The Companies (Amendment) Ordinance, 2018 was promulgated on 2 November 2018, in accordance with the recommendations made by a committee under the chairmanship of Injeti Srinivas, constituted by the Ministry of Corporate Affairs, to review the offences under the Companies Act, 2013. The ordinance amends 31 sections of the Companies Act, 2013, and primarily focuses on recategorizing offences consisting of technical and procedural defaults as to acts carrying civil liabilities. The ordinance promotes the government’s intent to promote ease of doing business.
The key amendments made to the act are:
- Certain compoundable offences such as (i) issuing shares at a discount; (ii) failure to notify the Registrar of Companies (RoC) upon alteration of share capital; (iii) failure to file timely annual returns; (iv) failure of notice for general meeting to contain adequate proxy clause; (v) failure to file financial statements with the RoC, have all been decriminalized. Imprisonment of the officers of the company in default, plus fines, have been replaced with civil penalties for non-compliance.
- The process of mandatory filings prior to commencement of business, which was omitted by the Companies (Amendment) Act, 2015, has been reinstated. The ordinance has inserted section 10A in the principal act, which states that companies incorporated after the ordinance came into effect, i.e. after 2 November 2018, which have a share capital, cannot commence any business or exercise their borrowing powers unless the directors file a declaration within 180 days of incorporation that all subscribers to the memorandum have paid the value of shares as agreed by them, and the registered office of the company is verified by filing the requisite forms with the RoC. In case the declarations have not been filed within a period of 180 days, the RoC has the power to strike the name of the company from the register, if it reasonably believes that the company is not carrying out any business. In addition, the RoC now has the power to conduct physical verification of the registered office of a company if it reasonably believes that the company is not carrying on any business. In case the company is found to not have a registered office, the RoC may strike the name of the company off the register.
- The ordinance has also introduced amendments that shift some powers from the National Company Law Tribunal to the regional director (central government – RD), thereby reducing the burden of the tribunal. To this effect: (i) the RD has been empowered to approve the alteration of the financial year of a company, under section 2(44) of the act; (ii) the RD has been vested with the power to approve conversion of public companies to private companies, and (iii) the RD’s power to compound offences has been enlarged to compounding of offences where the maximum fine for such offences is up to ₹2,500,000 (US$35,000).
- Another significant change introduced by the ordinance is in respect of registration of charges on assets, properties or undertakings of a company. Companies that have created a charge on their assets on or after 2 November 2018 must file a charge creation form with the RoC within 30 days of creation of such charge, and may file a delayed form after filing an application with the registrar and pay additional fees, within 60 days of creation of the charge. This extended timeline has been reduced from 300 days to 60 days. If the charge creation form is not filed within 60 days of the creation of charge, the company has an additional 60 days to file the charge creation form with the RoC along with ad valorem fees, only if the registrar so permits. In addition to the existing penal provisions in case of contravention of the provisions relating to creation and registration of charges, any person who wilfully furnishes false or incorrect information, or knowingly suppresses any material information relating to registration of charges, will be guilty of fraud under section 447 of the act.
- The ordinance also attempts to penalize repeat offenders by adding section 454A of the act, which provides for twice the amount of penalty being levied on companies and officers of companies, in cases where an offence has been repeated within three years of an order being passed against the company or the officers of the company for such an offence.
The business law digest is compiled by Nishith Desai Associates (NDA). NDA is a research-based international law firm with offices in Mumbai, New Delhi, Bengaluru, Singapore, Silicon Valley, Munich and New York. It specializes in strategic legal, regulatory and tax advice coupled with industry expertise in an integrated manner.