The Companies (Amendment) Bill, 2020 (“the Bill”) was passed by the Lok Sabha on 19th , September and by the Rajya Sabha on 22nd September 2020, as an amendment to the Companies Act, 2013 (“the Act”). The President of India has since assented to the Bill on 28th September, 2020, and as of that date the Companies (Amendment) Act, 2020 (“Amendment Act”) has come into effect. The Amendment Act has been introduced with the goal of promoting ease of doing business in India. With this in mind, the Amendment Act has amended various provisions related to the penalties for violation, definition of listed company and corporate social responsibility activities, among others. The Bill was drafted largely based on the recommendations of the Company Law Committee, a committee comprising of various experts in the field of company law. In this update, the highlights of the Amendment Act will be discussed.
Change in Penalties
Perhaps the most salient feature of the Amendment Act is the overhaul of the penalties for various offences under the Act. In certain instances, the penalty of imprisonment has been replaced with a monetary penalty, and in certain other instances the quantum of the monetary penalty has been reduced. Certain offences have also been done away with altogether.
The offences wherein imprisonment has been replaced with monetary penalty:
Maintenance of register and filing of information with respect to significant beneficial ownership (Section 90(11) of the Act)
Non-compliance with requirements for buyback of securities under Act and relevant regulations (Section 68(11)
Default in compliance with requirements under Act for registration of charges (Section 86(1))
Contravention of provisions related to keeping of books of accounts by the company (Section 128(6)
Failure of employee of the company to comply with any order made by the Tribunal or the Regional Director or any officer authorised by the Central Government (Section 441(5))
The offences wherein quantum of the monetary penalty has been reduced:
Non-maintenance of register of members and other security holders, or non-compliance with the provisions governing maintenance of such register (Section 88(5))
Failure to file Annual Return or failure to observe compliance requirements for the same (Section 92(5), (6))
Failure to comply with any of the requirements with respect to unpaid dividend account (Section 124(7))
Failure to file resolution or agreement within the specified time-frame (Section 117(2))
The offences that have been done away with altogether:
Default in compliance with direction of Central Government to rectify name of company (Section 16(3))
Non-cooperation of promoters, directors, officers or employees with company liquidator (Section 282(2))
Failure of Company Liquidator to forward copy of Tribunal’s order to Registrar (302(4))
With respect to the offences done away with, it must be noted that it is not the case that these violations of the provisions of the Act are now allowed, rather the Amendment Act proposes an alternate framework to handle such offences, that does not involve a monetary penalty.
Other Salient Features:
Definition of Listed Company
The Amendment Act adds a proviso to the definition of listed company under Section 2(52) of the Act. The proviso allows for the Central Government in consultation with SEBI to exclude certain classes of companies which have listed their securities from the definition of listed company.
Producer Companies
The Amendment Act introduces Chapter XXIA, titled Producer Companies. A producer company is a company which deals in production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce. Until now, producer companies have been governed by Part IX A of the Companies Act 1956. The new Chapter XXIA is similar to the provisions of Part IX A. Chapter XXIA deals with incorporation, management, general meetings, etc. of producer companies.
Corporate Social Responsibility
The Amendment Act make certain amendments to the section on Corporate Social Responsibility (“CSR”), i.e., section 135 of the Act. The Amendment Act provides that if the company spends an amount on CSR activities greater than what is required of them in accordance with Section 135, the company may set off the excess amount against amounts they are obligated to spend in following years. Additionally, the Amendment Act provides for an exemption from the obligation to create a CSR committee (as laid down in 135(1)), if the company’s CSR obligation does not exceed 50 lakh rupees.
Exemption for companies under Chapter XXII
Chapter XXII of the Act governs companies incorporated outside India. The newly-introduced Section 393 A allows the Central Government to exempt any class of foreign companies from any of the provisions of Chapter XXII by way of a notification.