The ever-changing environment demands frequent adjustments to be made in the laws of land for efficient and effective management of both business as well as non-business activities. Government has just introduced the Companies (Amendment) Ordinance, 2019 thereby, bringing relevant alterations in Companies Act, 2013 (”Act”). This action has provided an affirmative action that any violation in complying with the set standards will lead to stringent repercussions for both the company and its management.
With the objective of promoting ease of doing business and improving corporate compliances, President has disseminated the Companies (Amendment) Ordinance, 2019 which came into effect in November 2018 and ceased to maneuver as on and after January 21, 2019. The said ordinance is issued by Ministry of Law and Justice to provide continued effect to Companies (Amendment) Ordinance, 2018 and further amend the provisions of Companies Act, 2013. On January 4, 2019, House of People passed the Companies (Amendment) bill, 2019.
Few highlights of these amendments in Companies Act are as under:
- Certificate of commencement:
As per section 10A of the Act, now it is mandatory to obtain certificate of commencement of business within 6 months from the date of its incorporation. In case of absence of such certificate, business activities cannot be executed as well as funds cannot be borrowed in the name of the business.
- Conversion from public limited to private limited:
Regional Directorate (RD) being the representative of Central government has been empowered and all the matters related to conversion of one entity into another are now transferred from National Company Law Tribunal (NCLT) to RD. This amendment is made to shift some burden from the shoulders of NCLT who are preoccupied with a number of insolvency cases to RD.
- Shares issued at discount:
In case of shares issued at discounted rate, company will be penalized to the extent of amount raised by issuing shares at discount or INR 5 lakhs, whichever is less. Subsequently, interest @ 12% on the refund amount will be paid by the company.
- Alterations to authorized capital:
Any alteration made to the authorized capital under section 64 of the Act must be intimated to Registrar of Companies (ROC) within 30 days. Failing which penalty of INR 1000 for each day or INR 5 lakhs, whichever is less will be levied.
- Registering charges:
Charges are required to be registered within 300 days if such charges are created before the advent of the ordinance and within 60 days if created after inception of such ordinance.
- Filing of annual returns:
Annual returns are mandatorily required to be filed within 60 days from annual general meeting (AGM). Following penalties are levied in case of failure of filing such returns:
- - INR 100 per day to the company
- - Upto INR 5 lakhs to the director as well as company secretary
- - ROC delay charges, if applicable
- Explanatory statement:
Along with notice of general meeting, an explanatory statement containing all the details as necessitated by law must be provided. Both the company and management will face penal consequences in case the statement is not attached.
- Filing of resolutions:
Penalty for non-filing of resolutions with ROC have increased substantially. Following penalty will be levied in case of failure in filing resolutions or any agreement within stipulated time:
- - On company, penalty of INR 1 lakh plus INR 500 for each day upto maximum of INR 25 lakhs
- - On officer in default including liquidator, fine of INR 50,000 plus INR 500 for each day upto maximum of INR 5 lakhs.
- Resignation by auditor:
In case of failure in filing e-Form ADT-3 by an auditor within 30 days from the date of his resignation, he will be penalized to the extent of INR 50,000 or an amount equal to his / her remuneration, whichever is lower. In case of continuing default, penalty of INR 500 for each day will be levied till the default continues.
- Appointment of company secretary:
Private company having paid-up capital of INR 5 crores and above is mandatorily required to appoint a company secretary on payroll. Penalty in case of default has increased considerably. INR 1000 per day in the form of penalty shall be levied till the default continues. However, it shall not exceed INR 5 lakhs.
- Significant beneficial owner’s (SBO) register:
As per section 90, an application w.r.t. register of SBOs in a company must be made to NCLT within 1 year from the date of such order. If no application is made within the prescribed time, such shares shall be transferred to Investor Education and Protection Fund (IEPF). Penalty for person in default of making such declaration includes:
- - Imprisonment for a period of 1 year, or
- - Fine as maybe prescribed, or
- - Both
- Striking off name of the company:
ROC can strike off the name of the company from the register of companies provided,
- - There is enough reason to believe that a company is not carrying on its business activities as well as physical verification of registered office is done
- - Subscribers have not paid initial share capital
- - Subscribers have filed requisite form after incorporation of company within 6 months from the date of incorporation
All the above mentioned amendments are mandatorily required to be complied with. Non-compliance of any of the amendments may result in huge penalties and adverse reputation for both the company and its management. However, these are general guidelines for reference purpose. We can assist you in interpreting various compliance related issues including submission of documents to ROC, filing of forms, obtaining certificate of incorporation, pre as well as post conversion services, altering authorized capital of the company, registering charges, auditing your records as well as statements, winding of company, etc.
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