Highlights of Companies Amendment Bill, 2019

The Companies (Amendment) Bill, 2019 has received the President’s assent and the bill has been published in the Official Gazette w.e.f. July 31, 2019

The key feature of the Bill is to replace the existing system of judicial prosecution for offences by a departmental process of imposition of penalties. As a result, while the monetary burden on companies may go up, but offenders will not be having to face criminal courts and the stigma attached with the same.

Major Highlights of Companies Amendment Bill, 2019

1. Dematerialization of Shares (Section 29)

The term ‘public’ has been omitted under section 29(1)(b). Government would now prescribe the class of companies (not restricted to public companies), which would be mandatorily required to issue the securities only in dematerialised form.

This means, that the Govt may now mandate dematerialisation for shares of private companies too. Whether this requirement will be made applicable only for new issues of capital by private companies, or will require all existing shares also to be dematerialised, remains to be seen. Evidently, all shareholders of all private companies will have to come within the system by getting their holdings dematerliaised.

2. CSR Expenditure (Section 135)

The Bill has amended and added the following provisions to the Section 135 of Companies Act, 2013 which relates to Corporate Social Responsibility;

(i) In case the unspent amount does not relate to any ongoing project, unspent amounts to be transferred to a Fund specified under Schedule VII within a period of six months of the expiry of the financial year.

(ii) In case the unspent amount relates to any ongoing project subject to fulfilling of prescribed conditions, unspent amounts to be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account.

(iii) Such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year.

(iv) Penal provisions inserted as under:

The company – punishable with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 25 lakh

Every officer of such company who is in default – shall be punishable with imprisonment for a term which may extend to 3 years or with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 5 lakh, or with both.

(v) MCA empowered to give general or special directions to a company or class of companies as it considers necessary to ensure compliance of provisions of this section.

3. Matters to be stated in prospectus (Section 26)

The requirement of registration of prospectus with the Registrar of Companies has been done away with. Instead the prospectus would be filed with the Registrar.

4. Constitution of National Financial Reporting Authority (NFRA)(Section 132)

NFRA to perform its functions through such divisions as may be prescribed by the Central Government.

Executive body of NFRA shall consist of the Chairperson and full-time Members for efficient discharge of its certain functions.

Debarring of the member or firm from being appointed as an auditor or internal auditor etc. or performing any valuation under section 247 by NFRA in case professional or other misconduct is proved.

5. Investigation into affairs of Company by Serious Fraud Investigation Office

Any officer not below the rank of Assistant Director of Serious Fraud Investigation Office (SFIO), if so authorized, may arrest any person in accordance with the provisions of this section.

The person so arrested may be taken to a Special Court or Judicial Magistrate or Metropolitan Magistrate within 24 hours of his arrest.

Where an investigation report submitted by SFIO states that a fraud has taken place and any director, KMP or officer has taken undue advantage or benefit, then the Central Government may file an application before the Tribunal with regard to disgorgement and such director, KMP or officer may be held personally liable without any limitation of liability.

6. Application to Tribunal for relief in cases of oppression, etc (Section 241)

Central Government to prescribe such company or class of companies in respect of which, applications under such sub-section, shall be made before the Principal Bench of NCLT and shall be dealt with by such Bench.

In certain circumstances, the Central Government may refer the matter and request to the Tribunal to inquire into the case and record a decision about whether the 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.