Companies (Amendment) Bill, 2020

Companies (Amendment) Bill, 2020 was introduced in Lok Sabha on 17-3-2020. The Bill was passed and converted into Act by Parliament on 28-9- 2020.

Various provisions of the Amendment Act were have been made effective from time to time on 21-12-2020, 22-1-2021, 11-2-2021, 18-3-2021, 24-3-2021, 1-9-2021 and 1-7-2022. Amendment proposed to section 23 of Companies Act has not yet been notified. All other provisions of the Amendment Act have been notified and made effective.

As per Statement of Objects and Reasons attached to Bill, the purpose of amendments is to facilitate greater ease of living to law abiding corporates.

The highlights of Amendment Act are as follows —

About:

• 1. Many offences have been de-criminalised i.e. instead of imprisonment and/or fine, penalty will be imposed under departmental adjudication proceedings. These provisions have been notified and made effective.
  2. Central Government can exclude certain class of companies from the definition of listed company (mainly for removing companies which are listed only for debt securities) [section 2(52)]. The provision is notified and effective from 22-1-2021.
  3. Provision has been made to enable public companies to list their securities in foreign jurisdiction [section 23]. This provision is not yet notified and not made effective till June, 2022.
  4. Reduction in time line for rights issue to even less than 15 days [section 62]. The provision is notified and effective from 22-1-2021.
  5. Relaxations in provisions relating to beneficial interest and significant beneficial interest [section 89]. The provision is partially notified and effective from 22-1-2021.
  6. Exemption to NBFC and Housing Finance Cos. from filing resolutions relating to loans and guarantees [section 117]. The provision is notified and effective from 22-1-2021.
  7. Certain specified unlisted companies to file periodical financial results, limited review by Auditors (just like listed companies) [section 129A]. The provision is notified and effective from 22-1-2021.
  8. Relaxations in CSR provisions – carry forward and set off permitted, punishment converted into penalty [section 135]. The provision is notified and effective from 22-1-2021.
  9. Provision for remuneration to Independent and non-executive Director in case of inadequacy of profits [sections 149(9) and 197(3)]. These provisions are notified and made effective on 18-3-2021.
  10. Insertion of provisions relating to producer company in the 2013 Act itself [sections 378A to 378ZU]. This provision is notified and made effective on 11-2-2021.
  11. Provision for Exemption to any class of foreign companies from provisions of Chapter XXII by notification [section 393A]. The provision is notified and effective from 22-1-2021.
  12. Provision for higher additional fee for repeated default [third proviso to section 403(1)]. This provision is notified and made effective w.e.f. 1-7-2022.
  13. Removal of restriction on number of Judicial and Technical members that can be appointed in NCLAT [section 410]. The provision is notified and effective from 22-1-2021.
  14. Lesser penalty for small company, producer company, OPC and producer company [section 446B]. The provision is notified and effective from 22-1-2021.
  15. No penalty if annual return or financial statement filed within 30 days from notice of Adjudicating Officer [section 454(3)(b)]. The provision is notified and effective from 22-1-2021.

The provisions are discussed in detail below.

2. Decriminalization of offences

The Amendment Act decriminalizes certain offences under the Companies 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

(a) Re-categorizing of 23 offences out of 66 compoundable offences to an in-house adjudication framework where penalty will be levied by an adjudication officer

(b) Omitting 7 compoundable offences [Thus, only residual penalty can be imposed]

(c) Limiting 11 compoundable offences to fine only (by removing imprisonment part)

(d) Recommending 5 offences to be dealt with in an alternative framework.

Thus, now, in such cases, instead of imprisonment and/or fine, penalty will be imposed under departmental adjudication proceedings.

The details are given in the table at end of this write-up.

These provisions have been notified and made effective.

3. Power to exclude certain companies from definition of Listed Company

A Proviso is inserted to section 2(52) of Companies Act, 2013, to empower Central Government to exclude certain class of companies from the definition of listed company (mainly for removing companies which are listed only for debt securities).

The provision is notified and effective from 22-1-2021.

As per rule 2A of the Companies (Specification of Definitions Details) Rules, 2014, following will not be considered as ‘listed company’ w.e.f. 1-4-2021

(a) Public companies which have not listed their equity shares on a recognized stock exchange but have listed their –

(i) non-convertible debt securities issued on private placement basis in terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008; or

(ii) non-convertible redeemable preference shares issued on private placement basis in terms of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013; or

(iii) both categories of (i) and (ii) above.

(b) Private companies which have listed their non-convertible debt securities on private placement basis on a recognized stock exchange in terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008.

(c) Public companies which have not listed their equity shares on a recognized stock exchange but whose equity shares are listed on a stock exchange in a jurisdiction as specified in section 23(3) of the Companies Act, 2013.

4. Rectification of Name of Company if name identical to trade mark

If a company has been registered inadvertently with a registered trade mark of a proprietor, and the name is too identical or resembles an existing trade mark, such company shall have to change its name within a period of 3 months from the issue of direction by Central Government. [Earlier the time limit allowed for changing name was 6 months] – section 16(1)(b) of the Companies Act, 2013 amended w.e.f. 1-9-2021.

If company does not comply with the directions, the Central Government shall allot a new name to the company in such manner as may be prescribed and the Registrar shall enter the new name in the register of companies in place of the old name and issue a fresh certificate of incorporation with the new name, which the company shall use thereafter. However, subsequently company can change its name in accordance with the provisions of section 13 – section 16(3) of Companies Act, 2013 as substituted w.e.f. 1-9-2021.

If name is not changed as per order, ROC will change name as follows –

ORDNC, YYYY, XXXX, UXXXXXXXXXXXXXXX00

[ORDNC – Order of Regional Director Not Complied, YYYY – Year of passing of direction, XXXX – Serial Number, UXXXXXXXXXXXXXXX00 – Existing Corporate Identity Number].

Registrar shall issue fresh CIN in form INC-11C – Rule 33A of Companies (Incorporation) Rules inserted w.e.f. 1-9-2021.

5. Exemption from certain provisions for issue of securities of public company for listing in foreign jurisdictions

Provision has been made to enable public companies to list their securities in foreign jurisdiction. Such public companies may be exempted from certain provisions of Companies Act, 2013.

Such class of public companies may issue such class of securities for the purposes of listing on permitted stock exchanges in permissible foreign jurisdictions or such other jurisdictions, as may be prescribed – section 23(3) of Companies Act, 2013 as inserted from date to be notified.

The Central Government may, by notification, exempt any class or classes of public companies referred to in section 23(3) from any of the provisions of Chapter III, Chapter IV, section 89, section 90 or section 127. A copy of every such notification shall, as soon as may be after it is issued, be laid before both Houses of Parliament. [section 23(4) of the Companies Act, 2013 inserted from date to be notified].

This provision is not yet notified and not made effective till June, 2022.

6. Reduction in time line for rights issue to even less than 15 days

As per section 62 of Companies Act, 2013, the time period for providing offer letter to the existing shareholders under rights issue process is between 15 days to 30 days, beyond which the offer is deemed to be declined. This minimum time limit of 15 days can be reduced to lesser days, as may be prescribed – amendment to section 62(1)(a)(c) of Companies Act, 2013. The provision is notified and effective from 22-1-2021.

7. Exemption from provisions relating to declaration of beneficial interest in any share

Section 89(11) of Companies Act, 2013 has been inserted to enable Central Government to exempt certain persons from provisions relating to declaration of beneficial interest.

The Central Government may by notification, exempt any class or classes of persons from complying with any of the requirements of section 89, except section 89(10), if it is considered necessary to grant such exemption in the public interest and any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notification – section 89(11) inserted from 22-1-2021.

Section 90 of Companies Act, 2013 has been amended to convert fines into penalties in respect of offences under section 89 of Companies Act, 2013.

8. Exemption to NBFC and Housing Finance Cos. from filing resolutions relating to loans and guarantees

Certain classes of registered Non-banking financial companies and Housing Finance Companies (as notified in consultation with NHB) have been exempted from filing form MGT-14 for filing resolutions and agreements with the Registrar of Companies under Section 117 of the Companies Act, 2013 relating to loans and guarantees. Earlier, only Banking companies were exempted from filing resolutions with RoC.

The provision is notified and effective from 22-1-2021.

Resolutions passed by Board under section 179(3) of Companies Act, 2013 are required to be filed with ROC. However, Banking company, NBFC and housing finance companies (as prescribed in consultation with NHB) are not required to file with ROC, the Board resolution passed under section 179(3)(f) to grant loans, provide security or give guarantee in ordinary course of business – second proviso to section 117(3)(g) of Companies Act, 2013 as amended vide Companies (Amendment) Act, 2020 w.e.f. 22-1-2021.

[section 179(3) of Companies Act, 2013 specifies certain powers which can be exercised by Board only at the Board meeting and not by circular resolution].

9. Certain specified unlisted companies to file periodical financial results, limited review by Auditors, just like listed companies

Section 129A has been inserted to provide that certain specified unlisted companies will file periodical financial results, limited review by Auditors etc. At present, such statements are required on quarterly basis, in case of all listed companies under SEBI Regulations.

The Central Government may, require such class or classes of unlisted companies, as may be prescribed –

(a) to prepare the financial results of the company on such periodical basis and in such form as may be prescribed

(b) to obtain approval of the Board of Directors and complete audit or limited review of such periodical financial results in such manner as may be prescribed; and

(c) file a copy with the Registrar within a period of thirty days of completion of the relevant period with such fees as may be prescribed – section 129A inserted w.e.f. 22-1-2021.

10. Relaxing the CSR provisions

The relaxations in respect of Corporate Social Responsibility are as follows –

(a) Companies, which have spent CSR amount in excess of the requirement provided under section 135 of the Companies Act, 2013 can set off such excess amount out of their obligation in the succeeding financial years in such manner as may be provided by rules.

(b) CSR committee need not be constituted, in case the amount required to be spent under CSR does not exceed Rs. 50 lakh rupees. In such cases, the proposals for CSR expenditure can be sanctioned by Board of Directors

(c) If a company is making a default in complying with the CSR provisions under section 135(5) or 135(6), such company shall be liable to penalty of twice the amount required to be transferred by the company to the Unspent CSR account or Rs. 1 crore, whichever is less. In addition to that, every officer shall also liable to pay a penalty of 1/10th of the amount required to be transferred in Unspent CSR Account or Rs. 2 lacs, whichever is less.

The relevant statutory provisions are as follows —

10.1 Set off of excess amount in subsequent years

If the company spends an amount in excess of the requirements provided under section 135(5), such company may set off such excess amount against the requirement to spend under section 135(5) for such number of succeeding financial years and in such manner, as may be prescribed – third proviso to section 135(5) inserted vide Companies (Amendment) Act, 2020 w.e.f. 22-1-2021.

10.2 Penalty for default in compliance with provisions relating to CSR

If a company is in default in complying with the provisions of section 135(5) or section 135(6), the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crore rupees, whichever is less, and every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount 25 required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or two lakh rupees, whichever is less – section 135(7) inserted vide Companies (Amendment) Act, 2020 w.e.f. 22-1-2021.

10.3 Constitution of CSR Committee not required if amount to be spent less than Rs 50 lakhs per annum

Where the amount to be spent by a company under section 135(5) does not exceed fifty lakh rupees, the requirement under section 135(1) for constitution of the Corporate Social Responsibility Committee shall not be applicable and the functions of such Committee provided under section 135 shall, in such cases, be discharged by the Board of Directors of such company – section 135(9) inserted vide Companies (Amendment) Act, 2020 from 22-1-2021.

11. Remuneration to Independent and non-executive Director in case of inadequacy of profits

The provision for remuneration to non-executive director, including an independent director has been made, if a company fails to make profits or makes inadequate profits in a financial year – insertion of proviso to section 149(9) and amendment to 197(3) of Companies Act, 2013 w.e.f. 18-3-2021.

If a company has no profits or its profits are inadequate, an independent director may receive remuneration, exclusive of any fees payable under section 197(5), in accordance with the provisions of Schedule V of Companies Act, 2013 – proviso to section 149(9) inserted w.e.f. 18-3-2021.

Notwithstanding anything contained in section 197(1) and 197(2), but subject to the provisions of Schedule V of Companies Act, 2013, if, in any financial year, a company has no profits or its profits are inadequate, the company shall not pay to its directors, including any managing or whole-time director or manager, or any other non-executive director, including an independent director by way of remuneration any sum exclusive of any fees payable to directors under section 197(5) hereunder except in accordance with the provisions of Schedule V – section 197(3) of Companies Act, 2013 as amended. The words in italics inserted vide Companies (Amendment) Act, 2020 w.e.f. 18-3-2021.

Subsequently, provision has been made in Schedule for payment of such remuneration.

12. Monetary penalty for contravention of provisions in respect of related party transaction

Provision of related party transactions have been amended to replace the punishment for imprisonment or fine with monetary penalty. The penalty can be up to Rs. 25 lakh to listed company and Rs. 5 lakh to officer in default – section 188(5) of Companies Act, 2013 amended w.e.f. 21-12-2020.

13. NCLT can direct person to assist Company Liquidator

NCLT can direct person to assist Company Liquidator, if he does not do so voluntarily – section 284(3) of Companies Act, 2013 inserted w.e.f. 21-12-2020.

In winding up proceedings, the promoters, directors, officers and employees, who are or have been in employment of the company or acting or associated with the company shall extend full co-operation to the Company Liquidator in discharge of his functions and duties – section 284(1) of Companies Act inserted w.e.f. 21-12-2020.

If any person required to assist or cooperate with the Company Liquidator under section 284(1) does not assist or cooperate, the Company Liquidator may make an application to the Tribunal for necessary directions – section 284(2) of Companies Act, 2013, as substituted with effect from 21-12-2020.

On receiving an application under section 284(2), the Tribunal shall, by an order, direct the person required to assist or cooperate with the Company Liquidator to comply with the instructions of the Company Liquidator and to co-operate with him in discharging his functions and duties – section 284(3) of Companies Act, 2013, as inserted with effect from  21-12-2020.

14. NCLT and Company Liquidator shall forward copy of order of dissolution to ROC

NCLT shall forward copy of order of dissolution to ROC and also order Official Liquidator to do so. ROC will record the same. NCLT shall, within a period of thirty days from the date of the order of dissolution —

(a) forward a copy of the order to the Registrar who shall record in the register relating to the company a minute of the dissolution of the company and

(b) direct the Company Liquidator to forward a copy of the order to the Registrar who shall record in the register relating to the company a minute of the dissolution of the company – section 302(3) of Companies Act, 2013 substituted w.e.f. 21-12-2020.

Section 302(4) has been omitted w.e.f. 21-12-2020.

15. NCLT shall forward copy of order declaring dissolution of company void to ROC

NCLT shall forward copy of order declaring dissolution of company void to ROC and also direct Company Liquidator to do so. ROC will record the same – section 356(2) of Companies Act, 2013 substituted w.e.f. 21-12-2020.

The Tribunal (NCLT) shall—

(a) forward a copy of the order, within thirty days from the date thereof, to the Registrar who shall record the same; and

(b) direct the Company Liquidator or the person on whose application the order was made, to file a certified copy of the order, within thirty days from the date thereof or such further period as allowed by the Tribunal, with the Registrar who shall record the same – section 356(2) as substituted w.e.f. 21-12-2020.

This sub-section had a provision of fine for non-compliance by Company Liquidator. This proviso has been omitted w.e.f. 21-12-2020.

16. Insertion of provisions relating to ‘Producer Company’ in the 2013 Act

At present, provisions relating to ‘Producer Company’ continue to be in Companies Act, 1956. These provisions have been brought in Companies Act, 2013 itself. Chapter XXIA [containing sections 378A to 378ZU] has been inserted in Companies Act, 2013.

Corresponding provisions in the 1956 Act have been deleted w.e.f. 11-2-2021 – first proviso to section 465(1) of Companies Act, 2013 omitted w.e.f. 11-2-2021.

17. Exemption to any class of foreign companies from provisions of Chapter XXII by notification

Central Government can grant exemption to any class of foreign companies from provisions of Chapter XXII [sections 379 to 393] by issuing notification – section 393A inserted from 22-1-2021.

The Central Government may, by notification, exempt any class of—

(a) foreign companies

(b) companies incorporated or to be incorporated outside India

Whether the company has or has not established, or when formed may or may not establish, a place of business in India, as may be specified in the notification, from any of the provisions of Chapter XXII [sections 379 to 393] and a copy of every such notification shall, as soon as may be after it is made, be laid before both Houses of Parliament – section 393A.

The provision is notified and effective from 22-1-2021.

18. Higher additional fee for repeated default

Various documents have to be filed with ROC within time prescribed in various sections. If filing is delayed, additional fee is payable as provided in first, second and third provisos to section 403(1) of Companies Act, 2013.

If late fee is not paid, the document will not be deemed to have been filed.

If document under section 92 (Annual Return) or 137 (financial statement) is not filed with Registrar in time, minimum additional fees of Rs. 100 per day are payable. Different amounts may be prescribed for different classes of companies. This additional fee is without prejudice to any other legal action or liability under Companies Act. – first proviso to section 403(1) as substituted w.e.f. 7-5-2018.

This additional fee applies to forms MGT-7, AoC-4, AoC-4 XBRL and AoC-4 CFS under Companies Act, 2013.

In case of other document (i.e. other than Annual Return and Financial Statement), fact or information, it can be submitted, filed, registered or recorded beyond the period provided in that section, with such additional fees as may be prescribed. Different amounts may be prescribed for different classes of companies.