Know 13 highlights of Company Amendment Act 2020
The Companies (Amendment) Act, 2020, was published with a view of the constant attempt of the Government to facilitate greater ease of living to law-abiding corporates. It was introduced to amend the Companies Act, 2013 with the intent of improving the ease of doing business in India, de-criminalizing various minor offences and regulating producer companies, amongst other aspects. Given below are 13 highlights of the amendments brought by the said Act.
1. Decriminalization of offenses which lack an element of fraud or do not have a large public interest has been approved
- By way of the Amendment, imprisonment as a consequence of contravention of certain provisions of the Act has been done away with for over 46 offences under the Act, in addition to reducing, modifying and omitting the fines/penalties for these offences.
- For instance, imprisonment has been removed as a punishment for contravention of provisions in relation to buyback of securities, disclosure of interest by directors, financial statements and Boards’ report, formation of companies with charitable objects, disqualification of directors and constitution of audit, stakeholder relationship and nomination and remuneration committee.
- Similarly, penalties and fines have been omitted/modified/reduced for contravention of provisions in relation to filing of annual return with Registrar, variation of shareholder rights, transfer of securities, alteration of share capital and reduction of share capital, among others.
2. Amendment in the definition of a listed company under Section 2(52)
- Under Section 2(52), in the definition of listed companies, the Government was empowered to exempt certain types of companies, on the basis of the listing of certain stocks on recognized stock markets, as may be given by the regulations, from the description of publicly traded companies in accordance with SEBI.
- Thus, for the requirements of the Companies Act, businesses that list only debt securities (NCDs) may be exempt from the concept of a publicly-traded company.
3. Rectification of the name of the company under section 16
- Prior to the Amendment, if the Central Government was of the opinion, on an application made to it by a registered proprietor of a trademark, that the name of a company was identical with or too closely resembled an existing trade mark, the company was required to change its name within a period of 6 months from date of directions issued by the Central Government in this regard.
- The Amendment now reduced this timeframe to 3 months.
- Additionally, Central Government is now empowered to allot a new name to the company (manner to be prescribed) if the company defaults in complying with directions issued by it and the Registrar is entitled to enter such new name in the Register of Companies in place of the old name and issue a fresh Certificate of Incorporation with the new name, which the company must use thereafter.
- However, none of the above changes restrict a company from subsequently changing its name, in accordance with the provisions laid down in the Act.
4. Public Offer and Private Placement under Section 23
- A sub-section 3 has been added to Section 23 which provides that certain classes of public companies will be allowed to list certain class of securities on stock exchanges in permissible foreign jurisdictions or such other jurisdictions, as may be prescribed by the rules and may issue such class of securities.
- Sub-section 4 has also been added wherein the Central Government has been empowered to exempt such class of public companies from complying with certain provisions of the Act, namely, provisions relating to private placement and public offer of securities, beneficial ownership, share capital and debentures or punishment for failure to distribute dividend, by way of issuing a notification, which has to be placed before both Houses of Parliament.
5. Declaration of Beneficial Ownership:
- As per the previous norms under the Act, persons holding beneficial interest in the shares of a company are required to submit declarations to this effect and the company is required to file returns with the Registrar intimating such beneficial ownership.
- The Amendment empowers the Central Government to exempt, unconditionally or subject to conditions, certain classes of person(s) from the aforesaid requirements if it is considered necessary to grant such exemption in the public interest.
6. Reduced timelines for rights issue
- Under section 62, the Central Government is empowered to prescribe days lesser than 15, for providing an offer of the right issue to the existing shareholders in contrast to the earlier time period which was 15 days to 30 days.
- For any such offer for less than 15 days requires the approval of 90% of Shareholders of the company.
- However, the same has now been abolished with and there is no need to obtain the consent of stakeholders to reduce the time limit from a limit to less than 15 days.
- This reduces the timelines for applying for rights issues.
7. Resolutions and agreements to be filed under section 117
- The Central Government is now empowered to exclude, in the case of a company, any class of NBFCs and any class of HFCs from submitting proposals passed to issue loans or provide assurances or to provide protection with regard to debts.
- Earlier, only Banking Companies were exempted.
8. Periodic financial results
- Section 129A of the Amendment empowers the Central Government to require a certain class of unlisted public companies (which is yet to be prescribed) to prepare periodic financial results.
- Such periodic financial results are in addition to preparation of annual financial results prescribed under the Act and would need to be approved by the Board of Directors and audited (or subjected to a limited review) by the statutory auditors, in addition to filing periodic financial results with the Registrar.
- This requirement appears to have been introduced in alignment with similar provisions prescribed for listed companies under the LODR.
9. Remuneration of Independent Directors:
- Prior to the Amendment, in case of inadequate profits, only executive directors/managing director of a company were entitled to receive remuneration subject to limits prescribed in the Act.
- The Amendment sought to align the aforesaid provisions to independent directors/non-executive directors to the effect that in case a company has no profits or its profits are inadequate, then non- executive directors, including an independent director, will be entitled to receive remuneration up to the extent permissible under the Act.
10. Removal, Resignation of Auditor and Giving of Special Notice
- As per Section 140(3),If the auditor does not comply with the provisions of sub-section (2), he or it shall be liable to a penalty of fifty thousand rupees or an amount equal to the remuneration of the auditor, whichever is less, and in case of continuing failure, with 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.
- Amendment is introduced in section 140 of the principal Act, in sub-section (3), for the words “five lakh rupees”, the words “two lakh rupees” shall be substituted.
- Maximum liability for an auditor has been reduced from Rs 5 lakh to Rs 2 lakh.
11. Corporate Social Responsibility under Section 135
- Section 135 provides for the constitution of the Corporate Social Responsibility (CSR) Committee for the companies which are covered under the specified limits provided in the section.
- Pursuant to the Amendment, companies that have spent an amount in excess of the requirements prescribed under the Act (i.e., at least 2% of the average net profits of the company made during the 3 immediately preceding financial years) are now permitted to set off such excess amount in succeeding financial years as may be prescribed by the Central Government.
- The Amended Act provides that a company is not required to constitute a CSR committee if the amount required to be spent by the company under section 135 does not exceed Rs 50 Lakh, and the function of such committee will be discharged by the Board of Directors of the Company.
12. Reduction in the amount of monetary Penalties
- Penalties pursuant to Section 56 (Transfer and Transmission of Securities), Section 64 (Notice to be sent to the Registrar for the Modification of Share Capital), Section 86 (Registration of Charges for Contravention pursuant to Chapter VI), Section 88 (Register of Members), Section 922 (Registration of Members) (Annual return).
- The Companies Amendment Act, 2020 has substantially decreased Section 117 (Resolutions and Agreements to be filed), Section 134 (Financial Statement, Board Report, etc.), Section 137 (Copy of the Financial Statement to be filed with the Registrar), Section 140 (Copy of the Financial Statement to be filed with the Registrar), Section 165 (Number of Directorships), etc.
13. Benches of NCLAT
The Amendment Act 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 ordinarily sit in New Delhi or such other place as may deem necessary.