The Ministry of Corporate Affairs ("MCA"), vide its order dated September 18, 2019, constituted Company Law Committee comprising of the representatives from the Industry chambers, Professional institutes and legal fraternity, to make recommendations for further amendment to the Companies Act, 2013 ("2013 Act"). The Company Law Committee submitted its report to the MCA on November 14, 2019. Basis the report for the proposed amendments submitted by Company Law Committee, the MCA introduced Companies (Amendment) Bill, 2020 in the Parliament which was passed by Lok Sabha on September 19, 2020 and by Rajya Sabha on September 22, 2020. Thereafter, the Companies (Amendment) Bill, 2020 received the assent of the President of India on September 28, 2020 and Companies (Amendment) Act, 2020 ("2020 Act") was introduced.
The Act has received the assent of the President of India, the MCA, may from time to time notify different dates from which the different provisions of the Act shall come into force.
The 2020 Act comprises of sixty six sections which seeks to amend the various provisions of the 2013 Act. The objective of the 2020 Act is to decriminalize non-compliance of minor, technical or procedural nature based on the nature and gravity of such offences, thereby facilitating and promoting ease of doing business and other amendments to further facilitate ease of living for law abiding corporates in the country.
The key takeaways of the 2020 Act are mentioned below:-
i. Amendment of section 2(52) (Definition of listed company) – A proviso has been inserted in the definition of listed company which infers that the Central Government may exclude, from the definition of listed companies, certain class or classes of companies which have listed or intend to list prescribed class of securities on any stock exchange. The proviso has been inserted with an intent to provide relief to unlisted private companies from being categorized as listed company which made them comply with stringent requirements such as appointment of independent and woman director, constitution of board committees.
ii. Amendment of section 16 (Rectification of name of company) – In case of resemblance of name of a company with a registered trademark, the time limit allowed to such company for rectification of its name, has been reduced from six months to three months.
Further, in case a company does not comply with the directions
of the Central Government to rectify its name, then the Central
Government would be required to allot a new name to such company
and a fresh certificate of incorporation would be issued to such
company by the Registrar.
iii. Amendment of section 23 (Public offer and private placement) / – New provisions have been inserted according to which the Central Government may allow a class of public companies to issue certain class of securities to be listed on permitted stock exchanges in permissible foreign jurisdictions.
iv. Amendment of section 62 (Further issue of share capital) – As per the amended provision, offer for further issue of shares of a company can remain open for less than 15 days which will be prescribed by the Central Government thereby reducing up the timeline and speeding up the process for rights issue.
v. Amendment of section 89 (declaration in respect of beneficial interest in shares of a company) – As per the amended section, the Central Government, if necessary in the public interest, may issue notification to exempt any class or classes of persons to comply with the provisions of section 89.
vi. Amendment to section 117 (resolutions and agreements to be filed) – As per the amended provision, if in the ordinary course of its business, a class of non-banking financial company registered under Chapter IIIB of the Reserve Bank of India Act, 1934, and a class of housing finance company registered under the National Housing Bank Act, 1987, adopt a resolution to grant loans, or give guarantee or provide security under section 179(3)(f), such resolution would not be required to be filed with the MCA. Earlier, the aforesaid exemption was granted only in case such a resolution was adopted by a banking company.
vii. Insertion of Section 129A (Periodical Financial results) – A new section has been inserted in the 2020 Act wherein the Central Government may specify certain classes of unlisted companies to prepare periodical financial statement for specified period along with the manner of audit or limited review thereof by the Board of Directors and its filing with the Registrar.
viii. Amendment of section 135 (Corporate Social Responsibility) – A proviso has been inserted in the 2020 Act which provides that if a company spends in excess of the amount required to be spent for corporate social responsibility under the provisions of 2013 Act, during a financial year, then the excess amount so spent can be set off against the amount required to be spent for the succeeding financial years, in the prescribed manner.
Further, if the corporate social responsibility spend of a
company does not exceed fifty lakh rupees, such company would not
be required to constitue a corporate social responsibility
committee and the functions of such committee would be performed by
the board of directors of the company.
ix. Amendment of section 149 (Company to have Board of Directors) – A proviso has been inserted which indicates that in case a company has no profit or inadequate profits, the independent director of such company may receive remuneration as per the provisions of Section 197 read with Schedule V of the 2013 Act. The proviso has been included to appropriately compensate the independent directors for the valuable time and experience they invest so as to bring objectivity to the functioning of the Board.
x. A related amendment has also been made to section 197 (Overall Maximum Managerial Remuneration and Managerial Remuneration in Case of Absence or Inadequacy of Profits) to include the independent directors.
xi. Insertion of Chapter XXIA (Producer Companies) – As of now, the provisions of the Companies Act, 1956 related to the Producer companies have been in force. On similar lines, a new chapter (Chapter XXIA) comprising of the provisions with respect to the Producer companies has been inserted by the 2020 Act.
xii. Insertion of section 393A – As per the section inserted, the Central Government has been empowered to issue notification(s) to exempt any class of foreign company and companies incorporated or to be incorporated outside India from any of the provisions of Chapter XXII.
xiii. Insertion of section 418A (benches of Appellate Tribunal) – In order to expedite the process of hearing of appeals, Central Government has been empowered to issue notifications for establishment of benches to exercise the powers of the National Company Law Appellate Tribunal.
xiv. Amendment of section 446B (lesser penalties for certain companies) – The start-up and producer companies, have also been included in the ambit of lesser penalties than those specified under the respective provisions.
In addition to the aforementioned amendments, several penal provisions of the 2013 Act relating to compoundable offences have been amended by eliminating imprisonment and limiting the penalties to monetary punishment only. As a result, the overall burden of the Special Courts and National Company Law Tribunal would be further reduced. Majority of the penal provisions have been notified by the MCA vide its notification dated December 21, 2020.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.