Highlights of the Companies (Amendment) Act, 2019

Introduction

The Companies (Amendment) Bill, 2019 was introduced by Minister of Finance, Nirmala Sitharaman in July 2019 in the Lok Sabha. The Act has been amended frequently over the last few years in order to introduce as well as adapt to new changes in the Indian Corporate world. The previous amendment act i.e. the Companies (Amendment) Act, 2017 introduced significant changes in the matters related to investor protection, corporate governance etc. in order to facilitate ease of doing business in India. The 2019 Bill is based on the amendments introduced in the Companies (Amendment) Second Ordinance which was promulgated by the in February 2019. The article seeks to discuss the key changes introduced under the 2019 Act.

Key Highlights

The 2019 Amendment Act has made changes to important provisions under the Companies Act, 2013 which may have a long term impact on the corporate environment in the India. The Act makes it mandatory for the companies governed under Section 135(1) to disclose the details of the any unspent amount undertaken as a part of the Corporate Social Responsibility expenditure and the particular amount has to be transferred to the funds mentioned under Schedule VII of the Act. As an effort to improve corporate governance, the Act empowers the Registrar of Companies with the authority to remove a company’s name from the registrar of companies on certain grounds specified in the Act itself. The Act further states that unlisted companies can hold or transfer the securities in dematerialized form only. The Act has also classified certain offences as civil defaults which will now result in the slapping of certain penalty instead of any punishment. The offences which have been reclassified as civil audits include issuance of shares at a discount and failure to file annual return. Interestingly, any member of a firm cannot practice as auditor even in matters of internal audit. The 2019 Act has also made changes to the provisions regarding the changes in financial year for a company associated with a foreign company i.e. the company now has to get the change approved by the National Company Law Tribunal. Most importantly, the Act lays down that every company has to file for a declaration within 180 days of its incorporation in order to get itself registered under the Register of Companies.

Conclusion

The change in the CSR guidelines shall ensure better compliance because of the provision of penalties in cases of non-compliance under the Amendment Act, 2019. Earlier, the companies were not mandatorily required to disclose the details of their CSR expenditure and the companies could easily avoid spending on CSR as ideally required under the Companies Act, 2013. Further, the provision regarding debarring of any in-house person or member of the firm from carrying out any internal audit or performing functions of an auditor rests on the objective of eliminating any kind of bias and manipulation of data that may take place as a result of the auditor being a member of the firm. Hence, these amendments introduced in 2019 can be understood as an important step towards ensuring greater corporate governance at a time when the corporate world is expanding both geographically and economically.