The Companies (Amendment) Act, 2020 (“Amendment Act”) was published in the Official Gazette of India pursuant to the receipt of assent from the President of the Nation, Mr. Ram Nath Kovind on 28th September 2020. The Amendment Act has been passed for decriminalizing the most of the offences and decreasing the penal provisions prescribed as stipulated under the Companies Act, 2013 (‘Act’) and paving simpler ways for a direct overseas listing of Indian companies.
The principal focus of the Amendment Act is to:
- Decriminalize various offences and to remove or reduce penalties in case of defaults.
- Provide relaxation to the companies in order to increase the ease of living and doing business.
Some of the major highlights of the Amended Act are:
Amendment in the definition of a listed company under Section 2(52)
Under the section 2(52), in the definition of listed companies, a proviso has been added to exclude a certain class of companies which would not be considered as listed companies although they have securities which are listed or are intended to be listed. Thus, companies which list only debt securities (NCDs) may be excluded from the definition of listed company for the purposes of the Companies Act.
Rectification of Name under Section 16
As per section 16(1) of the Act, if the Central Government is of the opinion, that the name of the company is identical with or too nearly resembles the name by which a company in existence had been previously registered, whether, under this Act or any previous company law, it may direct the company to change its name and the company shall change its name or new name, as the case may be. The time period to change such name has been reduced from six months to three months.
Further, the Central Government has been empowered to allow a new name to the company, in case of default in complying with its direction instead of imposing punishment for non-compliance for such default. The company is however not prevented from subsequently changing its name.
Public Offer and Private Placement under Section 23
Under the provisions of section 23 of the Act, a sub-section 3 has been added which provides that certain classes of public companies as may be prescribed may issue such class of securities for the purposes of listing on permitted stock exchanges in permissible foreign jurisdictions or such other jurisdictions.
Further, sub-section 4 has also been added which states that the Central Government may by notification exempt any class or classes of public companies from complying with the provisions of Chapter III (Prospectus and Allotment of Securities), Chapter IV (Share Capital and Debentures), section 89 (Declaration in respect of a beneficial interest in any share), section 90 (Register of significant beneficial owners in a company) or section 127 (Punishment for failure to distribute dividends) of the Act.
Further issue of Share Capital under Section 62
Under section 62, earlier the time period for providing an offer of right issue to the existing shareholders was 15 days to 30 days and for any offer for less than 15 days requires the approval of 90% of Shareholders of the company, however now the same has been done away and there is no requirement of seeking shareholders’ approval for decreasing the time period form a period less than 15 days.
Filing of Resolutions under Section 117
The exemption provided to banking companies which provide loans, guarantees, and security in connection with a loan in its ordinary course of business, from filling the resolution in e- form MGT -14 with the Registrar of the Companies, under section117 has been extended to RBI registered NBFCs and housing finance company registered under the National Housing Bank Act, 1987.
Company to have Board of Directors under Section 149
The prevailing provision of the Act provides that the Independent Directors can be paid sitting fees, profit related commission and can be reimbursed the expenses incurred for attending the meetings but are not entitled to any stock option.
Now, the Amendment Act added a proviso in section 149, which provides that in case a company has no or inadequate profits, an independent director may receive remuneration, exclusive of any fees payable under sub-section (5) of section 197, in accordance with the provisions of Schedule V.
Corporate Social Responsibility under Section 135
Section 135 of the act provides for constitution of Corporate Social Responsibility (CSR) Committee for the companies which are covered under the specified limits provided in the section.
The Amended Act provides that if the amount required to be spent by the company under section 135 does not exceed Rupees Fifty Lakh, then the said company is no longer required to constitute a CSR committee and the function of such committee will be discharged by the Board of Directors of the Company.
Chapter XXIA for Producer Companies (New Chapter)
A new Chapter XXIA has been added in the Act with regard to the Producer Companies from section 378A to Section 378ZU.
Reduction in Monetary Penalties
The penalties under Section 56 (Transfer and Transmission of Securities), Section 64 (Notice to be given to Registrar for Alteration of Share Capital), Section 86 (Punishment for Contravention under Chapter VI Registration of Charges), Section 88 (Register of Members), Section 92 (Annual return), Section 117 (Resolutions and Agreements to be Filed), Section 134 (Financial Statement, Board’s Report, etc.), Section 137 (Copy of Financial Statement to be filed with Registrar), Section 140 (Copy of financial statement to be filed with Registrar), Section 165 (Number of Directorships), etc. have been significantly reduced by the Companies Amendment Act, 2020.
The offences which lack an element of fraud or do not have a large public interest has been decriminalized.
Removal of Imprisonment in Various sections
With an object to decriminalize the offences under various sections of the Act, Imprisonment under Section 8 (Formation of Companies with charitable objects, etc.), Section 26 (Matters to be stated in the prospectus), Section 40 (Securities to be dealt with in stock exchanges), Section 68 (Power of company to purchase its own securities), Section 128 (Books of account, etc. to be kept by company), Section 167-(Vacation of office of director), 184 (Disclosure of Interest by Directors), Section 188 (Related Party Transactions), etc. have been removed by the Companies Amendment Act, 2020.
The Amendment Act also seeks to establish new benches of the National Company Law Appellate Tribunal (NCLAT) in order to increase the efficiency of the authorities. These benches shall sit at New Delhi or such other place as may deem necessary.
In contemplation of the whole Amendment Act, it can now be concluded that now penalties has been significantly reduced under the Act which would result in encouragement of ease of doing business for the companies and the citizens of India since the compliance has been made easier.