Companies (Amendment) Ordinance, 2018

The Companies (Amendment) Ordinance, 2018 (“Amendment Ordinance”) promulgated on November 2, 2018, thereby amending some of the sections of the Companies Act, 2013 (“Act”). The two important objectives of the Amendment Ordinance are (i) promotion of ease of doing of business; and (ii) better corporate compliance. The key highlights of the Amendment Ordinance are Re-categorising compoundable offences to in house adjudication framework The Amendment Ordinance has re-categorised many of the compoundable offences by substituting fine and/ or imprisonment with penalty. Apart from absolving companies of criminal liability it has quickened the process of adjudication. This is expected to reduce the case load of Special Courts by over 60%, thereby enabling them to concentrate on serious corporate offences. This amendment has increased the scope of in-house adjudication. Pursuant to amendments of Sections 92, 117 and 137, Section 446B providing for relief to one person company and small companies the penalty has been amended from half the fine/ imprisonment fine and/or imprisonment with penalty. Amendments in adjudication of penalties The Amendment Ordinance has brought in an amendment to Section 454(3), wherein the adjudication officer apart from imposing penalties on the Company and any officer in default shall also direct them to make good the default. The erstwhile provision only provides for imposition of penalty. Imposing penalty for repeat default To curb the repeat of the same defaults, a new provision, Section 454A has been introduced by the Amendment Ordinance which provides for imposition of twice the penalty provided under the Act, in case the same default is committed within 3 (three) years from imposition of penalty by adjudication officer or regional director in respect of the first default. This is similar to Section 451. Enhancing punishment for fraud The Amendment Ordinance has enhanced the maximum fine for frauds involving amount less than Rs. 10,00,000 (Rupees ten00000) or 1% (one%) of turnover of Company, whichever is lower. Thus, the post amendment punishment for frauds under Section 447 is as under Amount involved Fine Imprisonment > Lower of 1% of turnover or Rs. 10,00,000/- Amount involved upto 3 times amount involved 6 months to 10 years > Lower of 1% of turnover or Rs. 10,00,000/- Upto Rs. 50,00,000/- Upto 5 years 5. Declogging the NCLT by i) enlarging the pecuniary jurisdiction of regional director by enhancing the limit up to Rs. 25,00,000 (Rupees twenty five00000) as against earlier limit of Rs. 5,00,000 (Rupees five00000) under Section 441 of the Act; ii) vesting in the Central Government the power to approve the alteration in the financial year of a company under Section 2(41); and iii) vesting the Central Government with the power to approve cases of conversion of public companies into private companies. 6. Improving Corporate Governance In furtherance of the Government’s efforts to strike down on shell companies and enhance corporate governance measures, the following provisions have been introduced i) Section 10A(1)(a) - Directors to file declaration with ROC within 180 (one hundred eighty) days of incorporation, that all subscribers to the MOA have paid the value of shares taken by them. ii) Section 10A(1)(b) r/w Section 12(2) - Company to file Form INC 22, verifying its registered office within 30 (thirty) days of incorporation. iii) Company not to commence business without complying with clauses (i) and (ii) above. iv) Section 10A(2) - In case of default of the aforementioned provisions, the Company and every officer in default liable to penalty. v) Section 10A(3) r/w Section 248(1)(d) - In case of non- compliance of clause (i), the ROC may initiate action for strike off. vi) Section 12(9) r/w Section 248(1)(e) - ROC may cause for physical verification of registered office of the Company, and in case of sufficient reasons that Company is not carrying on business, initiate action for strike off. vii) Section 90(1) r/w 90(10) - In case any significant beneficial owner fails to disclose his interest in a Company, he or it shall be liable to fine not less than Rs. 1,00,000 (Rupees one00000) but which may extend to Rs. 10,00,000 (Rupees ten00000) and/ or imprisonment upto 1 (one) year. viii) Section 164(1)(i) r/w 165(1) - Every director whose directorships exceeds 20 (twenty) shall be liable to disqualification.