Companies Act (Amendment) Ordinance 2018

November 14th, 2018

 

The Companies (Amendment) Ordinance, 2018

Babus get vast powers to impose penalties

Many powers of judiciary and NCLT transferred to Executive

 

Penalties – New way of raising Government revenue

In GST, new ways of raising revenue by imposing late fees and heavy penalties for even technical violation of provisions relating to e-way bill have been introduced. Similar provisions have been made in Companies Act 2013, vide Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Many provisions of ‘fine’ have been replaced by ‘penalties’. Thus, Registrar of Companies (ROC) and Regional Director (RD) can now impose penalties directly after issuing SCN, instead of going to judiciary for imposing fines or for following procedure for composition of offences.

Some powers have been transferred from NCLT to Central Government (effectively to RD or ROC), ostensibly for ‘ease of doing business’.

 

The major changes are as follows.

  • Provision of declaration for ‘commencement of business’ reintroduced (against concept of ‘ease of doing business’). Name of company can be removed if not complied with.
  • In many routine matters, ‘fine’ or ‘imprisonment’ converted into ‘penalty’, which can be imposed directly by RD or ROC after issuing SCN.
  • Time limit for filing charge reduced. Provision of ‘rectification of register of charges’ for delayed submission of charge omitted. Thus, if charge is not filed within prescribed period or extended period allowable, charge cannot be filed at all.
  • Punishment for non-filing of declaration of significant beneficial ownership in a company introduced.
  • Independent director can be given stock options (but not in case of listed company).
  • Removal of name of company if subscription amount not paid or company not carrying on business.
  • Adjudication of Penalties – Adjudicating Authority can issue directions to rectify default.

 

Provisions where fine or imprisonment converted into penalty

 

 

Section Penalty instead of fine or imprisonment
10A Declaration before commencement of business (also name of company can be removed) (new provision)
53(3) Issue of shares at discount
64(2) Failure to give Notice to Registrar for alteration of capital
92(5) Penalty for default in filing annual return
102(5)  Not complying with provisions relating to explanatory statement with notice of general meeting
105(3) If notice of general meeting does not indicate about provisions of proxy
117(2) Non-compliance of provision relating to filing of resolutions and agreements
121(3) Not filing report of AGM by listed company
137(3) Non-compliance of provisions relating to filing of financial statement
140(3) If auditor does not file statement of his Resignation to ROC
157(2) If company does not inform DIN to ROC within 15 days
159 Violation of provisions by director relating to DIN
165(6) Violating provisions relating to restriction on number of Directorships
191(5) Violation of provisions relating to payment to director for loss of office, etc.
197(15) Contravention of provisions in respect of managerial remuneration
203(5) Not appointing Key Managerial Personnel when mandatory
238(3) Violating provision of section 238(1)(c) in respect of circular for offer of scheme involving transfer of shares
446(B) Lesser penalties for OPC and small companies
454A Double penalty for offence repeated within three years (new provision)

 

New Punishments of imprisonment introduced

 

Section Imposition of fine or imprisonment
86(2) Punishment for giving false information in filing of charges
90(10) Non-filing of declaration of significant beneficial ownership in a company

 

 

 

Details of Changes made by 2018 Ordinance

 

The details of changes are given below.

Different financial year if holding or subsidiary or associate company is outside India

Where a company or body corporate, which is a holding company or a subsidiary or associate company of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Central Government may, on an application made by that company or body corporate in such form and manner as may be prescribed, allow any period as its financial year, whether or not that period is a year – first proviso to section 2(41) of Companies Act, 2013 as amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Earlier, the powers were with NCLT. Applications pending with NCLT as on 2-11-2018 will continue to be dealt by NCLT – second proviso to section 2(41) of Companies Act, 2013 as inserted vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Provision as existing upto 2-11-2018 – On an application made by a company or body corpo­rate, which is a holding company or a subsidiary or associate company of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the NCLT may, if it is satisfied, allow any period as its financial year, whether or not that period is a year [first proviso to section 2(41) of Companies Act, 2013 as existing upto 2-11-2018]. [The words in italics were added w.e.f. 9-2-2018].

 

Declaration before commencement of business

A     company     incorporated     after    2-11-2018  and having a share capital shall not commence any business or exercise any borrowing powers unless—

(a) a declaration is filed by a director within a period of one hundred and eighty days of the date of incorporation of the company in such form and verified in such manner as may be prescribed, with the Registrar
that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of making of such declaration; and

(b) the company has filed with the Registrar a verification of its registered office as provided in section 12(2) of Companies Act, 2013 – section 10A(1) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Effect of not filing such declaration – If any default is made in complying with the requirements of section 10A, the company shall be liable to a penalty of Rs 50,000 and every officer who is in default shall be liable to a penalty of Rs 1,000 for each day during which such default continues but not exceeding an amount of one lakh rupees – section 10A(2) of Companies Act, 2013 inserted vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Removal of name if declaration under section 10A(1) is not filed – Where no declaration has been filed with the Registrar under section 10A(1)(a) of Companies Act, 2013 within a period of 180 days of the date of incorporation of the company and the Registrar has reasonable cause to believe that the company is not carrying on any business or operations, he may, without prejudice to the provisions of section 10A(2), initiate action for the removal of the name of the company from the register of companies under Chapter XVIII (sections 248 to 252 of Companies Act, 2013) – section 10A(3) of Companies Act, 2013 inserted vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018 – parallel provision made in section 248(1)(d) of Companies Act, 2013 inserted vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Removal of name if company is not carrying on business – If the Registrar has reasonable cause to believe that the company is not carrying on any business or operations, he may cause a physical verification of the registered office of the company in such manner as may be prescribed and if any default is found to be made in complying with the requirements of section 12(1), he may without prejudice to the provisions of section 12(8), initiate action for the removal of the name of the company from the register of companies under Chapter XVIII (sections 248 to 252 of Companies Act, 2013) – section 12(9) of Companies Act, 2013 inserted vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Provision against principle of ‘ease of doing business’ – The introduction of provision of declaration for commencement of business increases compliance costs without commensurate benefits. It is possible that a few companies may be misusing the provision,  but why burden all companies with this empty formality? The remedy found is worse than the disease.

 

Conversion of public company into private company with approval of RD

Articles cannot change a public company to a private company without approval of Central Government – second proviso to section 14(1) of Companies Act, 2013 amended section of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Till 2-11-2018, approval of NCLT was required. It has been clarified that application for conversion pending with NCLT as on 2-11-2018 will continue with NCLT and will be disposed of by NCLT – third proviso to section 14(1) of Companies Act, 2013 inserted vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Filing of alteration with ROC – The alteration and copy of order of Central Government approving alteration and copy of altered Articles shall be filed with ROC within fifteen days  The ROC will register the same – section 14(2) of Companies Act, 2013 [Till 2-11-2018, approval of NCLT was required for alteration rom public company to private company].

 

 

Penalty for issue of shares at discount

Where any company fails to comply with the provisions of this section, such company and every officer who is in default shall be liable to a penalty which may extend to an amount equal to the amount raised through the issue of shares at a discount or five lakh rupees, whichever is less, and the company shall also be liable to refund all monies received with interest at the rate of twelve per cent. per annum from the date of issue of such shares to the persons to whom such shares have been issued – section 53(3) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Till 2-11-2018, there was provision for imposition of fine, which could be imposed only by Court.

 

 

Penalty for failure to give Notice to Registrar for alteration of capital

Notice shall be given to ROC for alteration of capital made under section 61(1) or order by Central Government under section 62 or by redemption of preference shares – section 64(1) of Companies Act, 2013.

Where any company fails to comply with the provisions of section 64(1), such company and every officer who is in default shall be liable to a penalty of Rs 1,000 for each day during which such default continues, or five lakh rupees whichever is less – Section 64(2) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Till 2-11-2018, there was provision for imposition of fine, which could be imposed only by Court or procedure of composition was required to be followed.

 

 

Time limit for filing charge created on or after 2-11-2018 reduced

The charge should be filed within 30 days from its creation. In case of charges created on or after 2-11-2018, ROC can allow extension upto 30 days (total 60 days from date of creation of charge, on payment of prescribed additional fees. ROC can allow further extension of 60 days on after payment of such advalorem fees as may be prescribed – first and second proviso to section 77(1) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

There is no provision to grant further extension for registration of charges. Section 87 of Companies Act, 2013 has been amended w.e.f. 2-11-2018 to provide that Central Government cannot order rectification of register of charges in such cases.

Provision in respect of charges created before 2-11-2018 – Registrar can allow filing of particulars of such registration within 300 days of such creation, on payment of additional fee as prescribed.

He can grant further extension upto 6 months on payment of additional fees as may be prescribed – first and second proviso to section 77(1) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Registrar can condone delay upto 300 days on being satisfied that company had sufficient cause for not filing particulars and instrument of charge within 30 days, on payment of additional fee – Rule 4 of Companies (Registration of Charges) Rules, 2014.

If the charge is not filed within 300 days of creation, further extension could be granted by Central Government under section 87 of Companies Act, 2013 – second proviso to section 77(1) of Companies Act, 2013 as existing upto 2-11-2018 [powers delegated to Regional Director]. Now, such extension cannot be granted.

 

Punishment for not filing charges or giving false information

Punishment for non-filing of charge or its satisfaction is fine upto Rs ten lakhs on company (minimum Rs one lakh). Further, every officer who is in default shall be punishable with imprisonment which can extend upto 6 months and fine upto Rs one lakh (minimum Rs 25,000 – section 86(1) of Companies Act, 2013  [re-numbered w.e.f. 2-11-2018].

Punishment for giving false information – If any person wilfully furnishes any false or incorrect information or knowingly suppresses any material information, required to be registered in accordance with the provisions of section 77, he shall be liable for action under section 447 of Companies Act, 2013 [punishment for fraud] – section 86(2) of Companies Act, 2013 inserted vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

 

 

Central government can order rectification of register of charges only when delay was in respect of filing of satisfaction of charge or mistake made in filing charges

The Central Government can order rectification of register on any of the following grounds—

The Central Government on being satisfied that —

(a) the omission to give intimation to the Registrar of the payment or satisfaction of a charge, within the time required under this Chapter; or

(b) the omission or misstatement of any particulars with respect to any such charge or modification or with respect to any memorandum of satisfaction or other entry made in pursuance of section 82 or section 83,

was accidental or due to inadvertence or some other sufficient cause or it is not of a nature to prejudice the position of creditors or shareholders of the company, it may, on the application of the company or any person interested and on such terms and conditions as the Central Government deems just and expedient, direct that the time for the giving of intimation of payment or satisfaction shall be extended or, as the case may require, that the omission or misstatement shall be rectified [section 87 of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Central Government cannot order rectification of register of charges if there was delay in filing of the original charge itself, beyond the specified period or extended period as allowable under section 77 of Companies Act, 2013 (as amended w.e.f. 2-11-2018].

Application for rectification can be made by company or any person interested. Thus, secured creditor (Bank or FI) can make application if the charge or its modification was not filed in time, as the secured creditor is certainly interested in registration/modification of charge.

Powers to order rectification of register of charges have been delegated to Regional Director vide Notification F No. 1/6/2014-CL.V dated 21-5-2014.

Provision upto 2-11-2018 – The Central Government could order rectification of register on any of the following grounds—

 

  • (i)(a) the omission to file with the Registrar the particulars of any charge created by a company or any charge subject to which any property has been acquired by a company or any modification of such charge was accidental or due to inadvertence or some other sufficient cause or it is not of a nature to prejudice the position of creditors or shareholders of the company; or
  • (i)(b) the omission to register any charge within the time required under this Chapter or the omission to give intimation to the Registrar of the payment or the satisfaction of a charge, within the time required under this Chapter was accidental or due to inadvertence or some other sufficient cause or it is not of a nature to prejudice the position of creditors or shareholders of the company; or
  • (i)(c) the omission or mis-statement of any particular with respect to any such charge or modification or with respect to any memorandum of satisfaction or other entry made in pursuance of section 82 or section 83, was accidental or due to inadvertence or some other sufficient cause or it is not of a nature to prejudice the position of creditors or shareholders of the company; or
  • (ii) on any other grounds, it is just and equitable to grant relief.

 

 

 

Punishment for non-filing of declaration of significant beneficial ownership in a company

‘Significant beneficial owner’ means (a) not less than 25% in shares of a company or right to exercise control over company as defined in section 2(27) of Companies Act, 2013 [This definition has been notified on 7-5-2018] (b) every individual, acting alone or with together, or through one or more persons or trust and persons resident outside India, holds beneficial interest of 25% or more or such other percentage as may be prescribed – section 90(1). inserted w.e.f. 13-6-2018.

The definition of ‘significant beneficial owner’ has been further elaborated in rule 2(e) of Companies (Significant Beneficial Owners) Rules, 2018, by reducing the required percentage from 25% to 10% as explained below..

In case of individual, he should hold not less than 10% shares and his name should not be in register of members of company as holder of such shares.

In case of persons other than individuals or natural persons, person acting alone or with other individuals, trusts, firms etc. should hold not less 10% shares.

GDR, compulsorily convertible preference shares or compulsorily convertible debentures shall be treated as ‘shares’ for this purpose.

Person who is  ‘Significant beneficial owner’ is required to make declaration of beneficial interest in prescribed form and manner – section 90(1) of Companies Act, 2013 inserted w.e.f. 13-6-2018.

The company shall file return of significant beneficial ownership with ROC –section 90(4) of Companies Act, 2013 inserted w.e.f. 13-6-2018.

If company is aware of any person having beneficial interest, it shall give notice to such person.

The concerned person shall give such information within 30 days – section 90(6) of Companies Act, 2013 inserted w.e.f. 13-6-2018.

If such person fails to provide information, company shall apply to NCLT within 15 days of period specified in the notice, that such shares may be subject to restrictions on transfer of interest, suspension of all rights attached to such shares and such other matters as may be prescribed – section 90(7) of Companies Act, 2013 inserted w.e.f. 13-6-2018.

The company shall apply to NCLT seeking directions from NCLT – rule 7 of Companies (Significant Beneficial Owners) Rules, 2018.

NCLT shall pass order within 60 days – section 90(8) of Companies Act, 2013 inserted w.e.f. 13-6-2018.

The company or the person aggrieved by the order of NCLT may make an application to the Tribunal for relaxation or lifting of the restrictions placed under section 90(8) of Companies Act, 2013, within a period of one year from the date of such order – section 90(9) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

If no such application has been filed within a period of one year from the date of the order under section 90(8), such shares shall be transferred to the authority constituted under section 125(5) of Companies Act, 2013, in such manner as may be prescribed – proviso to section 90(9) of Companies Act, 2013 inserted vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Failure to file declaration required under section 90(1) is punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend ten  lakhs Rupees or with both and if the offence is continuing one, with a further fine which may extend to Rs 1,000 for every day after the first during which the failure continues – section 90(10) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Since the word ‘or with both’ are used, the offence is compoundable under section 441 of Companies Act, 2013.

 

Penalty for default in filing annual return

If any company fails to file its annual return under section 92(4) of Companies Act, 2013, before the expiry of the period specified therein, such company and its every officer who is in default shall be liable to a penalty of fifty thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day during which such failure continues, subject to a maximum of five lakh rupees – Section 92(5) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Till 2-11-2018, the section provided for fine which could be imposed only by Court. Now, penalty can be imposed by ROC or RD who is authorized for this purpose.

Even earlier, the offense was compoundable. However, procedure of compounding had to be complied with. Now, directly penalty can be imposed after issuing Show Cause Notice.

Earlier provision upto 2-11-2018 of punishment for default in filing annual return – If a company does not file Annual Return within time, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakhs rupees and every officer of the 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 fifty thousand rupees but which may extend to five lakh rupees, or with both – section 92(5) of Companies Act, 2013 as existing upto 2-11-2018.

 

Penalty for not complying with provisions relating to explanatory statement with notice of general meeting

Without prejudice to the provisions of section 102(4), if any default is made in complying with the provisions of this section, every promoter, director, manager or other key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees or five times the amount of benefit accruing to the promoter, director, manager or other key managerial personnel or any of his relatives, whichever is higher – section 102(5) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Till 2-11-2018, the section provided for fine which could be imposed only by Court. Now, penalty can be imposed by ROC or RD who is authorized for this purpose.

Even earlier, the offense was compoundable. However, procedure of compounding had to be complied with. Now, directly penalty can be imposed after issuing Show Cause Notice.

 

 

Penalty if notice of general meeting does not indicate about provisions of proxy

Notice of general meeting must prominently indicate that a member can appoint a proxy/proxies to vote instead of himself and that such proxy need not be a member – section 105(2) of Companies Act, 2013.

If such statement is not included in the notice of general meeting, the officer of company who is in default is liable to pay penalty upto ` 5,000 – section 105(3) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Till 2-11-2018, the section provided for fine which could be imposed only by Court. Now, penalty can be imposed by ROC or RD who is authorized for this purpose.

Even earlier, the offense was compoundable. However, procedure of compounding had to be complied with. Now, directly penalty can be imposed after issuing Show Cause Notice.

 

 

Penalty for non-compliance of provision relating to filing of resolutions and agreements

Section 117(1) of Companies Act requires filing of certain resolutions and agreements with ROC.

If any company fails to file the resolution or the agreement under section 117(1) before the expiry of the period specified therein, such company shall be liable to a penalty of one lakh rupees and in case of continuing failure, with further penalty of five hundred rupees for each day after the first during which such failure continues, subject to a maximum of twenty-five lakh rupees and every officer of the company who is in default including liquidator of the company, if any, shall be liable to a penalty of fifty thousand rupees and in case of continuing failure, with further penalty of five hundred rupees for each day after the first during which such failure continues, subject to a maximum of five lakh rupees section 117(2) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Till 2-11-2018, the section provided for fine which could be imposed only by Court. Now, penalty can be imposed by ROC or RD who is authorized for this purpose.

Even earlier, the offense was compoundable. However, procedure of compounding had to be complied with. Now, directly penalty can be imposed after issuing Show Cause Notice.

 

Earlier provision of fine for default – In case of default in filing required resolutions and agreements as required, company is punishable with fine which shall not be less than Rs one lakh but which may extend to Rs 25 lakhs. Further, every officer who is in default is punishable with imprisonment upto six months and minimum fine of Rs 50,000 which can go upto Rs five lakhs – section 117(2) of Companies Act, 2013 as existing upto 2-11-2018 [words in italics were substituted  w.e.f. 7-5-2018].

 

Penalty for not filing report of AGM by listed company

Every listed company shall prepare a report of each AGM in prescribed form including confirmation to the effect that the meeting was convened, held and conducted as per the provisions of this Act and the rules made under the Act – section 121(1) of Companies Act, 2013.

The report should be filed within 30 days with prescribed fees or with additional fees in case of delay [section 121(2) of Companies Act, 2013]

The report should be filed in form MGT.15.

If the company fails to file the report under section 121(2) before the expiry of the period specified therein, such company shall be liable to a penalty of one lakh rupees and in case of continuing failure, with further penalty of five hundred rupees for each day after the first during which such failure continues, subject to a maximum of five lakh rupees and every officer of the company who is in default shall be liable to a penalty which shall not be less than twenty-five thousand rupees and in case of continuing failure, with further penalty of five hundred rupees for each day after the first during which such failure continues, subject to a maximum of one lakh rupees -section 121(3) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Till 2-11-2018, the section provided for fine which could be imposed only by Court. Now, penalty can be imposed by ROC or RD who is authorized for this purpose.

Even earlier, the offense was compoundable. However, procedure of compounding had to be complied with. Now, directly penalty can be imposed after issuing Show Cause Notice.

 

Penalty for non-compliance of provisions relating to filing of financial statement

Copy of financial statements (including consolidated financial statement in case of holding company), shall be filed with Registrar of Companies within 30 days from the date when the accounts were duly adopted at the annual general meeting of the company. All documents which are required to be annexed or attached  to the financial statement must be filed. The documents are required to be filed with filing fees – section 137(1) of Companies Act, 2013.

If financial statements are not filed by due date, company shall be liable to a penalty of Rs 1,000 per day for every day during which the default continues, but shall not be more than Rs 10 lakhs. In addition, MD and CEO (and in their absence all directors) shall be liable to a penalty of one lakh rupees and in case of continuing failure, with further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of five lakh rupees – section 137(3) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Till 2-11-2018, the section provided for fine in case of company and fine or imprisonment in case of MD and CEO which could be imposed only by Court. Now, penalty can be imposed by ROC or RD who is authorized for this purpose.

Even earlier, the offense was compoundable. However, procedure of compounding had to be complied with. Now, directly penalty can be imposed after issuing Show Cause Notice.

 

Penalty if auditor does not file statement of his Resignation to ROC

An auditor may resign on his own. If he resigns, he (i.e. auditor) is required to file a statement with ROC. If he was appointed by C&G, he should file such statement to C&AG also, giving reasons – section 140(2) of Companies Act, 2013.

The statement should be filed by auditor to ROC in form ADT.3.

If the auditor does not comply with the provisions of section 140(2), he or it 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 five lakh rupees – section 140(3) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Till 2-11-2018, the section provided for fine which could be imposed only by Court. Now, penalty can be imposed by ROC or RD who is authorized for this purpose.

Even earlier, the offense was compoundable. However, procedure of compounding had to be complied with. Now, directly penalty can be imposed after issuing Show Cause Notice.

Earlier provision – If the auditor fails to comply with section 140(2) of Companies Act, 2013, he shall be punishable with fine which shall not be less than Rs 50,000 or the remuneration of auditor, whichever is less, but which may extend upto Rs five lakhs – section 140(3) of Companies Act, 2013, as existing up[to 2-11-2018.

 

 

Penalty if company does not inform DIN to ROC within 15 days

Section 157(1) of Companies Act, 2013 imposes obligation on every company to intimate DIN to ROC within 15 days of receipt of information from the director.

If any company fails to furnish the Director Identification Number under section 157(1), such company shall be liable to a penalty of twenty-five thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of one lakh rupees, and every officer of the company who is in default shall be liable to a penalty of not less than twenty-five thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of one lakh rupees – section 157(2) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Till 2-11-2018, the section provided for fine which could be imposed only by Court. Now, penalty can be imposed by ROC or RD who is authorized for this purpose.

Even earlier, the offense was compoundable. However, procedure of compounding had to be complied with. Now, directly penalty can be imposed after issuing Show Cause Notice.

 

Penalty for violation of provisions by director relating to DIN

If any individual or director of a company makes any default in complying with any of the provisions of section 152, section 155 and section 156, such individual or director of the company shall be liable to a penalty which may extend to fifty thousand rupees and where the default is a continuing one, with a further penalty which may extend to five hundred rupees for each day after the first during which such default continues – section 159 of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Till 2-11-2018, the section provided for fine or imprisonment which could be imposed only by Court. Now, penalty can be imposed by ROC or RD who is authorized for this purpose.

Even earlier, the offense was compoundable. However, procedure of compounding had to be complied with. Now, directly penalty can be imposed after issuing Show Cause Notice.

 

Director is disqualified for appointment if he exceeds the prescribed number of directorships

A director is ineligible to be appointed as director he has not complied with the provisions of section 165(1) (regarding restriction on number of directorships) – section 164(1)(i) of Companies Act, 2013 inserted vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

 

Penalty for violating provisions relating to restriction on number of Directorships

A person cannot be director in more than 20 companies, including alternate directorship. Out of the 20 companies, only maximum 10 can be public companies – section 165(1) of Companies Act, 2013.

Penalty for violation of section 165(1) can be five thousand rupees for each day after the first during which such contravention continues – section 165(6) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Till 2-11-2018, the section provided for fine which could be imposed only by Court. Now, penalty can be imposed by ROC or RD who is authorized for this purpose.

Even earlier, the offense was compoundable. However, procedure of compounding had to be complied with. Now, directly penalty can be imposed after issuing Show Cause Notice.

A person cannot be appointed as director if the number of directorships exceed the prescribed limit – section 164(1)(i) of Companies Act, 2013 inserted vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

 

 

 

Penalty for violation of provisions relating to payment to director for loss of office, etc.

Section 191 of Companies Act make provision for payment to director for loss of office etc.

If a director of the company makes any default in complying with the provisions of section 191, such director shall be liable to a penalty of one lakh rupees – section 191(5) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Till 2-11-2018, the section provided for fine which could be imposed only by Court. Now, penalty can be imposed by ROC or RD who is authorized for this purpose.

Even earlier, the offense was compoundable. However, procedure of compounding had to be complied with. Now, directly penalty can be imposed after issuing Show Cause Notice.

 

 

Stock options can be given to independent director

An independent director was not entitled to stock options – section 197(7) of Companies Act, 2013. This sub-section has been omitted vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Thus, an independent director is entitled to stock options after 2-11-2018.

However, as per regulation 17(6)(d) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, independent director is not entitled to stock options. Hence, the relaxation made under Companies Act, 2013 will not apply to independent directors of listed companies.

 

 

Penalty for contravention of section 197 in respect of managerial remuneration

Section 197 makes provisions in respect of managerial remuneration.

If any person makes any default in complying with the provisions of section 197, he shall be liable to a penalty of one lakh rupees and where any default has been made by a company, the company shall be liable to a penalty of five lakh rupees – section 197(15) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Till 2-11-2018, the section provided for fine which could be imposed only by Court. Now, penalty can be imposed by ROC or RD who is authorized for this purpose.

Even earlier, the offense was compoundable. However, procedure of compounding had to be complied with. Now, directly penalty can be imposed after issuing Show Cause Notice.

 

 

Penalty for not appointing Key Managerial Personnel when mandatory

Section 203 of Companies Act, 2013 make provisions for mandatory appointment of certain Key Managerial Personnel like MD or CEO, Company Secretary and CFO.

If any company makes any default in complying with the provisions of section 203, such company shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees – section 203(5) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Till 2-11-2018, the section provided for fine which could be imposed only by Court. Now, penalty can be imposed by ROC or RD who is authorized for this purpose.

Even earlier, the offense was compoundable. However, procedure of compounding had to be complied with. Now, directly penalty can be imposed after issuing Show Cause Notice.

 

 

 

Penalty for violating provision of section 238(1)(c) in respect of circular for offer

Section 238 of Companies Act provide for offer of scheme involving transfer of shares in under section 235 of Companies Act, 2013 for acquisition of shares.

A circular containing offer is required to be issued under section 238(1) of Companies Act, 2013.

The director who issues a circular which has not been presented for registration and has not been registered under section 238(1)(c) of Companies Act, 2013 shall be liable to a penalty of one lakh rupees – section 238(3) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Till 2-11-2018, the section provided for fine which could be imposed only by Court. Now, penalty can be imposed by ROC or RD who is authorized for this purpose.

Even earlier, the offense was compoundable. However, procedure of compounding had to be complied with. Now, directly penalty can be imposed after issuing Show Cause Notice.

 

Removal of name if subscription amount not paid or company not carrying on business

The Registrar is required to send a notice to company and all directors of his intention to remove name of company from register of companies. He will request them to send their representations along with copies of relevant documents within 30 days from date of notice – section 248(1) of Companies Act, 2013.

The notice shall be published in prescribed manner and also in official gazette [section 248(4) of Companies Act, 2013].

The Registrar can send notice in any one of the following situations –

(a) Company has not commenced business within one year from its incorporation

(b) subscribers have not paid their subscription within 180 days and minimum paid up capital is not raised and declaration under section 11(1) of Companies Act, 2013 not filed

(c) company is not carrying on business or operation for two preceding financial years and also not applied for status as dormant company under section 455 of Companies Act, 2013

(d) the subscribers to the memorandum have not paid the subscription which they had undertaken to pay at the time of incorporation of a company and a declaration to this effect has not been filed within one hundred and eighty days of its incorporation under section 10A(1) of Companies Act, 2013

(e) the company is not carrying on any business or operations, as revealed after the physical verification carried out under section 12(9) of Companies Act, 2013 – section 248(1) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Clauses (d) and (e) have been inserted 2-11-2018.

 

Compounding of offences

Offense can be compounded by Regional Director or person authorised by Central Government if maximum amount of fine that can be imposed does not exceed ` twenty five lakhs – section 441(1)(b) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018 [The amount increased from Rs five lakhs to Rs 25 lakhs w.e.f. 2-11-2018]

If amount exceeds Rs 25 lakhs, compounding can be done by NCLT.

If offence is punishable with imprisonment or fine or both, compounding could be done with permission of Special Court. Now, this provision has been omitted by amending section 441(6) of Companies Act, 2013 vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

If offence is punishable with imprisonment only or imprisonment and also fine, the offence cannot be compounded – section 441(6) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

 

Lesser penalties for OPC and small companies

One person company and small company shall be liable to a penalty under sections 92(5), 117(2) or 137(3) of Companies Act, 2013 which shall not be more than one half of the penalty (50%) specified in specified sections – section 446B of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

 

 

Punishment for small frauds enhanced

Section 447 of Companies Act, 2013 make provisions for punishment in case of fraud. This section has been amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Lower punishment if amount involved is small – If the person is guilty of fraud involving an amount of less than ten lakh rupees or 1% of turnover of company, whichever is lower, punishment for fraud can be imprisonment upto five years and fine upto Rs fifty lakhs or with both –– second proviso to section 447 of Companies Act, 2013 amended w.e.f. 2-11-2018 [The amount of fine was Rs 20 lakhs upto 2-11-2018].

 

Adjudication of Penalties  – Adjudicating Authority can issue directions to rectify default

Punishment of fine and imprisonment can be imposed only by Court. However, in certain cases, provision has been made for imposing penalty.

Such penalty can be adjudicated by Registrar of Companies. – section 454(1) of Companies Act, 2013.

Registrar of Companies (ROC) has been appointed as ‘adjudicating authority’ under section 454 of Companies Act, 2013, in his respective jurisdiction – Notification No. SO 831(E) dated 24-3-2015.

The penalty can be imposed by adjudicating officer on company and officer who is in default for non-compliance or default under relevant provision of Companies Act, 2013 – section 454(3)(a) of Companies Act, 2013 renumbered vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

Further, the adjudicating officer can direct such company, or officer who is in default, or any other person, as the case may be, to rectify the default, wherever he considers fit – section 454(3)(b) of Companies Act, 2013 inserted vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

If company fails to comply with the order made under section 454(3) or section 454(7), as the case may be, fine can be imposed upto Rs 5 lakhs (minimum 25,000. – section 454(8)(i) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

If the officer who is in default fails to comply with the order made under section 454(3) or section 454(7), as the case may be, fine can be imposed upto Rs one lakhs (minimum 25,000.). In addition, he is punishable with imprisonment upto six months  – section 454(8)(ii) of Companies Act, 2013 amended vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

 

Double penalty for offence repeated within three years

Where a company or an officer of a company Or Penalty for any other person having already been subjected to penalty for default under any provisions of this Act, again commits such default within a period of three years from the date of order imposing such penalty passed by the adjudicating officer or the Regional Director, as the case may be, it or he shall be liable for the second or subsequent defaults for an amount equal to twice the amount of penalty provided for such default under the relevant provisions of this Act – section 454A of Companies Act, 2013 inserted vide the Companies (Amendment) Ordinance, 2018 w.e.f. 2-11-2018.

 

 

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