Author : Parvathy C B
A company is an artificial person created by a group of individuals to run a business in a commercial or industrial capacity. A company may be incorporated even for educational and charitable purposes also. Generally a company is of two types, a public company and a private company.
After incorporation, a company becomes a separate legal entity distinct from others and shall have a perpetual succession and a common seal. Even if it is an artificial person it can sue and be sued, make contracts, buy and sell properties, create its own bank account as that of a common man. The Indian Parliament has made a new enactment ‘Companies Act 2013’ to govern the incorporation of a company, the duties, liabilities and responsibilities of a company and that of the share holders, number of directors, the dissolution of a company etc.
The Companies Act 2013 classified into 29 chapters and which consists of 470 sections. After obtaining the approval of the President of India on August 29 this act has replaced the previous Act in part and has entered into force on 12th September, 2013. The new Act has made certain changes with respect to the number of members in a private company and it has been extended to 200 as against 50 in the earlier enactment. More over the concept of ‘One Person Company’ has been inserted in this new enactment.
The company is a registered corporate made up of people as per Companies Act, 1956. A company is a separate legal person entirely different from the shareholders. Even being an artificial person, it has certain privileges. This includes the right to sue and be sued, conclude a contract, create bank account, hold and sell properties etc.
A company is something entirely different from the shareholders or the members of the company. And the shareholders are not even responsible for the wrongful acts of the company. A company can institute a suit for defamation when its dignity or reputation gets lowered. Although a company is having nationality and domicile it is not entitled to the fundamental rights guaranteed by the Constitution of India for its citizens. Since it is an artificial person it can’t act independently, it is supposed to act through human agency. And so a company acts through the directors.
Company is a corporation aggregate. The law relating to companies in India was contained in the Companies Act of 1956. One who traces the history of Company law in India can see that the first enactment on the subject of company law was passed in 1850. Thereafter several amendments were made into the Act of 1850 and after independence, the Government of India appointed a committee consisting of 12 members to make recommendations for the codification of company law in India. Now the Act of 1956 has been replaced by the Companies Act, 2013. However our government is still trying to modify the Act so as to remove the intricacies and make it simpler. In respect of this initiative, several amendments have been made by the Government. And out of which, the latest amendment took place in 2020.
COMPANIES LAW (AMENDMENT) ACT OF 2020
The Corporate Affairs Minister Nirmala Sitharaman has passed the Companies Act (Amendment) Bill 2020 on 22nd September, in Rajyasabha and obtained the assent of the President on 28th September, 2020. Companies Law (Amendment) Act of 2020, decriminalizes some technical-corporate crimes. The bill deals with the direct listing of Indian companies on foreign stock exchanges. Besides that, the criminal provisions inserted in the earlier act to provide punishment in respect of acting contrary to the rules made by the Corporate Social Responsibility were eliminated by the new amendment bill. However for serious crimes such as fraud or an act which harm the public interest or deception, there will not be any kind of moderations or exemptions.
AN OVERVIEW OF THE COMPANIES ACT (AMENDMENT) BILL , 2020
The major changes put by the new amendment are as follows;
LISTED COMPANY- Section 2(52)
The new bill authorizes the central government, the exclusion of companies that issue certain classes of securities from the definition of a ‘listed company’ after having discussion with SEBI.
- As per Section 16 of the Companies Act 2013, when the name of a company becomes identical that of another existing company then the Regional Director is empowered to direct a company for rectifying its name within 6 months from the date of passing of the order by Regional Director. And now if a registered company resembles the name or trade mark of an existing company, the name should be rectified within a period of 3 months. In addition, in order to legitimize the offence, in the event of any default, the CG will assign a new name to the company in accordance with the instructions of the ROC and a new certificate of incorporation will be provided by the ROC. Anyways the company is free to change that name later as they desires however it shall not resemble with the name of an existing company.
- By the new amendment, the punishment prescribed as ‘imprisonment for a term which may extend to three years’ shall be omitted and instead of the fine ‘three lakh rupees, or with both’, ‘three lakh rupees’ shall be substituted in section 26 of the Act.
- Under Section 40 of the Act, the punishment prescribed as ‘imprisonment for a term which may extend to one year or/ shall be excluded and the penalty ‘three lakh rupees, or with both’ shall be replaced with ‘three lakh rupees’.
- Now by section 56, if the company or any officer of the company fails to comply with the provisions contained in sub-sections (1) to (5), they are liable to a fine of fifty thousand rupees.
- According to Section 62 of the Act, an offer to share shall be made through a notice and if the offer is not accepted within a time period not less than 15 days and not exceeding 30 days from the date of such notice, it will deemed to be rejected. And the new amendment inserts ‘or such lesser number of days as may be prescribed’ after the sentence ‘less than fifteen days’.
- As per section 89, a person having no less than 10%shares in the company as profitable interest or having a remarkable control in the company shall give a declaration of his interest or dividend with respect to the company. Such a declaration shall be marked in a register. And by the new amendment, Central Government can exempt any number of individuals from this stipulation on the ground of public good.
- Section 117 deals with the filing of agreements and passing of resolutions with the registrar. And the new amendment excludes certain banking companies that issue loan and securities during the course of business from this stipulation. This exclusion is made available to Non-Banking Financial Companies and Housing finance Companies.
- By the amendment of Section 129A, the Central Government can direct certain categories of company to prepare financial results on periodic basis, receive assent from the board of directors of the company, complete audit and give a copy to the registrar within thirty days by providing the fees as prescribed file a copy with the Registrar of the company within thirty days by providing the fees as prescribed.
- By section 135, if the book value, income and dividend of a particular company is more than a prescribed value, then they shall set up Corporate Social Responsibility Committees and shall payout 2% of their wages after taxes to the CSR Policy for certain number of following fiscal year.
- Amendment to section 149 provides that where a company has no profits or if their profits are insufficient, then an independent director may receive remuneration, except the fees payable according to sub-section (5) of section 197, as per the provisions containing in the Vth Schedule.
- Section 197(3) has been lined up with Section 149(9) and the words ‘or any other non-executive director, including an independent director’ shall be placed just after ‘whole-time director or manager’.
- Section 348(3) of the Act has been substituted by a new provision that If the Liquidator of the company is a registered insolvent under the Insolvency and Bankruptcy Code, and if he fails to fulfill the stipulations provided in the section then it will be considered as violation of the rules and regulations contained in the Insolvency and Bankruptcy Code.
- The new amendment aims to create benches of the National Company Law Appellate Tribunal which will normally be in Delhi or anywhere else as prescribed by the Government.
- The provisions with regard to the membership, the conduct of meetings and the keeping of accounts applicable to the producing companies and which were followed even in the new Companies Act, 2013 has been eliminated and a new chapter dealing with almost that provisions has been inserted through the new amendment.
- The New (Amendment) Bill brought important alterations with respect to the definition, penalty and punishment. It deletes fine and punishment for certain acts. The imprisonment of three years earlier applied to the company when repurchases the stock and shares in contrary to the Companies Act, 2013 has been eliminated by this amendment.
- One Person Companies as well as Small Companies were liable to pay only upto 50% of the fine for failure to report the annual returns. But the 2020 amendment made this penalty applicable to all companies even to the start-up companies with a fine upto two lakh rupees in case of company and one lakh rupees in case of the respective officer .
The Companies Act (Amendment) Bill 2020 which passed on 22nd September decriminalizes different sections under the Companies Act, 2013 thereby decreasing the trouble and liability from a legal action with the intent to support the start-up companies. The criminal provisions inserted in the earlier act to provide punishment in respect of acting contrary to the rules made by the Corporate Social Responsibility were removed by the new amendment bill, 2020. And has made significant changes with respect to the fine and punishment provided to various offences. But the one-person companies as well as small companies shall be liable to spend only to an extent of 50% of the fine prescribed for various offences. To conclude, the ultimate object of the amendment is to reduce certain complexities and to ensure easiness to all the companies running business.