The Companies (Amendment) Ordinance, 2019

The Companies (Amendment) Ordinance, 2019 is an ordinance promulgated by the president to amend the Companies Act, 2013. This ordinance has been promulgated by the President in exercise of his powers under Article 123(1) of the Constitution. It will replace The Companies (Amendment) Ordinance, 2018, which will cease to operate on 21stJanuary, 2019. This ordinance shall be deemed to have come into force on 2nd November, 2018.

 What’s the effect?

First proviso to the Section 2(41) has been substituted

As per the new proviso where a company/body corporate, which is a

  • holding company
  • subsidiary
  • associate company

of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Central Government may, on an application made by that company/body corporate in such form and manner as may be prescribed, allow any period as its financial year, irrespective of whether or not that period is a year. It has further been provided further that any application pending before the tribunal on the date of commencement of the Companies (Amendment) Ordinance, 2019 shall be disposed of by the tribunal as per the provisions which were applicable to it before the commencement of this Ordinance.

A new Section 10A has been inserted

Section 10A(1) As per which a company incorporated after the commencement of this ordinance, and having a share capital shall not

  • commence any business
  • exercise any borrowing powers

unless:

(a) The director of such company has filed a declaration within a period of 180 days of the date of incorporation of the company in the prescribed form and manner of verification, with the Registrar stating that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of making such declaration.

(b) the company has filed a verification of its registered office (as provided in Section 12(2)) with the registrar.

Section 10A(2): Any default in complying with the requirement of this section shall make the defaulting company liable to a penalty of Rs. 50,000 and every officer who is in default shall be liable to a penalty of Rs. 1000/day for each day during which such default continues but shall penalty shall not exceed Rs. 1 Lakh.

As per Section 10A(3) Where the declaration under Section 10A(1)(a) is not filed within a period of 180 days of the date of incorporation of the company and the Registrar has reasonable cause to believe that the company is not carrying on any business/operation, he may, without prejudice to the provisions of Section 10A(2), initiate action for the removal of the name of the company form the register of companies under Chapter XVIII.

A new sub-section i.e. sub-section (9) has been inserted to the Section 12

As per Section 12(9), if the registrar has reasonable cause to believe that the company is not carrying on any business/operations, he may cause a physical verification of the registered office of the company in such manner as may be prescribed and if any default is found to be made in complying with the requirements of Section 12(1), he may without prejudice to the provisions of Section 12(8), initiate action for the removal of the name of the company from the register of companies under Chapter XVIII.

Substitution of the second proviso to the Section 14(1)

As per the new proviso, any alteration having the effect of conversion of a public company into a private company shall not be valid unless it is approved by an order of the Central Government on an application made in the prescribed form and manner. It has further been provided further that any application pending before the tribunal on the date of commencement of the Companies (Amendment) Ordinance, 2019 shall be disposed of by the tribunal as per the provisions which were applicable to it before the commencement of this Ordinance.

Substitution of Section 53(3)

As per the substituted sub-section (3), where any company fails to comply with the provisions of Section 53, such company and every defaulting officer shall be liable to a penalty which may extend to an amount equal to the amount raised through the issue of shares at a discount or Rs. 5 lakh, whichever is less, and the company shall also be liable to refund all the monies received with interest at the rate of 12% per annum from the date of issue of such shares to the persons to whim such shares have been issued.

Substitution of Section 64(2)

As per the substituted sub-section (2), where any company fails to comply with the provisions of Section 64(1), such company and every officer who is in default shall be liable to a penalty of Rs. 1000 for each during which such default continues, or Rs 5 Lakh, whichever is less.

Substitution of the first and second provisos to the Section 77(1)

As per the substituted proviso, the Registrar may, on an application by the company, allow such registration to be made

(a) in case of charges created before the commencement of the Companies (Amendment) Ordinance, 2019, within a period of 300 days of such creation; or

(b) in case of charges created on or after the commencement of the Companies (Amendment) Ordinance, 2019, within a period of 60 days of such creation, on payment of such additional fees as may be prescribed:

Further, it has been provided that if the registration is not made within the period specified

(a) in clause (a) to the first proviso, the registration of the charge shall be made within 6 months from the date of commencement of the Companies (Amendment) Ordinance, 2019, on payment of such additional fees as may be prescribed and different fees may be prescribed for different classes of companies;

(b) in clause (b) to the first proviso, the Registrar may, on an application, allow such registration to be made within a further period of 60 days after payment of such ad valorem fees as may be prescribed.

Addition/Alteration in Section 86

Now, the Section 86 has been numbered as Section 86(1) and after Section 86(1), sub-section 2 i.e. Section 86(2) has been added as per which, if any person willfully furnishes any false or incorrect information or knowingly suppresses any material information, required to registered in accordance with the provisions of Section 77, he shall be liable for action under Section 447.

Substitution of Section 87

As per the new Section 87, if the Central Government is satisfied that

(a) the omission to give intimation (to the registrar) of the payment/satisfaction of charge, within the time required under Chapter VI, or

(b) the omission or misstatement of any particulars, in any filing previously made to the registrar with respect to any memorandum of satisfaction or other entry made in pursuance of Section 82 or Section 83.

  • was accidental, or
  • due to inadvertence, or
  • some other sufficient cause, or
  • it is not of a nature to prejudice the position of creditors or shareholders of the company

it (Central Government) may, on the application of the company or any person interested and on such terms and conditions as it deems just and expedient, direct that the time for the giving of intimation of payment or satisfaction shall be extended or, as the case may require, that the omission or misstatement be rectified.

Substitution of Section 90(9)

As per the new sub-section (9), 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 Section 90(8), within a period of one year from the date of such order.

It has been provided that if no such application has been filed within a period of 1 year from the date of the order under Section 90(8), such shares shall be transferred, without any restrictions, to the authority constituted under Section 125(5), in prescribed manner.

Alteration in Section 90(10)

As per the new changes, If any person fails to make a declaration as required under Section 90(1), he shall be now punishable with imprisonment for a term which may extend to 1 year instead of/in addition to the fine of Rs 10 lakh.

Substitution of Section 92(5)

As per the new sub-section (5), if any company fails to  file its annual return under Section 92(4), before the expiry of the period specified therein, such company and its every officer who is in default shall be liable to a penalty of Rs. 50,000 and in case of continuing failure, with further penalty of one hundred rupees for each day during which such failure continues, subject to a maximum of five lakh rupees

Substitution of Section 102(5)

As per the new sub-section (5), Without prejudice to the provisions of Section 102(4), if any default is made in complying with the provisions of this section, every promoter, director, manager or other key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees or five times the amount of benefit accruing to the promoter, director, manager or other key managerial personnel or any of his relatives, whichever is higher.

Substitution of Section 117(2)

As per the new sub-section (2), If any company fails to file the resolution or the agreement under Section 117(1) before the expiry of the period specified therein, such company shall be liable to a penalty of Rs 1 Lakh and in case of continuing failure, with further penalty of Rs. 500 for each day after the first during which such failure continues, subject to a maximum of Rs. 25 Lakh and every officer of the company who is in default including liquidator of the company, if any, shall be liable to a penalty of Rs. 50,000 and in case of continuing failure, with further penalty of Rs. 500 for each day after the first during which such failure continues, subject to a maximum of Rs. 5 Lakh.

Substitution of Section 121(3)

As per the new sub-section (3), If the company fails to file the report under Section 121(2) before the expiry of the period specified therein, such company shall be liable to a penalty of Rs. 1 Lakh and in case of continuing failure, with further penalty of Rs. 500 for each day after the first during which such failure continues, subject to a maximum of Rs. 5 Lakh and every officer of the company who is in default shall be liable to a penalty which shall not be less Rs. 25,000 and in case of continuing failure, with further penalty Rs. 500 for each day after the first during which such failure continues, subject to a maximum Rs. 1 Lakh.

Alteration in Section 137(3)

As per the new changes, If a company fails to file the copy of the financial statements under Section 137(1) or Section 137(2), as the case may be, before the expiry of the period specified therein, the company shall now be liable to a penalty of Rs 1000, for every day during which the failure continues but which shall not be more than Rs. 10 Lakh, and the managing director and the Chief Financial Officer of the company, if any, and, in the absence of the managing director and the Chief Financial Officer, any other director who is charged by the Board with the responsibility of complying with the provisions of Section 137, and, in the absence of any such director, all the directors of the company, shall now be liable to a penalty of Rs. 1 Lakh and in case of continuing failure, with further penalty of Rs. 100 for each day after the first during which such failure continues, subject to a maximum of Rs. 5 Lakh.

Substitution of Section 140(3)

As per the new sub-section (3), If the auditor does not comply with the provisions of Section 140(2), he or it shall be liable to a penalty of Rs. 50,000 or an amount equal to the remuneration of the auditor, whichever is less, and in case of continuing failure, with further penalty of Rs. 500 for each day after the first during which such failure continues, subject to a maximum of Rs. 5 Lakh.

Substitution of Section 157(2)

As per the new sub-section (2), If any company fails to furnish the Director Identification Number under Section 157(1), such company shall be liable to a penalty of Rs. 25,000 and in case of continuing failure, with further penalty of Rs. 100  for each day after the first during which such failure continues, subject to a maximum of Rs. 1 Lakh, and every officer of the company who is in default shall be liable to a penalty of not less than Rs. 25,000 and in case of continuing failure, with further penalty of Rs. 100 for each day after the first during which such failure continues, subject to a maximum of Rs. 1 Lakh.

Substitution of Section 159

As per the new Section 159, If any individual or director of a company makes any default in complying with any of the provisions of section 152, section 155 and section 156, such individual or director of the company shall be liable to a penalty which may extend to Rs. 50,000 and where the default is a continuing one, with a further penalty which may extend to Rs. 500 for each day after the first during which such default continues.

A new clause i.e. clause (i) has been inserted to the Section 164(1)

As per the newly added Section 164(1)(i), A person shall not be eligible for appointment as a director of a company, if he has not complied with the provisions Section 165(1).

Alteration in Section 165(6)

As per the new changes, If a person accepts an appointment as a director in contravention of Section 165(1), he shall now be liable to a penalty of Rs. 5,000 for each day after the first during which such contravention continues.

Substitution of Section 191(5)

As per the new sub-section (5), If a director of the company makes any default in complying with the provisions of Section 191, such director shall be liable to a penalty of Rs. 1 Lakh.

Alterations in Section 197

Section 197(7) has been omitted and Section 197(15) has been substituted. As per the newly substituted sub-section (15), if any person makes any default in complying with the provisions of Section 197, he shall be liable to a penalty Rs. 1 Lakh and where any default has been made by a company, the company shall be liable to a penalty of Rs. 5 Lakh.

Substitution of Section 203(5)

As per the new sub-section (5), If any company makes any default in complying with the provisions of Section 203, such company shall be liable to a penalty of Rs. 5 Lakh and every director and key managerial personnel of the company who is in default shall be liable to a penalty of Rs. 50,000 and where the default is a continuing one, with a further penalty of Rs. 1,000 for each day after the first during which such default continues but not exceeding Rs. 5 Lakh.

Alterations in Section 238

As per the new changes, the director who issues a circular which has not been presented for registration and registered under Section 238(1)(c), shall now be liable to a penalty of Rs. 1 Lakh.

New clauses i.e. clause (d) and (e) have been inserted to the Section 248

As per the new clause (d), Where the Registrar has reasonable cause to believe that the subscribers to the memorandum have not paid the subscription which they had undertaken to pay at the time of incorporation of a company and a declaration to this effect has not been filed within 180 days of its incorporation under Section 10A(1); or clause (e) as per which Where the Registrar has reasonable cause to believe tha the company is not carrying on any business or operations, as revealed after the physical verification carried out under Section 12(9),he shall send a notice to the company and all the directors of the company, of his intention to remove the name of the company from the register of companies and requesting them to send their representations along with copies of the relevant documents, if any, within a period of 30 days from the date of the notice.

Substitution of Section 441(6)

As per the new sub-section (6), notwithstanding anything contained in the Code of Criminal Procedure, 1973,any offence which is punishable under the Companies Act, 2013, with imprisonment only or with imprisonment and also with fine shall not be compoundable.

Alterations in Section 446B

As per the new changes,notwithstanding anything contained in the Companies Act, 2013, if a One Person Company or a small company fails to comply with the provisions of Section 92(5), Section 117(2) or Section 137(3), such company and officer in default of such company shall now be liable to a penalty which shall not be more than one half of the penalty specified in such sections

Alterations in second proviso to Section 447

As per the new changes, where the fraud involves an amount less than Rs. 10 Lakh or one per cent. of the turnover of the company, whichever is lower, and does not involve public interest, any person guilty of such fraud shall be punishable with imprisonment for a term which may extend to five years or with fine which now may extend to Rs 50 Lakh or with both.

Alterations in Section 454

As per the newly substituted sub-section (3), The adjudicating officer may, by an order-

(a) impose the penalty on the company, the officer who is in default, or any other person, as the case may be, stating therein any non-compliance or default under the relevant provisions of this Act; and

(b) direct such company, or officer who is in default, or any other person, as the case may be, to rectify the default, wherever he considers fit.

As per the new changes in sub-section (4) The adjudicating officer shall, before imposing any penalty,now give a reasonable opportunity of being heard to “any other person” also.

As per the new changes in sub-section (8), where company 4[fails to comply with the order made under Section 8(3) or Section 8(7), as the case may be, within a period of 90 days from the date of the receipt of the copy of the order, the company shall be punishable with fine which shall not be less than Rs. 25,000 but which may extend to Rs. 5 Lakh. and where an officer of a company who is in default fails to comply with the order made under Section 8(3) or Section 8(7), as the case may be, within a period of 90 days from the date of the receipt of the copy of the order, such officer shall be punishable with imprisonment which may extend to 6 months or with fine which shall not be less than Rs. 25,000 but which may extend to Rs. 1 Lakh, or with both.

A new Section 454A has been inserted

Section 454A, as per which where a company or an officer of a company or any other person having already been subjected to penalty for default under any provisions of the Companies Act, 2013,  again commits such default within a period of 3 years from the date of order imposing such penalty passed by the adjudicating officer or the Regional Director, as the case may be, it or he shall be liable for the second or subsequent defaults for an amount equal to twice the amount of penalty provided for such default under the relevant provisions of the Companies Act, 2013.

Copy of ordinance: 12th January 2019

-Tushar Kaushik

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