Insight on Companies (Amendment) Ordinance, 2019, as introduced in Lok Sabha on July 25, 2019

The Companies (Amendment) Ordinance, 2019 (“Bill”) is introduced to replace the second ordinance. Earlier, a bill to replace the first ordinance, the bill which passed in Lok Sabha in January 4, 2019 and which could not get through in Rajya Sabha, and hence the second ordinance was promulgated in February 21, 2019.

 

This Bill is called as the Companies (Amendment) Act, 2019 (“Act’) and we made an insight into the Bill as below:

 

• Now the requirement of registration of Prospectus as prescribed in Section 26 of Companies Act, 2013 (“CA2013”) replaced with filing of prospectus with the Registrar.

 

• For the purpose of Section 29 regarding dematerialisation of securities for public issue, privates companies now brought under the ambit of Section 29.

 

• For mis-statement in prospectus, an expert will not be liable for any misleading statement if he withdraw such consent under Section 26(5) of CA2013 before filing of a copy of the prospectus with the Registrar. Earlier such consent withdrawal is before delivery of a copy of the prospectus for registration.

 

• Sub-rule 4A inserted in Section 90 of CA2013 whereby every company has to take necessary steps to identify an individual who is a significant beneficial owner in relation to the company and requires him to comply with the provisions of Section 90.

 

• Under Section 135 of CA2013 regarding Corporate Social Responsibility any unspent amount under sub-section (5) of 135 shall be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account. Such transferred amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, 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. Further, penal provisions for contravention of sub-section (5) or sub-section (6) of Section 135 be introduced whereby the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and every officer of such company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.

 

• Under Section 212 of CA2013, sub-section 14A inserted which states that where the report under sub-section (11) or sub-section (12) states that fraud has taken place in a company and due to such fraud any director, key managerial personnel, other officer of the company or any other person or entity, has taken undue advantage or benefit, whether in the form of any asset, property or cash or in any other manner, the Central Government may file an application before the Tribunal for appropriate orders with regard to disgorgement of such asset, property or cash and also for holding such director, key managerial personnel, other officer or any other person liable personally without any limitation of liability.

 

• Now the Central Government can initiate a case of oppression and mismanagement against such person and refer the same to the Tribunal with a request that the Tribunal may inquire into the case and record a decision as to whether or not such 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.