First phase of commencement of Companies (Amendment) Act, 2020

-Commencement notification dated 21st December, 2020

Smriti Wadehra, Manager and Henil Shah, Assistant Manger

corplaw@vinodkothari.com

The Ministry of Corporate Affairs vide its commencement Notification dated 21st December, 2020 has notified 45 sections of the Companies (Amendment) Act, 2020 [1]which recently received the President’s assent on 28th September, 2020[2]. The sections notified by the Ministry majorly relate to re-categorization of criminal offences into civil wrongs which is in line with the Government of India’s policy to decriminalise non-compliances that are technical and procedural nature thereby promoting ease of doing business.

A brief synopsis of the amendments is detailed below:

Section No. of CAA, 2020 Section No. of CA, 2013 Pertains to Existing Provisions Amended Provisions
Shift from fine to penalty
9 56(6) Any default in transfer and transmission of Securities Fine on Company: Min Rs. 25,000 Max Rs. 5 Lakhs and

Fine on Officer of the company in default: Min- Rs.10,000 Max – Rs. 1 Lakhs.

 

The company and every officer of the company who is in default shall be liable to a penalty of Rs. 50,000.
16 86(1) Contravention of provisions relating to registration of charges Fine on Company: Min- Rs. 1 Lakh Max- Rs. 10 Lakhs

Fine on officer in default: Imprisonment for a term which may extend to 6 months or with fine Min- Rs. 25,000 Max- Rs. 1 Lakh, or with both.

Company shall be liable to a penalty of Rs. 5 Lakhs and every officer of the company who is in default shall be liable to a penalty of Rs. 50,000.
17 88(5) Failure to maintain Register of Members or debenture holders etc.

 

Fine on Company: Min- Rs. 50,000 Max- Rs. 3 Lakhs and where the failure is a continuing one, with a further fine of Rs. 1000 for every day,

 

Every officer of the company who is in default: Fine of min- Rs. 50,000 Max-Rs. 3 Lakhs where the failure is a continuing one, with a further fine of Rs. 1000 for every day.

 

Company shall be liable to a penalty of Rs. 3 Lakhs and every officer of the company who is in default shall be liable to a penalty of Rs. 50,000.
18 89(5) Failure to submit declaration in respect of beneficial Interest in any share

 

Person shall be punishable with fine which may extend to Rs. 50,000 and where the failure is a continuing one, with a further fine which may extend to Rs. 1000 for every day after the first during which the failure continues.

 

Person shall be liable to a penalty of Rs. 50,000 and in case of continuing failure, with a further penalty of Rs. 200 for each day after the first during which such failure continues, subject to a maximum of Rs. 5 Lakhs.
18 89(6) Declaration in Respect of Beneficial Interest in any Share

 

The company and every officer of the company who is in default shall be punishable with fine which shall not be less than Rs. 500 but which may extend to Rs. 1000 and where the failure is a continuing one, with a further fine which may extend to Rs. 1000 for every day after the first during which the failure continues.

 

The company and every officer of the company who is in default shall be liable to a penalty of Rs. 1000 for each day during which such failure continues, subject to a maximum of Rs. 5 Lakhs in the case of a company and Rs. 2 Lakhs in case of an officer who is in default.
19 90(10) Failure to declare significant beneficial ownership in the Company Person shall be punishable with imprisonment for a term which may extend to 1 year or with fine which shall not be less than Rs. 1 Lakh but which may extend to Rs. 10 Lakhs or with both and where the failure is a continuing one, with a further fine which may extend to Rs. 1000 for every day after the first during which the failure continues.

 

Person shall be liable to penalty of Rs. 50,000 and in case of continuing failure, with a further penalty of Rs. 1000 for each day after the first during which such failure continues, subject to a maximum of Rs. 2 Lakhs.
19 90(11) Failure to maintain register of significant beneficial owners in a company

 

Company and every officer of the company who is in default shall be punishable with fine which shall not be less than Rs. 10 Lakhs but which may extend to Rs. 50 Lakhs and where the failure is a continuing one, with a further fine which may extend to Ra. 1000 for every day after the first during which the failure continues. Company shall be liable to a penalty of Rs. 1 Lakhs and in case of continuing failure, with a further penalty of Rs. 500 for each day, after the first during which such failure continues, subject to a maximum of Rs. 5 Lakhs and every officer of the company who is in default shall be liable to a penalty of Rs. 25,000 and in case of continuing failure, with a further penalty of Rs. 200 for each day, after the first during which such failure continues, subject to a maximum of Rs.1 Lakh

 

20 92(6) Certification of Annual Return not in conformity with the section

 

Company secretary in practice shall be punishable with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 5 Lakhs.

 

Company secretary in practice shall be liable to a penalty of Rs. 2 Lakhs.
21 105(5) Proxies If for the purpose of any meeting of a company, invitations to appoint as proxy a person or one of a number of persons specified in the invitations are issued at the company’s expense to any member entitled to have a notice of the meeting sent to him and to vote thereat by proxy, every officer of the company who knowingly issues the invitations as aforesaid or wilfully authorises or permits their issue

shall be punishable with fine which may extend to Rs. 1 Lakh:

Provided that an officer shall not be punishable under this sub-section by reason only of the issue to a member at his request in writing of a form of appointment naming the proxy, or of a list of persons willing to act as proxies, if the form or list is available on request in writing to every member entitled to vote at the meeting by proxy.

 

If for the purpose of any meeting of a company, invitations to appoint as proxy a person or one of a number of persons specified in the invitations are issued at the company’s expense to any member entitled to have a notice of the meeting sent to him and to vote thereat by proxy, every officer of the company who issues the invitation as aforesaid or authorises or permits their issue, shall be liable to a penalty of Rs. 50,000.

Provided that an officer shall not be liable under this sub-section by reason only of the issue to a member at his request in writing of a form of appointment naming the proxy, or of a list of persons willing to act as proxies, if the form or list is available on request in writing to every member entitled to vote at the meeting by proxy

30 143(15) Failure to report fraud under the section Any auditor, cost accountant or company secretary in practice shall be punishable with fine which shall not be less than Rs. 1 Lakh but which may extend to Rs. 25 Lakhs. Any auditor, cost accountant, or company secretary shall,

(a)    in case of a listed company, be liable to a penalty of Rs. 5 Lakhs; and

(b)    in case of any other company, be liable to a penalty of Rs. 1 Lakh

35 172 Non-compliance of any provisions of chapter relating to appointment and qualification of directors Company and every officer of the company who is in default shall be punishable with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 5 Lakhs. Company and every officer of the company who is in default shall be liable to a penalty of Rs. 50,000, and in case of continuing failure, with a further penalty of Rs. 500 for each day during which such failure continues, subject to a maximum of Rs. 3 Lakhs in case of a company

 

36 178(8) Non-compliance of provisions relating to section 177 and 178 of the Act. Company shall be punishable with fine which shall not be less than Rs. 1 Lakh but which may extend to Rs. 5 Lakhs and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 1 year or with fine which shall not be less than Rs. 25,000 but which may extend to Rs. 1 Lakh, or with both.

 

Company shall be liable to a penalty of Rs. 5 Lakhs and every officer of the company who is in default shall be liable to a penalty of Rs. 1 Lakh.

 

37 184(4) Failure of disclosure of Interest by Director

 

Director shall be punishable with imprisonment for a term which may extend to 1 year or with fine which may extend to Rs. 1 Lakh, or with both. Director shall be liable to a penalty of Rs. 1 Lakh.

 

38 187(4) Failure to hold investments by the company in its own name

 

The company shall be punishable with fine which shall not be less than Rs. 25,000 but which may extend to Rs. 25 Lakhs and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than Rs. 25,000 but which may extend to Rs. 1 Lakh, or with both.

 

The company shall be liable to a penalty of Rs 5 Lakhs and every officer of the company who is in default shall be liable to a penalty of Rs. 50,000.
39 188(5) Related Party Transactions

 

Any director or any other employee of a company, who had entered into or authorised the contract or arrangement in violation of the provisions of this section shall-

(i) in case of listed company, be punishable with imprisonment for a term which may extend to 1 year or with fine which shall not be less than Rs. 25,000 but which may extend to Rs. 5 Lakhs, or with both; and

(ii) In case of any other company, be punishable with fine which shall not be less than Rs. 25,000 but which may extend to Rs. 5 Lakhs.

 

Any director or any other employee of a company, who had entered into or authorised the contract or arrangement in violation of the provisions of this section shall-

(i)            in case of listed company, be liable to a penalty Rs. 25 Lakhs; and

(ii)            In case of any other company, be liable to a penalty of Rs. 5 Lakhs.

41 204(4) Contravention of provisions relating to secretarial Audit for bigger companies

 

The company, every officer of the company or the company secretary in practice, who is in default, shall be punishable with fine which shall not be less than Rs. 1 Lakh but which may extend to Rs. 5 Lakhs. The company, every officer of the company or the company secretary in practice, who is in default, shall be liable to a penalty of Rs. 2 Lakhs.
42 232(8) Merger and Amalgamation of Companies

 

If a transferor company or a transferee company contravenes the provisions of the section, the transferor company or the transferee company, as the case may be, shall be punishable with fine which shall not be less than Rs. 1 Lakh but which may extend to Rs. 25 Lakhs and every officer of such transferor or transferee company who is in default, shall be punishable with imprisonment for a term which may extend to 1 year or with fine which shall not be less than Rs. 1 Lakh but which may extend to Rs. 3 Lakhs, or with both.

 

If a company fails to file the certified true copy of the order with the Registrar for registration within 30 days of the receipt of order, the company and every officer of the company who is in default shall be liable to a penalty of Rs. 20,000, and where the failure is a continuing one, with a further penalty of Rs. 1000 for each day after the first during which such failure continues, subject to a maximum of Rs. 3 Lakhs.
57 405 Failure to provide any information or statistic to CG Company shall be punishable with fine which may extend to Rs. 25,000 and every officer of the company who is in default, shall be punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than Rs. 25, 000 but which may extend to 3 lakh rupees, or with both.

 

The company and every officer of the company who is in default shall be liable to a penalty of Rs. 25,000 and in case of continuing failure, with a further penalty of Rs. 1000 for each day after the first during which such failure continues, subject to a maximum of Rs. 3 lakh rupees.
63 450 Punishment where no specific penalty or punishment is provided Company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to Rs. 10,000, and where the contravention is continuing one, with a further fine which may extend to Rs. 1000 for every day after the first during which the contravention continues. Company and every officer of the company who is in default or such other person shall be liable to a penalty of Rs. 10,000 and in case of continuing contravention, with a further penalty of Rs. 1000 foreach day after the first during which the contravention continues, subject to a maximum of Rs. 2 lakhs in case of a company and Rs. 50,000 in case of an officer who is in default or any other person.

 

Omission of imprisonment provisions
3 8(11) Failure in fulfilment in requirement relating to formation of companies with Charitable Objects, etc.

 

Directors and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 3 years or with fine which shall not be less than Rs. 25000 which may extend to Rs. 25 lakhs, or with both.

 

Provided that when it is proved that the affairs of the company were conducted fraudulently, every officer in default shall be liable for action under section 447.

 

Directors and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 3 years or with fine which shall not be less than Rs. 25000 which may extend to Rs. 25 lakhs, or with both.

 

Provided that when it is proved that the affairs of the company were conducted fraudulently, every officer in default shall be liable for action under section 447.

 

6 26(9) Issue of prospectus in contravention of provisions of section 26 of the Act Every person who is knowingly a party to the issue of such prospectus:

shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 3 Lakhs or with both.

Every person who is knowingly a party to the issue of such prospectus:

shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than Rs. 50,000  but which may extend to Rs. 3 Lakhs or with both.

 

7 40(5) Default in complying with provisions relating to securities being dealt with in Stock Exchanges

 

Every officer of the company who is in default shall be punishable:

With imprisonment for a term which may extend to one year or with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 3 Lakhs, or with both.

 

Every officer of the company who is in default shall be punishable :

With imprisonment for a term which may extend to one year or with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 3 Lakhs, or with both.

 

14 68(11) Non-compliance of buyback provisions Every officer of the company who is in default shall be punishable:

With imprisonment for a term which may extend to 3 years or with fine which shall not be less than Rs. 1 Lakh but which may extend to Rs. 3 Lakhs, or with both.

 

Every officer of the company who is in default shall be punishable:

With imprisonment for a term which may extend to 3 years or with fine which shall not be less than Rs. 1 Lakh but which may extend to Rs. 3 Lakhs, or with both.

 

24 128(6) Books of Account, etc., to be kept by Company

 

If the managing director, the whole-time director in charge of finance, the Chief Financial Officer or any other person of a company charged by the Board with the duty of maintenance of books of accounts of the company and contravenes such provisions, such persons of the company shall be punishable with imprisonment for a term which may extend to 1 year or with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 5 Lakhs or with both.

 

If the managing director, the whole-time director in charge of finance, the Chief Financial Officer or any other person of a company charged by the Board duty of maintenance of books of accounts of the company and contravenes such provisions, such persons of the company shall be punishable with imprisonment for a term which may extend to 1 year or with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 5 Lakhs or with both.

 

26 134(8) Contravention of provision relating to the Financial Statements, Board’s Report, etc of the Company Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 3 years or with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 5 Lakhs, or with both.

 

Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 3 years shall be liable to a penalty of Rs. 50,000.

 

31 147(1) Punishment for contravention of provision relating to appointment of auditors and audit of the Company Every officer of the company who is in default shall be punishable:

with imprisonment for a term which may extend to 1 year or with fine which shall not be less than Rs. 10,000 but which may extend to Rs. 1 Lakh, or with both.

 

Every officer of the company who is in default shall be punishable:

with imprisonment for a term which may extend to 1 year or with fine which shall not be less than Rs. 10,000 but which may extend to Rs. 1 Lakh, or with both.

 

34 167(2) Continuation of office by director after knowing his disqualifications Director shall be punishable with imprisonment for a term which may extend to 1 year or with fine which shall not be less than Rs. 1 Lakh but which may extend to Rs. 5 Lakhs, or with both

 

Director shall be punishable with imprisonment for a term which may extend to 1 year or with fine which shall not be less than Rs. 1 Lakh but which may extend to Rs. 5 Lakhs, or with both

 

43 242(8) Failure to comply with alteration in the charter documents by the Tribunal Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than Rs. 25,000 but which may extend to Rs. 1 Lakh, or with both.

 

Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than Rs. 25,000 but which may extend to Rs. 1 Lakh, or with both.

 

44 243(2) Person who knowingly acts as MD or other director in the company while entering into agreements Such person shall be punishable with imprisonment for a term which may extend to 6 months or with fine which may extend to Rs. 5 Lakhs, or with both.

 

Such person shall be punishable with imprisonment for a term which may extend to 6 months or with fine which may extend to Rs. 5 Lakhs, or with both.

 

49 347(4) Disposal of Books and Papers of Company.

 

If any person acts in contravention of any rule framed or an order made under sub-section (3), he shall be punishable with imprisonment for a term which may extend to 6 months or with fine which may extend to Rs. 50,000, or with both.

 

If any person acts in contravention of any rule framed or an order made under sub-section (3), he shall be punishable with imprisonment for a term which may extend to 6 months or with fine which may extend to Rs. 50,000, or with both.

 

54 392 Punishment for contravention of provisions of Chapter XXII relating to companies incorporated outside India The foreign company shall be punishable with fine which shall not be less than Rs. 1 lakh but which may extend to Rs. 3 lakh and in the case of a continuing offence, with an additional fine which may extend to Rs. 50, 000 for every day after the first during which the contravention continues and every officer of the foreign company who is in default shall be punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than Rs. 25,000 but which may extend to Rs. 5 lakhs, or with both The foreign company shall be punishable with fine which shall not be less than Rs. 1 lakh but which may extend to Rs. 3 lakhs and in the case of a continuing offence, with an additional fine which may extend to Rs. 50, 000 for every day after the first during which the contravention continues and every officer of the foreign company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than Rs. 25,000 but which may extend to Rs. 5 lakhs, or with both
61 441 Compounding of certain offence Any officer or other employee of the company who fails to comply with any order made by the Tribunal or the Regional Director or any officer authorised by the Central Government under sub-section (4) shall be punishable with imprisonment for a term which may extend to 6 months, or with fine not exceeding Rs. 1 lakh, or with both If any officer or other employee of the company who fails to comply with any order made by the Tribunal or the Regional Director or any officer authorised by the Central Government under sub-section (4), the maximum amount of fine for the offence proposed to be compounded under this section shall be twice the amount provided in the corresponding section in which punishment for such offence is provided.

 

Amendment in penal provisions
20 92(5) Failure to file Annual Return within the specified time Company and its every officer who is in default shall be liable to a penalty of Rs. 50,000 and in case of continuing failure, with further penalty of Rs. 100 for each day during which such failure continues, subject to a maximum of Rs. 5 Lakhs. Company and its every officer who is in default shall be liable to a penalty of Rs. 10,000 and in case of continuing failure, with further penalty of Rs. 100 for each day during which such failure continues, subject to a maximum of Rs. 2 Lakhs in case of a company and Rs. 50,000 in case of an officer who is in default.
22 117(2) Failure to file resolution or agreement with the Registrar Penalty on Company: Rs. 1 Lakh and in case of continuing failure, with further penalty of Rs. 500 for each day after the first during which such failure continues, subject to a maximum of Rs. 25 Lakhs.

Every officer of the company who is in default including liquidator of the company, if any, shall be liable to a penalty of Rs. 50,000 and in case of continuing failure, with further penalty of Rs. 500 for each day after the first during which such failure continues, subject to a maximum of Rs. 5 Lakhs.

Penalty on Company: Rs. 10,000 and in case of continuing failure, with further penalty of Rs. 100 for each day after the first during which such failure continues, subject to a maximum of Rs. 2 Lakhs.

Every officer of the company who is in default including liquidator of the company, if any, shall be liable to a penalty of Rs. 10,000 and in case of continuing failure, with further penalty of Rs. 100 for each day after the first during which such failure continues, subject to a maximum of Rs. 50,000.

28 137(3) Failure to file a copy of Financial Statement to be Filed with Registrar

 

Company shall be liable to a penalty of Rs. 1000 for every day during which the failure continues but which shall not be more than Rs. 10 Lakhs, and the MD and the CFO of the company, if any, and, in the absence, any other director who is charged by the Board with the responsibility of complying with the provisions of this section, and, in the absence of any such director, all the directors of the company, shall be liable to a penalty of Rs. 1 Lakh and in case of continuing failure, with further penalty of Rs. 100 for each day after the first during which such failure continues, subject to a maximum of Rs. 5 Lakhs. Company shall be liable to a penalty of Rs. 10,000 and in case of continuing failure, with a further penalty of Rs. 100 for each day during which such failure continues, subject to a maximum of Rs. 2 Lakhs, and the MD and the CFO of the company, if any, and, in the absence any other director who is charged by the Board with the responsibility of complying with the provisions of this section, and, in the absence of any such director, all the directors of the company, shall be liable to a penalty of Rs. 10,000 and in case of continuing failure, with further penalty of Rs. 100 for each day after the first during which such failure continues, subject to a maximum of Rs. 50,000.
29 140(3) Failure to file resignation with the company and Registrar The auditor shall be liable to a penalty of Rs. 50,000 or an amount equal to the remuneration of the auditor, whichever is less, and in case of continuing failure, with further penalty of Rs. 500 for each day after the first during which such failure continues, subject to a maximum of Rs. 5 Lakhs. The auditor shall be liable to a penalty of Rs. 50,000 or an amount equal to the remuneration of the auditor, whichever is less, and in case of continuing failure, with further penalty of Rs. 500 for each day after the first during which such failure continues, subject to a maximum of Rs. 2 Lakhs.
33 165(6) Failure to comply with restriction on maximum number of Directorships

 

Person shall be liable to a penalty of Rs. 5000 for each day after the first during which such contravention continues. Person shall be liable to a penalty of Rs. 2000 for each day after the first during which such violation continues, subject to a maximum of Rs. 2 Lakhs.
50 348(6) Information as to pending liquidations If a Company Liquidator contravenes the provisions of this section, the Company Liquidator shall be punishable with fine which may extend to five thousand rupees for every day during which the failure continues.

 

Where a Company Liquidator, who is an insolvency professional registered under the Insolvency and Bankruptcy Code, 2016 is in default in complying with the provisions of this section, then such default shall be deemed to be a contravention of the provisions of the said Code, and the rules and regulations made thereunder for the purposes of proceedings under Chapter VI of Part IV of that Code.

 

Omission of penal provisions
8 48(5) Failure to protect rights of the members during variation of Shareholders’ Rights Fine on Company: Which shall not be less than Rs. 25,000 but which may extend to Rs. 5 Lakhs and

Every officer of the company who is in default shall be punishable: with imprisonment for a term which may extend to 6 months or with fine which shall not be less than Rs. 25,000 but which may extend to Rs. 5 Lakhs, or with both.

Omitted
10 59(5) Default in complying with order of Tribunal w.r.t. rectification of register of members Fine on Company: Which shall not be less than Rs. 1 Lakh but which may extend to Rs. 5 Lakhs and

Every officer of the company who is in default shall be punishable: With imprisonment for a term which may extend to 1 year or with fine which shall not be less than Rs. 1 Lakh but which may extend to Rs. 3 Lakhs, or with both.

Omitted
13 66(11) Failure to publish the order of reduction of capital of the Company Fine on Company: not be less than Rs. 5 Lakhs but which may extend to Rs. 25 Lakhs

 

Omitted
15 71(11) Failure to comply with order of Tribunal for discharge of assets of the Company Every officer of the company who is in default shall be punishable: With imprisonment for a term which may extend to 3 years or with fine which shall not be less than Rs. 2 Lakhs but which may extend to Rs. 5 Lakhs, or with both. Omitted
46 284(2) Promoters, directors etc. to cooperate with Company Liquidator Where any person, without reasonable cause, fails to discharge his obligations under sub-section (1), he shall be punishable with imprisonment which may extend to six months or with fine which may extend to fifty thousand rupees, or with both

 

If any person required to assist or cooperate with the Company Liquidator under sub-section (1) does not assist or cooperate, the Company Liquidator may make an application to the Tribunal for necessary directions.

 

On receiving an application under sub-section (2), the Tribunal shall, by an order, direct the person required to assist or cooperate with the Company Liquidator to comply with the instructions of the Company Liquidator and to cooperate with him in discharging his functions and duties

47 302(4) Dissolution of company by Tribunal If the Company Liquidator makes a default in forwarding a copy of the order within the period specified in sub-section (3), the Company Liquidator shall be punishable with fine which may extend to five thousand rupees for every day during which the default continues.

 

Omitted
48 342(6) Prosecution of Delinquent Officers and Members of Company

 

If a person fails or neglects to give assistance required by sub-section (5), he shall be liable to pay fine which shall not be less than Rs. 25,000 but which may extend to Rs. 1 Lakh.

 

 
50 348(7) Information as to Pending Liquidations.

 

If a Company Liquidator makes wilful default in causing the statement referred to in sub-section (1) audited by a person who is not qualified to act as an auditor of the company, the Company Liquidator shall be punishable with imprisonment for a term which may extend to 6 months or with fine which may extend to Rs. 1 Lakh, or with both. Omitted
Amendments relating to dissolution of company
47 302(3) Dissolution of company by tribunal A copy of the order shall, within thirty days from the date thereof, be forwarded by the Company Liquidator to the Registrar who shall record in the register relating to the company a minute of the dissolution of the company

 

The Tribunal shall, within a period of thirty days from the date of the order—

(a) forward a copy of the order to the Registrar who shall record in the register relating to the company a minute of the dissolution of the company; and

(b) direct the Company Liquidator to forward a copy of the order to the Registrar who shall record in the register relating to the company a minute of the dissolution of the company.

 

51 356 Powers of Tribunal to declare dissolution of company void It shall be the duty of the Company Liquidator or the person on whose application the order was made, within thirty days after the making of the order or such further time as the Tribunal may allow, to file a certified copy of the order with the Registrar who shall register the same, and if the Company Liquidator or the person fails so to do, the Company Liquidator or the person shall be punishable with fine which may extend to ten thousand rupees for every day during which the default continues.

 

The Tribunal shall—

(a) forward a copy of the order, within thirty days from the date thereof, to the Registrar who shall record the same; and (b) direct the Company Liquidator or the person on whose application the order was made, to file a certified copy of the order, within thirty days from the date thereof or such further period as allowed by the Tribunal, with the Registrar who shall record the same

 

[1] https://www.mca.gov.in/Ministry/pdf/AmendmentAct_29092020.pdf

[2] http://egazette.nic.in/WriteReadData/2020/223873.pdf

 

Our other write ups covering Companies (Amendment) Act, 2020:

  1. Highlights of Companies (Amendment) Bill, 2020: http://vinodkothari.com/2020/03/highlights-of-the-companies-amendment-bill-2020/
  2. Companies (Amendment) Act, 2020 PowerPoint presentation: http://vinodkothari.com/2020/09/companies-amendment-act-2020/
  3. Enforcement Status of Companies (Amendment) Act, 2020:http://vinodkothari.com/2020/12/enforcement-status-of-companies-amendment-act-2020/

Schemes of Arrangement under the Scanner

Listed Companies made subject to stricter scrutiny and multilevel approvals

-Megha Mittal

(mittal@vinodkothari.com)

With the objective of empowering the stock exchanges and streamlining the processing of draft schemes filed with the stock exchanges, the Securities and Exchange Board of India has issues a Circular dated 3rd November, 2011[1] (“Amendment Circular”) thereby amending the Circular dated March 10, 2017[2] (“March, 2017 Circular”) which lays down the framework for Schemes of Arrangement by listed entities and relaxation under Rule 19(7) of the Securities Contracts (Regulation) Rules, 1957.

The Amendment Circular shall be effective for scheme submitted to the Stock Exchange after 17th November, 2020 and for those companies which are either listed, seeking to be listed or awaiting trading approval after 3rd November, 2020.

Schemes of Arrangement is unarguably a material event for the listed company, and as such, optimum transparency, disclosure by the company, coupled with stringent checks by the Committees, viz Audit Committee and Committee of Independent Directors, becomes a very crucial factor for decision making by the shareholders.

The Amendment Circular primarily aims at ensuring that the recognized stock exchanges refer draft  schemes  to  SEBI  only  upon  being fully convinced that the listed entity is in compliance with SEBI Act, Rules, Regulations and circulars issued thereunder. While the amendments introduced, bring to light the tenet of the regulatory bodies to ensure higher levels of transparency and disclosures with respect to the proposed schemes, there also seems to be an underlying tone of stress and responsibility that has been imposed on the Audit Committee and Independent Directors to assess the viability of the proposed Schemes.

In this article, the author has given a detailed comparison of the provisions, before and after the Amendment Circular, along with comments on the same.

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MCA widens CSR for defence personnel

Measures for the CAPF and CMPF veterans and dependants now a part of CSR activity

Ankit Vashishth, Executive, Vinod Kothari and Company; corplaw@vinodkothari.com

Introduction

Schedule VII of the Companies Act, 2013 (‘Act’) currently includes measures taken for the armed forces veterans, war widows and their dependants as one of the CSR activities. The Ministry of Corporate Affairs (“MCA”) vide its Notification[1] dated 23rd June, 2020 has included contribution made towards the benefit of Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans and their dependents including widows, within the ambit of CSR.

MCA has issued several notifications either to clarify or broaden the ambit of Schedule VII. This Notification is yet another step taken by the MCA for widening the scope of CSR activities to include CAPF and CMPF veterans and their dependants and war widows.

This note tries to provide a quick coverage on the said amendment.

Difference between Armed Forces and CAPF/CPMF

Armed Forces CAPF CPMF
The term “armed forces” basically means – Indian Armed Forces which are the military forces of the Republic of India. It comprises three professional uniformed services :

1.   The Indian Army

2.   The Indian Navy

3.   The Indian Air Force

CAPF (Central Armed Police Force)[2]  consists of :

1.         Assam Rifles (AR);

2.         Border Security Force (BSF);

3.         Central Industrial Security    Force (CISF);

4.         Central Reserve Police Force (CRPF);

5.         Indo Tibetan Border Police (ITBP);

6.         National Security Guard (NSG); and

7.       Sashastra Seema Bal (SSB)

The nomenclature CAPF will be used uniformly for CPMF as per the Office Memorandum [3]issued by the Ministry of Home Affairs issued on March 18, 2011

Current CSR spending pattern and changes expected due to the amendment

The current pattern for CSR spending for armed forces veterans, war widows and their dependants include contributions to several funds like:

  1. Armed Forces Flag Day Fund (AFFDF)[4]
  2. Army Wives Welfare Association (AWWA)[5]
  3. The Army Welfare Fund Battle Casualties[6]

Apart from donating to these funds, companies have also provided financial relief to the martyr’s families and have conducted workshops for the children of war widows as a part of their CSR projects.

Further, in addition to the above, contribution to “National Defence Fund” which is used for the welfare of the members of the Armed Forces (including Para Military Forces) should be eligible for being a CSR activity.

As a result of the enhanced scope for CSR spending for CAPF/ CAMF, contribution to the fund “Bharat Ke Veer Corpus Fund”[7], which was previously not eligible for CSR considering the fact that it specifically benefits CAPF, will now be covered as per the amendment. Accordingly, any contribution to this fund will now qualify as a CSR activity.

High Level Committee on CSR

MCA had constituted[8] a High Level Committee (HLC) on CSR in February, 2015 under the Chairmanship of Secretary (Corporate Affairs) to review the existing CSR framework and formulate a coherent policy on CSR and further make recommendations on strengthening the CSR ecosystem, including monitoring implementation and evaluation of outcomes. Later, the HLC on CSR was re-constituted[9] in November, 2018. The scope of HLC was widened to include recommendation of guidelines for enforcement of CSR provisions. Though the Report discussed on amending Schedule VII in line with promoting sports, senior citizens’ welfare, welfare of differently abled persons, disaster management, and heritage, however, it did not consider widening the clause relating to the scope of armed forces in the Schedule.

Further, as evident from the data given in the HLC Committee Report[10], CSR expenditure made on armed force veterans, war widows/ dependents have seen an upward trend over the years, however it forms a very small proportion of the total CSR expenditure made.

Concluding Remarks

The service spirit of CAPF is no less than that of the Indian Army. Acknowledging this fact MCA has brought this amendment. While all the areas for CSR are extremely important for the overall socio-economic welfare and development, the measures taken for the benefit of veterans and dependants of the armed forces and CAPF/ CPMF is an extremely noble activity.

Link to our other articles:

CSR: A ‘Corporate Social Responsibility’ or a ‘Corporate Social Compulsion’?

http://vinodkothari.com/2019/08/csr-a-corporate-social-responsibility-or-a-corporate-social-compulsion/

Proposed changes in CSR Rules

http://vinodkothari.com/2020/03/proposed-changes-in-csr-rules/

FAQs on Corporate Social Responsibility

http://vinodkothari.com/2019/11/faqs-on-corporate-social-responsibility/

Read our other articles on Corplaw : http://vinodkothari.com/category/corporate-laws/

Link to our Youtube Channel : https://www.youtube.com/channel/UCgzB-ZviIMcuA_1uv6jATbg

 

[1] http://egazette.nic.in/WriteReadData/2020/220133.pdf

[2] https://www.mha.gov.in/about-us/central-armed-police-forces

[3] Office Memorandum can be viewed here

[4] http://ksb.gov.in/armed-forces-flag-day-fund.htm

[5] https://awwa.org.in/contribution-under-csr-awwa

[6] The Army Welfare Fund Battle Causalities

[7] https://www.bharatkeveer.gov.in/about

[8] https://www.mca.gov.in/Ministry/pdf/General_Circular_01_2015.pdf

[9] https://www.mca.gov.in/Ministry/pdf/OfficeOrderCommitteeOnCorporate_26112018.pdf

[10] https://www.mca.gov.in/Ministry/pdf/CSRHLC_13092019.pdf

 

 

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Webcasting in virtual AGM

by Smriti Wadehra & Qasim Saif

(smriti@vinodkothari.com) (executive@vinodkothari.com)

Background

MCA considering the COVID-19 pandemic and the social distancing norms issued by the Government, realized that conducting physical AGM by companies within the prescribed timeline shall be difficult for this financial year. Accordingly, the Ministry vide its circular dated 5th May, 2020 has permitted holding of Annual General Meetings (AGM) through video conferencing[1] for all meetings conducted during the calendar i.e. till 31st December, 2020. The said circular read with previous circulars dated 13th April, 2020[2] and 8th April, 2020[3] prescribed a detailed procedure as to how companies can conduct their general meetings virtually.

While these circulars dealt with various perplexities arising from the thought of virtual general meetings, however, there was still some clarification pending on applicability of other requirements applicable on companies, for instance, the requirement of webcasting under regulation 44(6) of SEBI (Listing Obligation and Disclosure Requirements) Regulation, 2015.

We discuss the same as below.

Webcast vs Video conferencing

The very basic differentiation in the term webcast and video conferencing is that, the former only provides one-way participation rights but the later provides for a two-way communication. In reference to providing webcasting facility during the AGM, the shareholders can only watch and listen to the proceedings of the meeting but cannot participate in voting or ask queries whereas in video conferencing the shareholders have complete participation as in case of a physical general meeting. Webcasting is merely “live streaming” of the AGM.

Intent of webcast

The requirement for providing webcast facility was recommended by Kotak Committee[4] on Corporate Governance which provided:

“Reg 44A. Meetings of shareholders

The top 100 listed entities by market capitalization, determined as on March 31 of every financial year, shall provide one-way live webcast of the proceedings of all shareholder meetings held on or after April 1, 2018

The aforesaid recommendation was in addition to the recommendation w.r.t. e-voting facility which as per the existing provision of law, is closed at 5 p.m. of the previous day of the meeting, however, the committee recommended to shift the closure of e-voting facility to the day of meeting itself. The intent behind the recommendation was that the e-voting timeline expires before the meeting is held, accordingly, shareholders not attending the meetings in person are unable to take into account discussions at the meeting in order to make informed decisions.

Whereas, SEBI accepted the recommendations made by the Kotak Committee on 9th May, 2018 w.r.t. webcasting facility and inserted a new sub-regulation, however, the recommendation w.r.t e-voting is still in draft form. The provisions relating to webcast were made applicable to top 100 listed entities from 1st April, 2019.

The whole intent of conducting annual general meetings is the indispensable right to the shareholders of companies to meet the directors and auditors of the Company, at least once in a year. This has been the feature of corporate laws over the decades – based on the fact that the “managers” (directors) at least face the “owners” (shareholders) once. The law therefore, mandates physical meetings. However, with the rise of technology, call it necessity or evolution, the law embraced e-voting as a recognised means of voting (but not participation). Later, SEBI introduced the concept of providing one-way webcast facility for shareholders so as to increase participation of shareholders at meeting (though one-way).

The data shows that attendance of shareholders at AGMs is even less than 5% of total number of shareholders at Meeting. Further, most of the shareholders (especially those residing in state other than where the AGM is conducted) find it more feasible to vote by way of e-voting. In the data[5] below, we can observe that on an average 95% of members of some well reputed companies vote through e-voting while on-site voting percentage is negligible. Therefore, it can be said, that the members do not really depend on meeting discussions to take a decision. However, webcast enables them to be apprised of the conduct of the meeting, shareholder queries, concerns, etc. raised at the meeting, etc.

Globally, countries like United States of America, Canada, United Kingdom, France, China and many such countries have permitted conducting meeting through video conferencing during the crisis. Further, the concept of webcasting is new for India. However, for many foreign countries including those named above have included providing of webcasting facility in shareholder’s meeting as a requirement of law.

Webcast facility in virtual AGM, whether required?

Now, the question is, where the AGM has itself gone ‘virtual’ (as mentioned above), is there really a requirement of webcasting? Note that SEBI has not provided any relaxation from webcasting as such.

It may be noted that video conferencing is nothing but participation through electronic means by shareholders remotely i.e. other than the venue of AGM. Therefore, where the company has already provided the facility of video conferencing to shareholders, webcast may not actually be needed. The purpose which the webcast intends to serve (dissipation of conduct of meeting) is well-served by the video-conferencing. In fact, in webcast the shareholders get only participation rights i.e. to hear and view the proceedings of meeting. However, in case of virtual AGM, the shareholders are provided with two-way participation rights i.e. can speak as well. Hence, provided two options, the shareholders will mostly opt for the latter.

The webcast, however, can be of relevance where the participation capacity is limited. In this regard, MCA circular dated 8th April, 2020 has prescribed minimum capacity allowance by companies conducting virtual AGM. For companies that are required to provide e-voting facility has to arrange capacity of minimum 1000 members at virtual AGM on first come first basis. This limit is minimum 500 members for companies not required to provide e-voting facility. Hence, the platform for conducting virtual AGM should provide for aforesaid minimum.

We all know that mostly large companies have lakhs of shareholders.  Therefore, if companies restrict the entry of shareholders on first come first basis i.e. does not allow participation right to all shareholders in virtual AGM (due to software limitations, etc.), in that case webcast facility should be provided (if required). However, if companies do not restrict any shareholder from participation in virtual AGM and is open for all shareholders irrespective of the number, in such cases providing separate facility for webcast may turn out to be a futile exercise.

[1] http://www.mca.gov.in/Ministry/pdf/Circular20_05052020.pdf

[2] http://www.mca.gov.in/Ministry/pdf/Circular17_13042020.pdf

[3] https://www.mca.gov.in/Ministry/pdf/Circular14_08042020.pdf

[4] https://www.sebi.gov.in/reports/reports/oct-2017/report-of-the-committee-on-corporate-governance_36177.html

[5]Source: https://www.livemint.com/opinion/online-views/covid-19-need-to-re-look-at-pre-digital-era-compliances-under-companies-act-11588585274712.html