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The Companies (Amendment) Act 2020: Updates

The Companies (Amendment) Bill, 2020 was introduced by the Government in the Parliament on 17th March 2020, and was passed by Lok Sabha on 19th September, 2020 and Rajya Sabha on 22nd September, 2020 which has changed certain amendments in the Companies Act 2013, primarily with a two-fold objective of:
  1. Decriminalizing certain defaults into civil wrongs and adopting a principle-based approach to remove the element of criminality from these defaults.
  2. Providing relaxation to Corporates to enhance the ease of living & ease of doing business.
Now, the President of India Mr. Ram Nath Kovind has accorded assent to the bill, the bill has now become an Act i.e. THE COMPANIES (AMENDMENT) ACT, 2020.
There are 66 clauses in the Act including amendments to 62 sections of the Companies Act, 2013 and 3 new sections inserted. Besides, a new chapter related to producer organization also inserted in the Act.
Please find below major Highlights of the Companies (Amendment) Bill, 2020:
  • 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.
  • Section 62: Further issue of shares with respect to Right issue: 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. Now, it is laid down such other time period which may be less than the timelines prescribed currently.
  • Section 89: Beneficial shareholding: Under the Companies Act, 2013, if a person holds beneficial interest of at least 10% shares in a company or exercises significant influence or control over the company, he is required to make a declaration of his interest to the company. The company is required to note the declaration in a separate register. The Companies (Amendment) Act, 2020 empowers the central government to exempt any class of persons from complying with these requirements if considered necessary in public interest.
  • Section 117: Resolutions and agreements to be filed Under the The section requires filing of resolutions with the Registrar of Companies. It currently exempts banking companies which are providing loan, guarantee, and security in connection with loan in its ordinary course of business from filing the resolution in e-Form MGT- 14. Such exemption has been extended to registered NBFC and HFCs.
  • Section 129A: Periodical financial results (newly inserted section) The Central Government shall require such class or classes of companies (as may be prescribed) to a) Prepare periodical financial results, b) Obtain approval of the Board of Directors; c) Complete limited review of such periodical financial results, d) File a copy with the ROC within 30 days of completion of the relevant period.
  • Section 135: Corporate Social Responsibility Under the Act, companies with net worth, turnover or profits above a specified amount are required to constitute CSR Committees and spend 2% of their average net profits in the last three financial years, towards its CSR policy. The Act exempts companies with a CSR liability of up to INR 50 lakh a year from setting up CSR Committees. Further, companies which spend any amount in excess of their CSR obligation in a financial year can set off the excess amount towards their CSR obligations in subsequent financial years.
  • Section 149: Company to have Board of Directors (Independent Directors) The existing provisions provide that Independent Directors 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 Independent Directors 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.
  • Benches of NCLAT: The Companies (Amendment) Act, 2020 seeks to establish benches of the National Company Law Appellate Tribunal. These shall ordinarily sit in New Delhi or such other place as may be notified.
  • Direct Listing in Foreign Jurisdictions: The Act empowers the central government to allow certain classes of public companies to list classes of securities (as may be prescribed) in foreign jurisdictions.
  • Producer Companies (Newly Chapter Inserted): Under the 2013 Act, certain provisions from the Companies Act, 1956 continue to apply to producer companies. These include provisions on their membership, conduct of meetings, and maintenance of accounts. Producer companies include companies which are engaged in the production, marketing and sale of agricultural produce, and sale of produce from cottage industries. The Act removes these provisions and adds a new chapter in the Act with similar provisions on producer companies.
  • Changes to offences: The Companies (Amendment) Act, 2020 makes three changes:
  1. It removes the penalty for certain offences;
  2. It removes imprisonment in certain offences;
  3. It reduces the amount of fine payable in certain offences;
Further, under the Companies Act, 2013 One Person Companies or Small Companies are only liable to pay up to 50% of the penalty for certain offences (such as failing to file annual return).
Now, The Companies (Amendment) Act, 2020: (i) extends this provision to all producer companies and start-up companies, (ii) extends this provision to apply to violation of any provision of the Companies Act, 2013 and (iii) limits the maximum penalty to two lakh rupees for the company and one lakh rupees for a defaulting officer.
Thus, the Companies (Amendment) Act, 2020 gives effect to decriminalization of certain offences under the Companies Act, 2013 and also provide greater ease of living and ease of doing business for companies and citizens as the compliance related issues are easier.