On November 2, 2018, the President promulgated an ordinance amending the Companies
Act, 2018 with a view of bringing in better corporate governance and to promote ease of
doing business. It was promulgated on the basis of the report of a committee, headed by
Corporate Affairs Secretary Injeti Srinivas, constituted to review economic offences and
suggest corporate governance reforms. The ordinance makes as many as 32 amendments to
the Act, majorly to reduce the workload on the National Company Law Tribunal and to make
the penal provisions more specific and stringent.
Key changes brought about are:
One of the most important amendments under the ordinance is shifting of the
jurisdiction of 16 corporate offences from the special courts to in-house adjudication
processes to reduce the burden on these courts.
Certain sections have been amended to de-clog the NCLT, the most important ones
being sections 2, 14 and 441 of the Act.
The definition of ‘financial year’ under section 2(41) of the Act has been changed
wherein the power to dispose application for change of financial year has been given
to the central government, which was previously vested with the NCLT.
Similarly, the power to approve the conversion of a private company to a public
company, previously vested with the NCLT, has now been given to the central
Under section 441 of the Act, the pecuniary jurisdiction of the regional directors has
been increased from 5 lakh to 25 lakh which will reduce the number of applications
filed with the NCLT.
The permission requirement for compounding of offences under section 441 has also
been done away with.
Another major change has been the re-introduction of declaration of commencement
of business which was done away with by a 2015 amendment. Section 3 of the
ordinance introduced section 10A to the act which makes it mandatory for companies
to file a declaration with the RoC within 180 days of incorporation of the company
that each of the subscribers to the MoA has paid the value of shares agreed to be taken
by him. The company also has to file for verification of its registered office with the
RoC. A default of the same would invite penal action.
The ordinance has made certain penal provisions more stringent in order to ensure
better compliance. In sections 117 and 137 the word ‘fine’ has been replaced by the
word ‘penalty’ which, in effect, makes these offences non-compoundable and
empower the RoC to adjudicate the quatum of penalty in case of default.
Under section 86, a liability of fraud shall now be attracted in case of wilful
submission of wrong/false information or suppression of material relating to
registration of charges. No such provision was present prior to the ordinance.
Under section 164, a new ground for disqualification of director has been introduced.
The entire sub-section (2) of section 197 has been omitted, wherein Independent
Directors will no longer receive sitting fees or reimbursement of expenses for
participation in board and profit related acts.
Two grounds for removal of a company from the register have been added under
section 248 in furtherance with the addition of section 10A, namely if the subscribers
to the memorandum have not paid the amount they subscribed to at the incorporation
of the company and if the company is not carrying any business operations as
revealed after the physical verification under section 12(9).
After analysing the ordinance, it is evident that it was promulgated to attain the dual
objectives of ease of doing business and better corporate compliance. Various provisions like
the re-introduction of declaration of commencement of business, greater disclosure with
respect to public deposits, provision for de-registration upon non-maintenance of registered
office, disqualification of director upon holding of directorship beyond permissible limits and
greater accountability in filing of documents together ensure better corporate compliance.
The government has also attempted to reduce the workload on the NCLT by transferring
certain powers to the central government. The various amendments have instituted a more
transparent and strengthened in-house adjudication mechanism, attempted to de-clog the
NCLT and enforce stricter penal provisions on the one hand and reduce penalty on small and
one-person companies on the other.