On 28 September 2020 the Companies (Amendment) Act 2020 and the Foreign Contribution (Regulation) Amendment Act 2020 were given the president's assent and came into force. By way of these enactments, amendments have been made to certain provisions of the Companies Act 2013 and the Foreign Contribution (Regulation) Act 2010.

Companies (Amendment) Act 2020

The salient features of the Companies (Amendment) Act 2020 are as follows.

Producer companies

Under the Companies Act 2013, certain provisions of the Companies Act 1956 continued to apply to producer companies, including with respect to membership, meeting conduct and account maintenance. 'Producer companies' include companies which are engaged in the production, marketing and sale of agricultural produce and the sale of produce from cottage industries. The Companies (Amendment) Act 2020 removes these provisions and adds a new chapter to the 2013 act with similar provisions on producer companies.

Offences

The Companies (Amendment) Act 2020 makes three changes to penalties for offences:

  • It removes the penalty for certain offences. For example, it removes the penalties which apply for any change in the rights of a class of shareholders made in violation of the 2013 act. Where a specific penalty is not mentioned, the 2013 act prescribes a penalty of up to Rs10,000, which may be increased by Rs1,000 per day for a continuing default.
  • It removes the penalty of imprisonment for certain offences. For example, it removes the penalty of three years' imprisonment applicable to a company which buys back its shares without complying with the 2013 act.
  • It reduces the fine payable for certain offences. For example, it reduces the maximum fine for a failure to file an annual return with the registrar of companies from Rs500,000 to Rs200,000.

Penalties for one-person and small companies

Under the 2013 act, 'one-person' companies (ie, companies with only one member) and 'small' companies (ie, companies with lower paid-up share capital and turnover thresholds) are liable to pay only up to 50% of the penalty for certain offences (eg, failing to file an annual return). The Companies (Amendment) Act 2020:

  • extends this provision to all producer companies and start-ups;
  • extends this provision to apply to violations of any provision of the 2013 act; and
  • limits the maximum penalty to Rs200,000 for companies and Rs100,000 for defaulting officers.

Remuneration of non-executive directors

The 2013 act makes special provision for the payment of remuneration to executive directors (including managing directors and other whole-time directors) if the company has inadequate or no profits in a year. For example, if a company has an effective capital of up to Rs50 million, the annual remuneration paid to its executive directors cannot exceed Rs6 million. The Companies (Amendment) Act 2020 extends this provision to non-executive directors, including independent directors.

Periodic financial results for unlisted companies

The Amendment Act empowers the central government to require classes of unlisted companies (as may be prescribed) to prepare and file periodical financial results and to complete the audit or review of such results.

National Company Law Appellate Tribunal benches

The Companies (Amendment) Act 2020 establishes benches of the National Company Law Appellate Tribunal. These will ordinarily sit in New Delhi or such other place as may be notified.

Foreign Contribution (Regulation) Amendment Act 2020

The salient features of the Foreign Contribution (Regulation) Amendment Act 2020 are as follows:

  • 'Public servants' (as defined under the Penal Code) have been added to the list of persons who are prohibited to accept any foreign contribution. A 'public servant' includes any person who is in the service or pay of the government or remunerated by the government for the performance of any public duty.
  • Under the Foreign Contribution (Regulation) Act 2010, a foreign contribution could not be transferred to any other person unless such person was also registered to accept foreign contributions (or had obtained prior permission under the 2010 act to obtain foreign contributions). The amendment prohibits the transfer of foreign contributions to any other person. The term 'person' under the act includes an individual, an association or a registered company.
  • Any person seeking prior permission, registration or renewal of registration must provide the Aadhaar number of all its office bearers, directors or key functionaries as an identification document. In case of a foreigner, a copy of their passport or the Overseas Citizen of India card must be provided.
  • The government may restrict the use of unutilised foreign contributions by persons who have been granted prior permission to receive such contributions. This may be done if, based on a summary inquiry and pending any further inquiry, the government believes that such person has contravened the 2010 act.
  • The government may conduct an inquiry before renewing a certificate to ensure that the applicant, among other things:
    • is not fictitious or benami;
    • has not been prosecuted or convicted for creating communal tension or indulging in activities aimed at religious conversion; and
    • has not been found guilty of diversion or mis-utilisation of funds.