Explained: Lok Sabha has passed amendments to The Companies Act. Here’s what they are

Issue of dematerialised shares

Under the 2013 Act, certain classes of public companies can issue shares only in demat form. The Bill states this may be prescribed for other classes of unlisted companies as well. Follow Parliament live updates here

Re-categorisation of Offences

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Under the 2013 Act, there are 81 compoundable offences that carry punishments of a fine and/or prison terms. These offences are heard by courts. The Bill makes 16 of these offences civil defaults, where government-appointed adjudicating officers may levy penalties. Some of these offences are the issuance of shares at a discount, and the failure to file annual returns. The Bill also amends penalties for some other offences.

Corporate Social Responsibility

As of now, companies that are required to budget for CSR must disclose in their annual reports the reasons why they were unable to fully spend these funds. Now, any unspent annual CSR funds must be transferred to one of the funds under Schedule 7 of the Act (for example, the Prime Minister’s Relief Fund) within six months of the financial year.

Debarring auditors

Under the Act, the National Financial Reporting Authority can debar a member or firm from practising as a Chartered Accountant for six months to 10 years in case of proven misconduct. The Bill amends this punishment to provide for debarment from appointment as an auditor or internal auditor of a company, or performing a company’s valuation, for the same period.

Registration of charges

Under the Act, companies must register charges (mortgages, etc.) on their property within 30 days of creation of the charge, extendable up to 300 days with permission from the Registrar of Companies. The Bill changes the deadline to 60 days (extendable by 60 days).

Change in approving authority

Under the Act, change in period of financial year for a company associated with a foreign company, has to be approved by the National Company Law Tribunal (NCLT). Any alteration in the incorporation document of a public company which has the effect of converting it to a private company, too, has to be approved by the NCLT. Under the Bill, these powers have been transferred to the central government.

Compounding

Under the 2013 Act, a regional director can compound (settle) offences with a penalty of up to Rs 5 lakh. This ceiling has been raised to Rs 25 lakh in the amendment.

Bar on holding office

Under the existing Act, the central government or certain shareholders can apply to the NCLT for relief against mismanagement of the affairs of the company. The Bill states that in such a complaint, the government may also make a case against an officer of the company on the ground that he is not fit to hold office in the company, for reasons such as fraud or negligence. If the NCLT passes an order against the officer, he will not be eligible to hold office in any company for five years.