The Rajya Sabha has passed the Companies (Amendment) Bill 2019, for better corporate governance. Finance Minister Nirmala Sitharaman said the Bill seeks “to ensure more accountability and better enforcement to strengthen the corporate governance norms and compliance management in corporate sector”. The Bill will actively check shell companies and promote ease of doing business.
Rajya Sabha cleared it on 30th July, while the Lok Sabha had cleared it on 26th July, 2019, hence replacing the Ordinance promulgated in February 2019.
Checks on Shell Companies
The newly proposed Section 10A mandates new companies to file a declaration with the concerned Registrar within 180 days of date of incorporation of Subscription capital being paid up by every subscriber. Non-filing of such declaration can be ground of removal of company from the register of companies.
Further, newly incorporated Section 12(9) empowers Registrar to physically verify the registered office on reasonable cause of doubt.
Section 248, as amended, stands to enable the Registrar to call upon the companies to file declaration of payment of subscription capital where it was undertaken to be paid later and notify the company the intention to remove the name from register for non-compliance thereof or in the event of discovery of non-operational place of business during physical verification carried out under Section 12(9).
Modification of fines
As many as 16 sections have been amended from fine to monetary penalties so as to lessen the burden upon the Special Courts.
Unspent CSR amount
Section 135 stands modified so as to carry forward the unspent corporate social responsibility amount, to a special account to be spent within three financial years and transfer thereafter to the Fund specified in Schedule VII, such as PM’s National Relief Fund.
Debarment of auditors in case of proven misconduct
On proven misconduct, an auditor is debarred for appointment for performing company’s valuation for a period between 6 months to 10 years.
Persons ‘unfit and improper’ to manage companies
Amended Section 241 empowers the Central Govt to move a matter before the NCLT against managerial personnel on several grounds such as
- Fraud, misfeasance, persistent negligence or default and breach of trust.
- Conduct and management not in accordance with sound business principles or prudent commercial practices;
- Conduct and management by a person who has caused or likely to cause caused,
- Provable intent to defraud creditors or any other unlawful acts or acts prejudicial to public interest
Compounding of offences
Regional Director (“RD”) can compound offences under amended section 441 of the Act up to Rs 25 lakhs.
Disqualification of Director
Newly inserted Section 164(1)(i) proposes disqualification of director on violation of Section 165(1), i.e., breach of maximum limit of directorships.
–India Legal Bureau
Also Read: Companies (Amendment) Bill 2019