Anomaly relating to much awaited e-form DPT-3

By CS Smriti Wadehra | corplaw@vinodkothari.com

 

Introduction

MCA on January 22, 2019 had issued a Notification[1] prescribing certain amendments in the Companies (Acceptance of Deposits) Rules, 2014 (‘Rules’) requiring every company (except government companies) to file:

  • a return of deposit;
  • particulars of transaction not considered as deposit; or
  • both

It is a one-time filing return, specifying the details of outstanding receipt of money or loan which have not been considered as deposits under the Rules. For filing the said dorm, the Rules specified that the reporting should be of receipt of money or loan from April 1, 2014 till January 22, 2019 and which are outstanding as on the date of filing. Further, the reporting should be done within 90 days from January 22, 2019. However, the e-form for such filing was not released by MCA.

Thereafter, on April 30, 2019, MCA vide its Notification[2] dated April 30, 2019 notified the Companies (Acceptance of Deposits) Second Amendment Rules, 2019, according to which the reporting in the one-time return (i.e., e-form DPT-3) has to be done for receipt of money or loan from April 1, 2014 till March 31, 2019. Also, the filing due-date has been extended to ninety days from March 31, 2019.

This extension was much required as the electronic version of the said form was not released by MCA. However, MCA has on the same day released the e-form as well and hence, we shall now discuss the requirements of the said form.

Requirement of Law

Referring to the erstwhile notification read with the recent general circular of MCA dated April 13, 2019, we may summarise the reporting requirement of e-Form DPT-3 as under:

  1. One time return giving the details of the outstanding receipt of money or loan which have not been considered as deposits as per Rule 2(1)(c) of the Rules for the period from 1st April, 2014 till 31st March, 2019;
  2. Periodic return which will give the details of particulars of transactions which are not considered as deposits as per Rule 2(1)(c) of the Rules within 30th June of every year containing details as on 31st March;
  3. Return for deposit which is to be filed within 30th June of every year.

At the advent of notification of the Rules, companies were under ambiguity as to how the reporting of such one-time return shall be done. Further, the e-Form also required auditor’s certificate as an attachment, but it was unclear that whether companies whwich have not received any amount as deposit were also required to provide an auditor’s certificate in this regard. Moreover, there were confusion as whether companies have to provide audited figures in the said form or otherwise. However, the e-Form was expected to clear these confusions.

Anomaly in e-Form

Even after the release of the much awaited form, the anomaly still exists. Following are the certain ambiguities in the e-Form, for which MCA’s clarification shall be awaited:

a)    Whether DPT-3 required to be filed twice?

Rule 16 of Companies (Acceptance of Deposits) Rules, 2014 provides:

“Explanation.- It is hereby clarified that Form DPT-3 shall be used for filing return of deposit or particulars of transaction not considered as deposit or both by every company other than Government company.”

Further, the provisions of Rule 16A of Companies (Acceptance of Deposits) Rules, 2014 provides:

“Every company other than Government company shall file a onetime return of outstanding receipt of money or loan by a company but not considered as deposits, in terms of clause (c) of sub-rule 1 of rule 2 from the 01st April, 2014 to the date of publication of this notification in the Official Gazette, as specified in Form DPT-3 within ninety days from the date of said publication of this notification along with fee as provided in the Companies (Registration Offices and Fees) Rules, 2014.”

On the combined reading of the aforesaid provisions, we understand that companies have to file e-Form DPT-3 as an annual requirement only, as  a return of deposit of transactions not considered as deposits every year by 30th June and also as a one-time return of outstanding money not considered deposits from 01.04.2014 to 31.03.2019. However, the e-Form as well as the Rules does not specify any such requirement. Accordingly,  companies are still under the ambiguity as – whether  filing of only  one-time return shall suffice for this financial year or two separate filing has to be done.

b)    Requirement of attaching auditor’s certificate

The e-Form DPT-3 requires companies to attach auditor’s certificate. Though not mandatory attachment, the companies are unclear as to whether the amount to be mentioned in the return has to be audited by a statutory auditor and a certificate of auditor has to be attached in each case or management certified accounts shall suffice? The e-Form does not clarify the instance.

Further, companies which shall be filing that they have not accepted any deposit or the money accepted does not qualifies to be a deposit – in such case, it is still unclear whether the auditor’s certificate certifying the company’s declaration is required or not.

Conclusion

Despite the time taken by the Ministry for coming up with the e-Form, we understand that there are still many irregularities in the e-Form as discussed briefly in our note and which has to be addressed by the Ministry. Meanwhile, considering the first day of deployment of this e-Form, we assume that there will be certain revision in the said form which might address the ambiguities.

You may also read our article on “MCA requires reporting of ‘what is not a deposit’ here- Link to the article


[2]
http://www.mca.gov.in/Ministry/pdf/CompaniesAcceptanceDepositsSecAmendRules_01052019.pdf[1] http://www.mca.gov.in/Ministry/pdf/AcceptanceDepositsAmendmentRule_22012019.pdf

MCA requires reporting of ‘what is not a deposit’!

–updated as on 4th May, 2019

By Munmi Phukon- Principal Manager, Vinod Kothari & Company

munmi@vinodkothari.com

Introduction

The Ministry on 22nd January, 2019, issued a Notification[1] prescribing certain amendments in the Companies (Acceptance of Deposits) Rules, 2014  effective from the same date which have further been amended vide another Notification[2] dated 30th April, 2019 (Subsequent Notification). Undoubtedly, the amendments are of much significance. However, what remained unrevealed is, the intent.

What do these amendments talk about?

The amendments are requiring reporting of the following by the companies with the Registrar-

  1. A one- time return which will give the details of the outstanding receipt of money or loan which have not been considered as deposits as per Rule 2(1)(c) of the Rules. For this, the period of such receipt of money or loan has to be considered from 1st April, 2014 till 31st March, 2019 (earlier this date was the date of publication of the Notification in the Gazette i.e. 22nd January, 2019) and which are outstanding as on the said date. The reporting has to be made within 90 days from 31st March, 2019 as per the subsequent Notification.
  2. A periodic return which will give the details of particulars of transactions which are not considered as deposits as per Rule 2(1)(c) of the Rules within 30th June of every year containing details as on 31st

Which all companies will get hit by the amendments?

Seemingly, the amendments will hit almost all companies irrespective of the status thereof i.e. public or private, as it is almost impossible to not having any receipt of money which will not fall under the list of Rule 2(1)(c). However, the same exclude a Government company from the reporting requirement.

Whether the amendments will apply to banking companies, NBFCs etc.?

In regard to banking companies and NBFCs, these companies are not required to observe the compliance of the provisions related to acceptance of deposits in terms of the proviso to Section 73(1) of CA, 13. Furthermore, apart from these two categories, Rule 1(3) of the aforesaid Rules exempts an HFC from the applicability of the Rules. Though the amendments prescribe reporting requirements for every company other than a Government company, since the parent provisions are not applicable to these companies, the amendments shall also not apply to them.

The Central Government is empowered to specify other companies to whom the provisions of Chapter V shall not apply though no specification in this regard has been brought in till date.

The parent provisions

Section 2(31) of CA, 13 defines the term ‘deposit’ in an inclusive manner which provides that any receipt of money by way of deposit or loan by a company shall be termed as deposit. An extension to this definition has been provided in Rule 2(1)(c) (covered in later part of the article). Further, Sections 73 to 76A of CA, 13 provide the provisions related to acceptance of deposits from members by private companies and from persons other than members by public companies and the procedural requirements for the same have been prescribed by the Ministry through the Rules. Therefore, the reporting requirement comes from the Rules. Rule 16 of the existing set of Rules requires filing of the return of deposits (e- form DPT-3) within 30th of June every year by the companies accepting deposits. Apparently, till date, the reporting requirement was applicable only to those companies which have accepted money considered as deposits as per the definition. Therefore, the reporting by other companies was not required. However, the amendment is seemingly intending to include those other companies too within its purview.

Which all transactions are enlisted in Rule 2(1)(c)?

Rule 2(1)(c) defines the term ‘deposit’ in an exclusive manner and enlists nineteen transactions which are not treated as deposits. Below is the list of the items that are excluded from the term ‘deposit’-

  1. Amount received from CG, SG etc.:

Any amount received from the Central Government or a State Government, or any amount received from any other source whose repayment is guaranteed by the Central Government or a State Government, or any amount received from a local authority, or any amount received from a statutory authority constituted under an Act of Parliament or a State Legislature;

  1. Amount received from foreign Governments/ banks etc.:

Any amount received from foreign Governments, foreign or international banks, multilateral financial institutions (including, but not limited to, International Finance Corporation, Asian Development Bank, Commonwealth Development Corporation and International Bank for Industrial and Financial Reconstruction), foreign Governments owned development financial institutions, foreign export credit agencies, foreign collaborators, foreign bodies corporate and foreign citizens, foreign authorities or persons resident outside India subject to the provisions of Foreign Exchange Management Act, 1999 (42 of 1999) and rules and regulations made there under;

  1. Amount received as loan from banking companies:

Any amount received as a loan or facility from any banking company or from the State Bank of India or any of its subsidiary banks or from a banking institution notified by the Central Government under section 51 of the Banking Regulation. Act, 1949 (10 of 1949), or a corresponding new bank as defined in clause (d) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) or in clause (a) of section (2) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980) , or from a co-operative bank as defined in clause (b-ii) of section 2 of the Reserve Bank of India Act, 1934 (2 of 1934);

  1. Amount received as loan from PFIs:

Any amount received as a loan or financial assistance from Public Financial Institutions notified by the Central Government in this behalf in consultation with the Reserve Bank of India or any regional financial institutions or Insurance Companies or Scheduled Banks as defined in the Reserve Bank of India Act, 1934 (2 of 1934);

  1. Amount raised through issuance of commercial paper:

Any amount received against issue of commercial paper or any other instruments issued in accordance with the guidelines or notification issued by the Reserve Bank of India;

  1. Inter- corporate deposits:

Any amount received by a company from any other company;

  1. Amount received as subscription money for securities:

Any amount received and held pursuant to an offer made in accordance with the provisions of the Act towards subscription to any securities, including share application money or advance towards allotment of securities pending allotment, so long as such amount is appropriated only against the amount due on allotment of the securities applied for;

Explanation.- For the purposes of this sub-clause, it is hereby clarified that –

(a) Without prejudice to any other liability or action, if the securities for which application money or advance for such securities was received cannot be allotted within sixty days from the date of receipt of the application money or advance for such securities and such application money or advance is not refunded to the subscribers within fifteen days from the date of completion of sixty days, such amount shall be treated as a deposit under these rules.

Provided that unless otherwise required under the Companies Act, 1956 (1 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 of 1992) or rules or regulations made thereunder to allot any share, stock, bond, or debenture within a specified period, if a company receives any amount by way of subscriptions to any shares, stock, bonds or debentures before the 1st April, 2014 and disclosed in the balance sheet for the financial year ending on or before the 31st March, 2014 against which the allotment is pending on the 31st March, 2015, the company shall, by the 1st June 2015, either return such amounts to the persons from whom these were received or allot shares, stock, bonds or debentures or comply with these rules.

(b) any adjustment of the amount for any other purpose shall not be treated as refund.

  1. Amount received from directors/ relative of directors:

Any amount received from a person who, at the time of the receipt of the amount, was a director of the company or a relative of the director of the private company:

Provided that the director of the company or relative of the director of the private company, as the case may be, from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others and the company shall disclose the details of money so accepted in the Board’s report;

  1. Amount raised by issue of secured bonds/ debentures:

Any amount raised by the issue of bonds or debentures secured by a first charge or a charge ranking pari passu with the first charge on any assets referred to in Schedule III of the Act excluding intangible assets of the company or bonds or debentures compulsorily convertible into shares of the company within ten years:

Provided that if such bonds or debentures are secured by the charge of any assets referred to in Schedule III of the Act, excluding intangible assets, the amount of such bonds or debentures shall not exceed the market value of such assets as assessed by a registered valuer;

  1. Amount raised through issuance of unsecured listed NCDs:

Any amount raised by issue of non-convertible debenture not constituting a charge on the assets of the company and listed on a recognised stock exchange as per applicable regulations made by Securities and Exchange Board of India.

  1. Non-interest bearing security deposit received from employees:

Any amount received from an employee of the company not exceeding his annual salary under a contract of employment with the company in the nature of non-interest bearing security deposit;

  1. Non-interest bearing amount held in trust:

Any non-interest bearing amount received and held in trust;

  1. Advance from customers:

Any amount received in the course of, or for the purposes of, the business of the company,

(a) as an advance for the supply of goods or provision of services accounted for in any manner whatsoever provided that such advance is appropriated against supply of goods or provision of services within a period of three hundred and sixty five days from the date of acceptance of such advance:

Provided that in case of any advance which is subject matter of any legal proceedings before any court of law, the said time limit of three hundred and sixty five days shall not apply:

(b) as advance, accounted for in any manner whatsoever, received in connection with consideration for an immovable property under an agreement or arrangement, provided that such advance is adjusted against such property in accordance with the terms of agreement or arrangement;

(c) as security deposit for the performance of the contract for supply of goods or provision of services;

(d) as advance received under long term projects for supply of capital goods except those covered under item (b) above:

(e) as an advance towards consideration for providing future services in the form of a warranty or maintenance contract as per written agreement or arrangement, if the period for providing such services does not exceed the period prevalent as per common business practice or five years, from the date of acceptance of such service whichever is less;

(f) as an advance received and as allowed by any sectoral regulator or in accordance with directions of Central or State Government;

(g) as an advance for subscription towards publication, whether in print or in electronic to be adjusted against receipt of such publications;

Provided that if the amount received under items (a), (b) and (d) above becomes refundable (with or without interest) due to the reasons that the company accepting the money does not have necessary permission or approval, wherever required, to deal in the goods or properties or services for which the money is taken, then the amount received shall be deemed to be a deposit under these rules:

Explanation.- For the purposes of this sub-clause the amount shall be deemed to be deposits on the expiry of fifteen days from the date they become due for refund.

  1. Amount brought by the promoters:

Any amount brought in by the promoters of the company by way of unsecured loan in pursuance of the stipulation of any lending financial institution or a bank subject to fulfilment of the following conditions, namely:-

(a) the loan is brought in pursuance of the stipulation imposed by the lending institutions on the promoters to contribute such finance;

(b) the loan is provided by the promoters themselves or by their relatives or by both; and

(c) the exemption under this sub-clause shall be available only till the loans of financial institution or bank are repaid and not thereafter;

  1. Any amount accepted by a Nidhi company in accordance with the rules made under section 406 of the Act;
  2. Any amount received by way of subscription in respect of a chit under the Chit Fund Act, 1982 (40 of 1982);
  3. Any amount received by the company under any collective investment scheme in compliance with regulations framed by the Securities and Exchange Board of India;
  4. Amount received by start- up company by way of convertible note:

An amount of twenty five lakh rupees or more received by a start-up company, by way of a convertible note (convertible into equity shares or repayable within a period not exceeding five years from the date of issue) in a single tranche, from a person.

Explanation.- For the purposes of this sub-clause,-

  1. “start-up company” means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognised as such in accordance with notification number G.S.R. 180(E) dated 17th, February, 2016 issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry;
  2. “convertible note” means an instrument evidencing receipt of money initially as a debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of the start-up company upon occurrence of specified events and as per the other terms and conditions agreed to and indicated in the instrument.
  3. Amount received from AIFs, VCFs REITs etc.:

Any amount received by a company from Alternate Investment Funds, Domestic Venture Capital Funds, Infrastructure Investment Trusts, Real Estate Investment Funds and Mutual Funds registered with the Securities and Exchange Board of India in accordance with regulations made by it.

Explanation.- For the purposes of this clause, any amount.-

(a) received by the company, whether in the form of instalments or otherwise, from a person with promise or offer to give returns, in cash or in kind, on completion of the period specified in the promise or offer, or earlier, accounted for in any manner whatsoever, or

(b) any additional contributions, over and above the amount under item (a) above, made by the company as part of such promise or offer, shall be treated as a deposit.

The concept of Deposit

Undoubtedly, deposit is a broader term and includes an advance as well loan. However, one has to evaluate the factual terms for such determination, as a deposit is a money for money transaction and it includes a loan in substance too. A money for money transaction appears when it is apparent that what come in, is money, and what goes out is also in the form of money. Having said so, an advance extended for a specific purpose cannot be treated as deposit, however, an advance without such a specific purpose shall be nothing but a deposit. Similarly, in case of share application money against which shares have not been allotted for long shall take the form of a deposit. Therefore, advance without purpose or share application money pending allotment for long and similar transactions are though not loan per se, but a loan in substance, hence will get covered under the concept of deposit. However, where there is no loan or a loan in substance, the same cannot be a money for money transaction and hence will come out of the purview of being deposits. Seemingly, the list mentioned in Rule 2(1)(c) is an attempt to cover a loan in substance too.

What will be the consequences for non- reporting?

Section 76A and Rule 21 are concerned about the penal consequences. Section 76A provides huge fines on the company as well as on the officers for accepting deposits in contravention of the prescribed manner or conditions in the Chapter and the Rules and also in case of failure in repayment of deposits. Further, in case of officers, the offence is non- compoundable as it involves fine and imprisonment both. The Section provides the following:

  1. On the company: A fine of minimum one crore rupees or twice the amount of deposit so accepted, whichever is lower, which may extend to ten crore rupees; and
  2. On the officers of the Company who is in default: imprisonment upto seven years and with a fine of not less than twenty five lakh rupees which may extend to two crore rupees.

From the above, it can be construed that the penal provisions provided in Section 76A shall apply only to those companies which have accepted money falling under the purview of deposits as per the definition. Therefore, if a company accepted money (e.g. ICD) which falls under the exclusion list shall not be subjected to the penal consequences of Section 76A as ICD is not a deposit.

On the other hand, on a reading of the language, Rule 21 seems to cover any other person also in its purview. The Rule provides fine for any other person apart from the companies covered in Sections 73 and 76, which contravenes any of the provisions of the Rules for which no punishment is provided in the Act. Therefore, for the applicability of Rule 21, one has to see the compliance requirements of the Rules also. Since the new reporting requirement has been made a part of the Rules which applies to every companies (excluding certain categories mentioned above), the consequences of Rule 21 shall apply to those companies also. Rule 21 prescribes a fine which may extend to five thousand rupees and in case of continuing violation a further fine which may extend to five hundred rupees for every day after the first day of such contravention.

Whether NIL reporting shall also be required?

In view of the language of the Rules, the one- time return is required to be filed for the outstanding amounts, if any, with the company. Therefore, where no such amount is outstanding, the company will not be required to file the return. Same rationale shall apply to the annual return also.

Whether filing of two DPT-3 i.e. w.r.t. the one- time return as well as the annual return as on 31st March, 2019 will be required for FY 18-19?

On perusal of the latest version of the e- form that has been made available w.e.f. 1st May, 2019, it is understood that the one- time return requires display of only the aggregate quantum of the exempted deposits [i.e. falling under Rule 2(1)(c)] and not the detailed break-up of the transactions.  Further, this return shall be filed for the amounts accepted on or after 1st April, 2014 till 31st March, 2019 and outstanding as on 31st March, 2019 as required under the newly inserted Rule 16A. On the other hand, the annual return requires the detailed break-up of the exempted deposits as on 31st March, 2019 as per the proviso to Rule 16.

In view of the aforesaid discussions and in absence of any clarification in this regard, it seems that the companies will be required to file two returns, one as the one- time return and the other as the annual return.

Conclusion

The exclusion list as provided in the Rule covers certain items which, in day to day business, are very common for each type of entities irrespective of its size, status etc.. To mention the most common ones are, bank loans, advance from customers, loans from group entities, NCDs, CCDs, shares, share warrants, commercial papers etc. Considering the new reporting requirements, the companies will have to disclose details of all these transactions even though the same are not deposits.

Further, the amendments require reporting of the details of outstanding sums of receipt of money not considered as deposit as per the definition for the period starting from 1st April, 2014 to 31st March, 2019. Evidently, this reporting has to be of the outstanding amounts lying with the company. Therefore, say for example, if the company had accepted money from a company as a loan in the year 2014 which has already been repaid in 2017 shall not require reporting.

As there is no utterance of the intent behind such a reporting requirement, what will the Ministry gain from such reporting also remains a secret. In the recent past also, the Registrars of different jurisdictions have been circulating notices under Section 206 of CA, 13 seeking detailed information related to financial transactions from various companies. The intent for such information also was not being mentioned in those notices. To what extent the Registrars were successful on obtaining the required details through those notices are not known. Probably, by making the new reporting requirements a part of law will benefit them from getting those information on a regular basis at one place.

__________________________________________________________________________

 

Link to our other related articles:

http://vinodkothari.com/2013/03/on-the-meaning-of-deposit-f-or-deposit-regulations/

http://vinodkothari.com/2018/07/amendments-deposits-corporatisation-of-unregistered-entities/

http://vinodkothari.com/2014/07/deposit-rules-2014-what-is-in-it-for-real-estate-developers-and-investors/

http://vinodkothari.com/2017/09/mca-liberalizes-acceptance-of-deposits-from-members/

http://vinodkothari.com/2015/04/mca-provides-relief-in-tranches-amends-deposit-rules-2014/

http://vinodkothari.com/2014/05/advance-appropriated-against-goods-and-services-are-not-deposit/

http://vinodkothari.com/2015/09/deposit-rules-roll-back-to-status-quoante-deposits-from-relatives-of-directors-exempted/

Link to our other write ups:

http://vinodkothari.com/resources/

 

[1] http://egazette.nic.in/WriteReadData/2019/195975.pdf

[2] http://www.mca.gov.in/Ministry/pdf/CompaniesAcceptanceDepositsSecAmendRules_01052019.pdf

 

The Companies (Amendment) Ordinance, 2019

– a move towards decriminalization of offences under the Companies Act, 2013!

Munmi Phukon | Principal Manager

Megha Saraf | Manager

Smriti Wadehra | Assistant Manager(corplaw@vinodkothari.com)

INTRODUCTION

The Ministry of Law and Justice has come out with an Ordinance dated 2nd November, 2018, further amending 31 provisions of the Companies Act, 2013 (“Act”) based on the recommendations of the Committee formed by the Ministry of the Company Affairs (“MCA”) under the chairmanship of Mr. Injeti Srinivas to review the offences under the Act. The amendments have been made effective from 2nd November, 2018 and the same primarily focus on the current prosecution structure under the Act and re-categorization of offences which are technical defaults or procedural lapses as civil default and shift or transfer the proceedings of such case to in-house adjudication. The Article attempts to provide a detailed analysis of the amendments along with the impacts thereof.

As an Ordinance comes with an expiry date i.e. 6 weeks from the re-assembly of the Houses of the Parliament, it was necessary to pass the Ordinance by the Houses of the Parliament in order to imbibe the amendments in the Act. The re-assembly of the Houses of the Parliament started from 11th December, 2018 and continued till 8th January, 2019 and the Ordinance got its approval from the House of People on 4th January, 2019 but considering other exigent matters, it could not be taken up for passing by the Council of States.

Therefore, as the Ordinance will cease to operate on 21st January, 2019, so in order to have a continued effect of the amendments brought in by the Ordinance, the Ordinance have been repealed by Companies (Amendment) Ordinance, 2019 (“Ordinance, 2019”) on 12th January, 2019.

The write-up covers the snapshot of the changes brought in the Act by the Ordinance which is subsequently repealed and replaced by Ordinance, 2019.

THE AMENDMENTS AND IMPACT THEREOF

Section 2(41)- Definition of “financial year”

As per the existing section, the application for adopting a different financial year was to be made to “Tribunal” which shall henceforth be made to the “Central Government”.

Section 10A- Commencement of Business, etc.

This seems to be a reinstatement of the provisions of the erstwhile Companies Act, 1956 under Section 149 thereof though the same was applicable only to public companies. However, the Ordinance puts the restriction on every company having share capital (incorporated post commencement of the Ordinance), to not to commence its business or exercise borrowing powers unless the directors file a declaration within a period of 180 days from the date of incorporation in a prescribed form to the effect that every subscriber to the memorandum has paid the value of the shares as agreed for and the registered office is verified by filing necessary returns with the Registrar. Failure to comply with this Section may be an additional ground for Registrar to strike off of the name of the company.

Section 12- Registered office of company

The Registrar is now empowered vide a new sub- section i.e. sub- section (9) to physical verification of the registered office on reasonable cause to believe that no business or operations is being carried out by the company. In case of any non- compliance of sub- section (1) in respect of having such an office in place is found, the same may also be an additional ground for Registrar to strike off of the name of the company. The Ministry shall prescribe the relevant rules in this regard.

Section 14- Alteration of Articles

Existing provisions required the application for alteration of Articles to give effect to conversion of a public company to a private company to be made to the Tribunal which has now been shifted to the Central Government though the pending applications will be disposed off by the Tribunal.

Section 77- Duty to register charges, etc.

This is one significant amendment brought in by the Ordinance. Henceforth, the creation of charges has to be registered within 30 days of creation which, on an application, may be extended by the Registrar to additional 30 days (existing provisions provided 270 days on payment of additional fee). In case of failure to register within the additional time of 30 days, the Registrar may, on an application, allow an additional period of 60 days from the date of application for which an ad valoram fee shall be levied. The relevant rules awaited in this regard. Further, the existing charges pending registration shall get a timeline of 6 months from the effective date of the Ordinance to register on payment of additional fees. The amendment has significantly reduced the time line which is a major change.

Section 86- Punishment of contravention

Apart from the existing penal provisions on any contravention of the provisions of the chapter, any wilful furnishing of false or incorrect information or knowingly suppressing any material information pertaining to registration of charges shall tantamount to be a fraud and shall attract action under Section 447.

Section 87- Rectification by Central Government in register of charges

The Section has been re-drafted and merely a straightening of the language.

Section 90- Register of significant beneficial owners in a company

The limitation period of 1 year has been prescribed for the aggrieved party to make an application to the Tribunal against an order passed by the Tribunal restricting the rights attached to the relevant shares to relax or lift of such restrictions.  In case of failure to file the application within such timeline, then such shares shall mandatorily be transferred to IEPF.

Section 164 – Disqualifications of director

A new clause has been inserted under the Section linking Section 165 which shall be a ground for disqualification of a director, if he/ she breaches the limits of maximum directorship allowed thereunder. It is pertinent to note that falling under any of the clauses of Section 164 leads to automatic vacation of office that too, from all the existing companies. This is one of the significant provisions which needs immediate attention.

Section 197- Overall maximum managerial remuneration in case of inadequacy of profits

Sub- section (7) of the Section has been removed which pertained to a prohibition on entitlement of stock option by independent directors. However, this omission shall not have any impact as Section 149 (9) also provides similar prohibition.

Further, the existing penal provision of payment of fine has been replaced with penalty of the equivalent amount of fine as provided in the existing provisions.

Section 248 – Power of the Registrar to remove the name of the company

In view of the newly inserted provisions of Section 10A and 12(9) as discussed aforesaid, the relevant amendments have been made in Section 248 of the Act in order to provide a reference to the aforesaid new Sections.

Section 441- Compounding of offences

The Ordinance has increased the limit of offence for compounding before the Regional Director from 5 Lakhs to 25 Lakhs.

Section 454- Adjudication of penalties

The existing section empowered the adjudicating officer to impose penalty, by an order, on the company and the officer who is in default in case of any non- compliance or default of the provisions of the Act. Such an order may henceforth be included any other person too, hence the same expands the power of the adjudicating officer. Further, the order of the adjudicating officer may also provide for rectification of the default by the concerned person. The penal provisions as provided in sub- section (8) shall apply to violation in compliance of the said order also.

Section 454A- Penalty for repeated default

The newly inserted section provides for penalty of twice the amount of penalty in case of repeated defaults by companies or any person who had already been subjected to penalty under the Act. However, the subsequent default has to be repeated within 3 years from the date of order imposing penalty for earlier default.

CHANGES IN THE PENAL PROVISIONS

The changes that have been brought in the penal provisions have been consolidated in the following table for ready reference:

 

Section No. Default Penal provisions as per the erstwhile Section Recommendations of Injeti Srinivas Committee Penal provisions as per the Ordinance
Section 10A- Commencement of Business, etc Failure to furnish declaration under the section No such provision No such recommendation Company:

Rs. 50000

 

Officer- in- default: Rs. 1000 for each day to max. Rs. 1 lakh.

 

Section 53-Prohibition of issue of shares at Discount Issue of shares at a discount Company:

Minimum Fine of Rs. 1 Lakh

Maximum Fine of Rs. 5 Lakh

 

Officer in Default:

Minimum Fine of Rs. 1 Lakh

Maximum Fine of Rs. 5 Lakh

As technical in nature should be brought under in-house adjudication Company & Officer in Default

Amount raised or Rs. 5 Lakh

 

Company

Shall also be required to refund the money raised through such issue at a rate of interest of 12% p.a. from the date of issue of shares.

 

Section 64- Notice for alteration of share capital Non-filing of notice with Registrar for alteration of share capital of the Company Company & Officer in default:

Minimum Fine of Rs. 1000 per day

Maximum Fine of Rs. 5 Lakh

As technical in nature should be brought under in-house adjudication Company & Officer in default:

Minimum Fine Penalty of Rs. 1000 per day

Maximum Fine Penalty of Rs. 5 Lakh

 

Section 90- SBO Person fails to make declaration No such provision The Committee recommended that contravention of the provisions of section 90 should include prosecution and should not be limited to only penalty/fine.

 

Imprisonment of 1 year or with the fine applicable and may even be levied fine and imprisonment both.

 

Section 92- Annual Return Non-filing of Annual Return (MGT-7) Company:

 

Minimum Fine of Rs. 50,000

Maximum Fine of Rs. 5 Lakh

 

Officer in default:

 

Imprisonment of 6 months

Or

Minimum Fine of Rs. 50,000

Maximum Fine of Rs. 5 lakh

These defaults are substantial violations which directly affects the status of the Company, therefore, involves large public interest. Hence this cannot be brought under the regime of in-house adjudication. However, the Ordinance did not accept the recommendation of the Committee. Company & Officer in default:

 

Minimum Fine Penalty of Rs. 50,000

Further Penalty of Rs. 100 per day

Maximum Fine Penalty of Rs. 5 Lakh

Section 102-Statement to be annexed to the Notice Mis-statement in Explanatory statement Every promoter, director, manager or other KMP who is in default shall be punishable with fine which may extend to Rs. 50,000 or 5 times the amount of benefit accruing to the promoter, director, manager or other key managerial personnel or any of his relatives, whichever is more. As technical in nature should be brought under in-house adjudication Every promoter, director, manager or other KMP who is in default shall be punishable with fine Penalty which may extend to Rs. 50,000 or 5 times the amount of benefit accruing to the promoter, director, manager or other key managerial personnel or any of his relatives, whichever is more.
Section 105- Proxies Notice of General Meeting to contain clause for proxies

 

Company and Officer in Default:

 

Fine of Rs. 5000

As technical in nature should be brought under in-house adjudication Company and Officer in Default:

 

Fine Penalty of Rs. 5000

Section 117- Resolutions and agreements to be filed Non-filing of MGT-14 Company:

 

Minimum Fine of Rs. 1 Lakh
Maximum Fine of Rs. 25 Lakh

 

Officer in default:

 

Minimum Fine of Rs. 50,000

Maximum Fine of Rs. 5 Lakh

As technical in nature should be brought under in-house adjudication Company:

 

Minimum Fine Penalty of Rs. 1 Lakh

Further Penalty of Rs. 500 everyday
Maximum Fine Penalty of Rs. 25 Lakh

 

Officer in default:

 

Minimum Fine Penalty of Rs. 50,000

Further Penalty of Rs. 500 per day

Maximum Fine Penalty of Rs. 5 Lakh

Section 121- Report on Annual General Meeting Non-filing of MGT-15 Company:

 

Minimum Fine of Rs. 1 Lakh

Maximum Fine of Rs. 5 Lakh

 

Officer in default:

 

Minimum Fine of Rs. 25000

Maximum Fine of Rs. 1 Lakh

As technical in nature should be brought under in-house adjudication Company:

 

Minimum Fine Penalty of Rs. 1 Lakh

Further Penalty of Rs. 500 per day

Maximum Fine Penalty of Rs. 5 Lakh

 

Officer in default:

 

Minimum Fine Penalty of Rs. 25000

Further Penalty of Rs. 500 per day

Maximum Fine Penalty of Rs. 1 Lakh.

 

Section-137-Filing of Financial Statements Failure in filing financial statements with the Registrar Company:

 

Fine of Rs. 1000 everyday

Maximum Fine of Rs. 10 Lakh

 

Officer in default:

 

Imprisonment of term of 6 months

Minimum Fine – Rs. 1 Lakh Maximum Fine – Rs. 5 Lakh

As technical in nature should be brought under in-house adjudication Company:

 

Fine Penalty of Rs. 1000 everyday

Maximum Penalty of Rs. 10 Lakh

 

Officer in default:

 

Minimum Fine Penalty- Rs. 1 Lakh

Further Penalty- Rs 100 per day

Maximum Fine Penalty- Rs. 5 Lakh

 

Section- 140- Resignation of Auditor Non-filing of e-Form ADT-3 Auditor:

 

Minimum Fine of Rs. 50,000 or amount equal to remuneration of auditor, whichever is less

Maximum Fine of Rs. 5 Lakh

 

As technical in nature should be brought under in-house adjudication Auditor:

 

Minimum Fine Penalty of Rs. 50,000 or amount equal to remuneration

Further penalty of Rs. 500 every day

Maximum Fine Penalty of Rs. 5 Lakh

Section 157(2) – Intimation of DIN Failure to intimate DIN of directors to the Registrar Company:

 

Minimum Fine of  Rs. 25,000

Maximum Fine of Rs. 1 Lakh

 

Officer in default:

 

Minimum Fine of Rs. 25,000

Maximum Fine of Rs. 1 Lakh

 

As technical in nature should be brought under in-house adjudication Company:

 

Minimum Fine Penalty of  Rs. 25,000

Maximum Fine Penalty of Rs. 1 Lakh

Further Penalty of Rs. 100 per day

 

Officer in default:

 

Minimum Fine Penalty of  Rs. 25,000

Maximum Fine Penalty of Rs. 1 Lakh

 

Section 159- Punishment for contravention of sections 152, 155, and 156 Punishment for contravention of sections 152, 155, and 156 Individual or Director:

 

Imprisonment of 6 months

Or

Minimum Fine of Rs. 50,000

Further Fine of Rs. 500 per day

 

As technical in nature should be brought under in-house adjudication Individual or Director:

 

Imprisonment of 6 months

Or

Minimum Fine Penalty of Rs. 50,000

Further Fine Penalty of Rs. 500 per day.

 

Section 165- Number of directorships Non-compliance of permissible number of directorship by director Director:

 

Minimum Fine of Rs. 5000

Maximum Fine of Rs. 25,000

Offences under this section are technical and can be penalised by initiating a summary proceedings. Hence, such offences should be shifted to in-house adjudication.

 

Director:

 

Penalty of Rs. 5000 per day

Minimum Fine of Rs. 5000

Maximum Fine of Rs. 25,000

Section 191- Payment to Director for loss of office Contravention of the section Director:

 

Minimum Fine of Rs. 25,000

Maximum Fine of Rs. 1 Lakh

Offences under this section are technical and can be penalised by initiating a summary proceedings. Hence, such offences should be shifted to in-house adjudication.

 

Director:

 

Minimum Fine of Rs. 25,000

Maximum Fine Penalty of Rs. 1 Lakh

Section 197- Overall maximum managerial remuneration in case of inadequacy of profits

 

Non-compliance of the provisions of the section Minimum Fine of Rs. 1 Lakh

 

Maximum Fine of Rs. 5 Lakh

As technical in nature should be brought under in-house adjudication Minimum Fine  Penalty of Rs. 1 Lakh

 

Maximum Fine Penalty of Rs. 5 Lakh

Section 203- Appointment of KMP Default in appointment of Key Managerial Personnel Company:

 

Minimum Fine of Rs. 1 Lakh

Maximum Fine of Rs. 5 Lakh

 

Director/KMP/Officer in default:

 

Minimum Fine of Rs. 50,000

Further Fine of Rs. 1000 everyday

As technical in nature should be brought under in-house adjudication. Company:

 

Minimum Fine of Rs. 1 Lakh

Maximum Fine Penalty of Rs. 5 Lakh

 

Director/KMP/Officer in default:

 

Minimum Fine Penalty of Rs. 50,000

Further Fine Penalty of Rs. 1000 everyday

Maximum Penalty of Rs. 5 Lakh

 

Section 238- Registration of offer of schemes involving transfer of shares Contravention of the section Director:

 

Minimum Fine of Rs. 25,000

Maximum Fine of Rs. 5 Lakh

As technical in nature should be brought under in-house adjudication Director:

 

Minimum Fine of Rs. 25,000

Maximum Fine of Rs. 5 Lakh

Penalty of Rs. 1 Lakh

Section 446B- Application of Fines Default in filing annual return by OPC and small company ½ of fine or imprisonment or both as may be specified in section 92(5) of the Act No such recommendations ½ of fine penalty or imprisonment or both as may be specified in section 92(5) of the Act
 Section 447- Punishment for fraud Penal provisions for fraud involving Rs. 10 lakh or 1% of turnover and does not involve public interest Any person guilty:

 

Imprisonment of 5 years

Or

Fine of Rs. 25 Lakh

The committee recommended that the maximum fine under section 447 be increased from Rs.20 lakhs to Rs. 50 lakhs. Any person guilty:

 

Imprisonment of 5 years

Or

Fine of Rs. 25 50 Lakhs

CONCLUSION

To conclude it may be said that the amendments introduced in the Ordinance are primarily to re-categorize the existing penal provisions as civil defaults for those provisions which are more likely of administrative nature as recommended by the Injeti Srinivas Committee. In view of the amendments, it is definitely a welcome step towards ensuring corporate compliance in a systematic manner.

Companies Amendment Ordinance 2018 A milestone in restructuring of offences