Recent Amendments in Companies Act, 2013
In August 2018, the Ministry of Corporate Affairs proposed certain recommendations for the amendment of certain provisions of Companies Act, 2013. These recommendations formed the basis of the current amendments incorporated into the Companies Act, 2013 by the Ordinance of 2nd November, 2018.
Key Effects of the Amendments
By virtue of these amendments,
- The powers initially placed, exclusively, on the National Company Law Tribunal (NCLT) in respect of some matters have been reduced.
- Enforcement procedure for certain provisions of the Companies Act has been strengthened.
- New powers have been introduced and some existing powers/jurisdiction have been enlarged.
Key Amendments Made to the Companies Act, 2013
The Ordinance of 2nd November, 2018 has made over thirty amendments to the Companies Act, 2013. We shall proceed to consider some of the key amendments, and the new legal positions introduced by these amendments.
- Newly Incorporated Companies must comply with the Requirements for Commencement of Business.
In 2015, certain amendments were made under section 11 of the Companies Act. However, the amendments did not include a provision which restored the compliance requirement for commencement of business.
The Ordinance has now restored the compliance requirement for commencement of business. Thus, a newly incorporated company is expected to comply with the requirement below before it can effectively commence its business. According to the Ordinance:
- A newly incorporated company with a shared capital must comply with the following in order to successfully commence its business or exercise its powers:
- Within 180 days from the date of the company’s incorporation, the subscribers to the company’s memorandum must pay up the value of shares taken up by them.
- Within 180 days from the date of the company’s incorporation, the director of the company must file all necessary declarations.
- The registered office address must be verified as required under section 12(2) of the Companies Act, and the verification must be filed by the company.
These requirements have been incorporated into section 10A of the Companies Act, 2013.
- Disqualification of Directorship which does not Comply with Section 165(1)
Section 165(1) of the Companies Act, 2013, stipulates the time period within which a person can continue to be a company’s director.
For the purpose of improving a company’s corporate governance, the Ordinance has introduced a provision which requires that a person who has been a director of a company beyond the time limit permitted under section 165(1) cannot continue to hold the position of a director in such company. Such a disqualified director is not eligible for reappointment, and can be changed in compliance with the amendment in section 164(1) of the Companies Act.
- The Grace Period for Registration of Charges has been Abridged
Section 77 of the Companies Act, 2013 requires that where a company creates a charge, the charge should be registered with the Registrar of companies within 30 days of creating the charge. The charge must also be registered in the prescribed format.
Previously, if a company failed to register the charge within the said thirty-day period, the company still had an additional 300 days within which to make an application to the Registrar of charges to enable it register the charge.
Now, the Ordinance has amended section 77 of the Companies Act, and has abridged the 300 days grace period to a 60day period. Thus, where a company fails to register its charges within 30 days, the company has only 60 days period within which to make an application to the Registrar of charges to enable it register the charge. The company is also required to pay additional fees, for its default.
However, if the company is still unable to register the charge within the 60 days grace period, the Registrar can make a further 60-day extension to enable the company register its charges.
- Additional Grounds Incorporated for Removal of Company Name from Register of Companies
Section 248 of the Companies Act, 2013 prescribes the grounds under which the Registrar can take steps to remove the name of a company from the Register of Companies. By virtue of the new amendment, some additional grounds have been incorporated into the section.
Under these additional grounds, the Registrar can remove a company’s name where:
- After physical verification of the registered office of a company, it is clear to the Registrar that the company is not carrying out any sort of business or operation.
- Any subscriber to the memorandum has not paid the full value of the shares he or she subscribed to at the time of the incorporation, and the company has failed to make a declaration of this fact within 180 days from the time it was incorporated.
- Adjudicating Officer is Empowered to Impose Penalties
By virtue of the Ordinance, an adjudicating officer under section 454 of the Companies Act, 2013, is now empowered to impose penalties on a defaulting company. The adjudicating officer can also issue directions for its rectification.
- Increase of Pecuniary Jurisdiction of the Regional Director
The Ordinance has increased the pecuniary jurisdiction of the Regional Director. Previously the pecuniary jurisdiction of the Regional Director was limited to five lakh rupees. Now, the Regional Director is empowered to compound offences which can be punished with fine. He can compound the fine up to a sum of twenty-five lakh. Section 441(1)(b) has been amended to incorporate this new provision.
- Imposition of Penalty for certain defaults
Under the Companies Act, 2013, companies are expected to file their annual returns, company resolutions/agreements, and financial statements. The law frowned at the failure to comply with these requirements, and imposed certain punishments under the following sections:
- Section 92(2) which makes provisions on failure to file annual returns
- Section 117(2), which makes provisions on failure to file prescribed resolutions/agreement
- Section 137(3), which makes provisions on failure to file financial statements.
Before the Ordinance came into effect, these sections provided that where a company failed to file its annual returns, company resolutions/agreements or financial statements, levies and fines should be imposed, or officers of the company should be imprisoned, as punishment for the default.
Now, the Ordinance has scraped out these punishments. Rather it stipulates that instead of a levy or any kind of fine, or imprisonment, penalties should be imposed on the defaulting company.
- Double Penalty is now Imposed for Second Defaults
Where a company or any of its officer defaults in complying with any requirements under the Companies Act, and within three years of such default, a second defaults is made, a penalty shall be imposed for such second default. The nature of the penalty is as follows:
- An order imposing an amount which is double the amount which the Companies Act originally stipulates as a penalty for such default.
This new provision is incorporated in section 454A of the Companies Act.
- Power of Central Government to Approve Alterations in a Company’s Financial Year
Previously, the National Company Law Tribunal (NCLT) was the only authority empowered to approve any kind of alterations in a company’s financial year.
Now, by virtue of the amendments made by the Ordinance, the Central Government has been vested with the power to approve any kind of alteration in a company’s financial year. This approval is done when a company has filed its application in the prescribed form as stipulated under the Companies Act. Section 2(41) has been amended to incorporate this new provision
- Power of Central Government to Approve Alterations in the Conversion of a Public Company to a Private Company
Previously, the NCLT was the only authority empowered to grant approval to a Public Company which intended to convert to a Private Company.
Now, by virtue of the amendments made by the Ordinance, the Central Government is empowered to make such approval; and as such, the Central Government can make any alteration in association with a Public Company’s conversion into a Private Company. Section 14(1) of the Companies Act has been amended to incorporate this new position.