COMPANIES (AMENDMENT) ACT, 2019

COMPANIES (AMENDMENT) ACT, 2019 –
The Companies (Amendment) Ordinance, 2018 (‘2018 Ordinance’), issued on November 2, 2018 brought about significant changes to certain provisions of the Companies Act, 2013 (‘Act’).

The 2018 Ordinance was passed by the Lok Sabha, though could not be taken up by the Rajya Sabha and which was due to expire on January 21, 2019.

In order to give continuity to the amendments introduced by the 2018 Ordinance, it was re-promulgated on January 12, 2019 by another Ordinance i.e. the Companies (Amendment) Ordinance, 2019 (‘Ordinance’) on January 12, 2019 with its provisions effective from November 2, 2018.

Again, since Companies (Amendment) Ordinance, 2019 was to cease to operate on 13 March, 2019, to give effect to the Ordinance 2018 and 2019, the Companies (Amendment) Bill, 2019 was introduced and passed on 26th July, 2019 in Lok Sabha and on 31st July by Rajya Sabha.

The Companies (Amendment) Act, 2019 received the assent of the President on 1st August and was also notified. Most of the provisions of the Companies (Amendment) Act, 2019 shall be deemed to have come into force from 2 November, 2018.

Following is the summary of the key-changes introduced by the Companies (Amendment) Act, 2019.

1. Section 2 – Definition of ‘financial year’
The authority to make application for adopting a different year as ‘financial year’ has been shifted from ‘Tribunal’ to ‘Central Government’.

2. Section 10A – Re-introduction of Commencement of Business Declaration
The Ordinance has introduced section 10A in the Act which mandates that every company incorporated after commencement of the Ordinance shall not commence business or exercise any borrowing powers unless it satisfies the following two conditions:

(i) A declaration is filed by a director within a period of 180 days of the date of incorporation of the company with the Registrar in the prescribed form, stating that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of making such declaration; and

(ii) A declaration is filed by the Company with the Registrar furnishing verification of its registered office within a period of 30 days from its incorporation.

In case no declaration is filed within 180 days of incorporation and the Registrar has reasonable cause to believe that the Company is not conducting any business or operations, the Registrar may initiate the removal of the Company’s name from the register of companies.

3. Section 12 – Physical Verification of the Registered Office
Section 12(9) has been introduced through the Ordinance.

As per the same, if the Registrar has reasonable cause to believe that the Company is not carrying on any business or operations, he may cause a physical verification of the registered office of the Company in the prescribed manner.

If any default is found to be made on such verification, the Registrar may initiate action for removal of the Company’s name from the register of companies.

4. Approval for Conversion of Public Company into a Private Company
The Ordinance provides that any alteration of articles of association having the effect of conversion of a public company into a private company will not be valid unless it is approved by an order of the Central Government on an application made in a prescribed manner.

Earlier, National Company Law Tribunal (‘NCLT’) was responsible for granting this approval.

5. Section 53 – Prohibition on issue of shares at discount
Where a company contravenes the provisions of section 53, sub-section (3), as amended by the Ordinance lays down that the company and every officer-in- default shall pay a penalty which may extend to an amount raised through issue of shares at discount or Rs. 5 lakhs,

whichever is less and the company shall also be liable to refund the amount with interest at the rate of 12% p.a. from the date of issue of shares to the respective persons to whom the shares were issued.

6. Section 64 – Notice to be given to Registrar for alteration of share capital

Existing law provided for fine on the company and officer-in-default whereas the Ordinance lays down for penalty on the Company and every officer-in-default with Rs. 1000 for each day during default or Rs. 5 lakhs, whichever is less.

7. Section 77 – Registration of Charges

Section 77 of the Act which talks about registration of charges has been amended through the Ordinance. As per such amendment, in case of charges created by the Company before November 2, 2018, the Registrar may, on application by the company, allow registration of the charge, within a period of 300 days of such charge creation.

If the registration is not made within 300 days, the registration of the charge can be made within six months from the date of commencement of the Ordinance.

In case of charges created after November 2, 2018 the Registrar may on application by the Company allow registration of the charge within 60 days of such charge creation. If the charge is not registered within the aforesaid period, the registration shall be made within an additional period of 60 days after payment of the prescribed ad valorem fees.

8. Section 164 – Disqualification for Appointment of a Director

A new provision for disqualification of a person for appointment as a director has been introduced as per which if a person holds more than the total number of directorships allowed as per the Act, then he will be disqualified for being appointed as director of the Company. The Act allows a person to hold not more than 20 directorships, out of which directorship in public companies cannot exceed 10.

9. Section 441 – Power of Regional Director to Compound Offences
Offences (excluding offences punishable with imprisonment or with imprisonment and fine), carrying maximum amount of fine not exceeding Rs. 25 Lacs will now be compounded by the Regional Director or any authorized officer of the Central Government. The earlier limit was up to Rs. 5 Lacs only, and any matter beyond such limit had to be compounded by the NCLT.

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