On 18 September 2019 the Ministry of Corporate Affairs (MCA) constituted the Company Law Committee comprising representatives from industry chambers, professional institutes and the legal world, to make recommendations for further amendment to the Companies Act 2013. On 14 November 2019 the Company Law Committee submitted its report to the MCA. Based on the committee's proposed amendments, the MCA introduced the Companies (Amendment) Bill 2020 in Parliament, which was passed by the Lok Sabha on 19 September 2020 and by the Rajya Sabha on 22 September 2020. Thereafter, the Companies (Amendment) Bill 2020 received presidential assent on 28 September 2020 and the Companies (Amendment) Act 2020 was introduced.
Following presidential assent, the MCA may, from time to time, notify different dates from which the different provisions of the act will come into force.
The Companies (Amendment) Act 2020 comprises 66 sections and seeks to amend the Companies Act 2013. The Companies (Amendment) Act 2020 aims to decriminalise minor, technical and procedural non-compliance based on the nature and gravity of such offences, thereby facilitating and promoting the ease of doing business and further facilitating the ease of living for law-abiding corporates in India.
Amendment of Section 2(52) (definition of 'listed company')
A proviso has been inserted in the definition of a 'listed company' which implies that the central government may exclude, from the definition of listed companies, certain classes of company which have listed or intend to list a prescribed class of securities on any stock exchange. The proviso aims to provide relief to unlisted private companies to stop them from being categorised as listed companies, which would make them have to comply with stringent requirements (eg, the appointment of an independent female director and with respect to the constitution of board committees).
Amendment of Section 16 (rectification of company name)
If a company's name resembles a registered trademark, such company has a specific time limit to allow it to rectify its name. This time limit has been reduced from six months to three months.
Further, if a company does not comply with the central government's directions to rectify its name, the central government will assign a new name to such company and a fresh certificate of incorporation will be issued to the company by the registrar.
Amendment of Section 23 (public offer and private placement)
Pursuant to new provisions, the central government may allow a class of public companies to issue a certain class of securities to be listed on permitted stock exchanges in permissible foreign jurisdictions.
Amendment of Section 62 (further issue of share capital)
Under the Companies Act 2013, offers for the further issue of a company's shares had to remain open for between 15 and 30 days. However, pursuant to the new amended provision, such offers can be open for less than 15 days, thereby reducing the timeline and speeding up the process for issuing rights.
Amendment of Section 89 (declaration in respect of beneficial interest in a company's shares)
As per the amendments, the central government can, if it is necessary for the public interest, issue notification to exempt any class or classes of persons from complying with Section 89.
Amendment of Section 117 (resolutions and agreements to be filed)
Pursuant to the amended provision, if in the ordinary course of their business, non-banking financial companies registered under Chapter IIIB of the Reserve Bank of India Act 1934 or housing finance companies registered under the National Housing Bank Act 1987 adopt a resolution to grant loans, give guarantees or provide security under Section 179(3)(f), such resolution need not be filed with the MCA. Previously, this exemption was granted only if such a resolution was adopted by banking companies.
Insertion of Section 129A (periodical financial results)
A new section has been inserted in the Companies (Amendment) Act 2020 wherein the central government may specify that certain classes of unlisted company must prepare periodical financial statements for specified periods along with the manner of the audit or limited review thereof by the board of directors and its filing with the registrar.
Amendment of Section 135 (corporate social responsibility)
A proviso has been inserted in the Companies (Amendment) Act 2020 which provides that if a company spends more during a financial year than the amount required to be spent for corporate social responsibility under the Companies Act 2013, the excess amount that has been spent can be offset against the amount required to be spent for the succeeding financial years, in the prescribed manner.
Further, if a company's corporate social responsibility spending is less than Rs5 million, such company need not constitute a corporate social responsibility committee and the functions of such committee will be performed by the company's board of directors.
Amendment of Section 149 (company to have board of directors)
A proviso has been inserted which indicates that if a company has no profit or inadequate profits, its independent director may receive remuneration as per Section 197 read with Schedule V of the Companies Act 2013. The proviso has been included to appropriately compensate independent directors for the valuable time and experience that they invest so as to bring objectivity to the functioning of boards.
Amendment of Section 197
A related amendment has also been made to Section 197 (overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits) to include independent directors.
Insertion of Chapter XXIA (producer companies)
The provisions of the Companies Act 1956 relating to producer companies are in force at present. Similarly, a new chapter (Chapter XXIA) comprising provisions with respect to producer companies has been inserted by the Companies (Amendment) Act 2020.
Insertion of Section 393A
As per the section inserted, the central government can issue notifications to exempt any class of foreign company and companies incorporated or to be incorporated outside India from Chapter XXII.
Insertion of Section 418A (benches of appellate tribunal)
In order to expedite the hearing of appeals process, the central government can issue notifications for the establishment of benches to exercise the powers of the National Company Law Appellate Tribunal.
Amendment of Section 446B (lesser penalties for certain companies)
Start-ups and producer companies have also been included in the ambit of lesser penalties than those specified under the respective provisions.
In addition to the aforementioned amendments, several penal provisions of the Companies Act 2013 relating to compoundable offences have been amended by eliminating imprisonment and limiting the penalties to monetary punishment only. Consequently, the overall burden of the special courts and the National Company Law Tribunal have been further reduced. The majority of the provisions have been notified by the MCA via its notifications dated 21 December 2020 and 23 January 2021.
