Company Law Updates
The Government of India (‘GoI’) recently proposed a number of amendments to the Companies Act by passing the Companies (Amendment) Act, 2019 (‘the new Act’). Also, the Minister of Finance and Corporate Affairs, Mrs. Nirmala Sitharaman recently made a string of announcements to boost the economy. Following is a summary of key amendments and announcements that may be relevant for you:
Amendment to Corporate Social Responsibility (“CSR”) provisions:
Yet to be notified and made effective
Tighter CSR provisions have been proposed to ensure that CSR funds are parked aside and spent by corporates. Some of the suggested amendments are as under.
i. In the past, corporates who were unable to spend funds earmarked for CSR during the year merely had to specify the reason for not spending the amount in the Board Report. Now:
a. Unspent CSR amount related to an ‘ongoing project’ has to be transferred to a special account opened with any Scheduled Bank in India within a period of 30 days from the end of financial year. If the amount is not spend within a period of three financial years, the company will be required to transfer it to a Fund specified under Schedule VII of the Act (such as Prime Minister’s National Relief Fund, Clean Ganga Fund etc.)
b. Unspent CSR amount unrelated to an ‘ongoing project’ has to be transferred to a Fund specified under Schedule VII of the Act within six months from end of financial year in addition to giving the disclosure in its Board Report
ii. Unspent amount (other than the amount attributed to an ongoing project) will need to be mandatorily spent over a period of 3 years instead of earlier 1-year timeframe.
iii. Penal provisions ($700-$36,000) for non-compliance with these provisions have been proposed. As a result of this, companies will need to be more vigilant and compliant. Penal provisions (up to $7,000) have also been recommended for defaulting officers of companies.
iv. To implement greater transparency, the Government may also introduce mandatory geotagging provisions whereby the Company may need to furnish pictures of CSR projects it undertakes.
Important note: A high-level Committee on CSR has made certain submissions to the Honourable Union Minister of Finance and Corporate Affairs. Few of the recommendations include covering LLPs and banking sector companies within CSR ambit, proposal to provide uniform tax benefits to activities under Schedule VII and creation of a CSR exchange portal.
In light of such recommendations, there may be further changes/relaxations to the proposed amendments to CSR regulations. Sannam S4 shall keep stakeholders updated on final amendments.
Amendment to Significant Beneficial Ownership (“SBO”) provisions :
Notified w.e.f. 15th August 2019
In order to ensure that companies comply with SBO provisions, the company is now required to take necessary steps to identify a SBO, failure to take necessary steps by the Company shall be punishable with a penalty of up to US$70,000. The provision with respect to punishment with imprisonment originally included in the Ordinance has been omitted in the Amendment Act.
Compulsory dematerialisation of securities for prescribed companies :
Notified w.e.f. 15th August 2019
The provisions introduced provide for dematerialization of securities of such class/classes of unlisted companies as may be prescribed by the Ministry. The Ministry is yet to specify the class/classes of unlisted companies to whom the provision shall be applicable. Once specified, such companies shall need to convert and maintain their shares/securities in electronic form as per the provisions of Depositories Act, 1996.