- With the overhaul
of Companies Act in 2014, a lot more regulations
were introduced for better compliance and therefore a
number of penal provisions with both civil and criminal
penalties were introduced.
- As compliance
levels improved and the government felt a need to boost ease of doing
business the
government started to relax criminal provisions.The move has been
part of larger government efforts to boost
ease of doing business since 2018.
WHAT ARE THE CHANGES?
- The number
of compoundable offences under the Companies Act have
come down to 31 from 81 prior to the
2018 amendment to the Companies Act.
- For e.g.
- Rrecently government
decriminalised offences such as delays in filing
CSR reports,
or failure to rectify the register of members in compliance with
orders from the NCLT.
- The number of compoundable
offences under
the Companies Act have come down to 31 from 81 prior to the 2018
amendment to the Companies Act.
- A number of
these offences have been moved from needing to be prosecuted through
the National Company Law
Tribunals to being dealt with by the Registrar of Companies.
- The RoC
is empowered to decide penalties for these offences and companies can
appeal to the Regional Director (RD) of the Ministry of
Corporate Affairs (MCA) to appeal or seek modifications to these
decisions.
- This move would
help free up the bandwidth of
NCLTs to deal with cases dealing with insolvency and
other higher priority matters.
- The total number
offences to be dealt with the in- house adjudication mechanism has risen from
18 in 2018 to 58 proposed in the latest amendment.
Highlights of *Companies (Amendment) Ordinance 2019*
Registered office of a company
class action enables one or more plaintiffs to file a suit on behalf of a larger group or class, wherein such class has common rights and grievances. Class action is a well-defined area of litigation in the US and can be broadly categorized into securities class action and consumer class action.
The Indian legislature considered instances of corporate fraud in India, primarily the "Satyam scam" while introducing the concept of class action. In this case, no proceedings could be initiated in India due to the absence of any statutory provision for class action. The Companies Act, 2013, addresses this with a provision on class action.
Inclusion of this concept under the statute was also considered and recommended by different committee reports such as the JJ Irani Committee Report, 2005, the 21st report of the Standing Committee on Finance on the Companies Bill, 2009, and the 57th report of the Standing Committee on Finance on the Companies Bill, 2011.
The 2013 act has now introduced the concept of class action under section 245, which has been notified with effect from 1 June.
Section 245 introduces a distinct regime of class actions. A class action can be instituted by specified numbers of members, depositors or any class of them before the National Company Law Tribunal (NCLT, which has been constituted with effect from 1 June), if they are of the opinion that the management or conduct of the company is being conducted in a manner prejudicial to the interest of the company, its members or depositors.
It can be instituted against the company, its directors, its auditor (including the audit firm), any expert, adviser, consultant, or any other person for specified acts or omissions.
Reliefs which can be granted in a class action suit include: restraining the company from committing an act that is beyond the authority of the articles of association (AoA) or memorandum of association (MoA) of the company, from committing any act contrary to the provisions of the 2013 act or any other applicable law, and declaring a resolution altering the MoA or AoA of the company as void if the resolution was passed by not disclosing material facts, or by misstatement to the members or depositors. These reliefs are akin to preventive reliefs and are based on the principles under the Specific Relief Act, 1963.
Section 245 also allows seeking damages or compensation or any other suitable action against the company or its directors, for any fraudulent, unlawful or wrongful act or omission or conduct or any likely act or omission or conduct on their part; its auditor (including audit firms), for any improper or misleading statements of particulars made in the audit report or for any fraudulent, unlawful or wrongful act or conduct; any expert, adviser, consultant or any other person for any incorrect or misleading statements made to the company or for any fraudulent, unlawful or wrongful act or conduct, or any likely act or conduct on their part.
While section 245 prescribes a limit for the fine that may be imposed for non-compliance with NCLT orders, it does not prescribe a limit for the amount of damages or compensation claimable. This exposes the company and other relevant entities and persons to unlimited liability, as if a tortious claim was to be adjudicated in a class action.
Introduction of the provision on class action suits under the 2013 act is likely to have far reaching implications. However, the possibility of misuse of this remedy by filing false and frivolous complaints cannot be ruled out. Therefore, it is important for the relevant authorities to balance the interest of all the parties while deciding a class action suit.
Another important issue is the likely creation of two parallel offences of fraud both emanating from the same cause of action; one under section 245(1)(g) and other under section 447 of the 2013 act. While section 245(1)(g) provides for unlimited damages or compensation or other suitable action, section 447 provides for fine and imprisonment for offence relating to fraud. This may increase the exposure of the relevant entities and persons to the specified liabilities
BEN-1234 for SBO compliance (as part of FATF commitment by India)
SBO
Section 90 of Comapnies Act 2013 has been notified with the intent of identifying SBO in a company. The concept of identifying UBO/ SBO is not a new concept. The requirement has already been prescribed by following:
· SEBI under Guidelines on Identification of Beneficial Ownership;
· RBI under Reserve Bank of India (Know Your Customer (KYC)) Directions, 2016;
- Rule 9 of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005
What are the major differences between the scope and applicability of sec 89 and sec 90?
Sec 89 and 90 operate in different, though related, fields. The intent of sec 89 is to identify cases where nominal ownership of shares, as per the register of members, is not backed by beneficial ownership.Sec 89 captures the dichotomy where the legal owner is not the beneficial owner. Whereas section 90 is to recognize natural person responsible for driving the vehicle.
Example : If the pledgee gets the voting rights and can vote at discretion, the pledgee becomes entitled to beneficial interest. Hence, the pledgee may arguably become beneficial owner lacking legal title for the purpose of sec. 89. However, for the purpose of sec. 90, the pledge and retention of voting rights is only a security interest. It is not ownership interest. Hence, it does not seem to be keeping in line with the spirit of sec. 90 to regard a pledgee as a significant beneficial owner.
SBO Threshold
Threshold limit for the determination of the SBO through the revised SBO Rules, Para 2 (1) (h) of the Rules says:
“Significant Beneficial Owner in relation to a reporting company means an individual referred to in sub-section (1) of section 90, who acting alone or, together, or through one or more persons or trust, who possesses one or more of the following rights or entitlements in such company, namely:-
· Holds indirectly, or together with any direct holdings, not less than ten percent of the shares;
· Holds indirectly, or together with any direct holdings, not less than ten percent of the voting rights in the shares;
· Has right to receive or participate in not less than ten percent of the total distributable dividend, or any other distribution, in a financial year through indirect holdings alone, or together with any direct holdings;
· Has right to exercise or actually exercises, directly or indirectly, significant influence or control, in any manner other than through direct holdings alone.”
Compliance to be ensured by SBOs & Company
1. What is the timeline for declaration by SBOs?
Initial Disclosure:
Every individual who is a SBO in a reporting company, is required to file a declaration in Form No. BEN-1 to the reporting company within 90 days from February 8, 2019.
Continual Disclosure:
Every individual, who subsequently becomes a SBO/ or where his significant beneficial ownership undergoes any change shall file a declaration in Form No. BEN-1 to the reporting company, within 30 days of acquiring such significant beneficial ownership or any change therein.
2. Is there any requirement of intimating the Registrar of Companies regarding the identification of SBOs?
The declaration of beneficial interest received by the company, is required to be filed in Form No. BEN-2 with the Registrar in respect of such declaration, within a period of thirty days from the date of receipt of declaration by it, by the company.
Every company is required to maintain a register of SBOs in Form No. BEN-3.
Also, this register shall be open to for inspection during business hours, at such reasonable time of not less than two hours, on every working day as the board may decide, by any member of the company on payment of such fee as may be specified by the company but not exceeding fifty rupees for each inspection.
Company is required to give notice seeking information in accordance with Section 90 (5) of the Act, in Form No. BEN-4.
BEN-1 | Declaration by the significant Beneficial owner within 90 days from the date of the Companies (Significant Beneficial Owners) Amendment Rules, 2019, i.e from 1st july |
BEN-2 | Return by the reporting company within 30 days of receipt of declaration. |
BEN -3 | The reporting company is required to maintain register of all significant beneficial owners. |
BEN-4 | Notice to be given by the reporting company to all the members other than individual seeking information related to the shares held. |