The Companies (Amendment) Act, 2019 ("Amendment Act"), received the assent of the President on July, 31, 2019. With the Amendment Act, Central Government seeks to ensure more accountability and better enforcement to strengthen the corporate governance norms and compliance management in corporate sector.
The key amendments of Amendment Act are as follows:
The Amendment Act re-introduces the filing of declaration before commencement of business. Within a period of 180 days from the date of incorporation of a company every subscriber to the memorandum is required to pay the value of the shares agreed to be taken by him/her and file a declaration in this regard. The amendment has been carried out with a view to identify inactive companies at initial stage and initiate their striking off by Registrar of Companies.
The Amendment Act stipulates non-maintenance of registered office by a company as the one of the grounds for removal of the name of the company from the register of Registrar of Companies. It was being observed that a large number of companies were not maintaining their registered office at the premises as registered with the Ministry of Corporate Affairs thereby giving an impression of merely being 'paper companies'. Hence, a need was felt to introduce the changes.
The Amendment Act also provides for penal liability for non-compliance in case a company fails to comply with above mentioned obligations. Additionally, separate penalty for continuing offences has also been prescribed.
CSR in case newly incorporated companies: The Amendment Act has also covered recently incorporated in the ambit of CSR regime. It provides that if a company has not completed 3 years from incorporation, the amount to be spent on a CSR fund will be equivalent to 2 percent of the net profits made by the company in the previous financial year (as against average net profits made by the company in 3 immediately preceding financial years).
The grounds provided are quite broad and includes matter like negligence in carrying out functions under law, breach of trust, conduct of business with an intention to defraud stakeholders. Once the order is passed, the concerned person cannot hold office of a director or any other office related to the management of the company for a maximum of 5 years from the date of the decision.
The Amendment Act has deeply focused on the CSR agenda, by indirectly mandating the companies to spend towards CSR activities, against the initial situation of "comply or explain" to now "comply or explain and comply". It seeks to improve 'ease of doing business' in India and keep a check of 'shell companies'. Further, it has replaced the existing system of judicial prosecution for the technical and procedural lapses with the departmental process of imposing the penalties, thereby reducing the burden of cases on the Tribunal and special courts.
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