OVERVIEW OF COMPANIES AMENDMENT ACT 2019

[KANIKA LOHIYA]

The Minister of Finance, Ms Nirmala Sitharaman, introduced Companies (Amendment) Bill, 2019 in Lok Sabha on 25^th July, 2019. It was passed on 26^th July, 2019 in Lok Sabha and on 30^th July, 2019 in Rajya Sabha. The motive behind introduction of new bill is to triggered the corporate government norms and its management.  Certain compliances, offences, penalty provisions were tightened to promote better corporate compliances. More powers were given to Registrar of Companies (ROC) to be strict against the companies who are not complying with the law.  A brief list of some of the provisions of the Companies Act,2013 which are focused in the bill for amendment are as follows: -

1. Corporate Social Responsibility (CSR)
2. Issue of shares in dematerialized form
3. Investigation into affairs of the company by Serious Fraud investigation Office (SFIO)
4. Constitution of National Financial Reporting Authority (NFRA)
5. Significant Beneficial Owner (SBO)
6. Commencement of Business
7. Registration of Charge
8. Others

These above stated provisions are described in brief: -

1. Corporate Social Responsibility (CSR) -Section 135 of the Companies Act, 2013 referred to Corporate Social Responsibility. Accordingly, every company having net worth of ₹ 500 crore or more, or  turnover of ₹ 1000 crore or more, or net profit of ₹ 5 crore or more during any financial year shall constitute CSR Committee of the Board who will look after the compliance of the Corporate Social Responsibility Policy. Such companies are required to spend in every financial year, at least 2% of the average net profits of the company made during 3 immediately preceding financial years, in pursuance of its Corporate Social Responsibility. In case the company does not spend the full amount, the reasons for such unspent amount have to be disclosed in their annual report. Such unspent amount has to be transferred to one of the funds specified under Schedule VII of the Act within a period of 6 months of the expiry of financial year. If the unspent amount is related to the ongoing project, subject to the fulfillment of the prescribed conditions, such unspent amount  have to be transferred to a special account which will be opened by the company in any scheduled bank, within 30 days of the expiry of financial year.  Such account will be named as Unspent Corporate Social Responsibility Account. The transferred amount shall be spent in pursuance of the corporate social responsibility policy within a period of 3 financial years from the date of such transfer. Penalty provisions are prescribed for such violation.

2. Issue of shares in dematerialized form- As per the amendment, now certain class of companies is required to issue securities in dematerialized form only. The word ‘Public’ shall be omitted from the Section 29(1)(b).

3. Investigation into affairs of the company by Serious Fraud investigation Office (SFIO) -The Central Government may order or assign the Serious Fraud Investigation Office to investigate the affairs of the company, where it is necessary on the basis of report of Registrar or Inspector or in the public interest or passing of any resolution or on the request from any government department. As per the amendment, if any person not below the rank of Assistant Director, shall be authorized to arrest the guilty person in according with the prescribed provisions. Every such arrested person shall be taken to the “Special Court or Judicial Magistrate” within 24 hours. Where the report states that fraud has taken place in a company and due to such fraud any director, KMP, other officer of the company or any other person or entity, has taken undue advantage or benefit, in any form, the Central Government may file an application before the Tribunal for appropriate orders with regard to disgorgement of such benefit and also for holding person liable personally without any limitation of liability.  

4. Constitution of National Financial Reporting Authority (NFRA) -The Central Government may constitute National Financial Reporting Authority to look after the matter related to accounting and auditing standards. Such authority shall perform functions through the divisions and such divisions shall be presided over by the Chairperson or any other person appointed by the Chairperson. Besides this the executive body shall be consists of the Chairperson and full time members. If any professional or other misconduct proven, then such member or firm shall be debarred from being appointed as an auditor or internal auditor, etc. or on performing any valuation under section 247, for a period of 6 months or higher, upto 10 years.

5. Significant Beneficial Owner(SBO) - An individual who holds beneficial interests of not less than 25% of the shares of the company or has significant influence or control over the company, is referred as Significant Beneficial Owner. According to the bill, every company is required to identify the SBO and complete the compliances. The Central Government has power to make rules in this context. Any person or company aggrieved by the order of the Tribunal, may make an application to the Tribunal for relaxation or lifting of the restriction within a period of 1 year.

6. Commencement of Business - Now the companies can commence their business after filing a declaration in the prescribed from and manner within a period of 180 days. The declaration shall also confirm that the subscribers have paid the value of shares agreed to be taken by them. Besides this, a verification of the registered office of the company is required to be filed. Default in complying shall attract penalty provisions.

7. Registration of charge - According to the bill, the registration of the charge is required to be done within a period of 60 days on payment of additional fees. If the registration not done within the period specified than an application will be send to the Registrar within a further period of 60 days after payment of the prescribed ad valorem fees.

8. Others - Besides the above stated, certain amendments are briefly stated below: -

• The punishment of certain offences is re-categorized, fine or imprisonment or both are being modified.
• The matters stated in the prospectus shall be filed with the Registrar.
• Application in case of oppression shall be made before the Principal Bench of Nation Company Law Tribunal (NCLT). Where the Central Government thinks whether a person is liable for misconduct, it may request and refer the same to the Tribunal to inquire into the case and record a decision.
• Certain provisions relating to the filing of application, inspection, documents etc in electronic form are also there.

The write up stated only few of the amendments of the bill. Such amendments shall increase the accountability and strictness in the workings of the companies. In the opinion of the author, these amendments in the provisions and re categorization in the offences shall streamline the management and administration of the companies.

Regards,

CS KANIKA LOHIYA

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It is now

COMPANIES (AMENDMENT) ACT, 2019