KEY TAKE AWAY – COMPANIES AMENDMENT (Ordinance),2018

KEY TAKE AWAY – COMPANIES AMENDMENT (Ordinance),2018  

SHORT SUMMARY:

In this Flash editorial, the author begins by referring the Key Take Away Companies Amendment (Ordinance), 2018.

The ordinance amend Companies Act, 2013 was passed by Ministry of Law and Justice on 2^nd November, 2018. The Companies (Amendment) Ordinance, 2018 suggests 32 amendments to the Companies Act, 2013.

The Ordinance has been promulgated based on the Report of Committee Constituted to Review Offences and suggested Corporate Governance Reforms. 

This is article no. 396 of the series of editorials written by the author on corporate laws {Including Companies Act, 2013, SEBI, RBI Regulations, IBC, LLP Act, 2008 etc.}.

Background:

The major amendments proposed in the Companies Amendment Ordinance 2018 Increase in power of Registrar of Companies and Regional Director. As at many places the word Tribunal has been replaced by Central Government, Compounding Threshold for going to NCLT to be revised, again introduction of Certificate of Commencement of Business, Stricter norms for Independent Directors, alteration in relation to time period for charge registration and satisfaction and new ground for strike off of Company has been given to ROC.

Author is not going to discuss the penalties under this article. Same shall be discussed in next series of Article.

We hope you will find the same useful.

Still ordinance is not Commenced. As per ordinance “It shall come into force at once”.

A.     Definition:

Substitution of First Proviso of Section 2 Clause 41: “Financial Year”

As per Companies Act, in case of Indian company having Holding/ subsidiary/ Associate Company situated outside india, it is allowed the change the financial year as per such company with the approval of Tribunal.

[1]By ordinance, 2018: Power of Tribunal has been transferred to Central Government. Therefore, after notification of ordinance financial year of Company can be changed with approval of Central Government.

B.  Certificate of commencement of Business:

New Section 10A inserted after Section 10:

As per 10A, a company incorporated after ordinance shall not commence its business or exercise any borrowing powers unless-

      ·         A declaration is filed by the directors within 180 days from date of incorporation of company with Roc that ‘every subscriber to the MOA has paid the value of the shares agreed to be taken by him”

       ·         A verification of registered office as required to file u/s 12(2) within 30 days of incorporation.

Note:

If company fails to file such declaration within 180 days from the date of incorporation then Roc has reasonable cause to believe that the Company is not carrying on any business or operation, ROC may, initiate action for removal of name of Company (Strike off)

C. Maintenance of Registered office of Company:

Addition of subsection (9) after Section 12 subsection 8:

As per Section 12(1) A company shall, within thirty days of its incorporation and at all times thereafter, have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it.

By ordinance, 2018: i Registrar may do physical verification of the Registered office of Company and if any default is found to be made in complying with provision of Section 12(1)  (extract mentioned above). ROC may, initiate action for removal of name of Company (Strike off)

D.  Conversion of Public Company into Private Limited Company:

Substitution of Provisos of Section 14 Sub section 1:

As per Section 14(1)- for conversion of Public Company into Private Limited Company approval of Tribunal is required.

[2]By ordinance, 2018: Power of Tribunal has been transferred to Central Government. Therefore, after notification of ordinance Public Company can be convert into Private Company with approval of Central Government.

E.  Issue of Shares at discount:

Substitution of Sub Section 3 of Section 53:

Alteration in relation to penalty. Therefore, this shall be discussed separately in upcoming editorial.

F.  Duty to Register Charge:

Substitution of first and Second Provisos of Section 77 Sub section 1:

As per Section 77(1) Company can file form for registration of Charge after 30 days till 300 days with additional fees and if company fails to file within 300 days can file form as per Section 87 condonation from Regional Director.

By ordinance, 2018: In case of charge created after the commencement of ordinance, 2018 then registrar shall allow such registration “within period of 60 days of such creation”.

If Company fails to file with in 60 days of creation, “Roc may allow such registration to be made within a further period of 60 days after payment of such advalorem fees as may be prescribed”

Therefore, period of 300 days has been removed by the ordinance.

Note: Maximum time period for registration/modification of charges to be 30 days + additional 30 days.  Further condonation to be done in 60 days. *After total of 120 days Charge Cannot be Registered.*

G.  Condonation of delay In charge – Section 87:

Section 87 substituted by new Section:

This section now applicable only for “Satisfaction of Charge”. Power of Creation of Charge u/s 87 has been removed.  

      

      H. Significant Beneficial Owner– Section 90:

Substitution of Sub Section 9 of Section 90:

As per Act “The company or the person aggrieved by the order of the Tribunal may make an application to the Tribunal for relaxation or lifting of the restrictions placed under sub-section (8).

By ordinance, 2018: The company or the person aggrieved by the order of the Tribunal may make an application to the Tribunal for relaxation or lifting of the restrictions placed under sub-section (8) “within period of one year from the date of such order”

Provided that, No application filed within period of one Year ‘Shares shall be transferred to the authority constituted u/s 125(5).

I.    Annual Return– Section 92:

Substitution of Sub Section 5 of Section 92: “Reduction in Penalty”

By ordinance, 2018: If any company fails to file Annual Return u/s 4 before expiry of 60 days, such company and its officer who is in default shall be liable to a penalty of “50,000/-“ and in case of continuing failure, with further penalty of “Rs. 100” for each day during which such failure continues.

J.   Disqualification of Director– Section 164:

Addition of clause (h) in Section 164(1)

As per Section 165, No person, after the commencement of this Act, shall hold office as a director, including any alternate directorship, in more than twenty companies at the same time.

By ordinance, 2018: If default made in Section 165, then director shall be considered as disqualified under Section 164. “Breach in Maximum no of Directorships to be a Ground for Disqualification.  

    K. Managerial Remuneration– Section 197:

Subsection 7 Shall be omitted:

(7) Notwithstanding anything contained in any other provision of this Act but subject to the provisions of this section, an independent director shall not be entitled to any stock option and may receive remuneration by way of fees provided under sub-section (5), reimbursement of expenses for participation in the Board and other meetings and profit related commission as may be approved by the members.

By ordinance, 2018:  “Stricter norms for IDs & capping of their sitting fee & remuneration.”  

     

     L.  Compounding of Offence– Section  441:

As per Act, (b) where the maximum amount of fine which may be imposed for such offence does not exceed five lakh rupees, by the Regional Director or any officer authorised by the Central Government, (Power of RD to compound offence punishable upto Rs. 500,000/-)

By ordinance, 2018:  where the maximum amount of fine which may be imposed for such offence does not exceed Twenty five lakh rupees, by the Regional Director or any officer authorised by the Central Government, (Power of RD to compound offence punishable increased upto Rs. 2,500,000/-)

Note: Prior permission of Special Court not required for Compounding of offences punishable with imprisonment or fine or with both by NCLT

(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com). Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION

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[1] All the matters filed with NCLT before date of commencement of the Ordinance, 2018 shall be disposed off by the Tribunal in according with earlier provisions.

[2] All the matters filed with NCLT before date of commencement of the Ordinance, 2018 shall be disposed off by the Tribunal in according with earlier provisions.