The Rajya Sabha on Tuesday passed the Companies (Amendment ) Bill 2019, which seeks to amend the Companies Act 2013. The Bill was cleared by the Lok Sabha on July 26.
Speaking about the Bill, Union Minister of Finance and Corporate Affairs Nirmala Sitharaman said that the Bill containing 44 clauses is being brought in to "ensure more accountability and better enforcement to strengthen the corporate governance norms and compliance management in corporate sector".
The Bill, which seeks to replace the Ordinance promulgated in February 2019, will keep a check of 'shell companies' and will promote 'ease of doing business', added the Minister.
The key features of the amendment are :
Allowing subsidiaries of foreign companies to follow different financial year for accounting
The Bill proposes to add a proviso to Section 2 to permit companies which are subsidiaries or associates of foreign companies which follow a different financial year for accounting outside India to follow any period as its financial year.
Measures to control 'shell companies'
The Bill proposes additions to the Act for controlling 'shell companies'. Newly proposed Section 10A makes it mandatory for new companies to file a declaration with the concerned Registrar within 180 days of date of incorporation that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of making of such declaration.
Non-filing of such a declaration can be a ground for removal of the company from the register of companies on grounds of non-commencement of business.
Sub-section (9) proposed to be added to Section 12 of the principal Act enables the Registrar to cause a physical verification of the registered office of the company if the Registrar has reasonable cause to believe that the company is not carrying on any business or operations.
Clause 36 of the Bill seeks to amend sub-section (1) of section 248 of the Act to insert new clauses (d) and (e) to provide that in case the subscribers to the memorandum have not paid the subscription which they had undertaken to pay and declaration under Section 10A has not been filed or where the company is not carrying on any business or operation as revealed after the physical verification, the Registrar shall send notice to such companies and its directors informing them of his intention to remove the name of the company from the register of companies.
Modification of punishment of fine
Sixteen sections of the Act are proposed to amended so as to modify the punishment as provided in the said sections from fine to monetary penalties to lessen the burden upon the Special Courts.
Provisions to deal with unspent CSR amount
Amendments are proposed to Section 135 to carry forward the unspent corporate social responsibility amount, to a special account to be spent within three financial years and transfer thereafter to the Fund specified in Schedule VII, such as PM's National Relief Fund.
Debarring of erring auditors
The Bill provides for the punishment 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 in case of proven misconduct.
Provisions to deal with persons 'unfit and improper' to manage companies
The amendment proposed to Section 241 empowers the Central Govt to move a matter before the NCLT against managerial personnel on several grounds such as :
(a) any person concerned in the conduct and management of the affairs of a company is or has been in connection therewith guilty of fraud, misfeasance, persistent negligence or default in carrying out his obligations and functions under the law or of breach of trust;
(b) the business of a company is not or has not been conducted and managed by such person in accordance with sound business principles or prudent commercial practices;
(c) a company is or has been conducted and managed by such person in a manner which is likely to cause, or has caused, serious injury or damage to the interest of the trade, industry or business to which such company pertains; or
(d) the business of a company is or has been conducted and managed by such person with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose or in a manner prejudicial to public interest
In such cases, the Central Government may refer the matter and request to the Tribunal to inquire into the case and record a decision about whether the person is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company.
Clause 35 of the Bill seeks to amend section 243 of the Act to provide that the person who is not a fit and proper person pursuant to section 242 shall not hold the office of a director or any other office connected with the conduct and management of the affairs of any company for a period of five years from the date of the relevant decision of the Tribunal. It also seeks to provide that the Central Government may, with the leave of the Tribunal, permit such person to hold any such office before the expiry of the said period of five years. The clause also seeks to provide that the person so removed from the office of a director or any other office connected with the conduct and management of the affairs of the company shall not be entitled to, or be paid, any compensation for the loss or termination of office.
Expanding the power to compound offences
The pecuniary limits of Regional Director ("RD") to compound offences under section 441 of the Act is proposed to be increased. The threshold is proposed to be increased to fine up to R. 25 lakhs.
Disqualification of director
A new clause has been inserted under the Section 164 to state that violation of Section 165(1) shall be a ground for disqualification of a director, if he/ she breaches the limits of maximum directorship allowed thereunder.
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