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Overview of the Companies (Amendment) Act, 2020

The Companies Act has been amended for the fouth time since 2013, the Act was amended in 2015, 2017, 2019 and now as proposed in 2020. The Companies (Amendment) Act, 2020 was introduced in the Lok Sabha on 17th March, 2020 by the Minister for Corporate Affairs, Ms. Nirmala Sitharaman and was approved by the Lok sabha and Rajya Sabh on 19th September and 22nd September, 2020 respectively.

On 28th September it got the assent of the Honorable President of India, Ram Nath Kovind and is operative since that date. Four sections have been newly inserted which includes the provisions for Producer Companies and there have been made amendments in sixty one sections of the Act.

In the year 2019, it constituted a Company Law Committee (CLC) with the aim to facilitate greater ease of living for corporations further the overall goal was to decriminalize few provisions of the Act. Based upon the recommendations of the CLC, the Companies ( Amendment ) Act, 2020 seeks to decriminalize 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. Besides relaxation of CSR law, remuneration to non-executive directors in case of inadequate profits, producer companies, periodic financial results by non-listed companies, etc. has been provided.

Key Amendments of the Companies (Amendment) Act, 2020

  • Offences:
    Firstly in case of single person companies, producer companies, small companies or any other person of such company, the company or person shall be liable to one half of the penalty specified. The maximum penalty in case of a company or an officer/person who is in default is rupees two lakh and one lakh respectively.

    Secondly certain penalties like under Section 56 (Transfer and Transmission of Securities), Section 64 (Notice to be given to Registrar for Alteration of Share Capital), Section 86 (Punishment for Contravention under Chapter VI Registration of Charges), Section 88 (Register of Members), Section 92 (Annual return), Section 117 (Resolutions and Agreements to be Filed), Section 134 (Financial Statement, Board's Report, etc.), Section 137 (Copy of Financial Statement to be filed with Registrar), Section 140 (Copy of financial statement to be filed with Registrar), Section 165 (Number of Directorships), etc. have been significantly reduced by the Companies Amendment Act, 2020 and

    Thirdly it removes imprisonment in certain offences like:
    1. buy-back of securities;
    2. financial statements and board's report;
    3. knowingly functioning as a director despite the seat being vacated due to disqualification
    4. constitution of audit committee, nomination and remuneration committee and stakeholders relationship committee; and
    5. disclosure of interest by director and participation in relation to matters in which he is interested.
       
  • Exclusion from listed Companies:
    The Act empowers the Centre in consultation with SEBI, can exclude listed companies from issuing specified classes of securities. This can incentivise private companies seeking listing of their debt securities. Under the section 2(52), in the definition of listed companies, a provison is included in which certain class of companies would not be considered as listed companies. Hence companies which list only debt securities (NCDs) may be excluded from the definition of listed company for the purposes of the Companies Act
     
  • Corporate Social Responsibility (CSR):
    Companies with CSR liability are exempted up to Rupees fifty lakh a year from setting up CSR Committees
     
  • National Company Law Appellate Tribunal:
    The Act establishes benches of NCLAT
     
  • Direct Listing in Foreign Jurisdiction:
    Under the provisions of section 23 of the Act, a sub-section 3, the Act empowers the central governent to allow certain public companies to list their securities in foreign Jurisdiction.
     
  • Producer companies:
    Under the 2013 Act, certain provisions use to apply to producer companies like their membership, conduct of meetings, and maintenance of accounts. The Act removed these provisions and added a new chapter in the Act with similar provisions on producer companies
     
  • Provision for non executive directors:
    Under Section 149, The Act empowers special provisions for the payment of remuneration to executive directors of a company (including managing director and other full time directors) if the company does not have adequate or zero profits in a year.
     
  • Beneficial Shareholding:
    Under the Act, if a person holds beneficial interest of at least 10% shares in a company or exercises significant influence or control over the company, he is required to make a declaration of his interest to the company. The company is required to note the declaration in a separate register. The Bill empowers the central government to exempt any class of persons from complying with these requirements if considered necessary in public interest
     
  • Exemption from filing resolutions:
    Under Section 117 the exemption for filing resolutions is stated. Resolutions of the Board of Directors of the company to borrow money or grant loans , are required to be filed under the Registrar of Companies. However banking companies, non banking financial companies and housing finance companies are exempted from filing resolutions.
     
  • Fundraising Timelines:
    The Act reduces rights issue offer period of less than fifteen days and there by allowing faster access to funds.
     
  • Periodical Financial Results:
    The power to prepare periodical financial results of certain unlisted companies has been given to the Central Government.
     
  • Section 16:
    The time frame to change the name of the company, if said so by the Central Governent, has been reduced from six to three months.
     
  • Section 23, Sub Section 4:
    Further, sub-section 4 has also been added which states that the Central Government may by notification exempt any class or classes of public companies from complying with the provisions of Chapter III (Prospectus and Allotment of Securities), Chapter IV (Share Capital and Debentures), section 89 (Declaration in respect of a beneficial interest in any share), section 90 (Register of significant beneficial owners in a company) or section 127 (Punishment for failure to distribute dividends) of the Act
     
  • Chapter XXIA for Producer Companies:
    A new Chapter XXIA has been added in the Act with regard to the Producer Companies from section 378A to Section 378ZU.
     
References:
  • Analysis of the Companies (Amendment) Act, 2020' ( Corporateprofessionals, 1st October, 2020) < www.corporateprofessionals.com/regulatoryupdate/analysis-of-the-companies-amendment-act-2020/#:~:text=Based%20on%20the%20recommendations%20of,not%20involve%20larger%20public%20interest.
  • Companies (Amendment) Act, 2020 Highlights of amendments' (taxguru, 29th September,2020) < taxguru.in/company-law/companies-amendment-act-2020-highlights-amendments.html
  • The Companies (Amendment) Bill, 2020' (prsindia.org) < prsindia.org/billtrack/companies-amendment-bill-2020>
  • Companies (Amendment) Act, 2020' (azbpartners, 8th October, 2020) < www.azbpartners.com/bank/companies-amendment-act-2020/
  • The Companies ( Amendment) Act, 2020 : Key Updates' (ahlawatassociates) < ahlawatassociates.com/blog/the-companies-amendment-act-2020-key-updates/
  • Rachit Garg,' A critical analysis of the Companies (Amendment) Bill, 2020' ( ipleaders, 22nd October, 2020) < blog.ipleaders.in/critical-analysis-companies-amendment-bill-2020/#Companies_Amendment_Bill_2020

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