Companies (Amendment) Ordinance, 2018 – Highlights

The Hon’ble President has given his assent for promulgation of the Companies Amendment (Ordinance), 2018 with effect from Friday 2nd November, 2018 with a dual objective of promoting ease of doing business and better corporate compliance.

The key highlights of Companies (Amendment) Ordinance, 2018 for Corporates are as summarised below. The amendments mainly aim to bring about:

• • Re-categorisation of certain offences, which are in the category of compoundable offences
    to an in-house adjudication framework, wherein defaults would be subject to the penalty levied by an adjudicating officer.

• • De-clogging the National Company Law Tribunal (NCLT) by introducing certain amendments and enhancing the role of the Regional Director (RD).

• Tackling the larger issue of “shell companies,” enhancing accountability with respect to filing documents related to charges, non-maintenance of registered office, etc.

A.  Change of powers (from NCLT TO RD): The following are the powers which were earlier vested with NCLT and are now vested with Central Government (RD):

a)  Change in the financial year of a company – Section 2(41); and
b)  Conversion of Public companies into Private companies – Section 14(1).

B.  Introduction of  Declarations and Verification of Registered Office by insertion of new Section :
Section 10A has been inserted wherein the Companies having share capital and incorporated post Ordinance shall not be allowed to commence business unless:

a)  A declaration is filed by a director, within a period of 180 days with the RoC  verifying that every subscriber has paid the subscription amount; and
b)  The verification of registered office has been duly filed with the RoC.

Non-filing of the declaration within 180 days and no presence of  Registered office on physical verification will lead to removal of name of the Company from the Register of Companies.

C.  Important changes for Directors and Key Managerial Personnels (KMPs):

a)  If the Director causesbreachin the maximum number of directorships i.e maximum 20 and 10 in case of Public Company then the same shall be the ground for disqualification of Director – Section 164(1)

b)  If the Director causes any contravention of provisions relating to payment in case of loss of office with respect to the transfer of undertaking, property or shares then he shall be liable to a penalty -Section 191(5).

c)  If any Company fails to furnish Director Identification Number (DIN) of its Directors then it shall be liable to pay a penalty -Section 157.

d)  Independent directors were not entitled to stock options and may receive sitting fees, reimbursement of expenses for participation in Board and profit related commission

Now the whole of the sub-section has been omitted and accordingly it came out with stricter norms for Independent Directors -Section 197(7).

e)  If there is any default with respect to compliance of provisions of  managerial remuneration payment then the Company or any person, whoever is in default shall be liable to pay a penalty-Section 197(15)

f)  If the Company breaches the provisions of with regards to the appointment of Key Managerial Personnel (Managing Director/Whole Time Directors/CEO/CFO/Company Secretary) then it will attract penalty -Section 203(5).

D.  Charge Management: The Amendment has tightened the regulation of charges.  If the charge is created after the commencement of Ordinance, then the same shall be registered within 60 days of creation. Further, the Registrar may allow such registration to be made within a further period of 60 days on payment of ad valorem fees -Section 77.

E.  Significant beneficial ownership disclosure: Considering the importance of the disclosure, the punishment for non-compliance is enhanced to the effect that the contravention is punishable with fine or imprisonment (up to one year) or both, instead of being punishable with only a fine.

F.  Consensuses of failure/Delay – Pre & Post-amendment:

Penalty: The Companies Ordinance provides the legal basis for various corporate governance norms that are considered essential for proper corporate operation and protecting the rights of stakeholders. Violations of such norms are defined as offences with associated penalties.

Penalty Vs. Fine: There are several sections of the Act that imposes ‘penalty’ for any non-compliance or any default under the relevant provisions of the Act. The matter goes for adjudication, where the adjudicating officer decides the penalty to be imposed. ‘Fine’ or ‘penalty’ though may sound similar yet are different from each other. Fine can be imposed only by a Court of law whereas penalty may be imposed by way of adjudication.

Penalty for repeat defaults: