Corporate Law Updater – November, 2018


Though the month of November is the gateway to chilly winter season the things are getting hot in Corporate scene. The Companies(Amendment) Ordinance, 2018 has been notified on 02nd November, 2018 and the same had brought in sea changes to the structure of the principal act. By seeing these frequent changes it can be felt that the companies act and effort to improve the ranking of India in ease of doing business are oxymoron and only time will prove it otherwise. Following are the brief outline of the said changes.



Reintroduction of Commencement of Business.

This requirement were initially there in the Companies Act but has been removed as a part of ease of doing business. As per this newly inserted section, it is mandatory for a newly incorporated company to file a declaration to ROC within 180 days from the date of incorporation specifying the details of the remittance of the share subscription money to the specified bank account of the company. If the said declaration is not filed within the said time period the name of the newly incorporated company shall be removed from the records of MCA.


Option to follow a different financial year for specified companies.

Under the newly inserted proviso to section 2(41) of the Act, a company which is having a foreign holding company or subsidiary or associate company can follow a different financial year for the purpose of consolidation of accounts by filing an application with the Central Government.


Physical verification of the registered office by Registrar

In order to combat the black money and creation of shell companies, the MCA had taken several proactive measure in recent times. This is the latest (hopefully last!!) among those efforts. As per the newly inserted proviso to section 12 of the Act, the Registrar can physically verify the registered office of the company to ensure that the activities are being carried out at the given address . During the inspection, if he has reasonable cause to believe that the company is not carrying out the operations at the registered office of the company, then he is empowered to remove the name of the company from the records of the MCA.


Creation of charges is again becoming a nightmare

Creating the charge on the assets of the company was a time bounded process under the Companies Act, 1956 and early day of Companies Act, 2013. Any delay beyond a period of 60 days was resulting in requirement of compounding of the offence under the said regime. It was then relaxed by increasing the number of days for filing the documents to 300 from the date of creation /modification of the charge. However, the said stringent provisions got reintroduced in the act with more vigor through the recent ordinance. As per the newly inserted proviso it is required to create charge within 60 days from the date of creation. If a company is unable to create the charge within said 60 days, it can make an application to Registrar for accepting the same. But the said application has to be made within next 60 days(ie 120 days from the date of creation). If the company failed to file the said application within said time limit , the company have to approach Regional Director for condoning the delay.


Increase in penalty for non-filing of Annual Returns.

The penalty for non filing of annual return (MGT 7) has been increased further. As per the newly inserted proviso the company and every officer who is in default shall be liable to a penalty of Rs. 50000/- and in case of continuing failure, with further penalty of Rs. 100/- per day, subject to a maximum of Rs. 5 lakhs.


Changes in penal provisions.

The new ordinance had brought in changes to the penal provisions attached to various sections of the Act . As a result of the said amendment, many of the offences now fall within the ambit of Regional Director, who will act as adjudicating officer. This will pave way to more bureaucratic involvement into the affairs of the company. Under the Act, a regional director can compound (settle) offences with a penalty of up to five lakh rupees. The Ordinance increases this ceiling to Rs 25 lakh.


Change in approving authority

Under the Act, change in period of financial year for a company associated with a foreign company, has to be approved by the National Company Law Tribunal. Similarly, any alteration in the incorporation document of a public company which has the effect of converting it to a private company, has to be approved by the Tribunal. Under the Ordinance, these powers have been transferred to central government.


Declaration of beneficial ownership. If a person holds beneficial interest of at least 25% shares in a company or exercises significant influence or control over the company, he is required to make a declaration of his interest. Under the Act, failure to declare this interest is punishable with a fine between one lakh rupees and ten lakh rupees, along with a continuing fine for every day of default. The Ordinance provides that such person may either be fined, or imprisoned for up to one year, or both.


Remuneration for independent directors.

The Act restricts an independent director from entitlement to stock options. It further states that he may receive sitting fees, commission, and reimbursement of expenses. The Ordinance removes this provision.


Disqualification of directorship

Under the Act, a person cannot be a director in more than 20 companies. The Ordinance provides that contravening this provision will be a ground for disqualification from directorship.


Repeat defaulters.

Under the Ordinance, if a company, or an officer, or other person commits a default again within three years of the previous case, the entity will be liable to twice the penalty as provided for such default.


Annual filings of the company for the Financial year 2017-18

The last date for filing the annual accounts and annual returns of the companies has been extended upto 31st December, 2018. But is it not wise to wait upto 11th hour to do the compliance. So we request you to submit the audited accounts of the company for the year 2017-18 at the earliest opportunity. Otherwise your New Year will start with a payment of huge penalty calculated at Rs. 200/- per day effective from 30th October, 2018.


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