New companies ordinance updates penalties

The Companies (Amendment) Ordinance, 2018 was promulgated on 2 November 2018, in accordance with the recommendations made by a committee under the chairmanship of Injeti Srinivas, constituted by the Ministry of Corporate Affairs, to review the offences under the Companies Act, 2013. The ordinance amends 31 sections of the Companies Act, 2013, and primarily focuses on recategorizing offences consisting of technical and procedural defaults as to acts carrying civil liabilities. The ordinance promotes the government’s intent to promote ease of doing business.

The key amendments made to the act are:

• Certain compoundable offences such as (i) issuing shares at a discount; (ii) failure to notify the Registrar of Companies (RoC) upon alteration of share capital; (iii) failure to file timely annual returns; (iv) failure of notice for general meeting to contain adequate proxy clause; (v) failure to file financial statements with the RoC, have all been decriminalized. Imprisonment of the officers of the company in default, plus fines, have been replaced with civil penalties for non-compliance.
• The process of mandatory filings prior to commencement of business, which was omitted by the Companies (Amendment) Act, 2015, has been reinstated. The ordinance has inserted section 10A in the principal act, which states that companies incorporated after the ordinance came into effect, i.e. after 2 November 2018, which have a share capital, cannot commence any business or exercise their borrowing powers unless the directors file a declaration within 180 days of incorporation that all subscribers to the memorandum have paid the value of shares as agreed by them, and the registered office of the company is verified by filing the requisite forms with the RoC. In case the declarations have not been filed within a period of 180 days, the RoC has the power to strike the name of the company from the register, if it reasonably believes that the company is not carrying out any business. In addition, the RoC now has the power to conduct physical verification of the registered office of a company if it reasonably believes that the company is not carrying on any business. In case the company is found to not have a registered office, the RoC may strike the name of the company off the register.

The business law digest is compiled by Nishith Desai Associates (NDA). NDA is a research-based international law firm with offices in Mumbai, New Delhi, Bengaluru, Singapore, Silicon Valley, Munich and New York. It specializes in strategic legal, regulatory and tax advice coupled with industry expertise in an integrated manner.