MCA notified the Companies (Amendment) Act, 2020

Introduction

The Ministry of Corporate Affairs (MCA) issued certain amendments to the Companies Act, 2013 (2013 Act) through the Companies (Amendment) Act, 2020 (2020 Amendment Act) which received the assent of the President of India on 30 September 2020. The main purpose of this amendment is to amend provisions to decriminalize some more provisions of the Act, based on their gravity and to recommend other concomitant measures to provide further ease of living for corporates in the country.

Further, MCA through its notification dated 21 December 2020, 22 January 2021 and 11 February 2021 notified certain sections of the 2020 Amendment Act.

Overview of the amendments

On 22 January 2021 and 11 February 2021, MCA notified certain sections of the 2020 Amendment Act. The following table discusses the sections notified:

Amendments related to ‘Ease of living for corporates.

Part I: Sections notified with effect from 22 January 2021

Provision of the 2013 Act	Amendment
Chapter I: Preliminary
Amendment to definition of listed company (Section 2(52))	The Central Government has been empowered to exclude certain companies, based on listing of certain securities on recognized stock exchanges, as may be provided by rules, in consultation with SEBI from the definition of listed companies. Thus, companies which list only debt securities (NCDs) may be excluded from the definition of listed company for the purposes of the Companies Act

Chapter IV: Share Capital and Debentures

Timelinereduced for rights issue process (Section 62(1))

Central Government to reduce the rights issue offer period. The amendment removes the current requirement of mandatory period of minimum 15 days offer to accept rights issue. Further, MCA through amendment to Companies (Share Capital and Debenture) Rules, 2014 (Share Capital Rules) has issued a new Rule 12A to prescribe number of days for offer to be accepted. As per new Rule 12A, for the purposes of Section 62(1), the time period within which the offer should be made for acceptance shall be not less than seven days from the date of offer.

Chapter VII: Management and Administration
Declaration in respect of beneficial interest in any share. (Section 89(11))	The 2020 Amendment Act amended Section 89 to insert a new provision relating toexemption from the requirement of making a declaration under Section 89.The new sub-section 89(11) enables Central Government to prescribe class or classes ofpersons to exempt from the specified requirements of Sections 89.
Resolutions and agreements to be filed. (Section 117(3))	Currently under Section 117(3) of the 2013 Act, banks are exempted from filing of resolutions to ROC relating to grant of loans or giving guarantees or providing security in respect of loans. This amendment to Section 117(3) to provide similar exemption to registered Non-banking Financial Companies (NBFCs) and Housing FinanceCompanies (HFCs). This is because NBFCs and HFCs engage in lending activities in their regular course of business, similar to the manner in which banks engage in such activities.Earlier, only Banking Companies were exempted
Corporate Social Responsibility (CSR) provisions (Section 135)	Set Off of excess amount: Inserted a new provision to allow setting off of excess amount spent on CSR activities against the requirement to spend under the 2013 Act. The set-off would be available for certain number of succeeding financial years and in a particular manner. Exemption from forming CSR Committee: If the amount to be spend by a company on CSR is less than INR50 lakhs then a CSR Committee is not required to be formed. and the functions of CSR Committee in such a case, may be discharged by the Board of directors.

CSR Provisions (cont.)

Penalty for non-compliance: Following penalty provision has been inserted for non-compliance of provisions relating to CSR: On a company: Twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the ‘Unspent Corporate Social Responsibility Account’ or INR1 crore whichever is lower, and On every officer in default: 1/10th of the amount required to be transferred to the Fund specified in Schedule VII or the ‘Unspent Corporate Social Responsibility Account’ or INR2 lakh, whichever is lower.

Chapter XXII: Companies Incorporated Outside India

Application of Act to Foreign companies and exemptions. (Section 379 and Section393A).

The proviso to sub-section (1), which empowers the Central Government to exempt any class of foreign companies from any of the provisions of sections 380 to 386, 392 and 393 by Order published in Official Gazette has been omitted since a new provision has been inserted to provide the Central Government with power related to granting exemption to foreign companies. A new section 393A has been inserted in the Act to empower the Central Government to exempt any class of foreign companies or companies incorporated or to be incorporated outside India, from any of the provisions of Chapter XXII of the Act by notification to be laid before both Houses of Parliament.

Remaining sections – not yet notified

The 2020 Act is largely effective with the recent notification dated 21 December 2020. However, there are certain amendments relating to ease of doing business and other amendments which are not yet notified.

Following are some of the key sections which are still pending to be notified:

Provision	Amendment
Chapter II Incorporation of Company and Matters Incidental thereto
Rectification of name of name of a company (Section 16))	The time limit of compliance of direction given by the Central Government to change the name of company has been reduced from 6 months to 3 months. Further, the Central Government has been empowered to allot a new name to the company, in case of default in complying with its direction instead of imposing punishment for non-compliance for such default. The company is however not prevented from subsequently changing its name
Chapter III Part - I Prospectus and Allotment of Securities
Public offer and private placement (Section 23)	The 2020 Amendment Act empowers the Central Government to allow certain classes of public companies to list classes of securities in foreign jurisdictions.
Payment of remuneration to non-executive directors in caseof inadequacy of profits or in case of losses (Section 149 and 197)	The 2020 Amendment Act amended relevant provisions under Section 149 and 197 of the 2013 Act, to provide remuneration for non-executive directors, including independent directors, in case of inadequacy of profits like executive directors.

Changes in penalties: The 2020 Act rationalised penalties in respect of the following six sections:

Default	Amended Penalty
Failure or delay in filing notice for alteration ofshare capital(Section 64)	The penalty in case of a default has been reduced to INR500 per day in place of current INR1,000 per day. Further maximum amount of penalty has been reduced from INR5 lakh to INR1 lakh.
Annual return (Section 92)	The amount of penalty on company and every officer who is in default has been reduced from INR 50 thousand to INR10 thousand.
Annual return (Section 92)	The amount of penalty on company and every officer who is in default has been reduced from INR 50 thousand to INR10 thousand. Further, the maximum amount of penalty has been reduced from INR5 lakh to INR2 lakh in case of a company andINR 50 thousand in case of an officer who is in default
Filing of the financial statements with Registrar (Section 137)	The penalty amount for or delay in filing financial statements with the ROC at the first instance of failure or delay has been fixed to INR10,000 instead of INR1 lakhs. In case the default continues, the penalty has been fixed as INR100 per day subject to the maximum penalty of INR2 lakh in case of a company and INR50,000 in case of an officer in default.
Failure/delay in filing statement with the company or ROC by an auditor after resignation (Section 140)	The maximum amount of penalty for failure or delay in filing a statement by an auditor after resignation with the company or ROC has been capped at INR2 lakh instead of INR5 lakh.
Limits on directorship (Section 165)	The amount of penalty on such person has been reduced from INR 5,000 to INR 2,000 for each day after the first during which such violation continues, and maximum amount of penalty restricted to INR 2 lakhs

Punishment reduced.

1. Default in complying with the requirements relating to formation of companies with charitable objects, etc.

Relevant provision	Current penal provisions	New penal provision
Section 8- Formation of companies with charitable objects, etc.	Director and every officer of the company who is in default shall be punishable with: Imprisonment: Maximum- 3 years OR Penalty: Minimum- ₹ 25000; Maximum- ₹ 25 lakh. OR Both	Director and every officer of the company who is in default shall be punishable with: Penalty: Minimum- ₹ 25000; Maximum- ₹ 25 lakh.

2. Contravention of provisions relating to issue of a prospectus.

Relevant provision	Current penal provisions	New penal provision
Section 26- Matters to be stated in prospectus	Every person who is knowingly a party to the issue of such prospectus shall be punishable with: Imprisonment: Maximum- 3 years OR Penalty: Minimum- ₹ 50000; Maximum- ₹ 3 lakh. OR Both	Every person who is knowingly a party to the issue of such prospectus shall be punishable with: Penalty: Minimum- ₹ 50000; Maximum- ₹ 3 lakhs.

3. Default in complying with the provisions of this section relation to securities to be dealt within stock exchanges

Relevant provision	Current penal provisions	New penal provision
Section 40- Securities to be dealt with in stock exchanges	Every officer of the company who is in default shall be punishable with: Imprisonment: Maximum- 1 year OR Penalty: Minimum- ₹ 50000; Maximum- ₹ 3 lakhs. OR Both	Every officer of the company who is in default shall be punishable with: Penalty: Minimum- ₹ 50000; Maximum- ₹ 3 lakhs.

4. If a company makes any default in complying with the provisions of this section or any regulation made by SEBI.

Relevant provision	Current penal provisions	New penal provision
Section 68- Power of company to purchase its own securities	Every officer of the company who is in default shall be punishable with: Imprisonment: Maximum- 3 years OR Penalty: Minimum- ₹ 1 lakhs; Maximum- ₹ 3 lakhs. OR Both	Every officer of the company who is in default shall be punishable with: Penalty: Minimum- ₹ 1 lakhs; Maximum- ₹ 3 lakhs.

5. If MD, WTD in charge of finance, CFO or any other person of a company charged by the Board with the duty of complying with the provisions of this section, contravenes the provisions of the section.

Relevant provision	Current penal provisions	New penal provision
Section 128- Books of account, etc., to be kept by company	Such MD, WTD in charge of finance, CFO or such other person of the company shall be punishable with: Imprisonment: Maximum- 1 year OR Penalty: Minimum- ₹ 50000; Maximum- ₹ 5 lakhs. OR Both	Such MD, WTD in charge of finance, CFO or such other person of the company shall be punishable with: Penalty: Minimum- ₹ 50000; Maximum- ₹ 5 lakhs.

6. If any of the provisions of sections 139 to 146 (both inclusive) (Audit and Auditors) is contravened

Relevant provision	Current penal provisions	New penal provision
Section 147- Punishment for contravention	Every officer of the company who is in default shall be punishable with: Imprisonment: Maximum- 1 year OR Penalty: Minimum- ₹ 10000; Maximum- ₹ 1 lakhs. OR Both	Every officer of the company who is in default shall be punishable with: Penalty: Minimum- ₹ 10000; Maximum- ₹ 1 lakhs.

7. If a person, functions as a director even when he knows that the office of director held by him has become vacant on account of any of the disqualifications specified in this section.

Relevant provision	Current penal provisions	New penal provision
Section 167- Vacation of office of director	Such person shall be punishable with: Imprisonment: Maximum- 1 year OR Penalty: Minimum- ₹ 1 lakhs; Maximum- ₹ 5 lakhs. OR Both	Such person shall be punishable with: Penalty: Minimum- ₹ 1 lakhs; Maximum- ₹ 5 lakhs.

8. Contravention of the order of NCLT relating to alterations in MOA or AOA.

Relevant provision	Current penal provisions	New penal provision
Section 242- Powers of Tribunal	Every officer of the company who is in default shall be punishable with: Imprisonment: Maximum- 6 months OR Penalty: Minimum- ₹ 25000; Maximum- ₹ 1 lakhs. OR Both	Every officer of the company who is in default shall be punishable with: Penalty: Minimum- ₹ 25000; Maximum- ₹ 1 lakhs.

9. Any person or director of the company who knowingly acts as a managing director or other director or manager of a company in contravention of clause (b) of sub-section (1) or sub-section (1A) of this section.

Relevant provision	Current penal provisions	New penal provision
Section 243- Consequences of termination or modification of certain agreements	Such person and director shall be punishable with: Imprisonment: Maximum- 6 months OR Penalty: Maximum- ₹ 5 lakhs. OR Both	Such person and director shall be punishable with: Penalty: Maximum- ₹ 5 lakhs.

10. If any person acts in contravention of any rule framed or an order made under sub-section (3) of this section.

Relevant provision	Current penal provisions	New penal provision
Section 347- Disposal of books and papers of company	Such person shall be punishable with: Imprisonment: Maximum- 6 months OR Penalty: Maximum- ₹ 50000. OR Both	Such person shall be punishable with: Penalty: Maximum- ₹ 50000.

11. If a foreign company contravenes the provisions of Chapter XXII relating to ‘Companies Incorporated outside India’.

Relevant provision	Current penal provisions	New penal provision
Section 392- Punishment for contravention	Every officer of the foreign company who is in default shall be punishable with: Imprisonment: Maximum- 6 months OR Penalty: Minimum- ₹ 25000; Maximum- ₹ 5 lakhs. OR Both	Every officer of the foreign company who is in default shall be punishable with: Penalty: Minimum- ₹ 25000; Maximum- ₹ 5 lakhs.

12. If any officer or other employee of the company who fails to comply with any order made by NCLT or RD under this section.

Relevant provision	Current penal provisions	New penal provision
Section 441- Compounding of certain offences	Such officer or employee shall be punishable with: Imprisonment: Maximum- 6 months OR Penalty: Maximum- ₹ 1 lakhs. OR Both	Such officer or employee shall be punishable with: Penalty: Maximum- twice the amount provided in the corresponding section in which punishment for such offence is provided.

13. Default in complying with any direction of the Central Government for rectification of name of company.

Old Penal Provision (now omitted)

Company shall be punishable with:
Penalty:
Maximum – ₹ 1,000 for every day during which the default continues.
Every officer of the company who is in default shall be punishable with: Penalty:
Minimum- ₹ 5000;
Maximum- ₹ 1 lakhs.

16. Default in complying with the provisions relating to variation of shareholders’ rights.

Old Penal Provision (now omitted)

Company shall be punishable with:
Penalty:
Minimum- ₹ 1 lakhs;
Maximum- ₹ 5 lakhs.
Every officer of the company who is in default shall be punishable with:
Imprisonment:
Maximum- 1 year
OR
Penalty:
Minimum- ₹ 1 lakhs;
Maximum- ₹ 3 lakhs.
OR
Both

17. If a company fails to publish the confirmation order of the reduction of share capital by the Tribunal.

Old Penal Provision (now omitted)

Company shall be punishable with:
Penalty:
Minimum- ₹ 5 lakhs;
Maximum- ₹ 25 lakhs.

18. If a company or any officer of the company or the company secretary in practice, contravenes the provisions of this section.

Relevant provision	Current penal provisions	New penal provision
Section 204- Secretarial audit for bigger companies	Company, every officer of the company or the company secretary in practice, who is in default, shall be punishable with: Penalty: Minimum- ₹ 1 lakhs; Maximum- ₹ 5 lakhs.	Company, every officer of the company or the company secretary in practice, who is in default, shall be liable to a penalty of ₹ 2 lakhs.

19. If a transferor company or a transferee company contravenes the provisions of this section.

Relevant provision	Current penal provisions	New penal provision
Section 232- Merger and amalgamation of companies	Such transferor company or the transferee company shall be punishable with: Penalty: Minimum- ₹ 1 lakhs; Maximum- ₹ 25 lakhs. Every officer of such transferor or transferee company who is in default shall be punishable with: Imprisonment: Maximum- 1 year OR Penalty: Minimum- ₹ 1 lakhs; Maximum- ₹ 3 lakhs. OR Both	Company and every officer of the company who is in default shall be liable to a penalty of ₹ 20000, and where the failure is a continuing one, with a further penalty of ₹ 1,000 for each day after the first during which such failure continues, subject to a maximum of ₹ 3 lakhs.

20. If a valuer contravenes the provisions of this section or the rules made thereunder.

Relevant provision	Current penal provisions	New penal provision
Section 247- Valuation of registered valuers	Such valuer shall be punishable with: Penalty: Minimum: ₹ 25000; Maximum- Rs- 1 lakhs.	Such valuer shall be liable to a penalty of ₹ 50000.