The Companies (Amendment) Ordinance, 2018: Key Highlights

The Companies (Amendment) Ordinance, 2018 (“Ordinance“) received the President of India’s assent bringing into force further amendments to certain provisions of the Companies Act, 2013 (“Act“) with effect from November 2, 2018. The Ordinance promulgated is based on the recommendations made by a committee appointed by the Government to review offences under the Act.

Set forth below is an analysis of the key provisions of the Ordinance:

Re-introduction of Commencement of Business Declaration

The Ordinance has introduced Section 10A in the Act which mandates that every company incorporated after commencement of the Ordinance shall not commence business or exercise any borrowing powers unless it satisfies the following two conditions:(i) A declaration is filed by a director within a period of 180 days of the date of incorporation of the company with the Registrar in the prescribed form, stating that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of making such declaration; and (ii) A declaration is filed by the Company with the Registrar furnishing verification of its registered office within a period of 30 days from its incorporation.

In case no declaration is filed within 180 days of incorporation and the Registrar has reasonable cause to believe that the Company is not conducting any business or operations, the Registrar may initiate the removal of the Company’s name from the register of companies.

Physical Verification of the Registered Office

Sub-section 8 to Section 12 has been introduced through the Ordinance. As per the same, if the Registrar has reasonable cause to believe that the Company is not carrying on any business or operations, he may cause a physical verification of the registered office of the Company in the prescribed manner. If any default is found to be made on such verification, the Registrar may initiate action for removal of the Company’s name from the register of companies.

Approval for Conversion of Public Company into a Private Company

The Ordinance provides that any alteration of articles of association having the effect of conversion of a public company into a private company will not be valid unless it is approved by an order of the Central Government on an application made in a prescribed manner. Earlier, National Company Law Tribunal (“NCLT“) was responsible for granting this approval. For applications pending with the NCLT as on the date of the Ordinance, NCLT only will be responsible for granting the approval.

Registration of Charges

Section 77 of the Act which talks about registration of charges has been amended through the Ordinance. As per such amendment, in case of charges created by the Company before November 2, 2018 the Registrar may on application by the company allow registration of the charge, within a period of 300 days of such charge creation. If the registration is not made within 300 days, the registration of the charge can be made within six months from the date of commencement of the Ordinance.

In case of charges created after November 2, 2018 the Registrar may on application by the Company allow registration of the charge within 60 days of such charge creation. If the charge is not registered within the aforesaid period, the registration shall be made within an additional period of 60 days after payment of such ad-valorem fees.

Significant Beneficial Ownership Disclosure

In case the rights of a shareholder have been suspended by the NCLT for not providing disclosure of beneficial interests as provided under the Act, the company or person aggrieved by its order may make an application to it for relaxation or lifting of restrictions within a period of 1 year from the date of order. In case no application is filed as prescribed herein, the underlying shares will be transferred to the Investor Education and Protection Fund.

Disqualification for Appointment of a Director

A new provision for disqualification of a person for appointment as a director has been introduced as per which if a person holds more than the total number of directorships allowed as per the Act, then he will be disqualified for being appointed as director of the Company. The Act allows a person to hold not more than 20 directorships, out of which directorship in public companies cannot exceed 10.

De-Clogging of NCLT

Offences (with only fine or imprisonment or fine), where the maximum amount of fine is up to INR 2.5 million, will now be compounded by the Regional Director. The earlier limit was up to INR 0.5 million only, and any matter beyond such limit had to be compounded by the NCLT.

Re-Categorisation of Certain Offences

Certain offences under the Act have been re-categorised as defaults carrying civil liabilities to bring them under an in-house adjudication mechanism. Some of the key provisions amended are as follows:

  • Issue of shares at a discount;
  • Non-filing of annual return within the due date;
  • Failure/delay in filing financial statement;
  • Contraventions related to Director Identification Number;
  • Failure/delay in filing certain resolutions;
  • Failure/ delay in filing statement by the auditor after resignation; and
  • Managerial remuneration.