Major highlights of the Companies (Amendment) Bill, 2020:-19th SEPTEMBER 2020
The Lok Sabha on Saturday i.e. 19th September 2020 passed a bill to further amend the Companies Act and decriminalise various compoundable offences as well as promote ease of doing business in the country.
This amendment in to the Act to decriminalise minor procedural or technical lapses under the provisions of the said Act, into civil wrong; and considering the overall pendency of the courts, a principle based approach was adopted to further remove criminality in case of defaults, which can be determined objectively and which otherwise lack any element of fraud or do not involve larger public interest.
In addition, the Government also proposes to provide greater ease of living to corporates through certain other amendments to the Act.
The Company Law Committee (“CLC/Committee”) presented its report in November, 2019 which provided for de-clogging 46 penal provisions in the following manner:
The CAB, 2020 based on the CLC Report provides majorly for the following:
Here is a quick snapshot of the major highlights of the CAB, 2020:
1. Section 2(52)-Definition of “listed company”
Proposal has been placed to exclude such listed companies and companies with the intention of getting listed such class of securities from the category of “listed companies”.
2. Section 16-Rectification of name
If a company was registered inadvertently with a registered trade mark of a proprietor, and the name is too identical or resembles an existing trade mark, such company has to change its name within 3 months from the issue of CG’s direction instead of 6 months’ timeline provided earlier. Further, with a view to decriminalize the offence, if committed by a company, in case of default in this section, the CG shall allot a new name as per the directions of the ROC to the company and the ROC shall issue a fresh Certificate of Incorporation. Although the company shall not be prevented from changing its name subsequently.
3. Section 62-Further issue of shares (Rights Issue)
As per the existing provisions, the time period for providing offer letter to the existing shareholders under rights issue process is 15 days to 30 days, beyond which the offer is deemed to be declined. It is proposed to lay down such other time period which may be less than the timelines prescribed currently.
4. Section 117-Resolutions and agreements to be filed
The section requires filing of resolutions with the ROC. It currently exempts banking companies which are providing loan, guarantee, security in connection with loan in its ordinary course of business from filing the resolution in e-Form MGT-14. It has been now proposed to extend such exemption to registered NBFCs and HFCs.
5. Section 129A-Periodical financial results (newly inserted) – Unlisted Companies
The CG shall require such class or classes of companies to:
·Prepare periodical financial results
·Obtain approval of the Board of Directors
·Complete limited review of such periodical financial results
·File a copy with the ROC within 30 days of completion of the relevant period
6. Section 135-Corporate Social Responsibility
The changes proposed are:
·The amount spent in excess of the requirements may be allowed for set-off for such number of subsequent financial years as may be prescribed.
·Penalty for default in transfer of unspent amount to the respective funds:
i. On the company-twice the amount required to be transferred or 1 Crore whichever is lower, and
ii. On every officer in default-1/10th of the amount required to be transferred in the respective funds or Rs. 2 lakhs, whichever is lower
·No requirement of a CSR Committee where the amount required to be spent is less than Rs. 50 lakhs and the Board of Directors shall discharge the functions of that of a CSR Committee.
7. Section 149-Company to have Board of Directors (Independent Directors)
The existing provisions provide that Independent Directors (IDs) are not subject to stock options and are entitled to sitting fees, profit related commission and reimbursement of expenses incurred in attending meetings as per Section 197(5).
The amendments provide for a new insertion and it states that an ID and Non-Executive Directors may receive any other sort of remuneration, excluding the aforesaid, in terms of Schedule V where there is no profit or inadequate profits in the company.
8. Section 197-Overall Maximum Managerial Remuneration and Managerial Remuneration in Case of Absence or Inadequacy of Profits
Section 197(3) has been aligned with Section 149(9) to include NEDs and IDs within the ambit of remuneration payable as per Schedule V in case of no profits or inadequate profits.
DISCLAIMER: The information given in this Note has been made on the basis of the provisions stated in the Companies (Amendment) Bill, 2020. It is based on the analysis and our understanding. Mritunjay Shekhar & Associates, Company Secretaries, New Delhi expressly disclaim any financial or other responsibility arising due to any action taken by any person on the basis of this note.