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Key changes in the Companies (Amendment) Act, 2019

July 31, 2019

By Rupin Chopra and Divyansh Trivedi

The Companies (Amendment) Act, 2019 (hereinafter referred to as the ‘Amendment Act’) was recently enacted to enhance the accountability and to ensure effective enforcement to improve the corporate governance structure in the corporate sector.

The key highlights of the Amendment Act are as follows:

  • Tackling shell companies:
  • The Registrar of Companies has been provided with additional powers to initiate action for the removal of the name of a company on certain specified grounds.
  • The Amendment Act also re-introduces the provision for filing of declaration before the commencement of business. Within a period of 180 days from the date of incorporation of a company, the value of shares agreed to be taken by every subscriber to the memorandum is required to be paid and a declaration should be filed for the same.
  • Non-maintenance of a registered office by a company is now a ground for removal of the company from the register by the Registrar of Companies.
  • The amendment has been introduced with a view to identify shell companies at the earlier stages itself.
  • Reduction in time limit to register charges

The Amendment Act alters the deadline to register charges on the properties held by a company from 300 days to 60 days. This deadline is extendable to another 60 days with the permission of the Registrar of companies and an additional ad valorem fees.

  • Mandatory Corporate Social Responsibility Provisions (CSR)

According to the Amendment Act, any unspent CSR funds at the end of the financial year are required to be transferred to a special account within 30 days after the end of the relevant financial year. Such funds must be spent within the end of 3 financial years from the date of such transfer for the CSR projects. If a company is still unable to spend such funds within the prescribed period, then, such funds must be transferred to a Fund specified under Schedule VII of the Companies Act, within 6 months from the end of the relevant financial year.

  • Investigation into affairs of a company

As per the Amendment Act, amongst other grounds, if the Central Government is of the opinion that there exists such circumstances where any person concerned in the conduct and management of the affairs of a company is guilty of fraud, misfeasance, persistent negligence or default in carrying out his obligations, the Central Government may initiate a case against such person. The Central Government may refer such person to the NCLT with a request that NCLT may inquire into the case and record a decision as to whether or not such person is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company.

  • Penalties for repeated default

The Amendment Act has introduced a new section, Section 454A which prescribes penalties for repeated defaults by a company or an officer of the company or any such person who has previously been subjected to a penalty for default under the provisions of the Companies Act, 2013. As per this new section, such company/ person again committing such default within a period of three years from the date of order passed by the adjudicating officer or the Regional Director imposing penalty, the person or the company shall be liable for second or subsequent defaults for an amount equal to twice the amount of penalty applicable for such default under the relevant provisions of the Companies Act.

  • Holding securities only in dematerialized form

The Amendment Act lays down that the securities held in case of such class or classes of unlisted companies as may be prescribed, shall be held or transferred only in dematerialised form in the manner laid down in the Depositories Act, 1996 and the regulations made thereunder.

  • Offences punishable under Cr.P.C.

The Amendment Act lays down that an offence which is punishable under the Code of Criminal Procedure, 1973 with imprisonment only or with imprisonment and with fine shall not be compoundable in nature.

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