Companies Amendment Bill, 2019 — Passed by Parliament | “Shell companies” under a check

Parliament passed the Companies Amendment Bill, 2019, yesterday, i.e. 30-07-2019.

Companies Amendment Bill, 2019 will amend the Companies Act, 2013, while replacing the Companies (Amendment) Second Ordinance, 2019.

Few of the key features of the Companies (Amendment) Bill, 2019:

  • De-clogging of NCLT: Shifting of powers for conversion from public to private companies from National Company Law Tribunal to the Central Government
  • Re-categorisation of 16 minor offences as civil defaults
  • Non-maintenance of registered office and non-reporting of commencement of business as grounds for striking of from register of companies — To curb the menace of shell companies
  • Enhancing the pecuniary jurisdiction of Regional Director’s for compounding offences under the Companies Act
  • Companies need to transfer their unspent CSR (Corporate Social Responsibility) funds to a separate account and the same has to be spent within three financial years. In case, the money remains unspent, 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
  • Punishment to provide for debarment from appointment as an auditor or internal auditor of a company, or performing a company’s valuation, for a period between six months to 10 years, has also been amended.
Amendment (Section) Insertions
Section 10 A 1.Company incorporated after the commencement of Companies (Amendment) Act, 2019 and having a share capital shall not commence any business or exercise any borrowing powers unless—

  • declaration is filed by a director within a period of 180 days of the date of incorporation of company
  • company has filed with Registrar a verification of its registered office as provided in sub-section (2) of Section 12

2. On non-compliance of requirements stated above: Penalty imposed on company shall be Rs 50,000 & Rs 1,000 each day on every officer that continues to do so

3. On no declaration made with Registrar within a period of 180 days, registrar can initiate action for removal of company name.

Section 12 (9) If Registrar has reasonable cause to believe that company is not carrying on any business or operations, Registrar may cause a physical verification of the registered office.
Section 86 (2) If any person wilfully furnishes any false or incorrect information or knowingly suppresses any material information, required to be registered in accordance with provisions of Section 77, he shall be liable for action under Section 447.
Section 164 (1) (i) “(i) he has not complied with the provisions of subsection (1) of section 165.”
Substitution of new Section for Section 159 159. Penalty for default of certain provisions If any individual or director of a company makes any default in complying with any of the provisions of Section 152, Section 155 and Section 156, such individual or director of the company shall be liable to a penalty which may extend to fifty thousand rupees and where the default is a continuing one, with a further penalty which may extend to five hundred rupees for each day after the first during which such default continues.”
Section 454 A 454 A. Where a company or an officer of a company or any other person having already been subjected to penalty for default under any provisions of this Act, again commits such default within a period of three years from the date of order imposing such penalty passed by the adjudicating officer or the Regional Director, as the case may be, it or he shall be liable for the second or subsequent defaults for an amount equal to twice the amount of penalty provided for such default under the relevant provisions of this Act.”

Several substitutions have taken place under the new bill.

List of Sections under which the substitutions have taken place are as under:

Section 2 clause (41)
Section 14 (1)
Section 26
Section 29
Section 53
Section 64
Section 77
Substitution of new section for Section 87 Rectification by Central Government in register of charges.
Section 90 Addition of sub-section (4A); Substitution of sub-section 9
Section 92 Substitution of sub-section (5)
Section 102 Sub-section (5)
Section 105
Section 117 Sub-section (2) to be substituted
Section 121 Sub-section(3) to be substituted
Section 135 Major highlight under this Section is of the “Unspent CSR amount”
Section 137 Sub-section (3)
Section 140 Sub-section (3)
Section 157 Sub-section (2)
Section 165
Section 191 Sub-section (5)
Section 197 Sub-section (7) to be omitted | sub-section (15) to be substituted
Section 203 Sub-section (5)
Section 212
Section 238
Section 241
Section 242 Sub-section (4A) replacing sub-section (4)
Section 243 Insertion of sub-section (1A), (1b)
Section 248
Section 272
Section 398 Omission of word “prospectus”
Section 441
Section 446 B
Section 447
Section 454 Sub-section (3) shall be substituted

UPDATE: The Companies (Amendment) Act, 2019 receives the assent of President on 31-07-2019.

*Please refer to the Act here: The Companies (Amendment) Act, 2019

One comment

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    Very well written article. the compilation is very helpful for professionals.

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