Archive for category: Amendments to the Companies Act 2013

Companies with listed but privately placed debt paper not to be regulated as ‘listed company’.

FCS Vinita Nair | Senior Partner, Vinod Kothari & Company

With an intent to promote listing of securities and bond market, Ministry of Corporate Affairs (MCA) in consultation with Securities and Exchange Board of India (SEBI), intended to exclude certain class of companies from the definition of ‘listed company’ as defined under Section 2 (52) of Companies Act, 2013 (CA, 2013). The existing provisions of CA, 2013 applicable to a listed company did not distinguish between private companies and public companies. As a result, private companies were unintendedly subject to similar compliance as a public company. A browse through the list of companies with listed privately placed debentures, shows private companies abound in the list[1].  On the other hand, public companies that listed debt securities on a private placement basis, were subject to similar compliances as a public company issuing debt securities to public.

Accordingly, one of major amendments proposed in Companies (Amendment) Act, 2020 (CAA, 2020) was to revisit definition of listed company and provide a suitable carve out to certain class of companies to be determined in consultation with SEBI.

The rationale behind the carve out, as explained in the Report of the Company Law Committee of November, 2019[2] was that private companies listing its debt securities on any recognized stock exchange were subject to more stringent regulations compared to unlisted private companies viz. appointment of auditors, independent directors, woman directors, constitution of board committees etc. that were dis-incentivizing private companies from seeking listing of their debt securities. This was also discussed in the Report of Company Law Committee in 2016[3] wherein the Committee, while acknowledging the anomaly  in the definition of listed company, felt that while the definition of the term ‘listed company’ need not be modified, the thresholds prescribed for private companies for corporate governance requirements may be reviewed. Further, the Committee proposed that specific exemptions under Section 464 of CA, 2013 could also be given to listed companies, other than equity listed companies, from certain corporate governance requirements prescribed in the Act.

Currently, companies issuing non- convertible debt securities (NCDS) or non-convertible redeemable preference shares (NCRPS) on a private placement basis, list the same under SEBI (Issue and Listing of Debt Securities Regulations, 2008 (SEBI ILDS) and SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013 (SEBI ILNCRPS) respectively and are regarded as ‘listed company’ for the provisions of CA, 2013.

Total number of companies with listed debt 

Number of companies, which come under different buckets as per the outstanding value of listed Debt Securities (as per face value) as on December 31, 2020

Present amendment

While the amendment made in Section 2 (52) in the definition of ‘listed company’ was notified with effect from January 22, 2021[4], the class of companies were pending to be prescribed. Ministry of Corporate Affairs (MCA) on February 19, 2021[5] notified Companies (Specification of Definition Details) Second Amendment Rules, 2021 effective from April 1, 2021 to insert Rule 2A excluding following class of companies from the definition of ‘listed company’ under CA, 2013

1. Public companies with listed NCDS issued on private placement basis in terms of SEBI ILDS;
2. Public companies with listed NCRPS issued on private placement basis in terms of SEBI ILNCRPS;
3. Public companies with listed NCDS and NCRPRS issued on private placement basis in terms of SEBI ILDS and SEBI ILNCRPS respectively;
4. Private companies with listed NCDS in terms of SEBI ILDS.
5. Public companies with equity shares exclusively listed on stock exchanges in permissible foreign jurisdictions under Section 23 (3) of CA, 2013.

Point to note here is that companies with listed commercial papers were anyways outside the purview of listed companies as commercial papers are excluded from the definition of debentures.

Listed company post amendment

Post amendment, the definition of listed company will mainly comprise of public companies offering securities to public i.e. having listed equity shares in India (with or without ADR/GDR listed overseas), listed debt securities pursuant to public issue or listed NCRPS pursuant to public issue.

Compliances for listed company under CA, 2013

A listed company is required to ensure following additional compliances under CA, 2013:

Amount in Rs/ Other specification	Section No.	Rule No.	Brief of the provision	Other thresholds under CA, 2013
1.       Provisions/ exemptions applicable to all listed companies
Exemption for creation of Debenture Redemption Reserve (DRR)	71	18 (7) (b) (iii) (B) of SHA Rules	Listed NBFCs need not create DRR for privately placed and public issue of debentures.	Refer discussion below
Creation of Debenture Redemption Fund (DRF)	71(4)	Rule 18(7)(b)(v) of SHA Rules as amended.	No requirement for creation of DRF by listed companies issuing debenture on private placement basis.	Refer discussion below
Annual return	92	11 of MGT Rules	Company to file Annual Return certified by a PCS in Form MGT-8	Applicable to Company with Paid-up share capital of Rs. 10 crore or more; or Turnover of Rs. 50 crore or more.
Records in electronic form	120	27 of MGT Rules	Company may maintain records in electronic form. Note: Whether companies other than those specified have the option to maintain in electronic form, is not clear.	Company having not less than 1000 shareholders, debenture holders and other security holders.
Investigation by NFRA	132	Rule 3(1)(b) of NFRA Rules	NFRA shall undertake investigation or conduct quality review of audit.	Unlisted public companies having paid-up capital of not less than Rs. 500 crores; or having annual turnover of not less than Rs. 1000 crores or having, in aggregate, outstanding loans, debentures and deposits of not less than Rs. 500 crores as on the 31st March of immediately preceding financial year; insurance companies, banking companies, companies engaged in the generation or supply of electricity, companies governed by any special Act for the time being in force or bodies corporate incorporated by an Act in accordance with clauses (b), (c), (d), (e) and (f) of sub-section (4) of section 1 of the CA, 2013;
Statement in Board report indicating manner of Board evaluation	134(3)	8 (4) of AOC Rules	A statement indicating manner in which formal evaluation of Board, committee and individual directors has been done by Board needs to be included in Board’s report.	Public company having a paid up share capital of Rs. 25 crore or more calculated at the end of the preceding financial year.
Financial statements in electronic form	136	11 of AOC Rules	Financial statements may be sent in electronic format.	Public companies which have a net worth of more than Rs. 1 crore; and turnover of more than Rs. 10 crore.
Internal auditor	138	13 of AOC Rules	Appointment of internal auditor or a firm of internal auditors to conduct internal audit.	Every unlisted public company having- paid up share capital of Rs. 50 crore or more during the preceding financial year; or turnover of Rs. 200 crore or more during the preceding financial year; or outstanding loans or borrowings from banks or public financial institutions exceeding Rs. 100 crore or more at any point of time during the preceding financial year; or outstanding deposits of Rs. 25 crore or more at any point of time during the preceding financial year; Every private company having turnover of Rs. 200 or more during the preceding financial year; or outstanding loans or borrowings from banks or public financial institutions exceeding Rs. 100 crore or more at any point of time during the preceding financial year:
Appt/ re-appt of Auditor	139 (2)	5 of ADT Rules	Restriction on term of appointment or reappointment of auditor. Rotation of Statutory Auditors mandatory.	all unlisted public companies having paid up share capital of Rs. 10 crore or more; all private limited companies having paid up share capital of Rs. 50 crore or more; all companies having paid up share capital of below threshold limit mentioned above, but having public borrowings from financial institutions, banks or public deposits of Rs. 50 crores or more.
Woman Director	149 (1)	3 of DIR Rules	Appointment of a Woman Director on the Board.   Any intermittent vacancy of a woman director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy whichever is later.	Public company having – paid–up share capital of Rs. 100 crore or more; or turnover of Rs. 300 crore or more:
Small shareholder director	151	7 of DIR Rules	May appoint a small shareholder director suo moto or upon notice from shareholder.	–
Vigil mechanism	177	7 of MBP Rules	Company to establish vigil mechanism for their directors and employees to report genuine concerns.	the Companies which accept deposits from the public; the Companies which have borrowed money from banks and public financial institutions in excess of Rs. 50 crore.
Disclosure in Board’s Report	197 (12)	5 of MR Rules	Disclosure in Board’s report regarding ratio of the remuneration of each director to the median employee’s remuneration and such other details as prescribed in the Rules.	–
Appointment of KMP	203	8 of MR Rules	Appointment of whole-time key managerial personnel.	Public company having a paid-up share capital of Rs. 10 crore or more Additionally for appointment of Company Secretary, every private company which has a paid up share capital of Rs. 10 crore.
Secretarial Audit Report	204	9(2) of MR Rules	Shall annex with its Board’s report  a secretarial audit report, given by a company secretary in practice	Every public company having a paid-up share capital of Rs. 50 crore or more; or Every public company having a turnover of Rs. 250 crore or more; or Every company having outstanding loans or borrowings from banks or public financial institutions of Rs. 100 crore or more.
2.       Provisions applicable only to a listed public company
Report on Annual General meeting	121	31 of MGT Rules	Report on AGM to be filed with the Registrar in eForm MGT-15.	–
Independent  Director	149 (4)	4 of DIR Rules	Atleast 1/3rd of total number of Board members shall be independent directors.	Public Companies having paid up share capital of Rs. 10 crore or more; or Public Companies having turnover of Rs. 100 crore or more; or Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding Rs. 50 crore
Constitution of certain committees	177 & 178	6  of MBP Rules	Constitution of Audit Committee and Nomination and Remuneration Committee.	Public Companies having paid up share capital of Rs. 10 crore or more; or Public Companies having turnover of Rs. 100 crore or more; or Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding Rs. 50 crore

 

With the present amendment, the class of companies provided above will not be required to ensure aforesaid compliances unless it meets other criteria/ thresholds prescribed for respective compliance.

As evident from the table above, a public company will hardly have any exemptions if it meets any of the thresholds specified. While the intent of exempting class of companies is benign, it will be of some benefit to public companies only if the other thresholds are also revised. While, the holy wish is for ease of doing business, static thresholds prescribed in 2013 needs to be revisited to assess the adequacy and the intent to regulate such class of companies. For e.g. public companies having paid up capital of 10 crore or borrowing of Rs. 50 crore is a very common phenomena.

Additionally, in case the sectoral regulator prescribes composition of committee or induction of independent directors or other corporate governance requirement, those will override the exemptions.

Applicability of DRR and DRF[6]

Section 71(4) read with Rule 18(1)(c) of the Companies (Share Capital and Debentures) Rules, 2014 (SHA Rules) requires every company issuing debentures to create a Debenture Redemption Reserve (DRR) of 10% (as the case maybe) of outstanding value of debentures for the purpose of redemption of such debentures.

Some class of companies as prescribed, has to either deposit, before April 30th each year, in a scheduled bank account, a sum of at least 15% of the amount of its debentures maturing during the year ending on 31st March of next year or invest in one or more securities enlisted in Rule 18(1)(c) of SHA (DRF).

Pursuant to the present amendment, it is important to ascertain applicability of creation of DRR and DRF in terms of CA, 2013. The exemption in relation to DRR and DRF was applicable to listed companies in case of private placement. While NBFCs continue to enjoy exemption even in case of unlisted companies, pursuant to the present amendment Non-NBFCs listing NCDS will not be eligible to avail the benefit of the said exemption and will be required to maintain DRR and DRF.

The intent of MCA at the time of amending Rule 18 of Companies (Share Capital and Debentures) Rules, 2014 was to extend the exemption to all listed companies i.e. companies having securities listed on stock exchange, in case of privately placed debentures, from maintenance of DRR and DRF.

The intent behind amending the definition of ‘listed company’ under 2 (52) was to reduce the compliance burden of debt listed entities that were regarded as listed entities merely by virtue of listing the privately placed debentures.

The amendment to the definition of ‘listed company’ was subsequent and the same has resulted in an anomaly as corresponding amendment has not been carried out in Rule 18 of SHA Rules. The intent behind mandating DRR and DRF requirement, in case of private placement, was for unlisted companies with unlisted debt and not for unlisted companies with listed debt.

This is surely a matter of representation to be made to MCA as the gap seems inadvertent and not intentional.

Applicability of Rule 9A of PAS Rules

Section 29 of CA, 2013 read with Rule 9A of Companies (Prospectus and Allotment of Securities) Rules, 2014 (PAS Rules)[7] effective from October 2, 2018 mandates unlisted public companies to issue the securities only in dematerialised form and facilitate dematerialisation of all its existing securities. Physical transfer of securities is prohibited for unlisted public companies. Compliance with the said provisions are exempt only in case of a Nidhi, Government company and wholly owned subsidiary.

Pursuant to amendment in the definition of listed company, public companies that were originally exempted from the requirements by virtue of being a listed company, will now be required to comply with Section 29 and Rule 9A.

Status under Listing Regulations and SEBI ILDS

‘Listed entity’ as defined under Reg. 2 (p) of SEBI (Listing Obligations and Disclosures Requirements) Regulations, 2015 (Listing Regulations) means an entity which has listed, on a recognised stock exchange(s), the designated securities issued by it or designated securities issued under schemes managed by it, in accordance with the listing agreement entered into between the entity and the recognised stock exchange(s).

The present carve out under CA, 2013 will not result in any carve out for compliances under Listing Regulations as Listing Regulations anyways provides separate set of compliances equity listed companies (Chapter IV) and only NCDS/NCRPS listed companies ( Chapter V) and those with equity and debt listed (Chapter VI).

Further, SEBI Circulars issued from time to time under SEBI ILDS are addressed to all listed entities who have listed their debt securities or issuers who propose to list their debt securities.

Status under PIT Regulations

SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations) does not define the term ‘listed company’, however, applies to listed company and securities of an unlisted company proposed to be listed. The definition of ‘proposed to be listed’ is as hereunder:

“proposed to be listed” shall include securities of an unlisted company:

(i) if such unlisted company has filed offer documents or other documents, as the case may be, with the Board, stock exchange(s) or registrar of companies in connection with the listing; or

(ii) if such unlisted company is getting listed pursuant to any merger or amalgamation and has filed a copy of such scheme of merger or amalgamation under the Companies Act, 2013.”

The term ‘listed company’ is not being defined under PIT Regulations and therefore, the definition under CA, 2013 should be referred pursuant to Reg. 2 (2) of PIT Regulations[8].  In that case, PIT Regulations will apply only in case of securities issued by a listed company or a company that is proposed to become a ‘listed company’. Accordingly, only debt/ NCRPS listed companies need not comply with requirements of PIT Regulations. SEBI should consider furnishing a clarification in this regard.

However, that is not the intent of law. If a security is listed, its price is subject to change and be impacted by price sensitive information. Accordingly, such exclusively debt/ NCRPS listed companies, on account of private placement of securities, should continue to comply with the requirements of PIT Regulations. SEBI may also consider furnishing a clarification in this regard.

Conclusion

While, the present amendment expands the originally envisaged carve out for private companies to public companies as well, given the other static thresholds prescribed under CA, 2013 public companies have little reason to rejoice. Exemption to comply with PIT Regulations may be a huge relief, however, there is a need for SEBI to clarify the position given the intent of law.

Further, it is very crucial that MCA revisits DRR and DRF related provision for privately placed NCDS and consider to relax the same especially for the benefit of Non-NBFCs. Lastly, suitability of the exemption in case of companies exclusively listed in foreign jurisdiction will be required to be evaluated after a certain lapse of time as the provisions have been recently inserted in CA, 2013.

 

Our other videos and write-ups may be accessed below:

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https://vinodkothari.com/category/corporate-laws/

Our  our Book on Law and Practice Relating to Corporate Bonds and Debentures, authored by Ms. Vinita Nair Dedhia, Senior Partner and Mr. Abhirup Ghosh, Partner can be ordered though the below link:

https://www.taxmann.com/bookstore/product/6330-law-and-practice-relating-to-debentures-and-corporate-bonds

 

[1] https://www.bseindia.com/markets/debt/debt_instruments.aspx?curpage=4&select_alp=all&select_ord=1

[2] Ministry of Corporate Affairs, Government of India, ‘Report of the Companies Law Committee’

(November 2019) para 2.

[3] Ministry of Corporate Affairs, Government of India, ‘Report of the Companies Law Committee’

(February 2016) para 1.13.

[4] http://www.mca.gov.in/Ministry/pdf/CommencementNotification_23012021.pdf

[5] http://egazette.nic.in/WriteReadData/2021/225287.pdf

[6] Refer our write up ‘Easing of DRF’ and ‘Provisions relating to DVR & DRR- stands amended’ by CS Smriti Wadehra.

[7] Discussed in our write up ‘Physical to Demat: A move from opacity to transparency’.

[8] Words and expressions used and not defined in these regulations but defined in the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Depositories Act, 1996 (22 of 1996) or the Companies Act, 2013 (18 of 2013) and rules and regulations made thereunder shall have the meanings respectively assigned to them in those legislation.

CSR Policy Amendment Rules, 2021 brings plethora of other changes

PCS Nitu Poddar, Senior Associate, Vinod Kothari & Company

Introduction

The long pending amendment brought in the provisions of section 135 of Companies Act, 2013 dealing with Corporate Social Responsibility (“CSR”), implementation of which was pending for want of respective amendment in the Rules, has finally been made effective on and from January 22, 2021[1] along with amendment in the CSR Policy Rules, 2021[2].

With the coming into force of this amendment, the penal provisions for non-compliance CSR provisions have also come into force, changing the very nature of the CSR provisions from “comply or explain” to “comply or suffer”. Pursuant to the amendment, the companies are now required to do either of the following: (i) spend the required amount for CSR activities as prescribed under schedule VII or (ii) park the unspent amount of ongoing projects in a separate account within 30 days of the end of financial year or (iii) transfer unspent amount to such funds as mentioned in Schedule VII viz. Clean Ganga Fund or PMNRF or like within 6 months of the end of financial year.

Further, the amendment in the Rules are not just limited to the changes made in the section, rather, it extends to make substantial changes in the implementation of the entire CSR activity. Infact, couple of fresh concepts have also been introduced in the Rules like registering of implementing agencies by filing e-form CSR-1 with the MCA, CFO certificate, mandatory impact assessment.

In this write up, we discuss the impact of the significant changes made in the CSR Rules by the MCA.

Negative attributes of what will not be considered as “CSR”

A list of 6 items have been mentioned in the negative attributes of what would not include to be a CSR expenditure. This includes:

1. Activities undertaken in normal course of business;
   1. [3]Exclusion for three year till FY 2022-23, in case companies do expense for R&D activity of vaccine/ drugs/ medical devices related to covid-19, to such companies which are engaged in R&D activity of new vaccine, drugs and medical devices in their normal course of business. This exclusion will be allowed only in case the companies are doing such R&D in collaboration with organisations as mentioned in item (ix) of schedule VII and disclose the same in their board’s report.
2. Activity undertaken outside India;
   • Excluded – training of Indian sports personnel representing any State or Union territory at national level or India at international level
3. Contribution to political party under section 182;
4. Activities benefitting the employees[4] only;
   • In case the activity is intended to provide generic benefit to the public and large and the employees also get benefited in the process, the Rule does not intend to discard such activity as a CSR activity. The idea is that the companies should not come out with activities where the employees are the only intended beneficiaries.
   • It should also be noted that the definition of employee has been referred from Code on Wages which is quite wide.
   • In the draft rules, it was proposed that the activities which have less than 25% employees shall be deemed to be CSR activity. This proposal has been dropped in the final Rules.
5. Sponsorship activities which help the company in deriving marketing benefits;
   • This was always deemed, however, now have been made absolutely clear that sponsorship / marketing activities cannot be classified as CSR expenditure.
6. Activities carried out for fulfiling statutory obligation[5].

This is not a new provision added; this infact was anyway covered under Rule 4 and FAQ of CSR by MCA. from where it has been replaced in the definition clause.

Definition of CSR Policy

The definition of CSR Policy focuses on the role of board towards CSR Policy which has to be prepared taking into account the recommendation of the CSR Committee. It is clear from the amendments that unlike the current prevalent practice where several companies simply picks and choose any activity under schedule VII as a CSR activity, the government intends the Board of companies to have a more thoughtful approach towards undertaking CSR activity. The new definition seems to require the board to do a strategic planning with respect to CSR activity to be undertaken by the company. It requires the Policy to have approach and direction of Board along with guiding principles for selection, implementation and monitoring of the CSR activities undertaken by the companies. This apart, the Policy should also contain annual action plan.

This change may require the companies to revisit their existing CSR Policy soonest so that the same may be placed in the upcoming CSR and Board meeting.

Defining “ongoing projects”

As per the amendment in section 135, unspent amount, if any, for ongoing projects, may be parked in a separate bank account for three years and is not required to be transferred to the Fund. The definition of ongoing projects have been defined in the Rules. As per the definition:

1. The ongoing project can be a program of maximum 4 years (including the first year of commencement); – mere one-time spending surely cannot be a “project”. It requires continued expenditure over time.
2. “Year” would surely mean financial year. Therefore if say a project has been commenced in the month of February, 2020, the three FY therefrom, will be FY 2022-2023.
3. Year wise allocation will have to be made
4. Basis reasonable justification, a bullet program can also be converted to an ongoing project by the board of directors

While the timeline of 4 years at one go has been provided, the gaps seems to be two-fold:

1. What about the projects which may take longer than 4 years; so as to keep a close check on India Inc., seems like the govt. intends the companies to make budgets for 4 years and either implement it or transfer amount to the National CSR account.
2. Can such projects be extended after completion of the 4 years? – to our mind, the answer to this seems to be positive.

Modes of implementing CSR activities

So far, a section 8 company, trust, or a society, having track record of three years in carrying out similar activity were qualified to be an implementing agency. Several amendments have been brought in the provisions relating to implementing agencies:

1. On and from April 1, 2021, companies can undertake CSR activity only through implementing agencies which are registered with MCA; – it seems that the MCA is intending to govern the third leg of the economy which consist of not for profit organization by requiring registration of these entities
2. Registration has to be done by filing e-form CSR-1 with MCA, post which the implementing agencies will receive a unique CSR Registration Number. This e-form has to be verified by a practicing CA/ CS/ CWA;
3. Following entities can only apply for such registration:
   • Established by the company either singly or jointly with other company – Section 8 company, registered public trust, registered public society (not private), registered under section 12A and 80G of the Income Tax Act, 1961;
   • Established by the Government – Section 8 company, registered trust (here both public and private), registered public society;
   • Established under an Act of Parliament or State Legislature – any entity;
   • Established by anyone – Section 8 company, registered public trust, registered public society (not private), registered under section 12A and 80G of the Income Tax Act, 1961; having track record of atleast three years in undertaking similar activities.

Mandatory registration of implementing agency with the MCA

As mentioned above, this is a fresh introduction. The template of the e-Form is present in the rules. Also, this would mean that, entities will not be hired as implementing agencies until they register themselves.

Role of International Organisation

The Rules prescribe that companies may engage international organisations for designing, monitoring and evaluation of the CSR projects or programmes as per its CSR policy as well as for capacity building of their own personnel for CSR. The provision, using the word “may”, is directory and not mandatory. Accordingly, companies can take a call to appoint any other entity to undertake the prescribed overhead jobs in respect of CSR. In any case, the threshold allowed as administrative overhead will be applicable,

In the draft rules, it was proposed that the companies may also undertake CSR activities through International Organisations, making them one of the implementing agencies, with the prior permission of the central government, however, this proposal has been dropped in the final rules.

Board responsibility and CFO certification

This is an extremely important amendment. In addition to the monitoring by the board, it requires the CFO or alike to give utilisation certificate of the disbursements made. This makes the role of monitoring all the more crucial. This apart the, CFO will also be required to sign the annual CSR report.

This clause makes the CFO apparently responsible for the entire CSR provision without him being part of the CSR committee or the board of directors. Probably, such certificate shall have to be placed before the CSR committee and / or the board – the draft rules are silent on this.

CSR Committee – responsibility to recommend annual action plan

This seems to be another immediate actionable on part of the Committee.  While annual budget and areas of activities was being recommended by the CSR Committee, however, the manner of execution was something that was currently being decided by the board. Also, practically speaking, there used to be one of meeting of CSR in several cases in which the allocating of budget for next FY and approving and signing of the report of last FY used to be done.

However, as per the amendment, the committee is required to draw a detailed annual action plan to undertake CSR program. The amendment rules are clear to indicate the intension of the government which is in full mood to get the management on their heels for effective implementation of the CSR provisions along with ensuring that such spent is making impact in the society.

Mandatory CSR impact assessment

The High Level Committee on CSR[6] highlighted importance of the need and impact assessment for projects with higher outlays. This will help in bringing forth the areas requiring more attention, for there development.

Companies having minimum 10 cr of average CSR obligation in last 3 years shall have to undertake mandatory impact assessment. Interestingly, the report of such assessment is required to be formed a part of the annual report.

There are several question around this:

1. who does this assessment ? surely, the govt acknowledges that an outside entity can also be engaged for such assessment and therefore there is increased limits of allowed overhead expenditure for such companies who are mandatorily required to undertake such assessment
2. also, it is to be noted that the CSR report as mentioned in the annexure, includes surplus from CSR in the total CSR obligation; – will this mean that where there is extraordinary surplus, compliance of this provision becomes applicable because of surplus ? it may in such cases prove to be waste of resources

Surplus out of CSR program

Though it may seem to be amendment in this provision, however, there is no effective change. The surplus out of CSR activity was anyway prohibited to form part of business profits of the Company. This is just an explicit clarification to say that it has to be used back for CSR purpose only – either the same program from which such surplus has been generated or any other project as per CSR policy of the company.

Such surplus is required to be transferred to the unspent account within 6 months from the end of financial year.

Title holder of CSR assets

This is another important proposal which says that any capital asset acquired / created for the purpose of CSR has to be in the name of only a section 8 company or a registered public trust or registered society having CSR registration Number and cannot be held in the name of the company itself. Considering the quantum of CSR spent being carried through in-house foundations, this is a very substantial change and will lead to revisit the plan of CSR activity.

180+90 days (extension with reasonable justification) time has been proposed for the compliance of this provision.

Unspent amount of ongoing projects to be transferred to Unspent CSR Account

Since the provisions are applicable from January 22, 2021, any amount that remains unspent on ongoing project in FY 2020-21 will have to be transferred to separate account within 30^th April, 2020.

Additional disclosures on the website of the company

This is again an important proposal for the companies which have / are required to have a functional website. This requires the companies to inter alia mandatorily disclose the CSR projects approved by the board. So far, this was only known from the annual report much after the end of the FY. This proposal indicates that the board will have to make a thought-through plan on the recommendation of the CSR Committee as the same will be displayed on its website and therefore cannot be changed as per the whims and fancies of the board.

This will also put check on the random on-off / philanthropic acts of the promoters which currently is, in many cases, being converted to CSR spent.

Annual CSR Report

There are several additional details required in the report which is by and large in line with the additional requirement.

It may be noted that requirement of CIN of implementing agencies will be applicable for section 8 companies only.

Conclusion

While the amended rules are quite technical, considering the intent of CSR, it should be broadly principle based then laden with heavy rules and the CSR committee could be laden with the onus of compliance of the provisions in such case.

In any case, the mind of the government seems to be loud and clear that gone are those days when the companies used to take the CSR provisions lightly by putting cliché explanations in the annual report for all the gaps for unspent amount. One cannot ignore that, as per CARO-2020, the auditor is also required to comment on the CSR provisions specifically with respect to the amount unspent and whether transferred to the unspent account.

 

Read our other article on subject:

1. Proposed changes in CSR Rules, click here
2. Draft CSR Rules Make CSR More Prescriptive, click here
3. CAB, 2020: Bunch of Proposals for revamping CSR Framework, click here

Our presentation on Unspent CSR & role of implementing agencies can be viewed here – https://vinodkothari.com/2021/09/35882/

To access various web-lectures, webinars and other useful resources useful for the Corporate and Financial sector, visit our Youtube channel: https://www.youtube.com/channel/UCgzB-ZviIMcuA_1uv6jATbg

 

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

[1] Companies CSR Policy Amendment Rules, 2020. W.e.f 24.08.2020 – http://egazette.nic.in/WriteReadData/2020/221325.pdf

[2] “employee” means, any person (other than an apprentice engaged under the Apprentices Act, 1961), employed on wages by an establishment to do any skilled, semi-skilled or unskilled, manual, operational, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied, and also includes a person declared to be an employee by the appropriate Government, but does not include any member of the Armed Forces of the Union;

[3] MCA FAQ- Q3: http://www.mca.gov.in/Ministry/pdf/General_Circular_21_2014.pdf

[1] MCA Notification for effecting amendment brought vide Companies (Amendment) Act, 2019: http://egazette.nic.in/WriteReadData/2021/224636.pdf

MCA Notification for effecting amendment brought vide Companies (Amendment) Act, 2020: http://egazette.nic.in/WriteReadData/2021/224637.pdf

[2] CSR Policy Amendment Rules, 2021: http://mca.gov.in/Ministry/pdf/CSRAmendmentRules_22012021.pdf

Draft CSR Policy Amendment Rules, 2020 dated March 13, 2020: http://feedapp.mca.gov.in/csr/pdf/draftrules.pdf

 

-Commencement notification dated 21^st 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: https://vinodkothari.com/2020/03/highlights-of-the-companies-amendment-bill-2020/
2. Companies (Amendment) Act, 2020 PowerPoint presentation: https://vinodkothari.com/2020/09/companies-amendment-act-2020/
3. Enforcement Status of Companies (Amendment) Act, 2020:https://vinodkothari.com/2020/12/enforcement-status-of-companies-amendment-act-2020/