The promulgation of Companies (Amendment) Ordinance, 2018, to promote ease of doing business and corporate compliance received presidential consent on 2 November.
The main features of the ordinance are re-categorization and starting a technology driven in-house adjudication mechanism for certain compoundable offences that are subject to penalties, as well as reducing the burden of the National Company Law Tribunal (NCLT) by 60% and increasing the role of regional directors in tackling issues of “shell” companies.
According to the ordinance new entities will face stiffer penalties in case of defaults and old corporates have to realign their strategies in line with the amendments. The key highlights of ordinance are:
Amendment in section 2 (41): The amendment empowers central government (instead of NCLT) to approve any period of financial year for a company or a subsidiary or an associate of a company incorporated abroad, which is required for consolidation of its accounts outside India.
Insertion of section 10A: It mandates that every company after the commencement of the new ordinance shall not start any business or exercise borrowing powers unless a director files a declaration within 180 days that every subscriber to the memorandum has paid the value of the shares, and the verification of the registered office as required in section 12 (2) has been filed.
A penalty of up to ₹50,000 (US$715) on the company and ₹1,000 per day on every officer responsible for the default has been set. In case of non-compliance within 180 days, the Registrar of Companies (ROC) has been empowered to remove the name of the company from the register of companies.
Insertion of section 12 (9): The ROC is entitled to initiate action for the removal of the company from the register of companies if after physical verification of the registered office they believe there is a default in compliance of section 12 (1).
Amendment in section 14: The second proviso has been substituted and power of approving conversion of public company in to a private company has been given to the central government instead of NCLT.
Penalty, not fine in section 53 (3): The mandatory punishment of officer in default has been discarded. A penalty of up to the amount raised via issue of shares at discount or ₹500,000, whichever may be less, has been provided for, and the company is mandated to refund the money with a 12% interest rate.
Amendment in section 64(1): In case of contravention, now the company and the officer in default have been made liable to punishment with a fine of up to ₹500,000.
Faster registration of charges under section 77: The extension of period to register the creation of charge after the amendment has been reduced to 60 days upon payment of fees, which may further be extended by 60 days upon payment of ad valorem fees.
Amendment in section 86: A proviso inserted making furnishing of false information under chapter VI liable for action for fraud under section 447.
Stiffer penalties for repeated defaults: The penalties and fine on the company, promoter, director, officer in default, key managerial personnel (KMP), individual has been increased in various sections such as: 92(5), 102(5), 105(3), 117(2), 121(3), 137(3), 140(3), 157(2), 165(6), 191 (5), 197(15). 203(5), 238(3), and 447; and in case of continuing default, a fine per day has been prescribed.
Increased penalty, 102(4): The minimum penalty in case of the default by every promoter, director, manager or other KMP has been enhanced to the higher of ₹50,000 or up to five times the benefit.
Substitution of section 159: Punishment with imprisonment for up to six months has been done away with in case of contravention of section 152, 155 and 156 by any individual or a director of the company.
Insertion of section 164(i): Sub-clause has been inserted making non-compliance of section 165(1), a ground for disqualification of appointment as a director.
Enhancing pecuniary jurisdiction: The regional director is empowered to compound offences having a fine up to ₹2.5 million and sub-section (6) inserted makes all offences under the act punishable with imprisonment or imprisonment with fine.
Insertion of section 454A: Provides for double the penalty in case of repeat of the same default within three years.
The ordinance brings more accountability regarding filings related to creation, modification and satisfaction of charges to promote corporate governance, non-maintenance of registered office and holding of directorships beyond permissible limits.
Deepak Sabharwal is the managing partner of Deepak Sabharwal & Associates.
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