A review on Companies (Amendment) Bill, 2019
Updated: Aug 16, 2019
On July 25th , 2019 Finance Minister Nirmala Sitharaman had presented the Companies (Amendment) Bill, 2019 to further amend the Companies Act, 2013, which includes a slew of sweeping changes in many of the penal provisions of the original act.
Re-categorisation of certain Offences
There are 81 compoundable offences punishable with fine or fine or imprisonment, or both under the Companies act. These offences are heard by courts. The Bill re-categorizes 16 of these offences as civil defaults, where adjudicating officers (appointed by the central government) may now levy penalties instead. These offences include: (i) issuance of shares at a discount, and (ii) failure to file annual return. Further, the Bill amends the penalties for some other offences.
Requirement of Commencement of business.
The bill makes it obligatory on the part of the promoters of the newly incorporated company to deposit the subscribed capital of the company into the bank account of the company within 180 days from the date of incorporation and file a declaration with Registrar of Companies to that effect. Furthermore, such company is required to file a report on verification of the registered office within 30 days of the incorporation. If the does not comply with the said conditions the Registrar can remove the name of such company from the records and initiate penal actions against the defaulting directors.
Physical verification of the Registered office of company
The new bill proposes for physical verification of the Registered office of the company by the Registrar with power conferred on him to strike off the name of the companies which are not carrying on business or operations. This is a continuation action of the Central Government to weed out the shell companies from the system.
Onus on the company to identify the Significant beneficial owner
The Companies Act demands for the declaration by the Significant Beneficial Owners with regard to their direct and indirect interest on a particular company and introduced the eforms for intimating the same. As a further step the new bill makes it obligatory on the part of the company to identify an individual who is a significant beneficial Owner in relation to a company and requires him to make the relevant declaration.
Penalty of delay in filing of annual return
If any company fails to file its annual return 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 fifty thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of five lakh rupees.
Penalty on failure to file copy of resolution or agreement.
If a company fails to file the copy of a resolution or agreement as specified under section 117, such company shall be liable to a penalty of one lakh rupees and in case of continuing failure, with a further penalty of five hundred rupees for each day , subject to a maximum of twenty-five lakh rupees and every officer of the company who is in default including liquidator of the company, if any, shall be liable to a penalty of fifty thousand rupees and in case of continuing failure, with a further penalty of five hundred rupees for each day after the first during which such failure continues, subject to a maximum of five lakh rupees.
Widening the scope of National Financial Reporting Authority
The NFRA has been given with additional power to bar an auditor or firm of auditors from acting as Internal Auditors or undertaking an audit or undertaking valuation from a period of six months to ten years.
More control and surveillance over CSR funds
The bill mandates for transferring the unspent CSR funds to a separate bank account within six months from the expiry of a financial year. Any amount remaining unspent which is specifically earmarked to any ongoing project undertaken by a company in pursuance of its Corporate Social Responsibility Policy, shall be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account, and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year.
Reporting of resignation by Auditors
It is now obligatory on the part of auditors to report their resignation from the office of statutory auditor of a company within 30 days of the resignation. If the auditor fails to report so, he shall be liable for penalty of Rs. 50000/- or an amount equal to remuneration of the auditor whichever is less.
Dematerialisation of shares of companies.
Presently all the public unlisted companies are required to demat its shares mandatorily. The new bill had omitted the word “public” from the section and thereby open up the requirement of dematerialisation of shares of companies other than public companies. The eligibility criteria for dematerialisation shall be notified further. The same may be made applicable for private limited companies having certain level of capital base or turnover base.