The Companies Amendment Act, 2019 was promulgated in order to
smoothen the performance of the corporates, to ensure more accountability and to
create a structural parameter for the corporates in order to improve their
compliance management and ensure adherence of the corporate governance norms.
Now one of the main amendment brought through The Companies Amendment Act, 2019
was Re-categorising of offences which are in the category of compoundable
offences which is discussed in detail below and the present proposed The
Companies Amendment Bill, 2020 aims at to further strengthen the amendment
brought through the previous Amendment act of 2019 i.e. by decriminalising some
more provisions of the Act in case of defaults which can be determined
objectively and which otherwise lack any element of fraud or do not involve
larger public interest, which will in turn will aid to the corporates in order
to ensure better and smooth corporate governance.
Before discussing about the
changes that are proposed through the present he Companies Amendment Bill, 2020,
listed down below are the Highlights of the Amendment brought through The
Companies Amendment Act, 2019 in order to jog everyone’s memory up.
Highlights of some of the key Changes brought via The Companies Amendment Act,
1. Commencement of Business:
- The act requires a declaration to be filed by the director if a company
is incorporated after the introduction of this amendment act and having a
- Such declaration to be filed within a period of 180 days from the
incorporation to the ROC.
2. Lessening the scope of NCLT:
- Through this amendment now any applications w.r.t adopting a different
financial year and for any alteration having the effect of conversion of public
company into private company.
3. Register of significant beneficial owners in a company:
- Now it has been mandated that every company shall ensure to take
necessary steps to identify an individual who is a significant beneficial
owner in relation to such company, and require such individuals to comply
with the provisions with respect to registration of significant beneficial
owners in the company.
- Earlier this provision was in the UK Companies Act, 2006.
4. Corporate Social Responsibility (CSR)
- An attempt has been made to increase the scope of this particular
section, in order to ensure that the proper adherence or compliance is in
structure, so that the companies must comply with the duties that they owe
towards the society.
- For the calculation 2% of average profits for 3 immediately preceding
financial years, in cases where an entity has not completed 3 years, the
profit for immediately preceding financial year shall be taken.
- From now onwards, companies who do not spend their CSR Fund fully to
disclose the reasons behind it.
- Unspent amount is required to be transferred to special bank account as
'Unspent Corporate Social Responsibility Account'
- Failure to spend the amount in the 'Unspent Corporate Social
Responsibility Account', company shall transfer the said amount to a fund
specified in Schedule VII, within a period of 30 days from the date of
completion of the third financial year.
- Failure of compliance of above points, he company shall be punishable
with fine which shall not be less than fifty thousand rupees but which may
extend to twenty-five lakh rupees and every officer of such company who is in default
shall be punishable with imprisonment for a term which may extend to three years
or with fine which shall not be less than fifty thousand rupees but which may
extend to five lakh rupees, or with both.
5. Compounding of offences:
- Section 441 of the Act has been amended to provide that the Regional
Director or any officer so authorized by the Central Government shall now
have the power to compound (settle) offences wherein the penalty is up to INR 25,00,000
(Earlier the limit was INR 5,00,000).
- As per Section 39 of the Amendment, any offence which is punishable
under the Act with imprisonment only or with imprisonment and also with fine
shall not be compoundable notwithstanding anything contained in the Code of
Criminal Procedure, 1973.
6. The Companies Amendment Bill, 2020:
- In continuation of the above point(s), a major initiative has been taken
forward by the government as Central Government has laid down another set of
amendments before the Lok Sabha on 17th March, 2020 by way of The Companies
(Amendment) Bill, 2020.
- In order to facilitate greater ease of living to law abiding corporates,
a Company Law Committee (CLC) consisting of representatives from Ministry,
industry chambers, professional institutes and legal fraternity was
constituted on the 18th September, 2019, to decriminalise some more
provisions of the Act.
- The Companies (Amendment) Bill, 2020, inter alia, provides for the
- to decriminalise certain offences under the Act in 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 Central Government to exclude, in consultation with the
Securities and Exchange Board, certain class of companies from the
definition of "listed company", mainly for listing of debt securities;
- to clarify the jurisdiction of trial court on the basis of place of
commission of offence under section 452 of the Act for wrongful withholding
of property of a company by its officers or employees, as the case may be;
- to incorporate a new Chapter XXIA in the Act relating to Producer Companies,
which was earlier part of the Companies Act, 1956;
- to set up Benches of the National Company Law Appellate Tribunal;
- to make provisions for allowing payment of adequate remuneration to nonexecutive directors in case of inadequacy of profits, by aligning the same
with the provisions for remuneration to executive directors in such cases;
- to relax provisions relating to charging of higher additional fees for
default on two or more occasions in submitting, filing, registering or
recording any document, fact or information as provided in section 403;
- to extend applicability of section 446B, relating to lesser penalties
for small companies and one person companies, to all provisions of the Act
which attract monetary penalties and also extend the same benefit to
Producer Companies and start-ups;
- to exempt any class of persons from complying with the requirements of
section 89 relating to declaration of beneficial interest in shares and
exempt any class of foreign companies or companies incorporated outside
India from the provisions of Chapter XXII relating to companies incorporated
- to reduce timelines for applying for rights issues so as 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 provide that the companies which have Corporate Social Responsibility
spending obligation up to fifty lakh rupees shall not be required to constitute
the Corporate Social Responsibility Committee and to allow eligible companies
under section 135 to set off any amount spent in excess of their Corporate
Social Responsibility spending obligation in a particular financial year towards
such obligation in subsequent financial years;
- to provide for a window within which penalties shall not be levied for
delay in filing annual returns and financial statements in certain cases;
- to provide for specified classes of unlisted companies to prepare and
file their periodical financial results;
- to allow direct listing of securities by Indian companies in permissible
foreign jurisdictions as per rules to be prescribed.
If such bill gets the assent then it will a ray of hope for the
companies as such act is a need of the present situation because due to the
outbreak of this pandemic COVID-19, the companies are facing a lot of difficulty
in complying with the various statutory compliances, although government is
giving their best by providing addition time or period to comply with the
compliances under the Securities Act, Companies Act, or such other related acts
but this amendment bill will also indeed will be recognised as a stepping stone
in the near future.
Further, before such bill get the assent of the Rajya Sabha a major point that
has become a matter of debate during this ongoing pandemic that whether any
contribution made by the corporates during the COVID-19 towards the society
shall be considered as a part of the Corporate Social Responsibility which needs
immediate clarification. In my opinion, the economy has suffered quite a
financial toll during this pandemic and if the corporates are contributing
towards the society any such amount for catering the needs of the society then
such amount shall be considered as a part of the Corporate Social