President promulgates the Companies (Amendment) Ordinance, 2018, gains immediate effect
With the Parliament not in session, and the President being satisfied that circumstances exist for taking immediate action with regard to certain provisions of the Companies Act, 2013 (“Act”), the Ministry of Law and Justice has, in a notification dated November 2, 2018, issued the Companies (Amendment) Ordinance, 2018 (“Ordinance”).
The Ordinance is effective immediately.
- The applications for change in Financial Year will now be made to the Central Government and not the Tribunal.
- A new provision- Commencement of Business, etc. has been incorporated which requires the company to file with the Registrar that every subscriber to the memorandum has paid the value of the shares as agreed. The declaration must be filed within 180 days of incorporation in prescribed form. Non-filing will attract penalty, Rs. 50000 for a Company and Rs.1000 for Officer in Default for each day up to a maximum limit of Rs.1 lakh and may result in removal of the company name from the Register of Companies. The provision also requires a verification of registered office of such company.
- Registrar may undertake physical verification of the Registered Office of a company on having cause to believe that it is not carrying out its business operations. On finding default, Registrar will proceed with removal of name of the company from Register of Companies.
- Conversion of public company to a private company to take place with the approval of the Central Government. However, applications made before the commencement of this ordinance will be dealt with under the previous provisions.
- Charges created before commencement of Ordinance must be registered within 300 days of their creation and in case the charge is not registered within this time, they must be registered within 6 months from the date of commencement of Ordinance on payment of additional fees.
- Charges created after commencement of Ordinance must be registered within 60 days of their creation, and in case the charge is not registered within this time, the Registrar may on application, allow the registration of the charge within a period of further 60 days on payment of ad valorem fees.
- Furnishing of false or incorrect information or knowingly suppressing any material information with respect to registration of charges will attract penalty for fraud under the Act.
- Failure of declaration by beneficial owner will now attract additional penalty of 1 year imprisonment.
- In case of failure to file annual return Company and officer-in-default will be liable to a penalty of Rs.50000 and in case of continuing default, further penalty of Rs.100 for each day up to maximum Rs.5 lakhs will be imposed. No imprisonment will be imposed in such cases.
- Penalty for failure to file resolution, failure to file report on AGM, contravention of maximum number of directorships, issuing of shares at discount, default in filing of notice with regard to alteration of share capital have been revised and fines for several other contraventions have been replaced with penalty, making them civil offences.
- In case of contravention of the maximum number of limits for directorship as prescribed i.e. 20 for private companies and 10 for public companies, the same will be the ground for disqualification of Director.
- Earlier Independent Directors were not entitled to stock options and could receive sitting fees, reimbursement of expenses for participation in Board and profit related commission. Now this has been omitted.
- For failure to comply with the provisions of Overall Maximum Managerial Remuneration and Managerial Remuneration in Case of Absence or Inadequacy of Profits, fine for individual is fixed at 1 lakh and for company at 5 lakhs.
- Two new grounds for removal of name of company from register of company have been added-
- If the subscribers of Memorandum of Association of the Company have not paid the subscription amount and have not furnished a declaration in this regard within 180 days
- If the Company is revealed to not having any registered office after physical verification of registered office.
- In cases of fraud, where the fraud involves an amount less than Rs.10 lakh or 1% of the turnover of the company and does not involve public interest the defaulter will now be punishable with imprisonment for a term which may extend to 5 years. The maximum fine in this regard has be increased from Rs. 20 lakhs to Rs. 50 lakhs.
- Offences which are punishable with imprisonment only or with imprisonment and fine will not be compoundable.
- For repeated default within 3 years, under the Companies Act, 2013, double penalty will be imposed upon such defaulter.
- The pecuniary jurisdiction of Regional Director has been widened by enhancing the limit up to Rs.25 lakhs as against earlier limit of Rs.5 lakh.
Source: Ministry of Law and Justice