fine for the company. The concerned persons of the company will in addition to the penalty, be liable to a penalty in case of continuing failure.
Failure/delay in filing statement by the auditor after resignation.
An additional penalty has been prescribed in case of continuing failure.
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