Annual Compliance

Changes made in punishment and penalty provisions vide Companies (Amendment) Act, 2020

The Ministry of Corporate Affairs notified about the changes that have been made through the Companies (Amendment) Act, 2020. There are certain changes that are made in punishment and penalty provisions under the Companies Act 2013. The sections notified by the MCA majorly relate to the re-categorization of criminal offences into civil wrongs. In this article, we shall look at those amendments (Companies (Amendment) Act, 2020) that were notified on 21^st December 2020.

Companies (Amendment) Act, 2020: Shift from fine to penalty

The amendments with respect to Shift from fine to penalty are detailed below:

Note- Here “CA Act, 2020” means the Companies (Amendment) Act, 2020.

Section 9 of the CA Act, 2020/ Section 56(6) of the Companies Act, 2013-

This pertains to any default in transfer and transmission of securities. In case of any default made in complying to provisions of Section 56(6) of the Companies Act, 2013 for the way in which transfer of securities should be done, the company and the officers of the Company in default would be liable to a penalty of 50000 rupees.

Here fine is changed with a lesser amount of penalty, which was earlier up to 5 lakh rupees for company and up to 1 lakh for every officer in default.

Section 16 of the CA Act, 2020/ Section 86 (1) of the Companies Act, 2013

This pertains to contravention of provisions relating to the registration of charges. In case where a company contravenes a provision of Chapter VI pertaining to the registration of charges, then such Company shall be punished with a penalty of 5 lakh rupees, and every officer who defaults shall be punished with a penalty of 50000 rupees.

Here fine has been converted to penalty, and imprisonment has been abolished.

Section 17 of the CA Act, 2020/ Section 88 (5) of the Companies Act, 2013

This pertains to failure to maintain register of members or debenture holders etc. In case of failing to maintain the register of members or debenture holders etc., then a penalty of 3 lakh rupees shall be imposed on the company and 50000 rupees on every officer in default.

Here punishment with a fine has been changed to penalty.

Section 18 of the CA Act, 2020/ Section 89 (5) of the Companies Act, 2013

This pertains to failure to submit declaration in respect of beneficial interest in any share. Earlier, a person was punishable with fine in this case which can extend to 50000 rupees, and if the failure is continuing one then with a further fine that can extend to a 1000 rupees for every day after the first during which failure continues.

Now with the Companies (Amendment) Act, 2020^[1], the amended provisions provide that a person shall be liable for penalty of 50000 rupees and if the failure is continuing one then with a further penalty of 200 rupees for every day after the first during which the failure continues subject to maximum of 5 lakh rupees.

Section 19 of the CA Act, 2020/ Section 90 (10) of the Companies Act, 2013

This pertains to failure to declare significant beneficial ownership in the Company. In this case, a person shall be liable to a penalty of 50000 rupees and if it’s a continuing failure then with a further penalty of 1000 rupees for each day up to a maximum of 2 lakh rupees.

Here fine has been converted into penalty, and penalty has been reduced with no imprisonment.

Section 19 of the CA Act, 2020/ Section 90 (11) of the Companies Act, 2013

This pertains to failure to maintain register of significant beneficial owners in the company. In case of failure, the company would be liable to a penalty of 1 lakh rupees, and if it’s a continuing one, then with a further penalty of 500 rupees each day, up to 5 lakh rupees. Further, every officer in default shall be liable to a penalty of 25000 rupees and if it’s a continuing one then with a further penalty of 200 rupees for each day up to 1 lakh rupees.

Here penalty has been reduced.

Section 20 of the CA Act, 2020/ Section 92 (6) of the Companies Act, 2013

This pertains to certification of annual return not in conformity with the section. In this case, a CS (Company Secretary) in practice shall be liable to a penalty of 2 lakh rupees.

Here the amount of fine has been reduced from 5 lakh rupees to 2 lakh rupees.

Section 21 of the CA Act, 2020/ Section 105 (5) of the Companies Act, 2013

This pertains to proxies. Every officer of company who knowingly issues invitations to appoint proxies to any member who is entitled to attend the meeting at Company’s expense or wilfully authorizes or permits their issue shall be liable to a penalty of 50000 rupees.

Here the fine of 1 lakh rupees is reduced as penalty of 50000 rupees.

Section 30 of the CA Act, 2020/ Section 143(15) of the Companies Act, 2013

This pertains to not complying with the provisions of reporting of fraud. In case any auditor, cost accountant, or company secretary in practice fails to comply with the provisions of reporting of fraud, then such professional, in case of a listed company, shall be liable for a penalty of 5 lakh rupees and in case of any other company, shall be liable for a penalty of 1 lakh rupees.

Here the amount of penalty has been reduced.

Section 35 of the CA Act, 2020/ Section 172 of the Companies Act, 2013

This pertains to punishment for non-compliance of provisions of chapter regarding the appointment and qualification of directors.  The penalty for contravening provisions of chapter XI and for which there is no specific punishment is fixed at 50000 rupees for the company and for every officer in default.

In case the default continues, the penalty has been fixed at 500 rupees per day, subject to a maximum of 3 lakh (Company) and 1 lakh rupees (for every officer in default).

Here also the amount of penalty has been reduced.

Section 36 of the CA Act, 2020/ Section 178 (8) of the Companies Act, 2013

This pertains to non-compliance of provisions related to section 177 and section 178 of the Act. The penalty for such contravention is fixed at 5 lakh rupees for company and 1 lakh rupees for every officer in default.

Here imprisonment has been eliminated, and the penalty amount is reduced.

Section 37 of the CA Act, 2020/ Section 184 (4) of the Companies Act, 2013

This pertains to failure to disclose interest by director. A penalty of 1 lakh rupees will be imposed on directors for contravening provisions mandating disclosure of interest by director.

 Here imprisonment has been eliminated.

Section 38 of the CA Act, 2020/ Section 187(4) of the Companies Act, 2013

This pertains to failure to hold investments by the company in its own name. The penalty for contravening provisions regarding holding investments is 5 lakh rupees for the company and 50000 rupees for every officer in default.

Here the amount of penalty has been reduced, and imprisonment has been eliminated.

Section 39 of the CA Act, 2020/ Section 188(5) of the Companies Act, 2013

This pertains to related party transactions. Any director or any employee of the company who entered into or authorized contract or arrangement in violation of the provisions of this section shall be liable to a penalty of 25 lakh rupees in case of a listed company and in case of any other company, liable to a penalty of 5 lakh rupees.

Here also imprisonment has been eliminated.

Section 41 of the CA Act, 2020/ Section 204(4) of the Companies Act, 2013

This pertains to contraventions of provisions regarding secretarial audit for bigger companies. The penalty for default in such provisions is fixed at 2 lakh rupees in case of a company, every officer of the company, or the CS who is in default.

Section 42 of the CA Act, 2020/Section 232(8) of the Companies Act, 2013

This pertains to Merger and Amalgamation of Companies. The penalty for failure to comply with the obligations imposed by section 232 by the transferor company or a transferee company is fixed at 20000 rupees for the company and every officer in default. In case the default continues then the penalty is fixed at 1000 rupees per day subject to maximum of 3 lakhs in case of a company and every officer in default.

Section 57 of the CA Act, 2020/Section 405 of the Companies Act, 2013

This pertains to failure to provide any information or statistic to Central Government. Fine of 25000 rupees has been reduced to penalty of 20000 rupees in case of non-compliance with the Central Government’s orders directing a company or companies to furnish any information or statistics or knowingly furnishes an information or statistics which is either incorrect or incomplete in any material respect. If the default continues, a penalty shall be levied of 1000 rupees per day up to 3 lakh rupees for company and every officer in default.

Here also imprisonment has been eliminated.

Section 63 of the CA Act, 2020/Section 450 of the Companies Act, 2013

This pertains to punishment where there is no specific penalty or punishment provided. In case a company or any officer of the company or any other person contravenes any provisions of the Act or rules made thereunder, or any condition, or limitation or any restriction subject to which any approval, sanction, consent, recognition, direction, or exemption in relation to any matter is accorded, given or granted and for which there is no specific penalty or punishment provided in the Act, the penalty is 10000 rupees.

If the default continues, then the penalty is 1000 rupees per day subject to maximum 2 lakh rupees for a company and 50000 rupees in case of an officer who defaults or any other person.

Companies (Amendment) Act, 2020: Amendment in penal provisions

The amendments vide Companies (Amendment) Act, 2020, with respect to penal provisions, are detailed below:

Section 20 of Companies (Amendment) Act, 2020/Section 92(6) of the Companies Act, 2013

This pertains to the annual return. A penalty of 2 lakh rupees on a CS in practice certifying the annual return otherwise than as per conform to the requirements of this section or the rules made there under.

Here the fine has been reduced from 5 lakh rupees to 2 lakh.

Section 22 of Companies (Amendment) Act, 2020/Section 117(2) of the Companies Act, 2013

This pertains to failure to file resolution or agreement with the registrar. The amount of penalty in case of failure to file or delay in filing resolutions or agreements with the registrar of companies within the prescribed time period is fixed at 10000 rupees.

If the default continues, then penalty is fixed at 100 rupees per day subject to maximum of 2 lakh rupees in case of a company and 50000 rupees for every officer who defaults.

Here the amount of penalty has been reduced.

Section 28 of Companies (Amendment) Act, 2020/Section 137(3) of the Companies Act, 2013

This pertains to failure to file the copy of financial statement to be filed with the registrar. The amount of penalty, in this case, is fixed at 10000 rupees instead of 1 lakh rupees. Further, if the default continues then, penalty is fixed at 100 rupees per day subject to maximum of 2 lakh rupees in case of a company and 50000 rupees for MD/CFO/Directors who defaults.

Here the amount of penalty has been reduced.

Section 29 of Companies (Amendment) Act, 2020/Section 140(3) of the Companies Act, 2013

This pertains to failure to file resignation with the company and registrar. The maximum penalty for failure to file resignation by the auditor with the registrar within the prescribed time period is reduced to 2 lakh rupees from 5 lakh rupees.

Here also the amount of penalty is reduced.

Section 33 of Companies (Amendment) Act, 2020/Section 165(6) of the Companies Act, 2013

This pertains to failure to comply with the restriction on maximum number of directorships. In case of violation of this section and holding directorships beyond specified limits, the penalty is 2000 rupees instead of 5000 rupees and a maximum penalty of 2 lakh rupees for defaulting directors.

Here the amount of penalty has been reduced, and the maximum penalty amount has been capped.

Section 50 of Companies (Amendment) Act, 2020/Section 348(6) of the Companies Act, 2013

This pertains to information as to pending liquidations. Where a company liquidator who is an insolvency professional registered under the IBC, 2016 defaults in complying with the provisions of this section, then the default will be deemed to be contravention of the provisions of the IBC, 2016 and the rules and regulations made thereunder.

Companies (Amendment) Act, 2020: Amendment relating to Dissolution of Company

The amendments with respect to the dissolution of company are detailed below:

Section 47 of the Companies (Amendment) Act, 2020/Section 302(3) of the Companies Act, 2013

This pertains to Dissolution of Company by the tribunal. The Tribunal shall, within 30 days from the date of order, forward the copy of the order of dissolution to ROC, who shall record in register relating to the company of the dissolution of the company. Additionally, the tribunal will direct the company liquidator to forward the copy of the order to the ROC.

Section 51 of the Companies (Amendment) Act, 2020/Section 356 of the Companies Act, 2013

This pertains to the power of tribunal to declare dissolution of company void. As per the Companies (Amendment) Act, 2020, the tribunal shall forward the copy of the order of the registrar and also direct the company liquidator to file the certified copy of the order with the registrar within 30 days.

Conclusion

Apart from the above-mentioned amendments, various imprisonment provisions and penal provisions were omitted as well under the Companies (Amendment) Act, 2020. The Companies (Amendment) Bill, 2020 was presented in the Lok Sabha in March 2020 with a view to amend the Companies Act, 2013. 

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