India: Companies (Amendment) Act, 2020

India: Companies (Amendment) Act, 2020

The Government of India has amended the Companies Act 2013 with the intention to improve business and promote growth of economic activities in the country. The Bill was presented before the President of India for his assent on the 28^th of September, 2020; it constitutes the following changes;

1. Minor Offences

The prior Act had criminalized around 46 minor offences which include, contravention of provisions of buyback securities, non-disclosure of director’s interest, and disqualification of directors and so on. The amendment eliminates imprisonment as a consequence of such contravention and makes certain changes in the fines and penalties levied in case of such offences.

2. Listed companies

As per the previous amendment, a listed company was any company that had any of its securities listed on a recognized stock exchange and required the listed company to comply with SEBI Regulations. The amendment allows exemption of certain companies from being considered a listed company, subject to the assent of the Central Government in consultation with SEBI. This amendment is particularly advantageous since it allows companies to carry out business with ease without the added burden imposed by the SEBI Regulations regarding compliance and procedural requirements.

3. Foreign listing

The Central Government has been empowered to exempt any such company as it deems fit from complying with certain provisions of the Act. As per the amendment, the Central Government may permit any company to issue securities in foreign jurisdictions without first being listed as a company within the country.

4. Beneficial Ownership

The prior Act required a beneficial owner to declare his interest in shares of a company and file returns to that effect with the Registrar notifying them of beneficial ownership. Now, the Central Government may exempt any person or classes of persons from such a requirement for the sake of public interest.

5. Periodic financial results

Since certain companies or classes of companies are now permitted to list their securities in foreign jurisdictions, an additional requirement has been imposed on unlisted companies to prepare financial results periodically, in addition to their annual financial results; these are to be audited and approved by the Board of Directors and shall be filed with the Registrar. This will therefore allow the Central Government and the Ministry of Corporate Affairs to keep an eye on the functioning of such unlisted companies.

6. Rights issue

In order to facilitate quick access to funds, the amendment has reduced the existing timeline concerning rights issue offer period to less than 15 days. Previously, assent of 90% of the shareholders was required to be taken for such reduction in offer period, but this has now been done away with.

7. Timeframe for rectification of names

In case an applicant had a trademark that was identical or closely resembled an existing trademark a tie period of 6 months was allotted to such a company to rectify such a mistake and make changes, this time period has now been reduced to a period of 3 months. Further, the Central Government can now allot new names to companies that default in complying with the requirements of the Registrar.

8. Remuneration of Directors

For the purpose of aligning the interest of independent directors with that of executive/managing directors; independent directors will also be entitled to a remuneration up to the permissible extent, similar to what executive/managing directors are entitled to.

9. Banking and Non-Banking Finance Companies

The exemptions applicable to banking companies with regards to granting loans, filing resolutions, securities and guarantees are now also given to registered NBFCs and housing finance companies (HFCs)