By P. N. SHAH
Chartered Accountant
1.
Introduction
The Companies Act, 2013, (Act) came into force on 1.4.2014. There are 470 sections in this Act as
compared to more than 650 sections in the previous Companies Act, 1956. Various sections of the present Act were
brought into force in a phased manner.
This Act was amended by the Companies (Amendment) Act, 2015 and again by
the Companies (Amendment) Act, 2017.
These amendments were brought into force in a phased manner. Now, some important amendments are made in
the Act by the Companies (Amendment) Ordinance, 2018, which has been
promulgated by the Hon’ble President on 2nd November, 2018. These amendments have come into force on 2nd
November, 2018. Some of the important
amendments made by the Ordinance are discussed in this Article.
2. FINANCIAL YEAR – SECTION 2(41)
(i) The term “Financial Year” is
defined in section 2(41) of the Act. This section provides that the Financial
Year of a Company or a Body Corporate shall end on 31st March, every
year. However, a company or a body a company which is holding, subsidiary or
associate of a Foreign Company which is required to prepare financial
statements with different Financial Year for submission of consolidated
accounts outside India, according to the law of that country, can have a
different Financial Year if the National Company Law Tribunal
(Tribunal), on application by such
company or body corporate, permits the same.
In this case such company or body corporate can have a different
financial year for the purpose of consolidation of accounts.
(ii) By amendment of this section it is now
provided that on and after 2.11.2018 such application will have to be made to
the Central Government in the prescribed form.
In other words, power to grant this permission is now transferred from
the Tribunal to the Central Government.
All pending applications as on 2.11.2018 before the Tribunal can be
disposed of by the Tribunal.
3. COMMENCEMENT OF BUSINESS BY A COMPANY – (NEW SECTION 10A AND SECTION 12)
(i) At present there is no provision for giving
intimation about commencement of
business by a company. A new section 10A
is now inserted to provide that a company incorporated on or after 2.11.2018
and having a share capital shall not commence any business or exercise any borrowing powers without complying with
the following procedure.
(a) A declaration in the prescribed form should be
filed by a Director of the company within 180 days of the date of incorporation
with the ROC. In this declaration it should be stated and verified that every
subscriber to the Memorandum of Association has paid the value of the shares
agreed to be taken by him on the date of making such declaration.
(b) Further, it is to be stated in the declaration
that the company has filed a verification of its Registered Office u/s. 12(2)
with the ROC.
(ii) If the above declaration is not filed, the
company will be liable to penalty of Rs. 50,000/-. Further, every officer who is in default will
be liable to pay penalty of Rs. 1,000/- per day during which the default continues
subject to a maximum of Rs. 1 Lakh.
(iii) Further, if the above declaration is not filed
within 180 days of the date of incorporation and the ROC is satisfied that the
company is not carrying on any business or operations, he can remove the name
of the company from the Register of
Companies as provided in Chapter XVIII of the Act.
(iv) It may be noted that s/s. (9) is added in
section 12 to provide that if the ROC is satisfied that a company is not
carrying on any business or operations, he can make physical verification of
the Registered Office of the Company in the prescribed manner. If the ROC is satisfied that no such
Registered Office is maintained by the company and no business or operations
are carried on by the company, he can remove the name of the company from the
Register of Companies as provided in the Chapter XVIII of the Act.
(v) It may be noted that consequential amendment
is made in section 248 dealing with power of ROC to remove the name of the
company from the Register of Companies.
It may further be noted that similar provision existed in this section
when enacted in 2013. However, this was omitted by the Companies (Amendment)
Act, 2015, w.e.f. 29.05.2015. The same provision is now brought back w.e.f.
2.11.2018 by amendment of section 248.
Further, this power to remove the name of the company for the above
default applies to a Private or a small company having share capital.
(vi) The above power appears to have been given to
the ROC to weed out some bogus or in operative companies which are formed by some
unscrupulous persons for money laundering and other anti-social activities.
4. CONVERSION OF PUBLIC COMPANY INTO PRIVATE COMPANY – (SECTION 14)
At present section
14(1) provides that a Public Company can be converted into a Private Company
with approval of the Tribunal. This
section is now amended to provide that such conversion can be made only after
approval by the Central Government. For
this purpose application should be made to the Central Government in the
prescribed form. It is also provided that all pending applications before the
Tribunal shall be disposed of by the Tribunal.
5. PROHIBITION ON ISSUE OF SHARES AT DISCOUNT – (SECTION 53)
(i) At present the punishment for non-compliance
with the section is fine between Rs. 1 Lakh to Rs. 5 Lakh payable by the
company and imprisonment of officer in default for a period upto six months or Fine
between Rs. 1 Lakh and Rs. 5 Lakh or with both.
(ii) This section is now amended to provide that
in the event of non-compliance with the
provisions of the section, the company and every officer in default shall be
liable to Penalty upto an amount equal to the amount raised through issue of shares at a discount or Rs.
5 Lakh whichever is less.
(iii) Further, the company will have to refund all
monies received from the persons who
have subscribed to such shares with
interest at the rate of 12% P. A. from the date of receipt to the date of
refund .
(iv) It may be noted that the
punishment by way of imprisonment of defaulting officers is now done away with.
6. NOTICE TO BE GIVEN TO ROC FOR ALTERATION OF SHARE CAPITAL – (SECTION 64)
Under the existing
section 64(2) the Company and every
officer in default has to pay Fine of Rs. 1,000/- per day during
which the default continues subject to maximum of Rs. 5 Lakh. The amendment to this section provides that
the amount shall be payable as Penalty for contravention of the
section.
7. DUTY TO REGISTER CHARGES – (SECTION 77)
(i) Section 77 provides that any charge created
by the company shall be registered with ROC within 30 days of such
creation. If this is not done, the
charge can be registered within 300 days of creation of the charge on payment
of the prescribed additional fees. If the
charge is not registered within this period of 300 days, the company can apply
for extension of time to the Central Government as provided in section 87.
(ii) This provision for extension of time beyond
30 days is now amended by amendment of
section 77 as under:
(a) The ROC may allow, on application by the
company, to register charges created before 2.11.2018 and the same can be filed
within 300 days of the date of creation, if not filed within 30 days, on
payment of prescribed additional fees
(b) If charge created before 2.11.2018 which has
not been filed within 300 days, the same can be filed within 6 months from
2.11.2018 on payment of such prescribed additional fees and different fees may
be prescribed for different classes of companies.
(c) The ROC may allow, on application by the
company, to register charges created on or after 2.11.2018, if not filed within
30 days, and the same can now be filed with 60 days of creation on payment of
the prescribed additional fees. It may
be noted that existing period of 300 days is now reduced to 60 days.
(d) In the case of a charge created on or after
2.11.2018, if the charge is not filed within 60 days, the ROC, on application
made by the company, may allow registration of charge within a further period
of 60 days after payment of such advalorem fees as may be
prescribed. This will mean that the fees
payable for the delay will be calculated as a percentage of the amount of the
charge.
(iii) Existing section 86 provides for punishment to
the company and its officers in default for contravention of sections 77 to
85. In addition to this punishment, this
section is now amended to provide that if any person willfully furnishes any
false or incorrect information or knowingly suppresses any material information
required to be registered u/s. 77, he shall be liable for action under section
447. U/s. 447 there is provision for levy of fine as well imprisonment of the
defaulting officer for specified period.
8. RECTIFICATION BY CENTRAL GOVERNMENT IN REGISTER OF CHARGES – (SECTION 87)
The existing
section 87 is replaced by a new section 87 which provides as under:
(i) The section provides for a situation in which
there is omission to give intimation to ROC of payment or satisfaction of a
charge within the stipulated time limit.
It also deals with the omission or misstatement of any particulars with
respect to any such charge or modification or with respect to any memorandum of
satisfaction or other entries made as provided u/s. 82 or 83.
(ii) With respect to the above, if the Central
Government is satisfied that such omission or misstatement was accidental or
due to inadvertence or some other sufficient cause or it is not prejudicial to
the position of creditors or shareholders, it may, give the following relief.
(a) Extend time for giving intimation of payment
or satisfaction of debt.
(b) Direct that the omission or misstatement be
rectified in the Register of Charges.
9. REGISTER OF SIGNIFICANT BENEFICIAL OWNERS IN A COMPANY – (SECTION 90)
(i) A very comprehensive new section 90 was
introduced by the Companies (Amendment) Act, 2017. Under this section a person having beneficial
interest of not less than 25% or, such percentage as may be prescribed in the
Shares of the Company or has right to exercise significant influence or control
as defined in section 2(27) has to give a declaration in the prescribed manner.
Section 90(9) provides that the company or the person aggrieved by the order of
the Tribunal passed u/s. 90(8) can make an application to the Tribunal for
relaxation or lifting of the restriction placed u/s. 90(8).
(ii) Section 90(9) has now been
amended to provide that the above application can be made within one year from
the date of the order u/s. 90(8).
Further, if no such application is made within one year, such shares as
referred to in section 90 shall be transferred to the authority constituted
u/s. 125(5), in such manner as may be prescribed. In other words, in the event
of delay in filing the declaration under
this section, the shares may be transferred to Investor Education and
Protection Fund set up u/s. 125.
(iii) Section 90(10) provides for punishment for
contravention of the provisions of section 90.
This section is amended to provide that
the person who fails to make the declaration of significant beneficial
ownership in the company u/s. 90 shall be punishable with imprisonment for a
term upto one year or with minimum fine of Rs. 1 Lakh which may extend to Rs.
10 Lakh or with both. If the default
continues, a further fine upto Rs. 1,000/- per day will be payable for the
period of default.
(iv) The above amendment appears to have been made
to deal with cases of benami shareholders in companies.
10. ANNUAL RETURN – (SECTION 92)
(i) The existing section 92(5) provides for
punishment for delay in filing Annual Return within the time specified in section
92(4). This punishment is by way of Fine
payable by the company and by way of imprisonment of officers in default or
with fine or both.
(ii) The above provision for punishment is now
modified by amendment of section 92(5) as under:
(a) The
company and every officer in default will be liable to pay penalty of Rs.
50,000/-.
(b) In case of continuing default, further penalty
of
Rs. 100/- per day subject to maximum of Rs. 5 Lakh is also payable.
It may be noted
that the provision for prosecution of the officer in default is now deleted.
11. STATEMENT TO BE ANNEXED TO SPECIAL NOTICE OF GENERAL MEETING – (SECTION 102) AND PROVISION FOR PROXIES – (SECTION 105)
In both the
sections 102 and 105 there is provision for punishment for contravention of the
provisions of the sections in the form of monetary payment by way of Fine. By amendment of these sections it is now
provided the same monetary amount shall be payable as Penalty.
12. RESOLUTIONS AND AGREEMENTS TO BE FILED WITH ROC – (SECTION 117)
The existing
section 117 (2) provides for levy of Fine if the specified
Resolutions and Agreements to be filed with ROC are not filed within the
specified time. The monetary limits of Fine is reduced and it is
now provided that the following Penalty shall be payable for the
default.
(i) The company shall be liable to pay penalty of
Rs. 1 Lakh and, in case of continuing default, further penalty of Rs. 500/- per
day of default, subject to maximum of Rs. 25 Lakh.
(ii) Further, every officer in default (including
the Liquidator, if any) shall be liable to pay Penalty of Rs. 50,000/- and, in
case of continuing default, he shall be liable to pay a further penalty of Rs.
500/- per day, subject to maximum of Rs. 5 Lakh.
13. REPORT ON AGM TO BE FILED WITH ROC – (SECTION 121)
U/s. 121 Report on
Annual General Meeting held by a listed public company is to be filed by such
company within the time provided in the section. U/s. 121(3) the company and
every officer in default is required to pay Fine for
non-compliance with the requirement of the section. This provision is now amended and it is
provided that Penalty for this default will be payable as under:
(i) The company will have to pay Penalty
of Rs. 1 Lakh and, in case of continuing
default, further penalty of Rs. 500/- per day of default subject to maximum of
Rs. 5 Lakh will be payable.
(ii) Further, every officer in default shall be
liable to pay penalty of Rs. 25,000/- and, in case of continuing default, a
further penalty of Rs. 500/- per day of default, subject to a maximum of Rs. 1
Lakh will be payable.
14. COPY OF FINANCIAL STATEMENTS TO BE FILED WITH ROC -(SECTION 137)
U/s. 137(3) the
company and the officers in default, as specified in the section, are liable to
pay fine of specified amount for non-compliance with the requirements of the
section. There is also provision for prosecution of the officers in
default. These provisions are amended
and it is now provided for payment of Penalty as under:
(i) The company shall be liable to pay Penalty of
Rs. 1,000/- per day during the period of default subject to a maximum of Rs. 10 Lakh.
(ii) Every officer in default, as specified in the
section, shall be liable to pay Penalty of Rs. 1 Lakh and, in case of continuing default, further
penalty of Rs. 100/- per day of default shall be payable subject to a maximum of Rs. 5 Lakhs. It may be noted
that the existing provision for imprisonment of the officer in default for a
specified period is now deleted from this section.
15. REMOVAL AND RESIGNATION OF AUDITOR – (SECTION 140)
Section 140 (2)
provides that an Auditor of a company has to file with ROC and the Company (C
& AG, if applicable) a Statement in the prescribed form (ADT-3) within 30
days about details of his resignation as Auditor. Section 140 (3) provides that
in the event of failure to comply with
this requirement the Auditor will have to pay Fine of Rs.
50,000/- which may extend to Rs. 5 Lakh.
Section 140(3) is
now amended to provide that the Auditor will have to pay for non-compliance
with the provisions of section 140(2) Penalty of Rs. 50,000/- or
an amount equal to his remuneration as Auditor, whichever is less. Further, in case of continuing default, a
further penalty of Rs. 500/- per day of default subject a maximum of Rs. 5 Lakh
will be payable.
16. COMPANY TO INFORM DIN TO ROC – (SECTION 157)
Section 157(1) provides for furnishing information about Director
Identification Number (DIN) to ROC and other prescribed authorities within the
specified time. In the event of default
in complying with this requirement the company and the officers in default have
to pay Fine as stated in section 157 (2). The provisions of
section 157(2) have now been amended to provide for payment of Penalty
as under:
(i) The Company shall be liable to pay penalty of
Rs. 25,000/-. Further, in case of continuing default, a
further penalty of Rs. 100/- per day of default subject to maximum of Rs. 1
Lakh shall be payable.
(ii) Further, every officer in default will be
liable to pay penalty of Rs. 25,000/- and a further penalty for continuing
default shall be payable at Rs. 100/- per day of default subject to a maximum
of Rs. 1 Lakh.
17. PUNISHMENT FOR CONTRAVENTION OF SECTIONS 152,155 AND 156 – (SECTION 159)
The existing
section 159 providing for payment of Fine as well imprisonment of
the individual or Director in default has been replaced by a new section 159.
This new section 159 removes the provision for imprisonment of the Individual
or Director in default and provides for levy of penalty as under:
(i) Penalty which may extend upto Rs. 50,000/-
(ii) In case of continuing default, a further
penalty which may extend upto Rs. 500/- per day during the period when the
default continues.
The wording of the
above section indicates that a penalty of less than Rs. 50,000/- or less than
Rs. 500/- per day may be levied at the discretion of the concerned authority.
18. DISQUALIFICATIONS FOR APPOINMENT OF DIRECTOR – (SECTION 164)
Section 164 gives a
list of circumstances under which a director may be disqualified for
appointment as Director in any other company.
The amendment of this section states that a person who has not complied
with the provisions of section 165(1) will now be disqualified for appointment
as Director of any other company. It may
be noted that section 165(1) provides that a person will not be entitled to
become director of more than specified number of Companies.
19. NUMBER OF DIRECTORSHIPS – (SECTION 165)
U/s. 165(6), if a
person accepts an appointment as a director in contravention of the specified
number of directorships stated in section 165(1), he is liable to pay Fine
of specified amount. This provision is now modified by amendment of section
165(6). It is now provided that such
person will be liable to pay Penalty of Rs. 5,000/- for each day
during which the default continues.
20. PAYMENT TO DIRECTOR FOR LOSS OF OFFICE – (SECTION 191)
U/s. 191(1) no
director can receive any compensation for loss of office under specified
circumstances. If there is contravention
of this provision, section 191(5) provides for payment of Fine by
such Director of Rs. 25,000/- which may extend to Rs. 1 Lakh. This section is
now amended to provide for payment of Penalty of Rs. 1 Lakh by such Director
for contravention of the provisions of section 191.
21. MAXIMUM REMUNERATION PAYABLE TO MANAGERIAL PERSONNEL – (SECTION 197)
(i) Section 197(7) provides that an Independent
Director shall not be entitled to receive any stock option from the
company. He can only receive sitting
fees, commission and reimbursement of expenses.
Now sub-section (7) of section 197 is omitted. Effect of this amendment will be that besides
sitting fees, commission etc., an Independent Director can enjoy the benefit of
Stock Option from the Company.
(ii) At present section 197(15) provides for
payment of Fine of specified amount by the person who contravenes
the provisions of this section. By
amendment of this section the Penalty of Rs. 1 Lakh can be levied
on the person who contravenes the provisions of section 197. Hitherto, no Fine was payable by the company.
By this amendment it is provided that if the company has contravened the
provisions of section 197, it will have to pay penalty of Rs. 5 Lakh.
22. APPOINTMENT OF KEY MANAGERIAL PERSONNEL – (SECTION 203)
The monetary limits
of Fine u/s. 203 (5) for non-compliance with section 203 have now
been modified by amendment of section 203(5) as under:
(i) The company will be liable to pay Penalty of
Rs. 5 Lakhs
(ii) Every Director and Key Managerial Personnel
who is in default shall be liable to pay penalty of Rs. 50,000/-.
(iii) In case of continuing default, further penalty
of Rs. 1,000/- per day of default subject to maximum of Rs. 5 Lakh shall also
be payable.
23. REGISTRATION OF OFFER OF SCHEMES INVOLVING TRANSFER OF SHARES – (SECTION 238)
U/s. 238(3) the
Director who is in default is liable to pay Fine between Rs.
25,000/- to Rs. 5 Lakh. This is now changed to Penalty of Rs. 1
Lakh by amendment of this section.
24. COMPOUNDING OF CERTAIN OFFENCES – (SECTION 441)
(i) At present section 441(1)(b) provides that an
offence punishable under the Act with
Fine only which does not exceed Rs. 5 Lakh can be compounded by the Regional
Director. By amendment of this section this limit of Rs. 5 Lakh is increased to
Rs. 25 Lakh. Therefore, the Regional Director can now compound any offence
where the Fine is below the limit of Rs. 25 Lakhs. U/s. on 441(1) (a) the
Tribunal has power to compound an offence where the amount of Fine leviable is
of any amount (i.e. even more than Rs. 25 Lakh).
(ii) Section 441(6) is now amended to provide that
any offence which is punishable under the Act with imprisonment only or with
imprisonment and also with Fine shall not be compoundable. In the existing section 441(6) it was provided
in specified cases it was possible to compound the offence with the permission
of Special Court. This concession is now
not available.
25. LESSER PENALTIES FOR ONE PERSON AND SMALLER COMPANIES – (SECTION 446B)
Section 446 B was
enacted by the Companies (Amendment) Act, 2017.
It came into force on 9.2.2018.
This section provided that if a One Person Company or a Small Company
fails to comply with provisions of section 92(5), 117(2) or 137(3), such
company or any officer in default shall be punishable with Fine or
Imprisonment, such Fine or Imprisonment shall not be more than half of the Fine
or half of the period of Imprisonment specified in the above sections. Now this section is amended to provide that,
if the company or the officer in default is liable to penalty, the same shall
not be more than half of the penalty specified in the above sections. This amendment is made as in the above
sections the punishment in the form of Fine and Imprisonment is now replaced by
the specified amount of penalty.
26. PUNISHMENT FOR FRAUD – (SECTION 447)
The second proviso
to section 447 provides that if fraud involves an amount of less than Rs. 10
Lakhs or one percent of the turnover of the company, whichever is less, and
does not involve public interest, such person may be awarded punishment by way
of imprisonment upto 5 years. Further,
fine upto Rs. 20 Lakh can be levied. By
amendment of this section the amount of the fine is now increased upto Rs. 50
Lakh.
27. ADJUDICATION OF PENALTIES – (SECTION 454)
Section 454
provides for appointment of adjudicating officer for adjudging penalty under
the provisions of the Act in such manner as may be prescribed. As per section 454(3) the adjudicating
officer may, by an order, impose a penalty on the company and the officer in
default. Now, s/s. (3) is substituted by
another s/s. (3) granting power to adjudicating officer to impose penalty on
any other person in addition to company and officer in default. Further, it is
also provided that adjudicating officer may direct such company or officer in
default or any other person to rectify the default wherever he considers fit.
28. PENALTY FOR REPEATED DEFAULT – (NEW SECTION 454 A)
This new section
provides for levy of Penalty for repeated defaults. It provides for levy of additional penalty on
the company, any officer in default or any other person in whose case any
penalty is levied under any provision of the Act, again commits such default
within 3 years from the date on which such penalty order is passed by the Adjudicating
Officer or the Regional Director. In
such a case for a second or subsequent default, the amount of the Penalty shall
be an amount equal to twice the amount of penalty provided for such default in
the relevant section. From the wording
of the section it appears that if penalty is once levied for non-compliance of
section 64, double the amount of penalty can be levied for subsequent default
for non-compliance of section 64 only and not for default under any other
section. This new section is on the same
lines as section 451 which provides for levy of double the amount of Fine for
second or subsequent default.
29. FINE VS. PENALTY
From some of the
amendments made by the above Ordinance it will be noticed that in some
sections, which provided for levy of Fine, the word “Fine” is replaced by the word “Penalty”. The distinction between the expression “Fine”
and “Penalty” can be explained as under;
(i) Chapter XXVIII (sections 435 to 446A) deals
with appointment of Special Courts and their powers. If we read these provisions it will be seem
that where the Act provides for punishment for contravention of any provision
by way of levy of Fine on the company or
levy of Fine and or Imprisonment of any defaulting officer, the same can be
done by the Special Court only. It is
also provided in section 441 that where only Fine can levied, the same can be
compounded by the Regional Director or the Tribunal. This is a time consuming procedure.
(ii) As compared to the above, where there is a
provision for levy of Penalty for default in complying with a particular
provision of Act, section 454 Provides that such Penalty can be levied by an
Adjudicating Officer appointed by the Central Government. By a separate Notification, some Registrars
of Companies (ROC) are appointed as Adjudication Officers. Thus, penalty leviable under different
sections can be levied by ROC. Any
company or officer in default aggrieved by levy of penalty by ROC can file
appeal before Regional Director u/s. 454(5).
This procedure will be less time consuming.
30. TO SUM UP
(i) The above amendments in the
Companies Act, 2013, have been made by an Ordinance promulgated by the Hon’ble
President on 02.11.2018 on the basis of the recommendations of the expert panel
appointed by the Ministry of Corporate Affairs.
This Panel was headed by the Corporate Affairs Secretary, Shri
Srinivas. The Ordinance covers only some
of the suggestions made by the Panel which the Government considered to be of
urgent nature. There are some more
recommendations by the Panel which are under consideration of the
Government. It appears that some more
amendments may be made in the Companies Act during the coming months.
(ii) It may be noticed from the amendments made in
some of the sections that punishment to officers in default by way of
imprisonment for specified period has been done away with. These sections deal with procedural
lapses. In some of the sections the
provision for Fine has been replaced by Penalty. Since the Fine can be levied by a Court and
Penalty can be levied by ROC, the administration of the provision for levy of
penalty will be less time consuming.
(iii) Some
of the amendments made by this Ordinance are of procedural nature. Taking an
overall view, the amendments by this Ordinance are Welcome. One area in which major amendments are
required relates to provisions applicable to private limited companies. As these Companies experience difficulties in
complying with some of the stringent provisions of the Act, which apply to all
companies, there is need to make relaxation in these provisions so that there
is ease of doing business for small and medium size industries and traders and
their compliance burden in reduced.
